EX-10.37
ANNEX I
BRIDGE LOAN AGREEMENT
FORM OF NOTE
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL
OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
US $275,000
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10% SECURED PROMISSORY NOTE DUE MARCH 28, 2007
FOR VALUE RECEIVED, Sonoma College, Inc., a corporation organized and
existing under the laws of the State of California (the "Company"), promises to
pay to CAMOFI MASTER LDC, the registered holder hereof (the "Holder"), the
principal sum of Two Hundred Seventy-Five Thousand and 00/100 Dollars (US
$275,000) on the Maturity Date (as defined below) and to pay interest on the
principal sum outstanding from time to time in arrears at the rate of 10% per
annum (computed on the basis of the actual number of days elapsed and a year of
360 days), accruing from September 28, 2006, the date of initial issuance of
this Note (the "Issue Date"), to the date of payment. Such interest shall be
payable on the date which is the earlier of (i) the Maturity Date, or (ii) the
date of any prepayment of principal permitted hereunder; except that interest
for month in advance shall be paid on the Issue Date. Accrual of interest shall
commence on the Issue Date and shall continue to accrue on a daily basis until
payment in full of the principal sum has been made or duly provided for (whether
before or after the Maturity Date).
This Note is being issued pursuant to the terms of the Bridge Loan
Agreement, dated as of September 28, 2006 (the "Loan Agreement"), to which the
Company and the Holder (or the Holder's predecessor in interest) are parties.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Loan Agreement.
This Note is subject to the following additional provisions:
1. The term "Maturity Date" means the earlier of (x) March 28, 2007
or (y) the date on which the Company consummates an equity financing or funding
transaction in excess of
$1,500,000, whether or not such transaction is effected in connection with the
current or future issuance of securities.
2. (i) This Note may be prepaid in whole or in part at any time
prior to the Maturity Date, without penalty. Any payment shall be applied as
provided in Section 3.
(ii) TIME IS OF THE ESSENCE WITH RESPECT TO ANY PAYMENT DUE
HEREUNDER. The Company shall be in default hereunder if any payment is not made
in a timely manner, without any right to cure unless such right to cure is
granted by the Holder in each instance; provided, however, that the grant of
such right is in the sole discretion of the Holder and may be withheld for any
reason or for no reason whatsoever.
(iii) If, at the end of any Trading Day, the value of the Pledged
Shares (using the closing price of the stock on such day) is less than 400% of
the aggregate principal amount outstanding on the Note, then the Company shall
within two Trading Days either (i) pay to the Lender an amount sufficient to
reduce the outstanding principal amount on the Note or (ii) provide the Lender a
first priority perfected security interest in additional collateral (which may
include additional shares of common stock of the Company or other collateral
acceptable to Lender in its sole discretion) such that the value of the Pledged
Shares (plus the value of any additional collateral delivered to the Lender) is
at least 400% of the aggregate principal amount outstanding on the Note.
3. Any payment made on account of the Note shall be applied in the
following order of priority: (i) first, to any amounts due hereunder other than
principal and accrued interest, (ii) then, to accrued interest through and
including the date of payment, and (iii) then, to principal of this Note.
4. All payments contemplated hereby to be made "in cash" shall be
made in immediately available good funds of United States of America currency by
wire transfer to an account designated in writing by the Holder to the Company
(which account may be changed by notice similarly given). For purposes of this
Note, the phrase "date of payment" means the date good funds are received in the
account designated by the notice which is then currently effective.
5. Subject to the terms of the Loan Agreement, no provision of this
Note shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on, this Note at the time,
place, and rate, and in the coin or currency, as herein prescribed. This Note is
direct obligations of the Company. Any payments received by the Holder with
respect to this Note shall be applied in the following order of priority: (i)
first, to any amounts due to the Holder under any of the Transaction Agreements
other than interest and principal on the Note, (ii) then, to accrued but unpaid
interest on the Note, and (iii) then, to principal on the Note.
6. The obligations of the Company under this Note are secured by a
mortgage executed by the Pledgors in favor of the Holder in connection with
certain real estate (the "Real Estate"). If the Holder forecloses on the Real
Estate, the obligations of the Company will be reduced only to the extent of the
proceeds actually realized from such foreclosure, in the priority specified in
Section 5 hereof.
