Exhibit 10.2
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 FRONT PORCH DIGITAL, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, FRONT PORCH DIGITAL, INC., a Nevada corporation
(the "BORROWER"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o
Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: 000-000-0000 (the "HOLDER") or
its registered assigns or successors in interest, on order, the sum of Five
Million Dollars ($5,000,000), together with any accrued and unpaid interest
hereon, on May 13, 2007 (the "MATURITY DATE") if not sooner paid. The original
principal amount of this Note subject to amortizing payments pursuant to Section
1.2 hereof is hereinafter referred to as the "AMORTIZING PRINCIPAL AMOUNT" and
the remaining original principal amount of this Note is hereinafter referred to
as the "NON-AMORTIZING PRINCIPAL AMOUNT."
Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in that certain Securities Purchase Agreement
dated as of the date hereof between the Borrower and the Holder (the "PURCHASE
AGREEMENT").
The following terms shall apply to this Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1 (a) INTEREST RATE. Subject to Sections 1.1(b), 4.12 and 5.6
hereof, interest payable on this Note shall accrue at a rate per annum (the
"Interest Rate") equal to the "prime rate" published in THE WALL STREET JOURNAL
from time to time, plus one percent (1.0%). The prime 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 such rate. Subject to Section 1.1(b)
hereof, the Interest Rate shall not be less than five (5) percent (5.0%).
Interest shall be calculated on the basis of a 360 day year. Interest shall
accrue but not be payable during the period commencing on the date hereof and
ending on August 31, 2004. Commencing on September 1, 2004, interest on the
Amortizing Principal Amount shall be payable monthly, in arrears, commencing on
September 1, 2004 and on the first day of each consecutive calendar month
thereafter (each, a "REPAYMENT DATE") and on the Maturity Date, whether by
acceleration or otherwise. Accrued interest on the Non-Amortizing Principal
Amount shall be payable only on the Maturity Date or, in the event of the
redemption or conversion of all or any portion of the Non-Amortizing Principal
Amount, accrued interest on the
amount so redeemed or converted shall be paid on the date of redemption or
conversion, as the case may be.
1.1. (b) INTEREST RATE ADJUSTMENT. The Interest Rate shall be
subject to adjustment on the last business day of each month hereafter until the
Maturity Date (each a "Determination Date"). If on any Determination Date (i)
the Borrower shall have registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), the shares of Common Stock underlying each of the
conversion of this Note and the exercise of the Warrant issued 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 (as defined below) for the
five (5) consecutive trading days immediately preceding such Determination Date
exceeds the then applicable Fixed Conversion Price by at least twenty five
percent (25%), the Interest Rate for the succeeding calendar month shall
automatically be reduced by 200 basis points (200 b.p.) (2.0.%) for each
incremental twenty five percent (25%) increase in the Market Price of the Common
Stock above the then applicable Fixed Conversion Price. If on any Determination
Date (i) the Borrower shall not have registered under the Securities Act the
shares of Common Stock underlying the conversion of this Note and the exercise
of the Warrant on a registration statement declared effective by the SEC or the
Borrower shall have registered such shares under the Securities Act but on such
Determination Date the related registration statement is not effective, and (ii)
the Market Price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for the five (5) consecutive trading days immediately preceding
such Determination Date exceeds the then applicable Fixed Conversion Price by at
least twenty five percent (25%), the Interest Rate for the succeeding calendar
month shall automatically be decreased by 100 basis points (100 b.p.) (1.0.%)
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 in
herein), (i) if on any Determination Date the Market Price of the Common Stock
for the five (5) consecutive trading days immediately preceding such
Determination Date is below the then Fixed Conversion Price, the Interest Rate
for the next succeeding month will be equal to the "prime rate" published in The
Wall Street Journal from time to time plus one percent (1%) and (ii) in no event
shall the Interest Rate be less than zero percent (0%).
1.2. MINIMUM MONTHLY PRINCIPAL PAYMENTS. Amortizing payments of
$1,500,000 of the original aggregate principal amount outstanding under this
Note (the "PRINCIPAL AMOUNT") shall begin on September 1, 2004 and shall recur
on each succeeding Repayment Date thereafter until the Amortizing Principal
Amount has been repaid in full, whether by the payment of cash or by the
conversion of such principal into Common Stock pursuant to the terms hereof.
