Contract
Exhibit
10.3
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 STATES SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO CONVERSION SERVICES INTERNATIONAL, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED.
AMENDED
AND RESTATED SECURED CONVERTIBLE MINIMUM BORROWING
NOTE
FOR
VALUE
RECEIVED, CONVERSION SERVICES INTERNATIONAL, INC. a Delaware corporation
(the
“Borrower”)
promises to pay to LAURUS MASTER FUND, LTD., c/o Ogier Fiduciary Services
(Cayman) Limited, P.O. Box 1234, Queensgate House, South Church Street, Xxxxxx
Town, Grand Cayman, Cayman Islands, British West Indies, Fax: 000-000-0000
(the
“Holder”)
or its
registered assigns, on order, the sum of Two Million Dollars ($2,000,000),
of,
if different, the aggregate principal amount of all “Loans” (as such term is
defined in the Security Agreement referred to below), together with any accrued
and unpaid interest hereon, on August 15, 2007 (the “Maturity
Date”).
This
Note amends and restates in its entirety, and is given in substitution for
and
not in satisfaction of, that certain Secured Convertible Minimum Borrowing
Note
issued in the original principal amount of $2,000,000 by the Company in favor
of
the Holder on August 16, 2004.
Capitalized
terms used herein without definition shall have the meanings ascribed to
such
terms in the Security Agreement between Borrower, certain Subsidiaries of
the
Borrower and the Holder dated as of August 16, 2004 (as amended, modified
and
supplemented from time to time, the “Security
Agreement”).
The
following terms shall apply to this Minimum Borrowing Note (the
“Note”):
ARTICLE
I
INTEREST
1.1
Contract
Rate.
Subject
to Sections 4.2, 5.1 and 6.7 hereof, interest payable on this Note shall
accrue
at a rate per annum equal to the “prime rate” published in The
Wall Street Journal
from
time to time, plus one percent (1%) (the “Contract
Rate”).
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 in accordance with the terms of the Security Agreement. Subject to Section
1.2, the Contract Rate shall not be less than five percent (5 %).
1.2
Contract
Rate Adjustments and Payments.
The
Contract Rate shall be calculated on the last business day of each month
hereafter until the Maturity Date (each a “Determination Date”) and shall be
subject to adjustment as set forth herein. If (i) the Borrower shall have
registered the shares of the Borrower’s common stock underlying each of the
conversion of each Minimum Borrowing Note then outstanding and that certain
warrant issued to Holder 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) trading
days
immediately preceding a Determination Date exceeds the then applicable Fixed
Conversion Price by at least twenty five percent (25%),
the
Contract Rate for the succeeding calendar month shall automatically be reduced
by 200 basis points (200 b.p.) (2.0.%) for each incremental twenty five percent
(25%) increase in the Market Price of the Common Stock above the then applicable
Fixed Conversion Price. If (i) the Borrower shall not have registered the
shares
of the Borrower’s common stock underlying the conversion of each Minimum
Borrowing Note then outstanding and that certain warrant issued to Holder
on a
registration statement declared effective by the SEC and which remains
effective, and (ii) the Market Price of the Common Stock as reported by
Bloomberg, L.P. on the principal market for the five (5) trading days
immediately preceding a Determination Date exceeds the then applicable Fixed
Conversion Price by at least twenty five percent (25%), the Contract Rate
for
the succeeding calendar month shall automatically be 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), in no event shall the Contract Rate be less than zero
percent (0%).
Interest
shall be (i) calculated on the basis of a 360 day year, and (ii) payable
monthly, in arrears, commencing on October 1, 2004 and on the first business
day
of each consecutive calendar month thereafter until the Maturity Date (and
on
the Maturity Date), whether by acceleration or otherwise (each, a “Contract
Rate Payment Date”).
ARTICLE
II
ADVANCES,
PAYMENTS UNDER NOTE
2.1. Mechanics
of Advances.
All
Loans evidenced by this Note shall be made in accordance with the terms and
provisions of the Security Agreement.
2.2. Fixed
Conversion Price.
For
purposes hereof, subject to Section 3.5 hereof, the initial “Fixed
Conversion Price”
means $
____
[103% of the average of the closing price of the Common Stock for the ten
(10)
trading days immediately prior to the date hereof provided that the Fixed
Conversion Price shall not exceed 110% of the closing price of the Common
Stock
on the trading day immediately preceding the Closing Date]0.62.
2.3. No
Effective Registration.
