ORIGINAL ISSUE DISCOUNT SENIOR SECURED CONVERTIBLE NOTE DUE MAY 17, 2011
Exhibti 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 AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. 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: February 17,
2010
Original
Conversion Price (subject to adjustment herein): $1.00
$____________
ORIGINAL
ISSUE DISCOUNT SENIOR SECURED CONVERTIBLE NOTE
DUE
MAY 17, 2011
THIS ORIGINAL ISSUE DISCOUNT SENIOR
SECURED CONVERTIBLE NOTE is one of a series of duly authorized and validly
issued Original Issue Discount Senior Secured Convertible Notes of NXT
Nutritionals Holdings, Inc., a Delaware corporation, (the “Company”), having its
principal place of business at ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, designated
as its Original Issue Discount Senior Secured Convertible Note due May 17, 2011
(this note, the “Note” and,
collectively with the other notes of such series, the “Notes”).
FOR VALUE
RECEIVED, the Company promises to pay to ______________ or its registered
assigns (the “Holder”), or shall
have paid pursuant to the terms hereunder, the principal sum of $__________ on
May 17, 2011 (the “Maturity Date”), or
such earlier date as this Note is required or permitted to be repaid as provided
hereunder. 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:
1
“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 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).
“Beneficial Ownership
Limitation” shall have the meaning set forth in Section
4(d).
“Business Day” means
any day except any Saturday, any Sunday, any day which is 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(c)(v).
“Buy-In Compensation”
shall have the meaning set forth in Section 4(c)(v).
“Change of Control
Transaction” means the occurrence after the date hereof of any of (a) 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 40% 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), (b) 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
60% of the aggregate voting power of the Company or the successor entity of such
transaction, (c)
2
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 60% of the aggregate voting power of the acquiring entity
immediately after the transaction, (d) a replacement at one time or within a
three year period of more than one-half of the members of the Board of Directors
which is not approved by a majority of those individuals who are members of the
Board of Directors on the Original Issue Date (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 (e) 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 (a) through
(d) above.
“Conversion” shall
have the meaning ascribed to such term in Section 4.
“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 Schedule”
means the Conversion Schedule in the form of Schedule 1 attached
hereto.
“Conversion Shares”
means, collectively, the shares of Common Stock issuable upon conversion of this
Note in accordance with the terms hereof.
“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).
“Effectiveness Period”
shall have the meaning set forth in the Registration Rights
Agreement.
“Equity Conditions” means, during the period in question, (a) 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, (b) the Company shall have paid all liquidated damages and other amounts
owing to the Holder in respect of this Note, (c)(i) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares of Common Stock issuable
pursuant to the Transaction Documents (and the Company believes, in good faith,
that such effectiveness will continue uninterrupted for the foreseeable future)
or (ii) all of the Conversion Shares issuable pursuant to the Transaction
Documents may be resold pursuant to Rule 144 without volume or manner-of-sale
restrictions or current public information requirements as determined by the
counsel to the Company as set forth in a written opinion letter to such effect,
addressed and acceptable to the Transfer Agent and the Holder, (d) the Common
Stock is trading on a Trading Market and all of the shares issuable pursuant to
the Transaction
3
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), (e) there is a
sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all of the shares then issuable pursuant to the
Transaction Documents, (f) there is no existing Event of Default and no existing
event which, with the passage of time or the giving of notice, would constitute
an Event of Default, (g) the issuance of the shares in question (or, in the case
of an Optional Redemption or Monthly Redemption, the shares issuable upon
conversion in full of the Optional Redemption Amount or the Monthly Redemption
Amount) to the Holder would not violate the limitations set forth in
Section 4(d) herein, (h) there has been no public announcement of a pending or
proposed Fundamental Transaction or Change of Control Transaction that has not
been consummated, (i) the applicable Holder is not in possession of any
information provided by the Company that constitutes, or may constitute,
material non-public information.
“Event of Default” shall have the meaning set forth
in Section 8(a).
“Fundamental
Transaction” shall have the meaning set forth in Section
5(e).
“Mandatory Default
Amount” means the sum of (a) 105% of the outstanding Principal
Amount of this Note and (b) all other amounts, costs, expenses and liquidated
damages due in respect of this Note.
