THIS NOTE AND THE SECURITIES 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 COMPANY OF A
WRITTEN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO THE COMPANY THAT THIS NOTE AND THE SECURITIES 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.
TOTAL LUXURY GROUP, INC.
Senior Secured 9% Convertible Promissory Note
Date: March 7, 2008 $19,000,000
For value received, TOTAL LUXURY GROUP, INC., an Indiana corporation (the
"Maker" or the "Company") hereby promises to pay to the order of ACCELERANT
PARTNERS LLC (together with its successors, representatives, and permitted
assigns, the "Holder"), in accordance with the terms hereinafter provided, the
principal amount of nineteen million ($19,000,000) dollars, together with
interest thereon. The Maker is issuing this senior secured 9% convertible
promissory note to the Holder pursuant to the Stock Purchase Agreement (as
defined in Section 1.1 hereof). Any other senior secured 9% convertible
promissory notes issued pursuant to the Purchase Agreement shall hereinafter be
referred to as the "Other Notes" and such Holders as the "Other Holders;"
collectively, this note and the Other Notes are referred to as the "Notes."
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 as set forth in the Purchase Agreement 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 shall be due
and payable on the thirty-month anniversary of the Issuance Date (the "Maturity
Date") or at such earlier time as provided herein.
This Note is secured by a Security Agreement dated the date hereof (the
"Security Agreement") of the Maker in favor of the Holder covering certain
collateral (the "Collateral"), all as more particularly described and provided
therein, and is entitled to the benefits thereof. The Security Agreement, the
Uniform Commercial Code financing statements in connection with the Security
Agreement and any and all other documents executed and delivered by the Maker to
the Holder under which the Holder is granted liens on assets of the Maker are
collectively referred to as the "Security Documents."
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ARTICLE I
Section 1.1 Purchase Agreement. This Note has been executed and delivered
pursuant to the Stock Purchase Agreement dated as of March 7, 2008 (the
"Purchase Agreement") by and among the Maker and the sellers listed therein.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth for such terms in the Purchase 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 ("Interest"), in arrears, at a rate per annum equal to nine percent
(9%), payable quarterly commencing on March 31, 2008 and on the last business
day of each June, September, December, and March thereafter so long as any
principal amount evidenced by this Note remains outstanding. 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 through the Maturity Date at a new rate of the lesser of twelve
percent (12%) and the maximum applicable legal rate per annum.
Section 1.3 Cash or Stock. At the option of the Maker, Interest may be paid
in cash or registered shares of Common Stock of the Maker. Upon the payment of
Interest in registered shares of Common Stock, the number of shares of Common
Stock to be issued to the Holder shall be an amount equal to the quotient of (x)
the Interest payment due (y) multiplied by 1.2 and (z) divided by (z)
one-hundred percent (100%) of the average of the VWAP (as defined below) of the
closing trading price for the ten (10) trading days immediately preceding the
date the Interest payment is due. For purposes hereof, "VWAP" shall mean, for
any date, (i) the daily volume weighted average price of the Common Stock for
such date on the OTC Bulletin Board as reported by Bloomberg Financial L.P.
("Bloomberg") (based on a trading day from 9:30 a.m. Eastern Time to 4:02 p.m.
Eastern Time); (ii) if the Common Stock is not then listed or quoted on the OTC
Bulletin Board and if prices for the Common Stock are then reported in the "Pink
Sheets" published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported; or (iii) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder and reasonably acceptable to the
Maker.
Section 1.4 Ranking and Covenants.
----------------------
(a) Except as set forth in Schedule 1.4(a), no indebtedness of any of the
Maker is senior to this Note in right of payment, whether with respect to
interest, damages or upon liquidation or dissolution or otherwise and the Maker
will not, and will not permit any Subsidiary to, directly or indirectly, incur
any Lien on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits therefrom
without the prior written consent of the Holder.
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(b) So long as any Notes are outstanding, none of the Maker nor any
Subsidiary shall, directly or indirectly without the prior written consent of
the Holder, (i) redeem, purchase or otherwise acquire any of the Company's
capital stock or set aside any monies for such a redemption, purchase or other
acquisition; (ii) issue any options or convertible securities with an exercise
price or a conversion price or a number of underlying shares that floats or
resets or otherwise varies or is subject to adjustment based (directly or
indirectly) on market prices of the Common Stock; or (iii) issue any securities
having any rights, privileges, or preferences superior to or in pari passu with
the rights, privileges, and preferences of the Holder.
(c) The Maker shall perform any and all acts and execute any and all
documents (including, without limitation, the execution, amendment or
supplementation of any financing statement and continuation statement) for
filing under the provisions of the Uniform Commercial Code (the "UCC"), and the
rules and regulations thereunder, or any other statute, rule or regulation of
any applicable jurisdiction which are necessary and/or advisable at the request
of the Holder or its counsel in order to maintain in favor of the Holder of the
Notes, a valid and perfected lien on the Collateral (as defined in the Security
Agreement).
Section 1.5 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.
