EXHIBIT 4.1
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FARMSTEAD TELEPHONE GROUP, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
SECURED CONVERTIBLE MINIMUM BORROWING NOTE SERIES B
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FOR VALUE RECEIVED, each of FARMSTEAD TELEPHONE GROUP, INC., a Delaware
corporation (the "Parent"), and the other companies listed on Exhibit A
attached hereto (such other companies together with the Parent, each a
"COMPANY" and collectively, the "COMPANIES"), jointly and severally, promises
to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate Services Limited, P.O.
Box 309 GT, Xxxxxx House, South Church Street, Xxxxxx Town, Grand Cayman,
Cayman Islands, Fax: 000-000-0000 (the "HOLDER") or its registered assigns or
successors in interest, on order, the sum of Five Hundred Thousand Dollars
($500,000), or, if different, the aggregate principal amount of all Loans (as
defined in the Security Agreement referred to below), together with any accrued
and unpaid interest hereon, on March 31, 2008 (the "MATURITY DATE") if not
sooner paid.
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Security Agreement among the Companies and the
Holder dated as of the date hereof (as amended, modified and/or supplemented
from time to time, the "SECURITY AGREEMENT").
The following terms shall apply to this Minimum Borrowing Note Series B
(this "NOTE"):
ARTICLE I
CONTRACT RATE
1.1 Contract Rate. Subject to Sections 4.2 and 5.10, interest payable on
the outstanding principal amount of this Note (the "PRINCIPAL AMOUNT") shall
accrue at a rate per annum equal to the "prime rate" published in The Wall
Street Journal from time to time (the "PRIME RATE"), plus two percent (2.0%)
(the "CONTRACT RATE"). The Contract Rate shall be increased or decreased as the
case may be for each increase or decrease in the Prime Rate in an amount equal
to such increase or decrease in the Prime Rate; each change to be effective as
of the day of the change in the Prime Rate. Subject to Section 1.2, the
Contract Rate shall not at any time be less than six percent (6.0%). Interest
shall be (i) calculated on the basis of a 360 day year, and (ii) payable
monthly, in arrears, commencing on May 1, 2005 on the first business day of
each consecutive calendar month thereafter (each, a "PAYMENT DATE"), through
and including the Maturity Date and on the Maturity Date whether by
acceleration or otherwise.
1.2 Contract Rate Adjustments and Payments. The Contract Rate shall be
calculated on the last business day of each calendar month hereafter (other
than for increases or decreases in the Prime Rate which shall be calculated and
become effective in accordance with the terms of Section 1.1) until the
Maturity Date (each a "DETERMINATION DATE") and shall be subject to adjustment
as set forth herein. If (i) the Parent shall have registered the shares of the
Common Stock underlying the conversion of each Minimum Borrowing Note and each
Warrant on a registration statement declared effective by the Securities and
Exchange Commission (the "SEC"), and (ii) the market price (the "MARKET PRICE")
of the Common Stock as reported by Bloomberg, L.P. on the Principal Market for
the five (5) trading days immediately preceding a Determination Date exceeds
the then applicable Fixed Conversion Price by at least twenty-five percent
(25%), the Contract Rate for the succeeding calendar month shall automatically
be reduced by 200 basis points (200 b.p.) (2%) for each incremental twenty-five
percent (25%) increase in the Market Price of the Common Stock above the then
applicable Fixed Conversion Price. Notwithstanding the foregoing (and anything
to the contrary contained herein), in no event shall the Contract Rate at any
time be less than zero percent (0%).
ARTICLE II
LOANS; PAYMENTS UNDER THIS NOTE
2.1 Loans. All Loans evidenced by this Note shall be made in accordance
with the terms and provisions of the Security Agreement.
