KRONOS ADVANCED TECHNOLOGIES, INC. Secured Convertible Promissory Note due June 19, 2010
Exhibit
5
THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF
AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY
TO
THE MAKER THAT THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF MAY BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES
LAWS.
KRONOS
ADVANCED TECHNOLOGIES, INC.
due
June
19, 2010
|
June
19, 2007
Belmont,
Massachusetts
|
$6,480,000.00
|
For
value
received, Kronos Advanced Technologies, Inc., a Nevada corporation whose
principal office is located at 000 Xxxxxx Xxxxxx, Xxx 000, Xxxxxxx,
Xxxxxxxxxxxxx 00000 (the “Maker”),
hereby promises to pay to the order of RS Properties I LLC, a Delaware limited
liability company (together with its successors, representatives, and permitted
assigns, collectively, the “Holder”),
in
accordance with the terms hereinafter provided, the principal amount of Six
Million Four Hundred Eighty Thousand Dollars ($6,480,000.00) or so much thereof
as may be advanced by the Holder to Maker in accordance with the provisions
of
the Funding Agreement, together with interest thereon. This Secured Convertible
Promissory Note (this “Note”)
is one
of the duly authorized Notes of Maker issued in connection with that Funding
Agreement of even date herewith by and among the Maker and the Lenders (the
“Funding
Agreement”).
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
outstanding principal balance of this Note and all accrued interest hereon
shall
be due and payable on June 19, 2010 (the “Maturity
Date”)
or at
such earlier time as provided herein.
ARTICLE
I
GENERAL
Section
1.1 Definitions.
Capitalized terms used but not otherwise defined shall have the meanings
ascribed to terms in the Funding Agreement.
Section
1.2 Interest.
Beginning on the issuance date of this Note (the “Issuance
Date”),
the
outstanding principal balance of this Note shall bear interest, in arrears,
at a
rate per annum equal to twelve percent (12%), payable in cash commencing
on January
1, 2008 and on the first business day of each following calendar quarter.
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. 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 in cash to
the
Holder, payable on demand, on the outstanding principal balance of this Note
from the date of the Event of Default until such Event of Default is cured
at
the rate of the lesser of eighteen percent (18%) per annum and the maximum
applicable legal rate per annum.
Section
1.3 Security.
This
Note and the amounts due hereunder are secured by the Collateral, as defined
in
that Security Agreement dated of even date herewith among the Maker and the
Lenders.
Section
1.4 Payment
on Non-Business Days.
Whenever any payment to be made hereunder 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.
Section
1.5 Transfer.
Subject
to the provisions of Section 4.8 of this Note, this Note may be transferred
or
sold or pledged, hypothecated or otherwise granted as security by the
Holder.
Section
1.6 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 a standard indemnity, 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.
Section
1.7 Record
Keeping.
The
Holder shall maintain a record of all advances made to Maker under this Note,
and such record shall be conclusive evidence of the amounts disbursed to Maker
under this Note.
ARTICLE
II
EVENTS
OF DEFAULT; REMEDIES
Section
2.1 Events
of Default.
