NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
XXXXXXX.XXX INC.
THIS INSTRUMENT IS SUBJECT TO THE SUBORDINATION AGREEMENT DATED AS OF
DECEMBER 22, 2006, AMONG VICIS CAPITAL MASTER FUND LLC, XXXXXXX INVESTMENTS LLC,
XXXXXX X. XXXXXX, XXXXXXX XXXXXXXX, XXXXXX XXXXXXX, XXXXX XXXXXXXX, XXX
XXXXXXXXXX, XXXX XXXXXX, CSFN I LLC AND XXXX XXXXXXXX (THE "SENIOR SUBORDINATED
LENDERS"), WHICH, AMONG OTHER THINGS, CONTAINS PROVISIONS SUBORDINATING THE
OBLIGATIONS OF THE MAKER OF THIS INSTRUMENT TO THE PAYEE HEREOF TO SUCH MAKER'S
OBLIGATIONS TO THE SENIOR LENDER, TO WHICH PROVISIONS EACH HOLDER OF THIS
INSTRUMENT, BY ACCEPTANCE HEREOF, AGREES.
SENIOR SUBORDINATED PROMISSORY NOTE
$3,000,000 December 22, 2006
FOR VALUE RECEIVED, the undersigned, XXXXXXX.XXX INC., a Delaware
corporation (the "DEBTOR"), hereby promises to pay to the order of Vicis Capital
Master Fund LLC, Xxxxxxx Investments LLC, Xxxxxx X. Xxxxxx, Xxxxxxx Xxxxxxxx,
Xxxxxx XxXxxxx, Xxxxx Xxxxxxxx, Xxx Xxxxxxxxxx, Xxxx Xxxxxx, CSFN I LLC and Xxxx
Xxxxxxxx (collectively, "HOLDERS"), the sum of THREE MILLION DOLLARS
($3,000,000) as set forth on EXHIBIT A hereto (such principal amount, together
with all accrued but unpaid interest and any other amounts due hereunder, the
"DEBT"), all as provided in this senior subordinated promissory note (the
"NOTE"). Capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed thereto in the Loan Agreement (as defined below).
1. INTEREST; PRINCIPAL AMOUNT AND PAYMENT; FEES. The Debt shall bear
interest on the unpaid principal balance thereof outstanding from time to time
and until such principal balance is repaid in full, at an annual rate equal to
twelve percent (12%) per annum of which 6% shall be paid in cash monthly,
commencing 30 days from the closing and the balance of 6% paid in kind and shall
be compounded annually and paid on the Maturity Date; PROVIDED, HOWEVER, that in
the
event that an Event of Default shall have occurred and be continuing (or would
have occurred and been continuing but for the proviso to the definition of the
term "Event of Default" set forth in Section 5 hereof), the cash interest rate
to be paid shall be increased to 8% per annum. For the purposes hereof, the term
"Maturity Date" shall mean the earliest of (i) December 31, 2009, and (ii) the
first date on which any mandatory prepayment is payable under Section 1.4 of the
Loan Agreement (as hereinafter defined).
Under no circumstances shall the Debtor be charged more than the
highest rate of interest that lawfully may be charged by the Holders and paid by
the Debtor on the Debt. It is, therefore, agreed that if at any time interest on
the Debt would otherwise exceed the highest lawful rate, only such highest
lawful rate will be paid by the Debtor. Should any amount be paid by the Debtor
in excess of such highest lawful amount, such excess shall be deemed to have
been paid in reduction of the principal sum due hereunder.
In the event that the holders of Senior Liabilities shall receive any
fee or charge (not constituting a part of the principal amount of the Senior
Liabilities or interest accrued thereon) in connection with any waiver by such
holders of any Event of Default (as defined in the Purchase Agreement referred
to in the Subordination Agreement referred to below), then the Holders shall be
entitled to receive (pro rata in accordance with their respective percentages
set forth in Exhibit A hereto) an amount equal in the aggregate to the product
of the amount of such fee or charge multiplied by a fraction, the numerator of
which is equal to the outstanding principal amount of this Note and the
denominator of which is equal to the then outstanding principal amount of the
Senior Liabilities, provided, that, in the event that such payment shall be made
in cash (rather than in the form of equity securities or instruments convertible
into or exchangeable for equity securities) such amount shall not be paid until
the Maturity Date.
2. CONVERSION. In the event that the Debtor agrees to consummate a
Threshold financing (as defined in the Loan Agreement) at any time prior to the
Maturity Date, each Holder may elect (but shall have no obligation unless it
does so elect), to convert the entire principal amount due to such Holder under
this Note (along with accrued interest thereon and all other amounts then due
hereunder), into shares of the equity securities issued in such transaction at
the lowest price per share paid in such financing and otherwise upon the same
terms and conditions of the Threshold financing.
3. PREPAYMENTS. The Debt may be prepaid at any time, in whole or in
part, without penalty or premium, on three (3) days prior written notice,
subject in all cases to the Subordination Agreement (as hereinafter defined).
