10% SECURED CONVERTIBLE PROMISSORY NOTE DUE JANUARY 6, 2010
EXHIBIT
A
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
Original
Issue Date: January 6, 2009
Original
Conversion Price (subject to adjustment herein): $0.10
$100,000
10%
SECURED CONVERTIBLE PROMISSORY NOTE
DUE
JANUARY 6, 2010
THIS 10% SECURED CONVERTIBLE
PROMISSORY NOTE of VALCOM, INC. a Delaware corporation, having a principal place
of business at ▇▇▇▇ ▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
“Company”),
designated this its 10% Secured Convertible Promissory Note due January 6, 2010
(the “Note”).
FOR VALUE
RECEIVED, the Company promises to pay to Omnireliant Holdings, Inc. or its
registered assigns (the “Holder”), or shall
have paid pursuant to the terms hereunder, the principal sum of $100,000 by
January 6, 2010, or such earlier date as this Note is required or permitted to
be repaid as provided hereunder (the “Maturity Date”), and
to pay interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Note in accordance with the provisions
hereof. This Note is subject to the following additional
provisions:
Section
1.
Definitions. For
the purposes hereof, in addition to the terms defined elsewhere in this Note:
(a) capitalized terms not otherwise defined herein have the meanings given to
such terms in the Purchase Agreement, and (b) the following terms shall have the
following meanings:
“Alternate
Consideration” shall have the meaning set forth in Section
5(d).
“Base Conversion
Price” shall have the meaning set forth in Section 5(b).
“Business Day” means
any day except Saturday, Sunday and any day which shall be a federal legal
holiday in the United States or a day on which banking institutions in the State
of New York are authorized or required by law or other government action to
close.
“Buy-In” shall have
the meaning set forth in Section 4(d)(v).
“Change of Control
Transaction” means the occurrence after the date hereof of any of (i) an
acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company, or (ii) the Company merges into or
consolidates with any other Person, or any Person merges into or consolidates
with the Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 66% of the
aggregate voting power of the Company or the successor entity of such
transaction, or (iii) the Company sells or transfers its assets, as an entirety
or substantially as an entirety, to another Person and the stockholders of the
Company immediately prior to such transaction own less than 66% of the aggregate
voting power of the acquiring entity immediately after the transaction, (iv) a
replacement at one time or within a three year period of more than one-half of
the members of the Company’s board of directors which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on the date
hereof), or (v) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the
events set forth above in (i) through (iv).
1
“Common Stock” means
the common stock, par value $0.001 per share, of the Company and stock of any
other class of securities into which such securities may hereafter have been
reclassified or changed into.
“Conversion Date”
shall have the meaning set forth in Section 4(a).
“Conversion Price”
shall have the meaning set forth in Section 4(b).
“Conversion Shares”
means the shares of Common Stock issuable upon conversion of this Note or as
payment of interest in accordance with the terms.
“Note Register” shall
have the meaning set forth in Section 2(c).
“Dilutive Issuance”
shall have the meaning set forth in Section 5(b).
“Dilutive Issuance
Notice” shall have the meaning set forth in Section 5(b).
“Equity Conditions”
shall mean, during the period in question, (i) the Company shall have duly
honored all conversions and redemptions scheduled to occur or occurring by
virtue of one or more Notice of Conversions of the Holder, if any, (ii) all
liquidated damages and other amounts owing to the Holder in respect of this Note
shall have been paid, (iii) there is an effective Registration Statement
pursuant to which the Holder is permitted to utilize the prospectus thereunder
to resell all of the shares issuable pursuant to the Transaction Documents (and
the Company believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future), (iv) the Common Stock is trading on
the Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed for trading on a Trading Market (and the Company believes,
in good faith, that trading of the Common Stock on a Trading Market will
continue uninterrupted for the foreseeable future), (v) there is a sufficient
number of authorized but unissued and otherwise unreserved shares of Common
Stock for the issuance of all of the shares issuable pursuant to the Transaction
Documents, (vi) there is then existing no Event of Default or event which, with
the passage of time or the giving of notice, would constitute an Event of
Default, (vii) the issuance of the shares in question (or, in the case of a
redemption, the shares issuable upon conversion in full of the redemption
amount) to the Holder would not violate the limitations set forth in Section
4(c)(i) and Section 4(c)(ii) and (viii) no public announcement of a pending or
proposed Fundamental Transaction, Change of Control Transaction or acquisition
transaction has occurred that has not been consummated.
“Event of Default”
shall have the meaning set forth in Section 8.
“Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Fundamental
Transaction” shall have the meaning set forth in Section
5(d).
2
“Interest Conversion
Rate” means the lesser of (a) the Conversion Price and (b) the 90% of the
lesser of (i) the average of the 20 VWAPs immediately prior to the applicable
Interest Payment Date or (ii) the average of the 20 VWAPs immediately prior to
the date the applicable interest payment shares are issued and delivered if
after the Interest Payment Date.
“Interest Conversion
Shares” shall have the meaning set forth in Section 2(a).
“Interest Notice
Period” shall have the meaning set forth in Section 2(a).
“Interest Payment
Date” shall have the meaning set forth in Section 2(a).
“Interest Share
Amount” shall have the meaning set forth in Section 2(a).
“Late Fees” shall have
the meaning set forth in Section 2(d).
“Mandatory Default
Amount” shall equal the sum of (i) the greater of: (A) 130% of
the principal amount of this Note to be prepaid, plus all accrued and unpaid
interest thereon, or (B) the principal amount of this Note to be prepaid, plus
all other accrued and unpaid interest hereon, divided by the Conversion Price on
(x) the date the Mandatory Default Amount is demanded or otherwise due or (y)
the date the Mandatory Default Amount is paid in full, whichever is less,
multiplied by the VWAP on (x) the date the Mandatory Default Amount is demanded
or otherwise due or (y) the date the Mandatory Default Amount is paid in full,
whichever is greater, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of this Note.
“New York Courts”
shall have the meaning set forth in Section 9(d).
“Notice of Conversion”
shall have the meaning set forth in Section 4(a).
“Optional Redemption”
shall have the meaning set forth in Section 6(a).
“Optional Redemption
Amount” shall mean the sum of (i) 115% of the principal amount of the
Note then outstanding, (ii) accrued but unpaid interest and (iii) all liquidated
damages and other amounts due in respect of the Note.
“Optional Redemption
Date” shall have the meaning set forth in Section 6(a).
“Optional Redemption
Notice” shall have the meaning set forth in Section 6(a).
“Optional Redemption Notice
Date” shall have the meaning set forth in Section 6(a).
“Original Issue Date”
shall mean the date of the first issuance of the Notes regardless of the number
of transfers of any Note and regardless of the number of instruments which may
be issued to evidence such Note.
“Permitted
Indebtedness” shall mean (a) the Indebtedness existing on the Original
Issue Date and (b) lease obligations and purchase money Indebtedness of up to
$1,000,000, in the aggregate, incurred in connection with the acquisition of
capital assets and lease obligations with respect to newly acquired or leased
assets.
“Permitted Lien” shall
mean the individual and collective reference to the following: (a) Liens for
taxes, assessments and other governmental charges or levies not yet due or Liens
for taxes, assessments and other governmental charges or levies being contested
in good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Company) have been established in
accordance with GAAP, (b) Liens imposed by law which were incurred in the
ordinary course of business, such as carriers’, warehousemen’s and mechanics’
Liens, statutory landlords’ Liens, and other similar Liens arising in the
ordinary course of business, and (x) which do not individually or in the
aggregate materially detract from the value of such property or assets or
materially impair the use thereof in the operation of the business of the
Company and its consolidated Subsidiaries or (y) which are being contested in
good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or asset subject to such Lien
and (c) Liens incurred in connection with Permitted Indebtedness under clause
(b) thereunder provided that such Liens are not secured by assets of the Company
or its Subsidiaries other than the assets so acquired or leased.
3
“Person” means a
corporation, an association, a partnership, organization, a business, an
individual, a government or political subdivision thereof or a governmental
agency.
“Purchase Agreement”
means the Note Purchase Agreement, dated as of January 6, 2009 to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
“Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Shareholder Approval”
shall have the meaning given to such term in the Purchase
Agreement.
“Subsidiary” shall
have the meaning given to such term in the Purchase Agreement.
“Threshold Period”
shall have the meaning given to such term in Section 6(d).
“Trading Day” means a
day on which the Common Stock is traded on a Trading Market.
“Trading Market” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the Nasdaq SmallCap Market, the American
Stock Exchange, the New York Stock Exchange or the Nasdaq National
Market.
“Transaction
Documents” shall have the meaning set forth in the Purchase
Agreement.
“VWAP” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from
9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the Common Stock
is not then listed or quoted on a Trading Market and if prices for the Common
Stock are then quoted on the OTC Bulletin Board, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on the
OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on the
OTC Bulletin Board and if prices for the Common Stock are then reported in the
“Pink Sheets” published by the Pink Sheets, LLC (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (d) in all other cases,
the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder and reasonably acceptable to the
Company.
Section
2.
Interest.
a) Payment of Interest in Cash
or Kind. The Company shall pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Note at the rate of 10
% per annum, payable quarterly on January 5, April 5, July 5 and October 5,
beginning on the first such date after the Original Issue Date, (each such date,
an “Interest Payment
Date”), in cash or shares of Common Stock at the Interest Conversion
Rate, or a combination thereof (the amount to be paid in shares, the
“Interest Share
Amount”); provided, however, (i) payment
in shares of Common Stock may only occur if during the 20 Trading Days
immediately prior to the applicable Interest Payment Date (the “Interest Notice
Period”) and through and including the date such shares of Common Stock
are issued to the Holder all of the Equity Conditions, unless waived by the
Holder in writing, have been met and the Company shall have given the Holder
notice in accordance with the notice requirements set forth below and (ii) as to
such Interest Payment Date, prior to the such Interest Notice Period (but not
more 5 Trading Days prior to the commencement of the Interest Notice Period),
the Company shall have delivered to the Holder’s account with The Depository
Trust Company a number of shares of Common Stock to be applied against such
Interest Share Amount equal to the quotient of (x) the applicable Interest Share
Amount divided by (y) the then Conversion Price (the “Interest Conversion
Shares”).
4
b) Company’s Election to Pay
Interest in Kind. Subject to the terms and conditions herein,
the decision whether to pay interest hereunder in shares of Common Stock or cash
shall be at the discretion of the Company. Prior to the commencement
of an Interest Notice Period, the Company shall provide the Holder with written
notice of its election to pay interest hereunder on the applicable Interest
Payment Date either in cash, shares of Common Stock or a combination thereof
(the Company may indicate in such notice that the election contained in such
notice shall continue for later periods until revised) and the Interest Share
Amount as to the applicable Interest Payment Date. During any
Interest Notice Period, the Company’s election (whether specific to an Interest
Payment Date or continuous) shall be irrevocable as to such Interest Payment
Date. Subject to the aforementioned conditions, failure to timely
provide such written notice shall be deemed an election by the Company to pay
the interest on such Interest Payment Date in cash. At any time the
Company delivers a notice to the Holder of its election to pay the interest in
shares of Common Stock, the Company shall file a prospectus supplement pursuant
to Rule 424 disclosing such election. The aggregate number of shares
of Common Stock otherwise issuable to the Holder on an Interest Payment Date
shall be reduced by the number of Interest Conversion Shares previously issued
to the Holder in connection with such Interest Payment Date.
c) Interest
Calculations. Interest shall be calculated on the basis of a 360-day year
and shall accrue daily commencing on the Original Issue Date until payment in
full of the principal sum, together with all accrued and unpaid interest and
other amounts which may become due hereunder, has been made. Payment
of interest in shares of Common Stock (other than the Interest Conversion Shares
issued prior to an Interest Notice Period) shall otherwise occur pursuant to
Section 4(d)(ii) and only for purposes of the payment of interest in shares, the
Interest Payment Date shall be deemed the Conversion Date. Interest
shall cease to accrue with respect to any principal amount converted, provided
that the Company in fact delivers the Conversion Shares within the time period
required by Section 4(d)(ii). Interest hereunder will be paid to the
Person in whose name this Note is registered on the records of the Company
regarding registration and transfers of this Note (the “Note Register”).
Except as otherwise provided herein, if at any time the Company pays interest
partially in cash and partially in shares of Common Stock to the holders of the
Notes, then such payment shall be distributed ratably among the holders of the
Notes based on their (or their predecessor’s initial purchases of Notes pursuant
to the Purchase Agreement.
d) Late
Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate of 18% per annum (or such lower
maximum amount of interest permitted to be charged under applicable law) (“Late Fees”) which
will accrue daily, from the date such interest is due hereunder through and
including the date of payment. Notwithstanding anything to the contrary
contained herein, if on any Interest Payment Date the Company has elected to pay
interest in Common Stock and is not able to pay accrued interest in the form of
Common Stock because it does not then satisfy the conditions for payment in the
form of Common Stock set forth above, then, at the option of the Holder, the
Company, in lieu of delivering either shares of Common Stock pursuant to this
Section 2 or paying the regularly scheduled cash interest payment, shall
deliver, within three Trading Days of each applicable Interest Payment Date, an
amount in cash equal to the product of the number of shares of Common Stock
otherwise deliverable to the Holder in connection with the payment of interest
due on such Interest Payment Date and the highest VWAP during the period
commencing on the Interest Payment Date and ending on the Trading Day prior to
the date such payment is made. If any Interest Conversion Shares are
issued to the Holder in connection with an Interest Payment Date and are not
applied against an Interest Share Amount, then the Holder shall promptly return
such excess shares to the Company.
5
e) Prepayment. Except
as otherwise set forth in this Note, the Company may not prepay any portion of
the principal amount of this Note without the prior written consent of the
Holder.
Section
3. Registration of Transfers
and Exchanges.
a) Different
Denominations. This Note is exchangeable for an equal aggregate principal
amount of Notes of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
b) Investment
Representations. This Note has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement and
may be transferred or exchanged only in compliance with the Purchase Agreement
and applicable federal and state securities laws and regulations.
c) Reliance on Note
Register. Prior to due presentment to the Company for transfer of this
Note, the Company and any agent of the Company may treat the Person in whose
name this Note is duly registered on the Note Register as the owner hereof for
the purpose of receiving payment as herein provided and for all other purposes,
whether or not this Note is overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
Section
4. Conversion.
a) Voluntary Conversion.
At any time after the Original Issue Date until this Note is no longer
outstanding, this Note shall be convertible into (i) shares of Common Stock at
the option of the Holder, in whole or in part at any time and from time to time
(subject to the limitations on conversion set forth in Section 4(c) hereof)
or (ii) by the purchase by the Investor from the Company or its subsidiaries
broadcast airtime or commercial slots at a forty percent discount (40%) to the
standard published rate card for such airtime or commercial slots discounted for
any volume purchase appropriate to the gross value of the purchase before
discount .. The Holder shall effect conversion in part by delivering
to the Company the form of Notice of Conversion attached hereto as Annex A (a “Notice of
Conversion”), specifying therein the principal amount of this Note to be
converted and the date on which such conversion is to be effected (a “Conversion
Date”). If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion
is provided hereunder. To effect conversion in part hereunder, the
Holder shall not be required to physically surrender this Note to the Company
unless the entire principal amount of this Note plus all accrued and unpaid
interest thereon has been so converted. Conversions hereunder shall have the
effect of lowering the outstanding principal amount of this Note in an amount
equal to the applicable conversion. The Holder and the Company shall
maintain records showing the principal amount converted and the date of such
conversions. The Company shall deliver any objection to any Notice of
Conversion within 1 Business Day of receipt of such notice. In the
event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder and
any assignee, by acceptance of this Note, acknowledge and agree that, by reason
of the provisions of this paragraph, following conversion of a portion of this
Note, the unpaid and unconverted principal amount of this Note may be less than
the amount stated on the face hereof.
b) Conversion
Price. The conversion price in effect on any Conversion Date
shall be equal to $0.10
(subject to adjustment herein)(the “Conversion
Price”).
c) Conversion
Limitations.
i. Reserved.
6
ii. Holder’s Restriction on
Conversion. The Company shall not effect any conversion of this Note, and
the Holder shall not have the right to convert any portion of this Note,
pursuant to Section 4(a) or otherwise, to the extent that after giving effect to
such conversion, the Holder (together with the Holder’s Affiliates), as set
forth on the applicable Notice of Conversion, would beneficially own in excess
of 4.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the Holder
and its Affiliates shall include the number of shares of Common Stock issuable
upon conversion of this Note with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) conversion of the remaining, nonconverted
portion of this Note beneficially owned by the Holder or any of its Affiliates
and (B) exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any other Notes
or the Warrants) subject to a limitation on conversion or exercise analogous to
the limitation contained herein beneficially owned by the Holder or any of its
Affiliates. Except as set forth in the preceding sentence, for purposes of
this Section 4(c)(ii), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. To the extent that the limitation contained in this
section applies, the determination of whether this Note is convertible (in
relation to other securities owned by the Holder) and of which a portion of this
Note is convertible shall be in the sole discretion of such Holder. To ensure
compliance with this restriction, the Holder will be deemed to represent to the
Company each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this paragraph and the
Company shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. For purposes
of this Section 4(c)(ii), in determining the number of outstanding shares of
Common Stock, the Holder may rely on the number of outstanding shares of Common
Stock as reflected in (x) the Company’s most recent Form 10-Q or Form 10-K, as
the case may be, (y) a more recent public announcement by the Company or (z) any
other notice by the Company or the Company’s Transfer Agent setting forth the
number of shares of Common Stock outstanding. Upon the written or oral
request of the Holder, the Company shall within two Trading Days confirm orally
and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Note, by the Holder or its Affiliates
since the date as of which such number of outstanding shares of Common Stock was
reported. The provisions of this Section 4(c) may be waived by the
Holder, at the election of the Holder, upon not less than 61 days’ prior notice
to the Company, and the provisions of this Section 4(c) shall continue to apply
until such 61st day (or such later date, as determined by the Holder, as may be
specified in such notice of waiver). The provisions of this paragraph
shall be implemented in a manner otherwise than in strict conformity with the
terms of this Section 4(c) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended 4.99% beneficial
ownership limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such 4.99% limitation. The
limitations contained in this paragraph shall apply to a successor holder of
this Note. The holders of Common Stock of the Company shall be third party
beneficiaries of this Section 4(c) and the Company may not waive this Section
4(c) without the consent of holders of a majority of its Common
Stock.
|
|
d)
|
Mechanics of
Conversion
|
i. Conversion Shares Issuable
Upon Conversion of Principal Amount. The number of shares of
Common Stock issuable upon a conversion hereunder shall be determined by the
quotient obtained by dividing (x) the outstanding principal amount of this Note
to be converted by (y) the Conversion Price.
7
ii. Delivery of Certificate Upon
Conversion. Not later than three Trading Days after any Conversion Date,
the Company will deliver or cause to be delivered to the Holder (A) a
certificate or certificates representing the Conversion Shares which shall be
free of restrictive legends and trading restrictions (other than those required
by the Purchase Agreement) representing the number of shares of Common Stock
being acquired upon the conversion of this Note (including, if the Company has
given continuous notice pursuant to Section 2(b) for payment of interest in
shares of Common Stock at least 20 Trading Days prior to the date on which the
Conversion Notice is delivered to the Company, shares of Common Stock
representing the payment of accrued interest otherwise determined pursuant to
Section 2(a) but assuming that the Interest Payment Period is the 20 Trading
Days period immediately prior to the date on which the Conversion Notice is
delivered to the Company and excluding for such issuance the condition that the
Company deliver Interest Conversion Shares as to such interest payment) and (B)
a bank check in the amount of accrued and unpaid interest (if the Company is
required to pay accrued interest in cash). The Company shall, if available and
if allowed under applicable securities laws, use its best efforts to deliver any
certificate or certificates required to be delivered by the Company under this
Section electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions.
iii. Failure to Deliver
Certificates. If in the case of any Notice of Conversion such
certificate or certificates are not delivered to or as directed by the
applicable Holder by the third Trading Day after a Conversion Date, the Holder
shall be entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the certificates
representing the principal amount of this Note tendered for
conversion.
iv. Obligation Absolute; Partial
Liquidated Damages. If the Company fails for any reason to
deliver to the Holder such certificate or certificates pursuant to Section
4(d)(ii) by the third Trading Day after the Conversion Date, the Company shall
pay to such Holder, in cash, as liquidated damages and not as a penalty, for
each $1000 of principal amount being converted, $10 per Trading Day (increasing
to $20 per Trading Day after 5 Trading Days after such damages begin to accrue)
for each Trading Day after such third Trading Day until such certificates are
delivered. The Company’s obligations to issue and deliver the
Conversion Shares upon conversion of this Note in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by
the Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law by
the Holder or any other person, and irrespective of any other circumstance which
might otherwise limit such obligation of the Company to the Holder in connection
with the issuance of such Conversion Shares; provided, however, such
delivery shall not operate as a waiver by the Company of any such action the
Company may have against the Holder. In the event the Holder of this
Note shall elect to convert any or all of the outstanding principal amount
hereof, the Company may not refuse conversion based on any claim that the Holder
or any one associated or affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason, unless, an injunction from
a court, on notice, restraining and or enjoining conversion of all or part of
this Note shall have been sought and obtained and the Company posts a surety
bond for the benefit of the Holder in the amount of 150% of the principal amount
of this Note outstanding, which is subject to the injunction, which bond shall
remain in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Holder to the extent it
obtains judgment. In the absence of an injunction precluding the
same, the Company shall issue Conversion Shares or, if applicable, cash, upon a
properly noticed conversion. Nothing herein shall limit a Holder’s
right to pursue actual damages or declare an Event of Default pursuant to
Section 8 herein for the Company’s failure to deliver Conversion Shares within
the period specified herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief. The exercise
of any such rights shall not prohibit the Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.
8
v. Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion. In addition to
any other rights available to the Holder, if the Company fails for any reason to
deliver to the Holder such certificate or certificates pursuant to Section
4(d)(ii) by the third Trading Day after the Conversion Date, and if after such
third Trading Day the Holder is required by its brokerage firm to purchase (in
an open market transaction or otherwise) Common Stock to deliver in satisfaction
of a sale by such Holder of the Conversion Shares which the Holder anticipated
receiving upon such conversion (a “Buy-In”), then the
Company shall (A) pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the Common
Stock so purchased exceeds (y) the product of (1) the aggregate number of shares
of Common Stock that such Holder anticipated receiving from the conversion at
issue multiplied by (2) the actual sale price of the Common Stock at the time of
the sale (including brokerage commissions, if any) giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue (if surrendered)
this Note in a principal amount equal to the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its delivery
requirements under Section 4(d)(ii). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of this Note with respect to
which the actual sale price of the Conversion Shares at the time of the sale
(including brokerage commissions, if any) giving rise to such purchase
obligation was a total of $10,000 under clause (A) of the immediately preceding
sentence, the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In.
vi. Reservation of Shares
Issuable Upon Conversion. The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued shares of Common
Stock solely for the purpose of issuance upon conversion of this Note and
payment of interest on this Note, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holder (and the other holders of the Notes), not less than such number of shares
of the Common Stock as shall (subject to the terms and conditions set forth in
the Purchase Agreement) be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the outstanding principal
amount of this Note and payment of interest hereunder. The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable and,
if the Registration Statement is then effective under the Securities Act,
registered for public sale in accordance with such Registration
Statement.
vii. Fractional Shares.
Upon a conversion hereunder the Company shall not be required to issue stock
certificates representing fractions of shares of the Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the VWAP at such time. If the Company elects not, or
is unable, to make such a cash payment, the Holder shall be entitled to receive,
in lieu of the final fraction of a share, one whole share of Common
Stock.
viii. Transfer
Taxes. The issuance of certificates for shares of the Common
Stock on conversion of this Note shall be made without charge to the Holder
hereof for any documentary stamp or similar taxes that may be payable in respect
of the issue or delivery of such certificate, provided that the Company shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion in
a name other than that of the Holder of this Note so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
9
ix. Piggy-Back Registration
Rights. If at any time after the date hereof until such the
date that the Conversion Shares may be sold pursuant to Rule 144 without volume
or manner of sale restrictions, the Company shall determine to prepare and file
with the Commission a registration statement relating to an offering for its own
account or the account of others of any of its equity securities, other than on
Form S-4 or Form S-8 (each as promulgated under the Securities Act), or their
then equivalents (a “Registration
Statement”), relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or equity securities
issuable in connection with stock option or other employee benefit plans, then
the Company shall send a written notice of such determination to the Holder and,
if within ten calendar days after the date of delivery of such notice, any such
Holder shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Conversion Shares as the Holder
requests to be registered so long as such Conversion Shares are proposed to be
disposed in the same manner as those securities set forth in the Registration
Statement; provided, however, if the
inclusion of Conversion Shares requested to be included in the Registration
Statement would cause an adverse effect on the success of any such offering,
based on market conditions or otherwise (an “Adverse Effect”),
then the Company shall be required to include in such Registration Statement
only that number of Conversion Shares to the extent that such inclusion shall
not cause and Adverse Effect; provided, further, if such
number of Conversion Shares is limited hereunder, any cutbacks of a Holder’s
Conversion Shares shall be done on a pro rata basis among all Holders based on
their respective number of shares to be registered hereunder. To the
extent that all of the Conversion Shares are not included in the initial
Registration Statement, the Holders shall have the right to request the
inclusion of its Conversion Shares in subsequent Registration Statements until
all such Conversion Shares have been registered in accordance with the terms
hereof. If the offering in which the Conversion Shares is being
included in a Registration Statement is a firm commitment underwritten offering,
unless otherwise agreed by the Company, the Holder shall sell its Conversion
Shares in such offering using the same underwriters and, subject to the
provisions hereof, on the same terms and conditions as the other shares of
Common Stock that are included in such underwritten offering. The
Company shall use its best efforts to cause any Registration Statement to be
declared effective by the Commission as promptly as is possible following it
being filed with the Commission and to remain effective until all Conversion
Shares subject thereto have been sold or may be sold without volume or manner of
sale restrictions. All fees and expenses incident to the performance
of or compliance with this Section by the Company shall be borne by the Company
whether or not any Conversion Shares are sold pursuant to the Registration
Statement. The Company shall indemnify and hold harmless the Holder,
the officers, directors, members, partners, agents, brokers, investment advisors
and employees of each of them, each person who controls the Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act),
and the officers, directors, members, shareholders, partners, agents and
employees of each such controlling person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, reasonable attorneys’ fees)
and expenses (collectively, the “Losses”), as
incurred, arising out of or relating to (i) any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
prospectus included therein or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading or (ii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act or
any state securities law, or any rule or regulation thereunder, in connection
with the performance of its obligations under this Section, except to the
extent, but only to the extent, that such untrue statements or omissions
referred to in (i) above are based solely upon information regarding the Holder
furnished in writing to the Company by the Holder expressly for use therein, or
(ii) to the extent that such information relates to such Holder’s proposed
method of distribution of Conversion Shares and was reviewed and expressly
approved in writing by such Holder expressly for use in a Registration
Statement, the prospectus included therein or in any amendment or supplement
thereto. The rights of the Holder under this Section 1.4 shall
survive until all Conversion Shares have been either registered under a
Registration Statement or been sold pursuant to an exemption to the registration
requirements of the Securities Act. Each Holder shall, severally and
not jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, to the extent arising out of or based solely upon: (x) such Holder’s
failure to comply with the prospectus delivery requirements of the Securities
Act or (y) any untrue or alleged untrue statement of a material fact contained
in any Registration Statement, any prospectus included therein, or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or relating to any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein not misleading
(i) to the extent, but only to the extent, that such untrue statement or
omission is contained in any information so furnished in writing by such Holder
to the Company specifically for inclusion in such Registration Statement or (ii)
to the extent that such information relates to such Holder’s proposed method of
distribution of Conversion Shares and was reviewed and expressly approved in
writing by such Holder expressly for use in a Registration Statement, the
prospectus included therein or in any amendment or supplement
thereto. In no event shall the liability of any selling Holder
hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Conversion Shares giving rise to
such indemnification obligation
10
Section
5.
Certain
Adjustments.
a) Stock Dividends and Stock
Splits. If the Company, at any time while this Note is
outstanding: (A) pays a stock dividend or otherwise makes a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Company
pursuant to this Note, including as interest thereon), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C) combines
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (D) issues by reclassification of shares of
the Common Stock any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to this Section shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
b) Subsequent Equity
Sales. If the Company or any Subsidiary thereof, as
applicable, at any time while this Note is outstanding, shall offer, sell, grant
any option to purchase or offer, sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer, sale, grant
or any option to purchase or other disposition) any Common Stock or Common Stock
Equivalents entitling any Person to acquire shares of Common Stock, at an
effective price per share less than the then Conversion Price (such lower price,
the “Base Conversion
Price” and such issuances collectively, a “Dilutive Issuance”),
as adjusted hereunder (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights per share which is issued in
connection with such issuance, be entitled to receive shares of Common Stock at
an effective price per share which is less than the Conversion Price, such
issuance shall be deemed to have occurred for less than the Conversion Price on
such date of the Dilutive Issuance), then the Conversion Price shall be reduced
to equal the Base Conversion Price. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are
issued. Notwithstanding the foregoing, no adjustment will be made
under this Section 5(b) in respect of an Exempt Issuance. The Company
shall notify the Holder in writing, no later than the Business Day following the
issuance of any Common Stock or Common Stock Equivalents subject to this
section, indicating therein the applicable issuance price, or of applicable
reset price, exchange price, conversion price and other pricing terms (such
notice the “Dilutive
Issuance Notice”). For purposes of clarification, whether or
not the Company provides a Dilutive Issuance Notice pursuant to this Section
5(b), upon the occurrence of any Dilutive Issuance, after the date of such
Dilutive Issuance the Holder is entitled to receive a number of Conversion
Shares based upon the Base Conversion Price regardless of whether the Holder
accurately refers to the Base Conversion Price in the Notice of
Conversion.
11
c) Pro Rata
Distributions. If the Company, at any time while this Note is
outstanding, shall distribute to all holders of Common Stock (and not to the
holders of the Note) evidences of its indebtedness or assets (including cash and
cash dividends) or rights or warrants to subscribe for or purchase any security,
then in each such case the Conversion Price shall be adjusted by multiplying
such Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of the Common Stock as determined by the Board of Directors in
good faith. In either case the adjustments shall be described in a
statement provided to the Holder of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one share
of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
d) Fundamental
Transaction. If, at any time while this Note is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “Fundamental
Transaction”), then upon any subsequent conversion of this Note, the
Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion immediately prior to the occurrence of
such Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of one share of Common Stock (the “Alternate
Consideration”). For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Conversion Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration. If holders
of Common Stock are given any choice as to the securities, cash or property to
be received in a Fundamental Transaction, then the Holder shall be given the
same choice as to the Alternate Consideration it receives upon any conversion of
this Note following such Fundamental Transaction. To the extent
necessary to effectuate the foregoing provisions, any successor to the Company
or surviving entity in such Fundamental Transaction shall issue to the Holder a
new Note consistent with the foregoing provisions and evidencing the Holder’s
right to convert such Note into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall include
terms requiring any such successor or surviving entity to comply with the
provisions of this paragraph (d) and insuring that this Note (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.
12
e) Calculations. All
calculations under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this
Section 5, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares, if any) issued and
outstanding.
f) Notice to the
Holder.
i. Adjustment to Conversion
Price. Whenever the Conversion Price is adjusted pursuant to
any of this Section 5, the Company shall promptly mail to each Holder a notice
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment. If the Company issues a
variable rate security, despite the prohibition thereon in the Purchase
Agreement, the Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion or exercise price at which
such securities may be converted or exercised in the case of a Variable Rate
Transaction (as defined in the Purchase Agreement).
ii. Notice to Allow Conversion
by ▇▇▇▇▇▇. If (A) the Company shall declare a dividend (or any
other distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Note, and shall cause
to be mailed to the Holder at its last addresses as it shall appear upon
the stock books of the Company, at least 20 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Note during
the 20-day period commencing the date of such notice to the effective date of
the event triggering such notice.
Section
6. Negative Covenants.
So long as any portion of this Note is outstanding, the Company will not and
will not permit any of its Subsidiaries to directly or indirectly
a) other
than Permitted Liens, enter into, create, incur, assume or suffer to exist any
liens of any kind, on or with respect to any of its property or assets now owned
or hereafter acquired or any interest therein or any income or profits
therefrom;
b) amend
its certificate of incorporation, bylaws or other charter documents so as to
materially and adversely affect any rights of the Holder;
13
c) repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of
shares of its Common Stock or Common Stock Equivalents other than as to the
Conversion Shares to the extent permitted or required under the Transaction
Documents or as otherwise permitted by the Transaction Documents;
d) enter
into any agreement with respect to any of the foregoing; or
e) pay
cash dividends or distributions on any equity securities of the
Company.
Section
7. Events of
Default.
a) “Event of Default”,
wherever used herein, means any one of the following events (whatever the reason
and whether it shall be voluntary or involuntary or effected by operation of law
or pursuant to any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
i. any
default in the payment of (A) the principal amount of any Note, or (B) interest
(including Late Fees) on, or liquidated damages in respect of, any Note, as and
when the same shall become due and payable (whether on a Conversion Date or the
Maturity Date or by acceleration or otherwise) which default, solely in the case
of an interest payment or other default under clause (B) above, is not cured,
within 3 Trading Days;
ii. the
Company shall fail to observe or perform any other covenant or agreement
contained in this Note or any other Note which failure is not cured, if possible
to cure, within the earlier to occur of (A) 5 Trading Days after notice of such
default sent by the Holder or by any other Holder and (B)10 Trading Days after
the Company shall become or should have become aware of such
failure;
iii. a
default or event of default (subject to any grace or cure period provided for in
the applicable agreement, document or instrument) shall occur under (A) any of
the Transaction Documents, or (B) any other material agreement, lease, document
or instrument to which the Company or any Subsidiary is bound;
iv. any
representation or warranty made herein, in any other Transaction Documents, in
any written statement pursuant hereto or thereto, or in any other report,
financial statement or certificate made or delivered to the Holder or any other
holder of Notes shall be untrue or incorrect in any material respect as of the
date when made or deemed made;
v. (i)
the Company or any of its Subsidiaries shall commence a case, as debtor, a case
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company or any Subsidiary commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or any
Subsidiary thereof or (ii) there is commenced a case against the Company or any
Subsidiary thereof, under any applicable bankruptcy or insolvency laws, as now
or hereafter in effect or any successor thereto which remains undismissed for a
period of 60 days; or (iii) the Company or any Subsidiary thereof is adjudicated
by a court of competent jurisdiction insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or (iv)
the Company or any Subsidiary thereof suffers any appointment of any custodian
or the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or (v) the Company or any
Subsidiary thereof makes a general assignment for the benefit of creditors; or
(vi) the Company shall fail to pay, or shall state that it is unable to pay, or
shall be unable to pay, its debts generally as they become due; or (vii) the
Company or any Subsidiary thereof shall call a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of its debts; or
(viii) the Company or any Subsidiary thereof shall by any act or failure to act
expressly indicate its consent to, approval of or acquiescence in any of the
foregoing; or (ix) any corporate or other action is taken by the Company or any
Subsidiary thereof for the purpose of effecting any of the
foregoing;
14
vi. the
Company or any Subsidiary shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement of the Company in an amount
exceeding $1,000,000, whether such indebtedness now exists or shall hereafter be
created and such default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;
vii. the
Common Stock shall not be eligible for quotation on or quoted for trading on a
Trading Market and shall not again be eligible for and quoted or listed for
trading thereon within five Trading Days;
viii. the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction, shall agree to sell or dispose of all or in excess of 33% of its
assets in one or more transactions (whether or not such sale would constitute a
Change of Control Transaction) or shall redeem or repurchase more than a de
minimis number of its outstanding shares of Common Stock or other equity
securities of the Company (other than redemptions of Conversion Shares and
repurchases of shares of Common Stock or other equity securities of departing
officers and directors of the Company; provided such repurchases shall not
exceed $100,000, in the aggregate, for all officers and directors during the
term of this Note). The Company’s acquisition of the American Auction
Network shall not be considered an Event of Default under this Section
7;
b) Remedies Upon Event of
Default. If any Event of Default occurs, the full principal amount of
this Note, together with interest and other amounts owing in respect thereof, to
the date of acceleration shall become, at the Holder’s election, immediately due
and payable in cash. The aggregate amount payable upon an Event
of Default shall be equal to the Mandatory Default Amount. Commencing
5 days after the occurrence of any Event of Default that results in the eventual
acceleration of this Note, the interest rate on this Note shall accrue at the
rate of 18% per annum, or such lower maximum amount of interest permitted to be
charged under applicable law. Upon the payment in full of the
Mandatory Default Amount on this entire Note the Holder shall promptly surrender
this Note to or as directed by the Company. The Holder need not
provide and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such declaration
may be rescinded and annulled by ▇▇▇▇▇▇ at any time prior to payment hereunder
and the Holder shall have all rights as a Note holder until such time, if any,
as the full payment under this Section shall have been received by
it. No such rescission or annulment shall affect any subsequent Event
of Default or impair any right consequent thereon.
Section
9. Miscellaneous.
a) Notices. Any
and all notices or other communications or deliveries to be provided by the
Holder hereunder, including, without limitation, any Notice of Conversion, shall
be in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, Attn: ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holder delivered in accordance with
this Section. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile telephone number or
address of such ▇▇▇▇▇▇ appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
5:30 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 5:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given.
15
b) Absolute Obligation.
Except as expressly provided herein, no provision of this Note shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, interest and liquidated damages (if any) on, this Note at
the time, place, and rate, and in the coin or currency, herein
prescribed. This Note is a direct debt obligation of the
Company. This Note ranks pari passu with all other
Notes now or hereafter issued under the terms set forth herein.
c) Lost or Mutilated
Note. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Note, or in lieu of or in substitution
for a lost, stolen or destroyed Note, a new Note for the principal amount of
this Note so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Note, and of the ownership
hereof, and indemnity, if requested, all reasonably satisfactory to the
Company.
d) Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of this Note shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of New York,
Borough of Manhattan (the “New York
Courts”). Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), 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, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Note and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of
or relating to this Note or the transactions contemplated hereby. If either
party shall commence an action or proceeding to enforce any provisions of this
Note, then the prevailing party in such action or proceeding shall be reimbursed
by the other party for its attorneys fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
e) Waiver. Any
waiver by the Company or the Holder of a breach of any provision of this Note
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Note. The
failure of the Company or the Holder to insist upon strict adherence to any term
of this Note on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Note. Any waiver must be in
writing.
16
f) Severability. If
any provision of this Note is invalid, illegal or unenforceable, the balance of
this Note shall remain in effect, and if any provision is inapplicable to any
person or circumstance, it shall nevertheless remain applicable to all other
persons and circumstances. If it shall be found that any interest or
other amount deemed interest due hereunder violates applicable laws governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum permitted rate of interest. The Company covenants
(to the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest on this Note as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this indenture, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that
it will not, by resort to any such law, hinder, delay or impeded the execution
of any power herein granted to the Holder, but will suffer and permit the
execution of every such as though no such law has been enacted.
g) Next Business
Day. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.
h) Headings. The
headings contained herein are for convenience only, do not constitute a part of
this Note and shall not be deemed to limit or affect any of the provisions
hereof.
i) Assumption. Any
successor to the Company or surviving entity in a Fundamental Transaction shall
(i) assume in writing all of the obligations of the Company under this Note and
the other Transaction Documents pursuant to written agreements in form and
substance satisfactory to the Holder (such approval not to be unreasonably
withheld or delayed) prior to such Fundamental Transaction and (ii) to issue to
the Holder a new Note of such successor entity evidenced by a written instrument
substantially similar in form and substance to this Note, including, without
limitation, having a principal amount and interest rate equal to the principal
amounts and the interest rates of the Notes held by the Holder and having
similar ranking to this Note, and satisfactory to the Holder (any such approval
not to be unreasonably withheld or delayed). The provisions of this
Section 9(i) shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations of this
Note.
*********************
17
IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly
authorized officer as of the date first above indicated.
|
Valcom,
Inc.
|
|
By:__________________________________________
Name:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title:
Chief Executive Officer
|
18
ANNEX
A
NOTICE
OF CONVERSION
The undersigned hereby elects to
convert principal under the 10% Convertible Note of Valcom, Inc. , a Delaware
corporation (the “Company”), due on
January 6, 2010 , into shares of common stock, par value $0.001 per share (the
“Common
Stock”), of the Company according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion,
except for such transfer taxes, if any.
By the delivery of this Notice of
Conversion the undersigned represents and warrants to the Company that its
ownership of the Common Stock does not exceed the amounts determined in
accordance with Section 13(d) of the Exchange Act, specified under Section 4 of
this Note.
The undersigned agrees to comply with
the prospectus delivery requirements under the applicable securities laws in
connection with any transfer of the aforesaid shares of Common
Stock.
Conversion
calculations:
Date to
Effect Conversion:
Principal
Amount of Note to be Converted:
Payment
of Interest in Common Stock __ yes __ no
If yes,
$_____ of Interest Accrued on Account of Conversion at Issue.
Number of
shares of Common Stock to be issued:
Signature:
Name:
Address:
19
Schedule
1
CONVERSION
SCHEDULE
The 10%
Convertible Notes due on January 6, 2010, in the aggregate principal amount of
$100,000 issued by Valcom, Inc. This Conversion Schedule reflects
conversions made under Section 4 of the above referenced Note.
Dated:
|
Date
of Conversion
(or
for first entry, Original Issue Date)
|
Amount
of Conversion
|
Aggregate
Principal Amount Remaining Subsequent to Conversion
(or
original Principal Amount)
|
Company
Attest
|
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
20