EXHIBIT 10.3
THIS NOTE AND THE COMMON SHARES
ISSUABLE UPON
CONVERSION OF THIS
NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES
ISSUABLE UPON
CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER
SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY
SATISFACTORY TO INCENTRA SOLUTIONS,
INC. (F/K/A FRONT
PORCH DIGITAL, INC.) THAT
SUCH REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE MINIMUM BORROWING NOTE
FOR VALUE RECEIVED,
each of INCENTRA
SOLUTIONS, INC.
(f/k/a
Front Porch Digital, Inc.), a Nevada corporation (the
"PARENT"), and the
other
companies listed on EXHIBIT A attached
hereto (such other
companies together
with the Parent, each a "COMPANY" and collectively,
the "COMPANIES"),
jointly
and severally, promises to pay to LAURUS MASTER
FUND, LTD., c/o
M&C Corporate
Services Limited, P.O. Box 309 GT, Ugland House,
South Church Street,
George
Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the "HOLDER") or its
registered assigns or successors in interest,
the sum of Three
Million Dollars
($3,000,000), or, if different, the aggregate
principal amount of all Loans (as
defined in the Security Agreement referred
to below), together
with any accrued
and unpaid interest hereon, on June 30,
2008 (the "MATURITY DATE") if not sooner
paid.
Capitalized terms used
herein without
definition shall
have
the meanings ascribed to such terms in the Security Agreement among the
Companies and the Holder dated as of the date hereof (as amended, modified
and/or supplemented from time to time, the
"SECURITY AGREEMENT").
The following terms shall apply to this Minimum Borrowing Note
(this "NOTE"):
ARTICLE I
CONTRACT RATE
1.1 CONTRACT RATE. Subject to Sections 4.2 and 5.10, interest
payable on the outstanding principal amount of this Note (the "PRINCIPAL
AMOUNT") shall accrue at a rate per annum
equal to the "prime rate" published in
THE WALL STREET JOURNAL from time to time
(the "PRIME RATE"),
plus one percent
(1.0%) (the "CONTRACT RATE"). The Contract Rate shall be
increased or decreased
as the case may be for each increase or decrease in the Prime
Rate in an amount
equal to such increase or decrease in the Prime Rate; each change to be
effective as of the day of the change in
the Prime Rate. Subject to Section 1.2,
the Contract Rate shall not at any time be less than
seven percent (7.0%).
Interest shall be (i) calculated on the basis of a 360 day year, and (ii)
payable monthly, in arrears, commencing on August 1, 2005 on
the first business
day of each consecutive calendar month thereafter through and including the
Maturity Date and on the Maturity Date,
whether by acceleration or otherwise.
<PAGE>
1.2 CONTRACT RATE ADJUSTMENTS AND PAYMENTS. The Contract Rate
shall be calculated on the last
business day of each
calendar month
hereafter
(other than for increases or decreases in the Prime Rate which shall be
calculated and become effective in accordance with the terms of Section 1.1)
until the Maturity Date (each a "DETERMINATION DATE") and shall be subject to
adjustment as set forth herein. If (i) the Parent shall have
registered
the
shares of the Common Stock underlying the conversion of each
Minimum Borrowing
Note and each Warrant on a registration statement declared effective by the
Securities and Exchange Commission (the "SEC"),
and (ii) the market
price (the
"MARKET PRICE") of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for the five (5) trading days immediately preceding a
Determination Date exceeds the then applicable Fixed Conversion Price by at
least twenty-five percent (25%), the Contract Rate
for the succeeding
calendar
month shall automatically be reduced by 200 basis
points (200 b.p.) (2%)
for
each incremental twenty-five percent (25%) increase in the
Market Price of the
Common Stock above the then applicable
Fixed Conversion Price. If (i) the Parent
shall not have registered the shares of the Common Stock underlying the
conversion of each Minimum Borrowing Note and each Warrant on a
registration
statement declared effective by the SEC and which
remains effective,
and (ii)
the Market Price of the Common Stock as reported by Bloomberg, L.P. on the
principal market for the five (5) trading days immediately preceding a
Determination Date exceeds the then applicable Fixed Conversion Price by at
least twenty-five percent (25%), the Contract Rate
for the succeeding
calendar
month shall automatically be decreased by 100 basis points
(100 b.p.) (1%) for
each incremental twenty-five percent (25%) increase in the
Market Price of the
Common Stock above the then applicable
Fixed Conversion
Price.
Notwithstanding
the foregoing (and anything to the contrary
contained herein), in no event shall
the Contract Rate at any time be less than
zero percent (0%).
ARTICLE II
LOANS; PAYMENTS UNDER THIS NOTE
2.1 LOANS. All Loans
evidenced by this Note
shall be made in
accordance with the terms and provisions of
the Security Agreement.
2.2 NO EFFECTIVE REGISTRATION. Notwithstanding anything to the
contrary herein, the Holder shall not be required to accept
shares of Common
Stock as payment following a conversion by
the Holder if there fails to exist an
effective current Registration Statement (as defined in the
Registration Rights
Agreement) covering the shares of Common
Stock to be issued, or
if an Event of
Default hereunder exists and is continuing,
unless such requirement is otherwise
waived in writing by the Holder in whole or
in part at the Holder's option.
2.3 OPTIONAL
REDEMPTION IN CASH.
