Exhibit 99.2
FORM OF AMENDED AND RESTATED SENIOR CONVERTIBLE NOTE
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS NOTE NOR THE
SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE (TOGETHER "THE SECURITIES") HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO BRAVO! BRANDS INC., THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE
SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND
18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY,
THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.
BRAVO! BRANDS INC.
AMENDED AND RESTATED SENIOR CONVERTIBLE NOTE
Issuance Date: July 27, 2006 Original Principal Amount: U.S. $_____
FOR VALUE RECEIVED, Bravo! Brands Inc., a Delaware corporation (f/k/a
Bravo! Foods International Corp. ) (the "Company"), hereby promises to pay to or
registered assigns ("Holder") the amount set out above as the Original Principal
Amount (as reduced pursuant to the terms hereof pursuant to redemption,
conversion or otherwise, the "Principal") when due, whether upon the Maturity
Date (as defined below), on any Installment Date with respect to the Installment
Amount due on such Installment Date (each, as defined herein), acceleration,
redemption or otherwise (in each case in accordance with the terms hereof) and
to pay interest ("Interest") on any outstanding Principal at the applicable
Interest Rate from the date set out above as the Issuance Date (the "Issuance
Date") until the same becomes due and payable, whether upon an Interest Date (as
defined below), any Installment Date or, the Maturity Date, acceleration,
conversion, redemption or otherwise (in each case in accordance with the terms
hereof). This Amended and Restated Senior Convertible Note (including all Senior
Convertible Notes issued in exchange, transfer or replacement hereof, this
"Note") amends, supplements, modifies and completely restates and supersedes the
Senior Convertible Note, dated as of July 27, 2006 (the "Existing Note"), issued
by the Company to the Holder in the original principal amount of $_________, but
shall not, except as specifically amended hereby or as set forth in the Exchange
Agreements (as defined below), constitute a release, satisfaction or novation of
any of the obligations under the Existing Note or any other Transaction Document
(as defined in the Securities Purchase Agreement, defined below) or a waiver of
an Event of Default under the Existing Note or the Transaction Documents. This
Note is one of an issue of Amended and Restated Senior Convertible Notes issued
pursuant to the Amendment and Exchange Agreements dated as of December 29, 2006
by and between each of the Buyers (as defined in the Securities Purchase
Agreement) and the Company (the "Exchange Agreements" and the date the
transactions contemplated by such Exchange Agreements are consummated, the
"Exchange Date") (collectively, the "Notes" and such other Amended and Restated
Senior Convertible Notes, the "Other Notes"). Certain capitalized terms used
herein are defined in Section 28. For the avoidance of doubt, the term "Issuance
Date" as used in this Note shall mean July 26, 2006 and shall not be the
Exchange Date.
(1) PAYMENTS OF PRINCIPAL. On each Installment Date, the Company shall pay
to the Holder an amount equal to the Installment Amount due on such Installment
Date in accordance with Section 8. On the Maturity Date, the Company shall pay
to the Holder an amount in cash representing all outstanding Principal, accrued
and unpaid Interest and accrued and unpaid Late Charges on such Principal and
Interest. The "Maturity Date" shall be January 27, 2010, as may be extended at
the option of the Holder (i) in the event that, and for so long as, an Event of
Default (as defined in Section 4(a)) shall have occurred and be continuing on
the Maturity Date (as may be extended pursuant to this Section 1) or any event
shall have occurred and be continuing on the Maturity Date (as may be extended
pursuant to this Section 1) that with the passage of time and the failure to
cure would result in an Event of Default and (ii) through the date that is ten
(10) Business Days after the consummation of a Change of Control in the event
that a Change of Control is publicly announced or a Change of Control Notice (as
defined in Section 5(b)) is delivered prior to the Maturity Date. Other than as
specifically permitted by this Note, the Company may not prepay any portion of
the outstanding Principal, accrued and unpaid interest or accrued and unpaid
Late Charges on Principal and Interest, if any.
(2) INTEREST; INTEREST RATE. Interest on this Note shall commence accruing
on the Issuance Date and shall be computed on the basis of a 360-day year
comprised of twelve (12) thirty (30) day months and shall be payable in arrears
for each Calendar Quarter on the first (1st) day of the succeeding Calendar
Quarter during the period beginning on the Issuance Date and ending on, and
including, the Maturity Date (each, an "Interest Date") with the first (1st)
Interest Date being January 1, 2007, which Interest to be paid on January 1,
2007 shall include $_________ in unpaid interest under the Existing Note accrued
between October 1, 2007 and the Exchange Date. Interest shall be payable on each
Interest Date, to the record holder of this Note on the applicable Interest
Date, and to the extent that any Principal amount of this Note is converted
prior to such Interest Date, accrued and unpaid Interest with respect to such
converted Principal amount and accrued and unpaid Late Charges with respect to
such Principal and Interest shall be paid on the Conversion Date (as defined
below) to the record holder of this Note on the applicable Conversion Date, in
cash. From and after the occurrence and during the continuance of an Event of
Default, the Interest Rate shall be increased to fourteen percent (14.0%). In
the event that such Event of Default is subsequently cured, the adjustment
referred to in the preceding sentence shall cease to be effective as of the date
of such cure; provided that the Interest as calculated and unpaid at such
increased rate during the continuance of such Event of Default shall continue to
apply to the extent relating to the days after the occurrence of such Event of
Default through and including the date of cure of such Event of Default.
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(3) CONVERSION OF NOTES. This Note shall be convertible into shares of the
Company's common stock, par value $0.001 per share (the "Common Stock"), on the
terms and conditions set forth in this Section 3.
(a) Conversion Right. Subject to the provisions of Section 3(d), at
any time or times on or after the Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount (as defined
below) into fully paid and nonassessable shares of Common Stock in accordance
with Section 3(c), at the Conversion Rate (as defined below). The Company shall
not issue any fraction of a share of Common Stock upon any conversion. If the
issuance would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all transfer, stamp and
similar taxes that are payable with respect to the issuance and delivery of
Common Stock upon conversion of any Conversion Amount.
(b) Conversion Rate. The number of shares of Common Stock issuable
upon conversion of any Conversion Amount pursuant to Section 3(a) shall be
determined by dividing (x) such Conversion Amount by (y) the Conversion Price
(the "Conversion Rate").
(i) "Conversion Amount" means the portion of the Principal to
be converted, redeemed or otherwise with respect to which this determination is
being made.
(ii) "Conversion Price" means, as of any Conversion Date (as
defined below) or other date of determination, $0.32, subject to adjustment as
provided herein.
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(c) Mechanics of Conversion.
(i) Optional Conversion. To convert any Conversion Amount into
shares of Common Stock on any date (the date of such conversion, the "Conversion
Date"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 5:00 p.m., New York Time, on such date, a copy of an
executed notice of conversion in the form attached hereto as Exhibit I (the
"Conversion Notice") to the Company and (B) if required by Section 3(c)(iii),
surrender this Note to a common carrier for delivery to the Company as soon as
practicable on or following such date (or an indemnification undertaking with
respect to this Note in the case of its loss, theft or destruction). On or
before the first (1st) Business Day following the date of receipt of a
Conversion Notice, the Company shall transmit by facsimile a confirmation of
receipt of such Conversion Notice to the Holder and the Company's transfer agent
(the "Transfer Agent"). On or before the third (3rd) Business Day following the
date of receipt of a Conversion Notice (the "Share Delivery Date"), the Company
shall (1) (x) provided that the Transfer Agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program,
credit such aggregate number of shares of Common Stock to which the Holder shall
be entitled to the Holder's or its designee's balance account with DTC through
its Deposit Withdrawal Agent Commission system or (y) if the Transfer Agent is
not participating in the DTC Fast Automated Securities Transfer Program, issue
and deliver to the address as specified in the Conversion Notice, a certificate,
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 and (2) pay to the Holder
in cash an amount equal to the accrued and unpaid Interest on the Conversion
Amount up to and including the Conversion Date. If this Note is physically
surrendered for conversion as required by Section 3(c)(iii) and the outstanding
Principal of this Note is greater than the Principal portion of the Conversion
Amount being converted, then the Company shall as soon as practicable and in no
event later than five (5) Business Days after receipt of this Note and at its
own expense, issue and deliver to the holder a new Note (in accordance with
Section 18(d)) representing the outstanding Principal not converted. The Person
or Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Note shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date. In the event
of a partial conversion of this Note pursuant hereto, the principal amount
converted shall be deducted from the Installment Amounts relating to the
Installment Dates as set forth in the Conversion Notice.
(ii) Company's Failure to Timely Convert. If within three (3)
Trading Days after the Company's receipt of the facsimile copy of a Conversion
Notice the Company shall fail to issue and deliver a certificate to the Holder
or credit the Holder's balance account with DTC for the number of shares of
Common Stock to which the Holder is entitled (subject to conversion limitations
as per Section 3(c)(iv), Section 3(d) and any others herein (the "Conversion
Limitations")) upon such holder's conversion of any Conversion Amount (a
"Conversion Failure"), and if on or after such Trading Day the Holder purchases
(in an open market transaction or otherwise) Common Stock to deliver in
satisfaction of a sale by the Holder of Common Stock issuable upon such
conversion that the Holder anticipated receiving from the Company (a "Buy-In"),
then the Company shall, within three (3) Business Days after the Holder's
request and in the Holder's discretion, either (A) pay cash to the Holder in an
amount equal to the Holder's total purchase price (including brokerage
commissions and other out of pocket expenses, if any) for the shares of Common
Stock so purchased (the "Buy-In Price"), at which point the Company's obligation
to deliver such certificate (and to issue such Common Stock) shall terminate, or
(B) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Common Stock and pay cash to the Holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (1)
such number of shares of Common Stock, times (2) the Closing Bid Price on the
Conversion Date.
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(iii) Registration; Book-Entry. The Company shall maintain a
register (the "Register") for the recordation of the names and addresses of the
holders of each Note and the principal amount of the Notes held by such holders
(the "Registered Notes"). The entries in the Register shall be conclusive and
binding for all purposes absent manifest error. The Company and the holders of
the Notes shall treat each Person whose name is recorded in the Register as the
owner of a Note for all purposes, including, without limitation, the right to
receive payments of Principal and Interest hereunder, notwithstanding notice to
the contrary. A Registered Note may be assigned or sold in whole or in part only
by registration of such assignment or sale on the Register. Upon its receipt of
a written request to assign or sell all or part of any Registered Note by a
Holder, together with the Note to be assigned, the Company shall record the
information contained therein in the Register and issue one or more new
Registered Notes in the same aggregate principal amount as the principal amount
of the surrendered Registered Note to the designated assignee or transferee
pursuant to Section 18. Notwithstanding anything to the contrary set forth
herein, upon conversion of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Note to
the Company unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting
reissuance of this Note upon physical surrender of this Note. The Holder and the
Company shall maintain records showing the Principal, Interest and Late Charges
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of this Note upon conversion.