The
occurrence of any of the following events shall be an “Event
of Default”
under
this Note:
(a) the
Maker
shall fail to make any principal or interest payments on the date such payments
are due and such default is not fully cured within seven (7) business days
after
the occurrence thereof; or
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(b) the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock of the Maker (the “Common
Stock”)
to be
listed or quoted on at least one of the NASD Over-The-Counter Bulletin Board
(the “OTC
Bulletin Board”),
the
American Stock Exchange, the NASDAQ National Market, the Nasdaq Global Select
Market, the Nasdaq Global Market, the Nasdaq Capital Market or The New York
Stock Exchange, Inc.; or
(c) the
Maker’s notice to the Holder, including by way of public announcement, at any
time, of Maker’s inability to comply (including for any of the reasons described
in Section 3.6(a) hereof) or its intention not to comply with proper requests
for conversion of this Note into shares of Common Stock; or
(d) the
Maker
shall fail to (i) timely deliver the shares of Common Stock upon conversion
of
the Note, (ii) file a registration statement in accordance with the terms of
the
Registration Rights Agreement or (iii) make the payment of any fees and/or
liquidated damages under this Note, the Funding Agreement, the Registration
Rights Agreement or other Transaction Documents, which failure in the case
of
items (i) and (iii) of this Section 2.1(d) is not remedied within ten (10)
business days after the incurrence thereof and, solely with respect to item
(iii) above, after the Holder delivers written notice to the Maker of the
occurrence thereof; or
(e) while
a
registration statement is required to be maintained effective pursuant to the
terms of the Registration Rights Agreement, the effectiveness of such
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;
or
(f) 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 twenty (20) business
days after the Holder delivers written notice to the Maker of the occurrence
thereof or (ii) any covenant, condition or agreement contained in the Funding
Agreement, the Registration Rights Agreement or any other Transaction Document
which is not covered by any other provisions of this Section 2.1 and such
default is not fully cured within twenty (20) business days after the Holder
delivers written notice to the Maker of the occurrence thereof; or
(g) any
material representation or warranty made by the Maker herein or in the Funding
Agreement, the Registration Rights Agreement, or any other Transaction Document
shall prove to have been false or incorrect or breached by Maker and the Holder
delivers written notice to the Maker of the occurrence thereof; or
(h) the
Maker
shall (A) default in any payment of any amount or amounts of principal of or
interest on any Indebtedness (other than the Indebtedness hereunder) the
aggregate principal amount of which Indebtedness is in excess of
$50,000 or
(B) 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
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(i) 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), (vi) issue a notice of bankruptcy or winding down of its operations
or issue a press release regarding same, or (vii) take any action under the
laws
of any jurisdiction (foreign or domestic) analogous to any of the foregoing;
or
(j) 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 for all or any substantial part of
its
assets in connection with the liquidation or dissolution of the Maker 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
thirty (30) 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 thirty (30) days;
or
(k)
the
failure of the Maker to instruct its transfer agent to remove any legends from
shares of Common Stock eligible to be sold under Rule 144 of the Securities
Act
and issue such unlegended certificates to the Holder within five (5) business
days of the Holder’s request so long as the Holder has provided reasonable
assurances to the Maker that such shares of Common Stock can be sold pursuant
to
Rule 144; or
(l) the
Maker
ceases to operate its business as a going concern; or
(m)
the
Security Agreement, or any other security agreement, pledge agreement,
collateral assignment, mortgage, control agreement or other grants or transfers
for security executed and delivered by Maker or any other obligor creating
(or
purporting to create) a Lien in favor of the Holder (collectively, the
“Security
Documents”),
at
any time for any reason cease to be in full force and effect, or shall cease
to
grant to the Holder the Liens, rights, powers and privileges purported to be
created thereby, superior to and prior to the rights of all third Persons other
than the holders of Permitted Liens and subject to no other Liens other than
Permitted Liens; or
-4-
(n)
the
Maker
or any other obligor, directly or indirectly, contest in any manner the
effectiveness, validity, binding nature or enforceability of the Security
Agreement or any of the other Security Documents.
Section
2.2 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 be due and payable,
without presentment, demand, protest, or notice, all of which are hereby
expressly unconditionally and irrevocably waived by the Maker, (b) demand that
the principal amount of this Note then outstanding 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 Funding Agreement, the Security
Agreement, the Registration Rights Agreement, the Security Documents, any other
Transaction Document 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.
ARTICLE
III
CONVERSION;
ANTIDILUTION; PREPAYMENT
Section
3.1 Conversion
Option.
At any
time on or after the Issuance Date, this Note shall be convertible (in whole
or
in part), at the option of the Holder into such number of fully paid and
non-assessable shares of Common Stock as is determined by dividing (x) that
portion of the outstanding principal balance under this Note as of such date
that the Holder elects to convert by (y) the Conversion Price (as defined in
Section 3.2(a) hereof) then in effect on the date on which the Holder faxes
a
notice of conversion in the form attached hereto (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 3.4 of this Note. The Holder shall deliver this Note to
the
Maker at the address designated in the Funding Agreement at such time that
this
Note is fully converted. With respect to partial conversions of this Note,
the
Maker shall keep written records of the amount of this Note converted as of
each
Conversion Date.
Section
3.2 Conversion
Price.
(a) The
term
“Conversion
Price”
shall
mean $0.0028, subject to adjustment under Section 3.4 hereof.
