EXHIBIT 10.2
THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT FOR DISTRIBUTION, AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT THERETO UNDER SUCH ACT UNLESS SOLD
PURSUANT TO RULE 144 OF THAT ACT OR UNLESS THE SALE, PLEDGE, HYPOTHECATION OR
TRANSFER IS OTHERWISE EXEMPT FROM REGISTRATION. THE COMPANY MAY REQUEST A
WRITTEN OPINION OF COUNSEL (FROM COUNSEL ACCEPTABLE TO THE COMPANY) SATISFACTORY
TO THE COMPANY, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION
WITH SUCH SALE, PLEDGE OR HYPOTHECATION, OR OTHER TRANSFER. THIS NOTE OR ANY
SECURITY ISSUABLE UPON THE CONVERSION HEREOF MUST BE SURRENDERED TO THE COMPANY
OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, PLEDGE,
HYPOTHECATION OR ANY OTHER TRANSFER OF ANY INTEREST IN THIS NOTE OR ANY SUCH
SECURITY.
SECURED CONVERTIBLE PROMISSORY NOTE
Note No.: ___ April 16, 2002
Irvine, California
FOR VALUE RECEIVED, SSP Solutions, Inc., a Delaware corporation
("Company"), promises to pay to ______________________ ("Holder"), or its
registered assigns, the principal sum of _________________ THOUSAND DOLLARS
($__________), or such lesser amount as shall equal the outstanding principal
amount hereof, together with interest from the date of this Secured Convertible
Promissory Note (this "Note") on the unpaid principal balance at a rate equal to
10% per annum, computed on the basis of the actual number of days elapsed and a
year of 365 or 366 days, as the case may be, compounded annually. Interest on
the outstanding principal balance of this Note shall be payable quarterly as
described in Section 2. Subject to Section 5, all unpaid principal, together
with any then unpaid and accrued interest and other amounts payable hereunder,
shall be due and payable on the Note Maturity Date (as defined below). Subject
to Section 5, any unpaid principal and accrued and unpaid interest on the Note
Maturity Date shall be payable in cash. Upon payment in full of all principal
and interest payable hereunder, this Note shall be surrendered to the Company
for cancellation.
This Note is secured pursuant to a Securities Purchase, Registration
Rights and Security Agreement, dated as of the date hereof, by and among the
Company and certain investors in the Company, including Holder (the
"Agreement"). This Note and the similar Secured Convertible Promissory Notes
issued to the other investors pursuant to the Agreement are collectively
referred to as the "Notes." Pursuant to the Agreement, the investors also
acquired Warrants to Purchase Common Stock (the "Warrants").
The following is a statement of the rights of Xxxxxx and the conditions
to which this Note is subject, and to which Holder, by the acceptance of this
Note, agrees:
1. CERTAIN DEFINITIONS.
(a) "Common Stock" means shares of the common stock, $.01 par
value per share, of the Company.
(b) "Event of Default" means any of the events specified as such
in Section 4(a).
(c) "Holder" means the person or entity specified in the
introductory paragraph of this Note or any transferee that is at the
time the registered holder of this Note. The Holder or transferee is an
"accredited investor" as defined under U.S. federal securities laws or
otherwise will qualify to allow this offering to take place as a private
placement under applicable securities laws.
(d) "Note Maturity Date" shall mean the earlier of (i) December
31, 2005, or, (ii) the date as of which the outstanding principal and
accrued interest on this Note and all other payments payable hereunder
are due and payable by Holder pursuant to Section 4(b).
Other capitalized terms not defined in this Note have the same meaning
as in the Agreement or in the Warrants, as the case may be.
2. INTEREST.
This Note will bear interest at a rate of 10% per annum. Accrued
interest on this Note shall be due and payable quarterly on the first day of
each calendar quarter beginning July 1, 2002, with a final installment due on
the Note Maturity Date, whether by acceleration, scheduled maturity or
otherwise, unless such amounts are converted into Common Stock pursuant to the
terms set forth herein. Subject to Section 5, any accrued interest on this Note
that is due prior to the Note Maturity Date shall be payable in cash or, at the
option of the Company, in shares of Common Stock valued at the arithmetic mean
of the Closing Sale Price of the Company's Common Stock for the 30 day period
ending on the day prior to the day the interest payment is due. Subject to
Section 5, any accrued interest on this Note that is due on the Note Maturity
Date, whether by acceleration, scheduled maturity or otherwise, shall be payable
in cash.
3. PREPAYMENT.
This Note may not be prepaid without the prior written consent of the
Holder.