Section 1.6 Transfer. This Note may be transferred or sold, subject to the
provisions of Section 4.8 of this Note, or pledged, hypothecated or otherwise
granted as security by the Holder.
Section 1.7 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
reasonably satisfactory to the Maker, 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.
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
due under this Note on the date such payments are due and such default is
not fully cured within three (3) business days after the occurrence
thereof; or
(b) the failure of a registration statement (the "Registration
Statement") providing for the resale of shares of the Company's common
stock, $0.001 par value per share (the "Common Stock") issuable upon
conversion of this Note to be declared effective by the Securities and
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Exchange Commission on or prior to the Effectiveness Date applicable to
such registration statement (as defined in the Registration Rights
Agreement); or
(c) At any time subsequent to the suspension from listing, without
subsequent listing on any one of, or the failure of the Common Stock to be
listed or quoted on at least one of the Pink Sheets LLC, OTC Bulletin
Board, the American Stock Exchange, the NASDAQ Global Market, the NASDAQ
Capital Market or The New York Stock Exchange, Inc. for a period of ten
(10) consecutive Trading Days; or
(d) the Company'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
(e) either (i) the Maker shall fail to timely deliver the shares of
Common Stock upon conversion of the Note, or (ii) the Maker shall fail to
make the payment of any fees and/or liquidated damages under this Note or
the Purchase Agreement, which failure is not remedied within ten (10)
business days after the incurrence thereof; or
(f) 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 Company has not exercised its rights pursuant to Section 3(n) of the
Registration Rights Agreement; or
(g) default shall be made in the performance or observance of (i) any
covenant, condition or agreement contained in this Note and such default is
not fully cured within ten (10) 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 Purchase Agreement, the Other
Notes, the Warrant, the Security Documents, 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 ten (10) business days after the Holder delivers written notice to
the Maker of the occurrence thereof; or
(h) any material representation or warranty made by either of the
Maker herein or in the Purchase Agreement, the Other Notes, the Warrant,
the Security Documents, the Registration Rights Agreement, or any other
Transaction Document shall prove to have been false or incorrect or
breached in a material respect on the date as of which made and the Holder
delivers written notice to the Maker of the occurrence thereof; or
(i) the Maker shall after the Issuance Date (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 $100,000 or (B) default in the
observance or performance of any other agreement or condition relating to
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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
(j) 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) issue a
notice of bankruptcy or winding down of its operations or issue a press
release regarding same; or
(k) 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 its
liquidation or dissolution 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 either of 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 either of
the Maker and shall continue undismissed, or unstayed and in effect for a
period of thirty (30) days; or
(l) the failure of the Company 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 Company, and based
thereon the Company has determined, that such shares of Common Stock can be
sold pursuant to Rule 144; or
(m) the failure of the Maker to pay any amounts due to the Holder
herein or any other Transaction Document within five (5) business days of
the date such payments are due and such default is not fully cured within
five (5)business days after the Holder delivers written notice to the Maker
of the occurrence thereof; or
(n) the occurrence of an event of default under any other Transaction
Document.
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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 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(j) or (k), the outstanding
principal balance and accrued interest hereunder shall be automatically due and
payable and (ii) Sections 2.1(b)-(i), (l), (m), (n), or (o), demand the
prepayment of this Note pursuant to Section 3.7 hereof, (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), (c) appoint a majority of the members
of the entire board of directors of the Maker, or (d) 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 Security 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. In
connection with the Holder's exercise of any of its remedies hereunder, the
Maker shall use its best efforts to cooperate with the Holder to the end that
the Holder's rights hereunder will be effectuated.
ARTICLE III
CONVERSION; ANTIDILUTION; PREPAYMENT; COVENANTS
Section 3.1 Conversion. 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
(the "Optional Conversion"), 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 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) or the Conversion Price Reset Option Price (as defined
in Section 3.5 hereof), as applicable, then in effect on the date on which the
Holder faxes a notice of conversion (the "Optional Conversion Notice"), duly
executed, to the Company (facsimile number _________, Attn.: ___________) (the
"Optional Conversion Date"); provided, however, that the Conversion Price shall
be subject to adjustment as described in Section 3.6 of this Note. The Holder
shall deliver this Note to the Company at the address designated in the Purchase
Agreement as soon as practicable after such time that this Note is fully
converted. With respect to partial conversions of this Note, the Company shall
keep and attach hereto 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 $0.04, subject to
adjustment under Section 3.5 and Section 3.6 hereof.
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(b) The term "Conversion Shares" shall mean such shares of Common
Stock issuable upon Conversion of this Note.
(c) Notwithstanding any of the foregoing to the contrary, if during
any period (a "Black-out Period"), the Holder is unable to trade any Common
Stock issued or issuable upon conversion of this Note immediately due, 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 Optional Conversion
Date or any Conversion Price selected by the Holder that would have been
applicable had such Optional Conversion Date been at any earlier time
during the Black-out Period or within the ten (10) Trading Days thereafter.
In no event shall the Black-out Period have any effect on the Maturity Date
of this Note.
