THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO LMIC, INC., THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, LMIC, INC., a Delaware corporation (hereinafter
called the "Borrower"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o
Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: 000-000-0000 (the "Holder") or
its registered assigns or successors in interest, on order, without demand, the
sum of Six Hundred Thousand Dollars ($600,000), with any accrued and unpaid
interest on July, 17, 2005 (the "Maturity Date").
The following terms shall apply to this Note:
ARTICLE I
INTEREST
1.1 Interest Rate. There shall be no interest payable hereunder until
the first anniversary of the date of the issuance of the Note. Thereafter, until
the Maturity Date, interest payable on this Note shall accrue at the annual rate
of eight percent (8%) and be payable in arrears commencing one month from the
date thereof and on the first business day of each consecutive calendar month
thereafter, and on the Maturity Date, accelerated or otherwise, due and payable
as described below.
1.2 Default Rate. A default interest rate of sixteen percent (16%) per
annum shall apply to the amounts due and unpaid.
ARTICLE II
AMORTIZATION
2.1 Monthly Payments. Subject to the terms of this Article II, the
Borrower shall repay one-twelfth (1/12th) of the original principal amount of
this Note (to the extent such amount has not been converted pursuant to Article
1
III below), together with interest and fees accrued to date on such portion of
the original principal amount (collectively the "Monthly Amount"), in accordance
with Section 2.2 below, on the first business day of each consecutive calendar
month (each, a "Repayment Date"), beginning on the first such day which occurs
following thirteen months from the date hereof. This Note may be prepaid, in
whole or in part, by the Borrower at any time by paying the Holder an amount
equal to the amount of the proposed prepayment multiplied by 103% together with
interest accrued and fees to date on such portion of the prepayment amount.
2.2 Cash or Common Stock. Subject to the terms hereof, the
Borrower has the sole option to determine whether to satisfy payment of the
Monthly Amount in full on each Repayment Date either in cash or in shares of
Common Stock, or a combination of both. The Borrower shall deliver to the Holder
a written irrevocable notice in the form of Exhibit B attached hereto electing
to pay such Monthly Amount in full on such Repayment Date in either cash or
Common Stock, or a combination of both ("Repayment Election Notice"). Such
Repayment Election Notice shall be delivered to the Holder at least thirty (30)
days prior to the applicable Repayment Date (the date of such notice being
hereinafter referred to as the "Notice Date"). If such Repayment Election Notice
is not delivered within the prescribed period set forth in the preceding
sentence, then the repayment shall be made in either cash or shares of Common
Stock on the same terms hereunder at the Holder's sole option. If the Borrower
elects or is required to repay all or a portion of the Monthly Amount in cash on
a Repayment Date, then on such Repayment Date the Borrower shall pay to the
Holder an amount equal to 103% of the Monthly Amount in satisfaction of such
obligation. If the Borrower repays all or a portion of the Monthly Amount in
shares of Common Stock, the number of such shares to be issued for such
Repayment Date shall be the number determined by dividing (x) the portion of the
Monthly Amount to be paid in shares of Common Stock, by (y) the Conversion Price
(as defined herein) as of such date.
2.3 No Effective Registration. Notwithstanding anything to the
contrary herein, the Borrower shall be prohibited from exercising its right to
repay the Monthly Amount in shares of Common Stock (and must deliver cash in
respect thereof) on the applicable Repayment Date if at any time from the Notice
Date until the time at which the Holder receive such shares there fails to exist
an effective registration statement or an Event of Default hereunder exists or
occurs, unless otherwise waived in writing by the Holder in whole or in part at
the Holder's option.
2.4 Share Price/Issuance Limitations. Notwithstanding anything
to the contrary herein, if the closing price of the Common Stock as reported by
Bloomberg, L.P. on the Principal Market for the average of the 11 trading days
preceding a Repayment Date was less than 125% of the Fixed Conversion Price, and
the Borrower has elected to pay all or a portion of the Monthly Amount in shares
of Common Stock, then, in lieu of the Borrower delivering the required number of
shares of Common Stock on the Repayment Date, the Borrower will have the option
to repay the amount in cash or to convert up to the Monthly Amount during the
succeeding month that is payable in shares of Common Stock at a Conversion Price
of 80% of the average of the three (3) lowest closing prices during the ten (10)
trading immediately preceding the Repayment Date. Any part of the Monthly Amount
not converted by the Borrower into shares of Common Stock by the following
Repayment Date shall be paid by the Borrower in cash on such following Repayment
Date. At any time during the relevant month, the Borrower has the option to pay
the Monthly Amount, or the unconverted part thereof, in cash and the Conversion
Price set forth in this Section 2.4 shall no longer be applicable. If the
closing price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for the average 11 trading days preceding a Repayment Date was
greater than 125% of the Fixed Conversion Price, then the Borrower will be
permitted to pay the full amount of the Monthly Amount in shares of Common
Stock.
