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 (I) 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 GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS 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)(iv) AND 17(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)(iv) OF THIS NOTE.
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Issuance Date:
December 14, 2005
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Principal: U.S. $[___]
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FOR VALUE RECEIVED, NGAS Resources, Inc., a British Columbia
corporation, (the “ Company ”), hereby promises
to pay to [KINGS ROAD INVESTMENTS LTD.] [OTHER BUYERS] 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,
(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 the rate of 6.0% 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),
the Maturity Date, acceleration, conversion, redemption or
otherwise (in each case, in accordance with the terms hereof). This
Convertible Note (including all Convertible Notes issued in
exchange, transfer or replacement hereof, this “ Note
”) is one of an issue of Convertible Notes issued pursuant to
the Securities Purchase Agreement (as defined below) on the Closing
Date (collectively, the “ Notes ” and such other
Convertible Notes, the “ Other Notes ”). Certain
capitalized terms used herein are defined in
Section 29.
(a) On
the Maturity Date, the Holder shall surrender the Note to the
Company and the Company shall pay to the Holder, (i) an amount
in Common Shares, or, at the option of the Company, in cash,
representing all outstanding Principal and (ii) an amount in
cash equal to the accrued and unpaid Interest thereon; provided
that Principal shall be payable in Common Shares on the Maturity
Date if, and only if, there has been no Equity Conditions Failure
during the applicable period. On or prior to the tenth (10
th ) Trading Day prior to the Maturity Date (the
“ Maturity Election Notice Due Date ”), the
Company shall deliver a written notice to the Holder
(x) specifying whether the Principal shall not be paid on the
Maturity Date in Common Shares but rather in cash and (y)
certifying that there has been no Equity Conditions Failure.
Principal to be paid on the Maturity Date in Common Shares shall be
paid in a number of fully paid and non-assessable (rounded to the
nearest whole share in accordance with Section 3(a)) Common
Shares. If the Company shall pay the Principal on the Maturity Date
in Common Shares, then on the Maturity Date (i) (A) provided
that the Company’s transfer agent (the “ Transfer
Agent ”) is participating in the Depository Trust Company
(“ DTC ”) Fast Automated Securities Transfer
Program,
the Company
shall, or shall cause the Transfer Agent to, credit a number of
Common Shares equal to the quotient of the outstanding Principal
due on such date and the Maturity Conversion Price (the “
Maturity Conversion 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 (B) if the foregoing shall not apply,
the Company shall issue and deliver, 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 three
(3) Trading Days prior to the Maturity Date, a certificate,
registered in the name of the Holder or its designee, for the
number of Maturity Conversion Shares to which the Holder shall be
entitled and (ii) the Company shall pay to the Holder, in cash
by wire transfer of immediately available funds, the amount of any
accrued and unpaid interest on such Principal. If the Principal
shall be paid in cash, then the Company shall make such payment on
the Maturity Date, together with the amount of any accrued and
unpaid interest on such Principal, by wire transfer of immediately
available funds to an account designated in writing by the
Holder.
(b) Notwithstanding
anything to the contrary herein, the Company shall not be entitled
to pay any portion of the Principal on the Maturity Date in Common
Shares under this Section 1 in excess of the Holder’s
Pro Rata Amount of the applicable Volume Limitation; provided,
however, if the Company is prohibited from paying any portion of
the Principal in Common Shares (the “ Maturity Deficiency
Shares ”) due to the Volume Limitation, the Maturity Date
with respect to the delivery of those Maturity Deficiency Shares
shall be automatically extended in 30-day increments until such
date when the Company shall have delivered to the Holder, following
application of the applicable Volume Limitation, all of the
Maturity Deficiency Shares; provided, further, however, that in the
event that the Holder has not received all of the Maturity
Deficiency Shares after three (3) such 30-day extensions, the
Holder may, at its option, require the Company to deliver cash to
the Holder for the Principal amount (including any unpaid interest
thereon) of this Note represented by the undelivered Maturity
Deficiency Shares.
2.
