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EXHIBIT 10.8
[FORM OF SENIOR 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 GENERALLY ACCEPTABLE
FORM, 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(c)(iii) AND 20(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(c)(iii)
OF THIS NOTE.
Javo Beverage Company
SENIOR CONVERTIBLE NOTE
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Issuance Date: December 15, 2006
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Original Principal Amount: U.S.
$
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FOR VALUE RECEIVED, Javo Beverage Company, a Delaware
corporation (the " Company "), hereby promises to pay to
[CAPITAL VENTURES INTERNATIONAL][OTHER BUYERS] or registered
assigns (the " Holder ") the amount set out above as the
Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the "
Principal ") when due, whether upon the Maturity Date (as
defined below), on any Installment Date with respect to the
Installment Amount due on such Installment Date acceleration,
redemption or otherwise (in each case in accordance with the terms
hereof) and to pay interest (" Interest ") on any
outstanding Principal at the applicable Interest Rate from the date
set out above as the Issuance Date (the " Issuance
Date ") until the same becomes due and payable, whether upon
an Interest Date (as defined below), any Installment Date, the
Maturity Date, acceleration, conversion, redemption or otherwise
(in each case in accordance with the terms hereof). This
Senior Convertible Note (including all Senior Convertible Notes
issued in exchange, transfer or replacement hereof, this "
Note ") is one of an issue of Senior Convertible Notes
issued pursuant to the Securities Purchase Agreement on the Closing
Date (collectively, the " Notes " and such other Senior
Convertible Notes, the " Other Notes ").
Certain capitalized terms used herein are defined in Section
30.
(1)
PAYMENTS OF PRINCIPAL . On each
Installment Date, the Company shall pay to the Holder an amount
equal to the Installment Amount due on such Installment Date in
accordance with Section 8. On the Maturity Date, the Company
shall pay to the Holder an amount in cash representing all
outstanding Principal, accrued and unpaid Interest and accrued and
unpaid Late Charges on such Principal and Interest. The "
Maturity Date " shall be December 15, 2011 as
may be extended at the option of the Holder (i) in the event that,
and for so long as, an Event of Default (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 shall
have occurred and be continuing on the Maturity Date (as may be
extended pursuant to this Section 1) that with the passage of time
and the failure to cure would result in an Event of Default 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 or a Change of Control Notice (as
defined in Section 5(b)) is delivered prior to the Maturity
Date. Other than as specifically permitted by this Note, the
Company may not prepay any portion of the outstanding Principal,
accrued and unpaid Interest or accrued and unpaid Late Charges on
Principal and Interest, if any.
(2)
INTEREST; INTEREST RATE . (a)
Interest on this Note shall commence accruing on the Issuance Date
and shall be computed on the basis of a 360-day year and twelve
30-day months and the actual number of days elapsed and shall be
payable in arrears for each Calendar Quarter on the first day of
the succeeding Calendar Quarter during the period beginning on the
Issuance Date and ending on, and including, the Maturity Date
(each, an " Interest Date ") with the first Interest
Date being April 1, 2007. Interest shall be payable on each
Interest Date, to the record holder of this Note on the applicable
Interest Date, in shares of Common Stock (" Interest Shares
") so long as there is no Equity Conditions Failure; provided
however, that the Company may, at its option following notice to
the Holder, pay Interest on any Interest Date in cash (" Cash
Interest ") or in a combination of Cash Interest and Interest
Shares. The Company shall deliver a written notice (each, an
" Interest Election Notice ") to each holder of the Notes on
or prior to the Interest Notice Due Date (the date such notice is
delivered to all of the holder, the " Interest Notice Date
") which notice (i) either (A) confirms that Interest to be paid on
such Interest Date shall be paid entirely in Interest Shares or (B)
elects to pay Interest as Cash Interest or a combination of Cash
Interest and Interest Shares and specifies the amount of Interest
that shall be paid as Cash Interest and the amount of Interest, if
any, that shall be paid in Interest Shares and (ii) certifies that
there is no Equity Conditions Failure. If the Equity
Conditions are not satisfied as of the Interest Notice Date, then
unless the Company has elected to pay such Interest as Cash
Interest, the Interest Election Notice shall indicate that unless
the Holder waives the Equity Conditions, the Interest shall be paid
as Cash Interest. If the Equity Conditions were satisfied as
of the Interest Notice Date but the Equity Conditions are no longer
satisfied at any time prior to the Interest Date, the Company shall
provide the Holder a subsequent notice to that effect indicating
that unless the Holder waives the Equity Conditions, the Interest
shall be paid in cash. Interest to be paid on an Interest
Date in Interest Shares shall be paid in a number of fully paid and
nonassessable shares (rounded to the nearest whole share in
accordance with Section 3(a)) of Common Stock equal to the quotient
of (1) the amount of Interest payable on such Interest Date less
any Cash Interest paid and (2) the Interest Conversion Price in
effect on the applicable Interest Date.