4. EVENTS OF DEFAULT.
4.1 EVENT OF DEFAULT. Each of the following events shall
constitute an "Event of Default" under this Note:
(a) Subject to Section 5, the Company fails to pay, within
five business days of the date when it first becomes due under
the terms of this Note, the cash portion, or fails to issue the
Warrant portion, of any accrued interest coming due on a
quarterly basis prior to the Note Maturity Date.
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(b) Subject to Section 5, the Company fails to pay all
amounts owed within ten business days of the Note Maturity Date
as required under the terms of this Note.
(c) The Company (i) applies for or consents to the
appointment of a receiver, trustee, liquidator or custodian of
itself or of all or a substantial part of its property, (ii) is
unable, or admits in writing its inability, to pay its debts for
borrowed money generally as they come due or its trade payables
within 90 days of invoice, (iii) makes a general assignment for
the benefit of its creditors, (iv) is dissolved or liquidated in
full or in part, (v) commences a voluntary case or other
proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
consents to any such relief or to the appointment of or taking
possession of its property by any official in an involuntary case
or other proceeding commenced against it, or (vi) takes any
action for the purpose of effecting any of the foregoing, and an
order for relief entered or such proceeding shall not be
dismissed, discharged or stayed within 60 days of commencement.
(d) Proceedings for the appointment of a receiver,
trustee, liquidator or custodian of the Company or all or a
substantial part of the property thereof, or an involuntary case
or other proceedings seeking liquidation, reorganization or other
relief with respect to Company or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in
effect shall be commenced, and an order for relief entered or
such proceeding shall not be dismissed, discharged or stayed
within 60 days of commencement.
(e) Any of the representations or warranties made by the
Company herein, in the Agreement or in any agreement, certificate
or financial statements heretofore or hereafter furnished by the
Company in connection with the execution and delivery of this
Note or the Agreement shall be false or misleading in any respect
at the time made and results in a Material Adverse Effect.
(f) The Company (i) fails to issue Conversion Shares to
the Holder or to cause its Transfer Agent to issue Conversion
Shares, or, if applicable, cash, upon proper exercise by the
Holder of the conversion rights of the Holder in accordance with
the terms of this Note, (ii) fails to transfer or to cause its
Transfer Agent to transfer any certificate for Conversion Shares
issued to the Holder as and when required by this Note or the
Agreement, and such transfer is otherwise lawful, or (iii) fails
to remove any restrictive legend or to cause its Transfer Agent
to transfer any certificate or any Conversion Shares issued to
the Holder as and when required by this Note, the Agreement or
any other related agreement and such legend removal is otherwise
lawful, and any such failure described in subclauses (i), (ii) or
(iii) continues uncured for five Business Days.
(g) The Company fails to perform or observe, in any
material respect, any other covenant, term, provision, condition,
agreement or obligation of the Company under the Agreement, this
Note or any related agreement, including but
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not limited to the payments of interest (other than quarterly
interest payments), liquidated damages and late fees, provided
the Holder has provided the Company notice and an opportunity to
cure within ten trading days of any such event of default under
this Section 4.1(g) and provided that the failure results in a
Material Adverse Effect.
(h) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency assumes
custody or control of the whole or any substantial portion of
the properties or assets of the Company and the action is not
dismissed within 60 days thereafter.
(i) Any money judgment, writ or warrant of attachment,
or similar process in excess of $500,000 in the aggregate is
entered or filed against the Company or any of its properties or
other assets and remains unpaid, unvacated, unbonded or unstayed
for a period of 60 days or in any event later than five days
prior to the date of any proposed sale thereunder.
(j) The Registration Statement is not declared effective
by the SEC within 180 days from the Closing Date.
(k) The Company (or any subsidiary thereof if guaranteed
by the Company) defaults (unless the default is the subject of a
bona fide dispute and the Company has set aside adequate
reserves) in any of its obligations under any of the other Notes
or any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which
there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under
any long term leasing or factoring arrangement of the Company in
an amount exceeding an aggregate of $500,000, unless waived,
extended or cured within ten Business Days, whether the
indebtedness now exists or if hereafter created and the default
results in the indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due
and payable.
(l) The Common Stock is delisted from the Principal
Market or suspended from trading on the Principal Market without
resuming trading and/or being relisted or thereon or listed on
another Principal Market or having the suspension lifted, in
either case, for more than either five consecutive trading days
or 15 trading days in the aggregate during any 12 month period
(which need not be consecutive).
(m) The Company suspends the Holder's conversion rights
for more than five trading days in the aggregate during any 12
month period; provided, however, that this Event of Default
shall not be deemed to grant the Company any right to any such
suspensions.