2.2 No Effective Registration. Notwithstanding anything to the contrary
herein, the Holder shall not be required to accept shares of Common Stock as
payment following a conversion by the Holder if there fails to exist an
effective current Registration Statement (as defined in the Registration Rights
Agreement) covering the shares of Common Stock to be issued, or if an Event of
Default hereunder exists and is continuing, unless such requirement is
otherwise waived in writing by the Holder in whole or in part at the Holder's
option.
2.3 Optional Redemption in Cash. The Companies will have the option of
prepaying this Note ("OPTIONAL REDEMPTION") by paying to the Holder a sum of
money equal to one hundred twenty percent (120%) of the principal amount of
this Note together with accrued but unpaid interest thereon and any and all
other sums due, accrued or payable to the Holder arising under this Note, the
Security Agreement, or any other Ancillary Agreement (the "REDEMPTION AMOUNT")
outstanding on the Redemption Payment Date (as defined below). The Company
shall deliver to the Holder a written notice of redemption (the "NOTICE OF
REDEMPTION") specifying the date for such Optional Redemption (the "REDEMPTION
PAYMENT DATE"), which date shall be ten (10) days after the date of the Notice
of Redemption (the "REDEMPTION PERIOD"). A Notice of Redemption shall not be
effective with respect to any portion of this Note for which the Holder has
previously delivered a Notice of Conversion (defined below) pursuant to Section
3.1, or for conversions elected to be made by the Holder pursuant to Section
3.1 during the Redemption Period. The Redemption Amount shall be determined as
if such Xxxxxx's conversion elections had been completed immediately prior to
the date of the Notice of Redemption. On the Redemption Payment Date, the
Redemption Amount (plus any additional interest and fees accruing on the Notes
during the Redemption Period) must be irrevocably paid in full in immediately
available funds to the Holder. In the event the
Companies fail to pay the Redemption Amount on the Redemption Payment Date,
then such Redemption Notice shall be null and void.
ARTICLE III
CONVERSION RIGHTS AND FIXED CONVERSION PRICE
3.1 (a) Optional Conversion. Subject to the terms of this Article III,
the Holder shall have the right, but not the obligation, at any time until the
Maturity Date, or during an Event of Default (as defined in Article IV), and,
subject to the limitations set forth in Section 3.2 hereof, to convert all or
any portion of the outstanding Principal Amount and/or accrued interest and
fees due and payable into fully paid and nonassessable shares of the Common
Stock at the Fixed Conversion Price. For purposes hereof, subject to Section
3.6 hereof, the initial "FIXED CONVERSION PRICE" means $1.54 [which has been
determined on the date of this Note as an amount equal to the lesser of (x)
110% of the average closing price of the Common Stock for the ten (10) trading
days immediately prior to the date of this Note and (y) 115% of the closing
price of the Common Stock on the date of this Note]; provided that, on the date
on which the first $1,500,000 principal amount of all Minimum Borrowing Notes
converted hereunder (and all interest and fees related thereto) (the "INITIAL
CONVERSION AMOUNT") shall have been converted hereunder (the "INITIAL
CONVERSION COMPLETION DATE"), the Fixed Conversion Price shall be adjusted for
all amounts in excess of the Initial Conversion Amount converted hereunder (and
all interest and fees related thereto), to the greater of (x) $1.54 [the
initial Fixed Conversion Price] and (y) an amount equal to the lesser of (A)
110% of the average closing price of the Common Stock for the ten (10) trading
days immediately prior to the Initial Conversion Completion Date and (B) 115%
of the closing price of the Common Stock on the Initial Conversion Completion
Date.
3.1(b) Mandatory Conversions. Subject to Sections 3.1, 3.2 and 3.10
hereof, if the average closing price of the Common Stock as reported by
Bloomberg, L.P. on the Principal Market for five (5) consecutive trading days
in any calendar month shall be greater than 115% of the Fixed Conversion Price,
the Holder shall convert into shares of Common Stock such portion of the
principal amount outstanding under this Note (together with accrued interest
and fees in respect thereof) on such date equal to ten percent (10%) of the
aggregate dollar trading volume of the Common Stock for the period of
twenty-two (22) trading days preceding the date of the mandatory conversion.
