EXHIBIT 4.1
NEITHER THIS NOTE NOR THE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK OR
COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAS BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND SUCH
SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR STATE LAW OR AN OPINION OF
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
$3,100,000 New York, New York
June 2, 2006
▇▇▇▇▇▇▇▇ RESOURCES III, INC.
6% CONVERTIBLE SUBORDINATED NOTE DUE MARCH 31, 2007
FOR VALUE RECEIVED, ▇▇▇▇▇▇▇▇ Resources III, Inc., a Nevada corporation
(the "Company"), hereby promises to pay to the order of ▇▇▇▇▇▇ Partners LP or
registered assigns (the "Holder"), the principal amount of three million one
hundred thousand dollars ($3,100,000) on March 31, 2007 ("Maturity Date").
Interest on the outstanding principal balance shall be paid at the rate of six
percent (6%) per annum, payable quarterly on the Maturity Date. Interest shall
be computed on the basis of a 360-day year, using the number of days actually
elapsed. This Note is issued pursuant to a securities purchase agreement (the
"Agreement") between the Company and ▇▇▇▇▇▇ Partners LP.
Article 1.
Covenants of the Company
(a) Amendment to Certificate of Incorporation. The Company shall, not
later than ninety (90) days from the issuance of this Note, the Company shall
(i) file a proxy statement or information statement with the Securities and
Exchange Commission seeking stockholder of the Restated Articles, as defined in
the Agreement, and (ii) seek stockholder approval of the Restated Articles as
soon as practical after the Company may mail the proxy statement or information
statement to the Company's stockholders.
(b) File Certificate of Designation. Immediately after the filing of the
amendment to or restatement of the Company's articles of incorporation, the
Company shall filed the Certificate of Designation, as defined in the Agreement.
(c) Fundamental Transaction. The Company shall not enter into any
agreement with respect to any Fundamental Transaction, or consummate any
Fundamental Transaction without the approval of the Holder.
Article 2.
Events of Default; Acceleration
(a) Events of Default Defined. The entire unpaid principal amount of
this Note, together with interest thereon shall, on written notice to the
Company given by the holders of this Note, forthwith become and be due and
payable if any one or more the following events ("Events of Default") shall have
occurred (for any reason whatsoever and whether such happening shall be
voluntary or involuntary or be
affected or come about by operation of law pursuant to or in compliance with any
judgment, decree, or order of any court or any order, rule or regulation of any
administrative or governmental body) and be continuing. An Event of Default
shall occur:
(i) if failure shall be made in the payment of the principal or
interest on the Note when and as the same shall become due and such failure
shall continue for a period of five (5) business days after such payment is due;
or
(ii) if the Company shall violate or breach any of the
representations, warranties and covenants contained in the Note or the Agreement
and such violation or breach shall continue for thirty (30) days after written
notice of such breach shall been received by the Company from the Holder; or
(iii) if the Company or any Significant Subsidiary (which term shall
mean any subsidiary of the Company which would be considered a significant
subsidiary, as defined in Rule 1-02 of Regulation S-X of the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933,
as amended (the "Securities Act")) shall consent to the appointment of a
receiver, trustee or liquidator of itself or of a substantial part of its
property, or shall admit in writing its inability to pay its debts generally as
they become due, or shall make a general assignment for the benefit of
creditors, or shall file a voluntary petition in bankruptcy, or an answer
seeking reorganization in a proceeding under any bankruptcy law (as now or
hereafter in effect) or an answer admitting the material allegations of a
petition filed against the Company or any Significant Subsidiary, in any such
proceeding, or shall by voluntary petition, answer or consent, seek relief under
the provisions of any other now existing or future bankruptcy or other similar
law providing for the reorganization or winding up of corporations, or an
arrangement, composition, extension or adjustment with its or their creditors,
or shall, in a petition in bankruptcy filed against it or them be adjudicated a
bankrupt, or the Company or any Significant Subsidiary or their directors or a
majority of its stockholders shall vote to dissolve or liquidate the Company or
any Significant Subsidiary other than a liquidation involving a transfer of
assets from a Subsidiary to the Company or another Subsidiary; or