Section 3.3 Mechanics of Conversion.
-----------------------
(a) Not later than three (3) Trading Days after any Optional
Conversion Date (the "Delivery Date"), the Company or its designated
transfer agent, as applicable, shall issue and deliver to the Depository
Trust Company ("DTC") account on the Holder's behalf via the Deposit
Withdrawal Agent Commission System ("DWAC") as specified in the Optional
Conversion Notice, registered in the name of the Holder or its designee,
for the number of shares of Common Stock to which the Holder shall be
entitled. Notwithstanding the foregoing, in the alternative, not later than
the Delivery Date, the Company shall deliver to the applicable Holder by
express courier 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) representing the number of shares of
Common Stock being acquired upon the conversion of this Note. If, in the
case of any Optional Conversion such DWAC transfer or certificate or
certificates are not delivered to or as directed by the applicable Holder
by the Delivery Date, the Holder shall be entitled by written notice to the
Company at any time on or before its receipt of such certificate or
certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return this Note tendered for conversion,
whereupon the Company 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.
(b) The Company 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 Company fails to deliver to
the Holder such shares via DWAC or a 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
shares are delivered via DWAC or 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) (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 and (B) $5,000
per day (which amount shall be paid as liquidated damages and not as a
penalty). Nothing herein shall limit a Xxxxxx's right to pursue actual
damages for the Company's failure to deliver certificates representing
shares of Common Stock (as the case may be) upon conversion within the
7
period specified herein 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 an Optional 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
Optional Conversion Notice is withdrawn.
(c) In addition to any other rights available to the Holder, if the
Company fails to cause its transfer agent to transmit to the Holder a
certificate or certificates representing the shares of Common Stock
issuable upon conversion of this Note on or before the Delivery Date, and
if after such date the Holder is required by its broker to purchase (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the shares of Common Stock issuable
upon conversion of this Note which the Holder anticipated receiving upon
such exercise (a "Buy-In"), then the Maker shall (1) pay in cash to the
Holder the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (y) the amount obtained by multiplying (A) the number of shares of
Common Stock issuable upon conversion of this Note that the Company was
required to deliver to the Holder in connection with the conversion at
issue multiplied by (B) the price at which the sell order giving rise to
such purchase obligation was executed, and (2) at the option of the Holder,
either reinstate the portion of the Note and equivalent number of shares of
Common Stock for which such conversion was not honored or deliver to the
Holder the number of shares of Common Stock that would have been issued had
the Company timely complied with its conversion and delivery obligations
hereunder. For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of shares of Common Stock with an aggregate sale price giving
rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Maker shall be required to pay the
Holder $1,000. The Holder shall provide the Maker written notice indicating
the amounts payable to the Holder in respect of the Buy-In, together with
applicable confirmations and other evidence reasonably requested by the
Maker. Nothing herein shall limit a Xxxxxx's right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver certificates
representing shares of Common Stock upon conversion of this Note as
required pursuant to the terms hereof.
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Section 3.4 Ownership Cap and Certain Conversion Restrictions.
Notwithstanding anything to the contrary set forth in Section 3 of this Note, at
no time may the Holder convert all or a portion of 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 the Holder at
such time, the number of shares of Common Stock which would result in the Holder
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) 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 sixty-one (61) 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;
provided, further, that during the sixty-one (61) day period prior to the
Maturity Date of this Note the Holder may waive this Section 3.4 upon providing
the Waiver Notice at any time during such sixty-one (61) day period; and
provided, further, that any Waiver Notice during the sixty-one (61) day period
prior to the Maturity Date will not be effective until the Maturity Date.
Section 3.5 Conversion Price Reset. The Holder has been informed by the
Maker that the Maker does not have sufficient shares of Common Stock authorized
for which to enable the Holder to exercise its conversion rights provided in
this Note. The Maker undertakes to use its best efforts to become reporting
under the federal securities laws and seek to be re-listed for quotation on the
OTC Bulletin Board as soon as practical, seek to maintain such listing so long
as the Holder owns any shares of Common Stock, and shall, as soon as practical
as thereafter possible, will take all required steps under applicable state and
federal law to increase the number of authorized shares of Common Stock to
enable the Holder to exercise its conversion rights provided in this Note. In
all events, the relisting process and the amendment of the Maker's Certificate
of Incorporation shall be accomplished by no later than June 1, 2008. In this
regard, the terms and conditions of such increase in the number of authorized
Common Stock shall be subject to the Holder's prior consent.
In consideration of the risks that the Holder is assuming, including,
without limitation, the risks inherent in owning an illiquid investment, because
the Maker does not have sufficient authorized shares of Common Stock to fulfill
its obligations hereunder, the Maker hereby provides to the Holder a one-time
Conversion Price Reset Option that is exercisable at any time within twelve (12)
months after the Holder has been provided with notice that the Maker has secured
all stockholder and regulatory approval of the requisite increase of its
authorized shares of Common Stock and the Maker has completed all required
filings. The Conversion Price Reset Option shall be exercisable on five (5)
Business Days' notice and shall set forth, among other matters, the Conversion
Price Reset Option Price, which shall be one-hundred percent (100%) of the
average of the VWAP for the ten (10) trading days immediately preceding the date
of the Holder's notice of its exercise of the Conversion Price Reset Option.
