Exhibit 4.2
SERIES B CONVERTIBLE NOTE
NEITHER THE ISSUANCE AND SALE
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL,
IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE
TERMS OF THIS NOTE, INCLUDING SECTIONS 3(d)(iii) AND 17(a) HEREOF.
THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE
SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE
AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(d)(iii)
OF THIS NOTE.
OPEN ENERGY CORPORATION
Series B Convertible
Note
|
Issuance Date: September 19, 2007
|
Original Principal Amount: U.S.
$20,000,000
|
FOR VALUE RECEIVED,
Open Energy Corporation, a
Nevada corporation (the “ Company ”), hereby
promises to pay to The Quercus Trust or its registered assigns
(“ Holder ”) the amount set out above as the
Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to conversion or otherwise, the “ Principal
”) when due, whether upon the Maturity Date (as defined
below), acceleration, redemption or otherwise (in each case in
accordance with the terms hereof) and to pay interest (“
Interest ”) on any outstanding Principal at the
Interest Rate as required by Section 2 hereof. This Series B
Convertible Note (including all Series B Convertible Notes issued
in exchange, transfer or replacement hereof, this “
Note ”) is one of an issue of Convertible Notes issued
pursuant to the Securities Purchase Agreement (as defined below) on
the Closing Date (collectively, the “ Notes ”
and such other Convertible Notes, the “ Other Notes
”). Certain capitalized terms used herein are defined in
Section 27. Capitalized terms used but not defined herein shall
have the meanings set forth in the Securities Purchase
Agreement.
(1)
PAYMENTS OF PRINCIPAL . On the Maturity Date, the Company
shall pay to the Holder an amount in cash representing all
outstanding Principal, accrued and unpaid Interest, if any, and
accrued and unpaid Late Charges, if any, on such Principal and
Interest. The
“ Maturity Date ”
shall be three (3) years from the date of the Initial Closing, as
may be extended at the option of the Holder (i) in the event that,
and for so long as, a Trigger Event (as defined in Section 4(a))
shall have occurred and be continuing on the Maturity Date (as may
be extended pursuant to this Section 1) or any event that shall
have occurred and be continuing that with the passage of time and
the failure to cure would result in a Trigger Event, and (ii)
through the date that is ten (10) Business Days after the
consummation of a Change of Control in the event that a Change of
Control is publicly announced. Other than as specifically permitted
by the Note, the Company may not prepay any portion of the
outstanding Principal, accrued and unpaid Interest or accrued and
unpaid Late Charges, if any, on Principal and Interest.
(2)
INTEREST; INTEREST RATE . During the term of this Note,
Interest shall accrue on outstanding Principal at an interest rate
equal to six percent (6%) per annum (the “ Interest
Rate ”) commencing on the Issuance Date. Interest shall
be calculated on the basis of a 365-day year and the actual number
of days elapsed, to the extent permitted by applicable law. Any
Interest that shall accrue hereunder shall be payable quarterly in
arrears on each January 1, April 1, July 1 and October 1 (each an
“ Interest Payment Due Date ”), beginning on the
first such date after the Issuance Date hereof, in cash or shares
of Common Stock (“ Interest Shares ”) at the
option of the Company. If the Company elects to pay all or any
portion of any Interest due in shares of the Company’s common
stock, par value $0.001 per share (the “ Common Stock
”), such Interest to be paid in Interest Shares shall be paid
in a number of fully paid and nonassessable shares (rounded to the
nearest whole cent) equal to the quotient of (a) the amount of
Interest payable on such Interest Date less any such Interest to be
paid in cash on such Interest Date divided by (b) an amount equal
to 95% of the 5-day Weighted Average Price (as defined in Section
27) of the Common Stock ending on the Trading Day prior to such
Interest Payment Due Date, with the right of the Company to make
such payment of Interest in Interest Shares subject to the
following conditions: (i) the Common Stock shall have traded an
average of at least 300,000 shares per day for each of the five
trading days prior to the applicable Interest Payment Due Date,
(ii) a registration statement covering the resale by the Holder of
the Interest Shares shall be current and effective as of the date
of delivery of such Interest Shares to the Holder, and (iii) a
Trigger Event, as defined below, in accordance with Section
4(a)(v), shall not have occurred. Interest hereunder will be paid
to the Holder or its assignee in whose name this Note is registered
on the records of the Company regarding registration and transfers
of Notes.
