Contract
Exhibit
10.2
THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF
AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY
TO
THE MAKER THAT THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF MAY BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES
LAWS.
10%
Senior Secured Convertible Promissory Note
due
February 11, 2009
|
No.
PP-1
|
$1,020,000
|
|
Dated:
February 11, 2008
|
For
value
received, WITS
BASIN PRECIOUS MINERALS INC.,
a
Minnesota corporation (the “Maker”),
hereby promises to pay to the order of Platinum Long Term Growth V, LLC, a
Delaware limited liability company with an address of 000 Xxxx 00xx
Xxxxxx,
00xx
Xxxxx,
Xxx Xxxx, XX 00000 (together with its successors, representatives, and permitted
assigns, the “Holder”),
in
accordance with the terms hereinafter provided, the principal amount of
ONE
MILLION TWENTY THOUSAND DOLLARS
($1,020,000), together with interest thereon.
All
payments under or pursuant to this Note shall be made in United States Dollars
in immediately available funds to the Holder at
the
address of the Holder first set forth above or at such other place as the Holder
may designate from time to time in writing to the Maker or by wire transfer
of
funds to the Holder’s account, instructions for which are attached hereto as
Exhibit
A.
Subject
to Section 3.1(b) hereof, the
outstanding principal balance of this Note shall be due and payable on February
11, 2009 (the “Maturity
Date”)
or at
such earlier time as provided herein.
ARTICLE
I
Section
1.1 Purchase
Agreement. This Note has been executed and delivered pursuant to the Note
and Warrant Purchase Agreement, dated as of February 11, 2008 (the “Purchase
Agreement”), by and between the Maker
and the
Holder. Capitalized terms used and not otherwise defined herein shall have
the
meanings set forth for such terms in the Purchase Agreement.
Section
1.2 Interest.
Beginning on the issuance date of this Note (the “Issuance Date”), the
outstanding principal balance of this Note shall bear interest, in arrears,
at a
rate per annum equal to ten percent (10%), payable quarterly in cash on March
31, 2008 and the last day of each succeeding fiscal quarter after March 31,
2008. Interest shall be computed on the basis of a 360-day year of twelve (12)
30-day months, shall compound monthly and shall accrue commencing on the
Issuance Date. Furthermore,
upon the occurrence of an Event of Default (as defined in Section 2.1 hereof),
the Maker will pay interest to the Holder, payable on demand, on the outstanding
principal balance of and unpaid interest on the Note from the date of the Event
of Default until such Event of Default is cured at the rate of the lesser of
eighteen percent (18%) and the maximum applicable legal rate per
annum.
Section
1.3 Payment
of Principal; Prepayment. The Principal Amount hereof shall be paid in full
on the Maturity Date or, if earlier, upon acceleration of this Note in
accordance with the terms hereof. Any amount of principal repaid hereunder
may
not be reborrowed. The Maker may prepay all or any portion of the principal
amount of this Note upon seven (7) business days’ prior written notice to the
Holder without premium or penalty (other than as set forth in Section 3.6);
provided, that, it is understood that the Maker shall be obligated to honor
all
conversion requests during such seven (7) business day period.
Section
1.4 Security
Agreement. The obligations of the Maker hereunder are secured by, among
other things, a continuing security interest in certain assets of the Maker
pursuant to the terms of a Security Agreement dated as of February 11, 2008
by
and among the Maker and certain of the Maker’s subsidiaries, on the one hand,
and the Holder on the other hand.
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
5.8
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, or, in the case of a mutilation
of
this Note, upon surrender and cancellation of such Note, the Maker shall issue
a
new Note, of like tenor and amount, in lieu of such lost, stolen, destroyed
or
mutilated Note.
Section
1.8 Use
of
Proceeds. The Maker shall use the proceeds of this Note as set forth in the
Purchase Agreement.
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:
-2-
(a) any
default in the payment of (1) the principal amount hereunder when due, or (2)
interest on, or liquidated damages in respect of, this Note, within three (3)
business days after the same shall become due and payable (whether on the
Maturity Date or by acceleration or otherwise); or
(b) the
Maker
shall fail to observe or perform any other covenant or agreement contained
in
this Note, which failure is not cured, if possible to cure, within 3 business
days after notice of such default sent by the Holder; or
(c) 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 OTC Bulletin
Board, the American Stock Exchange, the Nasdaq Capital Markets, the Nasdaq
Global Market, the Nasdaq Global Select Market or The New York Stock Exchange,
Inc. for a period of five (5) consecutive Trading Days; or
(d) the
Maker’s notice to the Holder, including by way of public announcement, at any
time, of its inability to comply (including for any of the reasons described
in
Section 3.7(a) hereof) or its intention not to comply with proper requests
for
conversion of this Note into shares of Common Stock; provided, that, an
inability to convert this Note pursuant to the terms of Section 3.4 shall not
constitute an Event of Default hereunder or under the other Transaction
Documents; or
(e) the
Maker
shall fail to (i) timely deliver the shares of Common Stock upon conversion
of
the Note or any interest accrued and unpaid, (ii) make the payment of any fees
and/or liquidated damages under this the Purchase Agreement or the other
Transaction Documents, which failure, in the case of (ii) above, is not remedied
within three (3) business days after the Maker’s receipt of notice thereof from
Holder; or
(f) [Reserved];
or
(g) default
shall be made in the performance or observance of any material covenant,
condition or agreement contained in the Purchase Agreement or any other
Transaction Document that is not covered by any other provisions of this Section
2.1 and such default is not fully cured within three (3) business days after
the
Maker receives notice from the Holder of the occurrence thereof; or
(h) any
material representation or warranty made by the Maker herein or in the Purchase
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;
or
(i) the
Maker
shall (A) default in any payment of any amount or amounts of principal of or
interest on any Indebtedness (other than the Indebtedness hereunder) the
aggregate principal amount of which Indebtedness is in excess of
$200,000 or
(B)
default in the observance or performance of any other agreement or condition
relating to any Indebtedness, that, in the aggregate, exceeds $200,000, 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
-3-
(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),
(vi) issue a notice of bankruptcy or winding down of its operations or issue
a
press release regarding same, or (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing; or
(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 the liquidation or dissolution of the Maker or (iii)
similar relief in respect of it under any law providing for the relief of
debtors, and such proceeding or case described in clause (i), (ii) or (iii)
shall continue undismissed, or unstayed and in effect, for a period of thirty
(30) days or any order for relief shall be entered in an involuntary case under
United States Bankruptcy Code (as now or hereafter in effect) or under the
comparable laws of any jurisdiction (foreign or domestic) against the Maker
or
action under the laws of any jurisdiction (foreign or domestic) analogous to
any
of the foregoing shall be taken with respect to the Maker and shall continue
undismissed, or unstayed and in effect for a period of thirty (30) days;
or
(l) the
failure of the Maker to instruct its transfer agent to remove any legends from
shares of Common Stock eligible to be sold under Rule 144 of the Securities
Act
and issue such unlegended certificates to the Holder within three (3) business
days of the Holder’s request so long as the Holder has provided reasonable
assurances to the Maker that such shares of Common Stock can be sold pursuant
to
Rule 144.
