EX-10.3
THIS NOTE
AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE
UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
CONOLOG CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
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Principal Amount: $
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Issue Date:
March 12, 2007
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CONVERTIBLE
NOTE
FOR VALUE
RECEIVED, CONOLOG CORPORATION, a Delaware corporation (hereinafter
called "Borrower"), hereby promises to pay to
___________________________________,
______________________________________________________________,
(the "Holder") or its registered assigns or successors in interest
or order, without demand, the sum of
[_________________________________________________] Dollars
($___________) (“Principal Amount”), with simple and
unpaid interest thereon, on February ___, 2010 (the "Maturity
Date"), if not sooner paid.
This Note has been
entered into pursuant to the terms of a subscription agreement
between the Borrower, the Holder and certain other holders (the
“Other Holders”) of secured convertible promissory
notes (the “Other Notes”), dated of even date herewith
(the “Subscription Agreement”), and shall be governed
by the terms of such Subscription Agreement. Unless otherwise
separately defined herein, all capitalized terms used in this Note
shall have the same meaning as is set forth in the Subscription
Agreement. The following terms shall apply to this Note:
ARTICLE I
INTEREST;
AMORTIZATION
1.1.
Interest Rate
. Subject to
Section 5.7 hereof, interest payable on this Note shall accrue at a
rate per annum (the "Interest Rate") of six percent (6%). Interest
on the Principal Amount shall accrue from the date of this Note and
shall be payable quarterly, in arrears, and on the Maturity Date,
whether by acceleration or otherwise. Interest shall be payable in
cash. However, provided the Company has timely obtained the
Approval (as defined in Section 9(q) of the Subscription
Agreement), if the Approval is required by applicable NASD Market
Place Rules and/or Nasdaq’s corporate governance rules and
provided there is an effective registration statement current and
available for the resale of the Shares and Warrant Shares (as
defined in the Subscription Agreement), and further provided no
Event of Default is continuing following a ten day cure period,
then interest may be payable, at the option of the Company in cash
or registered Common Stock at an applied conversion rate equal to
the lessor of (i) the Fixed Conversion Price (as defined in Section
3.1 hereof), or (ii) eighty-five percent (85%) of the closing bid
price of the Common stock as reported by Bloomberg L.P. for the
five (5) trading days preceding such interest payment date. In the
event the closing bid price of the Common Stock is more than $2.00
for each of the ten (10) days preceding an interest payment date,
then interest for that quarter shall be waived and shall not
accrue.
1.2.
Repayment
. The Note is
repayable in full on the Maturity Date. Provided the Company has
timely obtained the Approval (as defined in Section 9(q) of the
Subscription Agreement) if the Approval is required by applicable
NASD Marketplace Rules and/or NASDAQ’s corporate governance
rules and provided there is an effective registration statement
current and available for the resale of the Shares and Warrant
Shares (as defined in the Subscription Agreement), and further
provided no Event of Default is continuing following a ten day cure
period, then on the Maturity Date, any principal amount, interest
and any other amounts arising under the Subscription Agreement
(“Outstanding Amount”) that remains outstanding on the
Maturity Date shall be paid at the Company’s option, in
either cash or in registered Common Stock at an applied conversion
rate equal to the lessor of (A) the Fixed Conversion Price, or (B)
eighty-five percent (85%) of the closing bid price of the Common
stock as reported by Bloomberg L.P. for the five (5) trading days
preceding the Maturity Date. The Borrower must send notice to the
Holder by confirmed telecopier not later than 6:00 P.M. NYC time on
or before the 60 th day prior to the Maturity Date of
its election to pay the Outstanding Amount in cash or registered
Common Stock.
1.3.
Default Interest Rate .
Following the occurrence and during the continuance of an Event of
Default, which, if susceptible to cure is not cured within twenty
(20) days, otherwise then from the first date of such occurrence,
the annual interest rate on this Note shall (subject to Section
5.7) automatically be increased to fifteen percent
(15%).
ARTICLE II
CONVERSION
REPAYMENT
2.1.
No Effective
Registration . Notwithstanding anything to
the contrary herein, no amount payable hereunder may be paid in
shares of Common Stock by the Borrower without the Holder’s
consent unless (a) either (i) an effective current Registration
Statement covering the shares of Common Stock to be issued in
satisfaction of such obligations exists, or (ii) an exemption from
registration of the Common Stock is available pursuant to Rule
144(k) of the 1933 Act, and (b) no Event of Default hereunder (or
an event that with the passage of time or the giving of notice
could become an Event of Default), exists and is continuing, unless
such event or Event of Default is cured within any applicable cure
period or is otherwise waived in writing by the Holder in whole or
in part at the Holder's option.
2.2.
