EXHIBIT 10.5
THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT FOR DISTRIBUTION, AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT THERETO UNDER SUCH ACT UNLESS SOLD
PURSUANT TO RULE 144 OF THAT ACT OR UNLESS THE SALE, PLEDGE, HYPOTHECATION OR
TRANSFER IS OTHERWISE EXEMPT FROM REGISTRATION. THE COMPANY MAY REQUEST A
WRITTEN OPINION OF COUNSEL (FROM COUNSEL ACCEPTABLE TO THE COMPANY) SATISFACTORY
TO THE COMPANY, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION
WITH SUCH SALE, PLEDGE OR HYPOTHECATION, OR OTHER TRANSFER. THIS NOTE OR ANY
SECURITY ISSUABLE UPON THE CONVERSION HEREOF MUST BE SURRENDERED TO THE COMPANY
OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, PLEDGE,
HYPOTHECATION OR ANY OTHER TRANSFER OF ANY INTEREST IN THIS NOTE OR ANY SUCH
SECURITY.
SECURED CONVERTIBLE PROMISSORY NOTE
Note No.: __ November 19, 2003
$__________ Irvine, California
FOR VALUE RECEIVED, SSP Solutions, Inc., a Delaware corporation
("COMPANY"), promises to pay to __________________ ("HOLDER"), or its registered
assigns, the principal sum of _____________________ ($___________), or such
lesser amount as shall equal the outstanding principal amount hereof, together
with interest from the date of this Secured Convertible Promissory Note (this
"NOTE") on the unpaid principal balance at a rate equal to 10% per annum,
computed on the basis of the actual number of days elapsed and a year of 365 or
366 days, as the case may be, compounded annually. Interest on the outstanding
principal balance of this Note shall be payable quarterly as described in
SECTION 2. Subject to SECTION 5, all unpaid principal, together with any then
unpaid and accrued interest and other amounts payable hereunder, shall be due
and payable on the Note Maturity Date (as defined below). Subject to SECTION 5,
any unpaid principal and accrued and unpaid interest on the Note Maturity Date
shall be payable in cash. Upon payment in full of all principal and interest
payable hereunder, this Note shall be surrendered to the Company for
cancellation.
This Note is being issued as a replacement of a Note dated April 16,
2002, in the original principal amount of $__________ ("the ORIGINAL NOTE"), the
remaining balance of which has been (a) partially repaid by application of
principal to the purchase of Series A Preferred Stock issued on the same date as
this Note and (b) partially replaced with an additional promissory note issued
on the same date as this Note in the principal amount of $_________. This Note
is secured pursuant to a Securities Purchase, Registration Rights and Security
Agreement, dated as of the date of the Original Note, by and among the Company
and certain investors in the Company, including the Holder (the "AGREEMENT").
This Note and the similar Secured Convertible Promissory Notes originally issued
to the other investors pursuant to the Agreement and reissued as of the date
hereof are collectively referred to as the "NOTES." Pursuant to the Agreement,
the investors also acquired Warrants to Purchase Common Stock (the "WARRANTS").
The following is a statement of the rights of the Holder and the
conditions to which this Note is subject, and to which the Holder, by the
acceptance of this Note, agrees:
1. CERTAIN DEFINITIONS.
(a) "COMMON STOCK" means shares of the common stock, $.01 par value per
share, of the Company.
(b) "EVENT OF DEFAULT" means any of the events specified as such in
SECTION 4(A).
(c) "HOLDER" means the person or entity specified in the introductory
paragraph of this Note or any transferee that is at the time the registered
holder of this Note. The Holder or any transferee is an "accredited investor" as
defined under U.S. federal securities laws or otherwise will qualify to allow
this offering to take place as a private placement under applicable securities
laws.
(d) "NOTE MATURITY DATE" shall mean the earlier of (i) December 31,
2005, or, (ii) the date as of which the outstanding principal and accrued
interest on this Note and all other payments payable hereunder are due and
payable by the Holder pursuant to SECTION 4.2.
Other capitalized terms not defined in this Note have the same meaning
as in the Agreement or in the Warrants, as the case may be.
