Exhibit 10.2
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FORTUNE DIVERSIFIED INDUSTRIES, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED.
CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, FORTUNE DIVERSIFIED INDUSTRIES, INC., an Indiana
corporation (the "COMPANY"), promises to pay to LAURUS MASTER FUND, LTD., c/o
M&C Corporate Services Limited, P.O. Box 309 GT, Xxxxxx House, South Church
Street, Xxxxxx Town, Grand Cayman, Cayman Islands, Fax: 000-000-0000 (the
"HOLDER") or its registered assigns or successors in interest, the sum of SEVEN
MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000), together with any accrued
and unpaid interest hereon, on November __, 2008 (the "MATURITY DATE") if not
sooner paid.
Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in that certain Securities Purchase Agreement
dated as of the date hereof by and between the Company and the Holder (as
amended, modified and/or supplemented from time to time, the "PURCHASE
AGREEMENT").
The following terms shall apply to this Convertible Term Note (this
"NOTE"):
ARTICLE I
CONTRACT RATE AND AMORTIZATION
1.1 Contract Rate. Subject to Sections 4.2 and 5.10, interest payable
on the outstanding principal amount of this Note (the "PRINCIPAL AMOUNT") shall
accrue at a rate per annum equal to the "prime rate" published in The Wall
Street Journal from time to time (the "PRIME RATE"), plus three percent (3.0%)
(the "CONTRACT RATE"). The Contract Rate shall be increased or decreased as the
case may be for each increase or decrease in the Prime Rate in an amount equal
to such increase or decrease in the Prime Rate; each change to be effective as
of the day of the change in the Prime Rate. Subject to Section 1.2, the Contract
Rate shall not at any time be less than nine and one half percent (9.50%).
Interest shall be (i) calculated on the basis of a 360 day year, and (ii)
payable monthly, in arrears, commencing on January 1, 2006, on the first
business day of each consecutive calendar month thereafter through and including
the Maturity Date, and on the Maturity Date, whether by acceleration or
otherwise.
1.2 Contract Rate Adjustments and Payments. The Contract Rate shall be
calculated on the last business day of each calendar month hereafter (other than
for increases or decreases in the Prime Rate which shall be calculated and
become effective in accordance with the terms of Section 1.1) until the Maturity
Date (each a "DETERMINATION DATE") and shall be subject to adjustment as set
forth herein. If (i) the Company shall have registered the shares of
the Common Stock underlying the conversion of this Note and each Warrant on a
registration statement declared effective by the Securities and Exchange
Commission (the "SEC"), and (ii) the market price (the "MARKET PRICE") of the
Common Stock as reported by Bloomberg, L.P. on the Principal Market for the five
(5) trading days immediately preceding a Determination Date exceeds the then
applicable Fixed Conversion Price by at least twenty-five percent (25%), the
Contract Rate for the succeeding calendar month shall automatically be reduced
by 200 basis points (200 b.p.) (2%) for each incremental twenty-five percent
(25%) increase in the Market Price of the Common Stock above the then applicable
Fixed Conversion Price. Notwithstanding the foregoing (and anything to the
contrary contained herein), in no event shall the Contract Rate at any time be
less than zero percent (0%).
1.3 Principal Payments. Amortizing payments of the aggregate principal
amount outstanding under this Note at any time (the "PRINCIPAL AMOUNT") shall be
made by the Company on March 1, 2006 and on the first business day of each
succeeding month thereafter through and including the Maturity Date (each, an
"AMORTIZATION DATE"). Subject to Article III below, commencing on the first
Amortization Date, the Company shall make monthly payments to the Holder on each
Repayment Date, each such payment in the amount of ($227,272.72) together with
any accrued and unpaid interest on such portion of the Principal Amount plus any
and all other unpaid amounts which are then owing under this Note, the Purchase
Agreement and/or any other Related Agreement (collectively, the "MONTHLY
AMOUNT"). Any outstanding Principal Amount together with any accrued and unpaid
interest and any and all other unpaid amounts which are then owing by the
Company to the Holder under this Note, the Purchase Agreement and/or any other
Related Agreement shall be due and payable on the Maturity Date. Notwithstanding
the foregoing, with respect to Monthly Amounts due hereunder, the Company shall
have the option upon two business days' prior written notice to Holder to
postpone payment of any twelve (12) amortizing principal payments due and
payable on any twelve Amortization Dates (each a "Postponed Principal Amount",
collectively, the "Deferred Principal Amounts"; such Deferred Principal Amounts
shall be due and payable, at the Company's option, on any subsequent
Amortization Date or on the Maturity Date.
