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THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAW, OR AN EXEMPTION FROM SUCH REGISTRATION.
[__________*]
NTN COMMUNICATIONS, INC.
7% CONVERTIBLE SENIOR SUBORDINATED NOTE DUE 2001
FOR VALUE RECEIVED, NTN COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), HEREBY PROMISES TO PAY to [XXXXX INTERNATIONAL]
[SHEPHERD INVESTMENTS INTERNATIONAL, LTD.] (the "Holder") the principal sum of
* ($ ) on February 1, 2001 (the "Maturity Date") and to pay
interest on the principal amount outstanding from time to time under this note
(the "Outstanding Principal Amount"), at the rate of 7% per annum, payable
quarterly in arrears on the last day of each calendar quarter during the term
hereof and on the final day when such principal amount becomes due (each such
date, an "Interest Payment Date").
This note is one of two convertible senior subordinated
promissory notes (the "Note" and collectively, the "Notes") of the Company
referred to in Section 1(a) of the Exchange Agreement, dated as of October 5,
1998 by and among the Company, Holder and [Xxxxx International] [Shepherd
Investments International, Ltd.] (the "Exchange Agreement") and was issued by
the Company to the Holder in exchange for Holder's outstanding shares of the
Company's Series B Convertible Preferred Stock.
1. Definitions. For purposes hereof the following
definitions shall apply:
"Acceleration Price" shall have the meaning set forth in
Section 5(b).
"Additional Shares of Common Stock" shall mean all shares
(including treasury shares) of Common Stock issued or sold or deemed to be
issued by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company other than (i) shares of Common Stock
issued upon conversion of the Notes, (ii) shares of Common Stock issued upon
exercise of the Warrants (iii) shares of Common Stock issued pursuant to
Approved Stock Plans and (iv) shares issued upon exercise of options and
warrants outstanding as of October 5, 1998.
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* Insert Stated Value plus accrued but unpaid dividends on Series B Convertible
Preferred Shares outstanding at close of business on day prior to exchange date.
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"Adjusting Closing Bid Prices" shall have the meaning set
forth in Section 3(c).
"Approved Stock Plan" shall mean any contract, plan or
agreement which has been or shall be approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer, director, consultant or other service provider of the Company
in an aggregate amount that does not exceed 110% of the number of securities
issuable as of October 5, 1998 pursuant to any currently existing Approved Stock
Plan.
"Average Market Price" shall mean the average of the Closing
Bid Prices of the Common Stock for the five trading days immediately preceding
the applicable date.
"Blockage Notice" shall have the meaning set forth in
Section 18(b).
"Business Day" shall have the meaning set forth in
Section 2(c).
"Buy in Actual Damages" shall have the meaning set forth in
Section 3(d)(v).
"Closing Bid Price" shall mean, for any security as of any
date, the last closing bid price on the American Stock Exchange ("AMEX") as
reported by Bloomberg, L.P. ("Bloomberg"), or, if the AMEX is not the principal
securities exchange for such security, the last closing bid price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc.
"Common Stock" shall mean the common stock of the Company,
$.005 par value per share.
"Company" shall have the meaning set forth in the Preamble.
"Conversion Date" shall have the meaning set forth in
Section 3(d).
"Conversion Notice" shall have the meaning set forth in
Section 3(d).
"Conversion Price" shall mean $_____1, subject to certain
adjustments as described in Section 3(c).
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1 Insert $1.275 per share, as adjusted for any dilutive events set forth in
Section 3(c) that occur between the signing of the Exchange Agreement and the
Note Issuance Date. Any disputes between the Company and the Holder as to the
determination of the Conversion Price shall be resolved in accordance with the
provisions of Section 3(d)(iii) hereof.
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"Conversion Shares" shall have the meaning set forth in
Section 5(d)(i)
"Convertible Securities" shall have the meaning set forth in
Section 3(c)(iv).
"Default" shall have the meaning set forth in Section 20.
"Default Rate" shall have the meaning set forth in Section
2(a)(i).
"Document" or "Documents" shall have the meaning set forth in
Section 7(a).
"Exchange Agreement" shall have the meaning set forth in the
Preamble.
"Forced Prepayment Date" shall have the meaning set forth in
Section 4.
"Forced Prepayment Notice" shall have the meaning set forth in
Section 4.
"Holder" shall have the meaning set forth in the Preamble.
"Holders" shall mean the Holder and [Xxxxx International]
[Shepherd Investment International, Ltd.]
"Inability to Fully Convert Notice" shall have the meaning set
forth in Section 6(b).
"Indebtedness" shall have the meaning set forth in Section
20(a).
"Interest Payment Date" shall have the meaning set forth in
the Preamble.
"Interest Payment Notice" shall have the meaning set forth in
Section 2(a)(ii).
"Major Transaction Acceleration Price" shall have the meaning
set forth in Section 5(a).
"Major Transaction" shall have the meaning set forth in
Section 5(c).
"Mandatory Payment" shall have the meaning set forth in
Section 6(a)(i).
"Mandatory Payment Price" shall have the meaning set forth in
Section 6(a)(i).
"Optional Prepayment Date" shall mean any date subsequent to a
20 consecutive trading day period during which the Market Price for the Common
Stock on each day in such period equals or exceeds $1.75 (subject to adjustment
for the events set forth in Section 3(c)(i), (ii) and (iii) hereof).
"Market Price" shall mean, on any date specified herein, the
amount per share of the Common Stock, equal to (i) the last reported sale price
of such Common Stock, regular way, on such date or, in case no such sale takes
place on such date, the average of the closing bid and asked prices thereof
regular way on such date, in either case as officially reported on the
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principal national securities exchange on which such Common Stock is then listed
or admitted for trading, (ii) if such Common Stock is not then listed or
admitted for trading on any national securities exchange but is designated as a
national market system security by the NASD, the last reported trading price of
the Common Stock on such date, or in case no such sale takes place on such date,
or if the Common Stock is not so designated, the average of the closing bid and
asked prices of the Common Stock on such date as shown by the NASD automated
quotations system, or (iii) if such Common Stock is not then listed or admitted
for trading on any national exchange or quoted in the over-the-counter market,
the fair value thereof (as of a date which is within 20 days of the date as of
which the determination is to be made) determined in good faith jointly by the
Board of Directors of the Company and the Holder, provided, however, that if
such parties are unable to reach agreement within a reasonable period of time,
the Market Price shall be determined in good faith by an independent investment
banking firm selected jointly by the Company and the Holder or, if that
selection cannot be made within ten days, by an independent investment banking
firm selected by the American Arbitration Association in accordance with its
rules, and provided further, that the Company shall pay all of the fees and
expenses of any third parties incurred in connection with determining the Market
Price.
"Maturity Date" shall have the meaning set forth in the
Preamble.
"New Option Issuance Price" shall have the meaning set forth
in Section 3(c)(iv).
"Note" or "Notes" shall have the meaning set forth in the
Preamble.
"Note Register" shall have the meaning set forth in Section
17(b).
"Notice of Acceleration at Option of Holder Upon Triggering
Event" shall have the meaning set forth in Section 5(e).
"Notice of Major Transaction" shall have the meaning set forth
in Section 5(e).
"Notice in Response to Inability to Convert" shall have the
meaning set forth in Section 6(b).
"Notice of Triggering Event" shall have the meaning set forth
in Section 5(e)
"Options" shall have the meaning set forth in Section
3(c)(iv).
"Organic Change" shall mean any recapitalization,
reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the Company's assets to another Person or other transaction
which is effected in such a way that holders of Common Stock are entitled to
receive (either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for Common Stock.
"Other Taxes" shall have the meaning set forth in Section 21.