(3)
CONVERSION OF NOTES . This Note shall be convertible by the
Holder into shares of the Company’s Common Stock on the terms
and conditions set forth in this Section 3.
(a)
Conversion Right . Subject to the provisions of Section
3(e), at any time or times on or after the Issuance Date, the
Holder shall be entitled to convert, at the Holder’s sole
option, any portion of the outstanding and unpaid Conversion Amount
(as defined below) into fully paid and nonassessable shares of
Common Stock, at the Conversion Rate (as defined below). The
Company shall not issue any fraction of a share of Common Stock
upon any conversion. If the issuance would result in the issuance
of a fraction of a share of Common Stock, the Company shall round
such fraction of a share of Common Stock up to the nearest whole
share. The Company shall pay any and all transfer, stamp and
similar taxes that may be payable with respect to the issuance and
delivery of Common Stock upon conversion of any Conversion Amount;
provided that the Company shall not be required to pay any
tax that may be payable in respect of any issuance of Common Stock
to any Person other than the converting Holder or with respect to
any income tax due by the Holder with respect to such Common
Stock.
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(b)
Forced Conversion . The Company shall have the right to call
all, but not less than all, of the Notes for conversion at the
Conversion Price (as defined below) if the Weighted Average Price
for the Company’s Common Stock has exceeded 300% of the
Conversion Price of the Series A Notes for at least 20 Trading Days
during a 30 Trading Day period ending within 5 Trading Days prior
to the Company sending a notice (the “ Forced Conversion
Notice ”) of forced conversion and the date of such
forced conversion (the “ Forced Conversion Notice Date
”) to the Holders the (“ Measurement
Period ”), and if the following conditions are
satisfied: (i) there is either an effective registration statement
providing for the resale of the shares of Common Stock underlying
the Notes during each Trading Day of the Measurement Period or all
of the shares of Common Stock underlying the Notes may be resold
pursuant to Rule 144(k) of the Securities Act without restriction
during each Trading Day of the Measurement Period; and (ii) the
Common Stock has traded an average of 400,000 shares per day during
the Measurement Period. The date the Notes shall be converted
pursuant to this provision shall be thirty (30) days after the
Forced Conversion Notice Date specified in the Forced Conversion
Notice sent to the Holders.
(c)
Conversion Rate . The number of shares of Common Stock
issuable upon conversion of any Conversion Amount shall be
determined by dividing (x) such Conversion Amount by (y) the then
applicable Conversion Price (the “ Conversion Rate
”).
(i)
“ Conversion Amount ” means the sum of (A) the
portion of the Principal to be converted, redeemed or otherwise
with respect to which this determination is being made, (B) accrued
and unpaid Interest with respect to such Principal, if any, and (C)
accrued and unpaid Late Charges with respect to such Principal and
Interest, if any.
(ii)
“ Conversion Price ” means, as of any Conversion
Date (as defined below) or other date of determination, an amount
equal to $0.50, subject to adjustment as provided herein.
(d)
Mechanics of Conversion .