(iv) Pro Rata Conversion; Disputes. In the event that the
Company receives a Conversion Notice from more than one holder of Notes for the
same Conversion Date and the Company can convert some, but not all, of such
portions of the Notes submitted for conversion, the Company, subject to Section
3(d), shall convert from each holder of Notes electing to have Notes converted
on such date a pro rata amount of such holder's portion of its Notes submitted
for conversion based on the principal amount of Notes submitted for conversion
on such date by such holder relative to the aggregate principal amount of all
Notes submitted for conversion on such date. In the event of a dispute as to the
number of shares of Common Stock issuable to the Holder in connection with a
conversion of this Note, the Company shall issue to the Holder the number of
shares of Common Stock not in dispute and resolve such dispute in accordance
with Section 23.
(d) Limitations on Conversions.
(i) Beneficial Ownership. The Company shall not effect any
conversion of this Note, and the Holder of this Note shall not have the right to
convert any portion of this Note pursuant to Section 3(a), to the extent that
after giving effect to such conversion, the Holder (together with the Holder's
affiliates) would beneficially own in excess of _______ (the "Maximum
Percentage") of the number of shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Note with respect to which the determination of such sentence
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (A) conversion of the remaining, nonconverted portion of
this Note beneficially owned by the Holder or any of its affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any Other Notes or
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of this
Section 3(d)(i), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). For purposes of this Section 3(d)(i), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in the most recent of (x) the
Company's most recent Form 10-K, Form 10-KSB, Form 10-Q, Form 10-QSB or Form
8-K, as the case may be, or (y) a more recent public announcement by the Company
or other more recent notice by the Company or the Transfer Agent setting forth
the number of shares of Common Stock outstanding. For any reason at any time,
upon the written or oral request of the Holder, the Company shall within one (1)
Business Day confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Note, by the Holder or its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. By written notice to the Company, the Holder may
increase or decrease the Maximum Percentage to any other percentage not in
excess of 9.99% specified in such notice; provided that (i) any such increase
will not be effective until the sixty-first (61st) day after such notice is
delivered to the Company, and (ii) any such increase or decrease will apply only
to the Holder and not to any other holder of Notes.
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(ii) Principal Market Regulation. The Company shall not be
obligated to issue any shares of Common Stock upon conversion of this Note if
the issuance of such shares of Common Stock would exceed the aggregate number of
shares of Common Stock which the Company may issue upon conversion or exercise,
as applicable, of the Notes and Warrants without breaching the Company's
obligations under the rules or regulations of any applicable Eligible Market
(the "Exchange Cap"), except that such limitation shall not apply in the event
that the Company (A) obtains the approval of its stockholders in accordance with
the applicable rules of the relevant Eligible Market for issuances of Common
Stock in excess of such amount or (B) obtains a written opinion from outside
counsel to the Company that such approval is not required, which opinion shall
be reasonably satisfactory to the Required Holders. Until such approval or
written opinion is obtained, no purchaser of the Notes pursuant to the
Securities Purchase Agreement (the "Purchasers") shall be issued in the
aggregate, upon conversion or exercise or otherwise, as applicable, of Notes or
Warrants, shares of Common Stock in an amount greater than the product of the
Exchange Cap multiplied by a fraction, the numerator of which is the principal
amount of Notes issued to the Purchasers pursuant to the Securities Purchase
Agreement on the Closing Date and the denominator of which is the aggregate
principal amount of all Notes issued to the Purchasers pursuant to the
Securities Purchase Agreement on the Closing Date (with respect to each
Purchaser, the "Exchange Cap Allocation"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Notes, the transferee shall
be allocated a pro rata portion of such Purchaser's Exchange Cap Allocation, and
the restrictions of the prior sentence shall apply to such transferee with
respect to the portion of the Exchange Cap Allocation allocated to such
transferee. In the event that any holder of Notes shall convert all of such
holder's Notes into a number of shares of Common Stock which, in the aggregate,
is less than such holder's Exchange Cap Allocation, then the difference between
such holder's Exchange Cap Allocation and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective Exchange Cap
Allocations of the remaining holders of Notes on a pro rata basis in proportion
to the aggregate principal amount of the Notes then held by each such holder.
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(4) RIGHTS UPON EVENT OF DEFAULT.
(a) Event of Default. Each of the following events shall constitute
an "Event of Default":
(i) the failure of the applicable Registration Statement
required to be filed pursuant to the Registration Rights Agreement to be
declared effective by the SEC on or prior to the date that is one hundred and
five (105) days after the applicable Effectiveness Deadline (as defined in the
Registration Rights Agreement) which, with respect to the mandatory registration
contemplated by Section 2(a) of the Registration Rights Agreement, shall be
March 9, 2007, or, while the applicable Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights Agreement,
the effectiveness of the applicable Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to any holder of the Notes for sale of all of such holder's 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 days or for more than an
aggregate of thirty (30) days in any 365-day period (other than days during an
Allowable Grace Period (as defined in the Registration Rights Agreement));
(ii) the suspension from trading or failure of the Common
Stock to be listed on an Eligible Market for a period of five (5) consecutive
Trading Days or for more than an aggregate of ten (10) Trading Days in any
365-day period;
(iii) the Company's (A) failure to cure a Conversion Failure
by delivery of, subject to the Conversion Limitations set forth in Section 3(d),
the required number of shares of Common Stock within ten (10) Business Days
after the applicable Conversion Date or (B) notice, written or oral, to any
holder of the Notes, including by way of public announcement of the Company or
through any of its agents, at any time, of its intention not to comply with a
request for conversion of any Notes into shares of Common Stock that is tendered
in accordance with the provisions of the Notes, other than pursuant to Section
3(d);
(iv) at any time following the tenth (10th) consecutive
Business Day that the Holder's Authorized Share Allocation (defined below) is
less than the number of shares of Common Stock that the Holder would be entitled
to receive upon a conversion of the full Conversion Amount of this Note (without
regard to any limitations on conversion set forth in Section 3(d) or otherwise);
(v) the Company's failure to pay to the Holder any amount of
Principal, Interest, Late Charges or other amounts when and as due under this
Note (including, without limitation, the Company's failure to pay any redemption
payments or amounts hereunder) or any other Transaction Document (as defined in
the Securities Purchase Agreement), except, in the case of a failure to pay
Interest and Late Charges when and as due, in which case only if such failure
continues for a period of at least five (5) Business Days;
(vi) the occurrence of any default under, redemption of or
acceleration prior to maturity of any Indebtedness of the Company or any of its
Subsidiaries (as defined in Section 3(a) of the Securities Purchase Agreement)
which, individually or in the aggregate, exceeds $500,000, other than with
respect to any Other Notes;
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(vii) the Company or any of its Material Subsidiaries,
pursuant to or within the meaning of Title 11, U.S. Code, or any similar
Federal, foreign or state law for the relief of debtors (collectively,
"Bankruptcy Law"), (A) commences a voluntary case, (B) consents to the entry of
an order for relief against it in an involuntary case, (C) consents to the
appointment of a receiver, trustee, assignee, liquidator or similar official (a
"Custodian"), (D) makes a general assignment for the benefit of its creditors or
(E) admits in writing that it is generally unable to pay its debts as they
become due;
(viii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (A) is for relief against the Company or
any of its Material Subsidiaries in an involuntary case, (B) appoints a
Custodian of the Company or any of its Material Subsidiaries or (C) orders the
liquidation of the Company or any of its Material Subsidiaries;
(ix) a final judgment or judgments for the payment of money
aggregating in excess of $500,000 are rendered against the Company or any of its
Subsidiaries and any such judgment is, or such judgments are, not, within sixty
(60) days after the entry thereof, bonded, discharged or stayed pending appeal,
or are not discharged within sixty (60) days after the expiration of such stay;
provided, however, that any judgment which is covered by insurance or an
indemnity from a credit worthy party shall not be included in calculating the
$500,000 amount set forth above so long as the Company provides the Holder a
written statement from such insurer or indemnity provider (which written
statement shall be reasonably satisfactory to the Holder) to the effect that
such judgment is covered by insurance or an indemnity and the Company will
receive the proceeds of such insurance or indemnity within thirty (30) days of
the issuance of such judgment;
(x) the Company breaches any representation, warranty,
covenant or other term or condition of any Transaction Document, except, in the
case of a breach of a covenant or other term or condition of any Transaction
Document which is curable, only if such breach continues for a period of at
least ten (10) consecutive Business Days;
(xi) any breach or failure in any respect to comply with
either of Sections 8 or 14 of this Note; or
(xii) any Event of Default (as defined in the Other Notes)
occurs with respect to any Other Notes.
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(b) Redemption Right. Upon the occurrence of an Event of Default
with respect to this Note or any Other Note, the Company shall within one (1)
Business Day deliver written notice thereof via facsimile and overnight courier
(an "Event of Default Notice") to the Holder. At any time after the earlier of
the Holder's receipt of an Event of Default Notice and the Holder becoming aware
of an Event of Default, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (the "Event of Default
Redemption Notice") to the Company, which Event of Default Redemption Notice
shall indicate the portion of this Note the Holder is electing to redeem. Each
portion of this Note subject to redemption by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal to the greater of
(i) the product of (A) the Conversion Amount to be redeemed together with
accrued and unpaid Interest with respect to such Conversion Amount to be
redeemed and accrued and unpaid Late Charges, if any, with respect to such
Conversion Amount and Interest and (B) the Redemption Premium and (ii) the
product of (A) the Conversion Rate with respect to such Conversion Amount
together with accrued and unpaid Interest with respect to such Conversion Amount
to be redeemed and accrued and unpaid Late Charges, if any, with respect to such
Conversion Amount and Interest in effect at such time as the Holder delivers an
Event of Default Redemption Notice and (B) the greater of (1) the Closing Sale
Price of the Common Stock on the date immediately preceding such Event of
Default, (2) the Closing Sale Price of the Common Stock on the date immediately
after such Event of Default and (3) the Closing Sale Price of the Common Stock
on the date the Holder delivers the Event of Default Redemption Notice (the
"Event of Default Redemption Price"). Redemptions required by this Section 4(b)
shall be made in accordance with the provisions of Section 12. To the extent
redemptions required by this Section 4(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. In the event of a
partial redemption of this Note pursuant hereto, the principal amount redeemed
shall be deducted from the Installment Amounts relating to the applicable
Installment Dates as set forth in the Event of Default Redemption Notice. The
parties hereto agree that in the event of the Company's redemption of any
portion of the Note under this Section 4(b), the Holder's damages would be
uncertain and difficult to estimate because of the parties' inability to predict
future interest rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the Holder. Accordingly, any Redemption
Premium due under this Section 4(b) is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder's actual loss of its investment
opportunity and not as a penalty.