(n) If the effectiveness of the Registration Statement
lapses for any reason or the Holder is not permitted to resell
Registrable Securities under the
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Registration Statement, in either case, for more than 30
Business Days, in the aggregate, during any 12 month period.
(o) Except for the security interests granted under the
Agreement and except as may arise under government contracts, the
Company or any Guarantor grants or agrees to grant a security
interest in any intellectual property of the Company or any
subsidiary.
(p) A default causing acceleration of any Principal Note
occurs.
4.2 ACCELERATION. If an Event of Default (other than an Event of
Default specified in Section 4.1(c) or (d) with respect to the Company
occurs and is continuing, then the Holder may declare the outstanding
principal and accrued interest on this Note and all other payments
payable hereunder to be forthwith due and payable immediately, without
presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Company, to the fullest extent
permitted by applicable law. If an Event of Default specified in Section
4.1(c) or (d) occurs and is continuing, then the outstanding principal
and accrued interest on this Note and all other payments payable
hereunder shall become and be immediately due and payable without any
declaration or other act on the part of the Holder. The Holder by notice
to the Company may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all
existing Events of Default have been cured or waived. No such rescission
shall affect any subsequent default or impair any right thereto.
5. CONVERSION.
5.1 AUTOMATIC CONVERSION. Subject to the limitations set forth
in Section 5.7, if at any time after the Registration Statement has been
declared effective and on or before the payment in full or conversion of
this Note (a) the Closing Sale Price of a share of the Company's Common
Stock equals or exceeds $3.00 (subject to appropriate adjustment in the
event of a stock split, stock dividend, combination or similar event)
for 20 consecutive trading days, (b) the average daily trading volume
during the 20 trading day period equals or exceeds 100,000 shares and
(c) the Company previously has filed a Registration Statement with the
Securities and Exchange Commission, and such Registration Statement
previously has been declared effective by the SEC and the effectiveness
thereof continues throughout each day of the 20 trading day period, then
the principal will automatically convert into shares of Common Stock at
the Conversion Rate (as defined below). Accrued interest due may be
converted, at the same rate, at the option of the Company. The
conversion will be deemed to have occurred as of the close of business
on such 20th consecutive trading day. The Company shall notify the
Holder in writing within one trading day after any automatic conversion,
and will cause certificate representing the Conversion Shares to be
issued within two trading days after automatic conversion, and will
deliver those certificates to the Holder by overnight courier
immediately after receipt of the original of this Note for cancellation.
5.2 CONVERSION PROCEDURE IN THE EVENT OF AUTOMATIC CONVERSION.
In the event of automatic conversion, the outstanding principal (and
accrued interest due, if
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elected by the Company) under this Note will convert automatically
without any further action by the Company whether or not the Note is
surrendered to the Company or its transfer agent. The Company will not
be obligated to issue certificates evidencing the securities issuable
upon automatic conversion of this Note unless this Note is either
delivered to the Company or its transfer agent, or the Holder notifies
the Company or its transfer agent that this Note has been mutilated,
lost, stolen or destroyed and executes an agreement reasonably
satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with this Note. At its expense, the Company
will, as soon as reasonably practicable thereafter, issue and deliver to
the Holder a certificate for the number of shares to which the Holder
will be entitled upon conversion (bearing such legends as are required
by applicable state and federal securities laws in the opinion of
counsel to the Company), together with a check payable to the Holder for
any cash amounts payable as described in Section 5.5.
5.3 VOLUNTARY CONVERSION. Subject to the limitations set for in
Section 5.3, the Holder may, at any time before this Note has been
repaid in full, elect to convert all or any portion of the outstanding
principal (and accrued interest due, if elected by the Holder) into
shares of Common Stock at the Conversion Rate.
5.4 CONVERSION PROCEDURE IN THE EVENT OF VOLUNTARY CONVERSION.
(a) Each voluntary conversion of this Note shall be
effected by the surrender of this Note at the principal office
of the Company at any time during normal business hours,
together with a written notice by the Holder stating that the
Holder desires to convert the entire, or a specified increment
of, principal of this Note into Common Stock. Each conversion of
a Note will be deemed to have been effected as of the close of
business on the date on which this Note has been surrendered and
the notice has been received, and at that time, the rights of
the Holder of this Note will cease and the person or persons in
whose name or names any certificate or certificates for Common
Stock are to be issued upon conversion will be deemed to have
become the Holder or Holders of record of the shares of Common
Stock represented thereby.
