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EXHIBIT 10.44
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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 NESTOR, INC., THAT SUCH REGISTRATION IS NOT
REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, NESTOR, INC., a Delaware corporation
(hereinafter
called the "Borrower"), hereby promises to pay to LAURUS MASTER
FUND, LTD., c/o
Ironshore Corporate Services Ltd., P.O. Box 1234 G.T.,
Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877
(the "Holder") or
its registered assigns or successors in interest, on order,
without demand, the
sum of Six Million Dollars ($6,000,000), together with any
accrued and unpaid
interest and fees on May 16, 2008 (the "Maturity Date").
Capitalized terms used
herein without definition shall have the meanings ascribed to
such terms in that
certain Securities Purchase Agreement dated as of the date
hereof between the
Borrower and the Holder (the "Purchase Agreement").
The following terms shall apply to this Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1 (a) INTEREST RATE. Interest payable on this Note shall
accrue at the
"base rate" or "prime rate" published in the WALL STREET JOURNAL
from time to
time, plus four percent (4.00%) (such sum, the "Contract Rate")
commencing on
June 1, 2005 and be payable in arrears on the first day of each
consecutive
calendar month thereafter, and on the Maturity Date, accelerated
or otherwise,
due and payable as described below. The Contract Rate shall be
increased or
decreased as the case may be for each increase or decrease in
the Prime Rate in
an amount equal to such increase or decrease in the Prime Rate;
each change to
be effective as of the day of the change. Except pursuant to
Section 1.1(b), the
Contract Rate shall not at any time be less than six percent
(6.00%). Interest
shall be calculated on the basis of a 360 day year, provided
however, that if
the closing price of the Common Stock shall exceed $5.82 for a
period of no less
than five (5) consecutive trading days in a given calendar
month, the Contract
Rate shall be reduced to the "base rate" or "prime rate"
published in the Wall
Street Journal from time to time, plus two percent (2.00%) for
such calendar
month.
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<PAGE>
(b) CONTRACT RATE ADJUSTMENTS AND PAYMENTS. The Contract Rate
shall be
calculated on the last business day of each calendar month
hereafter (other than
for increases or decreases in the Prime Rate which shall be
calculated and
become effective in accordance with the terms of Section 1.1(a))
until the
Maturity Date (each a "Determination Date") and shall be subject
to adjustment
as set forth herein. If (i) the Borrower shall have registered
the shares of the
Common Stock underlying the conversion of this Note and each
Warrant on a
registration statement declared effective by the Securities and
Exchange
Commission (the "SEC"), and (ii) the market price (the "Market
Price") of the
Common Stock as reported by Bloomberg, L.P. on the Principal
Market for the five
(5) trading days immediately preceding a Determination Date
exceeds the then
applicable Fixed Conversion Price by at least twenty-five
percent (25%), the
Contract Rate for the succeeding calendar month shall
automatically be reduced
by 200 basis points (200 b.p.) (2%) for each incremental
twenty-five percent
(25%) increase in the Market Price of the Common Stock above the
then applicable
Fixed Conversion Price. Notwithstanding the immediately
foregoing, the Contract
Rate shall not be less than 0.0%.
