NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
No. 2 $2,500,000
UNIVERSAL BROADBAND NETWORKS, INC.
8% CONVERTIBLE NOTE
DUE AUGUST 2, 2003
THIS Note is one of a series of duly authorized and issued notes of
Universal Broadband Networks, Inc., a Delaware corporation, having a principal
place of business at 0000 Xxxx Xxx Xxxx., Xxxxxxx, XX 00000 (the "COMPANY"),
designated as its 8% Convertible Notes, due August 2, 2003, in the aggregate
principal amount of Eight Million Seven Hundred Ninety Five Thousand Dollars
($8,795,000) (the "NOTES").
FOR VALUE RECEIVED, the Company promises to pay to Herkimer LLC, or its
registered assigns (the "HOLDER"), the principal sum of Two Million Five Hundred
Thousand Dollars ($2,500,000), on August 2, 2003 or such earlier date as the
Notes are required or permitted to be repaid as provided hereunder (the
"MATURITY DATE") and to pay interest to the Holder on the aggregate unconverted
and then outstanding principal amount of this Note at the rate of 8% per annum,
in cash or shares of Common Stock (as defined in Section 6), on each Conversion
Date (as defined herein) and on the Maturity Date. Subject to the terms and
conditions herein, the decision whether to pay interest hereunder in shares of
Common Stock or cash shall be at the discretion of the Company. Not less than
ten Trading Days (as defined in Section 6) prior to each Conversion Date, the
Company shall provide the Holder with written notice of its election to pay
interest hereunder either in cash or shares of Common Stock pursuant to the
terms of Section 4(a)(i) (the Company may indicate in such notice that the
election contained in such notice shall continue for later periods until
revised). Failure to timely provide such written notice shall be deemed an
election by the Company to pay the interest on such Conversion Date in shares of
Common Stock pursuant to the terms of Section 4(a)(i). Interest shall be
calculated on the basis on a 360-day year and shall accrue daily commencing on
the Original Issue Date (as defined in Section 6) until payment in full of the
principal sum, together with all accrued and unpaid interest and other amounts
which may become due hereunder, has been made. Interest hereunder will be paid
to the Person (as defined in Section 6) in whose name this Note is registered on
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the records of the Company regarding registration and transfers of Notes (the
"NOTE REGISTER"). All overdue accrued and unpaid interest to be paid in cash
hereunder shall entail a late fee at the rate of 18% per annum (or such lower
maximum amount of interest permitted to be charged under applicable law) (to
accrue daily, from the date such interest is due hereunder through and including
the date of payment), payable in cash.
This Note is subject to the following additional provisions:
SECTION 1. This Note is exchangeable for an equal aggregate principal
amount of Notes of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
SECTION 2. This Note has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 6) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Note, the Company and any agent of the Company may treat the
Person (as defined in Section 6) in whose name this Note is duly registered on
the Note Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Note is overdue,
and neither the Company nor any such agent shall be affected by notice to the
contrary.
SECTION 3. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) any default in the payment of the principal of,
interest on or liquidated damages in respect of, any Notes, free of any
claim of subordination, as and when the same shall become due and
payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise);
(ii) the Company shall fail to observe or perform any
other covenant, agreement or warranty contained in, or otherwise commit
any breach of any of the Transaction Documents (as defined in Section
6), and such failure or breach shall not have been remedied within
fifteen days after the date on which notice of such failure or breach
shall have been given;
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(iii) the Company or any of its Material Subsidiaries
(as defined in Section 6) shall commence, or there shall be commenced
against the Company or any such Material Subsidiary a case under any
applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company commences any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company
or any subsidiary thereof or there is commenced against the Company or
any Material Subsidiary thereof any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of 60 days; or
the Company or any Material Subsidiary thereof is adjudicated insolvent
or bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or the Company or any Material
Subsidiary thereof suffers any appointment of any custodian or the like
for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the Company or any
Material Subsidiary thereof makes a general assignment for the benefit
of creditors; or the Company shall fail to pay, or shall state that it
is unable to pay, or shall be unable to pay, its debts generally as
they become due; or the Company or any Material Subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or the Company
or any Material Subsidiary thereof shall by any act or failure to act
expressly indicate its consent to, approval of or acquiescence in any
of the foregoing; or any corporate or other action is taken by the
Company or any Material Subsidiary thereof for the purpose of effecting
any of the foregoing;
(iv) the Company shall default in any of its
obligations under any other Note or any mortgage, credit agreement or
other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement of the Company in
an amount exceeding an aggregate of two hundred thousand dollars
($200,000), whether such indebtedness now exists or shall hereafter be
created and such default shall result in such indebtedness becoming or
being declared due and payable prior to the date on which it would
otherwise become due and payable;
(v) the Common Stock either be delisted from the
Nasdaq National Market ("NASDAQ") or suspended from trading on the
NASDAQ without resuming trading and/or being relisted or thereon or
listed on the New York Stock Exchange, American Stock Exchange or
