<PAGE>
EXHIBIT 10.1
EXECUTION COPY
FORM OF
NOTE AND WARRANT PURCHASE
AGREEMENT
DATED AS OF FEBRUARY __, 2006
BY AND AMONG
REMOTE DYNAMICS, INC.
AND
THE PURCHASERS LISTED ON EXHIBIT A
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TABLE OF CONTENTS
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ARTICLE I Purchase and Sale of Notes and
Warrants........................ 1
Section 1.1
Purchase and Sale of
Notes and Warrants.................. 1
Section 1.2
Purchase Price and
Closing............................... 2
Section 1.3
Conversion Shares /
Warrant Shares....................... 2
ARTICLE II Representations and
Warranties................................ 3
Section 2.1
Representations and
Warranties of the Company............ 3
Section 2.2
Representations and
Warranties of the Purchasers......... 13
ARTICLE III
Covenants....................................................
15
Section 3.1
Securities
Compliance.................................... 15
Section 3.2
Registration and
Listing................................. 15
Section 3.3
Inspection
Rights........................................ 16
Section 3.4
Compliance with
Laws..................................... 16
Section 3.5
Keeping of Records and
Books of Account.................. 16
Section 3.6
Reporting
Requirements................................... 16
Section 3.7
Other
Agreements......................................... 16
Section 3.8
Use of
Proceeds.......................................... 17
Section 3.9
[Intentionally
Omitted.]................................. 17
Section 3.10
Disclosure of Transaction................................
17
Section 3.11
Disclosure of Material Information.......................
17
Section 3.12
Pledge of Securities.....................................
17
Section 3.13
[Intentionally Omitted.].................................
17
Section 3.14
Distributions............................................
17
Section 3.15
Reservation of Shares....................................
18
Section 3.16
Transfer Agent Instructions..............................
18
Section 3.17
Disposition of Assets....................................
18
Section 3.18
Acquisition of Assets....................................
19
Section 3.19
[Intentionally Omitted.].................................
19
Section 3.20
Subsequent Financings....................................
19
Section 3.21
Stockholder Approval.....................................
20
Section 3.22
D&O Insurance............................................
20
ARTICLE IV
Conditions....................................................
20
Section 4.1
Conditions Precedent
to the Obligation of the Company to
Close and to Sell the Securities.........................
20
Section 4.2
Conditions Precedent
to the Obligation of the Purchasers
to Close and to Purchase the Securities..................
21
ARTICLE V Certificate
Legend............................................. 23
Section 5.1
Legend...................................................
23
ARTICLE VI
Indemnification...............................................
24
Section 6.1
General
Indemnity........................................ 24
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TABLE OF CONTENTS
(continued)
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Section 6.2
Indemnification
Procedure................................ 25
ARTICLE VII
Miscellaneous................................................
26
Section 7.1
Fees and
Expenses........................................ 26
Section 7.2
Specific Performance;
Consent to Jurisdiction; Venue..... 26
Section 7.3
Entire Agreement;
Amendment.............................. 27
Section 7.4
Notices..................................................
27
Section 7.5
Waivers..................................................
28
Section 7.6
Headings.................................................
28
Section 7.7
Successors and
Assigns................................... 28
Section 7.8
No Third Party
Beneficiaries............................. 28
Section 7.9
Governing
Law............................................ 28
Section 7.10
Survival.................................................
28
Section 7.11
Counterparts.............................................
29
Section 7.12
Publicity................................................
29
Section 7.13
Severability.............................................
29
Section 7.14
Further Assurances.......................................
29
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<PAGE>
NOTE AND WARRANT PURCHASE AGREEMENT
This
NOTE AND WARRANT PURCHASE AGREEMENT dated as of February __,
2006
(this "Agreement") by and among Remote Dynamics, Inc., a Delaware
corporation
(the "Company"), and each of the purchasers of the series A senior
secured
convertible promissory notes of the Company whose names are set
forth on Exhibit
A attached hereto (each a "Purchaser" and collectively, the
"Purchasers").
The
parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS
Section 1.1 Purchase and Sale of Notes and Warrants.
(a) Upon the following terms and conditions, the Company shall
issue
and sell to the Purchasers, and the Purchasers shall purchase (in
the amounts
set forth as Exhibit A hereto) from the Company, (i) series A
senior secured
convertible promissory notes in the aggregate principal amount of
up to Six
Million Dollars ($6,000,000), convertible into shares of the
Company's common
stock, par value $.01 per share (the "Common Stock"), in
substantially the form
attached hereto as Exhibit B-1 (the "Series A Notes"), and (ii)
original issue
discount series A senior secured convertible promissory notes in
the aggregate
principal amount equal to fifteen percent (15%) of aggregate
principal amount of
Notes, convertible into shares of Common Stock, in substantially
the form
attached hereto as Exhibit B-2 (the "OID Notes", together with the
Series A
Notes, the "Notes"). The Company and the Purchasers are executing
and delivering
this Agreement in accordance with and in reliance upon the
exemption from
securities registration afforded by Section 4(2) of the U.S.
Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder (the
"Securities Act"), including Regulation D ("Regulation D"), and/or
upon such
other exemption from the registration requirements of the
Securities Act as may
be available with respect to any or all of the investments to be
made hereunder.
(b) Upon the following terms and conditions, each Purchaser shall
be
issued (i) Series A-7 Warrants, in substantially the form attached
hereto as
Exhibit C-1 (the "Series A-7 Warrants"), to purchase a number of
shares of
Common Stock equal to seventy-five percent (75%) of the number of
Conversion
Shares (as defined in Section 1.3 hereof) issuable upon conversion
of such
Purchaser's Series A Note on the date of issuance of such Note at
an exercise
price per share equal to $0.40 on the Closing Date (as defined in
Section 1.2
hereof) and a term of seven (7) years following the Closing Date,
(ii) Series
B-4 Warrants, in substantially the form attached hereto as Exhibit
C-2 (the
"Series B-4 Warrants"), to purchase a number of shares of Common
Stock equal to
fifty percent (50%) of the number of Conversion Shares issuable
upon conversion
of such Purchaser's Series A Note on the date of issuance of such
Note at an
exercise price per share equal to $0.90 on the Closing Date and a
term of four
(4) years following the effective date of the registration
statement providing
for the resale of the Conversion Shares and the Warrant Shares (as
defined in
Section 1.3 hereof), (iii) Series C-3 Warrants, in substantially
the form
attached hereto as Exhibit C-3 (the "Series C-3 Warrants") to
purchase a number
of
1
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shares of Common Stock equal to one hundred percent (100%) of the
number of
Conversion Shares issuable upon conversion of such Purchaser's
Series A Note on
the date of issuance of such Note at an exercise price per share
equal to $0.21
on the Closing Date and a term of three (3) years following the
Closing Date,
and (iv) Series D-1 Warrants, in substantially the form attached
hereto as
Exhibit C-4 (the "Series D-1 Warrants" and, together with the
Series A-7
Warrants, the Series B-4 Warrants and the Series C-3 Warrants, the
"Warrants"),
to purchase a number of shares of Common Stock equal to seventy
percent (70%) of
the number of Conversion Shares issuable upon conversion of such
Purchaser's
Series A Note on the date of issuance of such Note at an exercise
price per
share equal to the lesser of (A) $0.35 and (B) ninety percent (90%)
of the
average of the five-day VWAP preceding the Call Notice (as defined
in the Series
D-1 Warrant. The number of shares of Common Stock issuable upon
exercise of the
Warrants issuable to each Purchaser is set forth opposite such
Purchaser's name
on Exhibit A attached hereto.
Section 1.2 Purchase Price and Closing. Subject to the terms
and
conditions hereof, the Company agrees to issue and sell to the
Purchasers and,
in consideration of and in express reliance upon the
representations,
warranties, covenants, terms and conditions of this Agreement, the
Purchasers,
severally but not jointly, agree to purchase the Notes and Warrants
for an
aggregate purchase price of up to Six Million Dollars ($6,000,000)
(the
"Purchase Price"). The Company acknowledges and agrees that a
portion of the
Purchase Price (not to exceed $500,000) to be delivered by SDS
Capital Group
SPC, LTD ("SDS")hereunder may be paid by exchanging outstanding
shares of the
Company's Series B Convertible Preferred Stock held by SDS in the
amounts set
forth on Exhibit A attached hereto. The closing of the purchase and
sale of the
Notes and Warrants to be acquired by the Purchasers from the
Company under this
Agreement shall take place at the offices of Kramer Levin Naftalis
& Frankel
LLP, 1177 Avenue of the Americas, New York, New York 10036 (the
"Closing") at
10:00 a.m., New York time (i) on or before February 23, 2006;
provided, that all
of the conditions set forth in Article IV hereof and applicable to
the Closing
shall have been fulfilled or waived in accordance herewith, or (ii)
at such
other time and place or on such date as the Purchasers and the
Company may agree
upon (the "Closing Date"). Subject to the terms and conditions of
this
Agreement, at the Closing the Company shall deliver or cause to be
delivered to
each Purchaser (x) its Notes for the principal amount set forth
opposite the
name of such Purchaser on Exhibit A hereto, (y) its Warrants to
purchase such
number of shares of Common Stock as is set forth opposite the name
of such
Purchaser on Exhibit A attached hereto and (z) any other documents
required to
be delivered pursuant to Article IV hereof. At the Closing, each
Purchaser shall
deliver its Purchase Price by wire transfer to an account
designated by the
Company.
Section 1.3 Conversion Shares / Warrant Shares. Subject to the
Company
obtaining Stockholder Approval in accordance with Section 3.21
hereof, the
Company has authorized and has reserved and covenants to continue
to reserve,
free of preemptive rights and other similar contractual rights of
stockholders,
a number of its authorized but unissued shares of Common Stock
equal to one
hundred fifty percent (150%) of the aggregate number of shares of
Common Stock
to effect the conversion of the Notes and exercise of the Warrants
as of the
Closing Date. Any shares of Common Stock issuable upon conversion
of the Notes
are herein referred to as the "Conversion Shares". Any shares of
Common Stock
issuable upon exercise of the Warrants (and such shares when
issued) are herein
referred to as the "Warrant Shares". The
2
<PAGE>
Notes, the Warrants, the Conversion Shares and the Warrant Shares
are sometimes
collectively referred to herein as the "Securities".
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The
Company
hereby represents and warrants to the Purchasers, as of the date
hereof and the
Closing Date (except as set forth on the Schedule of Exceptions
attached hereto
with each numbered Schedule corresponding to the section number
herein), as
follows:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good
standing under the
laws of the State of Delaware and has the requisite corporate power
to own,
lease and operate its properties and assets and to conduct its
business as it is
now being conducted. The Company does not have any Subsidiaries (as
defined in
Section 2.1(g)) or own securities of any kind in any other entity
except as set
forth on Schedule 2.1(g) hereto. The Company and each such
Subsidiary (as
defined in Section 2.1(g)) is duly qualified as a foreign
corporation to do
business and is in good standing in every jurisdiction in which the
nature of
the business conducted or property owned by it makes such
qualification
necessary except for any jurisdiction(s) (alone or in the
aggregate) in which
the failure to be so qualified will not have a Material Adverse
Effect. For the
purposes of this Agreement, "Material Adverse Effect" means any
material adverse
effect on the business, operations, properties, prospects, or
financial
condition of the Company and its Subsidiaries and/or any
condition,
circumstance, or situation that would prohibit or otherwise
materially interfere
with the ability of the Company to perform any of its obligations
under this
Agreement in any material respect.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform its
obligations under
this Agreement, the Notes, the Warrants, the Registration Rights
Agreement by
and among the Company and the Purchasers, dated as of the date
hereof,
substantially in the form of Exhibit D attached hereto (the
"Registration Rights
Agreement"), the Security Agreement by and among the Company and
its wholly
owned subsidiaries, on the one hand, and the Purchasers, on the
other hand,
dated as of the date hereof, substantially in the form of Exhibit E
attached
hereto (the "Security Agreement"), the Escrow Agreement by and
among the
Company, the Purchasers and the escrow agent, dated as of the date
hereof,
substantially in the form of Exhibit F attached hereto (the "Escrow
Agreement"),
and the Irrevocable Transfer Agent Instructions (as defined in
Section 3.16
hereof) (collectively, the "Transaction Documents") and to issue
and sell the
Securities in accordance with the terms hereof. The execution,
delivery and
performance of the Transaction Documents by the Company and the
consummation by
it of the transactions contemplated thereby have been duly and
validly
authorized by all necessary corporate action, and, except as set
forth on
Schedule 2.1(b), no further consent or authorization of the
Company, its Board
of Directors or stockholders is required. When executed and
delivered by the
Company, each of the Transaction Documents shall constitute a valid
and binding
obligation of the Company enforceable against the Company in
accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy,
reorganization, moratorium, liquidation, conservatorship,
3
<PAGE>
receivership or similar laws relating to, or affecting generally
the enforcement
of, creditor's rights and remedies or by other equitable principles
of general
application.
(c) Capitalization. The authorized capital stock and the issued
and
outstanding shares of capital stock of the Company as of the date
hereof is set
forth on Schedule 2.1(c) hereto. All of the outstanding shares of
the Common
Stock and any other outstanding security of the Company have been
duly and
validly authorized. Except as set forth in this Agreement, the
Commission
Documents (as defined in Section 2.1(f)) or as set forth on
Schedule 2.1(c)
hereto, no shares of Common Stock or any other security of the
Company are
entitled to preemptive rights or registration rights and there are
no
outstanding options, warrants, scrip, rights to subscribe to, call
or
commitments of any character whatsoever relating to, or securities
or rights
convertible into, any shares of capital stock of the Company.
Furthermore,
except as set forth in this Agreement and as set forth on Schedule
2.1(c)
hereto, there are no contracts, commitments, understandings, or
arrangements by
which the Company is or may become bound to issue additional shares
of the
capital stock of the Company or options, securities or rights
convertible into
shares of capital stock of the Company. Except for customary
transfer
restrictions contained in agreements entered into by the Company in
order to
sell restricted securities or as provided on Schedule 2.1(c)
hereto, the Company
is not a party to or bound by any agreement or understanding
granting
registration or anti-dilution rights to any person with respect to
any of its
equity or debt securities. Except as set forth on Schedule 2.1(c),
the Company
is not a party to, and it has no knowledge of, any agreement or
understanding
restricting the voting or transfer of any shares of the capital
stock of the
Company. For purpose of this Agreement, the term "knowledge" of the
Company
shall mean the knowledge of J. Raymond Bilbao after due
inquiry.
(d) Issuance of Securities. The Notes and the Warrants to be issued
at
the Closing have been duly authorized by all necessary corporate
action. When
the Conversion Shares and Warrant Shares are issued and paid for in
accordance
with the terms of this Agreement and as set forth in the Notes and
Warrants,
such shares will be duly authorized by all necessary corporate
action and
validly issued and outstanding, fully paid and nonassessable, free
and clear of
all liens, encumbrances and rights of refusal of any kind.
(e) No Conflicts. The execution, delivery and performance of
the
Transaction Documents by the Company, the performance by the
Company of its
obligations under the Notes and the consummation by the Company of
the
transactions contemplated hereby and thereby, (including the
issuance of the
Securities as contemplated hereby) do not and will not (i) violate
or conflict
with any provision of the Company's Certificate of Incorporation
(the
"Certificate") or Bylaws (the "Bylaws"), each as amended to date,
or any
Subsidiary's comparable charter documents, (ii) conflict with, or
constitute a
default (or an event which with notice or lapse of time or both
would become a
default) under, or give to others any rights of termination,
amendment,
acceleration or cancellation of, any agreement, mortgage, deed of
trust,
indenture, note, bond, license, lease agreement, instrument or
obligation to
which the Company or any of its Subsidiaries is a party or by which
the Company
or any of its Subsidiaries' respective properties or assets are
bound, or (iii)
result in a violation of any federal, state, local or foreign
statute, rule,
regulation, order, judgment or decree (including federal and state
securities
laws and regulations) applicable to the Company or any of its
Subsidiaries or by
which any property or asset of the Company or any of its
Subsidiaries are bound
or affected, except, with respect to clauses (ii) and
4
<PAGE>
(iii) above for such conflicts, defaults, terminations,
amendments,
acceleration, cancellations and violations as would not,
individually or in the
aggregate, have a Material Adverse Effect (excluding with respect
to federal and
state securities laws)). Neither the Company nor any of its
Subsidiaries is
required under federal, state, foreign or local law, rule or
regulation to
obtain any consent, authorization or order of, or make any filing
or
registration with, any court or governmental agency in order for it
to execute,
deliver or perform any of its obligations under the Transaction
Documents or
issue and sell the Securities in accordance with the terms hereof
(other than
any filings, consents and approvals which may be required to be
made by the
Company under applicable state and federal securities laws, rules
or regulations
or any registration provisions provided in the Registration Rights
Agreement).
(f) Commission Documents, Financial Statements. The Common Stock
of
the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the
Company has
timely filed all reports, schedules, forms, statements and other
documents
required to be filed by it with the Commission pursuant to the
reporting
requirements of the Exchange Act (all of the foregoing including
filings
incorporated by reference therein being referred to herein as the
"Commission
Documents"). At the times of their respective filings, the Form
10-Q for the
fiscal quarters ended November 30, 2005, May 31, 2005 and February
28, 2005
(collectively, the "Form 10-Q") and the Form 10-K for the fiscal
year ended
August 31, 2005 (the "Form 10-K") complied in all material respects
with the
requirements of the Exchange Act and the rules and regulations of
the Commission
promulgated thereunder, and the Form 10-Q and Form 10-K did not
contain any
untrue statement of a material fact or omit to state a material
fact required to
be stated therein or necessary in order to make the statements
therein, in light
of the circumstances under which they were made, not misleading. As
of their
respective dates, the financial statements of the Company included
in the
Commission Documents complied as to form in all material respects
with
applicable accounting requirements and the published rules and
regulations of
the Commission. Such financial statements have been prepared in
accordance with
generally accepted accounting principles ("GAAP") applied on a
consistent basis
during the periods involved (except (i) as may be otherwise
indicated in such
financial statements or the notes thereto or (ii) in the case of
unaudited
interim statements, to the extent they may not include footnotes or
may be
condensed or summary statements), and fairly present in all
material respects
the financial position of the Company and its Subsidiaries as of
the dates
thereof and the results of operations and cash flows for the
periods then ended
(subject, in the case of unaudited statements, to normal year-end
audit
adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary
of
the Company, showing the jurisdiction of its incorporation or
organization and
showing the percentage of each person's ownership of the
outstanding stock or
other interests of such Subsidiary. For the purposes of this
Agreement,
"Subsidiary" shall mean any corporation or other entity of which at
least a
majority of the securities or other ownership interest having
ordinary voting
power (absolutely or contingently) for the election of directors or
other
persons performing similar functions are at the time owned directly
or
indirectly by the Company and/or any of its other Subsidiaries. All
of the
outstanding shares of capital stock of each Subsidiary have been
duly authorized
and validly issued, and are fully paid and nonassessable. Except as
set forth on
Schedule 2.1(g) hereto, there are no outstanding preemptive,
conversion or other
rights, options, warrants or agreements granted or issued by or
binding upon any
Subsidiary for
5
<PAGE>
the purchase or acquisition of any shares of capital stock of any
Subsidiary or
any other securities convertible into, exchangeable for or
evidencing the rights
to subscribe for any shares of such capital stock. Neither the
Company nor any
Subsidiary is subject to any obligation (contingent or otherwise)
to repurchase
or otherwise acquire or retire any shares of the capital stock of
any Subsidiary
or any convertible securities, rights, warrants or options of the
type described
in the preceding sentence except as set forth on Schedule 2.1(g)
hereto. Neither
the Company nor any Subsidiary is party to, nor has any knowledge
of, any
agreement restricting the voting or transfer of any shares of the
capital stock
of any Subsidiary.
(h) No Material Adverse Change. Since November 30, 2005, the
Company
has not experienced or suffered any Material Adverse Effect, except
as disclosed
on Schedule 2.1(h) hereto and as disclosed in its Commission
Documents.
(i) No Undisclosed Liabilities. Except as disclosed on Schedule
2.1(i)
hereto, neither the Company nor any of its Subsidiaries has
incurred any
liabilities, obligations, claims or losses (whether liquidated or
unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise)
other than
those incurred in the ordinary course of the Company's or its
Subsidiaries
respective businesses or which, individually or in the aggregate,
are not
reasonably likely to have a Material Adverse Effect.
(j) No Undisclosed Events or Circumstances. Since November 30,
2005,
except as disclosed on Schedule 2.1(j) hereto, to the knowledge of
the Company,
no event or circumstance has occurred or exists with respect to the
Company or
its Subsidiaries or their respective businesses, properties,
prospects,
operations or financial condition, which, under applicable law,
rule or
regulation, requires public disclosure or announcement by the
Company but which
has not been so publicly announced or disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the
date
hereof all outstanding secured and unsecured Indebtedness of the
Company or any
Subsidiary, or Indebtedness for which the Company or any Subsidiary
has
commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (a)
any liabilities for borrowed money or amounts owed in excess of
$100,000 (other
than trade accounts payable incurred in the ordinary course of
business), (b)
all guaranties, endorsements and other contingent obligations in
respect of
Indebtedness of others, whether or not the same are or should be
reflected in
the Company's balance sheet (or the notes thereto), except
guaranties by
endorsement of negotiable instruments for deposit or collection or
similar
transactions in the ordinary course of business; and (c) the
present value of
any lease payments in excess of $25,000 due under leases required
to be
capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is
in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the Subsidiaries has
good
and valid title to all of its real and personal property reflected
in the
Commission Documents, free and clear of any mortgages, pledges,
charges, liens,
security interests or other encumbrances, except for those
indicated on Schedule
2.1(l) hereto or such that, individually or in the aggregate, do
not cause a
Material Adverse Effect. Any leases of the Company and each of its
Subsidiaries
are valid and subsisting and in full force and effect.
6
<PAGE>
(m) Actions Pending. There is no action, suit, claim,
investigation,
arbitration, alternate dispute resolution proceeding or other
proceeding pending
or, to the knowledge of the Company, threatened against the Company
or any
Subsidiary which questions the validity of this Agreement or any of
the other
Transaction Documents or any of the transactions contemplated
hereby or thereby
or any action taken or to be taken pursuant hereto or thereto.
Except as set
forth in the Commission Documents or on Schedule 2.1(m) hereto,
there is no
action, suit, claim, investigation, arbitration, alternate dispute
resolution
proceeding or other proceeding pending or, to the knowledge of the
Company,
threatened against or involving the Company, any Subsidiary or any
of their
respective properties or assets, which individually or in the
aggregate, would
reasonably be expected, if adversely determined, to have a Material
Adverse
Effect. There are no outstanding orders, judgments, injunctions,
awards or
decrees of any court, arbitrator or governmental or regulatory body
against the
Company or any Subsidiary or any officers or directors of the
Company or
Subsidiary in their capacities as such, which individually or in
the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted in
accordance with all
applicable federal, state and local governmental laws, rules,
regulations and
ordinances, except as set forth in the Commission Documents or on
Schedule
2.1(n) hereto or such that, individually or in the aggregate, the
noncompliance
therewith could not reasonably be expected to have a Material
Adverse Effect.
The Company and each of its Subsidiaries have all franchises,
permits, licenses,
consents and other governmental or regulatory authorizations and
approvals
necessary for the conduct of its business as now being conducted by
it unless
the failure to possess such franchises, permits, licenses, consents
and other
governmental or regulatory authorizations and approvals,
individually or in the
aggregate, could not reasonably be expected to have a Material
Adverse Effect.
(o) Taxes. The Company and each of the Subsidiaries has
accurately
prepared and filed all federal, state and other tax returns
required by law to
be filed by it, has paid or made provisions for the payment of all
taxes shown
to be due and all additional assessments, and adequate provisions
have been and
are reflected in the financial statements of the Company and the
Subsidiaries
for all current taxes and other charges to which the Company or any
Subsidiary
is subject and which are not currently due and payable. Except as
disclosed on
Schedule 2.1(o) hereto or in the Commission Documents, none of the
federal
income tax returns of the Company or any Subsidiary have been
audited by the
Internal Revenue Service. The Company has no knowledge of any
additional
assessments, adjustments or contingent tax liability (whether
federal or state)
of any nature whatsoever, whether pending or threatened against the
Company or
any Subsidiary for any period, nor of any basis for any such
assessment,
adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto,
the
Company has not employed any broker or finder or incurred any
liability for any
brokerage or investment banking fees, commissions, finders'
structuring fees,
financial advisory fees or other similar fees in connection with
the Transaction
Documents.
(q) Disclosure. Except for the transactions contemplated by
this
Agreement, the Company confirms that neither it nor any other
person acting on
its behalf has provided any of the Purchasers or their agents or
counsel with
any information that constitutes or might
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<PAGE>
constitute material, nonpublic information. To the Company's
knowledge, neither
the representations and warranties contained in Section 2.1 of this
Agreement or
the Schedules hereto nor any other documents, certificates or
instruments
furnished to the Purchasers by or on behalf of the Company or any
Subsidiary in
connection with the transactions contemplated by this Agreement
contain any
untrue statement of a material fact or omit to state a material
fact necessary
in order to make the statements made herein or therein, in the
light of the
circumstances under which they were made herein or therein, not
misleading.
(r) Operation of Business. Except as set forth on Schedule
2.1(r)
hereto, to the knowledge of the Company, the Company and each of
the
Subsidiaries owns or possesses the rights to all patents,
trademarks, domain
names (whether or not registered) and any patentable improvements
or
copyrightable derivative works thereof, websites and intellectual
property
rights relating thereto, service marks, trade names, copyrights,
licenses and
authorizations which are necessary for the conduct of its business
as now
conducted without any conflict with the rights of others.
(s) Environmental Compliance. Except as set forth on Schedule
2.1(s)
hereto or in the Commission Documents, the Company and each of its
Subsidiaries
have obtained all material approvals, authorization, certificates,
consents,
licenses, orders and permits or other similar authorizations of all
governmental
authorities, or from any other person, that are required under any
Environmental
Laws. "Environmental Laws" shall mean all applicable laws relating
to the
protection of the environment including, without limitation, all
requirements
pertaining to reporting, licensing, permitting, controlling,
investigating or
remediating emissions, discharges, releases or threatened releases
of hazardous
substances, chemical substances, pollutants, contaminants or toxic
substances,
materials or wastes, whether solid, liquid or gaseous in nature,
into the air,
surface water, groundwater or land, or relating to the manufacture,
processing,
distribution, use, treatment, storage, disposal, transport or
handling of
hazardous substances, chemical substances, pollutants, contaminants
or toxic
substances, material or wastes, whether solid, liquid or gaseous in
nature. To
the Company's knowledge, the Company has all necessary governmental
approvals
required under all Environmental Laws as necessary for the
Company's business or
the business of any of its subsidiaries. Except for such instances
as would not
individually or in the aggregate have a Material Adverse Effect and
to the
knowledge of the Company, there are no past or present events,
conditions,
circumstances, incidents, actions or omissions relating to or in
any way
affecting the Company or its Subsidiaries that violate or may
violate any
Environmental Law after the Closing Date or that may give rise to
any
environmental liability, or otherwise form the basis of any claim,
action,
demand, suit, proceeding, hearing, study or investigation (i) under
any
Environmental Law, or (ii) based on or related to the manufacture,
processing,
distribution, use, treatment, storage (including without limitation
underground
storage tanks), disposal, transport or handling, or the emission,
discharge,
release or threatened release of any hazardous substance.
