EXHIBIT 10.2
EXHIBIT A
TO
PURCHASE
AGREEMENT
NEITHER THIS SECURITY NOR THE ISSUANCE TO THE HOLDER OF THE SECURITIES INTO
WHICH THIS SECURITY IS CONVERTIBLE HAS BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THIS NOTE IN THE EVENT OF A
PARTIAL REDEMPTION, REPAYMENT OR CONVERSION. AS A RESULT, FOLLOWING ANY
REDEMPTION, REPAYMENT OR CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING
PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT
SET FORTH BELOW.
7.5% CONVERTIBLE NOTE DUE 2006
OF
KNIGHTSBRIDGE FINE WINES, INC.
NOTE NO.: G-1 ORIGINAL PRINCIPAL AMOUNT: $1,500,000
ISSUANCE DATE: OCTOBER 16, 0000 XXXXXX, XXXXX
FOR VALUE RECEIVED, the Company hereby promises to pay to or
upon the order of GRYPHON MASTER FUND, L.P. or its registered assigns or
successors-in-interest (the "Holder") the principal sum of One Million Five
Hundred Thousand Dollars ($1,500,000.00), together with all accrued but unpaid
interest thereon, if any, on the third anniversary of the Issuance Date, to the
extent such principal amount and interest have not been repaid or converted into
shares of the Company's Common Stock, $.001 par value (the "Common Stock"), in
accordance with the terms hereof. Interest on the unpaid principal balance
hereof shall accrue at the rate of 7.5% per annum from the date of original
issuance hereof (the "Issuance Date") until the same becomes due and payable on
the Final Maturity Date, or such earlier date upon acceleration or by
conversion, repayment or redemption in accordance with the terms hereof.
Interest on this Note shall accrue daily commencing on the Issuance Date, shall
be compounded monthly and shall be computed on the basis of a 360-day year,
30-day months and actual days elapsed and shall be payable in accordance with
Section 2 hereof. Notwithstanding anything contained herein, this Note shall
bear interest on the outstanding Principal Amount from and after the occurrence
and during the continuance of an Event of Default, at the rate (the "Default
Rate") equal to the lower of eighteen percent (18%) per annum or the highest
rate permitted by applicable law. Unless otherwise agreed or required by
applicable law, payments will be applied first to any unpaid collection costs,
then to unpaid interest and fees and any remaining amount to unpaid principal.
All payments of principal of and interest on this Note shall
be made in lawful money of the United States of America by wire transfer of
immediately available funds to such account as the Holder may from time to time
designate by written notice in accordance with the provisions of this Note. This
Note may not be prepaid in whole or in part except as specifically provided
herein. Whenever any amount expressed to be due by the terms of this Note is due
on any day which is not a Business Day (as defined below), the same shall
instead be due on the next succeeding day which is a Business Day and such
extension shall be taken into account in determining the amount of interest
accrued on this Note.
The following terms and conditions shall apply to this Note:
1. DEFINITIONS.
(a) Capitalized terms used herein and not otherwise defined
herein shall have the meanings set forth in the Purchase Agreement.
(b) For purposes hereof the following terms shall have the
meanings ascribed to them below:
"Aggregation Parties" shall have the meaning provided in
Section 4(i).
"Bankruptcy Event" means any of the following events: (a) the
Company or any material subsidiary commences a case or other proceeding under
any bankruptcy, reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction relating to the Company or any material subsidiary thereof; (b)
there is commenced against the Company or any material subsidiary any such case
or proceeding that is not dismissed within 60 days after commencement; (c) the
Company or any material subsidiary thereof is adjudicated insolvent or bankrupt
or any order of relief or other order approving any such case or proceeding is
entered; (d) the Company or any material subsidiary suffers any appointment of
any trustee, custodian or the like for it or any substantial part of its
property that is not discharged or stayed within 60 days; (e) the Company or any
material subsidiary makes a general assignment for the benefit of creditors; (f)
the Company or any material subsidiary fails to pay, states that it is unable to
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pay, or is unable to pay, its debts (excluding those reasonably disputed in good
faith by the Company in the case of failure to pay and for which it has reserves
on its books and financial statements) generally as they become due; (g) the
Company or any material subsidiary calls a meeting of its creditors with a view
to arranging a composition, adjustment or restructuring of its debts; or (h) the
Company or any material subsidiary, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting any of the
foregoing.
"Call Amount" means for any exercise of the Call Right
pursuant to Section 3, the sum of (1) the product of (x) the principal amount of
this Note to be prepaid by reason of such exercise of the Call Right times (y)
the applicable Call Percentage plus (2) accrued and unpaid interest on the
principal amount of this Note to be prepaid by reason of such exercise of the
Call Right to the applicable Call Date.
"Call Date" shall have the meaning provided in Section 3(b).
"Call Notice" shall have the meaning provided in Section 3(b).
"Call Percentage" means 125%.
"Call Right" shall have the meaning provided in Section 3(a).
"Cash" or "cash" means at any time such coin or currency of
the United States of America as shall at such time be legal tender for the
payment of public and private debts.