(iv) if an involuntary petition shall be filed against the Company
or any Significant Subsidiary seeking relief against the Company or any
Significant Subsidiary under any now existing or future bankruptcy, insolvency
or other similar law providing for the reorganization or winding up of
corporations, or an arrangement, composition, extension or adjustment with its
or their creditors, and such petition shall not be vacated or set aside within
ninety (90) days from the filing thereof; or
(v) if a court of competent jurisdiction shall enter an order,
judgment or decree appointing, without consent of the Company or any Significant
Subsidiary, a receiver, trustee or liquidator of the Company or any Significant
Subsidiary, or of all or any substantial part of the property of the Company or
any Significant Subsidiary, or approving a petition filed against the Company or
any Significant Subsidiary seeking a reorganization or arrangement of the
Company or any Significant Subsidiary under the Federal bankruptcy laws or any
other applicable law or statute of the United States of America or any State
thereof, or any substantial part of the property of the Company or any
Significant Subsidiary shall be sequestered; and such order, judgment or decree
shall not be vacated or set aside within ninety (90) days from the date of the
entry thereof; or
(vi) if, under the provisions of any law for the relief or aid of
debtors, any court of competent jurisdiction shall assume custody or control of
the Company or any Significant Subsidiary or of all or any substantial part of
the property of the Company or any Significant Subsidiary and such custody or
control shall not be terminated within ninety (90) days from the date of
assumption of such custody or control.
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(b) Rights of Note Holder. Nothing in this Note shall be construed to
modify, amend or limit in any way the right of the holder of this Note to bring
an action against the Company.
Article 3.
Conversion
(a) Automatic Conversion. Upon the filing of both the Restated
Certificate and the Certificate of Designation, this Note shall be converted
into such number of shares of Series A Preferred Stock, as defined in the
Agreement, as is determined by dividing the principal amount of this Note by the
Conversion Price then in effect. Upon such conversion, the Company's this Note
and the Company's obligations under this Note (including the obligation to pay
interest) shall terminate.
(b) Definitions. Unless otherwise defined in this Note, all terms
defined in the Certificate of Designation and used in this Note shall have the
same meanings in this Note as in the Certificate of Designation; provided,
however, that the term "Conversion Shares" shall mean the shares of Common Stock
issuable upon conversion of the Note.
(c) Conversion Price. The Conversion Price shall be sixty five cents
($.65) subject to adjustment as hereinafter provided.
(d) Conversions at Option of Holder. This Note shall be initially
convertible (subject to the 4.9% Limitations, as defined in Section 3(f) of this
Note), in whole at any time, subject to the 4.9% Limitation, or in part from
time to time into such number of shares of the Company's Common Stock determined
by dividing the principal amount of this Note being converted by the Conversion
Price in effect on the date of conversion by the Conversion Price. Holders shall
effect conversions by providing the Company with the form of conversion notice
attached hereto as Annex A (a "Notice of Conversion") as fully and originally
executed by the Holder, together with the delivery by the Holder to the Company
of this Note, with this Note being duly endorsed in full for transfer to the
Company or with an applicable stock power duly executed by the Holder in the
manner and form as deemed reasonable by the transfer agent of the Common Stock.
Each Notice of Conversion shall specify the principal amount of this Note to be
converted, the principal amount of this Note outstanding prior to the conversion
at issue, the principal amount of this Note owned subsequent to the conversion
at issue, and the date on which such conversion is to be effected, which date
may not be prior to the date the Holder delivers such Notice of Conversion and
the Note to the Company by overnight delivery service (the "Conversion Date").
If no Conversion Date is specified in a Notice of Conversion, the Conversion
Date shall be the Trading Day immediately following the date that such Notice of
Conversion and applicable stock certificates are received by the Company. The
calculations and entries set forth in the Notice of Conversion shall control in
the absence of manifest or mathematical error. The principal amount of this Note
being converted into Common Stock in accordance with the terms hereof shall be
canceled and may not be reissued.