Subject to Section 2.1 and Article 3 below, on each Repayment Date, the Borrower
shall make payments to the Holder in the amount of $45,454.54 (the "MONTHLY
PRINCIPAL AMOUNT"), together with any accrued and unpaid interest then due on
such portion of the Amortizing Principal Amount plus any and all other amounts
which are then owing under this Note that have not been paid (the Monthly
Principal Amount, together with such accrued and unpaid interest and such other
amounts, collectively, the "MONTHLY AMOUNT"). Any Amortizing Principal Amount
that remains outstanding on the Maturity Date shall be due and payable on the
Maturity Date.
ARTICLE II
CONVERSION REPAYMENT
2.1. (a) PAYMENT OF MONTHLY AMOUNT IN CASH OR COMMON STOCK. Not
later than the fifth (5th) business day prior to each Repayment Date (the
"NOTICE DATE"), the Holder may deliver to Borrower a written notice in the form
of Exhibit B attached hereto directing the Borrower to pay the Monthly Amount
payable on the next Repayment Date in either cash or Common Stock, or a
combination of both (each, a "REPAYMENT NOTICE"). If a Repayment Notice is not
delivered by the Holder on or before the applicable Notice Date for such
Repayment Date, then, subject to Section 2.1(b), the Borrower shall pay the
Monthly Amount due on such Repayment Date in cash. In the event the Borrower
shall be required to pay any portion of the Monthly Amount in respect of
principal in cash, the Borrower shall pay to the Holder in respect to such
payment an amount equal to 101% of such principal amount. If the Holder elects
to convert all or a portion of any Monthly Amount into shares of Common Stock as
provided herein, the number of such shares to be issued by the Borrower to the
Holder on such Repayment Date shall be the number determined by dividing (x) the
portion of the Monthly Amount to be paid in shares of Common Stock, by (y) the
then applicable Fixed Conversion Price. For purposes hereof, the initial "FIXED
CONVERSION PRICE" means $0.50.
(b) MONTHLY AMOUNT CONVERSION GUIDELINES. Subject to Sections
2.1(a), 2.2 and 3.2 hereof, on each Notice Date, the Holder shall convert the
Monthly Amount due on the related Repayment Date into shares of Common Stock if
the average closing price of the Common Stock as reported by Bloomberg, L.P. on
the Principal Market for the five (5) consecutive trading days immediately
preceding such Notice Date is greater than or equal to 110% of the Fixed
Conversion Price, provided, however, that the portion of the Monthly Amount to
be converted shall not exceed twenty percent (20%) of the aggregate dollar
trading volume of the Common Stock for the twenty (20)-trading-day period
immediately preceding such Notice Date. Any such conversion shall be set forth
in a Repayment Notice delivered to the Borrower. Any part of the Monthly Amount
due on a Repayment Date that the Holder has not converted into shares of Common
Stock shall be paid by the Borrower in cash on such Repayment Date. pursuant to
Section 2.1(a).
(c) CONVERSION OF NON-AMORTIZING PRINCIPAL AMOUNT ON REPAYMENT
DATE. Subject to Sections 2.2 and 3.2, on each Repayment Date, the Holder shall
convert the aggregate Non-Amortizing Principal Amount outstanding hereunder into
shares of Common Stock if the average closing price of the Common Stock as
reported by Bloomberg, L.P. on the Principal Market for the five (5) consecutive
trading days immediately preceding such Repayment Date is greater than or equal
to 120% of the Fixed Conversion Price, provided, however, that the
Non-Amortizing Principal Amount to be converted on any Repayment Date shall not
exceed twenty percent (20%) of the aggregate dollar trading volume of the Common
Stock for the twenty (20)-trading-day period immediately preceding such
Repayment Date.
(d) APPLICATION OF CONVERSION AMOUNTS. Any amounts converted
by the Holder pursuant to Section 2.1(b) or (c) shall be deemed to constitute
payments of, or applied against, first outstanding fees, second, accrued
interest, and then principal.
2.2. NO EFFECTIVE REGISTRATION. Notwithstanding anything to the
contrary herein, no amount payable hereunder 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 satisfaction of such obligations exists, or (ii) an exemption from
registration of the Common Stock is available pursuant to Rule 144 of the
Securities Act, and (b) no Event of Default hereunder exists and is continuing,
unless such Event of Default is cured within any applicable cure period or is
otherwise waived in writing by the Holder in whole or in part at the Holder's
option.