Notwithstanding anything to the contrary herein, the Holder shall not be
required accept shares of Common Stock as payment following a conversion
by the
Holder if there fails to exist an effective current Registration Statement
(as
defined in the Registration Rights Agreement) covering the shares of Common
Stock to be issued, or if an Event of Default hereunder exists and is
continuing, unless such requirement is otherwise waived in writing by the
Holder
in whole or in part at the Holder’s option.
2
2.4. Optional
Redemption in Cash.
The
Borrower will have the option of prepaying this Note (“Optional
Redemption”)
by
paying to the Holder a sum of money equal to one hundred fifteen percent
(115%)
of the principal amount of this Note together with accrued but unpaid interest
thereon and any and all other sums due, accrued or payable to the Holder
arising
under this Note, the Security Agreement, or any Ancillary Agreement (as defined
in the Security Agreement) (the “Redemption
Amount”)
on the
day written notice of redemption (the “Notice
of Redemption”)
is
given to the Holder. The Notice of Redemption shall specify the date for
such
Optional Redemption (the “Redemption
Payment Date”)
which
date shall be seven (7) days after the date of the Notice of Redemption (the
“Redemption
Period”).
A
Notice of Redemption shall not be effective with respect to any portion of
this
Note for which the Holder has previously delivered a Notice of Conversion
(defined below) pursuant to Section 3.1, or for conversions elected to be
made
by the Holder pursuant to Section 3.1 during the Redemption Period. The
Redemption Amount shall be determined as if such Xxxxxx’s conversion elections
had been completed immediately prior to the date of the Notice of Redemption.
On
the Redemption Payment Date, the Redemption Amount (plus any additional interest
and fees accruing on the Notes during the Redemption Period) must be irrevocably
paid in full in immediately available funds to the Holder. In the event the
Borrower fails to pay the Redemption Amount on the Redemption Payment Date,
then
such Redemption Notice will be null and void.
ARTICLE
III
HOLDER’S
CONVERSION RIGHTS
3.1. Optional
Conversion.
Subject
to the terms of this Article III, the Holder shall have the right, but not
the
obligation, at any time until the Maturity Date, or thereafter during an
Event
of Default (as defined in Article V), and, subject to the limitations set
forth
in Section 3.2 hereof, to convert all or any portion of the outstanding
Principal Amount and/or accrued interest and fees due and payable into fully
paid and nonassessable shares of the Common Stock at the Fixed Conversion
Price.
The shares of Common Stock to be issued upon such conversion are herein referred
to as the “Conversion
Shares.”
3.2. Conversion
Limitation.
Notwithstanding anything contained herein to the contrary, the Holder shall
not
be entitled to convert pursuant to the terms of the Note an amount that would
(a) be convertible into that number of shares of Common Stock which, when
added
to the number of shares of Common Stock otherwise beneficially owned by such
Holder including those issuable upon exercise of warrants held by such Holder
would exceed 4.99% of the outstanding shares of Common Stock of the Borrower
at
the time of conversion or (b) exceed twenty five percent (25%) of the aggregate
dollar trading volume of the Common Stock for the twenty two (22) day trading
period immediately preceding delivery of a Notice of Conversion to the Borrower.
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 conversion limitation described in this
Section
3.2 shall automatically become null and void without any notice to Borrower
upon
the occurrence and during the continuance beyond any applicable grace period
of
an Event of Default, or upon 75 days prior notice to the Borrower, except
that
at no time shall the beneficial ownership exceed 19.99% of the Common Stock.
Notwithstanding anything contained herein to the contrary, following the
listing
of the Borrower on the NASDAQ SmallCap Market, the Nasdaq National Market
or the
American Stock Exchange, the number of shares of Common Stock issuable by
the
Borrower and acquirable by the Holder at a price below $[insert market price]
per share pursuant to the terms of this Note, the Security Agreement, any
Ancillary Agreement or any other agreement between the Company and the Holder,
shall not exceed an aggregate of 153,149,330 shares of the Borrower’s Common
Stock (subject to appropriate adjustment for stock splits, stock dividends,
or
other similar recapitalizations affecting the Common Stock) (the “Maximum
Common Stock Issuance”),
unless the issuance of shares hereunder in excess of the Maximum Common Stock
Issuance shall first be approved by the Borrower’s shareholders. If at any point
in time , following the listing of the Borrower on the NASDAQ SmallCap Market,
the Nasdaq National Market or the American Stock Exchange, the number of
shares
of Common Stock issued pursuant to the terms of this Note, the Security
Agreement, any Ancillary Agreement or any other agreement between the Company
and the Holder, together with the number of shares of Common Stock that would
then be issuable by the Borrower to the Holder in the event of a conversion
or
exercise pursuant to the terms of this Note, the Security Agreement, any
Ancillary Agreement or any other agreement between the Company and the Holder,
would exceed the Maximum Common Stock Issuance but for this Section 3.2,
the
Borrower shall promptly call a shareholders meeting to solicit shareholder
approval for the issuance of the shares of Common Stock hereunder in excess
of
the Maximum Common Stock Issuance.