(e) Automatic Conversion Upon Change of Control. This Note shall be
automatically converted into Common Stock at the Conversion Price upon the close
of business on the business day immediately preceding the date fixed for
consummation of any transaction resulting in a Change of Control of the Company
(an "Automatic Conversion Event"). A "Change in Control" means a consolidation
or merger of the Company with or into another company or entity in which the
Company is not the surviving entity or the sale of all or substantially all of
the assets of the Company to another company or entity not controlled by the
then existing stockholders of the Company in a transaction or series of
transactions. The Company shall not be obligated to issue certificates
evidencing the Common Stock or other consideration issuable upon such conversion
unless this Note is either delivered to the
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Company or its transfer agent or the Holder notifies the Company or its transfer
agent in writing that such certificates have been lost, stolen, or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection therewith. Upon the conversion of this
Note pursuant to this Section 3(e), the Company shall promptly send written
notice thereof, by hand delivery or by overnight delivery, to the Holder at its
address then shown on the records of the Company, which notice shall state that
this Note must be surrendered at the office of the Company (or of its transfer
agent for the Common Stock, if applicable).
(f) Beneficial Ownership Limitation. Except as provided in Section 3(e)
of this Note, which shall apply as stated therein if an Automatic Conversion
Event shall occur, the Company shall not effect any conversion of this Note, and
the Holder shall not have the right to convert any portion of this Note to the
extent that after giving effect to such conversion, the Holder (together with
the Holder's affiliates), as set forth on the applicable Notice of Conversion,
would beneficially own in excess of 4.9% of the number of shares of the Common
Stock outstanding immediately after giving effect to such conversion. 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 the Note with respect to
which the determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (A) conversion of
the remaining, non-converted portion of this Note beneficially owned by the
Holder or any of its affiliates, so long as such portion of this Note is not
convertible within sixty (60) days from the date of such determination, and (B)
exercise or conversion of the unexercised or non-converted portion of any other
securities of the Company (including warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates, so long as such other securities
of the Company are not exercisable nor convertible within sixty (60) days from
the date of such determination. For purposes of this Section 3(f), in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in the
most recent of the following: (A) the Company's most recent quarterly reports,
Form 10-Q, Form 10-QSB, Annual Reports, Form 10-K, or Form 10-KSB, as the case
may be, as filed with the Commission under the Exchange Act (B) a more recent
public announcement by the Company or (C) any other written 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 the Holder, the
Company shall within two (2) 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 the
Note, by the Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was publicly reported by the Company.
Beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act. This Section 3(f) may be not be waived or amended. The limitation
set forth in this Section 3(f) is referred to as the "4.9% Limitation."
(g) Mechanics of Conversion
(i) Delivery of Certificate Upon Conversion. Except as otherwise
set forth herein, not later than three Trading Days after each Conversion Date
(the "Share Delivery Date"), the Company shall deliver to the Holder (A) a
certificate or certificates which, after the Effective Date, shall be free of
restrictive legends and trading restrictions (other than those required by the
Agreement) representing the number of shares of Common Stock being acquired upon
the conversion of this Note, and (B) a bank check in the amount of accrued and
unpaid dividends (if the Company has elected or is required to pay accrued
dividends in cash). After the Effective Date, the Company shall, upon request of
the Holder, deliver any certificate or certificates required to be delivered by
the Company under this Section
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electronically through the Depository Trust Company or another established
clearing Company performing similar functions if the Company's transfer agent
has the ability to deliver shares of Common Stock in such manner. If in the case
of any Notice of Conversion such certificate or certificates 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
thereafter, to rescind such conversion, in which event the Company shall
immediately return the this Note to the Holder.