Upon the Holder's exercise of its Conversion Price Reset Option, the Conversion
Price Reset Option Price will thereafter be deemed to be the Conversion Price,
which is subject in all cases to adjustment in accordance with the terms of
Section 3.6.
Section 3.6 Adjustment of Conversion Price.
-------------------------------
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(a) The Conversion Price shall be subject to adjustment from time to
time as follows:
(i) Adjustments for Stock Splits and Combinations. If the Company
shall at any time or from time to time after the Issuance Date, effect
a stock split of the outstanding Common Stock, the applicable
Conversion Price in effect immediately prior to the stock split shall
be proportionately decreased. If the Company shall at any time or from
time to time after the Issuance Date, combine the outstanding shares
of Common Stock, the applicable 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
Company 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 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 the applicable 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
Company 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 Conversion
Price shall be made and provision shall be made (by adjustments of the
Conversion Price or otherwise) so that the holders of this Note shall
receive upon conversions thereof, in addition to the number of shares
of Common Stock receivable thereon, the number of securities of the
Company which they would have received had this Note 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 this Note and
the Other Notes; provided, however, that if such record date shall
have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the
Conversion Price shall be adjusted to the Conversion Price in effect
immediately prior to such adjustment until the time of actual payment
of such dividends or distributions.
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(iv) Adjustments for Reclassification, Exchange or Substitution.
If the Common Stock issuable upon conversion of this Note 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 Conversion Price shall be made and provisions shall be
made (by adjustments of the Conversion Price or otherwise) so that the
Holder shall have the right thereafter to convert this 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 Assets. If at any time or from time to time after the
Issuance Date there shall be a capital reorganization of the Company
(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 Company with or into another corporation where the holders of
outstanding voting securities of the Company prior to such merger or
consolidation do not own over fifty percent (50%) of the outstanding
voting securities of the merged or consolidated entity, immediately
after such merger or consolidation, or the sale of all or
substantially all of the Company's properties or assets to any other
person (an "Organic Change"), then as a part of such Organic Change,
(A) if the surviving entity in any such Organic Change is a public
company that is registered pursuant to the Securities Exchange Act of
1934, as amended, and its common stock is listed or quoted on a
national exchange or the OTC Bulletin Board, an appropriate revision
to the Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price) so that the Holder 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 Company or any
successor corporation as it would have received as a result of such
Organic Change if it had converted this Note into Common Stock
immediately prior to such Organic Change, and (B) if the surviving
entity in any such Organic Change is not a public company that is
registered pursuant to the Securities Exchange Act of 1934, as
amended, or its common stock is not listed or quoted on a national
exchange or the OTC Bulletin Board, the Holder shall have the right to
demand prepayment pursuant to Section 3.7(b) hereof. 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
Holder 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 this Note) 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.
(1) In the event the Company shall, at any time within two
(2) years following the Issuance Date (the "Full Ratchet
Period"), the Company shall issue or sell any additional shares
of common stock (otherwise than as provided in the foregoing
11
subsections (i) through (v) of this Section 3.6(a) or pursuant to
Common Stock Equivalents (hereafter defined) granted or issued
prior to the Issuance Date) ("Additional Shares of Common
Stock"), at a price per share less than the Conversion Price then
in effect or without consideration (the "New Conversion Price"),
then the Conversion Price upon each such issuance shall be
reduced to an amount equal to such New Conversion Price.
(2) The provisions of paragraph (1) of this Section
3.6(a)(vi) shall not apply to any issuance of Additional Shares
of Common Stock for which an adjustment is provided under Section
3.6(a)(vii). No adjustment of the number of shares of Common
Stock for which this Note shall be convertible shall be made
under paragraph (1) of this Section 3.6(a)(vi) upon the issuance
of any Additional Shares of Common Stock which are issued
pursuant to the exercise of any Common Stock Equivalents, if any
such adjustment shall previously have been made upon the issuance
of such Common Stock Equivalents pursuant to Section 3.6(a)(vii).
(vii) Issuance of Common Stock Equivalents. In the event the
Company shall at any time within the Full Ratchet Period issue any
securities convertible into or exchangeable for, directly or
indirectly, Common Stock ("Convertible Securities"), other than the
Notes, 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 aggregate price
per share for which Additional Shares of Common Stock may be issuable
thereafter pursuant to such Common Stock Equivalent, plus the
consideration received by the Company for issuance of such Common
Stock Equivalent divided by the number of shares of Common Stock
issuable pursuant to such Common Stock Equivalent (the "Aggregate Per
Common Share Price") shall be less than the applicable 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 make the Aggregate Per Common Share Price be
less than the applicable Conversion Price in effect at the time of
such amendment or adjustment, then the applicable 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 Company 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. No adjustment of the applicable 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
or other subscription or purchase rights therefor, then in effect upon
the issuance of such warrants or other subscription or purchase rights
therefor pursuant to this subsection (vii). No adjustment shall be
made to the Conversion Price upon the issuance of Common Stock
pursuant to the exercise, conversion or exchange of any Convertible
Security or Common Stock Equivalent where an adjustment to the
Conversion Price was made as a result of the issuance or purchase of
any Convertible Security or Common Stock Equivalent.