(b)
When any Interest Shares are to be paid on an
Interest Date, the Company shall (i) (X) provided that the
Company’s transfer agent (the " Transfer Agent ")
is
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participating in the Depository Trust Company ("
DTC ") Fast Automated Securities Transfer Program, credit
such aggregate number of Interest Shares 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 foregoing shall not apply, issue and deliver
on the applicable Interest Date, to the address set forth in the
register maintained by the Company for such purpose pursuant to the
Securities Purchase Agreement or to such address as specified by
the Holder in writing to the Company at least two (2) Business Days
prior to the applicable Interest Date, a certificate, registered in
the name of the Holder or its designee, for the number of Interest
Shares to which the Holder shall be entitled and (ii) with respect
to each Interest Date, pay to the Holder, in cash by wire transfer
of immediately available funds, the amount of any Cash
Interest.
(c)
Prior to the payment of Interest on an Interest
Date, Interest on this Note shall accrue at the Interest Rate and
be payable in cash on each Conversion Date in accordance with
Section 3(b)(i). From and after the occurrence and during the
continuance of an Event of Default, the Interest Rate shall be
increased to fifteen percent (15.0%). In the event that such
Event of Default is subsequently cured, the adjustment referred to
in the preceding sentence shall cease to be effective as of the
date of such cure; provided that the Interest as calculated and
unpaid at such increased rate during the continuance of such Event
of Default shall continue to apply to the extent relating to the
days after the occurrence of such Event of Default through and
including the date of cure of such Event of Default. The
Company shall pay any and all taxes that may be payable with
respect to the issuance and delivery of Interest Shares;
provided that the Company shall not be required to pay any
tax that may be payable in respect of any issuance of Interest
Shares to any Person other than the Holder or with respect to any
income tax due by the Holder with respect to such Interest
Shares.
(3)
CONVERSION OF NOTES . This Note
shall be convertible into shares of the Company’s common
stock, par value $0.001 per share (the " Common Stock "), on
the terms and conditions set forth in this Section 3.
(a)
Conversion Right . Subject to the
provisions of Section 3(d), at any time or times on or after the
Issuance Date, the Holder shall be entitled to convert any portion
of the outstanding and unpaid Conversion Amount (as defined below)
into fully paid and nonassessable shares of Common Stock in
accordance with Section 3(c), 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.
(b)
Conversion Rate . The number of
shares of Common Stock issuable upon conversion of any Conversion
Amount pursuant to Section 3(a) shall be determined by dividing (x)
such Conversion Amount by (y) the Conversion Price (the "
Conversion Rate ").
(i)
" Conversion Amount " means the portion of
the Principal to be converted, redeemed or otherwise with respect
to which this determination is being made.
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(ii)
" Conversion Price " means, as of any
Conversion Date (as defined below) or other date of determination,
$1.79, subject to adjustment as provided herein.
(c)
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(c)(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 first (1 st ) Business 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 Transfer Agent. On or
before the third (3 rd ) Business Day following the date of receipt of a Conversion
Notice (the " Share Delivery Date "), the Company
shall (A) (1) provided that the Transfer Agent is participating in
the 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 (2) 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 and (B) pay to the Holder in cash, by wire transfer of
immediately available funds, an amount equal to the accrued and
unpaid Interest on the Conversion Amount and Late Charges, if any,
on such Conversion Amount and Interest. If this Note is
physically surrendered for conversion as required by Section
3(c)(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
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 20(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 Installment Amounts relating to the Installment Dates as
set forth in the Conversion Notice.