7. CONVERSION.
a) VOLUNTARY CONVERSION. At any time after the Original Issue
Date until this Note is no longer outstanding, this Note shall be convertible
into shares of Common Stock at the option of the Holder, in whole or in part at
any time and from time to time (subject to the limitations on conversion set
forth in Section 7(d) hereof). The Holder shall effect conversions by delivering
to the Company the form of Notice of Conversion attached hereto (a "Notice of
Conversion"), specifying therein the principal amount of Notes to be converted
and the date on which such conversion is to be effected (a "Conversion Date").
If no Conversion Date is specified in a Notice of Conversion, the Conversion
Date shall be the date that such Notice of Conversion is provided hereunder. To
effect conversions hereunder, the Holder shall not be required to physically
surrender Notes to the Company unless the entire principal amount of this Note
plus all accrued and unpaid interest thereon has been so converted. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of
this Note in an amount equal to the applicable conversion. The Holder and the
Company shall maintain records showing the principal amount converted and the
date of such conversions. The Company shall deliver any objection to any Notice
of Conversion within 3 Business Days of receipt of such notice. In the event of
any dispute or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the provisions
of this paragraph, following conversion of a portion of this Note, the unpaid
and unconverted principal amount of this Note may be less than the amount stated
on the face hereof. However, at the Company's request, the Holder shall
surrender the Note to the Company within five (5) Trading Days following such
request so that a new Note reflecting the correct principal amount may be issued
to Holder.
b) CONVERSION PRICE. Subject to the provisions of Section
8(b), the initial conversion price in effect on any Conversion Date shall be
$0.90.
c) RESERVED.
d) CONVERSION LIMITATIONS; HOLDER'S RESTRICTION ON CONVERSION.
The Company shall not effect any conversion of this Note, and the Holder shall
not have the right to convert any portion of this Note, pursuant to Section 7(a)
or otherwise, to the extent that after giving effect to such conversion, the
Holder (together with the Holder's affiliates), as set forth on the applicable
Notice of Conversion, would beneficially own in excess of 4.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and its affiliates shall include
the number of shares of Common Stock issuable upon conversion of this Note with
respect to which the determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (A)
conversion of the remaining, nonconverted portion of this Note beneficially
owned by the Holder or any of its affiliates and (B) exercise or conversion of
the unexercised or nonconverted portion of any other securities of the Company
(including, without limitation, any other Notes or the Warrants) subject to a
limitation on
conversion or exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 7(d), beneficial ownership
shall be calculated in accordance with Section 13(d) of the Exchange Act. To the
extent that the limitation contained in this section applies, the determination
of whether this Note is convertible (in relation to other securities owned by
the Holder) and of which a portion of this Note is convertible shall be in the
sole discretion of such Holder. To ensure compliance with this restriction, the
Holder will be deemed to represent to the Company each time it delivers a Notice
of Conversion that such Notice of Conversion has not violated the restrictions
set forth in this paragraph and the Company shall have no obligation to verify
or confirm the accuracy of such determination. For purposes of this Section
7(d), in determining the number of outstanding shares of Common Stock, the
Holder may rely on the number of outstanding shares of Common Stock as reflected
in (x) the Company's most recent Form 10-QSB or Form 10-KSB (or such related
form), as the case may be, (y) a more recent public announcement by the Company
or (z) any other notice by the Company or the Company's Transfer Agent setting
forth the number of shares of Common Stock outstanding. Upon the written or oral
request of the Holder, the Company shall within two Trading Days confirm orally
and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Company, including this Note, by the Holder or its affiliates since the date
as of which such number of outstanding shares of Common Stock was reported. The
provisions of this Section 7(d) may be waived by the Holder upon, at the
election of the Holder, not less than 61 days' prior notice to the Company, and
the provisions of this Section 7(d) shall continue to apply until such 61st day
(or such later date, as determined by the Holder, as may be specified in such
notice of waiver).
e) MECHANICS OF CONVERSION
i. CONVERSION SHARES ISSUABLE UPON CONVERSION OF
PRINCIPAL AMOUNT. The number of shares of Common Stock issuable upon a
conversion hereunder shall be determined by the quotient obtained by dividing
(x) the outstanding principal amount of this Note to be converted by (y) the
Conversion Price.
