THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO THIS NOTE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO INCENTRA SOLUTIONS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.
SECURED TERM NOTE
FOR VALUE RECEIVED, INCENTRA SOLUTIONS, INC., a Nevada Corporation
(the "COMPANY"), promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate
Services Limited, P.O. Box 309 GT, Xxxxxx House, South Church Street, Xxxxxx
Town, Grand Cayman, Cayman Islands, Fax: 000-000-0000 (the "HOLDER") or its
registered assigns or successors in interest, the sum of One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000), together with any accrued and
unpaid interest hereon, on March 31, 2009 (the "MATURITY DATE") if not sooner
paid.
Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in that certain Securities Purchase Agreement
dated as of the date hereof by and between the Company and the Holder (as
amended, modified and/or supplemented from time to time, the "PURCHASE
AGREEMENT"). For the avoidance of doubt the Company and the Holder understand
and agree that this Secured Term Note (this "NOTE") is being issued by the
Company together with that certain Convertible Note referred to in the Purchase
Agreement as part of the same financing transaction.
The following terms shall apply to this Note:
ARTICLE I
CONTRACT RATE AND AMORTIZATION
1.1 CONTRACT RATE. Subject to Sections 2.2 and 3.9, interest payable
on the outstanding principal amount of this Note (the "PRINCIPAL AMOUNT") shall
accrue at a rate per annum equal to the "prime rate" published in THE WALL
STREET JOURNAL from time to time (the "PRIME RATE"), plus two percent (2.0%)
(the "CONTRACT RATE"). The Contract Rate shall be increased or decreased as the
case may be for each increase or decrease in the Prime Rate in an amount equal
to such increase or decrease in the Prime Rate; each change to be effective as
of the day of the change in the Prime Rate. The Contract Rate shall not at any
time be less than nine percent (9.0%). Interest shall be (i) calculated on the
basis of a 360 day year, and (ii) payable monthly, in arrears, commencing on May
1, 2006, on the first business day of each consecutive calendar month thereafter
through and including the Maturity Date, and on the Maturity Date, whether by
acceleration or otherwise.
1.2 CONTRACT RATE PAYMENTS. The Contract Rate shall be calculated on
the last business day of each calendar month hereafter (other than for increases
or decreases in the Prime Rate which shall be calculated and become effective in
accordance with the terms of Section 1.1) until the Maturity Date.
1.3 PRINCIPAL PAYMENTS. Amortizing payments of the aggregate
principal amount outstanding under this Note at any time (the "PRINCIPAL
AMOUNT") shall be made in cash by the Company on August 1, 2006 and on the first
business day of each succeeding month thereafter through and including the
Maturity Date (each, an "AMORTIZATION DATE"). Commencing on the first
Amortization Date, the Company shall make monthly payments to the Holder on each
Amortization Date, each such payment in the amount of $54,688 together with any
accrued and unpaid interest on such portion of the Principal Amount plus any and
all other unpaid amounts which are then owing under this Note, the Purchase
Agreement and/or any other Related Agreement (collectively, the "MONTHLY
AMOUNT"). Any outstanding Principal Amount together with any accrued and unpaid
interest and any and all other unpaid amounts which are then owing by the
Company to the Holder under this Note, the Purchase Agreement and/or any other
Related Agreement shall be due and payable on the Maturity Date.
1.4 OPTIONAL REDEMPTION IN CASH. The Company may prepay this Note
("OPTIONAL REDEMPTION") by paying to the Holder a sum of money equal to one
hundred ten percent (110%) of the Principal Amount outstanding at such time
together with accrued but unpaid interest thereon and any and all other sums
due, accrued or payable to the Holder arising under this Note, the Purchase
Agreement or any other Related Agreement (the "REDEMPTION AMOUNT") outstanding
on the Redemption Payment Date (as defined below). The Company shall deliver to
the Holder a written notice of redemption (the "NOTICE OF REDEMPTION")
specifying the date for such Optional Redemption (the "REDEMPTION PAYMENT
DATE"), which date shall be seven (7) business days after the date of the Notice
of Redemption (the "REDEMPTION PERIOD"). On the Redemption Payment Date, the
Redemption Amount must be paid in good funds to the Holder. In the event the
Company fails to pay the Redemption Amount on the Redemption Payment Date as set
forth herein, then such Redemption Notice will be null and void.