(b) Within two trading days after a conversion has been
effected, the Company will deliver to the converting holder:
(i) a certificate or certificates representing
the number of shares of Common Stock issuable by reason
of conversion in such name or names and such
denomination or denominations as the converting holder
has specified; and
(ii) a replacement Note representing the
principal amount of this Note delivered to the Company
in connection with the conversion but which was not
converted.
(c) The issuance of certificates for Common Stock upon
conversion of this Note will be made without charge to the
Holder of this Note for any tax in
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respect thereof or other cost incurred by the Company in
connection with conversion and the related issuance of Common
Stock. Upon conversion of any portion of this Note, the Company
will take all actions as are necessary in order to ensure that
the Common Stock issuable with respect to conversion will be
validly issued, fully paid and nonassessable.
(d) The Company will not close its books against the
transfer of this Note or of the shares of Common Stock issued or
issuable upon conversion of this Note in any manner which
interferes with the timely conversion of this Note, and will at
all times reserve for issuance the maximum number of shares of
Common Stock into which this Note is convertible.
5.5 FRACTIONAL SHARES; INTEREST. No fractional shares shall be
issued upon conversion of this Note. In lieu of Company issuing any
fractional shares to Holder upon the conversion of this Note, Company
shall pay to Holder an amount in cash equal to the product obtained by
multiplying the Conversion Rate applied to effect such conversion by the
fraction of a share not issued pursuant to the previous sentence. Upon
conversion of this Note in full or the payment of outstanding amounts
specified in this Note, the Company shall be released from all its
obligations and liabilities under this Note.
5.6 CONVERSION RATE. The initial Conversion Rate shall be $1.00
per share of Common Stock. The Conversion Rate shall be subject to
adjustment as described in Section 6.
5.7 CONVERSION RESTRICTIONS.
5.7.1 BENEFICIAL OWNERSHIP LIMITATION. Notwithstanding
anything herein to the contrary, the Holder may not convert, and
the Company may not cause the Holder to convert, this Note to
the extent such conversion would result in the Holder, together
with any affiliate thereof, beneficially owning (as determined
in accordance with Section 13(d) of the Exchange Act and the
rules promulgated thereunder) in excess of 4.999% of the then
issued and outstanding shares of Common Stock, including shares
issuable upon conversion or exercise of this Note or any other
instrument of the Company (including the Warrant which
accompanied this Note) held by the Holder after application of
this Section 5.7. Since the Holder will not be obligated to
report to the Company the number of shares of Common Stock it
may hold at the time of a conversion hereunder, unless the
conversion at issue would result in the issuance of shares of
Common Stock in excess of 4.999% of the then outstanding shares
of Common Stock without regard to any other shares which may be
beneficially owned by the Holder or an affiliate thereof, the
Holder shall have the authority and obligation to determine
whether the restriction contained in this Section 5.7 will limit
any particular conversion hereunder and to the extent that the
Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal
amount of this Note is convertible shall be the responsibility
and obligation of the Holder. If the Holder has delivered a
Conversion Notice for a principal amount of this Note that,
without regard to any other shares that the
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Holder or its affiliates may beneficially own, would result in
the issuance in excess of the permitted amount hereunder, the
Company shall notify the Holder of this fact and shall honor the
conversion for the maximum principal amount permitted to be
converted on the Conversion Date in accordance with this Section
5.7. If this Note was not surrendered on the Conversion Date,
the Company shall provide the Holder written notice of the
amount actually converted. If the Holder surrendered this Note
on the Conversion Date, the Company shall, at the option of the
Holder, either retain any principal amount tendered for
conversion in excess of the permitted amount hereunder for
future conversions or return such excess portion of the Note to
the Holder. The provisions of this Section 5.7 may be waived by
the Holder (but only as to itself and not to any other holder of
a Note or Warrant) in whole or in part (x) upon not less than 61
days prior notice to the Company and (y) immediately upon
written notice to the Company in the event of the occurrence or
notice of an intended or pending Change of Control. Other
holders of Notes and Warrants shall be unaffected by any such
waiver. For purposes of this Section 5.7, "Change of Control"
means (i) the consolidation, merger or other business
combination of the Company with or into another Person (other
than (A) a consolidation, merger or other business combination
in which holders of the Company's voting power immediately prior
to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the
board of directors (or their equivalent if other than a
corporation) of such entity or entities, or (B) pursuant to a
migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company), (ii) the sale or
transfer of all or substantially all of the Company's assets,
(iii) a purchase, tender or exchange offer made to and accepted
by the holders of more than 50% of the outstanding shares of
Common Stock, or (iv) the execution by the Company of an
agreement to which the Company is a party or by which it is
bound providing for any of the events set forth in (i), (ii) or
(iii) above.
