EXHIBIT 10.1
SENIOR SECURED CONVERTIBLE NOTE
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE 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, IN A REASONABLY ACCEPTABLE FORM, 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.
RED ROCK PICTURES HOLDINGS, INC.
SENIOR SECURED CONVERTIBLE NOTE
Issuance Date: December __, 2008 Original Principal Amount: U.S. $100,000
FOR VALUE RECEIVED, Red Rock Pictures Holdings, Inc., a Nevada corporation
(the "Company"), hereby promises to pay to Emerald Asset Advisors, LLC, a
company domiciled in Delaware, 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), 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), the Maturity Date, acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof). This Senior
Secured Convertible Note (including all Senior Secured Convertible Notes issued
in exchange, transfer or replacement hereof, this "Note") is being issued in
connection with the Holder's delivery of $100,000 to the Company on December __,
2008. Certain capitalized terms used herein are defined in Section 29.
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PAYMENTS OF PRINCIPAL. 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, if any, on such Principal and
Interest. The "Maturity Date" shall be December __, 2009, 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
that shall have occurred and be continuing 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. The
Company may prepay any portion of the outstanding Principal, accrued and unpaid
Interest or accrued and unpaid Late Charges, if any, on such Principal and
Interest, without penalty for early payment.
INTEREST; INTEREST RATE. Interest on this Note shall commence accruing on the
Issuance Date at a rate of ten percent (10.0%) per annum ("Interest Rate") 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 cash on the Maturity Date (an "Interest
Date"). Prior to the payment of Interest on the Interest Date, Interest on this
Note shall accrue at the Interest Rate and be payable by way of inclusion of the
Interest in the Conversion Amount in accordance with Section 3(b)(i), provided a
conversion occurs. From and after the occurrence of an Event of Default, the
Interest Rate shall be increased to twenty percent (20.0%) ("Default Interest
Rate"). 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 at the
Default Interest 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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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.
Conversion Right. Subject to the provisions of Section 3(d), at any time or
times on or after the date hereof, 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 taxes that may be payable with respect
to the issuance and delivery of Common Stock upon conversion of any Conversion
Amount.
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").
"Conversion Amount" means the sum of (A) the portion of the Principal to be
converted, redeemed or otherwise with respect to which this determination is
being made, (B) accrued and unpaid Interest with respect to such Principal and
(C) accrued and unpaid Late Charges with respect to such Principal and Interest.
"Conversion Price" means, as of any Conversion Date (as defined below) or other
date of determination, $006, subject to adjustment as provided herein.
Mechanics of Conversion.
Optional Conversion. To convert any Conversion Amount into shares of Common
Stock on any date (a "Conversion Date"), the Holder shall (A) transmit by
facsimile (or otherwise deliver), for receipt on or prior to 11:59 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) Trading 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 second (2nd)
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Trading Day following the date of receipt of a Conversion Notice (the "Share
Delivery Date"), the Company shall (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. 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 three (3) 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.
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 upon conversion of any Conversion Amount (a "Conversion
Failure"), then (A) the Company shall pay damages to the Holder for each day of
such Conversion Failure in an amount equal to 1.5% of the product of (I) the sum
of the number of shares of Common Stock not issued to the Holder on or prior to
the Share Delivery Date and to which the Holder is entitled, and (II) the
Closing Sale Price of the Common Stock on the Share Delivery Date and (B) the
Holder, upon written notice to the Company, may void its Conversion Notice with
respect to, and retain or have returned, as the case may be, any portion of this
Note that has not been converted pursuant to such Conversion Notice; provided
that the voiding of a Conversion Notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such
notice pursuant to this Section 3(c)(ii) or otherwise. In addition to the
foregoing, 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
upon such holder's conversion of any Conversion Amount, 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) Trading Days
after the Holder's request and in the Holder's discretion, either (i) pay cash
to the Holder in an amount equal to the Holder's total purchase price (including
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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 issue and deliver such certificate or to credit the Holder's
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon such Holder's conversion of any Conversion Amount shall
terminate, or (ii) 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 (A) such number of shares of Common Stock, times (B) the Closing Bid
Price on the Conversion Date.
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 request to
assign or sell all or part of any Registered Note by a Holder, 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,
if any, 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.
Limitations on Conversions. 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 4.99% (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
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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) 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 "Exchange 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 (x) the Company's most recent Form 10-K, Form 10-Q or Form 8-K, as the case
may be, (y) a more recent public announcement by the Company or (z) any other
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 from time to time
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.
RIGHTS UPON EVENT OF DEFAULT.
