THIS NOTE AND THE SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR
TO SUCH EFFECT. SUCH SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT WITH A REGISTERED
BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
INSTITUTION THAT IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(a) UNDER
THE SECURITIES ACT.
THIS NOTE DOES NOT REQUIRE PHYSICAL
SURRENDER OF THIS NOTE IN THE EVENT OF A
PARTIAL REDEMPTION, REPAYMENT OR
CONVERSION. AS A RESULT, FOLLOWING ANY
REDEMPTION, REPAYMENT OR CONVERSION OF ANY
PORTION OF THIS NOTE, THE
OUTSTANDING PRINCIPAL AMOUNT REPRESENTED BY
THIS NOTE MAY BE LESS THAN THE
PRINCIPAL AMOUNT SET FORTH BELOW.
6% SENIOR SECURED CONVERTIBLE NOTE DUE 2008
OF
BROADCAST INTERNATIONAL, INC.
Note No.: __
_
Original Principal Amount: $_______
Issuance Date: May __, 2005
Salt Lake City, Utah
FOR VALUE
RECEIVED, the Company hereby promises to pay to or upon the
order of _______________________ or its
registered assigns or
successors-in-interest (the "Holder") the
principal sum of _________________
Dollars ($___________.00), together with
all accrued but unpaid interest
thereon, if any, on the Final Maturity
Date, to the extent such principal
amount and interest have not been repaid or
converted into shares of the
Company's Common Stock, $0.05 par value
(the "Common Stock"), in accordance
with the terms hereof. Interest on the unpaid principal
balance hereof shall
accrue at the rate of 6% per annum from the
date of original issuance hereof
(the "Issuance Date") until the Final
Maturity Date, or such earlier date upon
acceleration or by conversion, repayment or
redemption in accordance with the
terms hereof. Interest on this Note shall accrue
daily commencing on the
Issuance Date, shall be compounded
semi-annually and shall be computed on the
basis of a 360-day year, 30-day months and
actual days elapsed and shall be
payable in accordance with Section 2
hereof. Notwithstanding anything
contained herein, this Note shall bear
interest on the outstanding Principal
Amount from and after the occurrence and
during the continuance of an Event of
Default, at the rate (the "Default Rate")
equal to the lower of eighteen
percent (18%) per annum or the highest rate
permitted by applicable law.
Unless otherwise agreed or required by
applicable law, payments will be
applied first to any unpaid collection
costs, then to unpaid interest and fees
and any remaining amount to unpaid
principal.
All
payments of principal of and interest on this Note shall be made
in
lawful money of the United States of
America by wire transfer of immediately
available funds to such account as the
Holder may from time to time designate
by written notice in accordance with the
provisions of this Note. This Note
may not be prepaid in whole or in part
except as specifically provided herein.
Whenever any amount expressed to be due by
the terms of this Note is due on
any day which is not a Business Day (as
defined below), the same shall instead
be due on the next succeeding day which is
a Business Day and such extension
shall be taken into account in determining
the amount of interest accrued on
this Note.
The
indebtedness evidenced by this Note is senior to all other
current
and future indebtedness of the Company.
Payment of the indebtedness evidenced
by this Note is secured by all of the
properties and assets of the Company
pursuant to that certain Security
Agreement, dated as of May __, 2005, by and
between the Company and Gryphon Master
Fund, L.P., as Collateral Agent for the
Purchasers (the "Security Agreement").
The
following terms and conditions shall apply to this Note:
1.
Definitions.
(a)
Capitalized terms used
herein and not otherwise defined herein
shall have the meanings set forth in the
Purchase Agreement.
(b)
For purposes hereof
the following terms shall have the meanings
ascribed to them below:
"Approved
Market" means one of the OTC Bulletin Board, the Nasdaq Small
Cap, the Nasdaq, the New York Stock
Exchange or the American Stock Exchange.
