1 Insert
six month anniversary of the Issuance Date
8. REDEMPTIONS AT THE COMPANY'S
ELECTION.
(a) Company Optional
Redemption. If at any time after the six month anniversary of
the Effective Date (the “Company Redemption Eligibility
Date”), (i) the Closing Sale Price of the Common Shares listed on the
Principal Market exceeds 175% of the Conversion Price as of the Issuance Date
(as adjusted for stock splits, stock dividends, stock combinations or other
similar transactions) for each of the fifteen (15) consecutive Trading Day
period following the applicable Company Redemption Eligibility Date (the “Company Optional Redemption Measuring
Period”), and (ii) no Redemption Conditions Failure exists, the Company
shall have the right to redeem all, but not less than all, of the Conversion
Amount then remaining under this Note (the “Company Optional Redemption
Amount”) on the Company Optional Redemption Date (each as defined below)
(a “Company Optional
Redemption”). The portion of this Note subject to redemption
pursuant to this Section 9(a) shall be redeemed by the Company in cash at a
price (the “Company Optional
Redemption Price”) equal to the Conversion Amount being redeemed together
with any accrued and unpaid Interest and Late Charges, if any, on such
Conversion Amount and Interest through the Company Optional Redemption Date (as
defined below). The Company may exercise its right to require
redemption under this Section 9(a) by delivering a written notice thereof by
facsimile and overnight courier to all, but not less than all, of the holders of
Notes (the “Company Optional
Redemption Notice” and the date all of the holders of Notes received such
notice is referred to as the “Company Optional Redemption Notice
Date”). The Company may deliver only one Company Optional
Redemption Notice hereunder and such Company Optional Redemption Notice shall be
irrevocable. The Company Optional Redemption Notice shall (x) state
the date on which the Company Optional Redemption shall occur (the “Company Optional Redemption
Date”) which date shall not be less than ten (10) Trading Days nor more
than thirty (30) Trading Days following the Company Optional Redemption Notice
Date, (y) certify that there has been no Redemption Conditions Failure, and (z)
state the aggregate Conversion Amount of the Notes which is being redeemed in
such Company Optional Redemption from the Holder and all of the other holders of
the Notes pursuant to this Section 9(a) (and analogous provisions under the
Other Notes) on the Company Optional Redemption Date. Notwithstanding
anything herein to the contrary, (i) if no Redemption Conditions Failure has
occurred as of the Company Optional Redemption Notice Date but a Redemption
Conditions Failure occurs at any time prior to the Company Optional
Redemption Date, (A) the Company shall provide the Holder a subsequent notice to
that effect and (B) unless the Holder waives the Redemption Conditions Failure,
the Company Optional Redemption shall be cancelled and the applicable Company
Optional Redemption Notice shall be null and void and (ii) at any time prior to
the date the Company Optional Redemption Price is paid, in full, the Company
Optional Redemption Amount may be converted, in whole or in part, by the Holders
into Common Shares pursuant to Section 3. All Conversion Amounts
converted by the Holder after the Company Optional Redemption Notice Date shall
reduce the Company Optional Redemption Amount of this Note required to be
redeemed on the Company Optional Redemption Date. Redemptions made
pursuant to this Section 9(a) shall be made in accordance with Section
11.
(b) Company Call
Redemption. At any time after the Company Redemption
Eligibility Date, provided that no Redemption Conditions Failure exists, the
Company shall have the right to redeem all, but not less than all, of the
Conversion Amount then remaining under this Note (the “Company Call Redemption
Amount”) on the Company Call Redemption Date (each as defined below) (a
“Company Call
Redemption”). The portion of this Note subject to redemption
pursuant to this Section 9(b) shall be redeemed by the Company in cash at a
price (the “Company Call
Redemption Price”) equal to 125% of the sum of (x) the Conversion Amount
being redeemed and (y) any accrued and unpaid Interest and Late Charges, if any,
on such Conversion Amount and Interest through the Company Call Redemption Date
(as defined below). The Company may exercise its right to require
redemption under this Section 9(b) by delivering a written notice thereof by
facsimile and overnight courier to all, but not less than all, of the holders of
Notes (the “Company Call
Redemption Notice” and the date all of the holders of Notes received such
notice is referred to as the “Company Call Redemption Notice
Date”). The Company may deliver only one Company Call
Redemption Notice hereunder and such Company Call Redemption Notice shall be
irrevocable. The Company Call Redemption Notice shall (x) state the
date on which the Company Call Redemption shall occur (the “Company Call Redemption Date”)
which date shall not be less than ten (10) Trading Days nor more than thirty
(30) Trading Days following the Company Call Redemption Notice Date, (y) certify
that there has been no Redemption Conditions Failure and (z) state the aggregate
Conversion Amount of the Notes which is being redeemed in such Company Call
Redemption from the Holder and all of the other holders of the Notes pursuant to
this Section 9(b) (and analogous provisions under the Other Notes) on the
Company Call Redemption Date. Notwithstanding anything herein to the
contrary, (i) if no Redemption Conditions Failure has occurred as of the Company
Call Redemption Notice Date but a Redemption Conditions Failure occurs at any
time prior to the Company Call Redemption Date, (A) the Company shall provide
the Holder a subsequent notice to that effect and (B) unless the Holder waives
the Redemption Conditions Failure, the Company Optional Redemption shall be
cancelled and the applicable Company Call Redemption Notice shall be null and
void and (ii) at any time prior to the date the Company Call Redemption Price is
paid, in full, the Company Call Redemption Amount may be converted, in whole or
in part, by the Holders into Common Shares pursuant to Section 3. All
Conversion Amounts converted by the Holder after the Company Call Redemption
Notice Date shall reduce the Company Call Redemption Amount of this Note
required to be redeemed on the Company Call Redemption
Date. Redemptions made pursuant to this Section 9(b) shall be made in
accordance with Section 11.
(c) Pro Rata Redemption
Requirement. If the Company elects to cause a Company Optional
Redemption or a Company Call Redemption of this Note pursuant to Section 9(a) or
9(b), then it must simultaneously take the same action with respect to all of
the Other Notes.
9. NONCIRCUMVENTION. The
Company hereby covenants and agrees that the Company will not, by amendment of
its Certificate of Incorporation (as defined in the Securities Purchase
Agreement), Bylaws (as defined in the Securities Purchase Agreement) 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 action as may be required to protect the
rights of the Holder of this Note. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares
of Common Stock receivable upon conversion of this Note above the Conversion
Price then in effect, (ii) shall take all such actions as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock upon the conversion of this Note,
and (iii) shall, so long as any of the Notes are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Notes, the maximum number of shares of Common Stock as shall from time to
time be necessary to effect the conversion of the Notes then outstanding
(without regard to any limitations on conversion).
10. RESERVATION OF AUTHORIZED
SHARES.
(a) Reservation. The
Company shall initially reserve out of its authorized and unissued Common Stock
a number of shares of Common Stock for each of the Notes equal to 130% of the
entire Conversion Rate with respect to the entire Conversion Amount of each such
Note as of the Issuance Date. So long
as any of the Notes are outstanding, the Company shall take all action necessary
to reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes, 130% of the
number of shares of Common Stock as shall from time to time be necessary to
effect the conversion of all of the Notes then outstanding, provided that at no
time shall the number of shares of Common Stock so reserved be less than the
number of shares required to be reserved by the previous sentence (without
regard to any limitations on conversions) (the “Required Reserve
Amount”). The initial number of shares of Common Stock
reserved for conversions of the Notes and each increase in the number of shares
so reserved shall be allocated pro rata among the holders of the Notes based on
the original principal amount of the Notes held by each holder on the Closing
Date or increase in the number of reserved shares (as the case may be) (the
“Authorized Share
Allocation”). In the event that a holder shall sell or otherwise transfer
any of such holder’s Notes, each transferee shall be allocated a pro rata
portion of such holder’s Authorized Share Allocation. Any shares of Common Stock
reserved and allocated to any Person which ceases to hold any Notes shall be
allocated to the remaining holders of Notes, pro rata based on the principal
amount of the Notes then held by such holders.
(b) Insufficient Authorized
Shares. If, notwithstanding Section 10(a), and not in limitation thereof,
at any time while any of the Notes remain outstanding the Company does not have
a sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon conversion of the Notes at
least a number of shares of Common Stock equal to the Required Reserve Amount
(an “Authorized Share
Failure”), then the Company shall immediately take all action necessary
to increase the Company’s authorized shares of Common Stock to an amount
sufficient to allow the Company to reserve the Required Reserve Amount for the
Notes then outstanding. Without limiting the generality of the foregoing
sentence, as soon as practicable after the date of the occurrence of an
Authorized Share Failure, but in no event later than sixty (60) days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of
its stockholders for the approval of an increase in the number of authorized
shares of Common Stock. In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its best
efforts to solicit its stockholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.
11. REDEMPTIONS.
(a) Mechanics. The
Company shall deliver the applicable Event of Default Redemption Price to the
Holder in cash within five (5) Business Days after the Company’s receipt of the
Holder’s Event of Default Redemption Notice. If the Holder has submitted a
Change of Control Redemption Notice in accordance with Section 5(b), the Company
shall deliver the applicable Change of Control Redemption Price to the Holder in
cash concurrently with the consummation of such Change of Control if such notice
is received prior to the consummation of such Change of Control and within five
(5) Business Days after the Company’s receipt of such notice
otherwise. The Company shall deliver the applicable Company Optional
Redemption Price on the Company Optional Redemption Date. The Company
shall deliver the applicable Company Call Redemption Price on the Company Call
Redemption Date. In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued
and delivered to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the applicable Redemption Price to the Holder
within the time period required, at any time thereafter and until the Company
pays such unpaid Redemption Price in full, the Holder shall have the option, in
lieu of redemption, to require the Company to promptly return to the Holder all
or any portion of this Note representing the Conversion Amount that was
submitted for redemption and for which the applicable Redemption Price (together
with any Late Charges thereon) has not been paid. Upon the Company’s receipt of
such notice, (x) the applicable Redemption Notice shall be null and void with
respect to such Conversion Amount, (y) the Company shall immediately return this
Note, or issue a new Note (in accordance with Section 18(d)), to the Holder, and
in each case the principal amount of this Note or such new Note (as the
case may be) shall be increased by an amount equal to the difference between (1)
the applicable Event of Default Redemption Price, Change of Control Redemption
Price, Company Optional Redemption Price or Company Call Redemption Price (as
the case may be) minus (2) the Conversion Amount submitted for redemption and
(z) the Conversion Price of this Note or such new Notes (as the case may be)
shall be adjusted to the lowest of (A) the Conversion Price as in effect on the
date on which the applicable Redemption Notice is voided, (B) 90% of the lowest
Closing Bid Price of the Common Stock during the period beginning on and
including the date on which the applicable Redemption Notice is delivered to the
Company and ending on and including the date on which the applicable Redemption
Notice is voided and (C) 90% of the VWAP for the five (5) Trading Day period
immediately preceding the Conversion Date of the applicable conversion. The
Holder’s delivery of a notice voiding a Redemption Notice and exercise of its
rights following such notice shall not affect the Company’s obligations to make
any payments of Late Charges which have accrued prior to the date of such notice
with respect to the Conversion Amount subject to such notice.
(b) Redemption by Other
Holders. Upon the Company’s receipt of notice from any of the holders of
the Other Notes for redemption or repayment as a result of an event or
occurrence substantially similar to the events or occurrences described in
Section 4(b) or Section 5(b) (each, an “Other Redemption Notice”), the
Company shall immediately, but no later than one (1) Business Day of its receipt
thereof, forward to the Holder by facsimile a copy of such notice. If the
Company receives a Redemption Notice and one or more Other Redemption Notices,
during the seven (7) Business Day period beginning on and including the date
which is three (3) Business Days prior to the Company’s receipt of the Holder’s
applicable Redemption Notice and ending on and including the date which is three
(3) Business Days after the Company’s receipt of the Holder’s applicable
Redemption Notice and the Company is unable to redeem all principal, interest
and other amounts designated in such Redemption Notice and such Other Redemption
Notices received during such seven (7) Business Day period, then the Company
shall redeem a pro rata amount from each holder of the Notes (including the
Holder) based on the principal amount of the Notes submitted for redemption
pursuant to such Redemption Notice and such Other Redemption Notices received by
the Company during such seven (7) Business Day period.
12. VOTING RIGHTS. The
Holder shall have no voting rights as the holder of this Note, except as
required by law, including but not limited to the Delaware General Corporation
Law, and as expressly provided in this Note.
13. COVENANTS. Until all
of the Notes have been converted, redeemed or otherwise satisfied in accordance
with their terms:
(a) Rank. All payments
due under this Note (a) shall rank pari passu with all Other
Notes and (b) shall be senior to all other Indebtedness of the Company and its
Subsidiaries other than Permitted Senior Indebtedness .
(b) Incurrence of
Indebtedness. The Company shall not, and the Company shall cause each of
its Subsidiaries to not, directly or indirectly, incur or guarantee, assume or
suffer to exist any Indebtedness (other than (i) the Indebtedness evidenced by
this Note and the Other Notes and (ii) Permitted Indebtedness).
(c) Existence of Liens.
The Company shall not, and the Company shall cause each of its Subsidiaries to
not, 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 cause each of its Subsidiaries to
not, 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 Indebtedness (other than
Permitted Senior Indebtedness or the Notes), 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, (i) an event constituting an Event of Default has occurred and
is continuing or (ii) an event that with the passage of time and without being
cured would constitute an Event of Default has occurred and is
continuing.
(e) Restriction on Redemption
and Cash Dividends. The Company shall not, and the Company shall cause
each of its Subsidiaries to not, directly or indirectly, redeem, repurchase or
declare or pay any cash dividend or distribution on any of its capital stock
without the prior express written consent of the Holder.
(f) Restriction on Transfer of
Assets. The Company shall not, and the Company shall cause each of its
Subsidiaries to not, directly or indirectly, sell, lease, license, assign,
transfer, convey or otherwise dispose of any assets or rights of the Company or
any Subsidiary owned or hereafter acquired whether in a single transaction or a
series of related transactions, other than (i) sales, leases, licenses,
assignments, transfers, conveyances and other dispositions of such assets or
rights by the Company and its Subsidiaries that, in the aggregate, do not have a
fair market value in excess of $100,000 in any twelve (12) month period and (ii)
sales of inventory in the ordinary course of business.
(g) Maturity of
Indebtedness. The Company shall not, and the Company shall cause each of
its Subsidiaries to not, directly or indirectly, permit any Indebtedness of the
Company or any of the Subsidiaries to mature or accelerate prior to the Maturity
Date, other than Permitted Senior Indebtedness.
(h) New Subsidiaries.
Simultaneously with the acquisition or formation of each New Subsidiary, the
Company shall cause such New Subsidiary to execute, and deliver to each holder
of Notes, Guaranties that the Current Subsidiaries are required to execute in
connection with the transactions contemplated by the Securities Purchase
Agreement.
(i) Change in Nature of
Business. The Company shall not, and the Company shall cause each of
its Subsidiaries to not, directly or indirectly, engage in any material line of
business substantially different from those lines of business conducted by the
Company and each of its Subsidiaries on the Issuance Date or any business
substantially related or incidental thereto. The Company shall not,
and the Company shall cause each of its Subsidiaries to not, directly or
indirectly, modify its or their corporate structure or purpose.
(j) Preservation of Existence,
Etc. The Company shall maintain and preserve, and cause each
of its Subsidiaries to maintain and preserve, its existence, rights and
privileges, and become or remain, and cause each of its Subsidiaries to become
or remain, duly qualified and in good standing in each jurisdiction in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary.
(k) Maintenance of Properties,
Etc. The Company shall maintain and preserve, and cause each
of its Subsidiaries to maintain and preserve, all of its properties which are
necessary or useful in the proper conduct of its business in good working order
and condition, ordinary wear and tear excepted, and comply, and cause each of
its Subsidiaries to comply, at all times with the provisions of all leases to
which it is a party as lessee or under which it occupies property, so as to
prevent any loss or forfeiture thereof or thereunder.
(l) Maintenance of
Insurance. The Company shall maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations with respect to its properties (including all real
properties leased or owned by it) and business, in such amounts and covering
such risks as is required by any governmental authority having jurisdiction with
respect thereto or as is carried generally in accordance with sound business
practice by companies in similar businesses similarly situated.
14. SECURITY. This Note
and the Other Notes are secured to the extent and in the manner set forth in the
Transaction Documents (including, without limitation, the Pledge
Agreement).
15. PARTICIPATION. In
addition to any adjustments pursuant to Section 7, the Holder, as the holder of
this Note, shall be entitled to receive such dividends paid and distributions
made to the holders of Common Stock to the same extent as if the Holder had
converted this Note into Common Stock (without regard to any limitations on
conversion herein or elsewhere) and had held such shares of Common Stock on the
record date for such dividends and distributions. Payments under the preceding
sentence shall be made concurrently with the dividend or distribution to the
holders of Common Stock (provided, however, to the extent that the Holder’s
right to participate in any such dividend or distribution would result in the
Holder exceeding the Maximum Percentage, then the Holder shall not be entitled
to participate in such dividend or distribution to such extent (or the
beneficial ownership of any such shares of Common Stock as a result of such
dividend or distribution to such extent) and such dividend or distribution to
such extent shall be held in abeyance for the benefit of the Holder until such
time, if ever, as its right thereto would not result in the Holder exceeding the
Maximum Percentage).
16. AMENDING THE TERMS OF THIS
NOTE. The prior written consent of the Company and the Required Holders
shall be required for any change or amendment to the Notes; provided, that the
prior consent of the Holder shall be required to (i) change the Maturity Date or
Interest Date of this Note, (ii) reduce the Principal, Interest Rate, or any
amount payable upon redemption of this Note or amend or modify in any manner
adverse to the Holder the Company's obligation to make such payments, whether
through an amendment or waiver of provisions in the covenants, definitions or
otherwise, (iii) change the currency of payment of Principal, Interest or any
other amounts outstanding under this Note, (iv) impair the right of the Holder
to institute suit for the enforcement of any payment on or with respect to this
Note, (vi) modify any of the provisions of this Section 16, except to provide
that certain other provisions of this Note cannot be modified or waived without
the consent of the Holder, or (vi) modify the right of the Holder to cause the
Company to redeem this Note upon a Change of Control or Event of
Default. No consideration shall be offered or paid to the Holder to
amend or consent to a waiver or modification of any provision of this Note
unless the same consideration is also offered to all of the holders of the Other
Notes. The Holder shall be entitled, at its option, to the benefit of any
amendment to any of the Other Notes.
17. TRANSFER. This Note
and any shares of Common Stock issued upon conversion of this Note may be
offered, sold, assigned or transferred by the Holder without the consent of the
Company, subject only to the provisions of Section 2(g) of the Securities
Purchase Agreement.
18. REISSUANCE OF THIS
NOTE.
(a) Transfer. If this
Note is to be transferred, the Holder shall surrender this Note to the Company,
whereupon the Company will forthwith issue and deliver upon the order of the
Holder a new Note (in accordance with Section 18(d)), registered as the Holder
may request, representing the outstanding Principal being transferred by the
Holder and, if less than the entire outstanding Principal is being transferred,
a new Note (in accordance with Section 18(d)) to the Holder representing the
outstanding Principal not being transferred. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the provisions
of Section 3(c)(iii) following conversion or redemption of any portion of this
Note, the outstanding Principal represented by this Note may be less than the
Principal stated on the face of this Note.
(b) Lost, Stolen or Mutilated
Note. Upon receipt by the Company of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Note (as to
which a written certification and the indemnification contemplated below shall
suffice as such evidence), and, in the case of loss, theft or destruction, of
any indemnification undertaking by the Holder to the Company in customary and
reasonable form and, in the case of mutilation, upon surrender and cancellation
of this Note, the Company shall execute and deliver to the Holder a new Note (in
accordance with Section 18(d)) representing the outstanding
Principal.
(c) Note Exchangeable for
Different Denominations. This Note is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Note or
Notes (in accordance with Section 18(d) and in principal amounts of at least
$10,000) representing in the aggregate the outstanding Principal of this Note,
and each such new Note will represent such portion of such outstanding Principal
as is designated by the Holder at the time of such surrender.
(d) Issuance of New
Notes. Whenever the Company is required to issue a new Note pursuant to
the terms of this Note, such new Note (i) shall be of like tenor with this Note,
(ii) shall represent, as indicated on the face of such new Note, the Principal
remaining outstanding (or in the case of a new Note being issued pursuant to
Section 18(a) or Section 18(c), the Principal designated by the Holder which,
when added to the principal represented by the other new Notes issued in
connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges on the Principal and Interest of this Note, from the
Issuance Date.
19. 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 and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the Holder’s right to pursue actual and consequential
damages for any failure by the Company to comply with the terms of this
Note. The Company covenants to the Holder that there shall be no
characterization concerning this instrument other than as expressly provided
herein. 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 and shall not, except as expressly provided herein, be
subject to any other obligation of the Company (or the performance thereof). The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required. The Company shall provide all information and documentation to the
Holder that is requested by the Holder to enable the Holder to confirm the
Company’s compliance with the terms and conditions of this Note (including,
without limitation, compliance with Section 7).
20. PAYMENT OF COLLECTION,
ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the
hands of an attorney for collection or enforcement or is collected or enforced
through any legal proceeding or the Holder otherwise takes action to collect
amounts due under this Note or to enforce the provisions of this Note or (b)
there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting Company creditors’ rights and involving a claim
under this Note, then the Company shall pay the costs incurred by the Holder for
such collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, without limitation,
attorneys’ fees and disbursements. The Company expressly acknowledges and agrees
that no amounts due under this Note shall be affected, or limited, by the fact
that the Purchase Price paid for this Note was less than the original Principal
amount hereof.
21. CONSTRUCTION;
HEADINGS. This Note shall be deemed to be jointly drafted by
the Company and the Holder and shall not be construed against any Person as the
drafter hereof. The headings of this Note are for convenience of reference and
shall not form part of, or affect the interpretation of, this Note. Terms used
in this Note but defined in the other Transaction Documents shall have the
meanings ascribed to such terms on the Closing Date in such other Transaction
Documents unless otherwise consented to in writing by the Holder.
22. 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. No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party.
23. DISPUTE RESOLUTION.
In the case of a dispute as to the determination of the Conversion Price, the
Closing Bid Price, the Closing Sale Price or fair market value (as the case may
be) or the arithmetic calculation of the Conversion Rate or the applicable
Redemption Price (as the case may be), the Company or the Holder (as the case
may be) shall submit the disputed determinations or arithmetic calculations (as
the case may be) via facsimile (i) within two (2) Business Days after receipt of
the applicable notice giving rise to such dispute to the Company or the Holder
(as the case may be) or (ii) if no notice gave rise to such dispute, at any time
after the Holder learned of the circumstances giving rise to such dispute
(including, without limitation, as to whether any issuance or sale or deemed
issuance or sale was an issuance or sale or deemed issuance or sale of Excluded
Securities). If the Holder and the Company are unable to agree upon such
determination or calculation within two (2) Business Days of such disputed
determination or arithmetic calculation (as the case may be) being submitted to
the Company or the Holder (as the case may be), then the Company shall, within
two (2) Business Days, submit via facsimile (a) the disputed determination of
the Conversion Price, the Closing Bid Price, the Closing Sale Price or fair
market value (as the case may be) to an independent, reputable investment bank
selected by the Company and approved by the Holder or (b) the disputed
arithmetic calculation of the Conversion Rate or any Redemption Price (as the
case may be) to the Company’s independent, outside accountant. The Company shall
cause at its expense the investment bank or the accountant (as the case may be)
to perform the determinations or calculations (as the case may be) and notify
the Company and the Holder of the results no later than ten (10) Business Days
from the time it receives such disputed determinations or calculations (as the
case may be). Such investment bank’s or accountant’s determination or
calculation (as the case may be) shall be binding upon all parties absent
demonstrable error.
24. NOTICES; CURRENCY;
PAYMENTS.
(a) Notices. Whenever
notice is required to be given under this Note, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt
written notice of all actions taken pursuant to this Note, including in
reasonable detail a description of such action and the reason therefore. Without
limiting the generality of the foregoing, the Company will give written notice
to the Holder (i) immediately upon any adjustment of the Conversion Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen (15) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any grant, issuances, or
sales of any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property to holders of shares of Common Stock or
(C) for determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder.
(b) Currency. All
principal, interest and other amounts owing under this Note or any Transaction
Document that, in accordance with their terms, are paid in cash shall be paid in
US dollars. All amounts denominated in other currencies shall
be converted to the US dollar equivalent amount in accordance with the Exchange
Rate on the date of calculation. “Exchange Rate” means, in
relation to any amount of currency to be converted into US dollars pursuant to
this Note, the US dollar exchange rate as published in the Wall Street Journal
on the relevant date of calculation (it being understood and agreed that where
an amount is calculated with reference to, or over, a period of time, the date
of calculation shall be the final date of such period of time).
(c) Payments. Whenever
any payment of cash is to be made by the Company to any Person pursuant to this
Note, unless otherwise expressly set forth herein, such payment shall be made in
lawful money of the United States of America in cash via wire transfer of
immediately available funds by providing the Company with prior written notice
setting out such request and the Holder’s wire transfer instructions, which the
Holder shall deliver to the Company as soon as commercially practicable
following any written request of the Company therefor. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is
a Business Day. Any amount of Principal or other amounts due under the
Transaction Documents which is not paid when due shall result in a late charge
being incurred and payable by the Company in an amount equal to interest on such
amount at the rate of eighteen percent (18%) per annum from the date such amount
was due until the same is paid in full (“Late
Charge”).
25. CANCELLATION. After
all Principal, accrued Interest, Late Charges and other amounts at any time owed
on this Note have been paid in full, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued.
26. WAIVER OF
NOTICE. To the extent permitted by law, the Company hereby
irrevocably waives demand, notice, presentment, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note and the Securities Purchase Agreement.
27. GOVERNING
LAW. This Note shall be construed and enforced in accordance
with, and all questions concerning the construction, validity, interpretation
and performance of this Note shall be governed by, the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. The Company hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. In the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Note.
Nothing contained herein shall be deemed or operate to preclude the Holder from
bringing suit or taking other legal action against the Company in any other
jurisdiction to collect on the Company’s obligations to the Holder, to realize
on any collateral or any other security for such obligations, or to enforce a
judgment or other court ruling in favor of the Holder. The Company
hereby appoints CT Corporation System, with offices at 111 Eighth Avenue, New
York, New York 10011 as its agent for service of process in the United
States. If service of process is effected pursuant to the above
sentence, such service will be deemed sufficient under New York law and the
Company shall not assert otherwise. Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law. THE COMPANY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED
HEREBY.
28. JUDGMENT
CURRENCY.
(a) If
for the purpose of obtaining or enforcing judgment against the Company in any
court in any jurisdiction it becomes necessary to convert into any other
currency (such other currency being hereinafter in this Section 28 referred to
as the “Judgment
Currency”) an amount due in U.S. dollars under this Note, the conversion
shall be made at the Exchange Rate prevailing on the Trading Day immediately
preceding:
(i) the
date actual payment of the amount due, in the case of any proceeding in the
courts of New York or in the courts of any other jurisdiction that will give
effect to such conversion being made on such date: or
(ii) the
date on which the foreign court determines, in the case of any proceeding in the
courts of any other jurisdiction (the date as of which such conversion is made
pursuant to this Section 28(a)(ii) being hereinafter referred to as the “Judgment Conversion
Date”).
(b) If
in the case of any proceeding in the court of any jurisdiction referred to in
Section 28(a)(ii) above, there is a change in the Exchange Rate prevailing
between the Judgment Conversion Date and the date of actual payment of the
amount due, the applicable party shall pay such adjusted amount as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the Exchange Rate prevailing on the date of payment, will produce
the amount of US dollars which could have been purchased with the amount of
Judgment Currency stipulated in the judgment or judicial order at the Exchange
Rate prevailing on the Judgment Conversion Date.
(c) Any
amount due from the Company under this provision shall be due as a separate debt
and shall not be affected by judgment being obtained for any other amounts due
under or in respect of this Note.
29. MAXIMUM
PAYMENTS. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that
the rate of interest required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Holder and thus refunded to
the Company.
30. CERTAIN
DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:
(a) “Additional Share Amount”
means, as to any Conversion Amount being converted in connection with a Change
of Control, an amount equal to the present value of the difference between (i)
Interest that, but for the applicable conversion, would have been paid to the
Holder on such Conversion Amount from the Issuance Date through the Maturity
Date and (ii) the amount of Interest already paid to the Holder through the
applicable Conversion Date.
(b) “Approved Stock Plan” means any
employee benefit plan which has been approved by the board of directors of the
Company prior to or subsequent to the date hereof pursuant to which shares of
Common Stock and standard options to purchase Common Stock may be issued to any
employee, officer, consultant or director for services provided to the Company
in their capacity as such.
(c) “Black Scholes Consideration
Value” means the value of the applicable Options based on the Black and
Scholes Option Pricing Model obtained from the “OV” function on Bloomberg
determined as of the close of business on the Trading Day immediately preceding
the public announcement of the execution of definitive documents with respect to
the sale of such Options and reflecting (i) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of such Options as of the date of issuance of the such Options and (ii) an
expected volatility equal to the greater of 100% and the 30 day volatility
obtained from the HVT function on Bloomberg as of the Trading Day immediately
following the date of issuance of the such Options.
(d) “Bloomberg” means Bloomberg,
L.P.
(e) “Business Day” means any day
other than Saturday, Sunday or other day on which commercial banks in The City
of New York are authorized or required by law to remain closed.
(f) “Change of Control” means any
Fundamental Transaction other than (i) any merger of the Company or any of its,
direct or indirect, wholly-owned Subsidiaries with or into any of the foregoing
Persons, (ii) any reorganization, recapitalization or reclassification of the
Common Shares in which holders of the Company’s voting power immediately prior
to such reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, are, in all material respects, the
holders of the voting power of the surviving entity (or entities with the
authority or voting power to elect the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities)
after such reorganization, recapitalization or reclassification, or (iii)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company or any of its
Subsidiaries.
(g) “Change of Control Redemption
Premium” means 135%.
(h) “Closing Bid Price” and “Closing Sale Price” means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price
(as the case may be) then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the “pink sheets” by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price (as the case may be) of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved in accordance with the
procedures in Section 23. All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar
transaction during such period.
(i)
“Closing Date” shall
have the meaning set forth in the Securities Purchase Agreement, which date is
the date the Company initially issued Notes pursuant to the terms of the
Securities Purchase Agreement.
(j)
“Common Stock” means
(i) the Company’s shares of common stock, $0.001 par value per share, and
(ii) any capital stock into which such common stock shall have been changed or
any share capital resulting from a reclassification of such common
stock.
(k) “Convertible Securities” means
any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for shares of Common Stock.
(l)
“Current Subsidiaries”
means any Person in which the Company on the Subscription Date, directly or
indirectly, (i) owns any of the outstanding capital stock or holds any equity or
similar interest of such Person or (ii) controls or operates all or any part of
the business, operations or administration of such Person, and each of the
foregoing, individually, a “Current Subsidiary.”
(m) “Dollar Failure” means, that
(i) on any day during the period commencing ten (10) Trading Days prior to the
applicable Interest Date through the applicable Interest Date, (ii) on any day
during the period commencing fifteen (15) Trading Days prior to the applicable
Company Optional Redemption Notice Date through the applicable Company Optional
Redemption Date, or (iii) on any day during the period commencing fifteen (15)
Trading Days prior to the applicable Company Call Redemption Notice Date through
the applicable Company Call Redemption Date, that the aggregate dollar trading
volume (as reported on Bloomberg) of the Common Stock on the Eligible Market on
which the Common Stock is listed or designated for quotation as of such date of
determination over the fifteen (15) consecutive Trading Day period ending on the
Trading Day immediately preceding such date of determination is less than
$1,000,000.
(n) “Effective Date” means such
date either (x) the applicable Registration Statement filed pursuant to the
Registration Rights Agreement shall be effective and the prospectus contained
therein shall be available for the resale by the Holder of all of the
Registrable Securities (which, solely for clarification purposes, includes all
shares of Common Stock issuable upon conversion of the Notes or otherwise
pursuant to the terms of the Notes and upon exercise of the Warrants (without
regard for any limitations on conversion, issuance or exercise set forth
therein) in accordance with the terms of the Registration Rights Agreement) or
(y) all Registrable Securities shall be eligible for sale without restriction
under Rule 144 (as defined in the Securities Purchase Agreement) (including,
without limitation, volume restrictions) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) and
without the need for registration under any applicable federal or state
securities laws (in each case, disregarding any limitation on conversion of the
Notes, other issuance of securities with respect to the Notes and
exercise of the Warrants).
(o) “Eligible Market” means The New
York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market,
the NYSE Amex or the Principal Market.
(p) “Equity Conditions” means: (i)
on each day during the period beginning one month prior to the applicable date
of determination and ending on and including the applicable date of
determination either (x) the applicable Registration Statement filed pursuant to
the Registration Rights Agreement shall be effective and the prospectus
contained therein shall be available for the resale by the Holder of all of the
Registrable Securities (which, solely for clarification purposes, includes all
shares of Common Stock issuable upon conversion of this Note or otherwise
pursuant to the terms of this Note) in accordance with the terms of the
Registration Rights Agreement and there shall not have been during such period
any Grace Periods (as defined in the Registration Rights Agreement) or (y)
all Registrable Securities shall be eligible for sale without restriction under
Rule 144 (as defined in the Securities Purchase Agreement) (including, without
limitation, volume restrictions) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) and
without the need for registration under any applicable federal or state
securities laws (in each case, disregarding any limitation on conversion of the
Notes, other issuance of securities with respect to the Notes and
exercise of the Warrants); (ii) on each day during the period beginning six
months prior to the applicable date of determination and ending on and including
the applicable date of determination (the “Equity Conditions Measuring
Period”), the Common Stock (including all Registrable Securities) is
listed or designated for quotation (as applicable) on an Eligible Market and
shall not have been suspended from trading on an Eligible Market (other than
suspensions of not more than two (2) days and occurring prior to the applicable
date of determination due to business announcements by the Company) nor shall
delisting or suspension by an Eligible Market have been threatened (with a
reasonable prospect of delisting occurring) or pending either (A) in writing by
such Eligible Market or (B) by falling below the minimum listing maintenance
requirements of the Eligible Market on which the Common Stock is then listed or
designated for quotation (as applicable); (iii) on each day during the Equity
Conditions Measuring Period, the Company shall have delivered all shares of
Common Stock issuable upon conversion of this Note on a timely basis as set
forth in Section 3 hereof and all other shares of capital stock required to be
delivered by the Company on a timely basis as set forth in the other Transaction
Documents; (iv) any shares of Common Stock to be issued in connection with the
event requiring determination may be issued in full without violating Section
3(d) hereof; (v) any shares of Common Stock to be issued in connection with the
event requiring determination may be issued in full without violating the rules
or regulations of the Eligible Market on which the Common Stock is then listed
or designated for quotation (as applicable); (vi) on each day during the Equity
Conditions Measuring Period, no public announcement of a pending, proposed or
intended Fundamental Transaction shall have occurred which has not been
abandoned, terminated or consummated; (vii) the Company shall have no knowledge
of any fact that would reasonably be expected to cause (1) the applicable
Registration Statement required to be filed pursuant to the Registration Rights
Agreement to not be effective or the prospectus contained therein to not be
available for the resale of all of the Registrable Securities in accordance with
the terms of the Registration Rights Agreement or (2) any Registrable Securities
to not be eligible for sale without restriction pursuant to Rule 144 (including,
without limitation, volume restrictions) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or any
applicable state securities laws (in each case, disregarding any limitation on
conversion of the Notes, other issuance of securities with respect to
the Notes and exercise of the Warrants); (viii) the Holder shall not be in (and
no other Buyer shall be in) possession of any material, non-public information
provided to any of them by the Company, any of its affiliates or any of their
respective employees, officers, representatives, agents or the like; (ix) on
each day during the Equity Conditions Measuring Period, the Company otherwise
shall have been in compliance with and shall not have breached any provision,
covenant, representation or warranty of any Transaction Document; and (x) on
each day during the Equity Conditions Measuring Period, there shall not have
occurred an Event of Default or an event that with the passage of time or giving
of notice would constitute an Event of Default.
(q) “Equity Conditions Failure”
means that (i) on any day during the period commencing ten (10) Trading Days
prior to the applicable Interest Date through the applicable Interest Date, (ii)
on any day during the period commencing fifteen (15) Trading Days prior to the
applicable Company Optional Redemption Notice Date through the applicable
Company Optional Redemption Date, or (iii) on any day during the period
commencing fifteen (15) Trading Days prior to the applicable Company Call
Redemption Notice Date through the applicable Company Call Redemption Date, the
Equity Conditions have not been satisfied (or waived in writing by the
Holder).
(r)
“Equity Value Redemption
Premium” means 135%.
(s) “Excluded Securities” means any
Common Stock issued or issuable: (i) to directors, officers, consultants or
employees of the Company in their capacity as such pursuant to an Approved Stock
Plan, provided that (A) all such issuances (taking into account the shares of
Common Stock issuable upon exercise of Options) after the date hereof pursuant
to this clause (i) do not, in the aggregate, exceed more than 15% of the Common
Stock issued and outstanding immediately prior to the date hereof, and (B) such
Options are not amended to increase the number of shares issuable thereunder or
to lower the exercise price thereof or to otherwise materially change the terms
or conditions thereof in any manner that adversely affects any of the Buyers;
(ii) upon the conversion or exercise of Options or Convertible Securities issued
prior to the date hereof, provided that such Options or Convertible Securities
have not been amended since the date of this Agreement to increase the number of
shares issuable thereunder or to lower the exercise or conversion price thereof
or otherwise materially change the terms or conditions thereof in any manner
that adversely affects any of the Buyer, (iii) upon conversion of the Notes or
the exercise of the Warrants and (iv) in connection with strategic alliances,
acquisitions, mergers, and strategic partnerships, provided, that (A) the
primary purpose of such issuance is not to raise capital as determined in good
faith by the Required Holders, (B) the purchaser or acquirer of the securities
in such issuance solely consists of either (x) the actual participants in such
strategic alliance or strategic partnership, (y) the actual owners of such
assets or securities acquired in such acquisition or merger or (z) the
stockholders, partners or members of the foregoing Persons and (C) the number or
amount of securities issued to such Person by the Company shall not be
disproportionate to such Person’s actual participation in such strategic
alliance or strategic partnership or ownership of such assets or securities to
be acquired by the Company, as applicable.
(t)
“Fundamental Transaction” means
that (i) the Company or any of its Subsidiaries shall, directly or indirectly,
in one or more related transactions, (1) consolidate or merge with or into
(whether or not the Company or any of its Subsidiaries is the surviving
corporation) another Person, or (2) sell, lease, license, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or
assets of the Company or any of its Subsidiaries to another Person, or (3) allow
another Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (4)
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than 50% of the outstanding shares of Voting Stock of the Company (not
including any shares of Voting Stock of the Company held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination), or (5) reorganize, recapitalize or reclassify its Common
Stock, or (ii) any “person” or “group” (as these terms are used for purposes of
Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations
promulgated thereunder) is or shall become the “beneficial owner” (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Voting Stock of the
Company.
(u) “GAAP” means United States
generally accepted accounting principles, consistently applied.
(v) “Holder Pro Rata Amount” means
a fraction (i) the numerator of which is the original Principal amount of this
Note on the Closing Date and (ii) the denominator of which is the aggregate
original principal amount of all Notes issued to the initial purchasers pursuant
to the Securities Purchase Agreement on the Closing Date.
(w) “Interest Conditions Failure”
means the occurrence of any Equity Conditions Failure, Volume Failure, Dollar
Failure or Price Failure.
(x) “Interest Conversion Price”
means, with respect to any Interest Date that price which shall be the lower of
(i) the applicable Conversion Price and (ii) the price computed as 90% of the
quotient of (I) the sum of the VWAP of the Common Stock on each of the five (5)
consecutive Trading Days ending on the Trading Day immediately preceding the
applicable Interest Date, divided by (II) five (5) (such period, the “Interest Measuring
Period”). All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination, reclassification or
similar transaction that proportionately decreases or increases the Common Stock
during such Interest Measuring Period.
(y) "Interest Notice Due Date"
means the twenty-fifth (25th) Trading Day prior to the applicable Interest
Date.
(z) “Interest Rate” means six percent (6%)
per annum, subject to adjustment as set forth in Section 2.
(aa) “Market Price” means, for any
given date, the greater of (x) $2.75 (as adjusted for any stock dividend, stock
split, stock combination, reclassification or similar transaction occurring
during the period commencing on the Subscription Date and ending on the
Adjustment Date) and (y) 90% of the quotient of (I) the sum of the VWAP of the
Common Stock on each of the ten (10) consecutive Trading Days ending and
including the Adjustment Date, divided by (II) ten (10) (such period, the “Market Price Measuring
Period”). All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination, reclassification or
similar transaction during such Market Price Measuring Period.
(bb) “Maturity Date” shall mean January __,
2012; provided, however, the Maturity Date may be extended at the option of the
Holder (i) in the event that, and for so long as, an Event of Default shall have
occurred and be continuing or any event shall have occurred and be continuing
that with the passage of time and the failure to cure would result in an Event
of Default or (ii) through the date that is twenty (20) Business Days after the
consummation of a Fundamental Transaction in the event that a Fundamental
Transaction is publicly announced or a Change of Control Notice is delivered
prior to the Maturity Date, provided further that if a Holder elects to convert
some or all of this Note pursuant to Section 3 hereof, and the Conversion Amount
would be limited pursuant to Section 3(d) hereunder, the Maturity Date shall
automatically be extended until such time as such provision shall not limit the
conversion of this Note.
(cc) “New Subsidiaries” means, as of
any date of determination, any Person in which the Company after the
Subscription Date, directly or indirectly, (i) owns or acquires any of the
outstanding capital stock or holds any equity or similar interest of such Person
or (ii) controls or operates all or any part of the business, operations or
administration of such Person, and each of the foregoing, individually, a “New Subsidiary.”
(dd) “Options” means any rights,
warrants or options to subscribe for or purchase shares of Common Stock or
Convertible Securities.
(ee) “Parent Entity” of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.
(ff) Permitted Indebtedness" means
(i) Indebtedness evidenced by this Note and the Other Notes, (ii) unsecured
Indebtedness incurred by the Company that is made expressly subordinate in right
of payment to the Indebtedness evidenced by this Note, as reflected in a written
agreement acceptable to the Holder and approved by the Holder in writing, and
which Indebtedness does not provide at any time for (A) the payment, prepayment,
repayment, repurchase or defeasance, directly or indirectly, of any principal or
premium, if any, thereon until ninety-one (91) days after the Maturity Date or
later and (B) total interest and fees at a rate in excess of 6.00% per annum,
(iii) Indebtedness secured by Permitted Liens described in clauses (iv) and (v)
of the definition of Permitted Liens and (iv) Permitted
Senior Indebtedness.
(gg) "Permitted Liens" means (i) any
Lien for taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a liability that is not yet due or
delinquent, (iii) any Lien created by operation of law, such as materialmen's
liens, mechanics' liens and other similar liens, arising in the ordinary course
of business with respect to a liability that is not yet due or delinquent or
that are being contested in good faith by appropriate proceedings, (iv) Liens
(A) upon or in any equipment acquired or held by the Company or any of its
Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition or lease of such
equipment, or (B) existing on such equipment at the time of its acquisition,
provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment, (v) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clause (iv) above, provided that any
extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase, (vi) leases or
subleases and licenses and sublicenses granted to others in the ordinary course
of the Company's business, not interfering in any material respect with the
business of the Company and its Subsidiaries taken as a whole, (vii) Liens
in favor of customs and revenue authorities arising as a matter of law to secure
payments of custom duties in connection with the importation of goods, (viii)
Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Section 4(a)(xii) and (ix) Liens securing
Permitted Senior Indebtedness.
(hh) “Permitted Senior
Indebtedness” means the principal of
(and premium, if any), interest on, and all fees and other amounts (including,
without limitation, any reasonable out-of-pocket costs, enforcement expenses
(including reasonable out-of-pocket legal fees and disbursements), collateral
protection expenses and other reimbursement or indemnity obligations relating
thereto) payable by Company and/or its Subsidiaries under or in connection with
any credit facility entered into or to be entered into by the Company and/or its
Subsidiaries with one or more financial institutions (and on terms and
conditions), under commercially reasonably terms; provided, however, that the
aggregate outstanding amount of such Indebtedness permitted hereunder (taking
into account the maximum amounts which may be advanced under the loan documents
evidencing such Permitted Senior Indebtedness) does not at any time exceed RMB
220,000,000.
(ii) “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity or a government or any
department or agency thereof.
(jj) “Price Failure” means, with
respect to a particular date of determination, that the Interest Conversion
Price (determined under clause (ii) of the definition thereof and not clause (i)
of the definition thereof) is less than $1.00 (as adjusted for stock
splits, stock dividends, stock combinations or other similar
transactions).
(kk) “Principal Market” means the
Nasdaq Capital Market.
(ll) “Quarter” means each of: (i)
the period beginning on and including January 1 and ending on and including
March 31; (ii) the period beginning on and including April 1 and ending on and
including June 30; (iii) the period beginning on and including July 1 and ending
on and including September 30; and (iv) the period beginning on and including
October 1 and ending on and including December 31.
(mm) “Redemption Conditions Failure”
means the occurrence of any Equity Conditions Failure, Volume Failure or Dollar
Failure.
(nn) “Redemption Notices” means,
collectively, the Event of Default Redemption Notice and the Change of Control
Redemption Notice, the Company Optional Redemption Notice, the Company Call
Redemption Notice and each of the foregoing, individually, a “Redemption
Notice.”
(oo) “Redemption Premium” means (i)
in the case of the Events of Default described in Section 4(a) (other than
Sections 4(a)(ix) through 4(a)(xi)), 135% or (ii) in the case of the Events of
Default described in Sections 4(a)(ix) through 4(a)(xi), 100%.
(pp) “Redemption Prices” means,
collectively, the Event of Default Redemption Price, the Change of Control
Redemption Price, the Company Optional Redemption Price and the Company Call
Redemption Price, and each of the foregoing, individually, a “Redemption
Price.”
(qq) “Registration Rights Agreement”
means that certain registration rights agreement, dated as of the Closing Date,
by and among the Company and the initial holders of the Notes relating to, among
other things, the registration of the resale of the Common Stock issuable upon
conversion of the Notes or otherwise pursuant to the terms of the Notes and
exercise of the Warrants, as may be amended from time to time.
(rr) “Required Holders” means the
holders of Notes representing at least a majority of the aggregate principal
amount of the Notes then outstanding (excluding any Noted held by the Company or
any of its Subsidiaries).
(ss) “SEC” means the United States
Securities and Exchange Commission or the successor thereto.
(tt) “Securities Purchase Agreement”
means that certain securities purchase agreement, dated as of the Subscription
Date, by and among the Company and the initial holders of the Notes pursuant to
which the Company issued the Notes and Warrants, as may be amended from time to
time.
(uu) “Subscription Date” means
January __, 2010.
(vv) “Subsidiaries” means, as of any
date of determination, collectively, all Current Subsidiaries and all New
Subsidiaries, and each of the foregoing, individually, a “Subsidiary.”
(ww) “Successor Entity” means the
Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting
from or surviving any Fundamental Transaction or the Person (or, if so elected
by the Holder, the Parent Entity) with which such Fundamental Transaction shall
have been entered into.
(xx) “Trading Day” means any day on
which the Common Stock is traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is
then traded, provided that “Trading Day” shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York time) unless such
day is otherwise designated as a Trading Day in writing by the
Holder.
(yy) “VWAP” means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market (or, if the Principal Market is not the principal trading
market for such security, then on the principal securities exchange or
securities market on which such security is then traded) during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York
time, as reported by Bloomberg through its “Volume at Price” function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.). If the VWAP cannot be calculated for such security on such date on any of
the foregoing bases, the VWAP of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved in accordance with the procedures
in Section 23. All such determinations shall be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during such period.
(zz) “Volume Failure” means, that
(i) on any day during the period commencing ten (10) Trading Days prior to the
applicable Interest Date through the applicable Interest Date, (ii) on any day
during the period commencing fifteen (15) Trading Days prior to the applicable
Company Optional Redemption Notice Date through the applicable Company Optional
Redemption Date, or (iii) on any day during the period commencing fifteen (15)
Trading Days prior to the applicable Company Call Redemption Notice Date through
the applicable Company Call Redemption Date, the average daily volume (as
reported on Bloomberg) of the Common Stock on the Eligible Market on which the
Common Stock is listed or designated for quotation as of such date of
determination over the fifteen (15) consecutive Trading Day period ending on the
Trading Day immediately preceding such date of determination is less than 75,000
shares per day (adjusted for any stock dividend, stock split, stock combination
or other similar transaction during such period).
(aaa) “Voting Stock” of a Person
means capital stock of such Person of the class or classes pursuant to which the
holders thereof have the general voting power to elect, or the general power to
appoint, at least a majority of the board of directors, managers or trustees of
such Person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).
(bbb) “Warrants” has the meaning
ascribed to such term in the Securities Purchase Agreement, and shall include
all warrants issued in exchange therefor or replacement thereof.
31. DISCLOSURE. Upon
receipt or delivery by the Company of any notice in accordance with the terms of
this Note, unless the Company has in good faith determined that the matters
relating to such notice do not constitute material, non-public information
relating to the Company or any of its Subsidiaries, the Company shall within one
(1) Business Day after any such receipt or delivery publicly disclose such
material, non-public information on a Current Report on Form 8-K or otherwise.
In the event that the Company believes that a notice contains material,
non-public information relating to the Company or any of its Subsidiaries, the
Company so shall indicate to such Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
non-public information relating to the Company or its Subsidiaries. Nothing
contained in this Section 31 shall limit any obligations of the Company, or any
rights of the Holder, under Section 4(i) of the Securities Purchase
Agreement.
[signature page
follows]
IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the
Issuance Date set out above.
Kandi
Technologies, Corp.
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By:
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Name:
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Title:
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EXHIBIT
I
KANDI
TECHNOLOGIES, CORP.
CONVERSION
NOTICE
Reference
is made to the Senior Secured Convertible Note (the “Note”) issued to the
undersigned by Kandi Technologies, Corp., a Delaware corporation (the “Company”). In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock, $0.001 par value per share (the “Common Stock”), of the
Company, as of the date specified below.
Date
of Conversion:
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Aggregate
Conversion Amount to be converted:
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Please
confirm the following information:
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Conversion
Price:
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Number
of shares of Common Stock to be issued:
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Please
issue the Common Stock into which the Note is being converted in the
following name and to the following address:
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Issue to:
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Facsimile
Number:
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Authorization:
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By:
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Title:
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Dated:
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Account
Number:
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(if
electronic book entry transfer)
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Transaction
Code Number:
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(if
electronic book entry transfer)
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ACKNOWLEDGMENT
The
Company hereby acknowledges this Conversion Notice and hereby directs Corporate
Stock Transfer to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated January __, 2010 from the
Company and acknowledged and agreed to by Corporate Stock Transfer.
Kandi
Technologies, Corp.
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By:
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Name:
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Title:
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