Contract
EXHIBIT
10.73
THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO
THE MAKER THAT THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF MAY BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES
LAWS.
Amended
and Restated
10%
Senior Secured Convertible Promissory Note
|
No.
PP-1.1
|
$
117,391.25
|
Dated: December
17, 2009
For value
received, WITS BASIN PRECIOUS MINERALS INC., a Minnesota corporation (the “Maker”), hereby
promises to pay to the order of China Gold, LLC, a Kansas limited liability
company with an address of 0000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxxx Xxxx, XX 00000
(together with its successors, representatives, and permitted assigns, the
“Holder”), in
accordance with the terms hereinafter provided, the principal amount of One
Hundred Seventeen Thousand Three Hundred Ninety-One Dollars and Twenty-Five
Cents ($117,391.25), together with interest thereon.
All
payments under or pursuant to this Note shall be made in United States Dollars
in immediately available funds to the Holder at the address of the Holder first
set forth above or at such other place as the Holder may designate from time to
time in writing to the Maker or by wire transfer of funds to the Holder’s
account, instructions for which are attached hereto as Exhibit
A. The outstanding principal balance of this Note shall be due
and payable on demand of Holder on or after February 15, 2010 (the “Maturity Date”) or at
such earlier time as provided herein.
1
ARTICLE
I
Section
1.1 Purchase
Agreement. This Note was originally issued on
February 11, 2008 (the “Original Issuance
Date”) and was executed and delivered pursuant to the Note and Warrant
Purchase Agreement, dated as of February 11, 2008 (the “Purchase Agreement”),
by and between the Maker and the Holder, as a successor-in-interest to Platinum
Long Term Growth V, LLC, a Delaware limited liability company pursuant to an
assignment and transfer of this Note, the Purchase Agreement and other
Transaction Documents completed on or around April 17, 2009, and reissued to
Holder to reflect such assignment and transfer and a subsequent transfer by
Xxxxxx of portions of the principal under this Note on or around June 8, 2009
(the “Existing
Note”), with additional transfers of a portion of the Existing Note
completed on September 1, 2009 and November 10, 2009. This Amended
and Restated 10% Senior Secured Convertible Promissory Note is issued to reflect
certain modifications and amendments agreed between the
parties. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth for such terms in the Purchase
Agreement. Holder has delivered the original version of the Existing
Note to Maker marked “cancelled” on or prior to the date hereof, and agrees that
such Existing Note shall no longer have any force or effect.
Section
1.2 Interest. Beginning
on the date hereof, the outstanding principal balance of this Note shall bear
interest, in arrears, at a rate per annum equal to ten percent (10%), payable at
the end of each fiscal quarter in cash. Interest shall be computed on
the basis of a 360-day year of twelve (12) 30-day months, shall compound monthly
and shall accrue commencing on the date hereof. Furthermore, upon the
occurrence of an Event of Default (as defined in Section 2.1 hereof), the Maker
will pay interest to the Holder, payable on demand, on the outstanding principal
balance of and unpaid interest on the Note from the date of the Event of Default
until such Event of Default is cured at the rate of the lesser of eighteen
percent (18%) and the maximum applicable legal rate per annum.
Section
1.3 Payment of Principal;
Prepayment. The Principal Amount hereof shall be paid in
full on the Maturity Date or, if earlier, upon acceleration of this Note in
accordance with the terms hereof. Any amount of principal repaid hereunder may
not be reborrowed. The Maker may prepay all or any portion of the
principal amount of this Note upon seven (7) business days’ prior written notice
to the Holder without premium or penalty (other than as set forth in Section
3.6); provided, that, it is understood that the Maker shall be obligated to
honor all conversion requests during such seven (7) business day
period.
Section
1.4 Security
Agreement. The obligations of the Maker hereunder are secured
by, among other things, a continuing security interest in certain assets of the
Maker and certain of its subsidiaries pursuant to the terms of that certain
Second Amended and Restated Security Agreement (the “Security Agreement”)
dated on or around December 17, 2009 by and between Holder, Maker, Xxxxxx Xxxxx
Mining Corporation (“Xxxxxx Xxxxx”) and
Xxxxxxx Xxxx Producers, Inc. (“Xxxxxxx Xxxx”) and
that certain Third Amended and Restated Pledge Agreement (the “Pledge Agreement”)
dated on or around December 17, 2009 by and between Holder, Maker, Xxxxxx Xxxxx
and Xxxxxxx Xxxx.
Section
1.5 Payment on Non-Business
Days. Whenever any payment to be made shall be due on a
Saturday, Sunday or a public holiday under the laws of the State of New York,
such payment may be due on the next succeeding business day and such next
succeeding day shall be included in the calculation of the amount of accrued
interest payable on such date.
Section
1.6
Transfer. This
Note may be transferred or sold, subject to the provisions of Section 5.8 of
this Note, or pledged, hypothecated or otherwise granted as security by the
Holder.
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Section
1.7 Replacement. Upon
receipt of a duly executed, notarized and unsecured written statement from the
Holder with respect to the loss, theft or destruction of this Note (or any
replacement hereof) and a standard indemnity, or, in the case of a mutilation of
this Note, upon surrender and cancellation of such Note, the Maker shall issue a
new Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or
mutilated Note.
ARTICLE
II
EVENTS OF
DEFAULT; REMEDIES
Section
2.1
Events of
Default. The occurrence of any of the following events shall
be an “Event of
Default” under this Note:
(a)
any default in the payment of (1) the principal amount
hereunder when due, or (2) interest on, or liquidated damages in respect of,
this Note, within three (3) business days after the same shall become due and
payable (whether on the Maturity Date or by acceleration or otherwise);
or
(b)
the Maker shall fail to observe or perform any other covenant
or agreement contained in this Note, which failure is not cured, if possible to
cure, within 3 business days after notice of such default sent by the Holder;
or
(c)
the suspension from listing, without subsequent listing on any one
of, or the failure of the Common Stock to be listed on at least one of the OTC
Bulletin Board, the American Stock Exchange, the Nasdaq Capital Markets, the
Nasdaq Global Market, the Nasdaq Global Select Market or The New York Stock
Exchange, Inc. for a period of five (5) consecutive Trading Days;
or
(d)
the Maker’s notice to the Holder, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.7(a) hereof) or its intention not to comply with
proper requests for conversion of this Note into shares of Common Stock;
provided, that, an inability to convert this Note pursuant to the terms of
Section 3.4 shall not constitute an Event of Default hereunder or under the
other Transaction Documents; or
(e)
the Maker shall fail to (i) timely deliver the shares
of Common Stock upon conversion of the Note or any interest accrued and unpaid,
(ii) make the payment of any fees and/or liquidated damages under this the
Purchase Agreement or the other Transaction Documents, which failure, in the
case of (ii) above, is not remedied within three (3) business days after the
Maker’s receipt of notice thereof from Holder; or
(f)
[Reserved]; or
(g)
default shall be made in the performance or observance of any
material covenant, condition or agreement contained in the Purchase Agreement or
any other Transaction Document that is not covered by any other
provisions of this Section 2.1 and such default is not fully cured within three
(3) business days after the Maker receives notice from the Holder of
the occurrence thereof; or
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(h)
any material representation or warranty made by the Maker
herein or in the Purchase Agreement or any other Transaction Document shall
prove to have been false or incorrect or breached in a material respect on the
date as of which made; or
(i)
the Maker shall (A) default in any payment of any amount or amounts
of principal of or interest on any Indebtedness (other than the Indebtedness
hereunder) the aggregate principal amount of which Indebtedness is in excess of
$200,000 or (B)
default in the observance or performance of any other agreement or condition
relating to any Indebtedness, that, in the aggregate, exceeds $200,000, or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
holders or beneficiary or beneficiaries of such Indebtedness to cause with the
giving of notice if required, such Indebtedness to become due prior to its
stated maturity; or
(j)
the Maker shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property or assets, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect) or
under the comparable laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors’
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
(vi) issue a notice of bankruptcy or winding down of its operations or issue a
press release regarding same, or (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing;
or
(k)
a proceeding or case shall be commenced in respect of the Maker,
without its application or consent, in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, moratorium, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets in connection with the liquidation or dissolution
of the Maker or (iii) similar relief in respect of it under any law providing
for the relief of debtors, and such proceeding or case described in clause (i),
(ii) or (iii) shall continue undismissed, or unstayed and in effect, for a
period of thirty (30) days or any order for relief shall be entered in an
involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic)
against the Maker or action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing shall be taken with respect to the
Maker and shall continue undismissed, or unstayed and in effect for a period of
thirty (30) days; or
(l)
the failure of the Maker to instruct its transfer agent to
remove any legends from shares of Common Stock eligible to be sold under Rule
144 of the Securities Act and issue such unlegended certificates to the Holder
within three (3) business days of the Holder’s request so long as the Holder has
provided reasonable assurances to the Maker that such shares of Common Stock can
be sold pursuant to Rule 144.
