THIS
NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ ACT ”) OR APPLICABLE STATE LAW. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
THE ACT AND APPLICABLE STATE LAW OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
STRATOS RENEWABLES
CORPORATION
SECURED CONVERTIBLE
PROMISSORY NOTE
July 25, 2008
|
$2,000,000
|
Los Angeles,
California
|
FOR VALUE RECEIVED , Stratos Renewables
Corporation , a Nevada corporation (“
Company ”) promises to pay Whitebox Hedged
High Yield Partners, LP , a British Virgin Islands limited
partnership (“ Holder ”), or its registered
assigns, the principal sum of Two Million Dollars ($2,000,000), or
such lesser amount as shall equal the outstanding principal amount
hereof, together with interest from the date of this Note on the
unpaid principal balance at a rate equal to Twelve Percent (12%)
per annum, computed on the basis of the actual number of days
elapsed and a year of 365 days. All unpaid principal, together with
any then unpaid and accrued interest and other amounts payable
hereunder, shall be due and payable on the earliest to occur (the
“ Maturity Date ”) of (i) December 31,
2009, (ii) July 25, 2009, if Holder notifies Company, in writing,
at least thirty (30) days but not more the sixty (60) days prior
thereto, that it is electing to accelerate the Maturity Date to
July 25, 2009, or (iii) when, upon or after the occurrence of
an Event of Default (as defined below), such amounts are declared
due and payable by Holder or made automatically due and payable in
accordance with the terms hereof. All amounts owing on this Note
shall be payable in arrears, with payments first applied to accrued
and unpaid interest on this Note, and thereafter on the unpaid
principal amount hereof. All references to Dollars herein are to
lawful currency of the United States of America. This Note is
issued in connection with a certain Secured Promissory Note and
Warrant Purchase Agreement dated July 25, 2008 (as amended,
modified or supplemented, the “ Note Purchase
Agreement ”) between Company and the Purchaser (as
defined in the Note Purchase Agreement). This Note may be prepaid
by the Company, in whole but not in part, upon ten days prior
written notice to the Holder and subject to Sections 2 and
3.
THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED
BY SECURITY AGREEMENTS DATED AS OF THE DATE HEREOF AND EXECUTED BY
COMPANY AND A SUBSIDIARY OF COMPANY IN FAVOR OF HOLDER. ADDITIONAL
RIGHTS OF HOLDER ARE SET FORTH IN THE SECURITY AGREEMENTS AND THE
NOTE PURCHASE AGREEMENT.
The following is a statement of the rights of
Holder and the conditions to which this Note is subject, and to
which Holder, by the acceptance of this Note, agrees:
1.
Definitions . Capitalized terms used in this Note have the
meanings given in the Note Purchase Agreement unless otherwise
defined herein. In addition, the following capitalized terms have
the following meanings:
“ Holder ” shall mean the Person specified in the
introductory paragraph of this Note or any Person who shall at the
time be the registered holder of this Note. A reference to a Lien
of Holder or a security agreement executed in favor of Holder shall
be deemed to include a Lien granted to a collateral agent on behalf
of Holder and a security agreement executed in favor of a
collateral agent on behalf of Holder, respectively.
“ Prepayment Fee ”
has the meaning specified in Section 2.
2.
Prepayment
Fee . This Note
may be prepaid by the Company, in whole but not in part, from time
to time, provided that if Company prepays this Note for any reason
(other than as a result of an acceleration pursuant to Section 5 or
a Sale of the Company pursuant to Section 3(e)) more than thirty
days before the Maturity Date, Company shall pay Holder a fee (the
“Prepayment Fee”) due and payable on the date of
prepayment equal to twenty-five percent (25%) of the sum of the
principal amount of this Note and all accrued but unpaid interest
through and including the date of prepayment.
3.
Conversion of
Note .