2.3. OPTIONAL REDEMPTION OF AMORTIZING PRINCIPAL AMOUNT. The
Borrower will have the option of prepaying the outstanding Amortizing Principal
Amount ("OPTIONAL AMORTIZING REDEMPTION"), in whole or in part, by paying to the
Holder a sum of money equal to one hundred twenty-five percent (125%) of the
Amortizing Principal Amount to be redeemed, 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 Purchase Agreement or any Related Agreement
(the "AMORTIZING REDEMPTION AMOUNT") on the day written notice of redemption
(the "NOTICE OF AMORTIZING REDEMPTION") is given to the Holder. The Notice of
Amortizing Redemption shall specify the date for such Optional Amortizing
Redemption (the "AMORTIZING REDEMPTION PAYMENT DATE"), which date shall be not
less than seven (7) business days after the date of the Notice of Amortizing
Redemption (the "REDEMPTION PERIOD"). A Notice of Amortizing Redemption shall
not be effective with respect to any portion of the Amortizing Principal Amount
for which the Holder has a pending election to convert pursuant to Section 3.1,
or for conversions initiated or made by the Holder pursuant to Section 3.1
during the Redemption Period. The Amortizing Redemption Amount shall be
determined as if such Xxxxxx's conversion elections had been completed
immediately prior to the date of the Notice of Amortizing Redemption. On the
Amortizing Redemption Payment Date, the Amortizing Redemption Amount shall be
paid in good funds to the Holder. In the event the Borrower fails to pay the
Amortizing Redemption Amount on the Amortizing Redemption Payment Date as set
forth herein, then such Notice of Amortizing Redemption will be null and void.
2.4. OPTIONAL REDEMPTION OF NON-AMORTIZING PRINCIPAL AMOUNT. The
Borrower will have the option of repaying the outstanding Non-Amortizing
Principal Amount ("OPTIONAL NON-AMORTIZING REDEMPTION"), in whole or in part, by
paying the Holder a sum of money equal to one hundred percent (100%) of the
Non-Amortizing Principal Amount to be redeemed, together with accrued but unpaid
interest thereon (the "NON-AMORTIZING REDEMPTION AMOUNT") on the day written
notice of redemption (the "NOTICE OF NON-AMORTIZING REDEMPTION") is giving to
the Holder; provided, however, that the Borrower shall not be entitled to
deliver to the Holder a Notice of Non-Amortizing Redemption on any date on which
the average of the eleven (11) highest closing prices of the Common Stock on the
Principal Market for the twenty-two (22) consecutive trading days immediately
preceding such date exceeds the Fixed Conversion Price. The Notice of
Non-Amortizing Redemption shall specify the date for such Optional
Non-Amortizing Redemption (the "NON-AMORTIZING REDEMPTION DATE"), which date
shall be not less than seven (7) business days after the date of the Notice of
Non-Amortizing Redemption (the "NON-AMORTIZING REDEMPTION PERIOD"). A Notice of
Non-Amortizing Redemption shall not be effective with respect to any portion of
the Non-Amortizing Principal Amount for which the Holder has a pending election
to convert pursuant to Section
31, or for conversions initiated or made by the Holder pursuant to Section 3.1
during the Non-Amortizing Redemption Period. The Non-Amortizing Redemption
Amount shall be determined as if the Holder's conversion elections had been
completed immediately prior to the date of the Notice of Non-Amortizing
Redemption. On the Non-Amortizing Redemption Date, the Non-Amortizing Redemption
Amount shall be paid (i) in good funds to the Holder, (ii) by furnishing the
Holder written direction to notify the bank holding the Restricted Account to
release from the Restricted Account and deliver to the Holder a sum of money
equal to the Non-Amortizing Redemption Amount, or (iii) if the amount on deposit
in the Restricted Account is less than the Non-Amortizing Redemption Amount, by
furnishing the Holder written direction to notify the bank holding the
Restricted Account to release all amounts on deposit in the Restricted Account
to the Holder and delivering to the Holder good funds in an amount equal to the
balance of the Non-Amortizing Redemption Amount.
