SECURED CONVERTIBLE MINIMUM BORROWING NOTE

 

 

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 PACIFIC CMA, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

 

                  SECURED CONVERTIBLE MINIMUM BORROWING NOTE

 

            FOR VALUE RECEIVED, each of PACIFIC CMA, INC., a Delaware

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 Four Million Dollars ($4,000,000), 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 July 29, 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 six percent (6.0%) per

annum. 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.

 

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            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. 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. If

Laurus submits a Notice of Conversion and there are no shares of Common Stock

underlying this Note that are subject to an effective current Registration

Statement, Laurus shall have the option of accepting shares of Common Stock that

are not subject to an effective current Registration Statement or withdrawing

such Notice of Conversion (in which case such Notice of Conversion shall be

deemed withdrawn and all obligations under this Note relating to such Notice of

Conversion shall be reinstated).

 

            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 percent (120%) 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 not be less than seven (7) days after the date

of the Notice of Redemption (the "Redemption Period"). A Notice of Redemption

shall not be effective with respect to any portion of this Note for which the

Holder has previously delivered a Notice of Conversion (defined below) pursuant

to Section 3.1, or for conversions elected to be made by the Holder pursuant to

 

 

                                       2

<PAGE>

 

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 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 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 (i) with respect to the first $3,750,000 of the

aggregate principal amount converted pursuant to the terms of this Note, any

other Minimum Borrowing Note or the Revolving Note (and all interest related

thereto), $.88 and (ii) with respect to the remaining principal amount converted

pursuant to the terms of this Note, any other Minimum Borrowing Note or the

Revolving Note (and all interest related thereto), $1.05. The shares of Common

Stock to be issued upon such conversion are herein referred to as the

"Conversion Shares."

 

            3.2 Conversion Limitation.

 

      Notwithstanding anything contained herein to the contrary, the Holder

shall not be entitled to convert pursuant to the terms of this Note an amount

that would be convertible into that number of Conversion Shares which would

exceed the difference between (i) 4.99% of the 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 written notice to

any Company upon the occurrence and during the continuance of an Event of

Default, or upon 75 days prior written notice to the Parent, except that at no

time shall the number of shares of Common Stock beneficially owned by the Holder

exceed 19.99% of the outstanding shares of Common Stock, or such lesser amount

as required by the applicable Principal Market on which the Parent's Common

Stock is listed, unless such shall first be approved by the Parent's

stockholders. Notwithstanding anything contained herein to the contrary, the

number of shares of Common Stock issuable by the Parent and acquirable by the

Holder at a price below $.81 per share pursuant to the terms of this Note, the

Security Agreement or any other Ancillary Agreement, shall not exceed an

aggregate of 5,095,933 shares of Common Stock (subject to appropriate adjustment

for stock splits, stock dividends, or other similar recapitalizations affecting

 

 

                                       3

<PAGE>

 

the Common Stock) (the "Maximum Common Stock Issuance"), unless the issuance of

Common Stock hereunder in excess of the Maximum Common Stock Issuance shall

first be approved by the Parent's shareholders. If at any point in time and from

time to time the number of shares of Common Stock issued pursuant to the terms

of this Note, the Security Agreement or any other Ancillary Agreement, together

with the number of shares of Common Stock that would then be issuable by the

Parent to the Holder in the event of a conversion or exercise pursuant to the

terms of this Note, the Security Agreement or any other Ancillary Agreement,

would exceed the Maximum Common Stock Issuance but for this Section 3.2, the

Parent shall promptly call a shareholders meeting to solicit shareholder

approval for the issuance of the shares of Common Stock hereunder in excess of

the Maximum Common Stock Issuance. Notwithstanding anything contained herein to

the contrary, the provisions of this Section 3.2 are irrevocable and may not be

waived by the Holder or any Company.

 

            3.3 Mechanics of Holder's Conversion. In the event that the Holder

elects to convert this Note into Common Stock, the Holder shall give notice of

such election by delivering an executed and completed notice of conversion in

substantially the form of Exhibit A hereto (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 Days 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 e