Exhibit 99.3
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THIS NOTE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO FARMSTEAD TELEPHONE GROUP,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE MINIMUM BORROWING NOTE
------------------------------------------
FOR VALUE RECEIVED, each of FARMSTEAD TELEPHONE GROUP, INC., a
Delaware corporation (the "Parent"), and the other companies listed on
Exhibit A attached hereto (such other companies together with the Parent,
each a "Company" and collectively, the "Companies"), jointly and severally,
promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate Services
Limited, P.O. Box 309 GT, ▇▇▇▇▇▇ House, South Church Street, ▇▇▇▇▇▇ Town,
Grand Cayman, Cayman Islands, Fax: ▇▇▇-▇▇▇-▇▇▇▇ (the "Holder") or its
registered assigns or successors in interest, on order, the sum of Five
Hundred Thousand Dollars ($500,000), or, if different, the aggregate
principal amount of all Loans (as defined in the Security Agreement
referred to below), together with any accrued and unpaid interest hereon,
on March 31, 2008 (the "Maturity Date") if not sooner paid.
Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in the Security Agreement among the
Companies and the Holder dated as of the date hereof (as amended, modified
and/or supplemented from time to time, the "Security Agreement").
The following terms shall apply to this Minimum Borrowing Note (this
"Note"):
ARTICLE I
CONTRACT RATE
1.1 Contract Rate. Subject to Sections 4.2 and 5.10, interest
payable on the outstanding principal amount of this Note (the "Principal
Amount") shall accrue at a rate per annum equal to the "prime rate"
published in The Wall Street Journal from time to time (the "Prime Rate"),
plus two percent (2.0%) (the "Contract Rate"). The Contract Rate shall be
increased or decreased as the case may be for each increase or decrease in
the Prime Rate in an amount equal to such increase or decrease in the Prime
Rate; each change to be effective as of the day of the change in the Prime
Rate. Subject to Section 1.2, the Contract Rate shall not at any time be
less than six percent (6.0%). Interest shall be (i) calculated on the
basis of a 360 day year, and (ii) payable monthly, in arrears, commencing
on May 1, 2005 on the first business day of each consecutive calendar month
thereafter (each, a "Payment Date"), through and including the Maturity
Date and on the Maturity Date whether by acceleration or otherwise.
1.2 Contract Rate Adjustments and Payments. The Contract Rate
shall be calculated on the last business day of each calendar month
hereafter (other than for increases or decreases in the Prime Rate which
shall be calculated and become effective in accordance with the terms of
Section 1.1) until the Maturity Date (each a "Determination Date") and
shall be subject to adjustment as set forth herein. If (i) the Parent
shall have registered the shares of the Common Stock underlying the
conversion of each Minimum Borrowing Note and each Warrant on a
registration statement declared effective by the Securities and Exchange
Commission (the "SEC"), and (ii) the market price (the "Market Price") of
the Common Stock as reported by Bloomberg, L.P. on the Principal Market for
the five (5) trading days immediately preceding a Determination Date
exceeds the then applicable Fixed Conversion Price by at least twenty-five
percent (25%), the Contract Rate for the succeeding calendar month shall
automatically be reduced by 200 basis points (200 b.p.) (2%) for each
incremental twenty-five percent (25%) increase in the Market Price of the
Common Stock above the then applicable Fixed Conversion Price.
Notwithstanding the foregoing (and anything to the contrary contained
herein), in no event shall the Contract Rate at any time be less than zero
percent (0%).
ARTICLE II
LOANS; PAYMENTS UNDER THIS NOTE
2.1 Loans. All Loans evidenced by this Note shall be made in
accordance with the terms and provisions of the Security Agreement.
2.2 No Effective Registration. Notwithstanding anything to the
contrary herein, the Holder shall not be required to accept shares of
Common Stock as payment following a conversion by the Holder if there fails
to exist an effective current Registration Statement (as defined in the
Registration Rights Agreement) covering the shares of Common Stock to be
issued, or if an Event of Default hereunder exists and is continuing,
unless such requirement is otherwise waived in writing by the Holder in
whole or in part at the Holder's option.