"Change in Control Transaction" will be deemed to exist if (i)
there occurs any consolidation, merger, amalgamation or other business
combination of the Company with or into any other corporation or other entity or
person (whether or not the Company is the surviving corporation), or any other
corporate reorganization or transaction or series of related transactions in
which in any of such events the persons who are holders of the voting stock of
the Company immediately prior to such event cease to own 50% or more of the
voting stock, or corresponding voting equity interests, of the surviving
corporation or other entity immediately after such event (including without
limitation any "going private" transaction under Rule 13e-3 promulgated pursuant
to the Exchange Act or tender offer by the Company under Rule 13e-4 promulgated
pursuant to the Exchange Act for 20% or more of the Company's Common Stock),
(ii) any person (as defined in Section 13(d) of the Exchange Act), together with
its affiliates and associates (as such terms are defined in Rule 405 under the
Securities Act), beneficially owns or is deemed to beneficially own (as
described in Rule 13d-3 under the Exchange Act without regard to the 60-day
exercise period) in excess of 50% of the voting power of the Company's
outstanding securities, (iii) there is a replacement of more than one-half of
the members of the Company's Board of Directors which is not approved by those
individuals who are members of the Company's Board of Directors on the date
thereof or (iv) in one or a series of related transactions, there is a sale or
transfer of all or substantially all of the assets of the Company, determined on
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a consolidated basis.
"Conversion Date" shall have the meaning provided in Section
4(b).
"Conversion Delay Payments" shall have the meaning provided in
Section 4(b)(ii).
"Conversion Notice" shall have the meaning provided in Section
4(a).
"Conversion Price" means $1.80, subject to anti-dilution
adjustment as set forth herein.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is the entire outstanding Principal Amount of this Note (or such
portion thereof that is being redeemed or repurchased), and of which the
denominator is the then applicable Conversion Price.
"DTC" shall have the meaning provided in Section 4(b)(ii).
"Effective Date" means the date on which a Registration
Statement covering all the Underlying Shares and other Registrable Securities
(as defined in the Registration Rights Agreement) is declared effective by the
SEC.
"Effective Registration" means (i) the Company has complied in
all material respects with its obligations under all the Transaction Documents
where the failure to comply by the Company would have a material adverse effect
on the ability of the Holder to publicly resell the Underlying Shares and the
Warrant Shares and no Event of Default shall have occurred and be continuing;
(ii) the resale of all Registrable Securities (as defined in the Registration
Rights Agreement) is covered by an effective Registration Statement in
accordance with the terms of the Registration Rights Agreement and such
Registration Statement is not subject to any suspension or stop order and is
expected to remain effective and available for use by the selling stockholders
named therein or in any related prospectus supplement for at least 20 Trading
Days thereafter; (iii) the resale of such Registrable Securities may be effected
pursuant to a current and deliverable prospectus that is not subject to any
blackout or similar circumstance; (iv) such Registrable Securities are listed,
or approved for listing prior to issuance, on an Approved Market and are not
subject to any trading suspension (nor shall trading generally have been
suspended on such exchanges or markets), and the Company shall not have been
notified of any pending or threatened proceeding or other action to delist or
suspend the Common Stock on the Approved Market on which the Common Stock is
then traded or listed; (v) the requisite number of shares of Common Stock shall
have been duly authorized and shall be available for issuance as required by the
terms of the Transaction Documents; (vi) the Holder is not identified as an
underwriter in the Registration Statement; and (vii) the Company is not subject
to any Bankruptcy Event.
"Event of Default" shall have the meaning provided in Section
5(a).
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Final Maturity Date" means October 16, 2006.
"Holder Share Notice" shall have the meaning provided in
Section 4(b)(ii).
"Newly Issued Shares" shall have the meaning provided in
Section 4(c)(iii).
"Principal Amount" means at any time the sum of (i) the
outstanding principal amount of this Note at such time, (ii) all accrued but
unpaid interest hereunder to such time, and (iii) any default payments owing at
such time to the Holder under the Transaction Documents but not theretofore paid
or added to the Principal Amount.
"Principal Market" means the OTC Bulletin Board or such other
U.S. market or exchange which is the principal market on which the Common Stock
is then listed for trading.
"Purchase Agreement" means the Purchase Agreement, dated as of
October 16, 2003, by and between the Company and Gryphon Master Fund, L.P., a
Bermuda limited partnership, pursuant to which this Note was originally issued.
"Quarterly Interest Payment Date" means each October 1,
January 1, April 1 and July 1, commencing January 1, 2004, and the Final
Maturity Date.
"QIB" means a qualified institutional buyer as defined in Rule
144A.
"Post-Notice Period" shall have the meaning provided in
Section 3(b).
"Restricted Ownership Percentage" shall have the meaning
provided in Section 4(i).
"Rule 144A" means Rule 144A as promulgated by the SEC under
the Securities Act or any successor thereto.
"Securities Act" means the Securities Act of 1933, as amended.
"Trading Day" means a day on which the Principal Market is
open for the general trading of securities.
"Underlying Shares" means the shares of Common Stock issued or
issuable upon conversion of, in lieu of cash payment of principal of, or
interest on, as repayment of principal under, or otherwise pursuant to, this
Note in accordance with the terms hereof and the Purchase Agreement.
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SECTION 2. PAYMENTS OF PRINCIPAL AND INTEREST.
(A) INTEREST. The Company shall pay interest accruing on this
Note (from the date hereof) on all principal outstanding, quarterly on the
Quarterly Interest Payment Dates, commencing on January 1, 2004, in cash.
(B) PRINCIPAL. The entire Principal Amount of this Note, plus
any and all default payments owing under the Transaction Documents but not
previously paid, shall become due and payable on the Final Maturity Date. Any
principal of this Note that is prepaid by the Company pursuant to Section 3 or
converted by the Holder pursuant to Section 4 shall be applied to reduce the
principal payable under this Section 2(b).
SECTION 3. PREPAYMENT AT THE COMPANY'S OPTION.
(a) The Company shall have the right, subject to the
conditions set forth below (the "Call Right"), to prepay all or any
portion (in increments of $100,000) of this Note, in cash, at the
applicable Call Amount.
(b) The Call Right may be exercised by the Company by
delivering to the Holder an irrevocable, written notice (the "Call
Notice"), which notice shall specify the date for the Company's
prepayment of this Note (as the same may be extended as herein
provided, the "Call Date"), which date shall be not less than 30 nor
more than 40 days after the date the Call Notice is delivered to the
Holder (the "Post-Notice Period").
