EXECUTION VERSION
Form of 8% Secured Convertible Note
t 0 0 NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: July 6, 2006
Original Conversion Price (subject to adjustment herein): $0.50
8% SECURED CONVERTIBLE NOTE
DUE JULY 6, 2007
THIS 8% SECURED CONVERTIBLE NOTE is one of a series of duly authorized and
validly issued 8% Secured Convertible Notes of Pride Business Development
Holdings, Inc., a Nevada corporation, having a principal place of business at
0000 Xxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxx 00000 (the "Company"), designated as
its 8% Secured Convertible Note, due July 6, 2007 (this Note, the "Note" and
collectively with the other such series of Notes, the "Notes").
FOR VALUE RECEIVED, the Company promises to pay to ________________________ or
its registered assigns (the "Holder"), or shall have paid pursuant to the terms
hereunder, the principal sum of $177,500 by July 6, 2007, or such earlier date
as this Note is required or permitted to be repaid as provided hereunder (the
"Maturity Date"), and to pay interest to the Holder on the aggregate unconverted
and then outstanding principal amount of this Note in accordance with the
provisions hereof. This Note is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Note: (a) capitalized terms not otherwise defined
herein shall have the meanings set forth in the Purchase Agreement, and (b) the
following terms shall have the following meanings:
"ALTERNATE CONSIDERATION" shall have the meaning set forth in Section
5(d).
"BASE CONVERSION PRICE" shall have the meaning set forth in Section 5(b).
"BUSINESS DAY" means any day except Saturday, Sunday, any day which shall
be a federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
"BUY-IN" shall have the meaning set forth in Section 4(d)(v).
"CHANGE OF CONTROL TRANSACTION" means the occurrence after the date hereof
of any of (i) an acquisition after the date hereof by an individual or legal
entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in
excess of 33% of the voting securities of the Company, or (ii) the Company
merges into or consolidates with any other Person, or any Person merges into or
consolidates with the Company and, after giving effect to such transaction, the
stockholders of the Company immediately prior to such transaction own less than
66% of the aggregate voting power of the Company or the successor entity of such
transaction, or (iii) the Company sells or transfers all or substantially all of
its assets to another Person and the stockholders of the Company immediately
prior to such transaction own less than 66% of the aggregate voting power of the
acquiring entity immediately after the transaction, or (iv) a replacement at one
time or within a two year period of more than one-half of the members of the
Company's board of directors which is not approved by a majority of those
individuals who are members of the board of directors on the date hereof (or by
those individuals who are serving as members of the board of directors on any
date whose nomination to the board of directors was approved by a majority of
the members of the board of directors who are members on the date hereof), or
(v) 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 clauses
(i) through (iv) above.
"COMMON STOCK" means the common stock, par value $0.001 per share, of the
Company and stock of any other class of securities into which such securities
may hereafter be reclassified or changed into.
"CONVERSION DATE" shall have the meaning set forth in Section 4(a).
"CONVERSION PRICE" shall have the meaning set forth in Section 4(b).
"CONVERSION SHARES" means collectively, the shares of Common Stock
issuable upon conversion of this Note or payment of interest in accordance with
the terms hereof.
"NOTE REGISTER" shall have the meaning set forth in Section 2(c).
"DILUTIVE ISSUANCE" shall have the meaning set forth in Section 5(b).
"DILUTIVE ISSUANCE NOTICE" shall have the meaning set forth in Section
5(b).
"EFFECTIVENESS PERIOD" shall have the meaning set forth in the
Registration Rights Agreement.
2
"EQUITY CONDITIONS" shall mean, during the period in question, (i) the
Company shall have duly honored all conversions scheduled to occur or occurring
by virtue of one or more Notices of Conversion of the Holder, if any, (ii) the
Company shall have paid all liquidated damages and other amounts owing to the
Holder in respect of this Note, (iii) there is an effective Registration
Statement pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares issuable pursuant to the Transaction
Documents (and the Company believes, in good faith, that such effectiveness will
continue uninterrupted for the foreseeable future), (iv) there is a sufficient
number of authorized but unissued and otherwise unreserved shares of Common
Stock for the issuance of all of the shares issuable pursuant to the Transaction
Documents, (v) there is no existing Event of Default or no existing event which,
with the passage of time or the giving of notice, would constitute an Event of
Default, (vi) the issuance of the shares in question to the Holder would not
violate the limitations set forth in Section 4(c)(i) and 4(c)(ii) herein, (vii)
there has been no public announcement of a pending or proposed Fundamental
Transaction or Change of Control Transaction that has not been consummated and
(viii) the Holder is not in possession of any information furnished by the
Company that constitutes, or may constitute, material non-public information
"EVENT OF DEFAULT" shall have the meaning set forth in Section 8.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"EXEMPT ISSUANCE" shall have the meaning set forth in the Purchase
Agreement.
