Exhibit 4.1
THE SECURITIES REPRESENTED BY THIS
PROMISSORY NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SUCH ACT OR LAW. SUCH SECURITIES MAY
BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED
HEREIN.
SECURED CONVERTIBLE PROMISSORY
NOTE
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$
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1,500,000.00
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September 22, 2008
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FOR VALUE RECEIVED, the undersigned,
PLATINUM RESEARCH ORGANIZATION, INC. , a Delaware
corporation (“ PRO ”), PRO OPERATIONS,
L.P. , a Texas limited partnership (“ PRO LP
”), and PLATINUM INTELLECTUAL PROPERTY, L.P. , a Texas
limited partnership (“ PIP LP ”) (collectively
on a joint and several basis, the “ Borrower ”),
hereby makes this promissory note (this “ Note
”) and promises to pay to the order of ALPINA LENDING,
L.P., a Nevada limited partnership (“ Alpina
” or the “ Agent ”), on its own behalf and
as agent for those persons listed on Schedule 1 attached
hereto (collectively, the “ Lenders ”), the
principal sum of One Million Five Hundred Thousand and No/100
Dollars ($1,500,000.00) or, if greater or less, the aggregate
principal amount of all advances made to Borrower by the Agent on
behalf of the Lenders, as shown on Schedule 2 attached
hereto (as the same is modified from time to time by Agent),
together with interest on the unpaid balance thereof at the rate
hereinafter provided, both principal and interest payable as
hereinafter provided in lawful money of the United States of
America, at the address of Agent as set forth in this Note, or at
such other place as from time to time may be designated by the
holder of this Note.
It is hereby acknowledged that
(a) the Agent, The Fairmount Company, R.T. Vanderbilt, Steven
Kidwell and Melinda J. Bickers are each Lenders under this Note,
(b) the Lenders have appointed the Agent as their
administrative agent, pursuant to that certain Agency Agreement and
Assignment of Participation Interest in Platinum Research
Organization, Inc. and Platinum Intellectual Property, L.P. Note
(the “ Agency Agreement ”) dated the date of
this Note, (c) the Lenders have given the Agent their
authority and permission to enter into this Note and the other Loan
Documents on their behalf, and (d) the Lenders have authorized
and instructed the Agent to lend such funds as may be borrowed by
Borrower pursuant to this Note, subject to the terms and conditions
of this Note and the Agency Agreement.
Lenders have previously advanced
$192,775 (the “ Bridge Loan ”) to Borrower prior
to the date of this Note. The Bridge Loan, and all accrued but
unpaid interest thereon, shall be deemed principal outstanding
under this Note. The Initial Advance shall be offset by an amount
equal to the Bridge Loan.
Unless otherwise defined herein,
capitalized terms used in this Note shall have the meanings given
to such terms in the Schedule of Definitions attached hereto as
Schedule 3 .
1. Commitment Fee; Advances
.
(a) Advances . Concurrently
with the execution of this Note and assuming all conditions
precedent have been met as set forth in Section 11, the Agent
shall advance on behalf of the Lenders the principal sum of Seven
Hundred Fifty Thousand and No/100 Dollars ($750,000.00) (the
“ Initial Advance ”), less the amount of the
Bridge Loan. In addition to the Initial Advance, upon the terms and
conditions set forth herein, Borrower may borrow an additional
Seven Hundred Fifty Thousand and No/100 Dollars ($750,000.00) (the
“ Second Traunche ” and together with the
Initial Advance, the “ Commitment ”) under this
Note. This Note is not a revolver and thus, Borrower may not
borrow, repay, and reborrow the principal of this Note.
(b) Agent and Lenders
Commitment . Provided that the terms and conditions of this
Note have been met on and as of the date of this Note and on and as
of the date of each future advance, if any, Agent on behalf of the
Lenders has committed to advance, in the aggregate, up to One
Million Five Hundred Thousand and No/100 Dollars ($1,500,000.00) in
principal to Borrower hereunder. No advance(s) shall be made which
cause the aggregate outstanding principal balance of this Note to
exceed One Million Five Hundred Thousand Dollars
($1,500,000.00).
(c) Procedure for Second
Traunche . Borrower shall request an advance for the Second
Traunche under this Note by providing the Agent with a written
request for such advance, by no later than 10:00 a.m. Dallas, Texas
time, three (3) business days prior to the date the advance is
requested, executed by the Chief Executive Officer of Borrower.