(c) Notwithstanding the foregoing, the Company may not give a
Call Notice or effect a prepayment pursuant to Section 3(a) above
unless, at all times from the date that is 20 Trading Days prior to the
date the Company gives such Call Notice to and including the applicable
Call Date:
(i) there is Effective Registration and it is
expected that Effective Registration will continue for at
least 20 Trading Days after the Call Date; and
(ii) conversion by the Holder pursuant to Section 4
of the portions of this Note that is being called contemporaneously
therewith would not cause the Holder's beneficial ownership of shares
of Common Stock to exceed the limits set forth in Section 4(i)(A).
If such conversion would cause the Holder to exceed such beneficial ownership
limitation, the prepayment of that portion of this Note the conversion of which
would cause such beneficial ownership limitation to be exceeded shall be
deferred until the date that is 20 Trading Days after the date the conversion
thereof would not exceed such limitations, and this Note shall continue to
accrue interest on the amount being called until the same is paid or converted
pursuant to Section 4.
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(d) If the Company gives a Call Notice, the Holder shall
continue to have the right to convert the portion of this Note to which the Call
Notice relates pursuant to Section 4 until the prepayment of such portion of
this Note pursuant to this Section 3. A prepayment pursuant to this Section
shall occur on the applicable Call Date. If the Company fails to pay the Call
Amount in full on the applicable Call Date in immediately available funds, (i)
the Company shall lose its right to prepay this Note by reason of such Call
Notice or thereafter in accordance with this Section 3, and (ii) in addition to
any other rights or remedies it may have, the Holder shall have the right to
require the Company to repurchase this Note (or any portion hereof as selected
by the Holder) at a price equal to the sum of 125% of the Principal Amount, plus
accrued interest thereon to the date of such repurchase.
(e) Except as specifically provided herein, this Note may not
be prepaid, redeemed or repurchased at the option of the Company prior to the
applicable Repayment Dates.
SECTION 4. CONVERSION.
(A) CONVERSION RIGHT. Upon the terms and subject to the
conditions hereof, the Holder shall have the right, at the Holder's option, to
convert the outstanding Principal Amount and accrued and unpaid interest
thereon, in whole at any time or in part from time to time, by delivering to the
Company a duly executed notice of conversion in the form attached hereto as
EXHIBIT A (the "Conversion Notice"), which may be transmitted by telephone line
facsimile transmission. Notwithstanding anything to the contrary herein, this
Note and the outstanding Principal Amount hereunder shall not be convertible
into Common Stock at any time to the extent, and only to the extent, that such
conversion at such time would result in the Holder exceeding the limitation
contained in, or otherwise violating the provisions of, Section 4(i)(A) below.
(B) COMMON STOCK ISSUANCE UPON CONVERSION.
(I) CONVERSION PROCEDURES. Upon any conversion of
this Note pursuant to Section 4(a) above, the outstanding Principal
Amount being converted and accrued and unpaid interest thereon to the
applicable Conversion Date shall be converted into such number of fully
paid, validly issued and non-assessable shares of Common Stock, free of
any liens, claims and encumbrances, as is determined by dividing the
outstanding Principal Amount being converted and accrued and unpaid
interest thereon to the applicable Conversion Date by the then
applicable Conversion Price. The date of any Conversion Notice
hereunder shall be referred to herein as the "Conversion Date". If a
conversion under this Note cannot be effected in full for any reason,
or if the Holder is converting less than all of the outstanding
Principal Amount hereunder pursuant to a Conversion Notice, the Company
shall, upon request of the Holder, promptly deliver to the Holder (but
no later than five Trading Days after the surrender of this Note to the
Company) a new Note having a Principal Amount equal to the amount of
such outstanding Principal Amount as has not been converted. The Holder
shall not be required physically to surrender this Note to the Company
upon any conversion unless the full outstanding Principal Amount of
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this Note is being converted or repaid. The Holder and the Company
shall maintain records showing the outstanding Principal Amount so
converted and repaid and the dates of such conversions or repayments or
shall use such other method, reasonably satisfactory to the Holder and
the Company, so as not to require physical surrender of this Note upon
each such conversion or repayment. The Holder agrees that, if the
outstanding Principal Amount of this Note is less than the Principal
Amount stated on the face of this Note, the Holder will not voluntarily
transfer this Note at any time when no Event of Default has occurred
and is continuing without first surrendering this Note to the Company
for issuance, without charge to the Holder, of a replacement instrument
that reflects the outstanding Principal Amount of this Note. The
Company will deliver such replacement instrument to the Holder as
promptly as practical, but in no event later than three Trading Days,
after surrender by the Holder.