5.7.2 LIMITATION ON NUMBER OF SHARES ISSUABLE.
Notwithstanding anything herein to the contrary, unless the
requisite stockholder vote has been obtained, the Company shall
not be required to issue to the Holder, upon conversion of the
Notes or exercise of the Warrants, in excess of, as of Closing
Date, 19.9999% of the issued and outstanding shares of Common
Stock multiplied by a fraction, the numerator of which is the
original principal amount of this Note and the denominator of
which is the aggregate original principal amount of all the
Notes at a price below the market price of the Common Stock on
such date (the "Maximum Aggregate Share Amount"), unless the
Company first obtains stockholder approval permitting such
issuances in accordance with Nasdaq rules. If the number of
shares of Common Stock which would, notwithstanding the
limitation set forth herein, be issuable and sold to the Holder
equals or exceeds the Maximum Aggregate Share Amount, then, at
any time thereafter, from time to time, at the sole election of
the Holder, in whole or in part, the Company shall honor the
conversion of this Note by the Holder at the
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lowest possible conversion price (but not lower than the
Conversion Rate) which would permit such conversion without
violating Nasdaq Rule 4350(i).
6. ADJUSTMENT OF CONVERSION RATE.
The Conversion Rate shall be adjusted from time to time as follows:
6.1 ADJUSTMENT OF CONVERSION RATE UPON ISSUANCE OF COMMON STOCK.
If and whenever on or after the date of issuance of this Note, but
before April 16, 2003, the Company issues or sells, or is deemed to have
issued or sold, any shares of Common Stock (including the issuance or
sale of shares of Common Stock owned or held by or for the account of
the Company, but excluding shares of Common Stock issued or deemed to
have been issued by the Company upon exercise or conversion of the Other
Securities) for a consideration per share less than a price (the
"Applicable Price") equal to the Conversion Rate in effect immediately
prior to such issuance or sale, then immediately after such issue or
sale the Conversion Rate then in effect shall be reduced to an amount
equal to such consideration per share.
6.2 EFFECT ON CONVERSION RATE OF CERTAIN EVENTS. For purposes of
determining the adjusted Warrant Exercise Price under Section 6.1, the
following shall be applicable:
6.2.1 Issuance of Options. If the Company in any manner
grants any Options and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such
Option or upon conversion, exchange or exercise of any
Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the granting or sale of
such Option for such price per share. For purposes of this
Section 6.2.1, the "lowest price per share for which one share
of Common Stock is issuable upon exercise of such Options or
upon conversion, exchange or exercise of such Convertible
Securities" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the granting
or sale of the Option, upon exercise of the Option and upon
conversion, exchange or exercise of any Convertible Security
issuable upon exercise of such Option. No further adjustment of
the Conversion Rate shall be made upon the actual issuance of
such Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such
Common Stock upon conversion, exchange or exercise of such
Convertible Securities.
6.2.2 Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is
issuable upon such conversion, exchange or exercise thereof is
less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance or sale of such
Convertible Securities for
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such price per share. For the purposes of this Section 6.2.2,
the "lowest price per share for which one share of Common Stock
is issuable upon such conversion, exchange or exercise" shall be
equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to one share
of Common Stock upon the issuance or sale of the Convertible
Security and upon conversion, exchange or exercise of such
Convertible Security. No further adjustment of the Conversion
Rate shall be made upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities, and
if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustment of the
Conversion Rate had been or are to be made pursuant to other
provisions of this Section 6.2, no further adjustment of the
Conversion Rate shall be made by reason of such issue or sale.
6.2.3 Change in Option Price or Rate of Conversion. If
the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or
exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable for
Common Stock changes at any time, the Conversion Rate in effect
at the time of such change shall be adjusted to the Conversion
Rate which would have been in effect at such time had such
Options or Convertible Securities provided for such changed
purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued
or sold and the number of shares of Common Stock acquirable
hereunder shall be correspondingly readjusted. For purposes of
this Section 6.2.3, if the terms of any Option or Convertible
Security that was outstanding as of the date of issuance of this
Note are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and
the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the
date of such change. No adjustment shall be made if such
adjustment would result in an increase of the Conversion Rate
then in effect.
