EXHIBIT 99.2
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO
THE MAKER THAT THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF MAY BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
IN TOUCH MEDIA GROUP, INC.
SERIES A
SENIOR CONVERTIBLE PROMISSORY NOTE
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NOTE NUMBER.................................. 2005-A-NOTE-001
NOTE ISSUE DATE............................... NOVEMBER 30, 2005
MATURITY DATE................................. MAY 31, 2007
NAME OF NOTE HOLDER...........................
TOTAL AMOUNT OF NOTE.......................... $1,000,000
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For value received, In Touch Media Group, Inc., a Florida corporation
(the "Maker"), hereby promises to pay to the order of the "Holder" identified
above, (together with its successors, representatives, and permitted assigns,
the "Holder"), in accordance with the terms hereinafter provided, the principal
amount set forth above, together with interest thereon. Concurrently with the
issuance of this Note, the Maker is issuing separate senior convertible
promissory notes (the "Other Notes") to separate purchasers (the "Other
Holders") pursuant to the Purchase Agreement (as defined in Section 1.1 hereof).
All payments under or pursuant to this Note shall be made in United
States Dollars in immediately available funds to the Holder at the address of
the Holder first set forth above or at such other place as the Holder may
designate from time to time in writing to the Maker or by wire transfer of funds
to the Holder's account, instructions for which are attached hereto as Exhibit
A. The outstanding principal balance of this Note shall be due and payable on
the "Maturity Date" set forth above or at such earlier time as provided herein.
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
PAGE 2 OF 23
ARTICLE I
Section 1.1 Purchase Agreement. This Note has been executed and
delivered pursuant to the Note and Warrant Purchase Agreement dated as of
November 29, 2005 (the "Purchase Agreement") by and among the Maker and the
purchasers listed therein. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth for such terms in the Purchase
Agreement.
Section 1.2 Interest. Beginning on the issuance date of this Note (the
"Issuance Date"), the outstanding principal balance of this Note shall bear
interest, in arrears, at a rate per annum equal to nine percent (9%), payable
semi-annually on May 31st and November 30th of each year commencing May 31st and
November 30th, 2006 at the option of the Maker in (A) cash, or (B) in registered
shares of the Maker's common stock, par value $0.001 per share (the "Common
Stock"), in accordance with terms of Section 1.3 below. Interest shall be
computed on the basis of a 360-day year of twelve (12) 30-day months and shall
accrue commencing on the Issuance Date. Furthermore, upon the occurrence of an
Event of Default (as defined in Section 2.1 hereof), then to the extent
permitted by law, the Maker will pay interest to the Holder, payable on demand,
on the outstanding principal balance of the Note from the date of the Event of
Default until such Event of Default is cured at the rate of the lesser of
fifteen percent (15%) and the maximum applicable legal rate per annum.
Section 1.3 Payment of Interest.
(a) Commencing on the sixth (6th) month following the Issuance Date and
continuing thereafter every six months (a "Interest Payment Date") any accrued
but unpaid interest. The Maker may pay such Interest in cash or registered
shares of Common Stock. If the Maker elects to pay the Interest in cash such
amount shall be wired in immediately available funds on the Interest Payment
Date; provided, however, that if the Holder has delivered a Conversion Notice to
the Maker or delivers a Conversion Notice prior to the Interest Payment Date.
(b) If the Maker elects to pay the Interest in registered shares of
Common Stock, the number of registered shares of Common Stock to be issued to
the Holder shall be an amount equal to the Interest accrued divided by
eighty-five percent (85%) of the average of the Closing Bid Price (as defined in
Section 1.3(c) hereof) for the five (5) Trading Days immediately preceding the
Interest Payment Date. Notwithstanding the foregoing to the contrary, the Maker
may elect to pay the Interest in registered shares of Common Stock on any
Interest Payment Date only if (A) the registration statement providing for the
resale of the shares of Common Stock issuable upon conversion of this Note (the
"Registration Statement") is effective and has been effective, without lapse or
suspension of any kind, for a period of twenty (20) consecutive calendar days,
(B) trading in the Common Stock shall not have been suspended by the Securities
and Exchange Commission or the OTC Bulletin Board (or other exchange or market
on which the Common Stock is trading), (C) the Maker is in material compliance
with the terms and conditions of this Note and the other Transaction Documents,
and (D) the issuance of shares of
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
PAGE 3 OF 23
Common Stock on the Interest Payment Date does not violate the provisions of
Section 3.4 hereof.
(c) The term "Closing Bid Price" shall mean, on any particular date (i)
the last trading price per share of the Common Stock on such date on the Pink
Sheets, OTC Bulletin Board or another registered national stock exchange on
which the Common Stock is then listed, or if there is no such price on such
date, then the last trading price on such exchange or quotation system on the
date nearest preceding such date, or (ii) if the Common Stock is not listed then
on the Pink Sheets, OTC Bulletin Board or any registered national stock
exchange, the last trading price for a share of Common Stock in the
over-the-counter market, as reported by the Pink Sheets, OTC Bulletin Board or
in the National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (iii) if the Common Stock is not then reported by the Pink Sheets,
OTC Bulletin Board or the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices), then
the average of the "Pink Sheet" quotes for the relevant conversion period, as
determined in good faith by the Holder, or (iv) if the Common Stock is not then
publicly traded the fair market value of a share of Common Stock as determined
by the Holder and reasonably acceptable to the Maker.
Section 1.4 [Intentionally Omitted.]
Section 1.5 Payment on Non-Business Days. Whenever any payment to be
made shall be due on a Saturday, Sunday or a public holiday under the laws of
the State of New York, such payment may be due on the next succeeding business
day and such next succeeding day shall be included in the calculation of the
amount of accrued interest payable on such date.
Section 1.6 Transfer. This Note may be transferred or sold, subject to
the provisions of Section 4.8 of this Note, or pledged, hypothecated or
otherwise granted as security by the Holder.
Section 1.7 Replacement. Upon receipt of a duly executed, notarized and
unsecured written statement from the Holder with respect to the loss, theft or
destruction of this Note (or any replacement hereof) and a standard indemnity,
or, in the case of a mutilation of this Note, upon surrender and cancellation of
such Note, the Maker shall issue a new Note, of like tenor and amount, in lieu
of such lost, stolen, destroyed or mutilated Note.