"Bankruptcy Event" means any of the following events: (a) the
Company or
any material subsidiary commences a case or
other proceeding under any
bankruptcy, reorganization, arrangement,
adjustment of debt, relief of
debtors, dissolution, insolvency or
liquidation or similar law of any
jurisdiction relating to the Company or any
material subsidiary thereof; (b)
there is commenced against the Company or
any material subsidiary any such
case or proceeding that is not dismissed
within 60 days after commencement;
(c) the Company or any material subsidiary
thereof is adjudicated insolvent or
bankrupt or any order of relief or other
order approving any such case or
proceeding is entered; (d) the Company or
any material subsidiary suffers any
appointment of any trustee, custodian or
the like for it or any substantial
part of its property that is not discharged
or stayed within 60 days; (e) the
Company or any material subsidiary makes a
general assignment for the benefit
of creditors; (f) the Company or any
material subsidiary fails to pay, states
that it is unable to pay, or is unable to
pay, its debts (excluding those
reasonably disputed in good faith by the
Company in the case of failure to pay
and for which it has reserves on its books
and financial statements) generally
as they become due; (g) the Company or any
material subsidiary calls a meeting
of its creditors with a view to arranging a
composition, adjustment or
restructuring of its debts; or (h) the
Company or any material subsidiary, by
any act or failure to act, expressly
indicates its consent to, approval of or
acquiescence in any of the foregoing or
takes any corporate or other action
for the purpose of effecting any of the
foregoing.
"Board of
Directors" means the Company's board of directors.
"Cash" or
"cash" means at any time such coin or currency of the United
States of America as shall at such time be
legal tender for the payment of
public and private debts.
"Change in
Control Transaction" will be deemed to exist if (i) there
occurs any consolidation, merger,
amalgamation or other business combination
of the Company with or into any other
corporation or other entity or person
(whether or not the Company is the
surviving corporation), or any other
corporate reorganization or transaction or
series of related transactions in
which in any of such events the persons who
are holders of the voting stock of
the Company immediately prior to such event
cease to own more than 50% of the
voting stock, or corresponding voting
equity interests, of the surviving
corporation or other entity immediately
after such event (including without
limitation any "going private" transaction
under Rule 13e-3 promulgated
pursuant to the Exchange Act or tender
offer by the Company under Rule 13e-4
promulgated pursuant to the Exchange Act
for 20% or more of the Company's
Common Stock), (ii) any person (as defined
in Section 13(d) of the Exchange
Act), together with its affiliates and
associates (as such terms are defined
in Rule 405 under the Securities Act),
beneficially owns or is deemed to
beneficially own (as described in Rule
13d-3 under the Exchange Act without
regard to the 60-day exercise period) 50%
or more of the voting power of the
Company's voting stock or corresponding
voting securities, (iii) there is a
replacement of more than one-half of the
members of the Board of Directors
which is not approved by a majority of
those individuals who are either
members of the Board of Directors on the
date thereof or individuals approved
by a majority of such members or (iv) in
one or a series of related
transactions, there is a sale or transfer
of all or substantially all of the
assets of the Company, determined on a
consolidated basis.
"Company
Notice Date" shall have the meaning provided in Section 2(c).
"Company
Prepayment Notice" shall have the meaning provided in Section
2(c).
"Conversion Date" shall have the meaning provided in Section
3(b).
"Conversion Delay Payments" shall have the meaning provided in
Section
3(b)(ii).
"Conversion Notice" means either an Optional Conversion Notice or
a
Mandatory Conversion Notice.
"Conversion Price" means $2.50, subject to adjustment as set
forth
herein.
"Current
Market Price" means when used with respect to the Common Stock
as of a specified date with respect to each
share of Common Stock: (i) if the
principal trading market for such
securities is a national or regional
securities exchange, the closing price on
such exchange on such day; or (ii)
if sales prices for shares of Common Stock
are reported by the NASDAQ National
Market System (or a similar system then in
use), the last reported sales price
(regular way) so reported on such day; or
(iii) if neither (i) nor (ii) above
are applicable, and if bid and ask prices
for shares of Common Stock are
reported in the over-the-counter market by
NASDAQ (or, if not so reported, by
the Pink Sheets, LLC), the average of the
high bid and low ask prices so
reported on such day. Notwithstanding the
foregoing, if there is no reported
closing price, last reported sales price,
or bid and ask prices, as the case
may be, for the day in question, then the
Current Market Price shall be
determined as of the latest date prior to
such day for which such closing
price, last reported sales price, or bid
and ask prices, as the case may be,
are available, unless such securities have
not been traded on an exchange or
in the over-the-counter market for 5 or
more days immediately prior to the day
in question, in which case the Current
Market Price shall be determined by an
Independent Financial Expert (and the costs
of such determination shall be
bourne entirely by the Company). An
"Independent Financial Expert" shall mean
a reputable accounting, appraisal or
investment banking firm that is, in the
reasonable judgment of the Board of
Directors, qualified to perform the task
for which such firm has been engaged
hereunder, is nationally recognized and
disinterested and Independent with respect
to the Company and its affiliates
and is reasonably acceptable to the Holder.
