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[FORM OF SENIOR SECURED CONVERTIBLE
NOTE]
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 TRANSFERRED 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.
CHINA VOIP & DIGITAL
TELECOM INC.
SENIOR SECURED CONVERTIBLE
NOTE
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Issuance Date: December [●], 2007
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Original Principal Amount: $$5,000,000
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FOR VALUE RECEIVED, China VoIP &
Digital Telecom Inc., a Nevada corporation (the " Company
"), hereby promises to pay to the order of ______________("
Holder ") the amount set out above as the Original
Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, 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 [●], 2010 1 , 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. 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. 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.
(2)
INTEREST; INTEREST RATE . Interest
on this Note shall commence accruing on the Issuance Date 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, 2008. 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, pay Interest
on any Interest Date in cash (" Cash Interest ") or in a
combination of Cash 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 (a) either (i) confirms that Interest
to be paid on such Interest Date shall be paid entirely in
Interest Shares or (ii) elects to pay Interest as Cash Interest
or a combination of Cash Interest and Interest Shares and
specifies the amount of Interest that shall be paid as Cash
Interest and the amount of Interest, if any, that shall be paid
in Interest Shares and (b) if any Interest is to be paid in
Interest Shares, certifies that there has been no Equity
Conditions Failure; provided, however, that the Company shall
not be entitled to pay any
1
Insert date that is 3 year anniversary of Closing
Date.
portion of Interest on an Interest Date in
Interest Shares in excess of the Holder Pro Rata Amount of the
applicable Volume Limitation. 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 are not satisfied
as of the Interest Notice Date, then unless the Company has
elected to pay such Interest in cash, the Interest Notice shall
indicate that unless the Holder waives the Equity Conditions,
the Interest shall be paid in cash. 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.
(a)
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) Trading 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.
(b)
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. 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 $0.001 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, $[●] 1 , subject to adjustment
as provided herein.
(c)
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
1
Insert price equal to the Average Market Price of the Common Stock
as of the Trading Day immediately preceding the Subscription
Date.
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 the Company shall fail to issue a certificate to the
Holder or credit the Holder's balance account with DTC, as
applicable, for the number of shares of Common Stock to which
the Holder is entitled upon conversion of any Conversion Amount
on or prior to the date which is three (3) Trading Days after
the Conversion Date (a " Conversion Failure "), then (A)
the Company shall pay damages to the Holder for each Trading Day
of such Conversion Failure in an amount equal to 1.5% of the
product of (I) the sum of the number of shares of Common Stock
not issued to the Holder on or prior to the Share Delivery Date
and to which the Holder is entitled, and (II) the Closing Sale
Price of the Common Stock on the Share Delivery Date and (B) the
Holder, upon written notice to the Company, may void its
Conversion Notice with respect to, and retain or have returned,
as the case may be, any portion of this Note that has not been
converted pursuant to such Conversion Notice; provided
that the voiding of a Conversion Notice shall not affect the
Company's obligations to make any payments which have accrued
prior to the date of such notice pursuant to this Section
3(c)(ii) or otherwise. In addition to the foregoing, 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, 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.
(d)
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-KSB, Form 10-Q, Form 10-QSB, Form 8-K or other public filing
with the Securities 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.
(4)
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 (as defined in the Registration Rights
Agreement), 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 five (5) 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
five (5) consecutive Trading Days or for more than an aggregate
of ten (10) 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 (A) $100,000 are rendered against
the Company or any of its Subsidiaries or (B) $50,000 are
rendered against any of the officers or directors of 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 (as defined in the Securities Purchase
Agreement) to which it is a party or any Pledge Agreement (as
defined in the Securities Purchase 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, 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.
(5)
RIGHTS UPON FUNDAMENTAL TRANSACTION AND
CHANGE OF CONTROL .