ARTICLE II
EVENTS OF DEFAULT; REMEDIES
Section 2.1 Events of Default. The occurrence of any of the following
events shall be an "Event of Default" under this Note:
(a) the Maker shall fail to make the Interest accrued on a Interest
Payment Date and such default is not fully cured within five (5) business days
after the occurrence thereof; or
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
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(b) the failure of the Registration Statement to be declared effective
by the Securities and Exchange Commission on or prior to the date which is one
hundred eighty (180) days after the Closing Date; or
(c) the suspension from listing, without subsequent listing on any one
of, or the failure of the Common Stock to be listed on at least one of the OTC
Bulletin Board, the American Stock Exchange, the Nasdaq National Market, the
Nasdaq SmallCap Market or The New York Stock Exchange, Inc. for a period of five
(5) consecutive Trading Days; or
(d) the Maker's notice to the Holder, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.8(a) hereof) or its intention not to comply with
proper requests for conversion of this Note into shares of Common Stock; or
(e) the Maker shall fail to (i) timely deliver the shares of Common
Stock upon conversion of the Note or any interest accrued and unpaid, (ii) file
the Registration Statement in accordance with the terms of the Registration
Rights Agreement or (iii) make the payment of any fees and/or liquidated damages
under this Note, the Purchase Agreement or the Registration Rights Agreement,
which failure in the case of items (i) and (iii) of this Section 2.1(e) is not
remedied within three (3) business days after the incurrence thereof; or
(f) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of thirty
(30) consecutive Trading Days, provided that the Maker has not exercised its
rights pursuant to Section 3(n) of the Registration Rights Agreement; or
(g) default shall be made in the performance or observance of (i) any
material covenant, condition or agreement contained in this Note (other than as
set forth in clause (f) of this Section 2.1) and such default is not fully cured
within ten (10) business days after the Maker receives notice from the Holder of
the occurrence thereof or (ii) any material covenant, condition or agreement
contained in the Purchase Agreement, the Other Notes, the Registration Rights
Agreement or any other Transaction Document which is not covered by any other
provisions of this Section 2.1 and such default is not fully cured within three
(3) business days after the Maker receives notice from the Holder of the
occurrence thereof; or
(h) any material representation or warranty made by the Maker herein or
in the Purchase Agreement, the Registration Rights Agreement, the Other Notes or
any other Transaction Document shall prove to have been false or incorrect or
breached in a material respect on the date as of which made; or
(i) the Maker shall (A) default in any payment of any amount or amounts
of principal of or interest on any Indebtedness (other than the Indebtedness
hereunder) the
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
PAGE 5 OF 23
aggregate principal amount of which Indebtedness is in excess of $100,000 or (B)
default in the observance or performance of any other agreement or condition
relating to any Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders or beneficiary or beneficiaries of
such Indebtedness to cause with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity; or
(j) the Maker shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property or assets, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect) or
under the comparable laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors'
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
(vi) issue a notice of bankruptcy or winding down of its operations or issue a
press release regarding same, or (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing; or
(k) a proceeding or case shall be commenced in respect of the Maker,
without its application or consent, in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, moratorium, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets in connection with the liquidation or dissolution
of the Maker or (iii) similar relief in respect of it under any law providing
for the relief of debtors, and such proceeding or case described in clause (i),
(ii) or (iii) shall continue undismissed, or unstayed and in effect, for a
period of thirty (30) days or any order for relief shall be entered in an
involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic)
against the Maker or action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing shall be taken with respect to the
Maker and shall continue undismissed, or unstayed and in effect for a period of
thirty (30) days; or
(l) the failure of the Maker to instruct its transfer agent to remove
any legends from shares of Common Stock eligible to be sold under Rule 144 of
the Securities Act and issue such unlegended certificates to the Holder within
five (5) business days of the Holder's request so long as the Holder has
provided reasonable assurances to the Maker that such shares of Common Stock can
be sold pursuant to Rule 144; or
(m) the failure of the Maker to pay any amounts due to the Holder
herein or in the Purchase Agreement or the Registration Rights Agreement within
three (3) business days of the date such payments are due; or
(n) the occurrence of an Event of Default under the Other Notes.
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
PAGE 6 OF 23
Section 2.2 Remedies Upon An Event of Default. If an Event of Default
shall have occurred and shall be continuing, the Holder of this Note may at any
time at its option, (a) declare the entire unpaid principal balance of this
Note, together with all interest accrued hereon, due and payable, and thereupon,
the same shall be accelerated and so due and payable, without presentment,
demand, protest, or notice, all of which are hereby expressly unconditionally
and irrevocably waived by the Maker; provided, however, that upon the occurrence
of an Event of Default described in (i) Sections 2.1 (j) or (k), the outstanding
principal balance and accrued interest hereunder shall be automatically due and
payable and (ii) Sections 2.1 (b)-(i), demand the prepayment of this Note
pursuant to Section 3.7 hereof, (b) demand that the principal amount of this
Note then outstanding and all accrued and unpaid interest thereon shall be
converted into shares of Common Stock at a Conversion Price per share calculated
pursuant to Section 3.1 hereof assuming that the date that the Event of Default
occurs is the Conversion Date (as defined in Section 3.1 hereof), or (c)
exercise or otherwise enforce any one or more of the Holder's rights, powers,
privileges, remedies and interests under this Note, the Purchase Agreement, the
Registration Rights Agreement or applicable law. No course of delay on the part
of the Holder shall operate as a waiver thereof or otherwise prejudice the right
of the Holder. No remedy conferred hereby shall be exclusive of any other remedy
referred to herein or now or hereafter available at law, in equity, by statute
or otherwise.
ARTICLE III
CONVERSION; ANTIDILUTION; PREPAYMENT
Section 3.1 Conversion Option.
(a) At any time on or after the Issuance Date, this Note shall be
convertible (in whole or in part), at the option of the Holder (the "Conversion
Option"), into such number of fully paid and non-assessable shares of Common
Stock (the "Conversion Rate") as is determined by dividing (x) that portion of
the outstanding principal balance plus any accrued but unpaid interest under
this Note as of such date that the Holder elects to convert by (y) the
Conversion Price (as defined in Section 3.2(a) hereof) then in effect on the
date on which the Holder faxes a notice of conversion (the "Conversion Notice"),
duly executed, to the Maker at the Fax number provided in the Purchase
Agreement, Attn.: Chief Executive Officer (the "Voluntary Conversion Date"),
provided, however, that the Conversion Price shall be subject to adjustment as
described in Section 3.6 below. The Holder shall deliver this Note to the Maker
at the address designated in the Purchase Agreement at such time that this Note
is fully converted. With respect to partial conversions of this Note, the Maker
shall keep written records of the amount of this Note converted as of each
Conversion Date.
(b) On the Mandatory Conversion Date (as defined below), the Maker may
cause the principal amount of this Note plus all accrued and unpaid interest to
convert into a number of fully paid and nonassessable shares of Common Stock
equal to the quotient of (i) the principal amount of this Note plus all accrued
and unpaid interest outstanding on the Mandatory Conversion Date divided by (ii)
the Conversion Price in effect on the Mandatory Conversion Date by providing
five business (5) days prior written notice of such Mandatory Conversion Date.