"FUNDAMENTAL TRANSACTION" shall have the meaning set forth in Section
5(d).
"INTEREST CONVERSION RATE" means 85% of the average of the VWAPs for 10
consecutive Trading Days ending on the Trading Day immediately prior to the
applicable Interest Payment Date.
"INTEREST CONVERSION SHARES" shall have the meaning set forth in Section
2(a).
"INTEREST NOTICE PERIOD" shall have the meaning set forth in Section 2(a).
"INTEREST PAYMENT DATE" shall have the meaning set forth in Section 2(a).
"INTEREST SHARE AMOUNT" shall have the meaning set forth in Section 2(a).
"LATE FEES" shall have the meaning set forth in Section 2(d).
"MANDATORY DEFAULT AMOUNT" means the sum of (i) the greater of (A) 125% of
the outstanding principal amount of this Note, plus all accrued and unpaid
interest hereon, or (B) the outstanding principal amount of this Note, plus all
accrued and unpaid interest hereon, divided by the Conversion Price on the date
the Mandatory Default Amount is either (a) demanded (if demand or notice is
required to create an Event of Default) or otherwise due or (b) paid in full,
whichever has a lower Conversion Price, multiplied by the VWAP on the date the
Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in
full, whichever has a higher VWAP, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of this Note.
3
"MONTHLY CONVERSION PERIOD" shall have the meaning set forth in Section
6(b) hereof.
"MONTHLY CONVERSION PRICE" shall have the meaning set forth in Section
6(b) hereof.
"NEW YORK COURTS" shall have the meaning set forth in Section 9(d).
"NOTICE OF CONVERSION" shall have the meaning set forth in Section 4(a).
"ORIGINAL ISSUE DATE" means the date of the first issuance of the Notes,
regardless of the number of transfers of any Note and regardless of the number
of instruments which may be issued to evidence such Notes.
"PERMITTED INDEBTEDNESS" means (a) the Indebtedness existing on the
Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase
Agreement, (b) lease obligations and purchase money indebtedness of up to
$100,000, incurred in connection with the acquisition of capital assets and
lease obligations with respect to newly acquired or leased assets, (c) factoring
agreements of the Company relating to the Company's account receivables in the
ordinary course of its business consistent with past practice and (d)
indebtedness incurred in connection with the issuance and sale by the Company of
its Common Stock or Common Stock Equivalents in a single transaction involving a
subscription amount equal to or greater than $1,500,000.
"PERMITTED LIEN" means the individual and collective reference to the
following: (a) Liens for taxes, assessments and other governmental charges or
levies not yet due or Liens for taxes, assessments and other governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves (in the good faith judgment of the management of the
Company) have been established in accordance with GAAP, (b) Liens imposed by law
which were incurred in the ordinary course of the Company's business, such as
carriers', warehousemen's and mechanics' Liens, statutory landlords' Liens, and
other similar Liens arising in the ordinary course of the Company's business,
and which (x) do not individually or in the aggregate materially detract from
the value of such property or assets or materially impair the use thereof in the
operation of the business of the Company and its consolidated Subsidiaries or
(y) are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing for the foreseeable future the
forfeiture or sale of the property or asset subject to such Lien and (c) Liens
incurred in connection with Permitted Indebtedness under clause (b), (c) or (d)
thereunder, provided that with respect to clause (b) such Liens are not secured
by assets of the Company or its Subsidiaries other than the assets so acquired
or leased.
"PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
4
"PURCHASE AGREEMENT" means the Securities Purchase Agreement among the
Company and the original Holders, dated as of July 6, 2006 as amended, modified
or supplemented from time to time in accordance with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
among the Company and the original Holders, dated as of the date of the Purchase
Agreement, as amended, modified or supplemented from time to time in accordance
with its terms.
"REGISTRATION STATEMENT" means a registration statement that registers the
resale of all Conversion Shares and Interest Conversion Shares of the Holder,
who shall be named as a "selling stockholder" therein, and meets the
requirements of the Registration Rights Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SHARE DELIVERY DATE" shall have the meaning set forth in Section 4(d).
"SUBSIDIARY" shall have the meaning set forth in the Purchase Agreement.
"TRADING DAY" means a day on which the Common Stock is traded on a Trading
Market.
"TRADING MARKET" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
American Stock Exchange, the Nasdaq Capital Market, the Nasdaq National Market,
the New York Stock Exchange or the OTC Bulletin Board.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in the Purchase
Agreement.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time)); (b) if the OTC Bulletin Board is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the "Pink Sheets" published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or (d) in
all other cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Holder and reasonably
acceptable to the Company.