-4-
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,
upon
delivery of written notice to the Maker, 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
(i) in
Sections 2.1 (j) or (k) above, the outstanding principal balance and accrued
interest hereunder shall be immediately due and payable without notice or demand
of any kind, (ii) in Sections 2.1(b)-(i) and (l) above, the Holder, in its
sole
and absolute discretion, may (a) demand the prepayment of this Note pursuant
to
Section 3.6(a) hereof (to the extent permitted by Section 3.6(a) hereof), (b)
demand that all or a portion of the principal amount of this Note then
outstanding be converted in accordance with Article III hereof into shares
of
Common Stock at a Conversion Price equal to the lesser of (A) the Conversion
Price on the date of such demand or (B) 85% of the lowest VWAP for the 10
Trading Days preceding the date of such demand, with all accrued and unpaid
interest on such principal amount to be paid to the Holder in cash, or (c)
exercise or otherwise enforce any one or more of the Holder’s rights, powers,
privileges, remedies and interests under this Note, the Purchase Agreement
or
applicable law and (iii) in the case of any Event of Default arising pursuant
to
Section 2.1(a) above, no acceleration shall be effective unless the Maker shall
have been given at least two (2) business days’ prior written notice of such
acceleration and opportunity to cure such Event of Default during such two
(2)
business day period. 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.
Section
2.3 Put;
Special Conversion. If, at any time after August 11, 2008, the seven
trailing Trading Day VWAP of the Common Stock shall be less than $0.30 (as
appropriately adjusted for splits, combinations and the like occurring after
the
Issuance Date), the Holder, at any time and from time to time thereafter and
in
its sole discretion, may (i) cause the Maker to prepay in cash all or any
portion of this Note at a price equal to one hundred and fifteen percent (115%)
of the aggregate principal amount of this Note being prepaid plus all accrued
and unpaid interest applicable at the time of such request (such payment to
be
made within ten (10) business days of the request therefor), or (ii) demand
that
all or a portion of the principal amount of this Note then outstanding be
converted in accordance with Article III hereof into shares of Common Stock
at a
Conversion Price equal to the lesser of (A) the Conversion Price on the date
of
such demand or (B) 85% of the lowest VWAP for the 10 Trading Days preceding
the
date of such demand, with all accrued and unpaid interest on such principal
amount to be paid to the Holder in cash (such payment of interest to be made
within five (5) business days of the request therefor).
ARTICLE
III
CONVERSION;
ANTIDILUTION; PREPAYMENT
Section
3.1 Conversion
Option.
(a) At
any
time and from time to time on or after the Issuance Date, this Note shall be
convertible (in whole or in part), at the option of the Holder (the
“Conversion
Option”),
into
such number of fully paid and non-assessable shares of Common Stock (the
“Conversion
Rate”)
as is
determined by dividing (x) that portion of the outstanding principal balance
plus any accrued but unpaid interest under this Note as of such date that the
Holder elects to convert by (y) the Conversion Price (as defined in Section
3.2
hereof) then in effect on the date on which the Holder faxes a notice of
conversion (the “Conversion
Notice”),
duly
executed, to the Maker (facsimile number: (000) 000-0000, Attn.: Xxxx X. Xxxxx)
(the “Voluntary
Conversion Date”),
provided, however, that the Conversion Price shall be subject to adjustment
as
described in Section 3.5 below. The Holder shall deliver this Note to the Maker
at the address designated in the Purchase Agreement at such time that this
Note
is fully converted. With respect to partial conversions of this Note, the Maker
shall keep written records of the amount of this Note converted as of each
Conversion Date.
-5-
(b) If,
at
any time after August 11, 2008 and prior to February 11, 2009, the VWAP of
the
Common Stock exceeds $0.50 (as adjusted for splits, combinations and the like
occurring after the Issuance Date) for a period of twenty (20) consecutive
Trading Days, the Maker may cause the principal amount of this Note to convert
into a number of fully paid and non-assessable shares of Common Stock equal
to
the quotient of (i) the principal amount of this Note then outstanding divided
by (ii) the Conversion Price then in effect (as adjusted for splits,
combinations and the like occurring after the Issuance Date) (the date of such
conversion, the “Mandatory
Conversion Date”
and,
together with any Voluntary Conversion Date (including pursuant to a conversion
request delivered pursuant to Section 2.2 or Section 2.3 hereof), a
“Conversion
Date”).
As a
condition to any conversion pursuant to this Section 3.1(b), the Maker shall
pay
to the Holder all accrued and unpaid dividends in cash. No conversion pursuant
to this Section 3.1(b) shall be effected unless (i) the Equity Conditions are
satisfied on the Mandatory Conversion Date and during such twenty Trading Day
period and such conversion would not cause the Holder to exceed the 9.99%
beneficial ownership limitations set forth in Section 3.4(b) hereof and (ii)
no
Event of Default has occurred and is continuing for any part of such twenty
Trading Day period or on the Mandatory Conversion Date.
Section
3.2 Conversion
Price. The term “Conversion Price” shall mean $0.18, subject to adjustment
under Section 3.5 hereof.
Section
3.3 Mechanics
of Conversion.
(a) Not
later
than three (3) Trading Days after any Conversion Date, the Maker 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 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. In the alternative, not later than three (3) Trading Days after any
Conversion Date, the Maker 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 (the “Delivery
Date”).
Notwithstanding the foregoing to the contrary, the Maker or its transfer agent
shall only be obligated to issue and deliver the shares to the DTC on the
Holder’s behalf via DWAC (or certificates free of restrictive legends) if such
conversion is in connection with a sale and the Holder has complied with the
applicable prospectus delivery requirements (as evidenced by documentation
furnished to and reasonably satisfactory to the Maker) or such shares may be
sold pursuant to Rule 144 (without restriction as to volume). 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 Delivery Date, the Holder shall
be
entitled by written notice to the Maker at any time on or before its receipt
of
such certificate or certificates thereafter, to rescind such conversion, in
which event the Maker shall immediately return this Note tendered for
conversion, whereupon the Maker and the Holder shall each be restored to their
respective positions immediately prior to the delivery of such notice of
revocation, except that any amounts described in Sections 3.3(b) and (c) shall
be payable through the date notice of rescission is given to the
Maker.