ii. DELIVERY OF CERTIFICATE UPON CONVERSION. Not later
than three Trading Days after any Conversion Date, the Company will deliver to
the Holder (A) a certificate or certificates representing the Conversion Shares
which shall be free of restrictive legends and trading restrictions (other than
those required by the Purchase Agreement) representing the number of shares of
Common Stock being acquired upon the conversion of Notes (including, if so
timely elected by the Company, shares of Common Stock representing the payment
of accrued interest) and (B) a bank check in the amount of accrued and unpaid
interest (if the Company is required to pay accrued interest in cash). The
Company shall, if available and if allowed under applicable securities laws, use
its best efforts to deliver any certificate or certificates required to be
delivered by the Company under this Section electronically through the
Depository Trust Corporation or another established clearing corporation
performing similar functions.
iii. FAILURE TO DELIVER CERTIFICATES. If in the case of
any Notice of Conversion such certificate or certificates are not delivered to
or as directed by the applicable Holder by the fifth Trading Day after a
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the principal amount of Notes
tendered for conversion.
iv. OBLIGATION ABSOLUTE; PARTIAL LIQUIDATED DAMAGES. If
the Company fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 7(d)(ii) by the fifth Trading Day after the
Conversion Date, the Company shall pay to such Holder, in cash, as liquidated
damages and not as a penalty, for each $1,000 of principal amount being
converted, $10 per Trading Day (increasing to $20 per Trading Day after 5
Trading Days after such damages begin to accrue) for each Trading Day after such
fifth Trading Day until such certificates are delivered. The Company's
obligations to issue and deliver the Conversion Shares upon conversion of this
Note in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of such
Conversion Shares; PROVIDED, HOWEVER, such delivery shall not operate as a
waiver by the Company of any such action the Company may have against the
Holder. In the event a Holder of this Note shall elect to convert any or all of
the outstanding principal amount hereof, the Company may not refuse conversion
based on any claim that the Holder or any one associated or affiliated with the
Holder of has been engaged in any violation of law, agreement or for any other
reason, unless, an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of this Note shall have been sought and
obtained and the Company posts a surety bond for the benefit of the Holder in
the amount of 150% of the principal amount of this Note outstanding, which is
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder to the extent it obtains judgment. In the
absence of an injunction precluding the same, the Company shall issue Conversion
Shares or, if applicable, cash, upon a properly noticed conversion. Nothing
herein shall limit a Holder's right to pursue actual damages or declare an Event
of Default pursuant to Section 9 herein for the Company's failure to deliver
Conversion Shares within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.
The exercise of any such rights shall not prohibit the Holders from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
v. COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY DELIVER
CERTIFICATES UPON CONVERSION. In addition to any other rights available to the
Holder, if the Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to Section 7(d)(ii) by the fifth Trading
Day after the Conversion Date, and if after such fifth Trading Day the Holder is
required by its brokerage firm to purchase (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by such Holder of
the Conversion Shares which the Holder anticipated receiving upon such
conversion (a "Buy-In"), then the Company shall (A) pay in cash to the Holder
(in addition to any remedies available to or elected by the Holder) the amount
by which (x) the Holder's total purchase price (including brokerage commissions,
if any) for the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue multiplied by (2) the actual sale price
of the Common Stock at the time of the sale (including brokerage commissions, if
any) giving rise to such purchase obligation and (B) at the option of the
Holder, either reissue Notes in principal amount equal to the principal amount
of the attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company timely complied with
its delivery requirements under Section 7(e)(ii). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of Notes with respect to which
the actual sale price of the Conversion Shares at the time of the sale
(including brokerage commissions, if any) giving rise to such purchase
obligation was a total of $10,000 under clause (A) of the immediately preceding
sentence, the Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In. Notwithstanding anything contained herein to
the contrary, if a Holder requires the Company to make payment in respect of a
Buy-In for the failure to timely deliver certificates hereunder and the Company
timely pays in full such payment, the Company shall not be required to pay such
Holder liquidated damages under Section 7(d)(iv) in respect of the certificates
resulting in such Buy-In.
vi. RESERVATION OF SHARES ISSUABLE UPON CONVERSION. The
Company covenants that it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of the Notes and payment of interest on the Note, each
as herein provided, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holders, not less than such number of
shares of the Common Stock as shall (subject to any additional requirements of
the Company as to reservation of such shares set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and restrictions of
Section 8) upon the conversion of the outstanding principal amount of the Notes
and payment of interest hereunder. The Company covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if the Registration
Statement is then effective under the Securities Act, registered for public sale
in accordance with such Registration Statement.
vii. FRACTIONAL SHARES. Upon a conversion hereunder the
Company shall not be required to issue stock certificates representing fractions
of shares of the Common Stock, but may if otherwise permitted, make a cash
payment in respect of any final fraction of a share based on the VWAP at such
time. If the Company elects not, or is unable, to make such a cash payment, the
Holder shall be entitled to receive, in lieu of the final fraction of a share,
one whole share of Common Stock.
