Form of 8% Convertible
Note
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”). THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM,
SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT.
FOR VALUE RECEIVED , VICOR TECHNOLOGIES, INC. , a
Delaware Corporation (hereinafter called the
“Borrower”), hereby promises to pay to the order of
or registered assigns (the “Holder”) the sum of
$000,000, on
, 2011 (the “Maturity Date”), and to pay interest on
the unpaid principal balance hereof at the rate of eight percent
(8%) (the “Interest Rate”) per annum from
, 2009 (the “Issue Date”) until the same becomes due
and payable, whether at maturity or upon acceleration or by
prepayment or otherwise. Any amount of principal or interest on
this Note which is not paid when due shall bear interest at the
rate of fifteen percent (15%) per annum from the due date thereof
until the same is paid (“Default Interest”). Interest
shall commence accruing on the Issue Date, shall be computed on the
basis of a 365-day year and the actual number of days elapsed and
at the Borrower’s option, shall be payable quarterly in cash.
All payments due hereunder (to the extent not converted into common
stock, $.0001 par value per share (the “Common Stock”)
in accordance with the terms hereof) shall be made in lawful money
of the United States of America. All payments shall be made at such
address as the Holder shall hereafter give to the Borrower by
written notice made in accordance with the provisions of this Note.
Whenever any amount expressed to be due by the terms of this Note
is due on any day which is not a business day, the same shall
instead be due on the next succeeding day which is a business day
and, in the case of any interest payment date which is not the date
on which this Note is paid in full, the extension of the due date
thereof shall not be taken into account for purposes of determining
the amount of interest due on such date. As used in this Note, the
term “business day” shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in the city of
New York, New York are authorized or required by law or executive
order to remain closed. Each capitalized term used herein, and not
otherwise defined, shall have the meaning ascribed thereto in that
certain Securities Purchase Agreement dated the date hereof,
pursuant to which this Note was originally issued (the
“Purchase Agreement”).
This Note is free
from all taxes, liens, claims and encumbrances with respect to the
issue thereof and shall not be subject to preemptive rights or
other similar rights of shareholders of the Borrower and will not
impose personal liability upon the holder thereof.
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The following
terms shall apply to this Note:
ARTICLE I. CONVERSION
RIGHTS
(a) The Holder shall have the right from time to time,
and at any time on or prior to the earlier of (i) the Maturity
Date and (ii) the date of payment of (y) the Default
Amount (as defined in Article III) pursuant to
Section 1.6(a) or Article III, or (z) any payments
pursuant to Section 1.7, each in respect of the remaining
outstanding principal amount of this Note, to convert all or any
part of the outstanding and unpaid principal amount of this Note
and accrued interest into fully paid and non-assessable shares of
Common Stock, as such Common Stock exists on the Issue Date, or any
shares of capital stock or other securities of the Borrower into
which such Common Stock shall hereafter be changed or reclassified
at the conversion price (the “Conversion Price”)
determined as provided herein (a “Conversion”);
provided , however , that in no event shall the
Holder be entitled to convert any portion of this Note in excess of
that portion of this Note upon conversion of which the sum of:
(1) the number of shares of Common Stock beneficially owned by
the Holder and its affiliates (other than shares of Common Stock
which may be deemed beneficially owned through the ownership of the
unconverted portion of the Notes or the unexercised or unconverted
portion of any other security of the Borrower subject to a
limitation on conversion or exercise analogous to the limitations
contained herein), and (2) the number of shares of Common
Stock issuable upon the conversion of the portion of this Note with
respect to which the determination of this proviso is being made,
would result in beneficial ownership by the Holder and its
affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulations 13D-G thereunder, except as otherwise
provided in clause (1) of such proviso. The number of shares
of Common Stock to be issued upon each conversion of this Note
shall be determined by dividing the Conversion Amount (as defined
below) by the applicable Conversion Price then in effect on the
date specified in the notice of conversion, in the form attached
hereto as Exhibit A (the “Notice of Conversion”),
delivered to the Borrower by the Holder in accordance with
Section 1.4 below; provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or
reasonably expected to result in, notice) to the Borrower before
6:00 p.m., New York, New York time on such conversion date (the
“Conversion Date”). The term “Conversion
Amount” means, with respect to any conversion of this Note,
the sum of: (1) the principal amount of this Note to be
converted in such conversion, plus (2) at the
Borrower’s option, accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this Note
to the Conversion Date, provided, however, that the Company shall
have the right to pay any or all interest in cash, plus
(3) at the Borrower’s option, Default Interest, if any,
on the amounts referred to in the immediately preceding clauses
(1) and/or (2). The term “Determination Date”
means the last business day of each month after the Issue
Date.