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Event of Default. Each of the following events shall constitute an "Event of
Default":
the failure of the Company to timely file its SEC reports on Form 10-Q or Form
10-K;
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;
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the failure of the Company to redeem all outstanding Principal and Interest of
the Note upon its completion of a Qualified Financing.
the Company's (A) failure to cure a Conversion Failure by delivery of 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 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;
at any time following the tenth (10th) consecutive Business Day that the
Holder's Authorized Share Allocation 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);
the Company's failure to pay to the Holder any amount of Principal, Redemption
Price, Interest, Late Charges or other amounts when and as due under this Note
or any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby and thereby to which the
Holder is a party, 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 three (3) Business Days;
any default under, redemption of or acceleration prior to maturity of any
Indebtedness of the Company or any of its subsidiaries ("Subsidiaries");
the Company or any of its 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;
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 Subsidiaries in an
involuntary case, (B) appoints a Custodian of the Company or any of its
Subsidiaries or (C) orders the liquidation of the Company or any of its
Subsidiaries;
a final judgment or judgments for the payment of money aggregating in excess of
$75,000 are rendered against the Company or any of its Subsidiaries and which
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 creditworthy party shall
not be included in calculating the $75,000 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;
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the Company breaches any representation, warranty, covenant or other term or
condition of the Note, except, in the case of a breach of a covenant which is
curable, only if such breach continues for a period of at least ten (10)
consecutive Business Days; or
any breach or failure in any respect to comply with Section 14 of this Note.
Redemption Right. Upon the occurrence of an Event of Default with respect to
this 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 and (B) the Redemption Premium and (ii) the product of (A)
the Conversion Rate with respect to such Conversion Amount in effect at such
time as the Holder delivers an Event of Default Redemption Notice and (B) the
greater of (I) the Closing Sale Price of the Common Stock on the date
immediately preceding such Event of Default, (II) the Closing Sale Price of the
Common Stock on the date immediately after such Event of Default and (III) 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. 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.
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Mandatory Redemption. In the event that the Company raises gross proceeds in the
amount of $1,000,000 or more at anytime while this Note is outstanding, the
Company shall be required to immediately redeem all of the then outstanding
Principal, Interest and Penalties, if any, then due under this Note.
RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
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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 satisfactory to the Holder and approved by the
Holder 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 then outstanding and the
interest rates of the Notes held by such holder, having similar conversion
rights as the Notes and having similar ranking to the Notes, and satisfactory to
the 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 (specifically excluding the Principal Market).
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 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, 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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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 on the date of the Holder's
receipt of a Change of Control Notice and ending twenty (20) Trading Days after
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 product of (x) the Conversion Amount being redeemed and (y) the quotient
determined by dividing (A) the greater of the Closing Sale Price of the Common
Stock immediately prior to the consummation of the Change of Control, the
Closing Sale Price 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 (B) the Conversion Price and (ii) 125% of the Conversion Amount being
redeemed (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) may be converted, in whole or in part, by the
Holder into shares of Common Stock, or in the event the Conversion Date is after
the consummation of the Change of Control, shares of publicly traded common
stock (or their equivalent) of the Successor Entity pursuant to Section 3. 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 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.
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RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
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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 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.
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 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 Holder. 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.
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RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
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Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on
or after the Issuance Date, 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. For
purposes of determining the adjusted Conversion Price under this Section 7(a),
the following shall be applicable:
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 each such share of
Common Stock underlying such Option 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.
32
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 each
such share of Common Stock underlying such Convertible Securities 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.
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.
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, (x) the Options will be
deemed to have been issued for a value determined by use of the Black
Scholes Option Pricing Model (the "Option Value") and (y) the other
securities issued or sold in such integrated transaction shall be deemed to
have been issued for the difference of (I) the aggregate consideration
received by the Company, less (II) the Option Value. 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,
33
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 stockholders 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
Holder. 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, at the
Company's expense, 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 Holder. The determination of such
appraiser shall be deemed binding upon all parties absent manifest error.
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.
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.
34
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.
De Minimis Adjustments. No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least $0.01
in such price; provided, however, that any adjustment which by reason of this
Section 7(d) is not required to be made shall be carried forward and taken into
account in any subsequent adjustments under this Section 7. All calculations
under this Section 7 shall be made by the Company in good faith and shall be
made to the nearest cent or to the nearest one hundredth of a share, as
applicable. No adjustment need be made for a change in the par value or no par
value of the Company's Common Stock.
Voluntary Adjustment By Company. The Company may at any time during the term of
this Note reduce the then current Conversion Price to any amount and for any
period of time deemed appropriate by the Board of Directors of the Company.