6.3 EFFECT ON CONVERSION RATE OF CERTAIN EVENTS. For purposes of
determining the adjusted Conversion Rate under Sections 6.2 and 6.3, the
following shall be applicable:
6.3.1 Calculation of Consideration Received. In case any
Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options will be deemed
to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the net amount received
by the Company therefor. If any Common Stock, Options or
Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration received by
the Company will be the fair value of such consideration, except
where such consideration consists of marketable securities, in
which case the amount of consideration received by the Company
will be the
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Closing Sale Price of such securities on the date of receipt of
such securities. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity
in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash
or securities will be determined jointly by the Company and the
holders of Notes representing at least two-thirds of the shares
of Common Stock obtainable upon conversion of the Notes then
outstanding. If such parties are unable to reach agreement
within ten days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within five Business Days after
the tenth day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the
holders of Notes representing at least two-thirds of the shares
of Common Stock obtainable upon conversion of the Notes then
outstanding. The determination of such appraiser shall be final
and binding upon all parties absent error and the fees and
expenses of such appraiser shall be borne by the Company.
6.3.2 Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (a) to
receive a dividend or other distribution payable in Common
Stock, Options or in Convertible Securities or (b) to subscribe
for or purchase Common Stock, Options or Convertible Securities,
then such record date will be deemed to be the date of the issue
or sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
6.4 ADJUSTMENT OF CONVERSION RATE UPON SUBDIVISION OR
COMBINATION OF COMMON STOCK. If the Company at any time after the date
of issuance of this Note subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of shares, the Conversion
Rate in effect immediately prior to such subdivision will be
proportionately reduced and the number of shares of Common Stock
obtainable upon conversion of this Note will be proportionately
increased. If the Company at any time after the date of issuance of this
Note combines (by combination, reverse stock split or otherwise) one or
more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Rate in effect immediately prior to
such combination will be proportionately increased and the number of
shares of Common Stock obtainable upon conversion of this Note will be
proportionately decreased. Any adjustment under this Section 6.4 shall
become effective at the close of business on the date the subdivision or
combination becomes effective
6.5 DISTRIBUTION OF ASSETS. If the Company declares or makes any
dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or
otherwise (including, without limitation, any
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distribution of cash, stock or other securities, property or options by
way of a dividend, spin off, reclassification, corporate rearrangement
or other similar transaction) (a "Distribution"), at any time after the
issuance of this Note, then, in each such case:
(a) the Conversion Rate in effect immediately prior to the close
of business on the record date fixed for the determination of holders of
Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price
determined by multiplying such Conversion Rate by a fraction of which
(A) the numerator shall be the Closing Sale Price of the Common Stock on
the trading day immediately preceding such record date minus the value
of the Distribution (as determined in good faith by the Company's Board
of Directors) applicable to one share of Common Stock, and (B) the
denominator shall be the Closing Sale Price of the Common Stock on the
trading day immediately preceding such record date; and
(b) the number of Conversion Shares obtainable upon conversion
of this Note shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the
close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution multiplied
by the reciprocal of the fraction set forth in the immediately preceding
clause (a).
6.6 CERTAIN EVENTS. If any event occurs of the type contemplated
by the provisions of this Section 6 but not expressly provided for by
such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an
appropriate adjustment in the Conversion Rate and the number of shares
of Common Stock obtainable upon conversion of this Note so as to protect
the rights of the holders of the Notes; provided that no such adjustment
will increase the Conversion Rate or decrease the number of shares of
Common Stock obtainable as otherwise determined pursuant to this Section
6.
6.7 NOTICES.
(a) Immediately upon any adjustment of the Conversion Rate, the
Company will give written notice thereof to the holder of this Note,
setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(b) The Company will give written notice to the holder of this
Note at least 20 days prior to the date on which the Company closes its
books or takes a record (A) with respect to any dividend or distribution
upon the Common Stock, (B) with respect to any pro rata subscription
offer to holders of Common Stock or (C) for determining rights to vote
with respect to any Organic Change, dissolution or liquidation, provided
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
(c) The Company will also give written notice to the holder of
this Note at least 20 days prior to the date on which any Organic
Change, dissolution or liquidation
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will take place, provided that such information shall be made known to
the public prior to or in conjunction with such notice being provided to
such holder.
7. PRIORITY; AGREEMENTS RELATING TO COLLATERAL.
7.1 PRIORITY OF SECURITY INTEREST. The initial Holder and any
subsequent Holder of this Note, by accepting this Note, acknowledges and
agrees that the Holder's security interest in the Collateral is (a) a
pro rata security interest (as described in the Agreement) with the
holders of other similar Notes issued by the Company pursuant to the
Agreement and (b) is junior in priority to the security interests of the
holders of any Senior Debt (as defined below).
