Exhibit 4.1
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE
REASONABLY SATISFACTORY TO THE MAKER THAT THIS NOTE AND THE SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION HEREOF MAY BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE
SECURITIES LAWS.
GLOWPOINT, INC.
Senior Secured Convertible Promissory Note
due September 30, 2007
No. CN-06-__ $___________
Dated: March 31, 2006
For value received, Glowpoint, Inc., a Delaware corporation (the
"Maker"), hereby promises to pay to the order of _______________________
(together with its successors, representatives, and permitted assigns, the
"Holder"), in accordance with the terms hereinafter provided, the principal
amount of ________________________ ($______________), together with interest
thereon. Concurrently with the issuance of this Note, the Maker is issuing
separate 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
September 30, 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
March 31, 2006 (the "Purchase Agreement") by and among the Maker and the
purchasers listed therein. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth for such terms in the Purchase
Agreement.
Section 1.2 Interest. Beginning on the issuance date of this
Note (the "Issuance Date"), the outstanding principal balance of this Note shall
bear interest, in arrears, at a rate per annum equal to ten percent (10%),
increasing to a rate per annum equal to twelve percent
(12%) commencing one (1) year following the Issuance Date, payable quarterly
commencing on June 1, 2006 and on the first business day of each following
quarter at the option of the Maker in cash or additional senior secured
convertible promissory notes. 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 in cash 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 Security Agreement. The obligations of the Maker
hereunder are secured by a continuing security interest in all of the assets of
the Maker pursuant to the terms of a Security Agreement dated as of March 31,
2006 by and among the Maker, on the one hand, and the Holder and the Other
Holders, on the other hand.
Section 1.4 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 1.5 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 1.6 Replacement. Upon receipt of a duly executed,
notarized and unsecured written statement from the Holder with respect to the
loss, theft or destruction of this Note (or any replacement hereof) and a
standard indemnity, or, in the case of a mutilation of this Note, upon surrender
and cancellation of such Note, the Maker shall issue a new Note, of like tenor
and amount, in lieu of such lost, stolen, destroyed or mutilated Note.
ARTICLE II
EVENTS OF DEFAULT; REMEDIES
Section 2.1 Events of Default. The occurrence of any of the
following events shall be an "Event of Default" under this Note:
(a) the Maker shall fail to make any principal or
interest payments on the date such payments are due and such default is not
fully cured within two (2) business days after the occurrence thereof; or
(b) 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
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(c) 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 or the other Transaction Documents, which
failure in the case of items (i) and (iii) of this Section 2.1(e) is not
remedied within five (5) business days after the incurrence thereof; or
(d) 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
(e) default shall be made in the performance or
observance of (i) any material covenant, condition or agreement contained in
this Note (other than as set forth in clause (f) of this Section 2.1) and such
default is not fully cured within five (5) business days after the Holder
delivers written notice to the Maker 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 five (5) business days after the Holder
delivers written notice to the Maker of the occurrence thereof; or
(f) 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
(g) the Maker shall (A) default in any payment of any
amount or amounts of principal of or interest on any Indebtedness (other than
the Indebtedness hereunder) the aggregate principal amount of which Indebtedness
is in excess of $100,000 or (B) default in the observance or performance of any
other agreement or condition relating to any Indebtedness 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
(h) the Maker shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property or
assets, (ii) make a general assignment for the benefit of its creditors, (iii)
commence a voluntary case under the United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any jurisdiction (foreign
or domestic), (iv) file a petition seeking to take advantage of any bankruptcy,
insolvency, moratorium, reorganization or other similar law affecting the
enforcement of creditors' rights generally, (v)
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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
(i) a proceeding or case shall be commenced in respect of
the Maker, without its application or consent, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding up, or composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of it or
of all or any substantial part of its assets in connection with the liquidation
or dissolution of the Maker or (iii) similar relief in respect of it under any
law providing for the relief of debtors, and such proceeding or case described
in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in
effect, for a period of 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
(j) the failure of the Maker to instruct its transfer
agent to remove any legends from shares of Common Stock eligible to be sold
under Rule 144 of the Securities Act and issue such unlegended certificates to
the Holder within ten (10) business days of the Holder's request so long as the
Holder has complied with Section 5.1 of the Purchase Agreement; or
(k) the failure of the Maker to pay any amounts due to
the Holder herein or any other Transaction Document within three (3) business
days of the date such payments are due; or
(l) the occurrence of an Event of Default under the Other
Notes.