2.3 Optional Redemption in Cash. The Companies will have the
option of prepaying this Note ("Optional Redemption") by paying to the
Holder a sum of money equal to one hundred twenty percent (120%) of the
principal amount of this Note together with accrued but unpaid interest
thereon and any and all other sums due, accrued or payable to the Holder
arising under this Note, the Security Agreement, or any other Ancillary
Agreement (the "Redemption Amount") outstanding on the Redemption Payment
Date (as defined below). The Company shall deliver to the Holder a written
notice of redemption (the "Notice of Redemption") specifying the date for
such Optional Redemption (the "Redemption Payment Date"), which date shall
be ten (10) days after the date of the Notice of Redemption (the
"Redemption Period"). A Notice of Redemption shall not be effective with
respect to any portion of this Note for which the Holder has previously
delivered a Notice of Conversion (defined below) pursuant to Section 3.1,
or for conversions elected to be made by the Holder pursuant to Section 3.1
during the Redemption Period. The Redemption Amount shall be determined as
if such ▇▇▇▇▇▇'s conversion elections had been completed immediately prior
to the date of the Notice of Redemption. On the Redemption Payment Date,
the Redemption Amount (plus any additional interest and fees accruing on
the Notes during the Redemption Period) must be irrevocably paid in full in
immediately available funds to the Holder. In the event the
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Companies fail to pay the Redemption Amount on the Redemption Payment Date,
then such Redemption Notice shall be null and void.
ARTICLE III
CONVERSION RIGHTS AND FIXED CONVERSION PRICE
3.1 (a) Optional Conversion. Subject to the terms of this Article
III, the Holder shall have the right, but not the obligation, at any time
until the Maturity Date, or during an Event of Default (as defined in
Article IV), and, subject to the limitations set forth in Section 3.2
hereof, to convert all or any portion of the outstanding Principal Amount
and/or accrued interest and fees due and payable into fully paid and
nonassessable shares of the Common Stock at the Fixed Conversion Price.
For purposes hereof, subject to Section 3.6 hereof, the initial "Fixed
Conversion Price" means $1.54 [which has been determined on the date of
this Note as an amount equal to the lesser of (x) 110% of the average
closing price of the Common Stock for the ten (10) trading days immediately
prior to the date of this Note and (y) 115% of the closing price of the
Common Stock on the date of this Note]; provided that, on the date on which
the first $1,500,000 principal amount of all Minimum Borrowing Notes
converted hereunder (and all interest and fees related thereto) (the
"Initial Conversion Amount") shall have been converted hereunder (the
"Initial Conversion Completion Date"), the Fixed Conversion Price shall be
adjusted for all amounts in excess of the Initial Conversion Amount
converted hereunder (and all interest and fees related thereto), to the
greater of (x) $1.54 [the initial Fixed Conversion Price] and (y) an amount
equal to the lesser of (A) 110% of the average closing price of the Common
Stock for the ten (10) trading days immediately prior to the Initial
Conversion Completion Date and (B) 115% of the closing price of the Common
Stock on the Initial Conversion Completion Date.
3.1 (b) Mandatory Conversions. Subject to Sections 3.1, 3.2 and
3.10 hereof, if the average closing price of the Common Stock as reported
by Bloomberg, L.P. on the Principal Market for five (5) consecutive trading
days in any calendar month shall be greater than 115% of the Fixed
Conversion Price, the Holder shall convert into shares of Common Stock such
portion of the principal amount outstanding under this Note (together with
accrued interest and fees in respect thereof) on such date equal to ten
percent (10%) of the aggregate dollar trading volume of the Common Stock
for the period of twenty-two (22) trading days preceding the date of the
mandatory conversion. The Holder shall not be required under any
circumstances to make more than one (1) mandatory conversion pursuant to
this Section 3.1(b) in any calendar month.