(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
(a) Assumption. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Note and the other Transaction
Documents in accordance with the provisions of this Section 5(a) pursuant to
written agreements in form and substance reasonably satisfactory to the Required
Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each holder of Notes in exchange
for such Notes a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to the Notes, including,
without limitation, having a principal amount and interest rate equal to the
principal amounts and the interest rates of the Notes then outstanding held by
such holder, having similar conversion rights and having similar ranking to the
Notes, and satisfactory to the Required Holders and (ii) the Successor Entity
(including its Parent Entity) is a publicly traded corporation whose common
stock is quoted on or listed for trading on an Eligible Market (a "Public
Successor Entity"). Upon the occurrence of any Fundamental Transaction, the
Successor Entity shall succeed to, and be substituted for (so that from and
after the date of such Fundamental Transaction, the provisions of this Note
referring to the "Company" shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Note with the same effect as if such
Successor Entity had been named as the Company herein. Upon consummation of the
Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon conversion or redemption of this
Note at any time after the consummation of the Fundamental Transaction, in lieu
of the shares of the Company's Common Stock (or other securities, cash, assets
or other property) issuable upon the conversion or redemption of the Notes prior
to such Fundamental Transaction, such shares of the publicly traded common stock
(or their equivalent) of the Successor Entity (including its Parent Entity), as
adjusted in accordance with the provisions of this Note. The provisions of this
Section shall apply similarly and equally to successive Fundamental Transactions
and shall be applied without regard to any limitations on the conversion or
redemption of this Note.
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(b) Redemption Right. No sooner than fifteen (15) days nor later
than ten (10) days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the Holder
(a "Change of Control Notice"). At any time during the period beginning after
the Holder's receipt of a Change of Control Notice and ending twenty (20)
Trading Days after the date of the consummation of such Change of Control, the
Holder may require the Company to redeem all or any portion of this Note by
delivering written notice thereof ("Change of Control Redemption Notice") to the
Company, which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to redeem. The portion of this Note subject to
redemption pursuant to this Section 5 shall be redeemed by the Company in cash
at a price equal to the greater of (i) the sum of (x) the product of the Change
of Control Redemption Premium and the Conversion Amount being redeemed and (y)
the amount of any accrued but unpaid Interest on such Conversion Amount being
redeemed and accrued and unpaid Late Charges, if any, with respect to such
Conversion Amount and Interest through the date of such redemption payment and
(ii) the sum of (x) the product of (A) the Conversion Amount being redeemed
multiplied by (B) the quotient determined by dividing (1) the aggregate cash
consideration and the aggregate cash value of any non-cash consideration per
share of Common Stock to be paid to the holders of the Common Stock upon
consummation of the Change of Control (any such non-cash consideration
consisting of marketable securities to be valued at the higher of the Closing
Sale Price of such securities as of the Trading Day immediately prior to, the
Closing Sale Price as of the Trading Day immediately following the public
announcement of such proposed Change of Control and the Closing Sale Price of
the Common Stock immediately prior to the public announcement of such proposed
Change of Control) by (2) the Conversion Price plus (y) the amount of any
accrued but unpaid Interest on such Conversion Amount being redeemed and accrued
and unpaid Late Charges, if any, with respect to such Conversion Amount and
Interest through the date of such redemption payment, (the "Change of Control
Redemption Price"). Redemptions required by this Section 5 shall be made in
accordance with the provisions of Section 12 and shall have priority to payments
to stockholders in connection with a Change of Control. To the extent
redemptions required by this Section 5(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 5, but subject to Section 3(d), until
the Change of Control Redemption Price (together with any interest thereon) is
paid in full, the Conversion Amount submitted for redemption under this Section
5(c) (together with any interest thereon) may be converted, in whole or in part,
by the Holder into Common Stock pursuant to Section 3. In the event of a partial
redemption of this Note pursuant hereto, the principal amount redeemed shall be
deducted from the Installment Amounts relating to the applicable Installment
Dates as set forth in the Change of Control Redemption Notice. The parties
hereto agree that in the event of the Company's redemption of any portion of the
Note under this Section 5(b), the Holder's damages would be uncertain and
difficult to estimate because of the parties' inability to predict future
interest rates and the uncertainty of the availability of a suitable substitute
investment opportunity for the Holder. Accordingly, any Change of Control
Redemption Premium due under this Section 5(b) is intended by the parties to be,
and shall be deemed, a reasonable estimate of the Holder's actual loss of its
investment opportunity and not as a penalty.
- 10 -
(6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
(a) Purchase Rights. If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property (excluding, however, any grants, issuances or sales
of any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property in connection with any Excluded Security) pro rata
to the record holders of any class of Common Stock (the "Purchase Rights"), then
the Holder will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Note (without taking into account any
limitations or restrictions on the convertibility of this Note) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
(b) Other Corporate Events. In addition to and not in substitution
for any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which all or substantially all of the holders of shares
of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a "Corporate Event"), the Company
shall make appropriate provision to insure that the Holder will thereafter have
the right to receive upon a conversion of this Note, at the Holder's option, (i)
in addition to the shares of Common Stock receivable upon such conversion, such
securities or other assets to which the Holder would have been entitled with
respect to such shares of Common Stock had such shares of Common Stock been held
by the Holder upon the consummation of such Corporate Event (without taking into
account any limitations or restrictions on the convertibility of this Note) or
(ii) in lieu of the shares of Common Stock otherwise receivable upon such
conversion, such securities or other assets received by the holders of shares of
Common Stock in connection with the consummation of such Corporate Event in such
amounts as the Holder would have been entitled to receive had this Note
initially been issued with conversion rights for the form of such consideration
(as opposed to shares of Common Stock) at a conversion rate for such
consideration commensurate with the Conversion Rate. Provision made pursuant to
the preceding sentence shall be in a form and substance satisfactory to the
Required Holders. The provisions of this Section shall apply similarly and
equally to successive Corporate Events and shall be applied without regard to
any limitations on the conversion or redemption of this Note.
- 11 -
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
(a) Adjustment of Conversion Price upon Issuance of Common Stock. If
and whenever during the Full Adjustment Period, the Company issues or sells, or
in accordance with this Section 7(a) is deemed to have issued or sold, any
shares of Common Stock (including the issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding shares of
Common Stock deemed to have been issued or sold by the Company in connection
with any Excluded Security) for a consideration per share (the "New Issuance
Price") less than a price (the "Applicable Price") equal to the Conversion Price
in effect immediately prior to such issue or sale (the foregoing a "Dilutive
Issuance"), then immediately after such Dilutive Issuance, the Conversion Price
then in effect shall be reduced to an amount equal to the New Issuance Price. If
and whenever after the Full Adjustment Period, the Company issues or sells, or
in accordance with this Section 7(a) is deemed to have issued or sold, any
shares of Common Stock (including the issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding shares of
Common Stock deemed to have been issued or sold by the Company in connection
with any Excluded Security) in a Dilutive Issuance, then immediately after such
Dilutive Issuance, the Conversion Price then in effect shall be reduced to an
amount equal the product of (A) the Conversion Price in effect immediately prior
to such Dilutive Issuance and (B) the quotient determined by dividing (1) the
sum of (I) the product derived by multiplying the Conversion Price in effect
immediately prior to such Dilutive Issuance and the number of shares of Common
Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus (II)
the consideration, if any, received by the Company upon such Dilutive Issuance,
by (2) the product derived by multiplying (I) the Conversion Price in effect
immediately prior to such Dilutive Issuance by (II) the number of shares of
Common Stock Deemed Outstanding immediately after such Dilutive Issuance. For
purposes of determining the adjusted Conversion Price under this Section 7(a),
the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants
or sells any Options and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such
Option or upon conversion or exchange or exercise of any Convertible
Securities issuable upon exercise of such Option is less than the
Applicable Price, then such share of Common Stock shall be deemed to
be outstanding and to have been issued and sold by the Company at
the time of the granting or sale of such Option for such price per
share. For purposes of this Section 7(a)(i), the "lowest price per
share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion or exchange or
exercise of any Convertible Securities issuable upon exercise of
such Option" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon granting or sale of
the Option, upon exercise of the Option and upon conversion or
exchange or exercise of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Conversion
Price shall be made upon the actual issuance of such share of Common
Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon
conversion or exchange or exercise of such Convertible Securities.
- 12 -
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon
such conversion or exchange or exercise thereof is less than the
Applicable Price, then such share of Common Stock shall be deemed to
be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for
such price per share. For the purposes of this Section 7(a)(ii), the
"lowest price per share for which one share of Common Stock is
issuable upon such conversion or exchange or exercise" shall be
equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share
of Common Stock upon the issuance or sale of the Convertible
Security and upon the conversion or exchange or exercise of such
Convertible Security. No further adjustment of the Conversion Price
shall be made upon the actual issuance of such share of Common Stock
upon conversion or exchange or exercise of such Convertible
Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment
of the Conversion Price had been or are to be made pursuant to other
provisions of this Section 7(a), no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
- 13 -
(iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exchange
or exercise of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable or
exercisable for Common Stock changes at any time, the Conversion
Price in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had
such Options or Convertible Securities provided for such changed
purchase price, additional consideration or changed conversion rate,
as the case may be, at the time initially granted, issued or sold.
For purposes of this Section 7(a)(iii), if the terms of any Option
or Convertible Security that was outstanding as of the Subscription
Date are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the
Common Stock deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the date of such
change. No adjustment shall be made if such adjustment would result
in an increase of the Conversion Price then in effect.
(iv) Calculation of Consideration Received. In case any Option
is issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by the
parties thereto, the Options will be deemed to have been issued for
a consideration of $.01. If any Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be
the net amount received by the Company therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Company will be the fair value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Company will be the Closing Sale Price of such securities on the
date of receipt. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be
the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair
value of any consideration other than cash or securities will be
determined jointly by the Company and the Required Holders. If such
parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within five
(5) Business Days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the
Company and the Required Holders. The determination of such
appraiser shall be deemed binding upon all parties absent manifest
error and the fees and expenses of such appraiser shall be borne by
the Company.
- 14 -
(v) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or
in Convertible Securities or (B) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
(b) Adjustment of Conversion Price upon Subdivision or Combination
of Common Stock. If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time on or
after the Subscription Date combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination will be proportionately increased.
(c) Other Events. If any event occurs of the type contemplated by
the provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.
(8) COMPANY INSTALLMENT CONVERSION OR REDEMPTION.