2. INTEREST.
This Note will bear interest at a rate of 10% per annum. Accrued
interest on this Note shall be due and payable quarterly on the first day of
each calendar quarter beginning December 31, 2003, with a final installment due
on the Note Maturity Date, whether by acceleration, scheduled maturity or
otherwise, unless such amounts are converted into Common Stock pursuant to the
terms set forth herein. Subject to SECTION 5, any accrued interest on this Note
that is due prior to the Note Maturity Date shall be payable in cash or, at the
option of the Company, in shares of Common Stock valued at the arithmetic mean
of the Closing Sale Price of the Company's Common Stock for the 30 day period
ending on the day prior to the day the interest payment is due. Subject to
SECTION 5, any accrued interest on this Note that is due on the Note Maturity
Date, whether by acceleration, scheduled maturity or otherwise, shall be payable
in cash.
3. PREPAYMENT.
This Note may not be prepaid without the prior written consent of the
Holder.
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4. EVENTS OF DEFAULT.
4.1 EVENT OF DEFAULT. Each of the following events shall constitute an
"EVENT OF DEFAULT" under this Note:
(a) Subject to SECTION 5, the Company fails to pay, within
five business days of the date when it first becomes due under the
terms of this Note, the cash portion, or fails to issue the shares of
Common Stock portion, of any accrued interest coming due on a quarterly
basis prior to the Note Maturity Date.
(b) Subject to SECTION 5, the Company fails to pay all amounts
owed within ten business days of the Note Maturity Date as required
under the terms of this Note.
(c) The Company (i) applies for or consents to the appointment
of a receiver, trustee, liquidator or custodian of itself or of all or
a substantial part of its property, (ii) is unable, or admits in
writing its inability, to pay its debts for borrowed money generally as
they come due or its trade payables within 90 days of invoice, (iii)
makes a general assignment for the benefit of its creditors, (iv) is
dissolved or liquidated in full or in part, (v) commences a voluntary
case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or consents
to any such relief or to the appointment of or taking possession of its
property by any official in an involuntary case or other proceeding
commenced against it, or (vi) takes any action for the purpose of
effecting any of the foregoing, and an order for relief entered or such
proceeding shall not be dismissed, discharged or stayed within 60 days
of commencement.
(d) Proceedings for the appointment of a receiver, trustee,
liquidator or custodian of the Company or all or a substantial part of
the property thereof, or an involuntary case or other proceedings
seeking liquidation, reorganization or other relief with respect to
Company or the debts thereof under any bankruptcy, insolvency or other
similar law now or hereafter in effect shall be commenced, and an order
for relief entered or such proceeding shall not be dismissed,
discharged or stayed within 60 days of commencement.
(e) Any of the representations or warranties made by the
Company herein, in the Agreement or in any agreement, certificate or
financial statements heretofore or hereafter furnished by the Company
in connection with the execution and delivery of this Note or the
Agreement shall be false or misleading in any respect at the time made
and results in a Material Adverse Effect.
(f) The Company (i) fails to issue Conversion Shares to the
Holder or to cause its Transfer Agent to issue Conversion Shares, or,
if applicable, cash, upon proper exercise by the Holder of the
conversion rights of the Holder in accordance with the terms of this
Note, (ii) fails to transfer or to cause its Transfer Agent to transfer
any certificate for Conversion Shares issued to the Holder as and when
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required by this Note or the Agreement, and such transfer is otherwise
lawful, or (iii) fails to remove any restrictive legend or to cause its
Transfer Agent to transfer any certificate or any Conversion Shares
issued to the Holder as and when required by this Note, the Agreement
or any other related agreement and such legend removal is otherwise
lawful, and any such failure described in subclauses (i), (ii) or (iii)
continues uncured for five Business Days.
(g) The Company fails to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or
obligation of the Company under the Agreement, this Note or any related
agreement, including but not limited to the payments of interest (other
than quarterly interest payments), liquidated damages and late fees,
provided the Holder has provided the Company notice and an opportunity
to cure within ten trading days of any such event of default under this
SECTION 4.1(G) and provided that the failure results in a Material
Adverse Effect.
(h) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency assumes custody
or control of the whole or any substantial portion of the properties or
assets of the Company and the action is not dismissed within 60 days
thereafter.
