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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. _________)*
Ascendia Brands, Inc.
--------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $0.001
--------------------------------------------------------------------------------
(Title of Class of Securities)
15670X104
--------------------------------------------------------------------------------
(CUSIP Number)
Erin Ross
Watershed Asset Management, L.L.C.
One Maritime Plaza, Suite 1525
San Francisco, California 94111
(415) 391-8900
--------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
February 9, 2007
--------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box [ ].
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Section 240.13d-7 for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter the
disclosures provided in a prior cover page.
The information required in the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
(Continued on following pages)
Page 1 of 17 Pages
Exhibit Index Found on Page 16
13D
===================
CUSIP No. 15670X104
===================
------------====================================================================
NAMES OF REPORTING PERSONS
1 I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Watershed Capital Partners, L.P.
------------====================================================================
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) [ ]
(b) [ X ]**
2
** The reporting persons making this filing may be
deemed the beneficial owners of an aggregate of
1,303,445 Shares, which is 9.99% of the class of
securities. The reporting person on this cover page,
however, may be deemed the beneficial owner only of
the securities reported by it on this cover page.
[See Preliminary Note]
------------====================================================================
3 SEC USE ONLY
------------====================================================================
SOURCE OF FUNDS (See Instructions)
4
WC
------------====================================================================
CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
5 TO ITEMS 2(d) OR 2(e)
[ ]
------------====================================================================
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
------------====================================================================
SOLE VOTING POWER
7
NUMBER OF -0-
------------===========================================
SHARES SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 271,712 [See Preliminary Note]
------------===========================================
EACH SOLE DISPOSITIVE POWER
9
REPORTING -0-
PERSON WITH ------------===========================================
SHARED DISPOSITIVE POWER
10
271,712 [See Preliminary Note]
------------====================================================================
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
271,712 [See Preliminary Note]
------------====================================================================
CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
12 CERTAIN SHARES (See Instructions)
[ ]
------------====================================================================
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
2.1% [See Preliminary Note]
------------====================================================================
TYPE OF REPORTING PERSON (See Instructions)
14
PN
------------====================================================================
Page 2 of 17 Pages
13D
===================
CUSIP No. 15670X104
===================
------------====================================================================
NAMES OF REPORTING PERSONS
1 I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Watershed Capital Institutional Partners, L.P.
------------====================================================================
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) [ ]
(b) [ X ]**
2
** The reporting persons making this filing may be
deemed the beneficial owners of an aggregate of
1,303,445 Shares, which is 9.99% of the class of
securities. The reporting person on this cover page,
however, may be deemed the beneficial owner only of
the securities reported by it on this cover page.
[See Preliminary Note]
------------====================================================================
3 SEC USE ONLY
------------====================================================================
SOURCE OF FUNDS (See Instructions)
4
WC
------------====================================================================
CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
5 TO ITEMS 2(d) OR 2(e)
[ ]
------------====================================================================
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
------------====================================================================
SOLE VOTING POWER
7
NUMBER OF -0-
------------===========================================
SHARES SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 1,031,733 [See Preliminary Note]
------------===========================================
EACH SOLE DISPOSITIVE POWER
9
REPORTING -0-
PERSON WITH ------------===========================================
SHARED DISPOSITIVE POWER
10
1,031,733 [See Preliminary Note]
------------====================================================================
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,031,733 [See Preliminary Note]
------------====================================================================
CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
12 CERTAIN SHARES (See Instructions)
[ ]
------------====================================================================
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
7.9% [See Preliminary Note]
------------====================================================================
TYPE OF REPORTING PERSON (See Instructions)
14
PN
------------====================================================================
Page 3 of 17 Pages
13D
===================
CUSIP No. 15670X104
===================
------------====================================================================
NAMES OF REPORTING PERSONS
1 I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Watershed Asset Management, L.L.C.
------------====================================================================
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) [ ]
(b) [ X ]**
2
** The reporting persons making this filing may be
deemed the beneficial owners of an aggregate of
1,303,445 Shares, which is 9.99% of the class of
securities. The reporting person on this cover page,
however, may be deemed the beneficial owner only of
the securities reported by it on this cover page.
[See Preliminary Note]
------------====================================================================
3 SEC USE ONLY
------------====================================================================
SOURCE OF FUNDS (See Instructions)
4
AF
------------====================================================================
CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
5 TO ITEMS 2(d) OR 2(e)
[ ]
------------====================================================================
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
------------====================================================================
SOLE VOTING POWER
7
NUMBER OF -0-
------------===========================================
SHARES SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 1,303,445 [See Preliminary Note]
------------===========================================
EACH SOLE DISPOSITIVE POWER
9
REPORTING -0-
PERSON WITH ------------===========================================
SHARED DISPOSITIVE POWER
10
1,303,445 [See Preliminary Note]
------------====================================================================
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,303,445 [See Preliminary Note]
------------====================================================================
CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
12 CERTAIN SHARES (See Instructions)
[ ]
------------====================================================================
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
9.99% [See Preliminary Note]
------------====================================================================
TYPE OF REPORTING PERSON (See Instructions)
14
OO
------------====================================================================
Page 4 of 17 Pages
13D
===================
CUSIP No. 15670X104
===================
------------====================================================================
NAMES OF REPORTING PERSONS
1 I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
WS Partners, L.L.C.
------------====================================================================
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) [ ]
(b) [ X ]**
2
** The reporting persons making this filing may be
deemed the beneficial owners of an aggregate of
1,303,445 Shares, which is 9.99% of the class of
securities. The reporting person on this cover page,
however, may be deemed the beneficial owner only of
the securities reported by it on this cover page.
[See Preliminary Note]
------------====================================================================
3 SEC USE ONLY
------------====================================================================
SOURCE OF FUNDS (See Instructions)
4
AF
------------====================================================================
CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
5 TO ITEMS 2(d) OR 2(e)
[ ]
------------====================================================================
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
------------====================================================================
SOLE VOTING POWER
7
NUMBER OF -0-
------------===========================================
SHARES SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 1,303,445 [See Preliminary Note]
------------===========================================
EACH SOLE DISPOSITIVE POWER
9
REPORTING -0-
PERSON WITH ------------===========================================
SHARED DISPOSITIVE POWER
10
1,303,445 [See Preliminary Note]
------------====================================================================
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,303,445 [See Preliminary Note]
------------====================================================================
CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
12 CERTAIN SHARES (See Instructions)
[ ]
------------====================================================================
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
9.99% [See Preliminary Note]
------------====================================================================
TYPE OF REPORTING PERSON (See Instructions)
14
OO
------------====================================================================
Page 5 of 17 Pages
13D
===================
CUSIP No. 15670X104
===================
------------====================================================================
NAMES OF REPORTING PERSONS
1 I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Meridee A. Moore
------------====================================================================
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) [ ]
(b) [ X ]**
2
** The reporting persons making this filing may be
deemed the beneficial owners of an aggregate of
1,303,445 Shares, which is 9.99% of the class of
securities. The reporting person on this cover page,
however, may be deemed the beneficial owner only of
the securities reported by it on this cover page.
[See Preliminary Note]
------------====================================================================
3 SEC USE ONLY
------------====================================================================
SOURCE OF FUNDS (See Instructions)
4
AF
------------====================================================================
CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
5 TO ITEMS 2(d) OR 2(e)
[ ]
------------====================================================================
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States
------------====================================================================
SOLE VOTING POWER
7
NUMBER OF -0-
------------===========================================
SHARES SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 1,303,445 [See Preliminary Note]
------------===========================================
EACH SOLE DISPOSITIVE POWER
9
REPORTING -0-
PERSON WITH ------------===========================================
SHARED DISPOSITIVE POWER
10
1,303,445 [See Preliminary Note]
------------====================================================================
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,303,445 [See Preliminary Note]
------------====================================================================
CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
12 CERTAIN SHARES (See Instructions)
[ ]
------------====================================================================
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
9.99% [See Preliminary Note]
------------====================================================================
TYPE OF REPORTING PERSON (See Instructions)
14
IN
------------====================================================================
Page 6 of 17 Pages
Preliminary Note: The Reporting Persons (as defined below) are filing
this Schedule 13D with respect to the shares of Common Stock, par value $0.001
(the "Shares"), of Ascendia Brands, Inc. (the "Company"). The Reporting Persons
do not currently own any Shares. Certain of the Reporting Persons were issued by
the Company on February 9, 2007 certain Secured Convertible Notes due 2016 (the
"Notes"), each Note being convertible at any time into Shares at a price of
$0.42 per Share, subject to certain anti-dilution adjustments. Pursuant to the
terms of the conversion cap further described in Item 4 below and subject to the
other conversion limitations described in Item 4 below, the Reporting Persons'
Notes are in aggregate convertible into 9.99% of the number of Shares of the
Company issued and outstanding immediately after conversion of the Notes, which
percentage is currently equivalent to 1,303,445 Shares. Pursuant to Rule 13d-3
promulgated under the Securities Act of 1934, as amended ("Rule 13d-3"), the
Reporting Persons may be deemed to be beneficial owners of such Shares as of
February 9, 2007. All numbers and percentages contained in this Schedule 13D
represent Shares and not Notes (unless stated otherwise). For additional
information regarding the Notes, see Item 4 below and the documents filed as
Exhibits to this Schedule 13D.