(t) Books and Records; Internal Accounting Controls. The records
and
documents of the Company and its Subsidiaries accurately reflect in
all material
respects the information relating to the business of the Company
and the
Subsidiaries, the location of their assets, and the nature of all
transactions
giving rise to the obligations or accounts receivable of the
Company or any
Subsidiary. The Company and each of its Subsidiaries maintain a
system of
internal accounting controls sufficient, in the judgment of the
Company's board
of directors, to
8
<PAGE>
provide reasonable assurance that (i) transactions are executed in
accordance
with management's general or specific authorizations, (ii)
transactions are
recorded as necessary to permit preparation of financial statements
in
conformity with generally accepted accounting principles and to
maintain asset
accountability, (iii) access to assets is permitted only in
accordance with
management's general or specific authorization and (iv) the
recorded
accountability for assets is compared with the existing assets at
reasonable
intervals and appropriate actions are taken with respect to any
differences.
(u) Material Agreements. Except for the Transaction Documents,
as
disclosed in the Commission Documents or as set forth on Schedule
2.1(u) hereto,
or as would not be reasonably likely to have a Material Adverse
Effect, (i) the
Company and each of its Subsidiaries have performed all obligations
required to
be performed by them to date under any written or oral contract,
instrument,
agreement, commitment, obligation, plan or arrangement, filed or
required to be
filed with the Commission (the "Material Agreements"), (ii) neither
the Company
nor any of its Subsidiaries has received any notice of default
under any
Material Agreement and, (iii) to the Company's knowledge, neither
the Company
nor any of its Subsidiaries is in default under any Material
Agreement now in
effect.
(v) Transactions with Affiliates. Except as set forth on
Schedule
2.1(v) hereto and in the Commission Documents, there are no loans,
leases,
agreements, contracts, royalty agreements, management contracts or
arrangements
or other continuing transactions between (a) the Company, any
Subsidiary or any
of their respective customers or suppliers on the one hand, and (b)
on the other
hand, any officer, employee, consultant or director of the Company,
or any of
its Subsidiaries, or any person owning at least 5% of the
outstanding capital
stock of the Company or any Subsidiary or any member of the
immediate family of
such officer, employee, consultant, director or stockholder or any
corporation
or other entity controlled by such officer, employee, consultant,
director or
stockholder, or a member of the immediate family of such officer,
employee,
consultant, director or stockholder which, in each case, is
required to be
disclosed in the Commission Documents or in the Company's most
recently filed
definitive proxy statement on Schedule 14A, that is not so
disclosed in the
Commission Documents or in such proxy statement.
(w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied
and will
comply with all applicable federal and state securities laws in
connection with
the offer, issuance and sale of the Securities hereunder. Neither
the Company
nor anyone acting on its behalf, directly or indirectly, has or
will sell, offer
to sell or solicit offers to buy any of the Securities or similar
securities to,
or solicit offers with respect thereto from, or enter into any
negotiations
relating thereto with, any person, or has taken or will take any
action so as to
bring the issuance and sale of any of the Securities under the
registration
provisions of the Securities Act and applicable state securities
laws. Neither
the Company nor any of its affiliates, nor any person acting on its
or their
behalf, has engaged in any form of general solicitation or general
advertising
(within the meaning of Regulation D under the Securities Act) in
connection with
the offer or sale of any of the Securities.
(x) Employees. Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of
its employees,
except as set forth on
9
<PAGE>
Schedule 2.1(x) hereto. Except as set forth on Schedule 2.1(x)
hereto, neither
the Company nor any Subsidiary has any employment contract,
agreement regarding
proprietary information, non-competition agreement,
non-solicitation agreement,
confidentiality agreement, or any other similar contract or
restrictive
covenant, relating to the right of any officer, employee or
consultant to be
employed or engaged by the Company or such Subsidiary required to
be disclosed
in the Commission Documents that is not so disclosed. No officer,
consultant or
key employee of the Company or any Subsidiary whose termination,
either
individually or in the aggregate, would be reasonably likely to
have a Material
Adverse Effect, has terminated or, to the knowledge of the Company,
has any
present intention of terminating his or her employment or
engagement with the
Company or any Subsidiary.
(y) Absence of Certain Developments. Except as set forth in the
Commission Documents or provided on Schedule 2.1(y) hereto, since
November 30,
2005, neither the Company nor any Subsidiary has:
(i) issued any stock, bonds or other corporate securities or
any
right, options or warrants with respect thereto;
(ii) borrowed any amount in excess of $100,000 or incurred or
become subject to any other liabilities in excess of $100,000
(absolute or
contingent) except current liabilities incurred in the ordinary
course of
business which are comparable in nature and amount to the current
liabilities
incurred in the ordinary course of business during the comparable
portion of its
prior fiscal year, as adjusted to reflect the current nature and
volume of the
business of the Company and its Subsidiaries;
(iii) discharged or satisfied any lien or encumbrance in excess
of $100,000 or paid any obligation or liability (absolute or
contingent) in
excess of $100,000, other than current liabilities paid in the
ordinary course
of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or
purchased or
redeemed, or made any agreements so to purchase or redeem, any
shares of its
capital stock, in each case in excess of $50,000 individually or
$100,000 in the
aggregate;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, in each case in excess of $100,000,
except in the
ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks,
trade names, copyrights, trade secrets or other intangible assets
or
intellectual property rights in excess of $100,000, or disclosed
any proprietary
confidential information to any person except to customers in the
ordinary
course of business or to the Purchasers or their
representatives;
(vii) suffered any material losses or waived any rights of
material value, whether or not in the ordinary course of business,
or suffered
the loss of any material amount of prospective business;
10
<PAGE>
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any material transaction, whether or not in
the
ordinary course of business which has not been disclosed in the
Commission
Documents;
(xi) made
charitable contributions or pledges in excess of
$10,000;
(xii) suffered any material damage, destruction or casualty
loss,
whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management
in connection with the terms and conditions of their employment;
or
(xiv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(z) Public Utility Holding Company Act and Investment Company
Act
Status. The Company is not a "holding company" or a "public utility
company" as
such terms are defined in the Public Utility Holding Company Act of
1935, as
amended. The Company is not, and as a result of and immediately
upon the Closing
will not be, an "investment company" or a company "controlled" by
an "investment
company," within the meaning of the Investment Company Act of 1940,
as amended.
(aa) ERISA. No liability to the Pension Benefit Guaranty
Corporation
has been incurred with respect to any Plan (as defined below) by
the Company or
any of its Subsidiaries which is or would be materially adverse to
the Company
and its Subsidiaries. The execution and delivery of this Agreement
and the
issuance and sale of the Securities will not involve any
transaction which is
subject to the prohibitions of Section 406 of the Employee
Retirement Income
Security Act of 1974, as amended ("ERISA") or in connection with
which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue
Code of 1986,
as amended, provided that, if any of the Purchasers, or any person
or entity
that owns a beneficial interest in any of the Purchasers, is an
"employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA)
with respect
to which the Company is a "party in interest" (within the meaning
of Section
3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e)
of ERISA, if
applicable, are met. As used in this Section 2.1(aa), the term
"Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of
ERISA) which is
or has been established or maintained, or to which contributions
are or have
been made, by the Company or any Subsidiary or by any trade or
business, whether
or not incorporated, which, together with the Company or any
Subsidiary, is
under common control, as described in Section 414(b) or (c) of the
Code.
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<PAGE>
(bb) Independent Nature of Purchasers. The Company acknowledges
that
the obligations of each Purchaser under the Transaction Documents
are several
and not joint with the obligations of any other Purchaser, and no
Purchaser
shall be responsible in any way for the performance of the
obligations of any
other Purchaser under the Transaction Documents. The Company
acknowledges that
the decision of each Purchaser to purchase Securities pursuant to
this Agreement
has been made by such Purchaser independently of any other
Purchaser and
independently of any information, materials, statements or opinions
as to the
business, affairs, operations, assets, properties, liabilities,
results of
operations, condition (financial or otherwise) or prospects of the
Company or of
its Subsidiaries which may have made or given by any other
Purchaser or by any
agent or employee of any other Purchaser, and no Purchaser or any
of its agents
or employees shall have any liability to any Purchaser (or any
other person)
relating to or arising from any such information, materials,
statements or
opinions. The Company acknowledges that nothing contained herein,
or in any
Transaction Document, and no action taken by any Purchaser pursuant
hereto or
thereto, shall be deemed to constitute the Purchasers as a
partnership, an
association, a joint venture or any other kind of entity, or create
a
presumption that the Purchasers are in any way acting in concert or
as a group
with respect to such obligations or the transactions contemplated
by the
Transaction Documents. The Company acknowledges that for reasons
of
administrative convenience only, the Transaction Documents have
been prepared by
counsel for the placement agent and such counsel does not represent
the
Purchasers. The Company acknowledges that it has elected to provide
all
Purchasers with the same terms and Transaction Documents for the
convenience of
the Company and not because it was required or requested to do so
by the
Purchasers and the Purchasers have retained their own counsel with
respect to
the transactions contemplated hereby. The Company acknowledges that
such
procedure with respect to the Transaction Documents in no way
creates a
presumption that the Purchasers are in any way acting in concert or
as a group
with respect to the Transaction Documents or the transactions
contemplated
hereby or thereby.
(cc) No Integrated Offering. Neither the Company, nor any of
its
affiliates, nor any person acting on its or their behalf, has
directly or
indirectly made any offers or sales of any security or solicited
any offers to
buy any security under circumstances that would cause the offering
of the
Securities pursuant to this Agreement to be integrated with prior
offerings by
the Company for purposes of the Securities Act in a manner that
would prevent
the Company from selling the Securities pursuant to Regulation D
and Rule 506
thereof under the Securities Act, nor will the Company or any of
its affiliates
or subsidiaries take any action or steps that would cause the
offering of the
Securities to be integrated with other offerings. The Company does
not have any
registration statement pending before the Commission or currently
under the
Commission's review. Except as set forth on Schedule 2.1(cc)
hereto, since
August 1, 2005, the Company has not offered or sold any of its
equity securities
or debt securities convertible into shares of Common Stock.
(dd) Sarbanes-Oxley Act. The Company is in compliance with the
applicable provisions of the Sarbanes-Oxley Act of 2002 (the
"Sarbanes-Oxley
Act"), and the rules and regulations promulgated thereunder, that
are effective
and presently applicable to the Company and intends to comply with
other
applicable provisions of the Sarbanes-Oxley Act, and the rules and
regulations
promulgated thereunder, upon the effectiveness and applicability of
such
provisions with respect to the Company.
12
<PAGE>
(ee) Dilutive Effect. The Company understands and acknowledges
that
its obligation to issue Conversion Shares upon conversion of the
Notes in
accordance with this Agreement and the Notes and its obligations to
issue the
Warrant Shares upon the exercise of the Warrants in accordance with
this
Agreement and the Warrants, is, in each case, absolute and
unconditional
regardless of the dilutive effect that such issuance may have on
the ownership
interest of other stockholders of the Company.
(ff) DTC Status. The Company's current transfer agent is a
participant
in and the Common Stock is eligible for transfer pursuant to the
Depository
Trust Company Automated Securities Transfer Program. The name,
address,
telephone number, fax number, contact person and email address of
the Company's
transfer agent is set forth on Schedule 2.1(ff) hereto.
Section 2.2 Representations and Warranties of the Purchasers. Each
of
the Purchasers hereby represents and warrants to the Company with
respect solely
to itself and not with respect to any other Purchaser as follows as
of the date
hereof and as of the Closing Date:
(a) Organization and Standing of the Purchasers. If the Purchaser
is
an entity, such Purchaser is a corporation, limited liability
company or
partnership duly incorporated or organized, validly existing and in
good
standing under the laws of the jurisdiction of its incorporation
or
organization.
(b) Authorization and Power. Each Purchaser has the requisite
power
and authority to enter into and perform its obligations under the
Transaction
Documents and to purchase the Securities being sold to it
hereunder. The
execution, delivery and performance of the Transaction Documents by
each
Purchaser and the consummation by it of the transactions
contemplated hereby
have been duly authorized by all necessary corporate or partnership
action, and
no further consent or authorization of such Purchaser or its Board
of Directors,
stockholders, or partners, as the case may be, is required. When
executed and
delivered by the Purchasers, the other Transaction Documents shall
constitute
valid and binding obligations of each Purchaser enforceable against
such
Purchaser in accordance with their terms, except as such
enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium,
liquidation, conservatorship, receivership or similar laws relating
to, or
affecting generally the enforcement of, creditor's rights and
remedies or by
other equitable principles of general application.
(c) No Conflict. The execution, delivery and performance of the
Transaction Documents by the Purchaser and the consummation by the
Purchaser of
the transactions contemplated thereby and hereby do not and will
not (i) violate
any provision of the Purchaser's charter or organizational
documents, (ii)
conflict with, or constitute a default (or an event which with
notice or lapse
of time or both would become a default) under, or give to others
any rights of
termination, amendment, acceleration or cancellation of, any
agreement,
mortgage, deed of trust, indenture, note, bond, license, lease
agreement,
instrument or obligation to which the Purchaser is a party or by
which the
Purchaser's respective properties or assets are bound, or (iii)
result in a
violation of any federal, state, local or foreign statute, rule,
regulation,
order, judgment or decree (including federal and state securities
laws and
regulations) applicable to the Purchaser or by which any property
or asset of
the Purchaser are bound or affected, except, in all cases, other
than violations
pursuant to clauses (i) or (iii) (with respect to federal and state
securities
laws) above, except, for such conflicts, defaults, terminations,
amendments,
acceleration,
13
<PAGE>
cancellations and violations as would not, individually or in the
aggregate,
materially and adversely affect the Purchaser's ability to perform
its
obligations under the Transaction Documents.
(d) Acquisition for Investment. Each Purchaser is purchasing
the
Securities solely for its own account and not with a view to, or
for sale in
connection with, public sale or distribution thereof. Each
Purchaser does not
have a present intention to sell any of the Securities, nor a
present
arrangement (whether or not legally binding) or intention to effect
any
distribution of any of the Securities to or through any person or
entity;
provided, however, that by making the representations herein, such
Purchaser
does not agree to hold the Securities for any minimum or other
specific term and
reserves the right to dispose of the Securities at any time in
accordance with
Federal and state securities laws applicable to such disposition.
Each Purchaser
acknowledges that it (i) has such knowledge and experience in
financial and
business matters such that Purchaser is capable of evaluating the
merits and
risks of Purchaser's investment in the Company, (ii) is able to
bear the
financial risks associated with an investment in the Securities and
(iii) has
been given full access to such records of the Company and the
Subsidiaries and
to the officers of the Company and the Subsidiaries as it has
deemed necessary
or appropriate to conduct its due diligence investigation.
(e) Rule 144. Each Purchaser understands that the Securities must
be
held indefinitely unless such Securities are registered under the
Securities Act
or an exemption from registration is available. Each Purchaser
acknowledges that
such person is familiar with Rule 144 of the rules and regulations
of the
Commission, as amended, promulgated pursuant to the Securities Act
("Rule 144"),
and that such Purchaser has been advised that Rule 144 permits
resales only
under certain circumstances. Each Purchaser understands that to the
extent that
Rule 144 is not available, such Purchaser will be unable to sell
any Securities
without either registration under the Securities Act or the
existence of another
exemption from such registration requirement.
(f) General. Each Purchaser understands that the Securities are
being
offered and sold in reliance on a transactional exemption from the
registration
requirements of federal and state securities laws and the Company
is relying
upon the truth and accuracy of the representations, warranties,
agreements,
acknowledgments and understandings of such Purchaser set forth
herein in order
to determine the applicability of such exemptions and the
suitability of such
Purchaser to acquire the Securities. Each Purchaser understands
that no United
States federal or state agency or any government or governmental
agency has
passed upon or made any recommendation or endorsement of the
Securities. Each
Purchaser is a resident of the jurisdiction set forth immediately
below such
Purchaser's name on the signature pages hereto.
(g) No General Solicitation. Each Purchaser acknowledges that
the
Securities were not offered to such Purchaser by means of any form
of general or
public solicitation or general advertising, or publicly
disseminated
advertisements or sales literature, including (i) any
advertisement, article,
notice or other communication published in any newspaper, magazine,
Internet
website or similar media, or broadcast over television or radio, or
(ii) any
seminar or meeting to which such Purchaser was invited by any of
the foregoing
means of communications. Each Purchaser, in making the decision to
purchase the
Securities, has relied upon independent
14
<PAGE>
investigation made by it and has not relied on any information
or
representations made by third parties.
(h) Accredited Investor. Each Purchaser is an "accredited
investor"
(as defined in Rule 501 of Regulation D), and such Purchaser has
such experience
in business and financial matters that it is capable of evaluating
the merits
and risks of an investment in the Securities. Such Purchaser is not
required to
be registered as a broker-dealer under Section 15 of the Exchange
Act and such
Purchaser is not a broker-dealer. Each Purchaser acknowledges that
an investment
in the Securities is speculative and involves a high degree of
risk.
(i) Certain Fees. The Purchasers have not employed any broker
or
finder or incurred any liability for any brokerage or investment
banking fees,
commissions, finders' structuring fees, financial advisory fees or
other similar
fees in connection with the Transaction Documents.
(j) Independent Investment. Except as may be disclosed in any
filings
made by a Purchaser with the Commission, no Purchaser has agreed to
act with any
other Purchaser for the purpose of acquiring, holding, voting or
disposing of
the Securities purchased hereunder for purposes of Section 13(d)
under the
Exchange Act, and each Purchaser is acting independently with
respect to its
investment in the Securities.
ARTICLE III
COVENANTS
The
Company covenants with each Purchaser as follows, which covenants
are
for the benefit of each Purchaser and their respective permitted
assignees.
Section 3.1 Securities Compliance. The Company shall notify the
Commission in accordance with its rules and regulations, of the
transactions
contemplated by any of the Transaction Documents and shall take all
other
necessary action and proceedings as may be required and permitted
by applicable
law, rule and regulation, for the legal and valid issuance of the
Securities to
the Purchasers, or their respective subsequent holders.
Section 3.2 Registration and Listing. The Company shall cause
its
Common Stock to continue to be registered under Sections 12(b) or
12(g) of the
Exchange Act, to comply in all respects with its reporting and
filing
obligations under the Exchange Act, to comply with all requirements
related to
any registration statement filed pursuant to this Agreement, and to
not take any
action or file any document (whether or not permitted by the
Securities Act or
the rules promulgated thereunder) to terminate or suspend such
registration or
to terminate or suspend its reporting and filing obligations under
the Exchange
Act or Securities Act, except as permitted herein. The Company will
take all
action necessary to continue the listing or trading of its Common
Stock on the
OTC Bulletin Board or other exchange or market on which the Common
Stock is
trading. Subject to the terms of the Transaction Documents, the
Company further
covenants that it will take such further action as the Purchasers
may reasonably
request, all to the extent required from time to time to enable the
Purchasers
to sell the Securities without registration under the Securities
Act within the
limitation of the exemptions provided by Rule
15
<PAGE>
144 promulgated under the Securities Act. Upon the request of the
Purchasers,
the Company shall deliver to the Purchasers a written certification
of a duly
authorized officer as to whether it has complied with the issuer
requirements of
Rule 144.
Section 3.3 Inspection Rights. Provided the same would not be
in
violation of Regulation FD, the Company shall permit, during normal
business
hours and upon reasonable request and reasonable notice, each
Purchaser or any
employees, agents or representatives thereof, so long as such
Purchaser shall be
obligated hereunder to purchase the Notes or shall beneficially own
any
Conversion Shares or Warrant Shares, for purposes reasonably
related to such
Purchaser's interests as a stockholder, to examine the publicly
available,
non-confidential records and books of account of, and visit and
inspect the
properties, assets, operations and business of the Company and any
Subsidiary,
and to discuss the publicly available, non-confidential affairs,
finances and
accounts of the Company and any Subsidiary with any of its
officers,
consultants, directors and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and
cause
each Subsidiary to comply, with all applicable laws, rules,
regulations and
orders, noncompliance with which would be reasonably likely to have
a Material
Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company
shall
keep and cause each Subsidiary to keep adequate records and books
of account, in
which complete entries will be made in accordance with GAAP
consistently
applied, reflecting all financial transactions of the Company and
its
Subsidiaries, and in which, for each fiscal year, all proper
reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. If the Company ceases to file
its
periodic reports with the Commission, or if the Commission ceases
making these
periodic reports available via the Internet without charge, then
the Company
shall furnish the following to each Purchaser so long as such
Purchaser shall be
obligated hereunder to purchase the Securities or shall
beneficially own
Securities:
(a) Quarterly Reports filed with the Commission on Form 10-Q as
soon
as practical after the document is filed with the Commission, and
in any event
within five (5) days after the document is filed with the
Commission;
(b) Annual Reports filed with the Commission on Form 10-K as soon
as
practical after the document is filed with the Commission, and in
any event
within five (5) days after the document is filed with the
Commission; and
(c) Copies of all notices, information and proxy statements in
connection with any meetings, that are, in each case, provided to
holders of
shares of Common Stock, contemporaneously with the delivery of such
notices or
information to such holders of Common Stock.
Section 3.7 Other Agreements. The Company shall not enter into
any
agreement in which the terms of such agreement would restrict or
impair the
right or ability to perform of the Company or any Subsidiary under
any
Transaction Document.
16
<PAGE>
Section 3.8 Use of Proceeds. The net proceeds from the sale of
the
Securities hereunder shall be used by the Company for working
capital and
general corporate purposes and not to redeem any Common Stock or
securities
convertible, exercisable or exchangeable into Common Stock (except
with respect
to SDS in accordance with Section 1.2 hereof) or to settle any
outstanding
litigation.
Section 3.9 [Intentionally Omitted.]
Section 3.10 Disclosure of Transaction. The Company shall issue
a
press release describing the material terms of the transactions
contemplated
hereby (the "Press Release") on the day of the Closing but in no
event later
than one hour after the Closing; provided, however, that if the
Closing occurs
after 4:00 P.M. Eastern Time on any Trading Day, the Company shall
issue the
Press Release no later than 9:00 A.M. Eastern Time on the first
Trading Day
following the Closing Date. The Company shall also file with the
Commission a
Current Report on Form 8-K (the "Form 8-K") describing the material
terms of the
transactions contemplated hereby (and attaching as exhibits thereto
this
Agreement, each form of Note, the Registration Rights Agreement,
the Security
Agreement, each form of Warrant and the Press Release) as soon as
practicable
following the Closing Date but in no event more than two (2)
Trading Days
following the Closing Date, which Press Release and Form 8-K shall
be subject to
prior review and reasonable comment by the Purchasers. "Trading
Day" means any
day during which the principal exchange on which the Common Stock
is traded
shall be open for trading.
Section 3.11 Disclosure of Material Information. The Company
covenants
and agrees that neither it nor any other person acting on its
behalf has
provided or will provide any Purchaser or its agents or counsel
with any
information that the Company believes constitutes material
non-public
information, unless prior thereto such Purchaser shall have
executed a written
agreement regarding the confidentiality and use of such
information. The Company
understands and confirms that each Purchaser shall be relying on
the foregoing
representations in effecting transactions in securities of the
Company.
Section 3.12 Pledge of Securities. The Company acknowledges that
the
Securities may be pledged by a Purchaser in connection with a bona
fide margin
agreement or other loan or financing arrangement that is secured by
the
Securities. The pledge of Securities shall not be deemed to be a
transfer, sale
or assignment of the Securities hereunder, and no Purchaser
effecting a pledge
of the Securities shall be required to provide the Company with any
notice
thereof or otherwise make any delivery to the Company pursuant to
this Agreement
or any other Transaction Document; provided that a Purchaser and
its pledgee
shall be required to comply with the provisions of Article V hereof
in order to
effect a sale, transfer or assignment of Securities to such
pledgee. At the
Purchasers' expense, the Company hereby agrees to execute and
deliver such
documentation as a pledgee of the Securities may reasonably request
in
connection with a pledge of the Securities to such pledgee by a
Purchaser.
Section 3.13 [Intentionally Omitted.]
Section 3.14 Distributions. So long as any Notes or Warrants
remain
outstanding, the Company agrees that it shall not (i) declare or
pay any
dividends or make any
17
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distributions to any holder(s) of Common Stock or (ii) purchase or
otherwise
acquire for value, directly or indirectly, any Common Stock or
other equity
security of the Company.
Section 3.15 Reservation of Shares. Subject to Section 3.21 hereof,
so
long as any of the Notes or Warrants remain outstanding, the
Company shall take
all action necessary to at all times have authorized and reserved
for the
purpose of issuance, one hundred twenty percent (120%) of the
aggregate number
of shares of Common Stock needed to provide for the issuance of the
Conversion
Shares and the Warrant Shares.
Section 3.16 Transfer Agent Instructions. The Company shall
issue
irrevocable instructions to its transfer agent, and any subsequent
transfer
agent, to issue certificates, registered in the name of each
Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant
Shares in such
amounts as specified from time to time by each Purchaser to the
Company upon
conversion of the Notes or exercise of the Warrants in the form of
Exhibit G
attached hereto (the "Irrevocable Transfer Agent Instructions").
Prior to
registration of the Conversion Shares and the Warrant Shares under
the
Securities Act, all such certificates shall bear the restrictive
legend
specified in Section 5.1 of this Agreement. The Company warrants
that no
instruction other than the Irrevocable Transfer Agent Instructions
referred to
in this Section 3.16 will be given by the Company to its transfer
agent and that
the Conversion Shares and Warrant Shares shall otherwise be freely
transferable
on the books and records of the Company as and to the extent
provided in this
Agreement and the Registration Rights Agreement. Nothing in this
Section 3.16
shall affect in any way each Purchaser's obligations and agreements
set forth in
Section 5.1 to comply with all applicable prospectus delivery
requirements, if
any, upon resale of the Conversion Shares and the Warrant Shares.
If a Purchaser
provides the Company with an opinion of counsel, in a reasonably
acceptable
form, to the effect that a public sale, assignment or transfer of
the Conversion
Shares or Warrant Shares may be made without registration under the
Securities
Act, the Company shall permit the transfer, and, in the case of the
Conversion
Shares and the Warrant Shares, promptly instruct its transfer agent
to issue one
or more certificates in such name and in such denominations as
specified by such
Purchaser and without any restrictive legend. The Company
acknowledges that a
breach by it of its obligations under this Section 3.16 will cause
irreparable
harm to the Purchasers by vitiating the intent and purpose of the
transaction
contemplated hereby. Accordingly, the Company acknowledges that the
remedy at
law for a breach of its obligations under this Section 3.16 will be
inadequate
and agrees, in the event of a breach or threatened breach by the
Company of the
provisions of this Section 3.16, that the Purchasers shall be
entitled, in
addition to all other available remedies, to an order and/or
injunction
restraining any breach and requiring immediate issuance and
transfer, without
the necessity of showing economic loss and without any bond or
other security
being required.
Section 3.17 Disposition of Assets. So long as the Notes remain
outstanding, neither the Company nor any subsidiary shall sell,
transfer or
otherwise dispose of any of its properties, assets and rights
including, without
limitation, its software and intellectual property, to any person
except for
sales of obsolete assets and sales to customers in the ordinary
course of
business or with the prior written consent of the holders of a
majority of the
principal amount of the Notes then outstanding.