“Monthly Conversion
Period” shall have the meaning set forth in Section 6(b)
hereof.
“Monthly Conversion
Price” shall have the meaning set forth in Section 6(b)
hereof.
“Monthly Redemption”
means the redemption of this Note pursuant to Section 6(b) hereof.
“Monthly Redemption
Amount” means, as to a Monthly Redemption, _____1, plus liquidated damages and any other amounts
then owing to the Holder in respect of this Note.
“Monthly Redemption
Date” means the 1st of
each month, commencing immediately upon the earlier of (a) the first such date
immediately following the Effective Date and (b) August 17, 2010, and
terminating upon the full redemption of this Note.
_______________
1 1/9
of the outstanding Principal Amount.
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).
“Note Register” means
the records of the Company regarding registration and transfers of this Note and
lists the Person in whose name this Note is registered.
“Notice of Conversion”
shall have the meaning set forth in Section 4(a).
“Optional Redemption”
shall have the meaning set forth in Section 6(a).
“Optional Redemption
Amount” means the sum of (a) 125% of the then outstanding Principal
Amount of the Note and (b) all liquidated damages and other amounts due in
respect of the Note.
“Optional Redemption
Date” shall have the meaning set forth in Section 6(a).
“Optional Redemption
Notice” shall have the meaning set forth in Section 6(a).
“Optional Redemption Notice
Date” shall have the meaning set forth in Section 6(a).
“Optional Redemption
Period” shall
have the meaning set forth in Section 6(a).
“Original Issue Date”
means the date of the first issuance of the Notes, regardless of any transfers
of any Note and regardless of the number of instruments which may be issued to
evidence such Notes.
“Permitted
Indebtedness” means (a) the indebtedness evidenced by the Notes, (b) the
Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa)
attached to the Purchase Agreement, (c) indebtedness to trade creditors and
financial institutions, incurred in the ordinary course of business in
accordance with the terms of such indebtedness of up to $1,000,000 in the
aggregate, (d) indebtedness that (i) is expressly subordinate to the Notes
pursuant to a written subordination agreement with the Purchasers that is
acceptable to each Purchaser in its sole and absolute discretion and (ii)
matures at a date later than the 91st day following the Maturity Date and (e)
indebtedness incurred in connection with an issuance or issuances contemplated
by clause (d) under the definition of Exempt Issuance (as defined in the
Purchase Agreement).
5
“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, (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, (c) Liens incurred in connection with Permitted
Indebtedness under clauses (a), (b) and (d)/(e) thereunder, and (d) Liens
incurred in connection with Permitted Indebtedness under clause (c) thereunder,
provided that such Liens are not secured by assets of the Company or its
Subsidiaries other than the assets so acquired or leased.
“Pre-Redemption Conversion
Shares” shall have the meaning set forth in Section 6(b)
hereof.
“Purchase Agreement”
means the Securities Purchase Agreement, dated as of February 17, 2010 among the
Company and the original Holders, as amended, modified or supplemented from time
to time in accordance with its terms.
“Registration Rights
Agreement” means the Registration Rights Agreement, dated as of the date
of the Purchase Agreement, among the Company and the original Holders, in the
form of Exhibit
B attached to the Purchase Agreement.
“Registration
Statement” means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Holder as provided for in the Registration Rights
Agreement.
“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(c)(ii).
“Successor Entity”
shall have the meaning set forth in Section 5(e).
“Trading Day” means a
day on which the principal Trading Market is open for trading.
“Trading Market” means
any of the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the NYSE AMEX, the Nasdaq Capital
Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York
Stock Exchange or the OTC Bulletin Board (or any successors to any of the
foregoing).
6
“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 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 listed or 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 OTC Markets, Inc. (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 Holders of a majority in interest of the
Securities then outstanding and reasonably acceptable to the Company, the fees
and expenses of which shall be paid by the Company.
Section
2. Interest and
Prepayment. The Company acknowledges and agrees that this Note was issued
at an original issue discount such that the Principal Amount equals such
Holder’s Subscription Amount multiplied by 1.15. No regularly scheduled interest
payments shall be made on this Note. Except as otherwise set forth in this Note,
the Company may not prepay any portion of the Principal Amount of this Note
without the prior written consent of the Holder.