(ii) 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. In the event a Holder shall elect to convert any or all of
this Note, the Company may not refuse conversion based on any claim that such
Holder or any one associated or affiliated with the Holder of has been engaged
in any violation of law, agreement or for any other reason (other than the
inability of the Company to issue shares of Common Stock as a result of the 4.9%
Limitation) unless, an injunction from a court, on notice, 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 Conversion Value of the principal amount of the Note
outstanding (i.e., the value of the shares of Common Stock issued upon
conversion of such 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 dispute and the proceeds of which shall be payable
to such Holder to the extent it obtains judgment. In the absence of an
injunction precluding the same, the Company shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion. If the Company fails to
deliver to the Holder such certificate or certificates pursuant to Section
3(g)(i) within two Trading Days of the Share Delivery Date applicable to such
conversion, the Company shall pay to such Holder, in cash, as liquidated damages
and not as a penalty, for each $5,000 of Conversion Value of Note being
converted, $50 per Trading Day (increasing to $100 per Trading Day after three
(3) Trading Days and increasing to $200 per Trading Day six (6) Trading Days
after such damages begin to accrue) for each Trading Day after the Share
Delivery Date until such certificates are delivered. Nothing herein shall limit
a Holder's right to pursue actual damages for the Company's failure to deliver
certificates representing shares of Common Stock upon conversion within the
period specified herein and such 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.
(iii) Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Conversion. If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 6(d)(i) by a Share Delivery
Date, and if after such Share Delivery Date the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by such 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 pay in cash to the Holder the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder was entitled to receive from the
conversion at issue multiplied by (2) the price at which the sell order giving
rise to such purchase obligation was executed. 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
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attempted conversion of a portion of this Note with respect to which the
aggregate sale price giving rise to such purchase obligation is $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, together
with applicable confirmations and other evidence reasonably requested by the
Company. 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.
(iv) 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 solely for the purpose of
issuance upon conversion of this Note, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of the Common Stock
as shall (subject to any additional requirements of the Company as to
reservation of such shares set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 3(h)) upon the
conversion of this Note. The Company covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly and validly authorized,
issued and fully paid, nonassessable and, if the Conversion Shares Registration
Statement is then effective under the Securities Act, registered for public sale
in accordance with such Conversion Shares Registration Statement.
(v) Fractional Shares. Upon a conversion hereunder, the Company
shall not be required to issue stock certificates representing fractions of
shares of the Common Stock. All fractional shares shall be carried forward and
any fractional shares which remain after the Holder converts the full principal
amount of this Note shall be dropped and eliminated.
(vi) Transfer Taxes. The issuance of certificates for shares of the
Common Stock on conversion of this Note shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate, 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 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.
(vii) 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 liquidated damages (if any) on,
this Note at the time, place, and rate, and in the coin or currency, herein
prescribed.
(h) Certain Adjustments.
(i) Stock Dividends and Stock Splits. If the Company, at any time
while this Note is outstanding: (A) shall pay a stock dividend or otherwise make
a distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock (which,
for avoidance of doubt, shall not include any shares of Common Stock issued by
the Company pursuant to this Note), (B) subdivide outstanding shares of Common
Stock into a larger number of shares, (C) combine (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of shares,
or (D) issue by reclassification of shares of the Common Stock
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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 treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
3(h)(i) 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.
(ii) Price Adjustment. Until such time as the Investors hold no
Securities, except for (i) Exempt Issuances, (ii) issuances covered by Sections
3(h)(i), 3(h)(iii) and 3(i) of this Note, or (iii) an issuance of Common Stock
upon exercise or upon conversion of warrants, options or other convertible
securities for which an adjustment has already been made pursuant to this
Section 3(h), as to all of which this Section 3(h)(ii) does not apply, if the
Company closes on the sale or issuance of Common Stock at a price, or issues
warrants, options, convertible debt or equity securities with a exercise price
per share or conversion price which is less than the Conversion Price then in
effect (such lower sales price, conversion or exercise price, as the case may
be, being referred to as the "Lower Price"), the Conversion Price in effect from
and after the date of such transaction shall be reduced to the Lower Price. For
purpose of determining the exercise price of warrants issued by the Company, the
price, if any, paid per share for the warrants shall be added to the exercise
price of the warrants.
(iii) Conversion Price Adjustment Based on Pre-Tax Income Per Share.