(a) Terms of Conversion . Holder has the right, exercisable at
Holder’s option, at any time hereafter and until such date as
this Note has been paid in full by the Company, to convert, subject
to the terms and provisions of this Section 3, the unpaid principal
amount of this Note, or any part thereof plus any accrued but
unpaid interest, plus, if conversion occurs in connection with
Company’s election to prepay this Note before the Maturity
Date, the Prepayment Fee (such amount being the “Converted
Amount”), into such number of fully paid and non-assessable
shares of common stock, $0.001 par value per share, of the Company
(the “ Common Stock ”) as is determined by
dividing the Converted Amount by the Conversion Price.
(b) Conversion Price; Adjustments to Conversion
Price .
(i) The initial conversion price (“Initial
Conversion Price”) is $0.70. “Conversion Price”
means the Initial Conversion Price as modified pursuant to clauses
(ii), (iii) and (iv) below.
(ii) If, after the date of this Note, the
outstanding shares of Common Stock are subdivided (split), or
combined (reverse split), by reclassification or otherwise, or if
any dividend or other distribution payable on the Common Stock in
shares of Common Stock occurs, the Conversion Price (for the
remaining principal and interest balance at the time such event
occurs) in effect immediately before such subdivision, combination,
dividend, grant of such options or warrants or other distribution
will, concurrently with the effectiveness of such subdivision,
combination, dividend or other distribution, be proportionately
adjusted.
(iii) If shares of Common Stock (other than as a
result of a conversion or exercise of a convertible debt or equity
instrument or options/warrants issued prior to the original
issue date of this Note) are issued after the original issue
date of this Note and prior to the Maturity Date for consideration
(as reasonably determined by the Company’s board of
directors) less than the Conversion Price then in effect or
convertible securities or options are sold or issued which if
converted or exercised would result in the issuance of shares of
the Company’s capital stock for less than the Conversion
Price (based on the total consideration paid for the options or
convertible security, as well as the exercise price of the options
or convertible security, as reasonably determined by the
Company’s board of directors), then the Conversion Price
on the then outstanding balance on the Note will be adjusted to
such lower price.
(iv) If a reclassification, reorganization or
exchange of the Company’s securities, or a consolidation or
merger of the Company, occurs (other than a Sale of the Company, in
which event Section 3(e) applies), or if the Company at any time or
from time to time after the date of this Note makes or declares a
dividend or other distribution payable in cash, securities or
property, then and in each such case, Holder shall receive, upon
conversion of the remaining interest and principal balance of this
Note, in addition to the amount of securities receivable thereupon,
the amount of cash, securities or other property which Holder would
have received had this Note been converted on the date of such
occurrence and had Holder thereafter, during the period from the
date of such occurrence to and including the conversion date,
retained such cash, securities or other property receivable during
such period.
(v) Upon the occurrence of each adjustment or
readjustment of the Conversion Price, the Company at its expense
shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to Holder a
certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or
readjustment is based.
(c) Exercise of Conversion Privilege: Surrender of
Note . In order to
exercise the conversion privilege, Holder shall surrender this Note
in whole or in part to the Company together with the conversion
notice, which shall be irrevocable, in the form attached hereto as
Exhibit A at the Company’s principal office or such other
agency maintained by the Company for such purpose during normal
business hours. This Note shall be converted in accordance with
Subsection 3(a) above only when the conversion notice is delivered
and this Note is surrendered, accompanied by proper assignments
thereof to the Company or in blank for transfer. The Common Stock
of the Company issuable on conversion shall be issued in
Holder’s name. As promptly as practicable after proper
surrender of this Note by Holder, the Company shall issue and shall
deliver at such office or agency to Holder, a certificate or
certificates for the number of full shares of Common Stock of the
Company issuable upon the conversion of this Note in accordance
with the provisions of this Section 3. Such conversion shall be
deemed to have been effected immediately prior to the close of
business on the date this Note is surrendered as aforesaid, all
rights of Holder as a holder of a Note shall cease at such time,
and Holder will be treated for all purposes as having become the
holder of record of the shares represented thereby at such time. If
the last day for exercise of the conversion right is not a business
day, then such conversion right may be exercised on the next
succeeding business day. If less than all of the outstanding
principal balance of this Note is converted into Common Stock in
accordance with this Section 3, the Company shall, upon surrender
of this Note, issue Holder a new note evidencing the outstanding
principal balance of this Note not so converted.
