EXHIBIT 4.10
THE SECURITIES EVIDENCED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY OR WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR
THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION. THIS NOTE IS SUBJECT TO CERTAIN COVENANTS SET FORTH IN A
SUBSCRIPTION AGREEMENT DATED ___________, 2001, BY AND AMONG BRIGHTSTAR
INFORMATION TECHNOLOGY GROUP, INC., BRIGHTSTAR INFORMATION TECHNOLOGY SERVICES,
INC., AND THE INITIAL HOLDER OF THIS NOTE NAMED BELOW. A COPY OF SAID
SUBSCRIPTION AGREEMENT MAY BE OBTAINED FROM THE PRINCIPAL OFFICE OF BRIGHTSTAR
INFORMATION TECHNOLOGY GROUP, INC., AT 0000 XXXXXXX XXXX, XXXXXXXXXX,
XXXXXXXXXX, 00000.
BRIGHTSTAR INFORMATION TECHNOLOGY SERVICES, INC.
a Delaware corporation
SERIES 1 CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$ , 2001
------------ -----------------
FOR VALUE RECEIVED, BRIGHTSTAR INFORMATION TECHNOLOGY SERVICES, INC., a
Delaware corporation (the "Company"), promises to pay to _______________
(together with any successor holders of this Note, "Holder"), the principal sum
of __________________ dollars ($___________), plus simple interest on the unpaid
principal amount, at a rate per annum equal to eight percent (8%). Interest
accrued hereunder shall be due and payable on the first business day of each
calendar quarter, commencing after the quarter ending September 30, 2001;
provided, however, that the Company may at its option pay interest due for the
quarters ending September 30 and December 31, 2001 and March 31 and June 30,
2002, by issuance to the Holder of additional Series 1 Convertible Subordinated
Promissory Notes. Unless previously converted under Section 5 or Section 6
hereof or paid under Section 3 hereof, the principal amount of this Note shall
become due and payable on July 1, 2004. All payments hereon shall be applied
first to accrued interest and second to the reduction of the principal. In no
event, shall the Company issue more than $2,000,000 in aggregate principal
amount of Series 1 Convertible Subordinated Promissory Notes, exclusive of any
Notes that may be issued in lieu of interest. This Note shall be subject to the
following additional terms and conditions:
1. Definitions. In addition to capitalized terms defined elsewhere in
this Note, the following terms shall have the meanings indicated:
"BrightStar" shall mean BrightStar Information Technology Group, Inc.,
a Delaware corporation.
"Common Stock" shall mean common stock of BrightStar.
"Company Acquisition" shall mean a sale of all or substantially all of
the assets of BrightStar, or a merger or other corporate transaction whereby the
shareholders of BrightStar prior to such transaction own less than fifty percent
(50%) of BrightStar or its successor after such transaction.
"Conversion Price" shall mean $0.23 per share, subject to adjustment
pursuant to Section 8 or Section 9 hereof.
"Effective Price" shall mean the quotient determined by dividing the
total number of shares of Common Stock issued or sold, or deemed to have been
issued or sold by BrightStar under Section 8 hereof, into the aggregate
consideration received, or deemed to have been received by BrightStar, for such
issuance or sale of such shares, including all amounts payable upon exercise of
warrants or rights to purchase shares of Common Stock.
"Insolvency Event" shall mean (a) the commencement by the Company of
any case under the federal bankruptcy laws or any other proceeding under other
laws relating to bankruptcy, insolvency, debt adjustment or debt relief, or (b)
the commencement against the Company of any such case if such case is not
dismissed within one hundred twenty (120) days after commencement thereof, or
(c) any assignment by the Company for the benefit of its creditors, or (d) any
appointment by a court of competent jurisdiction of a receiver, trustee,
custodian or similar official for all or substantially all of the Company's
property.
"Legacy Liabilities" shall mean the liabilities of BrightStar
identified in Exhibit A attached hereto.