Item 1. Security And Issuer
------ -------------------
This statement relates to shares of Common Stock, par value $0.001 per
Share, of Ascendia Brands, Inc. The Company's principal offices are located at
100 American Metro Boulevard, Suite 108, Hamilton, New Jersey 08648.
Item 2. Identity And Background
------ -----------------------
(a) This statement is filed by the entities and persons listed
below, all of whom together are referred to herein as the "Reporting Persons."
The Partnerships
-----------------
(i) Watershed Capital Partners, L.P., a Delaware limited
partnership ("WCP"), with respect to the Shares
beneficially owned by it (through its ownership of
Notes); and
(ii) Watershed Capital Institutional Partners, L.P., a
Delaware limited partnership ("WCIP"), with respect
to the Shares beneficially owned by it (through its
ownership of Notes).
WCP and WCIP are together referred to herein as the "Partnerships."
The Management Company
----------------------
(iii) Watershed Asset Management, L.L.C., a Delaware
limited liability company (the "Management Company"),
with respect to the Shares beneficially owned by the
Partnerships (through ownership of the Notes) .
The General Partner
-------------------
(iv) WS Partners, L.L.C., a Delaware limited liability
company which is the general partner of each of the
Partnerships (the "General Partner"), with
Page 7 of 17 Pages
respect to the Shares beneficially owned by the
Partnerships (through ownership of the Notes).
The Managing Member
-------------------
(v) Meridee A. Moore, a United States citizen who is the
Senior Managing Member of both the General Partner
and the Management Company, with respect to the
Shares beneficially owned by the Partnerships
(through ownership of the Notes). Meridee A. Moore is
referred to herein as the "Individual Reporting
Person."
(b) The address of the principal business office of the
Partnerships, the General Partner, the Management Company and the Individual
Reporting Person is c/o Watershed Asset Management, L.L.C., One Maritime Plaza,
Suite 1525, San Francisco, California 94111.
(c) The principal business of each of the Partnerships is that of
a private investment fund engaging in the purchase and sale of investments for
its own account. The principal business of the General Partner is to act as the
general partner of the Partnerships. The principal business of the Management
Company is that of an investment adviser. The principal business of the
Individual Reporting Person is serving as the Senior Managing Member of both the
Management Company and the General Partner.
(d) None of the Partnerships, the Management Company, the General
Partner or the Individual Reporting Person has, during the last five years, been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
(e) None of the Partnerships, the Management Company, the General
Partner or the Individual Reporting Person has, during the last five years, been
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
(f) The citizenship of each of the Partnerships, the General
Partner, the Management Company and the Individual Reporting Person is set forth
above.
Item 3. Source And Amount Of Funds And Other Consideration
------ --------------------------------------------------
The aggregate net investment cost for the $10,000,000 principal amount
of Notes owned in aggregate by WCP and WCIP was $15,714,000.00. Each of the
Partnerships obtained the consideration for its acquisition of the Notes
referenced herein from its working capital.
Item 4. Purpose Of The Transaction
------ --------------------------
As reported by the Company in its Form 8-K filed with the Securities
and Exchange Commission on February 15, 2007 (the "Company's 8-K"), on February
9, 2007 the Company and its subsidiaries acquired certain brands, licenses and
brand-related assets from Coty Inc. and certain of its affiliates. As part of
that transaction, the Company entered into certain financing
Page 8 of 17 Pages
arrangements, including but not limited to the Securities Purchase Agreement
with WCP and WCIP described immediately below.
On February 9, 2007, WCP and WCIP entered into a Securities Purchase
Agreement with the Company (the "Securities Purchase Agreement"). Pursuant to
the Securities Purchase Agreement, the Company issued to WCP and WCIP in
aggregate $10,000,000 in principal amount of Notes. Such Notes mature on
December 30, 2016 (subject to certain put and call rights described below) and
will bear interest at the rate of 9% per annum, subject to increases to up to
15% upon the occurrence or nonoccurrence of certain specified events. Interest
on the Notes is payable in kind and shall be accrued and capitalized on a
monthly basis. On February 9, 2007, the Company also issued $76,000,000 in
principal amount of the Notes to Prencen Lending LLC ("Prencen Lending")
pursuant to the Third Amended and Restated Securities Purchase Agreement (the
"Prencen Securities Purchase Agreement") among the Company, Prencen Lending and
Prencen LLC (as defined below) and entered into certain other agreements with
affiliates of Prencen Lending (together with Prencen Lending, the "Prentice
Parties").
The balance due under the Notes (including principal, interest and
certain late charges, if any, specified in the Notes) is convertible at any
time, at the option of the holder(s), into Shares at a price of $0.42 per Share,
subject to certain anti-dilution adjustments, provided that WCP and WCIP may not
convert any amounts due under their Notes if and to the extent that, following
such a conversion, either of them and any of their affiliates would collectively
beneficially own more than 9.99% of the aggregate number of Shares outstanding
following such conversion (such conversion limitation being the "Conversion
Cap"). The $10,000,000 in principal amount of Notes owned in aggregate by WCP
and WCIP would be convertible into 23,809,524 Shares but due to the restrictions
imposed by the Conversion Cap, only Notes convertible into 1,303,445 Shares are
currently convertible. Pursuant to the terms of the Notes and after giving the
Company 61 days written notice, each holder of Notes may decrease, and after
that increase up to a limit of 9.99%, the beneficial ownership percentage
specified in the Conversion Cap.
The issuance of any Shares upon conversion of the Notes that exceed the
aggregate number of Shares that the Company may issue pursuant to the rules or
regulations of the American Stock Exchange is conditioned upon the consent of
the Company's stockholders to such issuance (the "Stockholder's Consent") and
the passage of 20 days after the mailing of an information statement on Schedule
14C to the Company's stockholders describing, among other things, the
Stockholder's Consent. Pursuant to the Voting Agreement executed between the
Company and the stockholders of the Company party thereto (the "Voting
Agreement"), such stockholders agreed to such consent, and the Stockholder's
Consent was obtained as of February 9, 2007. Pursuant to the Securities Purchase
Agreement, the Company covenanted to file such information statement no later
than 10 days after February 9, 2007.
The purpose of the acquisition of the Notes was for investment, and the
acquisitions of the Notes by each of the Partnerships were made in the ordinary
course of business and were not made for the purpose of acquiring control of the
Company.
Pursuant to the terms of the Notes and if necessary to maintain the
Company's stockholders' equity at the level required pursuant to the continued
listing standards of the American Stock Exchange, the Company may exchange on a
pro rata basis up to $40 million in principal amount of the Notes (including for
the avoidance of doubt the Notes issued to Prencen Lending) for shares of a
newly created series of convertible preferred stock that will be convertible
into Shares, on terms
Page 9 of 17 Pages
acceptable to the Company and the holders of a majority of the principal amount
of the Notes then outstanding. As part of such exchange, the Company would pay
to each exchanging holder of Notes a fee in cash equal to 15% of the outstanding
amount of Notes such holder exchanged.
At any time after the eighth anniversary of the issuance date of the
Notes, the Company (on a one-time basis) or any holder (from time-to-time) may
redeem all or any portion of the balance outstanding under the Notes at a
premium of 7%. All of the Notes are redeemable at the election of the holder(s)
holding a majority in principal amount of the outstanding Notes at any time upon
the occurrence of an event of default, generally at a premium of at least 25%
(no premium may be applicable for certain bankruptcy related events of default).