"Outstanding Principal Amount" shall have the meaning set
forth in the Preamble.
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"Person" shall mean an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
"Proceeding" shall mean, with respect to the Company or any of
its Subsidiaries, (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to such Person or its properties as such, (ii) any proceeding for any
liquidation, dissolution or other winding up of such Person, voluntary or
involuntary, or (iii) any assignment for the benefit of creditors or marshaling
of the assets of such Person.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement, dated as of October 5, 1998, by and among the Company, the
Holder and [Xxxxx International][Shepherd Investments International, Ltd.].
"Securities Act" means the Securities Act of 1933, as amended
from time to, and the rules and regulations thereunder, or any successor
statute.
"Senior Debt" shall mean all senior indebtedness of the
Company for borrowed money now or hereafter existing in favor of (a) a bank,
insurance company or other financial institution or (b) a lender for the purpose
of financing the purchase or lease of capital equipment, under a Senior Loan
Document, for principal and interest (including interest accruing subsequent to
the commencement of any Proceeding) unless the Senior Loan Document expressly
provides that it is not senior or superior in right of payment to this Note,
excluding, however, in each case the principal of and interest on this Note,
provided that such senior indebtedness shall not exceed $10 million at any time
outstanding. Notwithstanding the foregoing, "Senior Debt" shall not include (i)
any indebtedness of the Company to any of its Subsidiaries or its affiliates, or
(ii) any indebtedness that is expressly subordinated to any other indebtedness
of the Company.
"Senior Debt Default" shall have the meaning set forth in
Section 18(b).
"Senior Loan Document" shall mean a credit agreement, loan
agreement, indenture or other agreement, document or instrument evidencing or
governing any Senior Debt.
"Solvent" shall mean, with respect to any Person on a
particular date, that on such date (i) the fair value of the property of such
Person is not less than the total amount of the liabilities of such Person, (ii)
the present fair salable value of the assets of such Person is not less than the
amount required to pay the probable liability on such Person's existing debts as
they become absolute and matured, (iii) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (iv) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature and (v) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
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"Subordinated Debt" shall mean all indebtedness of the Company
now or hereafter evidenced by the Notes and all interest thereon.
"Subsidiary" shall mean any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other Persons performing similar functions are at the
time directly or indirectly owned by the Company.
"Suspension Days" shall have the meaning set forth in Section
5(d)(i).
"Suspension Period" shall have the meaning set forth in
Section 5(d)(i).
"Taxes" shall have the meaning set forth in Section 21.
"Transfer Agent" shall have the meaning set forth in Section
3(d)(i).
"Triggering Event" shall have the meaning set forth in Section
5(d).
"Triggering Event Acceleration Price" shall have the meaning
set forth in Section 5(b).
"Warrants" shall mean the Common Stock Purchase Warrants to
purchase 1,000,000 shares of the Company's Common Stock, issued to the Holders
by the Company pursuant to the terms of the Exchange Agreement.
"Warrants Shares" shall have the meaning set forth in Section
5(d)(i).
2. General Provisions. (a) (i) Any amount of principal hereof
that is not paid when due (whether upon demand, by acceleration or otherwise)
shall bear interest from the day when due until such principal amount is paid in
full, payable on demand, at an interest rate per annum equal at all times to 15%
per annum (the "Default Rate"). All interest shall be computed on the basis of a
year of 360 days for the actual number of days (including the first day but
excluding the last day) elapsed. Notwithstanding any other provision of this
Note, interest paid or becoming due hereunder shall in no event exceed the
maximum rate permitted by applicable law.
(ii) All regularly scheduled interests payments made hereunder
may be made either (I) in cash or (II) at the option of the Company, in full or
in part by issuing shares of Common Stock with each such share issued at a value
determined by multiplying the average of the Closing Bid Prices of the Common
Stock for the ten trading days immediately preceding the applicable Interest
Payment Date by 0.90; provided, however, that the Company may elect to make such
interest payments in shares of Common Stock if and only if such shares are duly
reserved for issuance, duly authorized, fully paid and non-assessable, and fully
registered for resale pursuant to the Securities Act and in accordance with the
terms of the Registration Rights Agreement; provided further that the Company
may elect to make such interest payments in shares of Common Stock if and only
if the Company has delivered an irrevocable written notice
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(the "Interest Payment Notice") to the Holder no less than 45 days prior to the
applicable Interest Payment Date stating that the next interest payment shall be
made in shares of Common Stock, and with a copy of such Interest Payment Notice
to the Transfer Agent authorizing the Transfer Agent to deliver such Common
Stock, without any restrictive legends, on the Interest Payment Date. If the
Company fails to deliver a Interest Payment Notice at least 45 days prior to any
Interest Payment Date, then interest payments on such interest Payment Date
shall be made solely in cash.
(b) All payments made to the Holder in
accordance with the terms hereof on account of principal hereof shall be noted
by the Holder on Schedule I attached hereto and hereby made a part hereof and
shall be binding absent manifest error; provided, however, that any error or
omission by the Holder in this regard shall not affect the obligation of the
Company to pay the full amount of the principal and interest due hereunder.
(c) If any amount payable hereunder shall be
due on a Saturday or a Sunday or a day on which commercial banking institutions
in the City of New York are authorized by law to be closed (any other day being
a "Business Day"), such payment may be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
interest payable hereon.
(d) Both principal and interest are payable in
lawful money of the United States and in immediately available funds at the
offices of Holder, c/o Staro Asset Management, 0000 Xxxx Xxxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxx 00000, or at such other place as the Holder shall designate in writing
to the Company.
(e) This Note may be transferred in whole or
in part only by registration of such transfer on the Note Register maintained
for such purpose by the Company as provided in Section 17(b) hereof.
3. Holder's Conversion of Note.
(a) Conversion Right. The Holder shall have the
right, at its option, to convert the Note, in whole or in part, into fully paid,
validly issued and nonassessable shares of the Company's Common Stock at any
time and from time to time (including, without limitation, during the
continuance of a Senior Debt Default) that this Note is outstanding. If this
Note is converted in part, the remaining portion of this Note not so converted
shall remain entitled to the conversion and other rights provided herein.
(b) Conversion Rate. The number of shares of
Common Stock issuable upon conversion of the Note pursuant to Section 3(a) shall
be determined in accordance with the following formula:
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P
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Conversion Price
P = Outstanding Principal Xxxxxx submitted for
conversion plus accrued but unpaid
interest thereon.
(c) Anti-Dilution. In order to prevent dilution of
the rights granted under this
Note, the Conversion Price and the Closing Bid Prices for any days during any
measuring period prior to any of the events set forth below (the "Adjusting
Closing Bid Prices") will be subject to adjustment from time to time as provided
in this Section 3(c):
(i) Dividends and Distributions. If the Company shall
declare or pay to the holders of the Common Stock a dividend or other
distribution payable in shares of Common Stock or any other security
convertible into or exchangeable for shares of Common Stock, the Holder
of the Note thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock or other securities
convertible into or exchangeable for shares of Common Stock, as
applicable, which such Holder would have owned or been entitled to
receive after the declaration and payment of such dividend or other
distribution as if the Note had been converted immediately prior to the
record date for the determination of stockholders entitled to receive
such dividend or other distribution.
(ii) Stock Splits and Combinations. If the Company
shall subdivide (by means of any stock split, stock dividend,
recapitalization or otherwise) the outstanding shares of Common Stock
into a greater number of shares of Common Stock, or combine (by means
of any combination, reverse stock split or otherwise) the outstanding
shares of Common Stock into a lesser number of shares, or issue by
reclassification of shares of Common Stock any shares of the Company,
the Conversion Price and the Adjusting Closing Bid Prices in effect
immediately prior thereto shall be adjusted so that the Holder shall
receive the number of shares of Common Stock which such Holder would
have owned or been entitled to receive after the happening of any and
each of the events described above if such Note had been converted
immediately prior to the happening of each such event on the day upon
which such subdivision or combination, as the case may be, becomes
effective.