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<PAGE>
Section 3.18 Acquisition of Assets. In the event the Company or
any
Subsidiary acquires any assets or other properties, such assets or
properties
shall constitute a part of the Collateral (as defined in the
Security Agreement)
and the Company shall take all action necessary to perfect the
Purchasers'
security interest in such assets or properties pursuant to the
Security
Agreement.
Section 3.19 [Intentionally Omitted.]
Section 3.20 Subsequent Financings.
(a) For a period of one (1) year following the Closing Date
(which
one-year period shall extend for each day that the Registration
Statement (as
defined in the Registration Rights Agreement) is not effective as
required under
the Registration Rights Agreement), the Company covenants and
agrees to promptly
notify (in no event later than five (5) days after making or
receiving an
applicable offer) in writing (a "Rights Notice") the Purchasers of
the terms and
conditions of any proposed offer or sale to, or exchange with (or
other type of
distribution to) any third party (a "Subsequent Financing"), of
Common Stock or
any securities convertible, exercisable or exchangeable into Common
Stock,
including convertible debt securities (collectively, the
"Financing
Securities"). The Rights Notice shall describe, in reasonable
detail, the
proposed Subsequent Financing, the names and investment amounts of
all investors
participating in the Subsequent Financing, the proposed closing
date of the
Subsequent Financing, which shall be within twenty (20) calendar
days from the
date of the Rights Notice, and all of the terms and conditions
thereof and
proposed definitive documentation to be entered into in connection
therewith.
The Rights Notice shall provide each Purchaser an option (the
"Rights Option")
during the ten (10) Trading Days following delivery of the Rights
Notice (the
"Option Period") to inform the Company whether such Purchaser will
purchase up
to its pro rata portion of all or a portion of the securities being
offered in
such Subsequent Financing on the same, absolute terms and
conditions as
contemplated by such Subsequent Financing. If any Purchaser elects
not to
participate in such Subsequent Financing, the other Purchasers may
participate
on a pro-rata basis so long as such participation in the aggregate
does not
exceed the total Purchase Price hereunder. For purposes of this
Section, all
references to "pro rata" means, for any Purchaser electing to
participate in
such Subsequent Financing, the percentage obtained by dividing (x)
the principal
amount of the Notes purchased by such Purchaser at the Closing by
(y) the total
principal amount of all of the Notes purchased by all of the
participating
Purchasers at the Closing. Delivery of any Rights Notice
constitutes a
representation and warranty by the Company that there are no other
material
terms and conditions, arrangements, agreements or otherwise except
for those
disclosed in the Rights Notice, to provide additional compensation
to any party
participating in any proposed Subsequent Financing, including, but
not limited
to, additional compensation based on changes in the Purchase Price
or any type
of reset or adjustment of a purchase or conversion price or to
issue additional
securities at any time after the closing date of a Subsequent
Financing. If the
Company does not receive notice of exercise of the Rights Option
from the
Purchasers within the Option Period, the Company shall have the
right to close
the Subsequent Financing on the scheduled closing date with a third
party;
provided that all of the material terms and conditions of the
closing are the
same as those provided to the Purchasers in the Rights Notice. If
the closing of
the proposed Subsequent Financing does not occur on that date, any
closing of
the contemplated Subsequent Financing or any other Subsequent
Financing shall be
subject to all of the provisions of this Section 3.20(a),
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<PAGE>
including, without limitation, the delivery of a new Rights Notice.
The
provisions of this Section 3.20(a) shall not apply to issuances of
securities in
a Permitted Financing.
(b) For purposes of this Agreement, a Permitted Financing (as
defined
hereinafter) shall not be considered a Subsequent Financing. A
"Permitted
Financing" shall mean (i) securities issued (other than for cash)
in connection
with a merger, acquisition, or consolidation, (ii) securities
issued pursuant to
the conversion or exercise of convertible or exercisable securities
issued or
outstanding on or prior to the date hereof or issued pursuant to
this Agreement
and the Notes, including the Conversion Shares (iii) the Warrant
Shares, (iv)
securities issued in connection with bona fide strategic license
agreements or
other partnering arrangements so long as such issuances are not for
the purpose
of raising capital, (v) Common Stock issued or the issuance or
grants of options
to purchase Common Stock pursuant to the Company's stock option
plans and
employee stock purchase plans as they now exist on the date hereof,
(vi) any
warrants issued to the placement agent and its designees for the
transactions
contemplated by this Agreement, (vii) Common Stock issued in
connection with
consulting or advisory services not in excess of 5,000,000 shares;
and (viii)
the payment of any principal in shares of Common Stock pursuant to
the Notes.
(c) So long as the Notes remain outstanding, if the Company
enters
into any Subsequent Financing on terms more favorable than the
terms governing
the Notes, then the Purchasers in their sole discretion may
exchange the Notes,
valued at their stated value, for the securities issued or to be
issued in the
Subsequent Financing. The Company covenants and agrees to promptly
notify in
writing the Purchasers of the terms and conditions of any such
proposed
Subsequent Financing.
Section 3.21 Stockholder Approval. The Company covenants and agrees
to
use its best efforts to obtain the approval of its stockholders
("Stockholder
Approval") on or before seventy-five (75) days following the
Closing Date to
amend its Certificate of Incorporation to increase the Company's
authorized
shares of Common Stock to a number greater than one hundred fifty
percent 150%
of the maximum number of shares of Common Stock which would be
issuable upon
conversion of the Notes and which would be issuable upon exercise
of the
Warrants.
Section 3.22 D&O Insurance. So long as the Notes remain
outstanding,
the Company shall maintain its directors and officers liability
insurance policy
coverage at an amount equal to or in excess of $3,000,000.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company
to
Close and to Sell the Securities. The obligation hereunder of the
Company to
close and issue and sell the Securities to the Purchasers at the
Closing is
subject to the satisfaction or waiver, at or before the Closing of
the
conditions set forth below. These conditions are for the Company's
sole benefit
and may be waived by the Company at any time in its sole
discretion.
20
<PAGE>
(a) Accuracy of the Purchasers' Representations and Warranties.
The
representations and warranties of each Purchaser shall be true and
correct in
all material respects as of the date when made and as of the
Closing Date as
though made at that time, except for representations and warranties
that are
expressly made as of a particular date, which shall be true and
correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants,
agreements and conditions required by this Agreement to be
performed, satisfied
or complied with by the Purchasers at or prior to the Closing
Date.
(c) No Injunction. No statute, rule, regulation, executive
order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or
endorsed by any court or governmental authority of competent
jurisdiction which
prohibits the consummation of any of the transactions contemplated
by this
Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the
Securities
shall have been delivered to the Company on the Closing Date.
(e) Delivery of Transaction Documents. The Transaction Documents
shall
have been duly executed and delivered by the Purchasers and, with
respect to the
Escrow Agreement, the escrow agent, to the Company.
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers
to Close and to Purchase the Securities. The obligation hereunder
of the
Purchasers to purchase the Securities and consummate the
transactions
contemplated by this Agreement is subject to the satisfaction or
waiver, at or
before the Closing, of each of the conditions set forth below.
These conditions
are for the Purchasers' sole benefit and may be waived by the
Purchasers at any
time in their sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
of
the representations and warranties of the Company in this Agreement
and the
other Transaction Documents shall be true and correct in all
material respects
as of the Closing Date, except for representations and warranties
that speak as
of a particular date, which shall be true and correct in all
material respects
as of such date.
(b) Performance by the Company. The Company shall have
performed,
satisfied and complied in all material respects with all covenants,
agreements
and conditions required by this Agreement to be performed,
satisfied or complied
with by the Company at or prior to the Closing Date.
(c) No Suspension, Etc. Trading in the Common Stock shall not
have
been suspended by the Commission or the OTC Bulletin Board (except
for any
suspension of trading of limited duration agreed to by the Company,
which
suspension shall be terminated prior to the Closing), and, at any
time prior to
the Closing Date, trading in securities generally as reported by
Bloomberg
Financial Markets ("Bloomberg") shall not have been suspended or
limited, or
minimum prices shall not have been established on securities whose
trades are
reported by Bloomberg, or on the New York Stock Exchange, nor shall
a banking
moratorium have been
21
<PAGE>
declared either by the United States or New York State authorities,
nor shall
there have occurred any material outbreak or escalation of
hostilities or other
national or international calamity or crisis of such magnitude in
its effect on,
or any material adverse change in any financial market which, in
each case, in
the judgment of such Purchaser, makes it impracticable or
inadvisable to
purchase the Securities.
(d) No Injunction. No statute, rule, regulation, executive
order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or
endorsed by any court or governmental authority of competent
jurisdiction which
prohibits the consummation of any of the transactions contemplated
by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding
before
any arbitrator or any governmental authority shall have been
commenced, and no
investigation by any governmental authority shall have been
threatened, against
the Company or any Subsidiary, or any of the officers, directors or
affiliates
of the Company or any Subsidiary seeking to restrain, prevent or
change the
transactions contemplated by this Agreement, or seeking damages in
connection
with such transactions.
(f) Opinion of Counsel. The Purchasers shall have received an
opinion
of counsel to the Company, dated the date of the Closing,
substantially in the
form of Exhibit H hereto, with such exceptions and limitations as
shall be
reasonably acceptable to counsel to the Purchasers.
(g) Notes and Warrants. At or prior to the Closing, the Company
shall
have delivered to the Purchasers the Notes (in such denominations
as each
Purchaser may request) and the Warrants (in such denominations as
each Purchaser
may request).
(h) Secretary's Certificate. The Company shall have delivered to
the
Purchasers a secretary's certificate, dated as of the Closing Date,
as to (i)
the resolutions adopted by the Board of Directors approving the
transactions
contemplated hereby, (ii) the Certificate OF Incorporation, (iii)
the Bylaws,
each as in effect at the Closing, and (iv) the authority and
incumbency of the
officers of the Company executing the Transaction Documents and any
other
documents required to be executed or delivered in connection
therewith.
(i) Officer's Certificate. On the Closing Date, the Company shall
have
delivered to the Purchasers a certificate signed by an executive
officer on
behalf of the Company, dated as of the Closing Date, confirming the
accuracy of
the Company's representations, warranties and covenants as of the
Closing Date
and confirming the compliance by the Company with the conditions
precedent set
forth in paragraphs (b)-(e) and (l) of this Section 4.2 as of the
Closing Date
(provided that, with respect to the matters in paragraphs (d) and
(e) of this
Section 4.2, such confirmation shall be based on the knowledge of
the executive
officer after due inquiry).
(j) Registration Rights Agreement. As of the Closing Date, the
Company
shall have executed and delivered the Registration Rights Agreement
to each
Purchaser.
(k) Material Adverse Effect. No Material Adverse Effect shall
have
occurred at or before the Closing Date.
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<PAGE>
(l) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit G attached hereto, shall have
been
delivered to the Company's transfer agent.
(m) Escrow Agreement. At the Closing, the Company and the escrow
agent
shall have executed and delivered the Escrow Agreement to each
Purchaser.
(n) Security Agreement. At the Closing, the Company shall have
executed and delivered the Security Agreement to each
Purchaser.
(o) UCC Financing Statements. The Company shall have filed all
UCC
financing statements in form and substance satisfactory to the
Purchasers at the
appropriate offices.
(p) OTC Bulletin Board. The Company shall have delisted its shares
of
Common Stock from the Nasdaq Capital Market and the shares of
Common Stock shall
be quoted on the OTC Bulletin Board.
(q) Waiver of SDS. The Company shall have received the written
waiver
of SDS, waiving its redemption rights pursuant to the Certificate
of
Designation, Preferences and Rights of Series B Convertible
Preferred Stock of
Remote Dynamics, Inc.
ARTICLE V
CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the Securities
shall
be stamped or otherwise imprinted with a legend substantially in
the following
form (in addition to any legend required by applicable state
securities or "blue
sky" laws):
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE
SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES
ACT
AND UNDER APPLICABLE STATE SECURITIES LAWS OR REMOTE DYNAMICS,
INC.
SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF
SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED.
The
Company agrees to issue or reissue certificates representing any of
the
Conversion Shares and the Warrant Shares, without the legend set
forth above if
at such time, prior to making any transfer of any such Conversion
Shares or
Warrant Shares, such holder thereof shall give written notice to
the Company
describing the manner and terms of such transfer and removal as the
Company may
reasonably request. Such proposed transfer and removal will not be
effected
until: (a) either (i) the Company has received an opinion of
counsel reasonably
23
<PAGE>
satisfactory to the Company, to the effect that the registration of
the
Conversion Shares or Warrant Shares under the Securities Act is not
required in
connection with such proposed transfer, (ii) a registration
statement under the
Securities Act covering such proposed disposition has been filed by
the Company
with the Commission and has become effective under the Securities
Act, (iii) the
Company has received other evidence reasonably satisfactory to the
Company that
such registration and qualification under the Securities Act and
state
securities laws are not required (which may include an opinion of
counsel
provided by the Company), or (iv) the holder provides the Company
with
reasonable assurances that such security can be sold pursuant to
Rule 144 under
the Securities Act (which may include an opinion of counsel
provided by the
Company); and (b) either (i) the Company has received an opinion of
counsel
reasonably satisfactory to the Company, to the effect that
registration or
qualification under the securities or "blue sky" laws of any state
is not
required in connection with such proposed disposition, (ii)
compliance with
applicable state securities or "blue sky" laws has been effected,
or (iii) the
holder provides the Company with reasonable assurances that a valid
exemption
exists with respect thereto (which may include an opinion of
counsel provided by
the Company). The Company will respond to any such notice from a
holder within
three (3) business days. In the case of any proposed transfer under
this Section
5.1, the Company will use commercially reasonable efforts to comply
with any
such applicable state securities or "blue sky" laws, but shall in
no event be
required, (x) to qualify to do business in any state where it is
not then
qualified, (y) to take any action that would subject it to tax or
to the general
service of process in any state where it is not then subject, or
(z) to comply
with state securities or "blue sky" laws of any state for which
registration by
coordination is unavailable to the Company. The restrictions on
transfer
contained in this Section 5.1 shall be in addition to, and not by
way of
limitation of, any other restrictions on transfer contained in any
other section
of this Agreement. Whenever a certificate representing the
Conversion Shares or
Warrant Shares is required to be issued to a Purchaser without a
legend, in lieu
of delivering physical certificates representing the Conversion
Shares or
Warrant Shares, provided the Company's transfer agent is
participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, the
Company shall use its reasonable best efforts to cause its transfer
agent to
electronically transmit the Conversion Shares or Warrant Shares to
a Purchaser
by crediting the account of such Purchaser's Prime Broker with DTC
through its
Deposit Withdrawal Agent Commission ("DWAC") system (to the extent
not
inconsistent with any provisions of this Agreement).
ARTICLE VI
INDEMNIFICATION
Section 6.1 General Indemnity. The Company agrees to indemnify
and
hold harmless the Purchasers (and their respective directors,
officers,
affiliates, agents, successors and assigns) from and against any
and all losses,
liabilities, deficiencies, costs, damages and expenses (including,
without
limitation, reasonable attorneys' fees, charges and disbursements)
incurred by
the Purchasers as a result of any inaccuracy in or breach of
the
24
<PAGE>
representations, warranties or covenants made by the Company
herein. Each
Purchaser severally but not jointly agrees to indemnify and hold
harmless the
Company and its directors, officers, affiliates, agents, successors
and assigns
from and against any and all losses, liabilities, deficiencies,
costs, damages
and expenses (including, without limitation, reasonable attorneys'
fees, charges
and disbursements) incurred by the Company as result of any
inaccuracy in or
breach of the representations, warranties or covenants made by such
Purchaser
herein. The maximum aggregate liability of each Purchaser pursuant
to its
indemnification obligations under this Article VI shall not exceed
the portion
of the Purchase Price paid by such Purchaser hereunder.
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will
give written
notice to the indemnifying party of any matter giving rise to a
claim for
indemnification; provided, that the failure of any party entitled
to
indemnification hereunder to give notice as provided herein shall
not relieve
the indemnifying party of its obligations under this Article VI
except to the
extent that the indemnifying party is actually prejudiced by such
failure to
give notice. In case any such action, proceeding or claim is
brought against an
indemnified party in respect of which indemnification is sought
hereunder, the
indemnifying party shall be entitled to participate in and, unless
in the
reasonable judgment of the indemnifying party a conflict of
interest between it
and the indemnified party exists with respect to such action,
proceeding or
claim (in which case the indemnifying party shall be responsible
for the
reasonable fees and expenses of one separate counsel for the
indemnified
parties), to assume the defense thereof with counsel reasonably
satisfactory to
the indemnified party. In the event that the indemnifying party
advises an
indemnified party that it will contest such a claim for
indemnification
hereunder, or fails, within thirty (30) days of receipt of any
indemnification
notice to notify, in writing, such person of its election to
defend, settle or
compromise, at its sole cost and expense, any action, proceeding or
claim (or
discontinues its defense at any time after it commences such
defense), then the
indemnified party may, at its option, defend, settle or otherwise
compromise or
pay such action or claim. In any event, unless and until the
indemnifying party
elects in writing to assume and does so assume the defense of any
such claim,
proceeding or action, the indemnified party's costs and expenses
arising out of
the defense, settlement or compromise of any such action, claim or
proceeding
shall be losses subject to indemnification hereunder. The
indemnified party
shall cooperate fully with the indemnifying party in connection
with any
negotiation or defense of any such action or claim by the
indemnifying party and
shall furnish to the indemnifying party all information reasonably
available to
the indemnified party which relates to such action or claim. The
indemnifying
party shall keep the indemnified party fully apprised at all times
as to the
status of the defense or any settlement negotiations with respect
thereto. If
the indemnifying party elects to defend any such action or claim,
then the
indemnified party shall be entitled to participate in such defense
with counsel
of its choice at its sole cost and expense. The indemnifying party
shall not be
liable for any settlement of any action, claim or proceeding
effected without
its prior written consent. Notwithstanding anything in this Article
VI to the
contrary, the indemnifying party shall not, without the indemnified
party's
prior written consent, settle or compromise any claim or consent to
entry of any
judgment in respect thereof which imposes any future obligation on
the
indemnified party or which does not include, as an unconditional
term thereof,
the giving by the claimant or the plaintiff to the indemnified
party of a
release from all liability in respect of such claim. The
indemnification
obligations to defend the indemnified party required by this
Article VI shall be
made by periodic payments of the amount thereof during the course
of
investigation or defense, as and when bills are received or
expense, loss,
damage or liability is incurred, so long as the indemnified party
shall refund
such moneys if it is ultimately determined by a court of competent
jurisdiction
that such party was not entitled to indemnification. The indemnity
agreements
contained herein shall be in addition to (a) any cause of action or
similar
rights of the indemnified party against the indemnifying party or
others, and
(b) any liabilities the indemnifying party may be subject to
pursuant to the
law.
25
<PAGE>
No indemnifying party will be liable to the indemnified party under
this
Agreement to the extent, but only to the extent that a loss, claim,
damage or
liability is attributable to the indemnified party's breach of any
of the
representations, warranties or covenants made by such party in this
Agreement or
in the other Transaction Documents.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Fees and Expenses. Each party shall pay the fees
and
expenses of its advisors, counsel, accountants and other experts,
if any, and
all other expenses, incurred by such party incident to the
negotiation,
preparation, execution, delivery and performance of this Agreement;
provided,
however, that the Company shall pay all actual attorneys' fees and
expenses
(including disbursements and out-of-pocket expenses) incurred by
the Purchasers
in connection with (i) the preparation, negotiation, execution and
delivery of
the Transaction Documents and the transactions contemplated
thereunder, which
payment shall be made at Closing and shall not exceed $30,000
(plus
disbursements and out-of-pocket expenses), of which $10,000 was
paid prior to
the Closing Date, (ii) the review of the Registration Statement in
accordance
with the Section 4(iv) of the Registration Rights Agreement, which
payment of
$5,000 shall be made at Closing and held in escrow until such fees,
if any, are
incurred, and (iii) any amendments, modifications or waivers of
this Agreement
or any of the other Transaction Documents. In addition, the Company
shall pay
all reasonable fees and expenses incurred by the Purchasers in
connection with
the enforcement of this Agreement or any of the other Transaction
Documents,
including, without limitation, all reasonable attorneys' fees and
expenses.
Section 7.2 Specific Performance; Consent to Jurisdiction;
Venue.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the
provisions of this
Agreement or the other Transaction Documents were not performed in
accordance
with their specific terms or were otherwise breached. It is
accordingly agreed
that the parties shall be entitled to an injunction or injunctions
to prevent or
cure breaches of the provisions of this Agreement or the other
Transaction
Documents and to enforce specifically the terms and provisions
hereof or
thereof, this being in addition to any other remedy to which any of
them may be
entitled by law or equity.
(b) The parties agree that venue for any dispute arising under
this
Agreement will lie exclusively in the state or federal courts
located in New
York County, New York, and the parties irrevocably waive any right
to raise
forum non conveniens or any other argument that New York is not the
proper
venue. The parties irrevocably consent to personal jurisdiction in
the state and
federal courts of the state of New York. The Company and each
Purchaser consent
to process being served in any such suit, action or proceeding by
mailing a copy
thereof to such party at the address in effect for notices to it
under this
Agreement and agrees that such service shall constitute good and
sufficient
service of process and notice thereof. Nothing in this Section 7.2
shall affect
or limit any right to serve process in any other manner permitted
by law. The
Company and the Purchasers hereby agree that the prevailing party
in any suit,
action or proceeding arising out of or relating to the Securities,
this
Agreement or the other Transaction
26
<PAGE>
Documents, shall be entitled to reimbursement for reasonable legal
fees from the
non-prevailing party. The parties hereby waive all rights to a
trial by jury.
Section 7.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contain the entire understanding and
agreement of the
parties with respect to the matters covered hereby and, except as
specifically
set forth herein or in the other Transaction Documents, neither the
Company nor
any Purchaser make any representation, warranty, covenant or
undertaking with
respect to such matters, and they supersede all prior
understandings and
agreements with respect to said subject matter, all of which are
merged herein.
No provision of this Agreement may be waived or amended other than
by a written
instrument signed by the Company and the Purchasers holding at
least a majority
of the principal amount of the Notes then held by the Purchasers.
Any amendment
or waiver effected in accordance with this Section 7.3 shall be
binding upon
each Purchaser (and their permitted assigns) and the Company.
Section 7.4 Notices. Any notice, demand, request, waiver or
other
communication required or permitted to be given hereunder shall be
in writing
and shall be effective (a) upon hand delivery by telecopy or
facsimile at the
address or number designated below (if delivered on a business day
during normal
business hours where such notice is to be received), or the first
business day
following such delivery (if delivered other than on a business day
during normal
business hours where such notice is to be received) or (b) on the
third business
day following the date of mailing by express courier service, fully
prepaid,
addressed to such address, or upon actual receipt of such mailing,
whichever
shall first occur. The addresses for such communications shall
be:
If to the Company:
Remote Dynamics, Inc.
1155 Kas Drive, Suite 100
Richardson, Texas 75081
Attention: Chief Executive Officer
Tel. No.: (972) 301-2000
Fax No.: (972) 301-2263
with copies (which copies
shall not constitute notice
to the Company) to:
Locke Liddell & Sapp LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Attention: Stephen L. Sapp
Tel. No.: (214) 740-8570
Fax No.: (214) 740-8800
If to any Purchaser:
At the address of such
Purchaser set forth on
Exhibit A to this Agreement, with copies to
Purchaser's counsel as set forth on Exhibit A or as
specified in writing by such Purchaser with copies
to:
27
<PAGE>
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Attention: Christopher S. Auguste
Tel. No.: (212) 715-9100
Fax No.: (212) 715-8000
Any
party hereto may from time to time change its address for notices
by
giving written notice of such changed address to the other party
hereto pursuant
to the provisions of this Section 7.4.
Section 7.5 Waivers. No waiver by either party of any default
with
respect to any provision, condition or requirement of this
Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any
other
provision, condition or requirement hereof, nor shall any delay or
omission of
any party to exercise any right hereunder in any manner impair the
exercise of
any such right accruing to it thereafter. No consideration shall be
offered or
paid to any Purchaser to amend or consent to a waiver or
modification of any
provision of any of the Transaction Documents unless the same
consideration is
also offered to all of the parties to the Transaction Documents.
This provision
constitutes a separate right granted to each Purchaser by the
Company and shall
not in any way be construed as the Purchasers acting in concert or
as a group
with respect to the purchase, disposition or voting of Securities
or otherwise.
Section 7.6 Headings. The article, section and subsection headings
in
this Agreement are for convenience only and shall not constitute a
part of this
Agreement for any other purpose and shall not be deemed to limit or
affect any
of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be
binding
upon and inure to the benefit of the parties and their successors
and assigns.
After the Closing, the assignment by a party to this Agreement of
any rights
hereunder shall not affect the obligations of such party under this
Agreement.
Subject to Section 5.1 hereof, the Purchasers may assign the
Securities and its
rights under this Agreement and the other Transaction Documents and
any other
rights hereto and thereto without the consent of the Company.
Section 7.8 No Third Party Beneficiaries. This Agreement is
intended
for the benefit of the parties hereto and their respective
permitted successors
and assigns and is not for the benefit of, nor may any provision
hereof be
enforced by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by
and
construed in accordance with the internal laws of the State of New
York, without
giving effect to any of the conflicts of law principles which would
result in
the application of the substantive law of another jurisdiction.
This Agreement
shall not be interpreted or construed with any presumption against
the party
causing this Agreement to be drafted.
Section 7.10 Survival. The representations and warranties of
the
Company and the Purchasers shall survive the execution and delivery
hereof and
the Closing until the second anniversary of the Closing Date,
except the
agreements and covenants set forth in Articles I, III,
28
<PAGE>
V, VI and VII of this Agreement shall survive the execution and
delivery hereof
and the Closing hereunder.
Section 7.11 Counterparts. This Agreement may be executed in
any
number of counterparts, all of which taken together shall
constitute one and the
same instrument and shall become effective when counterparts have
been signed by
each party and delivered to the other parties hereto, it being
understood that
all parties need not sign the same counterpart.
Section 7.12 Publicity. The Company agrees that it will not
disclose,
and will not include in any public announcement, the names of the
Purchasers
without the consent of the Purchasers, which consent shall not be
unreasonably
withheld or delayed, or unless and until such disclosure is
required by law,
rule or applicable regulation, including without limitation any
disclosure
pursuant to the Registration Statement, and then only to the extent
of such
requirement.
Section 7.13 Severability. The provisions of this Agreement are
severable and, in the event that any court of competent
jurisdiction shall
determine that any one or more of the provisions or part of the
provisions
contained in this Agreement shall, for any reason, be held to be
invalid,
illegal or unenforceable in any respect, such invalidity,
illegality or
unenforceability shall not affect any other provision or part of a
provision of
this Agreement and this Agreement shall be reformed and construed
as if such
invalid or illegal or unenforceable provision, or part of such
provision, had
never been contained herein, so that such provisions would be
valid, legal and
enforceable to the maximum extent possible.
Section 7.14 Further Assurances. From and after the date of
this
Agreement, upon the request of the Purchasers or the Company, the
Company and
each Purchaser shall execute and deliver such instruments,
documents and other
writings as may be reasonably necessary or desirable to confirm and
carry out
and to effectuate fully the intent and purposes of this Agreement
and the other
Transaction Documents.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
29
<PAGE>
IN WITNESS WHEREOF,
the parties hereto have caused this Note and Warrant
Purchase Agreement to be duly executed by their respective
authorized officers
as of the date first above written.
