NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"),
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE 1933 ACT, OR (B) AN OPINION OF COUNSEL, IN
A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT (II) UNLESS SOLD OR TRANSFERS TO A "QUALIFIED
INSTITUTIONAL BUYER" WITHIN THE MEANING OF RULE 144A UNDER THE
1933 ACT OR TO AN "ACCREDITED INVESTOR" AS THAT TERM IS DEFINED
IN RULE 501(A) OF REGULATION D OR (III) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE
TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a)
HEREOF. THE HOLDER OF THIS NOTE AGREES TO THE TERMS AND
PROVISIONS SET FORTH IN SECTION 4(o) OF THE SECURITIES PURCHASE
AGREEMENT REGARDING THE COLLATERAL AGENT (AS DEFINED IN THE
SECURITIES PURCHASE AGREEMENT). THE PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES
ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.
BROADCAST INTERNATIONAL, INC.
SENIOR SECURED CONVERTIBLE NOTE
|
|
|
Issuance Date: December 21, 2007
|
Original Principal Amount: $15,000,000.00
|
FOR VALUE RECEIVED, Broadcast
International, Inc., a Utah corporation (the " Company
"), hereby promises to pay to the order of CASTLERIGG MASTER
INVESTMENTS LTD. or registered assigns (" Holder ") the
amount set out above as the Original Principal Amount (as
reduced pursuant to the terms hereof pursuant to redemption,
conversion or otherwise, and including the amount of any
Capitalized Interest (as defined below), the " Principal
") when due, whether upon the Maturity Date (as defined below),
acceleration, redemption or otherwise (in each case in
accordance with the terms hereof) and to pay interest ("
Interest ") on any outstanding Principal at the
applicable Interest Rate, from the date set out above as the
Issuance Date (the " Issuance Date ") until the
same becomes due and payable, whether upon an Interest Date (as
defined below) or the Maturity Date, acceleration, conversion,
redemption or otherwise (in each case in accordance with the
terms hereof). This Senior Secured
Convertible Note (including all Senior Secured
Convertible Notes issued in exchange, transfer or replacement
hereof, this " Note ") is one of an issue of Senior
Secured Convertible Notes issued pursuant to the Securities
Purchase Agreement (as defined below) on the Closing Date
(collectively, the " Notes " and such other Senior
Secured Convertible Notes, the " Other Notes ").
Certain capitalized terms used herein are defined in
Section 28.
1.
PAYMENTS OF PRINCIPAL . On the
Maturity Date, the Company shall pay to the Holder an amount in
cash representing all outstanding Principal, accrued and unpaid
Interest and accrued and unpaid Late Charges, if any, on such
Principal and Interest. The " Maturity Date
" shall be December 21, 2010, as may be extended at the option
of the Holder (i) in the event that, and for so long as, an
Event of Default (as defined in Section 4(a)) shall have
occurred and be continuing on the Maturity Date (as may be
extended pursuant to this Section 1) or any event that shall
have occurred and be continuing that with the passage of time
and the failure to cure would result in an Event of Default and
(ii) through the date that is ten (10) Business Days after the
consummation of a Change of Control in the event that a Change
of Control is publicly announced or a Change of Control Notice
(as defined in Section 5(b)) is delivered prior to the Maturity
Date. Other than as specifically permitted by this Note,
the Company may not prepay any portion of the outstanding
Principal, accrued and unpaid Interest or accrued and unpaid
Late Charges on Principal and Interest, if any.
Notwithstanding any provision of this Section 1 to the
contrary, the Holder may, at its option and in its sole
discretion, deliver a written notice to the Company at least two
(2) days prior to the Maturity Date electing to have the payment
of all or any portion of the Principal and Interest payable on
the Maturity Date deferred (such amount deferred, the "
Deferral Amount ") up to a date that is two (2) years
after the Maturity Date, which date shall thereafter be the
"Maturity Date" for all purposes hereunder. Any notice
delivered by the Holder pursuant to this Section 1 shall set
forth (i) the Deferral Amount and (ii) the date that such
Deferral Amount shall now be payable.
2.
INTEREST; INTEREST RATE . a)
Interest on this Note shall commence accruing on December
21, 2008 and shall be computed on the basis of a 360-day year
comprised of twelve (12) thirty (30) day months and shall be
payable in arrears for each Calendar Quarter on the first (1
st ) day of the succeeding Calendar Quarter during
the period beginning on the Issuance Date and ending on, and
including, the Maturity Date (each, an " Interest
Date ") with the first Interest Date being April 1, 2009.