INTEREST; INTEREST RATE. Interest on this Note shall commence
accruing on the Issuance Date and shall be computed on the basis of
a 360-day year comprised of twelve 30-day months and shall be
payable in arrears for each Calendar Quarter on the first day of
the succeeding Calendar 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 April 1, 2006 (each, an “
Interest Date ”). Interest shall be payable on each
Interest Date in cash. Prior to the payment of Interest on an
Interest Date, Interest on this Note shall accrue at the Interest
Rate and be payable in cash upon any conversion in accordance with
Section 3(b)(i). Upon the occurrence and during the
continuance of an Event of Default, the Interest Rate shall be
increased to twelve percent (12.0%) per annum (the “
Default Rate ”). 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 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. Interest on overdue interest
shall accrue at the same rate compounded quarterly.
3.
CONVERSION OF NOTES. This Note shall be convertible into common
shares of the Company, without par value (the “ Common
Shares ”), 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 fully paid and
nonassessable Common Shares in accordance with Section 3(c),
at the Conversion Rate (as defined below). The Company shall not
issue any fraction of a Common Share upon any conversion. If the
issuance would result in the issuance of a fraction of a Common
Share, the Company shall round such fraction of a Common Share up
to the nearest whole share.
(b)
Conversion Rate . The number of Common Shares 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 (such number of shares, the “
Conversion Rate ”).
(i) “
Conversion Amount ” means the portion of the Principal
to be converted, redeemed or otherwise with respect to which this
determination is being made.
2
(ii) “
Conversion Price ” means, as of any Conversion Date
(as defined below) or other date of determination a price equal to
$14.34, subject to adjustment as provided herein.
(c)
Mechanics of Conversion .
(i)
Optional Conversion . To convert any Conversion Amount into
Common Shares 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)(iv), 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). On or
before the first (1 st )
Trading 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 third (3 rd )
Trading Day following the date of receipt of a Conversion Notice
(the “ Share Delivery Date ”), the Company shall
(1) (x) provided that the Transfer Agent is participating in the
DTC Fast Automated Securities Transfer Program, credit such
aggregate number of Common 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 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 Common Shares to which the Holder shall be
entitled, (2) pay to the Holder in cash an amount equal to the
accrued and unpaid Interest on the Conversion Amount up to and
including the Conversion Date and (3) for any conversions
prior to the second (2 nd )
anniversary of the Issuance Date, pay any applicable Make-Whole
Amount in accordance with Section 3(c)(ii). If this Note is
physically surrendered for conversion as required by
Section 3(c)(iv) 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 five (5) Trading Days after receipt of this
Note and at its own expense, issue and deliver to the holder a new
Note (in accordance with Section 17(d)) representing the
outstanding Principal not converted. The Person or Persons entitled
to receive the Common Shares issuable upon a conversion of this
Note shall be treated for all purposes as the record holder or
holders of such Common Shares on the Conversion Date.
(1) If
prior to the second (2 nd )
anniversary of the Issuance Date, the Holder converts all or any
portion of this Note pursuant to Section 3(c)(i), then upon
such conversion, the Holder shall receive the Make-Whole Amount;
provided, however, that in the event that the Closing Sale Price of
the Common Shares exceeds 160% of the Conversion Price then in
effect for each of twenty (20) Trading Days out of the thirty
(30) consecutive Trading Day period ended on the Trading Day
immediately prior to the Conversion Date, then the Holder shall not
be entitled to receive the Make-Whole Amount. The Company shall pay
the Make-Whole Amount in Common Shares or, at the Company’s
option, in cash. Following receipt of any Conversion Notice during
the period when a Holder is entitled to receive a Make-Whole Amount
hereunder, the Company shall, in its confirmation of receipt of
such Conversion Notice as required by Section 3(c)(i) (the
“ Conversion Notice Confirmation ”),
(x) specify whether the Make-Whole Amount shall not be paid in
Common Shares but rather in cash and (y) certify that there
has been no Equity Conditions Failure. Any Make-Whole Amount to be
paid upon a conversion in Common Shares shall be paid in a number
of fully paid and nonassessable Common Shares equal to the quotient
of (A) the Make-Whole Amount and (B) the Make-Whole
Conversion Price. If the Make-Whole Amount shall be paid in Common
Shares on the Share Delivery Date, the Company shall
(I) provided the Transfer Agent is participating in the DTC
Fast Automated Securities Transfer Program, credit such aggregate
number of Common Shares to which the Holder shall be entitled to
the Holder or its designee’s balance account with DTC through
its Deposit Withdrawal Agent Commission system, or (II) 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 or in the register maintained by
the Company for such purpose pursuant to the Securities Purchase
Agreement, a certificate, registered in the name of the Holder or
its designee, for the number of Common Shares to which the Holder
shall be entitled. If the Make-Whole Amount shall be paid in cash,
then the Company shall make such payment on the Share Delivery Date
by wire transfer of immediately available funds to an account
designated in writing by the Holder. Notwithstanding the foregoing
the Company shall not be entitled to pay the Make-Whole Amount in
Common Share and shall be required to pay such Make-Whole Amount in
cash on the applicable Share
3
Delivery Date,
if, unless consented to in writing by the Holder, during the period
commencing on the applicable Conversion Date through the applicable
Share Delivery Date, the Equity Conditions have not been
satisfied.
(2) Notwithstanding
anything to the contrary herein, the Company shall not be entitled
to pay any portion of the Make-Whole Amount in Common Shares under
this Section 2(c)(ii) in excess of the Holder’s Pro Rata
Amount of the applicable Volume Limitation; provided, however, if
the Company is prohibited from paying any portion of the Make-Whole
Amount in Common Shares (the “ Make-Whole Deficiency
Shares ”) due to the Volume Limitation, the Share
Delivery Date with respect to delivery of those Make-Whole
Deficiency Shares shall be automatically extended in 30-day
increments until such date when the Company shall have delivered to
the Holder, following application of the applicable Volume
Limitation, all of the Make-Whole Deficiency Shares; provided,
further, however, that in the event that the Holder has not
received all of the Make-Whole Deficiency Shares after three
(3) such 30-day extensions, the Holder may, at its option,
require the Company to deliver cash to the Holder for the Principal
amount (including any unpaid interest thereon) of this Note
represented by the undelivered Make-Whole Deficiency
Shares.
(iii)
Failure to Timely Convert . If the Company shall fail to
issue a certificate to the Holder or credit the Holder’s
balance account with DTC for the number of Common Shares to which
the Holder is entitled upon conversion of any Conversion Amount on
or prior to the date which is three (3) Trading Days after the
Conversion Date (a “ Conversion Failure ”), then
(A) the Company shall pay damages to the Holder for each day
of such Conversion Failure in an amount equal to 1.5% of the
product of (I) the sum of the number of Common Shares not
issued to the Holder on or prior to the Share Delivery Date and to
which the Holder is entitled, and (II) the Closing Sale Price
of the Common Shares on the Share Delivery Date and (B) the
Holder, upon written notice to the Company, may void its Conversion
Notice with respect to, and retain or have returned, as the case
may be, any portion of this Note that has not been converted
pursuant to such Conversion Notice; provided that the
voiding of a Conversion Notice shall not affect the Company’s
obligations to make any payments which have accrued prior to the
date of such notice pursuant to this Section 3(c)(iii) or
otherwise. In addition to the foregoing, if within three
(3) Trading Days after the Company’s 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 Common
Shares to which the Holder is entitled upon such holder’s
conversion of any Conversion Amount, and if on or after such
Trading Day the Holder purchases (in an open market transaction or
otherwise) Common Shares to deliver in satisfaction of a sale by
the Holder of Common Shares issuable upon such conversion that the
Holder anticipated receiving from the Company (a “
Buy-In ”), then the Company shall, within three
(3) Trading 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 and other out-of-pocket expenses,
if any) for the Common Shares so purchased (the “Buy-In
Price” ), at which point the Company’s obligation
to deliver such certificate (and to issue such Common Shares) shall
terminate, or (ii) promptly honor its obligation to deliver to
the Holder a certificate or certificates representing such Common
Shares 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 Common Shares times (B) the Closing Bid Price on the
Conversion Date.
(iv)
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. The Holder and the Company shall maintain records
showing the Principal 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.
(v)
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 Common Shares issuable to the Holder in
4
connection with
a conversion of this Note, the Company shall issue to the Holder
the number of Common Shares not in dispute and resolve such dispute
in accordance with Section 22.