(a) Calculation of Conversion Price . The
Conversion Price shall be the lesser of (i) the Variable Conversion
Price (as defined herein) and (ii) the Fixed Conversion Price
(as defined herein) (subject, in each case, to equitable
adjustments for stock splits, stock dividends or rights offerings
by the Borrower relating to the Borrower’s securities or the
securities of any subsidiary of the Borrower, combinations,
recapitalization, reclassifications, extraordinary distributions
and similar events). The “Variable Conversion
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Price”
shall mean the Applicable Percentage (as defined herein) multiplied
by the Market Price (as defined herein). “Market Price”
means the average of the lowest three (3) Trading Prices (as
defined below) for the Common Stock during the ten
(10) Trading Day period ending one Trading Day prior to the
date the Conversion Notice is sent by the Holder to the Borrower
via facsimile (the “Conversion Date”). “Trading
Price” means, for any security as of any date, the closing
bid on the Over-the-Counter Bulletin Board (the
“OTCBB”) or, if not listed on the OTCBB, the closing
bid of such security on the principal securities exchange or
trading market where such security is listed or traded or, if no
closing bid of such security is available in any of the foregoing
manners, the average of the closing bid of any market makers for
such security that are listed in the “pink sheets” by
the National Quotation Bureau, Inc. If the Trading Price cannot be
calculated for such security on such date in the manner provided
above, the Trading Price shall be the fair market value as mutually
determined by the Borrower and the holders of a majority in
interest of the Notes being converted for which the calculation of
the Trading Price is required in order to determine the Conversion
Price of such Notes. “Trading Day” shall mean any day
on which the Common Stock is listed for any period on the OTCBB, or
on the principal securities exchange or other securities market on
which the Common Stock is then being traded. “Applicable
Percentage” shall mean 75%. “Fixed Conversion
Price” shall mean $1.07 per share
(b) Conversion Price During Major Announcements
. Notwithstanding anything contained in Section 1.2(a) to
the contrary, in the event the Borrower (i) makes a public
announcement that it intends to consolidate or merge with any other
corporation (other than a merger in which the Borrower is the
surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the
assets of the Borrower or (ii) any person, group or entity
(including the Borrower) publicly announces a tender offer to
purchase 50% or more of the Borrower’s Common Stock (or any
other takeover scheme) (the date of the announcement referred to in
clause (i) or (ii) is hereinafter referred to as the
“Announcement Date”), then the Conversion Price shall,
effective upon the Announcement Date and continuing through the
Adjusted Conversion Price Termination Date (as defined below), be
equal to the lower of (x) the Conversion Price which would
have been applicable for a Conversion occurring on the Announcement
Date and (y) the Conversion Price that would otherwise be in
effect. From and after the Adjusted Conversion Price Termination
Date, the Conversion Price shall be determined as set forth in this
Section 1.2(a). For purposes hereof, “Adjusted
Conversion Price Termination Date” shall mean, with respect
to any proposed transaction or tender offer (or takeover scheme)
for which a public announcement as contemplated by this
Section 1.2(b) has been made, the date upon which the Borrower
(in the case of clause (i) above) or the person, group or
entity (in the case of clause (ii) above) consummates or
publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this
Section 1.2(b) to become operative.
1.3 Authorized Shares . The Borrower covenants that
during the period the conversion right exists, the Borrower will
reserve from its authorized and unissued Common Stock a sufficient
number of shares, free from preemptive rights, to provide for the
issuance of Common Stock upon the full conversion of this Note and
the other Notes issued pursuant to the Purchase Agreement. The
Borrower is required at all times to have authorized and reserved
two times the number of shares that is actually issuable upon full
conversion of the Notes (based on the Conversion Price of the Notes
on the last day of such month (the “Reserved Amount”).
The Reserved Amount shall be increased from time to time in
accordance with the Borrower’s obligations pursuant to
Section 4(h) of the Purchase Agreement. The Borrower represents
that upon issuance, such shares will be duly and validly issued,
fully paid and non-assessable. In addition, if the Borrower shall
issue any securities or make any change to its capital structure
which would change the number of shares of Common Stock into which
the Notes shall be convertible at the then current Conversion
Price, the Borrower shall at the same time make proper provision so
that thereafter there shall be a sufficient number of shares of
Common
23
Stock
authorized and reserved, free from preemptive rights, for
conversion of the outstanding Notes. The Borrower
(i) acknowledges that it has irrevocably instructed its
transfer agent to issue certificates for the Common Stock issuable
upon conversion of this Note, and (ii) agrees that its
issuance of this Note shall constitute full authority to its
officers and agents who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates
for shares of Common Stock in accordance with the terms and
conditions of this Note.
