Exhibit 10.37
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE REASONABLY
ACCEPTABLE TO THE MAKER) IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO THE MAKER THAT THIS NOTE MAY BE SOLD, TRANSFERRED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH STATE SECURITIES LAWS.
THE XXXXXX COMPANY, INC.
Convertible Promissory Note
due November 19, 2004
No. CN-3 $50,000.00
Dated: November 19, 2001
For value received, THE XXXXXX COMPANY, INC., a Utah corporation (the
"Maker"), hereby promises to pay to the order of AMRO INTERNATIONAL S.A.
(together with its successors, representatives, and permitted assigns, the
"Holder"), in accordance with the terms hereinafter provided, the principal
amount of fifty Thousand Dollars ($50,000.00), together with interest thereon.
All payments under or pursuant to this Note shall be made in United States
Dollars in immediately available funds to the Holder at the address of the
Holder first set forth above or at such other place as the Holder may designate
from time to time in writing to the Maker or by wire transfer of funds to the
Holder's account, instructions for which are attached hereto as Exhibit A. The
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outstanding principal balance of this Note shall be due and payable on November
19, 2004 (the "Maturity Date") or at such earlier time as provided herein. This
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Note may not be prepaid by the Maker. At the option of the holder, the maker
may redeem the note at 130% of its outstanding value from funds received from
any future private equity line of credit agreements.
Purchase Agreement. This Note has been executed and delivered pursuant to
the Convertible Note Purchase Agreement, dated as of November 19, 2001 (the
"Purchase Agreement"), by and among the Maker and the Holder. Capitalized terms
used and not otherwise defined herein shall have the meanings set forth for such
terms in the Purchase Agreement.
-Interest. Beginning on the date hereof, the outstanding principal balance of
this Note shall bear interest, in arrears, at a rate per annum equal to eight
percent (8%), payable quarterly unless earlier converted or prepaid as provided
herein. Interest shall be computed on the basis of a 360-day year of twelve
(12) 30-day months and shall accrue commencing on the issuance date of this Note
(the "Issuance Date"). The interest shall be payable, at the option of the
Holder, in cash or shares of the Maker's common stock, par value $.01 per share
(the "Common Stock"); provided, that if the Holder elects to receive any
interest in Common Stock, the Maker shall issue to the Holder registered and
freely tradable shares of Common Stock. The number of shares of Common Stock to
be issued as payment of accrued and unpaid interest shall be determined by
dividing (a) the total amount of accrued and unpaid interest to be converted
into Common Stock by the lesser of (i) $.02 and (ii) an amount equal to 70% of
the average Per Share Market Value (as defined in Section 3.2(b) hereof) for the
three (3) Trading Days (as defined in Section 4.13 hereof) having the lowest Per
Share Market Value during the thirty (30) Trading Days prior to the date the
interest payment is due. Furthermore, upon the occurrence of an Event of
Default (as defined in Section 2.1 hereof), then to the extent permitted by law,
the Maker will pay interest to the Holder, payable on demand, on the outstanding
principal balance of the Note from the date of the Event of Default until
payment in full at the rate of fifteen percent (15%) per annum.
Payment on Non-Business Days. Whenever any payment to be made shall be due on a
Saturday, Sunday or a public holiday under the laws of the State of New York,
such payment may be due on the next succeeding business day and such next
succeeding day shall be included in the calculation of the amount of accrued
interest payable on such date.
-Transfer. This Note may be transferred or sold, subject to the provisions of
Section 4.5 of this Note, or pledged, hypothecated or otherwise granted as
security by the Holder.
-Replacement. Upon receipt of a duly executed, notarized and unsecured written
statement from the Holder with respect to the loss, theft or destruction of this
Note (or any replacement hereof), and without requiring an indemnity bond or
other security, or, in the case of a mutilation of this Note, upon surrender and
cancellation of such Note, the Maker shall issue a new Note, of like tenor and
amount, in lieu of such lost, stolen, destroyed or mutilated Note.
EVENTS OF DEFAULT; REMEDIES
-Events of Default. The occurrence of any of the following events shall be
an "Event of Default" under this Note:
the Maker shall fail to make the payment of any amount of principal outstanding
on the date such payment is due hereunder; or
the Maker shall fail to make any payment of interest for a period of five (5)
days after the date such interest is due; or
the failure of the Registration Statement to be declared effective by the
Securities and Exchange Commission ("SEC") on or prior to the date which is one
hundred twenty (120) days after the Filing Date (as defined in the Registration
Rights Agreement); or
the suspension from listing or the failure of the Common Stock to be listed on
the OTC Bulletin Board for a period of five (5) consecutive Trading Days; or
the Maker's notice to the Holder, including by way of public announcement, at
any time, of its inability to comply (including for any of the reasons described
in Section 3.8(a) hereof) or its intention not to comply with proper requests
for conversion of this Note into shares of Common Stock; or
the Maker shall fail to (i) timely delivery the shares of Common Stock upon
conversion of the Note or any interest accrued and unpaid, (ii) timely file the
Registration Statement (as defined in the Registration Rights Agreement) or
(iii) make the payment of any fees and/or liquidated damages under this Note,
the Purchase Agreement or the Registration Rights Agreement, which failure in
the case of items (i) and (iii) of this Section 2.1(f) is not remedied within
seven (7) business days after the incurrence thereof; or
while the Registration Statement is required to be maintained effective pursuant
to the terms of the Registration Rights Agreement, the effectiveness of the
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the Holder for sale of the
Registrable Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of ten (10) consecutive Trading Days,
provided that the cause of such lapse or unavailability is not due to factors
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solely within the control of Holder; or
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default shall be made in the performance or observance of (i) any covenant,
condition or agreement contained in this Note (other than as set forth in clause
(f) of this Section 2.1) and such default is not fully cured within three (3)
business days after the occurrence thereof or (ii) any material covenant,
condition or agreement contained in the Purchase Agreement or the Registration
Rights Agreement which is not covered by any other provisions of this Section
2.1 and such default is not fully cured within seven (7) business days after the
occurrence thereof; or
any material representation or warranty made by the Maker herein or in the
Purchase Agreement or the Registration Rights Agreement shall prove to have been
false or incorrect or breached in a material respect on the date as of which
made; or
the Maker shall issue any debt securities which are not subordinate to this Note
on such terms as are acceptable to the Holders of a majority of the outstanding
principal amount of this Note and the other Notes purchased under the Purchase
Agreement; or
the consummation of any of the following transactions: (i) the consolidation,
merger or other business combination of the Maker with or into a person or
entity (other than (A) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Maker or (B) a
consolidation, merger or other business combination in which holders of the
Maker's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities), except if in the case of a consolidation merger or other business
combination of the Maker, the Maker shall have given the Holder not less than
fifteen (15) business days prior written notice thereof (the "Transaction
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Notice") and shall have furnished the Holder with such information regarding the
consolidation, merger or other business combination (including, without
limitation, the counterparties thereto) as the Holder may reasonably request in
order for the Holder to determine if it will exercise its conversion rights
hereunder prior to the consummation of such consolidation, merger or other
business combination; (ii) the sale or transfer of all or substantially all of
the Maker's assets; or (iii) the consummation of a purchase, tender or exchange
offer made to the holders of more than 30% of the outstanding shares of Common
Stock.