Section 2.2 Remedies Upon An Event of Default. If an Event of
Default shall have occurred and shall be continuing, the Holder of this Note may
at any time at its option, (a) pursuant to Section 3.7(a) hereof, declare the
entire unpaid principal balance of this Note, together with all interest accrued
hereon, due and payable, and thereupon, the same shall be accelerated and so due
and payable, without presentment, demand, protest, or notice, all of which are
hereby expressly unconditionally and irrevocably waived by the Maker; provided,
however, that upon the occurrence of an Event of Default described in (i)
Sections 2.1 (h) or (i), the outstanding principal balance and accrued interest
hereunder shall be automatically due and payable and (ii) Sections 2.1 (b)-(g),
the Holder may demand the prepayment of this Note pursuant to Section 3.7
hereof, (b) demand that the principal amount of this Note then outstanding 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
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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 (973) 391-9776, 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.
Section 3.2 Conversion Price.
(a) The term "Conversion Price" shall mean $0.50, subject
to adjustment under Section 3.6 hereof.
(b) Notwithstanding any of the foregoing to the contrary,
if during any period after the Maker is obligated to file the registration
statement under the Registration Rights Agreement (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 the 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.
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Section 3.3 Mechanics of Conversion.
(a) Not later than three (3) Trading Days after any
Conversion Date, the Maker or its designated transfer agent, as applicable,
shall issue and deliver to the Depository Trust Company ("DTC") account on the
Holder's behalf via the Deposit Withdrawal Agent Commission System ("DWAC") as
specified in the Conversion Notice, registered in the name of the Holder or its
designee, such 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. 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.
(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
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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.
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 4.9% of
all of the Common Stock outstanding at such time; provided, however, that upon
the Holder providing the Maker with sixty-one (61) days notice (pursuant to
Section 4.1 hereof) (the "Waiver Notice") that the Holder would like to waive
this Section 3.4(a) with regard to any or all shares of Common Stock issuable
upon conversion of this Note, this Section 3.4(a) will be of no force or effect
with regard to all or a portion of the Note referenced in the Waiver Notice.
(b) Notwithstanding anything to the contrary set forth in
Section 3 of this Note, at no time may the Holder convert all or a portion of
this Note if the number of shares of Common Stock to be issued pursuant to such
conversion, when aggregated with all other shares of Common Stock owned by the
Holder 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 9.9% 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
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or all shares of Common Stock issuable upon conversion of this Note, this
Section 3.4(b) shall be of no force or effect with regard to all or a portion of
the Note referenced in the Waiver Notice.
Section 3.5 Intentionally Omitted.
Section 3.6 Adjustment of Conversion Price.
(a) The Conversion Price shall be subject to adjustment
from time to time as follows:
(i) Adjustments for Stock Splits and
Combinations. If the Maker shall at any time or from time to time after the
Issuance Date, effect a stock split of the outstanding Common Stock, the
applicable Conversion Price in effect immediately prior to the stock split shall
be proportionately decreased. If the Maker shall at any time or from time to
time after the Issuance Date, combine the outstanding shares of Common Stock,
the applicable Conversion Price in effect immediately prior to the combination
shall be proportionately increased. Any adjustments under this Section 3.6(a)(i)
shall be effective at the close of business on the date the stock split or
combination occurs.
(ii) Adjustments for Certain Dividends and
Distributions. If the Maker shall at any time or from time to time after the
Issuance Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in shares of Common Stock, then, and in each event, the applicable
Conversion Price in effect immediately prior to such event shall be decreased as
of the time of such issuance or, in the event such record date shall have been
fixed, as of the close of business on such record date, by multiplying, the
applicable Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date; and
(2) the denominator of which shall be
the total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date
plus the number of shares of Common Stock issuable in payment of such dividend
or distribution.