-6-
(b) The
Maker
understands that a delay in the delivery of the shares of Common Stock upon
conversion of this Note beyond the Delivery Date could result in economic loss
to the Holder. If the Maker fails to deliver to the Holder such shares via
DWAC
(or, if applicable, certificates) 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 (if applicable),
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) $2,000 per day (which amount shall
be
paid as liquidated damages and not as a penalty). Nothing herein shall limit
a
Holder’s right to pursue actual damages for the Maker’s failure to deliver
certificates representing shares of Common Stock upon conversion within the
period specified herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity (including, without limitation,
a
decree of specific performance and/or injunctive relief). Notwithstanding
anything to the contrary contained herein, the Holder shall be entitled to
withdraw a Conversion Notice, and upon such withdrawal the Maker shall only
be
obligated to pay the liquidated damages accrued in accordance with this Section
3.3(b) through the date the Conversion Notice is withdrawn.
(c) In
addition to any other rights available to the Holder, if the Maker fails to
cause its transfer agent to transmit via DWAC or 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 conversion (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 Maker was required to deliver to the Holder in connection
with the conversion at issue times (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
Maker 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 Maker’s failure to timely deliver
certificates representing shares of Common Stock upon conversion of this Note
as
required pursuant to the terms hereof.
-7-
Section
3.4 Ownership
Cap and Certain Conversion Restrictions.
(a) Notwithstanding
anything to the contrary set forth in Section 3 of this Note, at no time may
all
or a portion of this Note be converted 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 4.99% of all of the Common Stock outstanding at such
time;
provided,
however,
that
upon the Holder providing the Maker with sixty-one (61) days notice (pursuant
to
Section 4.1 hereof) (the “Waiver
Notice”)
that
the Holder would like to waive this Section 3.4(a) with regard to any or all
shares of Common Stock issuable upon conversion of this Note, this Section
3.4(a) will be of no force or effect with regard to all or a portion of the
Note
referenced in the Waiver Notice.
(b) 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, when aggregated with all other
shares of Common Stock owned by the Holder at such time, would result in the
Holder beneficially owning (as determined in accordance with Section 13(d)
of
the Exchange Act and the rules thereunder) in excess of 9.99% of the then issued
and outstanding shares of Common Stock outstanding at such time; provided,
however,
that
upon the Holder providing the Maker with a Waiver Notice that the Holder would
like to waive Section 3.4(b) of this Note with regard to any or all shares
of
Common Stock issuable upon conversion of this Note, this Section 3.4(b) shall
be
of no force or effect with regard to all or a portion of the Note referenced
in
the Waiver Notice.
Section
3.5 Adjustment
of Conversion Price.
(a) Until
the
Note has been paid in full or converted in full, the Conversion Price shall
be
subject to adjustment from time to time as follows:
(i) Adjustments
for Stock Splits and Combinations.
If the
Maker 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 Maker 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 3.5(a)(i) shall be effective
at
the close of business on the date the stock split or combination
occurs.
-8-
(ii) Adjustments
for Certain Dividends and Distributions.
Other
than with respect to a Subsidiary Dividend (as defined in the Purchase
Agreement), if the Maker 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.
With
the exception of the Subsidiary Dividend, if the Maker 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 Maker or other issuer (as applicable) 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 3.5(a)(iii) with
respect to the rights of the holders of this Note; 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 pursuant to this paragraph as of the time of actual
payment of such dividends or distributions.
(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 3.5(a)(i), (ii) and (iii),
or
a reorganization, merger, consolidation, or sale of assets provided for in
Section 3.5(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.
-9-
(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 Maker (other than by way of a stock split or combination
of shares or stock dividends or distributions provided for in Section 3.5(a)(i),
(ii) and (iii), or a reclassification, exchange or substitution of shares
provided for in Section 3.5(a)(iv)), or a merger or consolidation of the Maker
with or into another Person where the holders of outstanding voting securities
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 Maker’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 or otherwise) 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 Maker or any successor
corporation resulting from 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 3.6(b)
hereof. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 3.5(a)(v) with respect to the
rights of the Holder after the Organic Change to the end that the provisions
of
this Section 3.5(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.
In the
event the Maker, shall, at any time, from time to time, issue or sell any
additional shares of common stock (otherwise than as provided in the foregoing
subsections (i) through (v) of this Section 3.5(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, then the Conversion Price upon each such issuance shall be
reduced to a price determined by multiplying the Conversion Price then in effect
by a fraction (A) the numerator of which is the total number of shares
of
Common Stock then outstanding plus
the
number of shares of Common Stock which the aggregate consideration received
or
to be received by the Company for the shares so issued (or deemed issued) would
purchase at such Conversion Price, and (B) the denominator of which is the
total
number of shares of Common Stock then outstanding plus the number of shares
of
Common Stock so issued (or deemed issued).
-10-
(vii) Issuance
of Common Stock Equivalents.
The
provisions of this Section 3.5(a)(vii) shall apply if (a) the Maker, at any
time
after the Issuance Date, shall issue any securities convertible into or
exchangeable for, directly or indirectly, Common Stock (“Convertible
Securities”),
other
than the Note, or (b) any rights or warrants or options to purchase any such
Common Stock or Convertible Securities (collectively, the “Common
Stock Equivalents”),
other
than the Warrant issued pursuant to the Purchase Agreement, shall be issued
or
sold. If the price per share for which Additional Shares of Common Stock may
be
issuable pursuant to any such Common Stock Equivalent 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 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, amendment or adjustment shall be adjusted as provided
in subsection (vi) of this Section 3.5(a), with the maximum number of shares
of
Common Stock issuable upon conversion or exercise of such Common Stock
Equivalents being deemed to have be issued or sold by the Maker at the time
of
issuance or sale of such Common Stock Equivalents. For purposes of this Section
3.5(a)(vii), the “price per share for which Additional Shares of Common Stock
may be issuable” shall be determined by dividing (X) the total amount received
or receivable by the Maker as consideration for the issue or sale of such Common
Stock Equivalents, plus the minimum aggregate amount of additional
consideration, if any, payable to the Maker upon the conversion or exercise
thereof, by (B) the total maximum number of shares of Common Stock issuable
upon
the conversion or exercise of all such Common Stock Equivalents. No further
adjustment of the Conversion Price shall be made when Common Stock is actually
issued upon the conversion or exchange of such Common Stock Equivalents, and
if
any such issue or sale of Convertible Securities is made upon exercise of any
Rights for which adjustment of the Conversion Price had been made pursuant
to
other provisions of Section 3.5(a), no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(viii) Consideration
for Stock.