the Maker shall (i) default in any payment of any amount or amounts (x) of
principal of or interest on any Indebtedness (other than the Indebtedness
hereunder) the aggregate principal amount of which Indebtedness is in excess of
$75,000 or (ii) default in the observance or performance of any other agreement
or condition relating to any Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders or beneficiary or
beneficiaries of such Indebtedness to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity; or
the Maker shall (i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or of all
or a substantial part of its property or assets, (ii) make a general assignment
for the benefit of its creditors, (iii) commence a voluntary case under the
United States Bankruptcy Code (as now or hereafter in effect) or under the
comparable laws of any jurisdiction (foreign or domestic), (iv) file a petition
seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors'
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
or (vi) take any action under the laws of any jurisdiction (foreign or domestic)
analogous to any of the foregoing; or
a proceeding or case shall be commenced in respect of the Maker, without its
application or consent, in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, moratorium, dissolution, winding up, or composition
or readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of it or of all or any substantial part of its
assets in connection with the liquidation or dissolution of the Company or (iii)
similar relief in respect of it under any law providing for the relief of
debtors, and such proceeding or case described in clause (i), (ii) or (iii)
shall continue undismissed, or unstayed and in effect, for a period of sixty
(60) days or any order for relief shall be entered in an involuntary case under
United States Bankruptcy Code (as now or hereafter in effect) or under the
comparable laws of any jurisdiction (foreign or domestic) against the Maker or
action under the laws of any jurisdiction (foreign or domestic) analogous to any
of the foregoing shall be taken with respect to the Maker and shall continue
undismissed, or unstayed and in effect for a period of sixty (60) days.
-Remedies Upon An Event of Default. If an Event of Default shall have
occurred and shall be continuing, the Holder of this Note may at any time at its
option (a) declare the entire unpaid principal balance of this Note, together
with all interest accrued hereon, due and payable, and thereupon, the same shall
be accelerated and so due and payable, without presentment, demand, protest, or
notice, all of which are hereby expressly unconditionally and irrevocably waived
by the Maker; provided, however, that upon the occurrence of an Event of Default
described in (i) Sections 2.1 (l), (m) or (n), the outstanding principal balance
and accrued interest hereunder shall be automatically due and payable and (ii)
Sections 2.1 (c)-(k), demand the prepayment of this Note pursuant to Section 3.7
hereof, (b) demand that the principal amount of this Note then outstanding and
all accrued and unpaid interest thereon shall be converted into shares of Common
Stock at a conversion price per share calculated pursuant to Section 3.1 hereof
assuming that the date that the Event of Default occurs is the Conversion Date
(as defined in Section 3.1 hereof), or (c) exercise or otherwise enforce any one
or more of the Holder's rights, powers, privileges, remedies and interests under
this Note, the Purchase Agreement, the Registration Rights Agreement or
applicable law. No course of delay on the part of the Holder shall operate as a
waiver thereof or otherwise prejudice the right of the Holder. No remedy
conferred hereby shall be exclusive of any other remedy referred to herein or
now or hereafter available at law, in equity, by statute or otherwise.
-CONVERSION; ANTIDILUTION; PREPAYMENT
-Conversion Option. At any time on or after November 19, 2001, this Note
shall be convertible (in whole or in part), at the option of the Holder (the
"Conversion Option"), into such number of fully paid and non-assessable shares
of Common Stock (the "Conversion Rate") as is determined by dividing (x) that
portion of the outstanding principal balance plus accrued and unpaid interest
under the Note as of such date that the Holder elects to convert by (y) the
Conversion Price (as hereinafter defined) then in effect on the date on which
the Holder faxes a notice of conversion (the "Conversion Notice"), duly
executed, to the Maker (facsimile number (000) 000-0000, Attn.: Chief Executive
Officer) (the "Conversion Date"), provided, however, that the Conversion Price
shall be subject to adjustment as described in Section 3.6 below.
Conversion Price.
(a) The term "Conversion Price" shall mean the lesser of (A) $.02 (the
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"Fixed Conversion Price") and (B) an amount equal to seventy percent (70%) of
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the average Per Share Market Value for the three (3) Trading Days having the
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lowest Per Share Market Value during the thirty (30) Trading Days prior to the
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Conversion Date, except that if during any period (a "Black-out Period"), a
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Holder is unable to trade any Common Stock issued or issuable upon conversion of
the Notes immediately due to the postponement of filing or delay or suspension
of effectiveness of a registration statement or because the Maker has otherwise
informed such Holder that an existing prospectus cannot be used at that time in
the sale or transfer of such Common Stock, such Holder shall have the option but
not the obligation on any Conversion Date within ten (10) Trading Days following
the expiration of the Black-out Period of using the Conversion Price applicable
on such Conversion Date or any Conversion Price selected by such Holder that
would have been applicable had such Conversion Date been at any earlier time
during the Black-out Period or within the ten (10) Trading Days thereafter.