The Holder shall not be required under any circumstances to make more than one
(1) mandatory conversion pursuant to this Section 3.1(b) in any calendar month.
The shares of Common Stock to be issued upon such conversion are herein
referred to as the "CONVERSION SHARES."
3.2 Conversion Limitation. Notwithstanding anything contained herein to
the contrary, the Holder shall not be entitled to convert pursuant to the terms
of this Note an amount that would be convertible into that number of Conversion
Shares which would exceed the difference between (i) 4.99% of the outstanding
shares of Common Stock and (ii) the number of shares of Common Stock
beneficially owned by the Holder. For purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and Regulation 13d-3 thereunder. The Conversion
Shares limitation described in this Section 3.2 shall automatically become null
and void without any notice to any
Company upon the occurrence and during the continuance of an Event of Default,
or upon 75 days prior notice to the Parent, except that at no time shall the
number of shares of Common Stock beneficially owned by the Holder exceed 19.99%
of the outstanding shares of Common Stock. Notwithstanding anything contained
herein to the contrary, the number of shares of Common Stock issuable by the
Parent and acquirable by the Holder at a price below $2.30 [insert the greater
of market price or book value of the Common Stock as of the date hereof] per
share pursuant to the terms of this Note, the Security Agreement or any other
Ancillary Agreement, shall not exceed an aggregate of 664,104 shares of Common
Stock (subject to appropriate adjustment for stock splits, stock dividends, or
other similar recapitalizations affecting the Common Stock) (the "MAXIMUM
COMMON STOCK ISSUANCE"), unless the issuance of Common Stock hereunder in
excess of the Maximum Common Stock Issuance shall first be approved by the
Parent's shareholders. If at any point in time and from time to time the number
of shares of Common Stock issued pursuant to the terms of this Note, the
Security Agreement or any other Ancillary Agreement, together with the number
of shares of Common Stock that would then be issuable by the Parent to the
Holder in the event of a conversion or exercise pursuant to the terms of this
Note, the Security Agreement or any other Ancillary Agreement, would
exceed the Maximum Common Stock Issuance but for this Section 3.2, the Parent
shall promptly call a shareholders meeting to solicit shareholder approval for
the issuance of the shares of Common Stock hereunder in excess of the Maximum
Common Stock Issuance. Notwithstanding anything contained herein to the
contrary, the provisions of this Section 3.2 are irrevocable and may not be
waived by the Holder or any Company.
3.3 Mechanics of Xxxxxx's Conversion. In the event that the Holder elects
to convert amounts outstanding under this Note into Common Stock, the Holder
shall give notice of such election by delivering (by facsimile or email) an
executed and completed notice of conversion in substantially the form of
Exhibit A hereto (appropriately completed) ("NOTICE OF CONVERSION") to the
Parent and such Notice of Conversion shall provide a breakdown in reasonable
detail of the Principal Amount, accrued interest and fees that are being
converted. The Parent shall have two (2) hours from the time that such Notice
of Conversion is delivered to the Parent to provide the Holder with written
notice (delivered to Holder via facsimile or email) of the Parent's decision to
purchase the number of shares of Common Stock otherwise deliverable to the
Holder pursuant to the Notice of Conversion (the "Designated Shares") for a
purchase price determined by multiplying the Designated Shares by the intraday
high price of the Common Stock on the day the Notice of Conversion was
submitted to the Parent (the "Disposition Price"). The Disposition Price shall
be paid by the Parent to the Holder by wire transfer of immediately available
funds within two (2) business days of the date of the Notice of Conversion. On
each Conversion Date (as hereinafter defined) and in accordance with its Notice
of Conversion, the Holder shall make the appropriate reduction to the Principal
Amount, accrued interest and fees as entered in its records and shall provide
written notice thereof to the Parent within two (2) Business Days after the
Conversion Date. Each date on which a Notice of Conversion is delivered or
telecopied to the Parent in accordance with the provisions hereof shall be
deemed a Conversion Date (the "CONVERSION DATE"). Pursuant to the terms of the
Notice of Conversion, the Parent will issue instructions to the transfer agent
accompanied by an opinion of counsel (to the extent requested by the transfer
agent) within one (1) Business Day of the date of the delivery to the Parent of
the Notice of Conversion and shall cause the transfer agent to transmit the
certificates representing the Conversion Shares to the Holder by crediting the
account of the Holder's designated broker with the Depository Trust Corporation
("DTC")
through its Deposit Withdrawal Agent Commission ("DWAC") system within three
(3) Business Days after receipt by the Parent of the Notice of Conversion (the
"DELIVERY DATE"). In the case of the exercise of the conversion rights set
forth herein the conversion privilege shall be deemed to have been exercised
and the Conversion Shares issuable upon such conversion shall be deemed to have
been issued upon the date of receipt by the Parent of the Notice of Conversion.