(a) General. On each applicable Installment Date, provided there has
been no Equity Conditions Failure, the Company shall pay to the Holder of this
Note the Installment Amount due on such date by converting such Installment
Amount, in accordance with this Section 8 (a "Company Conversion"); provided,
however, that the Company may, at its option following notice to the Holder, pay
the Installment Amount by redeeming such Installment Amount (a "Company
Redemption") or by any combination of a Company Conversion and a Company
Redemption so long as all of the outstanding applicable Installment Amount shall
be converted and/or redeemed by the Company on the applicable Installment Date,
subject to the provisions of this Section 8; provided, further however, that the
Company shall not be entitled to pay any portion of the Installment Amount in
shares of Common Stock pursuant to a Company Conversion and shall be required to
pay such Installment Amount in cash pursuant to a Company Redemption if the
Weighted Average Price of the Common Stock on any Trading Day during either the
Initial Company Conversion Measuring Period or the five (5) Trading Days prior
to the date the Company delivers the Company Installment Notice is less than
$0.40. Notwithstanding the foregoing, the Company may not effect a Company
Conversion of any Installment Amount under this Section in excess of the Holder
Pro Rata Amount of the applicable Installment Volume Limitation. On or prior to
the date which is the twelfth (12th) Trading Day prior to each Installment Date
(each, an "Installment Notice Due Date"), the Company shall deliver written
notice (each, a "Company Installment Notice" and the date all of the holders
receive such notice is referred to as the "Company Installment Notice Date"), to
each holder of Notes which Company Installment Notice shall (i) either (A)
confirm that the applicable Installment Amount of such holder's Note shall be
converted in whole pursuant to a Company Conversion (such amount to be
converted, the "Company Conversion Amount") or (B) (1) state that the Company
elects to redeem, or is required to redeem in accordance with the provisions of
the Notes, in whole or in part, the applicable Installment Amount pursuant to a
Company Redemption and (2) specify the portion which the Company elects or is
required to redeem pursuant to a Company Redemption (such amount to be redeemed,
the "Company Redemption Amount") and the portion, if any, that the Company
elects to convert pursuant to a Company Conversion (such amount also a "Company
Conversion Amount") which amounts when added together, must equal the applicable
Installment Amount and (ii) if the Installment Amount is to be paid, in whole or
in part, pursuant to a Company Conversion, certify that the Equity Conditions
have been satisfied as of the date of the Company Installment Notice. Each
Company Installment Notice shall be irrevocable. If the Company does not timely
deliver a Company Installment Notice in accordance with this Section 8, then the
Company shall be deemed to have delivered an irrevocable Company Installment
Notice confirming a Company Conversion and shall be deemed to have certified
that the Equity Conditions in connection with any such conversion have been
satisfied. Except as expressly provided in this Section 8(a), the Company shall
convert and/or redeem the applicable Installment Amount of this Note pursuant to
this Section 8 and the corresponding Installment Amounts of the Other Notes
pursuant to the corresponding provisions of the Other Notes in the same ratio of
the Installment Amount being converted and/or redeemed hereunder. The Company
Conversion Amount (whether set forth in the Company Installment Notice or by
operation of this Section 8) shall be converted in accordance with Section 8(b)
and the Company Redemption Amount shall be redeemed in accordance with Section
8(c).
- 15 -
(b) Mechanics of Company Conversion. (i) If the Company delivers a
Company Installment Notice and confirms, or is deemed to have confirmed, in
whole or in part, a Company Conversion in accordance with Section 8(a), then on
the Trading Day prior to the Installment Date the Company shall, or shall direct
the Transfer Agent to, deliver to the Holder's account with DTC a number of
shares of Common Stock equal to the quotient of (A) such Company Conversion
Amount divided by (B) the Initial Company Conversion Price (the "Pre-Installment
Conversion Shares"). On the Trading Day immediately after the end of the Company
Conversion Measuring Period (the "Installment Settlement Date"), the Company
shall, or shall direct the Transfer Agent to, deliver to the Holder's account
with DTC a number of additional shares of Common Stock, if any, equal to the
Installment Balance Conversion Shares. If an Event of Default occurs during any
applicable Company Conversion Measuring Period and the Holder elects an Event of
Default Redemption in accordance with Section 4(b), then, at the Holder's
option, either (1) the Holder, upon receipt of the Event of Default Redemption
Price (which Redemption Price includes redemption of any portion of a Company
Conversion Amount represented by Pre-Installment Conversion Shares that the
Holder shall return to the Company), shall return any Pre-Installment Conversion
Shares delivered in connection with the applicable Installment Date, which the
Holder has not otherwise sold, transferred or disposed of, to the Company or (2)
the Conversion Amount used to calculate the Event of Default Redemption Price
shall be reduced by the product of (x) the Company Conversion Amount applicable
to such Installment Date multiplied by (y) the Conversion Share Ratio.
(ii) If there is an Equity Conditions Failure or the
Installment Volume Limitation is exceeded, then at the option of the Holder
designated in writing to the Company, the Holder may require the Company to do
either one or both of the following: (A) the Company shall redeem all or any
part designated by the Holder of the unconverted Company Conversion Amount (such
designated amount is referred to as the "First Redemption Amount") on such
Installment Date or Installment Settlement Date, as applicable, and the Company
shall pay to the Holder on such Installment Date, by wire transfer of
immediately available funds, an amount in cash equal to 125% of such First
Redemption Amount, and/or (B) the Company Conversion shall be null and void with
respect to all or any part designated by the Holder of the unconverted Company
Conversion Amount and the Holder shall be entitled to all the rights of a holder
of this Note with respect to such amount of the Company Conversion Amount;
provided, however, that the Conversion Price for such unconverted Company
Conversion Amount shall thereafter be adjusted to equal the lesser of (1) the
Company Conversion Price as in effect on the date on which the Holder voided the
Company Conversion and (2) the Company Conversion Price as in effect on the date
on which the Holder delivers a Conversion Notice relating thereto. In the event
of an Equity Conditions Failure following the Installment Date, at the Holder's
option, either (x) the Holder shall, upon receipt of a First Redemption Amount
(which amount includes redemption of any portion of a Company Conversion Amount
represented by Pre-Installment Conversion Shares that the Holder shall return to
the Company), return any Pre-Installment Conversion Shares delivered in
connection with the applicable Installment Date, which the Holder has not
otherwise sold, transferred or disposed of, to the Company or (y) any related
First Redemption Amount shall be reduced by the product of (I) the Company
Conversion Amount applicable to such Installment Date multiplied by (II) the
Conversion Share Ratio. If the Company fails to redeem any First Redemption
Amount on or before the applicable Installment Date or Installment Settlement
Date, as applicable, by payment of such amount on the applicable Installment
Date or Installment Settlement Date, as applicable, then the Holder shall have
the rights set forth in Section 12(a) as if the Company failed to pay the
applicable Company Redemption Price and all other rights under this Note
(including, without limitation, such failure constituting an Event of Default
described in Section 4(a)(xi)). Notwithstanding anything to the contrary in this
Section 8(b), but subject to 3(d), until the Company delivers Common Stock
representing the Company Conversion Amount to the Holder, the Company Conversion
Amount may be converted by the Holder into Common Stock pursuant to Section 3.
In the event that the Holder elects to convert the Company Conversion Amount
prior to the applicable Installment Date as set forth in the immediately
preceding sentence, the Company Conversion Amount so converted shall be deducted
from the Installment Amounts relating to the applicable Installment Dates as set
forth in the applicable Conversion Notice.
- 16 -
(c) Mechanics of Company Redemption. If the Company elects a Company
Redemption in accordance with Section 8(a), then the Company Redemption Amount
which is to be paid to the Holder on the applicable Installment Date shall be
redeemed by the Company and the Company shall pay to the Holder on such
Installment Date, by wire transfer of immediately available funds, an amount in
cash (the "Company Installment Redemption Price") equal to 100% of the Company
Redemption Amount. If the Company fails to redeem the Company Redemption Amount
on the applicable Installment Date by payment of the Company Installment
Redemption Price on such date, then at the option of the Holder designated in
writing to the Company (any such designation, a "Conversion Notice" for purposes
of this Note), the Holder may require the Company to convert all or any part of
the Company Redemption Amount at the Company Conversion Price. Conversions
required by this Section 8(c) shall be made in accordance with the provisions of
Section 3(c). Notwithstanding anything to the contrary in this Section 8(c), but
subject to Section 3(d), until the Company Installment Redemption Price
(together with any interest thereon) is paid in full, the Company Redemption
Amount (together with any interest thereon) may be converted, in whole or in
part, by the Holder into Common Stock pursuant to Section 3. In the event the
Holder elects to convert all or any portion of the Company Redemption Amount
prior to the applicable Installment Date as set forth in the immediately
preceding sentence, the Company Redemption Amount so converted shall be deducted
from the Installment Amounts relating to the applicable Installment Dates as set
forth in the applicable Conversion Notice.
(d) Deferred Installment Amount. Notwithstanding any provision of
this Section 8 to the contrary, the Holder may, at its option and in its sole
discretion, deliver a notice to the Company at least two (2) days prior to any
Installment Notice Due Date electing to have the payment of all or any portion
of an Installment Amount payable on the next Installment Date deferred to the
Maturity Date. Any amount deferred to the Maturity Date pursuant to this Section
8(d) shall continue to accrue Interest through the Maturity Date and shall be
paid on such date in cash.
- 17 -
(9) OPTIONAL REDEMPTIONS AT THE COMPANY'S ELECTION.
(a) General. At any time after the Stockholder Approval Date, so
long as there has been no Equity Conditions Failure, the Company shall have the
right to redeem all or any portion of the Conversion Amount then remaining under
this Note (the "Optional Redemption Amount") as designated in the Optional
Redemption Notice, as of the Optional Redemption Date (as defined below) (an
"Optional Redemption"). The portion of this Note subject to redemption pursuant
to this Section 9(a) shall be redeemed by the Company in cash at a price equal
to the sum of (i) the Conversion Amount being redeemed, (ii) the amount of any
accrued but unpaid Interest on such Conversion Amount being redeemed and accrued
and unpaid Late Charges, if any, with respect to such Conversion Amount and
Interest through the Optional Redemption Date plus (iii) the applicable
Make-Whole Amount (the "Optional Redemption Price"). The Company may exercise
its right to require redemption under this Section 9 by delivering a written
notice thereof by facsimile and overnight courier to all, but not less than all,
of the holders of Notes (the "Optional Redemption Notice" and the date all of
the holders received such notice is referred to as the "Optional Redemption
Notice Date"). Each Optional Redemption Notice shall be irrevocable. Upon the
consummation of an Optional Redemption, the number of shares of Common Stock
issuable upon exercise of the Series B Warrants shall increase by such number of
shares of Common Stock issuable upon conversion of the Notes being redeemed by
the Company pursuant to such Optional Redemption at such time, as set forth in
Section 9 of each of the Notes. The Optional Redemption Notice shall state (1)
the date on which the Optional Redemption shall occur (the "Optional Redemption
Date") which date shall be not less than five (5) Business Days following the
Optional Redemption Notice Date, (2) the aggregate Conversion Amount of the
Notes which the Company has elected to be subject to Optional Redemption from
all of the holders of the Notes pursuant to this Section 9(a) (and analogous
provisions under the Other Notes) on the Optional Redemption Date and (3) the
number of shares of Common Stock into which the Series B Warrants shall become
exercisable on the Optional Redemption Date and the Exercise Price thereof. The
Company may not effect more than three (3) Optional Redemptions. Notwithstanding
anything to the contrary in this Section 9, until the Optional Redemption Price
is paid, in full, the Optional Redemption Amount may be converted, in whole or
in part, by the Holders into shares of Common Stock pursuant to Section 3. All
Conversion Amounts converted by the Holder after the Optional Redemption Notice
Date shall reduce the Optional Redemption Amount of this Note required to be
redeemed on the Optional Redemption Date. Redemptions made pursuant to this
Section 9 shall be made in accordance with Section 12.