Nasdaq SmallCap Market (each, a "SUBSEQUENT MARKET") or having such
suspension lifted, in either case, for more than the lesser of five
consecutive Trading Days or an aggregate of eight Trading Days (which
need not be consecutive Trading Days);
(vi) the Company shall be a party to any Change of
Control Transaction (as defined in Section 6), shall agree to sell or
dispose all or in excess of 33% of its assets in one or more
transactions (whether or not such sale would constitute a Change of
Control Transaction), or shall redeem or repurchase more than a de
minimis number of shares of Common Stock or other equity securities of
the Company (other than redemptions of Underlying Shares (as defined in
Section 6));
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(vii) an Underlying Shares Registration Statement (as
defined in Section 6) shall not have been declared effective by the
Commission (as defined in Section 6) on or prior to the 180th day after
the Original Issue Date;
(viii) if, during the Effectiveness Period (as
defined in the Registration Rights Agreement (as defined in Section
6)), the effectiveness of the Underlying Shares Registration Statement
lapses for any reason or the Holder shall not be permitted to resell
Registrable Securities (as defined in the Registration Rights
Agreement) under the Underlying Shares Registration Statement, in
either case, for more than seven consecutive Trading Days or an
aggregate of ten Trading Days (which need not be consecutive Trading
Days);
(ix) an Event (as defined in the Registration Rights
Agreement) shall not have been cured to the satisfaction of the Holder
prior to the expiration of thirty days from the Event Date (as defined
in the Registration Rights Agreement) relating thereto (other than an
Event resulting from a failure of an Underlying Shares Registration
Statement to be declared effective by the Commission on or prior to the
180th day after the Original Issue Date, which shall be covered by
Section 3(a)(vii));
(x) the Company shall fail for any reason to deliver
certificates to a Holder prior to the twelfth (12th) day after a
Conversion Date pursuant to and in compliance with Section 4(b) or the
Company shall provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to comply with requests
for conversions of any Notes in accordance with the terms hereof;
(xi) the Company shall fail for any reason to deliver
the payment in cash pursuant to a Buy-In (as defined herein) within
nine days after notice is deemed delivered hereunder; or
(xii) there shall occur an Event of Default (as
defined in the Pledge Agreement, dated as of August 2, 2000 among the
Company, the original Holders and Xxxx X. Xxxxx (the "PLEDGE
AGREEMENT")) pursuant to the Pledge Agreement.
(b) During the time that any portion of this Note remains
outstanding, if any Event of Default occurs and is continuing, the full
principal amount of this Note (and, at the Holder's option, all other Notes then
held by such Holder), together with interest and other amounts owing in respect
thereof, to the date of acceleration shall become, at the Holder's election,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default shall be equal to the sum of (i) the Mandatory Prepayment Amount (as
defined in Section 6) plus (ii) the product of (A) the number of Underlying
Shares issued in respect of conversions hereunder within thirty days of the date
of a declaration of an Event of Default and then held by the Holder and (B) the
Per Share Market Value (as defined in Section 6) on the date prepayment is due
or the date the full prepayment price is paid, whichever is greater. Interest
shall accrue on the prepayment amount hereunder from the seventh day after such
amount is due (being the date of an Event of Default) through the date of
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prepayment in full thereof at the rate of 18% per annum (or such lesser maximum
amount that is permitted to be paid by applicable law), to accrue daily from the
date such payment is due hereunder through and including the date of payment.
All Notes and Underlying Shares for which the full prepayment price hereunder
shall have been paid in accordance herewith shall promptly be surrendered to or
as directed by the Company. The Holder need not provide and the Company hereby
waives any presentment, demand, protest or other notice of any kind, and the
Holder may immediately and without expiration of any grace period enforce any
and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such declaration may be rescinded and annulled by
Xxxxxx at any time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.
SECTION 4. CONVERSION.
(a) (i) CONVERSION AT OPTION OF HOLDER. (A) If the Company
shall have failed to both deliver an Optional Prepayment Notice (as defined in
Section 5) and pay the Optional Prepayment Amount (as defined in Section 5) in
full on or prior to the 91th day following the Original Issue Date (such 91st
day, the "TARGET DATE"), then this Note shall, at the option of the Holder, be
convertible into shares of Common Stock, in whole or in part at any time and
from time to time, after the Target Date (subject to the limitations on
conversion set forth in Section 4(a)(ii) hereof). The number of shares of Common
Stock issuable upon a conversion hereunder shall be determined by adding the sum
of (i) the quotient obtained by dividing (x) the outstanding principal amount of
this Note to be converted and (y) the Conversion Price (as defined herein), and
(ii) the amount equal to the product of (x) the outstanding principal amount of
this Note to be converted and (y)(I) the product of (1) the quotient obtained by
dividing .08 by 360 and (2) the number of days for which such principal amount
was outstanding, divided by (II) the Conversion Price on the Conversion Date,
PROVIDED, that if the Company shall have timely elected to pay the interest due
on a Conversion Date in cash pursuant to the terms hereof, subsection (ii) shall
not be used in the calculation of the number of shares of Common Stock issuable
upon a conversion hereunder, unless the Company fails to deliver such cash
payment in period required in which case the Holder shall have the right to
demand such payment in the form of shares of Common Stock pursuant to the
calculations of subsection (ii) hereof.