The Debt (or a portion thereof, as the case may be), is subject to mandatory
prepayment under Section 1.4(b) of the Loan Agreement. All payments on this Note
shall be allocated among the Holders in their respective portions of this Note
as set forth in EXHIBIT A hereto or as otherwise agreed by the Holders.
4. LOAN AGREEMENT. This Note is issued pursuant to and is governed by
the terms of that certain Loan Agreement of even date herewith between the
Holders and the Debtor (as amended from time to time, the "LOAN AGREEMENT").
2
5. DEFAULTS. Each of the following events shall constitute a default
under this Note (each, an "EVENT OF DEFAULT"), PROVIDED that the rights of the
Lenders upon the occurrence of an Event of Default shall be limited as set forth
in Section 7 of the Subordination Agreement.
(a) any default (whether in whole or in part) shall occur in
the payment of any amount payable under this Note;
(b) the occurrence of any Event of Default under the Loan
Agreement;
(c) the Debtor or any Guarantor shall become unable, fail
generally or admit in writing its inability to pay its debts as they become due;
(d) the Debtor or any Guarantor shall (i) voluntarily commence
any proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency, receivership
or similar law now or hereafter in effect, (ii) consent to the institution of,
or fail to contest in a timely and appropriate manner, any proceeding or
petition described in clause (e) of this Section 5, (iii) apply for or consent
to the appointment of a receiver, trustee, custodian, sequestrator, conservator
or similar official for the Debtor or any Guarantor or for all or a substantial
part of its assets, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general assignment
for the benefit of creditors or (vi) take any action for the purpose of
effecting any of the foregoing;
(e) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation, reorganization or
other relief in respect of the Debtor or any Guarantor or its debts, or of all
or a substantial part of its assets, under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect
or (ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Debtor or any Guarantor or for all or a
substantial part of its assets, and, in any such case, such proceeding or
petition shall continue undismissed for 60 days or an order or decree approving
or ordering any of the foregoing shall be entered;
(f) the Debtor or any Guarantor dissolves, liquidates,
winds-up, or sells or otherwise disposes of all or substantially all of its
business or assets;
(g) any event or condition shall occur that results in any
Indebtedness of the Debtor or any Guarantor exceeding in the aggregate $500,000
becoming due prior to its scheduled maturity or that enables or permits (with or
without the giving of notice, the lapse of time or both) the holder or holders
of any such Indebtedness or any trustee or agent on its or their behalf to cause
any such Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity;
(h) one or more judgments for the payment of money in an
aggregate amount in excess of $500,000 shall be rendered against the Debtor or
any Guarantor, or any combination thereof and the same shall remain undischarged
for a period of 30 consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment creditor
to attach or levy upon any assets of the Debtor or any Guarantor to enforce any
such judgment; or
3
(i) any Guaranty of a Guarantor ceases to be in full force and
effect or any Guarantee of a Guarantor is declared to be null and void and
unenforceable or any Guarantee of a Guarantor is found to be invalid or any
Guarantor denies its liability under its Guarantee.
6. REMEDIES UPON AN EVENT OF DEFAULT.
(a) If any Event of Default described in clause (d), (e) or
(f) of Section 5 shall have occurred (taking into account all grace periods),
the principal on and under this Note then outstanding, together with accrued
interest thereon and all fees and other obligations of the Debtor accrued
hereunder and under the other Financing Documents, shall automatically become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Debtor.
(b) If any other Event of Default described in Section 5 shall
have occurred (which, for clarity, is after taking into account all grace
periods set forth in Section 5), and at any time thereafter during the
continuance of such Event of Default, the Majority Lenders may, by notice to the
Debtor, declare the principal on and under this Note to be due and payable in
whole, and thereupon the principal on and under this Note, together with accrued
interest thereon and all fees and other obligations of the Debtor accrued
hereunder and under the other Financing Documents, shall become due and payable
immediately, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Debtor and the Guarantors.
(c) No course of dealing and no delay on the part of any
Holder in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such Holder's rights, powers or remedies. No
right, power or remedy conferred by this Note or by any other Financing Document
upon any Holder shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise
(d) The Debtor will deliver written notice of the occurrence
of any Event of Default under this Note or any other Financing Document within
three (3) business days following the occurrence of such Event of Default.
7. SUBORDINATION OF PRINCIPAL AND INTEREST.
(a) Notwithstanding anything to the contrary contained in this
Note, the Debtor and the Holders agree that the indebtedness evidenced by this
Note and all payments of principal, interest and all other amounts due under
this Note are expressly subordinated and junior in right of payment in full of
all indebtedness in favor of Laurus Master Fund, Ltd. upon the terms and
conditions set forth in the Subordination Agreement dated the date hereof by and
among Laurus Master Fund, Ltd., the Holders, the Debtor and others (the
"Subordination Agreement"), and all rights and remedies of the Holders hereunder
or under the other Financing Documents or at law or in equity shall be subject
in all respects to the provisions of the Subordination Agreement until all
Senior Liabilities (as therein defined) shall have been indefeasibly paid in
full in cash.