Reserved.
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SECURITY. This Note is secured to the extent and in the manner set forth in the
Security Agreement dated as of even date herewith.
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.
RESERVATION OF AUTHORIZED SHARES.
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Reservation. The Company shall initially reserve out of its authorized and
unissued Common Stock 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
35
each such Note as of the Issuance Date. So long 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) (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.
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 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.
36
HOLDER'S REDEMPTIONS. 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 the Holder Optional Redemption Price to the
Holder within five (5) Business Days after the Company's receipt of the Holder
Redemption Notice. In the event of a redemption of less than all of such
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 such 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 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 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.
37
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 Delaware
General Corporation Law of theF State of Delaware and as expressly provided in
this Note.
COVENANTS.
Rank. All payments due under this Note shall rank senior to all other
Indebtedness of the Company and its Subsidiaries, other than Permitted
Indebtedness secured by Permitted Liens.
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 (ii) Permitted
Indebtedness.
Right of First Refusal to Participate in any Future Financings. So long as this
Note is outstanding, the Company shall first offer to the Holder the right to
participate in 100% of any subsequent financing through its sale and issuance of
equity, debt or any combination thereof. The Company shall deliver a term sheet
describing the material terms of any such transaction to the Holder at least 10
days prior to the proposed closing of such transaction and the Holder shall have
5 days to indicate to the Company how much, if any, of such subsequent financing
Holder intends to purchase. If the terms of such subsequent financing are
changed materially after the Holder determines not to participate in any such
subsequent financing, then the Holder shall be notified of any such change at
least 10 days prior to the proposed closing of such modified transaction and
shall have 5 days to indicate to the Company its willingness to participate and
to what extent. This right shall not be extinguished if the Company subsequently
raises additional funds if the Holder either does or does not participate in any
previous transaction to which it was entitled to pursuant to its right of
participation herein.
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.
38
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
Indebtedness (other than this Note and the Other Notes), 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; provided that notwithstanding the foregoing, no
principal (or any portion thereof) of any Subordinated Indebtedness may be paid
(whether upon maturity, redemption, acceleration or otherwise) so long as this
Note is outstanding.
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 Holder.
Intellectual Property. So long as any Note is outstanding, the Company shall
not, and shall not permit any Subsidiary to, directly or indirectly, (i) assign,
transfer or otherwise encumber or allow any other Person to have any rights or
license any intellectual property rights of the Company or its Subsidiaries
other than Permitted Indebtedness and Permitted Liens, (ii) grant any royalties
and other Indebtedness with respect to any of the Intellectual Property Rights
other than Permitted Indebtedness or (ii) take any action or inaction to impair
the value of their Intellectual Property Rights.
Creation of New Subsidiaries. So long as the obligations of the Company under
this Note are outstanding, if the Company shall create or acquire any
Subsidiary, simultaneous with the creation or acquisition of such Subsidiary,
the Company shall (i) promptly cause such Subsidiary to become a guarantor by
executing a guaranty in favor of the Holder in form and substance reasonably
acceptable to the Company, the Subsidiary and the Holder, (ii) promptly cause
such Subsidiary to become a grantor under the Security Agreement by executing a
joinder to the Security Agreement in form and substance reasonably acceptable to
the Company, the Subsidiary and the Holder, (iii) promptly cause such Subsidiary
to become a pledgor by the Company and such Subsidiary executing a pledge
agreement in form and substance reasonably acceptable to the Company, the
Subsidiary and the Holder, and (iv) promptly cause such Subsidiary to duly
execute and/or deliver such opinions of counsel and other documents, in form and
substance reasonable acceptable to the Holder, as the Holder shall reasonably
request with respect thereto.
39
Transactions with Affiliates. The Company shall not, nor shall it permit any of
its Subsidiaries to, enter into, renew, extend or be a party to, any transaction
or series of related transactions (including, without limitation, the purchase,
sale, lease, transfer or exchange of property or assets of any kind or the
rendering of services of any kind) with any Affiliate, except (i) in the
ordinary course of business in a manner and to an extent consistent with past
practice and necessary or desirable for the prudent operation of its business,
for fair consideration and on terms no less favorable to it or its Subsidiaries
than would be obtainable in a comparable arm's length transaction with a Person
that is not an Affiliate thereof.
Change in Nature of Business. The Company shall not make, or permit any of its
Subsidiaries to make, any change in the nature of its business as described in
the Company's most recent annual report filed on Form 10-K with the SEC. The
Company shall not modify its corporate structure or purpose.