Interest shall be payable on each Interest Date, to the
record holder of this Note on the applicable Interest Date, in
shares of Common Stock (" Interest Shares ") so long as
there has been no Equity Conditions Failure; provided however,
that the Company may, at its option following notice to the
Holder either (i) pay Interest on any Interest Date in cash ("
Cash Interest "), (ii) by capitalizing such Interest on
and as of each Interest Date by adding it to the then
outstanding Principal of this Note (the " Capitalized
Interest ") or (iii) in a combination of Cash Interest,
Capitalized Interest and Interest Shares. The Company
shall deliver a written notice (each, an " Interest Election
Notice ") to each holder of the Notes on or prior to the
Interest Notice Due Date (the date such notice is delivered to
all of the holders, the " Interest Notice Date ") which
notice (1) either (A) confirms that Interest to be paid on such
Interest Date shall be paid entirely in Interest Shares or (B)
elects to pay Interest as Cash Interest, Capitalized Interest or
a combination of Cash Interest, Capitalized Interest and
Interest Shares and specifies the amount of Interest that shall
be paid as Cash Interest, Capitalized Interest and/or the amount
of Interest that shall be paid in Interest Shares and (2)
certifies that there has been no Equity Conditions Failure.
If any portion of Interest for a particular Interest Date
shall be paid in
Interest Shares, then the Company shall pay to
the Holder, in accordance with Section 2(b), a number of shares
of Common Stock equal to (x) the amount of Interest payable on
the applicable Interest Date in Interest Shares divided by (y)
the applicable Interest Conversion Price. Interest to be
paid on an Interest Date in Interest Shares shall be paid in a
number of fully paid and nonassessable shares of Common Stock
(rounded to the nearest whole share). If the Equity
Conditions were satisfied as of the Interest Notice Date but the
Equity Conditions are no longer satisfied at any time prior to
the Interest Date, the Company shall provide the Holder a
subsequent notice to that effect indicating that unless the
Holder waives the Equity Conditions, the Interest shall be paid
in cash and/or Capitalized Interest.
(b)
When any Interest Shares are to be paid on an
Interest Date, the Company shall (i) (A) provided that the
Company's transfer agent (the " Transfer Agent ") is
participating in the Depository Trust Company (" DTC ")
Fast Automated Securities Transfer Program and such action is
not prohibited by applicable law or regulation or any applicable
policy of DTC, credit such aggregate number of Interest Shares
to which the Holder shall be entitled to the Holder's or its
designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system, or (B) if the foregoing
shall not apply, issue and deliver on the applicable Interest
Date, to the address set forth in the register maintained by the
Company for such purpose pursuant to the Securities Purchase
Agreement or to such address as specified by the Holder in
writing to the Company at least two (2) Business Days prior to
the applicable Interest Date, a certificate, registered in the
name of the Holder or its designee, for the number of Interest
Shares to which the Holder shall be entitled and (ii) with
respect to each Interest Date, pay to the Holder, in cash by
wire transfer of immediately available funds, the amount of any
Cash Interest. Notwithstanding the foregoing, the Company
shall not be entitled to pay Interest in Interest Shares and
shall be required to pay such Interest in cash as Cash Interest
on the applicable Interest Date if, unless waived in writing by
the Holder, there has been an Equity Conditions Failure.
If an Event of Default or Equity Conditions Failure occurs
during the Interest Measuring Period, then on the Interest Date,
at the Holder's option, the Holder may require the Company to
pay all or any specified portion of the Interest due on the
applicable Interest Date as Cash Interest.
(c)
Prior to the payment of Interest on an Interest
Date, Interest on this Note shall accrue at the Interest Rate
and be payable by way of inclusion of the Interest in the
Conversion Amount in accordance with Section 3(b)(i). From
and after the occurrence and during the continuance of an Event
of Default, the Interest Rate shall be increased to fifteen
percent (15.0%) per annum; provided, however, that in the event
an Event of Default occurs at any time prior to December 21,
2008, the Company shall pay Interest to the Holder , in addition
to any previously paid Interest, at an Interest Rate equal to
eight and three-quarters percent (8.75%) per annum. In the
event that such Event of Default is subsequently cured, the
adjustment referred to in the preceding sentence shall cease to
be effective as of the date of such cure; provided that the
Interest as calculated and unpaid at such increased rate during
the continuance of such Event of Default shall continue to apply
to the extent relating to the days after the occurrence of such
Event of Default through and including the date of cure of such
Event of Default. The Company shall pay any and all taxes
that may be payable with respect to the issuance and delivery of
Interest Shares.
3.
CONVERSION OF NOTES . This Note
shall be convertible into shares of the Company's common stock,
par value $0.05 per share (the " Common Stock "), on the
terms and conditions set forth in this Section 3.
(a)
Conversion Right . Subject to the
provisions of Section 3(d), at any time or times on or after the
Issuance Date, the Holder shall be entitled to convert any
portion of the outstanding and unpaid Conversion Amount (as
defined below) into fully paid and nonassessable shares of
Common Stock in accordance with Section 3(c), at the Conversion
Rate (as defined below). The Company shall not issue any
fraction of a share of Common Stock upon any conversion.
If the issuance would result in the issuance of a fraction
of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up to the nearest whole
share. The Company shall pay any and all transfer, stamp
and similar taxes that may be payable with respect to the
issuance and delivery of Common Stock upon conversion of any
Conversion Amount.