(II) STOCK CERTIFICATES OR DWAC. The Company will
deliver to the Holder not later than five (5) Trading Days after a
particular Conversion Date, a certificate or certificates, which shall
be free of restrictive legends and trading restrictions (except to the
extent permitted under Section 6.12 of the Purchase Agreement), for the
number of shares of Common Stock issuable upon such conversion of this
Note. In lieu of delivering physical certificates for the shares of
Common Stock issuable upon any conversion of this Note, provided the
Company's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer ("FAST") program,
upon request of the Holder, the Company shall use commercially
reasonable efforts to cause its transfer agent electronically to
transmit such shares issuable upon conversion to the Holder (or its
designee), by crediting the account of the Holder's (or such
designee's) broker with DTC through its Deposit Withdrawal Agent
Commission system (provided that the same time periods herein as for
stock certificates shall apply). If in the case of any conversion
hereunder, such shares are not delivered to or as directed by the
Holder by the third Trading Day after the applicable Conversion Date,
the Holder shall be entitled by written notice to the Company at any
time on or before its receipt of such shares, to rescind such
conversion, in which event the Company shall immediately return this
Note to the Holder if the Holder has tendered it to the Company in
connection with such conversion. If the Holder notifies the Company
that the Holder has not received such shares (free of any restrictions
on transfer or legends except as permitted by Section 6.12 of the
Purchase Agreement) within three Trading Days after a particular
Conversion Date (each, a "Holder Share Notice") and the Holder does not
receive such shares (free of any restrictions on transfer or legends
except as permitted by Section 6.12 of the Purchase Agreement) within
two Trading Days after giving such Holder Share Notice, then, in
addition to any other liability the Company may have, the Company shall
pay to the Holder, in cash, an amount, computed at the rate of 2% of
the outstanding Principal Amount per month, for the period such failure
continues (the "Conversion Delay Payments"), without duplication of any
amount payable to the Holder pursuant to clause (F) of Section 2(c)(i)
of the Registration Rights Agreement. A Holder Share Notice may be
given by telephone or e-mail to the Company's Chief Financial Officer
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or General Counsel. The Company's obligation to issue and deliver such
shares of Common Stock upon conversion of this Note shall be absolute
and unconditional, irrespective of the absence of any action by the
Holder to enforce the same, of any waiver or consent with respect to
any provision hereof, the recovery of any judgment against any Person
or any action to enforce the same, any failure or delay in the
enforcement of any other obligation of the Company to the Holder, or
any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any
obligation to the Company or any violation or alleged violation of law
by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company
to the Holder in connection with such exercise.
(III) LIABILITY FOR LATE DELIVERY; FORCE MAJEURE. If
in any case the Company shall fail to issue and deliver the shares of
Common Stock to the Holder pursuant to this Note on the due date
therefor, in addition to any other liabilities the Company may have
hereunder and under applicable law (A) the Company shall pay or
reimburse the Holder on demand for all out-of-pocket expenses,
including, without limitation, reasonable fees and expenses of legal
counsel, incurred by the Holder as a result of such failure, so long as
the Holder shall have given the Company a Holder Share Notice with
respect to such shares of Common Stock, (B) if as a result of such
failure the Holder shall suffer any direct damages or liabilities from
such failure (including, without limitation, margin interest and the
cost of purchasing securities to cover a sale (whether by the Holder or
the Holder's securities broker) or borrowing of shares of Common Stock
by the Holder for purposes of settling any trade involving a sale of
shares of Common Stock made by the Holder during the period beginning
on the Issuance Date and ending on the date the Company delivers or
causes to be delivered to the Holder such shares of Common Stock), then
the Company shall upon demand of the Holder pay to the Holder an amount
equal to the actual, direct out-of-pocket damages and liabilities
suffered by the Holder by reason thereof which the Holder documents to
the reasonable satisfaction of the Company, so long as the Holder shall
have given the Company a Holder Share Notice with respect to such
shares of Common Stock, and (C) the Holder may by written notice (which
may be given by mail, courier, personal service or telephone line
facsimile transmission) or oral notice (promptly confirmed in writing),
given at any time prior to delivery to the Holder of the shares of
Common Stock issuable in connection with any exercise of the Holder's
rights by reason of which such shares are deliverable, rescind such
exercise in whole or in part, in which case the Holder shall thereafter
be entitled to exercise its rights with respect to that portion of this
Note as to which such exercise is so rescinded and to exercise its
other rights and remedies with respect to such failure by the Company.
Notwithstanding the foregoing and Section 4(b)(ii), (x) the Company
shall not be liable to the Holder under clauses (A) and (B) of the
immediately preceding sentence or (y) for Conversion Delay Payments, in
either such case of the preceding clause (x) or (y) to the extent the
failure of the Company to deliver or to cause to be delivered such
shares of Common Stock results from fire, flood, storm, earthquake,
shipwreck, strike, war, acts of terrorism, crash involving facilities
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of a common carrier, acts of God, or any similar event outside the
control of the Company (it being understood that the action or failure
to act of the Company's Transfer Agent shall not be deemed an event
outside the control of the Company except to the extent resulting from
fire, flood, storm, earthquake, shipwreck, strike, war, acts of
terrorism, crash involving facilities of a common carrier, acts of God,
or any similar event outside the control of such Transfer Agent or the
bankruptcy, liquidation or reorganization of such Transfer Agent under
any bankruptcy, insolvency or other similar law). The Holder shall
notify the Company in writing (or by telephone conversation, confirmed
in writing) as promptly as practicable following the third Trading Day
after the due date for delivery to it of shares of Common Stock under
this Note if the Holder becomes aware that such shares of Common Stock
so issuable have not been received as provided herein, but any failure
so to give such notice shall not affect the Holder's rights under this
Note or otherwise. If pursuant to this Section 4(b)(iii) the Company is
relieved of its obligation to make Conversion Delay Payments, then the
Principal Amount of this Note for which a Conversion Notice has been
given and for which the Company has not issued the shares of Common
Stock within the period provided in Section 4(b)(ii) shall continue to
bear interest at the applicable rate provided in this Note from the
applicable Conversion Date to the date the Company so issues such
shares of Common Stock.
(C) CONVERSION PRICE ADJUSTMENTS.
(I) STOCK DIVIDENDS, SPLITS AND COMBINATIONS. If the
Company or any of its subsidiaries, at any time while this Note is
outstanding, shall (A) pay a stock dividend or otherwise make a
distribution or distributions on any equity securities (including
Common Stock Equivalents) in shares of Common Stock, (B) subdivide
outstanding Common Stock into a larger number of shares, or (C) combine
outstanding Common Stock into a smaller number of shares, then the
Conversion Price shall be multiplied by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding before
such event and the denominator of which shall be the number of shares
of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 4(c)(i) shall become effective immediately
after the record date for the determination of stockholders entitled to
receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision or
combination.