If,
at any time a Holder of this Note submits a Notice of Conversion,
and the Borrower does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in
accordance with the provisions of this Article I (a
“Conversion Default”), subject to Section 4.8, the
Borrower shall issue to the Holder all of the shares of Common
Stock which are then available to effect such conversion. The
portion of this Note which the Holder included in its Conversion
Notice and which exceeds the amount which is then convertible into
available shares of Common Stock (the “Excess Amount”)
shall, notwithstanding anything to the contrary contained herein,
not be convertible into Common Stock in accordance with the terms
hereof until (and at the Holder’s option at any time after)
the date additional shares of Common Stock are authorized by the
Borrower to permit such conversion, at which time the Conversion
Price in respect thereof shall be the lesser of: (i) the
Conversion Price on the Conversion Default Date (as defined below)
and (ii) the Conversion Price on the Conversion Date thereafter
elected by the Holder in respect thereof. In addition, the Borrower
shall pay to the Holder payments (“Conversion Default
Payments”) for a Conversion Default in the amount of:
(x) the sum of (1) the then outstanding principal
amount of this Note plus (2) accrued and unpaid
interest on the unpaid principal amount of this Note through the
Authorization Date (as defined below) plus (3) Default
Interest, if any, on the amounts referred to in clauses
(1) and/or (2), multiplied by (y) .24, multiplied
by (z) (N/365), where N = the number of days from the day the
holder submits a Notice of Conversion giving rise to a Conversion
Default (the “Conversion Default Date”) to the date
(the “Authorization Date”) that the Borrower authorizes
a sufficient number of shares of Common Stock to effect conversion
of the full outstanding principal balance of this Note. The
Borrower shall use its best efforts to authorize a sufficient
number of shares of Common Stock as soon as practicable following
the earlier of: (i) such time that the Holder notifies the
Borrower or that the Borrower otherwise becomes aware that there
are or likely will be insufficient authorized and unissued shares
to allow full conversion thereof and (ii) a Conversion
Default. The Borrower shall send notice to the Holder of the
authorization of additional shares of Common Stock, the
Authorization Date and the amount of Holder’s accrued
Conversion Default Payments. The accrued Conversion Default
Payments for each calendar month shall be paid in cash or shall be
convertible into Common Stock (at such time as there are sufficient
authorized shares of Common Stock) at the applicable Conversion
Price, at the Borrower’s option, as follows:
(a) In the event Holder elects to take such payment in
cash, cash payment shall be made to Holder by the fifth (5
th ) day of the month following the month in which
it has accrued; and
(b) In the event Holder elects to take such payment in
Common Stock, the Holder may convert such payment amount into
Common Stock at the Conversion Price (as in effect at the time of
conversion) at any time after the fifth day of the month following
the month in which it has accrued in accordance with the terms of
this Article I (so long as there is then a sufficient number
of authorized shares of Common Stock).
The
Holder’s election shall be made in writing to the Borrower at
any time prior to 6:00 p.m., New York, New York time, on the third
day of the month following the month in which Conversion
Default
24
payments have
accrued. If no election is made, the Holder shall be deemed to have
elected to receive cash. Nothing herein shall limit the
Holder’s right to pursue actual damages (to the extent in
excess of the Conversion Default Payments) for the Borrower’s
failure to maintain a sufficient number of authorized shares of
Common Stock, and each holder shall have the right to pursue all
remedies available at law or in equity (including degree of
specific performance and/or injunctive relief).
1.4 Method of Conversion .
(a) Mechanics of Conversion . Subject to
Section 1.1, this Note may be converted by the Holder in whole
or in part at any time from time to time after the Issue Date, by:
(A) submitting to the Borrower a Notice of Conversion (by facsimile
or other reasonable means of communication dispatched on the
Conversion Date prior to 6:00 p.m., New York, New York time) and
(B) subject to Section 1.4(b), surrendering this Note at
the principal office of the Borrower.
(b) Surrender of Note Upon Conversion .
Notwithstanding anything to the contrary set forth herein, upon
conversion of this Note in accordance with the terms hereof, the
Holder shall not be required to physically surrender this Note to
the Borrower unless the entire unpaid principal amount of this Note
is so converted. The Holder and the Borrower shall maintain records
showing the principal amount so converted and the dates of such
conversions or shall use such other method, reasonably satisfactory
to the Holder and the Borrower, so as not to require physical
surrender of this Note upon each such conversion. In the event of
any dispute or discrepancy, such records of the Borrower shall be
controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any portion of this Note is
converted as aforesaid, the Holder may not transfer this Note
unless the Holder first physically surrenders this Note to the
Borrower, whereupon the Borrower will forthwith issue and deliver
upon the order of the Holder a new Note of like tenor, registered
as the Holder (upon payment by the Holder of any applicable
transfer taxes) may request, representing in the aggregate the
remaining unpaid principal amount of this Note. The Holder and any
assignee, by acceptance of this Note, acknowledge and agree that,
by reason of the provisions of this paragraph, following conversion
of a portion of this Note, the unpaid and unconverted principal
amount of this Note represented by this Note may be less than the
amount stated on the face hereof.