(b)
Conversion Rate . The number of
shares of Common Stock issuable upon conversion of any
Conversion Amount pursuant to Section 3(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion
Price (the " Conversion Rate ").
(i)
" Conversion Amount " means the sum of
(A) the portion of the Principal to be converted, redeemed or
otherwise with respect to which this determination is being
made, (B) accrued and unpaid Interest with respect to such
Principal, and (C) accrued and unpaid Late Charges with respect
to such Principal and Interest.
(ii)
" Conversion Price " means, as of any
Conversion Date (as defined below) or other date of
determination, $5.45, subject to adjustment as provided
herein.
(b)
Mechanics of Conversion .
(i)
Optional Conversion . To convert
any Conversion Amount into shares of Common Stock on any date (a
" Conversion Date "), the Holder shall (A) transmit by
facsimile (or otherwise deliver), for receipt on or prior to
11:59 p.m., New York Time, on such date, a copy of an executed
notice of conversion in the form attached hereto as Exhibit
I (the " Conversion Notice ") to the Company and (B)
if required by Section 3(c)(iii), surrender this Note to a
common carrier for delivery to the Company as soon as
practicable on or following such date (or an indemnification
undertaking with respect to this Note in the case of its loss,
theft or destruction). On or before the first (1
st ) Business Day following the date of receipt of a
Conversion Notice, the Company shall transmit by facsimile a
confirmation (the “ Conversion Confirmation
”) of receipt of such Conversion Notice to the Holder and
the Transfer Agent. On or before the (2 nd )
second Business Day following the date of receipt of a
Conversion Notice (the " Share Delivery Date "),
the Company shall (X) provided that the Transfer Agent is
participating in the DTC's Fast Automated Securities Transfer
Program, credit such aggregate number of shares of Common Stock
(including any Interest Shares) to which the Holder shall be
entitled to the Holder's or its designee's balance account with
DTC through its Deposit Withdrawal Agent Commission system or
(Y) if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program, issue and deliver to the
address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the
number of
shares of Common Stock (including any Interest
Shares) to which the Holder shall be entitled. If this
Note is physically surrendered for conversion as required by
Section 3(c)(iii) and the outstanding Principal of this Note is
greater than the Principal portion of the Conversion Amount
being converted, then the Company shall as soon as practicable
and in no event later than three (3) Business Days after receipt
of this Note and at its own expense, issue and deliver to the
holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal not converted. The
Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all
purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.
(ii)
Company's Failure to Timely Convert . If
within three (3) Trading Days after the Company's receipt of the
facsimile copy of a Conversion Notice the Company shall fail to
issue and deliver a certificate to the Holder or credit the
Holder's balance account with DTC for the number of shares of
Common Stock to which the Holder is entitled upon such holder's
conversion of any Conversion Amount (a " Conversion
Failure "), and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) Common
Stock to deliver in satisfaction of a sale by the Holder of
Common Stock issuable upon such conversion that the Holder
anticipated receiving from the Company (a " Buy-In ") or
on any date of the Company's obligation to deliver shares of
Common Stock as contemplated pursuant to clause (B) below, then
the Company shall, within three (3) Business Days after the
Holder's request and in the Holder's discretion, either (A) pay
cash to the Holder in an amount equal to the Holder's total
purchase price (including brokerage commissions and other out of
pocket expenses, if any) for the shares of Common Stock so
purchased (the " Buy-In Price "), at which point the
Company's obligation to issue and deliver such certificate or to
credit the Holder's balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon such
Holder's conversion of any Conversion Amount shall terminate, or
(B) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and
pay cash to the Holder in an amount equal to the excess (if any)
of the Buy-In Price over the product of (1) such number of
shares of Common Stock, times (2) the Closing Bid Price on the
Conversion Date.
(iii)
Registration; Book-Entry . The
Company shall maintain a register (the " Register ") for
the recordation of the names and addresses of the holders of
each Note and the principal amount of the Notes held by such
holders (the " Registered Notes "). The entries in
the Register shall be conclusive and binding for all purposes
absent manifest error. The Company and the holders of the
Notes shall treat each Person whose name is recorded in the
Register as the owner of a Note for all purposes, including,
without limitation, the right to receive payments of Principal
and Interest hereunder, notwithstanding notice to the contrary.
A Registered Note may be assigned or sold in whole or in
part only by registration of such assignment or sale on the
Register. Upon its receipt of a request to assign or sell
all or part of any Registered Note by a Holder, the Company
shall record the information contained therein in the Register
and issue one or more new Registered Notes in the same aggregate
principal amount as the principal amount of the surrendered
Registered Note to the designated assignee or transferee
pursuant to Section 18. Notwithstanding anything to the
contrary set forth herein, upon conversion of any portion of
this Note in accordance with the terms hereof, the Holder shall
not be required to physically surrender this Note to the Company
unless (A) the full Conversion Amount represented by this Note
is being converted or (B) the Holder has provided the
Company with prior written notice (which notice
may be included in a Conversion Notice) requesting reissuance of
this Note upon physical surrender of this Note. The Holder
and the Company shall maintain records showing the Principal,
Interest and Late Charges, if any, converted and the dates of
such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require
physical surrender of this Note upon conversion.