-4-
Section
2.2 Remedies Upon An Event of
Default. If an Event of Default shall have occurred and shall
be continuing, the Holder of this Note may at any time at its option, upon
delivery of written notice to the Maker, declare the entire unpaid principal
balance of this Note, together with all interest accrued hereon, due and
payable, and thereupon, the same shall be accelerated and so due and payable,
without presentment, demand, protest, or notice, all of which are hereby
expressly unconditionally and irrevocably waived by the Maker; provided, however, that upon
the occurrence of an Event of Default described (i) in Sections 2.1(j) or (k)
above, the outstanding principal balance and accrued interest hereunder shall be
immediately due and payable without notice or demand of any kind, (ii) in
Sections 2.1(b)-(i) and (l) above, the Holder, in its sole and absolute
discretion, may (a) demand the prepayment of this Note pursuant to Section
3.6(a) hereof (to the extent permitted by Section 3.6(a) hereof), (b) demand
that all or a portion of the principal amount of this Note then outstanding be
converted in accordance with Article III hereof into shares of Common Stock at a
Conversion Price equal to the lesser of (A) the Conversion Price on the date of
such demand or (B) 85% of the lowest VWAP for the 10 Trading Days preceding the
date of such demand, with all accrued and unpaid interest on such principal
amount to be paid to the Holder in cash, or (c) exercise or otherwise enforce
any one or more of the Holder’s rights, powers, privileges, remedies and
interests under this Note, the Purchase Agreement or applicable law and (iii) in
the case of any Event of Default arising pursuant to Section 2.1(a) above, no
acceleration shall be effective unless the Maker shall have been given at least
two (2) business days’ prior written notice of such acceleration and opportunity
to cure such Event of Default during such two (2) business day
period. No course of delay on the part of the Holder shall operate as
a waiver thereof or otherwise prejudice the right of the Holder. No
remedy conferred hereby shall be exclusive of any other remedy referred to
herein or now or hereafter available at law, in equity, by statute or
otherwise.
Section
2.3 Put; Special
Conversion. If the seven trailing Trading Day VWAP of the Common Stock
shall be less than $0.30 (as appropriately adjusted for splits, combinations and
the like occurring after the Original Issuance Date), the Holder, at any time
and from time to time thereafter and in its sole discretion, may (i) cause the
Maker to prepay in cash all or any portion of this Note at a price equal to one
hundred and fifteen percent (115%) of the aggregate principal amount of this
Note being prepaid plus all accrued and unpaid interest applicable at the time
of such request (such payment to be made within ten (10) business days of the
request therefor), or (ii) demand that all or a portion of the principal amount
of this Note then outstanding be converted in accordance with Article III hereof
into shares of Common Stock at a Conversion Price equal to the lesser of (A) the
Conversion Price on the date of such demand or (B) 85% of the lowest VWAP for
the 10 Trading Days preceding the date of such demand, with all accrued and
unpaid interest on such principal amount to be paid to the Holder in cash (such
payment of interest to be made within five (5) business days of the request
therefor).
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ARTICLE
III
CONVERSION;
ANTIDILUTION; PREPAYMENT
Section
3.1
Conversion
Option.
(a)
At any time and from time to time on or after the Original Issuance Date,
this Note shall be convertible (in whole or in part), at the option of the
Holder (the “Conversion Option”),
into such number of fully paid and non-assessable shares of Common Stock (the
“Conversion
Rate”) as is determined by dividing (x) that portion of the outstanding
principal balance plus any accrued but unpaid interest under this Note as of
such date that the Holder elects to convert by (y) the Conversion Price (as
defined in Section 3.2 hereof) then in effect on the date on which the Holder
faxes a notice of conversion (the “Conversion Notice”),
duly executed, to the Maker (facsimile number: (000) 000-0000, Attn.: Xxxx X.
Xxxxx) (the “Voluntary
Conversion Date”), provided, however, that the Conversion Price shall be
subject to adjustment as described in Section 3.5 below. The Holder
shall deliver this Note to the Maker at the address designated in the Purchase
Agreement at such time that this Note is fully converted. With
respect to partial conversions of this Note, the Maker shall keep written
records of the amount of this Note converted as of each Conversion
Date.
Section
3.2 Conversion
Price. The term “Conversion Price” shall mean $0.18, subject
to adjustment under Section 3.5 hereof; provided that, notwithstanding any other
provision of this Note, in no event shall the Conversion Price, as adjusted, be
less than $0.01 per share.
Section
3.3
Mechanics
of Conversion.
(a)
Not later than three (3) Trading Days after any Conversion Date, the Maker or
its designated transfer agent, as applicable, shall issue and deliver to the
Depository Trust Company (“DTC”) account on the
Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified
in the Conversion Notice, registered in the name of the Holder or its designee,
for the number of shares of Common Stock to which the Holder shall be
entitled. In the alternative, not later than three (3) Trading Days
after any Conversion Date, the Maker shall deliver to the applicable Holder by
express courier a certificate or certificates which shall be free of restrictive
legends and trading restrictions (other than those required by Section 5.1 of
the Purchase Agreement) representing the number of shares of Common Stock being
acquired upon the conversion of this Note (the “Delivery
Date”). Notwithstanding the foregoing to the contrary, the
Maker or its transfer agent shall only be obligated to issue and deliver the
shares to the DTC on the Holder’s behalf via DWAC (or certificates free of
restrictive legends) if such conversion is in connection with a sale and the
Holder has complied with the applicable prospectus delivery requirements (as
evidenced by documentation furnished to and reasonably satisfactory to the
Maker) or such shares may be sold pursuant to Rule 144 (without restriction as
to volume). If in the case of any Conversion Notice such certificate
or certificates are not delivered to or as directed by the applicable Holder by
the Delivery Date, the Holder shall be entitled by written notice to the Maker
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Maker shall
immediately return this Note tendered for conversion, whereupon the Maker and
the Holder shall each be restored to their respective positions immediately
prior to the delivery of such notice of revocation, except that any amounts
described in Sections 3.3(b) and (c) shall be payable through the date notice of
rescission is given to the Maker.
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(b)
The Maker understands that a delay in the delivery of the shares of Common
Stock upon conversion of this Note beyond the Delivery Date could result in
economic loss to the Holder. If the Maker fails to deliver to the
Holder such shares via DWAC (or, if applicable, certificates) by the Delivery
Date, the Maker shall pay to such Holder, in cash, an amount per Trading Day for
each Trading Day until such shares are delivered via DWAC or certificates are
delivered (if applicable), together with interest on such amount at a rate of
10% per annum, accruing until such amount and any accrued interest thereon is
paid in full, equal to the greater of (A) (i) 1% of the aggregate principal
amount of the Notes requested to be converted for the first five (5) Trading
Days after the Delivery Date and (ii) 2% of the aggregate principal amount of
the Notes requested to be converted for each Trading Day thereafter and (B)
$2,000 per day (which amount shall be paid as liquidated damages and not as a
penalty). Nothing herein shall limit a Holder’s right to pursue
actual damages for the Maker’s failure to deliver certificates representing
shares of Common Stock upon conversion within the period specified herein and
such Holder shall have the right to pursue all remedies available to it at law
or in equity (including, without limitation, a decree of specific performance
and/or injunctive relief). Notwithstanding anything to the contrary
contained herein, the Holder shall be entitled to withdraw a Conversion Notice,
and upon such withdrawal the Maker shall only be obligated to pay the liquidated
damages accrued in accordance with this Section 3.3(b) through the date the
Conversion Notice is withdrawn.
