CONVERTIBLE SENIOR NOTE
Exhibit
10.1
|
$3,000,000
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June
28, 2007
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FOR
VALUE
RECEIVED, the undersigned, TRITON DISTRIBUTION SYSTEMS, INC., a Colorado
corporation (“Borrower”
or
“Company"), hereby promises to pay to JMW FUND LLC., SAN ▇▇▇▇▇▇▇ FUND LLC.,
▇▇▇▇▇▇▇▇▇ FAMILY PARTNERS, LTD., AND BATTERSEA CAPITAL, INC., (hereinafter
collectively the “Lender”
or
“Lenders”),
or
order, the principal sum or so much of the principal sum of Three Million
Dollars ($3,000,000) as remains unpaid together with accrued interest as
provided herein on or before the Maturity Date. This Note is being delivered
pursuant to a Term Sheet between the Borrower and ▇▇▇▇▇▇ executed as of [insert
date] which provides for the following:
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A
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Advances.
Of the Three Million Dollars ($3,000,000), one million dollars
($1,000,000) may be drawn no later than June 30, 2007; one million
dollars
($1,000,000) may be drawn no later than July 30, 2007; and the one
million
dollar promissory note payable to the Lender under The Line of Credit
Loan
Agreement dated March 28, 2007 (“Loan Agreement”), will be converted as
the first drawdown upon execution of this Note. All terms and conditions
of the promissory note dated March 28, 2007 under the Loan Agreement
will
be replaced by the terms and conditions of this
Note.
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B
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Interest.
Interest shall accrue on all obligations hereunder at one percent
(1%) per
month. Interest payable hereunder shall be calculated on the basis
of a
three hundred sixty (360) day year for actual days elapsed. All accrued
interest shall be due and payable on the Maturity Date. Notwithstanding
the foregoing, the principal sum hereunder shall bear interest, from
and
after the occurrence and during the continuance of an Event of Default,
at
a rate equal to one and one half percent (1.5%) per month the interest
rate applicable immediately prior to the occurrence of the Event
of
Default. In no event, however, will the interest rate payable hereunder
exceed the maximum interest rate allowed by applicable usury and
other
laws (the “Maximum
Legal Rate”),
and the Borrower’s obligations under this Note will be reduced if
necessary to not exceed the Maximum Legal
Rate.
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C
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Payment.
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a.
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Principal
Payment.
On the Maturity Date, all outstanding principal and all accrued and
unpaid
interest shall become immediately due and
payable.
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b.
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Interest
Payment.
Borrower will pay accrued interest monthly in arrears beginning July
1,
2007 on the outstanding balance.
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c.
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Prepayment.
Borrower may prepay this Note and will not be subject to any penalty
for
prepayment made in whole or part prior to July 1, 2008.
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d.
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Form
of Payment.
Except as otherwise provided herein, principal and interest and all
other
amounts due hereunder are to be paid in lawful money of the United
States
of America in federal or other immediately available
funds.
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D
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Commitment
Fee:
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a.
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Two
million warrants will be issued to the Lender at time of closing
as per
the “Schedule of Lenders” in Appendix A attached. These warrants will have
a term of five years from closing. Each warrant will be exercisable
into
one share of common stock at a price of three dollars ($3.00) per
share.
▇▇▇▇▇▇▇▇ agrees to register the underlying two million shares when
they
update their SB-2 filings but in no event later than December 31,
2007.
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b.
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Cashless
Exercise. The Lender shall have the option (the “Cashless Exercise
Option”), to exercise these warrants, in whole but not in part, by the
surrender of these warrants and the Form of Exercise (and without
payment
of the Purchase
Price in cash) in exchange for a number of whole shares of the Company's
Common Stock equal to the product of (i) the number of shares of
Company's
Common Stock for which these warrants are exercisable as of the business
day on which these warrants are received by Borrower (the “Cashless
Exercise Date"), and (ii) the Cashless Exercise Ratio (the “Cashless
Exercise”). The “Cashless Exercise Ratio” shall be determined in
accordance with the following formula:
|
Final
Price on Cashless Exercise Date - Exercise Price
Final
Price on Cashless Exercise Date
where:
“Final Price” means, on any day, the last reported sale price per share of the
Company Common Stock for that day. The “Cashless Exercise Date” shall be deemed
the “Exercise Date” under these warrants.