(b) Notwithstanding
the foregoing, it is the intent of the Maker and the Holder that the Conversion
Price equal an amount that results in the shares of Common Stock issuable to
Lender upon conversion of this Note (i) in full will represent, on an
as-converted, fully-diluted basis (taking into account, without limitation,
all
potentially dilutive securities which are outstanding, authorized by the Maker,
or otherwise required to be issued, as of the First Closing
-5-
ate,
and
assuming that all outstanding options, warrants and other rights for the
purchase of capital stock of the Maker shall have been exercised, and all
outstanding shares of all series of the Maker’s preferred stock, if any, have
been converted into Common Stock), no less than 34.95% of the outstanding
capital stock of the Maker and (ii) in part will represent, on an as-converted,
fully-diluted basis (taking into account, without limitation, all potentially
dilutive securities which are outstanding, authorized by the Maker, or otherwise
required to be issued, as of the First Closing Date, and assuming that all
outstanding options, warrants and other rights for the purchase of capital
stock
of the Maker shall have been exercised, and all outstanding shares of all series
of the Maker’s preferred stock, if any, have been converted into Common Stock),
no less than the product of (A) 34.95% of the outstanding capital stock of
the
Maker and (B) a fraction, the numerator of which is equal to the amount of
this
Note that is converted and the denominator of which is equal to
$6,480,000.
Section
3.3 Mechanics
of Conversion.
(a) Not
later
than three (3) Trading Days after any Conversion Date (the “Delivery
Date”),
the
Maker shall deliver to the Holder by (i) express courier a certificate or
certificates representing the number of shares of Common Stock being acquired
upon the conversion of all or part of this Note, or (ii) provided that Maker’s
designated transfer agent participates in the DTC Fast Automated Securities
Transfer Program, at all times after the Holder has notified the Maker that
this
clause (ii) shall apply, credit the number of shares of Common Stock to which
the Holder shall be entitled to the Holder’s or its designee’s balance account
with The Depository Trust Corporation through its Deposit Withdrawal Agent
Commission System. If in the case of any Conversion Notice such certificate,
certificates or shares are not delivered to or as directed by the Holder by
the
Delivery Date, the Holder shall be entitled by written notice to the Maker
at
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 this Note 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) shall be payable through the date notice of
rescission is given to the Maker. The Maker shall upon request of the Holder,
use its best efforts to deliver Conversion Shares hereunder electronically
through the Depository Trust Company.
(b) The
Maker
understands that a delay in the delivery of the shares of Common Stock upon
conversion of this Note beyond the Delivery Date could result in economic loss
to the Holder. If the Maker fails to deliver to the Holder a certificate or
certificates pursuant to this Section by the Delivery Date, the Maker shall
pay
to the 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 the greater of (A) the sum of (i) 1% of the aggregate
principal amount of this Note requested to be converted for the first five
(5)
Trading Days after the Delivery Date and (ii) 2% of the aggregate principal
amount of this Note requested to be converted for each Trading Day thereafter
and (B) $2,000 per day (which amount 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 and the 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.
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Section
3.4 Adjustment
of Conversion Price.
(a) The
Conversion Price shall be subject to adjustment from time to time as
follows:
(i) Adjustments
for Additional Issuances of Common Stock.
In the
event that the Maker at any time after the First Closing Date issues additional
shares of Common Stock (including additional shares of Common Stock deemed
to be
issued) without consideration or for a consideration per share less than the
Conversion Price then in effect, then the Conversion Price shall be reduced,
concurrently with such issuance, to a price (calculated to the nearest hundredth
of one cent) equal to the consideration per share received by the Maker upon
such issuance of additional shares of Common Stock. For purposes of this Section
3.4, shares of Common Stock shall be deemed to be issued if the Maker or any
of
its subsidiaries issues additional shares of Common Stock or rights, warrants,
options or other securities or debt convertible, exercisable or exchangeable
for
shares of Common Stock or otherwise entitling any Person to acquire shares
of
Common Stock (collectively, “Common
Stock Equivalents”).
For
purposes of this Section 3.4, in connection with any issuance or deemed issuance
of any Common Stock, (A) the maximum number of shares of Common Stock
potentially issuable at any time upon conversion, exercise or exchange of such
Common Stock Equivalents (the “Deemed
Number”)
the
shall be deemed to be outstanding upon issuance of such Common Stock
Equivalents, (B) the consideration deemed to have been received by the
Maker applicable to such Common Stock shall equal the minimum dollar value
of
consideration payable to the Maker to purchase such Common Stock Equivalents
and
to convert, exercise or exchange them into Common Stock (net of any discounts,
fees, commissions and other expenses), divided by the Deemed Number, and
(C) no further adjustment shall be made to the Conversion Price upon the
actual issuance of Common Stock upon conversion, exercise or exchange of such
Common Stock Equivalents.
