EX-10.37
ANNEX I
BRIDGE LOAN AGREEMENT
FORM OF NOTE
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF
1933, AS AMENDED, OR
THE SECURITIES LAWS OF
ANY STATE AND MAY
NOT
BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE
OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF
COUNSEL
OR
OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
IS
NOT REQUIRED.
US $275,000
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10% SECURED PROMISSORY NOTE DUE MARCH 28, 2007
FOR
VALUE RECEIVED,
Sonoma College,
Inc., a corporation
organized and
existing under the laws of the State of California (the "Company"),
promises to
pay to CAMOFI MASTER
LDC, the registered
holder hereof (the "Holder"), the
principal sum of Two
Hundred Seventy-Five Thousand and 00/100 Dollars (US
$275,000) on the
Maturity Date (as defined below) and to pay interest on
the
principal sum
outstanding
from time to time in
arrears at the rate of 10% per
annum (computed on the
basis of the actual number of days elapsed and a year of
360 days), accruing
from September 28,
2006, the date of
initial issuance
of
this Note (the "Issue
Date"), to the date of
payment. Such interest
shall be
payable on the date which is the earlier of (i) the Maturity
Date, or (ii) the
date of any prepayment of principal permitted hereunder; except that interest
for month in advance shall be paid on the Issue Date. Accrual of interest shall
commence on the Issue
Date and shall
continue to accrue on a daily basis until
payment in full of the principal sum has been made or duly provided
for (whether
before or after the Maturity Date).
This
Note is being
issued pursuant to the terms of the Bridge Loan
Agreement, dated as of
September 28, 2006 (the "Loan Agreement"), to which the
Company and the Holder (or the Holder's predecessor in interest) are parties.
Capitalized terms not
otherwise defined herein shall have the meanings ascribed
to them in the Loan Agreement.
This
Note is subject to the following additional provisions:
1.
The
term "Maturity
Date" means the
earlier of (x) March 28, 2007
or (y) the date on which the Company consummates an equity financing or
funding
transaction in excess of
<PAGE>
$1,500,000, whether or
not such transaction
is effected in connection with the
current or future issuance of securities.
2.
(i)
This
Note may be
prepaid in whole or in part at any
time
prior to the Maturity
Date, without
penalty. Any payment shall be applied
as
provided in Section 3.
(ii) TIME IS OF
THE ESSENCE
WITH RESPECT TO ANY PAYMENT DUE
HEREUNDER. The Company
shall be in default hereunder if any payment is not made
in a timely manner,
without any right to cure unless such right to cure is
granted by the Holder in each instance; provided, however, that the grant of
such right is in the sole discretion of the Holder and may be withheld
for any
reason or for no reason whatsoever.
(iii) If, at the end
of any Trading Day, the value of the Pledged
Shares (using the
closing price of the
stock on such day) is less than 400% of
the aggregate
principal amount
outstanding on the Note, then the Company shall
within two Trading
Days either (i) pay to
the Lender an amount
sufficient to
reduce the outstanding principal amount on the Note or (ii) provide
the Lender a
first priority perfected security interest in additional
collateral (which
may
include additional
shares of common
stock of the Company
or other
collateral
acceptable to Lender in its sole discretion) such that the value of
the Pledged
Shares (plus the value of any additional collateral delivered to the
Lender) is
at least 400% of the aggregate principal amount outstanding on the
Note.
3.
Any
payment made on account of the Note shall be
applied in the
following order of priority: (i) first, to any amounts due
hereunder other than
principal and accrued
interest, (ii) then, to accrued interest through and
including the date of payment, and (iii) then, to principal of this
Note.
4.
All
payments contemplated hereby to be made "in cash"
shall be
made in immediately available good funds of United States of
America currency by
wire transfer to an
account designated in
writing by the Holder to the Company
(which account may be changed by notice similarly given). For purposes of this
Note, the phrase "date of payment" means the date good funds are
received in the
account designated by the notice which is then currently
effective.
5.
Subject to the terms of the Loan Agreement, no provision of this
Note shall alter or impair the obligation of the Company,
which is absolute
and
unconditional, to pay
the principal of, and interest on, this Note at the time,
place, and rate, and in the coin or currency, as herein prescribed.
This Note is
direct obligations
of the Company.
Any payments received by the Holder with
respect to this Note shall be applied in the following order of priority: (i)
first, to any amounts due to the Holder under any of the
Transaction
Agreements
other than interest and principal on the Note, (ii) then, to accrued but
unpaid
interest on the Note, and (iii) then, to principal on the Note.