(c)
In addition to any other rights available to the Holder, if the Maker fails to
cause its transfer agent to transmit via DWAC or transmit to the Holder a
certificate or certificates representing the shares of Common Stock issuable
upon conversion of this Note on or before the Delivery Date, and if after such
date the Holder is required by its broker to purchase (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the shares of Common Stock issuable upon conversion of
this Note which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the
Maker shall (1) pay in cash to the Holder the amount by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of shares of Common Stock issuable upon conversion of this Note that the
Maker was required to deliver to the Holder in connection with the conversion at
issue times (B) the price at which the sell order giving rise to such purchase
obligation was executed, and (2) at the option of the Holder, either reinstate
the portion of the Note and equivalent number of shares of Common Stock for
which such conversion was not honored or deliver to the Holder the number of
shares of Common Stock that would have been issued had the Maker timely complied
with its conversion and delivery obligations hereunder. For example,
if the Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of shares of Common Stock
with an aggregate sale price giving rise to such purchase obligation of $10,000,
under clause (1) of the immediately preceding sentence the Maker shall be
required to pay the Holder $1,000. The Holder shall provide the Maker written
notice indicating the amounts payable to the Holder in respect of the Buy-In,
together with applicable confirmations and other evidence reasonably requested
by the Maker. Nothing herein shall limit a Xxxxxx’s right to pursue
any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to the Maker’s failure to timely deliver certificates representing
shares of Common Stock upon conversion of this Note as required pursuant to the
terms hereof.
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Section
3.4 Ownership Cap and Certain
Conversion Restrictions.
(a) Notwithstanding
anything to the contrary set forth in Section 3 of this Note, at no time may all
or a portion of this Note be converted if the number of shares of Common Stock
to be issued pursuant to such conversion would exceed, when aggregated with all
other shares of Common Stock owned by the Holder at such time, the number of
shares of Common Stock which would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) more than 4.99% of all of the Common Stock outstanding at such time;
provided, however, that upon
the Holder providing the Maker with sixty-one (61) days notice (pursuant to
Section 4.1 hereof) (the “Waiver Notice”) that
the Holder would like to waive this Section 3.4(a) with regard to any or all
shares of Common Stock issuable upon conversion of this Note, this Section
3.4(a) will be of no force or effect with regard to all or a portion of the Note
referenced in the Waiver Notice.
(b) Notwithstanding
anything to the contrary set forth in Section 3 of this Note, at no time may the
Holder convert all or a portion of this Note if the number of shares of Common
Stock to be issued pursuant to such conversion, when aggregated with all other
shares of Common Stock owned by the Holder at such time, would result in the
Holder beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules thereunder) in excess of 9.99% of the then issued
and outstanding shares of Common Stock outstanding at such time; provided, however, that upon
the Holder providing the Maker with a Waiver Notice that the Holder would like
to waive Section 3.4(b) of this Note with regard to any or all shares of Common
Stock issuable upon conversion of this Note, this Section 3.4(b) shall be of no
force or effect with regard to all or a portion of the Note referenced in the
Waiver Notice.
Section
3.5 Adjustment of Conversion
Price.
(a) Until
the Note has been paid in full or converted in full, the Conversion Price shall
be subject to adjustment from time to time as follows:
(i) Adjustments for Stock Splits
and Combinations. If the Maker shall at any time or from time
to time after the Original Issuance Date, effect a stock split of the
outstanding Common Stock, the applicable Conversion Price in effect immediately
prior to the stock split shall be proportionately decreased. If the
Maker shall at any time or from time to time after the Original Issuance Date,
combine the outstanding shares of Common Stock, the applicable Conversion Price
in effect immediately prior to the combination shall be proportionately
increased. Any adjustments under this Section 3.5(a)(i) shall be
effective at the close of business on the date the stock split or combination
occurs.
(ii) Adjustments for Certain
Dividends and Distributions. Other than with respect to a
Subsidiary Dividend (as defined in the Purchase Agreement), if the Maker shall
at any time or from time to time after the Original Issuance Date, make or issue
or set a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in shares of Common Stock,
then, and in each event, the applicable Conversion Price in effect immediately
prior to such event shall be decreased as of the time of such issuance or, in
the event such record date shall have been fixed, as of the close of business on
such record date, by multiplying, the applicable Conversion Price then in effect
by a fraction:
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(1) the
numerator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; and
(2) the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution.
(iii) Adjustment for Other
Dividends and Distributions. With the exception of the
Subsidiary Dividend, if the Maker shall at any time or from time to time after
the Original Issuance Date, make or issue or set a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in other than shares of Common Stock, then, and in each
event, an appropriate revision to the applicable Conversion Price shall be made
and provision shall be made (by adjustments of the Conversion Price or
otherwise) so that the holders of this Note shall receive upon conversions
thereof, in addition to the number of shares of Common Stock receivable thereon,
the number of securities of the Maker or other issuer (as applicable) which they
would have received had this Note been converted into Common Stock on the date
of such event and had thereafter, during the period from the date of such event
to and including the Conversion Date, retained such securities (together with
any distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 3.5(a)(iii) with
respect to the rights of the holders of this Note; provided, however, that if such
record date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be adjusted pursuant to this paragraph as of the time of actual payment of
such dividends or distributions.
(iv) Adjustments for
Reclassification, Exchange or Substitution. If the Common
Stock issuable upon conversion of this Note at any time or from time to time
after the Original Issuance Date shall be changed to the same or different
number of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 3.5(a)(i),
(ii) and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 3.5(a)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall be made and provisions shall be made (by
adjustments of the Conversion Price or otherwise) so that the Holder shall have
the right thereafter to convert this Note into the kind and amount of shares of
stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock
into which such Note might have been converted immediately prior to such
reclassification, exchange, substitution or other change, all subject to further
adjustment as provided herein.
-9-
(v) Adjustments for
Reorganization, Merger, Consolidation or Sales of Assets. If
at any time or from time to time after the Original Issuance Date there shall be
a capital reorganization of the Maker (other than by way of a stock split or
combination of shares or stock dividends or distributions provided for in
Section 3.5(a)(i), (ii) and (iii), or a reclassification, exchange or
substitution of shares provided for in Section 3.5(a)(iv)), or a merger or
consolidation of the Maker with or into another Person where the holders of
outstanding voting securities prior to such merger or consolidation do not own
over fifty percent (50%) of the outstanding voting securities of the merged or
consolidated entity, immediately after such merger or consolidation, or the sale
of all or substantially all of the Maker’s properties or assets to any other
Person (an “Organic
Change”), then as a part of such Organic Change, (A) if the surviving
entity in any such Organic Change is a public company that is registered
pursuant to the Securities Exchange Act of 1934, as amended, and its common
stock is listed or quoted on a national exchange or the OTC Bulletin Board, an
appropriate revision to the Conversion Price shall be made and provision shall
be made (by adjustments of the Conversion Price or otherwise) so that the Holder
shall have the right thereafter to convert such Note into the kind and amount of
shares of stock and other securities or property of the Maker or any successor
corporation resulting from Organic Change, and (B) if the surviving entity in
any such Organic Change is not a public company that is registered pursuant to
the Securities Exchange Act of 1934, as amended, or its common stock is not
listed or quoted on a national exchange or the OTC Bulletin Board, the Holder
shall have the right to demand prepayment pursuant to Section 3.6(b)
hereof. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 3.5(a)(v) with respect to the
rights of the Holder after the Organic Change to the end that the provisions of
this Section 3.5(a)(v) (including any adjustment in the applicable Conversion
Price then in effect and the number of shares of stock or other securities
deliverable upon conversion of this Note) shall be applied after that event in
as nearly an equivalent manner as may be practicable.
