THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE
AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR THE SHARES OF COMMON STOCK UNDER SAID
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO LMIC, INC., THAT SUCH
REGISTRATION IS NOT REQUIRED.
AMENDED AND RESTATED CONVERTIBLE NOTE
FOR VALUE RECEIVED, LMIC, INC., a Delaware corporation (the "Borrower"),
hereby promises to pay to the order of LAURUS MASTER FUND, LTD. (the "Holder")
or its registered assigns or successors in interest, without demand, the
outstanding principal amount of all loans made by the Holder to the Borrower
under the terms of this Note (each an "Advance" and collectively the "Advances")
on or before the Maturity Date (as hereinafter defined). The aggregate principal
amount of all Advances outstanding hereunder shall not exceed FOUR MILLION
DOLLARS ($4,000,000), the principal amount hereunder shall be equal to the
amount of such Advances to the extent not repaid and no Advance shall be made
after November 19, 2006 (the "Maturity Date"). The amount and date of each
Advance shall be entered by the Holder into Holder's records, which records
shall be conclusive evidence of the subject matter thereof absent manifest
error. Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Purchase and Security Agreement between the
Borrower and the Holder dated the date hereof (the "Purchase Agreement"). This
note amends and restates in its entirety (and is given in substitution for and
not in satisfaction of) that certain $2,000,000 promissory note made by Linsang
Manufacturing, Inc. in favor of Cheshire Distributors, Inc. on February 5, 2003,
as such note was assigned to Holder pursuant to a Collateral Assignment
Agreement dated February 5, 2003 between Cheshire Distributors, Inc. and Holder.
The following terms shall apply to this Note:
ARTICLE I
INTEREST
1.1 Interest Rate. Except as modified by Section 1.2 below, the Borrower
shall pay interest at the Contract Rate on the unpaid principal balance of the
Note until such time as such balance or portion thereof is collected in full in
good funds in dollars of the United States of America. Interest shall be payable
in arrears commencing one month from the date hereof and on the first business
day of each consecutive calendar month thereafter, and on the Maturity Date,
accelerated or otherwise, due and payable as described below.
1.2 Default Rate. After the Default Notice Period, the Default Rate, as
defined in the Purchase Agreement, shall apply to the amounts owed hereunder.
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ARTICLE II
ADVANCES UNDER NOTE
2.1 Authorized Person.
(a) Any officer of the Borrower who has been disclosed to the Holder
in writing by the Borrower as an authorized officer for such purposes (an
"Authorized Person") may request an Advance on any day other than a Saturday,
Sunday or other day when commercial banks located in New York, New York are not
open for commercial banking business. Such request shall be made in writing
delivered to the Holder by not later than 12:00 p.m. on the day of the requested
Advance.
(b) The Borrower hereby authorizes the Holder to rely upon the
written instructions of any person identifying himself or herself as an
Authorized Person and upon any signature which the Holder reasonably believes to
be genuine, and the Borrower shall be bound thereby in the same manner as if
such person were authorized or such signature were genuine.
2.2 Limitation on Advances. It is expressly understood that the Holder is
under no obligation to make any Advance to the Borrower under this Note (whether
by reason of any provision hereof or otherwise) (i) if an Event of Default, as
hereinafter defined, has occurred and is continuing, or (ii) if such Advance or
any part thereof would cause the aggregate amount of all Advances made hereunder
to exceed the Accounts Availability.