1.2 PRINCIPAL. The Borrower shall make repayments of principal
on the Note
as follows:
---------------- ---------------------- ----------------
----------------------
Date Principal Payment Date Principal Payment
---------------- ---------------------- ----------------
----------------------
9/1/2005 181,818 2/1/2007 181,818
10/1/2005 181,818 3/1/2007 181,818
11/1/2005 181,818 4/1/2007 181,818
12/1/2005 181,818 5/1/2007 181,818
1/1/2006 181,818 6/1/2007 181,818
2/1/2006 181,818 7/1/2007 181,818
3/1/2006 181,818 8/1/2007 181,818
4/1/2006 181,818 9/1/2007 181,818
5/1/2006 181,818 10/1/2007 181,818
6/1/2006 181,818 11/1/2007 181,818
7/1/2006 181,818 12/1/2007 181,818
8/1/2006 181,818 1/1/2008 181,818
9/1/2006 181,818 2/1/2008 181,818
10/1/2006 181,818 3/1/2008 181,818
11/1/2006 181,818 4/1/2008 181,818
12/1/2006 181,818 5/1/2008 181,818
1/1/2007 181,818
---------------- ---------------------- ----------------
----------------------
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<PAGE>
ARTICLE II
BORROWER PAYMENT OPTIONS
2.1 MONTHLY PAYMENTS IN CASH OR COMMON STOCK. The Borrower shall
make
monthly payments of (i) accrued and unpaid interest on the
aggregate principal
of the Note (plus any payments due and owing under the Purchase
Agreement and
the Note not previously paid) and (ii) payments of principal
according to the
schedule set forth in Section 1.2 hereof (collectively, the
"Monthly Amount")
beginning on September 1, 2005 and on the first day of each
consecutive calendar
month thereafter (each a "Repayment Date"). Subject to the terms
hereof, the
Borrower has the sole option to determine whether to satisfy
payment of the
Monthly Amount in full on each Repayment Date either in cash or
in shares of
Common Stock, or a combination of both. The Borrower shall
deliver to the Holder
a written irrevocable notice in the form of Exhibit B attached
hereto electing
to pay such Monthly Amount in full on such Repayment Date in
either cash or
Common Stock, or a combination of both ("Repayment Election
Notice"). Such
Repayment Election Notice shall be delivered to the Holder at
least ten (10)
days prior to the applicable Repayment Date (the date of such
notice being
hereinafter referred to as the "Notice Date"). If such Repayment
Election Notice
is not delivered within the prescribed period set forth in the
preceding
sentence, then the repayment shall be made in cash. If the
Borrower elects or is
required to repay all or a portion of the Monthly Amount in cash
on a Repayment
Date, then, with respect to the portion of the Monthly Amount to
be paid in
cash, on such Repayment Date the Borrower shall pay to the
Holder an amount
equal to (x) 103% of the principal portion of the Monthly Amount
plus (y) any
accrued and unpaid interest in satisfaction of such obligation.
If the Borrower
repays all or a portion of the Monthly Amount in shares of
Common Stock, the
number of such shares to be issued for such Repayment Date shall
be the number
determined by dividing (x) the portion of the Monthly Amount to
be paid in
shares of Common Stock, by (y) 5.82 (the "Fixed Conversion
Price").
2.2 No EFFECTIVE REGISTRATION. Notwithstanding anything to the
contrary
herein, the Borrower shall be prohibited from exercising its
right to repay the
Monthly Amount in shares of Common Stock (and must deliver cash
in respect
thereof) on the applicable Repayment Date if at any time from
the Notice Date
until the time at which the Holder receives such shares there
fails to exist an
effective registration statement or an Event of Default
hereunder exists or
occurs, unless otherwise waived in writing by the Holder in
whole or in part at
the Holder's option.
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2.3 COMMON STOCK PAYMENT RESTRICTIONS. Notwithstanding anything
to the
contrary herein, for the avoidance of doubt, (a) if the volume
weighted average
price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market
for each of the 10 trading days preceding a Repayment Date was
greater than 120%
of the Fixed Conversion Price, the Borrower may elect to pay all
or a portion of
the Monthly Amount in shares of Common Stock; (b) if the volume
weighted average
price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market
for any of the 10 trading days preceding a Repayment Date was
less than 120% of
the Fixed Conversion Price, and the Borrower has elected to pay
all or a portion
of the Monthly Amount in shares of Common Stock, then, instead
of the Borrower
delivering the required number of shares of Common Stock on the
Repayment Date,
the Holder and the Borrower may mutually agree to convert an
amount equal to
what the Borrower elected to pay in shares of Common Stock at a
conversion price
equal to 87% of the volume weighted average price of the three
(3) lowest days
during the twenty (20) trading days immediately preceding the
Repayment Date.