(vi) Adjustments for Issuance of
Additional Shares of Common Stock. In the event the Maker, shall, at any
time, from time to time, issue or sell any additional shares of common stock
(otherwise than as provided in the foregoing subsections (i) through
(v) of this Section 3.5(a) or pursuant to Common Stock Equivalents (hereafter
defined) granted or issued prior to the Original Issuance Date) (“Additional Shares of Common
Stock”), at a price per share less than the Conversion Price then in
effect or without consideration, then the Conversion Price upon each such
issuance shall be reduced to a price determined by multiplying the Conversion
Price then in effect by a fraction (A) the numerator of which is the total
number of shares of Common Stock then outstanding plus the number of shares of
Common Stock which the aggregate consideration received or to be received by the
Company for the shares so issued (or deemed issued) would purchase at such
Conversion Price, and (B) the denominator of which is the total number of shares
of Common Stock then outstanding plus the number of shares of Common Stock so
issued (or deemed issued).
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(vii) Issuance of Common Stock
Equivalents. The provisions of this Section 3.5(a)(vii) shall
apply if (a) the Maker, at any time after the Original Issuance Date, shall
issue any securities convertible into or exchangeable for, directly or
indirectly, Common Stock (“Convertible
Securities”), other than the Note, or (b) any rights or warrants or
options to purchase any such Common Stock or Convertible Securities
(collectively, the “Common Stock
Equivalents”), other than the Warrant issued pursuant to the Purchase
Agreement, shall be issued or sold. If the price per share for which
Additional Shares of Common Stock may be issuable pursuant to any such Common
Stock Equivalent shall be less than the applicable Conversion Price then in
effect, or if, after any such issuance of Common Stock Equivalents, the price
per share for which Additional Shares of Common Stock may be issuable thereafter
is amended or adjusted, and such price as so amended shall be less than the
applicable Conversion Price in effect at the time of such amendment or
adjustment, then the applicable Conversion Price upon each such issuance,
amendment or adjustment shall be adjusted as provided in subsection (vi) of this
Section 3.5(a), with the maximum number of shares of Common Stock issuable upon
conversion or exercise of such Common Stock Equivalents being deemed to have be
issued or sold by the Maker at the time of issuance or sale of such Common Stock
Equivalents. For purposes of this Section 3.5(a)(vii), the “price per
share for which Additional Shares of Common Stock may be issuable” shall be
determined by dividing (X) the total amount received or receivable by the Maker
as consideration for the issue or sale of such Common Stock Equivalents, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Maker upon the conversion or exercise thereof, by (B) the total maximum number
of shares of Common Stock issuable upon the conversion or exercise of all such
Common Stock Equivalents. No further adjustment of the Conversion Price shall be
made when Common Stock is actually issued upon the conversion or exchange of
such Common Stock Equivalents, and if any such issue or sale of Convertible
Securities is made upon exercise of any Rights for which adjustment of the
Conversion Price had been made pursuant to other provisions of Section 3.5(a),
no further adjustment of the Conversion Price shall be made by reason of such
issue or sale.
(viii) Consideration for
Stock. In case any shares of Common Stock or any Common Stock
Equivalents shall be issued or sold:
(1) in
connection with any merger or consolidation in which the Maker is the surviving
corporation (other than any consolidation or merger in which the previously
outstanding shares of Common Stock of the Maker shall be changed to or exchanged
for the stock or other securities of another corporation), the amount of
consideration therefor shall be, deemed to be the fair value, as determined
reasonably and in good faith by the Board of Directors of the Maker, of such
portion of the assets and business of the nonsurviving corporation as such Board
may determine to be attributable to such shares of Common Stock, Convertible
Securities, rights or warrants or options, as the case may be; or
(2) in
the event of any consolidation or merger of the Maker in which the Maker is not
the surviving corporation or in which the previously outstanding shares of
Common Stock of the Maker shall be changed into or exchanged for the stock or
other securities of another corporation, or in the event of any sale of all or
substantially all of the assets of the Maker for stock or other securities of
any corporation, the Maker shall be deemed to have issued a number of shares of
its Common Stock for stock or securities or other property of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation. If any such calculation results in
adjustment of the applicable Conversion Price, or the number of shares of Common
Stock issuable upon conversion of the Notes, the determination of the applicable
Conversion Price or the number of shares of Common Stock issuable upon
conversion of the Notes immediately prior to such merger, consolidation or sale,
shall be made after giving effect to such adjustment of the number of shares of
Common Stock issuable upon conversion of the Notes. In the event
Common Stock is issued with other shares or securities or other assets of the
Maker for consideration which covers both, the consideration computed as
provided in this Section 3.5(a)(viii) shall be allocated among such securities
and assets as determined in good faith by the Board of Directors of the
Maker.
-11-
(ix) Superseding
Adjustment. If, at any time after any adjustment of the
Conversion Price then in effect shall have been made pursuant to Section
3.5(a)(vii) as the result of any issuance of any Convertible Securities or
Common Stock Equivalents, and (i) such Convertible Securities or Common Stock
Equivalents, or the right of conversion or exchange in such other Common Stock
Equivalents, shall expire, and all or a portion of such Convertible Securities
or Common Stock Equivalents, or the right of conversion or exchange with respect
to all or a portion of such other Common Stock Equivalents, as the case may be
shall not have been exercised, or (ii) the consideration per share for which
shares of Common Stock are issuable pursuant to such Convertible Securities or
Common Stock Equivalents, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per share upon
the occurrence of a specified date or event, then any such previous adjustment
to the Conversion Price of the Note shall be rescinded and
annulled. Upon the occurrence of an event set forth in this
Section 3.5(a)(ix), there shall be a recomputation made of the effect of
such Convertible Securities or Common Stock Equivalents on the basis of:
(i) treating the number of Additional Shares of Common Stock or other
property, if any, theretofore actually issued or issuable pursuant to the
previous exercise of any such Convertible Securities or Common Stock Equivalents
or any such right of conversion or exchange, as having been issued on the date
or dates of any such exercise and for the consideration actually received and
receivable therefor, and (ii) treating any such Convertible Securities or
Common Stock Equivalents which then remain outstanding as having been granted or
issued immediately after the time of such increase of the consideration per
share for which shares of Common Stock or other property are issuable under such
Convertible Securities or Common Stock Equivalents; whereupon a new adjustment
of the Conversion Price then in effect shall be made, which new adjustment shall
supersede the previous adjustment so rescinded and annulled.
(b) Record
Date. In case the Maker shall take record of the holders of
its Common Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then the date of the issue or sale of
the shares of Common Stock shall be deemed to be such record date.
(c) Certain Issues
Excepted. Anything herein to the contrary notwithstanding, the
Maker shall not be required to make any adjustment to the Conversion Price in
connection with the following: (a) issuances of shares of Common Stock or
options to employees, officers or directors of the Maker pursuant to any stock
or option plan existing on the date hereof if such grants are duly approved by a
majority of the non-employee members of the Board of Directors of the Maker or a
majority of the members of a committee of non-employee directors established for
such purpose; (b) issuances of securities upon the exercise or exchange of or
conversion of any securities issued hereunder and/or securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the Original Issuance Date, provided that such securities have
not been amended since the Original Issuance Date to increase the number of such
securities or to decrease the exercise, exchange or conversion price of any such
securities, (c) securities issued pursuant to acquisitions or strategic
transactions, provided any such issuance shall only be to a person which is,
itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Maker as determined in good faith by the
Board of Directors of the Maker and in which the Maker receives benefits in
addition to the investment of funds, but shall not include a transaction in
which the Maker is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities, (d)
shares of Common Stock (other than as set forth in (a) through (c) above and (e)
below) in an aggregate amount not to exceed 5% of the number of shares of Common
Stock outstanding on the Original Issuance Date and (e) the issuances set forth
on Schedule 3.21 of the Purchase Agreement.