The shares of Common Stock to be issued upon such conversion are
herein referred to as the "Conversion Shares."
3.2 Conversion Limitation. Notwithstanding anything contained
herein to the contrary, the Holder shall not be entitled to convert
pursuant to the terms of this Note an amount that would be convertible into
that number of Conversion Shares which would exceed the difference between
(i) 4.99% of the outstanding shares of Common Stock and (ii) the number of
shares of Common Stock beneficially owned by the Holder. For purposes of
the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and
Regulation 13d-3 thereunder. The Conversion Shares limitation described in
this Section 3.2 shall automatically become null and void without any
notice to any
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Company upon the occurrence and during the continuance of an Event of
Default, or upon 75 days prior notice to the Parent, except that at no time
shall the number of shares of Common Stock beneficially owned by the Holder
exceed 19.99% of the outstanding shares of Common Stock. Notwithstanding
anything contained herein to the contrary, the number of shares of Common
Stock issuable by the Parent and acquirable by the Holder at a price below
$2.30 [insert the greater of market price or book value of the Common Stock
as of the date hereof] per share pursuant to the terms of this Note, the
Security Agreement or any other Ancillary Agreement, shall not exceed an
aggregate of 664,104 shares of Common Stock (subject to appropriate
adjustment for stock splits, stock dividends, or other similar
recapitalizations affecting the Common Stock) (the "Maximum Common Stock
Issuance"), unless the issuance of Common Stock hereunder in excess of the
Maximum Common Stock Issuance shall first be approved by the Parent's
shareholders. If at any point in time and from time to time the number of
shares of Common Stock issued pursuant to the terms of this Note, the
Security Agreement or any other Ancillary Agreement, together with the
number of shares of Common Stock that would then be issuable by the Parent
to the Holder in the event of a conversion or exercise pursuant to the
terms of this Note, the Security Agreement or any other Ancillary
Agreement, would exceed the Maximum Common Stock Issuance but for this
Section 3.2, the Parent shall promptly call a shareholders meeting to
solicit shareholder approval for the issuance of the shares of Common Stock
hereunder in excess of the Maximum Common Stock Issuance. Notwithstanding
anything contained herein to the contrary, the provisions of this Section
3.2 are irrevocable and may not be waived by the Holder or any Company.
3.3 Mechanics of ▇▇▇▇▇▇'s Conversion. In the event that the Holder
elects to convert amounts outstanding under this Note into Common Stock,
the Holder shall give notice of such election by delivering (by facsimile
or email) an executed and completed notice of conversion in substantially
the form of Exhibit A hereto (appropriately completed) ("Notice of
Conversion") to the Parent and such Notice of Conversion shall provide a
breakdown in reasonable detail of the Principal Amount, accrued interest
and fees that are being converted. The Parent shall have two (2) hours
from the time that such Notice of Conversion is delivered to the Parent to
provide the Holder with written notice (delivered to Holder via facsimile
or email) of the Parent's decision to purchase the number of shares of
Common Stock otherwise deliverable to the Holder pursuant to the Notice of
Conversion (the "Designated Shares") for a purchase price determined by
multiplying the Designated Shares by the intraday high price of the Common
Stock on the day the Notice of Conversion was submitted to the Parent (the
"Disposition Price"). The Disposition Price shall be paid by the Parent to
the Holder by wire transfer of immediately available funds within two (2)
business days of the date of the Notice of Conversion. On each Conversion
Date (as hereinafter defined) and in accordance with its Notice of
Conversion, the Holder shall make the appropriate reduction to the
Principal Amount, accrued interest and fees as entered in its records and
shall provide written notice thereof to the Parent within two (2) Business
Days after the Conversion Date. Each date on which a Notice of Conversion
is delivered or telecopied to the Parent in accordance with the provisions
hereof shall be deemed a Conversion Date (the "Conversion Date"). Pursuant
to the terms of the Notice of Conversion, the Parent will issue
instructions to the transfer agent accompanied by an opinion of counsel (to
the extent requested by the transfer agent) within one (1) Business Day of
the date of the delivery to the Parent of the Notice of Conversion and
shall cause the transfer agent to transmit the certificates representing
the Conversion Shares to the Holder by crediting the account of the
Holder's designated broker with the Depository Trust Corporation ("DTC")
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through its Deposit Withdrawal Agent Commission ("DWAC") system within
three (3) Business Days after receipt by the Parent of the Notice of
Conversion (the "Delivery Date"). In the case of the exercise of the
conversion rights set forth herein the conversion privilege shall be deemed
to have been exercised and the Conversion Shares issuable upon such
conversion shall be deemed to have been issued upon the date of receipt by
the Parent of the Notice of Conversion. The Holder shall be treated for
all purposes as the record holder of the Conversion Shares, unless the
Holder provides the Parent written instructions to the contrary.