3
3.3. Mechanics
of Holder’s Conversion.
In the
event that the Holder elects to convert this Note into Common Stock, the
Holder
shall give notice of such election by delivering an executed and completed
notice of conversion (“Notice
of Conversion”)
to the
Borrower and such Notice of Conversion shall provide a breakdown in reasonable
detail of the Principal Amount, accrued interest and fees that are 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 (the “Conversion
Date”).
A
form of Notice of Conversion to be employed by the Holder is annexed hereto
as
Exhibit A. Pursuant to the terms of the Notice of Conversion, the Borrower
will
issue instructions to the transfer agent accompanied by an opinion of counsel
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 Common Stock,
unless the Holder provides the Borrower written instructions to the
contrary.
3.4. Late
Payments.
The
Borrower understands that a delay in the delivery of the shares of Common
Stock
in the form required pursuant to this Article beyond the Delivery Date could
result in economic loss to the Holder. As compensation to the Holder for
such
loss, the Borrower agrees to pay late payments to the Holder for late issuance
of such shares in the form required pursuant to this Article III upon conversion
of the Note, in the amount equal to $250 per business day after the Delivery
Date. The Borrower shall pay any payments incurred under this Section in
immediately available funds upon demand.
3.5. Adjustment
Provisions.
The
Fixed Conversion Price and number and kind of shares or other securities
to be
issued upon conversion determined pursuant to Section 2.2 shall be subject
to
adjustment from time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:
4
A. 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 (i) immediately prior to
or (ii)
immediately after such reclassification or other change at the sole election
of
the Holder.
B. Stock
Splits, Combinations and Dividends.
If the
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the Common
Stock
or any preferred stock issued by the Borrower in shares of Common Stock,
the
Fixed Conversion Price shall be proportionately reduced in case of subdivision
of shares or stock dividend or proportionately increased in the case of
combination of shares, in each such case by the ratio which the total number
of
shares of Common Stock outstanding immediately after such event bears to
the
total number of shares of Common Stock outstanding immediately prior to such
event.
C. Share
Issuances.
Subject
to the provisions of this Section 3.5, 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; or (ii)
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
pursuant to the formula below. For purposes hereof, the issuance of any security
of the Borrower convertible into or exercisable or exchangeable for Common
Stock
shall result in an adjustment to the Fixed Conversion Price upon the issuance
of
such securities.
If
the
Borrower issues any additional shares pursuant to this Section 3.5 (C) then,
and
thereafter successively upon each such issue, the Fixed Conversion Price
shall
be adjusted by multiplying the then applicable Fixed Conversion Price by
the
following fraction:
5
|
A
+
B
|
||
|
(A
+ B) + [((C - D) x B) / C]
|
A
=
Actual shares outstanding prior to such offering
B
=
Actual shares sold in the offering
C
= Fixed
Conversion Price
D
=
Offering price
D.
Computation of Consideration.
For
purposes of any computation respecting consideration received pursuant to
Subsection C above, the following shall apply:
(a)
in
the case of the issuance of shares of Common Stock for cash, the consideration
shall be the amount of such cash, provided that in no case shall any deduction
be made for any commissions, discounts or other expenses incurred by the
Borrower for any underwriting of the issue or otherwise in connection
therewith;
(b)
in
the case of the issuance of shares of Common Stock for a consideration in
whole
or in part other than cash, the consideration other than cash shall be deemed
to
be the fair market value thereof as determined in good faith by the Board
of
Directors of the Borrower (irrespective of the accounting treatment thereof);
and
(c)
upon
any such exercise, the aggregate consideration received for such securities
shall be deemed to be the consideration received by the Borrower for the
issuance of such securities plus the additional minimum consideration, if
any,
to be received by the Borrower upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided
in
clauses (a) and (b) of this Subsection (D)).