As used herein, a "Mandatory Conversion Date" shall be a date following the
effective
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
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date of the Registration Statement in which the Closing Bid Price exceeds $2.50
for a period of ten (10) consecutive Trading Days and the average daily trading
volume for such ten (10) consecutive Trading Day period exceeds 125,000 shares
of Common Stock; provided, that (A) the Registration Statement is effective and
has been effective, without lapse or suspension of any kind, for a period of
twenty (20) consecutive calendar days immediately preceding the Mandatory
Conversion Date, (B) trading in the Common Stock shall not have been suspended
by the Securities and Exchange Commission or the Pink Sheets or OTC Bulletin
Board (or other exchange or market on which the Common Stock is trading), (C)
the Maker is in material compliance with the terms and conditions of this Note
and the other Transaction Documents, (D) the issuance of shares of Common Stock
on the Mandatory Conversion Date pursuant to such mandatory conversion does not
violate the provisions of Section 3.4 hereof, and (E) the Maker is not in
possession of any material non-public information. Notwithstanding the foregoing
to the contrary, the Mandatory Conversion Date shall be extended for as long as
a Triggering Event (as defined in Section 3.7(f) hereof) shall have occurred and
be continuing. The Mandatory Conversion Date and the Voluntary Conversion Date
collectively are referred to in this Note as the "Conversion Date."
Section 3.2 Conversion Price.
(a) The term "Conversion Price" shall mean $0.20, subject to adjustment
under Section 3.6 hereof.
(b) Notwithstanding any of the foregoing to the contrary, if during any
period (a "Black-out Period"), a Holder is unable to trade any Common Stock
issued or issuable upon conversion of this Note immediately due to the
postponement of filing or delay or suspension of effectiveness of the
Registration Statement or because the Maker has otherwise informed such Holder
that an existing prospectus cannot be used at that time in the sale or transfer
of such Common Stock (provided that such postponement, delay, suspension or fact
that the prospectus cannot be used is not due to factors solely within the
control of the Holder of this Note or due to the Maker exercising its rights
under Section 3(n) of the Registration Rights Agreement), such Holder shall have
the option but not the obligation on any Conversion Date within ten (10) Trading
Days following the expiration of the Black-out Period of using the Conversion
Price applicable on such Conversion Date or any Conversion Price selected by
such Holder that would have been applicable had such Conversion Date been at any
earlier time during the Black-out Period or within the ten (10) Trading Days
thereafter. In no event shall the Black-out Period have any effect on the
Maturity Date of this Note.
Section 3.3 Mechanics of Conversion. Not later than three (3) Trading
Days after any Conversion Date, the Maker or its designated transfer agent, as
applicable, shall issue and deliver to the Depository Trust Company ("DTC")
account on the Holder's behalf via the Deposit Withdrawal Agent Commission
System ("DWAC") as specified in the Conversion Notice, registered in the name of
the Holder or its designee, for the number of shares of Common Stock to which
the Holder shall be entitled. In the alternative, not later than three (3)
Trading Days after any Conversion Date, the Maker shall deliver to the
applicable Holder by express courier a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 5.1 of the Purchase Agreement) representing
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
PAGE 8 OF 23
the number of shares of Common Stock being acquired upon the conversion of this
Note (the "Delivery Date"). Notwithstanding the foregoing to the contrary, the
Maker or its transfer agent shall only be obligated to issue and deliver the
shares to the DTC on the Holder's behalf via DWAC (or certificates free of
restrictive legends) if such conversion is in connection with a sale and the
Holder has complied with the applicable prospectus delivery requirements (as
evidenced by documentation furnished to and reasonably satisfactory to the
Maker). If in the case of any Conversion Notice such certificate or certificates
are not delivered to or as directed by the applicable Holder by the Delivery
Date, the Holder shall be entitled by written notice to the Maker at any time on
or before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Maker shall immediately return this Note
tendered for conversion, whereupon the Maker and the Holder shall each be
restored to their respective positions immediately prior to the delivery of such
notice of revocation, except that any amounts described in Sections 3.3(b) and
(c) shall be payable through the date notice of rescission is given to the
Maker.
Section 3.4 Ownership Cap and Certain Conversion Restrictions.
(a) Notwithstanding anything to the contrary set forth in Section 3 of
this Note, at no time may the Holder convert all or a portion of this Note if
the number of shares of Common Stock to be issued pursuant to such conversion
would exceed, when aggregated with all other shares of Common Stock owned by the
Holder at such time, the number of shares of Common Stock which would result in
the Holder beneficially owning (as determined in accordance with Section 13(d)
of the Exchange Act and the rules thereunder) more than 4.9% of all of the
Common Stock outstanding at such time; provided, however, that upon the Holder
providing the Maker with sixty-one (61) days notice (pursuant to Section 4.1
hereof) (the "Waiver Notice") that the Holder would like to waive this Section
3.4(a) with regard to any or all shares of Common Stock issuable upon conversion
of this Note, this Section 3.4(a) will be of no force or effect with regard to
all or a portion of the Note referenced in the Waiver Notice.
(b) Notwithstanding anything to the contrary set forth in Section 3 of
this Note, at no time may the Holder convert all or a portion of this Note if
the number of shares of Common Stock to be issued pursuant to such conversion,
when aggregated with all other shares of Common Stock owned by the Holder at
such time, would result in the Holder beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 9.9% of the then issued and outstanding shares of Common Stock
outstanding at such time; provided, however, that upon the Holder providing the
Maker with a Waiver Notice that the Holder would like to waive Section 3.4(b) of
this Note with regard to any or all shares of Common Stock issuable upon
conversion of this Note, this Section 3.4(b) shall be of no force or effect with
regard to all or a portion of the Note referenced in the Waiver Notice.
Section 3.5 Intentionally Omitted.
Section 3.6 Adjustment of Conversion Price.
(a) The Conversion Price shall be subject to adjustment from time to
time as follows:
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
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(i) Adjustments for Stock Splits and Combinations. If the
Maker shall at any time or from time to time after the Issuance Date,
effect a stock split of the outstanding Common Stock, the applicable
Conversion Price in effect immediately prior to the stock split shall
be proportionately decreased. If the Maker shall at any time or from
time to time after the Issuance Date, combine the outstanding shares of
Common Stock, the applicable Conversion Price in effect immediately
prior to the combination shall be proportionately increased. Any
adjustments under this Section 3.6(a)(i) shall be effective at the
close of business on the date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If
the Maker shall at any time or from time to time after the Issuance
Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other
distribution payable in shares of Common Stock, then, and in each
event, the applicable Conversion Price in effect immediately prior to
such event shall be decreased as of the time of such issuance or, in
the event such record date shall have been fixed, as of the close of
business on such record date, by multiplying, the applicable Conversion
Price then in effect by a fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date; and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution.
(iii) Adjustment for Other Dividends and Distributions. If the
Maker shall at any time or from time to time after the Issuance Date,
make or issue or set a record date for the determination of holders of
Common Stock entitled to receive a dividend or other distribution
payable in other than shares of Common Stock, then, and in each event,
an appropriate revision to the applicable Conversion Price shall be
made and provision shall be made (by adjustments of the Conversion
Price or otherwise) so that the holders of this Note shall receive upon
conversions thereof, in addition to the number of shares of Common
Stock receivable thereon, the number of securities of the Maker which
they would have received had this Note been converted into Common Stock
on the date of such event and had thereafter, during the period from
the date of such event to and including the Conversion Date, retained
such securities (together with any distributions payable thereon during
such period), giving application to all adjustments called for during
such period under this Section 3.6(a)(iii) with respect to the rights
of the holders of this Note and the Other Notes; provided, however,
that if such record date shall have been fixed and such dividend is not
fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be adjusted pursuant to this
paragraph as of the time of actual payment of such dividends or
distributions.