Optional Redemption of
Principal Amount . Provided an Event of Default
or an event which with the passage of time or the giving of notice
could become an Event of Default has not occurred, whether or not
such Event of Default has been cured, the Borrower will have the
option of prepaying the outstanding Principal amount of this Note
("Optional Redemption"), in whole or in part, by paying to the
Holder a sum of money equal to one hundred and twenty-five percent
(125%) of the Principal amount to be redeemed, together with
accrued but unpaid interest thereon and any and all other sums due,
accrued or payable to the Holder arising under this Note or any
Transaction Document through the Redemption Payment Date as defined
below (the "Redemption Amount"). Borrower’s election to
exercise its right to prepay must be by notice in writing
(“Notice of Redemption”). The Notice of Redemption
shall specify the date for such Optional Redemption (the
"Redemption Payment Date"), which date shall be ten (10) business
days after the date of the Notice of Redemption (the "Redemption
Period"). A Notice of Redemption shall not be effective with
respect to any portion of the Principal Amount for which the Holder
has a pending election to convert, or for conversions initiated or
made by the Holder during the Redemption Period. On the Redemption
Payment Date, the Redemption Amount, less any portion of the
Redemption Amount against which the Holder has exercised its
conversion rights, shall be paid in good funds to the Holder. In
the event the Borrower fails to pay the Redemption Amount on the
Redemption
2
Payment Date as
set forth herein, then (i) such Notice of Redemption will be null
and void, (ii) Borrower will have no right to deliver another
Notice of Redemption, and (iii) Borrower’s failure may be
deemed by Holder to be a non-curable Event of Default. A Redemption
Notice may be given only at a time a Registration Statement is
effective for the sale of not less than one million Shares
underlying the Convertible Notes. A Notice of Redemption may not be
given nor may the Borrower effectuate a Redemption without the
consent of the Holder, if at any time during the Redemption Period
an Event of Default or an Event which with the passage of time or
giving of notice could become an Event of Default (whether or not
such Event of Default has been cured), has occurred or the
Registration Statement registering the Registrable Securities is
not effective each day during the Redemption Period.
2.3.
Mandatory Conversion .
Provided an Event of Default has not occurred, unless such Event of
Default has been cured at least twenty (20) days prior to the
delivery of written notice by Borrower as hereinafter described,
then, commencing after the Actual Effective Date, the Borrower will
have the option by written notice to the Holder (“Notice of
Mandatory Conversion”) of compelling the Holder to convert
all or a portion of the outstanding and unpaid principal of the
Note and accrued interest, thereon, into Common Stock at the
Conversion Price then in affect (“Mandatory
Conversion”). The Notice of Mandatory Conversion, which
notice must be given on the first day following a consecutive
twenty (20) day trading period during which the closing bid price
for the Company’s Common Stock as reported by Bloomberg, LP
for the Principal Market shall be more than $3.00 each day and
provided during the Lookback Period, daily average trading volume
is not less than 100,000 shares. The date the Notice of Mandatory
Conversion is given is the “Mandatory Conversion Date.”
The Notice of Mandatory Conversion shall specify the aggregate
principal amount of the Note which is subject to Mandatory
Conversion, which amount may not exceed in the aggregate, for all
Holders who received Notes similar in term and tenure as this Note,
the dollar volume of Common Stock traded on the Principal Market
during the seven (7) trading days immediately preceding the
Mandatory Conversion Date. Mandatory Conversion Notices must be
given proportionately to all Holders of Notes who received Notes
similar in term and tenure as this Note. The Borrower shall reduce
the amount of Note principal and interest subject to a Notice of
Mandatory Conversion by the amount of Note Principal and interest
for which the Holder had delivered a Notice of Conversion to the
Borrower during the twenty (20) trading days preceding the
Mandatory Conversion Date. Each Mandatory Conversion Date shall be
a deemed Conversion Date and the Borrower and the Holder will be
required to comply with Section 2.1 above.
ARTICLE III
CONVERSION
RIGHTS
3.1.
Holder's Conversion
Rights . Subject to Section 3.2, the Holder shall have the
right, but not the obligation at all times, to convert all or any
portion of the then aggregate outstanding Principal Amount of this
Note, into shares of Common Stock, subject to the terms and
conditions set forth in this Article III at the rate of $2.00 per
share of Common Stock (“Fixed Conversion Price”) as
same may be adjusted pursuant to this Note and the Subscription
Agreement. The Holder may exercise such right by delivery to the
Borrower of a written Notice of Conversion pursuant to Section 3.3.
After the occurrence of an Event of Default, the Fixed Conversion
Price shall be the lesser of the Fixed Conversion Price or 85% of
the VWAP for the five trading days prior to a Conversion
Date.
3.2.
Conversion Limitation .
The Holder shall not be entitled to convert on a Conversion Date
that amount of the Note in connection with that number of shares of
Common Stock which would be in excess of the sum of (i) the number
of shares of Common Stock beneficially owned by the Holder and its
affiliates on a Conversion Date, (ii) any Common Stock issuable in
connection with the unconverted
3
portion of the
Note, and (iii) the number of shares of Common Stock issuable upon
the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would
result in beneficial ownership by the Holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock of the
Borrower on such Conversion Date. For the purposes of the provision
to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Holder shall not be limited to
aggregate conversions of only 4.99% and aggregate conversion by the
Holder may exceed 4.99% . The Holder shall have the authority and
obligation to determine whether the restriction contained in this
Section 3.2 will limit any conversion hereunder and to the extent
that the Holder determines that the limitation contained in this
Section applies, the determination of which portion of the Notes
are convertible shall be the responsibility and obligation of the
Holder. The Holder may allocate decide whether to convert a Note or
exercise Warrants to achieve an actual 4.99% ownership
position.
3.3.
Mechanics of Holder's
Conversion .
(a)
In the event that the Holder
elects to convert any amounts outstanding under this Note into
Common Stock, the Holder shall give notice of such election by
delivering an executed and completed notice of conversion (a
"Notice of Conversion") to the Borrower, which Notice of Conversion
shall provide a breakdown in reasonable detail of the Principal
Am