(iii) Adjustment for Other Dividends and
Distributions. If the Maker shall at any time or from time to time after the
Issuance Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in other than shares of Common Stock, then, and in each event, an
appropriate revision to the applicable Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the holders of this Note shall receive upon conversions thereof, in
addition to the number of shares of Common Stock receivable thereon, the number
of securities of the Maker which they would have received had this Note been
converted into Common Stock on the date of such event and had thereafter, during
the period from the date of such event to and including the Conversion Date,
retained such securities (together with any distributions payable thereon during
such period), giving
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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.
(v) Adjustments for Reorganization, Merger,
Consolidation or Sales of Assets. If at any time or from time to time after the
Issuance Date there shall be a capital reorganization of the Maker (other than
by way of a stock split or combination of shares or stock dividends or
distributions provided for in Section 3.6(a)(i), (ii) and (iii), or a
reclassification, exchange or substitution of shares provided for in Section
3.6(a)(iv)), or a merger or consolidation of the Maker with or into another
corporation where the holders of outstanding voting securities prior to such
merger or consolidation do not own over fifty percent (50%) of the outstanding
voting securities of the merged or consolidated entity, immediately after such
merger or consolidation, or the sale of all or substantially all of the Maker's
properties or assets to any other person (an "Organic Change"), then as a part
of such Organic Change, (A) if the surviving entity in any such Organic Change
is a public company that is registered pursuant to the Securities Exchange Act
of 1934, as amended, and its common stock is listed or quoted on a national
securities exchange, a national automated quotation system or the OTC Bulletin
Board, an appropriate revision to the Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the Holder shall have the right thereafter to convert such Note into the
kind and amount of shares of stock and other securities or property of the Maker
or any successor corporation resulting from Organic Change, and (B) if the
surviving entity in any such Organic Change is not a public company that is
registered pursuant to the Securities Exchange Act of 1934, as amended, or its
common stock is not listed or quoted on a national securities exchange, a
national automated quotation system or the OTC Bulletin Board, the Holder shall
have the right to demand prepayment pursuant to Section 3.7(b) hereof. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 3.6(a)(v) with respect to the rights of the Holder
after the Organic Change to the end that the provisions of this Section
3.6(a)(v) (including any adjustment in the applicable Conversion Price then in
effect and the number of shares of stock or other securities deliverable upon
conversion of this Note and the Other Notes) shall be applied after that event
in as nearly an equivalent manner as may be practicable.
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(vi) Adjustments for Issuance of Additional
Shares of Common Stock.
(1) 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 adjusted to that price (rounded to the nearest cent) determined by
multiplying each of the Conversion Price then in effect by a fraction:
(A) the numerator of which shall
be equal to the sum of (x) the number of shares of Common Stock outstanding
immediately prior to the issuance of such Additional Shares of Common Stock plus
(y) the number of shares of Common Stock (rounded to the nearest whole share)
which the aggregate consideration for the total number of such Additional Shares
of Common Stock so issued would purchase at a price per share equal to the
Conversion Price then in effect, and
(B) the denominator of which
shall be equal to the number of shares of Common Stock outstanding immediately
after the issuance of such Additional Shares of Common Stock.
(2) The provisions of paragraph (1) of
Section 3.6(a)(vi) shall not apply to any issuance of Additional Shares of
Common Stock for which an adjustment is provided under Section 3.6(a)(vii). No
adjustment of the number of shares of Common Stock for which this Note shall be
convertible shall be made under paragraph (1) of Section 3.6(a)(vi) upon the
issuance of any Additional Shares of Common Stock which are issued pursuant to
the exercise of any Common Stock Equivalents, if any such adjustment shall
previously have been made upon the issuance of such Common Stock Equivalents
pursuant to Section 3.6(a)(vii).
