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 NUMEREX CORP. THAT SUCH REGISTRATION IS
NOT REQUIRED.
SECURED CONVERTIBLE TERM
NOTE
FOR
VALUE RECEIVED, NUMEREX CORP., a Pennsylvania corporation (the
“ Company ”), 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 Ten Million Dollars ($10,000,000), together with any accrued
and unpaid interest hereon, on December 29, 2010 (the “
Maturity Date ”) if not sooner paid.
Capitalized
terms used herein without definition shall have the meanings
ascribed to such terms in the Securities Purchase Agreement among
the Company and the Holder dated as of the date hereof (as amended,
restated, modified and/or supplemented from time to time, the
“ Purchase Agreement ”).
The
following terms shall apply to this Secured Convertible Term Note
(this “ Note ”):
ARTICLE I
CONTRACT RATE AND AMORTIZATION
1.1
Contract Rate . Subject to Sections 4.8 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 nine and one half percent (9.50%) (the
“ Contract Rate ”). Interest shall be
(i) calculated on the basis of a 360 day year, and
(ii) payable monthly, in arrears, commencing on
February 1, 2007 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.
1.2
Intentionally Deleted
1.3
Principal Payments . Amortizing payments of the aggregate
principal amount outstanding under this Note at any time (the
“ Principal Amount ”) shall be made by the
Company commencing on July 2, 2007 and on the first business
day of each succeeding month thereafter through and including the
Maturity Date (each, an “ Amortization Date ”).
Subject to Article III below, commencing on the first
Amortization Date, the Company shall make monthly payments of
principal to the Holder on each Amortization Date, each such
payment in the amount of $238,095 together with any accrued and
unpaid interest on such portion of the
Principal
Amount plus any and all other unpaid amounts which are then due and
owing under this Note, the Purchase Agreement and/or any other
Related Agreement (collectively, the “ Monthly Amount
”). Any outstanding Principal Amount together with any
accrued and unpaid interest and any and all other unpaid amounts
which are then owing by the Company to the Holder under this Note,
the Purchaser Agreement and/or any Related Agreement shall be due
and payable on the Maturity Date.
ARTICLE II
COMPANY PAYMENT OPTIONS
2.1
(a) Payment of Monthly Amount in Cash or Common Stock .
Subject to the terms hereof, the Company shall have the sole option
to determine whether to satisfy payment of the Monthly Amount on
each Amortization Date either in cash or in shares of the
Company’s Class A common stock, no par value per share
(the “ Common Stock ”), or a combination of
both. Each month, ten (10) days prior to an Amortization Date,
the Company may deliver to the Holder a written irrevocable notice
in the form of Exhibit A attached hereto electing to
pay the Monthly Amount payable on the next Amortization Date in
either cash or Common Stock, or a combination of both (each, a
“ Repayment Election Notice ”) (the date by
which such notice is required to be given being hereinafter
referred to as the “ Notice Date ”). If a
Repayment Election Notice is not delivered to the Holder by the
Company by the applicable Notice Date for such Amortization Date,
then the Monthly Amount due on such Amortization Date shall be paid
in cash. If the Company elects to repay all or a portion of the
Monthly Amount in shares of Common Stock, the number of such shares
to be issued for such Amortization Date shall be the number
determined by dividing (x) the portion of the Monthly Amount
to be paid in shares of Common Stock, by (y) the Fixed
Conversion Price (as defined below).
(b)
Monthly Amount Common Stock Payment Guidelines .
Notwithstanding anything to the contrary contained herein, if the
Company has elected to pay all or a portion of the Monthly Amount
due on such Amortization Date in shares of Common Stock and the
closing price of the Common Stock as reported by Bloomberg, L.P. on
the Principal Market for the seven (7) trading days preceding
a Amortization Date was less than 110% of the Fixed Conversion
Price, then the Company shall pay the Monthly Amount in cash
instead. Any part of the Monthly Amount due on such Amortization
Date that the Company did not elect to pay in shares of Common
Stock shall be paid by the Company in cash on such Amortization
Date. Any part of the Monthly Amount due on such Amortization Date
which the Company elected to pay in shares of Common Stock but
which must be paid in cash (because the closing price of the Common
Stock for the seven (7) trading days preceding the applicable
Amortization Date was less than 110% of the Fixed Conversion Price)
shall be paid on or prior to three (3) business days following
the applicable Amortization Date.
2.2
No Effective Registration . Notwithstanding anything to the
contrary herein, the Company shall not be permitted to repay any
part of its obligations to the Holder hereunder in shares of Common
Stock if (i) there fails to exist an effective current
Registration Statement (as defined in the Registration Rights
Agreement) covering resale of the shares of Common Stock to be
issued in connection with such payment, or (ii) an Event of
Default hereunder exists and is continuing, unless such Event of
Default is cured prior to such payment being made or is otherwise
waived in writing by the Holder in whole or in part at the
Holder’s option.
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2.3
Optional Prepayments in Common Stock . Subject to
Sections 2.2 and 3.2 hereof, if the average closing price of
the Common Stock on the Principal Market is greater than 110% of
the Fixed Conversion Price for a period of at least five
(5) consecutive trading days, then the Company may, at its
sole option, provide the Holder written notice (a “ Stock
Prepayment Notice ”) requiring the conversion at the then
applicable Fixed Conversion Price of all or a portion of the
outstanding principal, interest and fees outstanding under this
Note (subject to compliance with this Section 2.3 and
Section 3.2), together with accrued interest on the amount
being prepaid, as of the date set forth in such Stock Prepayment
Notice (the “ Stock Prepayment Date ”). The
Stock Prepayment Date shall be at least seven (7) trading days
following the date of the Stock Prepayment Notice. On the Stock
Prepayment Date, the Company shall deliver to the Holder
certificates evidencing the shares of Common Stock issued in
satisfaction of the principal and interest being prepaid.