(i) Any money judgment, writ or warrant of attachment, or
similar process in excess of $500,000 in the aggregate is entered or
filed against the Company or any of its properties or other assets and
remains unpaid, unvacated, unbonded or unstayed for a period of 60 days
or in any event later than five days prior to the date of any proposed
sale thereunder.
(j) The Registration Statement is not declared effective by
the SEC within 180 days from the Closing Date.
(k) The Company (or any subsidiary thereof if guaranteed by
the Company) defaults (unless the default is the subject of a bona fide
dispute and the Company has set aside adequate reserves) in any of its
obligations under any of the other Notes or any mortgage, credit
agreement or other facility, indenture agreement, factoring agreement
or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness for borrowed money or
money due under any long term leasing or factoring arrangement of the
Company in an amount exceeding an aggregate of $500,000, unless waived,
extended or cured within ten Business Days, whether the indebtedness
now exists or if hereafter created and the default results in the
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable.
(l) The Common Stock is delisted from the Principal Market or
suspended from trading on the Principal Market without resuming trading
and/or being relisted or thereon or listed on another Principal Market
or having the suspension lifted, in either case, for more than either
five consecutive trading days or 15 trading days in the aggregate
during any 12 month period (which need not be consecutive).
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(m) The Company suspends the Holder's conversion rights for
more than five trading days in the aggregate during any 12 month
period; provided, however, that this Event of Default shall not be
deemed to grant the Company any right to any such suspensions.
(n) If the effectiveness of the Registration Statement lapses
for any reason or the Holder is not permitted to resell Registrable
Securities under the Registration Statement, in either case, for more
than 30 Business Days, in the aggregate, during any 12 month period.
(o) Except for the security interests granted under the
Agreement and except as may arise under government contracts, the
Company or any Guarantor grants or agrees to grant a security interest
in any intellectual property of the Company or any subsidiary.
4.2 ACCELERATION. If an Event of Default (other than an Event of
Default specified in SECTION 4.1(C) OR (D) with respect to the Company occurs
and is continuing, then the Holder may declare the outstanding principal and
accrued interest on this Note and all other payments payable hereunder to be
forthwith due and payable immediately, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Company, to the fullest extent permitted by applicable law. If an Event of
Default specified in SECTION 4.1(C) OR (D) occurs and is continuing, then the
outstanding principal and accrued interest on this Note and all other payments
payable hereunder shall become and be immediately due and payable without any
declaration or other act on the part of the Holder. The Holder by notice to the
Company may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived. No such rescission shall affect any subsequent
default or impair any right thereto.
5. CONVERSION.
5.1 AUTOMATIC CONVERSION. Subject to the limitations set forth in
SECTION 5.7, if at any time after the Registration Statement has been declared
effective and on or before the payment in full or conversion of this Note (a)
the Closing Sale Price of a share of the Company's Common Stock equals or
exceeds $3.00 (subject to appropriate adjustment in the event of a stock split,
stock dividend, combination or similar event) for 20 consecutive trading days,
(b) the average daily trading volume during the 20 trading day period equals or
exceeds 100,000 shares and (c) the Company previously has filed a Registration
Statement with the Securities and Exchange Commission, and such Registration
Statement previously has been declared effective by the SEC and the
effectiveness thereof continues throughout each day of the 20 trading day
period, then the principal will automatically convert into shares of Common
Stock at the Conversion Rate (as defined below). Accrued interest due may be
converted, at the same rate, at the option of the Company. The conversion will
be deemed to have occurred as of the close of business on such 20th consecutive
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trading day. The Company shall notify the Holder in writing within one trading
day after any automatic conversion, and will cause certificate representing the
Conversion Shares to be issued within two trading days after automatic
conversion, and will deliver those certificates to the Holder by overnight
courier immediately after receipt of the original of this Note for cancellation.
5.2 CONVERSION PROCEDURE IN THE EVENT OF AUTOMATIC CONVERSION. In the
event of automatic conversion, the outstanding principal (and accrued interest
due, if elected by the Company) under this Note will convert automatically
without any further action by the Company whether or not the Note is surrendered
to the Company or its transfer agent. The Company will not be obligated to issue
certificates evidencing the securities issuable upon automatic conversion of
this Note unless this Note is either delivered to the Company or its transfer
agent, or the Holder notifies the Company or its transfer agent that this Note
has been mutilated, lost, stolen or destroyed and executes an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with this Note. At its expense, the Company will,
as soon as reasonably practicable thereafter, issue and deliver to the Holder a
certificate for the number of shares to which the Holder will be entitled upon
conversion (bearing such legends as are required by applicable state and federal
securities laws in the opinion of counsel to the Company), together with a check
payable to the Holder for any cash amounts payable as described in SECTION 5.5.