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By way of example, for the Repayment Date of October 1, if the
Borrower delivers a Repayment Election Notice on August 27 to pay the Monthly
Amount in shares of Common Stock and if on September 20 through 30, the stock
price was less than 125% the Fixed Conversion Price, the Holder will be
permitted to convert during the month of October the portion of the Monthly
Amount that the Borrower has determined is payable in shares of Common Stock at
the following Conversion Price: 80% of the three (3) lowest closing prices
during the ten (10) trading days immediately preceding October 1, or repay in
cash at the Borrower's choice. Any portion of the Monthly Amount originally due
October 1 that the Holder has not converted into shares of Common Stock by
November 1 shall be due in cash on November 1.
2.5 Deemed Conversions. Any repayment of the Monthly Amount in
shares of Common Stock pursuant to the terms hereof shall constitute and be
deemed a conversion of such portion of the applicable principal amount of this
Note for all purposes under this Note.
2.6 Deemed Ownership. In the case of the exercise of the
conversion rights or payment of the Monthly Amount set forth herein the
conversion privilege shall be deemed to have been exercised and the shares of
Common Stock issuable upon such conversion or Repayment shall be deemed to have
been issued upon the date of receipt by the Borrower of the Notice of Conversion
or Repayment Election Notice, as the case may be. The person or entity entitled
to receive Common Stock issuable upon such conversion shall, on the date such
conversion privilege is deemed to have been exercised and thereafter, be treated
for all purposes as the record holder of such Common Stock.
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ARTICLE III
CONVERSION RIGHTS
3.1. Conversion into the Borrower's Common Stock.
(a) Subject to the provisions set forth above, the Holder shall have
the right, but not the obligation, from and after the one year anniversary of
the issuance date hereof, and then at any time until this Note is fully paid, to
convert the principal portion of this Note and/or interest and fees due and
payable into fully paid and nonassessable shares of common stock of the Borrower
as such stock exists on the date of issuance of this Note, or any shares of
capital stock of the Borrower into which such stock shall hereafter be changed
or reclassified (the "Common Stock") at the conversion price set forth below
(the "Conversion Price").
Upon delivery to the Borrower of a Notice of Conversion (the date of
giving such notice of conversion being a "Conversion Date"), the Borrower shall
issue and deliver to the Holder within three business days from the Conversion
Date that number of shares of Common Stock for the portion of the Note converted
in accordance with the foregoing. The number of shares of Common Stock to be
issued upon each conversion of this Note shall be determined by dividing that
portion of the principal of the Note to be converted and interest, if any, by
the Fixed Conversion Price as of the Conversion Date. In the event of any
conversions of outstanding principal amount under this Note in part pursuant to
this Article III, such conversions shall be deemed to constitute conversions of
outstanding principal amount applying to Monthly Amounts for the Repayment Dates
in chronological order. By way of example, if the original principal amount of
this Note is $600,000 and the Holder converted $100,000 of such original
principal amount prior to the first Repayment Date, then (1) the principal
amount of the Monthly Amount due on the first Repayment Date would equal $0, (2)
the principal amount of the Monthly Amount due on the second Repayment Date
would equal $0 and (3) the principal amount of the Monthly Amount due on each of
the remaining Repayment Dates would be $50,000.
(b) Subject to adjustment as provided in Section 3.1(c) hereof, the
Conversion Price per share shall be 100% of the average closing price of the
Common Stock for the twenty (20) days prior to the first Repayment Date (the
"Fixed Conversion Price"). If an Event of Default has occurred and be continuing
hereunder then the Conversion Price shall be equal to the lower of (i) the Fixed
Conversion Price; or (ii) eighty percent (80%) of the average of the 11 days
closing prices for the Common Stock on NASD OTC Bulletin Board, NASDAQ SmallCap
Market, NASDAQ National Market System, American Stock Exchange, or New York
Stock Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock, the "Principal Market"), or on any
securities exchange or other securities market on which the Common Stock is then
being listed or traded, for the twenty (20) trading days prior to but not
including the Conversion Date.
