Exhibit 4.2
THIS NOTE HAS 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 MAY BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION
UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
SILVER STAR ENERGY, INC.
Senior Secured Convertible Promissory Note
due October __, 2007
No. CN-05-__ $___________
Dated: October __, 2005
For value received, SILVER STAR ENERGY, INC., a Nevada corporation (the
"Maker"), hereby promises to pay to the order of _______________________
(together with its successors, representatives, and permitted assigns, the
"Holder"), in accordance with the terms hereinafter provided, the principal
amount of ________________________ ($______________), together with interest
thereon. Concurrently with the issuance of this Note, the Maker is issuing
separate senior secured convertible promissory notes (the "Other Notes") to
separate purchasers (the "Other Holders") pursuant to the Purchase Agreement (as
defined in Section 1.1 hereof).
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
October __, 2007 (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
September 30, 2005 (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 eight percent (8%), payable
semi-annually on December 1 and June 1 of each year commencing December 1, 2005
at the option of the Maker in cash or in registered shares of the Maker's common
stock, par value $0.001 per share (the "Common Stock"), in accordance with terms
of Section 1.3 below. 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, upon the occurrence of an Event of Default (as defined in Section
2.1 hereof), 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 at
the rate of the lesser of fifteen percent (15%) and the maximum applicable legal
rate per annum.
Section 1.3 Payment of Principal and Interest.
(a) Commencing on the sixth (6th) month following the Issuance Date and
continuing thereafter on the first (1st) business day of each month until the
Maturity Date (each, a "Principal Payment Date"), the Maker shall pay an amount
to the Holder equal to 1/18th of the original principal amount of this Note plus
any accrued but unpaid interest (the "Principal Installment Amount"); provided,
however, if on any Principal Payment Date, the outstanding principal amount of
this Note plus any accrued but unpaid interest 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 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 on the tenth (10th) business day
prior to each Principal Payment Date for which a Principal Installment Amount is
made by the Maker (the "Announcement Date").
(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 ninety-two and one-half percent (92.5%) of the
average of the VWAP (as defined in Section 1.3(c) hereof) for the five (5)
Trading Days 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. Not later than thirty (30)
days prior to any Principal Payment Date (the "Share Advance Date") in which the
Maker elects to issue registered shares of Common Stock in satisfaction of the
Principal Installment Amount, the Company shall have issued and delivered to the
Depository Trust Company ("DTC") account on the Holder's behalf via the Deposit
Withdrawal Agent Commission System ("DWAC") a number of shares of Common Stock
to be applied against such Principal Installment Amount equal to the quotient of
(x) one hundred fifty percent (150%) of the applicable Principal Installment
Amount divided by (y) ninety-two and one-half percent (92.5%) of the average of
the VWAP for the five (5) Trading Days immediately preceding the Share Advance
Date (the "Advanced Shares"). In the event that the number of Advanced Shares
issued to the Holder exceed the number of shares of Common Stock the Holder was
entitled in connection with such Principal Installment Amount, the Holder shall
deliver such excess shares of Common Stock to the Maker within three (3) Trading
Days of such Principal Payment Date. In the event that the number of Advanced
Shares are less than the number of shares of Common Stock such Holder was
entitled in connection with such Principal Installment Amount, the Maker shall
deliver such additional shares of Common Stock to the Holder within three (3)
Trading Days of such Principal Payment Date. Notwithstanding the foregoing to
the contrary, the Maker may elect to pay the Principal Installment Amount in
registered shares of Common Stock on any Principal Payment Date or Share Advance
Date only if (A) the 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, (B) trading in the Common Stock shall not
have been suspended by the Securities and Exchange Commission or the OTC
Bulletin Board (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 issuance of shares
of Common Stock on the Principal Payment Date does not violate the provisions of
Section 3.4 hereof.
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(c) For purposes hereof, "VWAP" means, for any date, (i) the daily
volume weighted average price of the Common Stock for such date on the OTC
Bulletin Board as reported by Bloomberg Financial L.P. (based on a Trading Day
from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (ii) if the Common Stock
is not then listed or quoted on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the "Pink Sheets" published by the Pink
Sheets, LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock so
reported; or (iii) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith 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 security interest in certain assets of the Maker
pursuant to the terms of a security agreement dated as of September 30, 2005 by
and among the Maker, the Holder and the Other Holders.
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.