ARTICLE III
CONVERSION RIGHTS
3.1. HOLDER'S CONVERSION RIGHTS. Subject to Section 2.2, the Holder
shall have the right, but not the obligation, to convert all or any portion of
the then aggregate outstanding Principal Amount of this Note, together with
interest and fees due hereon, into shares of Common Stock, subject to the terms
and conditions set forth in this Article III. The Holder may exercise such right
by delivery to the Borrower of a written Notice of Conversion pursuant to
Section 3.3.
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 the number of shares
of Common Stock beneficially owned by such Holder or issuable upon exercise of
Warrants held by such Holder and 4.99% of the outstanding shares of Common
Stock. For the 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 Holder may void the Conversion Share
limitation described in this Section 3.2 upon 75 days prior notice to the
Borrower or without any notice requirement upon an Event of Default.
3.3 MECHANICS OF HOLDER'S CONVERSION. (a) In the event that the
Holder elects to convert any amounts outstanding under this Note into Common
Stock, the Holder shall give notice of such election by delivering an executed
and completed notice of conversion (a "NOTICE OF CONVERSION") to the Borrower,
which Notice of Conversion shall provide a breakdown in reasonable detail of the
Principal Amount, accrued interest and fees being converted. 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 Borrower within two (2) business days after the Conversion Date.
Each date on which a Notice of Conversion is delivered or telecopied to the
Borrower in accordance with the provisions hereof shall be deemed a "CONVERSION
DATE". A form of Notice of Conversion to be employed by the Holder is annexed
hereto as Exhibit A.
(b) Pursuant to the terms of a Notice of Conversion, the Borrower will
issue instructions to the transfer agent accompanied by an opinion of counsel,
if so required by the Borrower's transfer agent, within two (2) business days of
the date of the delivery to Borrower 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 Borrower 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 Borrower of the Notice of Conversion. The Holder shall be treated for all
purposes as the record holder of such shares of Common Stock, unless the Holder
provides the Borrower written instructions to the contrary.
3.4 CONVERSION MECHANICS.
(a) The number of shares of Common Stock to be issued upon
each conversion of this Note pursuant to this Article III shall be determined by
dividing that portion of the Principal Amount and interest and fees to be
converted, if any, by the then applicable Fixed Conversion Price. In the event
of any conversions of outstanding obligations under this Note in part pursuant
to this Article III, such conversions shall be deemed to constitute conversions
(i) first, of the Monthly Amount for the current calendar month, (ii) then of
the accrued interest on the Non-Amortizing Principal Xxxxxx, (iii) then, of
outstanding Non-Amortizing Principal Amount and (iv) after the Non-Amortizing
Principal Amount has been paid in full, of outstanding Amortizing Principal
Amount by applying the conversion amount to Monthly Amounts for the remaining
Repayment Dates in chronological order.
(b) The Fixed Conversion Price and number and kind of shares
or other securities to be issued upon conversion is subject to adjustment from
time to time upon the occurrence of certain events, as follows:
A. 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 in shares of Common Stock, the Fixed Conversion Price
or the Conversion Price, as the case may be, 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.
B. During the period the conversion right exists, the
Borrower will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common Stock
upon the full conversion of this Note. The Borrower represents that
upon issuance, such shares will be duly and validly issued, fully paid
and non-assessable. The Borrower 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 shares
of Common Stock upon the conversion of this Note.
C. SHARE ISSUANCES. Subject to the provisions of this
Section 3.4, if the Borrower 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 Subsections A or B above; (ii)
pursuant to options, warrants or other obligations to issue shares
outstanding on the date hereof as disclosed to Holder in writing; or
(iii) pursuant to options that may be issued under any employee
incentive stock option and/or any qualified stock option plan adopted
by the Borrower) 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 at the time of issuance of such securities.
D. RECLASSIFICATION, ETC. If the Borrower 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 immediately prior to such reclassification or other
change.
3.5 ISSUANCE OF REPLACEMENT NOTE. Upon any partial conversion of
this Note, a replacement Note containing the same date and provisions of this
Note shall, at the written request of the Holder, be issued by the Borrower to
the Holder for the outstanding Principal Amount of this Note and accrued
interest which shall not have been converted or paid. Subject to the provisions
of Article IV, the Borrower will pay no costs, fees or any other consideration
to the Holder for the production and issuance of a replacement Note.