REMOTE DYNAMICS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
PURCHASER:
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE>
EXHIBIT A
REMOTE DYNAMICS, INC.
LIST OF INVESTORS
<TABLE>
<CAPTION>
NOTE
OID
INVESTORS
ADDRESS
CITY ST
ZIP ALLOCATION ALLOCATION A7 WARRANT
B4 WARRANT C3 WARRANT D1 WARRANT
-------------------- ---------------------- ------------- -- -----
---------- ---------- ---------- ---------- ----------
----------
<S>
<C>
<C>
<C><C> <C>
<C>
<C>
<C>
<C>
<C>
Pasco Capital L.L.C. 3618 Valencio Cove
Land O' Lakes FL
34639 $ 25,000
$ 3,750 93,750
62,500
125,000 87,500
Court
DKR Soundshore
1281
East Main Street
Stamford
CT 06901 $ 200,000
$ 30,000 750,000
500,000
1,000,000 700,000
Oasis
Holding
Fund
Ltd.
Dolphin Offshore
c/o
Dolphin Asset New York
NY 10003 $
300,000 $ 45,000 1,125,000 750,000 1,500,000 1,050,000
Partners, L.P.
Management
Corporation, 129 East
17th
Street, 2nd Floor
Iroquois Master
641
Lexington Avenue, New York NY 10022 $
150,000 $ 22,500 562,500
375,000
750,000
525,000
Fund Ltd.
16th Floor
JM Investors, L.L.C. 152 E. 9th Street
Lakewood
NJ 08701 $
75,000 $ 11,250
281,250
187,500
375,000
262,500
Alpha
Capital 160
Central Park New York
NY 10019 $
500,000 $ 75,000 1,875,000 1,250,000 2,500,000 1,750,000
Aktiengesellschaft
South, Suite 2701
Midtown Partners &
4902
Eisenhower
Tampa FL 33634 $
175,000 $ 26,250 656,250
437,500
875,000
612,500
Co.,
L.L.C.
Blvd., Suite 185
Double U Master Fund P.O. Box
972,
$ 250,000 $ 37,500 937,500
625,000
1,250,000 875,000
L.P.
Road Town, Tortola,
Harbour House, 2nd Floor,
Waterfront Drive,
British Virgin Islands
Nite Capital, L.P.
100 east
Cook, Libertyville
IL 60048 $
200,000 $ 30,000 750,000
500,000
1,000,000 700,000
Suite 201
Osher Capital Inc.
5
Sansberry Lane
Spring Valley NY
10977 $ 75,000
$ 11,250 281,250
187,500
375,000
262,500
Platinum Long Term
152 West 57th
Street, New York
NY 10019 $
250,000 $ 37,500 937,500
625,000
1,250,000 875,000
Growth II
54th Floor
Rawleigh Ralls
744
Spruce Street Boulder
CO 80302 $
350,000 $ 52,500 1,312,500 875,000 1,750,000 1,225,000
Robert Dobrient
1845
Woodall Rodgers Dallas
TX
75201 $ 100,000
$ 15,000 375,000
250,000
500,000
350,000
Ste 1725
RHP Master Fund,
c/o Rock Hill Bala
Cynwyd PA 19004 $
250,000 $ 37,500 937,500
625,000
1,250,000 875,000
Ltd.
Investment Management,
LP. Three
Bala
Plaza East, Suite 585
James Reese
7502 Greenville
Dallas TX 75231 $
100,000 $ 15,000 375,000
250,000
500,000
350,000
Avenue, Suite 690
Sandor Capital
2828 Routh
Street, Dallas
TX
75201 $ 250,000
$ 37,500 937,500
625,000
1,250,000 875,000
Master Fund, L.P.
Suite 500
SDS Capital Group
53
Forest Avenue,
Old Greenwich CT 06870 $1,000,000 $150,000 3,750,000 2,500,000 5,000,000 3,500,000
SPC Ltd.
2nd Floor
Thomas A. Montgomery
2400 Dallas Parkway, Plano
TX
75093 $ 100,000
$ 15,000 375,000
250,000
500,000
350,000
Suite 180
Whalehaven Capital
3rd Floor, 14
Par-La-
HM08 $ 500,000
$ 75,000 1,875,000 1,250,000 2,500,000 1,750,000
Fund Ltd.
Ville Road, Hamilton
Bermuda
Whitestar L.L.C.
152 West
57th Street, New
York NY
10271 $ 150,000
$ 22,500 562,500
375,000
750,000
525,000
54th Floor
---------- --------
---------- ----------
---------- ----------
TOTALS
$5,000,000 $750,000
18,750,000 12,500,000
25,000,000 17,500,000
========== ========
========== ==========
========== ==========
</TABLE>
<PAGE>
EXECUTION COPY
EXHIBIT B-1
FORM OF SERIES A NOTE
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED,
OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE
MAKER OF AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO
THE MAKER THAT THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION
HEREOF MAY BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN
EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
REMOTE DYNAMICS, INC.
Series A Senior Secured Convertible Promissory Note
due February __, 2008
No. CN-A-06-__
$___________
Dated: February __, 2006
For
value received, Remote Dynamics, Inc., a Delaware corporation
(the
"Maker"), hereby promises to pay to the order of
_______________________
(together with its successors, representatives, and permitted
assigns, the
"Holder"), in accordance with the terms hereinafter provided, the
principal
amount of ________________________ ($______________). Concurrently
with the
issuance of this Note, the Maker is issuing separate series A
senior secured
convertible promissory notes (the "Other Notes") to separate
purchasers (the
"Other Holders") pursuant to the Purchase Agreement (as defined in
Section 1.1
hereof).
All
payments under or pursuant to this Note shall be made in United
States
Dollars in immediately available funds to the Holder at the address
of the
Holder first set forth above or at such other place as the Holder
may designate
from time to time in writing to the Maker or by wire transfer of
funds to the
Holder's account, instructions for which are attached hereto as
Exhibit A. The
outstanding principal balance of this Note shall be due and payable
on February
__, 2008 (the "Maturity Date") or at such earlier time as provided
herein.
ARTICLE I
Section 1.1 Purchase Agreement. This Note has been executed and
delivered pursuant to the Note and Warrant Purchase Agreement dated
as of
February __, 2006 (the "Purchase Agreement") by and among the Maker
and the
purchasers listed therein. Capitalized terms used and not otherwise
defined
herein shall have the meanings set forth for such terms in the
Purchase
Agreement.
<PAGE>
Section 1.2 Payment of Principal.
(a) Commencing on September __, 2006 [the first business day of
the
seventh (7th) month following the Issuance Date (as defined in
Section 2.1(b))]
and continuing thereafter on the first business day of each month
(a "Principal
Payment Date"), the Maker shall pay an amount to the Holder equal
to 1/18th of
the original principal amount of this Note (the "Principal
Installment Amount");
provided, however, if on any Principal Payment Date, the
outstanding principal
amount of this Note is less than the Principal Installment Amount,
then the
Maker shall pay to the Holder such lesser amount. The Maker may pay
such
Principal Installment Amount in cash or registered shares of the
Maker's common
stock, par value $.01 per share (the "Common Stock"). If the Maker
elects to pay
the Principal Installment Amount in cash such amount shall be wired
in
immediately available funds on the Principal Payment Date;
provided, however,
that if the Holder has delivered a Conversion Notice to the Maker
or delivers a
Conversion Notice prior to the Principal Payment Date, the Holder
shall indicate
in such Conversion Notice whether the principal amount of this Note
to be so
converted shall be applied against the final Principal Installment
Amount or
some other Principal Installment Amount. The Maker shall provide
irrevocable
written notice to the Holder of the form of payment of the
Principal Installment
Amount at least twenty (20) days prior to the first day of each
month for which
a Principal Installment Amount is required to be made by the
Maker.
(b) If the Maker elects to pay the Principal Installment Amount
in
registered shares of Common Stock, the number of registered shares
of Common
Stock to be issued to the Holder shall be an amount equal to the
Principal
Installment Amount divided by eighty percent (80%) of the average
of the Closing
Bid Price (as defined in Section 1.2(c) hereof) for the ten (10)
Trading Days
immediately preceding the Principal Payment Date; provided,
however, that if the
Holder has delivered a Conversion Notice to the Maker or delivers a
Conversion
Notice prior to the Principal Payment Date, the Holder shall
indicate in such
Conversion Notice whether the principal amount of this Note to be
so converted
shall be applied against the final Principal Installment Amount or
some other
Principal Installment Amount. Notwithstanding the foregoing to the
contrary, the
Maker may elect to pay the Principal Installment Amount in
registered shares of
Common Stock on any Principal Payment Date only if (A) the
registration
statement providing for the resale of the shares of Common Stock
issuable upon
conversion of this Note (the "Registration Statement") is effective
and has been
effective, without lapse or suspension of any kind, for a period of
twenty (20)
consecutive calendar days, (B) trading in the Common Stock shall
not have been
suspended by the Securities and Exchange Commission or the OTC
Bulletin Board
(or other exchange or market on which the Common Stock is trading),
(C) no Event
of Default exists and is continuing, and (D) the issuance of shares
of Common
Stock on the Principal Payment Date does not violate the provisions
of Section
3.4 hereof.
(c) The term "Closing Bid Price" shall mean, on any particular
date
(i) the last trading price per share of the Common Stock on such
date on the OTC
Bulletin Board or another registered national stock exchange on
which the Common
Stock is then listed, or if there is no such price on such date,
then the last
trading price on such exchange or quotation system on the date
nearest preceding
such date, or (ii) if the Common Stock is not listed then on the
OTC Bulletin
Board or any registered national stock exchange, the last trading
price for a
share of Common Stock in the over-the-counter market, as reported
by the OTC
Bulletin Board or in the National Quotation Bureau Incorporated or
similar
organization or agency succeeding to its
-2-
<PAGE>
functions of reporting prices) at the close of business on such
date, or (iii)
if the Common Stock is not then reported by the OTC Bulletin Board
or the
National Quotation Bureau Incorporated (or similar organization or
agency
succeeding to its functions of reporting prices), then the average
of the "Pink
Sheet" quotes for the relevant conversion period, as determined in
good faith by
the Holder, or (iv) if the Common Stock is not then publicly traded
the fair
market value of a share of Common Stock as determined by the Holder
and
reasonably acceptable to the Maker.
Section 1.3 Security Agreement. The obligations of the Maker
hereunder
are secured by a continuing security interest in certain assets of
the Maker
pursuant to the terms of a security agreement dated as of February
__, 2006 by
and among the Maker, on the one hand, and the Holder and the Other
Holders, on
the other hand.
Section 1.4 Payment on Non-Business Days. Whenever any payment to
be
made shall be due on a Saturday, Sunday or a public holiday under
the laws of
the State of New York, such payment may be due on the next
succeeding business
day.
Section
1.5 Transfer. This Note may be transferred or sold, subject to
the provisions of Section 4.8 of this Note, or pledged,
hypothecated or
otherwise granted as security by the Holder.
Section 1.6 Replacement. Upon receipt of a duly executed,
notarized
and unsecured written statement from the Holder with respect to the
loss, theft
or destruction of this Note (or any replacement hereof) and a
standard
indemnity, or, in the case of a mutilation of this Note, upon
surrender and
cancellation of such Note, the Maker shall issue a new Note, of
like tenor and
amount, in lieu of such lost, stolen, destroyed or mutilated
Note.
ARTICLE II
EVENTS OF DEFAULT; REMEDIES
Section 2.1 Events of Default. The occurrence of any of the
following
events shall be an "Event of Default" under this Note:
(a) the Maker shall fail to make the Principal Installment Amount
on a
Principal Payment Date and such default is not fully cured within
one (1)
business day after the occurrence thereof; or
(b) the failure of the Registration Statement to be declared
effective
by the Securities and Exchange Commission on or prior to the date
which is one
hundred eighty (180) days after the date of the initial issuance of
this Note
(the "Issuance Date"); or
(c) the suspension from listing, without subsequent listing on any
one
of, or the failure of the Common Stock to be listed on at least one
of the OTC
Bulletin Board, the American Stock Exchange, the Nasdaq National
Market, the
Nasdaq SmallCap Market or The New York Stock Exchange, Inc. for a
period of five
(5) consecutive Trading Days; or
-3-
<PAGE>
(d) the Maker's notice to the Holder, including by way of
public
announcement, at any time, of its inability to comply (including
for any of the
reasons described in Section 3.8(a) hereof) or its intention not to
comply with
proper requests for conversion of this Note into shares of Common
Stock; or
(e) the Maker shall fail to (i) timely deliver the shares of
Common
Stock upon conversion of the Note, (ii) file the Registration
Statement in
accordance with the terms of the Registration Rights Agreement or
(iii) make the
payment of any fees and/or liquidated damages under this Note, the
Purchase
Agreement or the Registration Rights Agreement, which failure in
the case of
items (i) and (iii) of this Section 2.1(e) is not remedied within
five (5)
business days after the incurrence thereof; or
(f) while the Registration Statement is required to be
maintained
effective pursuant to the terms of the Registration Rights
Agreement, the
effectiveness of the Registration Statement lapses for any reason
(including,
without limitation, the issuance of a stop order) or is unavailable
to the
Holder for sale of the 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 ten (10)
consecutive Trading Days, provided that the Maker has not exercised
its rights
pursuant to Section 3(n) of the Registration Rights Agreement
(which exercise is
not an Event of Default hereunder); or
(g) default shall be made in the performance or observance of (i)
any
material covenant, condition or agreement contained in this Note
(other than as
set forth in clause (f) of this Section 2.1) and such default is
not fully cured
within five (5) business days after the Maker receives notice from
the Holder of
the occurrence thereof or (ii) any material covenant, condition or
agreement
contained in the Purchase Agreement, the Other Notes, the
Registration Rights
Agreement or any other Transaction Document which is not covered by
any other
provisions of this Section 2.1 and such default is not fully cured
within five
(5) business days after the Maker receives notice from the Holder
of the
occurrence thereof; or
(h) any material representation or warranty made by the Maker
herein
or in the Purchase Agreement, the Registration Rights Agreement,
the Other Notes
or any other Transaction Document shall prove to have been false or
incorrect or
breached in a material respect on the date as of which made; or
(i) the
Maker shall (A) default in any payment of any amount or
amounts of principal of or interest on any Indebtedness (other than
the
Indebtedness hereunder) the aggregate principal amount of which
Indebtedness is
in excess of $100,000 or (B) default in the observance or
performance of any
other agreement or condition relating to any Indebtedness in excess
of $100,000
or contained in any instrument or agreement evidencing, securing or
relating
thereto, or any other event shall occur or condition exist, the
effect of which
default or other event or condition is to cause, or to permit the
holder or
holders or beneficiary or beneficiaries of such Indebtedness to
cause with the
giving of notice if required, such Indebtedness to become due prior
to its
stated maturity; or
(j) the Maker shall (i) apply for or consent to the appointment of,
or
the taking of possession by, a receiver, custodian, trustee or
liquidator of
itself or of all or a
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<PAGE>
substantial part of its property or assets, (ii) make a general
assignment for
the benefit of its creditors, (iii) commence a voluntary case under
the United
States Bankruptcy Code (as now or hereafter in effect) or under the
comparable
laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to
take advantage of any bankruptcy, insolvency, moratorium,
reorganization or
other similar law affecting the enforcement of creditors' rights
generally which
is not dismissed within 30 days, (v) acquiesce in writing to any
petition filed
against it in an involuntary case under United States Bankruptcy
Code (as now or
hereafter in effect) or under the comparable laws of any
jurisdiction (foreign
or domestic) which is not dismissed within 60 days, (vi) issue a
notice of
bankruptcy or winding down of its operations or issue a press
release regarding
same, or (vii) take any action under the laws of any jurisdiction
(foreign or
domestic) analogous to any of the foregoing; or
(k) a proceeding or case shall be commenced in respect of the
Maker,
without its application or consent, in any court of competent
jurisdiction,
seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding
up, or composition or readjustment of its debts, (ii) the
appointment of a
trustee, receiver, custodian, liquidator or the like of it or of
all or any
substantial part of its assets in connection with the liquidation
or dissolution
of the Maker or (iii) similar relief in respect of it under any law
providing
for the relief of debtors, and such proceeding or case described in
clause (i),
(ii) or (iii) shall continue undismissed, or unstayed and in
effect, for a
period of thirty (30) days or any order for relief shall be entered
in an
involuntary case under United States Bankruptcy Code (as now or
hereafter in
effect) or under the comparable laws of any jurisdiction (foreign
or domestic)
against the Maker or action under the laws of any jurisdiction
(foreign or
domestic) analogous to any of the foregoing shall be taken with
respect to the
Maker and shall continue undismissed, or unstayed and in effect for
a period of
thirty (30) days; or
(l) the failure of the Maker to instruct its transfer agent to
remove
any legends from shares of Common Stock eligible to be sold under
Rule 144 of
the Securities Act and issue such unlegended certificates to the
Holder within
three (3) business days of the Holder's request so long as the
Holder has
complied with Section 5.1 of the Purchase Agreement; or
(m) the failure of the Maker to pay any amounts due to the
Holder
herein or in the Purchase Agreement or the Registration Rights
Agreement within
three (3) business days of the date such payments are due;
(n) the occurrence of an Event of Default under the Other Notes or
the
OID Notes; or
(o) the failure of the Maker to obtain Stockholder Approval to
increase the authorized shares of Common Stock in accordance with
Section 3.21
of the Purchase Agreement.
Section 2.2 Remedies Upon An Event of Default. If an Event of
Default
shall have occurred and shall be continuing, the Holder of this
Note may at any
time at its option, (a) pursuant to Section 3.7(a) hereof, declare
the entire
unpaid principal balance of this Note due and payable, and
thereupon, the same
shall be accelerated and so due and payable, without presentment,
demand,
protest, or notice, all of which are hereby expressly
unconditionally and
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irrevocably waived by the Maker; provided, however, that upon the
occurrence of
an Event of Default described in (i) Sections 2.1 (j) or (k), the
outstanding
principal balance hereunder shall be automatically due and payable
and (ii)
Sections 2.1 (b)-(i), the Holder may demand the prepayment of this
Note pursuant
to Section 3.7 hereof, (b) demand that the principal amount of this
Note then
outstanding shall be converted into shares of Common Stock at a
Conversion Price
per share calculated pursuant to Sections 3.1 and 3.4 hereof
assuming that the
date that the Event of Default occurs is the Conversion Date (as
defined in
Section 3.1 hereof), or (c) exercise or otherwise enforce any one
or more of the
Holder's rights, powers, privileges, remedies and interests under
this Note, the
Purchase Agreement, the Registration Rights Agreement or applicable
law. Upon
the occurrence of an Event of Default, the Maker will pay interest
to the
Holder, payable on demand, on the outstanding principal balance of
the Note from
the date of the Event of the Default until such Event of Default is
cured at the
rate equal to the lesser of ten percent (10%) and the maximum
applicable legal
rate per annum. No course of delay on the part of the Holder shall
operate as a
waiver thereof or otherwise prejudice the right of the Holder. No
remedy
conferred hereby shall be exclusive of any other remedy referred to
herein or
now or hereafter available at law, in equity, by statute or
otherwise.
ARTICLE III
CONVERSION; ANTIDILUTION; PREPAYMENT
Section 3.1 Conversion Option.
(a) At any time on or after the Issuance Date, this Note shall
be
convertible (in whole or in part), at the option of the Holder (the
"Conversion
Option"), into such number of fully paid and non-assessable shares
of Common
Stock (the "Conversion Rate") as is determined by dividing (x) that
portion of
the outstanding principal balance under this Note as of such date
that the
Holder elects to convert by (y) the Conversion Price (as defined in
Section
3.2(a) hereof) then in effect on the date on which the Holder faxes
a notice of
conversion (the "Conversion Notice"), duly executed, to the Maker
(facsimile
number (972) 301-2263, Attn.: Chief Executive Officer) (the
"Voluntary
Conversion Date"), provided, however, that the Conversion Price
shall be subject
to adjustment as described in Section 3.6 below. The Holder shall
deliver this
Note to the Maker at the address designated in the Purchase
Agreement at such
time that this Note is fully converted. With respect to partial
conversions of
this Note, the Maker shall keep written records of the amount of
this Note
converted as of each Conversion Date.
(b) On the Mandatory Conversion Date (as defined below), the Maker
may
cause the principal amount of this Note to convert into a number of
fully paid
and nonassessable shares of Common Stock equal to the quotient of
(i) the
principal amount of this Note outstanding on the Mandatory
Conversion Date
divided by (ii) the Conversion Price in effect on the Mandatory
Conversion Date
by providing five (5) business days prior written notice of such
Mandatory
Conversion Date. As used herein, a "Mandatory Conversion Date"
shall be a date
following the effective date of the Registration Statement in which
the Closing
Bid Price exceeds two hundred fifty percent (250%) of the
Conversion Price for a
period of twelve (12) consecutive Trading Days and the average
daily trading
volume for such twelve (12) consecutive Trading Day period exceeds
750,000
shares of Common Stock; provided, that (A) the Registration
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Statement is effective and has been effective, without lapse or
suspension of
any kind, for a period of thirty (30) consecutive calendar days
immediately
preceding the Mandatory Conversion Date, (B) trading in the Common
Stock shall
not have been suspended by the Securities and Exchange Commission
or the OTC
Bulletin Board (or other exchange or market on which the Common
Stock is
trading), (C) no Event of Default exists and is continuing, (D) the
issuance of
shares of Common Stock on the Mandatory Conversion Date pursuant to
such
mandatory conversion does not violate the provisions of Section 3.4
hereof, and
(E) the Maker is not in possession of any material non-public
information.
Notwithstanding the foregoing to the contrary, the Mandatory
Conversion Date
shall be extended for as long as a Triggering Event (as defined in
Section
3.7(f) hereof) shall have occurred and be continuing. The Mandatory
Conversion
Date and the Voluntary Conversion Date collectively are referred to
in this Note
as the "Conversion Date."
Section 3.2 Conversion Price.
(a) The term "Conversion Price" shall mean $0.20, subject to
adjustment under Section 3.6 hereof.
(b) Notwithstanding any of the foregoing to the contrary, if
during
any period (a "Black-out Period"), a Holder is unable to trade any
Common Stock
issued or issuable upon conversion of this Note immediately due to
the
postponement of filing or delay or suspension of effectiveness of
the
Registration Statement or because the Maker has otherwise informed
such Holder
that an existing prospectus cannot be used at that time in the sale
or transfer
of such Common Stock (provided that such postponement, delay,
suspension or fact
that the prospectus cannot be used is not due to factors solely
within the
control of the Holder of this Note or due to the Maker exercising
its rights
under Section 3(n) of the Registration Rights Agreement), such
Holder shall have
the option but not the obligation on any Conversion Date within ten
(10) Trading
Days following the expiration of the Black-out Period of using the
Conversion
Price applicable on such Conversion Date or any Conversion Price
selected by
such Holder that would have been applicable had such Conversion
Date been at any
earlier time during the Black-out Period or within the ten (10)
Trading Days
thereafter. In no event shall the Black-out Period have any effect
on the
Maturity Date of this Note.
Section 3.3 Mechanics of Conversion.
(a) Not later than three (3) Trading Days after any Conversion
Date,
the Maker or its designated transfer agent, as applicable, shall
issue and
deliver to the Depository Trust Company ("DTC") account on the
Holder's behalf
via the Deposit Withdrawal Agent Commission System ("DWAC") as
specified in the
Conversion Notice, 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. In the
alternative, not later than three (3) Trading Days after any
Conversion Date,
the Maker shall deliver to the applicable Holder by express courier
a
certificate or certificates which shall be free of restrictive
legends and
trading restrictions (other than those required by Section 5.1 of
the Purchase
Agreement) representing the number of shares of Common Stock being
acquired upon
the conversion of this Note (the "Delivery Date"). Notwithstanding
the foregoing
to the contrary, the Maker or its transfer agent shall only be
obligated to
issue and deliver the shares to the DTC on the Holder's behalf via
DWAC (or
certificates free of restrictive
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<PAGE>
legends) if such conversion is in connection with a sale and the
Holder has
complied with the applicable prospectus delivery requirements (as
evidenced by
documentation furnished to and reasonably satisfactory to the
Maker). If in the
case of any Conversion Notice such certificate or certificates are
not delivered
to or as directed by the applicable Holder by the Delivery Date,
the Holder
shall be entitled by written notice to the Maker at any time on or
before its
receipt of such certificate or certificates thereafter, to rescind
such
conversion, in which event the Maker shall immediately return this
Note tendered
for conversion, whereupon the Maker and the Holder shall each be
restored to
their respective positions immediately prior to the delivery of
such notice of
revocation, except that any amounts described in Sections 3.3(b)
and (c) shall
be payable through the date notice of rescission is given to the
Maker.
(b) The Maker understands that a delay in the delivery of the
shares
of Common Stock upon conversion of this Note beyond the Delivery
Date could
result in economic loss to the Holder. If the Maker fails to
deliver to the
Holder such shares via DWAC or a certificate or certificates
pursuant to this
Section hereunder by the Delivery Date, the Maker shall pay to such
Holder, in
cash, an amount per Trading Day for each Trading Day until such
shares are
delivered via DWAC or certificates are delivered, together with
interest on such
amount at a rate of 10% per annum, accruing until such amount and
any accrued
interest thereon is paid in full, equal to the greater of (A) (i)
1% of the
aggregate principal amount of the Notes requested to be converted
for the first
five (5) Trading Days after the Delivery Date and (ii) 2% of the
aggregate
principal amount of the Notes requested to be converted for each
Trading Day
thereafter and (B) $2,000 per day (which amount shall be paid as
liquidated
damages and not as a penalty). Nothing herein shall limit a
Holder's right to
pursue actual damages for the Maker's failure to deliver
certificates
representing shares of Common Stock upon conversion within the
period specified
herein and such Holder shall have the right to pursue all remedies
available to
it at law or in equity (including, without limitation, a decree of
specific
performance and/or injunctive relief). Notwithstanding anything to
the contrary
contained herein, the Holder shall be entitled to withdraw a
Conversion Notice,
and upon such withdrawal the Maker shall only be obligated to pay
the liquidated
damages accrued in accordance with this Section 3.3(b) through the
date the
Conversion Notice is withdrawn.
(c) In addition to any other rights available to the Holder, if
the
Maker fails to cause its transfer agent to transmit to the Holder a
certificate
or certificates representing the shares of Common Stock issuable
upon conversion
of this Note on or before the Delivery Date, and if after such date
the Holder
is required by its broker to purchase (in an open market
transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the
Holder of the shares of Common Stock issuable upon conversion of
this Note which
the Holder anticipated receiving upon such exercise (a "Buy-In"),
then the Maker
shall (1) pay in cash to the Holder the amount by which (x) the
Holder's total
purchase price (including brokerage commissions, if any) for the
shares of
Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the
number of shares of Common Stock issuable upon conversion of this
Note that the
Maker was required to deliver to the Holder in connection with the
conversion at
issue times (B) the price at which the sell order giving rise to
such purchase
obligation was executed, and (2) at the option of the Holder,
either reinstate
the portion of the Note and equivalent number of shares of Common
Stock for
which such conversion was not honored or deliver to the Holder the
number of
shares of Common Stock that would have been issued had the Maker
timely complied
with its conversion and delivery obligations hereunder. For
example,
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<PAGE>
if the Holder purchases Common Stock having a total purchase price
of $11,000 to
cover a Buy-In with respect to an attempted conversion of shares of
Common Stock
with an aggregate sale price giving rise to such purchase
obligation of $10,000,
under clause (1) of the immediately preceding sentence the Maker
shall be
required to pay the Holder $1,000. The Holder shall provide the
Maker written
notice indicating the amounts payable to the Holder in respect of
the Buy-In,
together with applicable confirmations and other evidence
reasonably requested
by the Maker. Nothing herein shall limit a Holder's right to pursue
any other
remedies available to it hereunder, at law or in equity including,
without
limitation, a decree of specific performance and/or injunctive
relief with
respect to the Maker's failure to timely deliver certificates
representing
shares of Common Stock upon conversion of this Note as required
pursuant to the
terms hereof.