ARTICLE II
EVENTS OF DEFAULT
2.1 EVENTS OF DEFAULT. The occurrence of any of the following events
set forth in this Section 4.1 shall constitute an event of default ("EVENT OF
DEFAULT") hereunder:
(a) FAILURE TO PAY. The Company fails to pay when due any
installment of principal, interest or other fees hereon in accordance herewith,
or the Company fails to pay any of the obligations of the Company or any of its
Subsidiaries under the Purchase Agreement or any Related Agreement when due,
and, in any such case, such failure shall continue for a period of five (5) days
following the date upon which any such payment was due.
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(b) BREACH OF COVENANT. The Company or any of its Subsidiaries
breaches any covenant or any other term or condition of this Note in any
material respect and such breach, if subject to cure, continues for a period of
fifteen (15) days after the occurrence thereof.
(c) BREACH OF REPRESENTATIONS AND WARRANTIES. Any
representation, warranty or statement made or furnished by the Company or any of
its Subsidiaries in this Note, the Purchase Agreement or any other Related
Agreement shall at any time be false or misleading in any material respect on
the date as of which made or deemed made.
(d) DEFAULT UNDER OTHER AGREEMENTS. The occurrence of any
default (or similar term) in the observance or performance of any other
agreement or condition relating to any indebtedness or contingent obligation of
the Company or any of its Subsidiaries (including, without limitation, the
indebtedness evidenced by (i) the 2006 Security Agreement and/or any Ancillary
Agreement referred to in the 2006 Security Agreement and/or (ii) that certain
Securities Purchase Agreement, dated as of May 13, 2004, by and between the
Company and the Purchaser (as amended, modified or supplemented from time to
time, the "2004 Securities Purchase Agreement") and/or any Related Agreement
referred to in the 2004 Securities Purchase Agreement, as amended, modified or
supplemented from time to time), in each case, beyond the period of grace (if
any), the effect of which default is to cause, or permit the holder or holders
of such indebtedness or beneficiary or beneficiaries of such contingent
obligation to cause, such indebtedness to become due prior to its stated
maturity or such contingent obligation to become payable;
(e) BANKRUPTCY. The Company or any of its Subsidiaries shall
(i) apply for, consent to or suffer to exist the appointment of, or the taking
of possession by, a receiver, custodian, trustee or liquidator of itself or of
all or a substantial part of its property, (ii) make a general assignment for
the benefit of creditors, (iii) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt
or insolvent, (v) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vi) acquiesce to, without challenge within
ten (10) days of the filing thereof, or failure to have dismissed, within thirty
(30) days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of effecting any of
the foregoing;
(f) JUDGMENTS. Attachments or levies in excess of $250,000 in
the aggregate are made upon the Company or any of its Subsidiary's assets or a
judgment is rendered against the Company's property involving a liability of
more than $250,000 which shall not have been vacated, discharged, stayed or
bonded within ninety (90) days from the entry thereof;
(g) INSOLVENCY. The Company or any of its Subsidiaries shall
admit in writing its inability, or be generally unable, to pay its debts as they
become due or cease operations of its present business;
(h) CHANGE OF CONTROL. A Change of Control (as defined below)
shall occur with respect to the Company, unless Holder shall have expressly
consented to such Change of Control in writing. A "Change of Control" shall mean
any event or circumstance as a result of
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which (i) any "Person" or "group" (as such terms are defined in Sections 13(d)
and 14(d) of the Exchange Act, as in effect on the date hereof), other than the
Holder, is or becomes the "beneficial owner" (as defined in Rules 13(d)-3 and
13(d)-5 under the Exchange Act), directly or indirectly, of 35% or more on a
fully diluted basis of the then outstanding voting equity interest of the
Company (other than a "Person" or "group" that beneficially owns 35% or more of