Section 2. Interest.
5
(a) Payment of Interest in Cash or Kind. The Company shall pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Note at the rate of 8% per annum, payable quarterly
commencing on the 3 month anniversary after the Original Issue Date and each 3
month anniversary thereafter, on each Conversion Date (as to that principal
amount then being converted), and on the Maturity Date (except that, if any such
date is not a Business Day, then such payment shall be due on the next
succeeding Business Day) (each such date, an "Interest Payment Date"), in cash
or duly authorized, validly issued, fully paid and non-assessable shares of
Common Stock at the Interest Conversion Rate, (the amount to be paid in shares,
the "Interest Share Amount"), or a combination thereof; provided, however,
payment in shares of Common Stock may only occur, if (i) during the 20 Trading
Days immediately prior to the applicable Interest Payment Date (the "Interest
Notice Period") and through and including the date such shares of Common Stock
are issued to the Holder, all of the Equity Conditions, unless waived by the
Holder in writing, have been met and the Company shall have given the Holder
notice in accordance with the notice requirements set forth below, (ii) as to
such Interest Payment Date, prior to the such Interest Notice Period (but not
more 5 Trading Days prior to the commencement of the Interest Notice Period),
the Company shall have delivered to the Holder's account with The Depository
Trust Company a number of shares of Common Stock to be applied against such
Interest Share Amount equal to the quotient of (x) the applicable Interest Share
Amount divided by (y) the then Conversion Price (the "Interest Conversion
Shares").
(b) Company's Election to Pay Interest in Kind. Subject to the terms
and conditions herein, including, without limitation, the provisions of Section
4(c) of this Note, the decision whether to pay interest hereunder in cash or
shares of Common Stock shall be at the discretion of the Company. Prior to the
commencement of any Interest Notice Period, the Company shall deliver to the
Holder a written notice of its election to pay interest hereunder on the
applicable Interest Payment Date either in cash, shares of Common Stock or a
combination thereof (the Company may indicate in such notice that the election
contained in such notice shall continue for later periods until revised) and the
Interest Share Amount as to the applicable Interest Payment Date. During any
Interest Notice Period, the Company's election (whether specific to an Interest
Payment Date or continuous) shall be irrevocable as to such Interest Payment
Date. Subject to the aforementioned conditions, failure to timely provide such
written notice shall be deemed an election by the Company to pay the interest on
such Interest Payment Date in cash. At any time the Company delivers a notice to
the Holder of its election to pay the interest in shares of Common Stock, the
Company shall timely file a prospectus supplement pursuant to Rule 424
disclosing such election. The aggregate number of shares of Common Stock
otherwise issuable to the Holder on an Interest Payment Date shall be reduced by
the number of Interest Conversion Shares previously issued to the Holder in
connection with such Interest Payment Date.
(c) Interest Calculations. Interest shall be calculated on the basis
of a 360-day year and shall accrue daily commencing on the Original Issue Date
until payment in full of the principal sum, together with all accrued and unpaid
interest, liquidated damages and other amounts which may become due hereunder,
has been made. Payment of interest in shares of Common Stock (other than the
Interest Conversion Shares issued prior to an Interest Notice Period) shall
otherwise occur pursuant to Section 4(d)(ii) herein and solely for purposes of
the payment of interest in shares of Common Stock, the Interest Payment Date
shall be deemed the Conversion Date. Interest shall cease to accrue with respect
to any principal amount converted, provided that the Company actually delivers
the Conversion Shares within the time period required by Section 4(d)(ii).
Interest hereunder will be paid to the Person in whose name this Note is
registered on the records of the Company regarding registration and transfers of
this Note (the "Note Register"). Except as otherwise provided herein, if at any
time the Company pays interest partially in cash and partially in shares of
Common Stock to the holders of the Notes, then such payment shall be distributed
ratably among the holders of the then-outstanding Notes based on their (or their
predecessor's) initial purchases of Notes pursuant to the Purchase Agreement.
6
(d) Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall be subject to a late fee at an interest rate equal to the lesser
of 18% per annum or the maximum rate permitted by applicable law ("Late Fees")
which shall accrue daily from the date such interest is due hereunder through
and including the date of payment in full. Notwithstanding anything to the
contrary contained herein, if on any Interest Payment Date the Company has
elected to pay accrued interest in the form of Common Stock (and has not
subsequently revoked such election pursuant to Section 2(b) above) but the
Company is not able to pay accrued interest in Common Stock because it fails to
satisfy the conditions for payment in Common Stock set forth above, then, at the
option of the Holder, the Company, in lieu of delivering either shares of Common
Stock pursuant to this Section 2 or paying the regularly scheduled interest
payment in cash, shall deliver, within three Trading Days of each applicable
Interest Payment Date, an amount in cash equal to the product of (x) the number
of shares of Common Stock otherwise deliverable to the Holder in connection with
the payment of interest due on such Interest Payment Date multiplied by (y) the
highest VWAP during the period commencing on the Interest Payment Date and
ending on the Trading Day prior to the date such payment is made. If any
Interest Conversion Shares are issued to the Holder in connection with an
Interest Payment Date and are not applied against an Interest Share Amount, then
the Holder shall promptly return such excess shares to the Company.