(II) DISTRIBUTIONS. Neither the Company nor any of
its subsidiaries, at any time this Note is outstanding, shall
distribute to all or substantially all holders of Common Stock (a)
evidences of its indebtedness or (b) assets or (c) cash or (d) rights
(other than rights issued pursuant to a shareholder rights plan adopted
for the benefit of stockholders generally, the rights under which are
attached to shares of Common Stock until a trigger event such as a
tender offer, change of control, accumulation of a specified percentage
of the outstanding shares of Common Stock or similar events) or (e)
warrants to subscribe for or purchase any security of the Company or
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any of its subsidiaries (excluding those referred to in Section 4(c)(i)
above) without obtaining the prior written consent of the Holder.
(III) ADJUSTMENT FOR CERTAIN ISSUANCES.
(A) If, at any time (or from time to time) during the
period beginning on the Issuance Date and ending on the second
anniversary of the Issuance Date, the Company issues shares of Common
Stock or Common Stock Equivalents (collectively, the "Newly Issued
Shares") at a price per share at which the Company sells such shares of
Common Stock, or the price per share at which the holders of such
Common Stock Equivalents are entitled to acquire shares of Common Stock
upon conversion or exercise thereof, which is less than the Conversion
Price in effect at the time of such issuance, then following such
issuance the Conversion Price shall be reduced to the price per share
that equals the price per share (or weighted average price per share,
if such shares are issued, or such Common Stock Equivalents may be
converted or exercised, at different prices) at which such shares of
Common Stock are issued or at which such Common Stock Equivalents may
be converted or exercised. The provisions of this Section 4(c)(iii)
shall be applicable to successive issuances of Common Stock and Common
Stock Equivalents.
(B) Notwithstanding the foregoing, no adjustment
shall be made under this Section 4(c)(iii) by reason of:
(1) the issuance by the Company of shares of Common
Stock pro rata to all holders of the Common Stock so long as (i) any
adjustment required by Section 4(c)(i) is made and (ii) the Company
shall have given notice thereof to the Holder pursuant to Section
4(c)(vii);
(2) the issuance by the Company of this Note and the
Warrant pursuant to the Purchase Agreement or the issuance by the
Company of shares of Common Stock upon conversion of this Note in
accordance with its terms or upon exercise of the Warrant in accordance
with its terms; or
(3) the issuance by the Company of Common Stock or
options to purchase Common Stock to employees, directors and
consultants (or the exercise of such options by employees, directors
and consultants) under the Company's non-qualified and incentive stock
option plans existing as of the date hereof, as amended from time to
time hereafter or any other stock compensation plan duly adopted by the
Board of Directors.
For the purposes of the adjustments in this Section 4(c)(iii), in the case of
the issuance of any Common Stock Equivalents, the maximum number of shares of
Common Stock issuable upon exercise, exchange or conversion of such Common Stock
Equivalents shall be deemed to be outstanding, provided that no further
adjustment shall be made upon the actual issuance of Common Stock upon exercise,
exchange or conversion of such Common Stock Equivalents.
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(IV) ROUNDING OF ADJUSTMENTS. All calculations under this
Section 4 or Section 2 shall be made to the nearest cent or the nearest 1/100th
of a share, as the case may be.
(V) NOTICE OF ADJUSTMENTS. Whenever the Conversion Price is
adjusted pursuant to Section 4(c)(i), (ii) or (iii) above, the Company shall
promptly deliver to the Holder a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment, provided that any failure to so provide such notice shall not affect
the automatic adjustment hereunder.
(VI) CHANGE IN CONTROL TRANSACTIONS. In case of any Change in
Control Transaction, the Holder shall have the right thereafter, at its option,
(A) to convert this Note, in whole or in part, at the then applicable Conversion
Price into the shares of stock and other securities, cash and/or property
receivable upon or deemed to be held by holders of Common Stock following such
Change in Control Transaction, and the Holder shall be entitled upon such event
to receive such amount of securities, cash or property as the shares of the
Common Stock of the Company into which this Note could have been converted
immediately prior to such Change in Control Transaction would have been entitled
if such conversion were permitted (determined without regard to any limitations
contained in Section 4(i) hereof or equivalent provisions in the other
Transaction Documents), subject to such further applicable adjustments set forth
in this Section 4, or (B) to require the Company or its successor to redeem this
Note, in whole or in part, at a redemption price equal to 125% of the
outstanding Principal Amount being redeemed, plus accrued interest thereon. The
terms of any such Change in Control Transaction shall include such terms so as
to continue to give to the Holder the right to receive the amount of securities,
cash and/or property upon any conversion or redemption following such Change in
Control Transaction to which a holder of the number of shares of Common Stock
deliverable upon conversion of this Note immediately prior to such Change in
Control Transaction would have been entitled to receive in such Change in
Control Transaction and if such Holder had continued to hold such securities,
cash and/or property until the date of such conversion or redemption, and
interest payable hereunder after such Change in Control Transaction shall be
paid in cash or such new securities and/or property, at the Holder's option.
This provision shall similarly apply to successive reclassifications,
consolidations, mergers, amalgamations, sales, transfers or share exchanges.