(b) Pro Rata Redemption Requirement. If the Company elects to cause
an Optional Redemption pursuant to Section 9(a), then it must simultaneously
take the same action in the same proportion with respect to the Other Notes. If
the Company elects to cause an Optional Redemption pursuant to Section 9(a) (or
similar provisions under the Other Notes) with respect to less than all of the
Conversion Amounts of the Notes then outstanding, then the Company shall require
redemption of a Conversion Amount from each of the holders of the Notes equal to
the product of (i) the aggregate Conversion Amount of Notes which the Company
has elected to cause to be redeemed pursuant to Section 9(a), multiplied by (ii)
the fraction, the numerator of which is the sum of the aggregate Original
Principal Amount of the Notes purchased by such holder of outstanding Notes and
the denominator of which is the sum of the aggregate Original Principal Amount
of the Notes purchased by all holders holding outstanding Notes (such fraction
with respect to each holder is referred to as its "Redemption Allocation
Percentage", and such amount with respect to each holder is referred to as its
"Pro Rata Redemption Amount"); provided, however that in the event that any
holder's Pro Rata Redemption Amount exceeds the outstanding Principal amount of
such holder's Note, then such excess Pro Rata Redemption Amount shall be
allocated amongst the remaining holders of Notes in accordance with the
foregoing formula. In the event that the initial holder of any Notes shall sell
or otherwise transfer any of such holder's Notes, the transferee shall be
allocated a pro rata portion of such holder's Redemption Allocation Percentage
and Pro Rata Redemption Amount.
- 18 -
(10) NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, 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
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note.
(11) RESERVATION OF AUTHORIZED SHARES.
(a) Reservation. Commencing on the Issuance Date and until the
Stockholder Approval Date, the Company shall reserve in respect of the Notes and
Warrants all of its authorized and unissued Common Stock (excluding options
exercisable for up to 500,000 shares of Common Stock, in the aggregate, issued
pursuant to an Approved Stock Plan), which amount shall be sufficient to convert
or exercise no less than 100% of the Notes at the initial Conversion Price and
the Warrants at the initial Exercise Price. Immediately on and after the
Stockholder Approval Date, the Company shall reserve out of its authorized and
unissued a number of shares of Common Stock for each of the Notes equal to 130%
of the Conversion Rate with respect to the Conversion Amount of each such Note
as of the Issuance Date and, for so long thereafter as any of the Notes are
outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes, 130% of the number of shares
of Common Stock as shall from time to time be necessary to effect the conversion
of all of the Notes then outstanding; provided that at no time shall the number
of shares of Common Stock so reserved be less than the number of shares required
to be reserved by the previous sentence (without regard to any limitations on
conversions) (such applicable amount, the "Required Reserve Amount"). The
initial number of shares of Common Stock reserved for conversions of the Notes
and each increase in the number of shares so reserved shall be allocated pro
rata among the holders of the Notes based on the principal amount of the Notes
held by each holder at the Closing (as defined in the Securities Purchase
Agreement) or increase in the number of reserved shares, as the case may be (the
"Authorized Share Allocation"). In the event that a holder shall sell or
otherwise transfer any of such holder's Notes, each transferee shall be
allocated a pro rata portion of such holder's Authorized Share Allocation. Any
shares of Common Stock reserved and allocated to any Person which ceases to hold
any Notes shall be allocated to the remaining holders of Notes, pro rata based
on the principal amount of the Notes then held by such holders.
(b) Insufficient Authorized Shares. If at any time while any of the
Notes remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon conversion of the Notes at least a number of shares of
Common Stock equal to the Required Reserve Amount (an "Authorized Share
Failure"), then the Company shall immediately take all action necessary to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for the Notes then
outstanding. Without limiting the generality of the foregoing sentence, as soon
as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its reasonable best efforts to
solicit its stockholders' approval of such increase in authorized shares of
Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.
- 19 -
(12) HOLDER'S REDEMPTIONS.
(a) Mechanics. The Company shall deliver the applicable Event of
Default Redemption Price to the Holder within five (5) Business Days after the
Company's receipt of the Holder's Event of Default Redemption Notice. If the
Holder has submitted a Change of Control Redemption Notice in accordance with
Section 5(b), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder concurrently with the consummation of such Change
of Control if such notice is received prior to the consummation of such Change
of Control and within five (5) Business Days after the Company's receipt of such
notice otherwise. The Company shall deliver (i) the applicable Company
Installment Redemption Price to the Holder on the applicable Installment Date,
and (ii) the applicable Optional Redemption Price on the applicable Optional
Redemption Date. In the event of a redemption of less than all of the Conversion
Amount of this Note, the Company shall promptly cause to be issued and delivered
to the Holder a new Note (in accordance with Section 18(d)) representing the
outstanding Principal which has not been redeemed. In the event that the Company
does not pay the applicable Redemption Price to the Holder within the time
period required, at any time thereafter and until the Company pays such unpaid
Redemption Price in full, the Holder shall have the option, in lieu of
redemption, to require the Company to promptly return to the Holder all or any
portion of this Note representing the Conversion Amount that was submitted for
redemption and for which the applicable Redemption Price (together with any Late
Charges thereon) has not been paid. Upon the Company's receipt of such notice,
(x) the applicable Redemption Notice shall be null and void with respect to such
Conversion Amount, (y) the Company shall immediately return this Note, or issue
a new Note (in accordance with Section 18(d)) to the Holder representing such
Conversion Amount to be redeemed (which amount shall include accrued and unpaid
Interest with respect to such Principal amount and accrued and unpaid Late
Charges with respect to such Principal amount and Interest) and (z) the
Conversion Price of this Note or such new Notes shall be adjusted to the lesser
of (A) the Conversion Price as in effect on the date on which the applicable
Redemption Notice is voided and (B) the lowest Closing Bid Price of the Common
Stock during the period beginning on and including the date on which the
applicable Redemption Notice is delivered to the Company and ending on and
including the date on which the applicable Redemption Notice is voided. The
Holder's delivery of a notice voiding a Redemption Notice and exercise of its
rights following such notice shall not affect the Company's obligations to make
any payments of Late Charges which have accrued prior to the date of such notice
with respect to the Conversion Amount subject to such notice.
(b) Redemption by Other Holders. Upon the Company's receipt of
notice from any of the holders of the Other Notes requesting redemption or
repayment (without regard to whether the Company disputes the request for
redemption or repayment) as a result of an event or occurrence substantially
similar to the events or occurrences described in Section 4(b) or Section 5(b)
(each, an "Other Redemption Notice"), the Company shall immediately, but no
later than one (1) Business Day of its receipt thereof, forward to the Holder by
facsimile a copy of such notice. If the Company receives a Redemption Notice and
one or more Other Redemption Notices, during the seven (7) Business Day period
beginning on and including the date which is three (3) Business Days prior to
the Company's receipt of the Holder's Redemption Notice and ending on and
including the date which is three (3) Business Days after the Company's receipt
of the Holder's Redemption Notice and the Company is unable to redeem all
principal, interest and other amounts designated in such Redemption Notice and
such Other Redemption Notices received during such seven (7) Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Notes (including the Holder) based on the principal amount of the Notes
submitted for redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such seven Business Day
period.
- 20 -
(13) VOTING RIGHTS. The Holder shall have no voting rights as the holder
of this Note, except as required by law, including, but not limited to, the
General Corporation Law of the State of Delaware, and as expressly provided in
this Note.
(14) COVENANTS.
(a) Rank. All payments due under this Note (a) shall rank pari passu
with all Other Notes and (b) shall be senior to all other Indebtedness of the
Company and its Subsidiaries other than Permitted Senior Indebtedness.
(b) Incurrence of Indebtedness. So long as this Note is outstanding,
the Company shall not, and the Company shall not permit any of its Subsidiaries
to, directly or indirectly, incur or guarantee, assume or suffer to exist any
Indebtedness, other than (i) the Indebtedness evidenced by this Note and the
Other Notes and (ii) other Permitted Indebtedness.
(c) Existence of Liens. So long as this Note is outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, allow or suffer to exist any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, "Liens") other than Permitted Liens.
(d) Restricted Payments. The Company shall not, and the Company
shall not permit any of its Subsidiaries to, directly or indirectly, redeem,
defease, repurchase, repay or make any payments in respect of, by the payment of
cash or cash equivalents (in whole or in part, whether by way of open market
purchases, tender offers, private transactions or otherwise), all or any portion
of any Permitted Indebtedness, whether by way of payment in respect of principal
of (or premium, if any) or interest on, such Indebtedness if at the time such
payment is due or is otherwise made or, after giving effect to such payment, an
event constituting, or that with the passage of time and without being cured
would constitute, an Event of Default has occurred and is continuing.
(e) Restriction on Redemption and Cash Dividends. Until all of the
Notes have been converted, redeemed or otherwise satisfied in accordance with
their terms, the Company shall not, directly or indirectly, redeem, repurchase
or declare or pay any cash dividend or distribution on its capital stock without
the prior express written consent of the Required Holders other than the
Permitted Stock Buyback (as defined in the Securities Purchase Agreement).
- 21 -
(15) RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, shares or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a "Distribution"), at any time after the issuance of this
Note, then, the Holder shall, at its option and in its sole discretion, be
entitled to receive (a) such dividends paid and distributions made to the
holders of Common Stock to the same extent as if the Holder had converted this
Note into Common Stock (without regard to any limitations on conversion herein
or elsewhere) and had held such shares of Common Stock on the record date for
such dividends and distributions or (b) an adjustment to the Conversion Price in
effect immediately prior to the close of business on the record date fixed for
the determination of holders of Common Stock entitled to receive the
Distribution such that the Conversion Price shall be reduced, effective as of
the close of business on such record date, to a price determined by multiplying
such Conversion Price by a fraction of which (i) the numerator shall be the
Closing Bid Price of the Common Stock on the trading day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company's Board of Directors) applicable to one share of Common
Stock, and (ii) the denominator shall be the Closing Bid Price of the Common
Stock on the trading day immediately preceding such record date. Any payments
required pursuant to clause (a) of the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.
