Contract
THIS
NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
BAYHILL
CAPITAL CORPORATION
$[_________] ________ __,
2008
Note
Number:_____
FOR VALUE
RECEIVED, BayHill Capital Corporation, a Delaware corporation (the “Company”) promises to pay to
[_________________] (“Purchaser”), or its registered
assigns, in lawful money of the United States of America the principal sum of
[_________] Dollars ($[_________]), or such lesser amount as shall equal the
outstanding principal amount hereof, together with interest from the date of
this Unsecured Convertible Promissory Note (this “Note”) on the unpaid
compounded principal balance and accrued but unpaid interest at a rate equal to
twelve percent (12%) per annum, compounded at the end of the Company’s fiscal
year, computed on the basis of the actual number of days elapsed and a year of
365 days. All unpaid principal, together with any then unpaid and
accrued interest and other amounts payable hereunder, shall be due and payable
on the earlier of (i) June 30, 2009 (the “Maturity Date”), or
(ii) when, upon or after the occurrence of an Event of Default (as defined
below), such amounts are declared due and payable by Purchaser or made
automatically due and payable in accordance with the terms
hereof. This Note is issued pursuant to the Purchase Agreement, dated
as of _________ ___, 2008 (as amended, modified or supplemented, the “Purchase Agreement”) between
the Company and Purchaser.
The
following is a statement of the rights of Purchaser and the conditions to which
this Note is subject, and to which Purchaser, by the acceptance of this Note,
agrees:
1. Definitions. As
used in this Note, the following capitalized terms have the following
meanings:
(a) “Common Stock” shall mean the
common stock, par value $.0001 per share, of the Company.
(b) “Company” includes the
corporation initially executing this Note and any Person which shall succeed to
or assume the obligations of the Company under this Note.
(c) “Event of Default” has the
meaning given in Section 4
hereof.
(d) “Purchaser” shall mean the
Person specified in the introductory paragraph of this Note or any Person who
shall at the time be the registered holder of this Note.
(e) “Majority in Interest” shall
mean a majority of the aggregate outstanding principal amount of the Offering
Notes, and which must include at least two (2) holders of an Offering
Note.
(f) “Obligations” shall mean and
include all loans, advances, debts, liabilities and obligations, howsoever
arising, owed by the Company to Purchaser pursuant to the terms of this Note,
including, all interest, fees, charges, expenses, attorneys’ fees and costs and
accountants’ fees and costs chargeable to and payable by the Company hereunder
and thereunder.
(g) “Offering Notes” means the
Note, together with all notes issued pursuant to the Purchase Agreement or other
agreements with substantially similar terms to the Purchase Agreement under
which the Company expects to offer and sell up to an aggregate of $1,000,000 in
Unsecured Convertible Promissory Notes in form and substance similar to this
Note.
(h) “Person” shall mean and include
an individual, a partnership, a corporation (including a business trust), a
joint stock company, a limited liability company, an unincorporated association,
a joint venture or other entity or a governmental authority.
(i) “Purchase Agreement” has the
meaning given in the introductory paragraph hereof.
(j) “Rule 144” shall mean Rule 144
promulgated under the Securities Act.
(k) “Securities Act” shall mean the
Securities Act of 1933, as amended.
(l) “Transaction Documents” shall
mean this Note and the Purchase Agreement.
2. Interest. Interest
shall accrue at a rate of twelve percent (12%) per annum. Accrued
interest on this Note shall be calculated and payable at the earlier of: (i) the
principal amount hereunder becoming due and payable; or (ii) at the time of
conversion. Interest may be paid in cash or Common Stock, at the
discretion of the Company. If the Company elects to pay the interest
in Common Stock, the number of shares will be calculated based on the stock
price of $1.50 per share of Common Stock. The Company will deliver,
or cause to be delivered, certificates representing the shares of Common Stock
within thirty (30) days of: (x) the principal amount hereunder becoming due and
payable; or (y) receiving written notice of Purchaser’s election to
convert.
3. Prepayment. The
Company may prepay all or any portion of the Note at any time after the six (6)
month period following the date hereof without penalty; provided, however, that the
Company shall give Purchaser not less than thirty (30) days’ prior written
notice of such prepayment, during which time the Purchaser may elect to convert,
in accordance with Section
6, the outstanding principal balance and accrued interest under the Note
by giving the Company written notice of such election. Any such
prepayment shall be made pro rata among the holders of the Offering
Notes.