ARTICLE III
CONVERSION RIGHTS
3.1. Conversion into the Borrower's Common Stock.
(a) To the extent that Advances have been made hereunder, the Holder shall
have the right, but not the obligation, from and after the date hereof, and then
at any time until the Maturity Date, to convert the principal portion of the
Advances made hereunder and/or interest and fees due and payable into fully paid
and nonassessable shares of common stock of the Borrower as such stock exists on
the date of issuance of this Note, or any shares of capital stock of the
Borrower into which such stock shall hereafter be changed or reclassified (the
"Common Stock") at the Conversion Price as defined below. In the event that the
Holder elects to convert this Note into Common Stock (to the extent permitted
herein), the Holder shall give notice of such election by delivering an executed
and completed notice of conversion ("Notice of Conversion") to the Borrower and
such Notice of Conversion shall provide a breakdown in reasonable detail of the
amount of Note principal, interest and fees that are being converted. On each
Conversion Date (as hereinafter defined) and in accordance with its Notice of
Conversion, the Holder shall make the appropriate reduction to the Advances,
interest and fees as entered in its records and shall provide written notice
thereof to the Borrower within 2 business days after the Conversion Date. Each
date on which a Notice of Conversion is delivered or telecopied to the Borrower
in accordance with the provisions hereof shall be deemed a Conversion Date (the
"Conversion Date"). A form of Notice of Conversion that may be employed by the
Holder is annexed hereto as Exhibit A. The Borrower will cause the transfer
agent to transmit the certificates
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representing the shares of the Common Stock issuable upon conversion of the Note
to the Holder by crediting the account of the Holder's designated broker with
the Depository Trust Corporation ("DTC") through its Deposit Withdrawal Agent
Commission ("DWAC") system within three (3) business days after receipt by the
Borrower of the Notice of Conversion (the "Delivery Date") if there is a then
effective registration statement covering the resale of such shares to be issued
upon such conversion and the Borrower's transfer agent is able to transfer such
shares via DWAC.
In the case of the exercise of the conversion rights set forth herein the
conversion privilege shall be deemed to have been exercised and the shares of
Common Stock issuable upon such conversion shall be deemed to have been issued
upon the date of receipt by the Borrower of the Notice of Conversion. The Holder
shall be treated for all purposes as the record holder of such Common Stock,
unless the Holder provides the Borrower written instructions to the contrary.
(b) The Conversion Price per share shall be $2.50] (the "Conversion
Price"); provided, however that for every $1.5 million of conversions made
hereunder, the Conversion Price thereafter shall be adjusted to equal 103% of
the average closing price for the thirty days prior to the last day of the
period during which such $1.5 million has been converted. The Conversion Price
is subject to further adjustment as provided in Section 3.1(e) hereof.
If after the Default Notice Period (as defined below) the Borrower has not
repaid in full the amounts then due hereunder or cured the Event of Default,
then the Conversion Price shall be reduced and shall be equal to the lower of
(i) the Conversion Price; or (ii) eighty percent (80%) of the average of the
three lowest closing prices for the Common Stock on NASD OTC Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange,
or New York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock, the "Principal
Market"), or on any securities exchange or other securities market on which the
Common Stock is then being listed or traded, for the thirty (30) trading days
prior to but not including the Conversion Date.
(c) Notwithstanding anything contained herein to the contrary, the Holder
shall not be entitled to convert pursuant to the terms of this Note an amount
that would be convertible into that number of shares of Common Stock which would
exceed the difference between the number of shares of Common Stock beneficially
owned by such holder or issuable upon exercise of warrants held by such holder
and 4.99% of the outstanding shares of Common Stock of the Borrower. For the
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and Regulation
13d-3 thereunder. The Holder may void the conversion limitation described in
this section upon 75 days prior notice to the Borrower or upon an Event of
Default hereunder.
(d) The Borrower understands that a delay in the delivery of the shares of
Common Stock in the form required pursuant to this Article beyond the Delivery
Date could result in economic loss to the Holder. As compensation to the Holder
for such loss, the Borrower agrees to pay late payments to the Holder for late
issuance of the such shares in the form required pursuant to the Note upon
conversion of the Note, in the amount equal to greater of (i) $200 per business
day after the Delivery Date and (ii) the Holder's actual damages from such
delayed delivery (provided that such actual damages are not a result of the
Holder or any of its affiliates engaging in short sales of the Company's Common
Stock). The Borrower shall pay any payments incurred under this Section within
ten (10) business days from demand therefor and, in the case of actual damages,
accompanied by reasonable documentation from the Holder of the amount of such
damages.