(ii)
Company’s Failure to Timely Convert
. If within three (3) Trading Days after the Company’s
receipt of the facsimile copy of a Conversion Notice the Company
shall fail to issue and deliver a certificate to the Holder or
credit the Holder’s balance account with DTC for the number
of shares of Common Stock to which the Holder is entitled
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upon such holder’s conversion of any
Conversion Amount or on any date of the Company’s obligation
to deliver shares of common Stock as contemplated pursuant to
clause (B) below, and if on or after such Trading Day the Holder
purchases (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 (A) 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 (B) 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 (1) such number of
shares of Common Stock, times (2) 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 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 20. 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 Principal 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, subject to Section
3(d), 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
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Company shall issue to the Holder the number of
shares of Common Stock not in dispute and resolve such dispute in
accordance with Section 25.
(d)
Limitations on Conversions .
(i)
Beneficial Ownership . The Company
shall not effect any conversion of this Note, and the Holder of
this Note shall not have the right to convert any portion of this
Note pursuant to Section 3(a), to the extent that after giving
effect to such conversion, the Holder (together with the
Holder’s affiliates) would beneficially own in excess of
4.99% (subject to change as described below, the " Maximum
Percentage ") of the number of shares of Common Stock
outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder
and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Note with respect to which
the determination of such sentence is being made, but shall exclude
the number of shares of Common Stock which would be issuable upon
(A) conversion of the remaining, nonconverted portion of this Note
beneficially owned by the Holder or any of its affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion
of any other securities of the Company (including, without
limitation, any Other Notes or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its affiliates.
Except as set forth in the preceding sentence, for purposes of this
Section 3(d)(i), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the " 1934 Act "). For purposes of
this Section 3(d)(i), in determining the number of outstanding
shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the
Company’s most recent Form 10-K, Form 10-KSB, Form 10-Q, Form
10-QSB, Form 8-K or other public filing with the Securities
Exchange Commission, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company
or the Transfer Agent setting forth the number of shares of Common
Stock outstanding. For any reason at any time, upon the
written or oral request of the Holder, the Company shall within one
(1) Business Day confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of
securities of the Company, including this Note, by the Holder or
its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. By written
notice to the Company, the Holder may increase or decrease the
Maximum Percentage to any other percentage not in excess of 9.99%
specified in such notice; provided that (i) any such increase or
decrease will not be effective until the sixty-first (61
st ) day after such notice is
delivered to the Company, and (ii) any such increase or decrease
will apply only to the Holder and not to any other holder of
Notes.
(ii)
Eligible Market Regulation . The
Company shall not be obligated to issue any shares of Common Stock
upon conversion of this Note if the issuance of such shares of
Common Stock would exceed the aggregate number of shares of Common
Stock that the Company may issue upon conversion or exercise, as
applicable, of the Notes and Warrants or as Interest Shares without
breaching the Company’s obligations under the rules or
regulations of the Principal Market and any applicable Eligible
Market (the " Exchange Cap "), except that such limitation
shall not apply in the event that the Company (A) obtains the
approval
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of its stockholders as required by the applicable
rules of such Principal Market and any such Eligible Market for
issuances 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 opinion is obtained, no purchaser of the Notes pursuant to
the Securities Purchase Agreement (the " Purchasers ") shall
be issued in the aggregate, upon conversion or exercise or
otherwise, as applicable, of Notes or Warrants, or as Interest
Shares, 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 principal amount of Notes issued to a Purchaser
pursuant to the Securities Purchase Agreement on the Closing Date
and the denominator of which is the aggregate principal amount of
all Notes issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date (with respect to each
Purchaser, the " Exchange Cap Allocation "). In the
event that any Purchaser shall sell or otherwise transfer any of
such Purchaser’s Notes, the transferee shall be allocated a
pro rata portion of such Purchaser’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 Notes on a pro rata basis in proportion to
the aggregate principal amount of the Notes then held by each such
holder.
(4)
RIGHTS UPON EVENT OF DEFAULT .