(iii) Organic Changes. In case the Company shall
effect an Organic Change, then the Holder shall be given a written
notice from the Company informing such Holder of the terms of such
Organic Change and of the record date thereof for any distribution
pursuant thereto, at least ten days in advance of such record date,
and, if such record date shall precede the Maturity Date, the Holder
shall have the right thereafter to receive, upon conversion of the
Note, the number of shares of stock or other securities, property or
assets of the Company, or of its successor or transferee or any
affiliate thereof, or cash receivable upon or as a result of such
Organic Change that would have been received by a holder of the number
of shares of Common Stock equal to the number
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of shares the Holder would have received had such Holder converted the
Note prior to such event at the Conversion Price immediately prior to
such event. In any such case, the Company will make appropriate
provision (in form and substance reasonably satisfactory to the Holder)
with respect to such Holders' rights and interests to insure that the
provisions of this Section 3(c)(iii) will thereafter be applicable to
the Note (including, in the case of any such Organic Change in which
the successor entity or purchasing entity is other than the Company, an
immediate adjustment of the Conversion Price to the value for the
Common Stock reflected by the terms of such Organic Change, if the
value so reflected is less than the Conversion Price in effect
immediately prior to such Organic Change). The Company will not effect
any such Organic Change unless prior to the consummation thereof the
successor entity (if other than the Company) resulting from such
Organic Change assumes, by written instrument (in form and substance
satisfactory to the Holder), the obligation to deliver to Holder such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to acquire. The
provisions of this subparagraph (iii) shall similarly apply to
successive Organic Changes.
(iv) Adjustment upon Issuance of Options. If the
Company in any manner grants any rights or options to subscribe for or
to purchase one or more classes of its Common Stock (other than
pursuant to an Approved Stock Plan or upon conversion of the Notes) or
any stock or other securities convertible into or exchangeable for
Common Stock (such rights or options being herein called "Options" and
such convertible or exchangeable stock or securities being herein
called "Convertible Securities") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities (the "New Option
Issuance Price") is less than the Average Market Price immediately
prior to such time, then, from and after the time of such issue or
sale, the Conversion Price shall be reduced, if necessary, so that it
shall not exceed the New Option Issuance Price. For purposes of this
Section 3(c)(iv), the New Option Issuance Price shall mean the amount
determined by dividing (I) the total amount, if any, received or
receivable by the Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus in
the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable
to the Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon exercise of such Options
or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. No further adjustment of
the Conversion Price shall be made upon the actual issuance of such
Common Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(v) Change in Option Price or Rate of Conversion. If
the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange
of any Convertible Securities, or the rate at which any
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Convertible Securities are convertible into or exchangeable for any
class of Common Stock change at any time, the Conversion Price at the
time of such change shall be readjusted, effective on and after the
date of such change, to the Conversion Price which would have been in
effect on the date of such change had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may
be, at the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an increase
of the Conversion Price then in effect.
(vi) Issuance of Additional Shares of Common Stock.
In case the Company at any time or from time to time after the date
hereof shall issue or sell Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to
Section 3(c)(ii), (iv) or (v)), without consideration or for a
consideration per share less than the Average Market Price in effect
immediately prior to such issue or sale, then, and in each such case,
the Conversion Price shall be reduced, to a price determined by
multiplying such Conversion Price by a fraction
(A) the numerator of which shall be the sum of
(i) the number of shares of Common Stock outstanding immediately
prior to such issue or sale and (ii) the number of shares of
Common Stock which the aggregate consideration received by the
Company for the total number of such Additional Shares of Common
Stock so issued or sold would purchase at the Market Price, and
(B) the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such
issue or sale, provided that, for the purposes of this Section
3(c)(vi), immediately after any Additional Shares of Common Stock
are deemed to have been issued pursuant to Section 3(c)(ii) (iv)
or (v), such Additional Shares of Common Stock shall be deemed to
be outstanding, and (y) treasury shares of Common Stock shall not
be deemed to be outstanding.
(vii) Other Dilutive Events. In case any event shall
occur as to which the provisions of this Section 3(c) are not strictly
applicable or if strictly applicable would not fairly protect the
conversion rights of the Holder in accordance with the essential intent
and principles of this Section 3(c), then, in each such case, the Board
of Directors of the Company shall make an adjustment in the application
of such provisions, in accordance with such essential intent and
principles, so as to preserve, without dilution, the conversion rights
represented by this Note.
(viii) No Dilution or Impairment. The Company shall
not, by amendment of its certificate of incorporation or through any
Organic Change or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Note, but
will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against
dilution or other impairment. Without limiting the generality of the
foregoing, the Company (i) shall take all such action as may be
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necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock, free
from all taxes, liens, security interests, encumbrances, preemptive
rights and charges on the conversion of this Note from time to time
outstanding, (ii) shall not take any action which results in any
adjustment of the Conversion Price or the Adjusting Closing Bid Prices
if the total number of shares of Common Stock issuable after the action
upon the conversion of this Note would exceed the total number of
shares of Common Stock then authorized by the Borrower's certificate of
incorporation and available for the purpose of issue upon such
exercise, (iii) shall not permit the par value of any shares of stock
receivable upon the conversion of this Note to exceed the amount
payable therefor upon such exercise, and (iv) shall not issue any
capital stock of any class which is preferred as to dividends or as to
the distribution of assets upon voluntary or involuntary dissolution,
liquidation or winding-up, unless the rights of the holders thereof
shall be limited to a fixed sum or percentage of par value or a sum
determined by reference to a formula based on a published index of
interest rates, an interest rate publicly announced by a financial
institution or a similar indicator of interest rates in respect of
participation in dividends and to a fixed sum or percentage of par
value in any such distribution of assets.
(ix) Notices.
(A) Immediately upon any adjustment pursuant
hereto of the Conversion Price or the Adjusting Closing Bid
Prices, the Company will give written notice thereof to the
Holder, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(B) The Company will give written notice to the
Holder at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (I) with respect to
any dividend or distribution upon the Common Stock, or (II) for
determining rights to vote with respect to any Organic Change,
dissolution or liquidation; provided that in no event shall such
notice be provided to the Holder prior to such information being
made known to the public.
(C) The Company will also give written notice to
the Holder at least twenty (20) days prior to the date on which
any Organic Change, dissolution or liquidation will take place.
(x) Further Adjustments. Successive adjustments in
the Conversion Price and Adjusting Closing Bid Prices shall be made
whenever any event specified above shall occur. All calculations under
this Section 3(c) shall be made to the nearest cent. No adjustment in
the Conversion Price or the Adjusting Closing Bid Prices shall be made
if the amount of such adjustment would be less than $0.01, but any such
amount shall be carried forward and an adjustment with respect thereto
shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $0.01 or more.