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(e) The Conversion Price and number and kind of shares or other securities
to be issued upon conversion shall be subject to adjustment from time to time
upon the happening of certain events while this conversion right remains
outstanding, as follows):
X. Xxxxxx, Sale of Assets, etc. The Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon shall thereafter be deemed to evidence the
right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the number of
shares of Common Stock the Holder could have acquired immediately prior to such
consolidation, merger, sale or conveyance based on the Conversion Price as of
the closing date thereof. The foregoing provision shall similarly apply to
successive transactions of a similar nature by any such successor or purchaser.
Without limiting the generality of the foregoing, the provisions of this Section
shall apply to such securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the number of shares of Common Stock into which the
Note would have been convertible immediately prior to such reclassification or
other change at the Conversion Price as of the effective date for such
reclassification or change.
C. Stock Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a greater or smaller number of shares of
Common Stock, or if a dividend is paid on the Common Stock in shares of Common
Stock, the Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the case
of combination of shares, in each such case by the ratio which the total number
of shares of Common Stock outstanding immediately after such event bears to the
total number of shares of Common Stock outstanding immediately prior to such
event.
D. Share Issuance. Subject to the provisions of this Section, if the
Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the portion of the principal amount of the Note permitted by
Section 3.1(a) (otherwise than as: (i) provided in Sections 3.1(e)A, 3.1(e)B or
3.1(e)C or this subparagraph D; or (ii) pursuant to warrants or options that may
be granted in the future under any option plan of the Borrower, or any
employment agreement, joint venture, credit, leasing or other financing
agreement or any joint venture or other strategic arrangement, in each case now
or hereinafter entered into by the Borrower, (iii) pursuant to any agreement
entered into by the Company or any of its subsidiaries for the acquisition of
all or a part of another business (whether by stock purchase or asset purchase,
merger or otherwise; ((i), (ii) and (iii) above, are hereinafter referred to as
the "Excluded Issuances")) for a consideration less than the Conversion Price
that would be in effect at the time of such issue, then, and thereafter
successively upon each such issue, the Conversion Price shall be reduced as
follows: (i) the number of shares of Common Stock outstanding immediately prior
to such issue shall be multiplied by the Conversion Price in effect at the time
of such issue and the product shall be added to the aggregate consideration, if
any, received by the Borrower upon such issue of additional shares of Common
Stock; and (ii) the sum so obtained shall be divided by the number of shares of
Common Stock outstanding immediately after such issue. The resulting quotient
shall be the adjusted Conversion Price. Except for the Excluded Issuances for
purposes of this
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adjustment, the issuance of any security of the Borrower carrying the right to
convert such security into shares of Common Stock or of any warrant, right or
option to purchase Common Stock shall result in an adjustment to the Conversion
Price upon the issuance of shares of Common Stock upon exercise of such
conversion or purchase rights.
(f) During the period the conversion right exists, the Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the conversion of this
Note to the extent permitted by Section 3.1(a). The Borrower represents that
upon issuance, such shares will be duly and validly issued, fully paid and
non-assessable. The Borrower agrees that the Borrower's issuance of this Note
shall constitute full authority to the Borrower's officers, agents, and transfer
agents who are charged with the duty of executing and issuing stock certificates
to execute and issue the necessary certificates for shares of Common Stock upon
the conversion of this Note.
3.2 Registration Rights. The Holder has been granted registration rights
with respect to the shares of Common Stock issuable upon conversion of this Note
as more fully set forth in a Registration Rights Agreement dated the date hereof
(the "Registration Rights Agreement.")