Borrower’s notice shall (i) state that Borrower has
successfully run and passed an industry IVA sequence engine test,
and (ii) be accompanied by a certificate executed by the Chief
Executive Officer of Borrower in which the Chief Executive Officer
certifies that all representations and warranties contained in this
Note and the other Loan Documents are, and will be as of the date
of the requested advance of the Second Traunche, true and correct
in all respects, and further certifying that Borrower is, and will
be as of the date of the requested advance, in compliance with all
covenants, conditions and agreements in this Note and the other
Loan Documents. The Agent shall approve Borrower’s request
and advance the Second Traunche within three (3) business days
of the Agent’s receipt of Borrower’s notice so long as
(i) following the advance of the Second Traunche, no more than
$1,500,000 in principal has been advanced under this Note,
(ii) no Event of Default has occurred under this Note, and
(iii) no “default” or “event of
default” has occurred under any Loan Document which defines
either such term with respect to the Borrower, and the same is not
remedied within the applicable period of grace (if any) provided in
such Loan Document.
(d) Escrow . Borrower
acknowledges that Agent may make any and all advances through an
escrow agent to its choosing and a related escrow
account.
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2. Payment of Principal and
Interest .
(a) Maturity Date . Subject
to any rights of acceleration provided in this Note and any other
Loan Document, the principal amount of this Note, together with all
accrued and unpaid interest thereon, shall be due and payable on
February 11, 2011 (as may be extended pursuant to the terms of
this Note, the “ Maturity Date ”).
(b) Payment of Interest .
Interest on the unpaid principal balance of this Note shall accrue
on a monthly basis, compound on an annual basis and shall be due
and payable in a single installment on the Maturity Date, on which
date all unpaid principal and accrued interest on this Note shall
be due and payable.
(c) Optional Prepayment .
Provided any payments then due under this Note have been paid
(principal, interest, or otherwise), the unpaid principal amount
of, and any accrued but unpaid interest on, this Note may be
prepaid in whole or in part, from time to time prior to the
Maturity Date, upon no less than 14 days’ prior written
notice to Agent which states the amount of the intended prepayment,
which amount shall be $25,000 or a higher multiple thereof;
provided , however , that Agent shall be entitled to
convert all or part of the amount of such noticed prepayment to
Common Stock in Borrower, by giving notice to Borrower of its
intent to convert in accordance with Section 4 hereof during
the 14 day notice period.
(d) Payments . All payments
due on this Note shall be payable in lawful money of the United
States of America, at the principal office of the Agent at 7161 S.
Eastern Ave., Suite 3A, Las Vegas, Nevada 89119-4675, by no later
than 2:00 p.m., Las Vegas, Nevada time, on the date such payment is
due. If any payment due under this Note is scheduled or otherwise
would be due on a Saturday or Sunday, or on a holiday recognized
and observed by banks in Las Vegas, Nevada, then Borrower shall
have until the next business day to make such payment. All payments
shall be made by cashier’s or certified check or wire
transfer of immediately available funds.
(e) Application of Payments .
Unless otherwise agreed to in writing or otherwise required by
applicable law, payments will be applied first to unpaid accrued
interest, then to principal, and any remaining amount to any unpaid
collection costs and other charges; provided ,
however , that upon delinquency of payment or other Event of
Default under this Note, Agent reserves the right to apply payments
among principal, interest, collection costs and other charges, at
its discretion.
3. Interest Rate and
Computation .
(a) Interest Rate . This Note
will bear interest at the rate equal to the variable “prime
rate” from time to time published in the Money Rates column
of The Wall Street Journal plus three percent
(3%) per annum, accrued monthly and compounded annually. Under
no circumstances shall this Note at any point in time accrue
interest at a rate in excess of the Maximum Rate (as defined
below).
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(b) Default Rate . Following
the occurrence and during the continuation of (i) the failure
of the Borrower to pay in full on the date due, in such manner as
is provided in this Note, any payment obligations hereunder, or
(ii) the occurrence of an Event of Default under this Note, or
(iii) a “default” or “event of
default” occurs under any other Loan Document which defines
either such term, the principal balance of this Note which is thus
delinquent (which may be the entire principal balance of this Note
in circumstances where this Note is mature or has been accelerated
due to an Event of Default under this Note or a
“default” or “event of default” under any
other Loan Document or for another reason) shall bear interest at
the Maximum Rate, automatically and without the necessity of
notice, until such delinquent amount is paid or such breach or
default is otherwise cured to the satisfaction of Agent. As used in
this Note, the term “ Maximum Rate ” shall mean
the lesser of (i) eighteen percent (18%), or (ii) the
maximum lawful rate of interest which may be contracted for,
charged, taken, received or reserved by the Agent in accordance
with the applicable laws of the State of Nevada (or applicable
United States federal law to the extent that it permits the Agent
to contract for, charge, take, receive or reserve a greater amount
of interest than under Nevada law), taking into account all fees
and charges, if any, contracted for, charged, received, taken or
reserved by the Agent in connection with the transaction relating
to this Note and the Indebtedness evidenced by this Note and other
Loan Documents which are treated as interest under applicable law
made in connection with the loan evidenced by this Note and the
other Loan Documents.