ARTICLE IV
EVENTS OF DEFAULT
4.1 Upon the occurrence and continuance of an Event of Default
beyond any applicable grace period, the Holder may declare all sums of
principal, interest and other fees then remaining unpaid hereon and all other
amounts payable hereunder immediately due and payable. In the event of such an
acceleration, within five (5) days after written notice from Holder to Borrower
(each occurrence being a "DEFAULT NOTICE PERIOD") the Borrower shall pay to the
Holder an amount equal to 125% of the outstanding Principal Amount of this Note
(plus accrued and unpaid interest and fees, if any) (the "DEFAULT PAYMENT"). If,
with respect to any Event of Default, the Borrower cures the Event of Default,
the Event of Default will be deemed to no longer exist and any rights and
remedies of Holder pertaining to such Event of Default will be of no further
force or effect. The Default Payment shall be applied first to any fees due and
payable to Holder pursuant to this Note or the Related Agreements, then to
accrued and unpaid interest due on this Note and then to outstanding Principal
Amount of this Note.
The occurrence of any of the following events shall be an
"EVENT OF DEFAULT":
(a) FAILURE TO PAY PRINCIPAL, INTEREST OR OTHER FEES. The
Borrower fails to pay when due any installment of principal, interest
or other fees hereon in accordance herewith, and in any such case, such
failure shall continue for a period of five (5) days following the date
upon which any such payment was due.
(b) BREACH OF COVENANT. The Borrower breaches any material
covenant or any other material term or condition of this Note, the
Purchase Agreement or any Related Agreement in any material respect,
and, in any such case, such breach, if subject to cure, continues for a
period of fifteen (15) days after the receipt by the Borrower of
written notice from the Holder of the occurrence thereof.
(c) BREACH OF REPRESENTATIONS AND WARRANTIES. Any material
representation or warranty made by the Borrower in this Note, the
Purchase Agreement or in any Related Agreement, shall, in any such
case, be false or misleading in any material respect on the date that
such representation or warranty was made or deemed made and shall not
be cured by the Borrower for a period of fifteen (15) days after the
receipt by the Borrower of written notice from the Holder of the
occurrence thereof.
(d) RECEIVER OR TRUSTEE. The Borrower or any of its
Subsidiaries shall make an assignment for the benefit of creditors, or
apply for or consent to the appointment of a receiver or trustee for it
or for a substantial part of its property or business; or such a
receiver or trustee shall otherwise be appointed.
(e) JUDGMENTS. Any money judgment, writ or similar final
process shall be entered or filed against the Borrower or any of its
Subsidiaries or any of their respective property or other assets for
more than $250,000, and shall remain unvacated, unbonded or unstayed
for a period of ninety (90) days.
(f) BANKRUPTCY. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any
bankruptcy law or any law for the relief of debtors shall be instituted
by or against the Borrower or any of its material Subsidiaries that is
not vacated within ninety (90) days.
(g) STOP TRADE. An SEC stop trade order or Principal Market
trading suspension of the Common Stock shall be in effect for five (5)
consecutive days or five (5) days during a period of ten (10)
consecutive days, excluding in all cases a suspension of all trading on
a Principal Market, PROVIDED that the Borrower shall not have been able
to cure such trading suspension within thirty (30) days of the notice
thereof or list the Common Stock on another Principal Market within
sixty (60) days of such notice. The "Principal Market" for the Common
Stock shall include the NASD OTC Bulletin Board, NASDAQ SmallCap
Market, NASDAQ National Market System, American Stock Exchange, or New
York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock, or any
securities exchange or other securities market on which the Common
Stock is then being listed or traded.
(h) FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. The
Borrower shall fail (i) to timely deliver Common Stock to the Holder
pursuant to and in the form required by this Note and Section 9 of the
Purchase Agreement, if such failure to timely deliver Common Stock
shall not be cured within two (2) business days of receipt by the
Borrower of written notice thereof by the Holder or (ii) to deliver a
replacement Note to Holder within ten (10) business days following the
required date of such issuance pursuant to this Note.
(i) DEFAULT UNDER RELATED AGREEMENTS. The occurrence and
continuance of any Event of Default (as defined in any Related
Agreement).