3.6. Reservation
of Shares.
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.
3.7. Registration
Rights.
The
Holder has been granted registration rights with respect to the shares of
Common
Stock issuable upon conversion of this Note as more fully set forth in a
Registration Rights Agreement dated as of the date hereof between the Borrower
and the Holder.
6
ARTICLE
IV
EVENTS
OF DEFAULT
4.1. The
occurrence of any of the events set forth in Section 19 of the Security
Agreement shall constitute an Event of Default (“Event
of Default”)
hereunder.
DEFAULT
RELATED PROVISIONS
4.2 Default
Interest Rate.
Following the occurrence and during the continuance of an Event of Default,
interest on this Note shall automatically be increased by two percent (2%)
per
month, and all outstanding Obligations, including unpaid interest, shall
continue to accrue interest from the date of such Event of Default at such
interest rate applicable to such Obligations until such Event of Default
is
cured or waived.
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
DEFAULT
PAYMENTS
5.1. Default
Payment.
If an
Event of Default occurs and is continuing beyond any applicable grace period,
the Holder, at its option, may elect, in addition to all rights and remedies
of
Holder under the Security Agreement and the Ancillary Agreements and all
obligations of Borrower under the Security Agreement and the Ancillary
Agreements, to accelerate all obligations outstanding under the Security
Agreement and the Ancillary Agreements and, in connection therewith, require
the
Borrower to make a Default Payment (“Default
Payment”).
The
Default Payment shall be 130% of the outstanding principal amount of the
Note,
plus accrued but unpaid interest, all other fees then remaining unpaid, and
all
other amounts payable hereunder. The Default Payment shall be applied first
to
any fees due and payable to Holder pursuant to the Notes or the Ancillary
Agreements, then to accrued and unpaid interest due on the Notes and then
to
outstanding principal balance of the Notes.
5.2. Default
Payment Date.
The
Default Payment shall be due and payable immediately on the date that the
Holder
has exercised its rights pursuant to Section 5.1 (“Default
Payment Date”).
7
ARTICLE
VI
MISCELLANEOUS
6.1. 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.
6.2. Notices.
Any
notice herein required or permitted to be given shall be in writing and provided
in accordance with the terms of the Security Agreement.
6.3.
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
as it may be amended or supplemented.
6.4. 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 Security
Agreement.
6.5. Cost
of Collection.
If
default is made in the payment of this Note, the Borrower shall pay the Holder
hereof reasonable costs of collection, including reasonable attorneys’
fees.
6.6. 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
order in favor of Xxxxxx.
6.7. 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.
8
6.8. Security
Interest and Guarantee.
The
Holder has been granted a security interest (i) in certain assets of the
Borrower and its Subsidiaries as more fully described in (x) the Security
Agreement and (y) the Master Security Agreement dated as of the date hereof
and
(ii) pursuant to the Stock Pledge Agreement dated as of the date hereof.
The
obligations of the Borrower under this Note are guaranteed by certain
Subsidiaries of the Borrower pursuant to the Subsidiary Guaranty dated as
of the
date hereof.
6.9. Construction.
Each
party acknowledges that its legal counsel participated in the preparation
of
this Note and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Note to favor any party against the
other.
[Balance
of page intentionally left blank; signature page follows.]
9
IN
WITNESS WHEREOF,
the
Borrower has caused this Amended and Restated Secured Convertible Minimum
Borrowing Note to be signed in its name effective as of this 30th
day of
November 2005.
| CONVERSION SERVICES INTERNATIONAL, INC. | ||
| |
|
|
| By: | /s/ Xxxxx Xxxxxx | |
|
Name: Xxxxx Xxxxxx |
||
|
Title:
President and Chief Executive
Officer
|
||
WITNESS:
/s/
Xxxxxxxx X. Xxxx
10
NOTICE
OF CONVERSION
(To
be
executed by the Holder in order to convert the Note)
The
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Secured Convertible Minimum Borrowing Note issued
by
Conversion Services International, Inc. on August 18, 2004, as amended and
restated on November 30, 2005, into Shares of Common Stock of Conversion
Services International, Inc. (the “Borrower”) according to the conditions set
forth in such Note, as of the date written below.
|
Date
of Conversion:
|
|
|
Conversion
Price:
|
|
|
Shares
To Be Delivered:
|
|
|
Signature:
|
|
|
Print
Name:
|
|
|
Address:
|
|
|
|
|
|
Holder
DWAC instructions
|
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11