7.2 SENIOR DEBT. "Senior Debt" means an amount owing by the
Company, including principal, interest (including any interest accruing
during any bankruptcy proceeding), premium, if any, fees (including,
without limitation, any commitment, agency, facility, structuring,
restructuring or other fee), costs, expenses and indemnities, from time
to time for indebtedness for borrowed money under notes, debentures or
other evidence of indebtedness issued to, or agreements with, a
commercial bank or similar financial institution whose principal
business is the lending of money solely for the purpose of obtaining
working or permanent capital for the Company, which amount and repayment
terms thereof have been designated by the Company in writing as of the
date hereof to the Holder as "Senior Debt." The Holder hereby waives any
and all notice of renewal, extension or accrual of any of the Senior
Debt, present or future, and agrees and consents that without notice to
or consent of the Holder: (a) the obligations and liabilities of the
Company or any other party or parties under the Senior Debt may, from
time to time, in whole or in part, be renewed, refinanced, replaced,
terminated, decreased or released; (b) the holders of Senior Debt and
their representatives may exercise or refrain from exercising any right,
remedy or power granted by any document creating or evidencing the
Senior Debt or at law, in equity, or otherwise, with respect to the
Senior Debt or in connection with any collateral security or lien (legal
or equitable) held, given or intended to be given therefor (including,
without limitation, the right to perfect any lien or security interest
created in connection therewith); and (c) any and all collateral
security and/or liens (legal or equitable) at any time, present or
future, held, given or intended to be given for the Senior Debt, and any
rights or remedies of the holders of Senior Debt and their
representatives in respect thereof, may, from time to time, in whole or
in part, be surrendered, released, perfected, unperfected or waived by
the holders of Senior Debt and their representatives.
7.3 EXECUTION OF SUBORDINATION AGREEMENT. By accepting this
Note, the Holder agrees that, upon the request of any holder of Senior
Debt, it will execute and deliver a subordination agreement for the
benefit of such holder of Senior Debt (in form reasonably acceptable to
the Holder and its counsel) reflecting the terms of this Section 7;
provided, however that the foregoing shall not require the Holder to
execute or deliver any agreement which provides for additional terms of
subordination or otherwise adversely modifies (whether by change,
addition or deletion) the terms hereof.
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7.4 ADDITIONAL ENCUMBRANCES. The Company shall not, without the
prior written consent of the Representative of the Investors and the
holders of a majority in principal amount of the outstanding Notes,
create or suffer to exist any lien or security interest on or with
respect to the Collateral, except liens or security interests (a) in
favor of holders of Senior Debt or Notes of the Company, (b) securing
taxes, assessments or governmental charges or levies, or (iii) that
arise in the ordinary course of business and not created in connection
with the borrowing of money or the obtaining of credit.
7.5 OBTAINING INSURANCE. The Company shall in good faith seek and
evaluate insurance products relative to the intellectual property of the
Company. If the terms, costs and availability of funds provided by such
insurance products are reasonably acceptable to the Company, the
Representative of the Investors and the holders of a majority in
principal amount of the outstanding Notes, such insurance products shall
be obtained at the Company's sole cost and expense, provided that the
coverage lasts through the term of this Note.
8. COSTS.
In addition to all unpaid principal and accrued interest due and payable
hereunder, the Company agrees to pay to the Holder upon demand all reasonable
costs and expenses incurred (including, without limitation reasonable fees and
expenses of counsel) in connection with (a) the enforcement of the terms of or
protection of the Holder's rights under this Note, (b) any waiver requested by
the Company of the Holder's rights under this Note, (c) any proposed amendment,
modification, refinancing, restructuring or work-out of the credit evidenced
hereby and (d) collecting any obligations under this Note through
reorganization, bankruptcy or any other proceeding.
9. USURY.
It is the express intent of the Company and the Holder that the payment
of all or any portion of the outstanding principal amount of and accrued
interest under this Note be exempt from the application of any applicable usury
or similar laws under any state, federal or foreign jurisdiction. The Company
hereby irrevocably waives, to the fullest extent permitted by law, any objection
or defense which the Company may now or hereafter have to the payment when due
of any and all Note principal or accrued interest arising out of or relating to
a claim of usury or similar laws and the Company hereby agrees that neither it
nor any of its affiliates shall in the future bring, commence, maintain,
prosecute or voluntarily aid in any action at law, proceeding in equity or other
legal proceeding against the Holder based on a claim that the Company's payment
obligations under this Note violate the usury or similar laws of any state,
federal or foreign jurisdiction. Notwithstanding the foregoing, if any interest
is paid on this Note that is deemed to be in excess of the then legal maximum
rate, then that portion of the interest payment representing an amount in excess
of the then legal maximum rate shall be deemed a payment of principal and
applied against the principal of this Note.