(viii) Subsequent Common Stock and Common Stock Equivalents
Issues. In the event the Company, shall, at any time after the Full
12
Ratchet Period, issue or sell any Additional Shares of Common Stock or
Common Stock Equivalents (otherwise than as provided in the foregoing
subsections of this Section 4), at a price per share less than the
Conversion Price, or without consideration, the Conversion Price then
in effect upon each such issuance shall be adjusted to that price
(rounded to the nearest cent) determined by multiplying the Conversion
Price 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 (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 then Conversion Price; 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. No adjustment of the number of
shares of Common Stock shall be made upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to the
exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any
Common Stock Equivalents if any such adjustment shall previously have
been made upon the issuance of such warrants or other rights or upon
the issuance of such Common Stock Equivalents (or upon the issuance of
any warrant or other rights therefore).
(ix) 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 Company is the surviving corporation (other than any
consolidation or merger in which the previously outstanding
shares of Common Stock of the Company shall be changed to or
exchanged for the stock or other securities of another
corporation), the amount of consideration therefor shall be,
deemed to be the fair market value, as determined reasonably and
in good faith by the board of directors of the Company (the
"Board"), of such portion of the assets and business of the
nonsurviving corporation as the 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
Company in which the Company is not the surviving corporation or
in which the previously outstanding shares of Common Stock of the
Company 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 Company for stock
or other securities of any corporation, the Company 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
Conversion Price, or the number of shares of Common Stock
issuable upon conversion of the Notes, the determination of the
applicable 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
13
issuable upon conversion of the Notes. In the event Common Stock
is issued with other shares or securities or other assets of the
Company for consideration which covers both, the consideration
computed as provided in this Section 3.6(viii) shall be allocated
among such securities and assets as determined in good faith by
the Board.
(b) Record Date. In case the Company 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 Company shall not be required to make any adjustment
to the Conversion Price in connection with (i) securities issued pursuant
to the conversion or exercise of convertible or exercisable securities
issued or outstanding on or prior to the date of the Purchase Agreement or
issued pursuant to the Purchase Agreement (so long as the conversion or
exercise price in such securities are not amended to lower such price
and/or adversely affect the Holder), (ii) the Conversion Shares, (iii)
Common Stock issued or the issuance or grants of options to purchase Common
Stock pursuant to the Company's stock option plans and employee stock
purchase plans that either (x) exist on the date of the Purchase Agreement,
or (y) do not exceed ten percent (10%) of the outstanding Common Stock of
the Company as of the date of the Purchase Agreement, (iv) any note issued
to the placement agent and its designees for the transactions contemplated
by the Purchase Agreement and the shares of Common Stock issuable upon the
conversion of said note; and (v) any shares of Common Stock issued upon the
exercise of the warrant issued to Xxxxxx Xxxxx for the transactions
contemplated by the Purchase Agreement.
(d) No Impairment. Except for the amendment of its Certificate of
Incorporation as contemplated by Section 3.5, the Company 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 Company, 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
Company 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, or
notice, restraining and or adjoining conversion of all or of said Notes
shall have issued and the Company posts a surety bond for the benefit of
such Holder in an amount equal to one hundred percent (100%) of the amount
of the Notes the Holder has elected to convert, 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 (as liquidated
damages) in the event it obtains judgment.
(e) Certificates as to Adjustments. Upon occurrence of each adjustment
or readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of this Note pursuant to this Section 3.6, the
Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to the Holder
14
a certificate setting forth such adjustment and readjustment, showing in
detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon written request of the Holder, at any time, furnish or
cause to be furnished to the Holder a like certificate setting forth such
adjustments and readjustments, the applicable 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 Company
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 the 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 the fraction that would evidence such fractional
shares multiplied by one-hundred percent (100%) of the average of the VWAP
for the ten (10) consecutive Trading Days immediately preceding the
Conversion Date.
(h) Reservation of Common Stock. The Company shall at all times when
this Note shall be outstanding, reserve and keep available out of its
authorized but unissued Common Stock, one hundred twenty percent (120%) of
such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of this Note. The Company shall, from
time to time in accordance with Indiana law, 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 Company'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 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 Company 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,
the Holder shall have the right, at such Holder's option, to require the
Maker to prepay in cash all or a portion of this Note at a price equal to
one hundred percent (100%) of the aggregate principal amount of this Note
plus all accrued and unpaid interest 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 Holder contained herein, simultaneous with the occurrence of
a Major Transaction (as defined below), the Holder shall have the right, at
15
the Holder's option, to require the Maker to prepay in cash all or a
portion of the Holder's Notes at a price equal to one hundred twenty
percent (120%) of the aggregate principal amount of this Note plus all
accrued and unpaid interest (the "Major Transaction Prepayment Price").