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 registration of transfer or 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.
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.
7
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(d)
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 (each, 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. 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 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). The Company may deliver an objection to any Notice of
Conversion within two (2) Business Days of delivery of such Notice of
Conversion. In the event of any dispute or discrepancy, the records
of the Company 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 in effect on any Conversion Date shall be
equal to $1.00, subject
to adjustment herein (the “Conversion
Price”).
c) 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 by (y) the Conversion Price.
ii. Delivery of Certificate Upon
Conversion. Not later than three (3) 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 earlier of (i) the six month anniversary of the Original
Issue Date or (ii) the Effective 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. On or after the earlier of (i) the
six month anniversary of the Original Issue Date or (ii) the Effective Date, the
Company shall use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section 4(c) electronically
through the Depository Trust Company or another established clearing corporation
performing similar functions.
8
iii. Failure to Deliver
Certificates. 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 Share Delivery 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 issued to such Holder pursuant to the rescinded Conversion
Notice.
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 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. 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 or certificates pursuant to
Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of
Principal Amount being converted, $10 per Trading Day (increasing to $15 per
Trading Day on the fifth (5th)
Trading Day after such liquidated damages begin to accrue) for each Trading Day
after the fourth (4th)
Trading Day after such Share Delivery Date until such certificates are delivered
or Holder rescinds such conversion. 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.
9
v. Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion. In addition to
any other rights available to the Holder, subject to any applicable provisions
of this Note and any other Transaction Documents (as defined in the Purchase
Agreement), if the Company fails for any reason to deliver to the Holder such
certificate or certificates by the Share Delivery Date pursuant to Section
4(c)(ii), 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, if any, by which (x) the
Holder’s total purchase price (including any brokerage commissions) for 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) (the “Buy In Compensation”)
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
(in which case such conversion shall be deemed rescinded) 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(c)(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.
10
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, 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 and restrictions of Section 5)
upon the conversion of the then outstanding Principal Amount of this
Note. 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 resale in
accordance with such Registration Statement (subject to such Holder’s compliance
with its obligations under the Registration Rights Agreement).
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 the
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.
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 so converted 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.
d) ▇▇▇▇▇▇’s
Conversion Limitations. 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 Persons 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 (i) conversion of the remaining, unconverted Principal Amount of this Note
beneficially owned by the Holder or any of its Affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
11
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(d), 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
Section 4(d) 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 Section 4(d), 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: (i) the Company’s most recent periodic or annual report filed with
the Commission, as the case may be, (ii) a more recent public announcement by
the Company, or (iii) a more recent 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 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 4.99% 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. The
Holder, upon not less than 61 days’ prior notice to the Company, may increase or
decrease the Beneficial Ownership Limitation provisions of this Section 4(d),
provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of
the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock upon conversion of this Note
held by the Holder and the Beneficial Ownership Limitation provisions of this
Section 4(d) shall continue to apply. Any such increase or decrease
will not be effective until the 61st day after such notice is delivered to the
Company. The Beneficial Ownership Limitation provisions of this paragraph
shall be construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 4(d) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation contained herein 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.
12
Section 5.
Certain
Adjustments.
a) Stock Dividends and Stock
Splits. If the Company, at any time while this Note is
outstanding: (i) 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 the Notes), (ii)
subdivides outstanding shares of Common Stock into a larger number of shares,
(iii) combines (including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares or (iv) 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 following the Original Issue Date and
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), 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, 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 the two (2) Trading Days 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.
13
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 the 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, options 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, options or warrants
plus the number of shares which the aggregate offering price of the total number
of shares so offered (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, options 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 or rights or warrants so distributed applicable to one
outstanding share of the Common Stock as determined by the Board of Directors of
the Company in good faith. In either case the 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 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.