Section 3.4 Ownership Cap and Certain Conversion Restrictions.
(a) Notwithstanding anything to the contrary set forth in Section 3
of
this Note, at no time may the Holder convert all or a portion of
this Note if
the number of shares of Common Stock to be issued pursuant to such
conversion
would exceed, when aggregated with all other shares of Common Stock
owned by the
Holder at such time (including pursuant to the Warrants), the
number of shares
of Common Stock which would result in the Holder beneficially
owning (as
determined in accordance with Section 13(d) of the Exchange Act and
the rules
thereunder) more than 4.9% of all of the Common Stock outstanding
at such time;
provided, however, that upon the Holder providing the Maker with
sixty-one (61)
days notice (pursuant to Section 4.1 hereof) (the "Waiver Notice")
that the
Holder would like to waive this Section 3.4(a) with regard to any
or all shares
of Common Stock issuable upon conversion of this Note, this Section
3.4(a) will
be of no force or effect with regard to all or a portion of the
Note referenced
in the Waiver Notice.
(b) Notwithstanding anything to the contrary set forth in Section 3
of
this Note, at no time may the Holder convert all or a portion of
this Note if
the number of shares of Common Stock to be issued pursuant to such
conversion,
when aggregated with all other shares of Common Stock owned by the
Holder at
such time, would result in the Holder beneficially owning (as
determined in
accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in
excess of 9.9% of the then issued and outstanding shares of Common
Stock
outstanding at such time (including pursuant to the Warrants);
provided,
however, that upon the Holder providing the Maker with a Waiver
Notice that the
Holder would like to waive Section 3.4(b) of this Note with regard
to any or all
shares of Common Stock issuable upon conversion of this Note, this
Section
3.4(b) shall be of no force or effect with regard to all or a
portion of the
Note referenced in the Waiver Notice.
Section 3.5 Intentionally Omitted.
Section 3.6 Adjustment of Conversion Price.
(a) The Conversion Price shall be subject to adjustment from time
to
time as follows:
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<PAGE>
(i) Adjustments for Stock Splits and Combinations. If the Maker
shall at any time or from time to time after the Issuance Date,
effect a stock
split of the outstanding Common Stock, the applicable Conversion
Price in effect
immediately prior to the stock split shall be proportionately
decreased. If the
Maker shall at any time or from time to time after the Issuance
Date, combine
the outstanding shares of Common Stock, the applicable Conversion
Price in
effect immediately prior to the combination shall be
proportionately increased.
Any adjustments under this Section 3.6(a)(i) shall be effective at
the close of
business on the date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If
the
Maker shall at any time or from time to time after the Issuance
Date, make or
issue or set a record date for the determination of holders of
Common Stock
entitled to receive a dividend or other distribution payable in
shares of Common
Stock, then, and in each event, the applicable Conversion Price in
effect
immediately prior to such event shall be decreased as of the time
of such
issuance or, in the event such record date shall have been fixed,
as of the
close of business on such record date, by multiplying, the
applicable Conversion
Price then in effect by a fraction:
(1) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of
such issuance or the close of business on such record date; and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of
such issuance or the close of business on such record date plus the
number of
shares of Common Stock issuable in payment of such dividend or
distribution.
(iii) Adjustment for Other Dividends and Distributions. If the
Maker shall at any time or from time to time after the Issuance
Date, make or
issue or set a record date for the determination of holders of
Common Stock
entitled to receive a dividend or other distribution payable in
other than
shares of Common Stock, then, and in each event, an appropriate
revision to the
applicable Conversion Price shall be made and provision shall be
made (by
adjustments of the Conversion Price or otherwise) so that the
holders of this
Note shall receive upon conversions thereof, in addition to the
number of shares
of Common Stock receivable thereon, the number of securities of the
Maker which
they would have received had this Note been converted into Common
Stock on the
date of such event and had thereafter, during the period from the
date of such
event to and including the Conversion Date, retained such
securities (together
with any distributions payable thereon during such period), giving
application
to all adjustments called for during such period under this Section
3.6(a)(iii)
with respect to the rights of the holders of this Note and the
Other Notes;
provided, however, that if such record date shall have been fixed
and such
dividend is not fully paid or if such distribution is not fully
made on the date
fixed therefor, the Conversion Price shall be adjusted pursuant to
this
paragraph as of the time of actual payment of such dividends or
distributions.
(iv) Adjustments for Reclassification, Exchange or
Substitution.
If the Common Stock issuable upon conversion of this Note at any
time or from
time to time after the Issuance Date shall be changed to the same
or different
number of shares of any class or classes of stock, whether by
reclassification,
exchange, substitution or otherwise (other than by way of a
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stock split or combination of shares or stock dividends provided
for in Sections
3.6(a)(i), (ii) and (iii), or a reorganization, merger,
consolidation, or sale
of assets provided for in Section 3.6(a)(v)), then, and in each
event, an
appropriate revision to the Conversion Price shall be made and
provisions shall
be made (by adjustments of the Conversion Price or otherwise) so
that the Holder
shall have the right thereafter to convert this Note into the kind
and amount of
shares of stock and other securities receivable upon
reclassification, exchange,
substitution or other change, by holders of the number of shares of
Common Stock
into which such Note might have been converted immediately prior to
such
reclassification, exchange, substitution or other change, all
subject to further
adjustment as provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or
Sales of Assets. If at any time or from time to time after the
Issuance Date
there shall be a capital reorganization of the Maker (other than by
way of a
stock split or combination of shares or stock dividends or
distributions
provided for in Section 3.6(a)(i), (ii) and (iii), or a
reclassification,
exchange or substitution of shares provided for in Section
3.6(a)(iv)), or a
merger or consolidation of the Maker with or into another
corporation where the
holders of outstanding voting securities prior to such merger or
consolidation
do not own over fifty percent (50%) of the outstanding voting
securities of the
merged or consolidated entity, immediately after such merger or
consolidation,
or the sale of all or substantially all of the Maker's properties
or assets to
any other person (an "Organic Change"), then as a part of such
Organic Change,
(A) if the surviving entity in any such Organic Change is a public
company that
is registered pursuant to the Securities Exchange Act of 1934, as
amended, and
its common stock is listed or quoted on a national securities
exchange or a
national automated quotation system or the OTC Bulletin Board, an
appropriate
revision to the Conversion Price shall be made and provision shall
be made (by
adjustments of the Conversion Price or otherwise) so that the
Holder shall have
the right thereafter to convert such Note into the kind and amount
of shares of
stock and other securities or property of the Maker or any
successor corporation
resulting from Organic Change, and (B) if the surviving entity in
any such
Organic Change is not a public company that is registered pursuant
to the
Securities Exchange Act of 1934, as amended, or its common stock is
not listed
or quoted on a national securities exchange or a national automated
quotation
system or the OTC Bulletin Board, the Holder shall have the right
to demand
prepayment pursuant to Section 3.7(b) hereof. In any such case,
appropriate
adjustment shall be made in the application of the provisions of
this Section
3.6(a)(v) with respect to the rights of the Holder after the
Organic Change to
the end that the provisions of this Section 3.6(a)(v) (including
any adjustment
in the applicable Conversion Price then in effect and the number of
shares of
stock or other securities deliverable upon conversion of this Note
and the Other
Notes) shall be applied after that event in as nearly an equivalent
manner as
may be practicable.
(vi) Adjustments for
Issuance of Additional Shares of Common
Stock. In the event the Maker, shall, at any time, from time to
time, issue or
sell any additional shares of common stock (otherwise than as
provided in the
foregoing subsections (i) through (v) of this Section 3.6(a) or
pursuant to
Common Stock Equivalents (hereafter defined) granted or issued
prior to the
Issuance Date) ("Additional Shares of Common Stock"), at a price
per share less
than the Conversion Price then in effect or without consideration,
then the
Conversion Price upon each such issuance shall be reduced to a
price equal to
the consideration per share paid for such Additional Shares of
Common Stock.
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<PAGE>
(vii) Issuance of Common Stock Equivalents. The provisions of
this Section 3.6(a)(vii) shall apply if (a) the Maker, at any time
after the
Issuance Date, shall issue any securities convertible into or
exchangeable for,
directly or indirectly, Common Stock ("Convertible Securities"),
other than the
Notes, or (b) any rights or warrants or options to purchase any
such Common
Stock or Convertible Securities (collectively, the "Common Stock
Equivalents")
shall be issued or sold. If the price per share for which
Additional Shares of
Common Stock may be issuable pursuant to any such Common Stock
Equivalent shall
be less than the applicable Conversion Price then in effect, or if,
after any
such issuance of Common Stock Equivalents, the price per share for
which
Additional Shares of Common Stock may be issuable thereafter is
amended or
adjusted, and such price as so amended shall be less than the
applicable
Conversion Price in effect at the time of such amendment or
adjustment, then the
applicable Conversion Price upon each such issuance or amendment
shall be
adjusted as provided in the first sentence of subsection (vi) of
this Section
3.6(a). No adjustment shall be made to the Conversion Price upon
the issuance of
Common Stock pursuant to the exercise, conversion or exchange of
any Convertible
Security or Common Stock Equivalent where an adjustment to the
Conversion Price
was made as a result of the issuance or purchase of any Convertible
Security or
Common Stock Equivalent.
(viii) Consideration for Stock. In case any shares of Common
Stock or any Common Stock Equivalents shall be issued or sold:
(1) in connection with any merger or consolidation in which
the Maker is the surviving corporation (other than any
consolidation or merger
in which the previously outstanding shares of Common Stock of the
Maker shall be
changed to or exchanged for the stock or other securities of
another
corporation), the amount of consideration therefor shall be, deemed
to be the
fair value, as determined reasonably and in good faith by the Board
of Directors
of the Maker, of such portion of the assets and business of the
nonsurviving
corporation as such Board may determine to be attributable to such
shares of
Common Stock, Convertible Securities, rights or warrants or
options, as the case
may be; or
(2) in the event of any consolidation or merger of the Maker
in which the Maker is not the surviving corporation or in which the
previously
outstanding shares of Common Stock of the Maker shall be changed
into or
exchanged for the stock or other securities of another corporation,
or in the
event of any sale of all or substantially all of the assets of the
Maker for
stock or other securities of any corporation, the Maker shall be
deemed to have
issued a number of shares of its Common Stock for stock or
securities or other
property of the other corporation computed on the basis of the
actual exchange
ratio on which the transaction was predicated, and for a
consideration equal to
the fair market value on the date of such transaction of all such
stock or
securities or other property of the other corporation. If any such
calculation
results in adjustment of the applicable Conversion Price, or the
number of
shares of Common Stock issuable upon conversion of the Notes, the
determination
of the applicable Conversion Price or the number of shares of
Common Stock
issuable upon conversion of the Notes immediately prior to such
merger,
consolidation or sale, shall be made after giving effect to such
adjustment of
the number of shares of Common Stock issuable upon conversion of
the Notes. In
the event Common Stock is issued with other shares or securities or
other assets
of the Maker for consideration which covers both, the consideration
computed as
provided in this
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<PAGE>
Section 3.6(viii) shall be allocated among such securities and
assets as
determined in good faith by the Board of Directors of the
Maker.
(b) Record Date. In case the Maker shall take record of the holders
of
its Common Stock for the purpose of entitling them to subscribe for
or purchase
Common Stock or Convertible Securities, then the date of the issue
or sale of
the shares of Common Stock shall be deemed to be such record
date.
(c) Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Maker shall not be required to make any
adjustment to the
Conversion Price in connection with (i) securities issued (other
than for cash)
in connection with a merger, acquisition, or consolidation, (ii)
securities
issued pursuant to the conversion or exercise of convertible or
excercisable
securities issued or outstanding on or prior to the date hereof or
the Notes and
Warrants issued pursuant to the Purchase Agreement (so long as the
conversion or
exercise price in such securities are not amended to lower such
price and/or
adversely affect the Holders), (iii) the shares of Common Stock
issuable upon
the exercise of Warrants, (iv) securities issued in connection with
strategic
license agreements or other partnering arrangements so long as such
issuances
are not for the purpose of raising capital, (v) Common Stock issued
or the
issuance or grants of options to purchase Common Stock pursuant to
the Company's
stock option plans and employee stock purchase plans as they now
exist on the
date hereof, (vi) any warrants issued to the placement agent and
its designees
for the transactions contemplated by the Purchase Agreement, (vii)
Common Stock
issued in connection with consulting or advisory services not in
excess of
5,000,000 shares, and (viii) the payment of any principal in shares
of Common
Stock pursuant to this Note or the Other Notes.
(d) No Impairment. The Maker shall not, by amendment of its
Certificate of Incorporation or through any reorganization,
transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or
any other
voluntary action, avoid or seek to avoid the observance or
performance of any of
the terms to be observed or performed hereunder by the Maker, but
will at all
times in good faith, assist in the carrying out of all the
provisions of this
Section 3.6 and in the taking of all such action as may be
necessary or
appropriate in order to protect the Conversion Rights of the Holder
against
impairment. In the event a Holder shall elect to convert any Notes
as provided
herein, the Maker cannot refuse conversion based on any claim that
such Holder
or any one associated or affiliated with such Holder has been
engaged in any
violation of law, violation of an agreement to which such Holder is
a party or
for any reason whatsoever, unless, an injunction from a court, or
notice,
restraining and or adjoining conversion of all or of said Notes
shall have
issued and the Maker posts a surety bond for the benefit of such
Holder in an
amount equal to one hundred thirty percent (130%) of the amount of
the Notes the
Holder has elected to convert, which bond shall remain in effect
until the
completion of arbitration/litigation of the dispute and the
proceeds of which
shall be payable to such Holder (as liquidated damages) in the
event it obtains
judgment.
(e) Certificates as to Adjustments. Upon occurrence of each
adjustment
or readjustment of the Conversion Price or number of shares of
Common Stock
issuable upon conversion of this Note pursuant to this Section 3.6,
the Maker at
its expense shall promptly compute such adjustment or readjustment
in accordance
with the terms hereof and furnish to the Holder a certificate
setting forth such
adjustment and readjustment, showing in detail the facts
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<PAGE>
upon which such adjustment or readjustment is based. The Maker
shall, upon
written request of the Holder, at any time, furnish or cause to be
furnished to
the Holder a like certificate setting forth such adjustments and
readjustments,
the applicable Conversion Price in effect at the time, and the
number of shares
of Common Stock and the amount, if any, of other securities or
property which at
the time would be received upon the conversion of this Note.
Notwithstanding the
foregoing, the Maker shall not be obligated to deliver a
certificate unless such
certificate would reflect an increase or decrease of at least one
percent (1%)
of such adjusted amount.
(f) Issue Taxes. The Maker shall pay any and all issue and
other
taxes, excluding federal, state or local income taxes, that may be
payable in
respect of any issue or delivery of shares of Common Stock on
conversion of this
Note pursuant thereto; provided, however, that the Maker shall not
be obligated
to pay any transfer taxes resulting from any transfer requested by
the Holder in
connection with any such conversion.
(g) Fractional Shares. No fractional shares of Common Stock shall
be
issued upon conversion of this Note. In lieu of any fractional
shares to which
the Holder would otherwise be entitled, the Maker shall pay cash
equal to the
product of such fraction multiplied by the average of the Closing
Bid Prices of
the Common Stock for the five (5) consecutive Trading Days
immediately preceding
the Conversion Date.
(h) Reservation of Common Stock. Subject to the Company
obtaining
Stockholder Approval in accordance with Section 3.21 of the
Purchase Agreement,
the Maker shall at all times when this Note shall be outstanding,
reserve and
keep available out of its authorized but unissued Common Stock,
such number of
shares of Common Stock as shall from time to time be sufficient to
effect the
conversion of this Note; provided that the number of shares of
Common Stock so
reserved shall at no time be less than one hundred fifty percent
(150%) of the
number of shares of Common Stock for which this Note is at any time
convertible.
The Maker shall, from time to time in accordance with the Delaware
General
Corporation Law, increase the authorized number of shares of Common
Stock if at
any time the unissued number of authorized shares shall not be
sufficient to
satisfy the Maker's obligations under this Section 3.6(h).
(i) Regulatory Compliance. If any shares of Common Stock to be
reserved for the purpose of conversion of this Note require
registration or
listing with or approval of any governmental authority, stock
exchange or other
regulatory body under any federal or state law or regulation or
otherwise before
such shares may be validly issued or delivered upon conversion, the
Maker shall,
at its sole cost and expense, in good faith and as expeditiously as
possible,
endeavor to secure such registration, listing or approval, as the
case may be.
Section 3.7 Prepayment.
(a) Prepayment Upon an Event of Default. Notwithstanding anything
to
the contrary contained herein, upon the occurrence of an Event of
Default
described in Sections 2.1(b)-(k) hereof, the Holder shall have the
right, at
such Holder's option, to require the Maker to prepay in cash all or
a portion of
this Note at a price equal to one hundred twenty percent (120%) of
the aggregate
principal amount of this Note applicable at the time of such
request. Nothing in
this Section 3.7(a) shall limit the Holder's rights under Section
2.2 hereof.
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<PAGE>
(b) Prepayment Option Upon Major Transaction. In addition to all
other
rights of the Holder contained herein, simultaneous with the
occurrence of a
Major Transaction (as defined below), the Holder shall have the
right, at the
Holder's option, to require the Maker to prepay all or a portion of
the Holder's
Notes at a price equal to one hundred percent (100%) of the
aggregate principal
amount of this Note (the "Major Transaction Prepayment Price");
provided that
the Maker shall have the sole option to make payment of the Major
Transaction
Prepayment Price in cash or shares of Common Stock.
(c) Prepayment Option Upon Triggering Event. In addition to all
other
rights of the Holder contained herein, after a Triggering Event (as
defined
below), the Holder shall have the right, at the Holder's option, to
require the
Maker to prepay all or a portion of this Note in cash at a price
equal to the
sum of (i) the greater of (A) one hundred twenty-five percent
(125%) of the
aggregate principal amount of this Note and (B) in the event at
such time the
Holder is unable to obtain the benefit of its conversion rights
through the
conversion of this Note and resale of the shares of Common Stock
issuable upon
conversion hereof in accordance with the terms of this Note and the
other
Transaction Documents, the aggregate principal amount of this Note,
divided by
the Conversion Price on (x) the date the Prepayment Price (as
defined below) is
demanded or otherwise due or (y) the date the Prepayment Price is
paid in full,
whichever is less, multiplied by the VWAP (as defined below) on (x)
the date the
Prepayment Price is demanded or otherwise due, and (y) the date the
Prepayment
Price is paid in full, whichever is greater, and (ii) all other
amounts, costs,
expenses and liquidated damages due in respect of this Note and the
other
Transaction Documents (the "Triggering Event Prepayment Price,"
and,
collectively with the Major Transaction Prepayment Price, the
"Prepayment
Price"). For purposes hereof, "VWAP" means, for any date, (i) the
daily volume
weighted average price of the Common Stock for such date on the OTC
Bulletin
Board as reported by Bloomberg Financial L.P. (based on a Trading
Day from 9:30
a.m. Eastern Time to 4:02 p.m. Eastern Time); (ii) if the Common
Stock is not
then listed or quoted on the OTC Bulletin Board and if prices for
the Common
Stock are then reported in the "Pink Sheets" published by the Pink
Sheets, LLC
(or a similar organization or agency succeeding to its functions of
reporting
prices), the most recent bid price per share of the Common Stock so
reported; or
(iii) in all other cases, the fair market value of a share of
Common Stock as
determined by an independent appraiser selected in good faith by
the Holder and
reasonably acceptable to the Maker.
(d) Intentionally Omitted.
(e) "Major Transaction." A "Major Transaction" shall be deemed to
have
occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination of
the Maker with or into another Person (as defined in Section 4.13
hereof) (other
than (A) pursuant to a migratory merger effected solely for the
purpose of
changing the jurisdiction of incorporation of the Maker or (B) a
consolidation,
merger or other business combination in which holders of the
Maker's voting
power immediately prior to the transaction continue after the
transaction to
hold, directly or indirectly, the voting power of the surviving
entity or
entities necessary to elect a majority of the members of the board
of directors
(or their equivalent if other than a corporation) of such entity or
entities).
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<PAGE>
(ii) the sale or transfer of more than fifty percent (50%) of
the
Maker's assets (based on the fair market value as determined in
good faith by
the Maker's Board of Directors) other than inventory in the
ordinary course of
business in one or a related series of transactions; or
(iii) closing of a purchase, tender or exchange offer made to
the
holders of more than fifty percent (50%) of the outstanding shares
of Common
Stock in which more than fifty percent (50%) of the outstanding
shares of Common
Stock were tendered and accepted.
(f) "Triggering Event." A "Triggering Event" shall be deemed to
have
occurred at such time as any of the following events:
(i) so long as any Notes are outstanding, the effectiveness of
the Registration Statement, after it becomes effective, (i) lapses
for any
reason (including, without limitation, the issuance of a stop
order) or (ii) is
unavailable to the Holder for sale of the shares of Common Stock,
and such lapse
or unavailability continues for a period of twenty (20) consecutive
Trading
Days, and the shares of Common Stock into which the Holder's Notes
can be
converted cannot be sold in the public securities market pursuant
to Rule 144(k)
under the Securities Act, provided that the cause of such lapse
or
unavailability is not due to factors primarily within the control
of the Holder
of the Notes; and provided further that a Triggering Event shall
not have
occurred if and to the extent the Maker exercised its rights set
forth in
Section 3(n) of the Registration Rights Agreement;
(ii) the suspension from listing, without subsequent listing on
any one of, or the failure of the Common Stock to be listed on at
least one of
the OTC Bulletin Board, the American Stock Exchange, the Nasdaq
National Market,
the Nasdaq SmallCap Market or The New York Stock Exchange, Inc.,
for a period of
five (5) consecutive Trading Days;
(iii) the Maker's notice to any holder of the Notes, including
by
way of public announcement, at any time, of its inability to comply
(including
for any of the reasons described in Section 3.8) or its intention
not to comply
with proper requests for conversion of any Notes into shares of
Common Stock; or
(iv) the Maker's failure to comply with a Conversion Notice
tendered in accordance with the provisions of this Note within ten
(10) business
days after the receipt by the Maker of the Conversion Notice;
or
(v) the Maker deregisters its shares of Common Stock and as a
result such shares of Common Stock are no longer publicly traded;
or
(vi) the Maker consummates a "going private" transaction and as
a
result the Common Stock is no longer registered under Sections
12(b) or 12(g) of
the Exchange Act; or
(vii) the Maker breaches any representation, warranty, covenant
or other term or condition of the Purchase Agreement, this Note or
any other
agreement, document, certificate or other instrument delivered in
connection
with the transactions contemplated thereby
-16-
<PAGE>
or hereby, except to the extent that such breach would not have a
Material
Adverse Effect (as defined in the Purchase Agreement) and except,
in the case of
a breach of a covenant which is curable, only if such breach
continues for a
period of a least ten (10) business days.
(g) Intentionally Omitted.
(h) Mechanics of Prepayment at Option of Holder Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten
(10) days prior
to the consummation of a Major Transaction, but not prior to the
public
announcement of such Major Transaction, the Maker shall deliver
written notice
thereof via facsimile and overnight courier ("Notice of Major
Transaction") to
the Holder of this Note. At any time after receipt of a Notice of
Major
Transaction (or, in the event a Notice of Major Transaction is not
delivered at
least ten (10) days prior to a Major Transaction, at any time
within ten (10)
days prior to a Major Transaction), any holder of the Notes then
outstanding may
require the Maker to prepay, effective immediately prior to the
consummation of
such Major Transaction, all of the holder's Notes then outstanding
by delivering
written notice thereof via facsimile and overnight courier ("Notice
of
Prepayment at Option of Holder Upon Major Transaction") to the
Maker, which
Notice of Prepayment at Option of Holder Upon Major Transaction
shall indicate
(i) the principal amount of the Notes that such holder is electing
to have
prepaid and (ii) the applicable Major Transaction Prepayment Price,
as
calculated pursuant to Section 3.7(b) above.
(i) Mechanics of Prepayment at Option of Holder Upon Triggering
Event.
Within one (1) business day after the occurrence of a Triggering
Event, the
Maker shall deliver written notice thereof via facsimile and
overnight courier
("Notice of Triggering Event") to each holder of the Notes. At any
time after
the earlier of a holder's receipt of a Notice of Triggering Event
and such
holder becoming aware of a Triggering Event, any holder of this
Note and the
Other Notes then outstanding may require the Maker to prepay all of
the Notes on
a pro rata basis by delivering written notice thereof via facsimile
and
overnight courier ("Notice of Prepayment at Option of Holder Upon
Triggering
Event") to the Maker, which Notice of Prepayment at Option of
Holder Upon
Triggering Event shall indicate (i) the amount of the Note that
such holder is
electing to have prepaid and (ii) the applicable Triggering Event
Prepayment
Price, as calculated pursuant to Section 3.7(c) above. A holder
shall only be
permitted to require the Maker to prepay the Note pursuant to
Section 3.7 hereof
for the greater of a period of ten (10) days after receipt by such
holder of a
Notice of Triggering Event or for so long as such Triggering Event
is
continuing.