In case
any shares of Common Stock or any Common Stock Equivalents shall be issued
or
sold:
(1) in
connection with any merger or consolidation in which the Maker is the surviving
corporation (other than any consolidation or merger in which the previously
outstanding shares of Common Stock of the Maker shall be changed to or exchanged
for the stock or other securities of another corporation), the amount of
consideration therefor shall be, deemed to be the fair value, as determined
reasonably and in good faith by the Board of Directors of the Maker, of such
portion of the assets and business of the nonsurviving corporation as such
Board
may determine to be attributable to such shares of Common Stock, Convertible
Securities, rights or warrants or options, as the case may be; or
(2) in
the
event of any consolidation or merger of the Maker in which the Maker is not
the
surviving corporation or in which the previously outstanding shares of Common
Stock of the Maker shall be changed into or exchanged for the stock or other
securities of another corporation, or in the event of any sale of all or
substantially all of the assets of the Maker for stock or other securities
of
any corporation, the Maker shall be deemed to have issued a number of shares
of
its Common Stock for stock or securities or other property of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation. If any such calculation results in adjustment
of the applicable 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 issuable upon conversion of the Notes. In the event Common Stock
is
issued with other shares or securities or other assets of the Maker for
consideration which covers both, the consideration computed as provided in
this
Section 3.5(a)(viii) shall be allocated among such securities and assets as
determined in good faith by the Board of Directors of the
Maker.
-11-
(ix) Superseding
Adjustment.
If, at
any time after any adjustment of the Conversion Price then in effect shall
have
been made pursuant to Section 3.5(a)(vii) as the result of any issuance of
any
Convertible Securities or Common Stock Equivalents, and (i) such Convertible
Securities or Common Stock Equivalents, or the right of conversion or exchange
in such other Common Stock Equivalents, shall expire, and all or a portion
of
such Convertible Securities or Common Stock Equivalents, or the right of
conversion or exchange with respect to all or a portion of such other Common
Stock Equivalents, as the case may be shall not have been exercised, or (ii)
the
consideration per share for which shares of Common Stock are issuable pursuant
to such Convertible Securities or Common Stock Equivalents, shall be increased
solely by virtue of provisions therein contained for an automatic increase
in
such consideration per share upon the occurrence of a specified date or event,
then any such previous adjustment to the Conversion Price of the Note shall
be
rescinded and annulled. Upon the occurrence of an event set forth in this
Section 3.5(a)(ix), there shall be a recomputation made of the effect of
such Convertible Securities or Common Stock Equivalents on the basis of:
(i) treating the number of Additional Shares of Common Stock or other
property, if any, theretofore actually issued or issuable pursuant to the
previous exercise of any such Convertible Securities or Common Stock Equivalents
or any such right of conversion or exchange, as having been issued on the date
or dates of any such exercise and for the consideration actually received and
receivable therefor, and (ii) treating any such Convertible Securities or
Common Stock Equivalents which then remain outstanding as having been granted
or
issued immediately after the time of such increase of the consideration per
share for which shares of Common Stock or other property are issuable under
such
Convertible Securities or Common Stock Equivalents; whereupon a new adjustment
of the Conversion Price then in effect shall be made, which new adjustment
shall
supersede the previous adjustment so rescinded and annulled.
(b) Record
Date.
In case
the Maker shall take record of the holders of its Common Stock for the purpose
of entitling them to subscribe for or purchase Common Stock or Convertible
Securities, then the date of the issue or sale of the shares of Common Stock
shall be deemed to be such record date.
(c) Certain
Issues Excepted.
Anything herein to the contrary notwithstanding, the Maker shall not be required
to make any adjustment to the Conversion Price in connection with the following:
(a) issuances of shares of Common Stock or options to employees, officers or
directors of the Maker pursuant to any stock or option plan existing on the
date
hereof if such grants are duly approved by a majority of the non-employee
members of the Board of Directors of the Maker or a majority of the members
of a
committee of non-employee directors established for such purpose; (b) issuances
of securities upon the exercise or exchange of or conversion of any securities
issued hereunder and/or securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the Issuance
Date, provided that such securities have not been amended since the Issuance
Date to increase the number of such securities or to decrease the exercise,
exchange or conversion price of any such securities, (c) securities issued
pursuant to acquisitions or strategic transactions, provided any such issuance
shall only be to a person which is, itself or through its subsidiaries, an
operating company in a business synergistic with the business of the Maker
as
determined in good faith by the Board of Directors of the Maker and in which
the
Maker receives benefits in addition to the investment of funds, but shall not
include a transaction in which the Maker is issuing securities primarily for
the
purpose of raising capital or to an entity whose primary business is investing
in securities, (d) shares of Common Stock (other than as set forth in (a)
through (c) above and (e) below) in an aggregate amount not to exceed 5% of
the
number of shares of Common Stock outstanding on the Issuance Date and (e) the
issuances set forth on Schedule 3.21 of the Purchase Agreement.
-12-
(d) No
Impairment.
The
Maker
shall
not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Maker,
but
will at all times in good faith, assist in the carrying out of all the
provisions of this Section 3.5 and in the taking of all such action as may
be
necessary or appropriate in order to protect the Conversion Rights of the Holder
against impairment. In the event a Holder shall elect to convert any Notes
as
provided herein, the Maker cannot refuse conversion based on any claim that
such
Holder or any one associated or affiliated with such Holder has been engaged
in
any violation of law, violation of an agreement to which such Holder is a party
or for any reason whatsoever, unless, an injunction from a court, or notice,
restraining and or adjoining conversion of all or of said Notes shall have
issued and the Maker posts a surety bond for the benefit of such Holder in
an
amount equal to one hundred thirty percent (130%) 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 3.5, the Maker
at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to the Holder a certificate setting forth
such
adjustment and readjustment, showing in detail the facts upon which such
adjustment or readjustment is based. The Maker
shall,
upon written request of the Holder, at any time, furnish or cause to be
furnished to 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 Maker shall not be obligated to deliver
a
certificate unless such certificate would reflect an increase or decrease of
at
least one percent (1%) of such adjusted amount.
(f) Issue
Taxes.
The
Maker shall pay any and all issue and other taxes, excluding federal, state
or
local income taxes, that may be payable in respect of any issue or delivery
of
shares of Common Stock on conversion of this Note pursuant thereto; provided,
however,
that
the Maker shall not be obligated to pay any transfer taxes resulting from any
transfer requested by the Holder in connection with any such
conversion.
-13-
(g) Fractional
Shares.
No
fractional shares of Common Stock shall be issued upon conversion of this Note.
In lieu of any fractional shares to which the Holder would otherwise be
entitled, the Maker shall pay cash equal to the product of such fraction
multiplied by the average of the Closing Bid Prices of the Common Stock for
the
five (5) consecutive Trading Days immediately preceding the Conversion Date.
(h) Reservation
of Common Stock.