(d)
Limitations on Conversions .
(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 excess of 9.99% (the “
Maximum Percentage ”) of the number of Common Shares
outstanding immediately after giving effect to such conversion. For
purposes of the foregoing sentence, the number of Common Shares
beneficially owned by the Holder and its affiliates shall include
the number of Common Shares issuable upon conversion of this Note
with respect to which the determination of such sentence is being
made, but shall exclude the number of Common Shares 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
Common Shares, the Holder may rely on the number of outstanding
Common Shares as reflected in (x) the Company’s most
recent Form 10-KSB,Form 10-K, Form 10-QSB, Form 10-Q 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 Common Shares
outstanding. For any reason at any time, upon the written or oral
request of the Holder, the Company shall within one
(1) Trading Day confirm orally and in writing to the Holder
the number of Common Shares then outstanding. In any case, the
number of outstanding Common Shares 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 Common Shares was
reported. By written notice to the Company, the Holder may from
time to time 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 Common Shares upon conversion of this Note
and the Holder of this Note shall not have the right to receive
upon conversion of this Note any Common Shares if the issuance of
such Common Shares would exceed the aggregate number of Common
Shares which the Company may issue upon conversion or exercise, as
applicable, of the Notes and Warrants or otherwise under the Notes
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
shareholders as required by the applicable rules of the Principal
Market for issuances of Common Shares 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, no purchaser of the Notes
pursuant to the Securities Purchase Agreement (the “
Purchasers ”) shall be issued in the aggregate, upon
conversion or exercise, as applicable, of Notes or Warrants, Common
Shares in an amount greater than the product of the Exchange Cap
multiplied by a fraction, the numerator of which is the principal
amount of Notes issued to each Purchaser pursuant to the Securities
Purchase Agreement on the Closing Date and the denominator of which
is the aggregate principal amount of all Notes issued to the
Purchasers pursuant to the Securities Purchase Agreement on the
Closing Date (with respect to each Purchaser, the “
Exchange Cap Allocation ”). In the event that any
Purchaser shall sell or otherwise transfer any of such
Purchaser’s Notes, the transferee shall be allocated a pro
rata portion of such Purchaser’s Exchange Cap Allocation, and
the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap
Allocation allocated to such transferee. In the event that any
holder of Notes shall convert all of such holder’s Notes into
a number of Common Shares 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 Common Shares 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.
5
4.
RIGHTS UPON EVENT OF DEFAULT.
(a)
Event of Default . Each of the following events shall
constitute an “ Event of Default ”:
(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 ten (10) consecutive
days or for more than an aggregate of thirty (30) 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 Shares to be
listed on an Eligible Market for a period of five
(5) consecutive Trading Days or for more than an aggregate of
ten (10) Trading Days in any 365-day period;
(iii) the
Company’s (A) failure to cure a Conversion Failure by
delivery of the required number of Common Shares within ten
(10) Trading 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 Common Shares that is tendered in accordance with
the provisions of the Notes;
(iv) at
any time following the tenth (10 th )
consecutive Trading Day that the number of Common Shares that are
available for issuance to the Holder is less than the number of
Common Shares 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 (including, without limitation, the Company’s
failure to pay any redemption or make-whole payments), Interest or
other amounts when and as due under this Note or any other
Transaction Document (as defined in the Securities Purchase
Agreement), except, in the case of a failure to pay Interest when
and as due, in which case only if such failure continues for a
period of at least three (3) Trading Days;
(vi) the
occurrence of any default under, redemption of or acceleration
prior to maturity of Indebtedness of the Company or any of its
Subsidiaries (as defined in Section 3(a) of the Securities Purchase
Agreement) that, individually or in the aggregate, has a principal
amount equal to or exceeding $100,000, 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 U.S. or Canadian
Federal, foreign, state or provincial 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;
6
(ix) a
final judgment or judgments for the payment of money aggregating in
excess of $100,000 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 $100,000 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
clearly 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, except, in the case
of a breach of a covenant which is curable, only if such breach
continues for a period of at least fifteen (15) consecutive
Trading Days; or
(xi) 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
Conversion Amount to be redeemed and (y) the Redemption
Premium and (ii) the product of (A) the Conversion Rate
with respect to such Conversion Amount in effect at such time as
the Holder delivers an Event of Default Redemption Notice and
(B) the Closing Sale Price of the Common Shares 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 12. To the extent redemptions required by this
Section 4(b) are deemed or determined by a court of competent
jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. The
parties hereto agree that in the event of the Company’s
redemption of any portion of the Note under this Section 4(b),
the Holder’s damages would be uncertain and difficult to
estimate because of the parties’ inability to predict future
interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder.
