Current Report — Form 8-K Filing Table of Contents
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1: 8-K Current Report HTML 27K
2: EX-10.1 Material Contract HTML 292K
3: EX-10.2 Material Contract HTML 241K
4: EX-10.3 Material Contract HTML 137K
5: EX-10.4 Material Contract HTML 183K
6: EX-10.5 Material Contract HTML 117K
7: EX-10.6 Material Contract HTML 34K
8: EX-10.7 Material Contract HTML 51K
9: EX-99.1 Miscellaneous Exhibit HTML 17K
NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO
THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR
ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD
CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a)
HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND,
ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE
AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.
Kandi
Technologies, Corp.
Senior
Secured Convertible Note
Issuance
Date: January __, 2010
Original
Principal Amount: U.S.
$[ ]
FOR VALUE RECEIVED, Kandi
Technologies, Corp., a Delaware corporation (the “Company”), hereby promises to
pay to the order of [HUDSON BAY FUND, LP][HUDSON BAY OVERSEAS FUND, LTD.],
[OTHER BUYERS] or its registered assigns (“Holder”) the amount set out
above as the Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether
upon the Maturity Date, acceleration, redemption or otherwise (in each case in
accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding
Principal (as defined below) at the applicable 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 the Maturity Date or acceleration, conversion,
redemption or otherwise (in each case in accordance with the terms hereof). This
Senior Secured Convertible Note (including all Senior Secured Convertible Notes
issued in exchange, transfer or replacement hereof, this “Note”) is one of an issue of
Senior Convertible Notes issued pursuant to the Securities Purchase Agreement
(as defined below) on the Closing Date (as defined below) (collectively, the
“Notes” and such other
Senior Secured Convertible Notes, the “Other Notes”). Certain capitalized
terms used herein are defined in Section 30.
1. PAYMENTS OF
PRINCIPAL. On the Maturity Date, the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, accrued and unpaid
Interest and accrued and unpaid Late Charges on such Principal and
Interest. Other than as specifically permitted by this Note, the
Company may not prepay any portion of the outstanding Principal, accrued and
unpaid Interest or accrued and unpaid Late Charges on Principal and Interest, if
any.
2. INTEREST; INTEREST
RATE. (a) Interest on this Note shall commence accruing on the
Issuance Date and shall be computed on the basis of a 360-day year and twelve
30-day months and shall be payable in arrears for each Quarter on January 15,
April 15, July 15 and October 15 of each year (each, an “Interest Date”) with the first Interest
Date being April 15, 2010. Interest shall be payable on each Interest
Date, to the record holder of this Note on the applicable Interest Date, in
shares of Common Stock (“Interest Shares”) so long as
there has been no Interest Conditions Failure; provided however, that the
Company may, at its option following notice to the Holder, pay Interest on any
Interest Date in cash (“Cash
Interest”) or in a combination of Cash Interest and Interest
Shares. The Company shall deliver a written notice (each, an “Interest Election Notice”) to
each holder of the Notes on or prior to the Interest Notice Due Date (the date
such notice is delivered to all of the holder, the “Interest Notice Date”) which
notice (i) either (A) confirms that Interest to be paid on such Interest Date
shall be paid entirely in Interest Shares or (B) elects to pay Interest as Cash
Interest or a combination of Cash Interest and Interest Shares and specifies the
amount of Interest that shall be paid as Cash Interest and the amount of
Interest, if any, that shall be paid in Interest Shares and (ii) certifies that
there has been no Interest Conditions Failure. If an Interest
Conditions Failure has occurred as of the Interest Notice Date, then unless the
Company has elected to pay such Interest as Cash Interest, the Interest Notice
shall indicate that unless the Holder waives the Interest Conditions Failure,
the Interest shall be paid as Cash Interest. Notwithstanding anything
herein to the contrary, if no Interest Conditions Failure has occurred as of the
Interest Notice Date but an Interest Conditions Failure occurs at any time prior
to the Interest Date, (A) the Company shall provide the Holder a subsequent
notice to that effect and (B) unless the Holder waives the Interest Conditions
Failure, the Interest shall be paid in cash. Interest to be paid on
an Interest Date in Interest Shares shall be paid in a number of fully paid and
nonassessable shares (rounded to the nearest whole share in accordance with
Section 3(a)) of Common Stock equal to the quotient of (1) the amount of
Interest payable on such Interest Date less any Cash Interest paid and (2) the
Interest Conversion Price in effect on the applicable Interest
Date.
(b) When
any Interest Shares are to be paid on an Interest Date, the Company shall (i)
(A) provided that the Company's transfer agent (the “Transfer Agent”) is
participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, credit such aggregate number of Interest Shares to
which the Holder shall be entitled to the Holder's or its designee's balance
account with DTC through its Deposit/Withdrawal at Custodian system, or (B) if
the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver on the applicable Interest Date, to the
address set forth in the register maintained by the Company for such purpose
pursuant to the Securities Purchase Agreement or to such address as specified by
the Holder in writing to the Company at least two (2) Business Days prior to the
applicable Interest Date, a certificate, registered in the name of the Holder or
its designee, for the number of Interest Shares to which the Holder shall be
entitled and (ii) with respect to each Interest Date, pay to the Holder, in cash
by wire transfer of immediately available funds, the amount of any Cash
Interest.
2
(c) Prior
to the payment of Interest on an Interest Date, Interest on this Note shall
accrue at the Interest Rate and be payable by way of inclusion of the Interest
in the Conversion Amount on each Conversion Date
in accordance with Section 3(b)(i) or upon any redemption in accordance with
Section 11. From and after the occurrence and during the continuance
of any Event of Default, the Interest Rate shall automatically be increased to
eighteen percent (18.0%). In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding sentence shall
cease to be effective as of the date of such cure; provided that the Interest as
calculated and unpaid at such increased rate during the continuance of such
Event of Default shall continue to apply to the extent relating to the days
after the occurrence of such Event of Default through and including the date of
such cure of such Event of Default. The Company shall pay any and all
taxes that may be payable with respect to the issuance and delivery of Interest
Shares.
3. CONVERSION OF NOTES.
This Note shall be convertible into shares of Common Stock (as defined below),
on the terms and conditions set forth in this Section 3.
(a) Conversion Right.
Subject to the provisions of Section 3(d), at any time or times on or after the
Issuance Date, the Holder shall be entitled to convert any portion of the
outstanding and unpaid Conversion Amount (as defined below) into fully paid and
nonassessable shares of Common Stock in accordance with Section 3(c), at the
Conversion Rate (as defined below). The Company shall not issue any
fraction of a share of Common Stock upon any conversion. If the
issuance would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all transfer, stamp, issuance
and similar taxes that may be payable with respect to the issuance and delivery
of Common Stock upon conversion of any Conversion Amount.
(b) Conversion Rate. The
number of shares of Common Stock issuable upon conversion of any Conversion
Amount pursuant to Section 3(a) shall be determined by dividing (x) such
Conversion Amount by (y) the Conversion Price (the “Conversion
Rate”).
(i) “Conversion Amount” means the
portion of the Principal to be converted, redeemed or otherwise with respect to
which this determination is being made, plus all accrued and unpaid Interest
with respect to such portion of the Principal amount and accrued and unpaid Late
Charges with respect to such portion of such Principal and such
Interest.
(ii) “Conversion Price” means, as of
any Conversion Date or other date of determination, $6.25, subject to adjustment
as provided herein.
3
(c) Mechanics of
Conversion.
(i) Optional Conversion.
To convert any Conversion Amount into shares of Common Stock on any date (a
“Conversion Date”), the
Holder shall (A) deliver (whether via facsimile or otherwise), for receipt on or
prior to 11:59 p.m., New York time, on such date, a copy of an executed notice
of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the
Company and (B) if required by Section 3(c)(iii), surrender this Note to a
nationally recognized overnight delivery service for delivery to the Company (or
an indemnification undertaking with respect to this Note in the case of its
loss, theft or destruction as contemplated by Section 18(b)). On or before the
first (1st) Trading Day following the date of receipt of a Conversion Notice,
the Company shall transmit by facsimile an acknowledgment of confirmation of
receipt of such Conversion Notice to the Holder and the Company’s transfer agent
(the “Transfer Agent”).
On or before the third (3rd)
Trading Day following the date of receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall (1)
provided that the Transfer Agent is participating in The Depository Trust
Company’s (“DTC”) Fast
Automated Securities Transfer Program, credit such aggregate number of shares of
Common Stock to which the Holder shall be entitled to the Holder’s or its
designee’s balance account with DTC through its Deposit Withdrawal at Custodian
system or (2) if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program, issue and deliver (via reputable
overnight courier) to the address as specified in the Conversion Notice, a
certificate, registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder shall be entitled. If this
Note is physically surrendered for conversion as required by Section 3(c)(iii)
and the outstanding Principal of this Note is greater than the Principal portion
of the Conversion Amount being converted, then the Company shall as soon as
practicable and in no event later than three (3) Trading Days after receipt of
this Note and at its own expense, issue and deliver to the Holder (or its
designee) a new Note (in accordance with Section 18(d)) representing the
outstanding Principal not converted. The Person or Persons entitled to receive
the shares of Common Stock issuable upon a conversion of this Note shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.
(ii) Company’s Failure to Timely
Convert. If the Company shall fail, for any reason or for no reason, to
issue to the Holder within three (3) Trading Days after the Company’s receipt of
a Conversion Notice (whether via facsimile or otherwise), a certificate for the
number of shares of Common Stock to which the Holder is entitled and register
such shares of Common Stock on the Company’s share register or to credit the
Holder’s or its designee’s balance account with DTC for such number of shares of
Common Stock to which the Holder is entitled upon the Holder’s conversion of any
Conversion Amount (as the case may be) (a “Conversion Failure”), and if
on or after such third (3rd)
Trading Day the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
shares of Common Stock issuable upon such conversion that the Holder anticipated
receiving from the Company, then, in addition to all other remedies available to
the Holder, the Company shall, within three (3) Trading Days after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions and other out-of-pocket expenses, if any) for the shares of Common
Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such
certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder’s conversion hereunder (as the case may be)
and pay cash to the Holder in an amount equal to the excess (if any) of the
Buy-In Price over the product of (A) such number of shares of Common Stock
multiplied by (B) the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the Conversion Date.
4
(iii) Registration;
Book-Entry. The Company shall maintain a register (the “Register”) for the recordation
of the names and addresses of the holders of each Note and the principal amount
of the Notes held by such holders (the “Registered
Notes”). The entries in the Register shall be conclusive and
binding for all purposes absent manifest error. The Company and the
holders of the Notes shall treat each Person whose name is recorded in the
Register as the owner of a Note for all purposes, including, without limitation,
the right to receive payments of Principal and Interest hereunder,
notwithstanding notice to the contrary. A Registered Note may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register. Upon its receipt of a request to assign or sell
all or part of any Registered Note by a Holder, the Company shall record the
information contained therein in the Register and issue one or more new
Registered Notes in the same aggregate principal amount as the principal amount
of the surrendered Registered Note to the designated assignee or transferee
pursuant to Section 18. Notwithstanding anything to the contrary set
forth herein, upon conversion of any portion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this Note
to the Company unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting
reissuance of this Note upon physical surrender of this Note. The
Holder and the Company shall maintain records showing the Principal, Interest
and Late Charges, if any, converted and/or paid (as the case may be) the dates
of such conversions and/or payments (as the case may be) or shall use such other
method, reasonably satisfactory to the Holder and the Company, so as not to
require physical surrender of this Note upon conversion
(iv) Pro Rata Conversion;
Disputes. In the event that the Company receives a Conversion Notice from
more than one holder of Notes for the same Conversion Date and the Company can
convert some, but not all, of such portions of the Notes submitted for
conversion, the Company, subject to Section 3(d), shall convert from each holder
of Notes electing to have Notes converted on such date a pro rata amount of such
holder’s portion of its Notes submitted for conversion based on the principal
amount of Notes submitted for conversion on such date by such holder relative to
the aggregate principal amount of all Notes submitted for conversion on such
date. In the event of a dispute as to the number of shares of Common Stock
issuable to the Holder in connection with a conversion of this Note, the Company
shall issue to the Holder the number of shares of Common Stock not in dispute
and resolve such dispute in accordance with Section 23.
5
(d) Limitations on
Conversions.
(i) Beneficial
Ownership. Notwithstanding anything to the contrary contained
in this Note, this Note shall not be convertible by the Holder hereof, and the
Company shall not effect any conversion of this Note or otherwise issue any
shares of Common Stock pursuant hereto, to the extent (but only to the extent)
that the Holder or any of its affiliates would beneficially own in excess of
4.99% (the “Maximum
Percentage”) of the Common Stock. To the extent the above limitation
applies, the determination of whether this Note shall be convertible (vis-à-vis
other convertible, exercisable or exchangeable securities owned by the Holder)
shall, subject to such Maximum Percentage limitation, be determined on the basis
of the first submission to the Company for conversion, exercise or exchange (as
the case may be). No prior inability to convert this Note, or to issue shares of
Common Stock, pursuant to this paragraph shall have any effect on the
applicability of the provisions of this paragraph with respect to any
subsequent determination of convertibility. For purposes of this paragraph,
beneficial ownership and all determinations and calculations (including, without
limitation, with respect to calculations of percentage ownership) shall be
determined in accordance with Section 13(d) of the 1934 Act (as defined in the
Securities Purchase Agreement) and the rules and regulations promulgated
thereunder. The provisions of this paragraph shall be implemented in a manner
otherwise than in strict conformity with the terms of this paragraph to correct
this paragraph (or any portion hereof) which may be defective or inconsistent
with the intended Maximum Percentage beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such Maximum Percentage limitation. The limitations contained in
this paragraph shall apply to a successor Holder of this Note. The holders of
Common Stock shall be third party beneficiaries of this paragraph and the
Company may not waive this paragraph without the consent of holders of a
majority of its Common Stock. For any reason at any time, upon the written or
oral request of the Holder, the Company shall within one (1) Business Day
confirm orally and in writing to the Holder the number of shares of Common Stock
then outstanding, including by virtue of any prior conversion or exercise of
convertible or exercisable securities into Common Stock, including, without
limitation, pursuant to this Note or securities issued pursuant to the
Securities Purchase Agreement. By written notice to the Company, any
Holder may increase or decrease the Maximum Percentage to any other percentage
not in excess of 9.99% specified in such notice; provided that (i) any such
increase will not be effective until the 61st day after such notice is delivered
to the Company, and (ii) any such increase or decrease will apply only to the
Holder sending such notice and not to any other holder of Notes.
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(ii) Principal Market
Regulation. The Company shall not issue any shares of Common Stock upon
conversion of this Note or otherwise pursuant to the terms of this Note if the
issuance of such shares of Common Stock would exceed the aggregate number of
shares of Common Stock which the Company may issue upon conversion or exercise
(as the case may be) of the Notes and the SPA Warrants or otherwise pursuant to
the terms of this Note without breaching the Company’s obligations under the
rules or regulations of the Principal Market (the number of shares which may be
issued without violating such rules and regulations, the “Exchange Cap”), except that
such limitation shall not apply in the event that the Company (A) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market for issuances of shares of Common Stock in excess of such
amount or (B) obtains a written opinion from outside counsel to the Company that
such approval is not required, which opinion shall be reasonably satisfactory to
the Holder. Until such approval or such written opinion is obtained, no Buyer
shall be issued in the aggregate, upon conversion or exercise (as the case may
be) of any Notes or any of the SPA Warrants or otherwise pursuant to the terms
of this Note, shares of Common Stock in an amount greater than the product of
(i) the Exchange Cap multiplied by (ii) the quotient of (1) the original
principal amount of Notes issued to such Buyer pursuant to the Securities
Purchase Agreement on the Closing Date divided by (2) the aggregate original
principal amount of all Notes issued to the Buyers pursuant to the Securities
Purchase Agreement on the Closing Date (with respect to each Buyer, the “Exchange Cap Allocation”). In
the event that any Buyer shall sell or otherwise transfer any of such Buyer’s
Notes, the transferee shall be allocated a pro rata portion of such Buyer’s
Exchange Cap Allocation with respect to such portion of such Notes so
transferred, and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation so
allocated to such transferee. Upon conversion and exercise in full of
a holder’s Notes and SPA Warrants, the difference (if any) between such holder’s
Exchange Cap Allocation and the number of shares of Common Stock actually issued
to such holder upon such holder’s conversion in full of such holder’s Notes and
exercise in full of such SPA Warrants shall be allocated to the respective
Exchange Cap Allocations of the remaining holders of Notes and SPA Warrants on a
pro rata basis in proportion to the shares of Common Stock underlying the Notes
and SPA Warrants then held by each such holder.
4. RIGHTS UPON EVENT OF
DEFAULT.
(a) Event of
Default. Each of the following events shall constitute an
“Event of
Default”:
(i) the
failure of the applicable Registration Statement (as defined in the Registration
Rights Agreement) to be filed with the SEC on or prior to the date that is ten
(10) days after the applicable Filing Deadline (as defined in the Registration
Rights Agreement) or the failure of the applicable Registration Statement to be
declared effective by the SEC on or prior to the date that is ten (10) days
after the applicable Effectiveness Deadline (as defined in the Registration
Rights Agreement);
(ii) while
the applicable Registration Statement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the effectiveness of
the applicable Registration Statement lapses for any reason (including, without
limitation, the issuance of a stop order) or such Registration Statement (or the
prospectus contained therein) is unavailable to any holder of Registrable
Securities (as defined in the Registration Rights Agreement) for sale of all of
such holder’s Registrable Securities in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for a
period of five (5) consecutive days or for more than an aggregate of ten (10)
days in any 365-day period (excluding days during an Allowable Grace Period (as
defined in the Registration Rights Agreement));
7
(iii) the
suspension from trading or the failure of the Common Stock to be trading or
listed (as applicable) on an Eligible Market for a period of five (5)
consecutive days or for more than an aggregate of ten (10) days in any 365-day
period;
(iv) the
Company’s (A) failure to cure a Conversion Failure or a Delivery Failure (as
defined in the Warrants) by delivery of the required number of shares of Common
Stock within five (5) Trading Days after the applicable Conversion Date or
exercise date (as the case may be) or (B) notice, written or oral, to any holder
of the Notes or Warrants, including, without limitation, by way of public
announcement or through any of its agents, at any time, of its intention not to
comply, as required, with a request for conversion of any Notes into shares of
Common Stock that is requested in accordance with the provisions of the Notes,
other than pursuant to Section 3(d), or a request for exercise of any Warrants
for Warrant Shares in accordance with the provisions of the
Warrants;
(v) at
any time following the tenth (10th)
consecutive day that the Holder’s Authorized Share Allocation is less than the
number of shares of Common Stock that the Holder would be entitled to receive
upon a conversion of the full Conversion Amount of this Note (without regard to
any limitations on conversion set forth in Section 3(d) or
otherwise);
(vi) the
Company’s or any Subsidiary’s failure to pay to the Holder any amount of
Principal, Interest, Late Charges or other amounts when and as due under this
Note (including, without limitation, the Company’s or any Subsidiary’s failure
to pay any redemption payments or amounts hereunder) or any other Transaction
Document (as defined in the Securities Purchase Agreement) or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated hereby and thereby, except, in the case of a
failure to pay Interest and Late Charges when and as due, in which case only if
such failure remains uncured for a period of at least five (5)
days;
(vii) the
Company fails to remove any restrictive legend on any certificate or any shares
of Common Stock issued to the Holder upon conversion or exercise (as the case
may be) of any Securities acquired by the Holder under the Securities Purchase
Agreement (including this Note) as and when required by such Securities or the
Securities Purchase Agreement, unless otherwise then prohibited by applicable
federal securities laws, and any such failure remains uncured for at least five
(5) days;
(viii) the
occurrence of any default under, redemption of or acceleration prior to maturity
of any Indebtedness (as defined in the Securities Purchase Agreement) of the
Company or any of its Subsidiaries, other than with respect to (A) Permitted
Senior Indebtedness and (B) any Other Notes;
(ix) bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings for
the relief of debtors shall be instituted by or against the Company or any
Subsidiary and, if instituted against the Company or any Subsidiary by a third
party, shall not be dismissed within thirty (30) days of their
initiation;
8
(x)
the commencement by the Company or any Subsidiary of a voluntary case or
proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree, order, judgment or other similar document in respect of
the Company or any Subsidiary in an involuntary case or proceeding under any
applicable federal, state or foreign bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or the
occurrence of any other similar federal, state or foreign proceeding, or the
admission by it in writing of its inability to pay its debts generally as they
become due, the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action or the taking of any action by any Person to
commence a UCC foreclosure sale or any other similar action under federal, state
or foreign law;
(xi) the
entry by a court of (i) a decree, order, judgment or other similar document in
respect of the Company or any Subsidiary of a voluntary or involuntary case or
proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or (ii) a decree, order,
judgment or other similar document adjudging the Company or any Subsidiary as
bankrupt or insolvent, or approving as properly filed a petition seeking
liquidation, reorganization, arrangement, adjustment or composition of or in
respect of the Company or any Subsidiary under any applicable federal, state or
foreign law or (iii) a decree, order, judgment or other similar document
appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or any Subsidiary or of any substantial
part of its property, or ordering the winding up or liquidation of its affairs,
and the continuance of any such decree, order, judgment or other similar
document or any such other decree, order, judgment or other similar document
unstayed and in effect for a period of thirty (30) consecutive
days;
(xii) a
final judgment or judgments for the payment of money aggregating in excess of
$300,000 are rendered against the Company and/or any of its Subsidiaries and
which judgments are not, within thirty (30) days after the entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within thirty
(30) days after the expiration of such stay; provided, however, any judgment
which is covered by insurance or an indemnity from a credit worthy party shall
not be included in calculating the $300,000 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 or such Subsidiary (as the case may be) will receive
the proceeds of such insurance or indemnity within thirty (30) days of the
issuance of such judgment;
9
(xiii) the
Company and/or any Subsidiary, individually or in the aggregate, either (i)
fails to pay, when due, or within any applicable grace period, any payment with
respect to any Indebtedness in excess of $300,000 due to any third party (other
than, with respect to unsecured Indebtedness only, payments contested by the
Company and/or such Subsidiary (as the case may be) in good faith by proper
proceedings and with respect to which adequate reserves have been set aside for
the payment thereof in accordance with GAAP) or is otherwise in breach or
violation of any agreement for monies owed or owing in an amount in excess of
$300,000, which breach or violation permits the other party thereto to declare a
default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist
any other circumstance or event that would, with or without the passage of time
or the giving of notice, result in a default or event of default under any
agreement binding the Company or any Subsidiary, which default or event of
default would or is likely to have a material adverse effect on the business,
assets, operations (including results thereof), liabilities, properties,
condition (including financial condition) or prospects of the Company or any of
its Subsidiaries, individually or in the aggregate;
(xiv) other
than as specifically set forth in another clause of this Section 4(a), the Company or any
Subsidiary breaches any representation, warranty, covenant or other term or
condition of any Transaction Document (including, without limitation, any
Security Document (as defined in the Securities Purchase Agreement)), except, in
the case of a breach of a covenant or other term or condition that is curable,
only if such breach remains uncured for a period of five (5) consecutive Trading
Days;
(xv) any
strike, lockout, labor dispute, embargo, condemnation, act of God or public
enemy, or other casualty which causes, for more than fifteen (15) consecutive
days, the cessation or substantial curtailment of revenue producing activities
at any facility of the Company or any Subsidiary, if any such event or
circumstance could reasonably be expected to have a Material Adverse Effect (as
defined in the Securities Purchase Agreement);
(xvi) a
false or inaccurate certification (including a false or inaccurate deemed
certification) by the Company that the Equity Conditions are satisfied, that
there has been no Interest Conditions Failure, Redemption Conditions Failure,
Equity Conditions Failure, Dollar Failure, Volume Failure or Price Failure or as
to whether any Event of Default has occurred;
(xvii) any
breach or failure in any respect by the Company or any Subsidiary to comply with
any provision of Section 13 of this Note;
(xviii) any
Material Adverse Effect (as defined in the Securities Purchase Agreement)
occurs;
10
(xix) any
provision of any Transaction Document (including, without limitation, the Pledge
Agreement (as defined in the Securities Purchase Agreement)) shall at any time
for any reason (other than pursuant to the express terms thereof) cease to be
valid and binding on or enforceable against the parties thereto, or the validity
or enforceability thereof shall be contested by any party thereto, or a
proceeding shall be commenced by the Pledgor (as defined in the Pledge
Agreement), the Company or any Subsidiary or any governmental authority having
jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof, or the Pledgor, the Company or any Subsidiary shall
deny in writing that it has any liability or obligation purported to be created
under any Transaction Document (including, without limitation, the Pledge
Agreement);
(xx) the
Pledgor shall fail to perform or comply with any covenant or agreement contained
in the Pledge Agreement;
(xxi) the
Pledge Agreement shall for any reason fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien in favor of the Secured Parties (as defined in the Pledge
Agreement) on the shares of Common Stock or other assets purported to be covered
thereby; or
(xxii) any
Event of Default (as defined in the Other Notes) occurs with respect to any
Other Notes.
Upon the
occurrence of an Event of Default with respect to this Note or any Other Note,
the Company shall within one (1) Business Day deliver written notice thereof via
facsimile and overnight courier (with next day delivery specified) (an “Event of Default Notice”) to
the Holder.
(b) Redemption Right. 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 (regardless of whether such Event of Default has been cured)
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 4(b)
shall be redeemed by the Company at a price equal to the greater of (i) the
product of (A) the Conversion Amount to be redeemed multiplied by (B) the
Redemption Premium and (ii) the product of (X) the Conversion Rate with respect
to the Conversion Amount in effect at such time as the Holder delivers an Event
of Default Redemption Notice multiplied by (Y) the product of (1) the Equity
Value Redemption Premium multiplied by (2) the greatest Closing Sale Price of
the Common Shares during the period beginning on the date immediately preceding
such Event of Default and ending on the date the Holder delivers the Event of
Default Redemption Notice (the “Event of Default Redemption Price”).
Redemptions required by this Section 4(b) shall be made in accordance with the
provisions of Section 11. To the extent redemptions required by this Section
4(b) are deemed or determined by a court of competent jurisdiction to be
prepayments of this Note by the Company, such redemptions shall be deemed to be
voluntary prepayments. Notwithstanding anything to the contrary in this Section
4, but subject to Section 3(d), until the Event of Default Redemption Price
(together with any Late Charges thereon) is paid in full, the Conversion Amount
submitted for redemption under this Section 4(b) (together with any Late Charges
thereon) may be converted, in whole or in part, by the Holder into Common Stock
pursuant to Section 3. In the event of the Company’s redemption of
any portion of this 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.
11
5. RIGHTS UPON FUNDAMENTAL
TRANSACTION.
(a) Assumption. 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 5(a) pursuant to written agreements in form and
substance satisfactory to the Holder and approved by the Holder prior to such
Fundamental Transaction, including, without limitation, having a principal
amount and interest rate equal to the principal amounts then outstanding and the
interest rates of the Notes held by such holder, having similar conversion
rights as the Notes and having similar ranking to the Notes, and satisfactory to
the Holder and (ii) the Successor Entity is a publicly traded corporation
whose common stock is quoted on or listed for trading on an Eligible Market.
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 and the other Transaction
Documents 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 and the other Transaction
Documents with the same effect as if such Successor Entity had been named as the
Company herein. Upon consummation of a Fundamental Transaction, the Successor
Entity shall deliver to the Holder confirmation that there shall be issued upon
conversion or redemption of this Note at any time after the consummation of such
Fundamental Transaction, in lieu of the shares of the Company’s Common Stock (or
other securities, cash, assets or other property (except such items still
issuable under Sections 6 and 15, which shall continue to be receivable
thereafter) issuable upon the conversion or redemption of the Notes prior to
such Fundamental Transaction, such shares of the publicly traded common stock
(or their equivalent) of the Successor Entity (including its Parent Entity)
which the Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had this Note been converted immediately prior to such
Fundamental Transaction (without regard to any limitations on the conversion of
this Note), as adjusted in accordance with the provisions of this Note.
Notwithstanding the foregoing, the Holder may elect, at its sole option, by
delivery of written notice to the Company to waive this Section 5(a) to permit
the Fundamental Transaction without the assumption of this Note. The
provisions of this Section 5 shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
on the conversion of this Note.
12
(b) Redemption Right. No
sooner than twenty (20) Trading Days nor later than ten (10) Trading Days prior
to the consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver written notice
thereof via facsimile and overnight courier to the Holder (a “Change of Control
Notice”). At any time and from time to time during the period
commencing on the earlier to occur of (x) any oral or written agreement by the
Company or any of its Subsidiaries, which upon consummation of the transaction
contemplated thereby would reasonably be expected to result in a Change of
Control and (y) the Holder's receipt of a Change of Control Notice and ending on
the later of twenty (20) Trading Days after (A) consummation of such Change of
Control or (B) the date of receipt of such Change of Control Notice, 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 Conversion Amount the Holder is electing to
redeem. The portion of this Note subject to redemption pursuant to
this Section 5 shall be redeemed by the Company in cash at a price equal to the
greater of (i) the product of (x) the Change of Control Redemption Premium
multiplied by (y) the Conversion Amount being redeemed, (ii) the product of (x)
the Equity Value Redemption Premium multiplied by (y) the product of (A) the
Conversion Amount being redeemed multiplied by (B) the quotient determined by
dividing (I) the greatest Closing Sale Price of the Common Shares during the
period beginning on the date immediately preceding the earlier to occur of (1)
the consummation of the Change of Control and (2) the public announcement of
such Change of Control and ending on the date the Holder delivers the Change of
Control Redemption Notice by (II) the Conversion Price then in
effect and (iii) the product of (y) the Equity Value Redemption Premium
multiplied by (z) the product of (A) the Conversion Amount being redeemed
multiplied by (B) the quotient of (I) the aggregate cash consideration and the
aggregate cash value of any non-cash consideration per share of Common Stock to
be paid to the holders of the shares of Common Stock upon consummation of such
Change of Control (any such non-cash consideration constituting publicly-traded
securities shall be valued at the highest of the Closing Sale Price of such
securities as of the Trading Day immediately prior to the consummation of such
Change of Control, the Closing Sale Price of such securities on the Trading Day
immediately following the public announcement of such proposed Change of Control
and the Closing Sale Price of such securities on the Trading Day immediately
prior to the public announcement of such proposed Change of Control) divided by
(II) the Conversion Price then in effect (the “Change of Control Redemption
Price”). Redemptions required by this Section 5 shall be made in
accordance with the provisions of Section 11 and shall have priority to payments
to stockholders in connection with such Change of Control. To the extent
redemptions required by this Section 5(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of this Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 5, but subject to Section 3(d), until
the Change of Control Redemption Price (together with any Late Charges thereon)
is paid in full, the Conversion Amount submitted for redemption under this
Section 5(b) (together with any Late Charges thereon) may be converted, in whole
or in part, by the Holder into Common Stock pursuant to Section 3. In the event
of the Company’s redemption of any portion of this Note under this Section 5(b),
the Holder’s damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any redemption premium due under this Section 5(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder’s
actual loss of its investment opportunity and not as a penalty.
13
(c) Adjustment to the Conversion
Rate Upon a Change of Control.
(i) In
connection with a Change of Control, if the Holder converts its Note at any time
beginning on the date of the Change of Control Notice and ending at the close of
business on the Trading Day immediately prior to the applicable Change of
Control Date, the Company will increase the Conversion Rate by a number of
additional shares (the “Additional Shares”) for such
Note as described in Section 5(c)(ii) hereof; provided that (A) such increase in
the Conversion Rate shall not take place if such Change of Control is not
consummated, (B) the Company shall issue Common Shares at the Conversion Rate
(excluding such increase) on the earlier to occur of (x) the third (3rd) Trading
Day after the Conversion Date and (y) the time immediately prior to such Change
of Control and (C) the Company shall issue such Additional Shares at the time
immediately prior to such Change of Control; provided, that if the issuance of
any Additional Shares would cause the Holder or any of its affiliates to
beneficially own Common Shares (or securities of the Successor Entity or other
issuer upon the consummation of the Change of Control) in excess of the Maximum
Percentage (a “Maximum
Percentage Event”), the Holder shall have the right, exercisable by the
delivery of one or more written notices to the Company, to cause the Company to
alternatively issue to the Holder such Additional Shares (or the cash,
securities and/or other consideration to be issued in exchange for such
Additional Shares in such Change of Control, if applicable), or such portion
thereof as set forth in the applicable notice, on or prior to the third (3rd)
Trading Day after the Holder delivers the applicable notice to the Company (or
the Public Successor Entity or other issuer, as applicable) that the issuance of
such Additional Shares (or the cash, securities and/or other consideration to be
issued in exchange for such Additional Shares in such Change of Control, if
applicable), or such portion thereof as set forth in the applicable Notice,
would not result in a Maximum Percentage Event.
(ii) The
number of Additional Shares will be determined by the quotient of (x) the
Additional Share Amount and (y) the lowest of (A) the Conversion Price as in
effect on the Trading Day immediately prior to the applicable Conversion Date,
(B) 90% of the lowest Closing Bid Price of the Common Stock during the period
beginning on and including the earlier to occur of (I) any oral or written
agreement by the Company or any of its Subsidiaries, which upon consummation of
the transaction contemplated thereby would reasonably be expected to result in a
Change of Control and (II) the Holder's receipt of a Change of Control Notice
and ending on and including the Trading Day immediately prior to the applicable
Conversion Date and (C) 90% of the VWAP for the five (5) Trading Day period
immediately preceding the applicable Conversion Date.
14
6. RIGHTS UPON ISSUANCE OF
PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
(a) Purchase Rights. In
addition to any adjustments pursuant to Section 7 below, if at any time the
Company grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the “Purchase Rights”), then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired if
the Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights (provided, however, to the extent that the Holder’s right to participate
in any such Purchase Right would result in the Holder exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to such extent (or beneficial ownership of such shares of Common
Stock as a result of such Purchase Right to such extent) and such Purchase Right
to such extent shall be held in abeyance for the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Maximum
Percentage).
(b) Other Corporate
Events. In addition to and not in substitution for any other rights
hereunder, prior to the consummation of any Fundamental Transaction pursuant to
which holders of shares of Common Stock are entitled to receive securities or
other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company
shall make appropriate provision to insure that the Holder will thereafter have
the right to receive upon a conversion of this Note (i) in addition to the
shares of Common Stock receivable upon such conversion, such securities or other
assets to which the Holder would have been entitled with respect to such shares
of Common Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a conversion rate for such consideration commensurate with
the Conversion Rate. Provision made pursuant to the preceding sentence shall be
in a form and substance satisfactory to the Required Holders. The
provisions of this Section 6 shall apply similarly and equally to successive
Corporate Events and shall be applied without regard to any limitations on the
conversion or redemption of this Note.
15
7. RIGHTS UPON ISSUANCE OF
OTHER SECURITIES.
(a) Adjustment of Conversion
Price upon Issuance of Common Stock. If and whenever on or
after the Subscription Date the Company issues or sells, or in accordance with
this Section 7(a) is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding any Excluded Securities issued or
sold or deemed to have been issued or sold) for a consideration per share (the
“New Issuance Price”)
less than a price equal to the Conversion Price in effect immediately prior to
such issue or sale or deemed issuance or sale (such Conversion Price then in
effect is referred to herein as the “Applicable Price”) (the
foregoing a “Dilutive
Issuance”), then, immediately after such Dilutive Issuance, the
Conversion Price then in effect shall be reduced to an amount equal to the New
Issuance Price. For purposes of determining the adjusted Conversion Price under
this Section 7(a), the following shall be applicable:
(i) Issuance of
Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 7(a)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. Except as contemplated below, no
further adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock or of such Convertible Securities upon
the exercise of such Options or upon the actual issuance of such share of Common
Stock upon conversion, exercise or exchange of such Convertible
Securities.
(ii) Issuance of Convertible
Securities. If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this Section 7(a)(ii), the “lowest price per share for which
one share of Common Stock is issuable upon the conversion, exercise or exchange
thereof” shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. Except as contemplated below,
no further adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock upon conversion, exercise or exchange of
such Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Conversion Price has been or is to be made pursuant to other provisions of this
Section 7(a), except as contemplated below, no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
16
(iii) Change in Option Price or
Rate of Conversion. If the purchase or exercise price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exercise or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at any time, the
Conversion Price in effect at the time of such increase or decrease shall be
adjusted to the Conversion Price which would have been in effect at such time
had such Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased or decreased
conversion rate (as the case may be) at the time initially granted, issued or
sold. For purposes of this Section 7(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the Subscription Date are
increased or decreased in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the shares of Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 7(a) shall be made if such adjustment would
result in an increase of the Conversion Price then in effect.
(iv) Calculation of Consideration
Received. In case any Option is issued in connection with the issue or
sale of other securities of the Company, together comprising one integrated
transaction, (x) the Options will be deemed to have been issued for a
consideration equal to the Black-Scholes Consideration Value and (y) the other
securities issued or sold in such integrated transaction shall be deemed to have
been issued for the difference of (I) the aggregate consideration received by
the Company, less (II) the Black-Scholes Consideration Value. If any
shares of Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received therefor
will be deemed to be the net amount received by the Company therefor. If any
shares of Common Stock, Options or Convertible Securities are issued or sold for
a consideration other than cash, the amount of such consideration received by
the Company will be the fair value of such consideration, except where such
consideration consists of publicly traded securities, in which case the amount
of consideration received by the Company for such securities will be the average
VWAP of such security for the five (5) Trading Day period immediately preceding
the date of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such shares of Common Stock, Options or Convertible Securities (as the case may
be). The fair value of any consideration other than cash or publicly traded
securities will be determined jointly by the Company and the Holder. If such
parties are unable to reach agreement within ten (10) days after the occurrence
of an event requiring valuation (the “Valuation Event”), the fair
value of such consideration will be determined within five (5) Trading Days
after the tenth (10th) day
following such Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Holder. The determination of such appraiser
shall be final and binding upon all parties absent manifest error and the fees
and expenses of such appraiser shall be borne by the Company.
17
(v) Record Date. If the
Company takes a record of the holders of shares of Common Stock for the purpose
of entitling them (A) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (B) to subscribe for or
purchase shares of Common Stock, Options or Convertible Securities, then such
record date will be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting of
such right of subscription or purchase (as the case may be).
(b) Adjustment of Conversion
Price upon Subdivision or Combination of Common Stock. If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time on or after the Subscription
Date combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
will be proportionately increased. Any adjustment pursuant to this Section 7(b)
shall become effective immediately after the effective date of such subdivision
or combination. If any event requiring an adjustment under this Section 7(b)
occurs during the period that a Conversion Price is calculated hereunder, then
the calculation of such Conversion Price shall be adjusted appropriately to
reflect such event.
(c) Other Events. In the
event that the Company (or any direct or indirect Subsidiary thereof) shall
take any action to which the provisions hereof are not strictly applicable, or,
if applicable, would not operate to protect the Holder from dilution or if any
event occurs of the type contemplated by the provisions of this Section 7 but
not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company’s board of directors shall in good faith
determine and implement an appropriate adjustment in the Conversion Price so as
to protect the rights of the Holder, provided that no such adjustment pursuant
to this Section 7(c) will increase the Conversion Price as otherwise determined
pursuant to this Section 7, provided further that if the Holder does not accept
such adjustments as appropriately protecting its interests hereunder against
such dilution, then the Company’s board of directors and the Holder shall agree,
in good faith, upon an independent investment bank of nationally recognized
standing to make such appropriate adjustments, whose determination shall be
final and binding and whose fees and expenses shall be borne by the
Company.
18
(d) Adjustment. If
immediately following the close of business on the twenty-first consecutive
Trading Day immediately following (i) such date 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, (ii) if earlier, each of (x)
[ ]1 or such later date
thereafter when the Company shall have satisfied its current public information
requirement under Rule 144(c)(1) and (y) the Initial Effective Date (as defined
in the Registration Rights Agreement) (each, as applicable, an “Adjustment Date”), the
Conversion Price then in effect exceeds the Market Price as of such Adjustment
Date (the “Adjusted Conversion
Price”), the Conversion Price hereunder shall be reset to the Adjusted
Conversion Price as of such Adjustment Date (each, a “Conversion Price
Adjustment”). Notwithstanding the foregoing, to the extent the
Holder delivers one or more Conversion Notices to the Company during the Market
Price Measuring Period with respect to a Conversion Price Adjustment, in
addition to the shares of Common Stock issued or issuable to the Holder with
respect to each such Conversion Notice, on the later of (A) the applicable Share
Delivery Date with respect to such Conversion Notice and (B) the applicable
Adjustment Date, the Holder shall receive an additional number of shares of
Common Stock equal to the difference of (x) the quotient of (I) the Conversion
Amount with respect to such Conversion Notice, divided by (II) the Adjusted
Conversion Price, less (y) the number of shares of Common Stock issued or
otherwise issuable to the Holder with respect to such Conversion
Notice. Except as otherwise provided in this Section 7(d), the
Adjusted Conversion Price, if any, shall not apply to any Conversion Amount
converted into Common Stock prior to such Adjustment Date.
1 Insert
six month anniversary of the Issuance Date
(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.
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(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).
21
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.
22
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.
23
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.
24
(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).
25
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.
26
(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).
27
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.
28
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”).
29
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, NewYork, New York10011 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:
30
(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.
31
(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.
32
(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).
33
(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.
34
(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.
35
(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.
36
(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.
37
(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.
38
(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.
39
(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.
40
(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.
41
[signature page
follows]
42
IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the
Issuance Date set out above.
Kandi
Technologies, Corp.
By:
Name:
Title:
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:
Aggregate
Conversion Amount to be converted:
Please
confirm the following information:
Conversion
Price:
Number
of shares of Common Stock to be issued:
Please
issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to:
Facsimile
Number:
Authorization:
By:
Title:
Dated:
Account
Number:
(if
electronic book entry transfer)
Transaction
Code Number:
(if
electronic book entry transfer)
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.