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Exhibit 10.8
EXECUTION COPY
SENIOR 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, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO
THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
THE SECURITIES MAY BE 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 19(a) HEREOF. 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.
DAYSTAR TECHNOLOGIES, INC.
SENIOR CONVERTIBLE NOTE
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Issuance Date: May 25, 2006
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Principal: U.S. $15,000,000
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FOR VALUE RECEIVED, DayStar
Technologies, Inc., a Delaware corporation (the " Company "),
hereby promises to pay to the order of LC CAPITAL MASTER FUND, LTD.
or registered assigns (" Holder ") the amount set out above
as the Principal (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), on any
Installment Date with respect to the Installment Amount due on such
Installment Date (each, as defined herein), acceleration,
redemption or otherwise (in each case in accordance with the terms
hereof) and to pay interest (" Interest ") on any
outstanding Principal at a rate equal to 7.5% per annum (the "
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),
any Installment Date or the Maturity Date, acceleration,
conversion, redemption or otherwise (in each case in accordance
with the terms hereof). This Senior Convertible Note (this "
Note ") is the Senior Convertible Note issued pursuant to
Section 19(d) hereof after assignment to the Holder on
January 19, 2007 pursuant to the Note Purchase Agreement (as
defined below)
of all rights and interests in the original
Senior Convertible Note issued pursuant to the Securities Purchase
Agreement (as defined below) on the Closing Date. This Note and any
Senior Convertible Note issued in exchange, transfer or replacement
hereof shall be collectively referred to herein as the "
Notes " and any such other Senior Convertible Notes, shall
be referred to herein as the " Other Notes ". Certain
capitalized terms used herein are defined in
Section 29.
1. PAYMENTS OF PRINCIPAL . On each Installment Date, the
Company shall pay to the Holder an amount equal to the Installment
Amount due on such Installment Date in accordance with
Section 8. The " Maturity Date " shall be the eight
(8) month anniversary of the Initial Maturity Date 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 or any
event shall have occurred and be continuing which 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) 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.
2. INTEREST; INTEREST RATE . Interest on this Note shall
commence accruing on the Issuance Date and shall be computed on the
basis of a 365-day year and actual days elapsed and shall be
payable in arrears for each Payment Quarter on the first day of the
succeeding Payment 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 July 1, 2006. Interest shall be payable on each Interest
Date, to the record holder of this Note on the applicable Interest
Date, and to the extent that any Principal amount of this Note is
converted prior to such Interest Date, accrued and unpaid Interest
with respect to such converted Principal amount and accrued and
unpaid Late Charges with respect to such Principal and Interest
shall be paid through the Conversion Date (as defined below) on the
next succeeding Interest Date to the record holder of this Note on
the applicable Conversion Date, in cash (" Cash Interest ")
or, at the option of the Company, in shares of Common Stock ("
Interest Shares ") or a combination thereof, provided that
the Interest which accrued during any period may be payable in
Interest Shares if, and only if, the Company delivers written
notice (each, an " Interest Election Notice ") of such
election to each holder of the Notes on or prior to the tenth (10
th ) Trading
Day prior to the Interest Date (each, an " Interest Notice Due
Date "); provided, further, that if the Stockholder Approval
(as defined in the Securities Purchase Agreement) has not been
obtained by the Stockholder Meeting Deadline (as defined in the
Securities Purchase Agreement), the Company may not elect to pay
Interest in Interest Shares and must pay all Interest due hereunder
as Cash Interest until such time as the Stockholder Approval has
been obtained. Each Interest Election Notice must specify the
amount of Interest that shall be paid as Cash Interest, if any, and
the amount of Interest that shall be paid in Interest Shares.
Interest to be paid on an Interest Date in Interest Shares shall be
paid in a number of duly authorized, validly issued, fully paid and
nonassessable shares (rounded to the nearest whole share in
accordance with Section 3(a)) of Common Stock equal to the
quotient of (a) the amount of Interest payable on such
Interest Date less any Cash Interest paid and (b) the Interest
Conversion
Price in effect on the applicable Interest Date.
If any Interest Shares are to be paid on an Interest Date, then the
Company shall (X) 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 (Y) 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
Business 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.
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 consented to in writing by the Holder, during the period
commencing on the applicable Interest Notice Due Date through the
applicable Interest Date the Equity Conditions have not been
satisfied. Prior to the payment of Interest on an Interest Date,
Interest on this Note shall accrue at the Interest Rate. Upon the
occurrence and during the continuance of an Event of Default, the
Interest Rate shall be increased to ten percent (10%). 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;
provided that the Company shall not be required to pay any
tax that may be payable in respect of any issuance of Interest
Shares to any Person other than the Holder or with respect to any
income tax due by the Holder with respect to such Interest
Shares.
3. CONVERSION OF NOTES . This Note shall be convertible
into shares of the Company’s common stock, par value $0.01
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
duly authorized, validly issued, 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 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 ").
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(i) " Conversion Amount " means the portion of the
Principal to be converted, redeemed or otherwise with respect to
which this determination is being made.