ARTICLE II
CONVERSION AND REDEMPTION
2.1 Payment of Monthly Amount.
(a) Payment in Cash or Common Stock. If the Monthly Amount
(or a portion of such Monthly Amount if not all of the Monthly Amount
may be converted into shares of Common Stock pursuant to Section 3.2)
is required to be paid in cash pursuant to Section 2.1(b), then the
Company shall pay the Holder an amount in cash equal to 102% of the
Monthly Amount (or such portion of such Monthly Amount to be paid in
cash) due and owing to the Holder on the Amortization Date. If the
Monthly Amount (or a portion of such Monthly Amount if not all of the
Monthly Amount may be converted into shares of Common Stock pursuant
to Section 3.2) is required to be paid in shares of Common Stock
pursuant to Section 2.1(b), the number of such shares to be issued by
the Company to the Holder on such Amortization Date (in respect of
such portion of the Monthly Amount converted into shares of Common
Stock pursuant to Section 2.1(b)), shall be the
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number determined by dividing (i) the portion of the Monthly Amount
converted into shares of Common Stock, by (ii) the then applicable
Fixed Conversion Price. For purposes hereof, subject to Section 3.6
hereof, the initial "FIXED CONVERSION PRICE" means $5.50.
(b) Monthly Amount Conversion Conditions. Subject to
Sections 2.1(a), 2.2, and 3.2 hereof, the Holder shall convert into
shares of Common Stock all or a portion of the Monthly Amount due on
each Amortization Date if the following conditions (the "CONVERSION
CRITERIA") are satisfied: (i) the average closing price of the Common
Stock as reported by Bloomberg, L.P. on the Principal Market for the
five (5) trading days immediately preceding such Amortization Date
shall be greater than or equal to 109% of the Fixed Conversion Price
and (ii) the amount of such conversion does not exceed twenty five
percent (25%) of the aggregate dollar trading volume of the Common
Stock for the period of twenty-two (22) trading days immediately
preceding such Amortization Date. If subsection (i) of the Conversion
Criteria is met but subsection (ii) of the Conversion Criteria is not
met as to the entire Monthly Amount, the Holder shall convert only
such part of the Monthly Amount that meets subsection (ii) of the
Conversion Criteria. Any portion of the Monthly Amount due on an
Amortization Date that the Holder has not been able to convert into
shares of Common Stock due to the failure to meet the Conversion
Criteria, shall be paid in cash by the Company at the rate of 102% of
the Monthly Amount otherwise due on such Amortization Date, within
three (3) business days of such Amortization Date.
(c) Additional Conversion. Subject to prior satisfaction of
the conversion of Monthly Amounts then due and owing to Holder into
Common Stock as set forth in Section 2.1(b) above, if (i) the average
closing price of the Common Stock as reported by Bloomberg, L.P. on
the Principal Market for five (5) consecutive trading days in any
calendar month (the fifth day being called the "Trigger Date") shall
be greater than or equal to 200% of the Fixed Conversion Price, then
the Holder shall convert on each such Trigger Date, subject to
Sections 2.1(a), 2.2, and 3.2 hereof, such principal amount of the
Note as does not exceed twenty five percent (25%) of the aggregate
dollar trading volume of the Common Stock for the period of twenty-two
(22) trading days immediately preceding such Trigger Date less any
amounts previously converted during such period under Section 2.1(b)
above. No more than one (1) Trigger Date may occur in any calendar
month.