(ii) Adjustments
for Subdivisions, Common Stock Dividends, Combinations or Consolidations of
Common Stock.
In the
event the outstanding shares of Common Stock shall be subdivided or increased,
by stock split or stock dividend, into a greater number of shares of Common
Stock, the Conversion Price then in effect shall concurrently with the
effectiveness of such subdivision or payment of such stock dividend, be
proportionately decreased. In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the Conversion Price then in effect
shall, concurrently with the effectiveness of such combination or consolidation,
be proportionately increased.
(iii) Adjustments
for Reclassification, Exchange and Substitution.
If the
Common Stock shall be changed into the same or a different number of shares
of
any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination or shares
provided for above), the Conversion Price then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted such that the Common Stock issuable upon conversion
of
this Note shall be convertible into, in lieu of the number of shares of Common
Stock which the Holder would otherwise have been entitled to receive, a number
of shares of such other class or classes of stock equivalent to the number
of
shares of Common Stock that would have been subject to receipt by the Holder
upon conversion of this Note immediately before that change.
-7-
(iv) Adjustments
for Merger, Sale, Lease or Conveyance.
In the
event of any consolidation with or merger of the Maker with or into another
entity, or in case of any sale, lease or conveyance to another person or entity
of the assets of the Maker as an entirety or substantially as an entirety,
the
Common Stock issuable upon conversion of this Note shall after the date of
such
consolidation, merger, sale, lease or conveyance be convertible into the number
of shares of stock or other securities or property (including cash) to which
the
Common Stock issuable (at the time of such consolidation, merger, sale, lease
or
conveyance) upon conversion of this Note would have been entitled upon such
consolidation, merger, sale, lease or conveyance; and in any such case, if
necessary, the provisions set forth herein with respect to the rights and
interests thereafter of the Holder shall be appropriately adjusted so as to
be
applicable, as nearly as may reasonably be, to any shares of stock or other
securities or property thereafter deliverable on the conversion of this
Note.
(v) Other
Provisions Applicable to Adjustment Under this Section.
The
following provisions will be applicable to the adjustments in Conversion Price
as provided in this Section 3.4:
(1) The
number of shares of Common Stock at any time outstanding shall not include
any
shares thereof then directly or indirectly owned or held by or for the account
of the Maker.
(2) In
case
the Maker shall take any action affecting the outstanding number of shares
of
Common Stock other than an action described in any of the foregoing subsections
above, inclusive, which would have an inequitable effect on the Holder, the
Conversion Price shall be adjusted in such manner and at such time as the Board
of Directors of the Maker on the advice of the Maker’s independent public
accountants may in good faith determine to be equitable in the
circumstances.
(3) No
adjustment of the Conversion Price shall be made if the amount of any such
adjustment would be an amount less than one percent (1%) of the Conversion
Price
then in effect, but any such amount shall be carried forward and an adjustment
with respect thereof shall be made at the time of and together with any
subsequent adjustment which, together with such amount and any other amount
or
amounts so carried forward, shall aggregate an increase or decrease of one
percent (1%) or more.
(4) The
Conversion Price shall not be adjusted upward except in the event of a
combination of the outstanding shares of Common Stock into a smaller number
of
shares of Common Stock.
(b) Record
Date.
In the
event that the Maker shall propose at any time:
-8-
(i) to
declare any dividend or distribution (other than by purchase of Common Stock
of
employees, officers and directors pursuant to the termination of such persons
or
pursuant to the Maker’s exercise of rights of first refusal with respect to
Common Stock held by such persons) upon its Common Stock, whether in cash,
property, stock or other securities, whether or not a regular cash dividend
and
whether or not out of earnings or earned surplus;
(ii) to
effect
any reclassification or recapitalization of its Common Stock shares outstanding
involving a change in the Common Stock; or
(iii) to
merge
or consolidate with or into any other entity, or sell, lease or convey all
or
substantially all its property or business, or to liquidate, dissolve or wind
up; then, in connection with each such event, this Maker shall send to the
Holder:
(1) at
least
twenty (20) days’ prior written notice of the date on which a record shall be
taken for such dividend or distribution (and specifying the date on which the
holders of Common Stock shall be entitled thereto) or for determining rights
to
vote in respect of the matters referred to in (i) and (ii) above;
and
(2 in
the
case of the matters referred to in (ii) and (iii) above, at least twenty (20)
days’ prior written notice of the date when the same shall take place (and
specifying the date on which the holders of Common Stock shall be entitled
to
exchange their Common Stock for securities or other property deliverable upon
the occurrence of such event).