(j) Payment of Prepayment Price. Upon the Maker's receipt of a
Notice(s) of Prepayment at Option of Holder Upon Triggering Event
or a Notice(s)
of Prepayment at Option of Holder Upon Major Transaction from any
holder of the
Notes, the Maker shall immediately notify each holder of the Notes
by facsimile
of the Maker's receipt of such Notice(s) of Prepayment at Option of
Holder Upon
Triggering Event or Notice(s) of Prepayment at Option of Holder
Upon Major
Transaction and each holder which has sent such a notice shall
promptly submit
to the Maker such holder's certificates representing the Notes
which such holder
has elected to have prepaid. The Maker shall deliver the applicable
Triggering
Event Prepayment Price, in the case of a prepayment pursuant to
Section 3.7(i),
to such holder within five (5) business days after the Maker's
receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and,
in the case
of a prepayment pursuant to Section 3.7(h), the Maker shall
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<PAGE>
deliver the applicable Major Transaction Prepayment Price
immediately prior to
the consummation of the Major Transaction; provided that a holder's
original
Note shall have been so delivered to the Maker; provided further
that if the
Maker is unable to prepay all of the Notes to be prepaid, the Maker
shall prepay
an amount from each holder of the Notes being prepaid equal to such
holder's
pro-rata amount (based on the number of Notes held by such holder
relative to
the number of Notes outstanding) of all Notes being prepaid. If the
Maker shall
fail to prepay all of the Notes submitted for prepayment (other
than pursuant to
a dispute as to the arithmetic calculation of the Prepayment
Price), in addition
to any remedy such holder of the Notes may have under this Note and
the Purchase
Agreement, the applicable Prepayment Price payable in respect of
such Notes not
prepaid shall bear interest at the rate of two percent (2%) per
month (prorated
for partial months) until paid in full. Until the Maker pays such
unpaid
applicable Prepayment Price in full to a holder of the Notes
submitted for
prepayment, such holder shall have the option (the "Void Optional
Prepayment
Option") to, in lieu of prepayment, require the Maker to promptly
return to such
holder(s) all of the Notes that were submitted for prepayment by
such holder(s)
under this Section 3.7 and for which the applicable Prepayment
Price has not
been paid, by sending written notice thereof to the Maker via
facsimile (the
"Void Optional Prepayment Notice"). Upon the Maker's receipt of
such Void
Optional Prepayment Notice(s) and prior to payment of the full
applicable
Prepayment Price to such holder, (i) the Notice(s) of Prepayment at
Option of
Holder Upon Triggering Event or the Notice(s) of Prepayment at
Option of Holder
Upon Major Transaction, as the case may be, shall be null and void
with respect
to those Notes submitted for prepayment and for which the
applicable Prepayment
Price has not been paid, (ii) the Maker shall immediately return
any Notes
submitted to the Maker by each holder for prepayment under this
Section 3.7(j)
and for which the applicable Prepayment Price has not been paid and
(iii) the
Conversion Price of such returned Notes shall be adjusted to the
lesser of (A)
the Conversion Price as in effect on the date on which the Void
Optional
Prepayment Notice(s) is delivered to the Maker and (B) the lowest
Closing Bid
Price during the period beginning on the date on which the
Notice(s) of
Prepayment of Option of Holder Upon Major Transaction or the
Notice(s) of
Prepayment at Option of Holder Upon Triggering Event, as the case
may be, is
delivered to the Maker and ending on the date on which the Void
Optional
Prepayment Notice(s) is delivered to the Maker; provided that no
adjustment
shall be made if such adjustment would result in an increase of the
Conversion
Price then in effect. A holder's delivery of a Void Optional
Prepayment Notice
and exercise of its rights following such notice shall not effect
the Maker's
obligations to make any payments which have accrued prior to the
date of such
notice. Payments provided for in this Section 3.7 shall have
priority to
payments to other stockholders in connection with a Major
Transaction.
(k) Intentionally Omitted.
Section 3.8 Inability to Fully Convert.
(a) Holder's Option if Maker Cannot Fully Convert. Subject to
Section
3.21 of the Purchase Agreement, if, upon the Maker's receipt of a
Conversion
Notice, the Maker cannot issue shares of Common Stock registered
for resale
under the Registration Statement for any reason, including, without
limitation,
because the Maker (w) does not have a sufficient number of shares
of Common
Stock authorized and available, (x) is otherwise prohibited by
applicable law or
by the rules or regulations of any stock exchange, interdealer
quotation system
or other self-regulatory organization with jurisdiction over the
Maker or any of
its securities from
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<PAGE>
issuing all of the Common Stock which is to be issued to the Holder
pursuant to
a Conversion Notice or (y) fails to have a sufficient number of
shares of Common
Stock registered for resale under the Registration Statement, then
the Maker
shall issue as many shares of Common Stock as it is able to issue
in accordance
with the Holder's Conversion Notice and, with respect to the
unconverted portion
of this Note, the Holder, solely at Holder's option, can elect
to:
(i) require the Maker to prepay that portion of this Note for
which the Maker is unable to issue Common Stock in accordance with
the Holder's
Conversion Notice (the "Mandatory Prepayment") at a price per share
equal to the
Triggering Event Prepayment Price as of such Conversion Date (the
"Mandatory
Prepayment Price");
(ii) if the Maker's inability to fully convert is pursuant to
Section 3.8(a)(x) above, require the Maker to issue restricted
shares of Common
Stock in accordance with such holder's Conversion Notice;
(iii) void its Conversion Notice and retain or have returned,
as
the case may be, this Note that was to be converted pursuant to the
Conversion
Notice (provided that the Holder's voiding its Conversion Notice
shall not
effect the Maker's obligations to make any payments which have
accrued prior to
the date of such notice);
(iv) exercise its Buy-In rights pursuant to and in accordance
with the terms and provisions of Section 3.3(c) of this Note.
In the event a Holder shall elect to convert any portion of its
Notes as
provided herein, the Maker cannot refuse conversion based on any
claim that such
Holder or any one associated or affiliated with such Holder has
been engaged in
any violation of law, violation of an agreement to which such
Holder is a party
or for any reason whatsoever, unless, an injunction from a court,
on notice,
restraining and or adjoining conversion of all or of said Notes
shall have been
issued and the Maker posts a surety bond for the benefit of such
Holder in an
amount equal to 130% of the principal amount of the Notes the
Holder has elected
to convert, which bond shall remain in effect until the completion
of
arbitration/litigation of the dispute and the proceeds of which
shall be payable
to such Holder in the event it obtains judgment.
(b) Mechanics of Fulfilling Holder's Election. The Maker shall
immediately send via facsimile to the Holder, upon receipt of a
facsimile copy
of a Conversion Notice from the Holder which cannot be fully
satisfied as
described in Section 3.8(a) above, a notice of the Maker's
inability to fully
satisfy the Conversion Notice (the "Inability to Fully Convert
Notice"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why
the Maker is
unable to fully satisfy such holder's Conversion Notice, (ii) the
amount of this
Note which cannot be converted and (iii) the applicable Mandatory
Prepayment
Price. The Holder shall notify the Maker of its election pursuant
to Section
3.8(a) above by delivering written notice via facsimile to the
Maker ("Notice in
Response to Inability to Convert").
(c) Payment of Prepayment Price. If the Holder shall elect to have
its
Notes prepaid pursuant to Section 3.8(a)(i) above, the Maker shall
pay the
Mandatory Prepayment Price to the Holder within thirty (30) days of
the Maker's
receipt of the Holder's Notice in Response to Inability to Convert,
provided
that prior to the Maker's receipt of the Holder's Notice
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<PAGE>
in Response to Inability to Convert the Maker has not delivered a
notice to the
Holder stating, to the satisfaction of the Holder, that the event
or condition
resulting in the Mandatory Prepayment has been cured and all
Conversion Shares
issuable to the Holder can and will be delivered to the Holder in
accordance
with the terms of this Note. If the Maker shall fail to pay the
applicable
Mandatory Prepayment Price to the Holder on the date that is one
(1) business
day following the Maker's receipt of the Holder's Notice in
Response to
Inability to Convert (other than pursuant to a dispute as to the
determination
of the arithmetic calculation of the Prepayment Price), in addition
to any
remedy the Holder may have under this Note and the Purchase
Agreement, such
unpaid amount shall bear interest at the rate of two percent (2%)
per month
(prorated for partial months) until paid in full. Until the full
Mandatory
Prepayment Price is paid in full to the Holder, the Holder may (i)
void the
Mandatory Prepayment with respect to that portion of the Note for
which the full
Mandatory Prepayment Price has not been paid, (ii) receive back
such Note, and
(iii) require that the Conversion Price of such returned Note be
adjusted to the
lesser of (A) the Conversion Price as in effect on the date on
which the Holder
voided the Mandatory Prepayment and (B) the lowest Closing Bid
Price during the
period beginning on the Conversion Date and ending on the date the
Holder voided
the Mandatory Prepayment.
(d) Pro-rata Conversion and Prepayment. In the event the Maker
receives a Conversion Notice from more than one holder of the Notes
on the same
day and the Maker can convert and prepay some, but not all, of the
Notes
pursuant to this Section 3.8, the Maker shall convert and prepay
from each
holder of the Notes electing to have its Notes converted and
prepaid at such
time an amount equal to such holder's pro-rata amount (based on the
principal
amount of the Notes held by such holder relative to the principal
amount of the
Notes outstanding) of all the Notes being converted and prepaid at
such time.
Section 3.9 No Rights as Shareholder. Nothing contained in this
Note
shall be construed as conferring upon the Holder, prior to the
conversion of
this Note, the right to vote or to receive dividends or to consent
or to receive
notice as a shareholder in respect of any meeting of shareholders
for the
election of directors of the Maker or of any other matter, or any
other rights
as a shareholder of the Maker.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Notices. Any notice, demand, request, waiver or
other
communication required or permitted to be given hereunder shall be
in writing
and shall be effective (a) upon hand delivery, telecopy or
facsimile at the
address or number designated in the Purchase Agreement (if
delivered on a
business day during normal business hours where such notice is to
be received),
or the first business day following such delivery (if delivered
other than on a
business day during normal business hours where such notice is to
be received)
or (b) on the third business day following the date of mailing by
express
courier service, fully prepaid, addressed to such address, or upon
actual
receipt of such mailing, whichever shall first occur. The Maker
will give
written notice to the Holder at least ten (10) days prior to the
date on which
the Maker takes a record (x) with respect to any dividend or
distribution upon
the Common Stock, (y) with respect to any pro rata subscription
offer to holders
of Common Stock or (z) for
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<PAGE>
determining rights to vote with respect to any Organic Change,
dissolution,
liquidation or winding-up provided, notwithstanding the foregoing
in no event
shall such notice be provided to such holder prior to such
information being
made known to the public. The Maker will also give written notice
to the Holder
at least ten (10) days prior to the date on which any Organic
Change,
dissolution, liquidation or winding-up will take place provided,
notwithstanding
the foregoing in no event shall such notice be provided to the
Holder prior to
such information being made known to the public. The Maker shall
promptly notify
the Holder of this Note of any notices sent or received, or any
actions taken
with respect to the Other Notes.
Section 4.2 Governing Law. This Note shall be governed by and
construed in accordance with the internal laws of the State of New
York, without
giving effect to any of the conflicts of law principles which would
result in
the application of the substantive law of another jurisdiction.
This Note shall
not be interpreted or construed with any presumption against the
party causing
this Note to be drafted.
Section 4.3 Headings. Article and section headings in this Note
are
included herein for purposes of convenience of reference only and
shall not
constitute a part of this Note for any other purpose.
Section 4.4 Remedies, Characterizations, Other Obligations,
Breaches
and Injunctive Relief. The remedies provided in this Note shall be
cumulative
and in addition to all other remedies available under this Note, at
law or in
equity (including, without limitation, a decree of specific
performance and/or
other injunctive relief), no remedy contained herein shall be
deemed a waiver of
compliance with the provisions giving rise to such remedy and
nothing herein
shall limit a holder's right to pursue actual damages for any
failure by the
Maker to comply with the terms of this Note. Amounts set forth or
provided for
herein with respect to payments, conversion and the like (and the
computation
thereof) shall be the amounts to be received by the holder thereof
and shall
not, except as expressly provided herein, be subject to any other
obligation of
the Maker (or the performance thereof). The Maker acknowledges that
a breach by
it of its obligations hereunder will cause irreparable and material
harm to the
Holder and that the remedy at law for any such breach may be
inadequate.
Therefore the Maker agrees that, in the event of any such breach or
threatened
breach, the Holder shall be entitled, in addition to all other
available rights
and remedies, at law or in equity, to seek and obtain such
equitable relief,
including but not limited to an injunction restraining any such
breach or
threatened breach, without the necessity of showing economic loss
and without
any bond or other security being required.
Section 4.5 Enforcement Expenses. The Maker agrees to pay all
costs
and expenses of enforcement of this Note, including, without
limitation,
reasonable attorneys' fees and expenses.
Section 4.6 Binding Effect. The obligations of the Maker and
the
Holder set forth herein shall be binding upon the successors and
assigns of each
such party, whether or not such successors or assigns are permitted
by the terms
hereof.
Section
4.7 Amendments. This Note may not be modified or amended in
any manner except in writing executed by the Maker and the
Holder.
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<PAGE>
Section 4.8 Compliance with Securities Laws. The Holder of this
Note
acknowledges that this Note is being acquired solely for the
Holder's own
account and not as a nominee for any other party, and for
investment, and that
the Holder shall not offer, sell or otherwise dispose of this Note.
This Note
and any Note issued in substitution or replacement therefor shall
be stamped or
imprinted with a legend in substantially the following form:
"THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS
AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY
NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT
BY THE MAKER OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND
SCOPE
REASONABLY SATISFACTORY TO THE MAKER THAT THIS NOTE AND THE SHARES
OF
COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE MAY BE SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN
EXEMPTION
FROM
REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS."
Section 4.9 Consent to Jurisdiction. Each of the Maker and the
Holder
(i) hereby irrevocably submits to the exclusive jurisdiction of the
United
States District Court sitting in the Southern District of New York
and the
courts of the State of New York located in New York county for the
purposes of
any suit, action or proceeding arising out of or relating to this
Note and (ii)
hereby waives, and agrees not to assert in any such suit, action or
proceeding,
any claim that it is not personally subject to the jurisdiction of
such court,
that the suit, action or proceeding is brought in an inconvenient
forum or that
the venue of the suit, action or proceeding is improper. Each of
the Maker and
the Holder consents to process being served in any such suit,
action or
proceeding by mailing a copy thereof to such party at the address
in effect for
notices to it under the Purchase Agreement and agrees that such
service shall
constitute good and sufficient service of process and notice
thereof. Nothing in
this Section 4.9 shall affect or limit any right to serve process
in any other
manner permitted by law. Each of the Maker and the Holder hereby
agree that the
prevailing party in any suit, action or proceeding arising out of
or relating to
this Note shall be entitled to reimbursement for reasonable legal
fees from the
non-prevailing party.
Section 4.10 Parties in Interest. This Note shall be binding
upon,
inure to the benefit of and be enforceable by the Maker, the Holder
and their
respective successors and permitted assigns.
Section 4.11 Failure or Indulgence Not Waiver. No failure or delay
on
the part of the Holder in the exercise of any power, right or
privilege
hereunder shall operate as a waiver thereof, nor shall any single
or partial
exercise of any such power, right or privilege preclude other or
further
exercise thereof or of any other right, power or privilege.
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<PAGE>
Section 4.12 Maker Waivers. Except as otherwise specifically
provided
herein, the Maker and all others that may become liable for all or
any part of
the obligations evidenced by this Note, hereby waive presentment,
demand, notice
of nonpayment, protest and all other demands' and notices in
connection with the
delivery, acceptance, performance and enforcement of this Note, and
do hereby
consent to any number of renewals of extensions of the time or
payment hereof
and agree that any such renewals or extensions may be made without
notice to any
such persons and without affecting their liability herein and do
further consent
to the release of any person liable hereon, all without affecting
the liability
of the other persons, firms or Maker liable for the payment of this
Note, AND DO
HEREBY WAIVE TRIAL BY JURY.
(a) No delay or omission on the part of the Holder in exercising
its
rights under this Note, or course of conduct relating hereto, shall
operate as a
waiver of such rights or any other right of the Holder, nor shall
any waiver by
the Holder of any such right or rights on any one occasion be
deemed a waiver of
the same right or rights on any future occasion.
(b) THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE
IS
A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY
APPLICABLE LAW,
HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY
PREJUDGMENT
REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO
USE.
Section 4.13 Definitions. For the purposes hereof, the following
terms
shall have the following meanings:
"Person" means an individual or a corporation, partnership,
trust,
incorporated or unincorporated association, joint venture, limited
liability
company, joint stock company, government (or an agency or political
subdivision
thereof) or other entity of any kind.
"Trading Day" means (a) a day on which the Common Stock is traded
on
the OTC Bulletin Board, or (b) if the Common Stock is not traded on
the OTC
Bulletin Board, a day on which the Common Stock is quoted in
the
over-the-counter market as reported by the National Quotation
Bureau
Incorporated (or any similar organization or agency succeeding its
functions of
reporting prices); provided, however, that in the event that the
Common Stock is
not listed or quoted as set forth in (a) or (b) hereof, then
Trading Day shall
mean any day except Saturday, Sunday and any day which shall be a
legal holiday
or a day on which banking institutions in the State of New York are
authorized
or required by law or other government action to close.
REMOTE DYNAMICS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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<PAGE>
EXHIBIT A
WIRE INSTRUCTIONS
Payee: ________________________________________________________
Bank: _________________________________________________________
Address: ______________________________________________________
______________________________________________________
Bank No.: _____________________________________________________
Account No.: __________________________________________________
Account Name: _________________________________________________
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<PAGE>
FORM OF
NOTICE OF CONVERSION
(To
be Executed by the Registered Holder in order to Convert the
Note)
The undersigned hereby irrevocably elects to convert
$________________ of the
principal amount of the above Note No. ___ into shares of Common
Stock of Remote
Dynamics, Inc. (the "Maker") according to the conditions hereof, as
of the date
written below.
Date of Conversion
_________________________________________________________
Applicable Conversion Price
__________________________________________________
Number of shares of Common Stock beneficially owned or deemed
beneficially owned
by the Holder on the Date of Conversion:
_________________________
Signature
--------------------------------------------------
[Name]
Address:
---------------------------------------------------
---------------------------------------------------
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<PAGE>
EXHIBIT B-2
FORM OF ORIGINAL ISSUE DISCOUNT SERIES A NOTE
EXECUTION COPY
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED,
OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE
MAKER OF AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO
THE MAKER THAT THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION
HEREOF MAY BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN
EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
REMOTE DYNAMICS, INC.
Original Issue
Discount Series A Senior Secured Convertible Promissory Note
due February __, 2008
No. ZCN-A-06-__
$___________
Dated: February __, 2006
For
value received, Remote Dynamics, Inc., a Delaware corporation
(the
"Maker"), hereby promises to pay to the order of
_______________________
(together with its successors, representatives, and permitted
assigns, the
"Holder"), in accordance with the terms hereinafter provided, the
principal
amount of ________________________ ($______________), together with
interest
thereon. Concurrently with the issuance of this Note, the Maker is
issuing
separate series A senior secured convertible promissory notes and
separate
original issue discount series A senior secured convertible
promissory notes
(the "Other Notes") to separate purchasers (the "Other Holders")
pursuant to the
Purchase Agreement (as defined in Section 1.1 hereof).
All
payments under or pursuant to this Note shall be made in United
States
Dollars in immediately available funds to the Holder at the address
of the
Holder first set forth above or at such other place as the Holder
may designate
from time to time in writing to the Maker or by wire transfer of
funds to the
Holder's account, instructions for which are attached hereto as
Exhibit A. The
outstanding principal balance of this Note shall be due and payable
on February
__, 2008 (the "Maturity Date") or at such earlier time as provided
herein.
ARTICLE I
Section 1.1 Purchase Agreement. This Note has been executed and
delivered pursuant to the Note and Warrant Purchase Agreement dated
as of
February __, 2006 (the "Purchase Agreement") by and among the Maker
and the
purchasers listed therein. Capitalized terms used and not otherwise
defined
herein shall have the meanings set forth for such terms in the
Purchase
Agreement.
<PAGE>
Section 1.2 Payment of Principal.
(a) Commencing on September __, 2006 [the first business day of
the
seventh (7th) month following the Issuance Date (as defined in
Section 2.1(b))]
and continuing thereafter on the first business day of each month
(a "Principal
Payment Date"), the Maker shall pay an amount to the Holder equal
to 1/18th of
the original principal amount of this Note (the "Principal
Installment Amount");
provided, however, if on any Principal Payment Date, the
outstanding principal
amount of this Note is less than the Principal Installment Amount,
then the
Maker shall pay to the Holder such lesser amount. The Maker may pay
such
Principal Installment Amount in cash or registered shares of the
Maker's common
stock, par value $.01 per share (the "Common Stock"). If the Maker
elects to pay
the Principal Installment Amount in cash such amount shall be wired
in
immediately available funds on the Principal Payment Date;
provided, however,
that if the Holder has delivered a Conversion Notice to the Maker
or delivers a
Conversion Notice prior to the Principal Payment Date, the Holder
shall indicate
in such Conversion Notice whether the principal amount of this Note
to be so
converted shall be applied against the final Principal Installment
Amount or
some other Principal Installment Amount. The Maker shall provide
irrevocable
written notice to the Holder of the form of payment of the
Principal Installment
Amount at least twenty (20) days prior to the first day of each
month for which
a Principal Installment Amount is required to be made by the
Maker.
(b) If the Maker elects to pay the Principal Installment Amount
in
registered shares of Common Stock, the number of registered shares
of Common
Stock to be issued to the Holder shall be an amount equal to the
Principal
Installment Amount divided by eighty percent (80%) of the average
of the Closing
Bid Price (as defined in Section 1.2(c) hereof) for the ten (10)
Trading Days
immediately preceding the Principal Payment Date; provided,
however, that if the
Holder has delivered a Conversion Notice to the Maker or delivers a
Conversion
Notice prior to the Principal Payment Date, the Holder shall
indicate in such
Conversion Notice whether the principal amount of this Note to be
so converted
shall be applied against the final Principal Installment Amount or
some other
Principal Installment Amount. Notwithstanding the foregoing to the
contrary, the
Maker may elect to pay the Principal Installment Amount in
registered shares of
Common Stock on any Principal Payment Date only if (A) the
registration
statement providing for the resale of the shares of Common Stock
issuable upon
conversion of this Note (the "Registration Statement") is effective
and has been
effective, without lapse or suspension of any kind, for a period of
twenty (20)
consecutive calendar days, (B) trading in the Common Stock shall
not have been
suspended by the Securities and Exchange Commission or the OTC
Bulletin Board
(or other exchange or market on which the Common Stock is trading),
(C) no Event
of Default exists and is continuing, and (D) the issuance of shares
of Common
Stock on the Principal Payment Date does not violate the provisions
of Section
3.4 hereof.
(c) The term "Closing Bid Price" shall mean, on any particular
date
(i) the last trading price per share of the Common Stock on such
date on the OTC
Bulletin Board or another registered national stock exchange on
which the Common
Stock is then listed, or if there is no such price on such date,
then the last
trading price on such exchange or quotation system on the date
nearest preceding
such date, or (ii) if the Common Stock is not listed then on the
OTC Bulletin
Board or any registered national stock exchange, the last trading
price for a
share of Common Stock in the over-the-counter market, as reported
by the OTC
Bulletin Board or in the National Quotation Bureau Incorporated or
similar
organization or agency succeeding to its
-2-
<PAGE>
functions of reporting prices) at the close of business on such
date, or (iii)
if the Common Stock is not then reported by the OTC Bulletin Board
or the
National Quotation Bureau Incorporated (or similar organization or
agency
succeeding to its functions of reporting prices), then the average
of the "Pink
Sheet" quotes for the relevant conversion period, as determined in
good faith by
the Holder, or (iv) if the Common Stock is not then publicly traded
the fair
market value of a share of Common Stock as determined by the Holder
and
reasonably acceptable to the Maker.
Section 1.3 Security Agreement. The obligations of the Maker
hereunder
are secured by a continuing security interest in certain assets of
the Maker
pursuant to the terms of a security agreement dated as of February
__, 2006 by
and among the Maker, on the one hand, and the Holder and the Other
Holders, on
the other hand.
Section 1.4 Payment on Non-Business Days. Whenever any payment to
be
made shall be due on a Saturday, Sunday or a public holiday under
the laws of
the State of New York, such payment may be due on the next
succeeding business
day.
Section 1.5 Transfer. This Note may be transferred or sold, subject
to
the provisions of Section 4.8 of this Note, or pledged,
hypothecated or
otherwise granted as security by the Holder.
Section 1.6 Replacement. Upon receipt of a duly executed,
notarized
and unsecured written statement from the Holder with respect to the
loss, theft
or destruction of this Note (or any replacement hereof) and a
standard
indemnity, or, in the case of a mutilation of this Note, upon
surrender and
cancellation of such Note, the Maker shall issue a new Note, of
like tenor and
amount, in lieu of such lost, stolen, destroyed or mutilated
Note.
ARTICLE II
EVENTS OF DEFAULT; REMEDIES
Section 2.1 Events of Default. The occurrence of any of the
following
events shall be an "Event of Default" under this Note:
(a) the Maker shall fail to make the Principal Installment Amount
on a
Principal Payment Date and such default is not fully cured within
one (1)
business day after the occurrence thereof; or
(b) the failure of the Registration Statement to be declared
effective
by the Securities and Exchange Commission on or prior to the date
which is one
hundred eighty (180) days after the date of the initial issuance of
this Note
(the "Issuance Date"); or
(c) the suspension from listing, without subsequent listing on any
one
of, or the failure of the Common Stock to be listed on at least one
of the OTC
Bulletin Board, the American Stock Exchange, the Nasdaq National
Market, the
Nasdaq SmallCap Market or The New York Stock Exchange, Inc. for a
period of five
(5) consecutive Trading Days; or
-3-
<PAGE>
(d) the Maker's notice to the Holder, including by way of
public
announcement, at any time, of its inability to comply (including
for any of the
reasons described in Section 3.8(a) hereof) or its intention not to
comply with
proper requests for conversion of this Note into shares of Common
Stock; or
(e) the Maker shall fail to (i) timely deliver the shares of
Common
Stock upon conversion of the Note, (ii) file the Registration
Statement in
accordance with the terms of the Registration Rights Agreement or
(iii) make the
payment of any fees and/or liquidated damages under this Note, the
Purchase
Agreement or the Registration Rights Agreement, which failure in
the case of
items (i) and (iii) of this Section 2.1(e) is not remedied within
five (5)
business days after the incurrence thereof; or
(f) while the Registration Statement is required to be
maintained
effective pursuant to the terms of the Registration Rights
Agreement, the
effectiveness of the Registration Statement lapses for any reason
(including,
without limitation, the issuance of a stop order) or is unavailable
to the
Holder for sale of the 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 ten (10)
consecutive Trading Days, provided that the Maker has not exercised
its rights
pursuant to Section 3(n) of the Registration Rights Agreement
(which exercise is
not an Event of Default hereunder); or
(g) default shall be made in the performance or observance of (i)
any
material covenant, condition or agreement contained in this Note
(other than as
set forth in clause (f) of this Section 2.1) and such default is
not fully cured
within five (5) business days after the Maker receives notice from
the Holder of
the occurrence thereof or (ii) any material covenant, condition or
agreement
contained in the Purchase Agreement, the Other Notes, the
Registration Rights
Agreement or any other Transaction Document which is not covered by
any other
provisions of this Section 2.1 and such default is not fully cured
within five
(5) business days after the Maker receives notice from the Holder
of the
occurrence thereof; or
(h) any material representation or warranty made by the Maker
herein
or in the Purchase Agreement, the Registration Rights Agreement,
the Other Notes
or any other Transaction Document shall prove to have been false or
incorrect or
breached in a material respect on the date as of which made; or
(i) the Maker shall (A) default in any payment of any amount or
amounts of principal of or interest on any Indebtedness (other than
the
Indebtedness hereunder) the aggregate principal amount of which
Indebtedness is
in excess of $100,000 or (B) default in the observance or
performance of any
other agreement or condition relating to any Indebtedness in excess
of $100,000
or contained in any instrument or agreement evidencing, securing or
relating
thereto, or any other event shall occur or condition exist, the
effect of which
default or other event or condition is to cause, or to permit the
holder or
holders or beneficiary or beneficiaries of such Indebtedness to
cause with the
giving of notice if required, such Indebtedness to become due prior
to its
stated maturity; or
(j) the Maker shall (i) apply for or consent to the appointment of,
or
the taking of possession by, a receiver, custodian, trustee or
liquidator of
itself or of all or a
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<PAGE>
substantial part of its property or assets, (ii) make a general
assignment for
the benefit of its creditors, (iii) commence a voluntary case under
the United
States Bankruptcy Code (as now or hereafter in effect) or under the
comparable
laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to
take advantage of any bankruptcy, insolvency, moratorium,
reorganization or
other similar law affecting the enforcement of creditors' rights
generally which
is not dismissed within 30 days, (v) acquiesce in writing to any
petition filed
against it in an involuntary case under United States Bankruptcy
Code (as now or
hereafter in effect) or under the comparable laws of any
jurisdiction (foreign
or domestic) which is not dismissed within 60 days, (vi) issue a
notice of
bankruptcy or winding down of its operations or issue a press
release regarding
same, or (vii) take any action under the laws of any jurisdiction
(foreign or
domestic) analogous to any of the foregoing; or
(k) a proceeding or
case shall be commenced in respect of the Maker,
without its application or consent, in any court of competent
jurisdiction,
seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding
up, or composition or readjustment of its debts, (ii) the
appointment of a
trustee, receiver, custodian, liquidator or the like of it or of
all or any
substantial part of its assets in connection with the liquidation
or dissolution
of the Maker or (iii) similar relief in respect of it under any law
providing
for the relief of debtors, and such proceeding or case described in
clause (i),
(ii) or (iii) shall continue undismissed, or unstayed and in
effect, for a
period of thirty (30) days or any order for relief shall be entered
in an
involuntary case under United States Bankruptcy Code (as now or
hereafter in
effect) or under the comparable laws of any jurisdiction (foreign
or domestic)
against the Maker or action under the laws of any jurisdiction
(foreign or
domestic) analogous to any of the foregoing shall be taken with
respect to the
Maker and shall continue undismissed, or unstayed and in effect for
a period of
thirty (30) days; or
(l) the failure of the Maker to instruct its transfer agent to
remove
any legends from shares of Common Stock eligible to be sold under
Rule 144 of
the Securities Act and issue such unlegended certificates to the
Holder within
three (3) business days of the Holder's request so long as the
Holder has
complied with Section 5.1 of the Purchase Agreement; or
(m) the failure of the Maker to pay any amounts due to the
Holder
herein or in the Purchase Agreement or the Registration Rights
Agreement within
three (3) business days of the date such payments are due;
(n) the occurrence of an Event of Default under the Other Notes;
or
(o) the failure of the Maker to obtain Stockholder Approval to
increase the authorized shares of Common Stock in accordance with
Section 3.21
of the Purchase Agreement.
