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Exhibit 10.2
THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. 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
AND ANY APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FORTUNE DIVERSIFIED
INDUSTRIES, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED.
CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, FORTUNE DIVERSIFIED INDUSTRIES, INC., an
Indiana
corporation (the "COMPANY"), promises to
pay to LAURUS MASTER FUND, LTD., c/o
M&C Corporate Services Limited, P.O.
Box 309 GT, Ugland House, South Church
Street, George Town, Grand Cayman, Cayman
Islands, Fax: 345-949-8080 (the
"HOLDER") or its registered assigns or
successors in interest, the sum of SEVEN
MILLION FIVE HUNDRED THOUSAND DOLLARS
($7,500,000), together with any accrued
and unpaid interest hereon, on November __,
2008 (the "MATURITY DATE") if not
sooner paid.
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 by and between
the Company and the Holder (as
amended, modified and/or supplemented from
time to time, the "PURCHASE
AGREEMENT").
The following terms shall apply to this Convertible Term Note
(this
"NOTE"):
ARTICLE I
CONTRACT RATE AND AMORTIZATION
1.1 Contract Rate. Subject to Sections 4.2 and 5.10, interest
payable
on the outstanding principal amount of this
Note (the "PRINCIPAL AMOUNT") shall
accrue at a rate per annum equal to the
"prime rate" published in The Wall
Street Journal from time to time (the
"PRIME RATE"), plus three percent (3.0%)
(the "CONTRACT RATE"). 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 in the Prime Rate.
Subject to Section 1.2, the Contract
Rate shall not at any time be less than
nine and one half percent (9.50%).
Interest shall be (i) calculated on the
basis of a 360 day year, and (ii)
payable monthly, in arrears, commencing on
January 1, 2006, on the first
business day of each consecutive calendar
month thereafter through and including
the Maturity Date, and on the Maturity
Date, whether by acceleration or
otherwise.
1.2 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) until the Maturity
Date (each a "DETERMINATION DATE") and
shall be subject to adjustment as set
forth herein. If (i) the Company shall have
registered the shares of
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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
foregoing (and anything to the
contrary contained herein), in no event
shall the Contract Rate at any time be
less than zero percent (0%).
1.3 Principal Payments. Amortizing payments of the aggregate
principal
amount outstanding under this Note at any
time (the "PRINCIPAL AMOUNT") shall be
made by the Company on March 1, 2006 and on
the first business day of each
succeeding month thereafter through and
including the Maturity Date (each, an
"AMORTIZATION DATE"). Subject to Article
III below, commencing on the first
Amortization Date, the Company shall make
monthly payments to the Holder on each
Repayment Date, each such payment in the
amount of ($227,272.72) together with
any accrued and unpaid interest on such
portion of the Principal Amount plus any
and all other unpaid amounts which are then
owing under this Note, the Purchase
Agreement and/or any other Related
Agreement (collectively, the "MONTHLY
AMOUNT"). Any outstanding Principal Amount
together with any accrued and unpaid
interest and any and all other unpaid
amounts which are then owing by the
Company to the Holder under this Note, the
Purchase Agreement and/or any other
Related Agreement shall be due and payable
on the Maturity Date. Notwithstanding
the foregoing, with respect to Monthly
Amounts due hereunder, the Company shall
have the option upon two business days'
prior written notice to Holder to
postpone payment of any twelve (12)
amortizing principal payments due and
payable on any twelve Amortization Dates
(each a "Postponed Principal Amount",
collectively, the "Deferred Principal
Amounts"; such Deferred Principal Amounts
shall be due and payable, at the Company's
option, on any subsequent
Amortization Date or on the Maturity
Date.