Each
such
written notice shall be given by first class mail, postage prepaid, addressed
to
the Holder at the address first set forth above. Any such action shall at all
times be subject to the voting rights and other rights, preferences and
privileges of the Holder set forth herein.
(c) 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 (other than actions taken
in
good faith), 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 carrying out all the provisions of this Section 3.4 and in taking
all
such action as may be necessary or appropriate in order to protect the
conversion rights of the Holder against impairment.
(d) Certificates
as to Adjustments.
Upon
the occurrence of each adjustment or readjustment of the Conversion Price
pursuant to this section, 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 or readjustment in
accordance with the terms hereof and showing in detail the facts upon which
such
adjustment or readjustment is based. The Maker shall, upon the written request
at any time of the Holder, furnish or cause to be furnished to the Holder a
like
certificate setting forth (A) such adjustments and readjustments,
(B) the Conversion Price at the time in effect, and (C) the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of this Note.
-9-
(e) 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 the Holder in connection with any such
conversion.
(f) 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 Closing Bid Price of the Common Stock into
which this Note is convertible for the five (5) consecutive Trading Days
immediately preceding the Conversion Date. The term “Closing
Bid Price”
shall
mean, on any particular date (i) the last closing bid price per share of the
Common Stock on such date on the OTC
Bulletin Board or
another registered national stock exchange on which the Common Stock is then
listed, or if there is no such price on such date, then the last closing bid
price on such exchange or quotation system on the date nearest preceding such
date, or (ii) if the Common Stock is not listed then on the OTC Bulletin Board
or any registered national stock exchange, the last trading price for a share
of
Common Stock in the over-the-counter market, as reported by the OTC Bulletin
Board 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, or (iii) if the Common Stock is not then reported by
the
OTC Bulletin Board or the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices), then
the average of the “Pink Sheet” quotes for the relevant conversion period, as
determined in good faith by the Holder, or (iv) if the Common Stock is not
then
publicly traded the fair market value of a share of Common Stock as determined
by the Holder and reasonably acceptable to the Maker.
(g) Reservation
of Common Stock.
(i)
In
the
event that at anytime when this Note shall be outstanding, the Maker shall
not
have sufficient authorized but unissued Common Stock for the purpose of
effecting the conversion of all amounts outstanding under this Note at such
time
(without regard to any limitations on conversion) (an “Authorized
Share Failure”),
it
shall immediately reserve and keep available such number of its duly authorized
shares of Common Stock as is in fact available as of that date and shall
immediately take all action necessary to increase the number of its authorized
shares of Common Stock until such time as the Maker’s Certificate of
Incorporation shall have been amended to increase the number of authorized
shares of Common Stock to such number as would, at a minimum, permit the
reservation by the Maker of sufficient shares to allow conversion of all amounts
outstanding under this Note as provided herein. Without limiting the generality
of the foregoing sentence, as soon as practicable after the occurrence of an
Authorized Share Failure, but in no event later than 60 days after the
occurrence of such Authorized Share Failure, the Maker shall (A) hold a meeting
of its stockholders or (B) obtain a majority written consent of its
stockholders, for the authorization of an increase in the number of authorized
shares of Common Stock. In connection with such meeting, the Maker shall provide
each stockholder with a proxy statement and shall use its best efforts to
solicit its stockholders’ approval of such increase in authorized shares of
Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal. The inability of the Maker to
reserve the required number of shares of Common Stock required by this Section
3.4(g) shall have no impact on the rank, rights, preferences and privileges
of
this Note, which shall be interpreted and applied as if the Maker had sufficient
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shares
of
Common Stock authorized but unissued to effect any conversion. Before taking
any
action which would cause an adjustment reducing the Conversion Price below
the
then par value of the shares of Common Stock issuable upon conversion of this
Note or which would cause the effective purchase price for the Common Stock
to
be less than the par value of the shares of Common Stock, the Maker shall take
any and all corporate action which may, in the opinion of its counsel, be
necessary in order that the Maker may validly and legally issue fully paid
and
nonassessable shares of such Common Stock at such adjusted Conversion Price
or
effective purchase price, as the case may be.