(a)
Event of Default . Each of the
following events shall constitute an " Event of Default
":
(i)
the failure of the applicable Registration Statement
required to be filed pursuant to the Registration Rights Agreement
to be declared effective by the SEC on or prior to the date that is
sixty (60) days after the applicable Effectiveness Deadline (as
defined in the Registration Rights Agreement), or, while the
applicable Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the applicable Registration
Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to any holder of the
Notes for sale of all of such holder’s Registrable Securities
(as defined in the Registration Rights Agreement) in accordance
with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of twenty (20) consecutive
days or for more than an aggregate of forty-five (45) days in any
365-day period (other than days during an Allowable Grace Period
(as defined in the Registration Rights Agreement));
(ii)
the suspension from trading or failure of the Common
Stock to be listed on an Eligible Market for a period of ten (10)
consecutive Trading Days or for more than an aggregate of twenty
(20) Trading Days in any 365-day period;
(iii)
the Company’s (A) failure to cure a Conversion
Failure by delivery of the required number of shares of Common
Stock within fifteen (15) Business Days
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after the applicable Conversion Date or (B)
notice, written or oral, to any holder or to all holders of the
Notes, including by way of public announcement or through any of
its agents, 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,
other than pursuant to Section 3(d);
(iv)
at any time following the ninetieth (90
th ) consecutive day that the
Holder’s Authorized Share Allocation is less than the number
of shares of Common Stock that the Holder would be entitled to
receive upon a conversion of the full Conversion Amount of this
Note (without regard to any limitations on conversion set forth in
Section 3(d) or otherwise);
(v)
the Company’s failure to pay to the Holder any
amount of Principal, Interest, Late Charges or other amounts when
and as due under this Note (including, without limitation, the
Company’s failure to pay any redemption payments or amounts
hereunder) or any other Transaction Document (as defined in the
Securities Purchase Agreement) or any other agreement, document,
certificate or other instrument delivered in connection with the
transactions contemplated hereby and thereby to which the Holder is
a party, except, in the case of a failure to pay any Company
Redemption Amount, Interest and Late Charges when and as due, in
which case only if such failure continues for a period of at least
five (5) Business Days;
(vi)
any default under, redemption of or acceleration
prior to maturity of any Indebtedness of the Company or any of its
Subsidiaries (as defined in Section 3(a) of the Securities Purchase
Agreement) which, individually or in the aggregate exceeds $500,000
other than with respect to any Other Notes;
(vii)
the Company or any of its Subsidiaries that would be
deemed a "Significant Subsidiary" within the meaning of Regulation
S-X adopted by the Securities and Exchange Commission (a "
Significant Subsidiary "), 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;
(viii) 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 Significant Subsidiaries in an involuntary case, (B)
appoints a Custodian of the Company or any of its Significant
Subsidiaries or (C) orders the liquidation of the Company or any of
its Significant Subsidiaries;
(ix)
a final judgment or judgments for the payment of
money aggregating in excess of $500,000 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
8
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 $500,000 amount set forth
above so long as the Company provides the Holder a written
statement from such insurer or indemnity provider (which written
statement shall be reasonably satisfactory to the Holder) to the
effect that such judgment is covered by insurance or an indemnity
and the Company will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such
judgment;
(x)
the Company breaches any representation, warranty,
covenant or other term or condition of any Transaction Document,
except, in the case of a breach of a covenant or other term or
condition of any Transaction Document which is curable, only if
such breach continues for a period of at least ten (10) consecutive
Business Days;
(xi)
any breach or failure in any respect to comply with
either of Sections 8 or 16 of this Note; or
(xii)
any Event of Default (as defined in the Other Notes)
occurs with respect to any Other Notes.