The Holder shall be treated for all purposes as the record holder of the
Conversion Shares, unless the Holder provides the Parent written instructions
to the contrary.
3.4 Late Payments. Each Company understands that a delay in the delivery
of the Conversion Shares in the form required pursuant to this Article beyond
the Delivery Date could result in economic loss to the Holder. As compensation
to the Holder for such loss, in addition to all other rights and remedies which
the Holder may have under this Note, applicable law or otherwise, the Companies
shall, jointly and severally, pay late payments to the Holder for any late
issuance of Conversion Shares in the form required pursuant to this Article III
upon conversion of this Note, in the amount equal to $500 per Business Day
after the Delivery Date. The Companies shall, jointly and severally, make any
payments incurred under this Section in immediately available funds upon
demand.
3.5 Conversion Mechanics. The number of shares of Common Stock to be
issued upon each conversion of this Note shall be determined by dividing that
portion of the principal and interest and fees to be converted, if any, by the
then applicable Fixed Conversion Price.
3.6 Adjustment Provisions. The Fixed Conversion Price and number and kind
of shares or other securities to be issued upon conversion determined pursuant
to Section 3.1 shall be subject to adjustment from time to time upon the
occurrence of certain events during the period that this conversion right
remains outstanding, as follows:
(a) Reclassification. If the Parent at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to
the unpaid Principal Amount and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted number
of such securities and kind of securities as would have been issuable as
the result of such change with respect to the Common Stock (i)
immediately prior to or (ii) immediately after such reclassification or
other change at the sole election of the Holder.
(b) Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number
of shares of Common Stock, or if a dividend is paid on the Common Stock
or any preferred stock issued by the Parent in shares of Common Stock,
the Fixed Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in
the case of combination of shares, in each such case by the ratio which
the total number of shares of Common Stock outstanding immediately after
such event bears to the total number of shares of Common Stock
outstanding immediately prior to such event.
(c) Share Issuances. Subject to the provisions of this Section 3.6,
if the Parent shall at any time prior to the conversion or repayment in
full of the Principal Amount issue any shares of Common Stock or
securities convertible into Common Stock to a person other than the
Holder (except (i) pursuant to Sections 3.6(a) or (b) above; (ii)
pursuant to options, warrants, or other obligations to issue shares
outstanding on the date hereof as disclosed to the Holder in writing;
(iii) pursuant to options that may be issued under any employee incentive
stock option and/or any qualified stock option plan adopted by the
Parent; (iv) pursuant to warrants issued to key employees as part of
incentive programs and (v) warrants or options issued by the Parent in
connection with acquisitions [of wholly-owned Subsidiaries] in which
neither the Parent nor any of its Subsidiaries receives any cash
consideration) for a consideration per share (the "Offer Price") less
than the Fixed Conversion Price in effect at the time of such issuance,
then the Fixed Conversion Price shall be immediately reset to such lower
Offer Price. For purposes hereof, the issuance of any security of the
Parent convertible into or exercisable or exchangeable for Common Stock
shall result in an adjustment to the Fixed Conversion Price upon the
issuance of such securities.