Preservation of Existence, Etc. The Company shall maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, its existence, rights
and privileges, and become or remain, and cause each of its Subsidiaries to
become or remain, duly qualified and in good standing in each jurisdiction in
which the character of the properties owned or leased by it or in which the
transaction of its business makes such qualification necessary.
Maintenance of Properties, Etc. The Company shall maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, all of its properties
which are necessary or useful in the proper conduct of its business in good
working order and condition, ordinary wear and tear excepted, and comply, and
cause each of its Subsidiaries to comply, at all times with the provisions of
all leases to which it is a party as lessee or under which it occupies property,
so as to prevent any loss or forfeiture thereof or thereunder.
40
Maintenance of Insurance. The Company shall maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) with respect to its
properties (including all real properties leased or owned by it) and business,
in such amounts and covering such risks as is required by any governmental
authority having jurisdiction with respect thereto or as is carried generally in
accordance with sound business practice by companies in similar businesses
similarly situated and in any event in amount, adequacy and scope reasonably
satisfactory to the Holder.
PARTICIPATION. The Holder, as the holder of this Note, shall be entitled to
receive 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. Payments under the preceding sentence shall be made concurrently
with the dividend or distribution to the holders of Common Stock.
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
Holder shall be required for any change or amendment to this Note or the Other
Notes. No consideration shall be offered or paid to any holder of Notes to amend
or consent to a waiver or modification of the Notes unless the same
consideration also is offered to all of the holders of Notes.
TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder
without the consent of the Company.
REISSUANCE OF THIS NOTE.
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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
41
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) and this Section 18(a)
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.
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.
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.
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 on the Principal and Interest of this Note, if any,
from the Issuance Date.
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
42
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.
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,
financial advisory fees and attorneys' fees and disbursements.
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.
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.
43
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 (1) 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.
NOTICES; PAYMENTS.
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Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given Emerald Asset Advisors,
LLC, 425 Broadhollow Road, Melville, NY 11747, Attention: Michael Xirinachs. 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
44
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.
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 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 twenty
percent (20.0%) per annum from the date such amount was due until the same is
paid in full ("Late Charge").
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.
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.
45
GOVERNING LAW; JURISDICTION; JURY TRIAL. 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. The Company hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address it set forth
on the signature page hereto and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. 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.
46
SEVERABILITY. If any provision of this Note is prohibited by law or otherwise
determined to be invalid or unenforceable by a court of competent jurisdiction,
the provision that would otherwise be prohibited, invalid or unenforceable shall
be deemed amended to apply to the broadest extent that it would be valid and
enforceable, and the invalidity or unenforceability of such provision shall not
affect the validity of the remaining provisions of this Note so long as this
Note as so modified continues to express, without material change, the original
intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties. The parties will endeavor in good faith negotiations
to replace the prohibited, invalid or unenforceable provision(s) with a valid
provision(s), the effect of which comes as close as possible to that of the
prohibited, invalid or unenforceable provision(s).
CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have
the following meanings:
47
"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.
"Bloomberg" means Bloomberg Financial Markets.
"Business Day" means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.
"Calendar Quarter" means each of: the period beginning on and including January
1 and ending on and including March 31; the period beginning on and including
April 1 and ending on and including June 30; the period beginning on and
including July 1 and ending on and including September 30; and the period
beginning on and including October 1 and ending on and including December 31.
"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.
"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
48
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.
"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.
"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.
"Convertible Securities" means any stock or securities (other than Options)
directly or indirectly convertible into or exercisable or exchangeable for
Common Stock.
"Eligible Market" means the Principal Market, The New York Stock Exchange, Inc.,
The NASDAQ Global Market, The NASDAQ Global Select Market, The Nasdaq Capital
Market or the OTC Bulletin Board.
"Excluded Securities" means any Common Stock issued or issuable: (i) in
connection with any Approved Stock Plan to the extent such Common Stock would
not result in a Dilutive Issuance; (ii) upon conversion of the Notes; (iii)
pursuant to a bona fide firm commitment underwritten public offering which
49
generates gross proceeds to the Company in excess of $10,000,000 (other than an
"at-the-market offering" as defined in Rule 415(a)(4) under the 1933 Act and
"equity lines"); (iv) upon conversion, exercise or exchange of any Options or
Convertible Securities which are outstanding on the day immediately preceding
the date hereof, provided that the terms of such Options or Convertible
Securities are not amended, modified or changed on or after the date hereof; and
(v) in connection with mergers, acquisitions, strategic business partnerships or
joint ventures, in each case with non-affiliated third parties and otherwise on
an arm's-length basis, the primary purpose of which, in the reasonable judgment
of the Company's Board of Directors, is not to raise additional capital.