2.2 No Effective Registration. Notwithstanding anything to the
contrary herein, none of the Company's obligations to the Holder may be
converted into Common Stock unless (a) either (i) an effective current
Registration Statement (as defined in the Registration Rights Agreement)
covering the shares of Common Stock to be issued in connection with satisfaction
of such obligations exists or (ii) an exemption from registration for resale of
all of the Common Stock issued and issuable is available pursuant to Rule 144 of
the Securities Act and (b) no Event of Default (as hereinafter defined) exists
and is continuing, unless such Event of Default is cured within any applicable
cure period or otherwise waived in writing by the Holder.
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2.3 Optional Redemption in Cash. The Company may prepay this Note
("OPTIONAL REDEMPTION") by paying to the Holder a sum of money equal to one
hundred thirty percent (130%) of the Principal Amount outstanding at such time
together with accrued but unpaid interest thereon and any and all other sums
due, accrued or payable to the Holder arising under this Note, the Purchase
Agreement or any other Related Agreement (the "REDEMPTION AMOUNT") outstanding
on the Redemption Payment Date (as defined below). The Company shall deliver to
the Holder a written notice of redemption (the "NOTICE OF REDEMPTION")
specifying the date for such Optional Redemption (the "REDEMPTION PAYMENT
DATE"), which date shall be seven (7) business 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 (as hereinafter defined) or for
conversions elected to be made by the Holder pursuant to Article III during the
Redemption Period. The Redemption Amount shall be determined as if the Holder's
conversion elections had been completed immediately prior to the date of the
Notice of Redemption. On the Redemption Payment Date, the Redemption Amount must
be paid in good funds to the Holder. In the event the Company fails to pay the
Redemption Amount on the Redemption Payment Date as set forth herein, then such
Redemption Notice will be null and void.
ARTICLE III
HOLDER'S CONVERSION RIGHTS
3.1 Optional Conversion. Subject to the terms set forth in this
Article III, the Holder shall have the right, but not the obligation, to convert
all or any portion of the issued and outstanding Principal Amount and/or accrued
interest and fees due and payable into fully paid and nonassessable shares of
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 this Note an amount that would be convertible into that number of
Conversion Shares which would exceed the difference between (i) 4.99% of the
issued and outstanding shares of Common Stock and (ii) the number of shares of
Common Stock beneficially owned by the Holder. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. The
Conversion Share limitation described in this Section 3.2 shall automatically
become null and void following notice to the Company upon the occurrence and
during the continuance of an Event of Default, upon 75 days prior notice to the
Company, or upon receipt by the Holder of a Notice of Redemption, except that at
no time shall the number of shares of Common Stock beneficially owned by the
Holder exceed 19.99% of the outstanding shares of Common Stock. Notwithstanding
anything contained herein to the contrary, the number of shares of Common Stock
issuable by the Company and acquirable by the Holder at a price below $update
Friday $4.95 per share pursuant to the terms of this Note, the Purchase
Agreement or any other Related Agreement, shall not exceed an aggregate of
2,108,764 shares of Common Stock (subject to appropriate adjustment for stock
splits, stock dividends, or other similar recapitalizations affecting the Common
Stock) (the "MAXIMUM COMMON STOCK ISSUANCE"), unless the issuance of Common
Stock hereunder
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in excess of the Maximum Common Stock Issuance shall first be approved by the
Company's shareholders. If at any point in time and from time to time the number
of shares of Common Stock issued pursuant to the terms of this Note, the
Purchase Agreement or any other Related Agreement, together with the number of
shares of Common Stock that would then be issuable by the Company to the Holder
in the event of a conversion or exercise pursuant to the terms of this Note, the
Purchase Agreement or any other Related Agreement, would exceed the Maximum
Common Stock Issuance but for this Section 3.2, the Company shall promptly call
a shareholders meeting to solicit shareholder approval for the issuance of the
shares of Common Stock hereunder in excess of the Maximum Common Stock Issuance.