(i)
Optional Conversion . To convert any Conversion Amount into
shares of Common Stock on any date (a “ Conversion
Date ”), the Holder shall (A) transmit by facsimile (or
otherwise deliver), for receipt on or prior to 11:59 p.m., New York
Time, on such date, a copy of an executed notice of conversion in
the form attached hereto as Exhibit I (the “
Conversion Notice ”) to the Company and (B) if
required by Section 3(d)(iii), surrender this Note to a common
carrier for delivery to the Company as soon as practicable on or
following such date (or an indemnification undertaking with respect
to this Note in the case of its loss, theft or destruction). On or
before the second (2 nd ) Trading
Day following the date of receipt of a Conversion Notice, the
Company shall transmit by facsimile a confirmation of receipt of
such Conversion Notice to the Holder and the Company’s
transfer agent (the “ Transfer Agent ”). If this
Note is physically surrendered for conversion as required by
Section 3(d)(iii) and the outstanding Principal of this Note is
greater than the Principal portion of the Conversion Amount being
converted, then the Company shall as soon as practicable and in
no
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event later than three (3) Business Days after
receipt of this Note and at its own expense, issue and deliver to
the holder a new Note (in accordance with Section 17(d))
representing the outstanding Principal not converted. The Person or
Persons entitled to receive the shares of Common Stock issuable
upon a conversion of this Note shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on the
Conversion Date. In the event of a partial conversion of this Note
pursuant hereto, the principal amount converted shall be deducted
from the outstanding Principal for purposes of calculating interest
payments due on the Note pursuant to Section 2.
(ii)
Delivery of Certificates . On or before the third (3rd)
Trading Day following the date of receipt of a Conversion Notice
(the “ Share Delivery Date ”) or request for
removal of restrictive legends on the shares of Common Stock
issuable in connection therewith, the Company shall (X) provided
that the Transfer Agent is participating in the Depository Trust
Company (“ DTC ”) Fast Automated Securities
Transfer Program, credit such aggregate number of shares of Common
Stock to which the Holder shall be entitled to the Holder’s
or its designee’s balance account with DTC through its
Deposit Withdrawal Agent Commission system or (Y) if the Transfer
Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver to the address as specified in
the Conversion Notice, a certificate, registered in the name of the
Holder or its designee, for the number of shares of Common Stock to
which the Holder shall be entitled.
(A)
If such delivery is made more than two (2) additional Trading Days
after conversion or request for removal of legend (a “
Conversion Failure ”), as the case may be, then the
Company will compensate the Holder at a rate of $100 per day for
each of the first ten (10) Trading Days and $200 per day thereafter
for each $10,000 of securities. In such event, after the first such
ten (10) Trading Days noted above, the Holder will also have the
right to rescind its Conversion Notice for the Notes.
(B)
If the certificates have not been delivered by the fifth (5
th ) Trading
Day after conversion or request for removal of legend, as the case
may be, and the Holder has purchased (in an open market transaction
or otherwise) Common Stock to deliver in satisfaction of a sale by
the Holder of Common Stock issuable upon such conversion that the
Holder anticipated receiving from the Company (a “
Buy-In ”), then the Company shall, within three (3)
Trading Days after the Holder’s request and in the
Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including
brokerage commissions and other out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (the “Buy-In
Price” ), at which point the Company’s obligation
to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock
and pay cash to the Holder in an amount equal to the excess (if
any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the
Conversion Date.
(iii)
Registration; Book-Entry . The Company shall maintain a
register (the “ Register ”) for the recordation
of the names and addresses of the holders of each Note and the
principal amount of the Notes held by such holders (the “
Registered Notes ”). The entries in the Register shall
be conclusive and binding for all purposes absent
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manifest error. The Company and the holders of
the Notes shall treat each Person whose name is recorded in the
Register as the owner of a Note for all purposes, including,
without limitation, the right to receive payments of principal and
interest hereunder, notwithstanding notice to the contrary. A
Registered Note may be assigned or sold in whole or in part only by
registration of such assignment or sale on the Register. Upon its
receipt of a request to assign or sell all or part of any
Registered Note by a Holder, the Company shall record the
information contained therein in the Register and issue one or more
new Registered Notes in the same aggregate principal amount as the
principal amount of the surrendered Registered Note to the
designated assignee or transferee pursuant to Section 17.
Notwithstanding anything to the contrary set forth herein, upon
conversion of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender
this Note to the Company unless (A) the full Conversion Amount
represented by this Note is being converted or (B) the Holder has
provided the Company with prior written notice (which notice may be
included in a Conversion Notice) requesting reissuance of this Note
upon physical surrender of this Note. The Holder and the Company
shall maintain records showing the Principal, Interest and Late
Charges, if any, converted and the dates of such conversions 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 conversion.