The
Maker shall at all times when this Note shall be outstanding, reserve and keep
available out of its authorized but unissued Common Stock, such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of this Note and all interest accrued thereon; provided
that the
number of shares of Common Stock so reserved shall on the date hereof be no
less
than one hundred twenty percent (120%) of the number of shares of Common Stock
for which this Note and all interest accrued thereon are at any time
convertible, and within thirty (30) days of the date hereof, the Maker shall
have taken all necessary action to increase the number of shares of Common
Stock
so reserved so that such number shall at no time be less than one hundred fifty
percent (150%) of the number of shares of Common Stock for which this Note
and
all interest accrued thereon are at any time convertible. The Maker shall,
if
necessary, use its best efforts from time to time and in accordance with
Minnesota law, to increase the authorized number of shares of Common Stock
if at
any time the unissued number of authorized shares shall not be sufficient to
satisfy the Maker’s obligations under this Section 3.5(h).
(i) Regulatory
Compliance.
If any
shares of Common Stock to be reserved for the purpose of conversion of this
Note
or any interest accrued thereon require registration or listing with or approval
of any governmental authority, stock exchange or other regulatory body under
any
federal or state law or regulation or otherwise before such shares may be
validly issued or delivered upon conversion, the Maker shall, at its sole cost
and expense, in good faith and as expeditiously as possible, endeavor to secure
such registration, listing or approval, as the case may be.
Section
3.6 Prepayment.
(a) Prepayment
Upon an Event of Default.
Notwithstanding anything to the contrary contained herein, upon the occurrence
of an Event of Default described in Sections 2.1(b)-(i) or (l) hereof, 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
and
fifteen percent (115%) 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 3.6(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 the Holder’s option, to
require the Maker to prepay all or a portion of the Holder’s Notes in cash at a
price equal to the sum of (i) the greater of (A) one hundred percent (100%)
of
the aggregate principal amount of this Note plus all accrued and unpaid interest
and (B) in the event at such time the Holder is unable to obtain the benefit
of
its conversion rights through the conversion of this Note and resale of the
shares of Common Stock issuable upon conversion hereof in accordance with the
terms of this Note and the other Transaction Documents or the Equity Conditions
are not satisfied with respect to all such shares of Common Stock, the aggregate
principal amount of this Note plus all accrued but unpaid interest hereon,
divided by the Conversion Price on the date the Prepayment Price (as defined
below) is demanded or otherwise due, multiplied by the VWAP on the date the
Major Transaction Prepayment Price is demanded or otherwise due, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of this
Note and the other Transaction Documents (the “Major Transaction Prepayment
Price”).
-14-
(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 the sum of (i) the greater of (A) one hundred percent (100%)
of
the aggregate principal amount of this Note plus all accrued and unpaid interest
and (B) the aggregate principal amount of this Note plus all accrued but unpaid
interest hereon, divided by the Conversion Price on the date the Prepayment
Price (as defined below) is demanded or otherwise due, multiplied by the VWAP
on
the date the Prepayment Price is demanded or otherwise due, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of this Note
and
the other Transaction Documents (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 Maker with or into
another Person (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Maker
or
(B) a consolidation, merger or other business combination in which holders
of
the Maker’s voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board
of
directors (or their equivalent if other than a corporation) of such entity
or
entities).
(ii) the
sale
or transfer of more than fifty percent (50%) of the Maker’s assets (based on the
fair market value as determined in good faith by the Maker’s Board of Directors)
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.
(f) “Triggering
Event.” A “Triggering Event” shall be deemed to have occurred at such
time as any of the following events:
(i) 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 OTC Bulletin
Board, the American Stock Exchange, the Nasdaq National Market, the Nasdaq
SmallCap Market or The New York Stock Exchange, Inc., for a period of five
(5)
consecutive Trading Days;
-15-
(ii) the
Maker’s notice to the Holder, including by way of public announcement, at any
time, of its inability to comply (including for any of the reasons described
in
Section 3.7) or its intention not to comply with proper requests for conversion
of this Note into shares of Common Stock; provided that such inability to
convert due to the terms of Section 3.4 hereof shall not constitute a Triggering
Event; or
(iii) the
Maker’s failure to comply with a Conversion Notice tendered in accordance with
the provisions of this Note within ten (10) business days after the receipt
by
the Maker of the Conversion Notice; provided that such inability to convert
due
to the terms of Section 3.4 hereof shall not constitute a Triggering Event;
or
(iv) the
Maker
deregisters its shares of Common Stock and as a result such shares of Common
Stock are no longer publicly traded; or
(v) the
Maker
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.
(h) Mechanics
of Prepayment at Option of Holder Upon Major Transaction. No sooner than
twenty (20) days nor later than ten (10) days prior to the consummation of
a
Major Transaction, but not prior to the public announcement of such Major
Transaction, the Maker shall deliver written notice thereof via facsimile and
overnight courier (“Notice of Major Transaction”) to the Holder of this
Note. At any time after receipt of a Notice of Major Transaction (or, in the
event a Notice of Major Transaction is not delivered at least ten (10) days
prior to a Major Transaction, at any time within ten (10) days prior to a Major
Transaction), any holder of the Notes then outstanding may require the Maker
to
prepay, effective immediately prior to the consummation of such Major
Transaction, all of the holder’s Notes then outstanding by delivering written
notice thereof via facsimile and overnight courier (“Notice of Prepayment at
Option of Holder Upon Major Transaction”) to the Maker, which Notice of
Prepayment at Option of Holder Upon Major Transaction shall indicate (i) the
principal amount of the Notes that such holder is electing to have prepaid
and
(ii) the applicable Major Transaction Prepayment Price, as calculated pursuant
to Section 3.6(b) above.
(i) 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. At any time after the earlier of a
holder’s receipt of a Notice of Triggering Event and such holder becoming aware
of a Triggering Event, the Holder may require the Maker to prepay this Note
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 3.6(c) above. The Holder shall only be permitted to require
the Maker to prepay the Note pursuant to Section 3.6 hereof for the greater
of a
period of ten (10) days after receipt by such holder of a Notice of Triggering
Event or for so long as such Triggering Event is continuing.
-16-
(j) Payment
of Prepayment Price.
Upon
the Maker’s receipt of a Notice 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, the Maker shall deliver the applicable Triggering
Event Prepayment Price, in the case of a prepayment pursuant to Section 3.6(i),
to the Holder within five (5) business days after the Maker’s receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and, in the
case
of a prepayment pursuant to Section 3.6(h), 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
shall have been so delivered to the Maker. If the Maker shall fail to prepay
the
Note (other than pursuant to a dispute as to the arithmetic calculation of
the
Prepayment Price), in addition to any remedy the Holder may have under this
Note
and the Purchase Agreement, the applicable Prepayment Price payable in respect
of the Note (or portion thereof) 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 pays such unpaid applicable Prepayment Price in full to the
Holder, the Holder shall have the option (the “Void
Optional Prepayment Option”)
to, in
lieu of prepayment, require the Maker to promptly return to the Holder all
or
that portion of the Note that was submitted for prepayment by such holder(s)
under this Section 3.6 and for which the applicable Prepayment Price has not
been paid, by sending written notice thereof to the Maker via facsimile (the
“Void
Optional Prepayment Notice”).