(b) The term "Per Share Market Value" means on any particular date (a)
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the closing bid price of the Common Stock on such date on the OTC Bulletin
Board, The Nasdaq Small-Cap Market, the Nasdaq National Market or other
registered national stock exchange on which the Common Stock is then listed or
if there is no such price on such date, then the closing bid price on such
exchange or quotation system on the date nearest preceding such date, or (b) if
the Common Stock is not listed then on The Nasdaq Small-Cap Market, the Nasdaq
National Market or any registered national stock exchange, the closing bid price
for a share of Common Stock in the over-the-counter market, as reported by
NASDAQ or in the National Quotation Bureau Incorporated or similar organization
or agency succeeding to its functions of reporting prices) at the close of
business on such date, then the average of the three (3) lowest closing bid or
closing prices, if applicable, of the "Pink Sheet" quotes for the relevant
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thirty (30) day trading conversion period, as determined in good faith by the
Holder, or (d) if the Common Stock is not then publicly traded the fair market
value of a share of Common Stock as determined by an Independent Appraiser (as
defined in Section 4.13 hereof) selected in good faith by the Holders of a
majority in interest of the Notes; provided, however, that the Maker, after
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receipt of the determination by such Independent Appraiser, shall have the right
to select an additional Independent Appraiser, in which case, the fair market
value shall be equal to the average of the determinations by each such
Independent Appraiser; and provided, further that all determinations of the Per
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Share Market Value shall be appropriately adjusted for any stock dividends,
stock splits or other similar transactions during such period. The
determination of fair market value by an Independent Appraiser shall be based
upon the fair market value of the Issuer determined on a going concern basis as
between a willing buyer and a willing seller and taking into account all
relevant factors determinative of value, and shall be final and binding on all
parties. In determining the fair market value of any shares of Common Stock, no
consideration shall be given to any restrictions on transfer of the Common Stock
imposed by agreement or by federal or state securities laws, or to the existence
or absence of, or any limitations on, voting rights.
Mechanics of Conversion.
Not later than five (5) Trading Days after any Conversion Date, the Maker will
deliver to the applicable Holder by express courier (A) a certificate or
certificates which shall be free of restrictive legends and trading restrictions
(other than those required by Section 5.1 of the Purchase Agreement)
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representing the number of shares of Common Stock being acquired upon the
conversion of the Notes and (B) one or more certificates representing the amount
of Notes not converted. If in the case of any Conversion Notice 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
"Delivery Date"), the Holder shall be entitled by written notice to the Maker at
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any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Maker shall
immediately return the certificates representing the Notes tendered for
conversion, whereupon the Maker and the Holder shall each be restored to their
respective positions immediately prior to the delivery of such notice of
revocation, except that any amounts described in Sections 3.3(b) and (c) shall
be payable through the date notice of rescission is given to the Maker.
The Maker understands that a delay in the delivery of the shares of Common Stock
upon conversion of the Notes and failure to deliver certificates representing
the unconverted shares of the Notes beyond the Delivery Date could result in
economic loss to the Holder. If the Maker fails to deliver to the Holder such
certificate or certificates pursuant to this Section hereunder by the Delivery
Date, the Maker shall pay to such Holder, in cash, an amount per Trading Day for
each Trading Day until such certificates are delivered, together with interest
on such amount at a rate of 10% per annum, accruing until such amount and any
accrued interest thereon is paid in full, equal to (i) 1% of the aggregate
principal amount of the Notes requested to be converted for the first five (5)
Trading Days after the Delivery Date and (ii) 2% of the aggregate principal
amount of the Notes requested to be converted for each Trading Day thereafter
(which amounts shall be paid as liquidated damages and not as a penalty).
Nothing herein shall limit a Holder's right to pursue actual damages for the
Maker's failure to deliver certificates representing shares of Common Stock upon
conversion within the period specified herein (including, without limitation,
damages relating to any purchase of shares of Common Stock by such Holder to
make delivery on a sale effected in anticipation of receiving certificates
representing shares of Common Stock upon conversion, such damages to be in an
amount equal to (A) the aggregate amount paid by such Holder for the shares of
Common Stock so purchased minus (B) the aggregate amount of net proceeds, if
any, received by such Holder from the sale of the shares of Common Stock issued
by the Maker pursuant to such conversion), and such Holder shall have the right
to pursue all remedies available to it at law or in equity (including, without
limitation, a decree of specific performance and/or injunctive relief).
Notwithstanding anything to the contrary contained herein, the Holder shall be
entitled to withdraw a Conversion Notice, and upon such withdrawal the Maker
shall only be obligated to pay the liquidated damages accrued in accordance with
this Section 3.3(b) through the date the Conversion Notice is withdrawn.
In addition to any other rights available to the Holder, if the Maker fails to
deliver to the Holder such certificate or certificates pursuant to Section
3.3(a) by the Delivery Date and if after the Delivery Date the Holder purchases
(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 anticipated receiving upon such conversion (a "Buy-In"), then the Maker
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shall pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (A) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal amount of the Notes for which such
conversion was not timely honored, together with interest thereon at a rate of
15% per annum, accruing until such amount and any accrued interest thereon is
paid in full (which amount shall be paid as liquidated damages and not as a
penalty). For example, if the Holder purchases shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 aggregate principal amount of the Notes, the Maker shall
be required to pay the Holder $1,000, plus interest. The Holder shall provide
the Maker written notice indicating the amounts payable to the Holder in respect
of the Buy-In.
Ownership Cap. Notwithstanding anything to the contrary set forth in
Section 3 of this Note, at no time may a holder of this Note convert this Note
if the number of shares of Common Stock to be issued pursuant to such conversion
would exceed, when aggregated with all other shares of Common Stock owned by
such holder at such time, the number of shares of Common Stock which would
result in such holder owning more than 9.99% of all of the Common Stock
outstanding at such time; provided, however, that upon a holder of this Note
providing the Company with 75 days notice (pursuant to Section 4.1 hereof) (the
"Waiver Notice") that such holder would like to waive this Section 3.4 with
regard to any or all shares of Common Stock issuable upon conversion of this
Note, this Section 3.4 will be of no force or effect with regard to all or a
portion of the Note referenced in the Waiver Notice.
Intentionally Omitted.
-Adjustment of Conversion Price.
The Fixed Conversion Price shall be subject to adjustment from time to time as
follows:
Adjustments for Stock Splits and Combinations. If the Maker shall at any time
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or from time to time after the Issuance Date, effect a stock split of the
outstanding Common Stock, the applicable Fixed Conversion Price in effect
immediately prior to the stock split shall be proportionately decreased. If the
Maker shall at any time or from time to time after the Issuance Date, combine
the outstanding shares of Common Stock, the applicable Fixed Conversion Price in
effect immediately prior to the combination shall be proportionately increased.