(iv)
Pro Rata Conversion; Disputes . In the event that the
Company receives a Conversion Notice from more than one holder of
Notes for the same Conversion Date and the Company can convert
some, but not all, of such portions of the Notes submitted for
conversion, the Company shall convert from each holder of Notes
electing to have Notes converted on such date a pro rata amount of
such holder’s portion of its Notes submitted for conversion
based on the principal amount of Notes submitted for conversion on
such date by such holder relative to the aggregate principal amount
of all Notes submitted for conversion on such date. In the event of
a dispute as to the number of shares of Common Stock issuable to
the Holder in connection with a conversion of this Note, the
Company shall issue to the Holder the number of shares of Common
Stock not in dispute and resolve such dispute in accordance with
Section 22.
(e)
Limitations on Conversions .
(i)
Principal Market Regulation .
(A)
Exchange Cap . The Company shall not be obligated to issue
any shares of Common Stock upon conversion of this Note or exercise
of the Warrants and no Buyer shall be entitled to receive any
shares of Common Stock if the issuance of such shares of Common
Stock would exceed that number of shares of Common Stock which the
Company may issue upon exercise or conversion, as applicable, of
the Warrants and Notes or otherwise without breaching the
Company’s obligations under the rules or regulations of any
applicable Eligible Market (the “ Exchange Cap
”), except that such limitation shall not apply in the event
that the Company (A) obtains the approval of its stockholders as
required by the applicable rules of the Eligible Market for
issuances of shares of Common Stock in excess of such amount or (B)
obtains a written opinion from outside counsel to the Company that
such approval is not required, which opinion shall be reasonably
satisfactory to the Required Holders. Until such approval or
written
5
opinion is obtained, no Buyer shall be issued
in the aggregate, upon exercise or conversion, as applicable, of
any Warrants or Notes, shares of Common Stock in an amount greater
than the product of the Exchange Cap multiplied by a fraction, the
numerator of which is the total number of shares of Common Stock
underlying the Notes issued to such Buyer pursuant to the
Securities Purchase Agreement on the Issuance Date and the
denominator of which is the aggregate number of shares of Common
Stock underlying the Series A Notes and Series B Notes issued to
the Buyers pursuant to the Securities Purchase Agreement on the
Issuance Date (with respect to each Buyer, the “ Exchange
Cap Allocation ”). In the event that any Buyer shall sell
or otherwise transfer any of such Buyer’s Notes, the
transferee shall be allocated a pro rata portion of such
Buyer’s Exchange Cap Allocation, and the restrictions of the
prior sentence shall apply to such transferee with respect to the
portion of the Exchange Cap Allocation allocated to such
transferee. In the event that any holder of Notes shall convert all
of such holder’s Notes into a number of shares of Common
Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such
holder’s Exchange Cap Allocation and the number of shares of
Common Stock actually issued to such holder shall be allocated to
the respective Exchange Cap Allocations of the remaining holders of
the Series A Notes and Series B Notes on a pro rata basis in
proportion to the total number of shares of Common Stock underlying
the Series A Notes and Series B Notes then held by each such
holder. In the event that the Company is prohibited from issuing
any Conversion Shares for which a Conversion Notice has been
received as a result of the operation of this Section 3(e)(2), the
Company shall pay cash in exchange for cancellation of such
Conversion Shares, at a price per Conversion Share equal to the
Weighted Average Price as of the date of the attempted
conversion.