Accordingly, any Redemption Premium due under this Section 4(b) is
intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.
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 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, having
similar conversion rights as the Notes, having similar ranking to
the Notes, and satisfactory to the Required Holders and
(ii) the Successor Entity is a publicly traded corporation
whose common shares are quoted on or listed for trading on an
Eligible Market. 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 (if other than the Company) shall
deliver to the Holder confirmation that there shall be issued upon
conversion or
7
redemption of
this Note at any time after the consummation of the Fundamental
Transaction, in lieu of the Company’s Common Shares (or other
securities, cash, assets or other property) purchasable upon the
conversion or redemption of the Notes prior to such Fundamental
Transaction, such publicly traded common shares (or their
equivalent) of the Successor 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 ”). At any time during the period (the
“ Change of Control Period ”) beginning after
the Holder’s receipt of a Change of Control Notice and ending
on the date that is twenty (20) Trading 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 in cash at a price equal to the greater of (x) 110% of
the sum of (1) the Conversion Amount being redeemed and
(2) the amount of any accrued but unpaid Interest thereon
through the date of such redemption payment and (y) 110% of
the sum of (1) the product of (A) the Conversion Amount
being redeemed multiplied by (B) the quotient determined by
dividing (I) the aggregate cash consideration and the
aggregate cash value of any non-cash consideration per Common Share
to be paid to the holders of the Common Shares upon consummation of
the Change of Control (any such non-cash consideration consisting
of marketable securities to be valued at the higher of the Closing
Sale Price of such securities as of the Trading Day immediately
prior to or the Trading Day following the public announcement of
such proposed Change of Control) by (II) the Conversion Price
plus (2) the amount of any accrued but unpaid Interest on such
Conversion Amount being redeemed through the date of such
redemption payment (the “ Change of Control Redemption
Price ”). Redemptions required by this Section 5
shall be made in accordance with the provisions of Section 12 and
shall have priority to payments to shareholders in connection with
a Change of Control. To the extent redemptions required by this
Section 5(b) are deemed or determined by a court of competent
jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments.
Notwithstanding anything to the contrary in this Section 5,
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) may be converted, in whole
or in part, by the Holder into Common Shares, or in the event the
Conversion Date is after the consummation of the Change of Control,
shares or equity interests of the Successor Entity substantially
equivalent to the Company’s Common Shares pursuant to
Section 3. The parties hereto agree that in the event of the
Company’s redemption of any portion of the Note under this
Section 5(b), the Holder’s damages would be uncertain and
difficult to estimate because of the parties’ inability to
predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for
the Holder. Accordingly, any redemption premium due under this
Section 5(b) is intended by the parties to be, and shall be deemed,
a reasonable estimate of the Holder’s actual loss of its
investment opportunity and not as a penalty.
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
shares, warrants, securities or other property pro rata to all
record holders of any class of Common Shares (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 Common Shares 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
Shares 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 Common Shares are entitled to receive securities or
other assets with respect to or in exchange for Common Shares
(a
8
“
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, at the Holder’s
option, (i) in addition to the Common Shares receivable upon
such conversion, such securities or other assets to which the
Holder would have been entitled with respect to such Common Shares
had such Common Shares 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 Common Shares otherwise receivable upon
such conversion, such securities or other assets received by the
holders of Common Shares 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
Common Shares) 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
Shares . 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 Common Shares (including the
issuance or sale of Common Shares owned or held by or for the
account of the Company, but excluding Common Shares 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 or deemed issuance
or sale (the foregoing a “ Dilutive Issuance ”),
then immediately after such Dilutive Issuance, the
Conver
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