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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 Company shall issue
Conversion
Shares or, if applicable, ca