(d) Fractional Shares . If any portion of principal amount would
convert into only a fractional share in connection, then the
Company shall pay to Holder the principal amount representing such
fractional share, in accordance with the terms of this Note, and no
fractional shares of Common Stock shall be issued upon conversion
of this Note.
(e) Adjustment for Certain Events
. In case of (i) any
consolidation or merger to which the Company is a party or
statutory exchange of securities with another corporation (unless
the shareholders of the Company immediately prior to such
consolidation, merger or exchange have beneficial ownership
immediately following such consolidation, merger or exchange of
securities of the surviving entity representing 80% or more of the
combined voting power of the surviving entity’s then
outstanding securities ordinarily having the right to vote at
elections of directors in approximately the same voting proportions
as such shareholders had in the Company immediately prior to such
consolidation, merger or exchange); or (ii) any sale or
conveyance to another entity of all or substantially all of the
assets of the Company (in one transaction or a series of related
transactions) (each of (i) and (ii) a “ Sale of the
Company ”), the entire principal amount of this
Note, to the extent not previously converted pursuant to Section
3(a) hereof, shall be due and payable together with accrued and
unpaid interest on the effective date of such Sale of the Company.
The Company shall give Holder written notice of an impending Sale
of the Company not later than 15 days before the
shareholders’ meeting of the Company called to approve such
transaction, or 15 days before the scheduled closing of such
transaction, whichever is earlier, and shall also notify Holder in
writing of the final approval of such transaction. The first of
such notices shall give the proposed effective date of the
transaction and shall describe the material terms and conditions of
the proposed Sale of the Company, and the Company shall thereafter
give Holder prompt notice of any material changes to such terms and
conditions.
(f) Beneficial Ownership Limitation
. The Company shall not effect any
conversion of this Note, and the Holder shall not have the right to
convert any portion of this Note, to the extent that after giving
effect to the conversion set forth on the applicable notice of
conversion in the form attached hereto as Exhibit A (the
“Notice of Conversion”), the Holder (together with the
Holder’s affiliates, and any other person or entity acting as
a group together with the Holder or any of its affiliates) would
beneficially own in excess of the Beneficial Ownership Limitation
(as defined below). For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder
and its affiliates includes the number of shares of Common Stock
issuable upon conversion of this Note with respect to which such
determination is being made, but excludes the number of shares of
Common Stock which are issuable upon (i) conversion of the
remaining, unconverted principal amount of this Note beneficially
owned by the Holder or any of its affiliates and (ii) exercise
or conversion of the unexercised or unconverted portion of any
other securities of the Company subject to a limitation on
conversion or exercise analogous to the limitation contained herein
(including, without limitation, any other Notes) beneficially owned
by the Holder or any of its affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 3(f), beneficial
ownership is calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder. To the extent that the limitation contained
in this Section 3(f) applies, the determination of whether this
Note is convertible (in relation to other securities owned by the
Holder together with any affiliates) and of which principal amount
of this Note is convertible will be in the sole discretion of the
Holder, and the submission of a Notice of Conversion will be deemed
to be the Holder’s determination of whether this Note may be
converted (in relation to other securities owned by the Holder
together with its affiliates) and which principal amount of this
Note is convertible, in each case subject to such aggregate
percentage limitations. To ensure compliance with this restriction,
the Holder will be deemed to represent to the Company each time it
delivers a Notice of Conversion that such Notice of Conversion has
not violated the restrictions set forth in this Section 3(f), and
the Company has no obligation to verify or confirm the accuracy of
such determination. In addition, a determination as to any
“group” status as contemplated above will be determined
in accordance with Section 13(d) of the Securities Exchange Act of
1934 and the rules and regulations promulgated thereunder. For
purposes of this Section 3(f), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as stated in the most
recent notice by the Company or the Company’s transfer agent
setting forth the number of shares of Common Stock outstanding.
Upon the written or oral request of the Holder, the Company shall
within two trading days 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. The “
Beneficial Ownership Limitation ” shall be 9.99% of
the number of shares of Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock
issuable