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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 and such default is not fully cured within one (1)
business day after the occurrence thereof; or
(b) the failure of the Registration Statement to be declared effective
by the Securities and Exchange Commission on or prior to the date which is one
hundred twenty (120) days after the Issuance Date; or
(c) 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 OTC
Bulletin Board, the American Stock Exchange, the Nasdaq National Market, the
Nasdaq SmallCap Market or The New York Stock Exchange, Inc. for a period of five
(5) consecutive Trading Days; or
(d) 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
(e) the Maker shall fail to (i) timely deliver the shares of Common
Stock upon conversion of the Note or any interest accrued and unpaid, (ii) file
the Registration Statement in accordance with the terms of the Registration
Rights Agreement or (iii) make the payment of any fees and/or liquidated damages
under this Note, the Purchase Agreement or the Registration Rights Agreement,
which failure in the case of items (i) and (iii) of this Section 2.1(e) is not
remedied within three (3) business days after the incurrence thereof; or
(f) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of ten (10)
consecutive Trading Days, provided that the Maker has not exercised its rights
pursuant to Section 3(n) of the Registration Rights Agreement; or
(g) 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 three (3) business days after the Maker receives notice from the Holder
of the occurrence thereof or (ii) any material covenant, condition or agreement
contained in the Purchase Agreement, the Other Notes, the Registration Rights
Agreement 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 three
(3) business days after the Maker receives notice from the Holder of the
occurrence thereof; or
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(h) any material representation or warranty made by the Maker herein or
in the Purchase Agreement, the Registration Rights 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
(i) 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 or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, 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
(j) 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, (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),
(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; or
(k) 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 thirty (30) 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
thirty (30) days; or
(l) 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
provided reasonable assurances to the Maker that such shares of Common Stock can
be sold pursuant to Rule 144; or
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(m) the failure of the Maker to pay any amounts due to the Holder
herein or in the Purchase Agreement or the Registration Rights Agreement within
three (3) business days of the date such payments are due; or
(n) 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) 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 (j) or (k), the outstanding
principal balance and accrued interest hereunder shall be automatically due and
payable and (ii) Sections 2.1 (b)-(i), demand the prepayment of this Note
pursuant to Section 3.7 hereof, (b) demand that the principal amount of this
Note then outstanding and all accrued and unpaid interest thereon shall be
converted into shares of Common Stock at a Conversion Price 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, the
Registration Rights 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.
(a) 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 (the "Conversion
Option"), into such number of fully paid and non-assessable shares of Common
Stock (the "Conversion Rate") 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 (as defined in Section 3.2(a) hereof) 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 (310) ___-____, Attn.: Chief
Executive Officer) (the "Voluntary Conversion Date"), provided, however, that
the 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.
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(b) On the Mandatory Conversion Date (as defined below), the Maker may
cause the principal amount of this Note plus all accrued and unpaid interest to
convert into a number of fully paid and nonassessable shares of Common Stock
equal to the quotient of (i) the principal amount of this Note plus all accrued
and unpaid interest outstanding on the Mandatory Conversion Date divided by (ii)
the Conversion Price in effect on the Mandatory Conversion Date by providing
five business (5) days prior written notice of such Mandatory Conversion Date.
As used herein, a "Mandatory Conversion Date" shall be a date commencing six (6)
months following the effective date of the registration statement providing for
the resale of the shares of Common Stock issuable upon conversion of this Note
in which the Closing Bid Price (as defined below) exceeds two hundred percent
(200%) of the Conversion Price (as may be adjusted hereunder) for a period of
ten (10) of twenty (20) consecutive Trading Days; provided, that (A) the
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 sixty (60) consecutive
calendar days immediately preceding the Mandatory Conversion Date, (B) trading
in the Common Stock shall not have been suspended by the Securities and Exchange
Commission or the OTC Bulletin Board (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, (D) the
issuance of shares of Common Stock on the Mandatory Conversion Date pursuant to
such mandatory conversion does not violate the provisions of Section 3.4 hereof,
and (E) the Maker is not in possession of any material non-public information.
Notwithstanding the foregoing to the contrary, the Mandatory Conversion Date
shall be extended for as long as a Triggering Event (as defined in Section
3.7(f) hereof) shall have occurred and be continuing. The Mandatory Conversion
Date and the Voluntary Conversion Date collectively are referred to in this Note
as the "Conversion Date."