(c) The Conversion Price and number and kind of shares or other
securities to be issued upon conversion determined pursuant to Section 3.1(a)
and 3.1(b), shall be subject to adjustment from time to time upon the happening
of certain events while this conversion right remains outstanding, as follows:
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X. Xxxxxx, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence the
right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the number of
shares of Common Stock the Holder could have acquired immediately prior to such
consolidation, merger, sale or conveyance based on the Fixed Conversion Price or
the Conversion Price, as the case may be, as of the closing date thereof. The
foregoing provision shall similarly apply to successive transactions of a
similar nature by any such successor or purchaser. Without limiting the
generality of the foregoing, the provisions of this Section shall apply to such
securities of such successor or purchaser after any such consolidation, merger,
sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the number of shares of Common Stock into which the
Note would have been convertible immediately prior to such reclassification or
other change at the Fixed Conversion Price or the Conversion Price, as the case
may be, as of the effective date for such reclassification or change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Fixed Conversion Price or the Conversion Price, as the case
may be, shall be proportionately reduced in case of subdivision of shares or
stock dividend or proportionately increased in the case of combination of
shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.
D. Share Issuance. Subject to the provisions of this Section, if
the Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 3.1(c)A, 3.1(c)B or 3.1(c)C or this subparagraph D; or (ii)
pursuant to warrants or options that may be granted in the future under any
option plan of the Borrower, or any employment agreement, joint venture, credit,
leasing or other financing agreement or any joint venture or other strategic
arrangement, in each case now or hereinafter entered into by the Borrower, (iii)
pursuant to any agreement entered into by the Company or any of its subsidiaries
for the acquisition of all or a part of another business (whether by stock
purchase or asset purchase, merger or otherwise; ((i), (ii) and (iii) above, are
hereinafter referred to as the "Excluded Issuances")) for a consideration less
than the Fixed Conversion Price that would be in effect at the time of such
issue, then, and thereafter successively upon each such issue, the Fixed
Conversion Price shall be reduced as follows: (i) the number of shares of Common
Stock outstanding immediately prior to such issue shall be multiplied by the
Fixed Conversion Price in effect at the time of such issue and the product shall
be added to the aggregate consideration, if any, received by the Borrower upon
such issue of additional shares of Common Stock; and (ii) the sum so obtained
shall be divided by the number of shares of Common Stock outstanding immediately
after such issue. The resulting quotient shall be the adjusted Fixed Conversion
Price. Except for the Excluded Issuances for purposes of this adjustment, the
issuance of any security of the Borrower carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Fixed Conversion
Price upon the issuance of shares of Common Stock upon exercise of such
conversion or purchase rights.
5
(d) During the period the conversion right exists, the Borrower
will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of Common Stock upon the full conversion
of this Note. The Borrower represents that upon issuance, such shares will be
duly and validly issued, fully paid and non-assessable. The Borrower agrees that
its issuance of this Note shall constitute full authority to its officers,
agents, and transfer agents who are charged with the duty of executing and
issuing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the conversion of this Note.
3.2 Method of Conversion. This Note may be converted by the Holder
in whole or in part. Upon partial conversion of this Note, a new Note containing
the same date and provisions of this Note shall, at the request of the Holder,
be issued by the Borrower to the Holder for the principal balance of this Note
and interest which shall not have been converted or paid.
ARTICLE IV
EVENT OF DEFAULT
The occurrence of any of the following events is an Event of
Default ("Event of Default"):
4.1 Failure to Pay Principal, Interest or other Fees. The
Borrower fails to pay any installment of principal, interest or other fees
hereon when due and such failure continues for a period in excess of five (5)
business days opportunity to cure.
4.2 Breach of Covenant. The Borrower breaches any material
covenant or other term or condition of this Note in any material respect and
such breach, if subject to cure, continues for a period of five (5) business
days after written notice to the Borrower from the Holder.
4.3 Breach of Representations and Warranties. Any material
representation or warranty of the Borrower made herein, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith shall be materially false or misleading.