(B) Notwithstanding anything to the contrary
contained herein, if on any Conversion Date:
(1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to pay interest hereunder in shares of
Common Stock;
(2) after the Interest Effectiveness Date (as defined
in Section 6) such shares of Common Stock (x) are not registered for
resale pursuant to an effective Underlying Shares Registration
Statement and (y) may not be sold without volume restrictions pursuant
to Rule 144(k) promulgated under the Securities Act (as defined in
Section 6), as determined by counsel to the Company pursuant to a
written opinion letter, addressed to the Company's transfer agent in
the form and substance acceptable to the applicable Holder and such
transfer agent;
-5-
(3) the Common Stock is not listed or quoted on the
NASDAQ or on a Subsequent Market;
(4) the Company has failed to timely satisfy its
conversion obligations hereunder; or
(5) the issuance of such shares of Common Stock would
result in a violation of Section 4(a)(ii),
then, at the option of the Holder, the Company, in
lieu of delivering shares of Common Stock pursuant to Section 4(a)(i)(A)(ii),
shall deliver, within three Trading Days of each applicable Conversion Date, an
amount in cash equal to the product of (a) the outstanding principal amount of
the Notes to be converted on such Conversion Date and (b) the product of (x) the
quotient obtained by dividing .08 by 360 and (y) the number of days for which
such principal amount was outstanding.
(C) Unless the Holder is converting all of the
principal amount represented by the Notes, the Holder shall effect conversions
by delivery of a conversion notice attached hereto as EXHIBIT A (a "CONVERSION
NOTICE") to the Company. Each Conversion Notice shall specify the principal
amount of Notes to be converted, the principal amount of Notes remaining
subsequent to the conversion at hand, the applicable Conversion Price and the
date on which such conversion is to be effected, which date may not be prior to
the date such Conversion Notice is deemed to have been delivered hereunder (a
"CONVERSION DATE"). If no Conversion Date is specified in a Conversion Notice,
the Conversion Date shall be the date that such Conversion Notice is deemed
delivered hereunder. Subject to Section 4(b), each Conversion Notice, once
given, shall be irrevocable. Upon delivery to the converting Holder by the
Company of the Conversion Notice counter-signed by the Company, the principal
amount of Notes remaining subsequent to the conversion at hand, as reflected in
such Conversion Notice, shall control, PROVIDED, that in the absence of the
delivery of such counter-signed Conversion Notice, the Company's delivery to the
Holder of the shares of Common Stock pursuant to its receipt of a Conversion
Notice from the Holder, shall be indicative of the Company's agreement of the
principal amount of Notes remaining subsequent to the conversion at hand, as
reflected in such Conversion Notice. If the Holder is converting all of the
principal amount represented by a Note, then such Note shall be delivered to the
Company together with the Conversion Notice.
(ii) CERTAIN CONVERSION RESTRICTIONS.
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(A) A Holder may not convert Notes or
receive shares of Common Stock as payment of interest hereunder to the extent
such conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act (as defined in Section 6) and
the rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of interest on, the Notes held by such Holder after application
of this Section. Since the Holder will not be obligated to report to the Company
the number of shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 4.999% of the then outstanding shares of Common
Stock without regard to any other shares which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will
limit any particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of Notes are convertible
shall be the responsibility and obligation of the Holder. If the Holder has
delivered a Conversion Notice for a principal amount of Notes that, without
regard to any other shares that the Holder or its affiliates may beneficially
own, would result in the issuance in excess of the permitted amount hereunder,
the Company shall notify the Holder of this fact and shall honor the conversion
for the maximum principal amount permitted to be converted on such Conversion
Date in accordance with the periods described in Section 4(b) and, at the option
of the Holder, either retain any principal amount tendered for conversion in
excess of the permitted amount hereunder for future conversions or return such
excess principal amount to the Holder. The provisions of this Section may be
waived by a Holder (but only as to itself and not to any other Holder) upon not
less than 61 days prior notice to the Company. Other Holders shall be unaffected
by any such waiver.
(B) A Holder may not convert Notes or
receive shares of Common Stock as payment of interest hereunder to the extent
such conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 9.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
interest on, the Notes held by such Holder after application of this Section.
Since the Holder will not be obligated to report to the Company the number of
shares of Common Stock it may hold at the time of a conversion hereunder, unless
the conversion at issue would result in the issuance of shares of Common Stock
in excess of 9.999% of the then outstanding shares of Common Stock without
regard to any other shares which may be beneficially owned by the Holder or an
affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any
particular conversion hereunder and to the extent that the Holder determines
that the limitation contained in this Section applies, the determination of
which portion of the principal amount of Notes are convertible shall be the
responsibility and obligation of the Holder. If the Holder has delivered a
Conversion Notice for a principal amount of Notes that would result in the
issuance of in excess of the permitted amount hereunder, without regard to any
other shares that the Holder or its affiliates may beneficially own, the Company
shall notify the Holder of this fact and shall honor the conversion for the
maximum principal amount permitted to be converted on such Conversion Date in
accordance with the periods described in Section 4(b) and, at the option of the
Holder, either retain any principal amount tendered for conversion in excess of
the permitted amount hereunder for future conversions or return such excess
principal amount to the Holder. The provisions of this Section may be waived by
a Holder (but only as to itself and not to any other Holder) upon not less than
61 days prior notice to the Company. Other Holders shall be unaffected by any
such waiver.
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(C) If the Common Stock is then listed for
trading on the NASDAQ or the Nasdaq National Market and the Company has not
obtained the Shareholder Approval (as defined below), then the Company may not
issue in excess of 4,178,610 shares of Common Stock (which equals 19.999% of the
number of shares of Common Stock outstanding immediately prior to the closing of
transactions set forth in the Purchase Agreement) upon conversions of Notes at a
price per share that is less than the Per Share Market Value on the Trading Day
immediately preceding the Original Issue Date (such number of shares, the
"ISSUABLE MAXIMUM"). If on any Conversion Date (A) the Common Stock is listed
for trading on the NASDAQ or the Nasdaq National Market, (B) the Conversion
Price then in effect is such that the aggregate number of shares of Common Stock
that would then be issuable upon conversion in full of all then outstanding
Notes and as payment of interest thereon in shares of Common Stock, together
with any shares of Common Stock previously issued upon conversion of Notes and
as payment of interest thereon, would exceed the Issuable Maximum, and (C) the
Company shall not have previously obtained the vote of shareholders (the
"SHAREHOLDER APPROVAL"), if any, as may be required by the applicable rules and
regulations of the Nasdaq Stock Market (or any successor entity) applicable to
approve the issuance of shares of Common Stock in excess of the Issuable Maximum
pursuant to the terms hereof, then the Company shall issue to the Holder
requesting a conversion a number of shares of Common Stock equal to the Issuable
Maximum and, with respect to the remainder of the principal amount of Notes then
held by such Holder for which a conversion in accordance with the Conversion
Price would result in an issuance of shares of Common Stock in excess of the
Issuable Maximum (the "EXCESS PRINCIPAL"), the converting Holder shall have the
option to require the Company to either (1) use its best efforts to obtain the
Shareholder Approval applicable to such issuance as soon as is possible, but in
any event not later than the 75th day after such request, or (2) pay cash to the
converting Holder in an amount equal to the Mandatory Prepayment Amount for the
Excess Principal. If the converting Holder shall have elected the first option
pursuant to the immediately preceding sentence and the Company shall have failed
to obtain the Shareholder Approval on or prior to the 75th day after such
request, then within three days of the later to occur of such 75th day or the
date of the request therefor, the Company shall pay cash to the converting
Holder an amount equal to the Mandatory Prepayment Amount for the Excess
Principal. If the Company fails to pay the Mandatory Prepayment Amount in full
pursuant to this Section within seven days of the date payable, the Company will
pay interest thereon at a rate of 18% per annum (or such lesser maximum amount
that is permitted to be paid by applicable law) to the converting Holder,
accruing daily from the Conversion Date until such amount, plus all such
interest thereon, is paid in full. In the event there is more than one holder of
Notes, the Issuable Maximum applicable to each Note holder shall be determined
pro rata by reference to the percentage of the principal amount of the Note at
issue and $8,795,000, PROVIDED that if one or more Notes shall have been
redeemed or converted without having been issued its pro rata allocated portion
of the Issuable Maximum such unissued shares shall be allocated pro rata to the
remaining Holders. It is understood and agreed that shares of Common Stock
delivered to and held by the Holder or one of its affiliates on account of
conversion hereunder may not cast votes on the matter of Shareholder Approval.
Xxxxxx delivered on account of conversion hereunder and not held by the Holder
or its affiliates may cast votes on the matter of Shareholder Approval.
-8-
(b) (i) Not later than three Trading Days after any Conversion
Date, the Company will deliver to the Holder: (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of Notes
(subject to the limitations set forth in Section 4(a)(ii) hereof), (ii) a
counter- signed Conversion Notice, and (iii) a bank check in the amount of
accrued and unpaid interest (if the Company has timely elected or is required to
pay accrued interest in cash). The Company shall, upon request of the Holder, if
available, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of any Conversion
Notice such certificate or certificates are not delivered to or as directed by
the applicable Holder by the third Trading Day after a Conversion 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 the
certificates representing the principal amount of Notes tendered for conversion.