The Notes are also redeemable by each holder upon a change of control of the
Company (as defined in the Notes), at premiums of at least 20%. All payments to
the holders of the Notes are subject to the provisions of an intercreditor
agreement with certain senior claimholders of the Company.
The holder(s) of the Notes shall be entitled to such dividends,
distributions, purchase or exchange rights made to holders of Shares to the same
extent as if such holders had converted the Notes into Shares (without regard to
any conversion caps but subject to the provisions of an intercreditor agreement
with certain senior claimholders of the Company). In addition, pursuant to the
terms of the Securities Purchase Agreement and for so long as the Notes remain
outstanding, each holder of Notes, including WCP and WCIP, has a right of first
refusal with respect to any proposed issuance or sale by the Company of Common
Stock Equivalents being offered in a Subsequent Placement (as such terms are
defined in the Securities Purchase Agreement).
Pursuant to the terms of the Securities Purchase Agreement, the Company
agreed to increase the size of its Board of Directors from five members to seven
members promptly after the issuance of the Notes. Pursuant to the terms of the
Securities Purchase Agreement and for so long as the Notes remain outstanding,
the Company with the unanimous approval of all members of the Board of Directors
of the Company may (subject to Prencen LLC's existing right to designate one
member to the Board of Directors) increase the size of the Board of Directors to
no more than nine members provided that one of such additional two directors is
to be designated by Prencen LLC (except as otherwise provided in the Prencen
Securities Purchase Agreement).
Contemporaneously with the execution and delivery of the Securities
Purchase Agreement, WCP, WCIP, the Prentice Parties and the Company entered into
a Registration Rights Agreement (the "Registration Rights Agreement") pursuant
to which, and subject to the terms and conditions therein, the Company agreed to
provide certain registration rights with respect to any Shares into which WCP
and WCIP's Notes are converted and any other Shares otherwise acquired by WCP,
WCIP and/or Prencen LLC and Prencen Lending LLC. Under the Registration Rights
Agreement, the Company is required to file a registration statement with respect
to the registrable securities by June 30, 2007 and to use its best efforts to
have such registration statement declared effective not later than 60 days
thereafter (or 90 days after the filing deadline if the registration statement
is subject to review by the Securities and Exchange Commission). The
Registration Rights Agreement provides for the payments of certain fees for the
failure to comply with such deadlines or to maintain the effectiveness of the
registration statement and customary registration rights including demand
registration rights and piggyback registration rights.
Pursuant to the Voting Agreement described above and in addition to the
Stockholder's Consent, the stockholders signatory to the Voting Agreement agreed
to increase the authorized number of Shares and to amend certain provisions of
the Company's Certificate of Incorporation
Page 10 of 17 Pages
(including but not limited to the elimination of Article VII of the Company's
Certificate of Incorporation, which article permitted the adoption of certain
compromises or arrangements between the Company and its creditors and/or
stockholders upon the acceptance of such compromises or arrangements by certain
majorities of the Company's creditors and/or stockholders). WCP and WCIP are
third-party beneficiaries of such agreement.
WCP and WCIP are also lenders under the Second Lien Credit Agreement
dated as of February 9, 2007 (the "Loan Agreement"), by and among the Company,
its domestic subsidiaries, Watershed Administrative, LLC as administrative agent
and the other parties named therein. For more information regarding the Loan
Agreement, see a copy of the Loan Agreement attached as an exhibit to the Form
8-K filed by the Company with the Securities and Exchange Commission on February
15, 2007.
The description above of the Notes, the Securities Purchase Agreement,
the Registration Rights Agreement, the Voting Agreement and the Loan Agreement
is qualified in its entirety by the full terms and conditions of such
agreements, which agreements are incorporated by reference herein. For
additional information regarding these agreements, see a copy of the agreements
attached as exhibits to this Schedule 13D or the Company's 8-K filed with the
Securities and Exchange Commission filed on February 15, 2007.
Subject to the terms and conditions of the Notes and the Securities
Purchase Agreement described above, although no Reporting Person has any
specific plan or proposal to acquire or dispose of any Notes and/or Shares,
consistent with its investment purpose, each Reporting Person at any time and
from time to time may acquire additional Notes and/or Shares or dispose of any
or all of its Notes and/or Shares depending upon an ongoing evaluation of the
investment in the Notes and/or Shares, prevailing market conditions, other
investment opportunities, liquidity requirements of the Reporting Person and/or
other investment considerations. No Reporting Person has made a determination
regarding a maximum or minimum number of Notes and/or Shares which it may hold
at any point in time.
Also, consistent with their investment intent, the Reporting Persons
may engage in communications with one or more shareholders or noteholders of the
Company, one or more officers of the Company, one or more members of the board
of directors of the Company, one or more potential investors in the Company
and/or other persons regarding the Company, including but not limited to its
operations, its capital structure and potential strategies to enhance
shareholder value. During the course of such communications, the Reporting
Persons may advocate or oppose one or more courses of action.
Except to the extent the foregoing may be deemed a plan or proposal,
none of the Reporting Persons has any plans or proposals which relate to, or
could result in, any of the matters referred to in paragraphs (a) through (j),
inclusive, of the instructions to Item 4 of Schedule 13D. The Reporting Persons
may, at any time and from time to time, review or reconsider their position
and/or change their purpose and/or formulate plans or proposals with respect
thereto.
Item 5. Interest In Securities Of The Issuer
------ ------------------------------------
(a) The Partnerships
----------------
Page 11 of 17 Pages
(a),(b) The information set forth in Rows 7 through 13 of the
cover page hereto for each Partnership is
incorporated herein by reference for each such
Partnership. The percentage amount set forth in Row
13 for all cover pages filed herewith is calculated
based upon the 11,744,056 Shares outstanding as
reported by the Company in the Securities Purchase
Agreement filed as Exhibit 4.12 to the Form 8-K filed
by the Company with the Securities and Exchange
Commission on February 15, 2007, plus the number of
additional Shares that would be issued upon
conversion of the portion of the Notes convertible
under the terms of the Conversion Cap.
(c) There have been no transactions in Shares in the last
60 days.
(d) The General Partner has the power to direct the
receipt of dividends relating to, or the disposition
of the proceeds of the sale of, all of the Notes and
Shares beneficially owned by the Partnerships as
reported herein. The Management Company, as the
investment adviser to the Partnerships, has the power
to direct the receipt of dividends relating to, or
the disposition of the proceeds of the sale of, all
of the Notes and Shares beneficially owned by the
Partnerships as reported herein. The Individual
Reporting Person is the Senior Managing Member of the
General Partner and the Management Company.
(e) Not applicable.
(b) The Management Company
----------------------
(a),(b) The information set forth in Rows 7 through 13 of the
cover page hereto for the Management Company is
incorporated herein by reference.
(c) None.
(d) The Management Company, as the investment adviser to
the Partnerships, has the power to direct the receipt
of dividends relating to, or the disposition of the
proceeds of the sale of, all of the Notes and Shares
beneficially owned by the Partnerships as reported
herein. The Individual Reporting Person is the Senior
Managing Member of the Management Company.
(e) Not applicable.
(c) The General Partner
-------------------
(a),(b) The information set forth in Rows 7 through 13 of the
cover page hereto for the General Partner is
incorporated herein by reference.
(c) None.
(d) The General Partner has the power to direct the
receipt of dividends relating to, or the disposition
of the proceeds of the sale of, all of the Notes and
Shares beneficially owned by the Partnerships as
reported herein. The
Page 12 of 17 Pages
Management Company, as the investment adviser to the
Partnerships, has the power to direct the receipt of
dividends relating to, or the disposition of the
proceeds of the sale of, all of the Notes and Shares
beneficially owned by the Partnerships as reported
herein. The Individual Reporting Person is the Senior
Managing Member of the General Partner and the
Management Company.
(e) Not applicable.
(d) The Individual Reporting Person
--------------------------------
(a),(b) The information set forth in Rows 7 through 13 of the
cover page hereto for the Individual Reporting Person
is incorporated herein by reference for the
Individual Reporting Person.
(c) None.
(d) The General Partner has the power to direct the
receipt of dividends relating to, or the disposition
of the proceeds of the sale of, all of the Notes and
Shares beneficially owned by the Partnerships as
reported herein. The Management Company, as the
investment adviser to the Partnerships, has the power
to direct the receipt of dividends relating to, or
the disposition of the proceeds of the sale of, all
of the Notes and Shares beneficially owned by the
Partnerships as reported herein. The Individual
Reporting Person is the Senior Managing Member of the
General Partner and the Management Company.