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(d) Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice as provided
for in Section 6 below:
(i) Holder's Delivery Requirements. To convert the
Note into full shares of Common Stock on any date (the "Conversion
Date"), the Holder shall (A) deliver or transmit by facsimile, for
receipt on or prior to 11:59 p.m., Pacific Time on such date, a copy of
a fully executed notice of conversion in the form attached hereto as
Exhibit A (the "Conversion Notice"), to the Company or its designated
transfer agent (the "Transfer Agent") to the effect that the Holder
elects to convert a specified principal amount of the Outstanding
Principal Amount of this Note (plus accrued interest), and (B)
surrender to a common carrier for delivery to the Company or the
Transfer Agent as soon as practicable following such date, the
originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by the Company
of a facsimile copy of a Conversion Notice, the Company shall
immediately send, via facsimile, a confirmation of receipt of such
Conversion Notice to the Holder. Upon receipt by the Company or the
Transfer Agent of the originally executed Conversion Notice, the
Company or the Transfer Agent (as applicable) shall, on the next
Business Day following the date of receipt (or the second Business Day
following the date of receipt if received after 11:00 a.m. local time
of the Company or Transfer Agent, as applicable), (I) issue and
surrender to a common carrier for overnight delivery to the address as
specified in the Conversion Notice, a certificate, registered in the
name of the Holder or its designee, for the number of shares of Common
Stock to which the Holder shall be entitled, or (II) credit such
aggregate number of shares of Common Stock to which the Holder shall be
entitled to the Holder's or its designee's balance account with The
Depository Trust Company.
(iii) Dispute Resolution. In the case of a dispute as
to the determination of the Conversion Price, the Company shall
promptly issue to the Holder the number of shares of Common Stock that
is not disputed and shall submit the disputed determinations or
arithmetic calculations to the Holder via facsimile within one (1)
Business Day of receipt of such Xxxxxx's Conversion Notice. If such
Holder and the Company are unable to agree upon the determination of
the Conversion Price within one (1) Business Day of such disputed
determination or arithmetic calculation being submitted to the Holder,
then the Company shall within one (1) Business Day submit via facsimile
the disputed determination of the Conversion Price to an independent,
reputable accounting firm of national standing acceptable to the
Company and the Holder. The Company shall cause such accounting firm to
perform the determinations or calculations and notify the Company and
the Holder of the results no later than forty-eight (48) hours from the
time it receives the disputed determinations or calculations. Such
accounting firm's determination shall be binding upon all parties
absent manifest error.
(iv) Record Holder. The Person or Persons entitled to
receive the shares of Common Stock issuable upon a conversion of the
Note shall be treated for all
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purposes as the record holder or holders of such shares of Common Stock
on the applicable Conversion Date.
(v) Company's Failure to Timely Convert. If the
Company shall fail (other than as a result of the situations described
in Section 6(a) with respect to which the Holder has elected, and the
Company has satisfied its obligations under, one of the options set
forth in subparagraphs (i) through (iv) of Section 6(a)) to issue to
the Holder on a timely basis as described in this Section 3(d), a
certificate(s) for the aggregate number of shares of Common Stock to
which the Holder is entitled upon the Holder's conversion of the Note
as reflected in the applicable Conversion Notice, the Company shall pay
damages to the Holder equal to the greater of (A) actual damages
incurred by the Holder as a result of the Holder's needing to "buy in"
shares of Common Stock to the extent necessary to satisfy its
securities delivery requirements ("Buy In Actual Damages") and (B)
after the effective date of the Registration Statement (as defined in
the Exchange Agreement) if the Company fails to deliver such
certificates within five days after the last possible date which the
Company could have issued such Common Stock to the Holder without
violating this Section 3(d), on each date such conversion is not timely
effected in an amount equal to 1% of the product of (I) the number of
shares of Common Stock not issued to the Holder on a timely basis and
to which the Holder is entitled and (II) the Closing Bid Price of the
Common Stock on the last possible date which the Company could have
issued such Common Stock to the Holder without violating this Section
3(d).
(e) Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon any conversion shall be
rounded up or down to the nearest whole share.
(f) Taxes. The Company shall pay any and all taxes which may
be imposed upon it with respect to the issuance and delivery of Common Stock
upon any conversion.
4. Acceleration at the Option of the Company.
If all or any portion of the Note remains outstanding on a
Optional Prepayment Date, then upon irrevocable written notice (the "Forced
Prepayment Notice") from the Company to the Holder delivered no later than ten
(10) days after any such Optional Prepayment Date and specifying a date for
mandatory prepayment which is forty-five (45) days after the Holder's receipt of
the Forced Prepayment Notice (the "Forced Prepayment Date") the Note shall be
prepaid as of the Forced Prepayment Date in immediately available funds in an
amount equal to 105% of the Outstanding Principal Amount being prepaid, plus
accrued and unpaid interest to the date of such prepayment, and the Holder shall
thereupon on or prior to the Forced Prepayment Date surrender the Note, duly
endorsed for cancellation, to the Company or the Transfer Agent. No Person shall
thereafter have any rights in respect of the Note, except the right to receive
the payment set forth in this Section 4. The provisions of this Section 4 shall
not be deemed to restrict the ability of the Holder to convert the Note pursuant
to the provisions of Section 3 at any time prior to the Forced Prepayment Date.
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5. Acceleration Provisions.
(a) Acceleration Upon Major Transaction.
Promptly after a Major Transaction and provided that the consideration per share
of Common Stock in any such Major Transaction is not less than $1.50 per share
(subject to adjustment for the events set forth in Section 3(c)(i) & (ii)
hereof), the Company shall be required to prepay the Outstanding Principal
Amount of the Note in an amount equal to 105% of the Outstanding Principal
Amount being prepaid, plus accrued and unpaid interest to the date of such
prepayment ("Major Transaction Acceleration Price"). The provisions of this
Section 5(a) shall not be deemed to restrict the ability of the Holder to
convert the Note pursuant to the provisions of Section 3 at any time and from
time to time before the consummation of a Major Transaction.
(b) Acceleration Option Upon Triggering Event.
In addition to all other rights of the Holder contained herein (including,
without limitation, the provisions of Section 3), after a Triggering Event, the
Holder shall have the right, at the Holder's option, to declare all or a portion
of the Outstanding Principal Amount of the Note to be due and payable at a price
equal to the product of (i) the aggregate number of shares of Common Stock for
which the amount of the Note being converted would be converted into as of the
date immediately preceding such Triggering Event on which the exchange or market
on which the Common Stock is traded is open multiplied by (ii) the Average
Market Price of the Common Stock on such date ("Triggering Event Acceleration
Price" and, collectively with "Major Transaction Acceleration Price," the
"Acceleration Price"). The provisions of this Section 5(b) shall not be deemed
to restrict the ability of the Holder to convert the Note pursuant to the
provisions of Section 3 at any time and from time before the Holder receives the
Triggering Event Acceleration Price.
(c) "Major Transaction". A "Major Transaction"
shall be deemed to have occurred at such time as any of the following events:
(i) the consolidation or merger of the Company with
or into another Person (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of
incorporation of the Company or pursuant to a merger after which the
holders of the Company's outstanding capital stock immediately prior to
the merger own a number of shares of the resulting company's
outstanding capital stock sufficient to elect a majority of the
resulting company's board of directors) ;
(ii) the sale, transfer, lease, disposal or
abandonment of (whether in one transaction or in a series of
transactions) substantially all of the Company's assets (other than a
sale or transfer to an entity controlling, controlled by or under
common control with the Company); or
(iii) a purchase, tender or exchange offer for more
than 50% of the outstanding shares of Common Stock is made and accepted
by the holders thereof.