Notwithstanding anything contained herein to the contrary, the provisions of
this Section 3.2 are irrevocable and may not be waived by the Holder or the
Company.]
3.3 Mechanics of Xxxxxx'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 in
substantially the form of Exhibit A hereto (appropriate completed) ("NOTICE OF
CONVERSION") to the Company 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 Company
within two (2) business days after the Conversion Date. Each date on which a
Notice of Conversion is delivered or telecopied to the Company in accordance
with the provisions hereof shall be deemed a Conversion Date (the "CONVERSION
DATE"). Pursuant to the terms of the Notice of Conversion, the Company will
issue instructions to the transfer agent accompanied by an opinion of counsel
within three (3) business days of the date of the delivery to the Company 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 Company 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 Company of the Notice of Conversion. The
Holder shall be treated for all purposes as the record holder of the Conversion
Shares, unless the Holder provides the Company written instructions to the
contrary.
3.4 Late Payments. The Company understands that a delay in the
delivery of the Conversion Shares in the form required pursuant to this Article
beyond the Delivery Date could result in economic loss to the Holder. As
compensation to the Holder for such loss, in addition to all other rights and
remedies which the Holder may have under this Note, applicable law or otherwise,
the Company shall pay late payments to the Holder for any late issuance of
Conversion Shares in the form required pursuant to this Article II upon
conversion of this Note, in the amount equal to $500 per business day after the
Delivery Date. The Company shall make any payments incurred under this Section
in immediately available funds upon demand.
3.5 Conversion Mechanics. The number of shares of Common Stock to be
issued upon each conversion of this Note shall be determined by dividing that
portion of the
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principal and interest and fees to be converted, if any, by the then applicable
Fixed Conversion Price. In the event of any conversions of a portion of the
outstanding Principal Amount pursuant to this Article III, such conversions
shall be deemed to constitute conversions of the outstanding Principal Amount
applying to Monthly Amounts for the remaining Amortization Dates in
chronological order.
3.6 Adjustment Provisions. The Fixed Conversion Price and number and
kind of shares to be issued upon conversion determined pursuant to this Note
shall be subject to adjustment from time to time upon the occurrence of certain
events during the period that this conversion right remains outstanding, as
follows:
(a) Reclassification. If the Company 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 Company in shares of
Common Stock, the Fixed Conversion Price shall be proportionately
reduced in case of subdivision of shares or stock dividend or
proportionately increased in the case of combination of shares, in
each such case by the ratio which the total number of shares of Common
Stock outstanding immediately after such event bears to the total
number of shares of Common Stock outstanding immediately prior to such
event.
(c) Share Issuances. Subject to the provisions of this
Section 3.6, if the Company shall at any time prior to the conversion
or repayment in full of the Principal Amount issue any shares of
Common Stock or securities convertible into Common Stock to a Person
other than the Holder (except (i) pursuant to Sections 3.6(a) or (b)
above; (ii) pursuant to options, warrants, or other obligations to
issue shares outstanding on the date hereof as disclosed to the Holder
in writing; (iii) pursuant to options that may be issued under any
employee stock option and/or any stock bonus plan adopted by the
Company) or (iv) pursuant to an acquisition of a company (including
stock or assets) by the Company 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 pursuant to the formula below. For purposes hereof,
the issuance of any security of the Company 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 Company issues any additional shares of Common
Stock for a consideration per share less than the then-applicable
Fixed Conversion Price pursuant to this Section 3.6 then, and
thereafter successively upon each such issue, the Fixed Conversion
Price shall be
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adjusted by multiplying the then applicable Fixed Conversion Price by
the following fraction:
A + B
-----------------------------
(A + B) + [((C - D) x B) / C]
A = Total amount of shares convertible pursuant to this Note
B = Actual shares sold in the offering
C = Fixed Conversion Price
D = Offer Price .