Notwithstanding the foregoing, the Company’s right to issue
shares of Common Stock in satisfaction of the Company’
obligations under this Note shall be subject to the limitation that
the market price of the Common Stock issued in connection with any
Stock Prepayment Notice shall exceed the Fixed Conversion Price as
of the Stock Prepayment Date and for the seven (7) trading
days immediately preceding the Stock Prepayment Date. If the price
of the Common Stock falls below 110% of the Fixed Conversion Price
as of, or during the seven (7) trading day period immediately
preceding the Stock Prepayment Date, then the Stock Prepayment
Notice shall be null and void and no conversion shall be required
hereunder.
The Company shall
not be permitted to give the Holder more than one Stock Prepayment
Notice under this Note during any 22-day trading day period, and
the amount of principal to be converted under each such Stock
Prepayment Notice pursuant to this Section 2.3 shall not
exceed the amount of Two Million Five Hundred Thousand and
00/100ths Dollars ($2,500,000.00).
Any principal
amount of this Note which is prepaid pursuant to this
Section 2.3 shall be deemed to constitute payments of
outstanding principal applying to the principal portion of the
Monthly Amounts for the remaining Amortization Dates in
chronological order.
2.4
Optional Redemption in Cash . The Company will have the
option of prepaying this Note, either in whole or in part, without
premium or penalty of any kind or nature (an “ Optional
Cash Redemption”) by paying to the Holder a sum of cash
equal to one hundred percent (100%) of the principal amount to be
prepaid (together with all accrued but unpaid interest thereon and
any and all other sums then due, accrued and payable to the Holder
arising under this Note, the Purchase Agreement, or any Related
Agreement) (each, a “ Cash Redemption Amount ”).
The Company shall deliver to the Holder a written notice of cash
redemption (each, a “ Notice of Cash Redemption
”) specifying the date for such Optional Cash Redemption
(each, a “ Cash Redemption Payment Date ”),
which date shall be ten (10) days after the date of the
respective Notice of Cash Redemption (each, a “ Cash
Redemption Period ”). A Notice of Cash 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 are elected
to be made by the Holder pursuant to Section 3.1 during the
Cash Redemption Period. A Cash Redemption Amount shall
be
3
determined as
if such Holder’s conversion elections had been completed
immediately prior to the date of the respective Notice of Cash
Redemption. On a Cash Redemption Payment Date, the respective Cash
Redemption Amount (plus any additional interest and fees accruing
on such Cash Redemption Amount during the Cash Redemption Period)
must be irrevocably paid in full in immediately available funds to
the Holder. In the event the Company fail to pay a Cash Redemption
Amount on a Cash Redemption Payment Date, then the respective Cash
Redemption Notice shall be null and void.
2.5
Mandatory Redemption Upon Failure to Cause an Effective
Registration Statement to be Filed . If on or prior to
December 29, 2007, the Borrower shall fail to file and cause
to exist a current effective Registration Statement (as defined in
the Registration Rights Agreement) covering resale of the shares of
Common Stock underlying this Note and the Common Stock Purchase
Warrant, dated as of the date hereof, granted by the Borrower to
the Holder, then Holder shall have the right, upon six
(6) month’s prior written notice to the Borrower, to
demand repayment in full of all amounts outstanding under this
Note, including, but not limited to, any penalties set forth in
this Article IV and all accrued and unpaid interest and fees
thereon.
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 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 $10.37. 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 herein to
the contrary, 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 Note
or the unexercised or unconverted portion of any other security of
the Holder subject to a limitation on conversion 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 any amount greater than 9.99% of the then
outstanding shares of Common Stock (whether or not, at the time of
such exercise, the Holder and its Affiliates beneficially own more
than 9.99% of the then outstanding shares of Common Stock). As used
herein, the term “ Affiliate ” means any person
or entity that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common
control with a person or entity, as such terms are used in and
construed under Rule 144 under the Securities Act. For
purposes of the proviso to the second preceding sentence,
beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as
4
amended, and
Regulations 13D-G thereunder, except as otherwise provided in
clause (1) of such proviso. The limitations set forth herein
(x) may be waived by the Holder upon provision of no less than
sixty-one (61) days prior notice to the Company and
(y) shall automatically become null and void
(i) following notice to the Company upon the occurrence and
during the continuance of an Event of Default (as defined below),
or (ii) upon receipt by the Holder of a Notice of Cash
Redemption, 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. Notwithstanding anything
contained herein to the contrary, the number of shares of Common
Stock issuable by the Company and acquirable by the Holder at a
price below $9.46 per share pursuant to the terms of this Note, the
Purchase Agreement, any Related Agreement or otherwise, shall not
exceed an aggregate of 2,529,934 shares of Common Stock (subject to
appropriate adjustment for stock splits, stock dividends, or other
similar recapitalizations affecting the Common Stock) (the “
Maximum Common Stock Issuance ”), unless the issuance
of Common Shares hereunder in excess of the Maximum Common Stock
Issuance shall first be approve
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