(c) Prepayment Option Upon Triggering Event. In addition to all other
rights of the Holder contained herein, after a Triggering Event (as defined
below), the Holder shall have the right, at the Holder's option, to require
the Maker to prepay all or a portion of this Note in cash at a price equal
to one hundred twenty percent (120%) of the aggregate principal amount of
this Note plus all accrued and unpaid interest (the "Triggering Event
Prepayment Price," and, collectively with the 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 Company 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
Company or (B) a consolidation, merger or other business combination
in which holders of the Company'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); or
(ii) the sale or transfer of more than fifty percent (50%) of the
Company's assets (based on the fair market value as determined in good
faith by the Board) other than inventory in the ordinary course of
business in one or a related series of transactions; or
(iii) closing of a purchase, tender or exchange offer made to the
holders of more than fifty percent (50%) of the outstanding shares of
Common Stock in which more than fifty percent (50%) of the outstanding
shares of Common Stock were tendered and accepted; or
(iv) a change in more than fifty percent (50%) of the current
members of the Company's Board of Directors as of the Issuance Date.
(v) the occurrence of a "Qualified Financing" which shall mean an
underwritten public offering of the Company's common stock pursuant to
which the gross proceeds of at least $5 million is raised.
(e) "Triggering Event." A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) so long as any Notes are outstanding, the effectiveness of
the Registration Statement, after it becomes effective, (i) lapses for
any reason (including, without limitation, the issuance of a stop
order) or (ii) is unavailable to the Holder for sale of the shares of
Common Stock, and such lapse or unavailability continues for a period
of twenty (20) consecutive Trading Days, and the shares of Common
Stock into which the Holder's Notes can be converted cannot be sold in
16
the public securities market pursuant to Rule 144 under the Securities
Act, provided that the cause of such lapse or unavailability is not
due to factors primarily within the control of the Holder of the
Notes; and provided further that a Triggering Event shall not have
occurred if and to the extent the Company exercised its rights set
forth in Section 3(n) of the Registration Rights Agreement;
(ii) the suspension from listing, without subsequent listing on
any one of, or the failure of the Common Stock to be listed on at
least one of the Pink Sheets, the OTC Bulletin Board, the American
Stock Exchange, the Nasdaq Global Market, the Nasdaq Capital Market or
The New York Stock Exchange, Inc., for a period of ten (10)
consecutive Trading Days;
(iii) the Company's notice to the Holder or any Other Holders,
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 any Notes into shares of Common Stock; or
(iv) the Company's failure to comply with a Conversion Notice
tendered in accordance with the provisions of this Note within five
(5) Trading Days after the receipt by the Company of the Conversion
Notice; or
(v) the Company deregisters its shares of Common Stock and as a
result such shares of Common Stock are no longer publicly traded; or
(vi) the Company consummates a "going private" transaction and as
a result the Common Stock is no longer registered under Sections 12(b)
or 12(g) of the Exchange Act; or
(vii) the Maker breaches any representation, warranty, covenant
or other term or condition of the Purchase Agreement, this Note, the
Security Agreement or any other agreement, document, certificate or
other instrument delivered in connection with the transactions
contemplated thereby or hereby, except to the extent that such breach
would not have a Material Adverse Effect (as defined in the Purchase
Agreement) and except, in the case of a breach of a covenant which is
curable, only if such breach continues for a period of a least twenty
(20) business days.
(f) Mechanics of Prepayment at Option of Holder Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten (10) days
prior to the consummation of a Major Transaction, but in no event 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 the Holder of this Note and the Other Holders. 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 during the ten (10) day period prior to
a Major Transaction), the Holder of this Note and the Other Holders of the
Other Notes then outstanding may require the Maker to prepay, effective
immediately prior to the consummation of such Major Transaction, all or any
portion of this Note then outstanding by delivering written notice thereof
via facsimile and overnight courier ("Notice of Prepayment at Option of
Holder Upon Major Transaction") to the Maker, which Notice of Prepayment at
17
Option of Holder Upon Major Transaction shall indicate (i) the principal
amount of this Note that the Holder is electing to have prepaid and (ii)
the applicable Major Transaction Prepayment Price, as calculated pursuant
to Section 3.7(b) above.
(g) Mechanics of Prepayment at Option of Holder Upon Triggering Event.
Within three (3) business days after the occurrence of a Triggering Event,
the Maker shall deliver written notice thereof via facsimile and overnight
courier ("Notice of Triggering Event") to the Holder and the Other Holders.