Section 2.2 Remedies Upon An Event of Default. If an Event of
Default
shall have occurred and shall be continuing, the Holder of this
Note may at any
time at its option, (a) pursuant to Section 3.7(a) hereof, declare
the entire
unpaid principal balance of this Note due and payable, and
thereupon, the same
shall be accelerated and so due and payable, without presentment,
demand,
protest, or notice, all of which are hereby expressly
unconditionally and
irrevocably waived by the Maker; provided, however, that upon the
occurrence of
an Event of Default described in (i) Sections 2.1 (j) or (k), the
outstanding
principal balance hereunder shall
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<PAGE>
be automatically due and payable and (ii) Sections 2.1 (b)-(i), the
Holder may
demand the prepayment of this Note pursuant to Section 3.7 hereof,
(b) demand
that the principal amount of this Note then outstanding shall be
converted into
shares of Common Stock at a Conversion Price per share calculated
pursuant to
Sections 3.1 and 3.4 hereof assuming that the date that the Event
of Default
occurs is the Conversion Date (as defined in Section 3.1 hereof),
or (c)
exercise or otherwise enforce any one or more of the Holder's
rights, powers,
privileges, remedies and interests under this Note, the Purchase
Agreement, the
Registration Rights Agreement or applicable law. Upon the
occurrence of an Event
of Default, the Maker will pay interest to the Holder, payable on
demand, on the
outstanding principal balance of the Note from the date of the
Event of the
Default until such Event of Default is cured at the rate equal to
the lesser of
ten percent (10%) and the maximum applicable legal rate per annum.
No course of
delay on the part of the Holder shall operate as a waiver thereof
or otherwise
prejudice the right of the Holder. No remedy conferred hereby shall
be exclusive
of any other remedy referred to herein or now or hereafter
available at law, in
equity, by statute or otherwise.
ARTICLE III
CONVERSION; ANTIDILUTION; PREPAYMENT
Section 3.1 Conversion Option.
(a) At any time on or after the Issuance Date, this Note shall
be
convertible (in whole or in part), at the option of the Holder (the
"Conversion
Option"), into such number of fully paid and non-assessable shares
of Common
Stock (the "Conversion Rate") as is determined by dividing (x) that
portion of
the outstanding principal balance under this Note as of such date
that the
Holder elects to convert by (y) the Conversion Price (as defined in
Section
3.2(a) hereof) then in effect on the date on which the Holder faxes
a notice of
conversion (the "Conversion Notice"), duly executed, to the Maker
(facsimile
number (972) 301-2263, Attn.: Chief Executive Officer) (the
"Voluntary
Conversion Date"), provided, however, that the Conversion Price
shall be subject
to adjustment as described in Section 3.6 below. The Holder shall
deliver this
Note to the Maker at the address designated in the Purchase
Agreement at such
time that this Note is fully converted. With respect to partial
conversions of
this Note, the Maker shall keep written records of the amount of
this Note
converted as of each Conversion Date.
(b) On the Mandatory Conversion Date (as defined below), the Maker
may
cause the principal amount of this Note to convert into a number of
fully paid
and nonassessable shares of Common Stock equal to the quotient of
(i) the
principal amount of this Note outstanding on the Mandatory
Conversion Date
divided by (ii) the Conversion Price in effect on the Mandatory
Conversion Date
by providing five (5) business days prior written notice of such
Mandatory
Conversion Date. As used herein, a "Mandatory Conversion Date"
shall be a date
following the effective date of the Registration Statement in which
the Closing
Bid Price exceeds two hundred fifty percent (250%) of the
Conversion Price for a
period of twelve (12) consecutive Trading Days and the average
daily trading
volume for such twelve (12) consecutive Trading Day period exceeds
750,000
shares of Common Stock; provided, that (A) the Registration
Statement is
effective and has been effective, without lapse or suspension of
any kind, for a
period of thirty (30) consecutive calendar days immediately
preceding the
Mandatory
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<PAGE>
Conversion Date, (B) trading in the Common Stock shall not have
been suspended
by the Securities and Exchange Commission or the OTC Bulletin Board
(or other
exchange or market on which the Common Stock is trading), (C) no
Event of
Default exists and is continuing, (D) the issuance of shares of
Common Stock on
the Mandatory Conversion Date pursuant to such mandatory conversion
does not
violate the provisions of Section 3.4 hereof, and (E) the Maker is
not in
possession of any material non-public information. Notwithstanding
the foregoing
to the contrary, the Mandatory Conversion Date shall be extended
for as long as
a Triggering Event (as defined in Section 3.7(f) hereof) shall have
occurred and
be continuing. The Mandatory Conversion Date and the Voluntary
Conversion Date
collectively are referred to in this Note as the "Conversion
Date."
Section 3.2 Conversion Price.
(a) The term "Conversion Price" shall mean $0.20, subject to
adjustment under Section 3.6 hereof.
(b) Notwithstanding any of the foregoing to the contrary, if
during
any period (a "Black-out Period"), a Holder is unable to trade any
Common Stock
issued or issuable upon conversion of this Note immediately due to
the
postponement of filing or delay or suspension of effectiveness of
the
Registration Statement or because the Maker has otherwise informed
such Holder
that an existing prospectus cannot be used at that time in the sale
or transfer
of such Common Stock (provided that such postponement, delay,
suspension or fact
that the prospectus cannot be used is not due to factors solely
within the
control of the Holder of this Note or due to the Maker exercising
its rights
under Section 3(n) of the Registration Rights Agreement), such
Holder shall have
the option but not the obligation on any Conversion Date within ten
(10) Trading
Days following the expiration of the Black-out Period of using the
Conversion
Price applicable on such Conversion Date or any Conversion Price
selected by
such Holder that would have been applicable had such Conversion
Date been at any
earlier time during the Black-out Period or within the ten (10)
Trading Days
thereafter. In no event shall the Black-out Period have any effect
on the
Maturity Date of this Note.
Section 3.3 Mechanics of Conversion.
(a) Not later than three (3) Trading Days after any Conversion
Date,
the Maker or its designated transfer agent, as applicable, shall
issue and
deliver to the Depository Trust Company ("DTC") account on the
Holder's behalf
via the Deposit Withdrawal Agent Commission System ("DWAC") as
specified in the
Conversion Notice, 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. In the
alternative, not later than three (3) Trading Days after any
Conversion Date,
the Maker shall deliver to the applicable Holder by express courier
a
certificate or certificates which shall be free of restrictive
legends and
trading restrictions (other than those required by Section 5.1 of
the Purchase
Agreement) representing the number of shares of Common Stock being
acquired upon
the conversion of this Note (the "Delivery Date"). Notwithstanding
the foregoing
to the contrary, the Maker or its transfer agent shall only be
obligated to
issue and deliver the shares to the DTC on the Holder's behalf via
DWAC (or
certificates free of restrictive legends) if such conversion is in
connection
with a sale and the Holder has complied with the applicable
prospectus delivery
requirements (as evidenced by documentation furnished to and
-7-
<PAGE>
reasonably satisfactory to the Maker). If in the case of any
Conversion Notice
such certificate or certificates are not delivered to or as
directed by the
applicable Holder by the Delivery Date, the Holder shall be
entitled by written
notice to the Maker at any time on or before its receipt of such
certificate or
certificates thereafter, to rescind such conversion, in which event
the Maker
shall immediately return this Note tendered for conversion,
whereupon the Maker
and the Holder shall each be restored to their respective positions
immediately
prior to the delivery of such notice of revocation, except that any
amounts
described in Sections 3.3(b) and (c) shall be payable through the
date notice of
rescission is given to the Maker.
(b) The Maker understands that a delay in the delivery of the
shares
of Common Stock upon conversion of this Note beyond the Delivery
Date could
result in economic loss to the Holder. If the Maker fails to
deliver to the
Holder such shares via DWAC or a certificate or certificates
pursuant to this
Section hereunder by the Delivery Date, the Maker shall pay to such
Holder, in
cash, an amount per Trading Day for each Trading Day until such
shares are
delivered via DWAC or certificates are delivered, together with
interest on such
amount at a rate of 10% per annum, accruing until such amount and
any accrued
interest thereon is paid in full, equal to the greater of (A) (i)
1% of the
aggregate principal amount of the Notes requested to be converted
for the first
five (5) Trading Days after the Delivery Date and (ii) 2% of the
aggregate
principal amount of the Notes requested to be converted for each
Trading Day
thereafter and (B) $2,000 per day (which amount shall be paid as
liquidated
damages and not as a penalty). Nothing herein shall limit a
Holder's right to
pursue actual damages for the Maker's failure to deliver
certificates
representing shares of Common Stock upon conversion within the
period specified
herein and such Holder shall have the right to pursue all remedies
available to
it at law or in equity (including, without limitation, a decree of
specific
performance and/or injunctive relief). Notwithstanding anything to
the contrary
contained herein, the Holder shall be entitled to withdraw a
Conversion Notice,
and upon such withdrawal the Maker shall only be obligated to pay
the liquidated
damages accrued in accordance with this Section 3.3(b) through the
date the
Conversion Notice is withdrawn.
(c) In addition to any other rights available to the Holder, if
the
Maker fails to cause its transfer agent to transmit to the Holder a
certificate
or certificates representing the shares of Common Stock issuable
upon conversion
of this Note on or before the Delivery Date, and if after such date
the Holder
is required by its broker to purchase (in an open market
transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the
Holder of the shares of Common Stock issuable upon conversion of
this Note which
the Holder anticipated receiving upon such exercise (a "Buy-In"),
then the Maker
shall (1) pay in cash to the Holder the amount by which (x) the
Holder's total
purchase price (including brokerage commissions, if any) for the
shares of
Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the
number of shares of Common Stock issuable upon conversion of this
Note that the
Maker was required to deliver to the Holder in connection with the
conversion at
issue times (B) the price at which the sell order giving rise to
such purchase
obligation was executed, and (2) at the option of the Holder,
either reinstate
the portion of the Note and equivalent number of shares of Common
Stock for
which such conversion was not honored or deliver to the Holder the
number of
shares of Common Stock that would have been issued had the Maker
timely complied
with its conversion and delivery obligations hereunder. For
example, if the
Holder purchases Common Stock having a total purchase price of
$11,000 to cover
a Buy-In with respect to an attempted conversion of shares of
Common Stock with
an aggregate sale
-8-
<PAGE>
price giving rise to such purchase obligation of $10,000, under
clause (1) of
the immediately preceding sentence the Maker shall be required to
pay the Holder
$1,000. The Holder shall provide the Maker written notice
indicating the amounts
payable to the Holder in respect of the Buy-In, together with
applicable
confirmations and other evidence reasonably requested by the Maker.
Nothing
herein shall limit a Holder's right to pursue any other remedies
available to it
hereunder, at law or in equity including, without limitation, a
decree of
specific performance and/or injunctive relief with respect to the
Maker's
failure to timely deliver certificates representing shares of
Common Stock upon
conversion of this Note as required pursuant to the terms
hereof.
Section
3.4 Ownership Cap and Certain Conversion Restrictions.
(a) Notwithstanding anything to the contrary set forth in Section 3
of
this Note, at no time may the Holder convert all or a portion of
this Note if
the number of shares of Common Stock to be issued pursuant to such
conversion
would exceed, when aggregated with all other shares of Common Stock
owned by the
Holder at such time (including pursuant to the Warrants), the
number of shares
of Common Stock which would result in the Holder beneficially
owning (as
determined in accordance with Section 13(d) of the Exchange Act and
the rules
thereunder) more than 4.9% of all of the Common Stock outstanding
at such time;
provided, however, that upon the Holder providing the Maker with
sixty-one (61)
days notice (pursuant to Section 4.1 hereof) (the "Waiver Notice")
that the
Holder would like to waive this Section 3.4(a) with regard to any
or all shares
of Common Stock issuable upon conversion of this Note, this Section
3.4(a) will
be of no force or effect with regard to all or a portion of the
Note referenced
in the Waiver Notice.
(b) Notwithstanding anything to the contrary set forth in Section 3
of
this Note, at no time may the Holder convert all or a portion of
this Note if
the number of shares of Common Stock to be issued pursuant to such
conversion,
when aggregated with all other shares of Common Stock owned by the
Holder at
such time, would result in the Holder beneficially owning (as
determined in
accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in
excess of 9.9% of the then issued and outstanding shares of Common
Stock
outstanding at such time (including pursuant to the Warrants);
provided,
however, that upon the Holder providing the Maker with a Waiver
Notice that the
Holder would like to waive Section 3.4(b) of this Note with regard
to any or all
shares of Common Stock issuable upon conversion of this Note, this
Section
3.4(b) shall be of no force or effect with regard to all or a
portion of the
Note referenced in the Waiver Notice.
Section 3.5 Intentionally Omitted.
Section 3.6 Adjustment of Conversion Price.
(a) The Conversion Price shall be subject to adjustment from time
to
time as follows:
(i) Adjustments for Stock Splits and Combinations. If the Maker
shall at any time or from time to time after the Issuance Date,
effect a stock
split of the outstanding Common Stock, the applicable Conversion
Price in effect
immediately prior to the stock split
-9-
<PAGE>
shall be proportionately decreased. If the Maker shall at any time
or from time
to time after the Issuance Date, combine the outstanding shares of
Common Stock,
the applicable Conversion Price in effect immediately prior to the
combination
shall be proportionately increased. Any adjustments under this
Section 3.6(a)(i)
shall be effective at the close of business on the date the stock
split or
combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If
the
Maker shall at any time or from time to time after the Issuance
Date, make or
issue or set a record date for the determination of holders of
Common Stock
entitled to receive a dividend or other distribution payable in
shares of Common
Stock, then, and in each event, the applicable Conversion Price in
effect
immediately prior to such event shall be decreased as of the time
of such
issuance or, in the event such record date shall have been fixed,
as of the
close of business on such record date, by multiplying, the
applicable Conversion
Price then in effect by a fraction:
(1) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of
such issuance or the close of business on such record date; and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of
such issuance or the close of business on such record date plus the
number of
shares of Common Stock issuable in payment of such dividend or
distribution.
(iii) Adjustment for Other Dividends and Distributions. If the
Maker shall at any time or from time to time after the Issuance
Date, make or
issue or set a record date for the determination of holders of
Common Stock
entitled to receive a dividend or other distribution payable in
other than
shares of Common Stock, then, and in each event, an appropriate
revision to the
applicable Conversion Price shall be made and provision shall be
made (by
adjustments of the Conversion Price or otherwise) so that the
holders of this
Note shall receive upon conversions thereof, in addition to the
number of shares
of Common Stock receivable thereon, the number of securities of the
Maker which
they would have received had this Note been converted into Common
Stock on the
date of such event and had thereafter, during the period from the
date of such
event to and including the Conversion Date, retained such
securities (together
with any distributions payable thereon during such period), giving
application
to all adjustments called for during such period under this Section
3.6(a)(iii)
with respect to the rights of the holders of this Note and the
Other Notes;
provided, however, that if such record date shall have been fixed
and such
dividend is not fully paid or if such distribution is not fully
made on the date
fixed therefor, the Conversion Price shall be adjusted pursuant to
this
paragraph as of the time of actual payment of such dividends or
distributions.
(iv) Adjustments for Reclassification, Exchange or
Substitution.
If the Common Stock issuable upon conversion of this Note at any
time or from
time to time after the Issuance Date shall be changed to the same
or different
number of shares of any class or classes of stock, whether by
reclassification,
exchange, substitution or otherwise (other than by way of a stock
split or
combination of shares or stock dividends provided for in Sections
3.6(a)(i),
(ii) and (iii), or a reorganization, merger, consolidation, or sale
of assets
provided for in Section 3.6(a)(v)), then, and in each event, an
appropriate
revision to the Conversion Price shall be made
-10-
<PAGE>
and provisions shall be made (by adjustments of the Conversion
Price or
otherwise) so that the Holder shall have the right thereafter to
convert this
Note into the kind and amount of shares of stock and other
securities receivable
upon reclassification, exchange, substitution or other change, by
holders of the
number of shares of Common Stock into which such Note might have
been converted
immediately prior to such reclassification, exchange, substitution
or other
change, all subject to further adjustment as provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or
Sales of Assets. If at any time or from time to time after the
Issuance Date
there shall be a capital reorganization of the Maker (other than by
way of a
stock split or combination of shares or stock dividends or
distributions
provided for in Section 3.6(a)(i), (ii) and (iii), or a
reclassification,
exchange or substitution of shares provided for in Section
3.6(a)(iv)), or a
merger or consolidation of the Maker with or into another
corporation where the
holders of outstanding voting securities prior to such merger or
consolidation
do not own over fifty percent (50%) of the outstanding voting
securities of the
merged or consolidated entity, immediately after such merger or
consolidation,
or the sale of all or substantially all of the Maker's properties
or assets to
any other person (an "Organic Change"), then as a part of such
Organic Change,
(A) if the surviving entity in any such Organic Change is a public
company that
is registered pursuant to the Securities Exchange Act of 1934, as
amended, and
its common stock is listed or quoted on a national securities
exchange or a
national automated quotation system or the OTC Bulletin Board, an
appropriate
revision to the Conversion Price shall be made and provision shall
be made (by
adjustments of the Conversion Price or otherwise) so that the
Holder shall have
the right thereafter to convert such Note into the kind and amount
of shares of
stock and other securities or property of the Maker or any
successor corporation
resulting from Organic Change, and (B) if the surviving entity in
any such
Organic Change is not a public company that is registered pursuant
to the
Securities Exchange Act of 1934, as amended, or its common stock is
not listed
or quoted on a national securities exchange or a national automated
quotation
system or the OTC Bulletin Board, the Holder shall have the right
to demand
prepayment pursuant to Section 3.7(b) hereof. In any such case,
appropriate
adjustment shall be made in the application of the provisions of
this Section
3.6(a)(v) with respect to the rights of the Holder after the
Organic Change to
the end that the provisions of this Section 3.6(a)(v) (including
any adjustment
in the applicable Conversion Price then in effect and the number of
shares of
stock or other securities deliverable upon conversion of this Note
and the Other
Notes) shall be applied after that event in as nearly an equivalent
manner as
may be practicable.
(vi) Adjustments for Issuance of Additional Shares of Common
Stock. In the event the Maker, shall, at any time, from time to
time, issue or
sell any additional shares of common stock (otherwise than as
provided in the
foregoing subsections (i) through (v) of this Section 3.6(a) or
pursuant to
Common Stock Equivalents (hereafter defined) granted or issued
prior to the
Issuance Date) ("Additional Shares of Common Stock"), at a price
per share less
than the Conversion Price then in effect or without consideration,
then the
Conversion Price upon each such issuance shall be reduced to a
price equal to
the consideration per share paid for such Additional Shares of
Common Stock.
(vii) Issuance of Common Stock Equivalents. The provisions of
this Section 3.6(a)(vii) shall apply if (a) the Maker, at any time
after the
Issuance Date, shall issue any securities convertible into or
exchangeable for,
directly or indirectly, Common Stock
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<PAGE>
("Convertible Securities"), other than the Notes, or (b) any rights
or warrants
or options to purchase any such Common Stock or Convertible
Securities
(collectively, the "Common Stock Equivalents") shall be issued or
sold. If the
price per share for which Additional Shares of Common Stock may be
issuable
pursuant to any such Common Stock Equivalent shall be less than the
applicable
Conversion Price then in effect, or if, after any such issuance of
Common Stock
Equivalents, the price per share for which Additional Shares of
Common Stock may
be issuable thereafter is amended or adjusted, and such price as so
amended
shall be less than the applicable Conversion Price in effect at the
time of such
amendment or adjustment, then the applicable Conversion Price upon
each such
issuance or amendment shall be adjusted as provided in the first
sentence of
subsection (vi) of this Section 3.6(a). No adjustment shall be made
to the
Conversion Price upon the issuance of Common Stock pursuant to the
exercise,
conversion or exchange of any Convertible Security or Common Stock
Equivalent
where an adjustment to the Conversion Price was made as a result of
the issuance
or purchase of any Convertible Security or Common Stock
Equivalent.
(viii) Consideration for Stock. In case any shares of Common
Stock or any Common Stock Equivalents shall be issued or sold:
(1) in connection with any merger or consolidation in which
the Maker is the surviving corporation (other than any
consolidation or merger
in which the previously outstanding shares of Common Stock of the
Maker shall be
changed to or exchanged for the stock or other securities of
another
corporation), the amount of consideration therefor shall be, deemed
to be the
fair value, as determined reasonably and in good faith by the Board
of Directors
of the Maker, of such portion of the assets and business of the
nonsurviving
corporation as such Board may determine to be attributable to such
shares of
Common Stock, Convertible Securities, rights or warrants or
options, as the case
may be; or
(2) in the event of any consolidation or merger of the Maker
in which the Maker is not the surviving corporation or in which the
previously
outstanding shares of Common Stock of the Maker shall be changed
into or
exchanged for the stock or other securities of another corporation,
or in the
event of any sale of all or substantially all of the assets of the
Maker for
stock or other securities of any corporation, the Maker shall be
deemed to have
issued a number of shares of its Common Stock for stock or
securities or other
property of the other corporation computed on the basis of the
actual exchange
ratio on which the transaction was predicated, and for a
consideration equal to
the fair market value on the date of such transaction of all such
stock or
securities or other property of the other corporation. If any such
calculation
results in adjustment of the applicable Conversion Price, or the
number of
shares of Common Stock issuable upon conversion of the Notes, the
determination
of the applicable Conversion Price or the number of shares of
Common Stock
issuable upon conversion of the Notes immediately prior to such
merger,
consolidation or sale, shall be made after giving effect to such
adjustment of
the number of shares of Common Stock issuable upon conversion of
the Notes. In
the event Common Stock is issued with other shares or securities or
other assets
of the Maker for consideration which covers both, the consideration
computed as
provided in this Section 3.6(viii) shall be allocated among such
securities and
assets as determined in good faith by the Board of Directors of the
Maker.
-12-
<PAGE>
(b) Record Date. In case the Maker shall take record of the holders
of
its Common Stock for the purpose of entitling them to subscribe for
or purchase
Common Stock or Convertible Securities, then the date of the issue
or sale of
the shares of Common Stock shall be deemed to be such record
date.
(c) Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Maker shall not be required to make any
adjustment to the
Conversion Price in connection with (i) securities issued (other
than for cash)
in connection with a merger, acquisition, or consolidation, (ii)
securities
issued pursuant to the conversion or exercise of convertible or
excercisable
securities issued or outstanding on or prior to the date hereof or
the Notes and
Warrants issued pursuant to the Purchase Agreement (so long as the
conversion or
exercise price in such securities are not amended to lower such
price and/or
adversely affect the Holders), (iii) the shares of Common Stock
issuable upon
the exercise of Warrants, (iv) securities issued in connection with
strategic
license agreements or other partnering arrangements so long as such
issuances
are not for the purpose of raising capital, (v) Common Stock issued
or the
issuance or grants of options to purchase Common Stock pursuant to
the Company's
stock option plans and employee stock purchase plans as they now
exist on the
date hereof, (vi) any warrants issued to the placement agent and
its designees
for the transactions contemplated by the Purchase Agreement, (vii)
Common Stock
issued in connection with consulting or advisory services not in
excess of
5,000,000 shares and (viii) the payment of any principal in shares
of Common
Stock pursuant to this Note or the Other Notes.
(d) No Impairment. The Maker shall not, by amendment of its
Certificate of Incorporation or through any reorganization,
transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or
any other
voluntary action, avoid or seek to avoid the observance or
performance of any of
the terms to be observed or performed hereunder by the Maker, but
will at all
times in good faith, assist in the carrying out of all the
provisions of this
Section 3.6 and in the taking of all such action as may be
necessary or
appropriate in order to protect the Conversion Rights of the Holder
against
impairment. In the event a Holder shall elect to convert any Notes
as provided
herein, the Maker cannot refuse conversion based on any claim that
such Holder
or any one associated or affiliated with such Holder has been
engaged in any
violation of law, violation of an agreement to which such Holder is
a party or
for any reason whatsoever, unless, an injunction from a court, or
notice,
restraining and or adjoining conversion of all or of said Notes
shall have
issued and the Maker posts a surety bond for the benefit of such
Holder in an
amount equal to one hundred thirty percent (130%) of the amount of
the Notes the
Holder has elected to convert, which bond shall remain in effect
until the
completion of arbitration/litigation of the dispute and the
proceeds of which
shall be payable to such Holder (as liquidated damages) in the
event it obtains
judgment.
(e) Certificates as to Adjustments. Upon occurrence of each
adjustment
or readjustment of the Conversion Price or number of shares of
Common Stock
issuable upon conversion of this Note pursuant to this Section 3.6,
the Maker at
its expense shall promptly compute such adjustment or readjustment
in accordance
with the terms hereof and furnish to the Holder a certificate
setting forth such
adjustment and readjustment, showing in detail the facts upon which
such
adjustment or readjustment is based. The Maker shall, upon written
request of
the Holder, at any time, furnish or cause to be furnished to the
Holder a like
certificate setting
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<PAGE>
forth such adjustments and readjustments, the applicable Conversion
Price in
effect at the time, and the number of shares of Common Stock and
the amount, if
any, of other securities or property which at the time would be
received upon
the conversion of this Note. Notwithstanding the foregoing, the
Maker shall not
be obligated to deliver a certificate unless such certificate would
reflect an
increase or decrease of at least one percent (1%) of such adjusted
amount.