Upon
the Maker’s receipt of such Void Optional Prepayment Notice and prior to payment
of the full applicable Prepayment Price to the Holder, (i) the Notice of
Prepayment at Option of Holder Upon Triggering Event or the Notice of Prepayment
at Option of Holder Upon Major Transaction, as the case may be, shall be null
and void with respect to the Note submitted for prepayment and for which the
applicable Prepayment Price has not been paid, (ii) the Maker shall immediately
return the Note submitted to the Maker by the Holder for prepayment under this
Section 3.6(j) and for which the applicable Prepayment Price has not been paid
and (iii) the Conversion Price of the Note shall be adjusted to the lesser
of
(A) the Conversion Price as in effect on the date on which the Void Optional
Prepayment Notice is delivered to the Maker and (B) the lowest Closing Bid
Price
during the period beginning on the date on which the Notice of Prepayment of
Option of Holder Upon Major Transaction or the Notice 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 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. The Holder’s
delivery of a Void Optional Prepayment Notice and exercise of its rights
following such notice shall not affect the Maker’s obligations to make any
payments which have accrued prior to the date of such notice. Payments provided
for in this Section 3.6 shall have priority to payments to other stockholders
in
connection with a Major Transaction.
Section
3.7 Inability
to Fully Convert.
(a) Holder’s
Option if Maker Cannot Fully Convert.
If,
upon the Maker’s receipt of a Conversion Notice, the Maker cannot issue shares
of Common Stock for any reason (other than pursuant to the terms of Section
3.4
hereof), including, without limitation, because the Maker (x) does not have
a
sufficient number of shares of Common Stock authorized and available, or (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 Maker or any of its securities from
issuing all of the Common Stock which is to be issued to the Holder pursuant
to
a Conversion Notice, then the Maker shall issue as many shares of Common Stock
as it is able to issue in accordance with the Holder’s Conversion Notice and,
with respect to the unconverted portion of this Note, the Holder, solely at
Holder’s option, can elect to:
-17-
(i) If
the
Maker’s inability to fully convert is pursuant to Section 3.7(a)(x) above,
require the Maker to prepay that portion of this Note for which the Maker is
unable to issue Common Stock in accordance with the Holder’s Conversion Notice
(the “Mandatory
Prepayment”)
at a
price per share equal to the Triggering Event Prepayment Price as of such
Conversion Date (the “Mandatory
Prepayment Price”);
(ii) if
the
Maker’s inability to fully convert is pursuant to Section 3.7(a)(y) above,
require the Maker to issue restricted shares of Common Stock in accordance
with
such holder’s Conversion Notice;
(iii) void
its
Conversion Notice and retain or have returned, as the case may be, this Note
that was to be converted pursuant to the Conversion Notice (provided that the
Holder’s voiding its Conversion Notice shall not effect the Maker’s obligations
to make any payments which have accrued prior to the date of such
notice);
(iv) exercise
its Buy-In rights pursuant to and in accordance with the terms and provisions
of
Section 3.3(c) of this Note; provided that such inability to convert is not
due
to the terms of Section 3.4 hereof.
In
the
event the Holder shall elect to convert any portion of the Note as provided
herein, the Maker cannot refuse conversion based on any claim that such Holder
or any one associated or affiliated with such Holder has been engaged in any
violation of law, violation of an agreement to which such Holder is a party
or
for any reason whatsoever, unless, an injunction from a court, on notice,
restraining and or adjoining conversion of the Note shall have been issued
and
the Maker posts a surety bond for the benefit of such Holder in an amount equal
to 130% of the principal amount of the Note 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 in
the
event it obtains judgment.
(b) Mechanics
of Fulfilling Holder’s Election.
The
Maker shall immediately send via facsimile to the Holder, upon receipt of a
facsimile copy of a Conversion Notice from the Holder which cannot be fully
satisfied as described in Section 3.7(a) above, a notice of the Maker’s
inability to fully satisfy the Conversion Notice (the “Inability
to Fully Convert Notice”).
Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Maker
is
unable to fully satisfy such holder’s Conversion Notice, (ii) the amount of 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
3.7(a) above by delivering written notice via facsimile to the Maker
(“Notice
in Response to Inability to Convert”).
-18-
(c) Payment
of Prepayment Price.
If the
Holder shall elect to have the Note prepaid pursuant to Section 3.7(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 Xxxxxxxxx to
Convert the Maker has not delivered a notice to the Holder stating, to the
satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms
of
this Note. If the Maker shall fail to pay the applicable Mandatory Prepayment
Price to the Holder on the date that is one (1) business day following the
30-day period 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 Closing
Bid
Price during the period beginning on the Conversion Date and ending on the
date
the Holder voided the Mandatory Prepayment.
Section
3.8 No
Rights as Shareholder. Nothing contained in this Note shall be construed as
conferring upon the Holder, prior to the conversion of this Note, the right
to
vote or to receive dividends or to consent or to receive notice as a shareholder
in respect of any meeting of shareholders for the election of directors of
the
Maker or of any other matter, or any other rights as a shareholder of the
Maker.
ARTICLE
IV
COVENANTS
For
so
long as this Note is outstanding, without the prior written consent of the
Holder:
Section
4.1 No
Liens. Other than Permitted Encumbrances, the Maker shall not, and shall not
permit any Guarantor to, enter into, create, incur, assume or suffer to exist
any liens, security interests, charges, claims or other encumbrances of any
kind
(collectively, “Liens”) on or with respect to any of its assets now owned or
hereafter acquired or any interest therein or any income or profits
therefrom.
Section
4.2 No
Indebtedness. The Maker shall not, and shall not permit any Guarantor to,
enter into, create, incur, assume or suffer to exist any Indebtedness, other
than (i) Permitted Subordinated Indebtedness, (ii) Indebtedness existing on
the
date hereof and disclosed in the Commission Documents and (iii) purchase money
security indebtedness for assets acquired by the Maker or the Guarantors in
the
ordinary course of their respective businesses, provided that such Indebtedness
does not exceed the fair market value of the asset acquired by the Maker
(“Permitted PMSI Debt”).
-19-
Section
4.3 Compliance
with Transaction Documents. The Maker shall, and shall cause the Guarantors
to, comply with their respective obligations under this Note and the other
Transaction Documents.