"Fiscal Quarter" means each of the fiscal quarters adopted by the Company for
financial reporting purposes that correspond to the Company's fiscal year as of
the date hereof that ends on December 31.
"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, if the holders of the 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 consolidation or merger)
immediately prior to such consolidation or merger shall hold or have the right
to direct the voting of less than 50% of the Voting Stock or such voting
securities of such other surviving Person immediately following such
transaction, 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 the 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), (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 ordinary voting power
represented by issued and outstanding Common Stock.
50
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"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 generally accepted accounting principles
(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 generally accepted
accounting principles, 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 and intellectual
property 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, (viii) all royalties and related payment or prepayment or other
obligations of the Company or any of its Subsidiaries relating to any
Intellectual Property Rights of the Company or any of its Subsidiaries and (ix)
all Contingent Obligations in respect of indebtedness or obligations of others
of the kinds referred to in clauses (i) through (viii) above.
"Interest Rate" means ten percent (10.0%) per annum, subject to periodic
adjustment pursuant to Section 2.
"Options" means any rights, warrants or options to subscribe for or purchase
shares of Common Stock or Convertible Securities.
51
"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.
"Permitted Indebtedness" means (i) Indebtedness incurred by the Company 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 Holder and
approved by the Holder in writing, and which Indebtedness does not provide at
any time for (1) 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 (2) total interest and
fees at a rate in excess of ten percent (10.0%) per annum (collectively, the
"Subordinated Indebtedness"), (ii) Indebtedness secured by Permitted Liens
(other than the Existing Liens), (iii) Indebtedness evidenced by this Note and
the Other Notes, (iv) up to an additional $300,000 loaned to the Company by
Holder or its Affiliates, and (v) extensions, refinancings and renewals of any
items in clauses (i) through (iv) above, provided that the principal amount is
not increased or the terms modified to impose more burdensome terms upon the
Company or its Subsidiaries, as the case may be.
"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
52
being extended, renewed or refinanced does not increase, (vi) Liens securing the
Company's obligations under the Notes; (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), (x) Liens created in favor of certain financial
institutions to secure the Company's obligations under its automated teller
machine cash agreements.
"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.
"Principal Market" means the OTC Bulletin Board.
"Redemption Notices" means, collectively, the Event of Default Redemption
Notices, the Change of Control Redemption Notices and the Holder Redemption
Notice, each of the foregoing, individually, a Redemption Notice.
"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%.
"Redemption Prices" means, collectively, the Event of Default Redemption Price,
Change of Control Redemption Price and the Holder Optional Redemption Price,
each of the foregoing, individually, a Redemption Price.
""SEC" means the United States Securities and Exchange Commission.
"Security Agreement" means that certain security agreement dated even date
herewith securing the obligations due pursuant to this Note.
"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.
53
"Trading Day" means any day on which the shares of Common Stock are traded on
the Principal Market, or, if the Principal Market is not the principal trading
market for the shares of Common Stock, then on the principal securities exchange
or securities market on which the shares of Common Stock are then traded;
provided that "Trading Day" shall not include any day on which the shares of
Common Stock are scheduled to trade on any such exchange or market for less than
4.5 hours or any day that the shares of Common Stock are 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 any such
exchange or market, then during the hour ending at 4:00:00 p.m., New York Time).
"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).
"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 such security on
such 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 Holders. 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 22. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation period.
54
MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Holder and thus refunded to the Company.
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 shall indicate to the 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]
55
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as
of the Issuance Date set out above.
RED ROCK PICTURES HOLDINGS, INC.
By: ____________________________________
Name:
Title:
EXHIBIT I
RED ROCK PICTURES HOLDINGS, INC.
CONVERSION NOTICE
Reference is made to the Senior Secured Convertible Note (the "Note") issued to
the undersigned by Red Rock Pictures Holdings, 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:______________________________________________________________
______________________________________________________________
______________________________________________________________
Facsimile Number:______________________________________________________
Authorization:_________________________________________________________
By:___________________________________________________________
Title:__________________________________________________
Dated:__________________________________________________________________________
Account Number:________________________________________________________
(if electronic book entry transfer)
Transaction Code Number:_______________________________________________
(if electronic book entry transfer)
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
[____________________] [TRANSFER AGENT] to issue the above indicated number of
shares of Common Stock in accordance with the Conversion Notice attached hereto.
RED ROCK PICTURES HOLDINGS, INC.
By: ____________________________________
Name:
Title:
58