(ii) If the Company fails to deliver to the Holder
such certificate or certificates pursuant to Section 4(b)(i) by the fourth
Trading Day after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day
after such fourth Trading Day until such certificates are delivered. Nothing
herein shall limit a Xxxxxx's right to pursue actual damages or declare an Event
of Default pursuant to Section 3 herein for the Company's failure to deliver
certificates representing shares of Common Stock upon conversion within the
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. The exercise of any
such rights shall not prohibit the Holders from seeking to enforce damages
pursuant to any other Section hereof or under applicable law. Further, if the
Company shall not have delivered any cash due in respect of conversions of Notes
or as payment of interest thereon by the fourth Trading Day after the Conversion
Date, the Holder may, by notice to the Company, require the Company to issue
shares of Common Stock pursuant to Section 4(c), except that for such purpose
the Conversion Price applicable thereto shall be the lesser of the Conversion
Price on the Conversion Date and the Conversion Price on the date of such Holder
demand. Any such shares will be subject to the provision of this Section.
(iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 4(b)(i) by the fourth Trading Day after the
Conversion Date, and if after such fourth Trading Day the Holder purchases (in
an open market transaction or otherwise) Common Stock to deliver in satisfaction
of a sale by such Holder of the Underlying Shares which the Holder anticipated
receiving upon such conversion (a "BUY-IN"), then the Company shall (A) pay in
cash to the Holder (in addition to any remedies available to or elected by the
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Holder) the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the
product of (1) the aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue Notes in
principal amount equal to the principal amount of the attempted conversion or
deliver to the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its delivery requirements under
Section 4(b)(i). 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 Notes with respect to which the market price of the Underlying
Shares on the date of conversion was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In. Notwithstanding anything
contained herein to the contrary, if a Holder requires the Company to make
payment in respect of a Buy-In for the failure to timely deliver certificates
hereunder and the Company timely pays in full such payment, the Company shall
not be required to pay such Holder liquidated damages under Section 4(b)(ii) in
respect of the certificates resulting in such Buy-In.
(c) (i) The conversion price in effect on any Conversion Date
(the "CONVERSION PRICE") shall be 75% of the average of the five Per Share
Market Values immediately preceding the applicable Conversion Date (subject to
adjustment as provided herein), PROVIDED, that, at the option of the Holder,
such five Trading Day period shall be extended for the number of Trading Days
during such period in which (A) trading in the Common Stock is suspended by the
NASDAQ or a Subsequent Market on which the Common Stock is then listed, (B) the
Common Stock shall not be listed for trading on either the NASDAQ or a
Subsequent Market or (C) after the date declared effective by the Commission,
the Underlying Shares Registration Statement is either not effective, or may not
be used by the Holder for the resale of Underlying Shares.
(ii) If the Company, at any time while any Notes are
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Conversion Price shall be multiplied by a
fraction, of which the denominator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered would purchase at such Per Share Market Value. Such adjustment shall be
made whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants. However, upon the expiration of any
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such right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Conversion Price pursuant to
this Section, if any such right, option or warrant shall expire and shall not
have been exercised, the Conversion Price shall immediately upon such expiration
be recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights, options or warrants been made on the
basis of offering for subscription or purchase only that number of shares of the
Common Stock actually purchased upon the exercise of such rights, options or
warrants actually exercised.
(iii) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while any Notes are outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that is convertible into
or exchangeable for shares of Common Stock ("COMMON STOCK EQUIVALENTS"),
entitling any Person to acquire shares of Common Stock at a price per share less
than the lower of the Conversion Price and the closing sales price of the Common
Stock on the date of such issuance (if the holder of the Common Stock or Common
Stock Equivalent so issued could at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights issued in connection
with such issuance, be entitled to receive shares of Common Stock at a price
less than the Conversion Price and the Per Share Market Value on the date of
such issuance, such issuance shall be deemed to have occurred for less than the
Conversion Price and the closing sales price of the Common Stock on the date of
such issuance), then, at the Holder's option, the Conversion Price shall be
adjusted to the conversion, reset, purchase, exchange or other price paid or
that could be paid for such lower priced security (for example if the new
security is measured by the lowest of three Per Share Market Values during a
period of ten Trading Days and the Holder believes such pricing is more
beneficial than the Conversion Price, then the Holder can adjust the Conversion
Price to incorporate such conversion terms). Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued.