(vii) Issuance of Common Stock Equivalents. If 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 any rights or warrants or
options to purchase any such Common Stock or Convertible Securities, shall be
issued or sold (collectively, the "Common Stock Equivalents") and the aggregate
of the price per share for which Additional Shares of Common Stock may be
issuable thereafter pursuant to such Common Stock Equivalent, plus the
consideration received by the Maker for issuance of such Common Stock Equivalent
divided by the number of shares of Common Stock issuable pursuant to such Common
Stock Equivalent (the "Aggregate Per Common Share Price") 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 make the Aggregate Per Share Common Price 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) on the basis that (1) the maximum number of Additional
Shares of Common Stock issuable pursuant to all such Common Stock Equivalents
shall be deemed to have been issued
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(whether or not such Common Stock Equivalents are actually then exercisable,
convertible or exchangeable in whole or in part) as of the earlier of (A) the
date on which the Maker shall enter into a firm contract for the issuance of
such Common Stock Equivalent, or (B) the date of actual issuance of such Common
Stock Equivalent. No adjustment of the applicable Conversion Price shall be made
under this subsection (vii) upon the issuance of any Convertible Security which
is issued pursuant to the exercise of any warrants or other subscription or
purchase rights therefor, if any adjustment shall previously have been made to
the exercise price of such warrants then in effect upon the issuance of such
warrants or other rights pursuant to this subsection (vii). No adjustment shall
be made to the Conversion Price upon the issuance of Common Stock pursuant to
the exercise, conversion or exchange of any Convertible Security or Common Stock
Equivalent where an adjustment to the Conversion Price was made as a result of
the issuance or purchase of any Convertible Security or Common Stock Equivalent.
(viii) Consideration for Stock. In case any shares
of Common Stock or any Common Stock Equivalents shall be issued or sold:
(1) in connection with any merger or
consolidation in which the Maker is the surviving corporation (other than any
consolidation or merger in which the previously outstanding shares of Common
Stock of the Maker shall be changed to or exchanged for the stock or other
securities of another corporation), the amount of consideration therefor shall
be, deemed to be the fair value, as determined reasonably and in good faith by
the Board of Directors of the Maker, of such portion of the assets and business
of the nonsurviving corporation as such Board may determine to be attributable
to such shares of Common Stock, Convertible Securities, rights or warrants or
options, as the case may be; or
(2) in the event of any consolidation or
merger of the Maker in which the Maker is not the surviving corporation or in
which the previously outstanding shares of Common Stock of the Maker shall be
changed into or exchanged for the stock or other securities of another
corporation, or in the event of any sale of all or substantially all of the
assets of the Maker for stock or other securities of any corporation, the Maker
shall be deemed to have issued a number of shares of its Common Stock for stock
or securities or other property of the other corporation computed on the basis
of the actual exchange ratio on which the transaction was predicated, and for a
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
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Convertible Securities, then the date of the issue or sale of the shares of
Common Stock shall be deemed to be such record date.
(c) Certain Issues Excepted. Anything herein to the
contrary notwithstanding, the Maker shall not be required to make any adjustment
to the Conversion Price in connection with (i) securities issued (other than for
cash) in connection with a merger, acquisition, or consolidation, (ii)
securities issued pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding on or prior to the date hereof or
issued pursuant to the Purchase Agreement (so long as the conversion or exercise
price in such securities are not amended to lower such price and/or adversely
affect the Holders), (iii) the shares of Common Stock issuable upon the exercise
of Warrants, (iv) securities issued in connection with bona fide strategic
license agreements or other partnering arrangements so long as such issuances
are not for the purpose of raising capital, (v) Common Stock issued or the
issuance or grants of options to purchase Common Stock pursuant to the Company's
stock option plans and employee stock purchase plans outstanding as they exist
on the Issuance Date, (vi) any warrants issued to the placement agent and its
designees for the transactions contemplated by the Purchase Agreement, (vii) the
payment of any dividends on the Maker's Series B convertible preferred stock,
(viii) securities issued pursuant to a bona fide firm underwritten public
offering of the Maker's securities, (ix) the payment of liquidated damages
pursuant to the Registration Rights Agreement dated February 17, 2004 between
the Maker and the parties listed therein and (x) the issuance of Common Stock
upon the exercise or conversion of any securities described in clauses (i)
through (viii) above.