(iv) Adjustments for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon conversion of this Note
at any time or from time to time after the Issuance Date shall be
changed to the same or different number of shares of any class or
classes
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
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of stock, whether by reclassification, exchange, substitution or
otherwise (other than by way of a stock split or combination of shares
or stock dividends provided for in Sections 3.6(a)(i), (ii) and (iii),
or a reorganization, merger, consolidation, or sale of assets provided
for in Section 3.6(a)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall be made and provisions shall be
made (by adjustments of the Conversion Price or otherwise) so that the
Holder shall have the right thereafter to convert this Note into the
kind and amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of
the number of shares of Common Stock into which such Note might have
been converted immediately prior to such reclassification, exchange,
substitution or other change, all subject to further adjustment as
provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or
Sales of Assets. If at any time or from time to time after the Issuance
Date there shall be a capital reorganization of the Maker (other than
by way of a stock split or combination of shares or stock dividends or
distributions provided for in Section 3.6(a)(i), (ii) and (iii), or a
reclassification, exchange or substitution of shares provided for in
Section 3.6(a)(iv)), or a merger or consolidation of the Maker with or
into another corporation where the holders of outstanding voting
securities prior to such merger or consolidation do not own over fifty
percent (50%) of the outstanding voting securities of the merged or
consolidated entity, immediately after such merger or consolidation, or
the sale of all or substantially all of the Maker's properties or
assets to any other person (an "Organic Change"), then as a part of
such Organic Change, (A) if the surviving entity in any such Organic
Change is a public company that is registered pursuant to the
Securities Exchange Act of 1934, as amended, and its common stock is
listed or quoted on a national exchange or the Pink Sheets or OTC
Bulletin Board, an appropriate revision to the Conversion Price shall
be made and provision shall be made (by adjustments of the Conversion
Price or otherwise) so that the Holder shall have the right thereafter
to convert such Note into the kind and amount of shares of stock and
other securities or property of the Maker or any successor corporation
resulting from Organic Change, and (B) if the surviving entity in any
such Organic Change is not a public company that is registered pursuant
to the Securities Exchange Act of 1934, as amended, or its common stock
is not listed or quoted on a national exchange or the OTC Bulletin
Board, the Holder shall have the right to demand prepayment pursuant to
Section 3.7(b) hereof. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Section 3.6(a)(v)
with respect to the rights of the Holder after the Organic Change to
the end that the provisions of this Section 3.6(a)(v) (including any
adjustment in the applicable Conversion Price then in effect and the
number of shares of stock or other securities deliverable upon
conversion of this Note and the Other Notes) shall be applied after
that event in as nearly an equivalent manner as may be practicable.
(vi) Adjustments for Issuance of Additional Shares of Common
Stock. In the event the Maker, shall, at any time, from time to time,
issue or sell any additional shares of common stock (otherwise than as
provided in the foregoing subsections (i) through (v) of this Section
3.6(a) or pursuant to Common Stock Equivalents (hereafter defined)
granted or issued prior to the Issuance Date) ("Additional Shares of
Common Stock"), at a price per share less than the Conversion Price
then in effect or without consideration, then the Conversion Price upon
each such issuance shall be reduced to a price equal to the
consideration per share paid for such Additional Shares of Common
Stock.
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PAGE 11 OF 23
(vii) Issuance of Common Stock Equivalents. The provisions of
this Section 3.6(a)(vii) shall apply if (a) the Maker, at any time
after the Issuance Date, shall issue any securities convertible into or
exchangeable for, directly or indirectly, Common Stock ("Convertible
Securities"), other than the Notes, or (b) any rights or warrants or
options to purchase any such Common Stock or Convertible Securities
(collectively, the "Common Stock Equivalents") shall be issued or sold.
If the price per share for which Additional Shares of Common Stock may
be issuable pursuant to any such Common Stock Equivalent shall be less
than the applicable Conversion Price then in effect, or if, after any
such issuance of Common Stock Equivalents, the price per share for
which Additional Shares of Common Stock may be issuable thereafter is
amended or adjusted, and such price as so amended shall be less than
the applicable Conversion Price in effect at the time of such amendment
or adjustment, then the applicable Conversion Price upon each such
issuance or amendment shall be adjusted as provided in the first
sentence of subsection (vi) of this Section 3.6(a). No adjustment shall
be made to the Conversion Price upon the issuance of Common Stock
pursuant to the exercise, conversion or exchange of any Convertible
Security or Common Stock Equivalent where an adjustment to the
Conversion Price was made as a result of the issuance or purchase of
any Convertible Security or Common Stock Equivalent.
(viii) Consideration for Stock. In case any shares of Common
Stock or any Common Stock Equivalents shall be issued or sold:
(1) in connection with any merger or consolidation in
which the Maker is the surviving corporation (other than any
consolidation or merger in which the previously outstanding
shares of Common Stock of the Maker shall be changed to or
exchanged for the stock or other securities of another
corporation), the amount of consideration therefor shall be,
deemed to be the fair value, as determined reasonably and in
good faith by the Board of Directors of the Maker, of such
portion of the assets and business of the nonsurviving
corporation as such Board may determine to be attributable to
such shares of Common Stock, Convertible Securities, rights or
warrants or options, as the case may be; or
(2) in the event of any consolidation or merger of
the Maker in which the Maker is not the surviving corporation
or in which the previously outstanding shares of Common Stock
of the Maker shall be changed into or exchanged for the stock
or other securities of another corporation, or in the event of
any sale of all or substantially all of the assets of the
Maker for stock or other securities of any corporation, the
Maker shall be deemed to have issued a number of shares of its
Common Stock for stock or securities or other property of the
other corporation computed on the basis of the actual exchange
ratio on which the transaction was predicated, and for a
consideration equal to the fair market value on the date of
such transaction of all such stock or securities or other
property of the other corporation. If any such calculation
results in adjustment of the applicable Conversion Price, or
the number of shares of Common Stock issuable upon conversion
of the Notes, the determination of the applicable Conversion
Price or the number of shares of Common Stock issuable upon
conversion of the Notes immediately prior to such merger,
consolidation or sale, shall be made after giving effect to
such adjustment of the number of shares of Common Stock
issuable upon conversion of the Notes. In the event Common
Stock is issued with other shares or securities or other
assets of the Maker for consideration which covers both, the
consideration computed as provided in this
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
PAGE 12 OF 23
Section 3.6(viii) shall be allocated among such securities and
assets as determined in good faith by the Board of Directors
of the Maker.
(b) Record Date. In case the Maker shall take record of the holders of
its Common Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then the date of the issue or sale of
the shares of Common Stock shall be deemed to be such record date.