(d) Computation of Consideration. For purposes of any computation
respecting consideration received pursuant to Section 3.6(c) above, the
following shall apply:
(i) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Parent for any
underwriting of the issue or otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market
value thereof as determined in good faith by the Board of Directors
of the Parent (irrespective of the accounting treatment thereof);
and
(iii) upon any such exercise, the aggregate consideration
received for such securities shall be deemed to be the
consideration received by the Parent for the issuance of such
securities plus the additional minimum consideration, if any, to be
received by the Parent upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as
provided in subsections (i) and (ii) of this Section 2.5).
3.7 Reservation of Shares. During the period the conversion right exists,
the Parent will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Conversion Shares
upon the full conversion of this Note and the warrant. The Parent represents
that upon issuance, the Conversion Shares will be duly and validly issued,
fully paid and non-assessable. The Parent agrees that its issuance of this Note
shall constitute full authority to its officers, agents, and transfer agents
who are charged with the duty of executing and issuing stock certificates to
execute and issue the necessary certificates for the Conversion Shares upon the
conversion of this Note.
3.8 Registration Rights. The Holder has been granted registration rights
with respect to the Conversion Shares as set forth in a Registration Rights
Agreement.
3.9 Issuance of New Note. Upon any partial conversion of this Note, a new
Note containing the same date and provisions of this Note shall, at the request
of the Holder, be issued by the Parent to the Holder for the principal balance
of this Note and interest which shall not have been converted or paid. Subject
to the provisions of Article IV of this Note, the Parent shall not pay any
costs, fees or any other consideration to the Holder for the production and
issuance of a new Note.
3.10 No Effective Registration. Notwithstanding anything to the contrary
herein, none of the Companies' obligations to the Holder may be converted into
Common Stock unless (a) either (i) an effective current Registration Statement
(as defined in the Registration Rights Agreement) covering the shares of Common
Stock to be issued in connection with satisfaction of such obligations exists
or (ii) an exemption from registration for resale of all of the Common Stock
issued and issuable is available pursuant to Rule 144 of the Securities Act and
(b) no Event of Default (as hereinafter defined) exists and is continuing,
unless such Event of Default is cured within any applicable cure period or
otherwise waived in writing by the Holder.
ARTICLE IV
EVENTS OF DEFAULT AND DEFAULT RELATED PROVISIONS
4.1 Events of Default. The occurrence of an Event of Default under the
Security Agreement shall constitute an event of default ("EVENT OF DEFAULT")
hereunder.
4.2 Default Interest. Following the occurrence and during the continuance
of an Event of Default, the Companies shall, jointly and severally, pay
additional interest on the outstanding principal balance of this Note in an
amount equal to one and a half percent (1.5%) per month, and all outstanding
Obligations, including unpaid interest, shall continue to accrue interest at
such additional interest rate from the date of such Event of Default until the
date such Event of Default is cured or waived.
4.3 Default Payment. Following the occurrence and during the continuance
of an Event of Default, the Holder, at its option, may elect, in addition to
all rights and remedies of the Holder under the Security Agreement and the
Ancillary Agreements and all obligations of each Company under the Security
Agreement and the Ancillary Agreements, to require the Companies, jointly and
severally, to make a Default Payment ("DEFAULT PAYMENT"). The Default Payment
shall be 120% of the outstanding principal amount of the Note, plus accrued but
unpaid interest, all other fees then remaining unpaid, and all other amounts
payable hereunder and shall be applied first to pay any fees due and payable to
the Holder pursuant to the Notes, the Security Agreement and/or any other
Ancillary Agreement, and thereafter to accrued and unpaid interest due on the
Notes and thereafter to the outstanding principal balance of the Notes. The
Default Payment shall be due and payable immediately on the date that the
Holder has exercised its rights pursuant to this Section 4.3.