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E
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Convertibility
of Note:
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a.
|
This
outstanding principal balance of the Note can be converted into common
shares at any time thirty (30) days after execution of this Note
at the
Lender’s sole discretion. Common stock underlying existing derivatives or
warrants (including, without limitation to, common stock pursuant
to
existing warrants and employee options) excepted, in the event that
Borrower issues new common stock or any new security convertible
into
common stock at a price lower than three dollars ($3.00) per share
following the delivery of this Note, then this Note will be convertible
into the number of common shares at the then price issued divided
into the
outstanding principal of this Note immediately prior to
conversion.
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F
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Security:
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a.
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Lender
will be senior to any debt issued by Borrower including but not limited
to
any bank or institutional debt. Lenders will file a UCC-1 or other
filing
which secures their interest.
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G
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Conditions
Precedent:
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a.
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The
existing Board of Directors of the Company agrees to increase the
Company’s current Board composition from two to five directors.
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b.
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The
current Board Directors of the Company are ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇▇
and
▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇-▇▇▇▇▇▇▇ who shall reserve the right to remove
any or
all of the elected members following full payment of any outstanding
amount of the principal owed.
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c.
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Elected
board members will be paid a nominal fee for each board meeting attended
and will be participants in the Company’s qualified stock option plan
(“Compensation”), such appropriate Compensation to be solely determined by
the current Board Directors.
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d.
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Board
members will have monthly financial and progress reports focused
on the
Company’s ability to implement its current contract obligations and
development plans.
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H
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Events
of Default; Remedies.
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a.
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Definition
of Event of Default.
The occurrence of any one or more of the following events shall constitute
an “Event
of Default”
hereunder:
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i.
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Payment
Default.
▇▇▇▇▇▇▇▇’s breach of the obligation to pay the principal outstanding
and/or interest accrued hereunder on the applicable due
date.
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ii.
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Bankruptcy.
If ▇▇▇▇▇▇▇▇ becomes insolvent or the institution by Borrower of an
Insolvency Proceeding or the institution against Borrower of an Insolvency
Proceeding;
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iii.
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Untimely
filing of mandatory reports with the Securities and Exchange
Commission.
If Borrower is unable to file on a timely basis reports (including
the
Form 10-Q) with the Securities and Exchange Commission for the period
starting June 30, 2007 until on or before December 31, 2008.
Notwithstanding any provision herein, Borrower shall not be in default
if
an extension to file is permitted by the Securities and Exchange
Commission or required in the ordinary conduct of the Company’s
business.
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I
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Conversion
Rights.
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a.
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Voluntary
Conversion.
Lender may, in its sole discretion, at any time thirty (30) days
after
execution of this Note elect to convert (the “Voluntary
Conversion Right”)
all of the outstanding principal balance hereunder into such number
of
fully paid and nonassessable Shares as determined by dividing the
principal being converted by the Conversion Price subject to
Section E hereof.
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b.
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Exercise
of Conversion Right.
To convert any of the principal hereunder into Shares by exercise
of the
Voluntary Conversion Right, Lender shall deliver to Borrower a written
notice of election to exercise the Voluntary Conversion Right (the
“Voluntary
Conversion Notice”).
Borrower shall, as soon as practicable thereafter, issue and deliver
to
Lender a certificate or certificates, registered in Lender’s name, for the
number of Shares to which Lender shall be entitled by virtue of such
exercise (the “Voluntary
Conversion Shares”).
The conversion of the outstanding principal hereunder shall be deemed
to
have been made on the date that Borrower receives the Voluntary Conversion
Notice (the “Conversion
Date”)
and Lender shall be treated for all purposes as the record holder
of the
Voluntary Conversion Shares as of such date to the extent permitted
under
applicable law.
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c.
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Interest.
If Lender exercises its Voluntary Conversion Right with respect to
any
outstanding principal amount, Borrower shall, concurrent with the
issuance
of the related Voluntary Conversion Shares, pay to Lender all interest
accrued with respect to the principal converted, which payment shall
be
made in the form of cash, by converting such interest into principal
hereunder, or additional Voluntary Shares. The form of the payment
shall
be at the discretion of the
Borrower.
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d.
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Fractional
Shares.
Borrower shall not issue fractional Shares upon exercise of the Voluntary
Conversion Right. As to any fractional Share which Lender would otherwise
be entitled to receive, Lender shall receive from Borrower an amount
in
cash equal to an amount calculated by multiplying such fractional
Share by
the fair market value of one Share as determined by the closing price
of a
Share as reported on the OTCBB or such other exchange where shares
of
Borrower's common stock are traded (or if not traded, as determined
in the
good faith judgment of the Board of Directors of Borrower) on the
date of
exercise of the Voluntary Conversion Right. Payment of such amount
shall
be made in cash or by check payable to the order of Lender at the
time of
delivery of any certificate or
certificates.