(e) Not applicable.
The General Partner, as general partner to the Partnerships, may be
deemed to be the beneficial owner of all such Notes and Shares beneficially
owned by the Partnerships. The Management Company, as investment adviser to the
Partnerships, may be deemed to be the beneficial owner of all such Notes and
Shares beneficially owned by the Partnerships, respectively. The Individual
Reporting Person, as the Senior Managing Member of both the General Partner and
the Management Company, may be deemed to be the beneficial owner of all such
Notes and Shares beneficially owned by the Partnerships. Each of the Management
Company, the General Partner and the Individual Reporting Person hereby
disclaims any beneficial ownership of any such Notes and Shares.
Item 6. Contracts, Arrangements, Understandings Or
------ -------------------------------------------
Relationships With Respect To Securities Of The Issuer
--------------------------------------------------------
Other than the Notes, the Securities Purchase Agreement, the
Registration Rights Agreement, the Voting Agreement and the Loan Agreement (each
as described in Item 4 above) and as otherwise described in this Schedule 13D,
there are no contracts, arrangements, understandings or relationships (legal or
otherwise) among the Reporting Persons or between such persons and any other
person with respect to any securities of the Company, including but not limited
to the transfer or voting of any securities of the Company, finder's fees, joint
ventures, loan
Page 13 of 17 Pages
or option arrangements, puts or calls, guarantees of profits, divisions of
profits or loss, or the giving or withholding of proxies.
Item 7. Materials To Be Filed As Exhibits
------ ---------------------------------
There is filed herewith as Exhibit 1 a written agreement relating to
the filing of joint acquisition statements as required by Section 240.13d-1(k)
under the Securities Exchange Act of 1934, as amended. There is filed herewith
as Exhibit 2 and Exhibit 3 the Notes issued to WCP and WCIP. There is filed
herewith as Exhibit 4 the Voting Agreement. The following documents are filed as
exhibits to the Form 8-K filed by the Company on February 15, 2007: Securities
Purchase Agreement, Registration Rights Agreement and the Loan Agreement. Such
documents are incorporated herein by reference.
Page 14 of 17 Pages
SIGNATURES
----------
After reasonable inquiry and to the best of our knowledge and belief,
the undersigned certify that the information set forth in this statement is
true, complete and correct.
Dated: February 20, 2007
/s/ Meridee A. Moore
----------------------------------------
WS PARTNERS, L.L.C.,
On its own behalf, and
as the General Partner of
WATERSHED CAPITAL PARTNERS, L.P.,
and WATERSHED CAPITAL INSTITUTIONAL PARTNERS, L.P.,
By Meridee A. Moore,
Senior Managing Member
/s/ Meridee A. Moore
----------------------------------------
WATERSHED ASSET MANAGEMENT, L.L.C.
By Meridee A. Moore,
Senior Managing Member
/s/ Meridee A. Moore
----------------------------------------
Meridee A. Moore
Page 15 of 17 Pages
EXHIBIT INDEX
EXHIBIT 1 Joint Acquisition Statement Pursuant to Section
240.13d-1(k)
EXHIBIT 2 Secured Convertible Note due 2016 of
Watershed Capital Partners, L.P.
EXHIBIT 3 Secured Convertible Note due 2016 of
Watershed Capital Institutional Partners, L.P.
EXHIBIT 4 Voting Agreement
Page 16 of 17 Pages
EXHIBIT 1
to
SCHEDULE 13D
JOINT ACQUISITION STATEMENT
PURSUANT TO SECTION 240.13d-1(k)
--------------------------------
The undersigned acknowledge and agree that the foregoing statement on
Schedule 13D is filed on behalf of each of the undersigned and that all
subsequent amendments to this statement on Schedule 13D shall be filed on behalf
of each of the undersigned without the necessity of filing additional joint
acquisition statements. The undersigned acknowledge that each shall be
responsible for the timely filing of such amendments, and for the completeness
and accuracy of the information concerning him, her or it contained therein, but
shall not be responsible for the completeness and accuracy of the information
concerning the other entities or persons, except to the extent that he, she or
it knows or has reason to believe that such information is inaccurate.
Dated: February 20, 2007
/s/ Mediree A. Moore
----------------------------------------
WS PARTNERS, L.L.C.,
On its own behalf, and
as the General Partner of
WATERSHED CAPITAL PARTNERS, L.P.,
and WATERSHED CAPITAL INSTITUTIONAL PARTNERS, L.P.,
By Meridee A. Moore,
Senior Managing Member
/s/ Meridee A. Moore
----------------------------------------
WATERSHED ASSET MANAGEMENT, L.L.C.
By Meridee A. Moore,
Senior Managing Member
/s/ Meridee A. Moore
----------------------------------------
Meridee A. Moore
Page 17 of 17 Pages
EXHIBIT 2
to
SCHEDULE 13D
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS
OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 19(a) HEREOF. THE PRINCIPAL
AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.
THIS NOTE IS SUBJECT TO THE TERMS AND PROVISIONS OF THE INTERCREDITOR AGREEMENT
DATED AS OF FEBRUARY 9, 2007 (AS AMENDED, RESTATED, SUPPLEMENTED, OR OTHERWISE
MODIFIED FROM TIME TO TIME, THE "INTERCREDITOR AGREEMENT"), BY AND AMONG WELLS
FARGO FOOTHILL, INC., AS FIRST LIEN AGENT, WELLS FARGO FOOTHILL, INC., AS SECOND
LIEN COLLATERAL AGENT, WATERSHED ADMINISTRATIVE, LLC, AS SECOND LIEN
ADMINISTRATIVE AGENT, WELLS FARGO FOOTHILL, INC., AS THIRD LIEN COLLATERAL
AGENT, AND PRENCEN LENDING LLC, WATERSHED CAPITAL PARTNERS, L.P., AND WATERSHED
CAPITAL INSTITUTIONAL PARTNERS, L.P., AS THIRD LIEN LENDERS AND PRENCEN LLC. IN
THE EVENT OF ANY CONFLICT BETWEEN THE TERMS OF THE INTERCREDITOR AGREEMENT AND
THIS NOTE, THE TERMS OF THE INTERCREDITOR AGREEMENT SHALL GOVERN AND CONTROL.
ASCENDIA BRANDS, INC.
SECURED CONVERTIBLE NOTE
Issuance Date: February 9, 2007 Original Principal Amount: U.S. $2,084,568.00
FOR VALUE RECEIVED, Ascendia Brands, Inc., a Delaware corporation (the
"Company") hereby promises to pay to the order of WATERSHED CAPITAL PARTNERS,
L.P. or registered assigns ("Holder") the amount set out above as the Original
Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, and including the amount of any Capitalized
Interest (as defined below), the "Principal") when due,
whether upon the Maturity Date (as defined below), acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay interest
("Interest") on any outstanding Principal at a rate per annum equal to the
Interest Rate, from the date set out above as the Issuance Date until the
Obligations hereunder are paid in full, whether upon an Interest Date (as
defined below), the Maturity Date, acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof). This Note is one
of the Secured Convertible Notes issued pursuant to the Securities Purchase
Agreements. The notes issued under the Prencen Securities Purchase Agreement are
referred to as the "Other Notes"; and the Other Notes together with the notes
issued pursuant to the Watershed Securities Purchase Agreement are collectively
referred to as the "Notes". Certain capitalized terms used herein are defined in
Section 29.
(1) MATURITY. On the Maturity Date, the Company shall pay to the Holder an
--------
amount in cash equal to all of the Obligations then due and owing hereunder. The
"Maturity Date" shall be December 30, 2016, as may be extended in writing at the
sole option of the Holder (i) in the event that an Event of Default (as defined
in Section 4(a)) shall have occurred and be continuing or any event shall have
occurred and be continuing which with the passage of time and the failure to
cure would result in an Event of Default, in which case, the Maturity Date shall
be extended until the later of the date such Event of Default is cured and the
date there no longer exists any event which with the passage of time and the
failure to cure would result in an Event of Default and (ii) through the date
that is ten (10) days after the consummation of a Change of Control in the event
that a Change of Control is publicly announced or a Change of Control Notice (as
defined in Section 5) is delivered prior to the Maturity Date. On the Business
Day immediately preceding the Maturity Date, the Company shall deliver a written
notice to the Holder certifying that (A) (1) no Event of Default has occurred
and is continuing and (2) no event has occurred and is continuing which with the
passage of time and the failure to cure would result in an Event of Default or
(B) an event specified in clause (A) has occurred and is continuing.