ARTICLE V
MISCELLANEOUS
5.1 Conversion Privileges. The conversion privileges set forth in Article
III shall remain in full force and effect immediately from the date hereof
until the date this Note is indefeasibly paid in full and irrevocably
terminated.
5.2 Cumulative Remedies. The remedies under this Note shall be
cumulative.
5.3 Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder hereof 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. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
5.4 Notices. Any notice herein required or permitted to be given shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next
business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address provided for such Company in the Security Agreement
executed in connection herewith, and to the Holder at the address provided in
the Security Agreement for such Holder, with a copy to Xxxx X. Xxxxxx, Esq.,
000 Xxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, xxxxxxxxx number (212)
541-4434, or at such other address as the respective Company or the Holder may
designate by ten days advance written notice to the other parties hereto. A
Notice of Conversion shall be deemed given when made to the Company pursuant to
the Purchase Agreement.
5.5 Amendment Provision. The term "Note" and all references thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument as such successor instrument may be
amended or supplemented.
5.6 Assignability. This Note shall be binding upon each Company and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with
the requirements of the Security Agreement. No Company may assign any of its
obligations under this Note without the prior written consent of the Holder,
any such purported assignment without such consent being null and void.
5.7 Cost of Collection. In case of any Event of Default under this Note,
the Companies shall, jointly and severally, pay the the Holder's reasonable
costs of collection, including reasonable attorneys' fees.
5.8 Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN ANY COMPANY, ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND,
PERTAINING TO THIS NOTE, THE SECURITY AGREEMENT OR ANY OF THE OTHER
ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
NOTE, THE SECURITY AGREEMENT OR ANY OF THE OTHER ANCILLARY AGREEMENTS;
PROVIDED, THAT EACH COMPANY ACKNOWLEDGES THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF
NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS
NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE THE HOLDER FROM BRINGING SUIT
OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
THE HOLDER. EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
EACH COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS.
EACH COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE
OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN THE
SECURITY AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF THE COMPANY'S ACTUAL RECEIPT THEREOF OR THREE (3)
DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
(c) EACH COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH COMPANY
HERETO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE BETWEEN THE HOLDER, AND/OR ANY COMPANY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS NOTE, THE SECURITY AGREEMENT, ANY
OTHER ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
5.9 Severability. In the event that any provision of this Note is invalid
or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision of this
Note.
5.10 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
rate permitted by such law, any payments in excess of such maximum rate shall
be credited against amounts owed by the Companies to the Holder and thus
refunded to the Companies.
5.11 Security Interest and Guarantee. The Holder has been granted a
security interest in certain assets of the Companies as more fully described in
the Security Agreement.
5.12 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that
the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Note to favor
any party against the other.
[Balance of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, each Company has caused this Secured Convertible
Minimum Borrowing Note Series B to be signed in its name effective as of this
2nd day of September 2005.
FARMSTEAD TELEPHONE GROUP, INC.
By: /s/ Xxxxxx X. XxXxxxx
---------------------
Name: Xxxxxx X. XxXxxxx
Title: Executive Vice President, CFO
WITNESS:
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EXHIBIT A
---------
OTHER COMPANIES
---------------
None.
EXHIBIT B
---------
NOTICE OF CONVERSION
--------------------
(To be executed by the Holder in order to convert the
Secured Convertible Minimum Borrowing Note Series B)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Secured Convertible Minimum Borrowing
Note Series B dated as of _________, 200__ (the "NOTE") issued by Farmstead
Telephone Group, Inc. (the "PARENT") and the other Companies named and as
defined therein into shares of Common Stock of the Parent in accordance with
the terms and conditions set forth in the Note, as of the date written below.
Date of Conversion: _________________________________________________
Conversion Price: _________________________________________________
Shares To Be Delivered: _________________________________________________
Signature: _________________________________________________
Print Name: _________________________________________________
Address: _________________________________________________
Holder DWAC instructions _________________________________________________