TRANSFER TAXES. The issuance of certificates for shares of
the Common Stock
on conversion of the Notes shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Notes so converted and the Company shall
not be required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
8. Certain Adjustments.
a) STOCK DIVIDENDS AND STOCK SPLITS. If the Company, at any
time while the Notes are outstanding: (A) shall pay a stock dividend or
otherwise make a distribution or distributions on shares of its Common Stock or
any other equity or equity equivalent securities payable in shares of Common
Stock (which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company pursuant to this Note, including as interest
thereon), (B) subdivide outstanding shares of Common Stock into a larger number
of shares, (C) combine (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, or (D) issue by
reclassification of shares of the Common Stock any shares of capital stock of
the Company, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
b) SUBSEQUENT EQUITY SALES. Notwithstanding the provisions of
Section 7(b), if the Company or any Subsidiary thereof, as applicable, at any
time while this Note is outstanding, shall offer, sell, grant any option to
purchase or offer, sell or grant any right to reprice its securities, or
otherwise dispose of or issue (or announce any offer, sale, grant or any option
to purchase or other disposition) any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock, at an effective price
per share less than the then Conversion Price (such lower price, the "Base Share
Price" and such issuances collectively, a "Dilutive Issuance"), as adjusted
hereunder (if the holder of the Common Stock or Common Stock Equivalents so
issued shall at any time, whether by operation of purchase price adjustments,
reset provisions, floating conversion, exercise or exchange prices or otherwise,
or due to warrants, options or rights per share which is issued in connection
with such issuance, be entitled to receive shares of Common Stock at an
effective price per share which is less than the Conversion Price, such issuance
shall be deemed to have occurred for less than the Conversion Price), then, the
Conversion Price shall be reduced to equal the Base Share Price and the number
of Conversion Shares issuable hereunder shall be increased. Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents are issued.
The Company shall notify the Holder in writing, no later than the Trading Day
following the issuance of any Common Stock or Common Stock Equivalents subject
to this
section, indicating therein the applicable issuance price, or of applicable
reset price, exchange price, conversion price and other pricing terms (such
notice the "Dilutive Issuance Notice"). For purposes of clarification, whether
or not the Company provides a Dilutive Issuance Notice pursuant to this Section
8(b), upon the occurrence of any Dilutive Issuance, after the date of such
Dilutive Issuance the Holder is entitled to receive a number of Conversion
Shares based upon the Base Share Price regardless of whether the Holder
accurately refers to the Base Share Price in the Notice of Conversion.
c) PRO RATA DISTRIBUTIONS. If the Company, at any time while
Notes are outstanding, shall distribute to all holders of Common Stock (and not
to Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price shall be determined by multiplying such Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the VWAP determined as of the record date mentioned above, and of which
the numerator shall be such VWAP on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
d) CALCULATIONS. All calculations under this Section 8 shall
be made to the nearest cent or the nearest 1/100th of a share, as the case may
be. The number of shares of Common Stock outstanding at any given time shall not
includes shares of Common Stock owned or held by or for the account of the
Company, and the description of any such shares of Common Stock shall be
considered on issue or sale of Common Stock. For purposes of this Section 8, the
number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
e) NOTICE TO HOLDERS.
i. ADJUSTMENT TO CONVERSION PRICE. Whenever the
Conversion Price is adjusted pursuant to any of this Section 8, the Company
shall promptly mail to each Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
ii. NOTICE TO ALLOW CONVERSION BY HOLDER. If (A) the
Company shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a special nonrecurring cash dividend on or
a redemption of the Common Stock; (C) the Company shall authorize the granting
to all holders of the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights; (D) the
approval of any stockholders of the Company shall be required in connection with
any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, of any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or
property; (E) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company; then, in
each case, the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of the Notes, and shall cause to be
mailed to the Holders at their last addresses as they shall appear upon the
stock books of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; PROVIDED, that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice. Holders are
entitled to convert Notes during the 20-day period commencing the date of such
notice to the effective date of the event triggering such notice.