(16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at
a meeting duly called for such purpose or the written consent without a meeting
of the Required Holders shall be required for any change or amendment to this
Note or the Other Notes; provided that no such action may (i) reduce the rate
of, or extend the time for payment of Interest on, any Note; (ii) reduce the
Principal Amount of, or extend the Maturity Date of, any Note, or (iii) reduce
any Installment Amount of, or extend any Installment Date of, any Note without
the written consent of the Holder of such Note. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Notes then outstanding.
(17) TRANSFER. This Note and any shares of Common Stock issued upon
conversion of this Note may be offered, sold, assigned or transferred by the
Holder without the consent of the Company, subject only to the provisions of
Section 2(f) of the Securities Purchase Agreement.
(18) REISSUANCE OF THIS NOTE.
(a) Transfer. If this Note is to be transferred, the Holder shall
surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with Section
18(d)), registered as the Holder may request, representing the outstanding
Principal being transferred by the Holder and, if less then the entire
outstanding Principal is being transferred, a new Note (in accordance with
Section 18(d)) to the Holder representing the outstanding Principal not being
transferred. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of Section 3(c)(iii)
following conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note.
- 22 -
(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note, and, in the case of loss, theft or destruction, of
any indemnification undertaking by the Holder to the Company in customary form
and, in the case of mutilation, upon surrender and cancellation of this Note,
the Company shall execute and deliver to the Holder a new Note (in accordance
with Section 18(d)) representing the outstanding Principal.
(c) Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 18(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.
(d) Issuance of New Notes. Whenever the Company is required to issue
a new Note pursuant to the terms of this Note, such new Note (i) shall be of
like tenor with this Note, (ii) shall represent, as indicated on the face of
such new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 18(a) or Section 18(c), the Principal
designated by the Holder which, when added to the principal represented by the
other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note, which is the same as the Issuance Date of this Note, (iv)
shall have the same rights and conditions as this Note, and (v) shall represent
accrued and unpaid Interest and Late Charges, if any, on the Principal and
Interest of this Note, from the Issuance Date.
(19) 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 and any of the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by the
Company 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 and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
- 23 -
(20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
but not limited to, attorneys' fees and disbursements.
(21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed against
any person as the drafter hereof. The headings of this Note are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Note.
(22) 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.
(23) DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Conversion Rate or any Redemption Price,
the Company shall submit the disputed determinations or arithmetic calculations
via facsimile within one (1) Business Day of receipt, or deemed receipt, of the
Conversion Notice or Redemption Notice or other event giving rise to such
dispute, as the case may be, to the Holder. If the Holder and the Company are
unable to agree upon such determination or calculation within one (1) Business
Day of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within one Business Day submit via facsimile
(a) the disputed determination of the Closing Bid Price, the Closing Sale Price
or the Weighted Average Price to an independent, reputable investment bank
selected by the Company and approved by the Holder or (b) the disputed
arithmetic calculation of the Conversion Rate or any Redemption Price to the
Company's independent, outside accountant. The Company, at the Company's
expense, shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
Holder of the results no later than five (5) Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
(24) NOTICES; PAYMENTS.
(a) Notices. Whenever notice is required to be given under this
Note, unless otherwise provided herein, such notice shall be given in accordance
with Section 10(f) of the Securities Purchase Agreement. The Company shall
provide the Holder with prompt written notice of all actions taken pursuant to
this Note, including in reasonable detail a description of such action and the
reason therefore. Without limiting the generality of the foregoing, the Company
will give written notice to the Holder (i) immediately upon any adjustment of
the Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least twenty (20) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the Common Stock, (B) with respect to any pro
rata subscription offer to holders of Common Stock or (C) for determining rights
to vote with respect to any Fundamental Transaction, dissolution or liquidation,
provided in each case that such information shall be made known to the public
prior to or in conjunction with such notice being provided to the Holder.
- 24 -
(b) Payments. Whenever any payment of cash is to be made by the
Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the Purchasers, shall initially be as set forth on the Schedule
of Buyers attached to the Securities Purchase Agreement); provided that the
Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder's wire transfer instructions. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is
a Business Day and, in the case of any Interest Date which is not the date on
which this Note is paid in full, the extension of the due date thereof shall not
be taken into account for purposes of determining the amount of Interest due on
such date. Any amount of Principal or other amounts due under the Transaction
Documents, other than Interest, which is not paid when due shall result in a
late charge being incurred and payable by the Company in an amount equal to
interest on such amount at the rate of eighteen percent (18%) per annum from the
date such amount was due until the same is paid in full ("Late Charge").
(c) Taxes.
(i) Any and all payments made by the Company hereunder,
including any amounts received on a conversion or redemption of the Note and any
amounts on account of interest or deemed interest, must be made by it without
any Tax Deduction, unless a Tax Deduction is required by law. If the Company is
aware that it must make a Tax Deduction (or that there is a change in the rate
or the basis of a Tax Deduction), it must notify the Holder promptly.
(ii) If a Tax Deduction is required by law to be made by the
Company, subject to Section 24(a) above, the amount of the payment due from the
Company will be increased to an amount which (after making the Tax Deduction)
leaves an amount equal to the payment which would have been due if no Tax
Deduction had been required. If the Company is required to make a Tax Deduction,
it must make the minimum Tax Deduction allowed by law and must make any payment
required in connection with that Tax Deduction within the time allowed by law.
As soon as practicable after making a Tax Deduction or a payment required in
connection with a Tax Deduction, the Company must deliver to the Holder any
official receipt or form, if any, provided by or required by the taxing
authority to whom the Tax Deduction was paid.
- 25 -
(iii) In addition, the Company agrees to pay in accordance
with applicable law any present or future stamp or documentary taxes or any
other excise or property taxes, charges or similar levies that arise from any
payment made hereunder or in connection with the execution, delivery,
registration or performance of, or otherwise with respect to, this Note ("Other
Taxes"). As soon as practicable after making a payment of Other Taxes, the
Company must deliver to the Holder any official receipt or form, if any,
provided by or required by the taxing authority to whom the Tax Deduction was
paid.
(iv) The obligations of the Company under this Section 24(c)
shall survive the termination of this Note and the payment of the Note and all
other amounts payable hereunder.
(25) CANCELLATION. After all Principal, accrued Interest and other amounts
at any time owed on this Note have been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
(26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreement.
(27) GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York. The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. In the event that any provision
of this Note is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of this Note. Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action against the Company
in any other jurisdiction to collect on the Company's obligations to the Holder,
to realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court ruling in favor of the Holder. THE COMPANY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.
- 26 -
(28) CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:
(a) "Approved Stock Plan" means any employee benefit plan which has
been approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer or director for
services provided to the Company.
(b) "Bloomberg" means Bloomberg Financial Markets.
(c) "Business Day" means any day other than Saturday, Sunday or any
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(d) "Calendar Quarter" means each of: (i) the three-month period
beginning on and including January 1 and ending on and including March 31; (ii)
the three-month period the period beginning on and including April 1 and ending
on and including June 30; (iii) the three-month period the period beginning on
and including July 1 and ending on and including September 30; and (vi) the
three-month period the period beginning on and including October 1 and ending on
and including December 31.
(e) "Change of Control" means any Fundamental Transaction other than
(i) any reorganization, recapitalization or reclassification of the Common Stock
in which holders of the Company's voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, 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, or (ii) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company.
(f) "Change of Control Consideration" means, for any Change of
Control, an amount, if any, equal to the sum of the aggregate cash consideration
and the aggregate cash value of any marketable securities per share of Common
Stock to be paid to the holders of the Common Stock upon consummation of such
Change of Control, with any such marketable securities to be valued at the
Closing Sale Price of such securities as of the Trading Day following the public
announcement of such proposed Change of Control.
(g) "Change of Control Redemption Premium" means (i) for Change of
Control Notice delivered or required to be delivered in connection with a Change
of Control prior to the thirtieth (30th) month following of the Issuance Date,
120% and (ii) for any Change of Control Notice delivered or required to be
delivered in connection with a Change of Control following the thirtieth (30th)
month following the Issuance Date, 112.5%.
(h) "Closing Bid Price" and "Closing Sale Price" means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 23. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
- 27 -
(i) "Closing Date" shall have the meaning set forth in the
Securities Purchase Agreement, which date is the date the Company initially
issued Notes pursuant to the terms of the Securities Purchase Agreement.
(j) "Common Stock Deemed Outstanding" means, at any given time, the
number of shares of Common Stock outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 7(a)(i) and
7(a)(ii) hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any Common Stock owned or held
by or for the account of the Company or issuable upon conversion or exercise, as
applicable, of the Notes and the Warrants.
(k) "Company Conversion Price" means, the lower of (i) the
applicable Conversion Price and (ii) that price which shall be computed as 90%
of the arithmetic average of the Weighted Average Price of the Common Stock on
each of the twenty (20) consecutive Trading Days immediately following the
applicable Installment Date (each such period, a "Company Conversion Measuring
Period"). All such determinations to be appropriately adjusted for any stock
split, stock dividend, stock combination or other similar transaction that
proportionately decreases or increases the Common Stock the applicable such
Company Conversion Measuring Period.
(l) "Consolidated EBITDA" means, with respect to any Person and its
Subsidiaries for any applicable Fiscal Quarters, the Consolidated Net Income of
such Person and its Subsidiaries as set forth in the financial statements of the
Company contained in the Form 10-Q or Form 10-K of the Company for the
applicable Fiscal Quarter, plus without duplication, the sum of the following
amounts of the Company and its Subsidiaries for such period to the extent
deducted in determining Consolidated Net Income of such Persons for such period:
(i) Consolidated Net Interest Expense, (ii) income tax expense, (iii)
depreciation expense and (iv) amortization expense.
- 28 -
(m) "Consolidated Net Income" means, for any applicable period, the
net income (loss) of the Company and its Subsidiaries for such period,
determined on a consolidated basis and in accordance with GAAP, but excluding
from the determination of Consolidated Net Income (without duplication) (a) any
extraordinary or non recurring gains or losses or gains or losses from
Dispositions, (b) restructuring charges, (c) any tax refunds, net operating
losses or other net tax benefits, (d) effects of discontinued operations and (e)
interest income (including interest paid-in-kind).
(n) "Consolidated Net Interest Expense" means, for any applicable
period, gross interest expense of the Company and its Subsidiaries for such
period determined on a consolidated basis and in accordance with GAAP, less (i)
the sum of (A) interest income for such period and (B) gains for such period on
Hedging Agreements (to the extent not included in interest income above and to
the extent not deducted in the calculation of gross interest expense), plus (ii)
the sum of (A) losses for such period on Hedging Agreements (to the extent not
included in gross interest expense) and (B) the upfront costs or fees for such
period associated with Hedging Agreements (to the extent not included in gross
interest expense), in each case, determined on a consolidated basis and in
accordance with GAAP.