(VII) NOTICE OF CERTAIN EVENTS. If:
A. the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a tender
offer for, offer to purchase or redemption
of its Common Stock; or
C. the Company shall authorize the granting to
all holders of the Common Stock rights or
warrants to subscribe for or purchase any
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shares of capital stock of any class or of
any rights; or
D. the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company, any consolidation, amalgamation
or merger to which the Company is a party,
any sale or transfer of all or substantially
all of the assets of the Company, of any
compulsory share of exchange whereby the
Common Stock is converted into other
securities, cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or
winding up of the affairs of the Company; or
F. there exists an agreement to which the
Company is a party or by which it is bound
providing for a Change in Control
Transaction, or a Change in Control
Transaction has occurred;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Note, and shall cause to be mailed to the
Holder at its last address as it shall appear upon the books of the Company, on
or prior to the date notice of such matter to the Company's stockholders
generally is given, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, tender offer, offer to
purchase, redemption, rights or warrants, or if a record is not to be taken, the
date as of which the holders of Common Stock of record to be entitled to such
dividend, distributions, tender offer, offer to purchase, redemption, rights or
warrants are to be determined or (y) the date on which such reclassification,
consolidation, amalgamation, merger, sale, transfer, share exchange or Change in
Control Transaction is expected to become effective or close, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, amalgamation, merger,
sale, transfer, share exchange or Change in Control Transaction.
(D) RESERVATION AND ISSUANCE OF UNDERLYING SECURITIES. The
Company covenants that it will at all times reserve from its authorized and
unissued Common Stock a sufficient number of shares solely for the purpose of
issuance upon conversion in full of this Note and exercise in full of the
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (subject to any additional requirements
of the Company as to reservation of such shares set forth in the Purchase
Agreement and taking into account the adjustments under this Section 4, but
determined without regard to any ownership limitations contained in this Note,
the Warrant or the Purchase Agreement). The Company represents, warrants and
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly authorized, validly issued, fully paid, and nonassessable.
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(E) NO FRACTIONS. Upon a conversion hereunder the Company
shall not be required to issue stock certificates for a fraction of a share of
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any fraction of a share based on the closing price of a share of Common Stock at
such time. If the Company elects not, or is unable, to make such a cash payment,
the Holder shall be entitled to receive, in lieu of the fraction of a share, one
whole share of Common Stock.
(F) CHARGES, TAXES AND EXPENSES. Issuance of shares of Common
Stock upon the conversion of this Note shall be made without charge to the
Holder for any issue or transfer tax or other incidental expense in respect of
the issuance of such shares, all of which taxes and expenses shall be paid by
the Company, and such shares shall be issued in the name of the Holder or in
such name or names as may be directed by the Holder; provided, however, that in
the event certificates for shares of Common Stock are to be issued in a name
other than the name of the Holder, the applicable Conversion Notice, when given
for such conversion shall be accompanied or followed by an assignment form for
the applicable portion of this Note or such shares, as the case may be; and
provided further, that the Company shall not be required to pay any tax or taxes
which may be payable in respect of any such transfer.
(G) CANCELLATION. After the entire Principal Amount (including
accrued but unpaid interest and default payments at any time owed on this Note)
has been paid in full or converted into Common Stock, this Note shall
automatically be deemed canceled and the Holder shall promptly surrender this
Note to the Company at the Company's principal executive offices; provided,
however, that the failure to surrender this Note shall not delay or limit such
cancellation.
(H) NOTICE PROCEDURES. Any and all notices or other
communications or deliveries to be provided by the Holder under this Note,
including, without limitation, any Conversion Notice, shall be in writing and
delivered personally, by confirmed facsimile, or by a nationally recognized
overnight courier service to the Company at the facsimile telephone number or
address of the principal place of business of the Company as set forth in, or
provided pursuant to, the Purchase Agreement. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, or by a nationally recognized
overnight courier service addressed to the Holder at the facsimile telephone
number or address of the Holder appearing on the books of the Company, or if no
such facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed delivered (i) upon receipt, when delivered personally,
(ii) when sent by facsimile, upon receipt if received on a Business Day prior to
5:00 p.m. (Central Time), or on the first Business Day following such receipt if
received on a Business Day after 5:00 p.m. (Central Time) or on a day that is
not a Business Day or (iii) upon receipt, when deposited with a nationally
recognized overnight courier service.
(I) 9.99% LIMITATIONS.
(A) Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that the Holder
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shall have the right to acquire upon conversion of this Note shall not
exceed a number that, when added to the total number of shares of
Common Stock deemed beneficially owned by the Holder (other than by
virtue of the ownership of securities or rights to acquire securities
(including this Note and the Warrant) that have limitations on the
Holder's right to convert, exercise or purchase similar to the
limitation set forth herein), together with all shares of Common Stock
deemed beneficially owned at such time (other than by virtue of the
ownership of securities or rights to acquire securities that have
limitations on the right to convert, exercise or purchase similar to
the limitation set forth herein) by the Holder's "affiliates" at such
time (as defined in Rule 144 of the Securities Act) (the "Aggregation
Parties") that would be aggregated for purposes of determining whether
a group exists or for purposes of determining the Holder's beneficial
ownership, in either such case for purposes of Section 13(d) of the
Exchange Act and Regulation 13D-G thereunder, would result in
beneficial ownership by the Holder or such group of more than 9.99% of
the outstanding shares of Common Stock (the "Restricted Ownership
Percentage"). The Holder shall have the right at any time and from time
to time to reduce its Restricted Ownership Percentage immediately upon
notice to the Company in the event and only to the extent that Section
16 of the Exchange Act or the rules promulgated thereunder (or any
successor statute or rules) is changed to reduce the beneficial
ownership percentage limitation thereunder from 10%. If at any time the
limits in this Section 4(i) make this Note inconvertible in whole or in
part, the Company shall not by reason thereof be relieved of its
obligation to issue shares of Common Stock at any time or from time to
time thereafter as shares of Common Stock may be issued in compliance
with such restrictions.