(B)
Redemption Upon Exchange Cap Violation . In the event that,
anytime after the Shareholder Issuance Voting Deadline (as defined
in the Securities Purchase Agreement), (A) the Shareholder Issuance
Approval (as defined in the Securities Purchase Agreement), if
applicable, has not been obtained and (B) the then Holder’s
current Fully Diluted Amount (as defined below) would exceed the
Holder’s Pro-Rata Portion (as defined below) of the Exchange
Cap (an “ Exchange Cap Violation ”), then the
Company shall be required to redeem, from time to time, a
sufficient amount of the Notes such that the Holder’s Fully
Diluted Amount after such redemption equals the Holder’s
Pro-Rata Portion of the Exchange Cap (an “ Exchange Cap
Redemption ”). Each Exchange Cap Redemption shall be at a
redemption price, in cash, equal to the outstanding principal
amount of this Note to be redeemed, plus all accrued and unpaid
Interest, Late Charges and any other amounts when and as due under
this Note (the “ Exchange Cap Redemption Amount
”). The Exchange Cap Redemption Amount shall be applied first
to accrued and unpaid Interest, Late Charges and any other amounts
when and as due under this Note, and then to the principal amount
of the Note.
The
Exchange Cap Redemption Amount shall be due and payable to the
Holder within five (5) Business Days of the date of each applicable
Exchange Cap Violation (each, an “ Exchange Redemption
Payment Date ”).
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For
purposes hereof, “ Fully Diluted Amount ” shall
mean (i) the aggregate number of shares of Common Stock that have
been issued to the Holder upon the conversion of Holder’s
Note, plus (ii) the aggregate number of shares of Common Stock that
would be issuable to the Holder upon the full Conversion of all of
Holder’s outstanding Note, together with any accrued and
unpaid Interest, Late Charges and any other amounts when and as due
under this Note and the full exercise of Holders Warrants (in each
case, without regard to any limitations on conversion herein or
elsewhere, including but not limited to the Exchange Cap and
without regard to whether or not a sufficient number of shares are
authorized and reserved to effect any such exercise and
issuance).
“ Holder’s Pro-Rata Portion
” shall mean the purchase price of the Note purchased by the
Holder in this offering, divided by the aggregate purchase price of
all Notes sold by the Company in this offering.
(4)
RIGHTS UPON TRIGGER EVENT .
(a)
Trigger Event . Each of the following events shall
constitute a “ Trigger Event ”:
(i)
the suspension from trading or failure of the Common Stock to be
listed on the Principal Market or an Eligible Market for a period
of five (5) consecutive Trading Days or for more than an aggregate
of ten (10) Trading Days in any 365-day period;
(ii)
the Company’s (A) failure to cure a Conversion Failure by
delivery of the required number of shares of Common Stock within
ten (10) Trading Days after the applicable Conversion Date or (B)
written notice to any holder of the Notes or public announcement,
at any time, of its intention not to comply with a request for
conversion of any Notes into shares of Common Stock that is
tendered in accordance with the provisions of the Notes;
(iii)
at any time following the thirtieth (30 th ) day
that the Company fails to have a sufficient number of authorized
shares of Common Stock available to satisfy its obligations for
issuance upon a conversion of the full Conversion Amount of this
Note (without regard to any limitations on conversion);
(iv)
the Company’s failure to pay to the Holder any amount of
Principal (including, without limitation, any redemption payments),
Interest, Late Charges or other amounts when and as due under this
Note, except, in the case of a failure to pay any Interest and Late
Charges when and as due, in which case only if such failure
continues for a period of at least fifteen (15) Business Days;
(v)
the failure to pay when due or any acceleration, prior to maturity
of any Indebtedness of the Company or any Subsidiaries of $100,000
or more of such Indebtedness in the aggregate and such failure to
pay continues uncured for more than ten (10) Business Days, other
than with respect to any Other Notes;
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(vi)
the Company or any of its Material Subsidiaries (as defined in SEC
Regulation S-X), pursuant to or within the meaning of Title 11,
U.S. Code, or any similar Federal, foreign or state law for the
relief of debtors (collectively, “Bankruptcy Law”), (A)