(e) Prepayment. Except as otherwise set forth in this Note, the
Company may not prepay any portion of the principal amount of this Note without
the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
(a) Different Denominations. This Note is exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be payable
for such registration of transfer or exchange.
(b) Investment Representations. This Note has been issued subject to
certain investment representations of the original Holder set forth in the
Purchase Agreement and may be transferred or exchanged only in compliance with
the Purchase Agreement and applicable federal and state securities laws and
regulations.
(c) Reliance on Note Register. Prior to due presentment for transfer
to the Company of this Note, the Company and any agent of the Company may treat
the Person in whose name this Note is duly registered on the Note Register as
the owner hereof for the purpose of receiving payment as herein provided and for
all other purposes, whether or not this Note is overdue, and neither the Company
nor any such agent shall be affected by notice to the contrary.
7
Section 4. Conversion.
(a) Voluntary Conversion. At any time after the Original Issue Date
until this Note is no longer outstanding, this Note shall be convertible, in
whole or in part, into shares of Common Stock at the option of the Holder at any
time and from time to time (subject to the conversion limitations set forth in
Section 4(c) hereof). The Holder shall effect conversions by delivering to the
Company a Notice of Conversion, the form of which is attached hereto as Annex A
(a "Notice of Conversion"), specifying therein the principal amount of this Note
to be converted and the date on which such conversion shall 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 deemed delivered hereunder. To effect conversions hereunder, the Holder shall
not be required to physically surrender this Note 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 may
deliver an objection to any Notice of Conversion within 1 Business Day of
delivery of such Notice of Conversion. 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.
(b) Conversion Price. The conversion price in effect on any
Conversion Date shall be equal to $0.50, subject to adjustment herein (the
"Conversion Price").
(c) Conversion Limitations.
(i) Holder's Restriction on Conversion. The Company shall not
effect any conversion of this Note, and a Holder shall not have the right to
convert any portion of this Note, to the extent that after giving effect to the
conversion, as set forth on the applicable Notice of Conversion, such Holder
(together with such Holder's Affiliates, and any other person or entity acting
as a group together with such Holder or any of such Xxxxxx's Affiliates) would
beneficially own in excess of the Beneficial Ownership Limitation (as defined
below). For purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by such Holder and its Affiliates shall include the
number of shares of Common Stock issuable upon conversion of this Note with
respect to which such determination is being made, but shall exclude the number
of shares of Common Stock which are issuable upon (A) conversion of the
remaining, unconverted principal amount of this Note beneficially owned by such
Holder or any of its Affiliates and (B) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
subject to a limitation on conversion or exercise analogous to the limitation
contained herein (including, without limitation, any other Notes or the
Warrants) beneficially owned by such Holder or any of its Affiliates. Except as
set forth in the preceding sentence, for purposes of this Section 4(c)(i),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. To the extent
that the limitation contained in this Section 4(c)(i) applies, the determination
of whether this Note is convertible (in relation to other securities owned by
such Holder together with any Affiliates) and of which principal amount of this
8
Note is convertible shall be in the sole discretion of such Holder, and the
submission of a Notice of Conversion shall be deemed to be such Holder's
determination of whether this Note may be converted (in relation to other
securities owned by such Holder together with any Affiliates) and which
principal amount of this Debenture is convertible, in each case subject to such
aggregate percentage limitations.. To ensure compliance with this restriction,
each 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. In addition,
a determination as to any group status as contemplated above shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this Section 4(c)(ii), in
determining the number of outstanding shares of Common Stock, a Holder may rely
on the number of outstanding shares of Common Stock as stated in the most recent
of the following: (A) the Company's most recent Form 10-QSB or Form 10-KSB, as
the case may be, (B) a more recent public announcement by the Company; or (C) a
more recent 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 a Holder, the Company shall within two Trading Days confirm orally
and in writing to such 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 such Holder or its Affiliates since the
date as of which such number of outstanding shares of Common Stock was reported.
The "Beneficial Ownership Limitation" shall be 4.99% of the number of shares of
the Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon conversion of this Note held by the Holder.