14
e) Fundamental
Transaction. If, at any time while this Note is outstanding, (i) the
Company, directly or indirectly, in one or more related transactions effects any
merger or consolidation of the Company with or into another Person, (ii) the
Company, directly or indirectly, effects any sale, lease, license, assignment,
transfer, conveyance or other disposition of all or substantially all of its
assets in one or a series of related transactions, (iii) any, direct or
indirect, purchase offer, tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are
permitted to sell, tender or exchange their shares for other securities, cash or
property and has been accepted by the holders of 50% or more of the outstanding
Common Stock, (iv) the Company, directly or indirectly, in one or more related
transactions effects any reclassification, reorganization or recapitalization 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, (v) the Company, directly or indirectly, in one or more related
transactions consummates a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than 50% of the outstanding shares of Common Stock (not including
any shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party to,
such stock or share purchase agreement or other business combination) (each 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 (without regard to any limitation in Section 4(d)
on the conversion of this Note), the number of shares of Common Stock of the
successor or acquiring corporation or of the Company, if it is the surviving
corporation, and any additional consideration (the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by
a holder of the number of shares of Common Stock for which this Note is
convertible immediately prior to such Fundamental Transaction (without regard to
any limitation in Section 4(d) on the conversion of this Note). 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 (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. The Company shall cause any successor entity in a
Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to
assume in writing all of the obligations of the Company under this Note and the
other Transaction Documents (as defined in the Purchase Agreement) in accordance
with the provisions of this Section 5(e) pursuant to written agreements in form
and substance reasonably satisfactory to the Holder and approved by the Holder
(without unreasonable delay) prior to such
15
Fundamental
Transaction and shall, at the option of the holder of this Note, deliver to the
Holder in exchange for this Note a security of the Successor Entity evidenced by
a written instrument substantially similar in form and substance to this Note
which is convertible for a corresponding number of shares of capital stock of
such Successor Entity (or its parent entity) equivalent to the shares of Common
Stock acquirable and receivable upon conversion of this Note (without regard to
any limitations on the conversion of this Note) prior to such Fundamental
Transaction, and with a conversion price which applies the conversion price
hereunder to such shares of capital stock (but taking into account the relative
value of the shares of Common Stock pursuant to such Fundamental Transaction and
the value of such shares of capital stock, such number of shares of capital
stock and such conversion price being for the purpose of protecting the economic
value of this Note immediately prior to the consummation of such Fundamental
Transaction), and which is reasonably satisfactory in form and substance to the
Holder. Upon the occurrence of any such Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the date
of such Fundamental Transaction, the provisions of this Note and the other
Transaction Documents referring to the “Company” shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Note and the other
Transaction Documents with the same effect as if such Successor Entity had been
named as the Company herein.
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.
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
16
substantially
all of the assets of the Company, or 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 fifteen (15)
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. To the extent that any
notice provided hereunder constitutes, or contains, material, non-public
information regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report
on Form 8-K. The Holder shall remain entitled to convert this Note
during the 15-day period commencing on the date of such notice through the
effective date of the event triggering such notice except as may otherwise be
expressly set forth herein.
Section 6. Redemption.
a) Optional
Redemption at Election of Company. Subject to the provisions of this
Section 6(a), if, at any time after the Effective Date, there is a Change of
Control Transaction, the Company may deliver a written notice to the Holder (an
“Optional Redemption Notice” and the date such notice is deemed delivered
hereunder, the “Optional Redemption Notice Date”) of its irrevocable election to
redeem some or all of the then outstanding Principal Amount of this Note for
cash in an amount equal to the Optional Redemption Amount on the 10th Trading
Day following the Optional Redemption Notice Date (such date, the “Optional
Redemption Date”, such 10 Trading Day period, the “Optional Redemption Period”
and such redemption, the “Optional Redemption”). The Optional
Redemption Amount is payable in full on the Optional Redemption
Date. The Company may only effect an Optional Redemption if each of
the Equity Conditions shall have been met (unless waived in writing by the
Holder) on each Trading Day during the period commencing on the Optional
Redemption Notice Date through to the Optional Redemption Date and through and
including the date payment of the Optional Redemption Amount is actually made in
full. If any of the Equity Conditions shall cease to be satisfied at
any time during the
17
Optional Redemption Period,
then the Holder may elect to nullify the Optional Redemption Notice by notice to
the Company within 3 Trading Days after the first day on which any such Equity
Condition has not been met (provided that if, by a provision of the Transaction
Documents, the Company is obligated to notify the Holder of the non-existence of
an Equity Condition, such notice period shall be extended to the third Trading
Day after proper notice from the Company) in which case the Optional Redemption
Notice shall be null and void, ab initio. The Company covenants
and agrees that it will honor all Notices of Conversion tendered from the time
of delivery of the Optional Redemption Notice through the date all amounts owing
thereon are due and paid in full. The Company’s determination to pay an Optional
Redemption in cash shall be applied ratably to all of the holders of the then
outstanding Notes based on their (or their predecessor’s) initial purchases of
Notes pursuant to the Purchase Agreement.