commences a voluntary case, (B) consents to the entry of an order
for relief against it in an involuntary case, (C) consents to the
appointment of a receiver, trustee, assignee, liquidator or similar
official (a “Custodian”), (D) makes a general
assignment for the benefit of its creditors or (E) admits in
writing that it is generally unable to pay its debts as they become
due;
(vii)
a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that (A) is for relief against the Company or
any of its Subsidiaries in an involuntary case, (B) appoints a
Custodian of the Company or any of its Subsidiaries or (C) orders
the liquidation of the Company or any of its Subsidiaries;
(viii)
a final judgment or judgments for the payment of money aggregating
in excess of $250,000 are rendered against the Company or any of
its Subsidiaries and which judgments are not, within sixty (60)
days after the entry thereof, bonded, discharged or stayed pending
appeal, or are not discharged within sixty (60) days after the
expiration of such stay; provided, however, that any judgment which
is covered by insurance or an indemnity from a credit worthy party
shall not be included in calculating the $250,000 amount, provided
that the creditworthiness of any such party shall be determined by
the Company’s board of directors in their reasonable
judgment;
(ix)
the Company breaches any representation, warranty, covenant or
other term or condition of any Transaction Document, and such
breach constitutes, individually or in the aggregate, a Material
Adverse Effect; provided, however, that in the case of a breach of
a covenant which is curable, only if such breach continues for a
period of at least ten (10) consecutive Business Days;
(x)
any breach or failure in any material respect to comply with
Section 12 of this Note;
(xi)
the Company’s failure to engage the services of a transfer
agent for its Common Stock that is a participant in the Depository
Trust Company’s Full Fast Program prior to the date on which
the Registration Statement is declared effective by the SEC;
or
(xii)
the Company has failed to comply in good faith with the Dispute
Resolution Procedures (as defined herein) or has failed to adjust
the Conversion Price as required hereunder following a Dilutive
Issuance, or otherwise (after any applicable Dispute Resolution
Procedure required herein).
(b)
Redemption Right . Upon the occurrence of a Trigger Event
with respect to this Note or any Other Note, the Company shall
within three (3) Business Day deliver written notice thereof via
facsimile or e-mail and overnight courier (a “ Trigger
Event Notice ”) to the Holder. At any time after the
earlier of the Holder’s receipt of a Trigger Event Notice and
the Holder becoming aware of a Trigger Event, the Holder may
require the Company to redeem all or any portion of this Note by
delivering written notice thereof (the “ Trigger
Event
8
Redemption Notice
”) to the Company, which Trigger Event Redemption Notice
shall indicate the portion of this Note the Holder is electing to
have redeemed. Each portion of this Note subject to redemption by
the Company pursuant to this Section 4(b) shall be redeemed by the
Company at an amount equal to any accrued and unpaid liquidated
damages and Interest, plus the greater of (A) the Conversion Amount
to be redeemed multiplied by the Redemption Premium, or (B) the
Conversion Amount to be redeemed multiplied by the quotient of (i)
the Closing Sale Price at the time of the Triggering Event (or at
the time of payment of the redemption price, if greater) divided by
(ii) the Conversion Price (the “ Trigger Event
Redemption Price ”), provided, however, (B) shall be
applicable only in the event that a Trigger Event of the type
specified in Section 4(a)(i), (ii), (iii) or (iv) hereof has
occurred and remains uncured or the Conversion Shares otherwise
could not be received or sold by the Holder without any resale
restrictions (or pursuant to an effective Registration Statement).
After a Trigger Event occurs, the Conversion Price shall be
permanently decreased (but not increased) on the first Business Day
of each calendar month thereafter (each a “ Trigger
Adjustment Date ”) until either the Trigger Event is
cured or the Trigger Event Redemption Price is paid in full, to a
price (the “ Trigger Event Reset Price ”) equal
to the lesser of (i) the Conversion Price then in effect, or (ii)
the lowest Weighted Average Price that has occurred on any Trigger
Adjustment Date since the date of occurrence of the Trigger Event.
Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 11. To the extent
redemptions required by this Section 4(b) are deemed or determined
by a court of competent jurisdiction to be prepayments of the Note
by the Company, such redemptions shall be deemed to be voluntary
prepayments. The parties hereto agree that in the event of the
Company’s redemption of any portion of the Note under this
Section 4(b), the Holder’s damages would be uncertain and
difficult to estimate because of the parties’ inability to
predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for
the Holder. Accordingly, any Triggering Event Redemption Price due
under this Section 4(b) is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder’s actual loss
of its investment opportunity and not as a penalty.
(5)
RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL
.
(a)
Assumption . The Company shall not enter into or be party to
a Fundamental Transaction unless (i) the Successor Entity assumes
in writing all of the obligations of the Company under this Note
and the other Transaction Documents in accordance with the
provisions of this Section 5(a), including agreements to deliver to
each holder of Notes in exchange for such Notes a security of the
Successor Entity evidenced by a written instrument substantially
similar in form and substance to the Notes, including, without
limitation, having a principal amount and interest rate equal to
the principal amounts then outstanding and the interest rates of
the Notes held by such holder, having similar conversion rights as
the Notes and having similar ranking to the Notes and (ii) the
Successor Entity is a publicly traded corporation whose common
stock is quoted on or listed for trading on an Eligible Market and
has “Substantially Similar Trading Characteristics” (as
defined below) as the Company. For purposes hereof, an entity shall
have Substantially Similar Trading Characteristics as the Company
if the average daily dollar trading volume of the common stock of
such entity is equal to or in excess of $500,000 for the
60th through the 16th day prior to the public announcement of such
transaction. Upon the occurrence of any Fundamental Transaction,
the Successor Entity
9
shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the
provisions of this Note referring to the “Company”
shall refer instead to the Successor Entity), and may exercise
every right and power of the Company and shall assume all of the
obligations of the Company under this Note with the same effect as
if such Successor Entity had been named as the Company herein. Upon
consummation of the Fundamental Transaction, the Successor Entity
shall deliver to the Holder confirmation that there shall be issued
upon conversion or redemption of this Note at any time after the
consummation of the Fundamental Transaction, in lieu of the shares
of the Company’s Common Stock (or other securities, cash,
assets or other property) issuable upon the conversion or
redemption of the Notes prior to such Fundamental Transaction, such
shares of the publicly traded common stock (or their equivalent) of
the Successor Entity, as adjusted in accordance with the provisions
of this Note. The provisions of this Section shall apply similarly
and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion or
redemption of this Note.
(b)
Redemption Right . If at the time known to the Company, no
sooner than fifteen (15) days nor later than ten (10) days prior to
the consummation of a Change of Control, but in any event not prior
to the public announcement of such Change of Control, the Company
shall deliver written notice thereof via facsimile and overnight
courier to the Holder (a “ Change of Control
Notice ”). At any time during the period beginning on
the date of the Holder’s receipt of a Change of Control
Notice and ending twenty (20) Trading Days after the consummation
of such Change of Control, the Holder may require the Company to
redeem all or any portion of this Note after receipt by the Company
of such notice and promptly after (or upon, in the case of such
notice delivered prior to the Change of Control) consummation of
the Change of Control by delivering written notice thereof (“
Change of Control Redemption Notice ”) to the Company,
which Change of Control Redemption Notice shall indicate the
Conversion Amount the Holder is electing to have redeemed. The
portion of this Note subject to redemption pursuant to this Section
5 shall be redeemed by the Company in cash for an amount equal to
any accrued and unpaid liquidated damages, plus the greater of (i)
the product of (x) the Conversion Amount being redeemed and (y) the
quotient determined by dividing (A) the greater of the Closing Sale
Price of the Common Stock immediately prior to the consummation of
the Change of Control, the Closing Sale Price immediately following
the public announcement of such proposed Change of Control and the
Closing Sale Price of the Common Stock immediately prior to the
public announcement of such proposed Change of Control by (B) the
Conversion Price and (ii) Change of Control Premium of the
Conversion Amount being redeemed (the “ Change of Control
Redemption Price ”). Redemptions required by this Section
5 shall be made in accordance with the provisions of Section 11 and
shall have priority to payments to stockholders in connection with
a Change of Control. To the extent redemptions required by this
Section 5(b) are deemed or determined by a court of competent
jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments.
