EXHIBIT
10.4
AMENDED AND RESTATED SENIOR
NOTE
VERTICAL BRANDING, INC.
SENIOR NOTE
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Issuance Date: May 1, 2009
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Original Principal Amount: U.S. $2,261,437.20
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FOR VALUE RECEIVED, Vertical Branding,
Inc., a Delaware corporation (the " Company "), hereby
promises to pay to Gottbetter Capital Master, Ltd. (In Voluntary
Liquidation) or registered assigns (" Holder ") the amount
set out above as the Original Principal Amount (as reduced pursuant
to the terms hereof, the " Principal ") when due, whether
upon the Maturity Date (as defined below), on any Installment Date
with respect to the Installment Amount due on such Installment
Date, acceleration, redemption or otherwise (in each case in
accordance with the terms hereof) and to pay interest ("
Interest ") on any outstanding Principal at a rate per annum
equal to the Interest Rate (as defined below), from the date set
out above as the Issuance Date (the " Issuance Date ") until
the same becomes due and payable, whether upon an Interest Date (as
defined below), any Installment Date, or the Maturity Date,
acceleration, redemption or otherwise (in each case in accordance
with the terms hereof). This Amended and Restated Senior Note
(including all notes issued in exchange, transfer or replacement
hereof, this " Note ") is issued pursuant to the Securities
Purchase Agreement. Certain capitalized terms are defined in
Section 20.
1.
PAYMENTS OF PRINCIPAL;
MATURITY . On each
Installment Date, the Company shall pay to the Holder an amount
equal to the Installment Amount due on such Installment Date in
cash by wire transfer of immediately available funds. The "
Maturity Date " shall be December 31, 2010. All outstanding
Principal and Interest shall be due on the Maturity Date. The
Company may prepay all or any part of the Principal amount of the
Note at any time without penalty, premium or other charge; any such
prepayment shall be applied against the last payments that may come
due and owing under the Note.
2.
INTEREST; INTEREST RATE
.
(a)
Interest on this Note shall commence
accruing on the Issuance Date and shall be computed on the basis of
a 360-day year and actual days elapsed and shall be payable in
arrears for each Calendar Month during the period beginning on the
Issuance Date and ending on, and including, the Maturity Date
(each, an " Interest Date ") with the first Interest Date
being June 1, 2009 (and each subsequent Interest Date being on the
first Business Day of each subsequent Calendar Month). Subject to
Section 2(b), Interest shall continue to accrue after the Maturity
Date if the Note is not paid in full. Interest shall be payable on
each Interest Date, to the record holder of this Note on the
applicable Interest Date, in cash (" Cash Interest
").
(b)
From and after the occurrence of an Event
of Default, the Interest Rate shall be increased to fifteen percent
(15%). In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding
sentence shall cease to be effective as of the date of such cure;
provided that the Interest as calculated at such increased rate
during the continuance of such Event of Default shall continue to
apply to the extent relating to the days after the occurrence of
such Event of Default through and including the date of cure of
such Event of Default.
3.
RIGHTS UPON EVENT OF
DEFAULT .
(a)
Event of Default
. Each of the following events
shall constitute an "Event of Default ":
(i)
the Company's failure to pay to the
Holder any amount of Principal, Interest, Late Charges or other
amounts when and as due under this Note, the Consent Agreement or
any other Transaction Document (as defined in the Securities
Purchase Agreement and as any such Transaction Document shall have
been amended or modified from time to time) and such failure
continues for a period of at least ten (10) Business
Days;
(ii)
any default under, redemption of or
acceleration prior to maturity of any Indebtedness in excess of
$100,000, individually, of the Company or any of its Subsidiaries
(as defined in Section 3(a) of the Securities Purchase Agreement)
which is not disputed in writing by the Company;
(iii)
the Company or any of its Subsidiaries,
pursuant to or within the meaning of Title 11, U.S. Code, or any
similar Federal, foreign or state law for the relief of debtors
(collectively, " Bankruptcy Law "), (A) commences a
voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment
of a receiver, trustee, assignee, liquidator or similar official
(a " Custodian "), (D) makes a
general assignment for the benefit of its creditors or (E) admits
in writing that it is generally unable to pay its debts as they
become due;
(iv)
a court of competent jurisdiction enters
an order or decree under any Bankruptcy Law that (A) is for relief
against the Company or any of its Subsidiaries in an involuntary
case, (B) appoints a Custodian of the Company or any of its
Subsidiaries or (C) orders the liquidation of the Company or any of
its Subsidiaries;
(v)
a final judgment or judgments for the
payment of money aggregating in excess of $250,000 are rendered
against the Company or any of its Subsidiaries and which judgments
are not, within sixty (60) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within
sixty (60) days after the expiration of such stay; provided,
however, that any judgment which is covered by insurance or an
indemnity from a credit worthy party shall not be included in
calculating the $250,000 amount set forth above so long as the
Company provides the Holder a written statement from such insurer
or indemnity provider (which written statement shall be reasonably
satisfactory to the Holder) to the effect that such judgment is
covered by insurance or an indemnity and the Company will receive
the proceeds of such insurance or indemnity within thirty (30) days
of the issuance of such judgment;
(vi)
the Company breaches any material
representation, warranty, covenant or other term or condition of
this Note, the Consent Agreement, the Securities Purchase
Agreement, or the Security Agreement (as defined in Section 6),
except, in the case of a breach of a covenant which is curable,
only if such breach continues for a period of at least ten (10)
consecutive Business Days;
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(b)
Redemption Right
. Upon the occurrence of an Event
of Default with respect to this Note, the Company shall within two
(2) Business Days after the day on which the Company is aware of
the Event of Default deliver written notice thereof via facsimile
and overnight courier (an " Event of Default Notice ") to
the Holder. At any time after the earlier of the Holder's
receipt of an Event of Default Notice and the Holder becoming aware
of an Event of Default, the Holder may require the Company to
redeem all or any portion of this Note by delivering written notice
thereof (the " Event of Default Redemption Notice ") to the
Company, which Event of Default Redemption Notice shall indicate
the portion of this Note the Holder is electing to redeem.
Each portion of this Note subject to redemption by the
Company pursuant to this Section 3(b) shall be redeemed by the
Company at a price equal to One Hundred and Twenty Five percent
(125%) of the face amount redeemed plus accrued
interest (“ Redemption Premium ”). To the extent redemptions required by this
Section 3(b) are deemed or determined by a court of competent
jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. The
parties hereto agree that in the event of the Company's redemption
of any portion of the Note under this Section 3(b), the Holder's
damages would be uncertain and difficult to estimate because of the
parties' inability to predict future interest rates and the
uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any Redemption
Premium due under this Section 3(b) is intended by the parties to
be, and shall be deemed, a reasonable estimate of the Holder's
actual loss of its investment opportunity and not as a penalty.
4.
RIGHTS UPON FUNDAMENTAL TRANSACTION
AND CHANGE OF CONTROL .
(a)
Assumption . Subject to Section 4(b), the Company shall
not enter into or be party to a Fundamental Transaction unless
(i) the Successor Entity assumes in writing all of the
obligations of the Company under this Note and the other
Transaction Documents in accordance with the provisions of this
Section 4(a) pursuant to written agreements in form and substance
reasonably satisfactory to the Required Holders and approved by the
Required Holders prior to such Fundamental Transaction (which
approval shall not be unreasonably withheld), including agreements
to deliver to each holder of Notes in exchange for such Notes a
security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to the Notes,
including, without limitation, having a principal amount and
interest rate equal to the principal amounts and the interest rates
of the Notes held by such holder and having similar ranking and
security to the Notes, and reasonably satisfactory to the Required
Holders. Subject to Section 4(b), upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and
be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Note referring to
the "Company" shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all
of the obligations of the Company under this Note with the same
effect as if such Successor Entity had been named as the Company
herein. The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations on the
conversion of this Note.
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(b)
Redemption Right
. In the event of a Change of
Control, and provided the Company has not, at any time prior
thereto, given Holder a Company Redemption Notice, or if such
notice has been given, provided the Company has timely paid to
Holder the Company Redemption Price (all as more specifically
provided in Section 5(a) below), then the Holder may require the
Company to redeem all or any portion of this Note by delivering
written notice thereof (" Change of
Control Redemption Notice ") to the Company, which Change of
Control Redemption Notice shall indicate the amount of the Note the
Holder is electing to redeem. The portion of this Note
subject to redemption pursuant to this Section 4 shall be redeemed
by the Company in cash at a price equal to One Hundred and Twenty
Five percent (125%) of the face amount redeemed plus accrued
interest. Redemptions required by this Section 4(b) shall be
made in accordance with the provisions of Section 8 and shall have
priority to payments to shareholders in connection with a Change of
Control. To the extent redemptions required by this Section
4(b) are deemed or determined by a court of competent jurisdiction
to be prepayments of the Note by the Company, such redemptions
shall be deemed to be voluntary prepayments. The parties hereto
agree that in the event of the Company's redemption of any portion
of the Note under this Section 4(b), the Holder's damages would be
uncertain and difficult to estimate because of the parties'
inability to predict future interest rates and the uncertainty of
the availability of a suitable substitute investment opportunity
for the Holder. Accordingly, any redemption premium due under
this Section 4(b) is intended by the parties to be, and shall be
deemed, a reasonable estimate of the Holder's actual loss of its
investment opportunity and not as a penalty.
5.
COMPANY RIGHT OF REDEMPTION
.
(a)
General . The Company at its option shall have the right to
redeem, at any time within three (3) Business Days advance written
notice (the “ Company Redemption Notice ”), a
portion or all of the outstanding principal of the Note. The
redemption price shall be One Hundred percent (100%) of the face
amount redeemed plus accrued interest (the “ Company
Redemption Price ”).
(b)
Mechanics of Company
Redemption . If the
Company elects to redeem the Note in accordance with Section 5(a),
then the Company Redemption Price, if any, which is to be paid to
the Holder, shall be paid, by wire transfer of immediately
available funds, an amount in cash equal to the Company Redemption
Price.
(c)
Redemption Requirement under the
Consent Agreement . The
Company shall be required to redeem a portion or all of the
outstanding principal amount of the Note upon the occurrence of
certain events set forth in the Consent Agreement.
6.
SECURITY . This Note and the obligations hereunder and
under the other Transaction Documents and the Consent Agreement are
secured to the extent and in the manner set forth in that certain
Security Agreement dated as of July 31, 2006, by and between the
Company and Gottbetter Capital Finance LLC, as subsequently amended
and modified (the “ Security Agreement
”).
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7.
NONCIRCUMVENTION
. The Company hereby covenants and
agrees that the Company will not, by amendment of its Articles of
Incorporation, Bylaws or through any reorganization, transfer of
assets, consolidation, merger, scheme of arrangement, 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
of this Note, and will at all times in good faith carry out all of
the provisions of this Note and take all reasonable action as may
be required to protect the rights of the Holder of this
Note.
8 .
COVENANTS .
(a)
Rank . All payments due under this Note shall be
senior to all other Indebtedness of the Company and its
Subsidiaries and shall be subordinate to the Permitted Senior
Indebtedness solely with respect to assets of the Company securing
the Permitted Senior Indebtedness.
(b)
Incurrence of Indebtedness
. So long as this Note is
outstanding, the Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, incur or
guarantee, assume or suffer to exist any Indebtedness, other than
(i) the Indebtedness evidenced by this Note and (ii) Permitted
Indebtedness.
(c)
Existence of Liens
. So long as this Note is
outstanding, the Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, allow or
suffer to exist any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or
any of its Subsidiaries (collectively, " Liens ") other than
Permitted Liens.
(d)
Restricted Payments
. The Company shall not, and the
Company shall not permit any of its Subsidiaries to, directly or
indirectly, redeem, defease, repurchase, repay or make any payments
in respect of, by the payment of cash or cash equivalents (in whole
or in part, whether by way of open market purchases, tender offers,
private transactions or otherwise), all or any portion of any
Permitted Indebtedness, whether by way of payment in respect of
principal of (or premium, if any) or interest on, such Indebtedness
if at the time such payment is due or is otherwise made or, after
giving effect to such payment, an event constituting, or that with
the passage of time and without being cured would constitute, an
Event of Default has occurred and is continuing.
(e)
Subsidiary Internal Accounting
Controls . So long as
this Note is outstanding, the Company and each of its Subsidiaries
shall maintain, in all material respects, a system of internal accounting controls
consistent with the internal accounting controls.
(f)
Restricted Dividends and
Redemptions . For so
long as this Note is outstanding, the Company shall not declare or
pay any cash dividends or make any other cash distributions on any
class or series of capital stock of the Company, redeem for cash
any class or series of capital stock, or permit any Subsidiary to
do any of the foregoing (provided that Subsidiaries may declare and
make payment of cash and stock divi
