Exhibit 10.2
THIS NOTE AND THE COMMON SHARES
ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 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
OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO SUN NEW MEDIA,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
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Principal Amount:
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Issue Date: March
, 2007
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SENIOR CONVERTIBLE PROMISSORY
NOTE
FOR VALUE RECEIVED, SUN NEW MEDIA,
INC., a Minnesota corporation (hereinafter called
“Borrower” ), hereby promises to pay the
“Holder” or its registered assigns or successors
in interest or order, without demand, the sum
of
(“ Principal Amount ”), on March
, 2010 (the “
Maturity Date ”), if not sooner paid.
This Note has been entered into
pursuant to the terms of a subscription agreement between the
Borrower, the Holder and certain other holders (the “
Other Holders ”) of convertible promissory notes (the
“Other Notes”), dated of even date herewith (the
“ Subscription Agreement ”), and shall be
governed by the terms of such Subscription Agreement. Unless
otherwise separately defined herein, all capitalized terms used in
this Note shall have the same meaning as is set forth in the
Subscription Agreement. The following terms shall apply to
this Note:
ARTICLE I
INTEREST; AMORTIZATION;
SENIORITY
1.1.
Interest Rate
. Subject to Section 5.7
hereof, interest payable on this Note shall accrue at a rate per
annum (the “Interest Rate”). All Interest due on this
Note shall be prepaid on the Closing Date (as defined in the
Subscription Agreement) and Holder shall receive, in full
consideration of all Interest owed on this Note,
shares of Holder’s Common
Stock (“ Interest Shares ”). The Interest
Shares shall contain a restrictive legend as set forth under
Section 4(h) of the Subscription Agreement.
1.2.
Minimum Monthly Principal
Payments .
Amortizing payments of the outstanding Principal Amount of this
Note shall commence on the fifteen month anniversary date of this
Note and on the same day of each month thereafter (each a “
Repayment Date ”) until the Principal Amount has been
repaid in full, whether by the payment of cash or by the conversion
of such Principal Amount and interest into Common Stock pursuant to
the terms hereof. Subject to Section 2.1 and Article 3 below, on
each Repayment Date the Borrower shall make payments to the Holder
in an amount equal to one-twenty first of the initial Principal
Amount, and any other amounts which are then owing under this Note
that have not been paid (collectively, the “ Monthly
Amount ”). Amounts of conversions of Principal
Amount and interest made by the Holder or Borrower pursuant to
Section 2.1 or Article III, and amounts converted pursuant to
Section 2.3 of this Note shall be applied first against outstanding
fees and damages, then to Monthly Amounts commencing with the
Monthly Amount first payable and then Monthly Amounts thereafter in
chronological order. Any Principal Amount and any other sum
arising under this Note and
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the Subscription Agreement that
remains outstanding on the Maturity Date shall be due and payable
on the Maturity Date.
1.3
Seniority . The indebtedness under this note shall
rank senior to all current and future indebtedness of the Borrower
and shall not be subordinated to any obligations of the
Borrower. For so long as this Note is outstanding, Borrower
shall take all steps reasonably necessary to protect, preserve and
maintain the senior status of the Notes, including the procurement
of subordination agreements from any future debtholders of the
Borrower.
ARTICLE II
CONVERSION
REPAYMENT
2.1.
Payment of Monthly Amount in Cash
or Common Stock .
Subject to Section 3.2 hereof, if either (A) the Market Price (as
defined below) is less than the Fixed Conversion Price (as defined
in Section 2.3) or (B) the Registration Statement is not effective,
the Borrower shall pay the Monthly Amount in cash in an amount
equal to 135% of the Principal Amount component of the Monthly
Amount and 100% of all other components of the Monthly Amount,
within three (3) business days after the applicable Repayment
Date. Amounts paid with shares of Common Stock must be
delivered to the Holder not later than three (3) business days
after the applicable Repayment Date. The Borrower must send
notice to the Holder by confirmed telecopier not later than 6:00
PM, New York City time on the last trading day preceding a
Repayment Date notifying Holder of Borrower’s election to pay
the Monthly Redemption Amount in cash or Common Stock.
Elections by the Borrower must be made to all Other Holders in
proportion to the relative Note principal held by the Holder and
the Other Holders. If such notice is not timely sent or if
the Monthly Redemption Amount is not timely delivered, then Holder
shall have the right, instead of the Company, to elect within five
trading days after the applicable Repayment whether to be paid in
cash or Common Stock. Such Holder’s election shall not
be construed to be a waiver of any default by Borrower relating to
non-timely compliance by Borrower with any of its obligations under
this Note. Subject to Section 3.2 hereof, if the Market Price
is equal to or greater than the Fixed Conversion Price, then the
Monthly Amount may be paid with registered Common Stock valued at
the Fixed Conversion Price. “ Market Price
” shall mean the average of the closing bid prices of the
Common Stock as reported by Bloomberg L.P. for the Principal Market
for the five trading days preceding the relevant Repayment
Date.
2.2.