Any part of the Monthly Amount not converted into shares of
Common Stock by the
following Repayment Date shall be paid by the Borrower in cash
on such following
Repayment Date. Any such cash payments not made on or before
such repayment Date
shall be added to the next succeeding Monthly Amount. At any
time during the
relevant month or mutual agreement per above is not attained,
the Borrower shall
pay the Monthly Amount, or the unconverted part thereof, in cash
and the
conversion price set forth in this Section 2.3 shall no longer
be applicable.
2.4 OPTIONAL PREPAYMENTS IN COMMON STOCK. In the event that the
Common
Stock trades on the Principal Market at a volume weighted
average price greater
than 120% of the Fixed Conversion Price for a period of at least
ten (10)
consecutive trading days, then the Borrower may, at its sole
option, provide the
Holder written notice ("Call Notice") requiring the conversion
at the Fixed
Conversion Price of all or a portion of the Note held by the
Holder (subject to
the limitation provided for in Section 3.3) as of the date set
forth in such
Call Notice (the "Call Date"). The Call Date shall be at least
twenty (20)
trading days following the date of the Call Notice, provided a
registration
statement covering resales of that number of Conversion Shares
provided for in
the Call Notice has been declared effective and is available for
use. The number
of Conversion Shares to be issued in connection with any such
conversion
pursuant to a particular Call Notice pursuant to this Section
3.9 shall not
exceed 25% of the aggregate dollar trading volume of the Common
Stock for the
twenty (20) trading days immediately preceding the Call Date. If
the price of
the Common Stock falls below 120% of the Conversion Price during
the twenty (20)
trading day period preceding the Call Date, then the Holder will
no longer be
required to convert the Note pursuant to such Call Notice. The
Borrower shall
not be permitted to give the Holder more than one notice during
any 20-day
period.
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2.5 The Borrower may prepay this Note ("Optional Redemption") by
paying to
the Holder a sum of money equal to one hundred fifteen percent
(115%) of the
Principal Amount outstanding at such time together with accrued
but unpaid
interest thereon and any and all other sums due, accrued or
payable to the
Holder arising under this Note, the Purchase Agreement or any
other Related
Agreement (the "Redemption Amount") outstanding on the
Redemption Payment Date
(as defined below). The Borrower shall deliver to the Holder a
written notice of
redemption (the "Notice of Redemption") specifying the date for
such Optional
Redemption (the "Redemption Payment Date"), which date shall be
not earlier than
seven (7) 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 this Note for which the Holder has previously
delivered a Notice of
Conversion (as hereinafter defined) or for conversions elected
to be made by the
Holder pursuant to Section 3.3 during the Redemption Period. The
Redemption
Amount shall be determined as if the Holder's conversion
elections had been
completed immediately prior to the date of the Notice of
Redemption. On the
Redemption Payment Date, the Redemption Amount must be paid in
good funds to the
Holder. In the event the Borrower fails to pay the Redemption
Amount on the
Redemption Payment Date as set forth herein, then such
Redemption Notice will be
null and void A Notice of Redemption may be given by the
Borrower, provided no
Event of Default, as described in the Note, shall have occurred
or be
continuing.
2.6 Upon a Change of Control (as defined below) occurring with
respect to
the Borrower, unless Holder shall have expressly consented to
such Change of
Control in writing, Borrower shall prepay this Note in
accordance with Section
2.5. A "Change of Control" shall mean any event or circumstance
as a result of
which (i) any "Person" or "group" (as such terms are defined in
Sections 13(d)
and 14(d) of the Exchange Act, as in effect on the date hereof),
other than the
Holder, is or becomes the "beneficial owner" (as defined in
Rules 13(d)-3 and
13(d)-5 under the Exchange Act), directly or indirectly, of 35%
or more on a
fully diluted basis of the then outstanding voting equity
interest of the
Borrower (other than a "Person" or "group" that beneficially
owns 35% or more of
such outstanding voting equity interests of the Borrower on the
date hereof),
(ii) the Board of Directors of the Borrower shall cease to
consist of a majority
of the Borrower's board of directors on the date hereof (or
directors nominated
or elected by (x) a majority
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