(iv) If the Company, at any time while Notes are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price at which Notes shall thereafter be convertible shall be determined by
multiplying the Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Per Share Market Value
determined as of the record date mentioned above, and of which the numerator
shall be such Per Share Market Value on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
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(v) In case of any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holders shall have the
right thereafter to, at their option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Note only into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
the Common Stock following such reclassification or share exchange, and the
Holders of the Notes shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Company
into which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Note could have been converted immediately prior to such reclassification or
share exchange would have been entitled or (B) require the Company to prepay the
aggregate of its outstanding principal amount of Notes, plus all interest and
other amounts due and payable thereon, at a price determined in accordance with
Section 3(b). The entire prepayment price shall be paid in cash. This provision
shall similarly apply to successive reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
No adjustments in either the Conversion Price shall be required if such
adjustment is less than $0.01, PROVIDED, that any adjustments which by reason of
this Section are not required to be made shall be carried forward and taken into
account in any subsequent adjustment.
(vii) Whenever either the Conversion Price is
adjusted pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly
mail to each Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(viii) If (A) the Company shall declare a dividend
(or any other distribution) on the Common Stock; (B) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the Common Stock; (C)
the Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Notes, and shall cause
to be mailed to the Holders at their last addresses as they shall appear upon
the stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
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distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, PROVIDED, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert Notes during the 20-day period
commencing the date of such notice to the effective date of the event triggering
such notice.
(ix) In case of any (1) merger or consolidation of
the Company with or into another Person, or (2) sale by the Company of more than
one-half of the assets of the Company in one or a series of related
transactions, a Holder shall have the right, in addition to its rights under
Section 3(b) hereof, to: (A) convert its aggregate principal amount of Notes
then outstanding into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such merger, consolidation or sale, and such Holder shall be entitled
upon such event or series of related events to receive such amount of
securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of Notes could have been converted immediately prior
to such merger, consolidation or sales would have been entitled, or (B) in the
case of a merger or consolidation, (x) require the surviving entity to issue
shares of convertible preferred stock or convertible debentures with such
aggregate stated value or in such face amount, as the case may be, equal to the
aggregate principal amount of Notes then held by such Holder, plus all accrued
and unpaid interest and other amounts owing thereon, which newly issued shares
of preferred stock or debentures shall have terms identical (including with
respect to conversion) to the terms of this Note (except, in the case of
preferred stock, as may be required to reflect the differences between equity
and debt) and the holder of such security shall be entitled to all of the rights
and privileges of a Holder of Notes set forth herein and the agreements pursuant
to which the Notes were issued (including, without limitation, as such rights
relate to the acquisition, transferability, registration and listing of such
shares of stock other securities issuable upon conversion thereof), and (y)
simultaneously with the issuance of such convertible preferred stock or
convertible debentures, shall have the right to convert such instrument only
into shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such merger or
consolidation. In the case of clause (A), the conversion price applicable for
the newly issued shares of convertible preferred stock or convertible debentures
shall be based upon the amount of securities, cash and property that each share
of Common Stock would receive in such transaction and the Conversion Price in
effect immediately prior to the effectiveness or closing date for such
transaction. The terms of any such merger, sale or consolidation shall include
such terms so as to continue to give the Holders the right to receive the
securities, cash and property set forth in this Section upon any conversion or
redemption following such event. This provision shall similarly apply to
successive such events.
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(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of the Notes and payment of
interest on the Notes, each as herein provided, free from preemptive rights or
any other actual contingent purchase rights of persons other than the Holders,
not less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares set
forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Notes and payment of interest hereunder. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Underlying Shares Registration Statement has been
declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(f) The issuance of certificates for shares of the Common
Stock on conversion of the Notes shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such Notes so converted
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries
to be provided by the Holders hereunder, including, without limitation, any
Conversion Notice, shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by certified
or registered mail, postage prepaid, addressed to the Company, 0000 Xxxxx
Xxxxxx, Xxxxx 000, Xxxxxx, XX 00000, facsimile No.: (000) 000-0000, attention:
Xxxxxxx X. Xxxxxx, or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holders delivered in accordance with
this Section, with a copy to Pillsbury Madison & Sutro, LLP (facsimile number
(000) 000-0000), attention: Xxxxxxxxxxx X. Xxxxxx. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail, postage
prepaid, addressed to each Holder at the facsimile telephone number or address
of such Holder appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of business of the
holder. Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
-14-
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 6:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) four days
after deposit in the United States mail, (iv) the Business Day following the
date of mailing, if sent by nationally recognized overnight courier service, or
(v) upon actual receipt by the party to whom such notice is required to be
given.
SECTION 5. PREPAYMENT AT THE OPTION OF THE COMPANY.