8. OBLIGATIONS ABSOLUTE. The Debtor acknowledges that this Note and the
Debtor's obligations under this Note are and shall at all times continue to be
absolute and unconditional in
4
all respects, and shall at all times be valid and enforceable irrespective of
any other agreement or circumstances of any nature whatsoever that might
otherwise constitute a defense to this Note or the obligation of the Debtor
under this Note. This Note sets forth the entire agreement and understanding of
the Holders and the Debtor, and the Debtor absolutely, unconditionally and
irrevocably waives any and all right to assert any defense, setoff, counterclaim
or crossclaim of any nature whatsoever with respect to this Note or the
obligations of the Debtor under this Note in any action or proceeding brought by
the Holders to collect the indebtedness evidenced hereby, or any portion
thereof.
9. NOTICES. All notices or other communications to be given hereunder
shall be in writing and sent in accordance with the Loan Agreement.
10. COSTS AND EXPENSES. The Debtor shall be responsible to pay or
reimburse any and all reasonable costs and expenses incurred by the Holders in
connection with the enforcement and collection of this Note. Such payment shall
be due and payable on the Maturity Date or on any date that the Debtor satisfies
its payment obligations hereunder.
11. AMENDMENT. No provision of this Note may be changed, modified,
waived or released, unless it is in writing and signed by the Debtor and the
Holders.
12. WAIVERS. Presentment for payment, notice of dishonor, protest and
notice of protest are hereby each waived by the Debtor. Any other waiver or
consent respecting this Note shall be effective only if in writing and signed by
the Holders and then only in the specific instance and for the specific purpose
for which given. No such other waiver or consent shall be deemed, regardless of
frequency given, to be a further or continuing waiver or consent. The failure or
delay of the Holders at any time or times to require performance of, or to
exercise its rights with respect to, any term or provision of this Note in no
manner shall affect its right at a later time to enforce any such term or
provision. No notice to or demand on the Debtor in any case shall entitle such
party to any other or further notice or demand. All rights, powers, privileges,
remedies and other interests of the Holders under this Note and applicable law
are cumulative and not alternatives.
13. VENUE. DEBTOR IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR
PROCEEDING AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS
NOTE OR THE OTHER FINANCING DOCUMENTS, MAY BE BROUGHT IN ANY COURT OF THE STATE
OF NEW YORK LOCATED IN NEW YORK, NEW YORK OR IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK. DEBTOR, BY THE EXECUTION AND DELIVERY OF
THIS NOTE, EXPRESSLY AND IRREVOCABLY ASSENTS AND SUBMITS TO THE PERSONAL
JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING, AND FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER
PROCESS RELATING TO SUCH ACTION OR PROCEEDING BY DELIVERY THEREOF TO IT BY HAND
OR BY MAIL IN THE MANNER PROVIDED FOR IN THIS NOTE. DEBTOR HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED
ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS OR ANY SIMILAR
5
BASIS. DEBTOR SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT
ANY DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF
NEW YORK UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE
OF NEW YORK. NOTHING IN THIS NOTE SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY
EXTENT THE RIGHT OF HOLDERS TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST DEBTOR IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED
BY LAW.
14. GOVERNING LAW. This Note has been executed, delivered and accepted
in the State of New York and shall be construed in accordance with and governed
by the internal laws of the State of New York.
IN WITNESS WHEREOF, the Debtor has executed and delivered this Senior
Subordinated Promissory Note as of the date first written above.
XXXXXXX.XXX INC.
By:
------------------------------------
Name:
Title:
6
EXHIBIT A
---------------------------------- --------------------- -----------------------
Vicis Capital Master Fund LLC $500,000 5,000,000
---------------------------------- --------------------- -----------------------
Xxxxxxx Investments LLC $650,000 2,904,762
---------------------------------- --------------------- -----------------------
Xxxxxx X. Xxxxxx $200,000 893,773
---------------------------------- --------------------- -----------------------
Xxxxxxx Xxxxxxxx $850,000 3,798,534
---------------------------------- --------------------- -----------------------
Xxxxxx XxXxxxx $100,000 446,886
---------------------------------- --------------------- -----------------------
Xxxxx Xxxxxxxx $75,000 335,165
---------------------------------- --------------------- -----------------------
Xxx Xxxxxxxxxx $75,000 335,165
---------------------------------- --------------------- -----------------------
Xxxx Xxxxxx $150,000 670,330
---------------------------------- --------------------- -----------------------
CSFN I LLC $300,000 -0-
---------------------------------- --------------------- -----------------------
Xxxx Xxxxxxxx $100,000 1,000,000
---------------------------------- --------------------- -----------------------