"Independent" shall mean any
person or entity that (A) is in fact
independent, (B) does not have any direct
financial interest or any material indirect
financial interest in the Company
or any of its subsidiaries, or in any
affiliate of the Company or any of its
subsidiaries (other than as a result of
holding securities of the Company in
trading accounts), and (C) is not an
officer, employee, promoter, trustee,
partner, director or person performing
similar functions for the Company or
any of its subsidiaries or any affiliate of
the Company or any of its
subsidiaries.
"DTC"
shall have the meaning provided in Section 3(b)(ii).
"Effective
Registration" means (i) the Company has complied in all
material respects with its obligations
under all the Transaction Documents
where the failure to comply by the Company
would have a material adverse
effect on the ability of the Holder to
publicly resell the Underlying Shares,
the Warrant Shares, the PIK Interest Shares
and the AIR Shares, and no Event
of Default shall have occurred and be
continuing; (ii) the resale of all
Registrable Securities (as defined in the
Registration Rights Agreement) is
covered by an effective Registration
Statement in accordance with the terms of
the Registration Rights Agreement and such
Registration Statement is not
subject to any suspension or stop order and
is expected to remain effective
and available for use by the selling
stockholders named therein or in any
related prospectus supplement for at least
20 Trading Days thereafter; (iii)
the resale of such Registrable Securities
may be effected pursuant to a
current and deliverable prospectus that is
not subject to any blackout or
similar circumstance; (iv) such Registrable
Securities are listed, or approved
for listing prior to issuance, on an
Approved Market and are not subject to
any trading suspension (nor shall trading
generally have been suspended on
such exchanges or markets), and the Company
shall not have been notified of
any pending or threatened proceeding or
other action to delist or suspend the
Common Stock on the Approved Market on
which the Common Stock is then traded
or listed; (v) the requisite number of
shares of Common Stock shall have been
duly authorized and shall be available for
issuance as required by the terms
of the Transaction Documents; (vi) the
Holder is not identified as an
underwriter in the Registration Statement;
and (vii) the Company is not
subject to any Bankruptcy Event.
"Event of
Default" shall have the meaning provided in Section 4(a).
"Exchange
Act" means the Securities Exchange Act of 1934, as amended.
"Final
Maturity Date" means May __, 2008.
"Force
Majeure Event" means an event or circumstance that prevents the
Company from performing its obligations
under this Note or that prevents an
act or event required hereunder from
happening or occurring (including,
without limitation, an act of God, war,
insurrection, riot, nuclear disaster,
labor strike or threat of violence, labor
and material shortage, fire,
explosion, flood, river freeze-up,
breakdown or damage to mines, plant,
equipment, or facilities (including a
forced outage or an extension of a
scheduled outage of equipment or facilities
to make repairs to avoid
breakdowns thereof or damage thereto),
interruption to or slowdown in
transportation, railcar shortage, barge
shortage, embargo, order, or act of
civil or military authority, law,
regulation, or administrative ruling, or
total or partial interruption of the
Company's operations which are due to any
enforcement action or other administrative
or judicial action arising from an
environmental law or regulation), but in
any case which is not within the
reasonable control of, or the result of the
negligence of, the Company, and
which by the exercise of due diligence, the
Company is unable to overcome or
avoid or cause to be avoided or is unable
in good faith to obtain a substitute
acceptable to the Holder therefor.
"Holder
Share Notice" shall have the meaning provided in Section
3(b)(ii).
"Mandatory
Conversion Notice" shall have the meaning provided in Section
3(a).
"Optional
Conversion Notice" shall have the meaning provided in Section
3(a).
"PIK
Interest" shall have the meaning provided in Section 2(a).
"PIK
Interest Notice" shall have the meaning provided in Section
2(a).
"PIK Interest Price"
means 0.85 multiplied by the daily volume weighted
average price of the Common Stock for the
ten (10) Trading Days immediately
preceding (but not including) the
applicable Interest Payment Date, as
reported by Bloomberg Financial Markets
using the VWAP function.
"PIK
Interest Shares" shall have the meaning provided in Section
2(a).
"Principal
Amount" means at any time the sum of (i) the outstanding
principal amount of this Note at such time,
(ii) all accrued but unpaid
interest hereunder to such time, and (iii)
any default payments owing at such
time to the Holder under the Transaction
Documents but not theretofore paid or
added to the Principal Amount.