(iv)
Pro Rata Conversion; Disputes . In
the event that the Company receives a Conversion Notice from
more than one holder of Notes for the same Conversion Date and
the Company can convert some, but not all, of such portions of
the Notes submitted for conversion, the Company, subject to
Section 3(d), shall convert from each holder of Notes electing
to have Notes converted on such date a pro rata amount of such
holder's portion of its Notes submitted for conversion based on
the principal amount of Notes submitted for conversion on such
date by such holder relative to the aggregate principal amount
of all Notes submitted for conversion on such date. In the
event of a dispute as to the number of shares of Common Stock
issuable to the Holder in connection with a conversion of this
Note, the Company shall issue to the Holder the number of shares
of Common Stock not in dispute and resolve such dispute in
accordance with Section 23.
(v)
Company's Right of Mandatory Conversion .
(1)
Mandatory Conversion . If at any
time from and after the Mandatory Conversion Trigger Date (the "
Mandatory Conversion Eligibility Date "), (i) the Closing
Sale Price of the Common Stock exceeds for any twenty (20)
Trading Days (which need not be consecutive) out of any thirty
(30) consecutive Trading Day period following the Mandatory
Conversion Eligibility Date (the " Mandatory Conversion
Measuring Period ") 135% of the Conversion Price on the
Issuance Date (as adjusted for any stock splits, stock
dividends, recapitalizations, combinations, reverse stock splits
or other similar events during such period) (the " Mandatory
Conversion Condition ") and (ii) there shall not have been
any Equity Conditions Failure, the Company shall have the right
to require the Holder to convert all, or any portion, of the
Conversion Amount then remaining under this Note into fully
paid, validly issued and nonassessable shares of Common Stock in
accordance with this Section 3(c) at the Conversion Rate as
of the Mandatory Conversion Date (as defined below) with respect
to the Conversion Amount (a " Mandatory Conversion ").
The Company may exercise its right to require conversion
under this Section 3(c)(v) by delivering within not more than
twenty (20) Trading Days following the end of such Mandatory
Conversion Measuring Period a written notice thereof by
facsimile and overnight courier to all, but not less than all,
of the holders of Notes and the Transfer Agent (the
"Mandatory Conversion Notice" and the date all of the
holders received such notice by facsimile is referred to as the
" Mandatory Conversion Notice Date "). The
Mandatory Conversion Notice shall be irrevocable except with
respect to a Mandatory Conversion Conditions Failure (as defined
below). The Mandatory Conversion Notice shall state (i)
the Trading Day selected for the Mandatory Conversion in
accordance with this Section 3(c)(v), which Trading Day shall be
at least thirty (30) Trading Days, but no more than forty (40)
Trading Days following the Mandatory Conversion Notice Date (the
" Mandatory Conversion Date "), (ii) the aggregate
Conversion Amount of the Notes subject to mandatory conversion
from the
Holder and all of the holders of the Notes
pursuant to this Section 3(c)(v) (and analogous provisions under
the Other Notes), (iii) the number of shares of Common Stock to
be issued to such Holder on the Mandatory Conversion Date and
(iv) that there has been no Equity Conditions Failure; provided,
however, that the Company may not effect a Mandatory Conversion
under this Section in excess of the Holder Pro Rata Amount of
the applicable Mandatory Conversion Volume Limitation. On
the Business Day immediately prior to the Mandatory Conversion
Date, the Company shall deliver to the Holder a certificate (the
" Mandatory Conversion Certification ") signed by the
Chief Financial Officer of the Company certifying that since the
Mandatory Conversion Notice Date, (x) the Mandatory Conversion
Condition has been met for the Mandatory Conversion Measuring
Period ending on the Business Day immediately preceding the
Mandatory Conversion Date and (y) there has been no Equity
Conditions Failure; provided, that to the extent the Company is
unable to deliver the foregoing Mandatory Conversion
Certification (a " Mandatory Conversion Conditions
Failure "), such Mandatory Conversion Certification shall
instead state that the conditions have not been met and that
such Mandatory Conversion Notice is revoked and null and void;
provided, further, that a failure by the Company to deliver a
Mandatory Conversion Certification to the Holder on the Business
Day immediately prior to the Mandatory Conversion Date shall be
deemed to be a Mandatory Conversion Conditions Failure.