(d) "Triggering Event". A "Triggering Event"
shall be deemed to have occurred at such time as any of the following events:
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(i) notice from the Company that Common Stock issued
or issuable upon conversion of the Note (the "Conversion Shares") or
the Warrants (the "Warrant Shares") cannot be sold under the
Registration Statement covering such Common Stock (the "Suspension
Period"), for any period of 45 consecutive days that is (A) after the
date the Registration Statement has been declared effective by the SEC
and (B) prior to the time that the Conversion Shares may be sold
without limitation in accordance with Rule 144(k) under the 1933 Act;
provided that any demand for acceleration under this Section 5(d)(i)
must be made by the Holder within 10 days after receipt of notice from
the Company of the termination of the Suspension Period; and, provided
further that if the aggregate number of days in all Suspension Periods
(the "Suspension Days") is equal to or greater than forty-five (45)
days, then the Maturity Date shall be extended by the number of
Suspension Days;
(ii) the failure of the Common Stock, or Conversion
Shares, or Warrant Shares to be listed on the AMEX, The New York Stock
Exchange or the Nasdaq National Market System for a period of 15
consecutive days; provided, however, that any demand for acceleration
under this Section 5(d)(ii) must be made by the Holder within 30 days
after receipt of the Notice of Triggering Event (as defined in Section
5(f)); or
(iii) the Company's notice to the Holder, including
by way of public announcement, at any time, of its intention not to
comply with proper requests for conversion of the Notes or exercise of
the Warrants into shares of Common Stock, including due to any of the
reasons set forth in Section 6(a) below, except in any case in which
the basis for such intention by the Company is a bona fide dispute as
to the right of the Holder to such conversion.
(e) Mechanics of Acceleration Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten (10) days prior
to the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written notice
thereof via facsimile and overnight courier ("Notice of Major Transaction") to
the Holder.
(f) Mechanics of Acceleration at Option of
Holder Upon Triggering Event. Within one (1) day after the occurrence of a
Triggering Event, the Company shall deliver written notice thereof via facsimile
and overnight courier ("Notice of Triggering Event") to the Holder. At any time
after receipt of a Notice of Triggering Event, but only for as long as the facts
giving rise to the Triggering Event continue to exist, the Holder may require
the Company to prepay the Note by delivering written notice thereof via
facsimile and overnight courier ("Notice of Acceleration at Option of Holder
Upon Triggering Event") to the Company, which Notice of Acceleration at Option
of Holder Upon Triggering Event shall indicate the applicable Acceleration
Price, as calculated pursuant to Section 5(b) above.
(g) Payment of Acceleration Price. Promptly
after the occurrence of a Major Transaction or upon the Company's receipt of a
Notice of Acceleration at Option of Holder Upon Triggering Event from the
Holder, the Company shall immediately notify the
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Holder by facsimile of the mechanics of the delivery of the Holder's Note and
the Holder shall thereafter promptly send the Note to the Company or its
Transfer Agent. The Company shall deliver the applicable Acceleration Price to
the Holder within thirty (30) days after the Company's delivery of a Notice of
Major Transaction or the Company's receipt of the applicable notice to affect an
acceleration; provided that the Holder's Note shall have been so delivered to
the Company or its Transfer Agent. In the event of a dispute as to the
determination of the arithmetic calculation of the Acceleration Price, such
dispute shall be resolved pursuant to Section 3(d)(iii) above. Payments provided
for in this Section 5 shall have priority to payments to other stockholders in
connection with a Major Transaction.
6. Inability to Fully Convert Note.
(a) Holder's Option if Company Cannot Fully
Convert. If, upon the Company's receipt of a Conversion Notice, the Company
cannot issue shares of Common Stock registered for resale under the Registration
Statement for any reason, including, without limitation, because the Company (x)
does not have a sufficient number of shares of Common Stock authorized and
available, (y) is otherwise prohibited by applicable law or by the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Company or its
securities, including without limitation the AMEX, from issuing all of the
Common Stock which is to be issued to the Holder pursuant to a Conversion Notice
or (z) fails to have a sufficient number of shares of Common Stock registered
for resale under the Registration Statement, then the Company shall issue as
many shares of Common Stock as it is able to issue in accordance with the
Holder's Conversion Notice and pursuant to Section 3(d) above and, with respect
to the unconverted portion of the Note, the Holder, solely at its option, can
elect to (unless the Company issues and delivers the Conversion Shares
underlying the unconverted portion of the Note prior to the Holder's election
hereunder, in which case the Holder shall only be entitled to receive Buy In
Actual Damages under Section 3(d)(v)):
(i) require the Company to pay the Holder for the
portion of Outstanding Principal Amount of the Note plus accrued
interest thereon for which the Company is unable to issue Common Stock
in accordance with the Holder's Conversion Notice ("Mandatory Payment")
in an amount (the "Mandatory Payment Price") equal to the Triggering
Event Acceleration Price as of such Conversion Date;
(ii) if the Company's inability to fully convert the
Note is pursuant to Section 6(a)(z) above, require the Company to issue
restricted shares of Common Stock in accordance with the Holder's
Conversion Notice and pursuant to Section 3(d) above;
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted portion of the Note that
was to be converted pursuant to the Holder's Conversion Notice; or
(iv) if the Company's inability to fully convert the
Note is pursuant to the AMEX rules and regulations described in Section
6(a)(y) above, require the Company to issue shares of Common Stock in
accordance with the Holder's Conversion Notice and
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pursuant to Section 3(d) above at a Conversion Price equal to the
Average Market Price of the Common Stock for the five (5) consecutive
trading days preceding the Holder's Notice in Response to Inability to
Convert.
(b) Mechanics of Fulfilling Holder's Election.
The Company shall immediately send via facsimile to the Holder, upon receipt of
a facsimile copy of a Conversion Notice from the Holder which cannot be fully
satisfied as described in Section 6(a) above, a notice of the Company's
inability to fully satisfy the Holder's Conversion Notice (the "Inability to
Fully Convert Notice"). Such Inability to Fully Convert Notice shall indicate
(i) the reason why the Company is unable to fully satisfy the Holder's
Conversion Notice, (ii) the portion of the Outstanding Principal Amount of the
Note plus accrued interest thereon which cannot be converted and (iii) the
applicable Mandatory Payment Price. The Holder must within five (5) Business
Days after receipt of such Inability to Fully Convert Notice deliver written
notice via facsimile to the Company ("Notice in Response to Inability to
Convert") of its election pursuant to Section 6(a) above.
(c) Payment. If the Holder shall elect to have its
Note prepaid pursuant to Section 6(a)(i) above, the Company shall pay the
Mandatory Payment Price in immediately available funds to the Holder within
thirty (30) days of the Company's receipt of the Holder's Notice in Response to
Inability to Convert. If the Company shall fail to pay the applicable Mandatory
Payment Price to the Holder on a timely basis as described in this Section 6(c)
(other than pursuant to a dispute as to the determination of the arithmetic
calculation of the Acceleration Price), in addition to any remedy the Holder may
have under this Note, such unpaid amount shall bear interest at the Default Rate
until paid in full. Until the full Mandatory Payment Price is paid in full to
the Holder, the Holder may void the request for the Mandatory Payment with
respect to the portion of the Note for which the full Mandatory Payment Price
has not been paid and in no event shall such voidance be deemed forgiveness of
any amounts due under this Note. Notwithstanding the foregoing, if the Company
fails to pay the applicable Mandatory Payment Price within such thirty (30) days
time period due to a dispute as to the determination of the arithmetic
calculation of the Acceleration Price, such dispute shall be resolved pursuant
to Section 3(d)(iii) above.
(d) Pro-rata Conversion and Acceleration. In
the event the Company receives a Conversion Notice from more than one Holder on
the same day and the Company can convert and redeem some, but not all, of the
Notes pursuant to this Section 6, the Company shall convert and purchase from
each Holder electing to have such Note converted and purchased at such time an
amount equal to such Holder's pro-rata amount (based on the Outstanding
Principal Amount of the Note held by such Holder relative to aggregate
Outstanding Principal Amount of Notes outstanding) of all Notes being converted
and redeemed.