The Beneficial Ownership Limitation provisions of this Section 4(c)(i) may be
waived by such Xxxxxx, at the election of such Holder, upon not less than 61
days' prior notice to the Company, to change the Beneficial Ownership Limitation
to 9.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock upon conversion of
the Note held by the Holder and the provisions of this Section 4(c)(ii) shall
continue to apply. Upon such a change by a Holder of the Beneficial Ownership
Limitation from such 4.99% limitation to such 9.99% limitation, the Beneficial
Ownership Limitation may not be further waived by such Holder. The provisions of
this paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 4(c) to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a successor holder of
this Note.
(d) 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.
9
(ii) Delivery of Certificate Upon Conversion. Not later than
three Trading Days after each Conversion Date, (the "Share Delivery Date") the
Company shall deliver, or cause to be delivered, to the Holder (A) a certificate
or certificates representing the Conversion Shares which, on or after the
Effective Date, shall be free of restrictive legends and trading restrictions
(other than those which may then be required by the Purchase Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of this Note (including, if the Company has given continuous notice
pursuant to Section 2(b) for payment of interest in shares of Common Stock at
least 20 Trading Days prior to the date on which the Conversion Notice is
delivered to the Company, shares of Common Stock representing the payment of
accrued interest otherwise determined pursuant to Section 2(a) but assuming that
the Interest Payment Period is the 20 Trading Days period immediately prior to
the date on which the Conversion Notice is delivered to the Company excluding
for such issuance the condition that the Company delivers Interest Conversion
Shares as to such interest payment) and (B) cash via wire transfer in the amount
of accrued and unpaid interest (if the Company has elected or 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 Company 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 third Trading Day after the Conversion
Date, the Holder shall be entitled to elect 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
promptly return to the Holder any original Note delivered to the Company and the
Holder shall promptly return the Common Stock certificates representing the
principal amount of this Note tendered for conversion to the Company.
(iv) Obligation Absolute; Partial Liquidated Damages. 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, that 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 the 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 anyone associated or affiliated
with the Holder has been engaged in any violation of law, agreement or for any
other reason, unless, an injunction from a court, on notice to Holder,
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
10
the Holder in the amount of 150% of the outstanding 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 underlying dispute
and the proceeds of which shall be payable to such Holder to the extent it
obtains judgment. In the absence of such injunction, the Company shall issue
Conversion Shares or, if applicable, cash, upon a properly noticed conversion.
If the Company fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(d)(ii) by the third 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 on the fifth
Trading Day after such liquidated damages begin to accrue) for each Trading Day
after the second Trading Day following the Share Delivery Date until such
certificates are delivered. Nothing herein shall limit a Xxxxxx's right to
pursue actual damages or declare an Event of Default pursuant to Section 8
hereof 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 hereunder, 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 Holder 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 by the Share Delivery Date pursuant to Section
4(d)(ii), and if after such Share Delivery Date the Holder is required by its
brokerage firm to purchase (in an open market transaction or otherwise) shares
of Common Stock to deliver in satisfaction of a sale by such Holder of the
Conversion Shares which the Holder was entitled to receive upon the conversion
relating to such Share Delivery Date (a "Buy-In"), then the Company shall (A)
pay in cash to the Holder (in addition to any other remedies available to or
elected by the Holder) the amount by which (x) the Holder's total purchase price
(including any brokerage commissions) for the Common Stock so purchased exceeds
(y) the product of (1) the aggregate number of shares of Common Stock that such
Holder was entitled to receive from the conversion at issue multiplied by (2)
the actual sale price at which the sell order giving rise to such purchase
obligation was executed (including any brokerage commissions) and (B) at the
option of the Holder, either reissue (if surrendered) this Note in a 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 if
the Company had timely complied with its delivery requirements under Section
4(d)(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 this Note with respect to which the actual sale price of the
Conversion Shares (including any brokerage commissions) 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 and, upon request of the Company,
evidence of the amount of such loss. Nothing herein shall limit a Xxxxxx's right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon conversion of this Note as
required pursuant to the terms hereof.
11
(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 for the sole purpose of
issuance upon conversion of this Note and payment of interest on this Note, each
as herein provided, free from preemptive rights or any other actual contingent
purchase rights of Persons other than the Holder (and the other holders of the
Notes), not less than such aggregate number of shares of the Common Stock as
shall (subject to the terms and conditions set forth in the Purchase Agreement)
be issuable (taking into account the adjustments and restrictions of Section 5)
upon the conversion of the outstanding principal amount of this Note and payment
of interest hereunder. The Company covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable and, if the Registration Statement is then
effective under the Securities Act, shall be 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 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, 1 whole
share of Common Stock.
(viii) Transfer Taxes. The issuance of certificates for shares
of the Common Stock on conversion of this Note shall be made without charge to
the Holder hereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificates, 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 this Note 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.
