EXHIBIT 10.44
-------------
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.
1
<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
---------------- ----------------------
----------------
----------------------
2
<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.
3
<PAGE>
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.
4
<PAGE>
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 of the board of d