No Effective
Registration . Notwithstanding anything to the
contrary herein, no amount payable hereunder may be paid in shares
of Common Stock by the Borrower without the Holder’s consent
unless (a) either (i) an effective current Registration Statement
covering the shares of Common Stock to be issued in satisfaction of
such obligations exists, or (ii) an exemption from registration of
the Common Stock is available pursuant to Rule 144(k) of the 1933
Act, and (b) no Event of Default hereunder (or an event that with
the passage of time or the giving of notice could become an Event
of Default), exists and is continuing, unless such event or Event
of Default is cured within any applicable cure period or is
otherwise waived in writing by the Holder in whole or in part at
the Holder’s option.
2.3.
Optional Redemption of Principal
Amount . Provided
an Event of Default has not occurred, whether or not such Event of
Default has been cured, the Borrower will have the option of
prepaying the outstanding Principal Amount of this Note (“
Optional Redemption ”), in whole or in part, by paying
to the Holder a sum of money equal to the Applicable Percentage (as
defined below) multiplied by the Principal Amount to be redeemed,
together with any and all other sums due, accrued or payable to the
Holder arising under this Note or any Transaction Document through
the Redemption Payment Date as defined below (the “
Redemption Amount ”). “ Applicable
Percentage ” shall mean: (A) 120%, for Optional
Redemptions within 12 months of the Issue Date; (B) 135%, for
Optional Redemptions occurring
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after the 12th month and before the
end of the 24th month of the Issue Date; and (C) 150%, for Optional
Redemptions occurring after the 24th month of the Issue Date.
Borrower’s election to exercise its right to prepay must be
by notice in writing (“ Notice of Redemption
”). The Notice of Redemption shall specify the date for
such Optional Redemption (the “ Redemption Payment
Date ”), which date shall be thirty (30) 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 the Principal Amount for
which the Holder has a pending election to convert, or for
conversions initiated or made by the Holder during the Redemption
Period. On the Redemption Payment Date, the Redemption
Amount, less any portion of the Redemption Amount against which the
Holder has exercised its conversion rights, shall be paid in good
funds to the Holder. In the event the Borrower fails to pay the
Redemption Amount on the Redemption Payment Date as set forth
herein, then (i) such Notice of Redemption will be null and void,
(ii) Borrower will have no right to deliver another Notice of
Redemption, and (iii) Borrower’s failure may be deemed by
Holder to be a non-curable Event of Default.
ARTICLE III
CONVERSION RIGHTS
3.1.
Holder’s Conversion
Rights .
Subject to Section 3.2, the Holder shall have the right, but not
the obligation, to convert all or any portion of the then aggregate
outstanding Principal Amount of this Note, together fees due
hereon, and any sum arising under the Subscription Agreement, and
the Transaction Documents, including but not limited to Liquidated
Damages, into shares of Common Stock, subject to the terms and
conditions set forth in this Article III at the rate of $1.00 per
share of Common Stock (“ Fixed Conversion Price
”) as same may be adjusted pursuant to this Note and the
Subscription Agreement. The Holder may exercise such right by
delivery to the Borrower of a written Notice of Conversion pursuant
to Section 3.3. After the occurrence of an Event of Default,
the Fixed Conversion Price shall be 80% of the VWAP for the five
trading days prior to a Conversion Date.
3.2.
Conversion Limitation
. The Holder shall not
be entitled to convert on a Conversion Date that amount of the Note
in connection with that number of shares of Common Stock which
would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on a
Conversion Date, (ii) any Common Stock issuable in connection with
the unconverted portion of the Note, and (iii) the number of shares
of Common Stock issuable upon the conversion of the Note with
respect to which the determination of this provision is being made
on a Conversion Date, which would result in beneficial ownership by
the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock of the Borrower on such Conversion
Date. For the purposes of the provision 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 Regulation 13d-3 thereunder. Subject to
the foregoing, the Holder shall not be limited to aggregate
conversions of only 4.99% and aggregate conversion by the Holder
may exceed 4.99%. The Holder shall have the authority and
obligation to determine whether the restriction contained in this
Section 3.2 will limit any conversion hereunder and to the extent
that the Holder determines that the limitation contained in this
Section applies, the determination of which portion of the Notes
are convertible shall be the responsibility and obligation of the
Holder. The Holder may waive the conversion limitation
described in this Section 3.2, in whole or in part, upon and
effective after 61 days prior written notice to the Borrower.
The Holder may allocate decide whether to convert a Note or
exercise Warrants to achieve an actual 4.99% ownership
position.
3.3.
Mechanics of Holder’s
Conversion .
(a)
In the event that the Holder elects
to convert any amounts outstanding under this Note into Common
Stock, the Holder shall give notice of such election by delivering
an executed and
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completed notice of conversion (a
“ Notice of Conversion ”) to the Borrower, which
Notice of Conversion shall provide a breakdown in reasonable detail
of the Principal Amount, accrued interest and amounts being
converted. The original Note is not required to be
surrendered to the Borrower until all sums due under the Note have
been paid. 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. Each date on
which a Notice of Conversion is delivered or telecopied to the
B