(c) Payment of Taxes . The Borrower shall not
be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common
Stock or other securities or property on conversion of this Note in
a name other than that of the Holder (or in street name), and the
Borrower shall not be required to issue or deliver any such shares
or other securities or property unless and until the person or
persons (other than the Holder or the custodian in whose street
name such shares are to be held for the Holder’s account)
requesting the issuance thereof shall have paid to the Borrower the
amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been
paid.
(d) Delivery of Common Stock Upon Conversion .
Upon receipt by the Borrower from the Holder of a facsimile
transmission (or other reasonable means of communication) of a
Notice of Conversion meeting the requirements for conversion as
provided in this Section 1.4, the Borrower shall issue and
deliver or cause to be issued and delivered to or upon the order of
the Holder certificates for the Common Stock issuable upon such
conversion within three (3) business days after such receipt
(and, solely in the case of conversion of the entire unpaid
principal amount hereof, surrender of this Note) (such third
business day being hereinafter referred to as the
“Deadline”) in accordance with the terms hereof and the
Purchase Agreement (including, without limitation, in accordance
with the requirements of Section 2(g) of the Purchase
Agreement
25
that
certificates for shares of Common Stock issued on or after the
effective date of the Registration Statement upon conversion of
this Note shall not bear any restrictive legend).
(e) Obligation of Borrower to Deliver Common Stock
. Upon receipt by the Borrower of a Notice of Conversion, the
Holder shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, the outstanding principal
amount and the amount of accrued and unpaid interest on this Note
shall be reduced to reflect such conversion, and, unless the
Borrower defaults on its obligations under this Article I, all
rights with respect to the portion of this Note being so converted
shall forthwith terminate except the right to receive the Common
Stock or other securities, cash or other assets, as herein
provided, on such conversion. If the Holder shall have given a
Notice of Conversion as provided herein, the Borrower’s
obligation to issue and deliver the certificates for Common Stock
shall be absolute and unconditional, irrespective of the absence of
any action by the Holder to enforce the same, any waiver or consent
with respect to any provision thereof, the recovery of any judgment
against any person or any action to enforce the same, any failure
or delay in the enforcement of any other obligation of the Borrower
to the holder of record, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the
Holder of any obligation to the Borrower, and irrespective of any
other circumstance which might otherwise limit such obligation of
the Borrower to the Holder in connection with such conversion. The
Conversion Date specified in the Notice of Conversion shall be the
Conversion Date so long as the Notice of Conversion is received by
the Borrower before 6:00 p.m., New York, New York time, on such
date.
(f) Delivery of Common Stock by Electronic Transfer
. In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the
Borrower’s transfer agent is participating in the Depository
Trust Company (“DTC”) Fast Automated Securities
Transfer (“FAST”) program, upon request of the Holder
and its compliance with the provisions contained in
Section 1.1 and in this Section 1.4, the Borrower shall
use its best efforts to cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the Holder by
crediting the account of Holder’s Prime Broker with DTC
through its Deposit Withdrawal Agent Commission
(“DWAC”) system.
(g) Failure to Deliver Common Stock Prior to
Deadline . Without in any way limiting the Holder’s
right to pursue other remedies, including actual damages and/or
equitable relief, the parties agree that if delivery of the Common
Stock issuable upon conversion of this Note is more than three
(3) business days after the Deadline (other than a failure due
to the circumstances described in Section 1.3 above, which
failure shall be governed by such Section) the Borrower shall pay
to the Holder $2,000 per day in cash, for each day beyond the
Deadline that the Borrower fails to deliver such Common Stock. Such
cash amount shall be paid to Holder by the fifth day of the month
following the month in which it has accrued or, at the option of
the Holder (by written notice to the Borrower by the first day of
the month following the month in which it has accrued), shall be
added to the principal amount of this Note, in which event interest
shall accrue thereon in accordance with the terms of this Note and
such additional principal amount shall be convertible into Common
Stock in accordance with the terms of this Note.
1.5 Concerning the Shares . The shares of Common
Stock issuable upon conversion of this Note may not be sold or
transferred unless: (i) such shares are sold pursuant to an
effective registration statement under the Act, or (ii) the
Borrower or its transfer agent shall have been furnished with an
opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions)
to the effect that the shares to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration, or
(iii) such shares are sold or transferred pursuant to Rule 144
under the Act
26
(or a successor
rule) (“Rule 144”) or (iv) such shares are
transferred to an “affiliate” (as defined in
Rule 144) of the Borrower who agrees to sell or otherwise
transfer the shares only in accordance with this Section 1.5
and who is an Accredited Investor (as defined in the Purchase
Agreement). Except as otherwise provided in the Purchase Agreement
(and subject to the removal provisions set forth below), until such
time as the shares of Common Stock issuab
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