(a) The Company shall have the right at all time and any time after the
Original Issue Date, upon seven Trading Days' notice to the Holders (an
"OPTIONAL PREPAYMENT NOTICE" and the date such notice is received by the
Holders, the "NOTICE DATE"), to prepay all or a portion of the Notes then held
by the Holders at a cash price equal to the Optional Prepayment Price (as
defined below). After the 90th day following the Original Issue Date, the
Company may only deliver an Optional Prepayment Notice to the Holders if, on the
Notice Date: (i) either there is an effective Underlying Shares Registration
Statement pursuant to which the Holders are permitted to utilize the prospectus
thereunder to resell all of the issued Underlying Shares and all of the
Underlying Shares as are issuable upon conversion in full of the Notes subject
to the Optional Prepayment Notice nor may all of such issued or issuable
Underlying Shares be sold without volume restrictions pursuant to Rule 144
promulgated under the Securities Act, as determined by counsel to the Company
pursuant to a written opinion letter, addressed and delivered prior to the
Notice Date to the Company's transfer agent in the form and substance acceptable
to the Holders and such transfer agent and (ii) the Common Stock is listed for
trading on the NASDAQ or on a Subsequent Market. If any of the foregoing
conditions shall cease to be in effect during the period between the Notice Date
and the date the Optional Prepayment Date is paid in full, then the Holders
subject to such prepayment may elect, by written notice to the Company given at
any time after any of the foregoing conditions shall cease to be in effect, to
invalidate AB INITIO such prepayment, notwithstanding anything herein contained
to the contrary. After the 90th day following the Original Issue Date, the
Holders may convert any portion of the outstanding principal amount of the Notes
subject to an Optional Redemption Notice prior to the date that the Optional
Prepayment Price is due and paid in full.
(b) The Optional Prepayment Price is due on the seventh Trading Day
following the Notice Date (the "DUE DATE"). If any portion of the Optional
Prepayment Price shall not be paid by the Company by the Due Date, interest
shall accrue thereon at the rate of 18% per annum (or the maximum rate permitted
by applicable law, whichever is less) until the Optional Prepayment Price plus
all such interest is paid in full. In addition, if any portion of the Optional
Prepayment Price remains unpaid after such date, the Holder subject to such
prepayment may elect by written notice to the Company to either (x) at any time
after the 90th day following the Original Issue Date, demand conversion in
accordance with the formula and the time period therefor set forth in Section 4
of any portion of the principal amount of the Note for which the Optional
Prepayment Price, plus accrued liquidated damages thereof, has not been paid in
full (the "UNPAID PREPAYMENT PRINCIPAL AMOUNT"), in which event the applicable
-15-
Per Share Market Value shall be the lower of the Per Share Market Value
calculated on the Due Date and the Per Share Market Value as of the Holder's
written demand for exchange, or (y) invalidate AB INITIO such optional
prepayment, notwithstanding anything herein contained to the contrary. If the
Holder elects option (x) above, the Company shall, within three (3) Trading Days
after such election is deemed delivered hereunder, deliver to the Holder the
shares of Common Stock issuable upon conversion of the Unpaid Prepayment
Principal Amount subject to such conversion demand and otherwise perform its
obligations hereunder with respect thereto. If the Holder elects option (y)
above, the aggregate principal amount under this Note and all interest due
hereunder shall be increased by the Unpaid Prepayment Principal Amount and the
Company shall no longer have any prepayment rights under this Note. If, upon an
election under option (x) above, the Company fails to deliver the certificates
representing the shares of Common Stock issuable upon conversion of the Unpaid
Prepayment Principal Amount within the time period set forth in this Section,
the Company shall pay to the Holder in cash, as liquidated damages and not as a
penalty, $5,000 per day until the Company delivers such certificates to the
Holder.
(c) The "OPTIONAL PREPAYMENT PRICE" for the principal amount of the
Notes to be prepaid shall equal the sum of: (i) 133% of the principal amount of
the Notes to be prepaid and (ii) all interest, other amounts, costs, expenses
and liquidated damages due in respect of such Notes.
SECTION 6. DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:
"BUSINESS DAY" means 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 or the State of Texas are authorized or required by law or
other government action to close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger of the Company with or into
another entity that is not wholly-owned by the Company, consolidation or sale of
50% or more of the assets of the Company in one or a series of related
transactions, or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, $.001 par value, of the
Company and stock of any other class into which such shares may hereafter have
been reclassified or changed.
-16-
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"INTEREST EFFECTIVENESS DATE" means the earlier to occur of
(x) the Effectiveness Date (as define in the Registration Rights Agreement) and
(y) the date that an Underlying Shares Registration Statement is declared
effective by the Commission.
"MANDATORY PREPAYMENT AMOUNT" for any Notes shall equal the
sum of (i) the greater of (A) 133% of the principal amount of Notes to be
prepaid, plus all accrued and unpaid interest thereon, and (B) the principal
amount of Notes to be prepaid, plus all accrued and unpaid interest thereon,
divided by the Conversion Price on (x) the date the Mandatory Prepayment Amount
is demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is
paid in full, whichever is less, multiplied by the Per Share Market Value on (x)
the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
such Notes.
"MATERIAL SUBSIDIARIES" shall mean any subsidiary of the
Company that either owns 10% or more of the Company's assets or is responsible
for 10% or more of the Company's net income for any given year.