(A) In the event the Company's consolidated Pre-Tax Income,
as defined in the Agreement, for the year ended December 31, 2006 is less than
$.212 per share on a fully-diluted basis, then the Conversion Price shall be
reduced by the percentage shortfall, up to a maximum of 40%. Thus, if Net Income
for the year ended December 31, 2006 is $.1272 per share on a fully-diluted
basis, the Conversion Price shall be reduced by 40%. Such reduction shall be
made at the time the Company files its Form 10-KSB for the year ended December
31, 2006, and shall apply to the Notes which are outstanding on the date the
Form 10-KSB is filed, or, if not filed on time, on the date that filing was
required.
(B) In the event the Company's consolidated Pre-Tax Income
for the year ended December 31, 2007 is less than $.353 per share on a
fully-diluted basis, then the Conversion Price shall be reduced by the
percentage shortfall, up to a maximum of 40%. Thus, if Pre-Tax Income for the
year ended December 31, 2008 is $.2118 per share on a fully-diluted basis, the
Conversion Price shall be reduced by 40%. Such reduction shall be made at the
time the Company files its Form 10-KSB for the year ended December 31, 2007, and
shall apply to the Notes which are outstanding on the date the Form 10-KSB is
filed, or, if not filed on time, on the date that filing was required.
(C) For purpose of determining Net Income Per Share and
Pre-Tax Income Per Share on a fully-diluted basis, all shares of Common Stock
issuable upon conversion of convertible securities and upon exercise of warrants
and options shall be deemed to be outstanding, regardless of whether (i) such
shares are treated as outstanding for determining diluted earnings per share
under GAAP, (ii) such securities are "in the money," or (iii) such shares may be
issued as a result of the 4.9% Limitation.
(i) Pro Rata Distributions. If the Company, at any time while this Note
is outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price shall be determined by multiplying such Conversion Price in effect
immediately prior to the record date
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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
one outstanding share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall be described in a
statement provided to the Holders of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one 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.
(j) Calculations. All calculations under Section 3(h) of this Note shall
be made to the nearest cent or the nearest 1/100th of a share, as the case may
be. The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company or any of its
subsidiaries. For purposes of this Section 3(h), 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 treasury shares and shares owned
by subsidiaries, if any) actually issued and outstanding.
(k) Notice to Holders.
(i) Adjustment to Conversion Price. Whenever the Conversion Price
is adjusted pursuant to this Section 3, the Company shall promptly mail 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. If the
Company issues a variable rate security, despite the prohibition thereon in the
Purchase Agreement, the Company shall be deemed to have issued Common Stock or
Common Stock Equivalents at the lowest possible conversion or exercise price at
which such securities may be converted or exercised in the case of a Variable
Rate Transaction (as defined in the Purchase Agreement), or the lowest possible
adjustment price in the case of an MFN Transaction (as defined in the Purchase
Agreement).
(ii) Notices of Other Events. If (A) the Company shall declare a
dividend (or any other distribution) on the Common Stock; (B) the Company shall
declare a redemption of the Common Stock; (C) the Company shall authorize the
granting to all holders of the Common Stock 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 or any Fundamental Transaction, (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 mailed to the Holders at their
last addresses as they shall appear upon the stock books of the Company, at
least 30 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 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 or Fundamental
Transaction; provided, that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice.
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(l) Exempt Issuance. Notwithstanding the foregoing, no adjustment in the
Conversion Price will be made in respect of an Exempt Issuance.
(m) 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 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 absent 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 one
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 one 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 assume this Note.
Article 4.
Subordination
(a) Agreement of Subordination. The Company, for itself, its successors
and assigns, covenants and agrees, and the Holder of this Note by his or her
acceptance of this Note likewise covenants and agrees, that the payment of the
principal of and interest on this Note is hereby expressly subordinated, to the
extent and in the manner hereinafter set forth, to the prior payment in full of
all Senior Indebtedness, as hereinafter defined. The provisions of this Article
4 shall constitute a continuing offer to all persons who, in reliance upon such
provision, become holders of, or continue to hold, Senior Indebtedness, and such
provisions are made for the benefit of the holders of Senior Indebtedness, and
such holders are hereby made obligees hereunder the same as if their names were
written herein as such, and they and/or each of them may proceed to enforce such
provisions.