Any adjustments under this Section 3.6(a)(i) shall be effective at the close of
business on the date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If the Maker
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shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in shares of Common Stock,
then, and in each event, the applicable Fixed Conversion Price in effect
immediately prior to such event shall be decreased as of the time of such
issuance or, in the event such record date shall have been fixed, as of the
close of business on such record date, by multiplying, as applicable, the
applicable Fixed Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(2) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution.
(iii) Adjustment for Other Dividends and Distributions. If the Maker
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shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in other than shares of Common
Stock, then, and in each event, an appropriate revision to the applicable Fixed
Conversion Price shall be made and provision shall be made (by adjustments of
the Conversion Price or otherwise) so that the holders of the Notes shall
receive upon conversions thereof, in addition to the number of shares of Common
Stock receivable thereon, the number of securities of the Maker which they would
have received had their Notes been converted into Common Stock on the date of
such event and had thereafter, during the period from the date of such event to
and including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 3.6(a)(iii) with
respect to the rights of the holders of the Notes.
(iv) Adjustments for Reclassification, Exchange or Substitution. If
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the Common Stock issuable upon conversion of the Notes at any time or from time
to time after the Issuance Date shall be changed to the same or different number
of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 3.6(a)(i),
(ii) and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 3.6(a)(v)), then, and in each event, an appropriate
revision to the Fixed Conversion Price shall be made and provisions shall be
made (by adjustments of the Conversion Price or otherwise) so that the holder of
each of the Notes shall have the right thereafter to convert such Note into the
kind and amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which such Note might have been converted
immediately prior to such reclassification, exchange, substitution or other
change, all subject to further adjustment as provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or Sales of
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Assets. If at any time or from time to time after the Issuance Date there shall
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be a capital reorganization of the Maker (other than by way of a stock split or
combination of shares or stock dividends or distributions provided for in
Section 3.6(a)(i), (ii) and (iii), or a reclassification, exchange or
substitution of shares provided for in Section 3.6(a)(iv)), or a merger or
consolidation of the Maker with or into another corporation, or the sale of all
or substantially all of the Maker's properties or assets to any other person (an
"Organic Change"), then as a part of such Organic Change an appropriate revision
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to the Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price or otherwise) so that the holder of each
Note shall have the right thereafter to convert such Note into the kind and
amount of shares of stock and other securities or property of the Maker or any
successor corporation resulting from Organic Change. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3.6(a)(v) with respect to the rights of the holders of the Notes
after the Organic Change to the end that the provisions of this Section
3.6(a)(v) (including any adjustment in the applicable Conversion Price then in
effect and the number of shares of stock or other securities deliverable upon
conversion of the Notes) shall be applied after that event in as nearly an
equivalent manner as may be practicable.
(vi) Adjustments for Issuance of Additional Shares of Common Stock.
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If the Maker, at any time after the Issuance Date, shall issue any additional
shares of Common Stock (otherwise than as provided in the foregoing
subsections (i) through (v) of this Section 3.6) (the "Additional Shares of
Common Stock"), at a price per share less than the applicable Fixed Conversion
Price then in effect or without consideration, then the applicable Fixed
Conversion Price upon each such issuance shall be adjusted to that price
(rounded to the nearest cent) determined by multiplying the applicable Fixed
Conversion Price then in effect by a fraction:
(1) the numerator of which shall be equal to the sum of (A) the number
of shares of Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus (B) the number of shares of Common Stock
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(rounded to the nearest whole share) which the aggregate consideration for the
total number of such Additional Shares of Common Stock so issued would purchase
at a price per share equal to the applicable Fixed Conversion Price then in
effect, and
(2) the denominator of which shall be equal to the number of shares of
Common Stock outstanding immediately after the issuance of such Additional
Shares of Common Stock. The provisions of this subsection (vi) shall not apply
under any of the circumstances for which an adjustment is provided in
subsections (i), (ii), (iii), (iv) or (v) of this Section 3.6(a). No adjustment
of the applicable Fixed Conversion Price shall be made under this subsection
(a)(iv) upon the issuance of any Additional Shares of Common Stock which are
issued pursuant to any Common Stock Equivalent (as defined below) if upon the
issuance of such Common Stock Equivalent (x) any adjustment shall have been made
pursuant to subsection (vii) of this Section 3.6(a) or (y) no adjustment was
required pursuant to subsection (vii) of this Section 3.6(a). No adjustment of
the applicable Fixed Conversion Price shall be made under this subsection (vi)
in an amount less than $.005 per share, but any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment, if any, which together with any adjustments so carried
forward shall amount to $.005 per share or more; provided that upon any
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adjustment of the applicable Fixed Conversion Price as a result of any dividend
or distribution payable in Common Stock or Convertible Securities (as defined
below) or the reclassification, subdivision or combination of Common Stock into
a greater or smaller number of shares, the foregoing figure of $.005 per share
(or such figure as last adjusted) shall be adjusted (to the nearest one-half
cent) in proportion to the adjustment in the applicable Fixed Conversion Price.
(vii) Issuanceof Common Stock Equivalents. If the Maker, at any time
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after the Issuance Date, shall issue any securities convertible into or
exchangeable for, directly or indirectly, Common Stock ("Convertible
-----------
Securities"), other than this Note, or any rights or warrants or options to
purchase any such Common Stock or Convertible Securities, shall be issued or
sold (collectively, the "Common Stock Equivalents") and the price per share for
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which Additional Shares of Common Stock may be issuable thereafter pursuant to
such Common Stock Equivalent shall be less than the applicable Fixed Conversion
Price then in effect, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and such price as so amended
shall be less than the applicable Fixed Conversion Price in effect at the time
of such amendment, then the applicable Fixed Conversion Price upon each such
issuance or amendment shall be adjusted as provided in the first sentence of
subsection (vi) of this Section 3.6(a) on the basis that (1) the maximum number
of Additional Shares of Common Stock issuable pursuant to all such Common Stock
Equivalents shall be deemed to have been issued (whether or not such Common
Stock Equivalents are actually then exercisable, convertible or exchangeable in
whole or in part) as of the earlier of (A) the date on which the Maker shall
enter into a firm contract for the issuance of such Common Stock Equivalent, or
(B) the date of actual issuance of such Common Stock Equivalent, and (2) the
aggregate consideration for such maximum number of Additional Shares of Common
Stock shall be deemed to be the minimum consideration received or receivable by
the Maker for the issuance of such Additional Shares of Common Stock pursuant to
such Common Stock Equivalent. No adjustment of the applicable Fixed Conversion
Price shall be made under this subsection (vii) upon the issuance of any
Convertible Security which is issued pursuant to the exercise of any warrants or
other subscription or purchase rights therefor, if any adjustment shall
previously have been made to the exercise price of such warrants then in effect
upon the issuance of such warrants or other rights pursuant to this subsection
(vii). If no adjustment is required under this subsection (vii) upon issuance
of any Common Stock Equivalent or once an adjustment is made under this
subsection (vii) based upon the Per Share Market Value in effect on the date of
such adjustment, no further adjustment shall be made under this subsection (vii)
based solely upon a change in the Per Share Market Value after such date.