4. Events of
Default. The occurrence of any of the following shall
constitute an “Event of
Default” under this Note and the other Transaction
Documents:
(a)
Failure to Pay. The
Company shall fail to pay (i) when due any principal or interest payment on
the due date hereunder or (ii) any other payment required under the terms
of this Note on the date due and such payment shall not have been made within
ten
2
days
of the Company’s receipt of Purchaser’s written notice to the Company of such
failure to pay; or
(b)
Breaches of Covenants. The Company shall fail to observe or
perform any other covenant, obligation, condition or agreement contained in this
Note and (i) such failure shall continue for 15 days after the Company
receives notice thereof from Purchaser, or (ii) if such failure is not
curable within such 15-day period, but is reasonably capable of cure within 30
days, either (A) such failure shall continue for 30 days or (B) the
Company shall not have commenced a cure in a manner reasonably satisfactory to
Purchaser within the initial 15-day period; or
(c)
Voluntary Bankruptcy or Insolvency Proceedings. The Company
shall (i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property, (ii) be unable, or admit in writing its inability, to pay its
debts generally as they mature, (iii) make a general assignment for the
benefit of its creditors, (iv) be dissolved or liquidated,
(v) commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
consent to any such relief or to the appointment of or taking possession of its
property by any official in an involuntary case or other proceeding commenced
against it, or (vi) take any action for the purpose of effecting any of the
foregoing;
(d)
Involuntary Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of the
Company or of all or a substantial part of the property thereof, or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to the Company or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in effect shall be
commenced and an order for relief entered or such proceeding shall not be
dismissed or discharged within 60 days of commencement; or
5. Rights of Purchaser
upon Default. Upon the occurrence or existence of any Event of
Default (other than an Event of Default described in Sections 4(d)) and at any
time thereafter during the continuance of such Event of Default, Purchaser may,
with the consent of holders of a Majority in Interest, by written notice to the
Company, declare all outstanding Obligations payable by the Company hereunder to
be immediately due and payable without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, anything contained
herein or in the other Transaction Documents to the contrary
notwithstanding. Upon the occurrence or existence of any Event of
Default described in Sections 4(d),
immediately and without notice, all outstanding Obligations payable by the
Company hereunder shall automatically become immediately due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived, anything contained herein or in the other
Transaction Documents to the contrary notwithstanding. In addition to
the foregoing remedies, upon the occurrence or existence of any Event of
Default, Purchaser may exercise any other right, power or remedy granted to it
by the Transaction Documents or otherwise permitted to it by law, either by suit
in equity or by action at law, or both.
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6. Conversion.
(a) Optional Conversion. Subject to the
provisions of Section
6(b) set forth below, the entire outstanding principal amount of this
Note shall be convertible at the option of Purchaser into shares of the Common
Stock at a purchase price per share (the “Purchase Price”) as follows:
(i) $1.25 per share of Common Stock if converted on or before the 90th day
after the date hereof; (ii) $1.50 per share of Common Stock if converted after
the 90th day,
but on or before the 180th day
following the date hereof; and (iii) $1.75 per share of Common Stock if
converted after the 180th day
following the date hereof, but before the Maturity Date. In the event
the Company shall (i) pay a dividend on the Common Stock in shares of Common
Stock or make a distribution of shares of Common Stock; (ii) subdivide its
outstanding shares of Common Stock; (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock; or (iv) issue, by
reclassification of its shares of Common Stock, other securities of the Company
(including any such reclassification in connection with a consolidation or
merger in which the Company is the surviving corporation), the Purchase Price
shall be proportionally adjusted accordingly. Before Purchaser shall
be entitled to convert this Note into shares of Common Stock under this Section 6(a), it shall
surrender this Note, duly endorsed, at the office of the Company and shall give
written notice to the Company at its principal corporate office, of the election
to convert the same pursuant to this Section, and shall state therein the amount
of the unpaid principal amount of this Note and accrued interest to be converted
and the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Company shall, as soon as
practicable thereafter, issue and deliver to Purchaser a certificate or
certificates for the number of shares of Common Stock to which Purchaser shall
be entitled upon conversion (bearing such legends as are required by the
Purchase Agreement and applicable state and federal securities laws in the
opinion of counsel to the Company), together with a replacement Note (if any
principal amount or interest is not converted) and any other securities and
property to which Purchaser is entitled upon such conversion under the terms of
this Note, including a check payable to Purchaser for any cash amounts payable
as described in Section 6(b). The
conversion shall be deemed to have been made immediately prior to the close of
business on the date of the surrender of this Note, and the Person or Persons
entitled to receive the shares of Common Stock upon such conversion shall be
treated for all purposes as the record Purchaser of such shares of Common Stock
as of such date.
(b) Fractional Shares; Interest; Effect
of Conversion. No fractional shares shall be issued upon
conversion of this Note or in payment of any interest due hereunder and the
number of shares to be issued
upon the conversion of this Note or in payment of any interest due hereunder,
shall be rounded up to the nearest whole share. Upon
conversion of this Note in full and the payment of any amounts specified in this
Section 6(b), the
Company shall be forever released from all its obligations and liabilities under
this Note.
7. Successors and
Assigns. Subject to the
restrictions on transfer described in Sections 9 below, the rights
and obligations of the Company and Purchaser shall be binding upon and benefit
the successors, assigns, heirs, administrators and transferees of the
parties.