4. Conversion .
(a) Conversion Right . At any
time starting six months after the date of this Note and ending on
the date that the full and final payment of all amounts due under
this Note is paid, in the sole discretion of the Agent, the Agent
may convert all or part of the outstanding principal balance of
this Note, and all or part of any accrued but unpaid interest
thereon, into Common Stock, par value $.001 per share (the “
Common Stock ”), of PRO. Agent may convert outstanding
Note principal only, accrued and unpaid interest only, or both
outstanding principal and accrued but unpaid interest in any
combination desired by Agent, in its discretion. The conversion
price with respect to this Note is $0.18 for one (1) share of
Common Stock, subject to adjustment in accordance with the terms of
Section 5 hereof (the “ Conversion Price
”). Accordingly, if the Agent decided to convert $500,000 in
Note principal (without interest) to Common Stock and none of the
events named in Section 5 requiring an adjustment had
occurred, then upon conversion of $500,000 in Note principal,
Lenders would receive an aggregate of Two Million Seven Hundred
Seventy Seven Thousand Seven Hundred Seventy Eight
(2,777,778) shares of Common Stock in PRO, and the outstanding
principal balance would automatically be reduced by
$500,000.
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(b) Exercise of
Conversion Right . To exercise its conversion rights from time
to time, the Agent shall give PRO written notice of its intent to
convert this Note in whole, or the portion specified in the notice.
The notice shall also state the name or names of the Lenders (or
their respective designees) to which shares of Common Stock should
be issued and the number of shares of Common Stock which should be
issued to each such Lender (or such Lender’s designee).
Closing of the conversion shall occur no later than the seventh
(7 th ) day following the date of
the Agent’s written notice at the Agent’s office, or at
such other place as agreed to by the Agent. At the closing of the
conversion, Lenders shall be deemed automatically admitted as
shareholders of PRO with respect to the Common Stock being received
on conversion without any further action on Agent’s or
Lenders’ or PRO’s part and PRO shall deliver to Agent
certificate(s) representing the number of shares Common Stock
acquired by Lenders, and the dollar amount of the Note which was
converted shall be deemed a payment on the Note in such amount.
Each conversion shall be deemed to have been effected on the date
of the notice of the conversion, and the Common Stock into which
the portion of the Note was converted shall be deemed issued as of
such date.
(c) Qualified Public Offering
. Immediately prior to PRO’s sale of its Common Stock in a
firm commitment underwritten public offering pursuant to a
registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the
account of Borrower in which the net proceeds of Borrower are equal
to or greater than Ten Million and No/100 Dollars ($10,000,000.00)
(before deduction of underwriters’ commissions and expenses)
(“ Qualified Public Offering ”), the Agent, in
its sole discretion, may convert all or part of the outstanding
principal balance of this Note, and all or part of any accrued but
unpaid interest thereon, into Common Stock of PRO in connection
with such Qualified Public Offering.
(d) Registration Rights .
Should Agent exercise its conversion rights pursuant to this
Section 4, the Company agrees to enter into a registration
rights agreement with Agent and/or the applicable Lender(s) on
commercially reasonable terms, which shall include, without
limitation, piggyback registration rights and other provisions that
are reasonable and customary for registration rights agreements
generally.
5. Anti-Dilution Provisions .
The Conversion Price shall be subject to adjustment from time to
time upon the happening of any of the following events:
(a) Adjustment for Stock Splits
and Combinations . If PRO shall at any time or from time to
time after the date of this Note effect a subdivision of its
outstanding Common Stock, the Conversion Price in effect
immediately before that subdivision shall be proportionately
decreased so that the number of shares of Common Stock issuable on
conversion of all or any portion of the Note shall be increased in
proportion to such increase in the aggregate number of shares of
Common Stock outstanding. If PRO shall at any time or from time to
time after the date of this Note combine the outstanding shares of
Common Stock, the Conversion Price in effect immediately before the
combination shall be proportionately increased so that the number
of shares of Common Stock issuable on conversion of all or any
portion of the Note shall be decreased in proportion to such
decrease in the aggregate number of shares of Common Stock
outstanding. Any adjustment under this subsection shall become
effective at the close of business on the date the subdivision or
combination becomes effective.