(b) Company Not to Make Payments with Respect to Note in Certain
Circumstances.
(i) Upon the maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, all principal thereof and premium, if any, and
interest thereon shall first be paid in full, or such payment duly provided for
in cash or in a manner satisfactory to the holder or holders of such Senior
Indebtedness, before any payment is made by the Company (A) on account of the
principal of or interest on this Note or (B) to acquire this Note.
9
(ii) Upon the happening of an event of default with respect to any
Senior Indebtedness, as such event of default is defined therein or in the
instrument under which it is outstanding, permitting the holders to accelerate
the maturity thereof, then, unless and until such event of default shall have
been cured or waived or shall have ceased to exist, no payment shall be made by
the Company (A) on account of the principal of or interest on this Note or (B)
to acquire this Note.
(iii) Subject to Paragraphs 4(b)(i) and (ii), as long as any Senior
Indebtedness shall be outstanding, (A) the Company shall not make any payment of
principal on this Note except upon the Maturity Date, and (B) the Company may
pay interest on this Note as long as the payment of such principal or interest
will not result in an event of default under the terms of the instruments
pursuant to which the Senior Indebtedness is issued.
(iv) In the event that, notwithstanding the provision of this
Paragraph 4(b), the Company shall make any payment to the Holder of this Note on
account of the principal of or interest on this Note after the happening of a
default in payment of the principal of or premium, if any, or interest on Senior
Indebtedness or after receipt by the Company of written notice of an event of
default with respect to any Senior Indebtedness, then unless and until such
default or event of default shall have been cured or waived or shall have ceased
to exist, such payment shall be held by the holder of this Note in trust for the
benefit of, and shall be paid forthwith over and delivered to, the holders of
Senior Indebtedness (pro rata as to each of such holders on the basis of the
respective amounts of Senior Indebtedness held by them) or their representative
or the trustee under the indenture or other agreement (if any) pursuant to which
any instruments evidencing any Senior Indebtedness may have been issued, as
their respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in accordance with the terms of such Senior Indebtedness,
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Indebtedness.
(c) Notes Subordinated to Prior Payment of all Senior Indebtedness on
Dissolution, Liquidation or Reorganization of Company. Upon any distribution of
assets of the Company upon any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise):
(i) The holders of all Senior Indebtedness shall first be entitled
to receive payment in full of the principal thereof, premium, if any, and
interest due thereon before the holder of this Note are entitled to receive any
payment on account of the principal of or interest on this Note (other than
securities of the Company or any other entity provided for by a plan of
reorganization or readjustment which stock and securities are subordinated to
the payment of all Senior Indebtedness and securities received in lieu thereof
which may at the time be outstanding); and
(ii) Any payment or distribution of assets of the Company of any
kind or character whether in cash, property or securities (other than securities
that are subordinated to the payment of all Senior Indebtedness and securities
received in lieu thereof which may at the time be outstanding), to which the
holder of this Note would be entitled except for the provisions of this Article
4, shall be paid by the liquidating trustee or agent or other person making such
payment of distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or other trustee or agent, directly to the holders of Senior
Indebtedness or their representative or representatives, or to the trustee or
trustees under any indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, to the extent necessary to make
payment in full of all Senior Indebtedness remaining unpaid, after giving effect
to any concurrent payment or distribution or provision therefor to the holders
of such Senior Indebtedness.