ARTICLE
V
MISCELLANEOUS
Section
5.1 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 Maker takes a record (x) with respect to any dividend
or
distribution upon the Common Stock, (y) with respect to any pro rata
subscription offer to holders of Common Stock or (z) for determining rights
to
vote with respect to any Organic Change, dissolution, liquidation or winding-up
and in no event shall such notice be provided to such holder prior to such
information being made known to the public. The Maker will also give written
notice to the Holder at least ten (10) days prior to the date on which any
Organic Change, dissolution, liquidation or winding-up will take place and
in no
event shall such notice be provided to the Holder prior to such information
being made known to the public.
Section
5.2 Governing
Law. This Note shall be governed by and construed in accordance with the
internal laws of the State of New York, without giving effect to any of the
conflicts of law principles which would result in the application of the
substantive law of another jurisdiction. This Note shall not be interpreted
or
construed with any presumption against the party causing this Note to be
drafted.
Section
5.3 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
5.4 Remedies,
Characterizations, Other Obligations, Breaches and Injunctive Relief. The
remedies provided in this Note shall be cumulative and in addition to all other
remedies available under this Note, at law or in equity (including, without
limitation, a decree of specific performance and/or other injunctive relief),
no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing herein shall limit a holder’s
right to pursue actual damages for any failure by the Maker to comply with
the
terms of this Note. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Maker (or the
performance thereof). The Maker acknowledges that a breach by it of its
obligations hereunder will cause irreparable and material harm to the Holder
and
that the remedy at law for any such breach may be inadequate. Therefore the
Maker agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available rights and
remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.
-20-
Section
5.5 Enforcement
Expenses. The Maker agrees to pay all costs and expenses of enforcement of
this Note, including, without limitation, reasonable attorneys’ fees and
expenses.
Section
5.6 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
5.7 Amendments.
This Note may not be modified or amended in any manner except in writing
executed by the Maker and the Holder.
Section
5.8 Compliance
with Securities Laws. The Holder of this Note acknowledges that this Note is
being acquired solely for the Holder’s own account and not as a nominee for any
other party, and for investment, and that the Holder shall not offer, sell
or
otherwise dispose of this Note. This Note and any Note issued in substitution
or
replacement therefor shall be stamped or imprinted with a legend in
substantially the following form:
“THIS
NOTE
AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL
IN
THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE MAKER THAT THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE MAY
BE
SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.”
Section
5.9 Consent
to Jurisdiction. Each of the Maker and the Holder (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court
sitting in the Southern District of New York and the courts of the State of
New
York located in New York county for the purposes of any suit, action or
proceeding arising out of or relating to this Note and (ii) hereby waives,
and
agrees not to assert in any such suit, action or proceeding, any claim that
it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue
of
the suit, action or proceeding is improper. Each of the Maker and the Holder
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to
it
under the Purchase Agreement and agrees that such service shall constitute
good
and sufficient service of process and notice thereof. Nothing in this Section
4.9 shall affect or limit any right to serve process in any other manner
permitted by law. Each of the Maker and the Holder hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating
to
this Note shall be entitled to reimbursement for reasonable legal fees from
the
non-prevailing party.
-21-
Section
5.10 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
5.11 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.
Section
5.12 Maker
Waivers; Dispute Resolution. Except as otherwise specifically provided
herein, the Maker and all others that may become liable for all or any part
of
the obligations evidenced by this Note, hereby waive presentment, demand, notice
of nonpayment, protest and all other demands’ and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, and do hereby
consent to any number of renewals of extensions of the time or payment hereof
and agree that any such renewals or extensions may be made without notice to
any
such persons and without affecting their liability herein and do further consent
to the release of any person liable hereon, all without affecting the liability
of the other persons, firms or Maker liable for the payment of this Note, AND
DO
HEREBY WAIVE TRIAL BY JURY.
(a) No
delay
or omission on the part of the Holder in exercising its rights under this Note,
or course of conduct relating hereto, shall operate as a waiver of such rights
or any other right of the Holder, nor shall any waiver by the Holder of any
such
right or rights on any one occasion be deemed a waiver of the same right or
rights on any future occasion.
(b) THE
MAKER
ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL
TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY WAIVES ITS
RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE
HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.
-22-
(c) In
the
case of a reasonable dispute as to the determination of the Closing Bid Price
or
the VWAP or the arithmetic calculation of the Conversion Price, any adjustment
to the Conversion Price, liquidated damages amount, interest or dividend
calculation, or any redemption price, redemption amount, adjusted Conversion
Price, or similar calculation, or as to whether a subsequent issuance of
securities is prohibited hereunder or would lead to an adjustment to the
Conversion Price, the Maker shall submit the disputed determinations or
arithmetic calculations via facsimile within two (2) Business Days of receipt,
or deemed receipt, of the Conversion Notice, any redemption notice, default
notice or other event giving rise to such dispute, as the case may be, to the
Holder. If, after a good faith effort by the parties, the Holder and the Maker
are unable to agree upon such determination or calculation within two (2)
Business Days of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Maker shall, within two (2) Business Days
submit via facsimile (a) the disputed determination of the Closing Price or
the
VWAP to an independent, reputable investment bank selected by the Maker and
approved by the Holder, which approval shall not be unreasonably withheld,
(b)
the disputed arithmetic calculation of the Conversion Price, adjusted Conversion
Price or any redemption price, redemption amount or default amount to the
Maker’s independent, outside accountant or (c) the disputed facts regarding
whether a subsequent issuance of securities is prohibited hereunder or would
lead to an adjustment to the Conversion Price (or any of the other above
described facts not expressly designated to the investment bank or accountant),
to an expert attorney from a nationally recognized outside law firm (having
at
least 100 attorneys and having with no prior relationship with the Maker)
selected by the Maker and approved by the Lead Purchaser as defined in the
Purchase Agreement). The Maker, at the Maker’s expense, shall cause the
investment bank, the accountant, the law firm, or other expert, as the case
may
be, to perform the determinations or calculations and notify the Maker and
the
Holder of the results no later than five (5) Business Days from the time it
receives the disputed determinations or calculations. Such investment bank’s,
accountant’s or attorney’s determination or calculation, as the case may be,
shall be binding upon all parties absent demonstrable error.
Section
5.13 Definitions.
Terms used herein and not defined shall have the meanings set forth in the
Purchase Agreement. For the purposes hereof, the following terms shall have
the
following meanings:
“Closing
Bid Price”
shall
mean, on any particular date (i) the last trading price per share of the Common
Stock on such date on the OTC
Bulletin Board or
another registered national stock exchange on which the Common Stock is then
listed, or if there is no such price on such date, then the last trading price
on such exchange or quotation system on the date nearest preceding such date,
or
(ii) if the Common Stock is not then listed or traded on a registered national
securities exchange or quoted on the OTC Bulletin Board, then the average of
the
“Pink Sheet” quotes for the relevant conversion period, as determined in good
faith by the Holder, or (iii) if the Common Stock is not then publicly traded
the fair market value of a share of Common Stock as determined by the Maker
and
reasonably acceptable to the Holder.