(o) "Contingent Obligation" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.
(p) "Conversion Share Ratio" means, as to any applicable date of
determination, the quotient of (i) the number of Pre-Installment Conversion
Shares delivered in connection with such Installment Date divided by (ii) the
number of Post-Installment Conversion Shares relating to such Installment Date.
(q) "Convertible Securities" means any stock or securities (other
than Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.
(r) "Effective Date" has the meaning ascribed to such term in the
Registration Rights Agreement.
(s) "Eligible Market" means the Principal Market, The New York Stock
Exchange, Inc., the Nasdaq National Market or The Nasdaq Capital Market.
- 29 -
(t) "Equity Conditions" means that each of the following conditions
is satisfied: (i) on each day during the period beginning six (6) month prior to
the applicable date of determination and ending on and including the applicable
date of determination (the "Equity Conditions Measuring Period"), either (x) the
Registration Statement filed pursuant to the Registration Rights Agreement shall
be effective and available for the resale of all remaining Registrable
Securities in accordance with the terms of the Registration Rights Agreement and
there shall not have been any Grace Periods (as defined in the Registration
Rights Agreement) or (y) all shares of Common Stock issuable upon conversion of
the Notes and exercise of the Warrants shall be eligible for sale without
restriction and without the need for registration under any applicable federal
or state securities laws; (ii) on each day during the Equity Conditions
Measuring Period, the Common Stock is designated for quotation on the Principal
Market or any other Eligible Market and shall not have been suspended from
trading on such exchange or market (other than suspensions of not more than two
(2) days and occurring prior to the applicable date of determination due to
business announcements by the Company) nor shall delisting or suspension by such
exchange or market been threatened or pending either (A) in writing by such
exchange or market or (B) by falling below the then effective minimum listing
maintenance requirements of such exchange or market; (iii) during the one (1)
year period ending on and including the date immediately preceding the
applicable date of determination, the Company shall have delivered shares of
Common Stock upon conversion of the Notes and upon exercise of the Warrants to
the holders on a timely basis as set forth in Section 3(c)(ii) hereof (and
analogous provisions under the Other Notes) and Section 1(a) of the Warrants;
(iv) any applicable shares of Common Stock to be issued in connection with the
event requiring determination may be issued in full without violating Section
3(d) hereof and the rules or regulations of the Principal Market; (v) the
Company shall not have failed to timely make any payments within five (5)
Business Days of when such payment is due pursuant to any Transaction Document;
(vi) during the Equity Conditions Measuring Period, there shall not have
occurred either (A) the public announcement of a pending, proposed or intended
Fundamental Transaction which has not been abandoned, terminated or consummated,
or (B) an Event of Default or (C) an event that with the passage of time or
giving of notice would constitute an Event of Default; (vii) the Company shall
have no knowledge of any fact that would cause (x) the Registration Statements
required pursuant to the Registration Rights Agreement not to be effective and
available for the resale of all remaining Registrable Securities in accordance
with the terms of the Registration Rights Agreement or (y) any shares of Common
Stock issuable upon conversion of the Notes and shares of Common Stock issuable
upon exercise of the Warrants not to be eligible for sale without restriction
pursuant to Rule 144(k), to the extent applicable, and any applicable state
securities laws; and (viii) the Company otherwise shall have been in compliance
with and shall not have breached any provision, covenant, representation or
warranty of any Transaction Document.
(u) "Equity Conditions Failure" means that (i) on any day during the
period commencing ten (10) Trading Days prior to the applicable Company
Installment Notice Date through the applicable Installment Date and (ii) on any
day during the period commencing ten (10) Trading Days prior to the applicable
Optional Redemption Notice Date through the applicable Optional Redemption Date,
the Equity Conditions have not been satisfied (or waived in writing by the
Holder).
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(v) "Excluded Securities" means any Common Stock issued or issuable:
(i) in connection with any Approved Stock Plan (including any Approved Stock
Plan hereinafter established); (ii) upon conversion of the Notes or the exercise
of the Warrants; (iii) pursuant to a bona fide firm commitment underwritten
public offering with a nationally recognized underwriter which generates gross
proceeds to the Company in excess of $25,000,000 (other than an "at-the-market
offering" as defined in Rule 415(a)(4) under the 1933 Act and "equity lines");
(iv) in connection with any strategic acquisition or transaction by the Company,
whether through an acquisition of stock or a merger of any business, assets or
technologies the primary purpose of which is not to raise equity capital; (v) in
connection with a Subsequent Placement (as defined in the Securities Purchase
Agreement) of Common Stock with the then current stockholders of the Company
that is consummated prior to the earlier of (A) the twenty first (21st) calendar
day after effectiveness of the Form SB-2 filed pursuant to the Securities
Purchase Agreement, dated as of November 23, 2005, by and among the Company and
the investors listed on Exhibit A attached thereto and (B) December 15, 2006,
which Subsequent Placement of Common Stock (A) does not exceed $6,000,000 in the
aggregate, (B) is at an issuance price per share of Common Stock not less than
$0.50 and (C) has been effected in accordance with Section 4(o) of the
Securities Purchase Agreement and (vii) upon conversion of any Options or
Convertible Securities which are outstanding on the day immediately preceding
the Subscription Date, provided that the terms of such Options or Convertible
Securities are not amended, modified or changed on or after the Subscription
Date.
(w) "Fiscal Quarter" means each of the fiscal quarters adopted by
the Company for financial reporting purposes that correspond to the Company's
fiscal year that ends on December 31, or such other fiscal quarter adopted by
the Company for financial reporting purposes in accordance with GAAP.
(x) "Full Adjustment Period" means, initially, the period commencing
on the Subscription Date and ending on and including the twelve (12) month
anniversary of the Effective Date; provided, however, that if, during the three
(3) month period commencing on the date the Form SB-2 (SEC file number
333-130535) filed by the Company on December 21, 2005 is declared effective by
the United States Securities and Exchange Commission, the Weighted Average Price
of the Common Stock on each of any ten (10) Trading Days during any twenty (20)
consecutive Trading Day period is less than $0.50 (as adjusted for stock splits,
stock dividends, reverse stock splits, recapitalizations, reclassifications and
similar events) (the "Extension Event") then, the Full Adjustment Period shall
continue through the twenty-four month anniversary of the Effective Date.
(y) "Fundamental Transaction" means that the Company shall, directly
or indirectly, in one or more related transactions, (i) consolidate or merge
with or into (whether or not the Company is the surviving corporation) another
Person or Persons, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company to
another Person, or (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Voting Stock (not including any shares of Voting Stock
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of the outstanding shares of Voting Stock (not including any
shares of Voting Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock or (vi) any "person" or "group" (as
these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act) is or shall become the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock
of the Company.
- 31 -
(z) "GAAP" means United States generally accepted accounting
principles, consistently applied.
(aa) "Holder Pro Rata Amount" means a fraction (i) the numerator of
which is the Original Principal Amount of this Note and (ii) the denominator of
which is the aggregate Original Principal Amount of all Notes issued to the
initial purchasers pursuant to the Securities Purchase Agreement on the Closing
Date.
(bb) "Indebtedness" of any Person means, without duplication (i) all
indebtedness for borrowed money, (ii) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services, including
(without limitation) "capital leases" in accordance with GAAP (other than trade
payables entered into in the ordinary course of business), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (iv) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(v) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (vi) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in clauses (i)
through (vi) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (viii) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vii) above.
(cc) "Initial Company Conversion Price" means, as of any date of
determination, that price which shall be the lower of (i) the applicable
Conversion Price and (ii) that price computed as 90% of the arithmetic average
of the five (5) lowest Weighted Average Prices of the Common Stock during the
ten (10) consecutive Trading Day period ending on the second (2nd) Trading Day
immediately prior to the Installment Date (such period, the "Initial Company
Conversion Measuring Period"). All such determinations to be appropriately
adjusted for any stock split, stock dividend, stock combination or other similar
transaction that proportionately decreases or increases the Common Stock during
such Initial Company Conversion Measuring Period.
- 32 -
(dd) "Installment Amount" means with respect to any Installment
Date, the lesser of (A) the product of (i) $882,352.94, multiplied by (ii)
Holder Pro Rata Amount and (B) the Principal amount under this Note as of such
Installment Date, as any such Installment Amount may be reduced pursuant to the
terms of this Note, whether upon conversion, redemption or otherwise, together
with, in each case the sum of any accrued and unpaid Interest with respect to
such Principal amount and accrued and unpaid Late Charges, if any, with respect
to such Principal amount and Interest. In the event the Holder shall sell or
otherwise transfer any portion of this Note, the transferee shall be allocated a
pro rata portion of the each unpaid Installment Amount hereunder; provided,
however, that in the event that the Company reports for either the Fiscal
Quarter ended December 31, 2006 or the Fiscal Quarter ended March 31, 2007 (1)
Revenues in excess of $20,000,000 and (2) a Consolidated EBITDA of not less than
$0 (the foregoing, the "Financial Test"), then (x) for each Installment Date
other than the final Installment Date, the applicable Installment Amount in
clause (A) above shall be the product of 820,000.00 and the Holder Pro Rata
Amount and (y) for the final Installment Date, the applicable Installment Amount
in clause (A) above shall be the product of $2,700,000.00 and the Holder Pro
Rata Amount.
(ee) "Installment Balance Conversion Shares" means, for any
Installment Date, a number of shares of Common Stock equal to (i) the
Post-Installment Conversion Shares for such date minus (ii) the amount of any
Pre-Installment Conversion Shares delivered on such date; provided that in the
event that the amount of Pre-Installment Conversion Shares exceeds the
Post-Installment Conversion Shares for such date (such excess, the "Installment
Conversion Shares Excess"), the outstanding Principal under this Note shall be
reduced by the product of (x) the Installment Conversion Share Excess and (y)
the Company Conversion Price and the Installment Balance Conversion Shares shall
equal zero (0).
(ff) "Installment Date" means each of the following dates: (i) May
31, 2007; provided, however, that if the Financial Test is satisfied the first
Installment Date shall be the date set forth in clause (ii) hereof, (ii) July
31, 2007, (iii) September 30, 2007, (iv) November 30, 2007, (v) January 31,
2008, (vi) March 31, 2008, (vii) May 31, 2008, (viii) July 31, 2008, (ix)
September 30, 2008, (x) November 30, 2008, (xi) January 31, 2009, (xii) March
31, 2009, (xiii) May 31, 2009, (xiv) July 31, 2009, (xv) September 30, 2009,
(xvi) November 30, 2009 and (xvii) January 31, 2010.