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 twenty (20) 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) 85% of the average of the VWAPs for the 20 consecutive Trading Days
ending on the Trading Day immediately prior to the applicable Monthly Redemption
Date (subject to adjustment for any stock dividend, stock split, stock
combination or other similar event affecting the Common Stock during such 20
Trading Day period) (the “Monthly Conversion
Price” and such 20 Trading Day period, the “Monthly Conversion
Period”); provided, however, that if such
Monthly Conversion Price is less than $0.40, subject to adjustment for any stock
dividend, stock split, stock combination or other similar event affecting the
Common Stock, the Company is required to pay such Monthly Redemption Amount in
cash; provided,
further, that
the Company may not pay the Monthly Redemption Amount in Conversion Shares
unless (y) 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, unless waived in writing by the
Holder, and (z) as to such Monthly Redemption, prior to such Monthly Conversion
Date (but not more than 5 Trading Days prior to the commencement of the Monthly
Conversion Period), the Company shall have delivered to the Holder’s account
with The Depository Trust Company a number of Conversion Shares to be applied
against such Monthly Redemption Amount equal to the quotient of (x) the
applicable Monthly Redemption Amount divided by (y) the lesser of (A) the
Conversion Price and (B) 85% of the average of the VWAPs for the 20 consecutive
Trading Days ending on the 3rd
Trading Day immediately prior to the applicable date of the Monthly Redemption
Notice (the “Pre-Redemption Conversion
Shares”). The Holder may convert, pursuant to Section 4(a),
any Principal Amount of this Note subject to a Monthly Redemption at any time
prior to the date that the Monthly Redemption Amount plus liquidated damages and
any other amounts then owing to the Holder are due and paid in
full. Unless otherwise indicated by the Holder in the applicable
Notice of Conversion, any Principal Amount of this Note converted during the
applicable Monthly Conversion Period until the date the Monthly Redemption
Amount is paid in full shall be first applied to the Principal Amount subject to
the Monthly Redemption Amount payable in cash and then to the Monthly Redemption
Amount payable in Conversion Shares. Any Principal Amount of this
Note converted during the applicable Monthly Conversion Period in excess of the
Monthly Redemption Amount
18
shall be
applied against the last Principal Amount of this Note scheduled to be redeemed
hereunder, in reverse time order from the Maturity Date; provided, however, if any such
conversion is applied against such Monthly Redemption Amount, the Pre-Redemption
Conversion Shares, if any were issued in connection with such Monthly Redemption
or were not already applied to such conversions, shall be first applied against
such conversion. Failure of the Company to issue the Conversion
Shares on each Monthly Redemption Date shall otherwise be subject to the
provisions of Section 4, including but not limited to Buy-In and partial
liquidated damages. 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) initial purchases of Notes pursuant to the Purchase
Agreement. 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 issuance of Common Stock, as
applicable, pursuant to an Optional Redemption or a Monthly Redemption shall be
payable on the Optional Redemption Date or Monthly Redemption
Date. If any portion of the payment pursuant to an Optional
Redemption or 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 of 12% per annum or the maximum rate permitted by applicable law
until such amount is paid in full. Notwithstanding anything herein
contained to the contrary, if any portion of the Optional Redemption Amount or
Monthly Redemption Amount remains unpaid after such date, the Holder may elect,
by written notice to the Company given at any time thereafter,
to invalidate such Optional Redemption or Monthly Redemption, ab initio,
and, with respect to the Company’s failure to honor the Optional Redemption, the
Company shall have no further right to exercise such Optional
Redemption. Notwithstanding anything to the contrary in this Section
6, the Company’s determination to redeem in cash or its elections under Section
6(b) shall be applied ratably among the Holders of Notes. The Holder may elect
to convert the outstanding Principal Amount of the Note pursuant to Section 4
prior to actual payment in cash for any redemption under this Section 6 by the
delivery of a Notice of Conversion to the Company.