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(b) Adjustment for Certain
Dividends and Distributions . In the event PRO at any time or
from time to time after the date of this Note shall make or issue,
or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable
on the Common Stock in additional shares of Common Stock, then and
in each such event the Conversion Price in effect immediately
before such event shall be decreased as of the time of such
issuance or, in the event such a record date shall have been fixed,
as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction: (i) the
numerator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution. Notwithstanding the foregoing, if
such record date shall have been fixed and such dividend is not
fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be recomputed
accordingly as of the close of business on such record date and
thereafter the Conversion Price shall be adjusted pursuant to this
subsection as of the time of actual payment of such dividends or
distributions.
(c) Adjustments for Other
Dividends and Distributions . In the event PRO at any time or
from time to time after the date of this Note shall make or issue,
or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable
in securities of PRO (other than a distribution of shares of Common
Stock in respect of outstanding shares of Common Stock) or in other
property, then and in each such event provision shall be made so
that Agent shall receive upon conversion of all or any portion of
the Note, in addition to the number of shares of Common Stock
receivable thereupon, the kind and amount of securities of PRO,
cash or other property which they would have been entitled to
receive had the Note been converted into Common Stock on the date
of such event and had Agent thereafter, during the period from the
date of such event to and including the conversion date, retained
such securities receivable by it as aforesaid during such period,
giving application to all adjustments called for during such period
under this paragraph.
(d) Issuances . If after the
date of this Note and until the Note is paid or has been converted
in its entirety, PRO issues to any investor or other Person other
than Lenders, Common Stock or other equity securities of PRO, or
any rights convertible into or options to purchase Common Stock or
other equity securities of PRO (the “ New Issuance
”), for a price per share which is less than the Conversion
Price then in effect (the initial Conversion Price being $0.18)
(the “ Dilutive Price ”), then the Conversion
Price shall be multiplied by a fraction, of which the denominator
shall be the number of shares of Common Stock outstanding on the
date of the New Issuance plus the number of additional shares of
Common Stock issued or offered for subscription or purchase in
the
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New Issuance, and of which the
numerator shall be the number of shares of Common Stock outstanding
on the date of such New Issuance plus the number of shares which
the aggregate offering price of the total number of shares so
offered (assuming receipt by PRO in full of all consideration
payable in connection with such New Issuance) would purchase at the
Dilutive Price. Notwithstanding the foregoing or any other
provision herein to the contrary, no adjustment to the Conversion
Price will be required as a result of any issuance by PRO of any
Common Stock, any other class of capital stock, or any other
securities, options, rights, or warrants with respect thereto
(A) pursuant to any stock option plan, restricted stock plan
or other compensatory plan or arrangement with any officer,
director, employee or consultant of PRO or any affiliated entity,
(B) pursuant to or in connection with any agreement or
understanding in effect on or before the date hereof,
(C) pursuant to or in connection with any merger,
consolidation, statutory share exchange, self tender offer for all
or substantially all Common Stock, sale of all or substantially all
of PRO’s assets or recapitalization of the Common Stock of
PRO, or (D) to any vendor, customer or other person or entity
with which PRO has or is attempting to develop a business
relationship.
(e) Merger or Consolidation .
In case of any merger or consolidation of PRO with any corporation
or other entity, other than a consolidation or merger in which PRO
is the surviving entity and which does not result in any
reclassification or change of the outstanding Common Stock or
Distributed Securities, this Note shall be automatically adjusted
to represent the right to purchase at the Conversion Price the
number of shares of Common Stock or other securities or assets that
the Agent, on behalf of the Lenders, would have been entitled to
receive if the Agent had converted this Note on behalf of the
Lenders on or prior to the effective date of such merger or
consolidation.
(f) Calculations . No
adjustment in the Conversion Price shall be required unless such
adjustment would require a cumulative increase or decrease of at
least $0.05 in such price; provided, however, that any adjustments
that by reason of this subparagraph (d) are not required to be
made shall be carried forward and taken into account in any
subsequent adjustment until made. Notwithstanding any other
provisions of this Section 5, PRO shall not be required to
make any adjustment of the Conversion Price for the issuance of any
Common Stock pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of PRO and the
investment of additional optional amounts in Common Stock under
such plan. All calculations under this Section 5 shall be made
to the nearest cent (with $.005 being rounded upward) or to the
nearest one-tenth of a share (with .05 of a share being rounded
upward), as the case may be.