5.3 VOLUNTARY CONVERSION. Subject to the limitations set forth in
SECTION 5.7, the Holder may, at any time before this Note has been repaid in
full, elect to convert all or any portion of the outstanding principal (and
accrued interest due, if elected by the Holder) into shares of Common Stock at
the Conversion Rate.
5.4 CONVERSION PROCEDURE IN THE EVENT OF VOLUNTARY CONVERSION.
(a) Each voluntary conversion of this Note shall be effected
by the surrender of this Note at the principal office of the Company at
any time during normal business hours, together with a written notice
by the Holder stating that the Holder desires to convert the entire, or
a specified increment of, principal of this Note into Common Stock.
Each conversion of a Note will be deemed to have been effected as of
the close of business on the date on which this Note has been
surrendered and the notice has been received, and at that time, the
rights of the Holder of this Note will cease and the person or persons
in whose name or names any certificate or certificates for Common Stock
are to be issued upon conversion will be deemed to have become the
Holder or Holders of record of the shares of Common Stock represented
thereby.
(b) Within two trading days after a conversion has been
effected, the Company will deliver to the converting holder:
(i) a certificate or certificates representing the
number of shares of Common Stock issuable by reason of
conversion in such name or names and such denomination or
denominations as the converting holder has specified; and
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(ii) a replacement Note representing the principal
amount of this Note delivered to the Company in connection
with the conversion but which was not converted.
(c) The issuance of certificates for Common Stock upon
conversion of this Note will be made without charge to the Holder of
this Note for any tax in respect thereof or other cost incurred by the
Company in connection with conversion and the related issuance of
Common Stock. Upon conversion of any portion of this Note, the Company
will take all actions as are necessary in order to ensure that the
Common Stock issuable with respect to conversion will be validly
issued, fully paid and nonassessable.
(d) The Company will not close its books against the transfer
of this Note or of the shares of Common Stock issued or issuable upon
conversion of this Note in any manner which interferes with the timely
conversion of this Note, and will at all times reserve for issuance the
maximum number of shares of Common Stock into which this Note is
convertible.
5.5 FRACTIONAL SHARES; INTEREST. No fractional shares shall be issued
upon conversion of this Note. In lieu of Company issuing any fractional shares
to Holder upon the conversion of this Note, Company shall pay to Holder an
amount in cash equal to the product obtained by multiplying the Conversion Rate
applied to effect such conversion by the fraction of a share not issued pursuant
to the previous sentence. Upon conversion of this Note in full or the payment of
outstanding amounts specified in this Note, the Company shall be released from
all its obligations and liabilities under this Note.
5.6 CONVERSION RATE. The initial Conversion Rate shall be $1.00 per
share of Common Stock. The Conversion Rate shall be subject to adjustment as
described in SECTION 6.
5.7 LIMITATION ON NUMBER OF SHARES ISSUABLE. Notwithstanding anything
herein to the contrary, unless the requisite stockholder vote has been obtained,
the Company shall not be required to issue to the Holder, upon conversion of the
Notes or exercise of the Warrants, in excess of, as of Closing Date, 19.9999% of
the issued and outstanding shares of Common Stock multiplied by a fraction, the
numerator of which is the original principal amount of this Note and the
denominator of which is the aggregate original principal amount of all the Notes
at a price below the market price of the Common Stock on such date (the "MAXIMUM
AGGREGATE SHARE AMOUNT"), unless the Company first obtains stockholder approval
permitting such issuances in accordance with Nasdaq rules. If the number of
shares of Common Stock which would, notwithstanding the limitation set forth
herein, be issuable and sold to the Holder equals or exceeds the Maximum
Aggregate Share Amount, then, at any time thereafter, from time to time, at the
sole election of the Holder, in whole or in part, the Company shall honor the
conversion of this Note by the Holder at the lowest possible conversion price
(but not lower than the Conversion Rate) which would permit such conversion
without violating Nasdaq Rule 4350(i).