such outstanding voting equity interests of the Company on the date hereof),
(ii) the Board of Directors of the Company shall cease to consist of a majority
of the Company's board of directors on the date hereof (or directors appointed
by a majority of the board of directors in effect immediately prior to such
appointment) or (iii) the Company or any of its Subsidiaries merges or
consolidates with, or sells all or substantially all of its assets to, any other
person or entity;
(i) INDICTMENT; PROCEEDINGS. The indictment or threatened
indictment of the Company or any of its Subsidiaries or any executive officer of
the Company or any of its Subsidiaries under any criminal statute, or
commencement or threatened commencement of criminal or civil proceeding against
the Company or any of its Subsidiaries or any executive officer of the Company
or any of its Subsidiaries pursuant to which statute or proceeding penalties or
remedies sought or available include forfeiture of any of the property of the
Company or any of its Subsidiaries;
(j) THE PURCHASE AGREEMENT AND RELATED AGREEMENTS. (i) An
Event of Default shall occur under and as defined in the Purchase Agreement or
any Related Agreement, (ii) the Company or any of its Subsidiaries shall breach
any term or provision of the Purchase Agreement or any other Related Agreement
in any material respect and such breach, if capable of cure, continues
unremedied for a period of fifteen (15) days after the occurrence thereof, (iii)
the Company or any of its Subsidiaries attempts to terminate, challenges the
validity of, or its liability under, the Purchase Agreement or any Related
Agreement, (iv) any proceeding shall be brought to challenge the validity,
binding effect of the Purchase Agreement or any Related Agreement or (v) the
Purchase Agreement or any Related Agreement ceases to be a valid, binding and
enforceable obligation of the Company or any of its Subsidiaries (to the extent
such persons or entities are a party thereto);
(k) STOP TRADE. An SEC stop trade order or Principal Market
trading suspension of the Common Stock shall be in effect for five (5)
consecutive days or five (5) days during a period of ten (10) consecutive days,
excluding in all cases a suspension of all trading on a Principal Market,
provided that the Company shall not have been able to cure such trading
suspension within thirty (30) days of the notice thereof or list the Common
Stock on another Principal Market within sixty (60) days of such notice; or
2.2 DEFAULT INTEREST. Following the occurrence and during the
continuance of an Event of Default, the Company shall pay additional interest on
this Note in an amount equal to one and one half percent (1.5%) per month, and
all outstanding obligations under this Note, the Purchase Agreement and each
other Related Agreement, including unpaid interest, shall continue to accrue
interest at such additional interest rate from the date of such Event of Default
until the date such Event of Default is cured or waived.
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2.3 DEFAULT PAYMENT. Following the occurrence and during the
continuance of an Event of Default, the Holder, at its option, may demand
repayment in full of all obligations and liabilities owing by Company to the
Holder under this Note, the Purchase Agreement and/or any other Related
Agreement and/or may elect, in addition to all rights and remedies of the Holder
under the Purchase Agreement and the other Related Agreements and all
obligations and liabilities of the Company under the Purchase Agreement and the
other Related Agreements, to require the Company to make a Default Payment
("DEFAULT PAYMENT"). The Default Payment shall be 125% of the outstanding
principal amount of the Note, plus accrued but unpaid interest, all other fees
then remaining unpaid, and all other amounts payable hereunder. The Default
Payment shall be applied first to any fees due and payable to the Holder
pursuant to this Note, the Purchase Agreement, and/or the other Related
Agreements, then to accrued and unpaid interest due on this Note and then to the
outstanding principal balance of this Note. The Default Payment shall be due and
payable immediately on the date that the Holder has exercised its rights
pursuant to this Section 4.3.