At any time after the earlier of the Holder's receipt of a Notice of
Triggering Event and the Holder becoming aware of a Triggering Event, the
Holder of this Note and the Other Holders of the Other Notes then
outstanding may require the Maker to prepay all or any portion of this Note
then outstanding by delivering written notice thereof via facsimile and
overnight courier ("Notice of Prepayment at Option of Holder Upon
Triggering Event") to the Maker, which Notice of Prepayment at Option of
Holder Upon Triggering Event shall indicate (i) the amount of the Note that
the Holder is electing to have prepaid and (ii) the applicable Triggering
Event Prepayment Price, as calculated pursuant to Section 3.7(c) above. The
Holder shall only be permitted to require the Maker to prepay this Note
pursuant to Section 3.7 hereof for the greater of a period of ten (10) days
after receipt by the Holder of a Notice of Triggering Event or for so long
as such Triggering Event is continuing.
(j) Payment of Prepayment Price. Upon the Maker' receipt of a
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or a
Notice(s) of Prepayment at Option of Holder Upon Major Transaction from the
Holder or the Other Holders, the Maker shall notify the Holder or such
Other Holder, as the case may be, by facsimile of the Maker's receipt of
such Notice(s) of Prepayment at Option of Holder Upon Triggering Event or
Notice(s) of Prepayment at Option of Holder Upon Major Transaction within
two (2) business days of the Maker' receipt of the same and the Holder and
each Other Holder which has sent such a notice shall promptly thereafter
submit to the Maker this Note (or certificates representing a portion of
this Note if the Holder elects not to have all of the outstanding principal
and accrued interest hereunder prepaid) or the Other Notes (or certificates
representing a portion of the Other Notes if the Other Holders elect not to
have all of the outstanding principal and accrued interest hereunder
prepaid) which the Holder or Other Holders, as the case may be, have
elected to have prepaid. The Maker shall deliver the applicable Triggering
Event Prepayment Price to the Holder, within five (5) business days after
the Maker' receipt of this Note or the certificates related thereto, as the
case may be, 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 the Holder's original Note or the Other Holders' original Other Note,
or the certificates related thereto, 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 to the Holder and
each Other Holder of this Note and the Other Notes being prepaid equal to
such holder's pro-rata amount 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 two percent (2%) per month (prorated for partial months) until paid
in full. Until the Maker pay 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
18
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' 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 Holder Upon Triggering Event or the Notice(s) of Prepayment at Option of
Holder Upon Major Transaction, as the case may be, shall be null and void
ab initio 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 such Notes submitted to the Maker by each
holder for prepayment under this Section 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 applicable Void Optional Prepayment
Notice(s) is delivered to the Maker and (B) the lowest closing bid price
during the period beginning on the date on which the Notice(s) of
Prepayment of Option of Holder Upon Major Transaction or the Notice(s) of
Prepayment at Option of Holder 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' 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
Company's receipt of a Conversion Notice, the Company cannot issue shares
of Common Stock registered for resale under the Registration Statement, for
any reason, including, without limitation, because the Company (x) does not
have a sufficient number of shares of Common Stock authorized and
available, (y) 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 Company 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 (z) fails to have a
sufficient number of shares of Common Stock registered for resale under the
Registration Statement, then the Company 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 this
Note, the Holder, solely at Holder's option, can elect to:
(i) require the Maker to prepay that portion of this Note for
which the Company 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 Triggering Event Prepayment Price as of such
Conversion Date (the "Mandatory Prepayment Price");
(ii) with respect to the Common Stock, if the Company's inability
to fully convert is pursuant to Section 3.8(a)(y) above, require the
19
Company to issue restricted shares of Common Stock, if it is
permissible for the Company to do so, in accordance with the Holder's
Conversion Notice;
(iii) void its Conversion Notice and retain or have returned, as
the case may be, this Note (or the portion thereof) that was to be
converted pursuant to the Conversion Notice (provided that the
Holder's voiding its Conversion Notice shall not affect the Maker's
obligations to make any payments which have accrued prior to the date
of such notice); or
(iv) exercise its Buy-In rights pursuant to and in accordance
with the terms and provisions of Section 3.3(c) of this Note.
(b) Mechanics of Fulfilling Holder's Election. 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, the Company shall within
two (2) Trading Days send via facsimile to the Holder a notice of the
Company'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 Company is unable to fully satisfy the
Holder's Conversion Notice, (ii) the amount of this 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
Notes prepaid pursuant to Section 3.8(a)(i) above, the Maker shall pay the
Mandatory Prepayment Price to the Holder within thirty (30) 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 Company 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 the date
that is three (3) business days following the Maker's receipt of the
Holder's Notice in Response to Inability to Convert (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 two percent (2%) 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 VWAP during the period beginning on
the Conversion Date and ending on the date the Holder voided the Mandatory
Prepayment.
(d) Pro-rata Conversion and Prepayment. In the event the Company
receives a Conversion Notice from the Holder and the Other Holders on the
same day and the Company can convert and prepay some, but not all, of this
Note pursuant to this Section 3.8, the Company shall convert and prepay
from the Holder and each Other Holder electing to have its Other Notes
20
converted and prepaid at such time an amount equal to the Holder or such
Other Holder's pro-rata amount of all the Notes and the Other Notes being
converted and prepaid at such time.