The Companies will have the
option of prepaying this Note ("OPTIONAL
REDEMPTION") by paying
to the Holder a
sum of money equal to one hundred
twenty five percent
(125%) of the
principal
amount of this Note together with accrued but unpaid
interest thereon and any
and all other sums due, accrued or payable to the Holder arising under this
Note, the Security Agreement, or any other Ancillary Agreement
(the "REDEMPTION
AMOUNT") outstanding on the Redemption Payment Date (as defined
below). The
Company shall deliver to the Holder a
written notice of redemption (the "NOTICE
OF REDEMPTION") specifying the date for such Optional Redemption (the
"REDEMPTION PAYMENT DATE"), which date shall be ten (10) days
after the date of
the Notice of Redemption (the "REDEMPTION
PERIOD"). A Notice of Redemption shall
not be effective with respect to any
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<PAGE>
portion of this Note for which the Holder
has previously
delivered a Notice
of
Conversion (defined below) pursuant to
Section 3.1, or for conversions elected
to be made by the Holder pursuant to Section 3.1 during the
Redemption Period.
The Redemption Amount shall be determined as if such Holder's conversion
elections had been completed immediately prior to the date of the
Notice of
Redemption. On the Redemption Payment Date, the Redemption Amount (plus any
additional interest and fees accruing on
the Notes during the Redemption Period)
must be irrevocably paid in full in immediately
available funds to the
Holder.
In the event the Companies fail to pay the
Redemption
Amount on the
Redemption
Payment Date, then such Redemption Notice
shall be null and void.
ARTICLE III
CONVERSION RIGHTS AND FIXED CONVERSION PRICE
3.1 (a) OPTIONAL
CONVERSION.
Subject to the terms of this
Article III, the Holder shall have the
right, but not the
obligation,
at any
time until the Maturity Date, or during an Event of Default
(as defined in
Article IV), and, subject to the
limitations set forth in Section 3.2 hereof, to
convert all or any portion of the
outstanding
Principal Amount and/or accrued
interest and fees due and payable into
fully paid and
nonassessable shares
of
the Common Stock at the Fixed Conversion
Price. For purposes hereof, subject to
Section 3.6 hereof, the initial "FIXED CONVERSION PRICE" means $2.05
which has
been determined on the date of this Note as an amount equal to one hundred
twenty percent (120%) of the average closing price of the Common Stock
for the
ten (10) trading days immediately prior to the date of this Note;
but in no
event shall the initial Fixed Conversion Price exceed one hundred
twenty five
percent (125%) of the closing price of the
Common Stock on the date hereof. The
shares of Common Stock to be issued upon
such conversion are
herein referred to
as the "CONVERSION SHARES."
3.1(b) CONVERSION
Priority. Before any
Conversion Shares are
issued pursuant hereto, if the provisions contained in Section 2.1 of the
Term
Note dated as of May 13, 2004 issued by
Company to the Holder, shall require the
Holder to make conversions as set forth therein, the Holder shall convert,
subject to all of the terms and conditions
thereof, such
outstanding
principal
amount and/or accrued interest and fees due and payable
in connection with
the
Term Note (as defined in the Purchase
Agreement). Otherwise
the Holder may make
conversions under this Minimum Borrowing Note, subject to the terms and
conditions otherwise contained herein.
3.2 CONVERSION LIMITATION. Notwithstanding anything
contained
herein to the contrary, the Holder shall not be entitled
to convert pursuant to
the terms of this Note an amount that would
be convertible
into that number
of
Conversion Shares which would exceed the
difference
between (i) 4.99% of
the
issued and outstanding shares of Common Stock and (ii)
the number of shares of
Common Stock beneficially owned by the Holder. For purposes
of the immediately
preceding sentence, beneficial ownership shall be
determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. The
Conversion Shares limitation described in this Section 3.2
shall
automatically
become null and void following notice to any Company upon the
occurrence
and
during the continuance of an Event of
Default, or upon 75
days prior notice to
the Parent. Notwithstanding anything contained herein to the contrary, the
provisions of this Section 3.2 are irrevocable and may not be waived by the
Holder or any Company.
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<PAGE>
3.3 MECHANICS OF
HOLDER'S CONVERSION.
In the event that
the
Holder elects to convert this Note into Common Stock, the Holder shall give
notice of such election by delivering an executed and completed notice of
conversion in substantially the form of Exhibit A hereto (appropriately
completed) ("NOTICE OF CONVERSION") to the
Parent and such Notice of Conversion
shall provide a breakdown in reasonable
detail of the Principal Amount, accrued
interest and fees that are being converted. On each Conversion Date (as
hereinafter defined) and in accordance with
its Notice of Conversion, the Holder
shall make the appropriate reduction to the Principal Amount,
accrued interest
and fees as entered in its records and
shall provide written
notice thereof to
the Parent within two (2) Business Days
after the Conversion
Date. Each date on
which a Notice of Conversion is delivered or telecopied to the Parent in
accordance with the provisions hereof shall be deemed a
Conversion Date
(the
"CONVERSION DATE"). Pursuant to the terms of the Notice of Conversion, the
Parent will issue instructions to the transfer agent
accompanied by an
opinion
of counsel within two (2) Business Day of
the date of the delivery to the Parent
of the Notice of Conversion and shall cause the transfer
agent to transmit
the
certificates representing the Conversion
Shares to the Holder
by crediting the
account of the Holder's designated broker with the
Depository Trust Corporation
("DTC") through its Deposit Withdrawal Agent Commission
("DWAC") system
within
three (3) Business Days after receipt by the Parent
of the Notice of Conversion
(the "DELIVERY DATE"). In the case of the
exercise of the conversion rights set
forth herein the conversion privilege shall
be deemed to have been exercised and
the Conversion Shares issuable upon such
conversion shall be deemed to have been
issued upon the date of receipt by the
Parent of the Notice of Conversion. The
Holder s