"Management Change" shall mean that any two of the following three
persons cease to serve as part of BrightStar management: (1) Xxxxxx X. Xxxxx;
(2) Xxxxx Xxxxxx; and (3) Xxxxx X. Xxxxxx.
"Moving Average Price" shall mean the average, weighted according to
daily volume, of the unweighted arithmetic average of the high and low trading
price of the Common Stock for each day (as such price is reported by Nasdaq or
any other recognized reporting system), during a period of twenty (20)
consecutive trading days ending on the day immediately prior to the date of
determination.
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"Restructuring" shall mean, as to any liability, that either (a) such
liability has been released or cancelled, without creation of another
liability, or (b) the term of such liability has been extended so as not to
require any payments in respect thereof (other than interest) prior to
January 1, 2004, or (c) the term of such liability has been extended so as
not to require any payments in respect thereof (other than payments based
on a "cash sweep" or other similar arrangement whereby some portion of
available cash is required to be paid in respect of such liability based on
requirements of the Senior Lender and working capital requirements), or (d)
such liability has been paid in full, or (e) any other similar modification
of the terms of such liability which has a substantially similar effect.
"Senior Debt" shall mean all amounts due or to become due pursuant to
the Revolving Credit Agreement between BrightStar and Comerica dated March
29, 1999, as amended or modified from time to time, including, without
limitation, all principal, interest, fees, expenses, and charges of any
sort, and all amounts which may become due pursuant to any other senior
credit facility which may be entered into by BrightStar or the Company in
lieu thereof.
"Senior Lender" shall mean the lender or, collectively, the lenders in
respect of the Senior Debt.
"Target Price" shall mean $.50 per share of Common Stock, adjusted to
take account of any stock splits, reverse stock splits, stock dividends,
recapitalizations or similar actions.
"Warrants" shall mean warrants for the purchase of Common Stock issued
by BrightStar to the Holder in connection with the issuance of this Note.
2. Security. Payment of the indebtedness evidenced by this Note is
secured by that certain Security Agreement of even date herewith made by
BrightStar, the Company, Integrated Controls, Inc., Software Consulting Services
America, Inc., Software Innovators, Inc., and B. R. Xxxxxxxxx & Associates, Inc.
3. Prepayment. Prepayment of this Note may be made at any time more
than one year after the date hereof, provided that (a) the Company gives the
Holder not less than thirty (30) days prior written notice of such prepayment,
and (b) either (i) on the date when the Company so notifies the Holder, the
Moving Average Price exceeds the Target Price, and the Holder may lawfully sell
immediately all of the Common Stock issuable upon conversion hereof and the
Common Stock issuable upon exercise of Warrants held by the Holder, either under
a registration statement pursuant to the Securities Act of 1933, or, if after 2
years from the issuance date of the Note, under Rule 144, or (ii) a Company
Acquisition has occurred. During such period of thirty (30) days, the period
Holder shall have the right to convert this Note into Common Shares as provided
in Section 5 hereof.
4.Subordination. The Company's obligations under this Note shall at all
times be subordinate and subject to the Company's obligations under the Senior
Debt. In the
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event of any liquidation of the Company's assets or business, or any dissolution
of the Company, or upon the occurrence of any Insolvency Event, no amounts shall
be paid or received nor shall Holders take action or exercise any right in
connection with the foreclosure or realization upon the assets or business of
the Company in respect of the indebtedness evidenced by this Note until all of
the Senior Debt has first been paid in full. In addition, if a default occurs
under the Senior Debt and the Senior Lender sends written notice to the Company
(a "Blockage Notice"), then no amounts shall be paid or received nor shall
Holders take action or exercise any right in connection with the foreclosure or
realization upon the assets or business of the Company in respect of the
indebtedness evidenced by this Note until: (a) such default is cured; or (b) the
Senior Debt is paid in full or (c) January 1, 2004. The Holder agrees to sign
any document reasonably requested by any Senior Lender to confirm the terms of
this Section.