(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
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the Holder, at any time, furnish or cause to be furnished to the Holder a like
certificate setting forth such adjustments and readjustments, the applicable
Conversion Price in effect at the time, and the number of shares of Common Stock
and the amount, if any, of other securities or property which at the time would
be received upon the conversion of this Note. Notwithstanding the foregoing, the
Maker shall not be obligated to deliver a certificate unless such certificate
would reflect an increase or decrease of at least one percent (1%) of such
adjusted amount.
(f) Issue Taxes. The Maker shall pay any and all issue
and other taxes, excluding federal, state or local income taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of this Note pursuant thereto; provided, however, that the Maker
shall not be obligated to pay any transfer taxes resulting from any transfer
requested by the Holder in connection with any such conversion.
(g) Fractional Shares. No fractional shares of Common
Stock shall be issued upon conversion of this Note. In lieu of any fractional
shares to which the Holder would otherwise be entitled, the Maker shall pay cash
equal to the product of such fraction multiplied by the average of the Closing
Sale Prices of the Common Stock for the five (5) consecutive Trading Days
immediately preceding the Conversion Date. The term "Closing Sale Price" shall
mean, on any particular date (i) the last closing sale 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 last closing sale price on such exchange or
quotation system on the date nearest preceding such date, or (ii) if the Common
Stock is not listed then on the OTC Bulletin Board or any registered national
stock exchange, the last trading price for a share of Common Stock in the
over-the-counter market, as reported by the OTC Bulletin Board or in the
National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (iii) if the Common Stock is not then reported by the OTC Bulletin
Board or the National Quotation Bureau Incorporated (or similar organization or
agency succeeding to its functions of reporting prices), then the average of the
"Pink Sheet" quotes for the relevant conversion period, as determined in good
faith by the Holder, or (iv) if the Common Stock is not then publicly traded the
fair market value of a share of Common Stock as determined by the Holder and
reasonably acceptable to the Maker.
(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 is at any time convertible. The Maker shall, from time to time
in accordance with Delaware law, increase the authorized number of shares of
Common Stock if at any time the unissued number of authorized shares shall not
be sufficient to satisfy the Maker's obligations under this Section 3.6(h).
(i) Regulatory Compliance. If any shares of Common Stock
to be reserved for the purpose of conversion of this Note or any interest
accrued thereon require registration or listing with or approval of any
governmental authority, stock exchange or other regulatory body
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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 Section 2.1 hereof, the Holder shall have the right, at
such Holder's option, to require the Maker to prepay in cash all or a portion of
this Note at a price equal to one hundred twenty percent (120%) of the aggregate
principal amount of this Note plus all accrued and unpaid interest applicable at
the time of such request. Nothing in this Section 3.7(a) shall limit the
Holder's rights under Section 2.2 hereof.
(b) Prepayment Option Upon Major Transaction. In addition
to all other rights of the Holder contained herein, simultaneous with the
occurrence of a Major Transaction (as defined below), the Holder shall have the
right, at the Holder's option, to require the Maker to prepay in cash 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 request payment of the Major Transaction
Prepayment Price in cash or registered shares of common stock of the acquiror in
a Major Transaction so long as the acquiror is a public company that is
registered pursuant to the Exchange Act and its common stock is listed or quoted
on a national securities exchange, national automated quotation system or the
OTC Bulletin Board.
(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-five percent
(125%) of the aggregate principal amount of this Note 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,
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 (as defined below) 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"). 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
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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.
(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.