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6. ADJUSTMENT OF CONVERSION RATE.
The Conversion Rate shall be adjusted from time to time as follows:
6.1 ADJUSTMENT OF CONVERSION RATE UPON SUBDIVISION OR COMBINATION OF
COMMON STOCK. If the Company at any time after the date of issuance of this Note
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Rate in effect immediately prior to such
subdivision will be proportionately reduced and the number of shares of Common
Stock obtainable upon conversion of this Note will be proportionately increased.
If the Company at any time after the date of issuance of this Note combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Rate in effect immediately prior to such combination will be
proportionately increased and the number of shares of Common Stock obtainable
upon conversion of this Note will be proportionately decreased. Any adjustment
under this SECTION 6.4 shall become effective at the close of business on the
date the subdivision or combination becomes effective
6.2 DISTRIBUTION OF ASSETS. If the Company declares or makes any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a "DISTRIBUTION"), at any time
after the issuance of this Note, then, in each such case:
(a) the Conversion Rate in effect immediately prior to the
close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution shall be
reduced, effective as of the close of business on such record date, to
a price determined by multiplying such Conversion Rate by a fraction of
which (A) the numerator shall be the Closing Sale Price of the Common
Stock on the trading day immediately preceding such record date minus
the value of the Distribution (as determined in good faith by the
Company's Board of Directors) applicable to one share of Common Stock,
and (B) the denominator shall be the Closing Sale Price of the Common
Stock on the trading day immediately preceding such record date; and
(b) the number of Conversion Shares obtainable upon conversion
of this Note shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the
close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution multiplied
by the reciprocal of the fraction set forth in the immediately
preceding clause (a).
6.3 CERTAIN EVENTS. If any event occurs of the type contemplated by the
provisions of this SECTION 6 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
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Board of Directors will make an appropriate adjustment in the Conversion Rate
and the number of shares of Common Stock obtainable upon conversion of this Note
so as to protect the rights of the holders of the Notes; provided that no such
adjustment will increase the Conversion Rate or decrease the number of shares of
Common Stock obtainable as otherwise determined pursuant to this SECTION 6.
6.4 NOTICES.
(a) Immediately upon any adjustment of the Conversion Rate,
the Company will give written notice thereof to the holder of this
Note, setting forth in reasonable detail, and certifying, the
calculation of such adjustment.
(b) The Company will give written notice to the holder of this
Note at least 20 days prior to the date on which the Company closes its
books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining
rights to vote with respect to any Organic Change, dissolution or
liquidation, provided that such information shall be made known to the
public prior to or in conjunction with such notice being provided to
such holder.
(c) The Company will also give written notice to the holder of
this Note at least 20 days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
7. PRIORITY; AGREEMENTS RELATING TO COLLATERAL.
7.1 PRIORITY OF SECURITY INTEREST. The initial Holder and any
subsequent Holder of this Note, by accepting this Note, acknowledges and agrees
that the Holder's security interest in the Collateral is (a) a pro rata security
interest (as described in the Agreement) with the holders of other similar Notes
issued by the Company pursuant to the Agreement and (b) is junior in priority to
the security interests of the holders of any Senior Debt (as defined below).
7.2 SENIOR DEBT. "SENIOR DEBT" means an amount owing by the Company,
including principal, interest (including any interest accruing during any
bankruptcy proceeding), premium, if any, fees (including, without limitation,
any commitment, agency, facility, structuring, restructuring or other fee),
costs, expenses and indemnities, from time to time for indebtedness for borrowed
money under notes, debentures or other evidence of indebtedness issued to, or
agreements with, a commercial bank or similar financial institution whose
principal business is the lending of money solely for the purpose of obtaining
working or permanent capital for the Company, which amount and repayment terms
thereof have been designated by the Company in writing as of the date hereof to
the Holder as "SENIOR DEBT." The Holder hereby waives any and all notice of
renewal, extension or accrual of any of the Senior Debt, present or future, and
agrees and consents that without notice to or consent of the Holder: (a) the
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obligations and liabilities of the Company or any other party or parties under
the Senior Debt may, from time to time, in whole or in part, be renewed,
refinanced, replaced, terminated, decreased or released; (b) the holders of
Senior Debt and their representatives may exercise or refrain from exercising
any right, remedy or power granted by any document creating or evidencing the
Senior Debt or at law, in equity, or otherwise, with respect to the Senior Debt
or in connection with any collateral security or lien (legal or equitable) held,
given or intended to be given therefor (including, without limitation, the right
to perfect any lien or security interest created in connection therewith); and
(c) any and all collateral security and/or liens (legal or equitable) at any
time, present or future, held, given or intended to be given for the Senior
Debt, and any rights or remedies of the holders of Senior Debt and their
representatives in respect thereof, may, from time to time, in whole or in part,
be surrendered, released, perfected, unperfected or waived by the holders of
Senior Debt and their representatives.