iii. FUNDAMENTAL TRANSACTION. If, at any time while this
Note is outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions, (C)
any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D) the Company
effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then upon any subsequent conversion of this Note,
the Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion absent such Fundamental Transaction, the
same kind and amount of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if it
had been, immediately prior to such Fundamental Transaction, the holder of one
share of Common Stock (the "Alternate Consideration"). For purposes of any such
conversion, the determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in such
Fundamental Transaction, and the Company shall apportion the Conversion Price
among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of this
Note following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or surviving
entity in such Fundamental Transaction shall issue to the Holder a new note
consistent with the foregoing provisions and evidencing the Holder's right to
convert such note into Alternate Consideration. The
terms of any agreement pursuant to which a Fundamental Transaction is effected
shall include terms requiring any such successor or surviving entity to comply
with the provisions of this paragraph (c) and insuring that this Note (or any
such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
EXEMPT ISSUANCE. Notwithstanding the foregoing, no
adjustment will be made under this Section 8 in respect of an Exempt Issuance.
9. The Holder of the Note, by acceptance hereof, agrees that this
Note is being acquired for investment and that such Holder will not offer, sell
or otherwise dispose of this Note except under circumstances which will not
result in a violation of the Securities Act of 1933, as amended, or any
applicable state Blue Sky or foreign laws or similar laws relating to the sale
of securities.
10. Any notice given by any party to the other with respect to this
Note shall be given in the manner contemplated by the Loan Agreement in the
section entitled "Notices."
11. This Note shall be governed by and construed in accordance with
the laws of the State of New York. Each of the parties consents to the exclusive
jurisdiction of the federal courts whose districts encompass any part of the
County of New York or the state courts of the State of New York sitting in the
County of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on FORUM NON COVENIENS, to the bringing of any
such proceeding in such jurisdictions. To the extent determined by such court,
the Company shall reimburse the Holder for any reasonable legal fees and
disbursements incurred by the Holder in enforcement of or protection of any of
its rights under any of this Note.
12. JURY TRIAL WAIVER. The Company and the Holder hereby waive a trial
by jury in any action, proceeding or counterclaim brought by either of the
Parties hereto against the other in respect of any matter arising out of or in
connection with this Note.
13. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of any amount due
on this Note, time being of the essence, whether by
maturity, pursuant to Section 2 or otherwise; or
b. Any of the representations or warranties made by the
Company herein, in the Loan Agreement or any of the other
Transaction Agreements shall be false or misleading in any
material respect at the time made; or
c. The Company shall (1) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or
(2) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of
its property or business; or
d. A trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property or
business without its consent; or
e. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any
substantial portion of the properties or assets of the
Company; or
f. Any Pledgor shall default on any of its obligations under
the Pledge Agreements; or
g. The Company shall enter into, create, incur, assume or
suffer to exist any indebtedness for borrowed money or
liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom that is
senior to or pari passu with, in any respect, the Company's
obligations under this Note, other than as provided in the
Disclosure Annex to the Loan Agreement; or
h. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company or any of the
Pledgors.
If an Event of Default shall have occurred, then, or at any time thereafter, and
in each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the Holder and in the Holder's sole
discretion, the Holder may consider this Note immediately due and payable (and
the Maturity Date shall be accelerated accordingly), without presentment,
demand, protest or notice of any kinds, all of which are hereby expressly
waived, anything herein or in any note or other instruments contained to the
contrary notwithstanding, and interest shall accrue on the total amount due (the
"Default Amount") on the date of the Event of Default (the "Default Date") at
the rate of 110% per annum or the maximum rate allowed by law, whichever is
lower, from the Default Date until the date payment is made, and the Holder may
immediately enforce any and all of the Holder's rights and remedies provided
herein or any other rights or remedies afforded by law.
14. In the event for any reason, any payment by or act of the Company
or the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Note, then IPSO FACTO the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or by
the Company or the Holder, be deemed applied to the payment of principal, if
any, hereunder immediately upon receipt of such excess funds by the Holder, with
the same force and effect as though the Company had specifically designated such
sums to be so applied to principal and the Holder had agreed to accept such sums
as an interest-free prepayment of this Note. If any part of such excess remains
after the principal has been paid in full, whether by the provisions of the
preceding sentences of this Section or otherwise, such excess shall be deemed to
be an interest-free loan from the Company to the Holder, which loan shall be
payable immediately upon demand by the Company. The provisions of this Section
shall control every other provision of this Note.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized this 28th day of September,
2006.
SONOMA COLLEGE, INC.
By:
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(Print Name)
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(Title)