(2) INTEREST. Interest on this Note shall commence accruing on the Issuance
--------
Date and shall be computed on the basis of a 365-day year and actual days
elapsed and shall be payable in arrears on the last day of each calendar month
during the period beginning on the Issuance Date and ending on, and including,
the date that this Note is repaid in full (each, an "Interest Date") with the
first Interest Date being February 28, 2007. Interest shall be payable on each
Interest Date, to the record holder of this Note on the applicable Interest Date
by capitalizing such Interest on and as of each Interest Date by adding it to
the then outstanding Principal of this Note (the "Capitalized Interest"). Upon
the occurrence and during the continuance of an Event of Default, or, the
occurrence and continuation of any of the events described in Sections 4(a)(i),
4(a)(ii), 4(a)(iii)(B), 4(a)(iv)(B), or 4(a)(vii) through 4(a)(xiii) prior to
such time as the Permitted Senior Indebtedness has been repaid in full, the
Interest Rate on the Obligations shall be increased to fifteen percent (15%). In
the event that such Event of Default or event, as applicable, is subsequently
cured, such increased Interest Rate shall no longer be in effect as of the date
of such cure; provided that the Interest as calculated at such increased rate
during the continuance of such Event of Default or event, as applicable, shall
continue to apply to the extent relating to the days after the occurrence of
such Event of Default or event, as applicable, through and including the date of
cure of such Event of Default or event. In addition, to the extent that the
Company owes the Holder any Permitted Accrued Third Lien
- 2 -
Fees/Penalties (as defined in Section 9 of the Intercreditor Agreement), such
owed amounts shall, until paid by the Company to the Holder to the extent
allowed by the Intercreditor Agreement, accrue interest at the then applicable
Interest Rate under this Note and the interest on such Permitted Accrued Third
Lien Fees/Penalties shall be capitalized at the same time(s) and in the same
manner that interest on the Principal of this Note is capitalized.
(3) CONVERSION OF NOTES. This Note shall be convertible into shares of
--------------------
common stock of the Company, $0.001 par value per share (the "Common Stock"), on
the terms and conditions set forth in this Section 3.
(a) Conversion Right. Subject to the provisions of Section 3(d), at
-----------------
any time or times on or after the Issuance Date, the Holder shall be
entitled to convert any portion of the outstanding and unpaid Conversion
Amount (as defined below) into fully paid and nonassessable shares of
Common Stock in accordance with Section 3(c), at the Conversion Rate (as
defined below). The Company shall not issue any fraction of a share of
Common Stock upon any conversion. If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round
such fraction of a share of Common Stock up to the nearest whole share. The
Company shall pay any and all taxes that may be payable with respect to the
issuance and delivery of Common Stock upon conversion of any portion of the
Conversion Amount.
(b) Conversion Rate. The number of shares of Common Stock issuable
----------------
upon conversion of any portion of the Conversion Amount pursuant to Section
3(a) shall be determined by dividing (x) such Conversion Amount by (y) the
Conversion Price (the "Conversion Rate").
(i) "Conversion Amount" means the sum of (A) the Principal under
this Note, (B) accrued and uncapitalized interest, with respect to
such Principal and (C) accrued and unpaid Late Charges (as defined in
Section 25(b)) with respect to such Principal and Interest.
(ii) "Conversion Price" means, as of any Conversion Date (as
defined below) or other date of determination, $0.42, subject to
adjustment as provided herein.
(c) Mechanics of Conversion.
-----------------------
(i) Optional Conversion. To convert any portion of the Conversion
-------------------
Amount into shares of Common Stock on any date (a "Conversion Date"),
the Holder shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 11:59 p.m., New York Time, on such date, a copy
of an executed notice of conversion in the form attached hereto as
Exhibit I (the "Conversion Notice") to the Company and (B) if required
by Section 3(c)(iii), surrender this Note to a common carrier for
delivery to the Company as soon as practicable on or following such
date (or an indemnification undertaking with respect to this Note in
the case of its loss, theft or destruction). On or before the first
(1st) Trading Day following the date of receipt of a Conversion
Notice, the Company shall transmit by facsimile a confirmation of
receipt of such Conversion Notice
- 3 -
to the Holder and the Company's transfer agent (the "Transfer Agent").
On or before the third (3rd) Trading Day following the date of receipt
of a Conversion Notice (the "Share Delivery Date"), the Company shall
(1) provided that the Transfer Agent is participating in the Fast
Automated Securities Transfer Program of the Depository Trust Company
("DTC") credit such aggregate number of shares of Common Stock to
which the Holder shall be entitled to the Holder's or its designee's
participant account with DTC through its Deposit Withdrawal Agent
Commission system or (2) if the Transfer Agent is not participating in
the DTC Fast Automated Securities Transfer Program, issue and deliver
no later than the Share Delivery Date, 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. If this Note is physically
surrendered for conversion pursuant to Section 3(c)(iii) and the
outstanding Principal of this Note is greater than the Principal
portion of the Conversion Amount being converted, then the Company
shall as soon as practicable and in no event later than three Business
Days after receipt of this Note and at its own expense, issue and
deliver to the holder a new Note (in accordance with Section 19(d))
representing the outstanding Principal not converted. The Person or
Persons entitled to receive the shares of Common Stock issuable upon a
conversion of all or a portion of this Note shall be treated for all
purposes as the record holder or holders of such shares of Common
Stock on the Conversion Date.
(ii) Company's Failure to Timely Convert. If the Company shall
-------------------------------------
fail to issue a certificate to the Holder or credit the Holder's
participant account with DTC for the number of shares of Common Stock
to which the Holder is entitled upon conversion of any portion of the
Conversion Amount on or prior to the date which is five (5) Trading
Days after the Conversion Date (a "Conversion Failure"), then (A) the
Company shall pay damages to the Holder for each day of such
Conversion Failure until the earlier of the date such failure is cured
and the Revocation Date (as defined below) in an amount equal to 1.5%
of the product of (I) the aggregate number of shares of Common Stock
not issued to the Holder on or prior to the Share Delivery Date and to
which the Holder is entitled, and (II) the Closing Sale Price of the
Common Stock on the Share Delivery Date and (B) the Holder, upon
written notice to the Company, may void its Conversion Notice with
respect to, and retain or have returned, as the case may be, any
portion of this Note that has not been converted pursuant to such
Conversion Notice (the date such notice is given, the "Revocation
Date"); provided that the voiding of a Conversion Notice shall not
affect the Company's obligations to make any payments which have
accrued prior to the date of such notice pursuant to this Section
3(c)(ii) or otherwise and once such payment is made no Conversion
Failure shall exist with respect to such voided portion of such
conversion. In addition to the foregoing, if within three (3) Trading
Days after the Company's receipt of the facsimile copy of a Conversion
Notice the Company shall fail to issue and deliver a certificate to
the Holder or credit the Holder's participant account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon
such holder's conversion of any portion of the Conversion Amount, and
if on or after such scheduled Share Delivery Date the Holder purchases
(in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by the Holder of Common Stock issuable upon
such conversion that the Holder anticipated receiving from the Company
(a "Buy-In"), then the Company
- 4 -
shall, within three (3) Trading Days after the Holder's request and in
the Holder's discretion, either (i) pay cash to the Holder in an
amount equal to the Holder's total purchase price (including brokerage
commissions and other out-of-pocket expenses, if any) for the shares
of Common Stock so purchased (the "Buy-In Price"), at which point the
Company's obligation to deliver such certificate or credit such
Holder's participant account with DTC (and to issue such Common Stock)
shall terminate and the Conversion Amount of this Note shall be
reduced by the Conversion Amount applicable to such portion of the
failed Conversion Notice, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such
Common Stock or credit such Holder's participant account with DTC and
pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of
Common Stock, times (B) the Closing Bid Price on the Conversion Date.