3.3 Required Conversion. In the event that the Common Stock trades on the
Principal Market at a price greater than 125% of the Conversion Price for a
period of at least 22 consecutive trading days, then the Borrower may, at its
sole option, provide the Holder irrevocable written notice ("Call Notice")
requiring the conversion at the Conversion Price of all or a portion of the Note
held by the Holder as of the date set forth in such Call Notice (the "Call
Date"), which such date shall be at least 22 trading days following the date of
the Call Notice, provided a registration statement covering resales of that
number of shares of Common Stock then issuable upon conversion of this Note
pursuant to such Call Notice has been declared effective and is available for
use or the date of such Call Notice is after such time as the Common Stock
underlying this Note may be sold without restriction or volume limitations
pursuant to Rule 144(k) under the Securities Act of 1933, as amended. The amount
of Common Stock to be issued in connection with any such conversion pursuant to
a particular Call Notice pursuant to this Section 3.3 shall not exceed 20% of
the aggregate dollar trading volume of the Common Stock for the 22 trading days
immediately preceding the Call Date. If the price of the Common Stock falls
below 125% of the Conversion Price during the 22 trading day period preceding
the Call Date, then the Holder will no longer be required to convert the Note
pursuant to such Call Notice. The Borrower shall not be permitted to give the
Investor more than one notice during any 22-day period.
ARTICLE IV
EVENT OF DEFAULT
The occurrence of any of the following events is an Event of Default
("Event of Default"):
4.1 Failure to Deliver Common Stock or Replacement Note. The Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note following five business days' opportunity to cure.
4.2 Stop Trade. An SEC stop trade order or Principal Market trading
suspension of the
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Common Stock for 5 consecutive days or 5 days during a period of 10 consecutive
days, excluding in all cases a suspension of all trading on a Principal Market.
4.3 Default Under Related Agreement. An Event of Default occurs under and
as defined in the Purchase Agreement dated as of the date hereof between
Borrower and Holder, as such agreement may be amended, modified and supplemented
from time to time.
ARTICLE V
DEFAULT PAYMENT
5.1 Default Payment. If an Event of Default occurs, the Holder, at its
option, may elect to require the Borrower to make a Default Payment ("Default
Payment"). The Default Payment shall be 130% 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.
5.2 Default Payment Date and Default Notice Period. The Default Payment
shall be due and payable on the fifth business day after the date written notice
is sent from the Holder to the Borrower of an Event of Default as defined in
Article IV ("Default Payment Date"). The period between the date of the written
notice from the Holder to the Borrower of an Event of Default and the Default
Payment Date shall be the "Default Notice Period." If during the Default Notice
Period, the Borrower cures the Event of Default, the Event of Default will no
longer exist and any rights the Holder had pertaining to the Event of Default
will no longer exist. If the Event of Default is not cured during the Default
Notice Period, all amounts payable hereunder shall be due and payable on the
Default Payment Date, all without further demand, presentment or notice, or
grace period, all of which hereby are expressly waived.
5.3 Cumulative Remedies. The remedies under this Note shall be cumulative.
ARTICLE VI
MISCELLANEOUS
6.1 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.
6.2 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)
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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 (i) the Borrower at the address as set forth on the signature
page to the Purchase Agreement executed in connection herewith and, as the case
may be, to the Borrower at the address as set forth in Section 6(g) of the
Registration Rights Agreement, in each case, and (ii) the Holder at the address
set forth on the signature page to the Purchase Agreement for such Holder, with
a copy to Xxxx Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx
00000, facsimile number (000) 000-0000, or at such other address as the
Borrower, the Borrower or the Holder may designate by ten days advance written
notice to the other parties hereto made and delivered in accordance with this
Section 5.2.
6.3 Amendment Provision. The term "Note" and all reference 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.
6.4 Assignability. This Note (except for Article III) shall be binding
upon the Borrower 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.
Article III and Article V of this Note (excluding Section 5.6 and 5.7) shall be
binding upon the Borrower and its successors and assigns.
6.5 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York; provided, however that the Purchaser may choose to waive this
provision and bring an action outside the state of New York. Both parties and
the individual signing this Note on behalf of the Borrower, the Borrower and the
Holder agree to submit to the jurisdiction of such courts. The prevailing party
shall be entitled to recover from the other party its reasonable attorney's fees
and costs. 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 unenforceability of any other provision of this Note.
6.6 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
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
6.7 Security Interest. The holder of this Note has been granted a security
interest in certain assets of the Borrower more fully described in the Purchase
Agreement.
6.8 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.
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IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its
name effective as of this 20th day of November, 2003.
LMIC, INC.
By:_____________________________________
Xxxx X. Xxxxxxx, President & CEO
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