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▇
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▇▇▇▇▇▇,
Acquisition, Sale of Assets.
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a.
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In
case of any consolidation of Borrower with any other person, any
merger of
Borrower into another person or of another person into Borrower (other
than a merger which does not result in any reclassification, conversion,
exchange or cancellation of the outstanding Shares) or any conveyance,
sale, transfer or lease of all or substantially all of the properties
and
assets of Borrower (all of the foregoing transactions are collectively
referred to herein as “M & A Transactions”; each, a “M & A
Transaction”), the person formed by such consolidation or resulting from
such merger or which acquires such properties and assets, as the
case may
be, shall assume this obligations of this Note such that Lender shall
have
the right thereafter, to convert this Note as specified in Section
D into
the kind and amount of securities, cash and other property receivable
upon
such M & A Transaction (including any Shares retainable) by a holder
of the number and type of the Shares into which this Note might have
been
converted immediately prior to such M & A Transaction, assuming such
holder (i) is not a person with which Borrower consolidated, into
which
Borrower merged or which merged into Borrower or to which such conveyance,
sale, transfer or lease was made, as the case may be (a “Constituent
Person”), or an Affiliate of a Constituent Person and (ii) failed to
exercise his rights of election, if any, as to the kind or amount
of
securities, cash and other property receivable upon such M & A
Transaction (provided that if the kind or amount of securities, cash
and
other property receivable upon such M & A Transaction is not the same
for each Share held immediately prior to such M & A Transaction by
persons who were not a Constituent Person or an Affiliate thereof
and in
respect of which such rights of election shall not have been exercised
(“Non-electing Share”), then for the purpose of this Section the kind and
amount of securities, cash and other property receivable upon such
M &
A Transaction by the holders of each Non-electing Share shall be
deemed to
be the kind and amount so receivable per share by a plurality of
the
Non-electing Shares). Such supplemental agreement shall provide for
adjustments which, for events subsequent to the effective date of
such
supplemental agreement, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section E. The
above
provisions of this Section E shall similarly apply to successive
M & A
Transactions.
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K
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Piggyback
Registration Rights.
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a.
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Borrower
shall notify Lender in writing at least ten (10) days prior to filing
any
registration statement under the Securities Act for purposes of effecting
a public offering of securities of Borrower (including, but not limited
to, registration statements relating to secondary offerings of securities
of Borrower, but excluding registration statements relating to any
employee benefit plan, business combination, or to transactions
contemplated by Rule 145 under the Securities Act) and will afford
Lender
an opportunity to include in such registration statement all or any
part
of the Shares issued upon conversion of this Note (the "Converted
Shares")
then held by ▇▇▇▇▇▇. Lender shall within five (5) days after receipt
of
the above described notice from Borrower, so notify Borrower in writing,
and in such notice shall inform Borrower of the number of Converted
Shares
Lender wishes to include in such registration statement. [Subject
to the
requirement that Lender include at least 50% of the Converted Shares
in
the offering,] if Lender does not include all of its Converted Shares
in a
registration statement thereafter filed by ▇▇▇▇▇▇▇▇, Lender shall
continue
to have the right to include Converted Shares in any subsequent
registration statement or registration statements as may be filed
by
Borrower with respect to offerings of its securities, upon the terms
and
conditions set forth herein.
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b.
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Underwriting.
If a registration statement under which Borrower gives notice under
this
Section F is for an underwritten offering, then Borrower shall so
advise
the Lender. In such event, the right of any Converted Shares to be
included in a registration pursuant to this Section F shall be conditioned
upon ▇▇▇▇▇▇’s participation in such underwriting and the inclusion of the
Converted Shares in the underwriting to the extent provided herein.
▇▇▇▇▇▇
proposing to distribute their Converted Shares through such underwriting
shall enter into an underwriting agreement in customary form with
the
managing underwriter or underwriters selected for such underwriting
(including a market stand-off agreement of up to 180 days if required
by
such underwriters). Notwithstanding any other provision herein, if
the
managing underwriter(s) determine(s) in good faith that marketing
factors
require a limitation of the number of shares to be underwritten,
then the
managing underwriter(s) may exclude shares from the registration
and the
underwriting, and the Converted Shares sought to be included in the
registration and the underwriting may be excluded in whole or in
part. Any
Converted Shares excluded or withdrawn from such underwriting shall
be
excluded and withdrawn from the
registration.
|
| c. |
Expenses. All
expenses incurred by Borrower in complying with its obligations under
this
Section F, including, without limitation, all registration and filing
fees, fees and expenses of complying with securities and blue sky
laws,
printing expenses and fees and disbursements of counsel for Borrower
and
of independent certified public accountants shall be paid by Borrower;
provided,
however,
that all underwriting discounts and selling commissions and stock
transfer
taxes applicable to the Converted Shares covered by any registration
effected pursuant to this Section F and all fees and disbursements
of
counsel to Lender or any holder of Converted Shares shall be borne
by the
seller or sellers thereof.