3.4 Late Payments. Each Company understands that a delay in the
delivery of the Conversion Shares in the form required pursuant to this
Article beyond the Delivery Date could result in economic loss to the
Holder. As compensation to the Holder for such loss, in addition to all
other rights and remedies which the Holder may have under this Note,
applicable law or otherwise, the Companies shall, jointly and severally,
pay late payments to the Holder for any late issuance of Conversion Shares
in the form required pursuant to this Article III upon conversion of this
Note, in the amount equal to $500 per Business Day after the Delivery Date.
The Companies shall, jointly and severally, make any payments incurred
under this Section in immediately available funds upon demand.
3.5 Conversion Mechanics. The number of shares of Common Stock to
be issued upon each conversion of this Note shall be determined by dividing
that portion of the principal and interest and fees to be converted, if
any, by the then applicable Fixed Conversion Price.
3.6 Adjustment Provisions. The Fixed Conversion Price and number
and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 3.1 shall be subject to adjustment from time
to time upon the occurrence of certain events during the period that this
conversion right remains outstanding, as follows:
(a) Reclassification. If the Parent at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to
the unpaid Principal Amount and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result
of such change with respect to the Common Stock (i) immediately prior to or
(ii) immediately after such reclassification or other change at the sole
election of the Holder.
(b) Stock Splits, Combinations and Dividends. If the shares
of Common Stock are subdivided or combined into a greater or smaller number
of shares of Common Stock, or if a dividend is paid on the Common Stock or
any preferred stock issued by the Parent in shares of Common Stock, the
Fixed Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the
total number of shares of Common Stock outstanding immediately after such
event bears to the total number of shares of Common Stock outstanding
immediately prior to such event.
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(c) Share Issuances. Subject to the provisions of this
Section 3.6, if the Parent shall at any time prior to the conversion or
repayment in full of the Principal Amount issue any shares of Common Stock
or securities convertible into Common Stock to a person other than the
Holder (except (i) pursuant to Sections 3.6(a) or (b) above; (ii) pursuant
to options, warrants, or other obligations to issue shares outstanding on
the date hereof as disclosed to the Holder in writing; (iii) pursuant to
options that may be issued under any employee incentive stock option and/or
any qualified stock option plan adopted by the Parent; (iv) pursuant to
warrants issued to key employees as part of incentive programs and (v)
warrants or options issued by the Parent in connection with acquisitions
[of wholly-owned Subsidiaries] in which neither the Parent nor any of its
Subsidiaries receives any cash consideration) for a consideration per share
(the "Offer Price") less than the Fixed Conversion Price in effect at the
time of such issuance, then the Fixed Conversion Price shall be immediately
reset to such lower Offer Price. For purposes hereof, the issuance of any
security of the Parent convertible into or exercisable or exchangeable for
Common Stock shall result in an adjustment to the Fixed Conversion Price
upon the issuance of such securities.