Notwithstanding the foregoing, the Company may effect only
one (1) Mandatory Conversion during any thirty (30) consecutive
Trading Days. All Conversion Amounts converted by the
Holder after the Mandatory Conversion Notice Date shall reduce
the Conversion Amount of this Note required to be converted on
the Mandatory Conversion Date. The mechanics of conversion
set forth in Section 3(c) shall apply to any Mandatory
Conversion as if the Company and the Transfer Agent had received
from the Holder on the Mandatory Conversion Date a Conversion
Notice with respect to the Conversion Amount being converted
pursuant to the Mandatory Conversion.
(2)
Pro Rata Conversion Requirement .
If the Company elects to cause a conversion of any
Conversion Amount of this Note pursuant to Section 3(c)(v), then
it must simultaneously take the same action in the same
proportion with respect to the Other Notes. If the Company
elects a Mandatory Conversion of this Note pursuant to Section
3(c)(v) (or similar provisions under the Other Notes) with
respect to less than all of the Conversion Amounts of the Notes
then outstanding, then the Company shall require conversion of a
Conversion Amount from each of the holders of the Notes equal to
the product of (I) the aggregate Conversion Amount of Notes
which the Company has elected to cause to be converted pursuant
to Section 3(c)(v), multiplied by (II) the fraction, the
numerator of which is the sum of the aggregate Original
Principal Amount of the Notes purchased by such holder of
outstanding Notes and the denominator of which is the sum of the
aggregate Original Principal Amount of the Notes purchased by
all holders holding outstanding Notes (such fraction with
respect to each holder is referred to as its " Conversion
Allocation Percentage ," and such amount with respect to
each holder is referred to as its " Pro Rata Conversion
Amount "); provided, however, that in the event that any
holder's Pro Rata Conversion Amount exceeds the outstanding
Principal amount of such holder's Note, then such excess Pro
Rata Conversion Amount shall be allocated amongst the remaining
holders of Notes in accordance with the foregoing formula.
In the event that the initial holder of any Notes shall
sell or otherwise
transfer any of such holder's Notes, the
transferee shall be allocated a pro rata portion of such
holder's Conversion Allocation Percentage and the Pro Rata
Conversion Amount.
(c)
Limitations on Conversions .
(i)
Beneficial Ownership . The Company
shall not effect any conversion of this Note, and the Holder of
this Note shall not have the right to convert any portion of
this Note pursuant to Section 3(a), to the extent that after
giving effect to such conversion, the Holder (together with the
Holder's affiliates) would beneficially own in excess of 4.99%
(the " Maximum Percentage ") of the number of shares of
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 warrants)
subject to a limitation on 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 3(d)(i),
beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended
(the " 1934 Act "). For purposes of this Section
3(d)(i), 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-K, Form 10-Q, Form 8-K or other public filing
with the Securities and Exchange Commission, as the case may be,
(y) a more recent public announcement by the Company or (z) any
other notice by the Company or the Transfer Agent setting forth
the number of shares of Common Stock outstanding. For any
reason at any time, upon the written or oral request of the
Holder, the Company shall within one (1) Business Day 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. By written notice to the
Company, the Holder may increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99%
specified in such notice; provided that (i) any such increase
will not be effective until the sixty-first (61 st )
day after such notice is delivered to the Company, and (ii) any
such increase or decrease will apply only to the Holder and not
to any other holder of Notes. The provisions of this paragraph
shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 3(d)(i) to
correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended beneficial ownership
limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such
limitation.
(ii)
Principal Market Regulation . The
Company shall not be obligated to issue any shares of Common
Stock upon conversion of this Note if the issuance of such
shares of Common Stock would exceed the aggregate number of
shares of Common Stock which the Company may issue upon
conversion or exercise, as applicable, of the Notes and
Warrants
without breaching the Company's obligations
under the rules or regulations of any applicable Eligible Market
(the " Exchange Cap "), except that such limitation shall
not apply in the event that the Company (A) obtains the approval
of its stockholders as required by the applicable rules of such
Eligible Market for issuances of Common Stock in excess of such
amount or (B) obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the Required Holders.
Until such approval or written opinion is obtained, no
purchaser of the Notes pursuant to the Securities Purchase
Agreement (each, a " Purchaser " and collectively the "
Purchasers ") shall be issued in the aggregate, upon
conversion or exercise or otherwise, as applicable, of Notes or
Warrants, shares of Common Stock in an amount greater than the
product of the Exchange Cap multiplied by a fraction, the
numerator of which is the principal amount of Notes issued to
any Purchaser pursuant to the Securities Purchase Agreement on
the Closing Date and the denominator of which is the aggregate
principal amount of all Notes issued to all of the Purchasers
pursuant to the Securities Purchase Agreement on the Closing
Date (with respect to each Purchaser, the " Exchange Cap
Allocation "). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Notes, the
transferee shall be allocated a pro rata portion of such
Purchaser's Exchange Cap Allocation, and the restrictions of the
prior sentence shall apply to such transferee with respect to
the portion of the Exchange Cap Allocation allocated to such
transferee. In the event that any holder of Notes shall
convert all of such holder's Notes into a number of shares of
Common Stock which, in the aggregate, is less than such holder's
Exchange Cap Allocation, then the difference between such
holder's Exchange Cap Allocation and the number of shares of
Common Stock actually issued to such holder shall be allocated
to the respective Exchange Cap Allocations of the remaining
holders of Notes on a pro rata basis in proportion to the
aggregate principal amount of the Notes then held by each such
holder.