7.3 EXECUTION OF SUBORDINATION AGREEMENT. By accepting this Note, the
Holder agrees that, upon the request of any holder of Senior Debt, it will
execute and deliver a subordination agreement for the benefit of such holder of
Senior Debt (in form reasonably acceptable to the Holder and its counsel)
reflecting the terms of this SECTION 7; provided, however that the foregoing
shall not require the Holder to execute or deliver any agreement which provides
for additional terms of subordination or otherwise adversely modifies (whether
by change, addition or deletion) the terms hereof.
7.4 ADDITIONAL ENCUMBRANCES. The Company shall not, without the prior
written consent of the Representative of the Investors and the holders of a
majority in principal amount of the outstanding Notes, create or suffer to exist
any lien or security interest on or with respect to the Collateral, except liens
or security interests (a) in favor of holders of Senior Debt or Notes of the
Company, (b) securing taxes, assessments or governmental charges or levies, or
(iii) that arise in the ordinary course of business and not created in
connection with the borrowing of money or the obtaining of credit.
7.5 OBTAINING INSURANCE. The Company shall in good faith seek and
evaluate insurance products relative to the intellectual property of the
Company. If the terms, costs and availability of funds provided by such
insurance products are reasonably acceptable to the Company, the Representative
of the Investors and the holders of a majority in principal amount of the
outstanding Notes, such insurance products shall be obtained at the Company's
sole cost and expense, provided that the coverage lasts through the term of this
Note.
8. COSTS.
In addition to all unpaid principal and accrued interest due and
payable hereunder, the Company agrees to pay to the Holder upon demand all
reasonable costs and expenses incurred (including, without limitation reasonable
fees and expenses of counsel) in connection with (a) the enforcement of the
terms of or protection of the Holder's rights under this Note, (b) any waiver
requested by the Company of the Holder's rights under this Note, (c) any
proposed amendment, modification, refinancing, restructuring or work-out of the
credit evidenced hereby and (d) collecting any obligations under this Note
through reorganization, bankruptcy or any other proceeding.
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9. USURY.
It is the express intent of the Company and the Holder that the payment
of all or any portion of the outstanding principal amount of and accrued
interest under this Note be exempt from the application of any applicable usury
or similar laws under any state, federal or foreign jurisdiction. The Company
hereby irrevocably waives, to the fullest extent permitted by law, any objection
or defense which the Company may now or hereafter have to the payment when due
of any and all Note principal or accrued interest arising out of or relating to
a claim of usury or similar laws and the Company hereby agrees that neither it
nor any of its affiliates shall in the future bring, commence, maintain,
prosecute or voluntarily aid in any action at law, proceeding in equity or other
legal proceeding against the Holder based on a claim that the Company's payment
obligations under this Note violate the usury or similar laws of any state,
federal or foreign jurisdiction. Notwithstanding the foregoing, if any interest
is paid on this Note that is deemed to be in excess of the then legal maximum
rate, then that portion of the interest payment representing an amount in excess
of the then legal maximum rate shall be deemed a payment of principal and
applied against the principal of this Note.
10. UNCONDITIONAL OBLIGATION: FEES, WAIVERS, OTHER.
The Company and the Holder (by acceptance of this Note) agree as
follows:
(a) No forbearance, indulgence, delay or failure to exercise
any right or remedy with respect to this Note shall operate as a
waiver, nor as an acquiescence in any default, nor shall any single or
partial exercise of any right or remedy preclude any other or further
exercise thereof.