(d) Computation of Consideration. For purposes of any
computation respecting consideration received pursuant to Section 3.6(c)
above, the following shall apply:
(i) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Parent for any underwriting of
the issue or otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market value
thereof as determined in good faith by the Board of Directors of the Parent
(irrespective of the accounting treatment thereof); and
(iii) upon any such exercise, the aggregate consideration
received for such securities shall be deemed to be the consideration
received by the Parent for the issuance of such securities plus the
additional minimum consideration, if any, to be received by the Parent upon
the conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in subsections (i) and (ii) of
this Section 2.5).
3.7 Reservation of Shares. During the period the conversion right
exists, the Parent will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of
Conversion Shares upon the full conversion of this Note and the warrant.
The Parent represents that upon issuance, the Conversion Shares will be
duly and validly issued, fully paid and non-assessable. The Parent agrees
that its issuance of this Note shall constitute full authority to its
officers, agents, and transfer agents who are charged with the duty of
executing and issuing stock certificates to execute and issue the necessary
certificates for the Conversion Shares upon the conversion of this Note.
3.8 Registration Rights. The Holder has been granted registration
rights with respect to the Conversion Shares as set forth in a Registration
Rights Agreement.
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3.9 Issuance of New Note. Upon any partial conversion of this
Note, a new Note containing the same date and provisions of this Note
shall, at the request of the Holder, be issued by the Parent to the Holder
for the principal balance of this Note and interest which shall not have
been converted or paid. Subject to the provisions of Article IV of this
Note, the Parent shall not pay any costs, fees or any other consideration
to the Holder for the production and issuance of a new Note.
3.10 No Effective Registration. Notwithstanding anything to the
contrary herein, none of the Companies' obligations to the Holder may be
converted into Common Stock unless (a) either (i) an effective current
Registration Statement (as defined in the Registration Rights Agreement)
covering the shares of Common Stock to be issued in connection with
satisfaction of such obligations exists or (ii) an exemption from
registration for resale of all of the Common Stock issued and issuable is
available pursuant to Rule 144 of the Securities Act and (b) no Event of
Default (as hereinafter defined) exists and is continuing, unless such
Event of Default is cured within any applicable cure period or otherwise
waived in writing by the Holder.
ARTICLE IV
EVENTS OF DEFAULT AND DEFAULT RELATED PROVISIONS
4.1 Events of Default. The occurrence of an Event of Default under
the Security Agreement shall constitute an event of default ("Event of
Default") hereunder.
4.2 Default Interest. Following the occurrence and during the
continuance of an Event of Default, the Companies shall, jointly and
severally, pay additional interest on the outstanding principal balance of
this Note in an amount equal to one and a half percent (1.5%) per month,
and all outstanding Obligations, including unpaid interest, shall continue
to accrue interest at such additional interest rate from the date of such
Event of Default until the date such Event of Default is cured or waived.
4.3 Default Payment. Following the occurrence and during the
continuance of an Event of Default, the Holder, at its option, may elect,
in addition to all rights and remedies of the Holder under the Security
Agreement and the Ancillary Agreements and all obligations of each Company
under the Security Agreement and the Ancillary Agreements, to require the
Companies, jointly and severally, to make a Default Payment ("Default
Payment"). The Default Payment shall be 120% of the outstanding principal
amount of the Note, plus accrued but unpaid interest, all other fees then
remaining unpaid, and all other amounts payable hereunder and shall be
applied first to pay any fees due and payable to the Holder pursuant to the
Notes, the Security Agreement and/or any other Ancillary Agreement, and
thereafter to accrued and unpaid interest due on the Notes and thereafter
to the outstanding principal balance of the Notes. The Default Payment
shall be due and payable immediately on the date that the Holder has
exercised its rights pursuant to this Section 4.3.
ARTICLE V
MISCELLANEOUS
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5.1 Conversion Privileges. The conversion privileges set forth in
Article III shall remain in full force and effect immediately from the date
hereof until the date this Note is indefeasibly paid in full and
irrevocably terminated.
5.2 Cumulative Remedies. The remedies under this Note shall be
cumulative.