(iii) Registration; Book-Entry. The Company shall maintain a
-------------------------
register (the "Register") for the recordation of the names and
addresses of the holders of each Note and the principal amount of the
Notes held by such holders (the "Registered Notes"). The entries in
the Register shall be conclusive and binding for all purposes absent
manifest error. The Company and the holders of the Notes shall treat
each Person whose name is recorded in the Register as the owner of a
Note for all purposes, including, without limitation, the right to
receive payments of Principal and Interest hereunder, notwithstanding
notice to the contrary. A Registered Note may be assigned or sold in
whole or in part only by registration of such assignment or sale on
the Register. Upon its receipt of a request to assign or sell all or
part of any Registered Note by a Holder, the Company shall record the
information contained therein in the Register and issue one or more
new Registered Notes in the same aggregate principal amount as the
principal amount of the surrendered Registered Note to the designated
assignee or transferee pursuant to Section 19. Notwithstanding
anything to the contrary set forth herein, upon conversion of any
portion of this Note in accordance with the terms hereof, the Holder
shall not be required to physically surrender this Note to the Company
unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior
written notice (which notice may be included in a Conversion Notice)
requesting reissuance of this Note upon physical surrender. The Holder
and the Company shall maintain records showing the Principal converted
and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to
necessitate the physical surrender of this Note upon conversion.
(iv) Pro Rata Conversion; Disputes. In the event that the Company
-----------------------------
receives a Conversion Notice from more than one holder of Notes for
the same Conversion Date and the Company can convert some, but not
all, of such portions of the Notes submitted for conversion, the
Company, subject to Section 3(d), shall convert from each holder of
Notes electing to have Notes converted on such date a pro rata amount
of such holder's portion of its Notes submitted for conversion based
on the principal amount of Notes submitted for conversion on such date
by such holder relative to the aggregate principal amount of all Notes
submitted for conversion on such date; provided, however, that no
holder shall receive shares of Common Stock upon conversion of its
Note in excess of its Authorized Share Allocation (as defined in
Section 11(a)); provided, further,
- 5 -
however, such pro rata conversion shall not cure any default or Event
of Default occurring hereunder resulting from such failure to fully
effect the conversion otherwise required by this Note. In the event of
a dispute as to the number of shares of Common Stock issuable to the
Holder in connection with a conversion of this Note, the Company shall
issue to the Holder the number of shares of Common Stock not in
dispute and resolve such dispute in accordance with Section 24.
(d) Limitations on Conversions.
--------------------------
(i) Beneficial Ownership. The Company shall not effect any
---------------------
conversion of this Note, and the Holder of this Note shall not have
the right to convert any portion of this Note pursuant to Section
3(a), to the extent that after giving effect to such conversion, and
taking into account all other shares of Common Stock beneficially
owned by the Holder and its Affiliates, the Holder (together with the
Holder's Affiliates) would beneficially own in excess of 9.99% (the
"Maximum Percentage") of the number of shares of Common Stock
outstanding immediately after giving effect to such conversion. For
purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by the Holder and its Affiliates shall
include the number of shares of Common Stock issuable upon conversion
of this Note with respect to which the determination of such sentence
is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) conversion of the remaining,
nonconverted portion of this Note beneficially owned by the Holder or
any of its Affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of the
Company (including, without limitation, any Other Notes or warrants)
subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of
its Affiliates, in each case if such conversion or exercise of such
instrument is not permitted in order to keep the Holder's beneficial
ownership of Common Stock at or below the Maximum Percentage. Except
as set forth in the preceding sentence, for purposes of this Section
3(d)(i), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For
purposes of this Section 3(d)(i), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number
of outstanding shares of Common Stock as reflected in (x) the
Company's most recent Form 10-K, Form 10-Q or Form 8-K, as the case
may be, (y) a more recent public announcement by the Company or (z)
any other notice by the Company or the Transfer Agent setting forth
the number of shares of Common Stock outstanding. For any reason and
at any time, upon the written or oral request of the Holder, the
Company shall within one (1) Business Day confirm orally and in
writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Note, by the
Holder or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. By written notice to
the Company, the Holder may from time to time increase or decrease the
Maximum Percentage to any other percentage specified in such notice so
long as such specified Maximum Percentage shall not exceed 9.99%;
provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is
- 6 -
delivered to the Company, and (ii) any such increase or decrease will
apply only to the Holder and not to any other holder of Notes.
(ii) Principal Market Regulation. Without limiting the rights of
---------------------------
the Holder under Section 11 hereunder, the Company shall not be
obligated to issue any shares of Common Stock upon conversion of this
Note, the Other Notes or the Preferred Shares or exercise of the
Warrants, and the Holder of this Note shall not have the right to
receive upon conversion of this Note any shares of Common Stock, if
the issuance of such shares of Common Stock would exceed the aggregate
number of shares of Common Stock which the Company may issue upon
conversion or exercise, as applicable, of the Notes, the Preferred
Shares and Warrants without breaching the Company's obligations under
the rules or regulations of the Principal Market (the "Exchange Cap"),
except that such limitation shall not apply in the event that the
Company (A) obtains the approval of its stockholders as required by
the applicable rules of the Principal Market for issuances of Common
Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required,
which opinion shall be reasonably satisfactory to the Required
Holders. Until such approval or written opinion is obtained, (1) the
Watershed Funds (as defined in Section 15(h)) shall not be issued in
the aggregate upon conversion of the Watershed Notes shares of Common
Stock in an amount greater than 11.6% of the Exchange Cap and (2) the
Prencen Group shall not be issued in the aggregate, upon conversion or
exercise, as applicable, of the Prencen Note, Preferred Shares or
Warrants, shares of Common Stock in an amount greater than 88.4% of
the Exchange Cap (with respect to each of the Watershed Funds and the
Prencen Group, the "Exchange Cap Allocation"). In the event that any
of the Watershed Funds and/or the Prencen Group shall sell or
otherwise transfer any of such holder's Notes, the transferee shall be
allocated a pro rata portion of such holder's Exchange Cap Allocation,
and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation
allocated to such transferee. In the event that any holder of Notes
shall convert all of such holder's Notes into a number of shares of
Common Stock which, in the aggregate, is less than such holder's
Exchange Cap Allocation, then the difference between such holder's
Exchange Cap Allocation and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective
Exchange Cap Allocations of the remaining holders of Notes on a pro
rata basis in proportion to the aggregate principal amount of the
Notes then held by each such holder.
(e) Holder's Right of Exchange. To the extent, but only to the extent,
--------------------------
required by the Principal Market pursuant to its listing requirements at
any time following the consummation of the Acquisition, up to $40,000,000
in outstanding Principal amount of the Notes together with any accrued and
unpaid Interest thereon and Late Charges on such Principal and Interest, if
any (such amount, the "Exchange Amount") shall be exchanged on a pro rata
basis (the "Exchange") for a new series of convertible preferred stock that
will be convertible into the Company's Common Stock (the "New Securities")
of the Company, which New Securities shall have such rights, designations
and preferences as the Required Holders and the Company shall mutually
agree. Upon the consummation of the Exchange, the Company shall (i) deliver
to the Holder the Holder Pro Rata Amount of the New Securities and (ii) pay
to the Holder, in cash, an amount equal to 15% of the Holder Pro Rata
Amount of the
- 7 -
Exchange Amount by wire transfer of immediately available funds in
accordance with the Holder's written wire transfer instructions.
(4) RIGHTS UPON EVENT OF DEFAULT.