(viii) Consideration for Stock. In case any shares of Common Stock or any
-------------------------
Common Stock Equivalents shall be issued or sold:
(1) in connection with any merger or consolidation in which the Maker
is the surviving corporation (other than any consolidation or merger in which
the previously outstanding shares of Common Stock of the Maker shall be changed
to or exchanged for the stock or other securities of another corporation), the
amount of consideration therefore shall be, deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the Maker,
of such portion of the assets and business of the nonsurviving corporation as
such Board may determine to be attributable to such shares of Common Stock,
Convertible Securities, rights or warrants or options, as the case may be; or
(2) in the event of any consolidation or merger of the Maker in which the
Maker is not the surviving corporation or in which the previously outstanding
shares of Common Stock of the Maker shall be changed into or exchanged for the
stock or other securities of another corporation, or in the event of any sale of
all or substantially all of the assets of the Maker for stock or other
securities of any corporation, the Maker shall be deemed to have issued a number
of shares of its Common Stock for stock or securities or other property of the
other corporation computed on the basis of the actual exchange ratio on which
the transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation. If any such calculation results in
adjustment of the applicable Fixed Conversion Price, or the number of shares of
Common Stock issuable upon conversion of the Notes, the determination of the
applicable Fixed Conversion Price or the number of shares of Common Stock
issuable upon conversion of the Notes immediately prior to such merger,
consolidation or sale, shall be made after giving effect to such adjustment of
the number of shares of Common Stock issuable upon conversion of the Notes.
(b) Record Date. In case the Maker shall take record of the holders of
-----------
its Common Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then the date of the issue or sale of
the shares of Common Stock shall be deemed to be such record date.
(c) Certain Issues Excepted. Anything herein to the contrary
-------------------------
notwithstanding, the Maker shall not be required to make any adjustment of the
number of shares of Common Stock issuable upon conversion of the Notes upon the
grant after the Issuance Date of, or the exercise after the Issuance Date of,
options or warrants or rights to purchase stock under the Maker's existing stock
option plan or options or warrants or rights to purchase stock issued to
officers and/or directors of the Company.
(d) No Impairment. The Maker shall not, by amendment of its
--------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Maker, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 3.6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holder against
impairment. In the event a Holder shall elect to convert any Notes as provided
herein, the Maker cannot refuse conversion based on any claim that such Holder
or any one associated or affiliated with such Holder has been engaged in any
violation of law, violation of an agreement to which such Holder is a party or
for any reason whatsoever, unless, an injunction from a court, on notice,
restraining and or adjoining conversion of all or of said Notes shall have been
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to 130% of the amount of the Notes the Holder has elected to
convert plus the amount of the Notes outstanding, which bond shall remain in
effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Holder in the event it obtains
judgment.
(e) Certificates as to Adjustments. Upon occurrence of each adjustment or
--------------------------------
readjustment of the Fixed Conversion Price or number of shares of Common Stock
issuable upon conversion of this Note pursuant to this Section 3.6, the Maker at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to the Holder a certificate setting forth such
adjustment and readjustment, showing in detail the facts upon which such
adjustment or readjustment is based. The Maker shall, upon written request of
the Holder, at any time, furnish or cause to be furnished to such holder a like
certificate setting forth such adjustments and readjustments, the applicable
Fixed Conversion Price in effect at the time, and the number of shares of Common
Stock and the amount, if any, of other securities or property which at the time
would be received upon the conversion of this Note. Notwithstanding the
foregoing, the Maker shall not be obligated to deliver a certificate unless such
certificate would reflect an increase or decrease of at least one percent (1%)
of such adjusted amount.
(f) Issue Taxes. The Maker shall pay any and all issue and other taxes,
------------
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant thereto; provided, however, that the Maker shall not be obligated to
-------- -------
pay any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
(g) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of this Note. In lieu of any fractional shares to which
the Holder would otherwise be entitled, the Maker shall pay cash equal to the
product of such fraction multiplied by the average of the Per Share Market
Values of the Common Stock for the five (5) consecutive Trading Days immediately
preceding the Conversion Date.
(h) Reservation of Common Stock. The Maker shall at all times when this
------------------------------
Note shall be outstanding, reserve and keep available out of its authorized but
unissued Common Stock, such number of share of Common Stock as shall from time
to time be sufficient to effect the conversion of this Note and all interest
accrued thereon; provided that the number of shares of Common Stock so reserved
--------
shall at no time be less than 150% of the number of shares of Common Stock for
which this Note and all interest accrued thereon are at any time convertible.
The Maker shall, from time to time in accordance with the Delaware General
Corporation Law, as amended, increase the authorized number of shares of Common
Stock if at any time the unissued number of authorized shares shall not be
sufficient to satisfy the Maker's obligations under this Section 3.6(h).
(i) -Regulatory Compliance. If any shares of Common Stock to be
----------------------
reserved for the purpose of conversion of this Note or any interest accrued
thereon require registration or listing with or approval of any governmental
authority, stock exchange or other regulatory body under any federal or state
law or regulation or otherwise before such shares may be validly issued or
delivered upon conversion, the Maker shall, at its sole cost and expense, in
good faith and as expeditiously as possible, endeavor to secure such
registration, listing or approval, as the case may be.
Section 3.7 Prepayment.
(a) Prepayment Upon an Event of Default. Notwithstanding anything to
-------------------------------------
the contrary contained herein, upon the occurrence of an Event of Default
described in Sections 2.1(c)-(k) hereof, the Holder shall have the right, at
such Holder's option, to require the Maker to prepay all or a portion of this
Note at a price equal to Prepayment Price (as defined in Section 3.7(c) below)
applicable at the time of such request. Nothing in this Section 3.7(a) shall
limit the Holder's rights under Section 2.2 hereof.