(ii) " Conversion Price " means, as of any Conversion
Date (as defined below) or other date of determination, $11.50,
subject to adjustment as provided herein.
(c) Mechanics of Conversion .
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(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). The Conversion
Notice shall include notification to the Company of any restriction
upon issuances to the Holder pursuant to Section 3(d)(i)
hereof of which the Holder is aware. 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 of receipt of
such Conversion Notice to the Holder and the Transfer Agent. On or
before the second Business Day following the date of confirmed
receipt of a Conversion Notice (the " Share Delivery Date
"), the Company shall (X) provided that the Transfer Agent is
participating in the DTC Fast Automated Securities Transfer
Program, credit such aggregate number of shares of Common Stock 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 (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 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 19(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. In the event of a partial conversion
of this Note pursuant hereto, the principal amount converted shall
be deducted from the Installment Amounts relating to the
Installment Dates as set forth in the Conversion Notice.
(ii) Company’s Failure to Timely Convert . If
within three (3) Trading Days after the Company’s
confirmed 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 (a "
Conversion Failure "), 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 "), then
the Company shall, within three (3) Business Days after the
Holder’s request and in the Holder’s discretion, either
(i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased
(the "Buy-In Price" ), at which point the Company’s
obligation to deliver such certificate (and to issue such Common
Stock) shall terminate or (ii) 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
(A) such number of shares of Common Stock, and (B) the
Closing Bid Price on the Conversion Date.
(iii) Book-Entry . 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 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 24.
(d) Limitations on Conversions .
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(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 the aggregate, including all
shares of stock of the Company issued to the Holder in connection
with the Transaction Documents, 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. 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 or Form 8-K, 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 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.
(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 the
Principal 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 the Principal 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, the purchaser of this Note pursuant to the Securities
Purchase Agreement (the " Purchaser ") shall not be issued
in the aggregate, upon conversion or exercise, as applicable, of
the Notes or the Warrants, shares of Common Stock in an amount
greater than the Exchange Cap. In the event that the Purchaser
shall sell or otherwise transfer any of this Note, the transferee
shall be allocated a pro rata portion of the Exchange Cap, and the
restrictions of the prior sentence shall apply to such transferee
with respect to the portion of the Exchange Cap allocated to such
transferee (the " Exchange Cap Allocation "). 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.
(iii) Cap on Total Shares Issued . 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,
when aggregated with all other shares of Common Stock issued by the
Company upon conversion of this Note (excluding any Interest
Shares, shares of Common Stock issued or issuable upon exercise of
any of the Warrants and any other shares issued or issuable
pursuant to the Transaction Documents), exceed 1,968,216 shares of
Common Stock (subject to adjustment for stock splits, combinations
and like events) (the " Issuance Cap "). The Purchaser of
this Note pursuant to the Securities Purchase Agreement shall not
be issued in the aggregate, upon conversion of the Notes shares of
Common Stock in an amount greater than the Issuance Cap. In the
event that the Purchaser shall sell or otherwise transfer any of
this Note, the transferee shall be allocated a pro rata portion of
the Issuance Cap, and the restrictions of the prior sentence shall
apply to such transferee with respect to the portion of the
Issuance Cap allocated to such transferee (the " Issuance Cap
Allocation "). 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 Issuance Cap Allocation, then the difference between
such holder’s Issuance Cap Allocation and the number of
shares of Common Stock actually
issued to such holder shall be allocated to the
respective Issuance 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 ":
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(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 twenty
(20) consecutive days or for more than an aggregate of sixty
(60) 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 days or for more than an aggregate of ten
(10) 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 are tendered in accordance with the provisions of the Notes,
other than pursuant to Section 3(d);
(iv) at any time following the tenth (10 th ) consecutive Business Day
that the Holder’s Authorized Share Allocation (as defined
below) 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 (as defined in Section 3(s) of
the Securities Purchase Agreement) 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 $500,000 are rendered against 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 $500,000 amount 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 (as defined
in the Securities Purchase Agreement), 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 either
of Sections 8, 10 or 15 of this Note; or
(xii) any Event of Default (as defined in the Other Notes)
occurs with respect to any Other Notes.
(b) Redemption Right . Promptly after the
occurrence of an Event of Default with respect to this Note or any
Other Note, the Company shall 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 (x) the sum of the Conversion Amount to be redeemed
together with accrued and unpaid Interest with respect to such
Conversion Amount and accrued and unpaid Late Charges with respect
to such Conversion Amount and Interest and (y) the Redemption
Premium and (ii) the product of (A) the Conversion Rate
with respect to such sum of the Conversion Amount together with
accrued and unpaid Interest with respect to such Conversion Amount
and accrued and unpaid Late Charges with respect to such Conversion
Amount and Interest in effect at such time as the Holder delivers
an Event of Default Redemption Notice and (B) the Closing Sale
Price of the Common Stock on the date immediately preceding such
Event of Default (the " Event of Default Redemption Price
"). Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 13. In the event of
a partial redemption of this Note pursuant hereto, the principal
amount redeemed shall be deducted from the Installment Amounts
relating to the applicable Installment Dates as set forth in the
Event of Default Redemption Notice.