"ORIGINAL ISSUE DATE" shall mean the date of the first
issuance of the Notes regardless of the number of transfers of any Note and
regardless of the number of instruments which may be issued to evidence such
Note.
"PER SHARE MARKET VALUE" means on any particular date (a) the
closing bid price per share of Common Stock on such date on the NASDAQ or on
such Subsequent Market on which the shares of Common Stock are then listed or
quoted, or if there is no such price on such date, then the closing bid price on
the NASDAQ or on such Subsequent Market on the date nearest preceding such date,
or (b) if the shares of Common Stock are not then listed or quoted on the NASDAQ
or a Subsequent Market, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the shares of
Common Stock are not then reported by the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the Holder, or (d) if the shares of
Common Stock are not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the Holders
of a majority in interest of the principal amount of Notes then outstanding.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
-17-
"PURCHASE AGREEMENT" means the Convertible Note Purchase
Agreement, dated as of August 2, 2000, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of August 2, 2000, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TRADING DAY" means (a) a day on which the shares of Common
Stock are traded on the NASDAQ or on such Subsequent Market on which the shares
of Common Stock are then listed or quoted, or (b) if the shares of Common Stock
are not listed on the NASDAQ or a Subsequent Market, a day on which the shares
of Common Stock are traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (c) if the shares of Common Stock are not quoted on the
OTC Bulletin Board, a day on which the shares of Common Stock are quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); PROVIDED, that in the event that the shares of Common Stock
are not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading
Day shall mean any day except a Business Day.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in
the Purchase Agreement.
"UNDERLYING SHARES" means the shares of Common Stock issuable
upon conversion of Notes or as payment of interest in accordance with the terms
hereof.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering among other things the resale of the Underlying
Shares and naming the Holder as a "selling stockholder" thereunder.
SECTION 7. Except as expressly provided herein, no provision of this
Note shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, interest and liquidated damages (if any)
on, this Note at the time, place, and rate, and in the coin or currency, herein
prescribed. This Note is a direct obligation of the Company. This Note ranks
PARI PASSU with all other Notes now or hereafter issued under the terms set
forth herein. As long as there are Notes outstanding, the Company shall not and
shall cause it subsidiaries not to, without the consent of the Holders, (i)
amend its certificate of incorporation, bylaws or other charter documents so as
to adversely affect any rights of the Holders; (ii) repay, repurchase or offer
to repay, repurchase or otherwise acquire shares of its Common Stock or other
equity securities other than as to the Underlying Shares to the extent permitted
or required under the Transaction Documents; or (iii) enter into any agreement
with respect to any of the foregoing. The Company may only voluntarily prepay
the outstanding principal amount on the Notes in accordance with Section 5
hereof.
-18-
SECTION 8. This Note shall not entitle the Holder to any of the rights
of a stockholder of the Company, including without limitation, the right to
vote, to receive dividends and other distributions, or to receive any notice of,
or to attend, meetings of stockholders or any other proceedings of the Company,
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.
SECTION 9. If this Note shall be mutilated, lost, stolen or destroyed,
the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Note, or in lieu of or in substitution for a lost,
stolen or destroyed Note, a new Note for the principal amount of this Note so
mutilated, lost, stolen or destroyed but only upon receipt of evidence of such
loss, theft or destruction of such Note, and of the ownership hereof, and
indemnity, if requested, all reasonably satisfactory to the Company.
SECTION 10. Except as set forth in Schedule 2.1(o) of the Purchase
Agreement, no indebtedness of the Company is senior to this Note in right of
payment, whether with respect to interest, damages or upon liquidation or
dissolution or otherwise. The Company will not and will not permit any of its
subsidiaries to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any indebtedness of any kind, 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.
SECTION 11. This Note shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to conflicts of
laws thereof. The Company and the Holder hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
SECTION 12. Any waiver by the Company or the Holder of a breach of any
provision of this Note shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other provision of
this Note. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Note. Any waiver must be
in writing.
-19-
SECTION 13. If any provision of this Note is invalid, illegal or
unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
SECTION 14. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Convertible
Note to be duly executed by a duly authorized officer as of the date first above
indicated.
UNIVERSAL BROADBAND NETWORKS, INC.
By:
---------------------------------------
Name:
Title:
-21-
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby elects to convert the attached Note into shares of common
stock, $.001 par value per share (the "Common Stock"), of Universal Broadband
Networks, Inc. (the "Company") according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
_____________________________________________
Date to Effect Conversion
_____________________________________________
Principal Amount of Notes to be Converted
_____________________________________________
Remaining Principal Amount of Notes
_____________________________________________
Number of shares of Common Stock to be Issued
_____________________________________________
Applicable Conversion Price
_____________________________________________
Signature
_____________________________________________
Name
_____________________________________________
Address
ACCEPTED AND AGREED:
UNIVERSAL BROADBAND NETWORKS, INC.
By:_____________________________________
Name:
Title:
-22-