(b) Prepayment Option Upon Major Transaction. In addition to all other
rights of the holders of the Notes contained herein, simultaneous with the
occurrence of a Major Transaction (as defined below), each holder of the Notes
shall have the right, at such holder's option, to require the Maker to prepay
all or a portion of such holder's Notes at a price equal to the greater of (i)
115% of the aggregate principal amount of the Notes and (ii) the product of (A)
the Conversion Rate and (B) the Per Share Market Value of the Common Stock on
the Trading Day immediately preceding such Major Transaction ("Major Transaction
Prepayment Price").
(c) Prepayment Option Upon Triggering Event. In addition to all other
rights of the holders of the Notes contained herein, after a Triggering Event
(as defined below), each holder of the Notes shall have the right, at such
holder's option, to require the Maker to prepay all or a portion of such
holder's Notes at a price equal to the greater of (i) 130% of the aggregate
principal amount of the Notes and (ii) the product of (A) the Conversion Rate at
such time and (B) the Per Share Market Value of the Common Stock calculated as
of the date immediately preceding such Triggering Event on which the exchange or
market on which the Common Stock is traded is open ("Triggering Event Prepayment
Price" and, collectively with "Major Transaction Prepayment Price," the
"Prepayment Price").
(d) "Major Transaction." A "Major Transaction" shall be deemed to have
occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination of the
Maker with or into another Person (as defined in Section 4.13 hereof) (other
than (A) pursuant to a migratory merger effected solely for the purpose of
changing the jurisdiction of incorporation of the Maker or (B) a consolidation,
merger or other business combination in which holders of the Maker's voting
power immediately prior to the transaction continue after the transaction to
hold, directly or indirectly, the voting power of the surviving entity or
entities necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities).
(ii) the sale or transfer of all or substantially all of the Maker's
assets; or
(iii) consummation of a purchase, tender or exchange offer made to the
holders of more than 30% of the outstanding shares of Common Stock.
(e) "Triggering Event." A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be declared effective
by the SEC on or prior to the date which is 270 days after the Closing Date,
provided that the Maker has failed to file the Registration Statement on or
before the Filing Date (as defined in the Registration Rights Agreement) or
respond to any and each of the SEC's comments within fifteen (15) days of the
Maker's receipt of each of the SEC's comments;
(ii) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
holder of the Notes for sale of the Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of the Registration
Rights Agreement, and such lapse or unavailability continues for a period of
ten (10) consecutive Trading Days, provided that the cause of such lapse or
unavailability is due to factors within the control of the Maker and not due to
factors solely within the control of such holder of the Notes;
(iii) the suspension from trading or the failure of the Common Stock to
be traded on the OTC Bulletin Board for a period of five (5) consecutive days,
provided, that such suspension from listing or failure to be listed is due to
factors within the control of the Maker, including, but not limited to, failure
to timely file all reports required to be filed with the SEC or to meet the net
tangible assets requirements for listing, if any;
(iv) the Maker's notice to any holder of the Notes, including by way of
public announcement, at any time, of its inability to comply (including for any
of the reasons described in Section 3.8) or its intention not to comply with
proper requests for conversion of any of the Notes into shares of Common Stock;
(v) the Maker's failure to comply with a Conversion Notice tendered
within ten (10) business days after the receipt by the Maker of the Conversion
Notice and the certificates representing the Notes; or
(vi) the Maker breaches any representation, warranty, covenant or other
term or condition of the Purchase Agreement, the Registration Rights Agreement
or any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby or hereby.
(f) Mechanics of Prepayment at Option of Buyer Upon Major Transaction.
No sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major Transaction, the Maker shall deliver written notice thereof via
facsimile and overnight courier ("Notice of Major Transaction") to each holder
of the Notes. At any time after receipt of a Notice of Major Transaction (or,
in the event a Notice of Major Transaction is not delivered at least ten (10)
days prior to a Major Transaction, at any time within ten (10) days prior to a
Major Transaction), any holder of the Notes then outstanding may require the
Maker to prepay, effective immediately prior to the consummation of such Major
Transaction, all of the holder's Notes then outstanding by delivering written
notice thereof via facsimile and overnight courier ("Notice of Prepayment at
Option of Buyer Upon Major Transaction") to the Maker, which Notice of
Prepayment at Option of Buyer Upon Major Transaction shall indicate (i) the
number of Notes that such holder is electing to prepay and (ii) the applicable
Major Transaction Prepayment Price, as calculated pursuant to Section 3.7(b)
above.
(g) Mechanics of Prepayment at Option of Buyer Upon Triggering Event.
Within one (1) day after the occurrence of a Triggering Event, the Maker shall
deliver written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each holder of the Notes. At any time after the earlier
of a holder's receipt of a Notice of Triggering Event and such holder becoming
aware of a Triggering Event, any holder of the Notes then outstanding may
require the Maker to prepay all of the Notes by delivering written notice
thereof via facsimile and overnight courier ("Notice of Prepayment at Option of
Buyer Upon Triggering Event") to the Maker, which Notice of Prepayment at Option
of Buyer Upon Triggering Event shall indicate (i) the number of Notes that such
holder is electing to prepay and (ii) the applicable Triggering Event Prepayment
Price, as calculated pursuant to Section 3.7(c) above.