(g) Certificates as to
Adjustments . Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this
Section 5, PRO at its expense shall, as promptly as reasonably
practicable but in any event not later than 10 days thereafter,
compute such adjustment or readjustment in accordance with the
terms hereof and furnish to Agent a certificate setting forth such
adjustment or readjustment (including the kind and amount of
securities, cash or other property into which the Note is
convertible) and
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showing in detail the facts upon
which such adjustment or readjustment is based. PRO shall, as
promptly as reasonably practicable after the written request at any
time of Agent (but in any event not later than 10 days thereafter),
furnish or cause to be furnished to such holder a certificate
setting forth (i) the Conversion Price then in effect, and
(ii) the number of shares of Common Stock and the amount, if
any, of other securities, cash or property which then would be
received upon the conversion of the Note.
6. Default . Each of the
following events shall constitute an Event of Default under this
Note (for purposes of clarity, the term “Borrower”
shall mean any of PIP LP, PRO LP or PRO):
(a) The failure of the Borrower to
pay, on or prior to the date due, any payments due under this Note
(principal, interest, or otherwise), without the requirement of or
benefit of any further notice or grace periods of any kind;
or
(b) Any “default” or
“event of default” occurs under any other Loan Document
which defines either such term with respect to the Borrower, and
the same is not remedied within the applicable period of grace (if
any) provided in such Loan Document; or
(c) Borrower breaches or otherwise
fails to duly observe, perform or comply with any covenant,
agreement or provision of this Note or any other Loan Document for
which it is obligated to observe, perform or comply with, and such
failure remains unremedied for a period of thirty (30) days
after notice of such failure is given by the Agent to Borrower;
provided, that there shall be no remedy period for the covenants
contained in Section 10(a)(vii) or Section 10(b);
or
(d) Any representation or warranty
made by Borrower in any Loan Document shall prove to have been
false or incorrect in any material respect on any date on or as of
when made, or any Loan Document at any time ceases to be valid,
binding and enforceable for any reason other than its release or
subordination by Lender; or
(e) the entry of a decree or order
for relief by a court having jurisdiction in respect of Borrower in
an involuntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of Borrower or for any substantial part of
its property, or ordering the winding up or liquidation of its
affairs; or
(f) the commencement by Borrower of
a voluntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal
or state bankruptcy, insolvency or other similar law, or the
consent by it to the appointment to or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator
(or other similar official) of Borrower for any substantial part of
its property, or the making by it of any assignment for the benefit
of creditors; or
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(g) the dissolution or termination
of existence of the Borrower; or
(h) the merger or consolidation of
Borrower with or into any corporation or other entity, whether or
not Borrower is the surviving entity; or
(i) the sale or liquidation of all
or substantially all of the assets of Borrower; or
(j) a Change in Control occurs that
is not otherwise caused by Lender or its Affiliates; or
(k) any event occurs which has a
Material Adverse Effect with respect to Borrower; or
(l) a final judgment(s) or final
order(s) of a court of competent jurisdiction in excess of $100,000
is entered into against Borrower that remains uncontested or
unappealed for a period of forty-five (45) days;
(m) any “default” or
“event of default” shall occur under any credit
agreement, loan agreement, promissory note, or other document
evidencing indebtedness for borrowed money incurred by the
Borrower, or any subordination agreement, security agreement,
pledge agreement, deed of trust, or other security documents
executed by Borrower in connection therewith (“default”
and “event of default” having the meaning given to such
terms in any of the agreements described above), including, without
limitation, the indebtedness with the City of Seattle Retirement
System (the “ SCERS Debt ”); or
(n) the failure of PRO LP to deliver
on or before October 31, 2008 a certificate (or certificates)
of the good standing (including tax good standing) of PRO LP in the
State of Texas issued by the appropriate authorities of such
jurisdiction.
7. Remedies upon Default
.
(a) Upon the occurrence of an Event
of Default, the Agent may (i) cause all of the principal and
accrued but unpaid interest under this Note to become immediately
due and payable without notice or demand or declaration of any
kind, (ii) pursue such other rights or remedies (legal or
equitable) against Borrower as the Agent on behalf of the Lenders
may have under this Note, any other Loan Document or otherwise, or
(iii) request Borrower to cause all payments due under the
Note (principal, interest, and otherwise) to be converted into
shares of Common Stock of Borrower in accordance with
Section 4 hereof (Borrower shall comply with such conversion
request within three (3) days after receiving notice of the
request from the Agent).
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(b) Borrower and all other parties
now or hereafter liable for payment hereof, whether as endorser,
guarantor, surety or otherwise, severally waive presentment,
demand, grace, diligence in collecting, protest and notice of every
kind as to this Note and as to each, every and all payments due
hereunder.
(c) If any Default shall occur and
be continuing, Agent may protect and enforce its rights and the
rights of Lenders under the Loan Documents by