2.
RIGHTS UPON EVENT OF DEFAULT .
(a)
Event of Default . Each of the
following events shall constitute an " Event of Default
":
(i)
the failure of the applicable Registration
Statement required to be filed pursuant to the Registration
Rights Agreement to be declared effective by the SEC on or prior
to the date that is sixty (60) days after the applicable
Effectiveness Deadline, or, while the applicable Registration
Statement is required to be maintained effective pursuant to the
terms of the Registration Rights Agreement, the effectiveness of
the applicable Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or
is unavailable to any holder of the Notes for sale of all of
such holder's Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of
the Registration Rights Agreement, and such lapse or
unavailability continues for a period of ten (10) consecutive
days or for more than an aggregate of twenty (20) days in any
365-day period (other than days during an Allowable Grace Period
(as defined in the Registration Rights Agreement));
(ii)
the suspension from trading or failure of the
Common Stock to be listed on an Eligible Market for a period of
ten (10) consecutive Trading Days or for more than an aggregate
of fifteen (15) Trading Days in any 365-day period;
(iii)
the Company's (A) failure to cure a Conversion
Failure by delivery of the required number of shares of Common
Stock within ten (10) Business Days after the applicable
Conversion Date or (B) notice, written or oral, to any holder of
the Notes, including by way of public announcement or through
any of its agents, at any time, of its intention not to comply
with a request for conversion of any Notes into shares of Common
Stock that is tendered in accordance with the provisions of the
Notes;
(iv)
at any time following the tenth (10
th ) consecutive Business Day that the Holder's
Authorized Share Allocation is less than the number of shares of
Common Stock that the Holder would be entitled to receive upon a
conversion of the full Conversion Amount of this Note (without
regard to any limitations on conversion set forth in Section
3(d) or otherwise);
(v)
the Company's failure to pay to the Holder any
amount of Principal, Interest, Late Charges or other amounts
when and as due under this Note (including, without limitation,
the Company's failure to pay any redemption payments or amounts
hereunder) or any other Transaction Document (as defined in the
Securities Purchase Agreement) or any other agreement, document,
certificate or other instrument delivered in connection with the
transactions contemplated hereby and thereby to which the Holder
is a party, except, in the case of a failure to pay Interest and
Late Charges when and as due, in which case only if such failure
continues for a period of at least five (5) Business Days;
(vi)
any default under, redemption of or acceleration
prior to maturity of any Indebtedness of the Company or any of
its Subsidiaries (as defined in Section 3(a) of the Securities
Purchase Agreement) other than with respect to any Other
Notes;
(vii)
the Company or any of its Subsidiaries, pursuant
to or within the meaning of Title 11, U.S. Code, or any similar
Federal, foreign or state law for the relief of debtors
(collectively, " Bankruptcy Law "), (A) commences a
voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the
appointment of a receiver, trustee, assignee, liquidator or
similar official (a " Custodian "), (D) makes a general
assignment for the benefit of its creditors or (E) admits in
writing that it is generally unable to pay its debts as they
become due;
(viii)
a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that (A) is for relief
against the Company or any of its Subsidiaries in an
involuntary case, (B) appoints a Custodian of the Company or any
of its Subsidiaries or (C) orders the liquidation of the Company
or any of its Subsidiaries;
(ix)
a final judgment or judgments for the payment of
money aggregating in excess of $250,000 are rendered against the
Company or any of its Subsidiaries and which judgments are not,
within sixty (60) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged
within sixty (60) days after the expiration of such stay;
provided, however, that any judgment which is covered by
insurance or an indemnity from a credit worthy party shall not
be included in calculating the amounts set forth above so long
as the Company provides the Holder a written statement from such
insurer or indemnity provider (which written statement shall be
reasonably satisfactory to the Holder) to the effect that
such
judgment is covered by insurance or an indemnity
and the Company will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such
judgment;
(x)
the Company breaches any representation,
warranty, covenant or other term or condition of any Transaction
Document, except, in the case of a breach of a covenant or other
term or condition of any Transaction Document which is curable,
only if such breach continues for a period of at least ten (10)
consecutive Business Days;
(xi)
any breach or failure in any respect to comply
with Section 14 of this Note;
(xii)