(h) Payment of Prepayment Price. Upon the Maker's receipt of a Notice(s)
of Prepayment at Option of Buyer Upon Triggering Event or a Notice(s) of
Prepayment at Option of Buyer Upon Major Transaction from any holder of the
Notes, the Maker shall immediately notify each holder of the Notes by
facsimile of the Maker's receipt of such Notice(s) of Prepayment at Option
of Buyer Upon Triggering Event or Notice(s) of Prepayment at Option of Buyer
Upon Major Transaction and each holder which has sent such a notice shall
promptly submit to the Maker such holder's certificates representing the Notes
which such holder has elected to have prepaid. The Maker shall deliver the
applicable Triggering Event Prepayment Price, in the case of a prepayment
pursuant to Section 3.7(g), to such holder within five (5) business days
after the Maker's receipt of a Notice of Prepayment at Option of Buyer Upon
Triggering Event and, in the case of a prepayment pursuant to Section 3.7(f),
the Maker shall deliver the applicable Major Transaction Prepayment Price
immediately prior to the consummation of the Major Transaction; provided
that a holder's certificates representing the Notes shall have been so
delivered to the Maker; provided further that if the Maker is unable to
prepay all of the Notes to be prepaid, the Maker shall prepay an amount from
each holder of the Notes being prepaid equal to such holder's pro-rata
amount (based on the number of Notes held by such holder relative to the
number of Notes outstanding) of all Notes being prepaid. If the Maker shall
fail to prepay all of the Notes submitted for prepayment (other than pursuant
to a dispute as to the arithmetic calculation of the Prepayment Price), in
addition to any remedy such holder of the Notes may
have under this Note and the Purchase Agreement, the applicable Prepayment Price
payable in respect of such Notes not prepaid shall bear interest at the rate of
2.0% per month (prorated for partial months) until paid in full. Until the
Maker pays such unpaid applicable Prepayment Price in full to a holder of the
Notes submitted for prepayment, such holder shall have the option (the "Void
Optional Prepayment Option") to, in lieu of prepayment, require the Maker to
promptly return to such holder(s) all of the Notes that were submitted for
prepayment by such holder(s) under this Section 3.7 and for which the applicable
Prepayment Price has not been paid, by sending written notice thereof to the
Maker via facsimile (the "Void Optional Prepayment Notice"). Upon the Maker's
receipt of such Void Optional Prepayment Notice(s) and prior to payment of the
full applicable Prepayment Price to such holder, (i) the Notice(s) of Prepayment
at Option of Buyer Upon Triggering Event or the Notice(s) of Prepayment at
Option of Buyer Upon Major Transaction, as the case may be, shall be null and
void with respect to those Notes submitted for prepayment and for which the
applicable Prepayment Price has not been paid, (ii) the Maker shall immediately
return any Notes submitted to the Maker by each holder for prepayment under this
Section 3.7(h) and for which the applicable Prepayment Price has not been paid
and (iii) the Conversion Price of such returned Notes shall be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the Void
Optional Prepayment Notice(s) is delivered to the Maker and (B) the lowest Per
Share Market Value during the period beginning on the date on which the
Notice(s) of Prepayment of Option of Buyer Upon Major Transaction or the
Notice(s) of Prepayment at Option of Buyer Upon Triggering event, as the case
may be, is delivered to the Maker and ending on the date on which the Void
Optional Prepayment Notice(s) is delivered to the Maker; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect. A holder's delivery of a Void Optional
Prepayment Notice and exercise of its rights following such notice shall not
effect the Maker's obligations to make any payments which have accrued prior to
the date of such notice. Payments provided for in this Section 3.7 shall have
priority to payments to other stockholders in connection with a Major
Transaction.
Section 3.8 Inability to Fully Convert.
-----------------------------
(a) Holder's Option if Maker Cannot Fully Convert. If, upon the
---------------------------------------------------
Maker's receipt of a Conversion Notice, the Maker cannot issue shares of Common
Stock registered for resale under the Registration Statement for any reason,
including, without limitation, because the Maker (w) does not have a sufficient
number of shares of Common Stock authorized and available, (x) is otherwise
prohibited by applicable law or by the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Maker or any of its securities from issuing all of
the Common Stock which is to be issued to the Holder pursuant to a Conversion
Notice or (y) fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then the Maker shall
issue as many shares of Common Stock as it is able to issue in accordance with
the Holder's Conversion Notice and, with respect to the unconverted portion of
the Note, the Holder, solely at Holder's option, can elect to:
(ii) require the Maker to prepay that portion of the Note for which the
Maker is unable to issue Common Stock in accordance with the Holder's Conversion
Notice (the "Mandatory Prepayment") at a price per share equal to the Prepayment
--------------------
Price as of such Conversion Date (the "Mandatory Prepayment Price");
----------------------------
if the Maker's inability to fully convert is pursuant to Section 3.8(a)(y)
above, require the Maker to issue restricted shares of Common Stock equal to one
hundred twenty percent (120%) of the number of shares of Common Stock the Maker
is unable to deliver in accordance with such holder's Conversion Notice;
void its Conversion Notice and retain or have returned, as the case may be, the
Note that was to be converted pursuant to the Conversion Notice (provided that
the Holder's voiding its Conversion Notice shall not effect the Maker's
obligations to make any payments which have accrued prior to the date of such
notice).
(b) Mechanics of Fulfilling Holder's Election. The Maker shall
---------------------------------------------
immediately send via facsimile to the Holder, upon receipt of a facsimile copy
of a Conversion Notice from the Holder which cannot be fully satisfied as
described in Section 3.8(a) above, a notice of the Maker's inability to fully
satisfy the Conversion Notice (the "Inability to Fully Convert Notice"). Such
---------------------------------
Inability to Fully Convert Notice shall indicate (i) the reason why the Maker is
unable to fully satisfy such holder's Conversion Notice, (ii) the amount of the
Note which cannot be converted and (iii) the applicable Mandatory Prepayment
Price. The Holder shall notify the Maker of its election pursuant to Section
3.8(a) above by delivering written notice via facsimile to the Maker ("Notice in
---------
Response to Inability to Convert").
------------------------------------
(c) Payment of Prepayment Price. If the Holder shall elect to have its
------------------------------
shares prepaid pursuant to Section 3.8(a)(i) above, the Maker shall pay the
Mandatory Prepayment Price in cash to the Holder within five (5) days of the
Maker's receipt of the Holder's Notice in Response to Inability to Convert,
provided that prior to the Maker's receipt of the Holder's Notice in Response to
----
Inability to Convert the Maker has not delivered a notice to the Holder stating,
to the satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note. If the Maker shall fail to pay the applicable Mandatory Prepayment
Price to the Holder on a timely basis as described in this Section 3.8(c) (other
than pursuant to a dispute as to the determination of the arithmetic calculation
of the Prepayment Price), in addition to any remedy the Holder may have under
this Note and the Purchase Agreement, such unpaid amount shall bear interest at
the rate of 2.0% per month (prorated for partial months) until paid in full.
Until the full Mandatory Prepayment Price is paid in full to the Holder, the
Holder may (i) void the Mandatory Prepayment with respect to that portion of the
Note for which the full Mandatory Prepayment Price has not been paid, (ii)
receive back such Note, and (iii) require that the Conversion Price of such
returned Note be adjusted to the lesser of (A) the Conversion Price as in effect
on the date on which the Holder voided the Mandatory Prepayment and (B) the
lowest Per Share Market Value during the period beginning on the Conversion Date
and ending on the date the Holder voided the Mandatory Prepayment.