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(iii) In the event that, notwithstanding the foregoing provision of
this Paragraph 4(c), any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities (other than shares
representing equity of the Company as reorganized or readjusted, or securities
of the Company or any other entity provided for by a plan of reorganization or
readjustment which stock and securities are subordinated to the payment of all
Senior Indebtedness and securities received in lieu thereof which may at the
time be outstanding), shall be received by the holder of this Note on account of
principal of or interest on this Note before all Senior Indebtedness is paid in
full, or effective provision made for its payment or distribution, such payment
or distribution shall be received and held in trust for and shall be paid over
to the holders of the Senior Indebtedness remaining unpaid or unprovided for or
their representative or representatives, or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Indebtedness
may have been issued, for application to the payment of such Senior Indebtedness
until all such Senior Indebtedness shall have been paid in full, after giving
effect to any concurrent payment or distribution or provision therefor to the
holders of such Senior Indebtedness.
(d) Noteholder to be Subrogated to Right of Holders of Senior
Indebtedness. Subject to the payment in full of all Senior Indebtedness, the
holders of the Notes shall be subrogated, pro rata, to the rights of the holders
of Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness until all amounts owing on the
Notes shall be paid in full, and, for the purpose of such subrogation, no
payments or distributions to the holders of the Senior Indebtedness by or on
behalf of the Company or by or on behalf of the holder of this Notes by virtue
of this Article 4 which otherwise would have been made to the holder of this
Notes shall, as between the Company and the holder of this Note, be deemed to be
payment by the Company to or on account of the Senior Indebtedness, it being
understood that the provisions of this Article 4 are, and are intended solely,
for the purpose of defining the relative rights of the holders of the Notes, on
the one hand, and the holders of the Senior Indebtedness, on the other hand.
(e) Obligation of the Company Unconditional. Nothing contained in this
Article 4 or elsewhere in this Note is intended to or shall impair as between
the Company and the holder of this Note, the obligation of the Company, which is
absolute and unconditional, to pay to the holder of this Note the principal of
and interest on this Note as and when the same shall become due and payable in
accordance with its terms, or is intended to or shall affect the relative rights
of the holder of this Note and creditors of the Company other than the holders
of the Senior Indebtedness, nor shall anything herein or therein prevent the
holder of this Note of this Note from exercising all remedies otherwise
permitted by applicable law upon default under this Note, subject to the rights,
if any, under this Article 4 of the holders of Senior Indebtedness in respect of
cash, property or securities of the Company received upon the exercise of any
such remedy; provided, however, that the holder of this Note shall not exercise
any remedies if the exercise of such remedies would result in an event of
default under the terms of the Senior Indebtedness. Upon any distribution of
assets of the Company referred to in this Article 4, the holders of this Note
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which any dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other person making any distribution to the holder of this
Note for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
4. In no event shall any provision of this Article 4 be interpreted as limiting
or abrogating the right of the holder of this Note to convert principal and
interest thereon pursuant to Article 3 of this Note.
11
(f) Subordination Rights Not Impaired by Acts or Omissions of the
Company or Holders of Senior Indebtedness. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms,
provisions and covenants of this Note, regardless of any knowledge thereof which
any such holder may have or be otherwise charged with.
(g) Definition of Senior Indebtedness. The term "Senior Indebtedness" is
defined to mean the principal of and premium, if any, and interest on and any
obligations of the Company with respect to the Company's indebtedness to all
indebtedness and obligations (other than the Notes) of the Company to banks,
insurance companies and other institutional lenders.
(h) Additional Agreement. The holder of this Note, by its acceptance of
this Note, agrees to execute any formal instruments of subordination which may
be reasonably requested by any holder of Senior Indebtedness.
Article 5.
Miscellaneous
(a) Transferability. This Note shall not be transferred except in a
transaction exempt from registration pursuant to the Securities Act and
applicable state securities law. The Company shall treat as the owner of this
Note the person shown as the owner on its books and records.
(b) Limited Right of Prepayment. The Company shall have no right to
prepay this Note without the prior written consent of the Holder, which consent
may be given or withheld by the Holder in its sole discretion. Any prepayment
shall be accompanied by interest on this Note to the date of prepayment.
(c) WAIVER OF TRIAL BY JURY. IN ANY LEGAL PROCEEDING TO ENFORCE PAYMENT
OF THIS NOTE, THE COMPANY WAIVES TRIAL BY JURY.