(h) Regulatory
Compliance.
If any
shares of Common Stock to be reserved for the purpose of conversion of this
Note
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
3.5 Preemptive
Rights.
(a) Except
as
set forth in Section 3.5(c), the Maker shall not issue or sell any shares of
Common Stock or other securities, or any rights or options to purchase Common
Stock or other securities, or any debt or shares convertible into or
exchangeable for Common Stock or other securities, whether now or hereafter
authorized and whether unissued or in the treasury (collectively, “Preemptive
Shares”),
unless the Holder shall first have been given the right to acquire, at a price
no less favorable than that at which such Preemptive Shares are to be offered
to
others, a portion of the Preemptive Shares, as provided in Section
3.5(b).
(b) The
Maker
shall give the Holder prior written notice of any proposed issuance or sale
described in Section 3.5(a), including the price at which such securities are
to
be offered and the time period for the offering, and the Holder shall have
thirty (30) days from the giving of such notice within which to elect to acquire
that number of the Preemptive Shares equal to the product of the total number
of
Preemptive Shares being offered and a fraction, determined as of the time
immediately prior to the issuance of the Preemptive Shares, the numerator of
which is equal to the sum of (i) the number of shares of Common Stock then
outstanding as a result of the conversion of this Note, and (ii) the number
of shares of Common Stock into which this Note could be converted, and the
denominator of which is equal to the sum of (x) the number of shares of
Common Stock then outstanding, (y) the number of shares of Common Stock
into which this Note could be converted, and (z) the number of shares of
Common Stock issuable upon conversion or exercise of all outstanding options,
warrants and other rights for the purchase of capital stock of the Company,
and
all outstanding shares of all series of preferred stock (such number of
Preemptive Shares being referred to herein as the “Common
Stock Preemptive Shares”).
The
Holder may acquire that portion of the Common Stock Preemptive Shares being
offered equal to its percentage ownership of the outstanding Common Stock
immediately preceding the issuance of the Preemptive Shares. If any transaction
specified by the Maker in any such notice shall not be consummated within one
hundred twenty (120) days from the date of such notice, the Corporation shall
again comply with the provisions of this Section 3.5 with respect to such
transaction, and the Holder shall again have preemptive rights hereunder with
respect to the transaction, regardless of whether any such stockholder had
previously exercised or failed to exercise such rights. Any purchase of
securities pursuant to the exercise of preemptive rights shall be consummated
simultaneously with, and shall be conditioned upon, consummation of the
transaction proposed by the Maker.
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(c) The
restrictions contained in, and preemptive rights granted under, this Section
3.5
shall not apply to:
(i) shares
of
Common Stock issued upon conversion of this Note;
(ii) shares
of
capital stock of the Maker issued in a public offering occurring after the
date
hereof that results in aggregate gross proceeds to the Maker of at least Fifty
Million Dollars ($50,000,000); or
(iii) shares
of
Common Stock issued upon the exercise or conversion of outstanding options,
warrants or other Common Stock equivalents in existence on the Issuance
Date.
The
rights granted to the Holder under this Section 3.5 may be waived with respect
to any Preemptive Shares by a written waiver executed by the
Holder.
Section
3.6 Prepayment.
The
Maker shall not be permitted to prepay some or all of the principal and accrued
interest outstanding under this Note at any time prior to the date that is
six
(6) months after the First Closing Date but shall be permitted to prepay some
or
all of the principal and accrued interest outstanding under this Note at any
time after such date; provided, however, that (i) in advance of any such
prepayment, the Maker shall deliver to the Holder a written notice (the
“Prepayment
Notice”)
setting forth the Maker’s intention to make such prepayment and the amount
thereof, and (ii) the Holder shall have the right to convert some or all of
the
amount proposed to be prepaid into such number of shares of Common Stock as
is
determined by dividing the amount to be converted by the Conversion Price then
in effect. The Holder shall exercise the conversion right set forth in this
Section 3.6 by notifying the Maker in writing within sixty (60) Trading Days
of
the Holder’s receipt of Prepayment Notice. In the event that the Maker prepays
some, but not all, of the principal and accrued interest outstanding under
this
Note, such prepaid amount shall be applied first to the amount owing on the
date
on which the Maker’s final payment is due hereunder and then to amounts owing on
any preceding dates on which the Maker is required to make payments
hereunder.