(b)
Redemption Right . Upon the
occurrence of an Event of Default with respect to this Note, the
Company, within one (1) Business Day of the date on which the
Company becomes aware of or reasonably should have become aware of
such Event of Default, shall deliver written notice thereof via
facsimile and overnight courier (an " Event of Default
Notice ") to the Holder. At any time after the earlier of
the Holder’s receipt of an Event of Default Notice and the
Holder becoming aware of an Event of Default, the Holder may
require the Company to redeem all or any portion of this Note by
delivering written notice thereof (the " Event of Default
Redemption Notice ") to the Company, which Event of Default
Redemption Notice shall indicate the Conversion Amount of this Note
the Holder is electing to require the Company to redeem. Each
portion of this Note subject to redemption by the Company pursuant
to this Section 4(b) shall be redeemed by the Company at a price
equal to the greater of (i) the product of (A) the Conversion
Amount to be redeemed together with any accrued and unpaid Interest
and Late Charges thereon, if any, on such Conversion Amount and
Interest through the redemption date and (B) the Redemption Premium
and (ii) the sum of (x) the product of (A) the Conversion Rate with
respect to such Conversion Amount in effect at such time as the
Holder delivers an Event of Default Redemption Notice and (B) the
greater of (1) the Closing Sale Price of the Common Stock on the
date immediately preceding such Event of Default, (2) the Closing
Sale Price of the Common Stock on the date immediately after such
Event of Default and (3) the Closing Sale Price of the Common Stock
on the date the Holder delivers the Event of Default Redemption
Notice and (y) any accrued and unpaid Interest on the Conversion
Amount and Late Charges, if any, on such Conversion Amount and
Interest through the redemption date (the " Event of Default
Redemption Price "). Redemptions required by this
Section 4(b) shall be made in accordance with the provisions of
Section 14. 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. In the
event of a partial redemption of this Note pursuant hereto, the
principal amount redeemed shall be deducted from the Installment
Amounts relating to the applicable Installment Dates as set forth
in the Event of Default Redemption Notice. The parties
hereto
9
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 Redemption Premium 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 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) pursuant to
written agreements in form and substance reasonably satisfactory to
the Required Holders and approved by the Required Holders prior to
such Fundamental Transaction, 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 and the interest rates of the Notes then
outstanding held by such holder, having similar conversion rights
and having similar ranking to the Notes, and satisfactory to the
Required Holders; provided, however, that in the event the
Successor Entity is not a publicly traded corporation whose stock
is traded on an Eligible Market (a " Private Successor
Entity "), such Fundamental Transaction must be consummated for
consideration consisting solely of cash. Upon the occurrence
of any Fundamental Transaction, the Successor Entity 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, (i) if the Successor Entity is a publicly traded
corporation whose stock is traded on an Eligible Market, such
shares of the publicly traded common stock (or their equivalent) of
the Successor Entity (including its Parent Entity) or (ii) if the
Successor Entity is a Private Successor Entity, such cash
consideration which the Holder would have been entitled to receive
upon the happening of such Fundamental Transaction had this Note
been converted immediately prior to such Fundamental Transaction,
in each case, 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 . No sooner than
fifteen (15) days nor later than ten (10) days prior to the
consummation of a Change of Control, but 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
10
during the period beginning after the
Holder’s receipt of a Change of Control Notice and ending
twenty (20) Trading Days after the date of the consummation of such
Change of Control, the Holder may require the Company or Successor
Entity, as applicable, to redeem all or any portion of this Note 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 require the Company to redeem. The portion of
this Note subject to redemption pursuant to this Section 5 shall be
redeemed by the Company in cash at a price equal to the greater of
(i) 120% of the Conversion Amount being redeemed together with any
accrued and unpaid Interest thereon and Late Charges, if any, on
such Conversion Amount and Interest through the redemption date and
(ii) the product of (A) the Conversion Amount being redeemed
together with any accrued and unpaid Interest thereon and Late
Charges, if any, on such Conversion Amount and Interest through the
applicable redemption date multiplied by (B) the quotient
determined by dividing (1) the aggregate cash consideration and the
aggregate cash value of any non-cash consideration per Common Share
to be paid to the holders of the Common Shares upon consummation of
the Change of Control (any such non-cash consideration consisting
of marketable securities to be valued at the higher of the Closing
Sale Price of such securities as of the Trading Day immediately
prior to the consummation of such Change of Control, the Closing
Sale Price as of the Trading Day immediately following the public
announcement of such proposed Change of Control and the Closing
Sale Price as of the Trading Day immediately prior to the public
announcement of such proposed Change of Control) by (2) the
Conversion Price (the " Change of Control Redemption Price
"). Redemptions required by this Section 5 shall be made in
accordance with the provisions of Section 14 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, but subject to Section
3(d), until the Change of Control Redemption Price (together with
any interest thereon) is paid in full, the Conversion Amount
submitted for redemption under this Section 5(c) (together with any
interest thereon) may be converted, in whole or in part, by the
Holder into Common Stock pursuant to Section 3. In the event
of a partial redemption of this Note pursuant hereto, the principal
amount redeemed shall be deducted from the Installment Amounts
relating to the applicable Installment Dates as set forth in the
Change of Control Redemption Notice. The parties hereto agree
that in the event of the Company’s redemption of any portion
of the Note under this Section 5(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 Change of
Control redemption premium due under this Section 5(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.