(j) LITIGATION. The Borrower or any of its material
Subsidiaries shall be required, pursuant to a judgment, settlement or
otherwise, to pay $2,500,000 or more to any person or entity in
connection with any litigation, action, suit, proceeding or
investigation set forth in any Schedule to the Purchase Agreement,
disclosed in any Exchange Act Filing or arising after the date hereof.
4.2 PAYMENT GRACE PERIOD. Following the occurrence and continuance
of an Event of Default beyond any applicable cure period hereunder, the Borrower
shall pay the Holder a default interest rate of one and one-half percent (1.5%)
per month on all amounts due and owing under this Note, which default interest
shall be payable upon demand.
4.3 CONVERSION PRIVILEGES. The conversion privileges set forth in
Article III shall remain in full force and effect immediately from the date
hereof and until this Note is paid in full.
4.4 CUMULATIVE REMEDIES. The remedies under this Note shall be
cumulative.
ARTICLE V
MISCELLANEOUS
5.1 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.
5.2 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 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
Borrower at the address provided in the Purchase Agreement executed in
connection herewith, with a copy to Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP, 410
Park Avenue, New York, New York 10022, Attention: Xxxx X. Xxxxxxx, Esq.,
facsimile number (000) 000-0000, and to the Holder at the address provided in
the Purchase 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 Borrower 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 Borrower pursuant to the
Purchase Agreement.
5.3 AMENDMENT PROVISION. The term "Note" and all reference
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 issued pursuant to Section 3.5
hereof, as it may be amended or supplemented.
5.4 ASSIGNABILITY. This Note shall be binding upon the Borrower
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 Purchase Agreement.
5.5 GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York. Both parties and the individual signing this Note on behalf of the
Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. 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 unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court in favor of the Holder.
5.6 MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
5.7 SECURITY INTEREST. The Holder has been granted a security
interest in certain assets of the Borrower as more fully described in the Master
Security Agreement dated as of the date hereof.
5.8 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.
5.9 COST OF COLLECTION. If default is made in the payment of this
Note, the Borrower shall pay to Holder reasonable costs of collection, including
reasonable attorney's fees.
5.10 BUSINESS DAY. If any Repayment Date is a Saturday, Sunday or a
day on which banking institutions in Denver, Colorado or New York City are not
required to be open for business (each, a "LEGAL HOLIDAY"), payment of any
Monthly Amount due on such day may be made on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue in respect of such payment for
the intervening period.
[Balance of page intentionally left blank; signature page follows.]
IN WITNESS WHEREOF, the Borrower has caused this Convertible Term Note
to be signed in its name effective as of this 13th day of May, 2004.
FRONT PORCH DIGITAL, INC.
By:/s/ Xxxxxx X. Xxxxxxx III
--------------------------------
Name: Xxxxxx X. Xxxxxxx III
Title: Chairman
WITNESS:
/s/ Xxxxx Xxxxxxx
---------------------------
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert all or part of the Note into
Common Stock
[Name and Address of Holder]
The Undersigned hereby converts $_________ of the principal due on [specify
applicable Repayment Date] under the Convertible Term Note issued by Front Porch
Digital, Inc. dated May 13, 2004 by delivery of Shares of Common Stock of Front
Porch Digital, Inc. on and subject to the conditions set forth in Article III of
such Note.
1. Date of Conversion _______________________
2. Shares To Be Delivered: _______________________
By:_______________________________
Name:_____________________________
Title:______________________________
EXHIBIT B
CONVERSION NOTICE
(To be executed by the Holder in order to convert all or part of a Monthly
Amount into Common Stock)
[Name and Address of Holder]
Holder hereby converts $_________ of the Monthly Amount due on [specify
applicable Repayment Date] under the Convertible Term Note issued by Front Porch
Digital, Inc. dated May 13, 2004 by delivery of Shares of Common Stock of Front
Porch Digital, Inc. on and subject to the conditions set forth in Article III of
such Note.
1. Fixed Conversion Price: $_______________________
2. Amount to be paid: $_______________________
3. Shares To Be Delivered (2 divided by 1): __________________
4. Cash payment to be made by Borrower : $_____________________
Date: ____________ LAURUS MASTER FUND, LTD.
By:_______________________________
Name:_____________________________
Title:______________________________