Section
3.7 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.
-12-
ARTICLE
IV
MISCELLANEOUS
Section
4.1 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, telecopy or facsimile at the address or number first set forth above
(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.
Section
4.2 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 any of the conflicts of law
principles which would result in the application of the substantive law of
another jurisdiction. This Note shall not be interpreted or construed with
any
presumption against the party causing this Note to be drafted.
Section
4.3 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.
Section
4.4 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.
Section
4.5 Enforcement
Expenses.
The
Maker agrees to pay all costs and expenses of enforcement of this Note,
including, without limitation, reasonable attorneys’ fees and
expenses.
Section
4.6 Binding
Effect.
The
obligations of the Maker and the Holder set forth herein shall be binding upon
the successors and permitted assigns of each such party.
Section
4.7 Amendments.
This
Note may not be modified or amended in any manner except in a writing executed
by the Maker and the Holder.
-13-
Section
4.8 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 therefor
shall be stamped or imprinted with a legend in substantially the following
form:
THIS
NOTE
AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL
IN
THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE MAKER THAT THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE MAY
BE
SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
Section
4.9 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 Funding 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. Each of the Maker and the
Holder hereby agree that the prevailing party in any suit, action or proceeding
arising out of or relating to this Note shall be entitled to reimbursement
for
reasonable legal fees from the non-prevailing party.
Section
4.10 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.
Section
4.11 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.
-14-
Section
4.12 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.
(a) 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.
(b) 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 shall have the following
meanings:
“business
day”
means
any day other than a Saturday, Sunday or other day on which banks in New York
City, New York are authorized or required by law to close.
“Indebtedness”
of
any
Person means without duplication (A) all indebtedness for borrowed money,
(B) all obligations issued, undertaken or assumed as the deferred purchase
price of property or services (other than trade payables entered into in the
ordinary course of business), (C) all reimbursement or payment obligations
with respect to letters of credit, surety bonds and other similar instruments,
(D) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with
the
acquisition of property, assets or businesses, (E) all indebtedness created
or arising under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to any property or assets
acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default
are
limited to repossession or sale of such property), (F) all monetary
obligations under any leasing or similar arrangement which, in connection with
GAAP, is classified as a capital lease, (G) all indebtedness referred to in
clauses (A) through (F) above secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien upon or in any property or assets (including accounts and contract
rights) owned by any Person, even though the Person which owns such assets
or
property has not assumed or become liable for the payment of such indebtedness,
and (H) all Contingent Obligations in respect of indebtedness or
obligations of others of the kinds referred to in clauses (A) through
(G) above. For purposes of the definition of Indebtedness, “Contingent
Obligation”
means,
as to any Person, any direct or indirect liability, contingent or otherwise,
of
that Person with respect to any indebtedness, lease,
-15-
dividend
or other obligation of another Person if the primary purpose or intent of the
Person incurring such liability, or the primary effect thereof, is to provide
assurance to the obligee of such liability that such liability will be paid
or
discharged, or that any agreements relating thereto will be complied with,
or
that the holders of such liability will be protected (in whole or in part)
against loss with respect thereto.
“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 OTC Bulletin Board, or
(b)
if the Common Stock is not traded 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)
or
(b) 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.
-16-
IN
WITNESS WHEREOF, this Note is executed and delivered by a duly authorized and
empowered officer of the Maker as of the date first written above.
|
KRONOS
ADVANCED TECHNOLOGIES, INC.
By:
/s/
Xxxxxxx X. Xxxxxx
Name:
Xxxxxxx X. Xxxxxx
Title:
Chief Operating Officer
|
RS
Properties Note
-17-
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 Kronos
Advanced Technologies, Inc. (the “Maker”) according to the conditions hereof, as
of the date written below.
Date
of
Conversion ________________________________________________________
Applicable
Conversion Price _________________________________________________
Number
of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the Date of Conversion: ______________
Signature
____________________________________________________________________
[Name]
Address:
____________________________________________________________________
____________________________________________________________