----------------------------
(a) Event of Default. Each of the following events shall constitute an
----------------
"Event of Default":
(i) after the Permitted Senior Indebtedness has been repaid in
full, (A) the failure of the applicable Registration Statement
required to be filed pursuant to the Registration Rights Agreement to
be declared effective by the SEC on or prior to the date that is sixty
(60) days after the applicable Effectiveness Deadline (as defined in
the Registration Rights Agreement), or (B) while the applicable
Registration Statement is required to be maintained effective pursuant
to the terms of the Registration Rights Agreement, the effectiveness
of the applicable Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is
unavailable to any holder of the Notes for sale of all of such
holder's Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of
ten (10) consecutive days or for more than an aggregate of thirty (30)
days in any 365-day period (other than days during an Allowable Grace
Period (as defined in the Registration Rights Agreement));
(ii) after the Permitted Senior Indebtedness has been repaid in
full, the suspension from trading or failure of the Common Stock to be
listed on an Eligible Market for a period of five (5) consecutive
Trading Days or for more than an aggregate of ten (10) Trading Days in
any 365-day period;
(iii) (A) the failure to pay to the Holder any amount due on this
Note or any other Transaction Document on the Maturity Date and (B)
after the Permitted Senior Indebtedness has been repaid in full, the
Company's failure to pay to the Holder any amount of Principal
(including, without limitation, the Company's failure to pay any
redemption payments), Interest, Late Charges or other amounts (other
than Registration Delay Payments) when and as due under this Note or
any other Transaction Document (as defined in the Securities Purchase
Agreements) to which the Holder is a party, except, in the case of a
failure to pay Interest and Late Charges when and as due, in which
case only if such failure continues for a period of at least three (3)
Business Days;
(iv) (A) the occurrence of both an event of default under and
acceleration of any Permitted Senior Indebtedness and (B) after the
Permitted Senior Indebtedness has been repaid in full, the occurrence
of any default under or acceleration prior to maturity of any
Indebtedness of the Company or any of its Subsidiaries (as defined in
Section 3(a) of the Securities Purchase Agreements), other than with
respect to any Other Notes;
(v) the Company or any of its Subsidiaries, pursuant to or within
the meaning of Title 11, U.S. Code, or any similar Federal, foreign or
state law for
- 8 -
the relief of debtors (collectively, "Bankruptcy Law"), (A) commences
a voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment of
a receiver, trustee, assignee, liquidator or similar official (a
"Custodian"), (D) makes a general assignment for the benefit of its
creditors or (E) admits in writing that it is generally unable to pay
its debts as they become due;
(vi) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (A) is for relief against the Company or
any of its Subsidiaries in an involuntary case, (B) appoints a
Custodian of the Company or any of its Subsidiaries or (C) orders the
liquidation of the Company or any of its Subsidiaries and such order
or decree remains undismissed or unstayed for a period of sixty (60)
days;
(vii) after the Permitted Senior Indebtedness has been repaid in
full, a final judgment or judgments for the payment of money
aggregating in excess of $500,000 are rendered against the Company or
any of its Subsidiaries and which judgments are not, within sixty (60)
days after the entry thereof, bonded, discharged or stayed pending
appeal, or are not discharged within sixty (60) days after the
expiration of such stay; provided, however, that any judgment which is
covered by insurance or an indemnity from a creditworthy party shall
not be included in calculating the $500,000 amount set forth above so
long as the Company provides the Holder a written statement from such
insurer or indemnity provider (which written statement shall be
reasonably satisfactory to the Holder) to the effect that such
judgment is covered by insurance or an indemnity and the Company will
receive the proceeds of such insurance or indemnity within thirty (30)
days of the issuance of such judgment;
(viii) after the Permitted Senior Indebtedness has been repaid in
full, the Company breaches any representation, warranty, covenant or
other term or condition of any Transaction Document that is not
specifically addressed by any other Event of Default set forth in this
Section 4(a), except, subject to clause (ii) hereof, (i) in the case
of a breach of a covenant which is curable, only if such breach
continues for a period of at least ten (10) consecutive Business Days
or (ii) in the case of any breach that arises solely by virtue of the
Transaction Stockholder Approval or the Authorized Share Stockholder
Approval not being obtained at or prior to the Closing Date specified
in the Securities Purchase Agreements and the amendments to the
certificate of incorporation of the Company not having been filed with
the Secretary of State of Delaware to effectuate the amendments
specified in clauses (x) and (y) of Section 4(p)(ii) of the Securities
Purchase Agreements at or prior to the Closing Date specified in the
Securities Purchase Agreements;
(ix) after the Permitted Senior Indebtedness has been repaid in
full, any breach or failure in any respect to comply with Section 15
of this Note;
(x) after the Permitted Senior Indebtedness has been repaid in
full, failure to obtain the Authorized Share Stockholder Consent or
the Authorized Share Stockholder Approval, as the case may be, by June
1, 2007;
- 9 -
(xi) after the Permitted Senior Indebtedness has been repaid in
full, the Company or any Subsidiary shall fail to perform or comply
with any covenant or agreement contained in the Security Agreement or
any other Security Document to which it is a party;
(xii) after the Permitted Senior Indebtedness has been repaid in
full, any material provision of any Security Document (as reasonably
determined by the Collateral Agent) shall at any time for any reason
(other than pursuant to the express terms thereof) cease to be valid
and binding on or enforceable against the Company or any Subsidiary
intended to be a party thereto, or the validity or enforceability
thereof shall be contested by any party thereto, or a proceeding shall
be commenced by the Company or any Subsidiary or any governmental
authority having jurisdiction over any of them, seeking to establish
the invalidity or unenforceability thereof, or the Company or any
Subsidiary shall deny in writing that it has any liability or
obligation purported to be created under any Security Document;
(xiii) after the Permitted Senior Indebtedness has been repaid in
full, the Security Agreement or any other Security Document, after
delivery thereof pursuant hereto, shall for any reason fail or cease
to create a valid and perfected and, except to the extent permitted by
the terms hereof or thereof, Lien in favor of the Collateral Agent for
the benefit of the holders of the Notes on any Collateral (as defined
in the Security Documents) purported to be covered thereby; or
(xiv) any Event of Default (as defined in the Other Notes) occurs
with respect to any Other Notes.
(b) Redemption Right. Upon the occurrence of an Event of Default with
-----------------
respect to this Note or any Other Note, the Company shall within one (1)
Business Day deliver written notice thereof via facsimile and overnight
courier (an "Event of Default Notice") to all of the holders of Notes.
Subject to the Intercreditor Agreement, at any time after the earlier of
the holders' receipt of an Event of Default Notice and the holders becoming
aware of an Event of Default, a holder of Notes may elect to require the
Company to redeem all of its Note by delivering written notice thereof (the
"Event of Default Redemption Notice") to the Company. Notwithstanding the
foregoing, the Company shall only be required to consummate a redemption
pursuant to this Section 4(b) upon the Company's receipt of Event of
Default Redemption Notices from one or more holders of Notes constituting
the Required Holders (the "Event of Default Redemption Trigger Date") and
the Company shall notify all of the holders of the Notes of the receipt of
such redemption notices promptly, but in no event later than (1) Business
Day, following the Event of Default Redemption Trigger Date; provided,
however, if an Event of Default exists at the Maturity Date, any holder of
the Notes may exercise its right to require the redemption by the Company
of such holder's Note under this Section 4(b). Subject to the Intercreditor
Agreement, as of the Event of Default Redemption Trigger Date, the Company
shall be required to redeem all of the outstanding Notes in accordance with
this Section 4(b). Each Note redeemed by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal to the
greater of (i) the product of (x) the portion of the Conversion Amount to
be redeemed and (y) the Redemption Premium and (ii) the product of (A) the
Conversion Rate with respect to such Conversion Amount in
- 10 -
effect at such time as the Required Holders deliver an Event of Default
Redemption Notice and (B) the greatest of the Closing Sale Price of the
Common Stock on the date immediately preceding such Event of Default, the
Closing Sale Price of the Common Stock on the date immediately following
such Event of Default and the Closing Sale Price of the Common Stock on the
Event of Default Redemption Trigger Date (the "Event of Default Redemption
Price"). Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 12. To the extent redemptions
required by this Section 4(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. The parties hereto
agree that in the event of the Company's redemption of all or a portion of
such Note under this Section 4(b), the holders' damages would be uncertain
and difficult to estimate because of the parties' inability to predict
future interest rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the holders. Accordingly, any
Redemption Premium due under this Section 4(b) is intended by the parties
to be, and shall be deemed, a reasonable estimate of the holders' actual
loss of its investment opportunity and not as a penalty. Notwithstanding
anything to the contrary in this Section 4, but subject to Section 3(d),
until the Holder receives the Event of Default Redemption Price, the Holder
may convert this Note, in whole or in part, into Common Stock pursuant to
Section 3, and any such conversion shall reduce the amount otherwise
redeemable pursuant to this Section 4.
(c) Absence of Event of Default in Certain Circumstances.
---------------------------------------------------------------
Notwithstanding anything in this Note to the contrary, until the Permitted
Senior Indebtedness has been repaid in full, no Event of Default shall
occur under this Note or any Other Note or any other Transaction Document
unless an event of default has occurred or contemporaneously occurs under
and pursuant to the terms of the Permitted Senior Indebtedness.