(f) Issue Taxes.
The Maker shall pay any and all issue and other
taxes, excluding federal, state or local income taxes, that may be
payable in
respect of any issue or delivery of shares of Common Stock on
conversion of this
Note pursuant thereto; provided, however, that the Maker shall not
be obligated
to pay any transfer taxes resulting from any transfer requested by
the Holder in
connection with any such conversion.
(g) Fractional Shares. No fractional shares of Common Stock shall
be
issued upon conversion of this Note. In lieu of any fractional
shares to which
the Holder would otherwise be entitled, the Maker shall pay cash
equal to the
product of such fraction multiplied by the average of the Closing
Bid Prices of
the Common Stock for the five (5) consecutive Trading Days
immediately preceding
the Conversion Date.
(h) Reservation of Common Stock. Subject to the Company
obtaining
Stockholder Approval in accordance with Section 3.21 of the
Purchase Agreement,
the Maker shall at all times when this Note shall be outstanding,
reserve and
keep available out of its authorized but unissued Common Stock,
such number of
shares of Common Stock as shall from time to time be sufficient to
effect the
conversion of this Note; provided that the number of shares of
Common Stock so
reserved shall at no time be less than one hundred fifty percent
(150%) of the
number of shares of Common Stock for which this Note is at any time
convertible.
The Maker shall, from time to time in accordance with the Delaware
General
Corporation Law, increase the authorized number of shares of Common
Stock if at
any time the unissued number of authorized shares shall not be
sufficient to
satisfy the Maker's obligations under this Section 3.6(h).
(i) Regulatory Compliance. If any shares of Common Stock to be
reserved for the purpose of conversion of this Note require
registration or
listing with or approval of any governmental authority, stock
exchange or other
regulatory body under any federal or state law or regulation or
otherwise before
such shares may be validly issued or delivered upon conversion, the
Maker shall,
at its sole cost and expense, in good faith and as expeditiously as
possible,
endeavor to secure such registration, listing or approval, as the
case may be.
Section 3.7 Prepayment.
(a) Prepayment Upon an Event of Default. Notwithstanding anything
to
the contrary contained herein, upon the occurrence of an Event of
Default
described in Sections 2.1(b)-(k) hereof, the Holder shall have the
right, at
such Holder's option, to require the Maker to prepay in cash all or
a portion of
this Note at a price equal to one hundred twenty percent (120%) of
the aggregate
principal amount of this Note applicable at the time of such
request. Nothing in
this Section 3.7(a) shall limit the Holder's rights under Section
2.2 hereof.
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<PAGE>
(b) Prepayment Option Upon Major Transaction. In addition to all
other
rights of the Holder contained herein, simultaneous with the
occurrence of a
Major Transaction (as defined below), the Holder shall have the
right, at the
Holder's option, to require the Maker to prepay all or a portion of
the Holder's
Notes at a price equal to one hundred percent (100%) of the
aggregate principal
amount of this Note (the "Major Transaction Prepayment Price");
provided that
the Maker shall have the sole option to make payment of the Major
Transaction
Prepayment Price in cash or shares of Common Stock.
(c) Prepayment Option Upon Triggering Event. In addition to all
other
rights of the Holder contained herein, after a Triggering Event (as
defined
below), the Holder shall have the right, at the Holder's option, to
require the
Maker to prepay all or a portion of this Note in cash at a price
equal to the
sum of (i) the greater of (A) one hundred twenty-five percent
(125%) of the
aggregate principal amount of this Note and (B) in the event at
such time the
Holder is unable to obtain the benefit of its conversion rights
through the
conversion of this Note and resale of the shares of Common Stock
issuable upon
conversion hereof in accordance with the terms of this Note and the
other
Transaction Documents, the aggregate principal amount of this Note,
divided by
the Conversion Price on (x) the date the Prepayment Price (as
defined below) is
demanded or otherwise due or (y) the date the Prepayment Price is
paid in full,
whichever is less, multiplied by the VWAP (as defined below) on (x)
the date the
Prepayment Price is demanded or otherwise due, and (y) the date the
Prepayment
Price is paid in full, whichever is greater, and (ii) all other
amounts, costs,
expenses and liquidated damages due in respect of this Note and the
other
Transaction Documents (the "Triggering Event Prepayment Price,"
and,
collectively with the Major Transaction Prepayment Price, the
"Prepayment
Price"). For purposes hereof, "VWAP" means, for any date, (i) the
daily volume
weighted average price of the Common Stock for such date on the OTC
Bulletin
Board as reported by Bloomberg Financial L.P. (based on a Trading
Day from 9:30
a.m. Eastern Time to 4:02 p.m. Eastern Time); (ii) if the Common
Stock is not
then listed or quoted on the OTC Bulletin Board and if prices for
the Common
Stock are then reported in the "Pink Sheets" published by the Pink
Sheets, LLC
(or a similar organization or agency succeeding to its functions of
reporting
prices), the most recent bid price per share of the Common Stock so
reported; or
(iii) in all other cases, the fair market value of a share of
Common Stock as
determined by an independent appraiser selected in good faith by
the Holder and
reasonably acceptable to the Maker.
(d) Intentionally Omitted.
(e) "Major Transaction." A "Major Transaction" shall be deemed to
have
occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination of
the Maker with or into another Person (as defined in Section 4.13
hereof) (other
than (A) pursuant to a migratory merger effected solely for the
purpose of
changing the jurisdiction of incorporation of the Maker or (B) a
consolidation,
merger or other business combination in which holders of the
Maker's voting
power immediately prior to the transaction continue after the
transaction to
hold, directly or indirectly, the voting power of the surviving
entity or
entities necessary to elect a majority of the members of the board
of directors
(or their equivalent if other than a corporation) of such entity or
entities).
-15-
<PAGE>
(ii) the sale or transfer of more than fifty percent (50%) of
the
Maker's assets (based on the fair market value as determined in
good faith by
the Maker's Board of Directors) other than inventory in the
ordinary course of
business in one or a related series of transactions; or
(iii) closing of a purchase, tender or exchange offer made to
the
holders of more than fifty percent (50%) of the outstanding shares
of Common
Stock in which more than fifty percent (50%) of the outstanding
shares of Common
Stock were tendered and accepted.
(f) "Triggering Event." A "Triggering Event" shall be deemed to
have
occurred at such time as any of the following events:
(i) so long as any Notes are outstanding, the effectiveness of
the Registration Statement, after it becomes effective, (i) lapses
for any
reason (including, without limitation, the issuance of a stop
order) or (ii) is
unavailable to the Holder for sale of the shares of Common Stock,
and such lapse
or unavailability continues for a period of twenty (20) consecutive
Trading
Days, and the shares of Common Stock into which the Holder's Notes
can be
converted cannot be sold in the public securities market pursuant
to Rule 144(k)
under the Securities Act, provided that the cause of such lapse
or
unavailability is not due to factors primarily within the control
of the Holder
of the Notes; and provided further that a Triggering Event shall
not have
occurred if and to the extent the Maker exercised its rights set
forth in
Section 3(n) of the Registration Rights Agreement;
(ii) the suspension from listing, without subsequent listing on
any one of, or the failure of the Common Stock to be listed on at
least one of
the OTC Bulletin Board, the American Stock Exchange, the Nasdaq
National Market,
the Nasdaq SmallCap Market or The New York Stock Exchange, Inc.,
for a period of
five (5) consecutive Trading Days;
(iii) the Maker's notice to any holder of the Notes, including
by
way of public announcement, at any time, of its inability to comply
(including
for any of the reasons described in Section 3.8) or its intention
not to comply
with proper requests for conversion of any Notes into shares of
Common Stock; or
(iv) the Maker's failure to comply with a Conversion Notice
tendered in accordance with the provisions of this Note within ten
(10) business
days after the receipt by the Maker of the Conversion Notice;
or
(v) the Maker deregisters its shares of Common Stock and as a
result such shares of Common Stock are no longer publicly traded;
or
(vi) the Maker consummates a "going private" transaction and as
a
result the Common Stock is no longer registered under Sections
12(b) or 12(g) of
the Exchange Act; or
(vii) the Maker breaches any representation, warranty, covenant
or other term or condition of the Purchase Agreement, this Note or
any other
agreement, document, certificate or other instrument delivered in
connection
with the transactions contemplated thereby
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<PAGE>
or hereby, except to the extent that such breach would not have a
Material
Adverse Effect (as defined in the Purchase Agreement) and except,
in the case of
a breach of a covenant which is curable, only if such breach
continues for a
period of a least ten (10) business days.
(g) Intentionally Omitted.
(h) Mechanics of Prepayment at Option of Holder Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten
(10) days prior
to the consummation of a Major Transaction, but not prior to the
public
announcement of such Major Transaction, the Maker shall deliver
written notice
thereof via facsimile and overnight courier ("Notice of Major
Transaction") to
the Holder of this Note. At any time after receipt of a Notice of
Major
Transaction (or, in the event a Notice of Major Transaction is not
delivered at
least ten (10) days prior to a Major Transaction, at any time
within ten (10)
days prior to a Major Transaction), any holder of the Notes then
outstanding may
require the Maker to prepay, effective immediately prior to the
consummation of
such Major Transaction, all of the holder's Notes then outstanding
by delivering
written notice thereof via facsimile and overnight courier ("Notice
of
Prepayment at Option of Holder Upon Major Transaction") to the
Maker, which
Notice of Prepayment at Option of Holder Upon Major Transaction
shall indicate
(i) the principal amount of the Notes that such holder is electing
to have
prepaid and (ii) the applicable Major Transaction Prepayment Price,
as
calculated pursuant to Section 3.7(b) above.
(i) Mechanics of Prepayment at Option of Holder Upon Triggering
Event.
Within one (1) business day after the occurrence of a Triggering
Event, the
Maker shall deliver written notice thereof via facsimile and
overnight courier
("Notice of Triggering Event") to each holder of the Notes. At any
time after
the earlier of a holder's receipt of a Notice of Triggering Event
and such
holder becoming aware of a Triggering Event, any holder of this
Note and the
Other Notes then outstanding may require the Maker to prepay all of
the Notes on
a pro rata basis by delivering written notice thereof via facsimile
and
overnight courier ("Notice of Prepayment at Option of Holder Upon
Triggering
Event") to the Maker, which Notice of Prepayment at Option of
Holder Upon
Triggering Event shall indicate (i) the amount of the Note that
such holder is
electing to have prepaid and (ii) the applicable Triggering Event
Prepayment
Price, as calculated pursuant to Section 3.7(c) above. A holder
shall only be
permitted to require the Maker to prepay the Note pursuant to
Section 3.7 hereof
for the greater of a period of ten (10) days after receipt by such
holder of a
Notice of Triggering Event or for so long as such Triggering Event
is
continuing.
(j) Payment of Prepayment Price. Upon the Maker's receipt of a
Notice(s) of Prepayment at Option of Holder Upon Triggering Event
or a Notice(s)
of Prepayment at Option of Holder Upon Major Transaction from any
holder of the
Notes, the Maker shall immediately notify each holder of the Notes
by facsimile
of the Maker's receipt of such Notice(s) of Prepayment at Option of
Holder Upon
Triggering Event or Notice(s) of Prepayment at Option of Holder
Upon Major
Transaction and each holder which has sent such a notice shall
promptly submit
to the Maker such holder's certificates representing the Notes
which such holder
has elected to have prepaid. The Maker shall deliver the applicable
Triggering
Event Prepayment Price, in the case of a prepayment pursuant to
Section 3.7(i),
to such holder within five (5) business days after the Maker's
receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and,
in the case
of a prepayment pursuant to Section 3.7(h), the Maker shall
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<PAGE>
deliver the applicable Major Transaction Prepayment Price
immediately prior to
the consummation of the Major Transaction; provided that a holder's
original
Note shall have been so delivered to the Maker; provided further
that if the
Maker is unable to prepay all of the Notes to be prepaid, the Maker
shall prepay
an amount from each holder of the Notes being prepaid equal to such
holder's
pro-rata amount (based on the number of Notes held by such holder
relative to
the number of Notes outstanding) of all Notes being prepaid. If the
Maker shall
fail to prepay all of the Notes submitted for prepayment (other
than pursuant to
a dispute as to the arithmetic calculation of the Prepayment
Price), in addition
to any remedy such holder of the Notes may have under this Note and
the Purchase
Agreement, the applicable Prepayment Price payable in respect of
such Notes not
prepaid shall bear interest at the rate of two percent (2%) per
month (prorated
for partial months) until paid in full. Until the Maker pays such
unpaid
applicable Prepayment Price in full to a holder of the Notes
submitted for
prepayment, such holder shall have the option (the "Void Optional
Prepayment
Option") to, in lieu of prepayment, require the Maker to promptly
return to such
holder(s) all of the Notes that were submitted for prepayment by
such holder(s)
under this Section 3.7 and for which the applicable Prepayment
Price has not
been paid, by sending written notice thereof to the Maker via
facsimile (the
"Void Optional Prepayment Notice"). Upon the Maker's receipt of
such Void
Optional Prepayment Notice(s) and prior to payment of the full
applicable
Prepayment Price to such holder, (i) the Notice(s) of Prepayment at
Option of
Holder Upon Triggering Event or the Notice(s) of Prepayment at
Option of Holder
Upon Major Transaction, as the case may be, shall be null and void
with respect
to those Notes submitted for prepayment and for which the
applicable Prepayment
Price has not been paid, (ii) the Maker shall immediately return
any Notes
submitted to the Maker by each holder for prepayment under this
Section 3.7(j)
and for which the applicable Prepayment Price has not been paid and
(iii) the
Conversion Price of such returned Notes shall be adjusted to the
lesser of (A)
the Conversion Price as in effect on the date on which the Void
Optional
Prepayment Notice(s) is delivered to the Maker and (B) the lowest
Closing Bid
Price during the period beginning on the date on which the
Notice(s) of
Prepayment of Option of Holder Upon Major Transaction or the
Notice(s) of
Prepayment at Option of Holder Upon Triggering Event, as the case
may be, is
delivered to the Maker and ending on the date on which the Void
Optional
Prepayment Notice(s) is delivered to the Maker; provided that no
adjustment
shall be made if such adjustment would result in an increase of the
Conversion
Price then in effect. A holder's delivery of a Void Optional
Prepayment Notice
and exercise of its rights following such notice shall not effect
the Maker's
obligations to make any payments which have accrued prior to the
date of such
notice. Payments provided for in this Section 3.7 shall have
priority to
payments to other stockholders in connection with a Major
Transaction.
(k) Intentionally Omitted.
Section 3.8 Inability to Fully Convert.
(a) Holder's Option if Maker Cannot Fully Convert. Subject to
Section
3.21 of the Purchase Agreement, if, upon the Maker's receipt of a
Conversion
Notice, the Maker cannot issue shares of Common Stock registered
for resale
under the Registration Statement for any reason, including, without
limitation,
because the Maker (w) does not have a sufficient number of shares
of Common
Stock authorized and available, (x) is otherwise prohibited by
applicable law or
by the rules or regulations of any stock exchange, interdealer
quotation system
or other self-regulatory organization with jurisdiction over the
Maker or any of
its securities from
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<PAGE>
issuing all of the Common Stock which is to be issued to the Holder
pursuant to
a Conversion Notice or (y) fails to have a sufficient number of
shares of Common
Stock registered for resale under the Registration Statement, then
the Maker
shall issue as many shares of Common Stock as it is able to issue
in accordance
with the Holder's Conversion Notice and, with respect to the
unconverted portion
of this Note, the Holder, solely at Holder's option, can elect
to:
(i) require the Maker to prepay that portion of this Note for
which the Maker is unable to issue Common Stock in accordance with
the Holder's
Conversion Notice (the "Mandatory Prepayment") at a price per share
equal to the
Triggering Event Prepayment Price as of such Conversion Date (the
"Mandatory
Prepayment Price");
(ii) if the Maker's inability to fully convert is pursuant to
Section 3.8(a)(x) above, require the Maker to issue restricted
shares of Common
Stock in accordance with such holder's Conversion Notice;
(iii) void its Conversion Notice and retain or have returned,
as
the case may be, this Note that was to be converted pursuant to the
Conversion
Notice (provided that the Holder's voiding its Conversion Notice
shall not
effect the Maker's obligations to make any payments which have
accrued prior to
the date of such notice);
(iv) exercise its Buy-In rights pursuant to and in accordance
with the terms and provisions of Section 3.3(c) of this Note.
In the event a Holder shall elect to convert any portion of its
Notes as
provided herein, the Maker cannot refuse conversion based on any
claim that such
Holder or any one associated or affiliated with such Holder has
been engaged in
any violation of law, violation of an agreement to which such
Holder is a party
or for any reason whatsoever, unless, an injunction from a court,
on notice,
restraining and or adjoining conversion of all or of said Notes
shall have been
issued and the Maker posts a surety bond for the benefit of such
Holder in an
amount equal to 130% of the principal amount of the Notes the
Holder has elected
to convert, which bond shall remain in effect until the completion
of
arbitration/litigation of the dispute and the proceeds of which
shall be payable
to such Holder in the event it obtains judgment.
(b) Mechanics of Fulfilling Holder's Election. The Maker shall
immediately send via facsimile to the Holder, upon receipt of a
facsimile copy
of a Conversion Notice from the Holder which cannot be fully
satisfied as
described in Section 3.8(a) above, a notice of the Maker's
inability to fully
satisfy the Conversion Notice (the "Inability to Fully Convert
Notice"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why
the Maker is
unable to fully satisfy such holder's Conversion Notice, (ii) the
amount of this
Note which cannot be converted and (iii) the applicable Mandatory
Prepayment
Price. The Holder shall notify the Maker of its election pursuant
to Section
3.8(a) above by delivering written notice via facsimile to the
Maker ("Notice in
Response to Inability to Convert").
(c) Payment of Prepayment Price. If the Holder shall elect to have
its
Notes prepaid pursuant to Section 3.8(a)(i) above, the Maker shall
pay the
Mandatory Prepayment Price to the Holder within thirty (30) days of
the Maker's
receipt of the Holder's Notice in Response to Inability to Convert,
provided
that prior to the Maker's receipt of the Holder's Notice
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<PAGE>
in Response to Inability to Convert the Maker has not delivered a
notice to the
Holder stating, to the satisfaction of the Holder, that the event
or condition
resulting in the Mandatory Prepayment has been cured and all
Conversion Shares
issuable to the Holder can and will be delivered to the Holder in
accordance
with the terms of this Note. If the Maker shall fail to pay the
applicable
Mandatory Prepayment Price to the Holder on the date that is one
(1) business
day following the Maker's receipt of the Holder's Notice in
Response to
Inability to Convert (other than pursuant to a dispute as to the
determination
of the arithmetic calculation of the Prepayment Price), in addition
to any
remedy the Holder may have under this Note and the Purchase
Agreement, such
unpaid amount shall bear interest at the rate of two percent (2%)
per month
(prorated for partial months) until paid in full. Until the full
Mandatory
Prepayment Price is paid in full to the Holder, the Holder may (i)
void the
Mandatory Prepayment with respect to that portion of the Note for
which the full
Mandatory Prepayment Price has not been paid, (ii) receive back
such Note, and
(iii) require that the Conversion Price of such returned Note be
adjusted to the
lesser of (A) the Conversion Price as in effect on the date on
which the Holder
voided the Mandatory Prepayment and (B) the lowest Closing Bid
Price during the
period beginning on the Conversion Date and ending on the date the
Holder voided
the Mandatory Prepayment.
(d) Pro-rata Conversion and Prepayment. In the event the Maker
receives a Conversion Notice from more than one holder of the Notes
on the same
day and the Maker can convert and prepay some, but not all, of the
Notes
pursuant to this Section 3.8, the Maker shall convert and prepay
from each
holder of the Notes electing to have its Notes converted and
prepaid at such
time an amount equal to such holder's pro-rata amount (based on the
principal
amount of the Notes held by such holder relative to the principal
amount of the
Notes outstanding) of all the Notes being converted and prepaid at
such time.
Section 3.9 No Rights as Shareholder. Nothing contained in this
Note
shall be construed as conferring upon the Holder, prior to the
conversion of
this Note, the right to vote or to receive dividends or to consent
or to receive
notice as a shareholder in respect of any meeting of shareholders
for the
election of directors of the Maker or of any other matter, or any
other rights
as a shareholder of the Maker.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Notices. Any notice, demand, request, waiver or
other
communication required or permitted to be given hereunder shall be
in writing
and shall be effective (a) upon hand delivery, telecopy or
facsimile at the
address or number designated in the Purchase Agreement (if
delivered on a
business day during normal business hours where such notice is to
be received),
or the first business day following such delivery (if delivered
other than on a
business day during normal business hours where such notice is to
be received)
or (b) on the third business day following the date of mailing by
express
courier service, fully prepaid, addressed to such address, or upon
actual
receipt of such mailing, whichever shall first occur. The Maker
will give
written notice to the Holder at least ten (10) days prior to the
date on which
the Maker takes a record (x) with respect to any dividend or
distribution upon
the Common Stock, (y) with respect to any pro rata subscription
offer to holders
of Common Stock or (z) for
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<PAGE>
determining rights to vote with respect to any Organic Change,
dissolution,
liquidation or winding-up provided, notwithstanding the foregoing
in no event
shall such notice be provided to such holder prior to such
information being
made known to the public. The Maker will also give written notice
to the Holder
at least ten (10) days prior to the date on which any Organic
Change,
dissolution, liquidation or winding-up will take place provided,
notwithstanding
the foregoing in no event shall such notice be provided to the
Holder prior to
such information being made known to the public. The Maker shall
promptly notify
the Holder of this Note of any notices sent or received, or any
actions taken
with respect to the Other Notes.
Section 4.2 Governing Law. This Note shall be governed by and
construed in accordance with the internal laws of the State of New
York, without
giving effect to any of the conflicts of law principles which would
result in
the application of the substantive law of another jurisdiction.
This Note shall
not be interpreted or construed with any presumption against the
party causing
this Note to be drafted.
Section 4.3 Headings. Article and section headings in this Note
are
included herein for purposes of convenience of reference only and
shall not
constitute a part of this Note for any other purpose.
Section 4.4 Remedies, Characterizations, Other Obligations,
Breaches
and Injunctive Relief. The remedies provided in this Note shall be
cumulative
and in addition to all other remedies available under this Note, at
law or in
equity (including, without limitation, a decree of specific
performance and/or
other injunctive relief), no remedy contained herein shall be
deemed a waiver of
compliance with the provisions giving rise to such remedy and
nothing herein
shall limit a holder's right to pursue actual damages for any
failure by the
Maker to comply with the terms of this Note. Amounts set forth or
provided for
herein with respect to payments, conversion and the like (and the
computation
thereof) shall be the amounts to be received by the holder thereof
and shall
not, except as expressly provided herein, be subject to any other
obligation of
the Maker (or the performance thereof). The Maker acknowledges that
a breach by
it of its obligations hereunder will cause irreparable and material
harm to the
Holder and that the remedy at law for any such breach may be
inadequate.
Therefore the Maker agrees that, in the event of any such breach or
threatened
breach, the Holder shall be entitled, in addition to all other
available rights
and remedies, at law or in equity, to seek and obtain such
equitable relief,
including but not limited to an injunction restraining any such
breach or
threatened breach, without the necessity of showing economic loss
and without
any bond or other security being required.
Section 4.5 Enforcement Expenses. The Maker agrees to pay all
costs
and expenses of enforcement of this Note, including, without
limitation,
reasonable attorneys' fees and expenses.
Section 4.6 Binding Effect. The obligations of the Maker and
the
Holder set forth herein shall be binding upon the successors and
assigns of each
such party, whether or not such successors or assigns are permitted
by the terms
hereof.
Section 4.7 Amendments. This Note may not be modified or amended
in
any manner except in writing executed by the Maker and the
Holder.
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<PAGE>
Section 4.8 Compliance with Securities Laws. The Holder of this
Note
acknowledges that this Note is being acquired solely for the
Holder's own
account and not as a nominee for any other party, and for
investment, and that
the Holder shall not offer, sell or otherwise dispose of this Note.
This Note
and any Note issued in substitution or replacement therefor shall
be stamped or
imprinted with a legend in substantially the following form:
"THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS
AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY
NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT
BY THE MAKER OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND
SCOPE
REASONABLY SATISFACTORY TO THE MAKER THAT THIS NOTE AND THE SHARES
OF
COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE MAY BE SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN
EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES
LAWS."
Section 4.9 Consent to Jurisdiction. Each of the Maker and the
Holder
(i) hereby irrevocably submits to the exclusive jurisdiction of the
United
States District Court sitting in the Southern District of New York
and the
courts of the State of New York located in New York county for the
purposes of
any suit, action or proceeding arising out of or relating to this
Note and (ii)
hereby waives, and agrees not to assert in any such suit, action or
proceeding,
any claim that it is not personally subject to the jurisdiction of
such court,
that the suit, action or proceeding is brought in an inconvenient
forum or that
the venue of the suit, action or proceeding is improper. Each of
the Maker and
the Holder consents to process being served in any such suit,
action or
proceeding by mailing a copy thereof to such party at the address
in effect for
notices to it under the Purchase Agreement and agrees that such
service shall
constitute good and sufficient service of process and notice
thereof. Nothing in
this Section 4.9 shall affect or limit any right to serve process
in any other
manner permitted by law. Each of the Maker and the Holder hereby
agree that the
prevailing party in any suit, action or proceeding arising out of
or relating to
this Note shall be entitled to reimbursement for reasonable legal
fees from the
non-prevailing party.
Section 4.10 Parties in Interest. This Note shall be binding
upon,
inure to the benefit of and be enforceable by the Maker, the Holder
and their
respective successors and permitted assigns.
Section 4.11 Failure or Indulgence Not Waiver. No failure or delay
on
the part of the Holder in the exercise of any power, right or
privilege
hereunder shall operate as a waiver thereof, nor shall any single
or partial
exercise of any such power, right or privilege preclude other or
further
exercise thereof or of any other right, power or privilege.
-22-
<PAGE>
Section 4.12 Maker Waivers. Except as otherwise specifically
provided
herein, the Maker and all others that may become liable for all or
any part of
the obligations evidenced by this Note, hereby waive presentment,
demand, notice
of nonpayment, protest and all other demands' and notices in
connection with the
delivery, acceptance, performance and enforcement of this Note, and
do hereby
consent to any number of renewals of extensions of the time or
payment hereof
and agree that any such renewals or extensions may be made without
notice to any
such persons and without affecting their liability herein and do
further consent
to the release of any person liable hereon, all without affecting
the liability
of the other persons, firms or Maker liable for the payment of this
Note, AND DO
HEREBY WAIVE TRIAL BY JURY.
(a) No delay or omission on the part of the Holder in exercising
its
rights under this Note, or course of conduct relating hereto, shall
operate as a
waiver of such rights or any other right of the Holder, nor shall
any waiver by
the Holder of any such right or rights on any one occasion be
deemed a waiver of
the same right or rights on any future occasion.
(b) THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE
IS
A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY
APPLICABLE LAW,
HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY
PREJUDGMENT
REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO
USE.
Section 4.13 Definitions. For the purposes hereof, the following
terms
shall have the following meanings:
"Person" means an individual or a corporation, partnership,
trust,
incorporated or unincorporated association, joint venture, limited
liability
company, joint stock company, government (or an agency or political
subdivision
thereof) or other entity of any kind.
"Trading Day" means (a) a day on which the Common Stock is traded
on
the OTC Bulletin Boa