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 reasonably 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 and the interest rates of the Notes held by
such holder 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 (a " Public Successor Entity "). 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) purchasable upon the
conversion or redemption of the Notes prior to such Fundamental
Transaction, such shares of the publicly traded common stock (or
its 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) days nor later than ten (10) 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 "); provided ,
that the Holder hereby waives its right not to receive any material
non-public information that may be set forth in any such Change of
Control Notice. At any time during the period beginning after the
Holder’s receipt of a Change of Control Notice and ending on
the date of the consummation of such Change of Control (or, in the
event a Change of Control Notice is not delivered at least ten
(10) days prior to a Change of Control, at any time on or
after the date which is ten (10) days prior to a Change of
Control and ending ten (10) days after 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 at a price equal to the greater of
(i) the product of (x) 125% of the sum of the Conversion
Amount being redeemed together with accrued and unpaid Interest
with respect to such Conversion Amount and accrued and unpaid Late
Charges with respect to such Conversion Amount and Interest and
(y) the quotient determined by dividing (A) the Closing
Sale Price of the Common Stock immediately following the public
announcement of such proposed Change of Control by (B) the
Conversion Price and (ii) 125% of the sum of the Conversion
Amount being redeemed together with accrued and unpaid Interest
with respect to such Conversion Amount and accrued and unpaid Late
Charges with respect to such Conversion Amount and Interest (the "
Change of Control Redemption Price "). Redemptions required
by this Section 5 shall be made in accordance with the
provisions of Section 13 and shall have priority to payments
to stockholders in connection with a Change of Control.
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(c) (together with any interest thereon) may be
converted, in whole or in part, by the Holder into Common Stock
pursuant to Section 3. In the event of a partial redemption of
this Note pursuant hereto, the principal amount redeemed shall be
deducted from the Installment Amounts relating to the applicable
Installment Dates as set forth in the Change of Control Redemption
Notice.
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, (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 Security) 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
(the foregoing a " Dilutive Issuance "), then immediately
after such Dilutive Issuance the Conversion Price then in effect
shall be reduced to a price (calculated to the nearest
one-hundredth of a cent) determined in accordance with the
following formula:
CP 2 = CP
1 * (A + B)
÷ (A + C).
For purposes of the foregoing formula, the following definitions
shall apply:
-
(i) " CP 2 " shall mean the Conversion Price in effect immediately after
such Dilutive Issuance;
(ii) " CP 1 " shall mean the Conversion Price in effect immediately prior
to such Dilutive Issuance;
(iii) " A " shall mean the number of shares of Common
Stock outstanding immediately prior to such Dilutive Issuance
(treating for this purpose as outstanding all shares of Common
Stock issuable upon exercise of "in-the-money" Options outstanding
immediately prior to such issue or upon conversion or exchange of
Convertible Securities (including the Notes) outstanding (assuming
exercise of any outstanding Options therefor immediately prior to
such issue);
(iv) " B " shall mean the number of shares of Common
Stock that would have been issued in such Dilutive Issuance if
shares of Common Stock had been issued at a price per share equal
to CP 1 (determined
by dividing the aggregate consideration received by the Company in
respect of such issue by CP 1 ); and
(v) " C " shall mean the number of shares of Common Stock
issued or deemed to be issued in such Dilutive Issuance.
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, other than Excluded Securities, 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 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, other
than Excluded 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 of sale of such Convertible Securities for such price per
share. For the purposes of this Section 7(a)(ii), the "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 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, other than Excluded
Securities, 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
changes at any time, the Conversion Price in effect at the time of
such change 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 changed 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
changed 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 change.
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 consideration other than cash received by the
Company will be the fair value of such consideration, except where
such consideration consists of securities, in which case the amount
of consideration received by the Company will be the Closing Sale
Price of such securities on the date of receipt. If any Common
Stock, Options or Convertible Securities are issued to the owners
of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration
other than cash or securities will be determined jointly by the
Company and the Required Holders. If such parties are unable to
reach agreement within ten (10) days after the occurrence of
an event requiring valuation (the " Valuation Event "), the
fair value of such consideration will be determined within five
(5) Business Days after the tenth (10 th ) day following the
Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The determination
of such appraiser shall be deemed binding upon all parties absent
manifest error and the fees and expenses of such appraiser shall be
borne by the Company.
(v) Record Date . If the Company takes a record of the
holders of Common Stock for the purpose of entitling them
(A) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (B) to
subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of
the issue or sale of the Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(b) Adjustment of Conversion Price upon Subdivision or
Combination of Common Stock . If the Company at any time on or
after the Subscription Date subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares,
the Conversion Price in effect immediately prior to such
subdivision will be proportionately
reduced. If the Company at any time on or after
the Subscription Date combines (by combination, reverse stock split
or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Conversion Price
in effect immediately prior to such combination will be
proportionately increased.
(c) Other Events . If any event occurs of the type
contemplated by the provisions of this Section 7 but not
expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the
Company’s Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect t
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