(c) Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Maker shall not be required to make any adjustment to the
Conversion Price in connection with (i) securities issued (other than for cash)
in connection with a merger, acquisition, or consolidation, (ii) securities
issued pursuant to a bona fide firm underwritten public offering of the Maker's
securities, (iii) securities issued pursuant to the conversion or exercise of
convertible or excercisable securities issued or outstanding on or prior to the
date hereof or issued pursuant to the Purchase Agreement, (iv) the shares of
Common Stock issuable upon the exercise of Warrants, (v) securities issued in
connection with strategic license agreements or other partnering arrangements so
long as such issuances are not for the purpose of raising capital, (vi) Common
Stock issued or options to purchase Common Stock granted or issued pursuant to
the Maker's employee stock purchase plans as they now exist and stock incentive
plans as they now exist, (vii) any warrants issued to the placement agent and
its designees for the transactions contemplated by the Purchase Agreement, and
(viii) the payment of any principal and accrued interest in shares of Common
Stock pursuant to this Note or the Other Notes.
(d) No Impairment. The Maker shall not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Maker, but will at all times in good
faith, assist in the carrying out of all the provisions of this Section 3.6 and
in the taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the Holder against impairment. In the event a
Holder shall elect to convert any Notes as provided herein, the Maker cannot
refuse conversion based on any claim that such Holder or any one associated or
affiliated with such Holder has been engaged in any violation of law, violation
of an agreement to which such Holder is a party or for any reason whatsoever,
unless, an injunction from a court, or notice, restraining and or adjoining
conversion of all or of said Notes shall have issued and the Maker posts a
surety bond for the benefit of such Holder in an amount equal to one hundred
thirty percent (130%) of the amount of the Notes the Holder has elected to
convert, 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 (as liquidated damages) in the event it obtains judgment.
(e) Certificates as to Adjustments. Upon occurrence of each adjustment
or readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of this Note pursuant to this Section 3.6, the Maker at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to the Holder a certificate setting forth such
adjustment and readjustment, showing in detail the facts upon which such
adjustment or readjustment is based. The Maker shall, upon written request of
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
PAGE 13 OF 23
the Holder, at any time, furnish or cause to be furnished to the Holder a like
certificate setting forth such adjustments and readjustments, the applicable
Conversion Price in effect at the time, and the number of shares of Common Stock
and the amount, if any, of other securities or property which at the time would
be received upon the conversion of this Note. Notwithstanding the foregoing, the
Maker shall not be obligated to deliver a certificate unless such certificate
would reflect an increase or decrease of at least one percent (1%) of such
adjusted amount.
(f) Issue Taxes. The Maker shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant thereto; provided, however, that the Maker shall not be obligated to
pay any transfer taxes resulting from any transfer requested by the Holder in
connection with any such conversion.
(g) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of this Note. In lieu of any fractional shares to which
the Holder would otherwise be entitled, the Maker shall pay cash equal to the
product of such fraction multiplied by the average of the Closing Bid Prices of
the Common Stock for the five (5) consecutive Trading Days immediately preceding
the Conversion Date.
(h) Reservation of Common Stock. The Maker shall at all times when this
Note shall be outstanding, reserve and keep available out of its authorized but
unissued Common Stock, such number of shares of Common Stock as shall from time
to time be sufficient to effect the conversion of this Note and all interest
accrued thereon; provided that the number of shares of Common Stock so reserved
shall at no time be less than one hundred twenty percent (120%) of the number of
shares of Common Stock for which this Note and all interest accrued thereon are
at any time convertible. The Maker shall, from time to time in accordance with
the Florida Revised Business Corporation Act, increase the authorized number of
shares of Common Stock if at any time the unissued number of authorized shares
shall not be sufficient to satisfy the Maker's obligations under this Section
3.6(h).
(i) Regulatory Compliance. If any shares of Common Stock to be reserved
for the purpose of conversion of this Note or any interest accrued thereon
require registration or listing with or approval of any governmental authority,
stock exchange or other regulatory body under any federal or state law or
regulation or otherwise before such shares may be validly issued or delivered
upon conversion, the Maker shall, at its sole cost and expense, in good faith
and as expeditiously as possible, endeavor to secure such registration, listing
or approval, as the case may be.
Section 3.7 Prepayment.
(a) Prepayment Upon an Event of Default. Notwithstanding anything to
the contrary contained herein, upon the occurrence of an Event of Default
described in Sections 2.1(b)-(k) hereof, the Holder shall have the right, at
such Holder's option, to require the Maker to prepay in cash all or a portion of
this Note at a price equal to one hundred ten percent (110%) of the aggregate
principal amount of this Note plus all accrued and unpaid interest applicable at
the
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
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time of such request. Nothing in this Section 3.7(a) shall limit the Holder's
rights under Section 2.2 hereof.
(b) Prepayment Option Upon Major Transaction. In addition to all other
rights of the Holder contained herein, simultaneous with the occurrence of a
Major Transaction (as defined below), the Holder shall have the right, at the
Holder's option, to require the Maker to prepay all or a portion of the Holder's
Notes at a price equal to one hundred percent (100%) of the aggregate principal
amount of this Note plus all accrued and unpaid interest (the "Major Transaction
Prepayment Price"); provided that the Maker shall have the sole option to make
payment of the Major Transaction Prepayment Price in cash or shares of Common
Stock. If the Maker elects to make payment of the Major Transaction Prepayment
Price in shares of Common Stock, the price per share shall be based upon the
Conversion Price then in effect on the day preceding the date of delivery of the
Notice of Prepayment at Option of Holder Upon Major Transaction (as hereafter
defined) and the Holder shall have demand registration rights with respect to
such shares.
(c) Prepayment Option Upon Triggering Event. In addition to all other
rights of the Holder contained herein, after a Triggering Event (as defined
below), the Holder shall have the right, at the Holder's option, to require the
Maker to prepay all or a portion of this Note in cash at a price equal to the
sum of (i) the greater of (A) one hundred twenty percent (120%) of the aggregate
principal amount of this Note plus all accrued and unpaid interest and (B) in
the event at such time the Holder is unable to obtain the benefit of its
conversion rights through the conversion of this Note and resale of the shares
of Common Stock issuable upon conversion hereof in accordance with the terms of
this Note and the other Transaction Documents, the aggregate principal amount of
this Note plus all accrued but unpaid interest hereon, divided by the Conversion
Price on (x) the date the Prepayment Price (as defined below) is demanded or
otherwise due or (y) the date the Prepayment Price is paid in full, whichever is
less, multiplied by the VWAP (as defined below) on (x) the date the Prepayment
Price is demanded or otherwise due, and (y) the date the Prepayment Price is
paid in full, whichever is greater, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of this Note and the other Transaction
Documents (the "Triggering Event Prepayment Price," and, collectively with the
Major Transaction Prepayment Price, the "Prepayment Price"). For purposes
hereof, "VWAP" means, for any date, (i) the daily volume weighted average price
of the Common Stock for such date on the OTC Bulletin Board 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); (ii) 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 (iii) 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 Maker.