Section 5. Certain Adjustments.
(a) Stock Dividends and Stock Splits. If the Company, at any time
while this Note is outstanding: (A) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of
Common Stock or any Common Stock Equivalents (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Company, upon
conversion of, or payment of interest on, this Note); (B) subdivides outstanding
shares of Common Stock into a larger number of shares, (C) combines (including
by way of a reverse stock split) outstanding shares of Common Stock into a
smaller number of shares, or (D) issues, in the event of a 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 any treasury shares, of the
Company) outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately 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.
12
(b) (A) Subsequent Equity Sales. If the Company or any Subsidiary
thereof, as applicable, at any time while this Note is outstanding, sells or
grants any option to purchase or sells or grants any right to reprice its
securities, or otherwise disposes of or issues (or announces any 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 that is lower than the then Conversion Price (such
lower price, the "Base Conversion Price" and such issuances collectively, a
"Dilutive Issuance"), (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 are issued
in connection with such issuance, be entitled to receive shares of Common Stock
at an effective price per share that is lower than the Conversion Price, such
issuance shall be deemed to have occurred for less than the Conversion Price on
such date of the Dilutive Issuance), then the Conversion Price shall be reduced
to equal the Base Conversion Price. Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued. Notwithstanding the
foregoing, no adjustment will be made under this Section 5(b) in respect of an
Exempt Issuance. The Company shall notify the Holder in writing, no later than
the Business Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 5(b), indicating therein the applicable
issuance price, or 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 5(b), upon the occurrence of any Dilutive Issuance, the
Holder is entitled to receive a number of Conversion Shares based upon the Base
Conversion on or after the date of such Dilutive Issuance, Price regardless of
whether the Holder accurately refers to the Base Conversion Price in the Notice
of Conversion.
(c) Pro Rata Distributions. If the Company, at any time while this
Note is outstanding, distributes to all holders of Common Stock (and not to the
Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security
(other than the Common Stock, which shall be subject to Section 5(b)), then in
each such case the Conversion Price shall be adjusted 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 of
the Company in good faith. In either case the adjustments shall be described in
a statement delivered to the Holder describing 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.
13
(d) 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 transaction, 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 immediately prior to the
occurrence of 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
(d) and insuring that this Note (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
(e) Calculations. All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 5, 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 any treasury shares, of the Company) issued
and outstanding.
(f) Notice to the Holder.
(i) Adjustment to Conversion Price. Whenever the Conversion
Price is adjusted pursuant to any of this Section 5, 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. If the Company issues, a variable rate security, despite the
prohibition thereon in the Purchase Agreement, the Company shall be deemed to
have issued Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be converted or
exercised in the case of a Variable Rate Transaction (as defined in the Purchase
Agreement).
14
(ii) Notice to Allow Conversion by Xxxxxx. If (A) the Company
shall declare a dividend (or any other distribution in whatever form) 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
delivered to the Holder at its last address as it shall appear upon the Note
Register, 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 deliver such notice or any defect
therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice. The Holder is entitled
to convert this Note during the 20-day period commencing on the date of such
notice through the effective date of the event triggering such notice.
Section 6. [INTENTIONALLY OMITTED]
Section 7. Negative Covenants. As long as any portion of this Note remains
outstanding, the Company shall not and shall not permit any of its Subsidiaries
to directly or indirectly:
(a) other than Permitted Indebtedness, enter into, create, incur,
assume guarantee or suffer to exist any indebtedness for borrowed money of any
kind, including but not limited to, guarantee, 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;
(b) other than Permitted Liens, enter into, create, incur, assume or
suffer to exist any 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;
(c) amend its charter documents, including without limitation, the
certificate of incorporation and bylaws in any manner that materially and
adversely affects any rights of the Holder;
15
(d) repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a de minimis number of shares of its Common Stock or Common
Stock Equivalents other than as to the Conversion Shares or Warrant Shares as
permitted or required under the Transaction Documents;
(e) enter into any agreement with respect to any of the foregoing;
or
(f) pay cash dividends or distributions on any equity securities of
the Company.
Section 8. Events of Default.