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(d) No
Impairment. The Maker shall not, by amendment of its Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Maker, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 3.5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holder against
impairment. In the event a Holder shall elect to convert any Notes as
provided herein, the Maker cannot refuse conversion based on any claim that such
Holder or any one associated or affiliated with such Holder has been engaged in
any violation of law, violation of an agreement to which such Holder is a party
or for any reason whatsoever, unless, an injunction from a court, or notice,
restraining and or adjoining conversion of all or of said Notes shall have
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to one hundred thirty percent (130%) of the amount of the Notes the
Holder has elected to convert, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder (as liquidated damages) in the event it obtains
judgment.
(e) Certificates as to
Adjustments. Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of this Note pursuant to this Section 3.5, the Maker at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to the Holder a certificate setting forth such
adjustment and readjustment, showing in detail the facts upon which such
adjustment or readjustment is based. The Maker shall, upon written
request of the Holder, at any time, furnish or cause to be furnished to the
Holder a like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon the conversion of this
Note. Notwithstanding the foregoing, the Maker shall not be obligated
to deliver a certificate unless such certificate would reflect an increase or
decrease of at least one percent (1%) of such adjusted amount.
(f) Issue
Taxes. The Maker shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant thereto; provided, however, that the
Maker shall not be obligated to pay any transfer taxes resulting from any
transfer requested by the Holder in connection with any such
conversion.
(g) Fractional
Shares. No fractional shares of Common Stock shall be issued
upon conversion of this Note. In lieu of any fractional shares to
which the Holder would otherwise be entitled, the Maker shall pay cash equal to
the product of such fraction multiplied by the average of the Closing Bid Prices
of the Common Stock for the five (5) consecutive Trading Days immediately
preceding the Conversion Date.
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(h) Reservation of Common
Stock. The Maker shall at all times when this Note shall be
outstanding, reserve and keep available out of its authorized but unissued
Common Stock, such number of shares of Common Stock as shall from time to time
be sufficient to effect the conversion of this Note and all interest accrued
thereon; provided that the
number of shares of Common Stock so reserved shall on the date hereof be no less
than one hundred percent (100%) of the number of shares of Common Stock for
which this Note and all interest accrued thereon are at any time
convertible. The Maker shall, if necessary, use its best efforts from
time to time and in accordance with Minnesota law, to increase the authorized
number of shares of Common Stock if at any time the unissued number of
authorized shares shall not be sufficient to satisfy the Maker’s obligations
under this Section 3.5(h).
(i) Regulatory
Compliance. If any shares of Common Stock to be reserved for
the purpose of conversion of this Note or any interest accrued thereon require
registration or listing with or approval of any governmental authority, stock
exchange or other regulatory body under any federal or state law or regulation
or otherwise before such shares may be validly issued or delivered upon
conversion, the Maker shall, at its sole cost and expense, in good faith and as
expeditiously as possible, endeavor to secure such registration, listing or
approval, as the case may be.
Section
3.6 Prepayment.
(a) Prepayment Upon an Event of
Default. Notwithstanding anything to the contrary contained
herein, upon the occurrence of an Event of Default described in Sections
2.1(b)-(i) or (l) hereof, the Holder shall have the right, at such Holder’s
option, to require the Maker to prepay in cash all or a portion of this Note at
a price equal to one hundred and fifteen percent (115%) of the aggregate
principal amount of this Note plus all accrued and unpaid interest applicable at
the time of such request. Nothing in this Section 3.6(a) shall limit
the Holder’s rights under Section 2.2 hereof.
(b) Prepayment Option Upon Major
Transaction. In addition to all other rights of the Holder
contained herein, simultaneous with the occurrence of a Major Transaction (as
defined below), the Holder shall have the right, at the Holder’s option, to
require the Maker to prepay all or a portion of the Holder’s Notes in cash at a
price equal to the sum of (i) the greater of (A) one hundred percent (100%) of
the aggregate principal amount of this Note plus all accrued and unpaid interest
and (B) in the event at such time the Holder is unable to obtain the benefit of
its conversion rights through the conversion of this Note and resale of the
shares of Common Stock issuable upon conversion hereof in accordance with the
terms of this Note and the other Transaction Documents or the Equity Conditions
are not satisfied with respect to all such shares of Common Stock, the aggregate
principal amount of this Note plus all accrued but unpaid interest hereon,
divided by the Conversion Price on the date the Prepayment Price (as defined
below) is demanded or otherwise due, multiplied by the VWAP on the date the
Major Transaction Prepayment Price is demanded or otherwise due, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of this
Note and the other Transaction Documents (the “Major Transaction Prepayment
Price”).
-14-
(c) Prepayment Option Upon
Triggering Event. In addition to all other rights of the
Holder contained herein, after a Triggering Event (as defined below), the Holder
shall have the right, at the Holder’s option, to require the Maker to prepay all
or a portion of this Note in cash at a price equal to the sum of (i) the greater
of (A) one hundred percent (100%) of the aggregate principal amount of this Note
plus all accrued and unpaid interest and (B) the aggregate principal amount of
this Note plus all accrued but unpaid interest hereon, divided by the Conversion
Price on the date the Prepayment Price (as defined below) is demanded or
otherwise due, multiplied by the VWAP on the date the Prepayment Price is
demanded or otherwise due, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of this Note and the other Transaction
Documents (the “Triggering Event Prepayment
Price,” and, collectively with the Major Transaction Prepayment Price,
the “Prepayment
Price”).
(d) “Major
Transaction.” A “Major Transaction” shall be deemed to have
occurred at such time as any of the following events:
(i)
the consolidation, merger or other business combination of the Maker with or
into another Person (other than (A) pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of the
Maker or (B) a consolidation, merger or other business combination in which
holders of the Maker’s voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, the voting power
of the surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation) of
such entity or entities).
(ii) the
sale or transfer of more than fifty percent (50%) of the Maker’s assets (based
on the fair market value as determined in good faith by the Maker’s Board of
Directors) other than inventory in the ordinary course of business in one or a
related series of transactions; or
(iii) closing
of a purchase, tender or exchange offer made to the holders of more than fifty
percent (50%) of the outstanding shares of Common Stock in which more than fifty
percent (50%) of the outstanding shares of Common Stock were tendered and
accepted.
(e) [Intentionally
omitted.]
(f) “Triggering
Event.” A “Triggering Event” shall be deemed to have occurred
at such time as any of the following events:
(i) the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of the OTC Bulletin
Board, the American Stock Exchange, the Nasdaq National Market, the Nasdaq
SmallCap Market or The New York Stock Exchange, Inc., for a period of five (5)
consecutive Trading Days;
(ii) the
Maker’s notice to the Holder, including by way of public announcement, at any
time, of its inability to comply (including for any of the reasons described in
Section 3.7) or its intention not to comply with proper requests for conversion
of this Note into shares of Common Stock; provided that such inability to
convert due to the terms of Section 3.4 hereof shall not constitute a Triggering
Event; or
-15-
(iii) the
Maker’s failure to comply with a Conversion Notice tendered in accordance with
the provisions of this Note within ten (10) business days after the receipt by
the Maker of the Conversion Notice; provided that such inability to convert due
to the terms of Section 3.4 hereof shall not constitute a Triggering Event;
or
(iv) the
Maker deregisters its shares of Common Stock and as a result such shares of
Common Stock are no longer publicly traded; or
(v) the
Maker consummates a “going private” transaction and as a result the Common Stock
is no longer registered under Sections 12(b) or 12(g) of the Exchange
Act.
(g) [Intentionally
omitted.]