10. UNCONDITIONAL OBLIGATION: FEES, WAIVERS, OTHER.
The Company and the Holder (by acceptance of this Note) agree as
follows:
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(a) No forbearance, indulgence, delay or failure to exercise any
right or remedy with respect to this Note shall operate as a waiver, nor
as an acquiescence in any default, nor shall any single or partial
exercise of any right or remedy preclude any other or further exercise
thereof.
(b) The Company hereby expressly waives demand and presentment
for payment, notice of nonpayment, notice of dishonor, protest, notice
of protest, bringing of suit, and diligence in taking any action to
collect amounts called for hereunder, and shall be directly and
primarily liable for the payment of all sums owing and to be owing
hereon, regardless of and without any notice, diligence, act or omission
with respect to the collection of any amount called for hereunder or in
connection with any right at any and all times which Holder had or is
existing hereunder.
11. NOTICES.
All notices and other communications provided for hereunder shall be in
writing and delivered, mailed or transmitted by any standard form of
telecommunication. Notices and other communications to the Holder shall be
directed to it at its address noted on the Company's records; and notices and
other communications to the Company shall be directed to it at its address at
SSP Solutions, Inc., 00000 Xxxxxxxxxx Xxxx, Xxxxxx, Xxxxxxxxxx 00000; or, as to
each party, at such other address as shall be designated by such party in a
written notice to the other party pursuant hereto. Any notice or other
communication shall be deemed to have been duly given (a) when sent by Federal
Express or other overnight delivery service of recognized standing, on the
business day following deposit with such service; (b) when mailed by registered
or certified mail, first class postage prepaid and addressed as aforesaid
through the United States Postal Service, upon receipt; (c) when delivered by
hand, upon delivery; and (d) when telecopied, upon confirmation of receipt. Any
party hereto may by notice so given change its address for future notice
hereunder.
12. PAYMENT.
Except with respect to payments in kind that are permitted hereunder,
payment shall be made in lawful tender of the United States.
13. NO THIRD PARTY RIGHTS.
Nothing expressed in or to be implied from this Note is intended to
give, or shall be construed to give, any person, other than the parties hereto
and their permitted successors and assigns, any benefit or legal or equitable
right, remedy or claim under or by virtue of this Note.
14. REPLACEMENT OF NOTE.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Note (or any security issued on
conversion of this Note), the Company will issue a replacement instrument, at
the Holder's expense, representing such securities in lieu of such lost, stolen,
destroyed or mutilated instrument, provided that the Holder agrees to indemnify
the Company for any losses incurred by the Company with respect to such
instrument.
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15. AMENDMENT.
Except as expressly provided herein, neither this Note nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument referencing this Note and signed by the Company and the Holder. This
Note is one of a series of similar Notes issued by the Company. Notwithstanding
the foregoing, this Note may be amended, waived, discharged or terminated by a
written instrument referencing this Note and signed by the Company, the
Representative of the Investors and the holders of a majority in principal
amount of the outstanding Notes of the Company. Any such amendment, waiver,
discharge or termination effected in accordance with the preceding sentence
shall be binding upon each holder of any Notes of the Company outstanding. The
Holder acknowledges that by the operation of this paragraph, the holders of a
majority of the outstanding principal amount of the Notes will have the right
and power to diminish or eliminate all rights of the Holder under this Note.
16. GOVERNING LAW.
This Note and all actions arising out of or in connection with this Note
shall be governed by and construed in accordance with the laws of the United
States of America and the State of California, without application of conflicts
of law principles. In any action, dispute, litigation or other proceeding
concerning this Note (including arbitration), exclusive jurisdiction shall be
with the courts of California, with the County of Orange being the sole venue
for the bringing of the action or proceeding.
17. WAIVER OF JURY TRIAL.
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, AND
UNDERSTANDING THEY ARE WAIVING A CONSTITUTIONAL RIGHT, THE PARTIES HERETO WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE
ANY DISPUTE, WHETHER IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO, THIS NOTE, THE AGREEMENT AND/OR ANY RELATED
AGREEMENT OR THE TRANSACTIONS COMPLETED HEREBY OR THEREBY.
[signature page follows]
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IN WITNESS WHEREOF, the Company has caused this Note to be issued as of
the date first written above.
SSP SOLUTIONS, INC.,
a Delaware corporation
By:
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Xxxxxxx X. Xxxxx, President
By:
------------------------------------
Xxxxxx X. Xxxxxx,
Chief Financial Officer
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