5.3 Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege. All
rights and remedies existing hereunder are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
5.4 Notices. Any notice herein required or permitted to be given
shall be in writing and shall be deemed effectively given: (a) upon
personal delivery to the party notified, (b) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient, if not,
then on the next business day, (c) five days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or
(d) one day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All
communications shall be sent to the Company at the address provided for
such Company in the Security Agreement executed in connection herewith, and
to the Holder at the address provided in the Security Agreement for such
Holder, with a copy to ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ number (▇▇▇) ▇▇▇-▇▇▇▇, or at such other
address as the respective Company or the Holder may designate by ten days
advance written notice to the other parties hereto. A Notice of Conversion
shall be deemed given when made to the Company pursuant to the Purchase
Agreement.
5.5 Amendment Provision. The term "Note" and all references
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so
amended or supplemented, and any successor instrument as such successor
instrument may be amended or supplemented.
5.6 Assignability. This Note shall be binding upon each Company
and its successors and assigns, and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the Holder in
accordance with the requirements of the Security Agreement. No Company may
assign any of its obligations under this Note without the prior written
consent of the Holder, any such purported assignment without such consent
being null and void.
5.7 Cost of Collection. In case of any Event of Default under this
Note, the Companies shall, jointly and severally, pay the the Holder's
reasonable costs of collection, including reasonable attorneys' fees.
5.8 Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
8
(b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN ANY COMPANY, ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND,
PERTAINING TO THIS NOTE, THE SECURITY AGREEMENT OR ANY OF THE OTHER
ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
NOTE, THE SECURITY AGREEMENT OR ANY OF THE OTHER ANCILLARY AGREEMENTS;
PROVIDED, THAT EACH COMPANY ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS
MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK,
STATE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS NOTE SHALL BE
DEEMED OR OPERATE TO PRECLUDE THE HOLDER FROM BRINGING SUIT OR TAKING OTHER
LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO
REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE HOLDER. EACH
COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH COMPANY HEREBY
WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH COMPANY HEREBY
WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED
IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN THE SECURITY AGREEMENT
AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE
COMPANY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID.
(c) EACH COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH
COMPANY HERETO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE BETWEEN THE HOLDER, AND/OR ANY COMPANY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS NOTE, THE SECURITY AGREEMENT, ANY
OTHER ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
5.9 Severability. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision of this Note.
9
5.10 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the
rate of interest required to be paid or other charges hereunder exceed the
maximum rate permitted by such law, any payments in excess of such maximum
rate shall be credited against amounts owed by the Companies to the Holder
and thus refunded to the Companies.
5.11 Security Interest and Guarantee. The Holder has been granted a
security interest in certain assets of the Companies as more fully
described in the Security Agreement.
5.12 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against
the drafting party shall not be applied in the interpretation of this Note
to favor any party against the other.
[Balance of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, each Company has caused this Secured Convertible
Minimum Borrowing Note to be signed in its name effective as of this 31st
day of March 2005.
FARMSTEAD TELEPHONE GROUP, INC.
By: /s/ ▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇
Title: Chief Financial Officer
WITNESS:
___________________________________
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EXHIBIT A
---------
OTHER COMPANIES
---------------
None.
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EXHIBIT B
---------
NOTICE OF CONVERSION
--------------------
(To be executed by the Holder in order to convert the
Secured Convertible Minimum Borrowing Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Secured Convertible Minimum
Borrowing Note dated as of _________, 200__ (the "Note") issued by
Farmstead Telephone Group, Inc. (the "Parent") and the other Companies
named and as defined therein into shares of Common Stock of the Parent in
accordance with the terms and conditions set forth in the Note, as of the
date written below.
Date of Conversion: _________________________________________________
Conversion Price: _________________________________________________
Shares To Be Delivered: _________________________________________________
Signature: _________________________________________________
Print Name: _________________________________________________
Address: _________________________________________________
Holder DWAC instructions _________________________________________________
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