5. Optional Conversion. The Holder of this Note shall have the option
at any time to convert the principal amount of this Note in whole or in part,
plus any interest accrued hereunder, into shares of the Company's Common Stock.
The rate of conversion shall be the Conversion Price. The amount of indebtedness
so converted shall be cancelled, and shares of Common Stock equal to the amount
of such indebtedness divided by the Conversion Price shall thereupon be issued
to the Holder.
6. Mandatory Conversion. If (i) the Moving Average Price equals or
exceeds the Target Price; and (ii) the Holder may lawfully sell immediately all
of the Common Stock issuable upon conversion hereof and the Common Stock
issuable upon exercise of Warrants held by the Holder, either under a
registration statement pursuant to the Securities Act of 1933, or, if after 2
years from the issuance date of the Note, under Rule 144; and (iii) a
Restructuring has occurred with respect to Legacy Liabilities of BrightStar in
an amount equal to at least $2,267,000, then, effective as of any date
thereafter that the Company elects to so notify the Holder, the principal amount
of this Note, shall be automatically converted into shares of the Company's
Common Stock. Interest then accrued hereunder shall be similarly converted or,
at the Company's option, paid in cash. The rate of such conversion shall be the
Conversion Price. The amount of indebtedness so converted shall be cancelled,
and shares of Common Stock equal to the amount of such indebtedness so converted
divided by the Conversion Price shall thereupon be issued to the Holder.
7. Procedures Associated with Conversion. In the case of conversion
under Section 5 hereof, the Holder shall surrender the original executed Note to
the Company at its office located at 0000 Xxxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxxxx
00000, together with a signed written instruction stating the amount of this
Note to be so converted. The date on which this Note and such written
instruction are received by the Company at such office shall be the effective
date of conversion. A certificate representing the appropriate number of shares
of Common Stock shall thereupon be sent promptly to the Holder, along with, in
the case of a partial conversion, a new Note for the unpaid principal balance
hereof, after such partial conversion. In the case of a conversion under Section
6 hereof, the Company shall promptly notify the Holder with a written
instruction that the Holder surrender the original executed Note to the Company
at its office located at 0000 Xxxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxxxx 00000. Upon
the Company's receipt thereof, a certificate representing the appropriate number
of shares of Common Stock shall be sent promptly to the holder.
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8. Adjustment of Conversion Price for Certain Additional Issuances of
Stock.
(a) In the event that, prior to the date which is twelve (12) months
after the date hereof, BrightStar carries out a new financing of common equity
or securities which are convertible into or exercisable for common equity for an
Effective Price less than the then effective Conversion Price, then the then
existing Conversion Price shall be reduced to the Effective Price.
(b) In the event that, after the date which is twelve (12) months after
the date hereof, BrightStar carries out a new financing of common equity or
securities which are convertible into or exercisable for common equity for an
Effective Price less than the then effective Conversion Price, then the then
existing Conversion Price shall be reduced to a price determined by multiplying
the Conversion Price by a fraction (i) the numerator of which shall be (A) the
number of shares of Common Stock deemed outstanding (as hereinafter provided)
immediately prior to such new financing, plus (B) the number of shares of Common
Stock which the aggregate consideration received (taking into account the terms
of subsection (c) below) by the Company in connection with such new financing
would purchase at the then effective Conversion Price, and (ii) the denominator
of which shall be the number of shares of Common Stock deemed outstanding (as
hereinafter provided) immediately prior to such new financing plus the number of
shares of Common Stock issued in such new financing (taking into account the
terms of subsection (c) below). For the purposes of the preceding sentence, the
number of shares of Common Stock deemed to be outstanding as of a given date
shall be the sum of (A) the number of shares of Common Stock actually
outstanding, plus (B) the number of shares of Common Stock which could be
obtained through the exercise or conversion of all rights, options and
convertible securities outstanding on the given date.