(h) Mechanics of Prepayment at
Option of Holder Upon Major Transaction. No sooner than twenty
(20) days nor later than ten (10) days prior to the consummation of a Major
Transaction, but not prior to the public announcement of such Major Transaction,
the Maker shall deliver written notice thereof via facsimile and overnight
courier (“Notice of Major Transaction”) to the Holder of this
Note. At any time after receipt of a Notice of Major Transaction (or,
in the event a Notice of Major Transaction is not delivered at least ten (10)
days prior to a Major Transaction, at any time within ten (10) days prior to a
Major Transaction), any holder of the Notes then outstanding may require the
Maker to prepay, effective immediately prior to the consummation of such Major
Transaction, all of the holder’s Notes then outstanding by delivering written
notice thereof via facsimile and overnight courier (“Notice of Prepayment at
Option of Holder Upon Major Transaction”) to the Maker, which Notice of
Prepayment at Option of Holder Upon Major Transaction shall indicate (i) the
principal amount of the Notes that such holder is electing to have prepaid and
(ii) the applicable Major Transaction Prepayment Price, as calculated pursuant
to Section 3.6(b) above.
(i) Mechanics of Prepayment at
Option of Holder Upon Triggering Event. Within three (3)
business days after the occurrence of a Triggering Event, the Maker shall
deliver written notice thereof via facsimile and overnight courier (“Notice of
Triggering Event”) to the Holder. At any time after the earlier of a
holder’s receipt of a Notice of Triggering Event and such holder becoming aware
of a Triggering Event, the Holder may require the Maker to prepay this Note by
delivering written notice thereof via facsimile and overnight courier (“Notice
of Prepayment at Option of Holder Upon Triggering Event”) to the Maker, which
Notice of Prepayment at Option of Holder Upon Triggering Event shall indicate
(i) the amount of the Note that the Holder is electing to have prepaid and (ii)
the applicable Triggering Event Prepayment Price, as calculated pursuant to
Section 3.6(c) above. The Holder shall only be permitted to require
the Maker to prepay the Note pursuant to Section 3.6 hereof for the greater of a
period of ten (10) days after receipt by such holder of a Notice of Triggering
Event or for so long as such Triggering Event is continuing.
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(j) Payment of Prepayment
Price. Upon the Maker’s receipt of a Notice of Prepayment at
Option of Holder Upon Triggering Event or a Notice(s) of Prepayment at Option of
Holder Upon Major Transaction from the Holder, the Maker shall deliver the
applicable Triggering Event Prepayment Price, in the case of a prepayment
pursuant to Section 3.6(i), to the Holder within five (5) business days after
the Maker’s receipt of a Notice of Prepayment at Option of Holder Upon
Triggering Event and, in the case of a prepayment pursuant to Section 3.6(h),
the Maker shall deliver the applicable Major Transaction Prepayment Price
immediately prior to the consummation of the Major Transaction; provided that
the Holder’s original Note shall have been so delivered to the
Maker. If the Maker shall fail to prepay the Note (other than
pursuant to a dispute as to the arithmetic calculation of the Prepayment Price),
in addition to any remedy the Holder may have under this Note and the Purchase
Agreement, the applicable Prepayment Price payable in respect of the Note (or
portion thereof) not prepaid shall bear interest at the rate of two percent (2%)
per month (prorated for partial months) until paid in full. Until the
Maker pays such unpaid applicable Prepayment Price in full to the Holder, the
Holder shall have the option (the “Void Optional Prepayment
Option”) to, in lieu of prepayment, require the Maker to promptly return
to the Holder all or that portion of the Note that was submitted for prepayment
by such holder(s) under this Section 3.6 and for which the applicable Prepayment
Price has not been paid, by sending written notice thereof to the Maker via
facsimile (the “Void
Optional Prepayment Notice”). Upon the Maker’s receipt of such
Void Optional Prepayment Notice and prior to payment of the full applicable
Prepayment Price to the Holder, (i) the Notice of Prepayment at Option of Holder
Upon Triggering Event or the Notice of Prepayment at Option of Holder Upon Major
Transaction, as the case may be, shall be null and void with respect to the Note
submitted for prepayment and for which the applicable Prepayment Price has not
been paid, (ii) the Maker shall immediately return the Note submitted to the
Maker by the Holder for prepayment under this Section 3.6(j) and for which the
applicable Prepayment Price has not been paid and (iii) the Conversion Price of
the Note shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Void Optional Prepayment Notice is delivered to
the Maker and (B) the lowest Closing Bid Price during the period beginning on
the date on which the Notice of Prepayment of Option of Holder Upon Major
Transaction or the Notice of Prepayment at Option of Holder Upon Triggering
Event, as the case may be, is delivered to the Maker and ending on the date on
which the Void Optional Prepayment Notice is delivered to the Maker; provided
that no adjustment shall be made if such adjustment would result in an increase
of the Conversion Price then in effect. The Holder’s delivery of a
Void Optional Prepayment Notice and exercise of its rights following such notice
shall not affect the Maker’s obligations to make any payments which have accrued
prior to the date of such notice. Payments provided for in this
Section 3.6 shall have priority to payments to other stockholders in connection
with a Major Transaction.
Section
3.7 Inability to Fully
Convert.
(a) Holder’s Option if Maker
Cannot Fully Convert. If, upon the Maker’s receipt of a
Conversion Notice, the Maker cannot issue shares of Common Stock for any reason
(other than pursuant to the terms of Section 3.4 hereof), including, without
limitation, because the Maker (x) does not have a sufficient number of shares of
Common Stock authorized and available, or (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Maker or any of its securities from issuing all of the Common Stock which is
to be issued to the Holder pursuant to a Conversion Notice, then the Maker shall
issue as many shares of Common Stock as it is able to issue in accordance with
the Holder’s Conversion Notice and, with respect to the unconverted portion of
this Note, the Holder, solely at Holder’s option, can elect to:
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(i)
If the Maker’s inability to fully convert is pursuant to Section
3.7(a)(x) above, require the Maker to prepay that portion of this Note for which
the Maker is unable to issue Common Stock in accordance with the Holder’s
Conversion Notice (the “Mandatory
Prepayment”) at a price per share equal to the Triggering Event
Prepayment Price as of such Conversion Date (the “Mandatory Prepayment
Price”);
(ii) if
the Maker’s inability to fully convert is pursuant to Section 3.7(a)(y) above,
require the Maker to issue restricted shares of Common Stock in accordance with
such holder’s Conversion Notice;
(iii) void
its Conversion Notice and retain or have returned, as the case may be, this Note
that was to be converted pursuant to the Conversion Notice (provided that the
Holder’s voiding its Conversion Notice shall not effect the Maker’s obligations
to make any payments which have accrued prior to the date of such
notice);
(iv) exercise
its Buy-In rights pursuant to and in accordance with the terms and provisions of
Section 3.3(c) of this Note; provided that such inability to convert is not due
to the terms of Section 3.4 hereof.
In the
event the Holder shall elect to convert any portion of the Note as provided
herein, the Maker cannot refuse conversion based on any claim that such Holder
or any one associated or affiliated with such Holder has been engaged in any
violation of law, violation of an agreement to which such Holder is a party or
for any reason whatsoever, unless, an injunction from a court, on notice,
restraining and or adjoining conversion of the Note shall have been issued and
the Maker posts a surety bond for the benefit of such Holder in an amount equal
to 130% of the principal amount of the Note the Holder has elected to convert,
which bond shall remain in effect until the completion of arbitration/litigation
of the dispute and the proceeds of which shall be payable to such Holder in the
event it obtains judgment.
(b) Mechanics of Fulfilling
Holder’s Election. The Maker shall immediately send via
facsimile to the Holder, upon receipt of a facsimile copy of a Conversion Notice
from the Holder which cannot be fully satisfied as described in Section 3.7(a)
above, a notice of the Maker’s inability to fully satisfy the Conversion Notice
(the “Inability to
Fully Convert Notice”). Such Inability to Fully Convert Notice
shall indicate (i) the reason why the Maker is unable to fully satisfy such
holder’s Conversion Notice, (ii) the amount of this Note which cannot be
converted and (iii) the applicable Mandatory Prepayment Price. The
Holder shall notify the Maker of its election pursuant to Section 3.7(a) above
by delivering written notice via facsimile to the Maker (“Notice in Response to
Inability to Convert”).