"Principal
Market" means the OTC Bulletin Board or such other U.S.
market or exchange which is the principal
market on which the Common Stock is
then listed for trading.
"Purchase
Agreement" means the Securities Purchase Agreement, dated as
of May 16, 2005, by and among the Company
and the Purchasers named therein,
pursuant to which this Note was originally
issued.
"QIB"
means a qualified institutional buyer as defined in Rule 144A.
"Reset
Date" means the earlier of (i) the later of (A) the
Effectiveness
Date (as defined in the Registration Rights
Agreement), and (B) the nine-month
anniversary of the Closing Date, or (ii)
the one-year anniversary of the
Closing Date.
"Rule
144A" means Rule 144A as promulgated by the SEC under the
Securities Act or any successor
thereto.
"SEC"
means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Trading
Day" means a day on which the Principal Market is open for the
general trading of securities.
"Underlying Shares" means the shares of Common Stock issued or
issuable
upon conversion of, in lieu of cash payment
of principal of, or interest on,
as repayment of principal under, or
otherwise pursuant to, this Note in
accordance with the terms hereof and the
Purchase Agreement.
Section 2.
Payments of Principal
and Interest.
(a)
Interest. The
Company shall pay interest accruing on this Note
(from the date hereof) on all principal
outstanding at the Interest Rate,
semi-annually on the Interest Payment
Dates, commencing on November __, 2005,
in cash; provided that the Default Rate
shall apply in the circumstances set
forth above. Notwithstanding the foregoing,
if (and only if) there is
Effective Registration on the applicable
Interest Payment Date, then the
Company may pay such interest, at the
Company's option, (i) in fully paid and
nonassessable shares of Common Stock (such
interest paid in such form being
herein called "PIK Interest") or (ii) in
cash. PIK Interest shall be paid by
delivering to the Holder a number of shares
of Common Stock ("PIK Interest
Shares") determined by dividing (x) the
total aggregate dollar amount of
interest due on the applicable Interest
Payment Date (rounded to the nearest
whole cent) by (y) the applicable PIK
Interest Price. In order to deliver PIK
Interest Shares in lieu of cash on an
Interest Payment Date, the Company must
deliver, on or before the fifteenth (15th)
calendar day immediately prior to
such date, written notice to the Holder
stating that the Company wishes to do
so (a "PIK Interest Notice"); in the event
that the Company does not deliver a
PIK Interest Notice on or before such
fifteenth (15th) day, the Company will
be deemed to have elected to pay the
related interest in cash. The Holder
shall promptly thereafter deliver to the
Company instructions designating
whether the Holder wishes to receive
delivery of its PIK Interest Shares in
physical certificates (and, if so, at what
address) or through DTC (similar to
that described in Section 3(b)(ii)), as
long as no legend is required by the
terms of the Purchase Agreement to be
imprinted on such PIK Interest Shares
(and, if so, the account number to be
credited). If the Company wishes to
deliver PIK Interest Shares in lieu of cash
with respect to accrued interest,
it must do so with respect to all (but not
less than all) of such interest. A
PIK Interest Notice, once delivered by the
Company, shall be irrevocable
unless there is not Effective Registration
on the applicable Interest Payment
Date, in which case such notice shall be
deemed revoked and the interest to
which such notice relates shall be payable
in cash on the Interest Payment
Date. The Company shall not issue
fractional shares of Common Stock to which
the Holder may become entitled pursuant to
this subparagraph, but in lieu
thereof, the Company shall round the number
of shares to be issued up to the
next whole number.
(b)
Principal. The
entire Principal Amount of this Note, plus any and
all default payments owing under the
Transaction Documents but not previously
paid, shall become due and payable on the
Final Maturity Date. Any principal
of this Note that is converted pursuant to
Section 3 shall be applied to
reduce the principal payable under this
Section 2(b).
(c)
Prepayment.
At any time following
the first anniversary of the
Issuance Date, upon delivery of a written
notice to the Holder (a "Company
Prepayment Notice" and the date such notice
is delivered by the Company, the
"Company Notice Date"), the Company shall
be entitled to prepay all or any
portion of the outstanding Principal Amount
of this Note, plus any accrued and
unpaid interest thereon, for an amount in
cash equal to the sum of (i) 125% of
the Principal Amount of this Note to be
prepaid, plus all accrued and unpaid
interest thereon, and (ii) all other
amounts, costs, expenses and liquidated
damages due in respect of this Note.