ARTICLE II
CONVERSION AND REDEMPTION
2.1 Payment of Monthly Amount.
(a) Payment in Cash or Common Stock. If the Monthly Amount
(or a portion of such Monthly Amount if not all of the Monthly
Amount
may be converted into shares of Common Stock pursuant to Section
3.2)
is required to be paid in cash pursuant to Section 2.1(b), then
the
Company shall pay the Holder an amount in cash equal to 102% of
the
Monthly Amount (or such portion of such Monthly Amount to be paid
in
cash) due and owing to the Holder on the Amortization Date. If
the
Monthly Amount (or a portion of such Monthly Amount if not all of
the
Monthly Amount may be converted into shares of Common Stock
pursuant
to Section 3.2) is required to be paid in shares of Common
Stock
pursuant to Section 2.1(b), the number of such shares to be issued
by
the Company to the Holder on such Amortization Date (in respect
of
such portion of the Monthly Amount converted into shares of
Common
Stock pursuant to Section 2.1(b)), shall be the
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number determined by dividing (i) the portion of the Monthly
Amount
converted into shares of Common Stock, by (ii) the then
applicable
Fixed
Conversion Price. For purposes hereof, subject to Section 3.6
hereof, the initial "FIXED CONVERSION PRICE" means $5.50.
(b) Monthly Amount Conversion Conditions. Subject to
Sections 2.1(a), 2.2, and 3.2 hereof, the Holder shall convert
into
shares of Common Stock all or a portion of the Monthly Amount due
on
each Amortization Date if the following conditions (the
"CONVERSION
CRITERIA") are satisfied: (i) the average closing price of the
Common
Stock as reported by Bloomberg, L.P. on the Principal Market for
the
five (5) trading days immediately preceding such Amortization
Date
shall be greater than or equal to 109% of the Fixed Conversion
Price
and (ii) the amount of such conversion does not exceed twenty
five
percent (25%) of the aggregate dollar trading volume of the
Common
Stock for the period of twenty-two (22) trading days
immediately
preceding such Amortization Date. If subsection (i) of the
Conversion
Criteria is met but subsection (ii) of the Conversion Criteria is
not
met as to the entire Monthly Amount, the Holder shall convert
only
such part of the Monthly Amount that meets subsection (ii) of
the
Conversion Criteria. Any portion of the Monthly Amount due on
an
Amortization Date that the Holder has not been able to convert
into
shares of Common Stock due to the failure to meet the
Conversion
Criteria, shall be paid in cash by the Company at the rate of 102%
of
the Monthly Amount otherwise due on such Amortization Date,
within
three (3) business days of such Amortization Date.
(c) Additional Conversion. Subject to prior satisfaction of
the conversion of Monthly Amounts then due and owing to Holder
into
Common Stock as set forth in Section 2.1(b) above, if (i) the
average
closing price of the Common Stock as reported by Bloomberg, L.P.
on
the Principal Market for five (5) consecutive trading days in
any
calendar month (the fifth day being called the "Trigger Date")
shall
be greater than or equal to 200% of the Fixed Conversion Price,
then
the Holder shall convert on each such Trigger Date, subject to
Sections 2.1(a), 2.2, and 3.2 hereof, such principal amount of
the
Note as does not exceed twenty five percent (25%) of the
aggregate
dollar trading volume of the Common Stock for the period of
twenty-two
(22) trading days immediately preceding such Trigger Date less
any
amounts previously converted during such period under Section
2.1(b)
above. No more than one (1) Trigger Date may occur in any
calendar
month.
2.2 No Effective Registration. Notwithstanding anything to the
contrary herein, none of the Company's
obligations to the Holder may be
converted into Common Stock unless (a)
either (i) an effective current
Registration Statement (as defined in the
Registration Rights Agreement)
covering the shares of Common Stock to be
issued in connection with satisfaction
of such obligations exists or (ii) an
exemption from registration for resale of
all of the Common Stock issued and issuable
is available pursuant to Rule 144 of
the Securities Act and (b) no Event of
Default (as hereinafter defined) exists
and is continuing, unless such Event of
Default is cured within any applicable
cure period or otherwise waived in writing
by the Holder.
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2.3 Optional Redemption in Cash. The Company may prepay this
Note
("OPTIONAL REDEMPTION") by paying to the
Holder a sum of money equal to one
hundred thirty percent (130%) 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 Company 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 seven (7)
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
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 Article III 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 Company fails to pay the
Redemption Amount on the Redemption Payment
Date as set forth herein, then such
Redemption Notice will be null and
void.
ARTICLE III
HOLDER'S CONVERSION RIGHTS
3.1 Optional Conversion. Subject to the terms set forth in this
Article III, the Holder shall have the
right, but not the obligation, to convert
all or any portion of the issued and
outstanding Principal Amount and/or accrued
interest and fees due and payable into
fully paid and nonassessable shares of
Common Stock at the Fixed Conversion Price.