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(c) Payment of Prepayment
Price. If the Holder shall elect to have the Note prepaid
pursuant to Section 3.7(a)(i) above, the Maker shall pay the Mandatory
Prepayment Price to the Holder within thirty (30) days of the Maker’s receipt of
the Holder’s Notice in Response to Inability to Convert, provided that prior
to the Maker’s receipt of the Holder’s Notice in Response to Xxxxxxxxx to
Convert the Maker has not delivered a notice to the Holder stating, to the
satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note. If the Maker shall fail to pay the applicable Mandatory
Prepayment Price to the Holder on the date that is one (1) business day
following the 30-day period following the Maker’s receipt of the Holder’s Notice
in Response to Inability to Convert (other than pursuant to a dispute as to the
determination of the arithmetic calculation of the Prepayment Price), in
addition to any remedy the Holder may have under this Note and the Purchase
Agreement, such unpaid amount shall bear interest at the rate of two percent
(2%) per month (prorated for partial months) until paid in
full. Until the full Mandatory Prepayment Price is paid in full to
the Holder, the Holder may (i) void the Mandatory Prepayment with respect to
that portion of the Note for which the full Mandatory Prepayment Price has not
been paid, (ii) receive back such Note, and (iii) require that the Conversion
Price of such returned Note be adjusted to the lesser of (A) the Conversion
Price as in effect on the date on which the Holder voided the Mandatory
Prepayment and (B) the lowest Closing Bid Price during the period beginning on
the Conversion Date and ending on the date the Holder voided the Mandatory
Prepayment.
Section
3.8 No Rights as
Shareholder. Nothing contained in this Note shall be construed
as conferring upon the Holder, prior to the conversion of this Note, the right
to vote or to receive dividends or to consent or to receive notice as a
shareholder in respect of any meeting of shareholders for the election of
directors of the Maker or of any other matter, or any other rights as a
shareholder of the Maker.
ARTICLE
IV
COVENANTS
For so long as this Note is outstanding, without the
prior written consent of the Holder:
Section
4.1 No
Liens. Other than Permitted Encumbrances, the Maker shall not,
and shall not permit any Guarantor to, enter into, create, incur, assume or
suffer to exist any liens, security interests, charges, claims or other
encumbrances of any kind (collectively, “Liens”) ranking in priority to or pari passu with the liens
provided to Holder under the Security Agreement and Pledge Agreement with
respect to any of its assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom except for the Permitted
Liens.
Section
4.2 No
Indebtedness. The Maker shall not, and shall not permit any
Guarantor to, enter into, create, incur, assume or suffer to exist any
Indebtedness, other than (i) Permitted Subordinated Indebtedness, (ii)
Indebtedness existing on the date hereof and disclosed in the Commission
Documents and (iii) purchase money security indebtedness for assets acquired by
the Maker or the Guarantors in the ordinary course of their respective
businesses, provided that such Indebtedness does not exceed the fair market
value of the asset acquired by the Maker (“Permitted PMSI
Debt”).
Section
4.3 Compliance with Transaction
Documents. The Maker shall, and shall cause the Guarantors to,
comply with their respective obligations under this Note and the other
Transaction Documents.
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ARTICLE
V
MISCELLANEOUS
Section
5.1 Notices. Any
notice, demand, request, waiver or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery, telecopy or facsimile at the address or number designated in the
Purchase Agreement (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first
occur. The Maker will give written notice to the Holder at least ten
(10) days prior to the date on which the Maker takes a record (x) with respect
to any dividend or distribution upon the Common Stock, (y) with respect to any
pro rata subscription offer to holders of Common Stock or (z) for determining
rights to vote with respect to any Organic Change, dissolution, liquidation or
winding-up and in no event shall such notice be provided to such holder prior to
such information being made known to the public. The Maker will also
give written notice to the Holder at least ten (10) days prior to the date on
which any Organic Change, dissolution, liquidation or winding-up will take place
and in no event shall such notice be provided to the Holder prior to such
information being made known to the public.
Section
5.2 Governing Law; Consent to
Forum. This Note shall be governed by the laws of the State of
Kansas without giving effect to any choice of law rules thereof; provided,
however, that if any of the collateral securing the Indebtedness shall be
located in any jurisdiction other than Kansas, the laws of such jurisdiction
shall govern the method, manner and procedure for foreclosure of Holder’s
security interest, lien or mortgage upon such collateral and the enforcement of
Holder’s other remedies in respect of such collateral to the extent that the
laws of such jurisdiction are different from or inconsistent with the laws of
Kansas. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED,
ISSUER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE COURT LOCATED WITHIN
XXXXXXX COUNTY, KANSAS OR FEDERAL COURT IN THE DISTRICT OF KANSAS, AND WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL AND SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. ISSUER
WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST
IT AS PROVIDED XXXXXX AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE. ISSUER FURTHER AGREES NOT TO ASSERT AGAINST
XXXXXX (EXCEPT BY WAY OF A DEFENSE OR COUNTERCLAIM IN A PROCEEDING INITIATED BY
HOLDER) ANY CLAIM OR OTHER ASSERTION OF LIABILITY WITH RESPECT TO THIS NOTE, THE
OTHER INVESTMENT DOCUMENTS, HOLDER’S CONDUCT OR OTHERWISE IN ANY JURISDICTION
OTHER THAN THE FOREGOING JURISDICTIONS.
Section
5.3 Headings. Article
and section headings in this Note are included herein for purposes of
convenience of reference only and shall not constitute a part of this Note for
any other purpose.
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Section
5.4 Remedies, Characterizations,
Other Obligations, Breaches and Injunctive Relief. The
remedies provided in this Note shall be cumulative and in addition to all other
remedies available under this Note, at law or in equity (including, without
limitation, a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing herein shall limit a holder’s
right to pursue actual damages for any failure by the Maker to comply with the
terms of this Note. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the holder thereof and shall not, except as
expressly provided herein, be subject to any other obligation of the Maker (or
the performance thereof). The Maker acknowledges that a breach by it
of its obligations hereunder will cause irreparable and material harm to the
Holder and that the remedy at law for any such breach may be inadequate.
Therefore the Maker agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available rights
and remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.
Section
5.5 Enforcement
Expenses. The Maker agrees to pay all costs and expenses of
enforcement of this Note, including, without limitation, reasonable attorneys’
fees and expenses.
Section
5.6 Binding
Effect. The obligations of the Maker and the Holder set
forth herein shall be binding upon the successors and assigns of each such
party, whether or not such successors or assigns are permitted by the terms
hereof.
Section
5.7 Amendments. This
Note may not be modified or amended in any manner except in writing executed by
the Maker and the Holder.
Section
5.8 Compliance with Securities
Laws. The Holder of this Note acknowledges that this Note is
being acquired solely for the Holder’s own account and not as a nominee for any
other party, and for investment, and that the Holder shall not offer, sell or
otherwise dispose of this Note. This Note and any Note issued in
substitution or replacement therefor shall be stamped or imprinted with a legend
in substantially the following form:
“THIS NOTE AND THE SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE
REASONABLY SATISFACTORY TO THE MAKER THAT THIS NOTE AND THE SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION HEREOF HAVE MAY BE SOLD, TRANSFERRED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION
UNDER THE ACT AND SUCH STATE SECURITIES LAWS.”
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Section
5.9 Parties in
Interest. This Note shall be binding upon, inure to the
benefit of and be enforceable by the Maker, the Holder and their respective
successors and permitted assigns.
Section
5.10 Failure or Indulgence Not
Waiver. No failure or delay on the part of the Holder in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
Section
5.11 Maker Waivers; Dispute
Resolution. Except as otherwise specifically provided herein,
the Maker and all others that may become liable for all or any part of the
obligations evidenced by this Note, hereby waive presentment, demand, notice of
nonpayment, protest and all other demands’ and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, and do hereby
consent to any number of renewals of extensions of the time or payment hereof
and agree that any such renewals or extensions may be made without notice to any
such persons and without affecting their liability herein and do further consent
to the release of any person liable hereon, all without affecting the liability
of the other persons, firms or Maker liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY.