7. Representations and Warranties.
(a) The Company represents and warrants as follows: (i) the
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware; (ii) the execution, delivery and
performance by the Company of this Note and each
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other instrument, agreement and document executed and delivered by the Company
to the Holder whether now existing or hereinafter executed and delivered in
connection with this Note (together with the Exchange Agreement, the other
Notes, the Warrants, the Registration Rights Agreement and the other agreements,
instruments and other documents heretofore or hereafter furnished in connection
therewith are hereinafter referred to individually as a "Document" and
collectively as the "Documents") are within the Company's corporate powers, have
been duly authorized by all necessary corporate action, and do not contravene
(A) the Company's charter or by-laws or (B) any law or any contractual
restriction binding on or affecting the Company; (iii) no authorization or
approval or other action by, and no notice to or filing with, any governmental
authority, regulatory body or third Person is required for the due execution,
delivery and performance by the Company of any Document; (iv) each Document
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms; (v) the Company has all
requisite corporate power and authority to conduct its business as now conducted
and to consummate the transactions contemplated by the Documents; (vi) the
Company is duly qualified to conduct its business and is in good standing in
each jurisdiction in which the character of the properties owned or leased by
it, or in which the transaction of its business makes such qualification
necessary; (vii) the Company's most recent 10-K or 10-Q, whichever contains the
Company's most recent financial statements, fairly represents the financial
condition of the Company and the results of operations of the Company for the
period ended on the date thereof, all in accordance with generally accepted
accounting principles consistently applied, and since the date thereof there has
been no material adverse change in the operations, business, property, assets or
condition of the Company; (viii) there is no pending or threatened action or
proceeding affecting the Company before any governmental agency or arbitrator
which challenges or relates to the Documents or any transactions contemplated in
connection therewith or which may materially adversely affect the financial
condition or operations of the Company; (ix) no fact is known to the Company
which is reasonably likely to have a material adverse effect on the business,
operations, condition, financial or otherwise, performance or prospects of the
Company and has not been disclosed in the Company's 10-K or 10-Q, whichever has
been filed more recently by the Company with the Securities and Exchange
Commission; and (x) after giving effect to the transactions contemplated by this
Note and the other Documents, the Company is, individually and with its
Subsidiaries on a consolidated basis, Solvent.
(b) Each of the representations and warranties made by the
Company in the Exchange Agreement as in effect on the date hereof, without
regard to any amendment, modification or waiver of such provisions, is true and
correct on the date hereof as if made on the date hereof (except for those
representations and warranties that speak as of a specific date), which
representations and warranties (together with all related definitions and
ancillary provisions) are hereby incorporated by reference as if set forth
herein in their entirety, provided, that: (A) references to "this Agreement",
"herein", "hereunder", and words of similar import shall mean and be a reference
to this Note; (B) references to an "Exhibit" and "Schedule" shall mean and be a
reference to the applicable Exhibit and Schedule to the Exchange Agreement (as
in effect on the date hereof, without regard to any amendment, modification or
waiver of such provisions and without regard to whether or not the Exchange
Agreement remains in effect); and (C) references to Sections in such
representations and warranties shall be references to Sections
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of the Exchange Agreement, provided that to the extent such referenced Sections
are themselves incorporated in this Note by reference, references herein to such
Sections shall be to such Sections as they are incorporated.
8. Covenants. So long as any principal or interest is due
hereunder and shall remain unpaid, the Company will, unless the Holder shall
otherwise consent in writing:
(a) Furnish to the Holder: (i) as soon as
possible and in any event within five days after the occurrence of a Default or
any event that, with the giving of notice or the lapse of time or both, would
constitute a Default, the written statement of the chief financial officer of
the Company, setting forth the details of such Default or event and the action
that the Company proposes to take with respect thereto and (ii) promptly upon
request, such other information concerning the condition or operations,
financial or otherwise, of the Company or any of its Subsidiaries as the Holder
from time to time may reasonably request.
(b) Comply, and cause each of its Subsidiaries
to comply, in all material respects with all applicable laws, rules, regulations
and orders, such compliance to include, without limitation, payment before the
same become delinquent all taxes, assessments and governmental charges imposed
upon it or upon its property except to the extent contested in good faith and
for which adequate reserves (as determined in accordance with generally accepted
accounting principles consistently applied) have been set aside.
(c) Maintain and preserve its existence, rights
and privileges, and obtain, maintain and preserve all permits, licenses,
authorizations and approvals that are necessary in the proper conduct of its
business.
(d) Keep adequate and proper records and books
of account, in which complete and correct entries will be made in accordance
with generally accepted accounting principals consistently applied, reflecting
all financial transactions of the Company.
(e) Comply with each of the affirmative and
negative covenants contained in the Exchange Agreement (as in effect on the date
hereof, without regard to any amendment, modification or waiver of such
provisions and without regard to whether or not the Exchange Agreement remains
in effect) which covenants are hereby incorporated by reference as if set forth
herein in their entirety provided that any reference changes provided for in
Section 8 hereof shall also be applicable to this Section 8(e).
(f) Not incur any indebtedness except Senior Debt,
Subordinated Debt and other indebtedness in the ordinary course of business not
to exceed $2 million at any time outstanding.
9. Reservation of Shares. The Company shall, so long as any
principal or interest is due hereunder, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Note, such number of shares of Common Stock as shall from time
to time be sufficient to effect the conversion of the Note;
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provided that the number of shares of Common Stock so reserved shall at no time
be less than 200% of the number of shares of Common Stock for which the Note is
at any time convertible.
10. No Impairment. The Company shall not intentionally take
any action which would impair the rights and privileges of the Note set forth
herein or the Holder.
11. Limitation on Number of Conversion Shares. Notwithstanding
any provision to the contrary contained herein, in no event shall the Holder be
entitled to convert this Note such that upon giving effect to such conversion,
the aggregate number of shares of Common Stock then beneficially owned by the
Holder and its "affiliates" as defined in Rule 144 of the Act would exceed 4.99%
of the total issued and outstanding shares of the Common Stock following such
conversion; provided, however, that Holder may elect to waive this restriction
upon not less than sixty-one (61) days prior written notice to the Company. For
purposes of this Section, beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended.
12. Obligations Absolute. No provision of this Note shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to convert this Note pursuant to the provisions of Section 3, and
to pay the principal of, and interest on, this Note at the time, place and rate,
and in the manner, herein prescribed.
13. Waivers of Demand, Etc. The Company hereby expressly
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder.
14. Replacement Note. In the event that the Holder notifies
the Company that its Note has been lost, stolen or destroyed, a replacement Note
identical in all respects to the original Note (except for registration number
and Outstanding Principal Amount, if different than that shown on the original
Note) shall be issued by the Company to the Holder, provided that the Holder
executes and delivers to the Company an agreement reasonably satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection with
such Note, but in no event shall the aggregate amount of such indemnification
exceed the Outstanding Principal Amount of the Note.
15. Payment of Expenses. The Company agrees to pay on demand
(i) one-half of all reasonable costs and expenses (including, without
limitation, fees and expenses of counsel to the Holder) incurred by the Holder
in connection with any waiver or amendment of any provision of this Note and the
other Documents and (ii) all costs and expenses (including, without limitation,
fees and expenses of counsel to the Holder) incurred by the Holder in connection
with any Default under this Note and the enforcement of the Holder's rights
and/or the collection of all amounts due under this Note, the Registration
Rights Agreement or the Exchange Agreement. The Company hereby agrees to
indemnify and hold harmless the Holder and its members, partners, agents,
employees, affiliates and advisors from and against any and all claims, damages,
losses, liabilities
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and expenses (including without limitation, all fees and other client charges of
counsel to the Holder) which may be incurred by or asserted against the Holder
or any such member, partner, agent, employee, affiliate or advisor in connection
with or arising out of any investigation, litigation or proceeding related to or
arising out of this Note or any other Document or any transaction contemplated
hereby or thereby. The obligations of the Company under this paragraph shall
survive the payment in full of this Note.