(d) Intentionally Omitted.
(e) "Major Transaction." A "Major Transaction" shall be deemed to have
occurred at such time as any of the following events:
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
PAGE 15 OF 23
(i) the consolidation, merger or other business combination of
the Maker with or into another Person (as defined in Section 4.13
hereof) (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the
Maker or (B) a consolidation, merger or other business combination in
which holders of the Maker's voting power immediately prior to the
transaction continue after the transaction to hold, directly or
indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or
entities).
(ii) the sale or transfer of more than fifty percent (50%) of
the Maker's assets (based on the fair market value as determined in
good faith by the Maker's Board of Directors) other than inventory in
the ordinary course of business in one or a related series of
transactions; or
(iii) closing of a purchase, tender or exchange offer made to
the holders of more than fifty percent (50%) of the outstanding shares
of Common Stock in which more than fifty percent (50%) of the
outstanding shares of Common Stock were tendered and accepted.
(f) "Triggering Event." A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) the suspension from listing, without subsequent listing on
any one of, or the failure of the Common Stock to be listed on at least
one of the Pink Sheets, OTC Bulletin Board, the American Stock
Exchange, the Nasdaq National Market, the Nasdaq SmallCap Market or The
New York Stock Exchange, Inc., for a period of five (5) consecutive
Trading Days;
(ii) the Maker's notice to any holder of the Notes, including
by way of public announcement, at any time, of its inability to comply
(including for any of the reasons described in Section 3.8) or its
intention not to comply with proper requests for conversion of any
Notes into shares of Common Stock; or
(iii) the Maker's failure to comply with a Conversion Notice
tendered in accordance with the provisions of this Note within ten (10)
business days after the receipt by the Maker of the Conversion Notice;
or
(iv) the Maker deregisters its shares of Common Stock and as a
result such shares of Common Stock are no longer publicly traded; or
(v) the Maker consummates a "going private" transaction and as
a result the Common Stock is no longer registered under Sections 12(b)
or 12(g) of the Exchange Act.
(g) Intentionally Omitted.
(h) Mechanics of Prepayment at Option of Holder Upon Major Transaction.
No sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
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Major Transaction, but not prior to the public announcement of such Major
Transaction, the Maker shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Major Transaction") to the Holder of this Note. At
any time after receipt of a Notice of Major Transaction (or, in the event a
Notice of Major Transaction is not delivered at least ten (10) days prior to a
Major Transaction, at any time within ten (10) days prior to a Major
Transaction), any holder of the Notes then outstanding may require the Maker to
prepay, effective immediately prior to the consummation of such Major
Transaction, all of the holder's Notes then outstanding by delivering written
notice thereof via facsimile and overnight courier ("Notice of Prepayment at
Option of Holder Upon Major Transaction") to the Maker, which Notice of
Prepayment at Option of Holder Upon Major Transaction shall indicate (i) the
principal amount of the Notes that such holder is electing to have prepaid and
(ii) the applicable Major Transaction Prepayment Price, as calculated pursuant
to Section 3.7(b) above.
(i) Mechanics of Prepayment at Option of Holder Upon Triggering Event.
Within one (1) business day after the occurrence of a Triggering Event, the
Maker shall deliver written notice thereof via facsimile and overnight courier
("Notice of Triggering Event") to each holder of the Notes. At any time after
the earlier of a holder's receipt of a Notice of Triggering Event and such
holder becoming aware of a Triggering Event, any holder of this Note and the
Other Notes then outstanding may require the Maker to prepay all of the Notes on
a pro rata basis by delivering written notice thereof via facsimile and
overnight courier ("Notice of Prepayment at Option of Holder Upon Triggering
Event") to the Maker, which Notice of Prepayment at Option of Holder Upon
Triggering Event shall indicate (i) the amount of the Note that such holder is
electing to have prepaid and (ii) the applicable Triggering Event Prepayment
Price, as calculated pursuant to Section 3.7(c) above. A holder shall only be
permitted to require the Maker to prepay the Note pursuant to Section 3.7 hereof
for the greater of a period of ten (10) days after receipt by such holder of a
Notice of Triggering Event or for so long as such Triggering Event is
continuing.
(j) Payment of Prepayment Price. Upon the Maker's receipt of a
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or a Notice(s)
of Prepayment at Option of Holder Upon Major Transaction from any holder of the
Notes, the Maker shall immediately notify each holder of the Notes by facsimile
of the Maker's receipt of such Notice(s) of Prepayment at Option of Holder Upon
Triggering Event or Notice(s) of Prepayment at Option of Holder Upon Major
Transaction and each holder which has sent such a notice shall promptly submit
to the Maker such holder's certificates representing the Notes which such holder
has elected to have prepaid. The Maker shall deliver the applicable Triggering
Event Prepayment Price, in the case of a prepayment pursuant to Section 3.7(i),
to such holder within five (5) business days after the Maker's receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and, in the case
of a prepayment pursuant to Section 3.7(h), the Maker shall deliver the
applicable Major Transaction Prepayment Price immediately prior to the
consummation of the Major Transaction; provided that a holder's original Note
shall have been so delivered to the Maker; provided further that if the Maker is
unable to prepay all of the Notes to be prepaid, the Maker shall prepay an
amount from each holder of the Notes being prepaid equal to such holder's
pro-rata amount (based on the number of Notes held by such holder relative to
the number of Notes outstanding) of all Notes being prepaid. If the Maker shall
fail to prepay all of the Notes submitted for prepayment (other than pursuant to
a dispute as to the
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
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arithmetic calculation of the Prepayment Price), in addition to any remedy such
holder of the Notes may have under this Note and the Purchase Agreement, the
applicable Prepayment Price payable in respect of such Notes not prepaid shall
bear interest at the rate of two percent (2%) per month (prorated for partial
months) until paid in full. Until the Maker pays such unpaid applicable
Prepayment Price in full to a holder of the Notes submitted for prepayment, such
holder shall have the option (the "Void Optional Prepayment Option") to, in lieu
of prepayment, require the Maker to promptly return to such holder(s) all of the
Notes that were submitted for prepayment by such holder(s) under this Section
3.7 and for which the applicable Prepayment Price has not been paid, by sending
written notice thereof to the Maker via facsimile (the "Void Optional Prepayment
Notice"). Upon the Maker's receipt of such Void Optional Prepayment Notice(s)
and prior to payment of the full applicable Prepayment Price to such holder, (i)
the Notice(s) of Prepayment at Option of Holder Upon Triggering Event or the
Notice(s) of Prepayment at Option of Holder Upon Major Transaction, as the case
may be, shall be null and void with respect to those Notes submitted for
prepayment and for which the applicable Prepayment Price has not been paid, (ii)
the Maker shall immediately return any Notes submitted to the Maker by each
holder for prepayment under this Section 3.7(j) and for which the applicable
Prepayment Price has not been paid and (iii) the Conversion Price of such
returned Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Void Optional Prepayment Notice(s) is delivered
to the Maker and (B) the lowest Closing Bid Price during the period beginning on
the date on which the Notice(s) of Prepayment of Option of Holder Upon Major
Transaction or the Notice(s) of Prepayment at Option of Holder Upon Triggering
Event, as the case may be, is delivered to the Maker and ending on the date on
which the Void Optional Prepayment Notice(s) is delivered to the Maker; provided
that no adjustment shall be made if such adjustment would result in an increase
of the Conversion Price then in effect. A holder's delivery of a Void Optional
Prepayment Notice and exercise of its rights following such notice shall not
effect the Maker's obligations to make any payments which have accrued prior to
the date of such notice. Payments provided for in this Section 3.7 shall have
priority to payments to other stockholders in connection with a Major
Transaction.