The shares of Common Stock to be
issued upon such conversion are herein
referred to as, the "CONVERSION SHARES."
3.2 Conversion Limitation. Notwithstanding anything contained
herein
to the contrary, the Holder shall not be
entitled to convert pursuant to the
terms of this Note an amount that would be
convertible into that number of
Conversion Shares which would exceed the
difference between (i) 4.99% of the
issued and outstanding shares of Common
Stock and (ii) the number of shares of
Common Stock beneficially owned by the
Holder. For purposes of the immediately
preceding sentence, beneficial ownership
shall be determined in accordance with
Section 13(d) of the Exchange Act and
Regulation 13d-3 thereunder. The
Conversion Share limitation described in
this Section 3.2 shall automatically
become null and void following notice to
the Company upon the occurrence and
during the continuance of an Event of
Default, upon 75 days prior notice to the
Company, or upon receipt by the Holder of a
Notice of Redemption, except that at
no time shall the number of shares of
Common Stock beneficially owned by the
Holder exceed 19.99% of the outstanding
shares of Common Stock. Notwithstanding
anything contained herein to the contrary,
the number of shares of Common Stock
issuable by the Company and acquirable by
the Holder at a price below $update
Friday $4.95 per share pursuant to the
terms of this Note, the Purchase
Agreement or any other Related Agreement,
shall not exceed an aggregate of
2,108,764 shares of Common Stock (subject
to appropriate adjustment for stock
splits, stock dividends, or other similar
recapitalizations affecting the Common
Stock) (the "MAXIMUM COMMON STOCK
ISSUANCE"), unless the issuance of Common
Stock hereunder
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in excess of the Maximum Common Stock
Issuance shall first be approved by the
Company's shareholders. If at any point in
time and from time to time the number
of shares of Common Stock issued pursuant
to the terms of this Note, the
Purchase Agreement or any other Related
Agreement, together with the number of
shares of Common Stock that would then be
issuable by the Company to the Holder
in the event of a conversion or exercise
pursuant to the terms of this Note, the
Purchase Agreement or any other Related
Agreement, would exceed the Maximum
Common Stock Issuance but for this Section
3.2, the Company shall promptly call
a shareholders meeting to solicit
shareholder approval for the issuance of the
shares of Common Stock hereunder in excess
of the Maximum Common Stock Issuance.
Notwithstanding anything contained herein
to the contrary, the provisions of
this Section 3.2 are irrevocable and may
not be waived by the Holder or the
Company.]
3.3 Mechanics of Holder's Conversion. In the event that the
Holder
elects to convert this Note into Common
Stock, the Holder shall give notice of
such election by delivering an executed and
completed notice of conversion in
substantially the form of Exhibit A hereto
(appropriate completed) ("NOTICE OF
CONVERSION") to the Company and such Notice
of Conversion shall provide a
breakdown in reasonable detail of the
Principal Amount, accrued interest and
fees that are being converted. On each
Conversion Date (as hereinafter defined)
and in accordance with its Notice of
Conversion, the Holder shall make the
appropriate reduction to the Principal
Amount, accrued interest and fees as
entered in its records and shall provide
written notice thereof to the Company
within two (2) business days after the
Conversion Date. Each date on which a
Notice of Conversion is delivered or
telecopied to the Company in accordance
with the provisions hereof shall be deemed
a Conversion Date (the "CONVERSION
DATE"). Pursuant to the terms of the Notice
of Conversion, the Company will
issue instructions to the transfer agent
accompanied by an opinion of counsel
within three (3) business days of the date
of the delivery to the Company of the
Notice of Conversion and shall cause the
transfer agent to transmit the
certificates representing the Conversion
Shares to the Holder by crediting the
account of the Holder's designated broker
with the Depository Trust Corporation
("DTC") through its Deposit Withdrawal
Agent Commission ("DWAC") system within
three (3) business days after receipt by
the Company of the Notice of Conversion
(the "DELIVERY DATE"). In the case of the
exercise of the conversion rights set
forth herein the conversion privilege shall
be deemed to have been exercised and
the Conversion Shares issuable upon such
con