(d) Computation of Consideration. For purposes of any
computation respecting consideration received pursuant to Section
3.6(c) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in
no case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
in good faith by the Board of Directors of the Company (irrespective of the
accounting treatment thereof); and
(iii) upon any such exercise, the aggregate consideration
received for such securities shall be deemed to be the consideration
received by the Company for the issuance of such securities plus the
additional minimum consideration, if any, to be received by the Company
upon the conversion or exchange thereof (the consideration in each case to
be determined in the same manner as provided in subsections (i) and (ii) of
this Section 3.6(d)).
3.7 Reservation of Shares. During the period the conversion right
exists, the Company will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Conversion Shares
upon the full conversion of this Note and the Warrant. The Company represents
that upon issuance, the Conversion Shares will be duly and validly issued, fully
paid and non-assessable. The Company agrees that its issuance of this Note shall
constitute full authority to its officers, agents, and transfer agents who are
charged with the duty of executing and issuing stock certificates to execute and
issue the necessary certificates for the Conversion Shares upon the conversion
of this Note.
3.8 Registration Rights. The Holder has been granted registration
rights with respect to the Conversion Shares as set forth in the Registration
Rights Agreement.
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3.9 Issuance of New Note. Upon any partial conversion of this Note, a
new Note containing the same date and provisions of this Note shall, at the
request of the Holder, be issued by the Company to the Holder for the principal
balance of this Note and interest which shall not have been converted or paid.
Subject to the provisions of Article IV of this Note, the Company shall not pay
any costs, fees or any other consideration to the Holder for the production and
issuance of a new Note.
ARTICLE IV
EVENTS OF DEFAULT
4.1 Events of Default. The occurrence of any of the following events
set forth in this Section 4.1 shall constitute an event of default ("EVENT OF
DEFAULT") hereunder:
(a) Failure to Pay. The Company fails to pay when due any
installment of principal, interest or other fees hereon in accordance
herewith, or the Company fails to pay any of the other Obligations
(under and as defined in the Guaranty) when due, and, in any such
case, such failure shall continue for a period of five (5) days
following the date upon which any such payment was due.
(b) Breach of Covenant. The Company or any of its
Subsidiaries breaches any covenant or any other term or condition of
this Note in any material respect and such breach, if subject to cure,
continues for a period of fifteen (15) days after the occurrence
thereof.
(c) Breach of Representations and Warranties. Any
representation, warranty or statement made or furnished by the Company
or any of its Subsidiaries in this Note, the Purchase Agreement or any
other Related Agreement shall at any time be false or misleading in
any material respect on the date as of which made or deemed made.
(d) Default Under Other Agreements. The occurrence of any
default in the observance or performance of any other agreement or
condition relating to any indebtedness or contingent obligation of the
Company or any of its Subsidiaries beyond the period of grace (if
any), the effect of which default is to cause, or permit the holder or
holders of such indebtedness or beneficiary or beneficiaries of such
contingent obligation to cause, such indebtedness to become due prior
to its stated maturity or such contingent obligation to become
payable;
(e) Bankruptcy. The Company or any of its Subsidiaries shall
(i) apply for, consent to or suffer to exist the appointment of, or
the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v)
file a petition seeking to take advantage of any other law providing
for the relief of debtors, (vi) acquiesce to, without challenge within
twenty (20) days of the filing thereof, or
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failure to have dismissed, within sixty (60) days, any petition filed
against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the
foregoing;
(f) Judgments. Attachments or levies in excess of $200,000
in the aggregate are made upon the Company or any of its Subsidiary's
assets or a judgment is rendered against the Company's property
involving a liability of more than $200,000 which shall not have been
vacated, discharged, stayed or bonded within thirty (30) days from the
entry thereof;
(g) Insolvency. The Company or any of its Subsidiaries shall
admit in writing its inability, or be generally unable, to pay its
debts as they become due or cease operations of its present business;