ARTICLE III
MISCELLANEOUS
3.1 CUMULATIVE REMEDIES. The remedies under this Note shall be
cumulative.
3.2 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of the Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
3.3 NOTICES. Any notice herein required or permitted to be given
shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party notified, (b) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address provided in the Purchase Agreement executed in connection
herewith, and to the Holder at the address provided in the Purchase Agreement
for such Holder, with a copy to Xxxx X. Xxxxxx, Esq., 000 Xxxxx Xxxxxx, 00xx
Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, xxxxxxxxx number (000) 000-0000, or at such
other address as the Company or the Holder may designate by ten days advance
written notice to the other parties hereto. A Notice of Conversion shall be
deemed given when made to the Company pursuant to the Purchase Agreement.
3.4 AMENDMENT PROVISION. The term "Note" and all references thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument as such successor instrument may be
amended or supplemented.
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3.5 ASSIGNABILITY. This Note shall be binding upon the Company and
its successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Purchase Agreement. The Company may not assign any of its
obligations under this Note without the prior written consent of the Holder, any
such purported assignment without such consent being null and void.
3.6 COST OF COLLECTION. In case of any Event of Default under this
Note, the Company shall pay the Holder reasonable costs of collection, including
reasonable attorneys' fees.
3.7 GOVERNING LAW, JURISDICTION AND WAIVER OF JURY TRIAL.
(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE
COMPANY, ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND, PERTAINING TO THIS
NOTE OR ANY OF THE OTHER RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS NOTE OR ANY OF THE RELATED AGREEMENTS; PROVIDED, THAT THE
COMPANY ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY
A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO
PRECLUDE THE HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF THE HOLDER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND THE COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. THE COMPANY
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN THE PURCHASE AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY'S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
(c) THE COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
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ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE COMPANY HERETO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN
CONTRACT, TORT, OR OTHERWISE BETWEEN THE HOLDER AND THE COMPANY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THIS NOTE, ANY OTHER RELATED AGREEMENT OR THE
TRANSACTIONS RELATED HERETO OR THERETO.
3.8 SEVERABILITY. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision of this
Note.
3.9 MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum rate
permitted by such law, any payments in excess of such maximum rate shall be
credited against amounts owed by the Company to the Holder and thus refunded to
the Company.
3.10 SECURITY INTEREST AND GUARANTEE. The Holder has been granted a
security interest (i) in certain assets of the Company and its Subsidiaries as
more fully described in the 2004 Master Security Agreement and the 2006 Security
Agreement and (ii) in the equity interests of the Companies' Subsidiaries
pursuant to the 2006 Stock Pledge Agreement. The obligations of the Company
under this Note are guaranteed by certain Subsidiaries of the Company pursuant
to the 2006 Subsidiary Guarantee.
3.11 CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
5.13 REGISTERED OBLIGATION. This Note is intended to be a registered
obligation within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)
and the Company (or its agent) shall register this Note (and thereafter shall
maintain such registration) as to both principal and any stated interest.
Notwithstanding any document, instrument or agreement relating to this Note to
the contrary, transfer of this Note (or the right to any payments of principal
or stated interest thereunder) may only be effected by (i) surrender of this
Note and either the reissuance by the Company of this Note to the new holder or
the issuance by the Company of a new instrument to the new holder, or (ii)
transfer through a book entry system maintained by the Company (or its agent),
within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).
[Balance of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, the Company has caused this Secured Term Note to
be signed in its name effective as of this 31st day of March, 2006.
INCENTRA SOLUTIONS, INC.
By: /s/ Xxxxxx X. Xxxxxxx III
--------------------------------
Name: Xxxxxx X. Xxxxxxx III
Title: Chief Executive Officer
WITNESS:
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