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d.
|
Termination
of Registration Obligations.
The registration rights and the registration obligations of Borrower
set
forth herein shall terminate on the fifth anniversary of the Note
subject
to earlier termination of such registration rights once the Converted
Shares can be sold by Lender or any other holder thereof in any three
month period pursuant to Rule 144 promulgated by the Commission under
the
Securities Act.
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L
|
Additional
Conversion Provisions.
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a.
|
Borrower
shall at all times reserve and keep available, free from preemptive
rights, out of its authorized but unissued common stock, for the
purpose
of effecting the conversion of this Note, the full number of shares
of
common stock then issuable upon the conversion of this Note. ▇▇▇▇▇▇▇▇
agrees that all Shares which may be delivered upon conversion of
this
Note, upon such delivery, will have been duly authorized and validly
issued and will be fully paid and nonassessable (and shall be issued
out
of Borrower’s authorized but unissued common stock) and, except as
provided in the next subsection, Borrower will pay all taxes, liens
and
charges with respect to the issue
thereof.
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b.
|
Except
as provided in the next sentence, ▇▇▇▇▇▇▇▇ will pay any and all taxes
and
duties that may be payable in respect of the issue or delivery of
the
Shares on conversion of this Note. Borrower shall not, however, be
required to pay any tax or duty which may be payable in respect of
any
transfer involved in the issue and delivery of the Shares in a name
other
than that of Lender, and no such issue or delivery shall be made
unless
and until the person requesting such issue has paid to Borrower the
amount
of any such tax or duty, or has established to the satisfaction of
Borrower that such tax or duty has been
paid.
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M
|
Definitions.
As used herein, the following terms shall have the following
meanings:
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a.
|
“Conversion
Price”:
Three Dollars ($3.00), subject to adjustment as provided
herein.
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b.
|
“Convertible
Securities”:
evidence of indebtedness or other securities which are convertible
into or
exchangeable for, with or without payment of additional consideration,
Shares, either immediately or upon the arrival of a specified date
or the
happening of a specified event or
both.
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c.
|
“Maturity
Date”: July
1, 2008.
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d.
|
“Shares”:
shares of the Borrower’s common stock, no par value per share, or any
security issued in exchange for such common
stock.
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N
|
Governing
Law and Jurisdiction & Arbitration.
Except
for either Borrower or ▇▇▇▇▇▇’s right to equitable remedies (including
without limitation to injunctive relief) all controversies arising
under
this Agreement shall be submitted to final and binding arbitration
in
accordance with rules of the American Arbitration Association in
the City
and County of San Francisco, in the State of
California.
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|
O
|
Notices.
Any notice or communication required or desired to be served, given
or
delivered hereunder shall be in the form and manner specified below,
and
shall be addressed to the party to be notified as
follows:
|
| If to Lender: |
JMW
FUND, LLC.
|
▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇ ▇▇▇▇▇▇▇
Telecopier:
SAN
▇▇▇▇▇▇▇ FUND LLC.
▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier:
▇▇▇▇▇▇▇▇▇
FAMILY PARTNERS, LTD.
▇
▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Telecopier:
BATTERSEA
CAPITAL, INC.
PO
BOX
153 Santa Monica, CA 90406
Attn:
▇▇▇▇ ▇▇▇▇
Telecopier:
| If to Borrower: |
▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
Sausalito,
CA 94965
Attention:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Chief Financial Officer
Telecopier:
(▇▇▇) ▇▇▇ ▇▇▇▇
or
to
such other address as each party designates to the other by notice in the manner
herein prescribed. Notice shall be deemed given hereunder if (i) delivered
personally or otherwise actually received, (ii) sent by overnight delivery
service, (iii) mailed by first-class United States mail, postage prepaid,
registered or certified, with return receipt requested, or (iv) sent
via telecopy
machine with a duplicate signed copy sent on the same day as provided in clause
(ii) above. Notice mailed as provided in clause (iii) above shall be effective
upon the expiration of three (3) business days after its deposit in the United
States mail, and notice telecopied as provided in clause (iv) above shall be
effective upon receipt of such telecopy if the duplicate signed copy is sent
under clause (iv) above. Notice given in any other manner described in this
section shall be effective upon receipt by the addressee thereof; provided,
however,
that if
any notice is tendered to an addressee and delivery thereof is refused by such
addressee, such notice shall be effective upon such tender unless expressly
set
forth in such notice.
|
P
|
Lender’s
Rights; Borrower Waivers.