Section 3.9 No Rights as Stockholder. 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 stockholder in respect of any meeting of stockholders for the
election of directors of the Company or of any other matter, or any other rights
as a stockholder of the Company.
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 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 ten (10) days prior to the date on which
the Company 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 but in no event shall
such notice be provided to the Holder prior to such information being made known
to the public. The Maker also will give written notice to the Holder at least
ten (10) days prior to the date on which any Organic Change, dissolution,
liquidation or winding-up will take place but in no event shall such notice be
provided to the Holder prior to such information being made known to the public.
The Maker shall promptly notify the Holder of any notices sent or received, or
any actions taken with respect to the Other Notes.
Section 4.2 Governing Law; Consent to Jurisdiction. The parties acknowledge
and agree that any claim, controversy, dispute or action relating in any way to
this agreement or the subject matter of this agreement shall be governed solely
by the laws of the State of Delaware, without regard to any conflict of laws
doctrines. The parties irrevocably consent to being served with legal process
issued from the state and federal courts located in New York and irrevocably
consent to the exclusive personal jurisdiction of the federal and state courts
situated in the State of New York. The parties irrevocably waive any objections
to the personal jurisdiction of these courts. Said courts shall have sole and
exclusive jurisdiction over any and all claims, controversies, disputes and
actions which in any way relate to this agreement or the subject matter of this
agreement. The parties also irrevocably waive any objections that these courts
constitute an oppressive, unfair, or inconvenient forum and agree not to seek to
change venue on these grounds or any other grounds. Nothing in this Section 4.2
shall affect or limit any right to serve process in any other manner permitted
by law.
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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 hereof and shall not,
except as expressly provided herein, be subject to any other obligation of the
Maker (or the performance thereof). Each of 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 each 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 the Holder incurred as a result 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 assigns of each such
party, whether or not such successors or assigns are permitted by the terms
hereof.
Section 4.7 Amendments. This Note may not be modified or amended in any
manner except in writing executed by the Maker and the Holder.
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 SECURITIES 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 COMPANY OF A WRITTEN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE
22
REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE AND
THE SECURITIES ISSUABLE UPON CONVERSION HEREOF 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 Accredited Investor Status. In no event may the Holder convert
this Note in whole or in part unless the Holder is an "accredited investor" as
defined in Regulation D under the Act.
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, 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.
Section 4.12 Maker's Waivers.
---------------
(a) 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.
(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:
"Convertible Securities" means any convertible securities, warrants,
options or other rights to subscribe for or to purchase or exchange for, shares
of Common Stock or Common Stock Equivalents.
23
"Options" shall mean any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities of the Company.
"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
Pink Sheets, 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 Pink Sheets LLC (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.
Section 4.14 Usury. All agreements between the Maker and the Holder are
hereby expressly limited to provide that in no contingency or event whatsoever,
whether by reason of acceleration of maturity of the indebtedness evidenced
hereby or otherwise, shall the amount paid or agreed to be paid to the Holder
for the use, forbearance or detention of the indebtedness evidenced hereby
exceed the maximum amount which the Holder is permitted to receive under
applicable law. If, from any circumstances whatsoever, fulfillment of any
provision hereof or of the Stock Purchase Agreement or any document thereunder,
at the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by law, then, ipso facto, the
obligation to be fulfilled shall automatically be reduced to the limit of such
validity, and if from any circumstance the Holder shall ever receive as interest
an amount which would exceed the highest lawful rate, such amount which would be
excessive interest shall be applied to the reduction of the principal balance of
any of the Maker's obligations to the Holder, and not to the payment of interest
hereunder. To the extent permitted by applicable law, all sums paid or agreed to
be paid for the use, forbearance or detention of the indebtedness evidenced by
this Note shall be amortized, prorated, allocated and spread throughout the full
term of such indebtedness until payment in full, to the end that the rate or
amount of interest on account of such indebtedness does not exceed any
applicable usury ceiling. As used herein, the term "applicable law" shall mean
the law in effect as of the date hereof, provided, however, that in the event
there is a change in the law which results in a higher permissible rate of
interest, then this Note shall be governed by such new law as of its effective
date. This provision shall control every other provision of all agreements
between the Maker and the Holder.
24
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed as
of the Issuance Date set out above.
TOTAL LUXURY GROUP, INC.
By:
---------------------------
Name:
Title:
25
EXHIBIT A
WIRE INSTRUCTIONS
Payee: ________________________________________________________
Bank: ________________________________________________________
Address: _____________________________________________________
__________________________________________________
Bank No.: _____________________________________________________
Account No.: __________________________________________________
Account Name: _________________________________________________
26
FORM OF
NOTICE OF OPTIONAL CONVERSION INTO SHARES OF COMMON STOCK
(To be Executed by the Registered Holder in order to Convert
the Note into Shares of Common Stock)
The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of TOTAL
LUXURY GROUP, INC. (the "Company") 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:__________________________________________________________________
_________________________________________________________________
27
Schedule 1.4(a)
None.
28