(a) "Event of Default" means, wherever used herein, any of the
following events (whatever the reason for such event and whether such event
shall be voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court, or any order, rule or regulation of
any administrative or governmental body):
(i) any default in the payment of (A) the principal amount of
any Note, or (B) interest, liquidated damages and other amounts owing to a
Holder on any Note, as and when the same shall become due and payable (whether
on a Conversion Date, or the Maturity Date or by acceleration or otherwise)
which default, solely in the case of an interest payment or liquidated damages
or other default under clause (B) above, is not cured, within 3 Trading Days;
(ii) the Company shall fail to observe or perform any other
covenant or agreement contained in the Notes (other than a breach by the Company
of its obligations to deliver shares of Common Stock to the Holder upon
conversion which breach is addressed in clause (xi) below) which failure is not
cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days
after notice of such failure sent by the Holder or by any other Holder and (B)10
Trading Days after the Company has become or should have become aware of such
failure;
(iii) a default or event of default (subject to any grace or
cure period provided in the applicable agreement, document or instrument) shall
occur under (A) any of the Transaction Documents or (B) any other material
agreement lease, document or instrument to which the Company or any Subsidiary
is obligated (and not covered by clause (vi) below);
(iv) any representation or warranty made in this Note, any
other Transaction Documents, in any written statement pursuant hereto or
thereto, or in any other report, financial statement or certificate made or
delivered to the Holder or any other Holder shall be untrue or incorrect in any
material respect as of the date when made or deemed made;
16
(v) (i) the Company or any of its Subsidiaries shall commence
a case, as debtor, a case under any applicable bankruptcy or insolvency laws as
now or hereafter in effect or any successor thereto, or the Company or any
Subsidiary commences any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect relating to
the Company or any Subsidiary thereof or (ii) there is commenced a case against
the Company or any Subsidiary thereof, under any applicable bankruptcy or
insolvency laws, as now or hereafter in effect or any successor thereto which
remains undismissed for a period of 60 days; or (iii) the Company or any
Subsidiary thereof is adjudicated by a court of competent jurisdiction insolvent
or bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or (iv) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its
property which continues undischarged or unstayed for a period of 60 days; or
(v) the Company or any Subsidiary thereof makes a general assignment for the
benefit of creditors; or (vi) the Company shall fail to pay, or shall state that
it is unable to pay, or shall be unable to pay, its debts generally as they
become due; or (vii) the Company or any Subsidiary thereof shall call a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (viii) the Company or any Subsidiary thereof
shall by any act or failure to act expressly indicate its consent to, approval
of or acquiescence in any of the foregoing; or (ix) any corporate or other
action is taken by the Company or any Subsidiary thereof for the purpose of
effecting any of the foregoing;
(vi) the Company or any Subsidiary shall default On any of its
obligations under 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 $250,000, that (a) involves an obligation
greater than whether such indebtedness now exists or shall hereafter be created
and (b) result in such indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise become due and payable;
(vii) at any time after 120 days after the date hereof, the
Common Stock shall fail to be listed or quoted for trading on a Trading Market
for a period in excess of five (5) days;
(viii) the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or dispose of all or
in excess of 33% of its assets in one or more transactions (whether or not such
sale would constitute a Change of Control Transaction) or shall redeem or
repurchase more than a de minimis number of its outstanding shares of Common
Stock or other equity securities of the Company;
(ix) a Registration Statement shall not have been declared
effective by the Commission on or prior to the 150th calendar day after the
Closing Date;
(x) if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), either the effectiveness of the Registration
Statement lapses for any reason or the Holder shall not be permitted to resell
Registrable Securities (as defined in the Registration Rights Agreement) under
the Registration Statement, for a period of more than 60 Trading Days during any
12 month period;
(xi) the Company shall fail for any reason to deliver
certificates to a Holder prior to the third Trading Day after a Conversion Date
pursuant to and in accordance with Section 4(d) or the Company shall provide at
any time notice to the Holder including by way of public announcement, of the
Company's intention to not honor requests for conversions of any Notes in
accordance with the terms hereof; or
17
(xii) any monetary judgment, writ or similar final process
shall be entered or filed against the Company, any Subsidiary or any of their
respective property or other assets for more than $150,000, and such judgment,
writ or similar final process shall remain unvacated, unbonded or unstayed for a
period of 45 calendar days.
(b) Remedies Upon Event of Default. If any Event of Default occurs,
the outstanding principal amount of this Note, plus accrued but unpaid interest,
liquidated damages and other amounts owing in respect thereof, through the date
of acceleration shall become, at the Holder's election, immediately due and
payable in cash at the Mandatory Default Amount. Commencing 5 days after the
occurrence of any Event of Default that results in the eventual acceleration of
this Note, the interest rate on this Note shall accrue at an interest rate equal
to the lesser of 18% per annum, or the maximum rate permitted under applicable
law. Upon the payment in full of the Mandatory Default Amount, the Holder shall
promptly surrender this Note to or as directed by the Company. In connection
with such acceleration described herein, the Holder need not provide and the
Company hereby waives any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Such acceleration may be rescinded and
annulled by Xxxxxx at any time prior to payment hereunder and the Holder shall
have all rights as a holder of the Note until such time, if any, as the Holder
receives full payment pursuant to this Section. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.
