Common use of Conversion of Convertible Notes Clause in Contracts

Conversion of Convertible Notes. (i) The outstanding principal of, and the accrued and unpaid interest on, each Convertible Note shall be converted at any time at the election of the Noteholder into that number of shares of Common Stock of the Company as equals the amount being converted divided by $0.65 (as adjusted and provided herein below, the "Conversion Price"). (ii) The Convertible Notes shall automatically be converted into Common Stock of the Company at the Conversion Price applicable on the conversion date at the election of the Company on a date at least thirty days after the Company has given notice to each Noteholder of the Company's decision to convert; however, the Company may not make any election to convert all or a portion of the Convertible Notes unless the following has occurred: the Average Trading Price for a period of at least thirty (30) consecutive trading days immediately prior to the Company sending the notice of conversion is equal to or greater than two times the initial Conversion Price. (iii) Upon the closing by the Company of the issuance and sale of New Qualified Securities, each Convertible Note shall automatically be exchanged for New Qualified Securities wherein, (A) the Noteholder in respect of any Convertible Note so exchanged will receive New Qualified Securities having a liquidation preference equal to the principal amount and accrued but unpaid interest under the Convertible Note; and (B) the conversion price for the New Qualified Securities received by the Noteholder will equal eighty-three and one-third percent (or 0.8333 if expressed as a decimal (which is the inverse of 1.20, or 120%)) of the Conversion Price of the Convertible Notes in effect immediately prior to the issuance of the New Qualified Securities (or if lower, will equal the conversion price for the New Qualified Securities); to the extent necessary (only) to accomplish the foregoing in respect of the conversion price, the Noteholders will receive New Qualified Securities of a separate class of New Qualified Securities. By way of example, if a New Noteholder holds a Convertible Note in the principal amount of $1,000, with accrued interest of $100, the New Qualified Securities will convert into 2,030 whole shares of Common Stock, plus a payment would be owed in respect of a fractional share [$1,100 ÷ (0.65 x 0.8333)]. By way of further example, if a total of $1,300 was due under the Convertible Note (both principal and interest), instead of converting into 2,000 shares of Common Stock (under the Conversion Price under the Convertible Note), the New Qualified Securities shall convert into 2,400 shares of Common Stock [$1,300 ÷ (0.65 x 0.8333)] (which provides 20% more Common shares). (b) Any Noteholder may, at any time after the initial filing of the Registration Statement as set forth in Section 5.17(a) below, convert a portion or the entirety of his or its outstanding Convertible Notes. Before any Noteholder shall be entitled to convert its Convertible Note into Common Stock the Noteholder shall surrender the Convertible Note endorsed for transfer to the Company or its designated transfer agent and shall give written notice of its election to convert, including the name or names in which the Common Stock certificates are to be issued. The Company shall as soon as practicable thereafter issue and deliver to such Noteholder or the designated Persons a certificate or certificates for the number of shares of Common Stock into which the Convertible Note or percentage thereof is being converted and, if applicable, a new Convertible Note for the unconverted principal and unpaid interest; however, the conversion shall be deemed to have occurred and the Person(s) designated to receive the Common Stock shall be a record holder(s) thereof on the date of surrender by the Noteholder with appropriate instructions. In the event of an automatic conversion, the Company shall provide to each Noteholder instructions for the surrender of its Convertible Note for conversion into Common Stock and for designation of Persons to receive Common Stock. The conversion shall be deemed to have been made and the Person(s) to receive the Common Stock shall be a record holder(s) thereof on the date designated by the Company for the automatic conversion if the Convertible Note has been appropriately surrendered for conversion or such later date as it is so surrendered. (c) The Conversion Price shall be adjusted on a full ratchet basis (for so long the Company's then issued and outstanding shares of Series A Preferred Stock comprises at least 10% of the fully diluted equity of the Company and continues to have a conversion price that adjusts (as it currently does) on a full ratchet basis (the "Series A Condition"), that is, if the Company issues any Common Stock or securities or debt convertible into or exchangeable for Common Stock or right to acquire such securities or debt at a price below the Conversion Price then in effect, then the Conversion Price shall be reduced to the price of that new issuance. If the Series A Condition ceases to be applicable, then the Conversion Price shall be adjusted on a standard weighted average basis pursuant to the terms which shall govern same provided in Exhibit B attached hereto. The Conversion Price shall also be adjusted proportionately for any stock dividends, stock splits, reverse stock splits, consolidations and the like in respect of the Company's Common Stock. Notwithstanding the foregoing, there shall be no adjustment of the Conversion Price as a result of any of the following: (i) the grant of options, warrants or other rights to purchase shares of Common Stock issued pursuant to a stock option plan approved by the Company's Board of Directors and the issuance of Common Stock upon exercise thereof, (ii) the issuance hereunder or at any time in the future of additional Convertible Notes and Warrants, and the issuance of Common Stock upon the conversion or exercise of initial or additional Convertible Notes and Warrants, (iii) the issuance of Common Stock upon any conversions of Series A Preferred Stock, (iv) the issuance of securities in connection with a business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, or in connection with any other strategic transaction, or any financing or leasing transaction or a consulting relationship, and (v) securities offered pursuant to any employee benefit plan approved by the Board of Directors.