(h) Change of Control. A Change of Control (as defined
below) shall occur with respect to the Company, unless Holder shall
have expressly consented to such Change of Control in writing. A
"Change of Control" shall mean any event or circumstance as a result
of which (i) any "Person" or "group" (as such terms are defined in
Sections 13(d) and 14(d) of the Exchange Act, as in effect on the date
hereof), other than the Holder, is or becomes the "beneficial owner"
(as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act),
directly or indirectly, of 50% or more on a fully diluted basis of the
then outstanding voting equity interest of the Company [other than a
"Person" or "group" that beneficially owns 50% or more of such
outstanding voting equity interests of the Company on the date
hereof), or (ii) the Company merges or consolidates with, or sells all
or substantially all of its assets to, any other person or entity,
unless the Company shall be party to a merger in which the Company
shall be the surviving entity;
(i) Indictment; Proceedings. The indictment of the Company
or any of its Subsidiaries or any executive officer of the Company or
any of its Subsidiaries under any criminal statute, or commencement of
criminal or civil proceeding against the Company or any of its
Subsidiaries or any executive officer of the Company or any of its
Subsidiaries pursuant to which statute or proceeding penalties or
remedies sought or available include forfeiture of any of the property
of the Company or any of its Subsidiaries;
(j) The Purchase Agreement and Related Agreements. (i) An
Event of Default shall occur under and as defined in the Purchase
Agreement or any other Related Agreement, (ii) the Company or any of
its Subsidiaries shall breach any term or provision of the Purchase
Agreement or any other Related Agreement in any material respect and
such breach, if capable of cure, continues unremedied for a period of
fifteen (15) days after the occurrence thereof;
(k) Stop Trade. An SEC stop trade order or Principal Market
trading suspension of the Common Stock shall be in effect for five (5)
consecutive days or five (5) days during a period of ten (10)
consecutive days, excluding in all cases a suspension of all trading
on a Principal Market, provided that the Company
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shall not have been able to cure such trading suspension within thirty
(30) days of the notice thereof or list the Common Stock on another
Principal Market within sixty (60) days of such notice; or
(l) Failure to Deliver Common Stock or Replacement Note. The
Company's failure to deliver Common Stock to the Holder pursuant to
and in the form and time period required by this Note and the Purchase
Agreement and, if such failure to deliver Common Stock shall not be
cured within two (2) business days after the expiration of such period
or the Company is required to issue a replacement Note to the Holder
and the Company shall fail to deliver such replacement Note within
seven (7) business days after the Company's receipt of a request for a
replacement Note.
4.2 Default Interest. Following the occurrence and during the
continuance of an Event of Default, the Company shall pay additional interest on
this Note in an amount equal to one percent (1.0%) per month, and all
outstanding obligations under this Note, the Purchase Agreement and each other
Related Agreement, including unpaid interest, shall continue to accrue interest
at such additional interest rate from the date of such Event of Default until
the date such Event of Default is cured or waived.
4.3 Default Payment. Following the occurrence and during the
continuance of an Event of Default, the Holder, at its option, may demand
repayment in full of all obligations and liabilities owing by Company to the
Holder under this Note, the Purchase Agreement and/or any other Related
Agreement and/or may elect, in addition to all rights and remedies of the Holder
under the Purchase Agreement and the other Related Agreements and all
obligations and liabilities of the Company under the Purchase Agreement and the
other Related Agreements, to require the Company to make a Default Payment
("DEFAULT PAYMENT"). The Default Payment shall be 105% 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 the Holder
pursuant to this Note, the Purchase Agreement, and/or the other Related
Agreements, then to accrued and unpaid interest due on this Note and then to the
outstanding principal balance of this Note. The Default Payment shall be due and
payable immediately on the date that the Holder has exercised its rights
pursuant to this Section 4.3.
ARTICLE V
MISCELLANEOUS
5.1 Conversion Privileges. The conversion privileges set forth in
Article III shall remain in full force and effect immediately from the date
hereof until the date this Note is indefeasibly paid in full.
5.2 Cumulative Remedies. The remedies under this Note shall be
cumulative.