(B) For purposes of this Section 4(i), in determining
the number of outstanding shares of Common Stock at any time, the
Holder may rely on the number of outstanding shares of Common Stock as
reflected in (1) the Company's then most recent Form 10-Q, Form 10-K or
other public filing with the SEC, as the case may be, (2) a public
announcement by the Company that is later than any such filing referred
to in the preceding clause (1), or (3) any other notice by the Company
or its transfer agent setting forth the number of shares of Common
Stock outstanding. Upon the written or oral request of the Holder, the
Company shall within one Business Day confirm orally and in writing to
the Holder the number of shares of Common Stock then outstanding. In
any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of Common
Stock Equivalents, including this Note and the Warrant, by the Holder
or its Aggregation Parties, in each such case subsequent to, the date
as of which such number of outstanding shares of Common Stock was
reported.
SECTION 5. DEFAULTS AND REMEDIES.
(A) EVENTS OF DEFAULT. An "Event of Default" is: (i) a failure
to pay any Principal Amount or accrued but unpaid interest thereon of this Note
on the date such payment is due (to the extent such principal and/or amount has
-15-
not been converted into Common Stock in accordance with the terms hereof), which
failure continues for two Business Days after written notice of such non-payment
has been received by the Company from the Holder; (ii) a failure timely to issue
Underlying Shares upon and in accordance with terms hereof, which failure
continues for ten Business Days after the Company has received written notice
from the Holder informing the Company that it has failed to issue shares or
deliver stock certificates prior to the fifth Business Day following the
applicable Conversion Date; (iii) failure by the Company for twenty (20) days
after written notice has been received by the Company from the Holder to comply
with any material provision (other than as provided in the immediately preceding
clauses (i) and (ii)) of any of this Note, the Purchase Agreement, the
Registration Rights Agreement, the Warrant or any other agreement or instrument
of the Company or between the Company and the Holder relating thereto
(including, without limitation the failure to redeem this Note upon the Holder's
request following a Change in Control Transaction pursuant to Section 4(c)(vi));
(iv) a material breach by the Company of its representations or warranties in
this Note, the Purchase Agreement, Registration Rights Agreement or the Warrant;
(v) any default after any cure period under, or acceleration prior to maturity
of, any note, mortgage, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company for in excess of $1 million, or for money borrowed the
repayment of which is guaranteed by the Company for in excess of $1 million,
whether such indebtedness or guarantee now exists or shall be created hereafter;
(vi) if the Company is subject to any Bankruptcy Event; (vii) if (x) the Company
fails to obtain the stockholder approval contemplated by Section 6.1(a) of the
Purchase Agreement as and when required thereby, (y) under the rules of Nasdaq
the 20% Cap is applicable to the Company's issuance of shares of Common Stock
upon conversion of and issuance of shares of Common Stock upon exercise of the
Warrant without such stockholder approval, and (z) the Company is unable to
issue additional shares of Common Stock upon conversion of this Note within the
20% Cap; or (viii) if the Registration Statement required by Section 2(a)(i) of
the Registration Rights Agreement is not declared effective by the SEC within
one hundred and twenty (120) days following the Closing Date, or the
Registration Statement required by Section 2(a)(ii) of the Registration Rights
Agreement is not declared effective by the SEC within one hundred and twenty
(120) days following demand of the Holder pursuant to the Registration Rights
Agreement.
(B) REMEDIES. If an Event of Default occurs and is continuing,
the Holder may declare all of the then outstanding Principal Amount of this
Note, and any accrued and unpaid interest thereon, to be due and payable
immediately in cash, except that in the case of an Event of Default arising from
events described in clauses (v) and (vi) of Section 5(a), this Note shall become
automatically due and payable without further action or notice, and the Holder
may exercise all other rights and remedies available at law or in equity. In the
event of such acceleration, the amount due and owing to the Holder shall be 125%
of the outstanding Principal Amount of this Note (plus all accrued and unpaid
interest, if any). In any event the Company shall pay interest on such amount in
cash at the Default Rate to the Holder if such amount is not paid within one
Business Day after such acceleration. The remedies under this Note shall be
cumulative.
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SECTION 6. CERTAIN COVENANTS; GENERAL.
(A) RULE 144A INFORMATION REQUIREMENT. Within the period prior
to the expiration of the holding period applicable to sales hereof under Rule
144(k) under the Securities Act (or any successor provision), the Company
covenants and agrees that it shall, during any period in which it is not subject
to Section 13 or 15(d) under the Exchange Act, make available to the Holder and
any prospective purchaser of this Note from the Holder, the information required
pursuant to Rule 144A(d)(4) under the Securities Act upon the request of the
Holder and it will take such further action as the Holder may reasonably
request, all to the extent required from time to time to enable the Holder to
sell this Note without registration under the Securities Act within the
limitations of the exemption provided by Rule 144A, as Rule 144A may be amended
from time to time. Upon the request of the Holder, the Company will deliver to
the Holder a written statement as to whether it has complied with such
requirements.
(B) PAYMENT OF EXPENSES. The Company agrees to pay all
reasonable charges and expenses, including attorneys' fees and expenses, which
may be incurred by the Holder in seeking to enforce this Note.
(C) SAVINGS CLAUSE. In case any provision of this Note is held
by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Note will not in
any way be affected or impaired thereby. In no event shall the amount of
interest paid hereunder exceed the maximum rate of interest on the unpaid
principal balance hereof allowable by applicable law. If any sum is collected in
excess of the applicable maximum rate, the excess collected shall be applied to
reduce the principal debt. If the interest actually collected hereunder is still
in excess of the applicable maximum rate, the interest rate shall be reduced so
as not to exceed the maximum allowable under law.
(D) AMENDMENT. Neither this Note nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the Company and Holder.