Notwithstanding anything to the contrary in this Section 5, until
the Change of Control Redemption Price is paid in full, the
Conversion Amount submitted for redemption under this Section 5(b)
may be converted, in whole or in part, by the Holder into Common
Stock pursuant to Section 3.
10
(6)
RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE
EVENTS .
(a)
Purchase Rights . If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property pro rata to the
record holders of any class of Common Stock (the “
Purchase Rights ”), then the Holder will be entitled
to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which the Holder could have acquired if
the Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Note (without taking into account
any limitations or restrictions on the convertibility of this Note)
immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such
Purchase Rights. Notwithstanding any provision of this Section 6(a)
to the contrary, in the event that the Weighted Average Price of
the Common Stock equals or exceeds 150% of the applicable
Conversion Price for each of the twenty (20) consecutive Trading
Days immediately preceding a Purchase Right Date and the
Company’s Common Stock has traded an average of at least
600,000 shares per day during each of such twenty consecutive
Trading Days, then this Section 6(a) shall not apply to such
Purchase Right.
(b)
Other Corporate Events . In addition to and not in
substitution for any other rights hereunder, prior to the
consummation of any Fundamental Transaction pursuant to which
holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for
shares of Common Stock (a “ Corporate Event ”),
the Company shall make appropriate provision to insure that the
Holder will thereafter have the right to receive upon a conversion
of this Note, (i) in addition to the shares of Common Stock
receivable upon such conversion, if applicable, such securities or
other assets to which the Holder would have been entitled with
respect to such shares of Common Stock had such shares of Common
Stock been held by the Holder upon the consummation of such
Corporate Event (without taking into account any limitations or
restrictions on the convertibility of this Note) or (ii) in lieu of
the shares of Common Stock otherwise receivable upon such
conversion, such securities or other assets received by the holders
of shares of Common Stock in connection with the consummation of
such Corporate Event in such amounts as the Holder would have been
entitled to receive had this Note initially been issued with
conversion rights for the form of such consideration (as opposed to
shares of Common Stock) at a conversion rate for such consideration
commensurate with the Conversion Rate. The provisions of this
Section shall apply similarly and equally to successive Corporate
Events and shall be applied without regard to any limitations on
the conversion or redemption of this Note.
11
(7)
ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION OR COMBINATION
OF COMMON STOCK . If the Company at any time on or after the
Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares,
the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any
time on or after the Subscription Date combines (by combination,
reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares,
the Conversion Price in effect immediately prior to such
combination will be proportionately increased.
(8)
ADJUSTMENT UPON ISSUANCE OF SHARES OF COMMON STOCK . If the
Company issues or sells, or in accordance with this Section 8 is
deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of
Common Stock deemed to have been issued by the Company in
connection with any Excluded Securities for a consideration per
share (the “ New Issuance Price ”) less than a
price (the “ Applicable Price ”) equal to the
Conversion Price in effect immediately prior to such issue or sale
or deemed issuance or sale (the foregoing a “Dilutive
Issuance” ), then immediately after such Dilutive
Issuance, the Conversion Price then in effect shall be reduced to
an amount equal to the New Issuance Price. Upon each such
adjustment of the Conversion Price hereunder, the number of
Conversion Shares shall be adjusted to the number of shares of
Common Stock determined by multiplying the Conversion Price in
effect immediately prior to such adjustment by the number of
Conversion Shares acquirable upon conversion of this Note
immediately prior to such adjustment and dividing the product
thereof by the Conversion Price resulting from such adjustment. For
purposes of determining the adjusted Conversion Price under this
Section 8, the following shall be applicable:
(a)
Issuance of Options . If the Company in any manner grants
any Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or
upon conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option is less than the
Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company
at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 8(a), the “lowest
price per share for which one share of C
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