(c) The term "Closing Bid Price" shall mean, on any particular date (i)
the closing bid price per share of the Common Stock on such date on the OTC
Bulletin Board 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
closing bid 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 closing bid 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.
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Section 3.2 Conversion Price.
(a) The term "Conversion Price" shall mean $0.315, 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 of this Note or due to the Maker exercising its rights under Section
3(n) of the Registration Rights Agreement), 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 DTC account on the Holder's behalf via 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"). Notwithstanding the foregoing
to the contrary, the Maker or its transfer agent shall only be obligated to
issue and deliver the shares to the DTC on the Holder's behalf via DWAC (or
certificates free of restrictive legends) if such conversion is in connection
with a sale and the Holder has complied with the applicable prospectus delivery
requirements (as evidenced by documentation furnished to and reasonably
satisfactory to the Maker). If in the case of any Conversion Notice such
certificate or certificates are not delivered to or as 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.
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(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. 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, 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
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.
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Section 3.4 Ownership Cap 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 at such time, 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; provided, further,
that this provision shall be of no further force or effect during the sixty-one
(61) days immediately preceding the Maturity Date.
(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 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; 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;
provided, further, that this provision shall be of no further force or effect
during the sixty-one (61) days immediately preceding the Maturity Date.
Section 3.5 Intentionally Omitted.
Section 3.6 Adjustment of Conversion Price.
(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:
-10-
(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.
(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.
-11-
(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 exchange 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 exchange 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.
(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.
-12-
(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 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 a bona fide firm underwritten public offering of the Maker's
securities, (iii) securities issued pursuant to the conversion or exercise of
convertible or excercisable securities issued or outstanding on or prior to the
date hereof or issued pursuant to the Purchase Agreement, (iv) the shares of
Common Stock issuable upon the exercise of Warrants, (v) securities issued in
connection with strategic license agreements or other partnering arrangements so
long as such issuances are not for the purpose of raising capital, (vi) Common
Stock issued or options to purchase Common Stock granted or issued pursuant to
the Maker's stock option plans and employee stock purchase plans as they now
exist, (vii) Common Stock issued or options to purchase Common Stock granted or
issued to employees, officers and directors of the Maker pursuant to any stock
option plan duly adopted by a majority of the non-employee members of the
Maker's board of directors or a majority of the members of a committee of
non-employee directors established for such purpose so long as such issuances in
the aggregate do not exceed 10% of the issued and outstanding shares of Common
Stock as of the Issuance Date, (viii) any warrants issued to the placement agent
and its designees for the transactions contemplated by the Purchase Agreement,
and (ix) the payment of any principal and accrued interest in shares of Common
Stock pursuant to this Note.
-13-
(d) No Impairment. The Maker shall not, by amendment of its Articles 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 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.
-14-
(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 and all interest
accrued thereon; provided that the number of shares of Common Stock so reserved
shall at no time be less than one hundred twenty percent (120%) of the number of
shares of Common Stock for which this Note and all interest accrued thereon are
at any time convertible. The Maker shall, from time to time in accordance with
the Nevada Revised Business Corporation Act, 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 or any interest accrued thereon
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.
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 Sections 2.1(b)-(k) 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 the Triggering Event Prepayment Price (as defined
in Section 3.7(c) below) 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"); provided that the Holder shall have the sole
option to receive payment of the Major Transaction Prepayment Price in cash or
shares of Common Stock. If the Holder elects to receive payment of the Major
Transaction Prepayment Price in shares of Common Stock, the price per share
shall be based upon the Conversion Price then in effect on the day preceding the
date of delivery of the Notice of Prepayment at Option of Holder Upon Major
Transaction (as hereafter defined) and the Holder shall have demand registration
rights with respect to such shares.
-15-
(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 the
sum of (i) the greater of (A) one hundred twenty percent (120%) of the aggregate
principal amount of this Note plus all accrued and unpaid interest and (B) in
the event at such time the Holder is unable to obtain the benefit of its
conversion rights through the conversion of this Note and resale of the shares
of Common Stock issuable upon conversion hereof in accordance with the terms of
this Note and the other Transaction Documents, the aggregate principal amount of
this Note plus all accrued but unpaid interest hereon, divided by the Conversion
Price on (x) the date the Prepayment Price (as defined below) is demanded or
otherwise due or (y) the date the Prepayment Price is paid in full, whichever is
less, multiplied by the VWAP on (x) the date the Prepayment Price is demanded or
otherwise due, and (y) the date the Prepayment Price is paid in full, whichever
is greater, and (ii) all other amounts, costs, expenses and liquidated damages
due in respect of this Note and the other Transaction Documents (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
(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.
-16-
(f) "Triggering Event." A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) so long as any Notes are outstanding, the effectiveness of the
Registration Statement, after it becomes effective, (i) lapses for any reason
(including, without limitation, the issuance of a stop order) or (ii) is
unavailable to the Holder for sale of the shares of Common Stock, and such lapse
or unavailability continues for a period of twenty (20) consecutive Trading
Days, and the shares of Common Stock into which the Holder's Notes can be
converted cannot be sold in the public securities market pursuant to Rule
144(k), provided that the cause of such lapse or unavailability is not due to
factors primarily within the control of the Holder of the Notes; and provided
further that a Triggering Event shall not have occurred if and to the extent the
Maker exercised its rights set forth in Section 3(n) of the Registration Rights
Agreement;
(ii) 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
OTC Bulletin Board, the American Stock Exchange, the Nasdaq National Market, the
Nasdaq SmallCap Market or The New York Stock Exchange, Inc., for a period of
five (5) consecutive Trading Days;
(iii) 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
(iv) 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
(v) the Maker deregisters its shares of Common Stock and as a
result such shares of Common Stock are no longer publicly traded; or
(vi) 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.
(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 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.
-17-
(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) Intentionally Omitted.
(k) 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
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(k)
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.
-18-
(l) Maker Prepayment Option. Commencing twelve (12) months
following the effective date of the registration statement providing for the
resale of the shares of Common Stock issuable upon conversion of this Note, 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 thirty
(30) days prior written notice to the Holder (the "Maker's Prepayment Notice")
at a price equal to two hundred percent (200%) of the aggregate principal amount
of this Note plus any accrued but unpaid interest (the "Maker's Prepayment
Price"); provided, however, that if a holder has delivered a Conversion Notice
to the Maker or delivers a Conversion Notice within such thirty (30) day period
following delivery of the Maker's Prepayment Notice, the principal amount of the
Notes plus any accrued but unpaid interest 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), a
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 the such rights of the holders 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 thirty-first (31st)
day after the Maker has delivered the Maker's Prepayment Notice (the "Maker's
Prepayment Date"), the Maker's Prepayment Price and the principal amount of
Notes plus any accrued but unpaid interest 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(s) 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 the Notes 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(s). 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(s) on a pro rata basis. If the
Maker fails to pay the Maker's Prepayment Price by the thirty-first (31st) day
after the Maker has delivered the Maker's Prepayment Notice, the prepayment will
be declared null and void and the Maker shall lose its right to serve a Maker 's
Prepayment Notice pursuant to this Section 3.7(l) in the future. Notwithstanding
the foregoing to the contrary, the Maker may effect a prepayment pursuant to
this Section 3.7(l) only if (A) the 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 sixty (60) consecutive calendar days immediately preceding the Maker's
Prepayment Notice through the Maker's Prepayment Date, (B) trading in the Common
Stock shall not have been suspended by the Securities and Exchange Commission or
the OTC Bulletin Board (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.
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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 shares of Common Stock
registered for resale under the Registration Statement 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 the 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");
(ii) if the Maker's inability to fully convert is pursuant to
Section 3.8(a)(x) 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);
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(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
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.
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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 second 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
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 and 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 and 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.
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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:
"THIS NOTE HAS 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 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.
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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 permitted 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.
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, AND DO
HEREBY WAIVE TRIAL BY JURY.
(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:
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"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 OTC Bulletin Board, or (b) if the Common Stock is not traded on the OTC
Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by 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.
SILVER STAR ENERGY, INC.
By: ______________________________
Name:
Title:
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EXHIBIT A
WIRE INSTRUCTIONS
Payee: _________________________________________________________________________
Bank: _________________________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________
Bank No.: ______________________________________________________________________
Account No.: __________________________________________________________________
Account Name: __________________________________________________________________
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FORM OF
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of Silver
Star Energy, Inc. (the "Maker") according to the conditions hereof, as of the
date written below.
Date of Conversion _____________________________________________________________
Applicable Conversion Price ____________________________________________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: _________________________
Signature_______________________________________________________________________
[Name]
Address:________________________________________________________________________
________________________________________________________________________
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