Section 7. Negative Covenants.
As long as any portion of this Note remains outstanding, unless the holders of
at least 67% in principal amount of the then outstanding Notes shall have
otherwise given prior written consent, the Company shall not, and shall not
permit any of the Subsidiaries to, directly or indirectly:
19
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;
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 (i) the
Conversion Shares or Warrant Shares as permitted or required under the
Transaction Documents and (ii) repurchases of Common Stock or Common Stock
Equivalents of departing officers and directors 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, other than the Notes if on a pro-rata basis,
other than regularly scheduled principal and interest payments as such terms are
in effect as of the Original Issue Date, provided that such payments shall not
be permitted if, at such time, or after giving effect to such payment, any Event
of Default exist or occur;
f) pay
cash dividends or distributions on any equity securities of the Company;
g) 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
h) 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):
20
i. any
default in the payment of (A) the Principal Amount of any Note or (B) other fees
owing on any Note or, liquidated damages and other amounts owing to a 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 defaults under clause (B) above, is not cured
within 10 Trading Days;
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 (xi) below) which failure is not cured, if possible to cure,
within the earlier to occur of (A) 10 Trading Days after notice of such failure
sent by the Holder or by any other Holder to the Company and (B) 15 Trading Days
after the Company has become or should have 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
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 (as such term is defined in Rule 1-02(w)
of Regulation S-X) 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 that (a) involves an
obligation greater than $250,000, whether such indebtedness now exists or shall
hereafter be created, 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;
21
vii. 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 ten (10) Trading Days;
viii. the
Company shall be a party to any Fundamental Transaction or shall agree to sell
or dispose of all or in excess of 50% 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. the
Company shall fail for any reason to deliver certificates to a Holder prior to
the tenth (10th)
Trading Day after a Conversion Date pursuant to Section 4(c) 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
x. any
monetary judgment, writ or similar final 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 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. Commencing 7 days after the occurrence of any Event of
Default that results in the eventual acceleration of this Note, the interest
rate on this Note shall accrue at an interest rate equal to the lesser of 12%
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.
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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 personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, or such other facsimile number or address as the Company may
specify for such purposes by notice to the Holder delivered in accordance with
this Section 9(a). 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, 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 on the books of the Company, at the principal place of
business of such Holder, as set forth in the Purchase Agreement. 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 at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on
any date, (ii) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the
second Trading 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.
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 and liquidated damages, 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
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Courts”). Each
party hereto hereby irrevocably 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 any 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 attorneys fees and other costs and
expenses 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 on any other occasion. Any
waiver by the Company or the Holder must be in writing. This Note may
only be modified, supplemented or amended in a written instrument signed by the
Company and the Holders holding at least 67% in interest of the Notes then
outstanding.
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 impede
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.
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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) Secured
Obligation. The obligations of the Company under this Note are
secured by all assets of the Company and each Subsidiary pursuant to the
Security Agreement, dated as of February 17, 2010 between the Company, the
Subsidiaries of the Company and the Secured Parties (as defined
therein).
*********************
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IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly
authorized officer as of the date first above indicated.
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By:/s/
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
Title: President
and CEO
Facsimile
No. for delivery of Notices: ▇▇▇-▇▇▇-▇▇▇▇
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ANNEX
A
NOTICE
OF CONVERSION
The undersigned hereby elects to
convert principal under the Original Issue Discount Senior Secured Convertible
Note due May 17, 2011 of NXT Nutritionals Holdings, Inc., a Delaware 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.
Conversion
calculations:
Date to
Effect Conversion:
Principal
Amount of Note to be Converted:
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: _________________
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Schedule
1
CONVERSION
SCHEDULE
The
Original Issue Discount Senior Secured Convertible Notes due on May 17, 2011 in
the aggregate Principal Amount of $____________ are issued by NXT Nutritionals
Holdings, Inc., a Delaware corporation. This Conversion Schedule
reflects conversions made under Section 4 of the above referenced
Note.
Dated:
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Date
of Conversion
(or
for first entry, Original Issue Date)
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Amount
of Conversion
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Aggregate
Principal Amount Remaining Subsequent to Conversion
(or
original Principal Amount)
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Company
Attest
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