Notwithstanding the
foregoing, the
Company shall be entitled to deliver a
Company Prepayment Notice and prepay
this Note pursuant to the terms of this
subsection (c) only if (i) there is
Effective Registration on the Company
Notice Date and it is expected that
Effective Registration will continue for at
least 20 Trading Days after the
Company Notice Date, and (ii) conversion by
the Holder pursuant to Section 3
of the portion of this Note that is being
prepaid would not cause the Holder's
beneficial ownership of shares of Common
Stock to exceed the limits set forth
in Section 3.13 of the Purchase Agreement,
and (iii) the average daily trading
volume for the Common Stock during the 20
consecutive Trading Days immediately
preceding (but not including) the date that
the Holder receives the Company
Prepayment Notice exceeded 200,000 shares.
The Holder may, within ten Trading
Days of its receipt of the Company
Prepayment Notice, convert pursuant to
Section 3, at the then effective Conversion
Price, any portion of the
outstanding principal amount of this Note
being prepaid and any accrued and
unpaid interest thereon subject to the
Company Prepayment Notice.
Section 3.
Conversion.
(a)
Conversion
Rights. Upon the terms
and subject to the conditions
hereof, the Holder shall have the right, at
the Holder's option, to convert
the outstanding Principal Amount and
accrued and unpaid interest thereon into
Common Stock, in whole at any time or in
part from time to time, by delivering
to the Company a duly executed notice of
conversion in the form attached
hereto as Exhibit A (the "Optional
Conversion Notice"), which may be
transmitted by telephone line facsimile
transmission. In addition, upon
written notice by the Company to the Holder
(the "Mandatory Conversion
Notice"), the Company may cause the Holder
to convert all (but not less than
all) of the outstanding Principal Amount
and accrued and unpaid interest
thereon into Common Stock, if (and only if)
(i) there is Effective
Registration on the date that the Holder
receives the Mandatory Conversion
Notice, and (ii) the closing price of the
Common Stock exceeded 200% of the
Conversion Price then in effect for any 20
out of 30 consecutive Trading Days
immediately preceding (but not including)
the date that the Holder receives
the Mandatory Conversion Notice, and (iii)
the average daily trading volume
for the Common Stock during the 20
consecutive Trading Days immediately
preceding (but not including) the date that
the Holder receives the Mandatory
Conversion Notice exceeded 200,000 shares.
Notwithstanding anything to the
contrary herein, this Note and the
outstanding Principal Amount hereunder
shall not be convertible into Common Stock
at any time to the extent, and only
to the extent, that such conversion at such
time would result in the Holder
exceeding the limitation contained in, or
otherwise violating the provisions
of, Section 3.13 of the Purchase
Agreement.
(b)
Common Stock
Issuance Upon Conversion.
(i) Conversion
Procedures. Upon any conversion of this Note
pursuant to Section 3(a) above, the
outstanding Principal Amount being
converted and accrued and unpaid interest
thereon to the applicable Conversion
Date shall be converted into such number of
fully paid, validly issued and
non-assessable shares of Common Stock, free
of any liens, claims and
encumbrances, as is determined by dividing
the outstanding Principal Amount
being converted and accrued and unpaid
interest thereon to the applicable
Conversion Date by the then applicable
Conversion Price. The date of any
Conversion Notice hereunder shall be
referred to herein as the "Conversion
Date". If a conversion under this Note
cannot be effected in full for any
reason, or if the Holder is converting less
than all of the outstanding
Principal Amount hereunder pursuant to a
Conversion Notice, the Company shall,
upon request of the Holder, promptly
deliver to the Holder (but no later than
five Trading Days after the surrender of
this Note to the Company) a new Note
having a Principal Amount equal to the
amount of such outstanding Principal
Amount as has not been converted. The
Holder shall not be required physically
to surrender this Note to the Company upon
any conversion unless the full
outstanding Principal Amount of this Note
is being converted or repaid. The
Holder and the Company shall maintain
records showing the outstanding
Principal Amount so converted and repaid
and the dates of such conversions or
repayments or shall use such other method,
reasonably satisfactory to the
Holder and the Company, so as not to
require physical surrender of this Note
upon each such conversion or repayment. The
Holder agrees that, if the
outstanding Principal Amount of this Note
is less than the Principal Amount
stated on t