(a)
Assumption . The Company shall not
enter into or be party to a Fundamental Transaction 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, 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 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 "). At any time during the period beginning
after the Holder's receipt of a Change of Control Notice and
ending twenty (20) Trading Days after the date of the
consummation of such Change of Control, the Holder may require
the Company to redeem all or any portion of this Note by
delivering written notice thereof (" Change of Control
Redemption Notice ") to the Company, which Change of Control
Redemption Notice shall indicate the Conversion Amount the
Holder is electing to redeem. The portion of this Note
subject to redemption pursuant to this Section 5 shall be
redeemed by the Company in cash at a price equal to the greater
of (i) 125% 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 Common Share to be paid to the holders of the
Common Shares 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
Closing Sale Price as of the Trading Day immediately following
the public announcement of such proposed Change of Control and
the Closing Sale Price of the Common Stock 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.
(6)
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 satisfactory to the Required Holders.
The provisions of this Section shall apply similarly and
equally to successive Corporate Events and shall be applied
without regard to any limitations on the conversion or
redemption of this Note.
(7)
RIGHTS UPON ISSUANCE OF OTHER SECURITIES
.
(a)
Adjustment of Conversion Price upon Issuance
of Common Stock . If and whenever on or after the
Subscription Date, the Company issues or sells, or in accordance
with this Section 7(a) is deemed to have issued or sold, any
shares of Common Stock (including the issuance or sale of shares
of Common Stock owned or held by or for the account of the
Company, but excluding shares of Common Stock deemed to have
been issued or sold by the Company in connection with any
Excluded Securities) for a consideration per share (the " New
Issuance Price ") less than a price (the " Applicable
Price ") equal to the Conversion Price in effect immediately
prior to such issue or sale or deemed issuance or sale (the
foregoing a " Dilutive Issuance "), then immediately
after such Dilutive Issuance the Conversion Price then in effect
shall be reduced to an amount equal to the New Issuance Price.
For purposes of determining the adjusted Conversion Price
under this Section 7(a), the following shall be applicable:
(i)
Issuance of Options . If the
Company in any manner grants or sells any Options and the lowest
price per share for which one share of Common Stock is issuable
upon the exercise of any such Option or upon conversion or
exchange or exercise of any
Convertible Securities issuable upon exercise of
such Option is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the granting
or sale of such Option for such price per share. For
purposes of this Section 7(a)(i), the "lowest price per share
for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion or exchange or
exercise of any Convertible Securities issuable upon exercise of
such Option" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon granting or
sale of the Option, upon exercise of the Option and upon
conversion or exchange or exercise of any Convertible Security
issuable upon exercise of such Option. No further
adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange or
exercise of such Convertible Securities.
(ii)
Issuance of Convertible Securities .
If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which
one share of Common Stock is issuable upon such conversion or
exchange or exercise thereof is less than the Applicable Price,
then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities
for such price per share. For the purposes of this Section
7(a)(ii), the "lowest price per share for which one share of
Common Stock is issuable upon such conversion or exchange or
exercise" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the issuance
or sale of the Convertible Security and upon the conversion or
exchange or exercise of such Convertible Security. No
further adjustment of the Conversion Price shall be made upon
the actual issuance of such share of Common Stock upon
conversion or exchange or exercise of such Convertible
Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which
adjustment of the Conversion Price had been or are to be made
pursuant to other provisions of this Section 7(a), no further
adjustment of the Conversion Price shall be made by reason of
such issue or sale.
(iii)
Change in Option Price or Rate of
Conversion . If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the
issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable or exercisable for Common Stock
increases or decreases at any time, the Conversion Price in
effect at the time of such increase or decrease shall be
adjusted to the Conversion Price which would have been in effect
at such time had such Options or Convertible Securities provided
for such increased or decreased purchase price, additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold. For purposes
of this Section 7(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the Subscription
Date are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been
issued as of the date of such increase or decrease. No
adjustment shall be made if such adjustment would result in an
increase of the Conversion Price then in effect.
(iv)
Calculation of Consideration Received .
In case any Option is issued in connection with the issue
or sale of other securities of the Company, together comprising
one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01.
If any Common Stock, Options or Convertible Securities are
issued or sold or deemed to have been issued or sold for cash,
the consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for
a consideration other than cash, the amount of the conside
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