6.
The
obligations
of the Company
under this Note are
secured by a
mortgage executed
by the Pledgors in favor of the Holder in
connection
with
certain real estate (the "Real Estate"). If the Holder forecloses on the Real
Estate, the obligations of the Company will be reduced only to the
extent of the
proceeds actually realized from such foreclosure, in the priority specified in
Section 5 hereof.
<PAGE>
7.
CONVERSION.
a)
VOLUNTARY CONVERSION.
At any time after the Original Issue
Date until this Note is no longer outstanding, this Note shall be convertible
into shares of Common Stock at the option of the Holder,
in whole or in part
at
any time and from time to time (subject to the limitations on conversion set
forth in Section 7(d) hereof). The Holder shall effect conversions
by delivering
to the Company the form of Notice of Conversion attached hereto (a "Notice of
Conversion"),
specifying therein the
principal amount of Notes to be converted
and the date on which such conversion is to be effected (a
"Conversion
Date").
If no Conversion Date
is specified in a Notice of Conversion, the Conversion
Date shall be the date that such Notice of Conversion is provided
hereunder. To
effect conversions
hereunder,
the Holder shall not
be required to
physically
surrender Notes to the Company unless the entire principal amount of this Note
plus all accrued and unpaid interest thereon has been so converted.
Conversions
hereunder shall have the effect of lowering the outstanding
principal amount
of
this Note in an amount equal to the applicable conversion. The Holder and the
Company shall maintain
records showing the principal amount converted and the
date of such conversions. The Company shall deliver any
objection to any Notice
of Conversion within 3
Business Days of receipt of such notice. In the event of
any dispute or
discrepancy, the
records of the Holder shall be controlling and
determinative in the absence of manifest error. The Holder and any
assignee, by
acceptance of this Note, acknowledge and agree that, by reason of
the provisions
of this paragraph,
following conversion of a portion of this
Note, the unpaid
and unconverted principal amount of this Note may be less than the
amount stated
on the face
hereof. However, at the Company's request, the Holder shall
surrender the Note to the Company within five (5) Trading Days
following such
request so that a new Note reflecting the correct principal amount
may be issued
to Holder.
b)
CONVERSION PRICE.
Subject to the provisions of Section
8(b), the initial
conversion price in
effect on any
Conversion Date shall
be
$0.90.
c)
RESERVED.
d)
CONVERSION LIMITATIONS; HOLDER'S RESTRICTION ON CONVERSION.
The Company shall not effect any conversion of this Note,
and the Holder
shall
not have the right to convert any portion of this Note, pursuant to
Section 7(a)
or otherwise,
to the extent that
after giving effect to such conversion, the
Holder (together with the Holder's affiliates), as set forth on the applicable
Notice of Conversion, would beneficially own in excess of 4.99% of
the number of
shares of the Common Stock outstanding immediately after giving effect to
such
conversion. For
purposes of the
foregoing sentence, the number of shares of
Common Stock
beneficially owned by
the Holder and its affiliates shall include
the number of shares of Common Stock issuable upon conversion of this Note with
respect to which the
determination of such
sentence is being
made, but shall
exclude the number of shares of Common Stock which would be issuable
upon (A)
conversion of the
remaining,
nonconverted
portion of this Note
beneficially
owned by the Holder or any of its affiliates and (B) exercise or conversion
of
the unexercised or nonconverted portion of any other securities of the Company
(including, without
limitation,
any other Notes or the
Warrants) subject to a
limitation on
<PAGE>
conversion or exercise analogous to the limitation contained herein
beneficially
owned by the
Holder or any of its affiliates. Except as set forth in the
preceding sentence,
for purposes of this
Section 7(d),
beneficial
ownership
shall be calculated in accordance with Section 13(d) of the
Exchange Act. To the
extent that the limitation contained in this section applies,
the determination
of whether this Note is convertible (in relation to other securities owned by
the Holder) and of which a portion of this Note is convertible shall be in the
sole discretion of such Holder. To ensure compliance with this
restriction, the
Holder will be deemed to represent to the Company each time it
delivers a Notice
of Conversion that
such Notice of Conversion has not violated the restrictions
set forth in this
paragraph and the
Company shall have no obligation to verify
or confirm the
accuracy of such
determination. For
purposes of this
Section
7(d), in determining
the number of
outstanding
shares of Common
Stock, the
Holder may rely on the number of outstanding shares of Common Stock
as reflected
in (x) the Company's
most recent
Form 10-QSB or Form
10-KSB (or such
related
form), as the case may be, (y) a more recent public announcement by the Company
or (z) any other notice by the Company or the Company's
Transfer Agent setting
forth the number of shares of Common Stock outstanding. Upon the
written or oral
request of the Holder,
the Company shall within two Trading Days confirm orally
and in writing
to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of
Common Stock shall
be determined after giving effect to the conversion or exercise of
securities of
the Company, including this Note, by the Holder or its affiliates
since the date
as of which such number of outstanding shares of Common Stock was
reported. The
provisions of this
Section 7(d) may be waived by the Holder upon, at the
election of the Holder, not less than 61 days' prior notice to the
Company, and
the provisions of this
Section 7(d) shall continue to apply until such 61st day
(or such later date, as determined by the Holder, as may be specified in such
notice of waiver).