(c) For the purpose of the adjustment required under this Section, if
BrightStar to carry out such new financing sells (i) stock or other securities
convertible into Common Stock ("Convertible Securities"), or (ii) warrants or
other rights for the purchase of Common Stock or Convertible Securities, and if
the Effective Price of such shares of Common Stock is less than the then
effective Conversion Price, then the Company shall be deemed to have issued at
the time of the issuance of such Convertible Securities or warrants or rights
the number of shares of Common Stock issuable upon conversion or exercise
thereof and to have received as consideration for the issuance of such shares an
amount equal to the total amount of the consideration, if any, received by the
Company for the issuance of such Convertible Securities or warrants or rights,
plus, in the case of warrants or other rights to purchase Common Stock, the
amount of consideration, if any, payable to the Company upon the exercise of
such warrants or rights.
(d) No further adjustment of the Conversion Price, as adjusted upon the
issuance of such Convertible Securities or warrants or other rights shall be
made as a result of the actual issuance of shares of Common Stock on the
conversion of any such Convertible Securities or the exercise of any such rights
warrants or other rights.
(e) If the conversion privilege represented by any such Convertible
Securities or any such warrants or other rights shall expire or otherwise be
terminated without having been exercised, the Conversion Price as adjusted upon
the issuance of such Convertible Securities or warrants or other rights shall be
readjusted to the Conversion Price which would have been in effect had such
Convertible Securities or warrants or other rights not been issued.
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(f) As used above, a "new financing of common equity or securities
which are convertible into or exercisable for common equity" shall not include
the issuance of options as incentive compensation or for services rendered, or
the exercise of such options.
(g) If and when there is an adjustment to the Conversion Price pursuant
to this Section 8, an additional Warrant will be issued for the number of shares
of Common Stock equal to 15% of the additional number of shares of Common Stock
issuable upon conversion of this Note, based on such adjustment to the
Conversion Price.
9. Adjustment of Conversion Price for Certain Events. In the event of
any stock split, stock dividend, recapitalization, combination of shares of
BrightStar, or other similar event, occurring after the date hereof, then the
Conversion Price shall be adjusted so that, upon conversion of this Note in
full, the Holder shall receive the aggregate number and class of shares which
such Holder would have received if such conversion had occurred immediately
prior to such stock split, stock dividend, recapitalization, combination of
shares, or other similar event.
10. Merger; Consolidation. If all or any portion of this Note shall be
converted subsequent to any merger, consolidation, exchange of shares,
separation, reorganization or liquidation of BrightStar or other similar event,
occurring after the date hereof, as a result of which shares of Common Stock
shall be changed into the same or a different number of shares of the same or
another class or classes of securities of BrightStar or another entity, or the
holders of Common Stock are entitled to receive cash or other property, then the
Holder converting this Note shall be entitled to receive the aggregate number
and class of shares, cash or other property which such Holder would have
received if this Note had been converted immediately prior to such merger,
consolidation, exchange of shares, separation, reorganization or liquidation, or
other similar event.
11. No Shareholder Rights. Nothing contained in this Note shall be
construed as conferring upon the Holder or any other person the right to vote or
to consent or to receive notice as a shareholder in respect of meetings of
shareholders for the election of directors of the Company or any other matters
or any rights whatsoever as a shareholder of the Company; and no dividends shall
be payable or accrued in respect of this Note or the interest represented hereby
or the shares obtainable hereunder until, and only to the extent that, this Note
shall have been converted.
12. No Fractional Shares. No fractional shares of capital stock will be
issued in connection with any conversion of the indebtedness under this Note,
but in lieu of such fractional shares the Company shall make a cash payment
therefor upon the basis of the Conversion Price then in effect.
13. Default. In the event of (a) the failure of the Company to make any
payment of interest required under this Note within thirty (30) days after its
due date, or (b) a Company Acquisition without the consent of the holders of the
Notes as provided in Section 14 hereof, or (c) a Management Change occurring
within six (6) months after the date hereof without the consent of the holders
of the Notes as provided in Section 14 hereof, or (d) a reverse stock split of
the Common Stock before the effectiveness of a registration statement under the
Securities Act of 1933 covering the shares of Common Stock issuable upon
conversion of this Note, or a reverse stock split of the Common Stock after such
effectiveness occurring without the consent of the holders of the Notes as
provided in Section 14 hereof, or (e) the liquidation or dissolution of the
Company, then the Holder in any such case may, at its option, declare the
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principal and interest outstanding under this Note to be immediately due and
payable in full; provided, however, that the Holder may not exercise remedies
until the first to occur of (i) the Senior Lender consents to the exercise of
such remedies; or (ii) the lapse of one hundred eighty (180) days after the
Holder notifies the Senior Lender in writing of such acceleration (provided that
a Blockage Notice is not then in effect). All principal and interest outstanding
under this Note shall be automatically due and payable in full, without demand
or notice of any kind, upon the occurrence of an Insolvency Event. Nothing in
this Section shall limit the rights of the Senior Lender under Section 4 hereof.
14. Amendment. This Note and all other then outstanding Series 1
Convertible Subordinated Promissory Notes may be amended or modified, or any of
its terms or provisions waived, or any consent to actions of the Company under
its terms given, by the written consent of the Company and the holders of Series
1 Convertible Subordinated Promissory Notes representing in aggregate
outstanding principal amount not less than (a) ninety percent (91%) of the
aggregate outstanding principal amount of all Series 1 Convertible Subordinated
Promissory Notes then outstanding in the case of a reverse split of the Common
Stock, as provided in Section 13(d) hereof, or (b) in all other instances,
seventy-five percent (75%) of the aggregate outstanding principal amount of all
Series 1 Convertible Subordinated Promissory Notes then outstanding.
15. Governing Law. This Note shall be governed by, and construed and
enforced in accordance with the laws of the State of California without giving
effect to the conflict of laws principles thereof.
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This Note is executed as of the date first above written.
"COMPANY"
BRIGHTSTAR INFORMATION TECHNOLOGY
SERVICES, INC.
By:
-------------------------------
Print Name:
-----------------------
Title:
----------------------------
Acknowledged and Agreed:
"HOLDER"
By:
------------------------------
Print Name:
----------------------
Title:
---------------------------
Address of Holder:
----------------------------------
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Exhibit A
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND ALL OF ITS SUBSIDIARIES
LEGACY LIABILITIES AS OF 6/15/01
(NON-MISSION CRITICAL)
$THOUSANDS
----------
Payable to stockholder $ 900
Acquisition payable 500
Litigation accruals 570
Excess office lease obligations 541
Prior management severance 258
Non-mission critical payables (18 vendors) 631
-----
Total Non-Mission Critical Legacy Liabilities $3400
Note: 2/3 of Total Non-Mission Critical Legacy Liabilities $2267
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Schedule 1:
The following parties have identical agreements entered into with the Company:
Xx. Xxxxxx X. Xxxxx
Xx. Xxxxx X. Xxxxxx
Mr. Forest X. Xxxxxxx
Xx. Xxxxxxx X. Xxxxx
Mr. Xxxxxx Xxxxxx
Mr. Xxxxx Xxxxxxxx
The Xxxxxxx Foundation
Ivy Creek Investments, LTD
Nauset Properties Ltd.
Xx. Xxxxxx Xxxxxxxxx Xxxxxxx
Xxxx Xxxxxxx Defined Benefit Plan
Mr. Xxxxx Xxxxxxxx
Mr. Xxxxx Xxxxxx
Mr. G. Xxxxxxxx Xxxxxxx
Mr. Xxxxx Xxxxxxxx
Altamont Capital Management Inc.
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