5.3 Failure or Indulgence Not Waiver. No failure or delay on the part
of the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude
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other or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing hereunder are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
5.4 Notices. Any notice herein required or permitted to be given shall
be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address provided in the Purchase Agreement executed in connection
herewith, and to the Holder at the address provided in the Purchase Agreement
for such Holder, with a copy to Xxxx X. Xxxxxx, Esq., 000 Xxxxx Xxxxxxx, 00xx
Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, facsimile number (000) 000-0000, or at such
other address as the Company or the Holder may designate by ten days advance
written notice to the other parties hereto. A Notice of Conversion shall be
deemed given when made to the Company pursuant to the Purchase Agreement.
5.5 Amendment Provision. The term "Note" and all references thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument as such successor instrument may be
amended or supplemented.
5.6 Assignability. This Note shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Purchase Agreement. The Company may not assign any of its
obligations under this Note without the prior written consent of the Holder, any
such purported assignment without such consent being null and void.
5.7 Cost of Collection. In case of any Event of Default under this
Note, the Company shall pay the Holder reasonable costs of collection, including
reasonable attorneys' fees.
5.8 Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(b) THE COMPANY AND THE HOLDER HEREBY CONSENT AND AGREE THAT
THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE
OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND, AND THE
HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE
11
OR ANY OF THE OTHER RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF
OR RELATED TO THIS NOTE OR ANY OF THE RELATED AGREEMENTS; PROVIDED,
THAT THE COMPANY AND THE HOLDER ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE
COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT
NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE A PARTY
FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF SUCH PARTY . THE COMPANY AND THE HOLDER
EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY AND THE
HOLDER HEREBY WAIVE ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. THE
COMPANY AND THE HOLDER HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY
BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY OR
THE HOLDER AT THE ADDRESS SET FORTH IN THE PURCHASE AGREEMENT AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.
(c) THE COMPANY AND THE HOLDER 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, THE COMPANY AND THE HOLDER HERETO WAIVE ALL RIGHTS
TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE
ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN
THE HOLDER AND THE COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION
WITH THIS NOTE, ANY OTHER RELATED AGREEMENT OR THE TRANSACTIONS
RELATED HERETO OR THERETO.
5.9 Severability. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision of this
Note.
5.10 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum
12
permitted by applicable law. In the event that the rate of interest required to
be paid or other charges hereunder exceed the maximum rate permitted by such
law, any payments in excess of such maximum rate shall be credited against
amounts owed by the Company to the Holder and thus refunded to the Company.
5.11 Guarantee. The obligations of the Company under this Note are
jointly and severally guaranteed by each of Messrs. Xxxx Xxxxxxx and Xxxxxx
Xxxxxxx the Guaranty dated as of the date hereof.
5.12 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
5.13 Registered Obligation. This Note is intended to be a registered
obligation within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)
and the Company (or its agent) shall register the Note (and thereafter shall
maintain such registration) as to both principal and any stated interest.
Notwithstanding any document, instrument or agreement relating to this Note to
the contrary, transfer of this Note (or the right to any payments of principal
or stated interest thereunder) may only be effected by (i) surrender of this
Note and either the reissuance by the Company of this Note to the new holder or
the issuance by the Company of a new instrument to the new holder, or (ii)
transfer through a book entry system maintained by the Company (or its agent),
within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).
[Balance of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, the Company has caused this Convertible Term Note
to be signed in its name effective as of this ___ day of November, 2005.
FORTUNE DIVERSIFIED INDUSTRIES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
WITNESS:
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14
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert all or part of
the Convertible Term Note into Common Stock)
[Name and Address of Company]
The undersigned hereby converts $_________ of the principal due on [specify
applicable Repayment Date] under the Convertible Term Note dated as of November
__, 2005 (the "NOTE") issued by Fortune Diversified Industries, Inc. (the
"COMPANY") by delivery of shares of Common Stock of the Company ("SHARES") on
and subject to the conditions set forth in the Note.
1. Date of Conversion _______________________
2. Shares To Be Delivered: _______________________
[HOLDER]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