e)
MECHANICS OF CONVERSION
i.
CONVERSION
SHARES ISSUABLE
UPON CONVERSION OF
PRINCIPAL AMOUNT.
The number of shares of Common Stock issuable upon a
conversion hereunder
shall be determined by
the quotient obtained
by dividing
(x) the outstanding
principal amount of this Note to be
converted by (y)
the
Conversion Price.
ii.
DELIVERY OF CERTIFICATE UPON CONVERSION. Not later
than three Trading Days after any Conversion Date, the Company will deliver
to
the Holder (A) a certificate or certificates representing the Conversion
Shares
which shall be free of restrictive legends and trading restrictions (other than
those required by the Purchase Agreement) representing the number of shares
of
Common Stock being
acquired upon the
conversion
of Notes (including, if so
timely elected by the Company, shares of Common Stock
representing the
payment
of accrued interest)
and (B) a bank check
in the amount of accrued and unpaid
interest (if the
Company is required
to pay accrued interest in cash). The
Company shall, if available and if allowed under applicable
securities laws, use
its best efforts to
deliver any
certificate
or certificates required to be
delivered by
the Company under this Section electronically through the
Depository Trust
Corporation
or another established clearing corporation
performing similar functions.
<PAGE>
iii. FAILURE TO
DELIVER CERTIFICATES.
If in the case of
any Notice of Conversion such certificate or certificates
are not delivered
to
or as directed
by the applicable Holder by the fifth Trading Day after a
Conversion Date,
the Holder shall be
entitled by written notice to the Company
at any time on or
before its receipt of such certificate or certificates
thereafter, to
rescind such conversion, in which event the Company shall
immediately return the
certificates
representing the principal amount of Notes
tendered for conversion.
iv.
OBLIGATION ABSOLUTE;
PARTIAL LIQUIDATED DAMAGES. If
the Company fails for
any reason to deliver to the Holder such certificate or
certificates pursuant
to Section 7(d)(ii)
by the fifth
Trading Day after
the
Conversion Date,
the Company shall pay
to such Holder, in
cash, as liquidated
damages and not as a
penalty, for each $1,000 of principal amount being
converted, $10 per
Trading Day (increasing to $20 per Trading Day after 5
Trading Days after such damages begin to accrue) for each Trading
Day after such
fifth Trading
Day until such certificates are delivered. The Company's
obligations to issue and deliver the Conversion Shares upon conversion of this
Note in accordance
with the terms hereof are absolute and unconditional,
irrespective of any
action or inaction by
the Holder to enforce the same, any
waiver or consent with
respect to any
provision hereof, the recovery of any
judgment against any
Person or any action to enforce the same, or any setoff,
counterclaim,
recoupment, limitation
or termination, or any
breach or alleged
breach by the Holder or any other Person of any obligation to the
Company or any
violation or alleged
violation of law by
the Holder or any other person, and
irrespective of
any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of such
Conversion Shares;
PROVIDED, HOWEVER, such delivery shall not operate as a
waiver by the Company
of any such
action the
Company may have against the
Holder. In the event a
Holder of this Note shall elect to convert any or all of
the outstanding
principal amount hereof, the Company may not refuse
conversion
based on any claim that the Holder or any one associated or
affiliated with
the
Holder of has been engaged in any violation of law, agreement or for any other
reason, unless,
an injunction from a court, on notice, restraining and or
enjoining conversion
of all or part of this
Note shall
have been sought and
obtained and the
Company posts a surety bond for the
benefit of the Holder in
the amount of 150% of the principal amount of this Note outstanding, which is
subject to the
injunction,
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 to the extent it obtains judgment. In the
absence of an injunction precluding the same, the Compa