(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) under the Securities Act, 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 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
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(iii) the Maker's failure to comply with a
Conversion Notice tendered in accordance with the provisions of this Note within
ten (10) business days after the receipt by the Maker of the Conversion Notice;
or
(iv) the Maker deregisters its shares of Common
Stock and as a result such shares of Common Stock are no longer publicly traded;
or
(v) the Maker consummates a "going private"
transaction and as a result the Common Stock is no longer registered under
Sections 12(b) or 12(g) of the Exchange Act; or
(vi) the Maker breaches any representation,
warranty, covenant or other term or condition of the Purchase Agreement, this
Note or any other agreement, document, certificate or other instrument delivered
in connection with the transactions contemplated thereby or hereby, except to
the extent that such breach would not have a Material Adverse Effect (as defined
in the Purchase Agreement) and except, in the case of a breach of a covenant
which is curable, only if such breach continues for a period of at least ten
(10) business days after notice thereof to the Maker.
(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.
(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 may require the Maker to prepay this Note 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
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the greater of a period of ten (10) days after receipt by such holder of a
Notice of Triggering Event or for so long as such Triggering Event is
continuing.
(j) Payment of Prepayment Price. Upon the Maker's receipt
of a Notice(s) of Prepayment at Option of Holder Upon Triggering Event or a
Notice(s) of Prepayment at Option of Holder Upon Major Transaction from any
holder of the Notes, the Maker shall promptly 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(j)
and for which the applicable Prepayment Price has not been paid and (iii) the
Conversion Price of such returned Notes shall be adjusted to the lesser of (A)
the Conversion Price as in effect on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker and (B) the lowest Closing Sale
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
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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 the Maker's
stockholders in connection with a Major Transaction.
Section 3.8 Inability to Fully Convert.
(a) Holder's Option if Maker Cannot Fully Convert. At any
time following the Effectiveness Date (as defined in the Registration Rights
Agreement), 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);
(iv) exercise its Buy-In rights pursuant to and
in accordance with the terms and provisions of Section 3.3(c) of this Note.
(b) Mechanics of Fulfilling Holder's Election. The Maker
shall promptly 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").
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(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 Sale Price during the
period beginning on the Conversion Date and ending on the date the Holder voided
the Mandatory Prepayment.
(d) Pro-rata Conversion and Prepayment. In the event the
Maker receives a Conversion Notice from more than one holder of the Notes on the
same day and the Maker can convert and prepay some, but not all, of the Notes
pursuant to this Section 3.8, the Maker shall convert and prepay from each
holder of the Notes electing to have its Notes converted and prepaid at such
time an amount equal to such holder's pro-rata amount (based on the principal
amount of the Notes held by such holder relative to the principal amount of the
Notes outstanding) of all the Notes being converted and prepaid at such time.
Section 3.9 No Rights as Shareholder. Nothing contained in
this Note shall be construed as conferring upon the Holder, prior to the
conversion of this Note, the right to vote or to receive dividends or to consent
or to receive notice as a shareholder in respect of any meeting of shareholders
for the election of directors of the Maker or of any other matter, or any other
rights as a shareholder of the Maker.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Notices. Any notice, demand, request, waiver or
other communication required or permitted to be given hereunder shall be in
writing and shall be effective (a) upon hand delivery, telecopy or facsimile at
the address or number designated in the Purchase Agreement (if delivered on a
business day during normal business hours where such notice is to be received),
or the first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid,
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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.
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.
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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 AND THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO THE MAKER THAT THIS NOTE AND THE SHARES OF
COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE MAY BE SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE
SECURITIES LAWS."
Section 4.9 Consent to Jurisdiction. Each of the Maker and
the Holder (i) hereby irrevocably submits to the exclusive jurisdiction of the
United States District Court sitting in the Southern District of New York and
the courts of the State of New York located in New York county for the purposes
of any suit, action or proceeding arising out of or relating to this Note and
(ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Each of
the Maker and the Holder consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under the Purchase Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 4.9 shall affect or limit any right to serve
process in any other manner permitted by law. Each of the Maker and the Holder
hereby agree that the prevailing party in any suit, action or proceeding arising
out of or relating to this Note shall be entitled to reimbursement for
reasonable legal fees from the non-prevailing party.
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.
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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, to the extent allowed by
applicable law, 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:
"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 any day during which The New York Stock
Exchange shall be open for business.
GLOWPOINT, 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. CN-06-____ into shares of Common Stock of
Glowpoint, 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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