the Company or any Subsidiary shall fail to
perform or comply with any covenant or agreement contained in
any Security Agreement to which it is a party or any Pledge
Agreement to which it is a party;
(xiii)
any material provision of any Security Document
(as determined by the Collateral Agent) shall at any time for
any reason (other than pursuant to the express terms thereof)
cease to be valid and binding on or enforceable against the
Company or any Subsidiary intended to be a party thereto, or the
validity or enforceability thereof shall be contested by any
party thereto, or a proceeding shall be commenced by the Company
or any Subsidiary or any governmental authority having
jurisdiction over any of them, seeking to establish the
invalidity or unenforceability thereof, or the Company or any
Subsidiary shall deny in writing that it has any liability or
obligation purported to be created under any Security
Document;
(xiv)
any Security Agreement, any Pledge Agreement or
any other security document, after delivery thereof pursuant
hereto, shall for any reason fail or cease to create a valid and
perfected and, except to the extent permitted by the terms
hereof or thereof, first priority Lien in favor of the
Collateral Agent for the benefit of the holders of the Notes on
any Collateral (as defined in the Security Documents) purported
to be covered thereby;
(xv)
any bank at which any deposit account, blocked
account, or lockbox account of the Company or any Subsidiary is
maintained shall fail to comply with any material term of any
deposit account, blocked account, lockbox account or similar
agreement to which such bank is a party or any securities
intermediary, commodity intermediary or other financial
institution at any time in custody, control or possession of any
investment property of the Company or any Subsidiary shall fail
to comply with any of the terms of any investment property
control agreement to which such Person is a party (it being
understood that only accounts pursuant to which the Collateral
Agent has requested account control agreements should be subject
to this clause (xv));
(xvi)
any material damage to, or loss, theft or
destruction of, any Collateral, whether or not insured, or any
strike, lockout, labor dispute, embargo, condemnation, act of
God or public enemy, or other casualty which causes, for more
than fifteen (15) consecutive days, the cessation or substantial
curtailment of revenue producing activities at any facility of
the Company or any Subsidiary, if any such event or circumstance
could reasonably be expected to have a Material Adverse Effect
(as defined in the Securities Purchase Agreement); or
(xvii)
any Event of Default (as defined in the Other
Notes) occurs with respect to any Other Notes.
(b)
Redemption Right . Upon the
occurrence of an Event of Default and provided such Event of
Default continues for at least three (3) Business Days, the
Company shall within one (1) Business Day deliver written notice
thereof via facsimile and overnight courier (an " Event of
Default Notice ") to the Holder. At any time after the
earlier of the Holder's receipt of an Event of Default Notice
and the Holder becoming aware of an Event of Default, the Holder
may require the Company to redeem all or any portion of this
Note by delivering written notice thereof (the " Event of
Default Redemption Notice ") to the Company, which Event of
Default Redemption Notice shall indicate the portion of this
Note the Holder is electing to redeem. Each portion of
this Note subject to redemption by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal
to the greater of (i) the product of (A) the Conversion Amount
to be redeemed and (B) the Redemption Premium and (ii) the
product of (A) the Conversion Rate with respect to such
Conversion Amount in effect at such time as the Holder delivers
an Event of Default Redemption Notice and (B) the product of (1)
the Equity Value Redemption Premium and (2) the greatest Closing
Sale Price of the Common Stock during the period beginning on
the date immediately preceding such Event of Default and ending
on the date the Holder delivers the Event of Default Redemption
Notice (the " Event of Default Redemption Price
"). Redemptions required by this Section 4(b) shall be
made in accordance with the provisions of Section 12. To
the extent redemptions required by this Section 4(b) are deemed
or determined by a court of competent jurisdiction to be
prepayments of the Note by the Company, such redemptions shall
be deemed to be voluntary prepayments. The parties hereto
agree that in the event of the Company's redemption of any
portion of the Note under this Section 4(b), the Holder's
damages would be uncertain and difficult to estimate because of
the parties' inability to predict future interest rates and the
uncertainty of the availability of a suitable substitute
investment opportunity for the Holder. Accordingly, any
Redemption Premium due under this Section 4(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of
the Holder's actual loss of its investment opportunity and not
as a penalty.
3.
RIGHTS UPON FUNDAMENTAL TRANSACTION AND
CHANGE OF CONTROL .