(E) ASSIGNMENT, ETC. The Holder may assign or transfer this
Note, subject to compliance with applicable securities laws, without the consent
of the Company, except that the Holder may not assign or transfer this Note to a
Person who is a business competitor of the Company in any significant respect
without the Company's prior written consent, which the Company may withhold in
its sole discretion. The Holder shall notify the Company of any such assignment
or transfer promptly. The Company may not assign its rights or obligations under
this Note. This Note shall be binding upon the Company and its successors and
shall inure to the benefit of the Holder and its successors and permitted
assigns.
(F) NO WAIVER. No failure on the part of the Holder to
exercise, and no delay in exercising any right, remedy or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise by the
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Holder of any right, remedy or power hereunder preclude any other or future
exercise of any other right, remedy or power. Each and every right, remedy or
power hereby granted to the Holder or allowed it by law or other agreement shall
be cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
(G) GOVERNING LAW; JURISDICTION.
(I) GOVERNING LAW. THIS NOTE WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA WITHOUT
REGARD TO ANY CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE
REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.
(II) JURISDICTION. The Company irrevocably submits to
the exclusive jurisdiction of the United States District Court for the
Northern District of Texas located in Dallas County, Dallas, Texas
(such consent shall not be deemed a general consent to jurisdiction and
service for any third party) over any suit, action, or proceeding
arising out of or relating to this Note. The Company irrevocably
waives, to the fullest extent permitted by law, any objection which it
may now or hereafter have to the laying of the venue of any such suit,
action, or proceeding brought in such a court and any claim that suit,
action, or proceeding has been brought in an inconvenient forum.
The Company agrees that the service of process upon
it mailed by certified or registered mail (and service so made shall be
deemed complete five Business Days after the same has been posted as
aforesaid) by personal service shall be deemed in every respect
effective service of process upon it in any such suit or proceeding.
Nothing herein shall affect Holder's right to serve process in any
other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
(III) NO JURY TRIAL. The Company knowingly and
voluntarily waives any and all rights it may have to a trial by jury
with respect to any litigation based on, or arising out of, under, or
in connection with, this Note.
(I) REPLACEMENT NOTES. This Note may be exchanged by Holder at
any time and from time to time for a Note or Notes with different denominations
representing an equal aggregate outstanding Principal Amount, as reasonably
requested by Holder, upon surrendering the same. No service charge will be made
for such registration or exchange. In the event that Holder notifies the Company
that this Note has been lost, stolen or destroyed, a replacement Note identical
in all respects to the original Note (except for registration number and
Principal Amount, if different than that shown on the original Note), shall be
issued to the Holder, without requirement for any surety bond, provided that the
Holder executes and delivers to the Company an agreement reasonably satisfactory
to the Company to indemnify the Company from any loss incurred by it in
connection with this Note.
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[Signature Page Follows]
-19-
IN WITNESS WHEREOF, the Company has caused this Note to be
duly executed on the day and in the year first above written.
KNIGHTSBRIDGE FINE WINES, INC.
By: /s/ Xxxx Xxxxxxx
----------------
Name: Xxxx Xxxxxxx
Title: President & CEO
-20-
ASSIGNMENT
For value received ____________hereby sell(s), assign(s) and
transfer(s) unto ____________(Please insert social security or other Taxpayer
Identification Number of assignee: ______________ ) the within Note, and hereby
irrevocably constitutes and appoints _________ attorney to transfer the said
Note on the books of Knightsbridge Fine Wines, Inc., a Nevada corporation (the
"Company"), with full power of substitution in the premises.
In connection with any transfer of the Note within the period
prior to the expiration of the holding period applicable to sales thereof under
Rule 144(k) under the Securities Act (or any successor provision) (other than
any transfer pursuant to a registration statement that has been declared
effective under the Securities Act), the undersigned confirms that such Note is
being transferred:
[ ] To the Company or a subsidiary thereof; or
[ ] To a QIB pursuant to and in compliance with Rule 144A; or
[ ] To an "accredited investor" pursuant to and in compliance
with the Securities Act; or
[ ] Pursuant to and in compliance with Rule 144 under the
Securities Act;
and unless the box below is checked, the undersigned confirms that, to the
knowledge of the undersigned, such Note is not being transferred to an
"affiliate" of the Company as defined in Rule 144 under the Securities Act (an
"Affiliate").
[ ] The transferee is an Affiliate of the Company.
Capitalized terms used in this Assignment and not defined in
this Assignment shall have the respective meanings provided in the Note.
Dated: NAME:
---------------- -----------------
----------------------------------
Signature(s)
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EXHIBIT A
FORM OF CONVERSION NOTICE
(To be executed by the Holder in order
to convert 7.5% Convertible Note Due 2006)
Re: 7.5% Convertible Note Due 2006 issued by KNIGHTSBRIDGE FINE
WINES, INC. identified below (the "Note")
The undersigned hereby elects to convert the outstanding Principal Amount (as
defined in the Note) indicated below of the Note into shares of Common Stock, of
KNIGHTSBRIDGE FINE WINES, INC., a Nevada corporation (the "Company") according
to the terms hereof and of the Note, as of the date written below. If shares are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the Holder for any
conversion, except for such transfer taxes, if any. The undersigned represents
as of the date hereof that, after giving effect to the conversion of the Note
pursuant to this Conversion Notice, the undersigned will not exceed the
"Restricted Ownership Percentage" contained in Section 4(i)(A) of the Note.
Conversion information:
---------------------------------------------
Note Number
---------------------------------------------
Conversion Date
---------------------------------------------
Principal Amount of Note Being Converted
---------------------------------------------
Number of Shares of Common Stock to Be Issued
---------------------------------------------
Applicable Conversion Price
---------------------------------------------
Signature
---------------------------------------------
Name
---------------------------------------------
Address
A-1