(a) No
delay or omission on the part of the Holder in exercising its rights under this
Note, or course of conduct relating hereto, shall operate as a waiver of such
rights or any other right of the Holder, nor shall any waiver by the Holder of
any such right or rights on any one occasion be deemed a waiver of the same
right or rights on any future occasion.
(b) THE
MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A
COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY
WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY
WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.
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(c) In
the case of a reasonable dispute as to the determination of the Closing Bid
Price or the VWAP or the arithmetic calculation of the Conversion Price, any
adjustment to the Conversion Price, liquidated damages amount, interest or
dividend calculation, or any redemption price, redemption amount, adjusted
Conversion Price, or similar calculation, or as to whether a subsequent issuance
of securities is prohibited hereunder or would lead to an adjustment to the
Conversion Price, the Maker shall submit the disputed determinations or
arithmetic calculations via facsimile within two (2) Business Days of receipt,
or deemed receipt, of the Conversion Notice, any redemption notice, default
notice or other event giving rise to such dispute, as the case may be, to the
Holder. If, after a good faith effort by the parties, the Holder and the Maker
are unable to agree upon such determination or calculation within two (2)
Business Days of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Maker shall, within two (2) Business Days
submit via facsimile (a) the disputed determination of the Closing Price or the
VWAP to an independent, reputable investment bank selected by the Maker and
approved by the Holder, which approval shall not be unreasonably withheld, (b)
the disputed arithmetic calculation of the Conversion Price, adjusted Conversion
Price or any redemption price, redemption amount or default amount to the
Maker’s independent, outside accountant or (c) the disputed facts regarding
whether a subsequent issuance of securities is prohibited hereunder or would
lead to an adjustment to the Conversion Price (or any of the other above
described facts not expressly designated to the investment bank or accountant),
to an expert attorney from a nationally recognized outside law firm (having at
least 100 attorneys and having with no prior relationship with the Maker)
selected by the Maker and approved by the Holder. The Maker, at the
Maker’s expense, shall cause the investment bank, the accountant, the law firm,
or other expert, as the case may be, to perform the determinations or
calculations and notify the Maker 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, accountant’s or attorney’s determination
or calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.
Section
5.12 Definitions. Terms
used herein and not defined shall have the meanings set forth in the Purchase
Agreement. For the purposes hereof, the following terms shall have
the following meanings:
“Closing Bid Price”
shall mean, on any particular date (i) the last trading price per share of the
Common Stock on such date on the OTC Bulletin Board or another registered
national stock exchange on which the Common Stock is then listed, or if there is
no such price on such date, then the last trading price on such exchange or
quotation system on the date nearest preceding such date, or (ii) if the Common
Stock is not then listed or traded on a registered national securities exchange
or quoted on the OTC Bulletin Board, then the average of the “Pink Sheet” quotes
for the relevant conversion period, as determined in good faith by the Holder,
or (iii) if the Common Stock is not then publicly traded the fair market value
of a share of Common Stock as determined by the Maker and reasonably acceptable
to the Holder.
“Equity Conditions”
shall mean, during the period in question, (i) the Maker shall have duly honored
all conversions and redemptions scheduled to occur or occurring by virtue of one
or more Conversion Notices of the Holder, if any, (ii) all liquidated damages
and other amounts owing to the Holder in respect of this Note and the other
Transaction Documents shall have been paid; (iii) (A) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares issued or issuable pursuant to
the Transaction Documents or (B) there exists, under Rule 144 of the Securities
Act, “current public information” with respect to the Maker and the Holder is
permitted to resell the shares of Common Stock issued or issuable pursuant to
the Transaction Documents pursuant to Rule 144 of the Securities Act, without
any restriction as to volume, (iv) the Common Stock is trading on the Trading
Market and all of the shares issuable pursuant to the Transaction Documents are
listed for trading on a Trading Market (and the Maker believes, in good faith,
that trading of the Common Stock on a Trading Market will continue uninterrupted
for the foreseeable future), (v) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for the issuance of all
of the shares issuable pursuant to the Transaction Documents, (vi) there is then
existing no Event of Default or event which, with the passage of time or the
giving of notice, would constitute an Event of Default, and (vii) no public
announcement of a pending or proposed Major Transaction or Triggering Event has
occurred.
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“Indebtedness” means
(a) all obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations in respect of letters of credit, bankers acceptances, current swap
agreements, interest rate hedging agreements, interest rate swaps, or other
financial products, (c) all capital lease obligations that exceed $10,000 in the
aggregate in any fiscal year, (d) all obligations or liabilities secured by a
lien or encumbrance on any asset of the Maker, irrespective of whether such
obligation or liability is assumed, (e) all obligations for the deferred
purchase price of assets, together with trade debt and other accounts payable
that exceed $10,000 in the aggregate in any fiscal year, (f) all synthetic
leases, and (g) any obligation guaranteeing or intended to guarantee (whether
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse) any of the foregoing obligations of any other person; provided,
however, Indebtedness shall not include (a) usual and customary trade debt
incurred in the ordinary course of business and (b) endorsements for collection
or deposit in the ordinary course of business.
“Permitted
Encumbrance” means the individual and collective reference to the
following: (a) Liens for taxes, assessments and other governmental charges or
levies not yet due or Liens for taxes, assessments and other governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves (in the good faith judgment of the management of the
Maker) have been established in accordance with GAAP; (b) Liens imposed by law
which were incurred in the ordinary course of the Maker’s business, such as
carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and
other similar Liens arising in the ordinary course of the Maker’s business, and
which (x) do not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use thereof in the
operation of the business of the Maker and its consolidated subsidiaries or (y)
are being contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing for the foreseeable future the forfeiture or sale
of the property or asset subject to such Lien, (c) Liens securing Permitted
Subordinated Indebtedness, (d) Liens securing Permitted PMSI Debt, provided that
Indebtedness is secured solely by Xxxxx on the assets acquired with the proceeds
of such Permitted PMSI Debt; (e) Liens in favor of Holder; (f) Liens in favor of
Kenglo One Ltd; and (g) Permitted Liens, as defined in the Security
Agreement.
“Permitted Subordinated
Indebtedness” means Indebtedness incurred after the date hereof that (i)
shall be expressly subordinate in right of payment to this Note in form and
substance satisfactory to the Holder in its reasonable discretion, (ii) shall
not be secured by any asset, agreement or other collateral, other than liens
expressly subordinate to the liens securing this Note, and (iii) in the event of
any bankruptcy, liquidation or other similar proceeding, shall provide for the
payment in full of this Note prior to the payment of any amounts in respect
thereof.
“Person” means an
individual or a corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or political subdivision thereof) or other entity of
any kind.
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“Trading Day” means
(a) a day on which the Common Stock is traded on the OTC Bulletin Board or a
registered national securities exchange, or (b) if the Common Stock is not
traded on the OTC Bulletin Board or a registered national securities exchange, a
day on which the Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a) or (b)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
“Trading Market” means
the Over the Counter Bulletin Board, the New York Stock Exchange, the Nasdaq
Capital Markets, the Nasdaq Global Markets, the Nasdaq Global Select Market or
the American Stock Exchange.
“VWAP” means, for any
date, (i) the daily volume weighted average price of the Common Stock for such
date on the OTC Bulletin Board or national securities exchange as reported by
Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to
4:02 p.m. Eastern Time); (ii) if the Common Stock is not then listed or
quoted on the OTC Bulletin Board or a national securities exchange and if prices
for the Common Stock are then reported in the “Pink Sheets” published by the
Pink Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (iii) in all other cases, the fair market
value of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Holder and reasonably acceptable to the
Maker.
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IN
WITNESS WHEREOF, the Maker has caused this Note to be duly executed by its duly
authorized officer as of the date first above indicated.
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By:
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/s/ Xxxxxxx X. Xxxx
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Name:
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Xxxxxxx
X. Xxxx
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Title:
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Chief
Executive
Officer
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Signature
Page
to
Amended and Restated 10% Senior Secured Convertible Promissory
Note
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