Section 3.9 No Rights as Shareholder. Nothing contained in this Note
shall be construed as conferring upon the Holder, prior to the conversion of
this Note, the right to vote or to receive dividends or to consent or to receive
notice as a shareholder in respect of any meeting of shareholders for the
election of directors of the Maker or of any other matter, or any other rights
as a shareholder of the Maker. Upon the issuance of a Conversion Notice, the
Holder shall have all rights as a shareholder of the Maker.
-MISCELLANEOUS
-Notices. Any notice, demand, request, waiver or other communication
required or permitted to be given hereunder shall be in writing and shall be
effective (a) upon hand delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated in the Purchase
Agreement (if delivered on a business day during normal business hours where
such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The Maker will give written notice to the Holder at least twenty (20) days prior
to the date on which the Maker closes its books or takes a record (x) with
respect to any dividend or distribution upon the Common Stock, (y) with respect
to any pro rata subscription offer to holders of Common Stock or (z) for
determining rights to vote with respect to any Organic Change, dissolution,
liquidation or winding-up and in no event shall such notice be provided to such
holder prior to such information being made known to the public. The Maker will
also give written notice to the Holder at least twenty (20) days prior to the
date on which any Organic Change, dissolution, liquidation or winding-up will
take place and in no event shall such notice be provided to the Holder prior to
such information being made known to the public.
Governing Law. This Note shall be governed by and construed in accordance with
the internal laws of the State of New York, without giving effect to the choice
of law provisions. This Note shall not be interpreted or construed with any
presumption against the party causing this Note to be drafted.
-Headings. Article and section headings in this Note are included herein for
purposes of convenience of reference only and shall not constitute a part of
this Note for any other purpose.
Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.
The remedies provided in this Note shall be cumulative and in addition to all
other remedies available under this Note, at law or in equity (including,
without limitation, a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of compliance with
the provisions giving rise to such remedy and nothing herein shall limit a
holder's right to pursue actual damages for any failure by the Maker to comply
with the terms of this Note. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the holder thereof and shall not, except as
expressly provided herein, be subject to any other obligation of the Maker (or
the performance thereof). The Maker acknowledges that a breach by it of its
obligations hereunder will cause irreparable and material harm to the Holder and
that the remedy at law for any such breach may be inadequate. Therefore the
Maker agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available rights and
remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.
-Enforcement Expenses. The Maker agrees to pay all costs and expenses of
enforcement of this Note, including, without limitation, reasonable attorneys'
fees and expenses.
-Binding Effect. The obligations of the Maker and the Holder set forth herein
shall be binding upon the successors and assigns of each such party, whether or
not such successors or assigns are permitted by the terms hereof.
-Amendments. This Note may not be modified or amended in any manner except in
writing executed by the Maker and the Holder.
-Compliance with Securities Laws. The Holder of this Note acknowledges that
this Note is being acquired solely for the Holder's own account and not as a
nominee for any other party, and for investment, and that the Holder shall not
offer, sell or otherwise dispose of this Note. This Note and any Note issued in
substitution or replacement therefore shall be stamped or imprinted with a
legend in substantially the following form:
" THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE REASONABLY
ACCEPTABLE TO THE MAKER) IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO THE MAKER THAT THIS NOTE MAY BE SOLD, TRANSFERRED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH STATE SECURITIES LAWS."
-Consent to Jurisdiction. Each of the Maker and the Holder (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court sitting in the Southern District of New York and the courts of the State
of New York located in New York county for the purposes of any suit, action or
proceeding arising out of or relating to this Note and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Maker and the Holder
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under the Purchase Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing in this Section
4.9 shall affect or limit any right to serve process in any other manner
permitted by law.
-Parties in Interest. This Note shall be binding upon, inure to the benefit of
and be enforceable by the Maker, the Holder and their respective successors and
permitted assigns.
-Failure or Indulgence Not Waiver. No failure or delay on the part of the
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
-Maker Waivers. Except as otherwise specifically provided herein, the Maker and
all others that may become liable for all or any part of the obligations
evidenced by this Note, hereby waive presentment, demand, notice of nonpayment,
protest and all other demands' and notices in connection with the delivery,
acceptance, performance and enforcement of this Note, and do hereby consent to
any number of renewals of extensions of the time or payment hereof and agree
that any such renewals or extensions may be made without notice to any such
persons and without affecting their liability herein and do further consent to
the release of any person liable hereon, all without affecting the liability of
the other persons, firms or Maker liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY.
No delay or omission on the part of the Holder in exercising its rights under
this Note, or course of conduct relating hereto, shall operate as a waiver of
such rights or any other right of the Holder, nor shall any waiver by the Holder
of any such right or rights on any one occasion be deemed a waiver of the same
right or rights on any future occasion.
THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A
COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY
WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY
WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.
Section 4.13 Definitions. For the purposes hereof, the following terms
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shall have the following meanings:
"Independent Appraiser" means a nationally recognized or major regional
----------------------
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Issuer) that is regularly engaged in the business of
appraising the Capital Stock or assets of corporations or other entities as
going concerns, and which is not affiliated with either the Issuer or the Holder
of any Warrant.
"Person" means an individual or a corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, limited liability
--
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Trading Day" means (a) a day on which the Common Stock is traded on The
------------
Nasdaq Small-Cap Market, the Nasdaq National Market or other registered national
stock exchange on which the Common Stock has been listed, or (b) if the Common
Stock is not listed on The Nasdaq Small-Cap Market, the Nasdaq National Market
or any registered national stock exchange, a day or which the Common Stock is
traded in the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
-------- -------
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
THE XXXXXX COMPANY, INC.
By: /s/ Xxxx Xxxxxx
------------
Name: Xxxx Xxxxxx
Title: Chief Executive Officer
EXHIBIT A
WIRE INSTRUCTIONS.
Payee: ________________________________________________________
Bank: ________________________________________________________
Address: _____________________________________________________
______________________________________________________
Bank No.: _____________________________________________________
Account No.: __________________________________________________
Account Name: _________________________________________________
FORM OF
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of THE
XXXXXX COMPANY, INC. (the "Maker") according to the conditions hereof, as of the
date written below.
Date of Conversion* _________________________________________________________
Applicable Conversion Price * __________________________________________________
Signature___________________________________________________________________
[Name]
Address:__________________________________________________________________
_______________________________________________________________________