(gg) "Installment Volume Limitation" means 20% of the aggregate
dollar trading volume (as reported on Bloomberg) of the Common Stock on the
Principal Market for the twenty-five (25) Trading Days with the lowest dollar
trading volume over the thirty (30) consecutive Trading Day period prior to the
applicable Installment Notice Date.
(hh) "Interest Rate" means, initially nine percent (9.0%) per annum,
subject to adjustment at the beginning of each Calendar Quarter beginning with
the Calendar Quarter ended March 31, 2007 in the event that the Interest Rate
Conditions are satisfied as prior to the end of such applicable Calendar
Quarter, then the Interest Rate shall be adjusted to equal, as of the first
(1st) Business Day of such Calendar Quarter and each successive Calendar
Quarter, the applicable LIBOR; provided, however, that in no event shall the
Interest Rate hereunder be less than five and one-half percent (5.5%).
(ii) "Interest Rate Conditions" means that (i) the Company has
reported cumulative Consolidated EBITDA for three (3) consecutive Fiscal
Quarters in excess of $9,000,000 with at least $3,000,000 in Consolidated EBITDA
reported for the most recent of such Fiscal Quarters, (ii) following public
disclosure of the Consolidated EBITDA amounts referred to in clause (i) hereof,
the Weighted Average Price of the Common Stock during any five (5) consecutive
Trading Days is greater than the Conversion Price in effect on the Issuance Date
and (iii) as of and from the date of the public disclosure referred to in clause
(ii) hereof, the Equity Conditions are satisfied (or waived in writing by the
Holder).
- 33 -
(jj) "LIBOR" means, (i) the six-month London Interbank Offered Rate
for deposits in U.S. dollars, as shown on such date in The Wall Street Journal
(Eastern Edition) under the caption "Money Rates - London Interbank Offered
Rates (LIBOR)"; or (ii) if The Wall Street Journal does not publish such rate,
the offered one-month rate for deposits in U.S. dollars which appears on the
Reuters Screen LIBO Page as of 10:00 a.m., New York time, each day, provided
that if at least two rates appear on the Reuters Screen LIBO Page on any day,
the "LIBOR" for such day shall be the arithmetic mean of such rates.
(kk) "Make-Whole Amount" means, as to any Conversion Amount being
redeemed pursuant to Section 9, an amount equal to the difference between (i) an
amount of Interest that, but for the applicable conversion, would have been paid
to the Holder on such Conversion Amount from the Issuance Date through the third
(3rd) anniversary of the Issuance Date and (ii) the amount of Interest already
paid to the Holder through the Optional Redemption Date.
(ll) "Material Subsidiary" means any Subsidiary (as defined in the
Securities Purchase Agreement) that is a "significant subsidiary" within the
meaning of Regulation S-X adopted by the SEC.
(mm) "Options" means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.
(nn) "Parent Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.
(oo) "Permitted Indebtedness" means (i) Permitted Senior
Indebtedness and (ii) Indebtedness evidenced by this Note and the Other Notes;
(iii) other unsecured Indebtedness incurred by the Company and /or any of its
Subsidiaries that is made expressly subordinate in right of payment to the
Indebtedness evidenced by this Note, as reflected in a written agreement
acceptable to the Required Holders and approved by the Required Holders in
writing, and which Indebtedness does not provide at any time for (A) the
payment, prepayment, repayment, repurchase or defeasance, directly or
indirectly, of any principal or premium, if any, thereon until ninety-one (91)
days after the Maturity Date or later and (B) total interest and fees at a rate
in excess of the initial Interest Rate per annum.
- 34 -
(pp) "Permitted Liens" means (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, (iii) any Lien
created by operation of law, such as materialmen's liens, mechanics' liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment
(as defined in the Security Agreement) acquired or held by the Company or any of
its Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition or lease of such
equipment, or (B) existing on such equipment at the time of its acquisition,
provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment, (v) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clauses (i) and (iv) above, provided
that any extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase, (vi) Liens securing
Permitted Senior Indebtedness; (vii) leases or subleases and licenses and
sublicenses granted to others in the ordinary course of the Company's business,
not interfering in any material respect with the business of the Company and its
Subsidiaries taken as a whole, (viii) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payments of custom duties in
connection with the importation of goods, and (ix) Liens arising from judgments,
decrees or attachments in circumstances not constituting an Event of Default
under Section 4(a)(ix).
(qq) "Permitted Senior Indebtedness" means (i) the principal of (and
premium, if any), interest on, and all fees and other amounts (including,
without limitation, any reasonable out-of-pocket costs, enforcement expenses
(including reasonable out-of-pocket legal fees and disbursements), collateral
protection expenses and other reimbursement or indemnity obligations relating
thereto) payable by Company and/or its Subsidiaries under or in connection with
any credit facility to be entered into by the Company and/or its Subsidiaries
with one or more financial institutions (and on terms and conditions) at any
time following the Effective Date relating to the shares of Common Stock
underlying this Note, in form and substance reasonably satisfactory to the
Required Holders, (ii) Indebtedness under capitalized lease obligations in an
aggregate amount for all such leases of less than or equal to $250,000 incurred
in any twelve (12) month period and (iii) Indebtedness set forth on Schedule A
hereto; provided, however, that the aggregate outstanding amount of such
Indebtedness permitted hereunder (taking into account the maximum amounts which
may be advanced under the loan documents evidencing such Permitted Senior
Indebtedness) does not at any time exceed $12,000,000.
(rr) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(ss) "Post-Installment Conversion Shares" means, for any Installment
Date, that number of shares of Common Stock equal to the applicable Company
Conversion Amount for such Installment Date divided by the Company Conversion
Price (without taking into account the delivery of any Pre-Installment
Conversion Shares).
(tt) "Principal Market" means the OTC Bulletin Board.
- 35 -
(uu) "Redemption Notices" means, collectively, the Event of Default
Redemption Notices, Change of Control Redemption Notices, the Company
Installment Notices (if a Company Redemption has been elected) and the Optional
Redemption Notices and, each of the foregoing, individually, a Redemption
Notice.
(vv) "Redemption Premium" means (i) in the case of the Events of
Default described in Section 4(a)(i) - (vi) and (ix) - (xii), 125% or (ii) in
the case of the Events of Default described in Section 4(a)(vii) - (viii), 100%.
(ww) "Redemption Prices" means, collectively, the Event of Default
Redemption Price, Change of Control Redemption Price, the Company Redemption
Price and the Optional Redemption Price and, each of the foregoing,
individually, a Redemption Price.
(xx) "Registration Rights Agreement" means that certain registration
rights agreement, dated as of the Subscription Date by and among the Company and
the initial holders of the Notes relating to, among other things, the
registration of the resale of the Common Stock issuable upon conversion of the
Notes and exercise of the Warrants, as amended from time to time.
(yy) "Required Holders" means the holders of Notes representing at
least a majority of the aggregate principal amount of the Notes then
outstanding.
(zz) "Revenues" means the amount set forth in the line item entitled
"Total Revenue" in the Company's publicly available financial statements, as
prepared in accordance with GAAP.
(aaa) "SEC" means the United States Securities and Exchange
Commission.
(bbb) "Securities Purchase Agreement" means that certain securities
purchase agreement dated as of the Subscription Date by and among the Company
and the initial holders of the Notes pursuant to which the Company issued the
Notes and Warrants, as amended from time to time.
(ccc) "Series B Warrants" has the meaning ascribed to such term in
the Securities Purchase Agreement, and shall include all successors thereto.
(ddd) "Stockholder Approval Date" has the meaning ascribed to such
term in the Securities Purchase Agreement.
(eee) "Stockholder Meeting Deadline" has the meaning ascribed to
such term in the Securities Purchase Agreement.
(fff) "Subscription Date" means July 26, 2006.
(ggg) "Successor Entity" means the Person, which may be the Company,
formed by, resulting from or surviving any Fundamental Transaction or the Person
with which such Fundamental Transaction shall have been made, provided that if
such Person is not a publicly traded entity whose common stock or equivalent
equity security is quoted or listed for trading on an Eligible Market, Successor
Entity shall mean such Person's Parent Entity.
- 36 -
(hhh) "Tax" means any tax, levy, impost, duty or other charge or
withholding of a similar nature (including any related penalty or interest).
(iii) "Tax Deduction" means a deduction or withholding for or on
account of Tax from a payment under the Notes.
(jjj) "Trading Day" means any day on which the Common Stock is
traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities exchange
or securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York Time).
(kkk) "Voting Stock" of a Person means capital stock of such Person
of the class or classes pursuant to which the holders thereof have the general
voting power to elect, or the general power to appoint, at least a majority of
the board of directors, managers or trustees of such Person (irrespective of
whether or not at the time capital stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
(lll) "Warrants" has the meaning ascribed to such term in the
Securities Purchase Agreement, and shall include all warrants issued in exchange
therefor or replacement thereof.
(mmm) "Weighted Average Price" means, for any security as of any
date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other time as
the Principal Market publicly announces is the official close of trading) as
reported by Bloomberg through its "Volume at Price" functions, or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such market publicly announces is the official open of
trading), and ending at 4:00:00 p.m., New York Time (or such other time as such
market publicly announces is the official close of trading) as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the "pink sheets" by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Weighted Average Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Weighted Average Price of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 23. All such
determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during the applicable calculation
period.
- 37 -
(29) DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries, the Company
shall within one (1) Business Day after any such receipt or delivery publicly
disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains
material, nonpublic information relating to the Company or its Subsidiaries, the
Company so shall indicate to such Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.
[Signature Page Follows]
- 38 -
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
as of the Issuance Date set out above.
BRAVO! BRANDS INC.
By:___________________________________
Name:
Title:
EXHIBIT I
BRAVO! BRANDS INC.
CONVERSION NOTICE
Reference is made to the Amended and Restated Senior Convertible Note (the
"Note") issued to the undersigned by Bravo! Brands Inc. (the "Company"). In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock par value $0.001 per share (the "Common
Stock") of the Company, as of the date specified below.
Date of Conversion:
----------------------------------------------------
Aggregate Conversion Amount to be converted:
----------------------------
Please confirm the following information:
Conversion Price:
------------------------------------------------------
Number of shares of Common Stock to be issued:
-------------------------
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to:
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Facsimile Number:
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Authorization:
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By:
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Title:
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Dated:
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Account Number:
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(if electronic book entry transfer)
Transaction Code Number:
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(if electronic book entry transfer)
Installment Amounts to be reduced and amount of reduction:
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ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
American Stock Transfer & Trust Company to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
July 27, 2006 from the Company and acknowledged and agreed to by American Stock
Transfer & Trust Company.
BRAVO! BRANDS INC.
By:______________________________________________
Name:
Title: