EXHIBIT 10.2
EXHIBIT A
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FORM OF CONVERTIBLE NOTE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED AS OF THE
DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES,
INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS
OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT AND
REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF DEFAULT FOLLOWING
WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED.
No. 1 $3,530,000
CONVERTIBLE NOTE
OF
MEMS USA, INc.
MEMS USA, Inc., a Nevada corporation (together with its successors, the
"Company"), for value received hereby promises to pay to:
GCA STRATEGIC INVESTMENT FUND LIMITED
(the "Holder") and registered assigns, the principal sum of Three Million Five
Hundred Thirty Thousand ($3,530,000) or, if less, the principal amount of this
Note then outstanding, on the Maturity Date by wire transfer of immediately
available funds to the Holder in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts. The Maturity Date is October 27, 2009.
Upon an Event of Default, and until such Default has been cured, interest
shall accrue at a rate of 18% per annum ("Default Interest"). All payments of
principal and interest hereunder shall be made for the benefit of the Holder
pursuant to the terms of the Agreement (hereafter defined).
This Convertible Note (this "Convertible Note") is issued by the Company
pursuant to that certain Securities Purchase Agreement dated as of the date
hereof between the Company and the Purchaser named therein (the "Agreement").
The Agreement contains certain additional agreements among the parties with
respect to the terms of this Convertible Note, including, without limitation,
provisions which (A) limit the conversion rights of the Holder, (B) specify
voluntary and mandatory redemption rights and obligations and (C) specify Events
of Default following which the remaining balance due and owing hereunder may be
accelerated. All such provisions are an integral part of this Convertible Note
and are incorporated herein by reference. This Convertible Note is transferable
and assignable to one or more Persons, in accordance with the limitations set
forth in the Agreement.
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The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Convertible
Note and particulars of this Convertible Note held by such holder and of all
transfers of this Convertible Note. References to the Holder or "Holders" shall
mean the Person listed in the Register as registered holder of such Convertible
Notes. The ownership of this Convertible Note shall be proven by the Register.
This Note is secured by a Deed to Secure Debt (the "Deed") and Security
Agreement dated October 27, 2006 made by the Company and Holder creating a
security interest in favor of Holder in certain of the Company's real properties
described in the Deed.
The Deed contains certain additional agreements among the parties with
respect to the terms of this Note, including, without limitation, provisions
which (A) specify voluntary and mandatory repayment, prepayment and (B) specify
Events of Default following which the remaining balance due and owing hereunder
may be accelerated. All such provisions are an integral part of this Note and
are incorporated herein by reference.
1. CERTAIN TERMS DEFINED. All terms defined in the Agreement and not
otherwise defined herein shall have for purposes hereof the meanings provided
for in the Agreement.
2. COVENANTS. The Company covenants and agrees to observe and perform each of
its covenants, obligations and undertakings contained in the Agreement, which
obligations and undertakings are expressly assumed herein by the Company and
made for the benefit of the holder hereof.
3. PAYMENT OF PRINCIPAL.
3.1 PREPAYMENT OF NOTE. For so long as no Event of Default shall have
occurred and is continuing and the Company is not in receipt of a Notice
of Conversion from the Holder of the Note, the Company may, at its option,
prepay, in whole or in part, this Convertible Note for a pre-payment price
(the "Prepayment Price") equal to the greater of (i) 110% of the
outstanding principal amount of the Note plus all accrued and unpaid
interest if any, and any outstanding liquidated damages, if any, and (ii)
(x) the number of Common Shares into which the Notes are then convertible,
times (y) the average VWAP of the Common Shares for the five (5) trading
days immediately prior to the date that the Note is called for redemption,
plus accrued and unpaid interest. Any partial prepayment of the
Convertible Note, at any time after issuance, shall be credited to the
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principal amount of the Convertible Note on a dollar for dollar basis. The
Company shall not be entitled to send any notice of prepayment and begin
the prepayment procedure unless it has (i) the appropriate Prepayment
Price, in cash, available in a demand or other immediately available
account in a bank or similar financial institution or equivalent means
acceptable to Holder or (ii) immediately available credit facilities, in
the amount of the appropriate Prepayment Price, with a bank or similar
financial institution on the date the prepayment notice is sent to the
Holders of this Convertible Note. Provided, however, the Company will
process any Notice of Conversion received prior to the issuance of a
notice of prepayment; and further provided that, after a notice of
prepayment has been issued, the Holder may issue a Notice of Conversion
which will not be honored unless the Company fails to make the prepayment
payment when due. In the event of such failure, the Notice of Conversion
will be honored as of the date of the Notice of Conversion.
3.2 PAYMENT ON MATURITY DATE. The Company shall repay the remaining
unpaid balance of this Convertible Note on the Maturity Date.
4. CONVERSION.
4.1 CONVERSION OF CONVERTIBLE NOTE. Subject to Section 5 hereof, the
Holder shall have the right, at its option, at any time from and after the
date of this Convertible Note, to convert the outstanding principal amount
of the Convertible Note. This Convertible Note shall be convertible into
that number of fully paid and nonassessable shares of Common Stock (as
such shares shall then be constituted) determined pursuant to this Section
4.1. The number of shares of Common Stock to be issued upon each
conversion of this Convertible Note shall be determined by dividing the
Conversion Amount (as defined below) by the Conversion Price in effect on
the date (the "Conversion Date") a Notice of Conversion is delivered to
the Company, as applicable, by the Holder by facsimile or other reasonable
means of communication dispatched prior to 5:00 p.m., E.S.T. The term
"Conversion Amount" means, with respect to any conversion of this
Convertible Note, the sum of (1) the principal amount of this Convertible
Note to be converted in such conversion plus (2) accrued and unpaid
interest, if any, on such principal amount at the interest rates provided
in this Convertible Note to the Conversion Date plus (3) Default Interest,
if any, on the interest referred to in the immediately preceding clause
(2) plus (4) at the Holder's option, any amounts owed to the Holder
pursuant to Section 4.3 hereof, Section 10.1 of the Agreement or Section
10.4 of the Agreement.
4.2 CONVERSION PRICE. At the option of the Holder, any portion or all of
the outstanding principal amount of this Convertible Note shall be
converted into a number of shares of Common Stock at the conversion price
(the "Conversion Price") equal to 85% of the volume weighted average
prices ("VWAP"), as reported on Bloomberg, L.P., for the five (5) trading
days immediately prior to the date of the related notice of conversion.
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For the period up to and including the 30th day following the Effective Date of
the Registration Statement (the "Initial Pricing Period"), the Conversion Price
will not be less than 85% of the average of the volume weighted average prices
("VWAP"), as reported by Bloomberg, for the five (5) trading days immediately
prior to the Closing Date (the "Floor Conversion Price"), nor greater than 110%
of the average of the VWAP, as reported by Bloomberg, for the five (5) trading
days immediately prior to the Closing Date (the "Ceiling Conversion Price"). For
the ninety (90) day period following the Initial Pricing Period and each
successive ninety (90) day period thereafter (each a "Reset Period"), the Floor
Conversion Price shall be reduced by an amount equal to 40% of the lesser of (i)
the Floor Conversion Price and (ii) the closing bid price as reported by
Bloomberg on the trading day immediately following the Initial Pricing Period or
Reset Period, as the case may be, and the Ceiling Conversion Price shall be
increased by an amount equal to 40% of the lesser of (y) the current Ceiling
Conversion Price and (z) the closing bid price as reported by Bloomberg on the
trading day immediately following the Initial Pricing Period or Reset Period as
the case may be.
The Notes will provide for adjustment of the Conversion Price upon events such
as the subdivision or consolidation of the Common Shares, etc.
4.3 AUTHORIZED SHARES.
(a) Consistent with Section 7.11 of the Agreement, the Company (i)
shall promptly irrevocably instruct the Company's transfer agent to issue
certificates for the Common Stock issuable upon conversion of this
Convertible Note and (ii) agrees that its issuance of this Convertible
Note shall constitute full authority to its officers and agents who are
charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock in accordance with
the terms and conditions of this Convertible Note.
(b) If at any time the Holder submits a Notice of Conversion and
(x) the Company does not have sufficient authorized but unissued shares of
Common stock available to effect such conversion in full in accordance
with Article 4 or (y) the Company is prohibited by the OTC Bulletin Board
or the Market on which the Common Shares are listed and traded at that
time to effect such conversion in full, without shareholder approval, the
Company shall issue to the Holder all of the shares of Common Stock which
are then available to effect such conversion. The portion of this
Convertible Note which the Holder included in its Conversion Notice and
which exceeds the amount which is then convertible into available shares
of Common Stock (the "Excess Amount") shall, notwithstanding anything to
the contrary contained herein, not be convertible into Common Stock until
the date additional shares of Common Stock are authorized by the Company,
or its shareholders, as applicable. The Company shall use its best efforts
to authorize, or cause its shareholders to authorize within 70 days of the
submission of the Conversion Notice, a sufficient number of shares of
Common Stock to effect the full conversion set forth in the Conversion
Notice.
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(c) In no event shall the Company issue upon conversion of this
Convertible Note more than the maximum number of shares allowable without
shareholder approval under the applicable rules of the OTC Bulletin Board
or the Market on which the Common Shares are listed and traded unless the
Company shall have obtained approval by the shareholders of the Company or
a waiver of such requirement. Once the maximum number of shares has been
issued (the date of which is hereinafter referred to as the "Maximum
Conversion Date"), unless the Company shall have obtained shareholder
approval or a waiver of such requirement within 70 days of the Maximum
Conversion Date, the Company shall pay to the Fund the Redemption Price.
(d) The Maximum Number of Shares shall be subject to adjustment
from time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring
after the date hereof as contemplated by Article XI of the Agreement. In
the event that the Company obtains Stockholder Approval, approval of the
OTC Bulletin Board or the Market on which the Common Shares are listed and
traded at that time, or otherwise is able to increase the number of shares
to be issued above the Maximum Number of Shares (such increased number
being the "New Maximum Number of Shares"), the references to Maximum
Number of Shares above shall be deemed to be, instead, references to the
New Maximum Number of Shares.
4.4 METHOD OF CONVERSION.
(a) Notwithstanding anything to the contrary set forth herein,
upon conversion of this Convertible Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this
Convertible Note to the Company unless the entire unpaid principal amount
of this Convertible Note is so converted. Rather, records showing the
principal amount converted (or otherwise repaid) and the date of such
conversion or repayment shall be maintained on a ledger substantially in
the form of ANNEX A attached hereto (a copy of which shall be delivered to
the Company or transfer agent with each Notice of Conversion). It is
specifically contemplated that the Holder hereof shall act as the
calculation agent for conversions and repayments. In the event of any
dispute or discrepancies, such records maintained by the Holder shall be
controlling and determinative in the absence of manifest error or failure
of Holder to record the principal amount converted (or otherwise repaid)
from time to time, in which events the record of the Company shall be
controlling and determinative. The Holder and any assignee, by acceptance
of this Convertible Note, acknowledge and agree that, by reason of the
provisions of this paragraph, following a conversion of a portion of this
Convertible Note, the principal amount represented by this Convertible
Note will be the amount indicated on ANNEX A attached hereto (which may be
less than the amount stated on the face hereof).
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(b) The Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery
of shares of Common Stock or other securities or property on conversion of
this Convertible Note in a name other than that of the Holder (or in
street name), and the Company shall not be required to issue or deliver
any such shares or other securities or property unless and until the
person or persons (other than the Holder or the custodian in whose street
name such shares are to be held for the Holder's account) requesting the
issuance thereof shall have paid to the Company the amount of any such tax
or shall have established to the satisfaction of the Company that such tax
has been paid.
(c) Subject to Section 5 hereof, upon receipt by the Company of a
Notice of Conversion, the Holder shall be deemed to be the holder of
record of the Common Stock issuable upon such conversion, the outstanding
principal amount and the amount of accrued and unpaid interest on this
Convertible Note shall be deemed reduced to reflect such conversion, and,
unless the Company defaults on its obligations under this Article 4, all
rights with respect to the portion of this Convertible Note being so
converted shall forthwith terminate except the right to receive the Common
Stock or other securities, cash or other assets, as herein provided, on
such conversion. Subject to Section 5 hereof, if the Holder shall have
given a Notice of Conversion as provided herein, the Company's obligation
to issue and deliver the certificates for shares of Common Stock shall be
absolute and unconditional, irrespective of the absence of any action by
the Holder to enforce the same, any waiver or consent with respect to any
provisions thereof, the recovery of any judgment against any person or any
action by the Holder to enforce the same, any failure or delay in the
enforcement of any other obligation of the Company to the Holder of
record, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder of any
obligation to the Company, and subject to Section 4.4(a) irrespective of
any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with such conversion. The date of
receipt (including receipt via telecopy) of such Notice of Conversion
shall be the Conversion Date so long as it is received before 5:00 p.m.,
E.S.T., on such date.
(d) Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the expiration of the
Deadline with respect to a conversion of any portion of this Convertible
Note for any reason, then (unless the Holder otherwise elects to retain
its status as a holder of Common Stock by so notifying the Company), the
Holder shall regain the rights of a Holder of this Convertible Note with
respect to such unconverted portions of this Convertible Note and the
Company shall, as soon as practicable, return such unconverted Convertible
Note to the holder or, if the Convertible Note has not been surrendered,
adjust its records to reflect that such portion of this Convertible Note
not been converted. In all cases, the Holder shall retain all of its
rights and remedies including, without limitation, the right to receive
Conversion Default Payments to the extent required thereby for such
Conversion Default and any subsequent Conversion Default.
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(e) In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of the Holder and its
compliance with the provisions contained in Section 4.1 and in this
Section 4.4, the Company shall use its best efforts to cause its transfer
agent to electronically transmit the Common Stock issuable upon conversion
to the Holder by crediting the account of Holder's Prime Broker with DTC
through its Deposit Withdrawal Agent Commission System.
5. REDEMPTION BY COMPANY.
5.1 MANDATORY REDEMPTION. In accordance with the provisions of the
Purchase Agreement, the Company may elect, or be required under certain
circumstances, to redeem in whole or in part, the remaining unpaid
principal amount of this Convertible Note, for cash at a redemption price
(the "Redemption Price") equal to the greater of (A) the Prepayment Price
and (B) (x) the number of shares of Common Stock into which this
Convertible Note is then convertible, times (y) the VWAP of the Common
Stock for the five (5) Trading Days as reported by Bloomberg L.P.
immediately preceding the date that this Convertible Note is called for
redemption, plus accrued and unpaid Default Interest.
5.2 MECHANICS OF REDEMPTION. The Company shall effect each such
redemption within seven business days of giving notice of its election to
redeem by facsimile with a copy by either overnight or 2-day courier to
the Holder of this Convertible Note to be redeemed at the address and
facsimile number of such Holder appearing in the Company's register for
the Convertible Note. Such redemption notice shall indicate whether the
Company will redeem all or part of such portion of the Convertible Note to
be redeemed and the applicable Redemption Price. The Company shall not be
entitled to send any notice of redemption and begin the redemption
procedure unless it has (i) the full amount of the Redemption Price, in
cash, available in a demand or other immediately available account in a
bank or similar financial institution or (ii) immediately available credit
facilities, in the full amount of the Redemption Price, with a bank or
similar financial institution on the date the redemption notice is sent to
the Holder of this Convertible Note. Provided, however, the Company will
process any Notice of Conversion received prior to the issuance of a
notice of redemption; and further provided that, after a notice of
redemption has been issued, the Holder may issue a Notice of Conversion
which will not be honored unless the Company fails to make the redemption
payment when due. In the event of such failure, the Notice of Conversion
will be honored as of the date of the Notice of Conversion. Additionally,
if the Company fails to make full payment of the Redemption Price of this
Convertible Note being redeemed by the seventh day following the notice of
redemption, then the Company waives its right to redeem any of the
remaining then outstanding Notes, unless approved by the Holder.
5.3 PAYMENT OF REDEMPTION PRICE. The Redemption Price shall be paid to
the Holder of this Convertible Note within seven business days of the
delivery of the notice of such redemption to such Holder.
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6. MISCELLANEOUS. This Convertible Note shall be deemed to be a contract made
under the laws of the State of Nevada, and for all purposes shall be governed by
and construed in accordance with the laws of said State. The parties hereto,
including all guarantors or endorsers, hereby waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Convertible Note, except as
specifically provided herein, and asset to extensions of the time of payment, or
forbearance or other indulgence without notice. The Company hereby submits to
the exclusive jurisdiction of the United States District Court for the State of
Nevada and any state court sitting in Nevada for purposes of all legal
proceedings arising out of or relating to this Convertible Note. The Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum. The Company hereby irrevocably
waives any and all right to trial by jury in any legal proceeding arising out of
or relating to this Convertible Note.
The Holder of this Convertible Note by acceptance of this Convertible Note
agrees to be bound by the provisions of this Convertible Note which are
expressly binding on such Holder.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: October 27, 2006
MEMS USA, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman, CEO and President
CONVERTIBLE NOTE
ANNEX A
CONVERSION AND REPAYMENT LEDGER
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PRINCIPAL INTEREST CONVERTED PRINCIPAL CONVERTED NEW PRINCIPAL ISSUER HOLDER
DATE BALANCE OR PAID OR PAID BALANCE INITIALS INITIALS
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FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT NAME:
DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT NAME:
SPECIAL INSTRUCTIONS:___________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Convertible Note)
The undersigned hereby irrevocably elects to convert $________ of the
principal balance of the Convertible Note into shares of Common Stock, ____ par
value per share (the "Common Stock"), of Mems USA, Inc. (the "Company")
according to the conditions hereof, as of the date written below. No fee will be
charged to the Holder for any conversion, except for transfer taxes, if any. The
undersigned, as contemplated by Section 5.1 of the Securities Purchase Agreement
pursuant to which the Convertible Note was issued, hereby states that the
representations and warranties of the undersigned set forth therein are true and
correct in all material respects as of the date hereof (provided, the
undersigned makes no representations concerning its investment intent with
respect to the Common Stock received upon this conversion).
Conversion calculations:
________________________________________
Date of Conversion
________________________________________
Applicable Conversion Price
________________________________________
Number of Shares
________________________________________
Name/Signature
Address:
________________________________________
________________________________________