(b) The Company hereby expressly waives demand and presentment
for payment, notice of nonpayment, notice of dishonor, protest, notice
of protest, bringing of suit, and diligence in taking any action to
collect amounts called for hereunder, and shall be directly and
primarily liable for the payment of all sums owing and to be owing
hereon, regardless of and without any notice, diligence, act or
omission with respect to the collection of any amount called for
hereunder or in connection with any right at any and all times which
Holder had or is existing hereunder.
11. NOTICES.
All notices and other communications provided for hereunder shall be in
writing and delivered, mailed or transmitted by any standard form of
telecommunication. Notices and other communications to the Holder shall be
directed to it at its address noted on the Company's records; and notices and
other communications to the Company shall be directed to it at its address at
SSP Solutions, Inc., 00000 Xxxxxxxxxx Xxxx, Xxxxxx, Xxxxxxxxxx 00000; or, as to
each party, at such other address as shall be designated by such party in a
written notice to the other party pursuant hereto. Any notice or other
communication shall be deemed to have been duly given (a) when sent by Federal
Express or other overnight delivery service of recognized standing, on the
business day following deposit with such service; (b) when mailed by registered
or certified mail, first class postage prepaid and addressed as aforesaid
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through the United States Postal Service, upon receipt; (c) when delivered by
hand, upon delivery; and (d) when telecopied, upon confirmation of receipt. Any
party hereto may by notice so given change its address for future notice
hereunder.
12. PAYMENT.
Except with respect to payments in kind that are permitted hereunder,
payment shall be made in lawful tender of the United States.
13. NO THIRD PARTY RIGHTS.
Nothing expressed in or to be implied from this Note is intended to
give, or shall be construed to give, any person, other than the parties hereto
and their permitted successors and assigns, any benefit or legal or equitable
right, remedy or claim under or by virtue of this Note.
14. REPLACEMENT OF NOTE.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Note (or any security issued on
conversion of this Note), the Company will issue a replacement instrument, at
the Holder's expense, representing such securities in lieu of such lost, stolen,
destroyed or mutilated instrument, provided that the Holder agrees to indemnify
the Company for any losses incurred by the Company with respect to such
instrument.
15. AMENDMENT.
Except as expressly provided herein, neither this Note nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument referencing this Note and signed by the Company and the Holder. This
Note is one of a series of similar Notes issued by the Company. Notwithstanding
the foregoing, this Note may be amended, waived, discharged or terminated by a
written instrument referencing this Note and signed by the Company, the
Representative of the Investors and the holders of a majority in principal
amount of the outstanding Notes of the Company. Any such amendment, waiver,
discharge or termination effected in accordance with the preceding sentence
shall be binding upon each holder of any Notes of the Company outstanding. The
Holder acknowledges that by the operation of this paragraph, the holders of a
majority of the outstanding principal amount of the Notes will have the right
and power to diminish or eliminate all rights of the Holder under this Note.
16. GOVERNING LAW.
This Note and all actions arising out of or in connection with this
Note shall be governed by and construed in accordance with the laws of the
United States of America and the State of California, without application of
conflicts of law principles. In any action, dispute, litigation or other
proceeding concerning this Note (including arbitration), exclusive jurisdiction
shall be with the courts of California, with the County of Orange being the sole
venue for the bringing of the action or proceeding.
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17. WAIVER OF JURY TRIAL.
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, AND
UNDERSTANDING THEY ARE WAIVING A CONSTITUTIONAL RIGHT, THE PARTIES HERETO WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE
ANY DISPUTE, WHETHER IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO, THIS NOTE, THE AGREEMENT AND/OR ANY RELATED
AGREEMENT OR THE TRANSACTIONS COMPLETED HEREBY OR THEREBY.
[signature page follows]
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IN WITNESS WHEREOF, the Company has caused this Note to be issued as of
the date first written above.
SSP SOLUTIONS, INC.,
a Delaware corporation
By:
--------------------------------------------
Xxxxxx X. Xxxxxxx, Chief Executive Officer
By:
--------------------------------------------
Xxxxxx X. Xxxxxx, Chief Financial Officer
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