(a)
Assumption . The Company shall not
enter into or be party to a Fundamental Transaction that is not
a Change of Control unless (i) the Successor Entity
assumes in writing all of the obligations of the Company under
this Note and the other Transaction Documents in accordance with
the provisions of this Section 5(a) pursuant to written
agreements in form and substance satisfactory to the Required
Holders and approved by the Required Holders prior to such
Fundamental Transaction, including agreements to deliver to each
holder of Notes in exchange for such Notes a security of the
Successor Entity evidenced by a written instrument substantially
similar in form and substance to the Notes, including, without
limitation, having a principal amount and interest rate equal to
the principal amounts then outstanding and the interest rates of
the Notes held by such holder, having similar conversion rights
as the Notes and having similar ranking to the Notes, and
satisfactory to the Required Holders and (ii) the Successor
Entity (including its Parent Entity) is a publicly traded
corporation whose common stock is quoted on or listed for
trading on an Eligible Market. Upon the occurrence of any
Fundamental Transaction that is not a Change of Control, the
Successor Entity shall succeed to,
and be substituted for (so that from and after
the date of such Fundamental Transaction, the provisions of this
Note referring to the "Company" shall refer instead to the
Successor Entity), and may exercise every right and power of the
Company and shall assume all of the obligations of the Company
under this Note with the same effect as if such Successor Entity
had been named as the Company herein. Upon consummation of
the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon
conversion or redemption of this Note at any time after the
consummation of the Fundamental Transaction, in lieu of the
shares of the Company's Common Stock (or other securities, cash,
assets or other property) issuable upon the conversion or
redemption of the Notes prior to such Fundamental Transaction,
such shares of the publicly traded common stock (or their
equivalent) of the Successor Entity (including its Parent
Entity), as adjusted in accordance with the provisions of this
Note. The provisions of this Section shall apply similarly
and equally to successive Fundamental Transactions that are not
a Change of Control and shall be applied without regard to any
limitations on the conversion or redemption of this Note.
(b)
Redemption Right . No sooner than
fifteen (15) Trading Days nor later than ten (10) Trading Days
prior to the consummation of a Change of Control, but not prior
to the public announcement of such Change of Control, the
Company shall deliver written notice thereof via facsimile and
overnight courier to the Holder (a " Change of Control
Notice "). In the case of any Change of Control,
upon the receipt of a Change of Control Notice, the Holder
shall, at its option, either (i) convert this Note, in whole or
in part, at the then applicable Conversion Price into shares of
Common Stock in accordance with the provisions of this Note, or
(ii) require the Company or its successor to redeem this Note,
in whole or in part, by delivering written notice thereof ("
Change of Control Redemption Notice ") at a redemption
price in cash at a price equal to the greater of (i) 135% of the
Conversion Amount being redeemed and (ii) the product of (x) the
Equity Value Redemption Premium and (y) the product of (1) the
Conversion Amount being redeemed multiplied by (2) the quotient
determined by dividing (A) the aggregate cash consideration and
the aggregate cash value of any non-cash consideration per share
of Common Stock to be paid to the holders of the shares of
Common Stock upon consummation of the Change of Control (any
such non-cash consideration consisting of marketable securities
to be valued at the higher of the Closing Sale Price of such
securities as of the Trading Day immediately prior to the
consummation of the Change of Control, the Closing Sale Price of
such securities as of the Trading Day immediately following the
public announcement of such proposed Change of Control and the
Closing Sale Price of such securities immediately prior to the
public announcement of such proposed Change of Control) by (B)
the Conversion Price (the " Change of Control Redemption
Price "). Redemptions required by this Section 5 shall
be made in accordance with the provisions of Section 12 and
shall have priority to payments to stockholders in connection
with a Change of Control. To the extent redemptions
required by this Section 5(b) are deemed or determined by a
court of competent jurisdiction to be prepayments of the Note by
the Company, such redemptions shall be deemed to be voluntary
prepayments. Notwithstanding anything to the contrary in
this Section 5, but subject to Section 3(d), until the Change of
Control Redemption Price (together with any interest thereon) is
paid in full, the Conversion Amount submitted for redemption
under this Section 5(b) (together with any interest thereon) may
be converted, in whole or in part, by the Holder into Common
Stock pursuant to Section 3. The parties hereto agree that
in the event of the Company's redemption of any portion of the
Note under this Section 5(b), the Holder's damages would be
uncertain and difficult to estimate because of the parties'
inability to predict future interest rates and the uncertainty
of the
availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any Change of
Control redemption premium due under this Section 5(b) is
intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder's actual loss of its investment
opportunity and not as a penalty.
4.
RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND
OTHER CORPORATE EVENTS .
(a)
Purchase Rights . If at any time
the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of
Common Stock (the " Purchase Rights "), then the Holder
will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder
could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete conversion of this Note
(without taking into account any limitations or restrictions on
the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such
Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined
for the grant, issue or sale of such Purchase Rights.
(b)
Other Corporate Events . In
addition to and not in substitution for any other rights
hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock
are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a " Corporate
Event "), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive
upon a conversion of this Note, at the Holder's option, (i) in
addition to the shares of Common Stock receivable upon such
conversion, such securities or other assets to which the Holder
would have been entitled with respect to such shares of Common
Stock had such shares of Common Stock been held by the Holder
upon the consummation of such Corporate Event (without taking
into account any limitations or restrictions on the
convertibility of this Note) or (ii) in lieu of the shares of
Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of
Common Stock in connection with the consummation of such
Corporate Event in such amounts as the Holder would have been
entitled to receive had this Note initially been issued with
conversion rights for the form of such consideration (as opposed
to shares of Common Stock) at a conversion rate for such
consideration commensurate with the Conversion Rate.
Provision made pursuant to the preceding sentence shall be
in a form and substance reasonably satisfactory to the Required
Holders. The provisions of this Section shall apply