Section 9. Miscellaneous.
(a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, or sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, facsimile
number (000) 000-0000, Attn: Xxx Xxxxxx or such other address or facsimile
number or address as the Company may specify for such purpose by notice to the
Holder delivered in accordance with this Section 9. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service addressed to each Holder at the facsimile
number or address of such Xxxxxx appearing on the books of the Company, or if no
such facsimile number or address appears, at the principal place of business of
the Holder. Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section 9 prior to 5:30 p.m. (New York City time), (ii) the
date immediately following the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section 9 between 5:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on any such date, (iii) the
second Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given.
18
(b) Absolute Obligation. Except as expressly provided herein, no
provision of this Note shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, interest and
liquidated damages, and accrued interest, as applicable, on this Note at the
time, place, and rate, and in the coin or currency, herein prescribed. This Note
is a direct debt obligation of the Company. This Note ranks pari passu with all
other Notes now or hereafter issued under the terms set forth herein.
(c) Lost or Mutilated Note. If this Note shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Note, or in lieu of or in
substitution for a lost, stolen or destroyed Note, a new Note for the principal
amount of this Note so mutilated, lost, stolen or destroyed but only upon
receipt of evidence of such loss, theft or destruction of such Note, and of the
ownership hereof and indemnity if requested, all reasonably satisfactory to the
Company.
(d) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Note shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflict of laws thereof. Each party
agrees that all legal proceedings concerning the interpretation, enforcement and
defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective affiliate, directors,
officers, shareholders, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the "New
York Courts"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Note and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by applicable law. Each
party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Note or the transactions contemplated hereby.
If either party shall commence an action or proceeding to enforce any provisions
of this Note, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred in the investigation, preparation and prosecution of such
action or proceeding.
19
(e) Waiver. Any waiver by the Company or the Holder of a breach of
any provision of this Note shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Note. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Note. Any waiver by the
Company or the Holder must be in writing.
(f) Severability. If any provision of this Note is invalid, illegal
or unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any Person or circumstance, it shall nevertheless
remain applicable to all other Persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates the
applicable law governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum rate of interest permitted
under applicable law. The Company covenants (to the extent that it may lawfully
do so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law or other law which would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on this Note as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such
law has been enacted.
t 12 (g) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.
(h) Headings. The headings contained herein are for convenience
only, do not constitute a part of this Note and shall not be deemed to limit or
affect any of the provisions hereof.
(i) Assumption. Any successor to the Company or any surviving entity
in a Fundamental Transaction shall (i) assume in writing all of the obligations
of the Company under this Note and the other Transaction Documents pursuant to
written agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) ion and (ii) issue to the
Holder a new Note of such successor entity evidenced by a written instrument
substantially similar in form and substance to this Note, including, without
limitation, having a principal amount and interest rate equal to the principal
amount and the interest rates of this Notes and having similar ranking to this
Note, which shall be satisfactory to the Holder (any such approval not to be
unreasonably withheld or delayed). The provisions of this Section 9(i) shall
apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations of this Note.
(j) Secured Obligation. The obligations of the Company under this
Note are secured by all assets of the Company pursuant to the Security
Agreement, dated as of July 6, 2006, between the Company, the Subsidiaries of
the Company and the Secured Parties (as defined therein).
20
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
by a duly authorized officer as of the date first above indicated.
PRIDE BUSINESS DEVELOPMENT
HOLDINGS, INC.
By: ______________________
Name:
Title:
21
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 8% Secured
Convertible Note of Pride Business Development Holdings, Inc. a Nevada
corporation (the "Company"), due on July 6, 2007, into shares of common stock,
par value $0.001 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for
such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts determined in accordance with Section 13(d) of the Exchange
Act, specified under Section 4 of this Note.
The undersigned agrees to comply with the prospectus delivery requirements
under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion: _______________________
Principal Amount of Note to be Converted: ______________
Payment of Interest in Common Stock
Yes _____
No _____
If yes, $______ of Interest Accrued on Account of Conversion at
Issue.
Number of shares of Common Stock to be issued: _________
Signature: __________________________
Name: _______________________________
Address: ____________________________
22
SCHEDULE 1
CONVERSION SCHEDULE
The 8% Secured Convertible Notes due on July 6, 2007 in the aggregate
principal amount of $177,500 issued by Pride Business Development Holdings, Inc.
This Conversion Schedule reflects conversions made under Section 4 of the above
referenced Note.
Dated:
Aggregate Principal
Date of Conversion Amount Remaining
(or for first entry, Amount of (or Original Company
Original Issue Date) Conversion Principal Amount) Attest
-------------------- ---------- ------------------- -------
23