(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,
11
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.
(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, at the Holder’s option, (i) in addition to the shares
of Common Stock receivable upon such conversion, 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. Provision made
pursuant to the preceding sentence shall be in a form and substance
satisfactory to the Required Holders. 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.
(7)
RIGHTS UPON ISSUANCE OF OTHER SECURITIES
.
(a) Adjustment of Conversion Price upon Issuance of Common
Stock . If and whenever on or after the Subscription
Date, the Company issues or sells, or in accordance with this
Section 7(a) 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 or sold by the
Company in connection with any Excluded Security) for a
consideration per share less than a price (the " Applicable
Price ") equal to the Conversion Price in effect immediately
prior to such issue 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 product of (A) the Conversion Price in effect
immediately prior to such Dilutive Issuance and (B) the
quotient determined by dividing (1) the sum of (I) the product
derived by multiplying the Conversion Price in effect immediately
prior to such Dilutive Issuance and the number of shares of Common
Stock Deemed Outstanding immediately prior to such Dilutive
Issuance plus (II) the consideration, if any, received by the
Company upon such Dilutive Issuance, by (2) the product derived by
multiplying (I) the Applicable Price in effect immediately
prior to such Dilutive Issuance by (II) the number of shares
of Common Stock Deemed Outstanding immediately after such Dilutive
Issuance. For purposes of determining the adjusted Conversion
Price under this Section 7(a), the following shall be
applicable:
12
(i)
Issuance of Options . If the Company
in any manner grants or sells 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 or exchange or
exercise of any Convertible Securities issuable upon exercise of
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 7(a)(i), the "lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or
upon conversion or exchange or exercise of any Convertible
Securities issuable upon exercise of such Option" shall be equal to
the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange or exercise of any
Convertible Security issuable upon exercise of such Option.
No further adjustment of the Conversion Price shall be made upon
the actual issuance of such share of Common Stock or of such
Convertible Securities upon the exercise of such Options or upon
the actual issuance of such Common Stock upon conversion or
exchange or exercise of such Convertible Securities.
(ii)
Issuance of Convertible Securities .
If the Company in any manner issues or sells any Convertible
Securities and the lowest price per share for which one share of
Common Stock is issuable upon such conversion or exchange or
exercise thereof 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 issuance or sale
of such Convertible Securities for such price per share. For
the purposes of this Section 7(a)(ii), the "lowest price per share
for which one share of Common Stock is issuable upon such
conversion or exchange or exercise" shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable
by the Company with respect to any one share of Common Stock upon
the issuance or sale of the Convertible Security and upon the
conversion or exchange or exercise of such Convertible
Security. No further adjustment of the Conversion Price shall
be made upon the actual issuance of such share of Common Stock upon
conversion or exchange or exercise of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of the
Conversion Price had been or are to be made pursuant to other
provisions of this Section 7(a), no further adjustment of the
Conversion Price shall be made by reason of such issue or
sale.
(iii)
Change in Option Price or Rate of
Conversion . If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the
issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable or exercisable for Common Stock
changes at any time, the Conversion Price in effect at the time of
such change shall be adjusted to the Conversion Price which would
have been in effect at such time had such Options or Convertible
Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold. For purposes of
this Section 7(a)(iii), if the terms of any Option or Convertible
Security that was outstanding as of the Subscription Date are
changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof
shall be deemed to have been issued as of
13
the date of such change. No adjustment
shall be made if such adjustment would result in an increase of the
Conversion Price then in effect.