(d) WAIVER OF ANY RIGHT OF COUNTERCLAIM. EXCEPT AS PROHIBITED BY LAW,
THE COMPANY HEREBY WAIVES ANY RIGHT TO ASSERT ANY CLAIM IT MAY HAVE AGAINST THE
HOLDER OF THIS NOTE BY WAY OF A COUNTERCLAIM (OTHER THAN A COMPULSORY
COUNTERCLAIM) IN ANY ACTION ON THIS NOTE.
(e) Usury Saving Provision. All payment obligations arising under this
Note are subject to the express condition that at no time shall the Company be
obligated or required to pay interest at a rate which could subject the holder
of this Note to either civil or criminal liability as a result of being in
excess of the maximum rate which the Company is permitted by law to contract or
agree to pay. If by the terms of this Note, the Company is at any time required
or obligated to pay interest at a rate in excess of such maximum rate, the
applicable rate of interest shall be deemed to be immediately reduced to such
maximum rate, and interest thus payable shall be computed at such maximum rate,
and the portion of all prior interest payments in excess of such maximum rate
shall be applied and shall be deemed to have been payments in reduction of
principal.
(f) Notice to Company. Notice to the Company shall be given to the
Company at its principal executive offices, presently located at
[_______________], attention of Mr. _________________, CEO, or to such other
address or person as the Company may, from time to time, advise the holder of
this Note, or to the holder of this Note at the address set forth on the
Company's records, with a copy to ▇▇▇▇▇ ▇.
12
▇▇▇▇▇▇▇▇ PC, ▇▇▇▇▇▇ ▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇. Notice
shall be given by hand delivery, certified or registered mail, return receipt
requested, overnight courier service which provides evidence of delivery, or by
telecopier if confirmation of receipt is given or of confirmation of
transmission is sent as herein provided.
(g) Governing Law. This Note shall be governed by the laws of the State
of New York applicable to agreements executed and to be performed wholly within
such state. The Company hereby (i) consents to the exclusive jurisdiction of the
United States District Court for the Southern District of New York and Supreme
Court of the State of New York in the County of New York in any action relating
to or arising out of this Note, (ii) agrees that any process in any such action
may be served upon it either (x) by certified or registered mail, return receipt
requested, or by an overnight courier service which obtains evidence of
delivery, with the same full force and effect as if personally served upon him
in New York City or (y) any other manner permitted by law, and (iii) waives any
claim that the jurisdiction of any such tribunal is not a convenient forum for
any such action and any defense of lack of in personam jurisdiction with respect
thereto.
(h) Expenses. In the event that the Holder commences a legal proceeding
in order to enforce its rights under this Note, the Company shall pay all
reasonable legal fees and expenses incurred by the holder with respect thereto.
IN WITNESS WHEREOF, the Company has executed this Note as of the date and
year first aforesaid.
▇▇▇▇▇▇▇▇ RESOURCES III, INC.
By:
-----------------------------------
▇▇ ▇▇▇▇▇, Chief Executive Officer
13
NOTICE OF CONVERSION
[To be Signed Only Upon Conversion
of Part or All of Notes]
▇▇▇▇▇▇▇▇ Resources III, Inc.
The undersigned, the holder of the foregoing Note, hereby surrenders such
Note for conversion into shares of Common Stock of ▇▇▇▇▇▇▇▇ Resources III, Inc.
to the extent of $_____* unpaid principal amount of due on such Note, and
requests that the certificates for such shares be issued in the name
of____________________________, and delivered to ______________________________,
whose address is_____________________________________________________________.
Dated:________________________________
______________________________________
(Signature)
(Signature must conform in all respects to name of holder as specified on the
face of the Note.)
* Insert here the unpaid principal amount of the Note (or, in the case of a
partial conversion, the portion thereof as to which the Note is being
converted). In the case of a partial conversion, a new Note will be issued and
delivered, representing the unconverted portion of the unpaid principal amount
of this Note, to or upon the order of the holder surrendering such Note.
14