4.4 Receiver or Trustee. The Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
6
4.5 Judgments. Any money judgment, writ or similar final
process shall be entered or filed against the Borrower or any of its property or
other assets for more than $250,000, and shall remain unvacated, unbonded or
unstayed for a period of ninety (90) days.
4.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower, and in the case of any such action against the Borrower, such
proceeding shall remain undismissed, unvacated, or unstayed for a period of 90
days.
4.7 Stop Trade. An SEC stop trade order or Principal Market
trading suspension of the Common Stock for 5 consecutive days or 5 days during a
period of 10 consecutive days, excluding in all cases a suspension of all
trading on a Principal Market.
ARTICLE V
DEFAULT PAYMENT
5.1 Default Payment. If an Event of Default occurs, the Holder, at
its option, may elect to require the Borrower to make a Default Payment
("Default Payment"). The Default Payment shall be 130% of the outstanding
principal amount of the Note, plus accrued but unpaid interest, all other fees
then remaining unpaid, and all other amounts payable hereunder.
5.2 Default Payment Date and Default Notice Period. The Default
Payment shall be due and payable on the 20th business day after the date written
notice is sent from the Holder to the Borrower of an Event of Default as defined
in Article IV ("Default Payment Date"). The period between the date of the
written notice from the Holder to the Borrower of an Event of Default and the
Default Payment Date shall be the "Default Notice Period." If during the Default
Notice Period, the Borrower cures the Event of Default, the Event of Default
will no longer exist and any rights the Holder had pertaining to the Event of
Default will no longer exist. If the Event of Default is not cured during the
Default Notice Period, all amounts payable hereunder shall be due and payable on
the Default Payment Date, all without further demand, presentment or notice, or
grace period, all of which hereby are expressly waived.
5.3 Cumulative Remedies. The remedies under this Note shall be
cumulative.
ARTICLE VI
MISCELLANEOUS
6.1 Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder hereof 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. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
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6.2 Notices. Any notice herein required or permitted to be given
shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party notified, (b) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Borrower at the address as set forth on the signature page here, and to the
Holder at the address set forth on the signature page for such Holder, with a
copy to Xxxx Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx
00000, facsimile number (000) 000-0000, or at such other address as the Borrower
or the Holder may designate by ten days advance written notice to the other
parties hereto. A Notice of Conversion shall be deemed given when made to the
Borrower.
6.3 Amendment Provision. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.
6.4 Assignability. This Note shall be binding upon the Borrower
and its successors and assigns, and shall inure to the benefit of the Holder and
its successors and assigns, and may be assigned by the Holder.
6.5 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York. Both parties and the individual signing this Note on behalf of the
Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or unenforceability of any other provision of this
Note.
6.6 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
6.7 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
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IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in
its name effective as of this 17th day of July __, 2003.
LMIC, INC.
By:________________________________
WITNESS:
-------------------------------
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NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by LMIC, INC. on ________
___, 2003 into Shares of Common Stock of LMIC, INC. (the "Company") according to
the conditions set forth in such Note, as of the date written below.
Date of Conversion:____________________________________________________________
Conversion Price:______________________________________________________________
Shares To Be Delivered:_________________________________________________________
Signature:_____________________________________________________________________
Print Name:____________________________________________________________________
Address:_______________________________________________________________________
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EXHIBIT B
FORM OF REPAYMENT ELECTION NOTICE
To: [HOLDER AT HOLDER'S ADDRESS]
Pursuant to Section 2.2 of the Note of LMIC, Inc. issued on ________
__, 2003, we hereby notify you that we are irrevocably electing to repay the
outstanding Monthly Amount (as defined in the Note) due on the Repayment Date
(as defined in the Note) which occurs on ______, 20__ (CHECK ONE):
_____ In full in cash on such Repayment Date.
_____ In full in shares of the Company's Common Stock within three (3)
trading days following such Repayment Date.
_____ In part in cash in the amount of $______ on such Repayment Date,
and in part in shares of the Company's Common Stock (in the amount of ______
shares) within three (3) trading days following such Repayment Date.
________ In shares, but the Holder will be permitted to convert up to
the Monthly Amount that is payable in shares of Common Stock during the period
until the next Repayment Date.
LMIC, Inc.
By:
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Name:
Title:
