Exhibit 10.2
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: June 25, 2008
Original Conversion Price (subject to adjustment herein): $0.30
Original Principal Amount: $1,086,956.52
CDEX INC.
12% SENIOR CONVERTIBLE NOTE
THIS NOTE is one of a series of duly authorized and validly issued 12%
Senior Convertible Notes of CDEX Inc., a Nevada corporation (the "Company"),
having its principal place of business at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, designated as its 12% Senior Convertible Notes (this Note, the
"Note" and, collectively with the other Notes of such series, the "Notes").
FOR VALUE RECEIVED, the Company promises to pay to Gemini Master Fund,
Ltd. or its registered assigns (the "Holder"), or shall have paid pursuant to
the terms hereunder, the principal sum of US$1,086,956.52 on the date which is
two (2) years following the Original Issue Date of this Note (the "Maturity
Date") or such earlier date as this Note is required or permitted to be repaid
as provided hereunder, or such later date as may be permitted by the Holder as
set forth in Section 2 hereof, and to pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Note in
accordance with the provisions hereof.
This Note is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the
terms defined elsewhere in this Note (a) capitalized terms not otherwise defined
herein shall have the meanings set forth in the Purchase Agreement and (b) the
following terms shall have the following meanings:
"Alternate Consideration" shall have the meaning set forth in
Section 5(e).
"Bankruptcy Event" means any of the following events: (a) the
Company or any Significant Subsidiary (as such term is defined in Rule
1-02(w) of Regulation S-X) thereof commences a case or other proceeding
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under any bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company or any
Significant Subsidiary thereof is adjudicated insolvent or bankrupt or
any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any Significant Subsidiary
thereof suffers any appointment of any custodian or the like for it or
any substantial part of its property that is not discharged or stayed
within 60 calendar days after such appointment; (e) the Company or any
Significant Subsidiary thereof makes a general assignment for the
benefit of creditors; (f) the Company or any Significant Subsidiary
thereof calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (g) the
Company or any Significant Subsidiary thereof, by any act or failure to
act, expressly indicates its consent to, approval of or acquiescence in
any of the foregoing or takes any corporate or other action for the
purpose of effecting any of the foregoing.
"Base Conversion Price" shall have the meaning set forth in
Section 5(b).
"Business Day" means any day except any Saturday, any Sunday,
any day which shall be a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are
authorized or required by law or other governmental action to close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
"Change of Control Transaction" means the occurrence after the
date hereof of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of 33% of the voting securities
of the Company (other than by means of conversion or exercise of the
Notes and the Securities issued together with the Notes), or (ii) the
Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving
effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 66% of the aggregate voting
power of the Company or the successor entity of such transaction, or
(iii) the Company sells or transfers all or substantially all of its
assets to another Person and the stockholders of the Company
immediately prior to such transaction own less than 66% of the
aggregate voting power of the acquiring entity immediately after the
transaction, or (iv) a replacement at one time or within a three year
period of more than one-half of the members of the Company's board of
directors which is not approved by a majority of those individuals who
are members of the board of directors on the date hereof (or by those
individuals who are serving as members of the board of directors on any
date whose nomination to the board of directors was approved by a
majority of the members of the board of directors who are members on
the date hereof), or (v) the execution by the Company of an agreement
to which the Company is a party or by which it is bound, providing for
any of the events set forth in clauses (i) through (iv) above.
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"Conversion Date" shall have the meaning set forth in Section
4(a).
"Conversion Price" shall have the meaning set forth in Section
4(b).
"Conversion Shares" means, collectively, the shares of Common
Stock issued or issuable upon conversion or redemption of this Note in
accordance with the terms hereof, including without limitation shares
of Common Stock issued or issuable as interest or in payment of
principal hereunder or as damages under the Transaction Documents.
"Note Register" shall have the meaning set forth in Section
2(c).
"Dilutive Issuance" shall have the meaning set forth in
Section 5(b).
"Dilutive Issuance Notice" shall have the meaning set forth in
Section 5(b).
"Equity Conditions" means, during the period in question, (i)
the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notices of
Conversion of the Holder, if any, (ii) the Company shall have paid all
liquidated damages and other amounts owing to the Holder in respect of
this Note, (iii) all of the shares of Common Stock issued or issuable
pursuant to the Transaction Documents may be sold by the Holder
pursuant to either (a) clause (i) or (ii) of Section (b)(1) of Rule 144
and, with respect to such clause (i), the Company has been subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act
for the then preceding 90 days and has filed all reports required to be
filed thereunder during the then preceding 12 months (or such shorter
period that the Company was required to file such reports) or (b) an
effective Registration Statement (and the Company believes, in good
faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (iv) the Common Stock is trading on a Trading
Market and, if applicable, all of the shares issuable pursuant to the
Transaction Documents are listed or quoted for trading on such Trading
Market (and the Company believes, in good faith, that trading of the
Common Stock on a Trading Market will continue uninterrupted for the
foreseeable future), (v) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for the
issuance of all of the shares issuable pursuant to the Transaction
Documents, (vi) there is no existing Event of Default or no existing
event which, with the passage of time or the giving of notice, would
constitute an Event of Default, (vii) the issuance of the shares in
question (or, in the case of a Monthly Redemption or Forced Conversion,
the shares issuable upon conversion in full of the Monthly Redemption
Amount or Forced Conversion Amount) to the Holder would not violate the
limitations set forth in Section 4(c) below, (viii) if the Company has
previously publicly announced a pending or proposed Fundamental
Transaction or Change of Control Transaction, such transaction was
consummated prior to such period, (ix) the Holder is not in possession
of any information provided by the Company that constitutes, or may
constitute, material non-public information, (x) there has been no
Bankruptcy Event, (xi) the Company is not insolvent, and (xii) the
average closing price per share of Common Stock on the Trading Market
for such period shall be greater than $0.25 (as appropriately and
equitably adjusted for reverse stock splits and similar events).
3
"Event of Default" shall have the meaning set forth in Section
8.
"Forced Conversion" shall have the meaning set forth in
Section 6(d).
"Forced Conversion Amount" shall have the meaning set forth in
Section 6(d).
"Forced Conversion Date" shall have the meaning set forth in
Section 6(d).
"Forced Conversion Notice" shall have the meaning set forth in
Section 6(d).
"Forced Conversion Notice Date" shall have the meaning set
forth in Section 6(d).
"Fundamental Transaction" shall have the meaning set forth in
Section 5(e).
"Late Fees" shall have the meaning set forth in Section 2(d).
"Mandatory Default Amount" means the sum of (i) the greater of
(A) 130% of the outstanding principal amount of this Note, plus 100% of
accrued and unpaid interest hereon, or (B) the outstanding principal
amount of this Note, plus all accrued and unpaid interest hereon,
divided by the lesser of the Conversion Price and the Market Redemption
Price on the date the Mandatory Default Amount is either (a) demanded
(if demand or notice is required to create an Event of Default) or
otherwise due or (b) paid in full, whichever has a lower price,
multiplied by the VWAP on the date the Mandatory Default Amount is
either (x) demanded or otherwise due or (y) paid in full, whichever has
a higher VWAP, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of this Note.
"Market Redemption Price" means 85% of the average of the
closing prices occurring during the ten (10) consecutive Trading Days
immediately preceding the date as of which the Market Redemption Price
is being determined (subject to appropriate and equitable adjustment
for any stock dividend, stock split, stock combination or other similar
event affecting the Common Stock during such 10 Trading Day period).
"Monthly Redemption" means the redemption of this Note
pursuant to Section 6(b) hereof.
"Monthly Redemption Amount" means, as to a Monthly Redemption,
1/24th of the original principal amount of this Note, plus all accrued
but unpaid interest, liquidated damages and any other amounts then
owing to the Holder in respect of this Note.
"Monthly Redemption Date" means the first day of each calendar
month, commencing on the first day of the first full calendar month
occurring after the date which is six (6) months following the Original
Issue Date, and terminating upon the full redemption of 100% of the
principal amount of this Note.
4
"Monthly Redemption Notice" shall have the meaning set forth
in Section 6(b) hereof.
"New York Courts" shall have the meaning set forth in Section
9(d).
"Notice of Conversion" shall have the meaning set forth in
Section 4(a).
"Original Issue Date" means the date of the issuance of this
Note, regardless of any transfers of any Note and regardless of the
number of instruments which may be issued to evidence this Note.
"Permitted Indebtedness" means (a) the indebtedness evidenced
by the Notes, (b) the Indebtedness existing on the Closing Date which
is set forth on Schedule 3.1(aa) attached to the Purchase Agreement,
provided that the terms of any such Indebtedness have not been changed
from the terms existing on the Closing Date, (c) lease obligations and
purchase money indebtedness of up to $100,000, in the aggregate,
incurred in connection with the acquisition of capital assets and lease
obligations with respect to newly acquired or leased assets, (d)
Indebtedness that (i) is expressly subordinate to the Notes pursuant to
a written subordination agreement with the Purchasers that is
acceptable to the Purchasers holding 69% in outstanding principal
amount of Notes in their sole and absolute discretion and (ii) matures
at a date later than the Maturity Date, and (e) up to the Permitted
Principal Amount of unsecured Indebtedness which is pari passu with the
Notes, provided such Indebtedness is on terms not in any material way
more favorable to the lender thereof than the terms to the holders of
Notes under the Notes and Transaction Documents and provided that the
Company consults with the Holder prior to incurring such Indebtedness,
where the "Permitted Principal Amount" means $3.5 million less the
original principal amount of all Notes ("Permitted Additional
Indebtedness").
"Permitted Lien" means the individual and collective reference
to the following: (a) Liens for taxes, assessments and other
governmental charges or levies not yet due or Liens for taxes,
assessments and other governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves
(in the good faith judgment of the management of the Company) have been
established in accordance with GAAP; and (b) Liens imposed by law which
were incurred in the ordinary course of the Company's business, such as
carriers', warehousemen's and mechanics' Liens, statutory landlords'
Liens, and other similar Liens arising in the ordinary course of the
Company's business, and which (x) do not individually or in the
aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business
of the Company and its consolidated Subsidiaries or (y) are being
contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing for the foreseeable future the forfeiture
or sale of the property or asset subject to such Lien.
"Purchase Agreement" means the Securities Purchase Agreement
pursuant to which this Note was issued, dated on or about the date
5
hereof, among the Company and the original purchasers of Notes, as
amended, modified or supplemented from time to time in accordance with
its terms.
"Registration Statement" means an effective registration
statement under the Securities Act that registers the resale of all
Conversion Shares of the Holder, names the Holder as a "selling
stockholder" therein, and contains a current prospectus not subject to
any blackout, suspension or stop order.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Share Delivery Date" shall have the meaning set forth in
Section 4(d).
"Subsidiary" shall have the meaning set forth in the Purchase
Agreement.
"Threshold Period" shall have the meaning set forth in Section
6(d).
"Trading Day" means a day on which the principal Trading
Market is open for business.
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the American Stock Exchange, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market, the New York
Stock Exchange or the OTC Bulletin Board.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted for trading as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)); (b) if the OTC Bulletin Board is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or the
nearest preceding date) on the OTC Bulletin Board; (c) if the Common
Stock is not then quoted for trading on the OTC Bulletin Board and if
prices for the Common Stock are then reported in the "Pink Sheets"
published by Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (d) in all other
cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Holder and
reasonably acceptable to the Company.
Section 2. Interest.
a) Interest Rate. Interest shall accrue daily on the
outstanding principal amount of this Note at a rate per annum equal to
12%.
6
b) Payment of Interest. On each Monthly Redemption Date and on
the Maturity Date, the Company shall pay to the Holder any accrued but
unpaid interest hereunder on the aggregate unconverted and then
outstanding principal amount of this Note, and on each Conversion Date
the Company shall pay to the Holder any accrued but unpaid interest
hereunder on that portion of the principal amount then being converted
or redeemed, as the case may be. The amount of interest payable on each
Monthly Redemption Date, Conversion Date and Maturity Date ("Interest
Amount") shall be added to and included in the principal amount being
so converted or redeemed on such date.
c) Interest Calculations. Interest shall be calculated on the
basis of a 365-day year and actual days elapsed and shall accrue daily
commencing on the Original Issue Date until payment in full of the
outstanding principal, together with all accrued and unpaid interest,
liquidated damages and other amounts which may become due hereunder,
has been made. Interest hereunder will be paid to the Person in whose
name this Note is registered on the records of the Company regarding
registration and transfers of this Note (the "Note Register"). Except
as otherwise provided herein, if at any time the Company pays interest
partially in cash and partially in shares of Common Stock to the
holders of the Notes, then such payment of cash shall be distributed
ratably among the holders of the then-outstanding Notes based on their
(or their predecessor's) original principal amounts of Notes.
d) Late Fees. If the Company fails to pay any accrued and
unpaid interest payable hereunder within three (3) Trading Days
following notice of late payment from the Holder (which may be given
orally, by email or any other manner), then such overdue amount shall
entail a late fee at an interest rate equal to the lesser of 24% per
annum or the maximum rate permitted by applicable law ("Late Fees")
which shall accrue daily from the date such interest was originally due
hereunder through and including the date of actual payment in full.
e) Payment in Common Stock. Any Interest Amount may be paid in
shares of Common Stock to the extent (i) such Interest Amount is
included in the Monthly Redemption Amount and (ii) such Monthly
Redemption Amount may be paid in shares of Common Stock pursuant to
Section 6(b) below.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Note is exchangeable for an
equal aggregate principal amount of Notes of different authorized
denominations, as requested by the Holder surrendering the same. No
service charge will be payable for such exchange.
b) Investment Representations. This Note has been issued
subject to certain investment representations of the original Holder
set forth in the Purchase Agreement and may be transferred or exchanged
only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.
7
c) Reliance on Note Register. Prior to due presentment for
transfer to the Company of this Note, the Company and any agent of the
Company may treat the Person in whose name this Note is duly registered
on the Note Register as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes, whether or not
this Note is overdue, and neither the Company nor any such agent shall
be affected by notice to the contrary.
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue
Date until this Note is no longer outstanding, this Note shall be
convertible, in whole or in part, into shares of Common Stock at the
option of the Holder, at any time and from time to time (subject to the
conversion limitations set forth in Section 4(c) hereof). The Holder
shall effect conversions by delivering to the Company a Notice of
Conversion, the form of which is attached hereto as Annex A (a "Notice
of Conversion"), specifying therein the principal amount of this Note
to be converted and the date on which such conversion shall be effected
(such date, the "Conversion Date"). If no Conversion Date is specified
in a Notice of Conversion, the Conversion Date shall be the date that
such Notice of Conversion is deemed delivered hereunder, and the
Conversion Date may not be a date prior to the date of delivery of such
Conversion Notice. To effect conversions hereunder, the Holder shall
not be required to physically surrender this Note to the Company unless
the entire principal amount of this Note, plus all accrued and unpaid
interest thereon, has been so converted. Conversions hereunder shall
have the effect of lowering the outstanding principal amount of this
Note in an amount equal to the applicable conversion. The Holder and
the Company shall maintain records showing the principal amount(s)
converted and the date of such conversion(s). In the event of any
dispute or discrepancy, the records of the Holder shall be controlling
and determinative in the absence of manifest error. The Holder, and any
assignee by acceptance of this Note, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of a
portion of this Note, the unpaid and unconverted principal amount of
this Note may be less than the amount stated on the face hereof.
b) Conversion Price. The conversion price shall be equal to
$0.30, subject to adjustment herein (the "Conversion Price").
c) Conversion Limitation - Holder's Restriction on Conversion.
The Company shall not effect any conversion of this Note, and a Holder
shall not have the right to convert any portion of this Note, to the
extent that after giving effect to the conversion set forth on the
applicable Notice of Conversion, the Holder (together with the Holder's
Affiliates, and any other person or entity acting as a group together
with the Holder or any of the Holder's Affiliates) would beneficially
own in excess of the Beneficial Ownership Limitation (as defined
below). For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and its Affiliates shall
include the number of shares of Common Stock issuable upon conversion
of this Note with respect to which such determination is being made,
but shall exclude the number of shares of Common Stock which are
issuable upon (A) conversion of the remaining, unconverted principal
amount of this Note beneficially owned by the Holder or any of its
Affiliates and (B) exercise or conversion of the unexercised or
8
unconverted portion of any other securities of the Company subject to a
limitation on conversion or exercise analogous to the limitation
contained herein (including, without limitation, any other Notes or the
Warrants) beneficially owned by the Holder or any of its Affiliates.
Except as set forth in the preceding sentence, for purposes of this
Section 4(c), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. To the extent that the limitation contained in
this paragraph applies, the determination of whether this Note is
convertible (in relation to other securities owned by the Holder
together with any Affiliates) and of which principal amount of this
Note is convertible shall be in the sole discretion of the Holder, and
the submission of a Notice of Conversion shall be deemed to be the
Holder's determination of whether this Note may be converted (in
relation to other securities owned by the Holder together with any
Affiliates) and which principal amount of this Note is convertible, in
each case subject to the Beneficial Ownership Limitation. To ensure
compliance with this restriction, the Holder will be deemed to
represent to the Company each time it delivers a Notice of Conversion
that such Notice of Conversion has not violated the restrictions set
forth in this paragraph and the Company shall have no obligation to
verify or confirm the accuracy of such determination. In addition, a
determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder. For purposes of this
paragraph, in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of
Common Stock as stated in the most recent of the following: (A) the
Company's most recent periodic or annual report, as the case may be;
(B) a more recent public announcement by the Company; or (C) a more
recent notice by the Company or the Company's transfer agent setting
forth the number of shares of Common Stock outstanding. Upon the
written or oral request of a Holder, the Company shall within two
Trading Days confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company,
including this Note, by the Holder or its Affiliates since the date as
of which such number of outstanding shares of Common Stock was
reported. The "Beneficial Ownership Limitation" shall be 4.9% of the
number of shares of the Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock issuable upon
conversion of this Note held by the Holder. By written notice to the
Company, the Holder may at any time and from time to time increase or
decrease (but not below 4.9%) the Beneficial Ownership Limitation to
any other percentage specified in such notice (or specify that the
Beneficial Ownership Limitation shall no longer be applicable),
provided, however, that (A) any such increase (or inapplicability)
shall not be effective until the sixty-first (61st) day after such
notice is delivered to the Company, and (B) any such increase or
decrease shall apply only to the Holder and not to any other holder of
Notes. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the
terms of this paragraph to correct this paragraph (or any portion
hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such
limitation. The limitations contained in this paragraph shall apply to
a successor holder of this Note.
9
d) Mechanics of Conversion.
i. Conversion Shares Issuable Upon Conversion of
Principal Amount. The number of Conversion Shares issuable
upon a conversion hereunder shall be determined by the
quotient obtained by dividing (x) the outstanding principal
amount of this Note to be converted plus any accrued but
unpaid interest thereon, by (y) the Conversion Price.
ii. Delivery of Certificate Upon Conversion. Not
later than three Trading Days after each Conversion Date (the
"Share Delivery Date"), the Company shall deliver, or cause to
be delivered, to the Holder a certificate or certificates
representing the Conversion Shares which, on or after the
Legend Removal Date, shall be free of restrictive legends and
trading restrictions (other than those which may then be
required by the Purchase Agreement) representing the number of
Conversion Shares being acquired upon the conversion of this
Note, provided that if such Conversion Shares are to be issued
in the name of a Person other than the Holder, the Share
Delivery Date shall be extended by one day for each day after
the Conversion Date that the Holder fails to submit the
additional documentation required hereunder with respect to
such issuance to such other Person. On or after the date on
which the Holder may sell the Conversion Shares pursuant to
Rule 144, the Company shall use its best efforts to deliver
any certificate(s) or shares required to be delivered by the
Company under this Section 4 electronically through the
Depository Trust Company or another established clearing
corporation performing similar functions.
iii. Failure to Deliver Certificates. If in the case
of any Notice of Conversion such certificate(s) or shares are
not delivered to or as directed by the applicable Holder by
the third Trading Day after the Conversion Date, the Holder
shall be entitled to elect by written notice to the Company at
any time on or before its receipt of such certificate or
certificates, to rescind such Conversion, in which event the
Company shall promptly return to the Holder any original Note
delivered to the Company and the Holder shall promptly return
to the Company the Common Stock certificates representing the
principal amount of this Note unsuccessfully tendered for
conversion to the Company.
iv. Obligation Absolute; Partial Liquidated Damages.
The Company's obligations to issue and deliver the Conversion
Shares upon conversion of this Note in accordance with the
terms hereof are absolute and unconditional, irrespective of
any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to
enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by
the Holder or any other Person of any obligation to the
Company or any violation or alleged violation of law by the
Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of
the Company to the Holder in connection with the issuance of
such Conversion Shares; provided, however, that such delivery
shall not operate as a waiver by the Company of any such
action the Company may have against the Holder. In the event
10
the Holder of this Note shall elect to convert any or all of
the outstanding principal amount hereof, the Company may not
refuse conversion based on any claim that the Holder or anyone
associated or affiliated with the Holder has been engaged in
any violation of law, agreement or for any other reason,
unless an injunction from a court, on notice to Holder,
restraining and or enjoining conversion of all or part of this
Note shall have been sought and obtained, and the Company
posts a surety bond for the benefit of the Holder in the
amount of 150% of the outstanding principal amount of this
Note, which is subject to the injunction, which bond shall
remain in effect until the completion of
arbitration/litigation of the underlying dispute and the
proceeds of which shall be payable to the Holder to the extent
it obtains judgment. In the absence of such injunction, the
Company shall issue Conversion Shares or, if applicable, cash,
upon a properly noticed conversion. If the Company fails for
any reason to deliver to the Holder such certificate(s) or
shares pursuant to Section 4(d)(ii) by the third Trading Day
after the Share Delivery Date (provided at least three Trading
Days have elapsed since the Company has communicated with the
Holder, either orally or by email or otherwise, in a manner
which indicates that it has received the applicable Conversion
Notice), the Company shall pay to the Holder, in cash, as
liquidated damages and not as a penalty, for each $1000 of
principal amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day on the fifth Trading Day
after such liquidated damages begin to accrue) for each
Trading Day after such second Trading Day after the Share
Delivery Date until such certificates are delivered. Nothing
herein shall limit a ▇▇▇▇▇▇'s right to pursue actual damages
or declare an Event of Default pursuant to Section 8 hereof
for the Company's failure to deliver Conversion Shares within
the period specified herein and the Holder shall have the
right to pursue all remedies available to it hereunder, at law
or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. The exercise of
any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under
applicable law.
v. Compensation for Buy-In on Failure to Timely
Deliver Certificates Upon Conversion. In addition to any other
rights available to the Holder, if the Company fails for any
reason to deliver to the Holder such certificate(s) or shares
by the Share Delivery Date pursuant to Section 4(d)(ii)
(provided at least three Trading Days have elapsed since the
Company has communicated with the Holder, either orally or by
email or otherwise, in a manner which indicates that it has
received the applicable Conversion Notice), and if after such
Share Delivery Date the Holder is required by its brokerage
firm to purchase (in an open market transaction or otherwise),
or the Holder's brokerage firm otherwise purchases, shares of
Common Stock to deliver in satisfaction of a sale by the
Holder of the Conversion Shares which the Holder was entitled
to receive upon the conversion relating to such Share Delivery
Date (a "Buy-In"), then the Company shall (A) pay in cash to
the Holder (in addition to any other remedies available to or
elected by the Holder) the amount by which (x) the Holder's
total purchase price (including any brokerage commissions) for
11
the Common Stock so purchased exceeds (y) the product of (1)
the aggregate number of shares of Common Stock that the Holder
was entitled to receive from the conversion at issue
multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed
(including any brokerage commissions) and (B) at the option of
the Holder, either reissue (if surrendered) this Note in a
principal amount equal to the principal amount of the
attempted conversion or deliver to the Holder the number of
shares of Common Stock that would have been issued if the
Company had timely complied with its delivery requirements
under Section 4(d)(ii). For example, if the Holder purchases
Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted conversion of this Note
with respect to which the actual sale price of the Conversion
Shares (including any brokerage commissions) giving rise to
such purchase obligation was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Company shall
be required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to
the Holder in respect of the Buy-In and, upon request of the
Company, evidence of the amount of such loss. Nothing herein
shall limit a ▇▇▇▇▇▇'s right to pursue any other remedies
available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to
timely deliver certificates representing shares of Common
Stock upon conversion of this Note as required pursuant to the
terms hereof.
vi. Reservation of Shares Issuable Upon Conversion.
The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of
Common Stock for the sole purpose of issuance upon conversion
of this Note and payment of interest on this Note, each as
herein provided, free from preemptive rights or any other
actual contingent purchase rights of Persons other than the
Holder (and the other holders of the Notes), not less than
such aggregate number of shares of the Common Stock as shall
(subject to the terms and conditions set forth in the Purchase
Agreement) be issuable (taking into account the adjustments of
Section 5) upon the conversion of the outstanding principal
amount of this Note and payment of interest hereunder. The
Company covenants that all shares of Common Stock that shall
be so issuable shall, upon issue, be duly authorized, validly
issued, fully paid and nonassessable and, if the Registration
Statement is then effective under the Securities Act, shall be
registered for public sale in accordance with such
Registration Statement.
vii. Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the
conversion of this Note. As to any fraction of a share which
Holder would otherwise be entitled to purchase upon such
conversion, the Company shall at its election, either pay a
cash adjustment in respect of such final fraction in an amount
equal to such fraction multiplied by the Conversion Price or
round up to the next whole share.
12
viii. Transfer Taxes. The issuance of certificates
for shares of the Common Stock on conversion of this Note
shall be made without charge to the Holder hereof for any
documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificates,
provided that the Company shall not be required to pay any tax
that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion
in a name other than that of the Holder of this Note and the
Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any
time while this Note is outstanding: (A) pays a stock dividend or
otherwise makes a distribution or distributions payable in shares of
Common Stock on shares of Common Stock or any Common Stock Equivalents
(which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company upon conversion of, or payment of interest
on, the Notes); (B) subdivides outstanding shares of Common Stock into
a larger number of shares; (C) combines (including by way of a reverse
stock split) outstanding shares of Common Stock into a smaller number
of shares; or (D) issues, in the event of a reclassification of shares
of the Common Stock, any shares of capital stock of the Company, then
the Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding any
treasury shares of the Company) outstanding immediately before such
event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event. Any adjustment
made pursuant to this Section shall become effective immediately after
the record date for the determination of stockholders entitled to
receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or re-classification.
b) Subsequent Equity Sales. If, at any time while this Note is
outstanding, the Company or any Subsidiary, as applicable, sells or
grants any option to purchase or sells or grants any right to reprice,
or otherwise disposes of or issues (or announces any sale, grant or any
option to purchase or other disposition), any Common Stock or Common
Stock Equivalents entitling any Person to acquire shares of Common
Stock at an effective price per share that is lower than the then
Conversion Price (such lower price, the "Base Conversion Price" and
such issuances, collectively, a "Dilutive Issuance") (if the holder of
the Common Stock or Common Stock Equivalents so issued shall at any
time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or
otherwise, or due to warrants, options or rights per share which are
issued in connection with such issuance, be entitled to receive shares
of Common Stock at an effective price per share that is lower than the
Conversion Price, such issuance shall be deemed to have occurred for
less than the Conversion Price on such date of the Dilutive Issuance),
13
then the Conversion Price shall be reduced to equal the Base Conversion
Price. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. Notwithstanding the foregoing, no
adjustment will be made under this Section 5(b) in respect of an Exempt
Issuance. If the Company enters into a Variable Rate Transaction or MFN
Transaction, despite the prohibition set forth in the Purchase
Agreement, the Company shall be deemed to have issued Common Stock or
Common Stock Equivalents at the lowest possible conversion price at
which such securities may be converted or exercised. The Company shall
notify the Holder in writing, no later than 2 Business Day following
the issuance of any Common Stock or Common Stock Equivalents subject to
this Section 5(b), indicating therein the applicable issuance price, or
applicable reset price, exchange price, conversion price and other
pricing terms (such notice, the "Dilutive Issuance Notice"). For
purposes of clarification, whether or not the Company provides a
Dilutive Issuance Notice pursuant to this Section 5(b), upon the
occurrence of any Dilutive Issuance, the Holder is entitled to receive
a number of Conversion Shares based upon the Base Conversion Price on
or after the date of such Dilutive Issuance, regardless of whether the
Holder accurately refers to the Base Conversion Price in the Notice of
Conversion.
c) Subsequent Rights Offerings. If the Company, at any time
while the Note is outstanding, shall issue rights, options or warrants
to all holders of Common Stock (and not to Holders) entitling them to
subscribe for or purchase shares of Common Stock at a price per share
that is lower than the VWAP on the record date referenced below, then
the Conversion Price shall be multiplied by a fraction of which the
denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of
the Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price
of the total number of shares issued (assuming delivery to the Company
in full of all consideration payable upon exercise of such rights,
options or warrants) would purchase at such VWAP. Such adjustment shall
be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
d) Pro Rata Distributions. If the Company, at any time while
this Note is outstanding, distributes to all holders of Common Stock
(and not to the Holders) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe
for or purchase any security (other than the Common Stock, which shall
be subject to Section 5(b)), then in each such case the Conversion
Price shall be adjusted by multiplying such Conversion Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of
which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on
such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed
applicable to 1 outstanding share of the Common Stock as determined by
the Board of Directors of the Company in good faith. In either case the
14
adjustments shall be described in a statement delivered to the Holder
describing the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to 1 share of Common
Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date
mentioned above.
e) Fundamental Transaction. If, at any time while this Note is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale
of all or substantially all of its assets in one transaction or a
series of related transactions, (C) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to
which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company
effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in
any such case, a "Fundamental Transaction"), then, upon any subsequent
conversion of this Note, the Holder shall have the right to receive,
for each Conversion Share that would have been issuable upon such
conversion immediately prior to the occurrence of such Fundamental
Transaction, the same kind and amount of securities, cash or property
as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of 1 share of Common Stock (the
"Alternate Consideration"). For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted
to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of 1 share of Common Stock
in such Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a reasonable
manner reflecting the relative value of any different components of the
Alternate Consideration. If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice
as to the Alternate Consideration it receives upon any conversion of
this Note following such Fundamental Transaction. To the extent
necessary to effectuate the foregoing provisions, any successor to the
Company or surviving entity in such Fundamental Transaction shall issue
to the Holder a new Note consistent with the foregoing provisions and
evidencing the Holder's right to convert such Note into Alternate
Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of
this Section 5(e) and insuring that this Note (or any such replacement
security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.
f) Calculations. All calculations under this Section 5 shall
be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 5, the number of shares of
Common Stock deemed to be issued and outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding any
treasury shares of the Company) issued and outstanding.
15
g) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the
Conversion Price is adjusted pursuant to any provision of this
Section 5, the Company shall promptly deliver to each Holder a
notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts
requiring such adjustment.
ii. Notice to Allow Conversion by ▇▇▇▇▇▇. If (A) the
Company shall declare a dividend (or any other distribution in
whatever form) on the Common Stock, (B) the Company shall
declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Company shall
authorize the granting to all holders of the Common Stock of
rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights, (D) the approval
of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of
the Company, of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or
property or (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the
affairs of the Company, then, in each case, the Company shall
cause to be filed at each office or agency maintained for the
purpose of conversion of this Note, and shall cause to be
delivered to the Holder at its last address as it shall appear
upon the Note Register, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the
date as of which the holders of the Common Stock of record to
be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on
which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of
the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange,
provided that the failure to deliver such notice or any defect
therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in
such notice. The Holder is entitled to convert this Note
during the 20-day period commencing on the date of such notice
through the effective date of the event triggering such
notice.
Section 6. Redemption and Forced Conversion.
a) No Prepayment/Redemption. The Company may not prepay or
redeem this Note in whole or in part without the prior written consent
of the Holder, and to the extent the Company agrees with any other
holder of Notes to prepay or redeem such holder's Notes in whole or in
part, the Company shall offer such prepayment or redemption of this
Note on a pro rata basis on the same terms and conditions as agreed
upon for such other Notes.
16
b) Monthly Redemption. On each Monthly Redemption Date, the
Company shall redeem the Monthly Redemption Amount (the "Monthly
Redemption"). The Monthly Redemption Amount payable on each Monthly
Redemption Date shall be paid in cash; provided, however, as to any
Monthly Redemption and upon 10 Trading Days' prior written irrevocable
notice (the "Monthly Redemption Notice"), in lieu of a cash redemption
payment the Company may elect to pay all or part of a Monthly
Redemption Amount in Conversion Shares based on a conversion price
equal to the lesser of (i) the then Conversion Price and (ii) the
Market Redemption Price as of the Monthly Redemption Date; provided,
further, that the Company may not pay the Monthly Redemption Amount in
Conversion Shares unless (A) from the date the Holder receives the duly
delivered Monthly Redemption Notice through and until the date such
Monthly Redemption is paid in full, the Equity Conditions have been
satisfied (except clause (xii) thereof shall apply only during the
10-Trading Day period used for determining the Market Redemption
Price), unless waived in writing by the Holder, and (B) the Market
Redemption Price is above $0.25 (as appropriately and equitably
adjusted for reverse stock splits and similar events). The Holder may
convert, pursuant to Section 4(a), any principal amount of this Note at
any time prior to the date that the Monthly Redemption Amount, plus
accrued but unpaid interest, liquidated damages and any other amounts
then owing to the Holder are due and paid in full. At the Holder's
election, any conversions of the principal amount of this Note pursuant
to Section 4(a) may be applied against either the next upcoming Monthly
Redemption Amount(s) due or the last principal amounts of this Note
scheduled to be redeemed hereunder, in reverse time order from the
Maturity Date. In the event that the Holder elects to have conversions
of the principal amount of this Note pursuant to Section 4(a) applied
against the next upcoming Monthly Redemption Amount(s) due, then on
such Monthly Redemption Date the Monthly Redemption Amount shall
consist of any remaining portion of the principal amount due on such
Monthly Redemption Date plus all accrued and unpaid interest on the
entire outstanding principal amount of this Note as of such date. The
Company covenants and agrees that it will honor all Notices of
Conversion tendered up until such amounts are paid in full. The
Company's determination to pay a Monthly Redemption in cash, shares of
Common Stock or a combination thereof shall be applied ratably to all
of the holders of the then outstanding Notes based on their (or their
predecessor's) original principal amount of Notes. If a Registration
Statement is effective covering the resale of the Conversion Shares by
the Holder, at any time the Company delivers a notice to the Holder of
its election to pay the Monthly Redemption Amount in shares of Common
Stock, the Company shall file a prospectus supplement pursuant to Rule
424 disclosing such election.
c) Redemption Procedure. The payment of cash or Common Stock
pursuant to a Monthly Redemption shall be payable on the Monthly
Redemption Date. If any portion of the payment pursuant to a Monthly
Redemption shall not be paid by the Company by the applicable due date,
interest shall accrue thereon at an interest rate equal to the lesser
17
of 24% per annum or the maximum rate permitted by applicable law until
such Monthly Redemption Amount is paid in full.
d) Forced Conversion. Notwithstanding anything herein to the
contrary, if the VWAP for any 20 out of 30 consecutive Trading Days
(such 30 Trading Day period being the "Threshold Period") exceeds $0.75
(subject to appropriate and equitable adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the Original
Issue Date), then the Company may, within 1 Trading Day after the end
of any such Threshold Period, deliver a written notice to the Holder (a
"Forced Conversion Notice" and the date such notice is delivered to the
Holder, the "Forced Conversion Notice Date") to cause the Holder to
convert all or part of the then outstanding principal amount of this
Note as specified in such Forced Conversion Notice ("Forced Conversion
Amount") at the Conversion Price ("Forced Conversion") on or prior to
the tenth Trading Day following the Holder's receipt of such Forced
Conversion Notice (such date, the "Forced Conversion Date"). The
Company may not deliver a Forced Conversion Notice, and any Forced
Conversion Notice delivered by the Company shall not be effective,
unless all of the Equity Conditions are met (unless waived in writing
by the Holder) on each Trading Day occurring during the applicable
Threshold Period through and including the later of the Forced
Conversion Date and the Trading Day after the date such Conversion
Shares pursuant to such conversion are delivered to the Holder (except
clause (xii) of the Equity Conditions shall apply only during the
Threshold Period). Any Forced Conversion shall be applied ratably to
all Holders based on their original principal amount of Notes, provided
that any voluntary conversions by a Holder shall be applied against the
Holder's pro rata allocation, thereby decreasing the aggregate amount
forcibly converted hereunder if only a portion of this Note is forcibly
converted. For purposes of clarification, a Forced Conversion shall be
subject to all of the provisions of Section 4, including, without
limitation, the provision requiring payment of liquidated damages and
limitations on conversions.
e) If any Monthly Redemption cannot be paid in shares of
Common Stock, or any Forced Conversion cannot be effected, due to the
Beneficial Ownership Limitation, then the Holder shall furnish the
Company with the calculation showing that such Beneficial Ownership
Limitation would otherwise be exceeded.
Section 7. Negative Covenants. As long as any portion of this Note
remains outstanding, unless the Holder has otherwise given prior written
consent, the Company shall not, and shall not permit any of its subsidiaries
(whether or not a Subsidiary on the Original Issue Date) to, directly or
indirectly:
a) other than Permitted Indebtedness, enter into, create,
incur, assume, guarantee or suffer to exist any indebtedness for
borrowed money of any kind, including but not limited to, a guarantee,
on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits
therefrom;
18
b) other than Permitted Liens, enter into, create, incur,
assume or suffer to exist any Liens of any kind, on or with respect to
any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom;
c) amend its charter documents, including, without limitation,
its certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder;
d) repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a de minimis number of shares of its Common
Stock or Common Stock Equivalents other than as to (a) the Conversion
Shares or Warrant Shares as permitted or required under the Transaction
Documents and (b) repurchases of Common Stock or Common Stock
Equivalents of departing employees of the Company, provided that such
repurchases shall not exceed an aggregate of $100,000 for all officers
and directors during the term of this Note;
e) repay, repurchase or offer to repay, repurchase or
otherwise acquire any Indebtedness (except for the Notes in accordance
with the terms of the Notes or Permitted Additional Indebtedness with
repayment terms no more favorable than the Notes), other than regularly
scheduled principal and interest payments as such terms are in effect
as of the Closing Date;
f) repay, repurchase or offer to repay, repurchase or
otherwise acquire any indebtedness to any current or former employees,
officers or directors of the Company, except as set forth on Schedule
3.1 (aa) attached to the Securities Purchase Agreement.
g) pay cash dividends or distributions on any equity
securities of the Company;
h) enter into any transaction with any Affiliate of the
Company which would be required to be disclosed in any public filing
with the Commission, unless such transaction is made on an arm's-length
basis and expressly approved by a majority of the disinterested
directors of the Company (even if less than a quorum otherwise required
for board approval); or
i) enter into any agreement with respect to any of the
foregoing.
Section 8. Events of Default.
a) "Event of Default" means, wherever used herein, any of the
following events (whatever the reason for such event and whether such
event shall be voluntary or involuntary or effected by operation of law
or pursuant to any judgment, decree or order of any court, or any
order, rule or regulation of any administrative or governmental body):
19
i. any default in the payment of (A) the principal
amount of any Note or (B) interest, liquidated damages and
other amounts owing to the Holder on any Note, as and when the
same shall become due and payable (whether on a Conversion
Date or the Maturity Date or by acceleration or otherwise)
which default, solely in the case of an interest payment or
other default under clause (B) above, is not cured within 3
Trading Days following written notice thereof by the Holder
(which may be by email);
ii. the Company shall fail to observe or perform any
other covenant or agreement contained in the Notes (other than
a breach by the Company of its obligations to deliver shares
of Common Stock to the Holder upon conversion, which breach is
addressed in clause (xii) below) which failure is not cured,
if possible to cure, within the earlier to occur of (A) 5
Trading Days after notice of such failure sent by the Holder
or by any other Holder and (B) 10 Trading Days after the
Company has become aware of such failure;
iii. a default or event of default (subject to any
grace or cure period provided in the applicable agreement,
document or instrument) shall occur under (A) any of the
Transaction Documents or (B) any other material agreement,
lease, document or instrument to which the Company or any
Subsidiary is obligated (and not covered by clause (vi)
below);
iv. any representation or warranty made in this Note,
any other Transaction Documents, any written statement
pursuant hereto or thereto or any other report, financial
statement or certificate made or delivered to the Holder or
any other Holder pursuant hereto or thereto shall be untrue or
incorrect in any material respect as of the date when made or
deemed made;
v. the Company or any Significant Subsidiary shall be
subject to a Bankruptcy Event;
vi. the Company or any Subsidiary shall default on
any of its obligations under any mortgage, credit agreement or
other facility, indenture agreement, factoring agreement or
other instrument under which there may be issued, or by which
there may be secured or evidenced, any indebtedness for
borrowed money or money due under any long term leasing or
factoring arrangement (excluding trade payables) that (a)
involves (1) an obligation greater than $100,000, whether such
indebtedness now exists or shall hereafter be created, or (2)
any of the other Notes, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date
on which it would otherwise become due and payable;
vii. if at any time the Common Stock shall not be
eligible for listing or quotation for trading on a Trading
Market and shall not be eligible to resume listing or
quotation for trading thereon within five (5) Trading Days;
20
viii. the Company shall be a party to any Change of
Control Transaction or Fundamental Transaction or shall agree
to sell or dispose of all or in excess of 33% of its assets in
one transaction or a series of related transactions (whether
or not such sale would constitute a Change of Control
Transaction);
ix. if at any time the Company is not subject to the
reporting requirements of Section 13 or 15(d) of the Exchange
Act or has failed to file all reports required to be filed
thereunder during the then preceding 12 months (or such
shorter period that the Company was required to file such
reports);
x. the Company shall fail for any reason to deliver
certificates to a Holder prior to the tenth Trading Day after
a Conversion Date or any Forced Conversion Date pursuant to
Section 4(d) or the Company shall provide at any time notice
to the Holder, including by way of public announcement, of the
Company's intention to not honor requests for conversions of
any Notes in accordance with the terms hereof; or
xi. any monetary judgment, writ or similar final
judicial or arbitration process shall be entered or filed
against the Company, any subsidiary or any of their respective
property or other assets for more than $100,000, and such
judgment, writ or similar final process shall remain
unvacated, unbonded or unstayed for a period of 45 calendar
days.
b) Remedies Upon Event of Default. If any Event of Default
occurs, the outstanding principal amount of this Note, plus accrued but
unpaid interest, liquidated damages and other amounts owing in respect
thereof through the date of acceleration, shall become, at the Holder's
election, immediately due and payable in cash at the Mandatory Default
Amount. After the occurrence and during the continuance of any Event of
Default, the interest rate on this Note shall accrue at an interest
rate equal to the lesser of 24% per annum or the maximum rate permitted
under applicable law. Upon the payment in full of the Mandatory Default
Amount, the Holder shall promptly surrender this Note to or as directed
by the Company. In connection with such acceleration described herein,
the Holder need not provide, and the Company hereby waives, any
presentment, demand, protest or other notice of any kind, and the
Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such acceleration may be
rescinded and annulled by ▇▇▇▇▇▇ at any time prior to payment hereunder
and the Holder shall have all rights as a holder of the Note until such
time, if any, as the Holder receives full payment pursuant to this
Section 8(b). No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
21
personally, by facsimile, by email, or sent by a nationally recognized
overnight courier service, addressed to the Company, at the address set
forth above, or such other facsimile number, email address or mailing
address as the Company may specify for such purpose by notice to the
Holder delivered in accordance with this Section 9. Any and all notices
or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile,
by email or sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile number or address of the
Holder appearing on the books of the Company, or if no such facsimile
number or address appears, at the principal place of business of the
Holder. Except as may otherwise be provided herein, any notice or other
communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile or by email prior to
5:30 p.m. (New York City time) on a Trading Day, with electronic
confirmation of such delivery, (ii) the first Trading Day immediately
following the date of transmission, if such notice or communication is
delivered via facsimile or by email not on a Trading Day or between
5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on
any date, with electronic confirmation of such delivery, (iii) the
second Business Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The
address, facsimile and email address for such notices and
communications shall be as set forth on the signature pages attached to
the Purchase Agreement.
b) Absolute Obligation. Except as expressly provided herein,
no provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of,
liquidated damages and accrued interest, as applicable, on this Note at
the time, place, and rate, and in the coin or currency, herein
prescribed. This Note is a direct debt obligation of the Company. This
Note ranks pari passu with all other Notes now or hereafter issued
under the terms set forth herein.
c) Lost or Mutilated Note. If this Note shall be mutilated,
lost, stolen or destroyed, the Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated
Note, or in lieu of or in substitution for a lost, stolen or destroyed
Note, a new Note for the principal amount of this Note so mutilated,
lost, stolen or destroyed, but only upon receipt of evidence of such
loss, theft or destruction of such Note, and of the ownership hereof,
reasonably satisfactory to the Company.
d) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Note shall be governed
by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflict of
laws thereof. Each party agrees that all legal proceedings concerning
the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the
state and federal courts sitting in the City of New York, Borough of
Manhattan (the "New York Courts"). Each party hereto hereby irrevocably
22
submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), and
hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the
jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for
notices to it under this Note and agrees that such service shall
constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by applicable law. Each
party hereto hereby irrevocably waives, to the fullest extent permitted
by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Note or the transactions
contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of this Note, then the prevailing
party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorney's fees and other reasonable costs and
expenses reasonably incurred in the investigation, preparation and
prosecution of such action or proceeding.
e) Waiver. Any waiver by the Company or the Holder of a breach of any
provision of this Note shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any
other provision of this Note. The failure of the Company or the Holder
to insist upon strict adherence to any term of this Note on one or more
occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any
other term of this Note. Any waiver by the Company or the Holder must
be in writing.
f) Severability. If any provision of this Note is invalid,
illegal or unenforceable, the balance of this Note shall remain in
effect, and if any provision is inapplicable to any Person or
circumstance, it shall nevertheless remain applicable to all other
Persons and circumstances. If it shall be found that any interest or
other amount deemed interest due hereunder violates the applicable law
governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum rate of interest
permitted under applicable law. The Company covenants (to the extent
that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Note as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the
extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to
any such law, hinder, delay or impeded the execution of any power
herein granted to the Holder, but will suffer and permit the execution
of every such as though no such law has been enacted.
23
g) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience
only, do not constitute a part of this Note and shall not be deemed to
limit or affect any of the provisions hereof.
i) Assumption. Any successor to the Company or any surviving
entity in a Fundamental Transaction shall (i) assume, prior to such
Fundamental Transaction, all of the obligations of the Company under
this Note and the other Transaction Documents pursuant to written
agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) and (ii) issue to
the Holder a new Note of such successor entity evidenced by a written
instrument substantially similar in form and substance to this Note,
including, without limitation, having a principal amount and interest
rate equal to the principal amount and the interest rate of this Note
and having similar ranking to this Note, which shall be satisfactory to
the Holder (any such approval not to be unreasonably withheld or
delayed). The provisions of this Section 9(i) shall apply similarly and
equally to successive Fundamental Transactions and shall be applied
without regard to any limitations of this Note.
j) Usury. This Note shall be subject to the anti-usury
limitations contained in the Purchase Agreement.
*********************
24
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed by duly authorized officer as of the date first above indicated.
CDEX INC.
By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
-----------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
Title: CEO
25
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 12% Senior
Convertible Note due _______________________ of CDEX Inc., a Nevada corporation
(the Company"), into shares of common stock (the "Common Stock"), of the Company
according to the conditions hereof, as of the date written below. If shares of
Common Stock are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts specified under Section 4 of this Note, as determined in
accordance with Section 13(d) of the Exchange Act.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock pursuant to any prospectus.
Conversion calculations:
Date to Effect Conversion:
--------------------------
Principal Amount of Note to be Converted:
-----------
Interest Accrued on Account
of Conversion at Issue:
-----------------------------
Number of shares of Common Stock to be issued:
-------
-----------------------------------------------------
Signature:
------------------------------------------
Name:
-----------------------------------------------
Address for Delivery of Common Stock Certificates:
--
-----------------------------------------------------
-----------------------------------------------------
Or
DWAC Instructions:
Broker No:
--------------------------
Account No:
-------------------------
26