“Equity
Conditions”
shall
mean, during the period in question, (i) the Maker shall have duly honored
all
conversions and redemptions scheduled to occur or occurring by virtue of one
or
more Conversion Notices of the Holder, if any, (ii) all liquidated damages
and
other amounts owing to the Holder in respect of this Note and the other
Transaction Documents shall have been paid; (iii) (A) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize
the
prospectus thereunder to resell all of the shares issued or issuable pursuant
to
the Transaction Documents or (B) there exists, under Rule 144 of the Securities
Act, “current public information” with respect to the Maker and the Holder is
permitted to resell the shares of Common Stock issued or issuable pursuant
to
the Transaction Documents pursuant to Rule 144 of the Securities Act, without
any restriction as to volume, (iv) the Common Stock is trading on the Trading
Market and all of the shares issuable pursuant to the Transaction Documents
are
listed for trading on a Trading Market (and the Maker believes, in good faith,
that trading of the Common Stock on a Trading Market will continue uninterrupted
for the foreseeable future), (v) there is a sufficient number of authorized
but
unissued and otherwise unreserved shares of Common Stock for the issuance of
all
of the shares issuable pursuant to the Transaction Documents, (vi) there is
then
existing no Event of Default or event which, with the passage of time or the
giving of notice, would constitute an Event of Default, and (vii) no public
announcement of a pending or proposed Major Transaction or Triggering Event
has
occurred.
-23-
“Indebtedness”
means
(a) all obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations in respect of letters of credit, bankers acceptances, current swap
agreements, interest rate hedging agreements, interest rate swaps, or other
financial products, (c) all capital lease obligations that exceed $10,000 in
the
aggregate in any fiscal year, (d) all obligations or liabilities secured by
a
lien or encumbrance on any asset of the Maker, irrespective of whether such
obligation or liability is assumed, (e) all obligations for the deferred
purchase price of assets, together with trade debt and other accounts payable
that exceed $10,000 in the aggregate in any fiscal year, (f) all synthetic
leases, and (g) any obligation guaranteeing or intended to guarantee (whether
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse) any of the foregoing obligations of any other person; provided,
however, Indebtedness shall not include (a) usual and customary trade debt
incurred in the ordinary course of business and (b) endorsements for collection
or deposit in the ordinary course of business.
“Permitted
Encumbrance”
means
the individual and collective reference to the following: (a) Liens for taxes,
assessments and other governmental charges or levies not yet due or Liens for
taxes, assessments and other governmental charges or levies being contested
in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Maker) have been established in
accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of the Maker’s business, such as carriers’, warehousemen’s and
mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Maker’s business, and which (x) do not individually
or in the aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business of the
Maker and its consolidated subsidiaries or (y) are being contested in good
faith
by appropriate proceedings, which proceedings have the effect of preventing
for
the foreseeable future the forfeiture or sale of the property or asset subject
to such Lien, (c) Liens securing Permitted Subordinated Indebtedness, (d) Liens
securing Permitted PMSI Debt, provided that Indebtedness is secured solely
by
Liens on the assets acquired with the proceeds of such Permitted PMSI Debt;
and
(e) Liens in favor of China Gold, LLC and its affiliates granted by (i) China
Global Mining Resources Ltd., a Hong Kong corporation, China Global Mining
Resources Ltd., a British Virgin Islands corporation, or Wits-China Acquisition
Corp. and any wholly owned subsidiary of such entities (each, a “China
Subsidiary”), including as set forth in those certain Subsidiary Security
Agreements dated as of February 7, 2008 by and between China Gold, LLC (“China
Gold”) and any China Subsidiary, or (ii) the Company with respect to (A) its
equity interests in the entities identified in (i) above and (B) the other
assets identified in and defined as “Collateral” under the Security Agreement,
dated as of June 19, 2007, between the Company and China Gold, LLC (“China
Gold”) (without giving effect to any amendment to such Security Agreement) and
the Amended and Restated Pledge Agreement dated as of February 7, 2008 by and
between the Company and China Gold (without giving effect to any amendment
to
such Security Agreement).
-24-
“Permitted
Subordinated Indebtedness”
means
Indebtedness incurred after the date hereof that (i) shall be expressly
subordinate in right of payment to this Note in form and substance satisfactory
to the Holder in its reasonable discretion, (ii) shall not be secured by any
asset, agreement or other collateral, other than liens expressly subordinate
to
the liens securing this Note, and (iii) in the event of any bankruptcy,
liquidation or other similar proceeding, shall provide for the payment in full
of this Note prior to the payment of any amounts in respect thereof.
“Person”
means
an individual or a corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.
“Trading
Day”
means
(a) a day on which the Common Stock is traded on the OTC Bulletin Board or
a
registered national securities exchange, or (b) if the Common Stock is not
traded on the OTC Bulletin Board or a registered national securities exchange,
a
day on which the Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices);
provided,
however,
that in
the event that the Common Stock is not listed or quoted as set forth in (a)
or
(b) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any
day which shall be a legal holiday or a day on which banking institutions in
the
State of New York are authorized or required by law or other government action
to close.
“Trading
Market”
means
the Over the Counter Bulletin Board, the New York Stock Exchange, the Nasdaq
Capital Markets, the Nasdaq Global Markets, the Nasdaq Global Select Market
or
the American Stock Exchange.
“VWAP”
means,
for any date, (i) the daily volume weighted average price of the Common Stock
for such date on the OTC Bulletin Board or national securities exchange as
reported by Bloomberg Financial L.P. (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 or a national securities
exchange 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.
-25-
IN
WITNESS WHEREOF, the Maker has caused this Note to be duly executed by its
duly
authorized officer as of the date first above indicated.
|
By:
|
/s/
Xxxx X. Xxxxx
|
|
|
Name: Xxxx
X. Xxxxx
|
|
|
Title:
Chief Financial Officer
|
Signature
Page
to
10% Senior Secured Convertible Promissory Note
due
February 11, 2009
-26-
FORM
OF
NOTICE
OF
CONVERSION
(To
be
Executed by the Registered Holder in order to Convert the Note)
The
undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount [and accrued interest thereon] of the above Note No. ___ into
shares of Common Stock of Wits Basin Precious Minerals Inc. (the “Maker”)
according to the conditions hereof, as of the date written below.
Date
of
Conversion
_________________________________________________________
Applicable
Conversion Price __________________________________________________
Number
of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the Date of Conversion: _________________________
Signature___________________________________________________________________
[Name]
Address:__________________________________________________________________
_______________________________________________________________________
-27-