(k) Maker Prepayment Option. So long as less than ten percent (10%) of
the original principal amount of this Note is outstanding, the Maker may prepay
in cash all or any portion of the outstanding principal amount of this Note
together with all accrued and unpaid interest thereon upon thirty (30) days
prior written notice to the Holder (the "Maker's Prepayment Notice") at a price
equal to one hundred and ten (110%) of the aggregate principal amount of this
Note plus any accrued but unpaid interest (the "Maker's Prepayment Price");
provided, however, that if a holder has delivered a Conversion Notice to the
Maker or delivers a Conversion Notice within such thirty (30) day period
following delivery of the Maker's Prepayment Notice, the principal amount of the
Notes plus any accrued but unpaid interest designated to be converted may not be
prepaid by the Maker and shall be converted in accordance with Section 3.3
hereof; provided further that if during the period between delivery of the
Maker's Prepayment Notice and the Maker's Prepayment Date (as defined below), a
holder shall become entitled to deliver a Notice of Prepayment at Option of
Holder Upon Major Transaction or Notice of Prepayment at Option of Holder upon
Triggering Event, then the such rights of the holders shall take precedence over
the previously delivered Maker Prepayment Notice. The Maker's Prepayment Notice
shall state the date of prepayment which date shall be the thirty-first (31st)
day after the Maker has delivered the Maker's Prepayment Notice (the
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
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"Maker's Prepayment Date"), the Maker's Prepayment Price and the principal
amount of Notes plus any accrued but unpaid interest to be prepaid by the Maker.
The Maker shall deliver the Maker's Prepayment Price on the Maker's Prepayment
Date, provided, that if the holder(s) delivers a Conversion Notice before the
Maker's Prepayment Date, then the portion of the Maker's Prepayment Price which
would be paid to prepay the Notes covered by such Conversion Notice shall be
returned to the Maker upon delivery of the Common Stock issuable in connection
with such Conversion Notice to the holder(s). On the Maker's Prepayment Date,
the Maker shall pay the Maker's Prepayment Price, subject to any adjustment
pursuant to the immediately preceding sentence, to the holder(s) on a pro rata
basis. If the Maker fails to pay the Maker's Prepayment Price by the
thirty-first (31st) day after the Maker has delivered the Maker's Prepayment
Notice, the prepayment will be declared null and void and the Maker shall lose
its right to serve a Maker's Prepayment Notice pursuant to this Section 3.7(k)
in the future. Notwithstanding the foregoing to the contrary, the Maker may
effect a prepayment pursuant to this Section 3.7(k) only if (A) the Registration
Statement is effective and has been effective, without lapse or suspension of
any kind, for a period sixty (60) consecutive calendar days immediately
preceding the Maker's Prepayment Notice through the Maker's Prepayment Date, (B)
trading in the Common Stock shall not have been suspended by the Securities and
Exchange Commission or the Pink Sheets or OTC Bulletin Board (or other exchange
or market on which the Common Stock is trading), (C) the Maker is in material
compliance with the terms and conditions of this Note and the other Transaction
Documents, and (D) the Maker is not in possession of any material non-public
information.
Section 3.8 Inability to Fully Convert.
(a) Holder's Option if Maker Cannot Fully Convert. If, upon the Maker's
receipt of a Conversion Notice, the Maker cannot issue shares of Common Stock
registered for resale under the Registration Statement for any reason,
including, without limitation, because the Maker (w) does not have a sufficient
number of shares of Common Stock authorized and available, (x) is otherwise
prohibited by applicable law or by the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Maker or any of its securities from issuing all of
the Common Stock which is to be issued to the Holder pursuant to a Conversion
Notice or (y) fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then the Maker shall
issue as many shares of Common Stock as it is able to issue in accordance with
the Holder's Conversion Notice and, with respect to the unconverted portion of
this Note, the Holder, solely at Holder's option, can elect to:
(i) require the Maker to prepay that portion of this Note for
which the Maker is unable to issue Common Stock in accordance with the
Holder's Conversion Notice (the "Mandatory Prepayment") at a price per
share equal to the Triggering Event Prepayment Price as of such
Conversion Date (the "Mandatory Prepayment Price");
(ii) if the Maker's inability to fully convert is pursuant to
Section 3.8(a)(x) above, require the Maker to issue restricted shares
of Common Stock in accordance with such holder's Conversion Notice;
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
PAGE 19 OF 23
(iii) void its Conversion Notice and retain or have returned,
as the case may be, this Note that was to be converted pursuant to the
Conversion Notice (provided that the Holder's voiding its Conversion
Notice shall not effect the Maker's obligations to make any payments
which have accrued prior to the date of such notice).
In the event a Holder shall elect to convert any portion of its Notes as
provided herein, the Maker cannot refuse conversion based on any claim that such
Holder or any one associated or affiliated with such Holder has been engaged in
any violation of law, violation of an agreement to which such Holder is a party
or for any reason whatsoever, unless, an injunction from a court, on notice,
restraining and or adjoining conversion of all or of said Notes shall have been
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to 130% of the principal amount of the Notes the Holder has elected
to convert, 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 in the event it obtains judgment.
(b) Mechanics of Fulfilling Holder's Election. The Maker shall
immediately send via facsimile to the Holder, upon receipt of a facsimile copy
of a Conversion Notice from the Holder which cannot be fully satisfied as
described in Section 3.8(a) above, a notice of the Maker's inability to fully
satisfy the Conversion Notice (the "Inability to Fully Convert Notice"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Maker is
unable to fully satisfy such holder's Conversion Notice, (ii) the amount of this
Note which cannot be converted and (iii) the applicable Mandatory Prepayment
Price. The Holder shall notify the Maker of its election pursuant to Section
3.8(a) above by delivering written notice via facsimile to the Maker ("Notice in
Response to Inability to Convert").