16. Restriction on Cash Dividends With Respect to Common
Stock. Until the Note has been converted or redeemed in its entirety as provided
herein, the Company shall not, directly or indirectly, declare or pay any cash
dividend on its Common Stock without the prior express written consent of the
Holder.
17. Assignment and Transfer of Note.
(a) This Note may not be sold, assigned, or in
any manner transferred or disposed of, in whole or in part, except in compliance
with the terms and conditions hereof.
(b) This Note shall be registered in a
register (the "Note Register") as it is issued and transferred, which Note
Register shall be maintained by the Company at its principal office or, at the
Company's election and expense, by the Company's Transfer Agent. The Company
shall be entitled to treat the registered holder of the Note on the Note
Register as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Note on the part
of any other Person, and shall not be affected by any notice to the contrary,
except that, if and when any Note is properly assigned in blank, the Company may
(but shall not be obligated to) treat the bearer thereof as the owner of such
Note for all purposes. All of the rights provided to the Holder under this Note,
if properly assigned, may be exercised by a new holder without a new note first
having been issued.
(c) Subject to the restrictions on transfer
contained herein, if applicable, this Note and all rights hereunder are
transferable in whole or in part, without charge to the Holder hereof, upon
surrender of this Note with a properly executed Form of Assignment attached
hereto as Exhibit B at the principal office of the Company.
18. Subordination.
(a) Agreement to Subordinate. The Subordinated
Debt is and shall be subordinate, to the extent and in the manner hereinafter
set forth, in right of payment to the prior payment in full of the Senior Debt.
(b) Restrictions on Payment of the Subordinated
Debt. All Senior Debt shall first be paid in full, or such payment shall have
been provided for, before any payment shall be made to the Holder in respect of
the Subordinated Debt; provided, however, that the Holder may receive, and the
Company may pay, principal of and interest on the Subordinated Debt evidenced by
the Note in the stated amounts and on the stated dates of payment hereof or,
with respect to interest payments, Common Stock issued pursuant to the
provisions of Section 2(a)(ii) hereof, unless (i) a default in connection with
the Senior Debt (a "Senior Debt Default")
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arising out of the failure by the Company to make a payment on account of
principal of or interest on Senior Debt has occurred and is continuing and (ii)
the Company and the Holder have received written notice of such occurrence (a
"Blockage Notice") from one or more holders of the Senior Debt in the aggregate
principal amount of at least 50% of the Senior Debt outstanding; provided,
further, however, that the Company may resume making payments on account of
Subordinated Debt if at the time of any such payment 90 days shall have elapsed
since the occurrence of such Senior Debt Default, or on such earlier date, if
any, on which the Senior Debt has been paid in full in cash, in other property
or securities or such Senior Debt Default is cured or is waived in writing by
the applicable holders of the Senior Debt or such Blockage Notice has been
withdrawn or rescinded by the holders of the Senior Debt. Not more than one
Blockage Notice may be provided with respect to the Subordinated Debt during any
period of 365 consecutive days.
(c) Senior Indebtedness Unconditional.
(i) All rights and interests of the
holders of the Senior Debt hereunder, and all agreements and
obligations of the Company hereunder, shall remain in full force and
effect irrespective of: (A) any lack of validity or enforceability of
any Senior Loan Document or any other agreement or instrument relating
thereto, (B) any change in the time, manner or place of payment of, or
in any other term in respect of, all or any of the Senior Debt, or any
other amendment or waiver of or any consent to departure from any
Senior Loan Document, (C) any exchange or release of, or non-perfection
of any lien on or security interest in, any collateral, or any release
or amendment or waiver of or consent to departure from any guaranty,
for all or any of the Senior Debt, or (D) any other circumstance which
might otherwise constitute a defense available to, or a discharge of,
the Company in respect of the Senior Debt or the Company in respect of
this Note.
(ii) This Section of this Note shall
continue to be effective or shall be reinstated, as the case may be, if
at any time any payment of any of the Senior Debt is rescinded or must
otherwise be returned by a holder of Senior Debt upon the commencement
of a Proceeding or otherwise, all as though such payment had not been
made.
(d) Waivers. Except as otherwise expressly
provided herein, each of the Holder and the Company hereby waives (i) promptness
and diligence, (ii) notice of acceptance and notice of the incurrence of any
Senior Debt by the Company, (iii) notice of any actions taken by the holder of
any Senior Debt or the Company or any other person under any Senior Loan
Document or any other agreement or instrument relating thereto, (iv) all other
notices, demands and protests, and all other formalities of every kind in
connection with the enforcement of the Senior Debt or of the obligations of the
Holder and the Company hereunder, the omission of or delay in which, but for the
provisions of this Section, might constitute grounds for relieving the Holder or
the Company of its obligations hereunder and (v) any requirement that any holder
of Senior Debt protect, secure, perfect or insure any security interest or other
lien or
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any property subject thereto or exhaust any right to take any action against the
Company or any other person or any collateral.
(e) Subrogation. No payment or distribution to
a holder of Senior Debt pursuant to the provisions of this Note shall entitle
the Holder to exercise any rights of subrogation in respect thereof until the
Senior Debt shall have been paid in full. After the Senior Debt shall have been
paid in full, the Holder shall be subrogated to the rights of the holders of the
Senior Debt to receive payments or distributions of assets of the Company
applicable to the Senior Debt until all amounts owing in respect of the
Subordinated Debt shall be paid in full, and for the purpose of such
subrogation, no such payments or distributions to the holders of the Senior Debt
by or on behalf of the Company or by or on behalf of the Holder by virtue of
this Section 19 of this Note which otherwise would have been made to the Holder
shall, as among the Company, its creditors (other than the holders of its Senior
Debt) and the Holder, be deemed to be payment by the Company to or on account of
the Senior Debt, it being understood that the above provisions relating to
subordination are solely for the purpose of defining the relative rights of the
holders of the Senior Debt, on the one hand, and the Holder, on the other hand.
(f) Subordination.
(i) Except to the extent that the
Holder has authorized the Company, and the Company has bound itself, not to make
any payment on the Subordinated Debt other than in accordance with this Note, as
set forth in the Company's undertaking appearing in this Note, nothing contained
herein shall impair, as between the Company and the Holder, the obligation of
the Company, which is absolute and unconditional, to convert this Note pursuant
to the provisions of Section 3 and to pay the principal amount of and interest
on the Subordinated Debt in accordance with the terms hereof, or affect the
relative rights of the Holder and creditors of the Company other than the
holders of the Senior Debt, nor shall anything herein prevent the Holder from
exercising all remedies otherwise permitted by applicable law upon default,
subject to the rights, if any, under this Note of the holders of the Senior
Debt. In no event shall any term, covenant, condition or restriction in this
Section 20 of this Note affect in any way any right, power or privilege of the
Holder in respect of principal of or interest on the Note, or any related
obligation.
(ii) The Holder shall not at any time be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to it or the taking of any other action under this Note,
unless and until the Holder and the Company shall have received a notice thereof
from the applicable holders of the Senior Debt and, prior to the receipt of any
such notice, the Holder shall be entitled to assume that no such facts exist.