(iv)
Calculation of Consideration Received
. In case any Option is issued in connection with the issue
or sale of other securities of the Company, together comprising one
integrated transaction, the Options will be deemed to have been
issued for the difference of (x) the aggregate fair market value of
such Options and other securities issued or sold in such integrated
transaction, less (y) the fair market value of the securities other
than such Option, issued or sold in such transaction and the other
securities issued or sold in such integrated transaction will be
deemed to have been issued or sold for the balance of the
consideration received by the Company. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the
Company therefor. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where
such consideration consists of securities, in which case the amount
of consideration received by the Company will be the Closing Sale
Price of such securities on the date of receipt. If any
Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in
which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined
jointly by the Company and the Required Holders. If such
parties are unable to reach agreement within ten (10) days after
the occurrence of an event requiring valuation (the " Valuation
Event "), the fair value of such consideration will be
determined within five (5) Business Days after the tenth (10
th ) day following the
Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The
determination of such appraiser shall be deemed binding upon all
parties absent manifest error and the fees and expenses of such
appraiser shall be borne by the Company.
(v)
Record Date . If the Company takes a
record of the holders of Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (B) to
subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of
the issue or sale of the Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(b)
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
14
of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately
increased.
(c)
Other Events . If any event occurs
of the type contemplated by the provisions of this Section 7 but
not expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the
Company’s Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of
the Holder under this Note; provided that no such adjustment will
increase the Conversion Price as otherwise determined pursuant to
this Section 7.
(8)
COMPANY INSTALLMENT CONVERSION OR
REDEMPTION .
(a)
General . On each applicable
Installment Date, provided there is no Equity Conditions Failure as
of such Installment Date, the Company shall pay to the Holder of
this Note the Installment Amount due on such date by converting
such Installment Amount, in accordance with this Section 8 (a "
Company Conversion "); provided, however, that the Company
may, at its option following notice to the Holder, pay the
Installment Amount by redeeming such Installment Amount (a "
Company Redemption ") or by any combination of a Company
Conversion and a Company Redemption so long as all of the
outstanding applicable Installment Amount shall be converted and/or
redeemed by the Company on the applicable Installment Date, subject
to the provisions of this Section 8. Notwithstanding the
foregoing, the Company may not effect a Company Conversion of any
Installment Amount under this Section if the Weighted Average Price
of the Common Stock during the ten (10) consecutive Trading Day
period ending two (2) Trading Days prior to the Installment Date is
not greater than $0.60. On or prior to the date which is the
third (3 rd ) Trading Day
prior to each Installment Date (each, an " Installment Notice
Due Date "), the Company shall deliver written notice (each, a
" Company Installment Notice " and the date all of the
holders receive such notice is referred to as to the " Company
Installment Notice Date "), to each holder of Notes which
Company Installment Notice shall (i) either (A) confirm that the
applicable Installment Amount of such holder’s Note shall be
converted in whole pursuant to a Company Conversion (such amount to
be converted, the " Company Conversion Amount ") or (B) (1)
state that the Company elects to redeem, or is required to redeem
in accordance with the provisions of the Notes, in whole or in
part, the applicable Installment Amount pursuant to a Company
Redemption and (2) specify the portion which the Company elects or
is required to redeem pursuant to a Company Redemption (such amount
to be redeemed, the " Company Redemption Amount ") and the
portion, if any, that the Company elects to convert pursuant to a
Company Conversion (such amount also, a " Company Conversion
Amount ") which amounts when added together, must equal the
applicable Installment Amount and (ii) if the Installment Amount is
to be paid, in whole or in part, pursuant to a Company Conversion,
certify that the Equity Conditions have been satisfied as of the
date of the Company Installment Notice. Each Company
Installment Notice shall be irrevocable. If the Company does
not timely deliver a Company Installment Notice in accordance with
this Section 8, then the Company shall be deemed to have delivered
an irrevocable Company Installment Notice confirming a Company
Conversion and shall be deemed to have certified that the Equity
Conditions in connection with any such conversion have been
satisfied. In the event that the Company shall pay any
portion of an Installment Amount on any Installment Date pursuant
to a Company Conversion, the Holder shall confirm to the Company
prior to such Installment Date
15
that it can receive the full number
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