▇▇▇▇▇▇’s acceptance of partial or delinquent payment from Borrower
hereunder, or ▇▇▇▇▇▇’s failure to exercise any right hereunder, shall not
constitute a waiver of any obligation of Borrower hereunder, or any
right
of Lender hereunder, and shall not affect in any way the right to
require
full performance at any time thereafter. Borrower waives presentment,
diligence, demand of payment, notice, protest and all other demands
and
notices in connection with the delivery, acceptance, performance,
default
or enforcement of this Note. In any action on this Note, Lender need
not
produce or file the original of this Note, but need only file a photocopy
of this Note certified by Lender be a true and correct copy of this
Note
in all material respects. No provision of this Note shall alter or
impair
the obligation of Borrower, which is absolute and unconditional,
to pay
the principal of and interest on this Note at the times, places and
rate,
and in the coin or currency, herein prescribed or to convert this
Note as
herein provided. This clause shall not invalidate ▇▇▇▇▇▇▇▇’s rights to
set-off and counterclaim where ▇▇▇▇▇▇▇▇ has paid either partially
or in
full any outstanding amount that is in full satisfaction of the principal
sum drawn under this Note to one or more of the Lenders.
|
|
Q
|
Arbitration
Costs.
Borrower shall pay all reasonable arbitration costs and expenses
Lender
expends or incurs arising from arbitration proceedings in connection
with
this Note.
|
|
R
|
Severability.
Whenever possible each provision of this Note shall be interpreted
in such
manner as to be effective and valid under applicable law, but if
any
provision is prohibited by or invalid under applicable law, it shall
be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of the provision or the remaining provisions
of
this Note.
|
|
S
|
Amendment
Provisions.
This Note may not be amended or modified, nor may any of its terms
be
waived, except by written instruments signed by ▇▇▇▇▇▇▇▇ and
▇▇▇▇▇▇.
|
|
T
|
Binding
Effect.
This Note shall be binding upon, and shall inure to the benefit of,
each
of Borrower and the holder hereof and their respective successors
and
assigns; provided,
however,
that ▇▇▇▇▇▇▇▇’s rights and obligations shall not be assigned or delegated
without ▇▇▇▇▇▇’s prior written consent, given in its sole discretion, and
any purported assignment or delegation without such consent shall
be void
ab initio.
|
|
U
|
Time
of Essence.
Time is of the essence of each and every provision of this
Note.
|
|
V
|
Headings.
Section headings used in this Note have been set forth herein for
convenience of reference only. Unless the contrary is compelled by
the
context, everything contained in each section hereof applies equally
to
this entire Note.
|
[Signatures
on next page.]
The
execution and delivery of this Note reflects satisfaction in full for all of
Borrower's outstanding obligations under The Loan Agreement and as amended
per
the terms and conditions of the Term Sheet for Triton Distribution Systems
executed by both ▇▇▇▇▇▇▇▇ and Lender on _______________, and concurrent with
the
execution of this Note, Borrower shall have no further obligations outstanding
under the Loan Agreement.
|
By___________________________________
Print
Name ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇
Title
Chairman
& Chief Executive Officer
|
|
|
By
__________________________________
Print
Name ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
Title
Chief
Financial Officer
|
Appendix
A
Schedule
of Lenders
|
Lender
|
Address
& Fax No.
|
Number
of
Warrants
|
Purchase
Price
|
Legal
Representative’s
Address
& Fax No.
|
|
JMW
FUND LLC.,
|
▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇.
Fax:
|
1,000,000
|
$1,500,000
|
|
|
SAN
▇▇▇▇▇▇▇ FUND LLC.
|
▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇.
Fax:
|
333,333
|
$500,000
|
|
|
▇▇▇▇▇▇▇▇▇
FAMILY PARTNERS, LTD.
|
▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇.
Fax:
|
333,333
|
$500,000
|
|
|
BATTERSEA
CAPITAL, INC.,
|
Po
Box 156,
Santa
Monica, CA 90406.
Fax:
|
333,333
|
$500,000
|
|
|
TOTAL
|
2,000,000
|
$3,000,000
|