19. Intentionally Omitted.
20. Events of Default. If any of the following shall occur
(each a "Default"):
(a) the Company shall fail to pay any principal of or interest
on this Note when due (whether by scheduled maturity, acceleration, demand or
otherwise); or (b) any representation or warranty made by the Company in this
Note, in any other Document heretofore
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or hereafter furnished by or on behalf of the Company (including, without
limitation, the Exchange Agreement) or in any document or certificate in
connection with the execution and delivery of this Note shall have been
incorrect in any material respect when made; or (c) the Company shall fail to
perform or observe any term, covenant or agreement contained in any Document
(including, without limitation, the failure to honor any Conversion Notice or an
Election to Purchase Shares (as defined in the Warrants)) to be performed or
observed by the Company, or (d) the Company shall fail to pay any debt for
borrowed money or other similar obligation or liability ("Indebtedness")
(excluding Indebtedness evidenced by this Note), or any interest or premium
thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Indebtedness, or any other default under any agreement or
instrument relating to any such Indebtedness, or any other event, shall occur
and shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such Indebtedness;
or any such Indebtedness shall be declared to be due and payable, or required to
be prepaid (other than by a regularly scheduled required prepayment), prior to
the stated maturity thereof; or (e) one or more judgments or orders for the
payment of money exceeding any applicable insurance coverage shall be rendered
against the Company, and either (i) enforcement proceedings shall have been
commenced by any creditor upon any such judgment or order, or (ii) there shall
be any period of ten (10) consecutive days during which a stay of enforcement of
any such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or (f) the Company shall be generally not paying its debts as
such debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against the Company seeking to
adjudicate it a bankrupt or insolvent, or seeking dissolution, liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other similar
official for the Company or for any substantial part of its property and such
proceeding shall remain undismissed or unstayed for a period of thirty (30)
days; or the Company shall take any action to authorize or effect any of the
actions set forth above in this clause (f); or (g) any provision of this Note or
any other Document (including, without limitation, the Exchange Agreement) shall
at any time for any reason be declared to be null and void by a court of
competent jurisdiction, or the validity or enforceability thereof shall be
contested by the Company, or a proceeding shall be commenced by the Company
seeking to establish the invalidity or unenforceability thereof, or the Company
shall deny that it has any liability or obligation hereunder or thereunder; or
(h) a material adverse change in the condition or operations, financial or
otherwise, of the Company, as determined by the Holder in its sole discretion,
shall occur and written notice thereof shall have been given to the Company by
the Holder; or (i) a Senior Debt Default shall have occurred and be continuing;
then the Holder may (i) declare the Outstanding Principal Amount of this Note
and all other amounts due hereunder to be immediately due and payable, whereupon
the Outstanding Principal Amount of this Note and all such other amounts shall
become and shall be forthwith due and payable, without diligence, presentment,
demand, protest or other notice of any kind, all of which
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are hereby expressly waived and all such amounts, if unpaid, shall bear interest
at the Default Rate, and (ii) exercise any and all of its other rights under
applicable law, hereunder and under the other Documents. In such event, this
Note shall be prepaid at a prepayment price equal to 125% of the Outstanding
Principal Amount of the Note plus accrued but unpaid interest thereon.
21. Taxes, etc. All payments made by the Company hereunder
will be made without setoff, counterclaim or other defense. All such payments
shall be made free and clear of and without deduction for any present or future
income, stamp or other taxes, levies, imposts, deductions, charges, fees,
withholding, restrictions or conditions of any nature now or hereafter imposed,
levied, collected, withheld or assessed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein, and all interest, penalties
or similar liabilities, excluding taxes on the overall net income of the Holder
(such non-excluded taxes are hereinafter collectively referred to as the
"Taxes"). If the Company shall be required by law to deduct or to withhold any
Taxes from or in respect of any amount payable hereunder, (i) the amount so
payable shall be increased to the extent necessary so that after making all
required deductions and withholdings (including Taxes on amounts payable to the
Holder pursuant to this sentence) the Holder receives an amount equal to the sum
it would have received had no such deductions or withholdings been made, (ii)
the Company shall make such deductions or withholdings and (iii) the Company
shall pay the full amount deducted or withheld to the relevant taxation
authority in accordance with applicable law. Whenever any Taxes are payable by
the Company, as promptly as possible thereafter the Company shall send the
Holder an official receipt showing payment. In addition, the Company agrees to
pay any present or future taxes, charges or similar levies which arise from any
payment made hereunder or from the execution, delivery, performance, recordation
or filing of, or otherwise with respect to, this Note or any other Document
(hereinafter referred to as "Other Taxes"). The Company will indemnify the
Holder for the full amount of Taxes or Other Taxes (including, any Taxes or
Other Taxes on amounts payable to the Holder under this paragraph) paid by the
Holder and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, upon written demand by the Holder therefor.
22. Miscellaneous.
(a) The Company agrees that all notices or other
communications provided for hereunder shall be in writing (including
telecommunications) and shall be mailed, telecopied or delivered to the Company
at the address of the Company set forth next to its signature, or at such other
address as may hereafter be specified by the Company to the Holder in writing.
All notices and communications shall be effective (i) if mailed, when received,
(ii) if telecopied, when transmitted, and (iii) if delivered, upon delivery.
(b) No failure on the part of the Holder to exercise, and no
delay in exercising, any right, power, privilege or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof by
the Holder preclude any other or further exercise thereof or the exercise of any
other right, power, privilege or remedy of the Holder. No amendment or waiver of
any provision of this Note, nor consent to any departure by the Company
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Holder, and
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then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
(c) Any provision hereof which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
(d) The Company hereby (i) irrevocably submits to the
jurisdiction of any Delaware State or Federal court in any action or proceeding
arising out of or relating to this Note, (ii) waives any defense based on
doctrines of venue or forum non conveniens, or similar rules or doctrines, and
(iii) irrevocably agrees that all claims in respect of such an action or
proceeding may be heard and determined in such Delaware State or Federal court.
The Company would (by its acceptance hereof) waive any right to trial by jury in
any action, proceeding or counterclaim arising out of or relating to this Note.
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(e) This Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
NTN COMMUNICATIONS, INC.
By: ___________________________________________
Name:
Title:
Address:
0000 Xx Xxxxx Xxxxx
Xxxxxxxx, XX 00000
Attention: President
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
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SCHEDULE I
PAYMENTS OF PRINCIPAL
Principal Principal Notation
Paid or Prepaid Balance Made By
--------------- --------- --------
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EXHIBIT A
NTN COMMUNICATIONS, INC.
CONVERSION NOTICE
Reference is made to the 7% convertible senior subordinated note due February 1,
2001 (the "NOTE"), made by NTN Communications, Inc., a Delaware corporation (the
"COMPANY"), to the order of [Xxxxx International][Shepherd Investments
International, Ltd.]. In accordance with and pursuant to the Note, the
undersigned hereby elects to convert the amount under this Note indicated below
into shares of Common Stock, $.005 par value per share of the Company (the
"COMMON STOCK"), by tendering the Note as of the date specified below.
Date of Conversion:
---------------------------------
Outstanding Principal Amount of Note to be
converted:
Please confirm the following information:
Conversion Price:
---------------------------------
Number of shares of Common Stock
to be issued:
---------------------------------
---------------------------------
Please issue the Common Stock and, if applicable, any check drawn on an account
of the Company into which Note is being converted in the following name and to
the following address:
Issue to:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Facsimile Number:
---------------------------------
Authorization:
---------------------------------
By:
-----------------------------
Title:
--------------------------
Dated:
---------------------------------
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Exhibit B
FORM OF ASSIGNMENT
[To be executed only upon assignment of the Note]
For value received, the undersigned registered Holder of the within Note hereby
sells, assigns and transfers unto ______ the right represented by such Note, and
appoints _____________ Attorney to make such transfer on the Note Register of
NTN Communications, Inc., maintained for such purpose, with full power of
substitution in the premises.
Dated:
----------------
(Signature must conform in all respects to the
name of holder as specified on the face of the
Note)
----------------------------------------------
(Street Address)
----------------------------------------------
(City) (State) Zip Code)
Signed in the presence of:
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