8. Waiver and
Amendment. Any provision of
this Note may be amended, waived or modified upon the written consent of (i) the
Company and the Purchaser; or (ii) the Company and holders of a Majority in
Interest; provided, however, that if any
amendment or waiver affects a particular noteholder differently and in a
materially adverse manner, relative to the other noteholders, the consent of
such noteholder shall be required for such amendment or waiver.
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9. Transfer of this Note or Securities
Issuable on Conversion Hereof. With respect to
any offer, sale or other disposition of this Note or securities into which such
Note may be converted, Purchaser will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of Purchaser’s counsel, or other evidence if reasonably satisfactory to the
Company, to the effect that such offer, sale or other distribution may be
effected without registration or qualification (under any federal or state law
then in effect). Upon receiving such written notice and reasonably satisfactory
opinion, if so requested, or other evidence, the Company, as promptly as
practicable, shall notify Purchaser that Purchaser may sell or otherwise dispose
of this Note or such securities, all in accordance with the terms of the notice
delivered to the Company. If a determination has been made pursuant
to this Section 9
that the opinion of counsel for Purchaser, or other evidence, is not reasonably
satisfactory to the Company, the Company shall so notify Purchaser promptly
after such determination has been made. Each Note thus transferred
and each certificate representing the securities thus transferred shall bear a
legend as to the applicable restrictions on transferability in order to ensure
compliance with the Securities Act, unless in the opinion of counsel for the
Company such legend is not required in order to ensure compliance with the
Securities Act. The Company may issue stop transfer instructions to
its transfer agent in connection with such restrictions. Subject to
the foregoing, transfers of this Note shall be registered upon registration
books maintained for such purpose by or on behalf of the
Company. Prior to presentation of this Note for registration of
transfer, the Company shall treat the registered holder hereof as the owner and
holder of this Note for the purpose of receiving all payments of principal and
interest hereon and for all other purposes whatsoever, whether or not this Note
shall be overdue and the Company shall not be affected by notice to the
contrary.
10. Notices. All notices,
requests, demands, consents, instructions or other communications required or
permitted hereunder shall be in writing and faxed, mailed or delivered to each
party at the respective addresses of the parties as set forth in the Purchase
Agreement, or at such other address or facsimile number as the Company shall
have furnished to Purchaser in writing. All such notices and
communications will be deemed effectively given the earlier of (i) when
received, (ii) when delivered personally, (iii) one business day after
being delivered by facsimile (with receipt of appropriate confirmation),
(iv) one business day after being deposited with an overnight courier
service of recognized standing or (v) four days after being deposited in
the U.S. mail, first class with postage prepaid.
11.
Payment. Payment of the
principal amount hereunder shall be made in lawful tender of the United
States. Payment of accrued interest shall be made in lawful tender of
the United States or in Common Stock, at the discretion of the
Company. If the Company pays the accrued interest in Common Stock,
the number of shares of Common Stock will be calculated based on a price of
$1.50 per share of Common Stock, and the Company will deliver, or cause to be
delivered, certificates representing the shares of Common Stock within thirty
(30) days of: (x) the principal amount hereunder becoming due and payable; or
(y) receiving written notice of Purchaser’s election to convert.
12. No Rights as
Stockholders. This Note does
not entitle the Purchaser to any voting rights or other rights as a stockholder
of the Company prior to the conversion into Common Stock.
13. Default Rate;
Usury. During any period
in which an Event of Default has occurred and is continuing, the Company shall
pay interest on the unpaid principal balance hereof at a rate per annum equal
twenty percent (20%). In the event any interest is paid on this
Note which is deemed to be in excess of the then legal maximum rate, then that
portion of the interest payment representing an amount
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in excess
of the then legal maximum rate shall be deemed a payment of principal and
applied against the principal of this Note.
14. Subordinate
Note. This Note is expressly subordinate to any current or
future indebtedness of the Company (the “Senior Indebtedness”),
including but not limited to: (i) all indebtedness of the Company to banks,
commercial financial lenders, insurance companies or other financial
institutions or lessors regularly engaged in the business of lending money
(including, but not limited to, indebtedness of the Company to SVB Silicon
Valley Bank, Vencore Capital and BayHill Capital); and (ii) any such
indebtedness or any debentures, notes or other evidence of indebtedness issued
in exchange for or to refinance such Senior Indebtedness, or any indebtedness
arising from the satisfaction of such Senior Indebtedness by a
guarantor.
15. Waivers. The Company
hereby waives notice of default, presentment or demand for payment, protest or
notice of nonpayment or dishonor and all other notices or demands relative to
this instrument.
16. Governing
Law. This Note and all
actions arising out of or in connection with this Note shall be governed by and
construed in accordance with the laws of the State of Utah, without regard to
the conflicts of law provisions of the State of Utah or of any other
state.
The
Company has caused this Unsecured Convertible Promissory Note to be issued as of
the date first written above.
BAYHILL
CAPTIAL CORPORATION
a
Delaware corporation
By:
Name:
Title:
252853v1
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