(c) Payment of Prepayment Price. If the Holder shall elect to have its
Notes prepaid pursuant to Section 3.8(a)(i) above, the Maker shall pay the
Mandatory Prepayment Price to the Holder within thirty (30) days of the Maker's
receipt of the Holder's Notice in Response to Inability to Convert, provided
that prior to the Maker's receipt of the Holder's Notice in Response to
βββββββββ to Convert the Maker has not delivered a notice to the Holder stating,
to the satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note. If the Maker shall fail to pay the applicable Mandatory Prepayment
Price to the Holder on the date that is one (1) business day following the
Maker's receipt of the Holder's Notice in Response to Inability to Convert
(other than pursuant to a dispute as to the determination of the arithmetic
calculation of the Prepayment Price), in addition to any remedy the Holder may
have under this Note and the Purchase Agreement, such unpaid amount shall bear
interest at the rate of two percent (2%) per month (prorated for partial months)
until paid in full. Until the full Mandatory Prepayment Price is paid in full to
the Holder, the Holder may (i) void the Mandatory Prepayment with respect to
that portion of the Note for which the full Mandatory Prepayment Price has not
been paid, (ii) receive back such Note, and (iii) require that the Conversion
Price of such returned Note be adjusted to the lesser of (A) the Conversion
Price as in effect on the date on which the Holder voided the Mandatory
Prepayment and (B) the lowest Closing Bid Price during the period beginning on
the Conversion Date and ending on the date the Holder voided the Mandatory
Prepayment.
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(d) Pro-rata Conversion and Prepayment. In the event the Maker receives
a Conversion Notice from more than one holder of the Notes on the same day and
the Maker can convert and prepay some, but not all, of the Notes pursuant to
this Section 3.8, the Maker shall convert and prepay from each holder of the
Notes electing to have its Notes converted and prepaid at such time an amount
equal to such holder's pro-rata amount (based on the principal amount of the
Notes held by such holder relative to the principal amount of the Notes
outstanding) of all the Notes being converted and prepaid at such time.
Section 3.9 No Rights as Shareholder. Nothing contained in this Note
shall be construed as conferring upon the Holder, prior to the conversion of
this Note, the right to vote or to receive dividends or to consent or to receive
notice as a shareholder in respect of any meeting of shareholders for the
election of directors of the Maker or of any other matter, or any other rights
as a shareholder of the Maker.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery, telecopy or facsimile at the
address or number designated in the Purchase Agreement (if delivered on a
business day during normal business hours where such notice is to be received),
or the first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The Maker will give
written notice to the Holder at least ten (10) days prior to the date on which
the Maker takes a record (x) with respect to any dividend or distribution upon
the Common Stock, (y) with respect to any pro rata subscription offer to holders
of Common Stock or (z) for determining rights to vote with respect to any
Organic Change, dissolution, liquidation or winding-up and in no event shall
such notice be provided to such holder prior to such information being made
known to the public. The Maker will also give written notice to the Holder at
least ten (10) days prior to the date on which any Organic Change, dissolution,
liquidation or winding-up will take place and in no event shall such notice be
provided to the Holder prior to such information being made known to the public.
The Maker shall promptly notify the Holder of this Note of any notices sent or
received, or any actions taken with respect to the Other Notes.
Section 4.2 Governing Law. This Note shall be governed by and construed
in accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction. This Note shall not
be interpreted or construed with any presumption against the party causing this
Note to be drafted.
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Section 4.3 Headings. Article and section headings in this Note are
included herein for purposes of convenience of reference only and shall not
constitute a part of this Note for any other purpose.
Section 4.4 Remedies, Characterizations, Other Obligations, Breaches
and Injunctive Relief. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note, at law or in
equity (including, without limitation, a decree of specific performance and/or
other injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Maker to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the holder thereof and shall
not, except as expressly provided herein, be subject to any other obligation of
the Maker (or the performance thereof). The Maker acknowledges that a breach by
it of its obligations hereunder will cause irreparable and material harm to the
Holder and that the remedy at law for any such breach may be inadequate.
Therefore the Maker agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available rights
and remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.
Section 4.5 Enforcement Expenses. The Maker agrees to pay all costs and
expenses of enforcement of this Note, including, without limitation, reasonable
attorneys' fees and expenses.
Section 4.6 Binding Effect. The obligations of the Maker and the Holder
set forth herein shall be binding upon the successors and assigns of each such
party, whether or not such successors or assigns are permitted by the terms
hereof.
Section 4.7 Amendments. This Note may not be modified or amended in any
manner except in writing executed by the Maker and the Holder.
Section 4.8 Compliance with Securities Laws. The Holder of this Note
acknowledges that this Note is being acquired solely for the Holder's own
account and not as a nominee for any other party, and for investment, and that
the Holder shall not offer, sell or otherwise dispose of this Note. This Note
and any Note issued in substitution or replacement therefor shall be stamped or
imprinted with a legend in substantially the following form:
"THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN
SERIES A SENIOR CONVERTIBLE PROMISSORY NOTE
PAGE 22 OF 23
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO THE MAKER THAT THIS NOTE AND THE SHARES OF
COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE MAY BE SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE
SECURITIES LAWS."
Section 4.9 Consent to Jurisdiction. Each of the Maker and the Holder
(i) hereby irrevocably submits to the exclusive jurisdiction of the United
States District Court sitting in the Southern District of New York and the
courts of the State of New York located in New York county for the purposes of
any suit, action or proceeding arising out of or relating to this Note and (ii)
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the Maker and
the Holder consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under the Purchase Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing in
this Section 4.9 shall affect or limit any right to serve process in any other
manner permitted by law. Each of the Maker and the Holder hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
this Note shall be entitled to reimbursement for reasonable legal fees from the
non-prevailing party.
Section 4.10 Parties in Interest. This Note shall be binding upon,
inure to the benefit of and be enforceable by the Maker, the Holder and their
respective successors and permitted assigns.
Section 4.11 Failure or Indulgence Not Waiver. No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
Section 4.12 Maker Waivers. Except as otherwise specifically provided
herein, the Maker and all others that may become liable for all or any part of
the obligations evidenced by this Note, hereby waive presentment, demand, notice
of nonpayment, protest and all other demands' and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, and do hereby
consent to any number of renewals of extensions of the time or payment hereof
and agree that any such renewals or extensions may be made without notice to any
such persons and without affecting their liability herein and do further consent
to the release of any person liable hereon, all without affecting the liability
of the other persons, firms or Maker liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY.
(a) No delay or omission on the part of the Holder in exercising its
rights under this Note, or course of conduct relating hereto, shall operate as a
waiver of such rights or
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any other right of the Holder, nor shall any waiver by the Holder of any such
right or rights on any one occasion be deemed a waiver of the same right or
rights on any future occasion.
(b) THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A
PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW,
HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT
REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.
Section 4.13 Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Trading Day" means (a) a day on which the Common Stock is
traded on the Pink Sheets, OTC Bulletin Board, or (b) if the Common Stock is not
traded on the Pink Sheets or OTC Bulletin Board, a day on which the Common Stock
is quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, however, that in the event that the
Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then
Trading Day shall mean any day except Saturday, Sunday and any day which shall
be a legal holiday 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.
IN TOUCH MEDIA GROUP, INC.
By: /s/ βββββ ββββββββ
---------------------------
Name: βββββ ββββββββ
Title: CEO