(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
---------------------------------------------------------
(a) Assumption. The Company shall not enter into or be party to a
----------
Fundamental Transaction unless (i) the Successor Entity assumes in writing
all of the obligations of the Company under this Note and the other
Transaction Documents in accordance with the provisions of this Section
5(a) pursuant to written agreements in form and substance satisfactory to
the Required Holders and approved by the Required Holders prior to such
Fundamental Transaction, including agreements to deliver to each holder of
Notes in exchange for such Notes a security of the Successor Entity
evidenced by a written instrument substantially similar in form and
substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest
rates of the Notes held by such holder, having similar conversion rights as
the Notes and having similar ranking to the Notes, and satisfactory to the
Required Holders and (ii) the Successor Entity (including its Parent
Entity) is a publicly traded corporation whose common stock is quoted on or
listed for trading on an Eligible Market. Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note referring to the "Company" shall
refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company
under this Note with the same effect as if such Successor Entity had been
named as the Company herein. Upon
- 11 -
consummation of the Fundamental Transaction, the Successor Entity shall
deliver to the Holder confirmation that there shall be issued upon
conversion or redemption of this Note at any time after the consummation of
the Fundamental Transaction, in lieu of the shares of Common Stock (or
other securities, cash, assets or other property) issuable upon the
conversion of the Notes prior to such Fundamental Transaction, such shares
of publicly traded common stock (or their equivalent) of the Successor
Entity, and the Conversion Price of this Note in effect immediately prior
to such Fundamental Transaction shall be adjusted so that upon conversion
of this Note immediately after such Fundamental Transaction the Holder
shall be entitled to receive the aggregate number of shares of the
Successor Entity that the Holder would have been entitled to receive if the
Note had been converted immediately prior to such Fundamental Transaction,
as adjusted thereafter in accordance with the provisions of this Note. The
provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any
limitations on the conversion of this Note.
(b) Redemption Right. No sooner than fifteen (15) days nor later than
-----------------
ten (10) days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company
shall deliver written notice thereof via facsimile and overnight courier to
the Holder (a "Change of Control Notice"). Subject to the Intercreditor
Agreement, at any time during the period beginning after the Holder's
receipt of a Change of Control Notice and ending twenty (20) Trading Days
after the consummation of such Change of Control, the Holder may require
the Company to redeem all or any portion of this Note by delivering written
notice thereof ("Change of Control Redemption Notice") to the Company,
which Change of Control Redemption Notice shall indicate that portion of
the Conversion Amount the Holder is electing to redeem. The portion of this
Note subject to redemption pursuant to this Section 5 shall be redeemed by
the Company in cash at a price equal to the greater of (i) the product of
(x) that portion of the Conversion Amount being redeemed and (y) the
quotient determined by dividing (A) the greatest of the Closing Sale Price
of the Common Stock immediately prior to the consummation of the Change of
Control, the Closing Sale Price immediately following the public
announcement of such proposed Change of Control and the Closing Sale Price
of the Common Stock immediately prior to the public announcement of such
proposed Change of Control by (B) the Conversion Price and (ii) 120% of
that portion of the Conversion Amount being redeemed (the "Change of
Control Redemption Price"). Redemptions required by this Section 5 shall be
made in accordance with the provisions of Section 12 and shall have
priority to payments to stockholders in connection with a Change of
Control. To the extent redemptions required by this Section 5(b) are deemed
or determined by a court of competent jurisdiction to be prepayments of
this Note by the Company, such redemptions shall be deemed to be voluntary
prepayments. Notwithstanding anything to the contrary in this Section 5,
but subject to Section 3(d), until the Change of Control Redemption Price
is paid in full, that portion of the Conversion Amount submitted for
redemption under this Section 5(b) may be converted, in whole or in part,
by the Holder into Common Stock pursuant to Section 3. The parties hereto
agree that in the event of the Company's redemption of any portion of this
Note under this Section 5(b), the Holder's damages would be uncertain and
difficult to estimate because of the parties' inability to predict future
interest rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the Holder. Accordingly, any
redemption premium due under this Section 5(b) is intended by the parties
to be, and shall be deemed, a reasonable estimate of the Holder's actual
loss of its investment opportunity and not as a penalty.
- 12 -
(6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
------------------------------------------------------------------
(a) Purchase Rights. If at any time the Company grants, issues or
----------------
sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property (other than the Existing Stockholder
Warrants (as defined in the Securities Purchase Agreement)) pro rata to the
record holders of any class of Common Stock (the "Purchase Rights"), then
the Holder will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock
acquirable upon complete conversion of this Note (without taking into
account any limitations or restrictions on the convertibility of this Note)
immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
(b) Other Corporate Events. In addition to and not in substitution for
----------------------
any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are
entitled to receive securities or other assets with respect to or in
exchange for shares of Common Stock (a "Corporate Event"), the Company
shall make appropriate provision to ensure that the Holder will thereafter
have the right to receive upon a conversion of this Note, at the Holder's
option, (i) in addition to the shares of Common Stock receivable upon such
conversion, such securities or other assets to which the Holder would have
been entitled with respect to such shares of Common Stock had such shares
of Common Stock been held by the Holder upon the consummation of such
Corporate Event (without taking into account any limitations or
restrictions on the convertibility of this Note) or (ii) in lieu of the
shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common
Stock in connection with the consummation of such Corporate Event in such
amounts as the Holder would have been entitled to receive had this Note
initially been issued with conversion rights for the form of such
consideration (as opposed to shares of Common Stock) at a conversion rate
for such consideration commensurate with the Conversion Rate. Provision
made pursuant to the preceding sentence shall be in a form and substance
satisfactory to the Required Holders. The provisions of this Section shall
apply similarly and equally to successive Corporate Events and shall be
applied without regard to any limitations on the conversion or redemption
of this Note.
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
----------------------------------------
(a) Adjustment of Conversion Price upon Issuance of Common Stock. If
-------------------------------------------------------------
and whenever on or after the Issuance Date, the Company issues or sells, or
in accordance with this Section 7(a) is deemed to have issued or sold, any
shares of Common Stock (including the issuance or sale of shares of Common
Stock owned or held by or for the account of the Company, but excluding
shares of Common Stock deemed to have been issued or sold by the Company in
connection with any Excluded Security) for a consideration per share less
than a price (the "Applicable Price") equal to the Conversion Price in
effect immediately prior to such issue or sale (the foregoing a "Dilutive
Issuance"), then immediately upon such Dilutive Issuance, the Conversion
Price then in effect shall be reduced to an amount equal to
- 13 -
the lowest price per share at which any share of Common Stock were issued
or sold or deemed to be issued or sold (in accordance with this Section
7(a)) in connection with such Dilutive Issuance; provided, however, that if
the Company issues or sells, or is deemed to have issued or sold, any
shares of Common Stock in a Dilutive Issuance that is a Permitted
Financing, then immediately after such Dilutive Issuance, the Conversion
Price then in effect shall be reduced to an amount equal to the product of
(A) the Conversion Price in effect immediately prior to such Dilutive
Issuance and (B) the quotient determined by dividing (1) the sum of (I) the
product derived by multiplying the Conversion Price in effect immediately
prior to such Dilutive Issuance and the number of shares of Common Stock
Deemed Outstanding immediately prior to such Dilutive Issuance plus (II)
the consideration, if any, received by the Company upon such Dilutive
Issuance, by (2) the product derived by multiplying (I) the Conversion
Price in effect immediately prior to such Dilutive Issuance by (II) the
number of shares of Common Stock Deemed Outstanding immediately after such
Dilutive Issuance. For purposes of determining the adjusted Conversion
Price under this Section 7(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants or
-------------------
sells any Options and the lowest price per share for which one share
of Common Stock is issuable upon the exercise of any such Option or
upon conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option is less than the Conversion
Price, immediately prior thereto, then each such share of Common Stock
underlying such Option shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the granting or
sale of such Option for such price per share. For purposes of this
Section 7(a)(i), the "lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option" shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Common Stock upon
granting or sale of the Option, upon exercise of the Option and upon
conversion or exchange or exercise of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the
Conversion Price shall be made upon the actual issuance of such share
of 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 or exercise of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any
------------------------------------
manner issues or sells any Convertible Securities and the lowest price
per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise thereof is less than the Conversion
Price, immediately prior thereto, then each such share of Common Stock
underlying such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company at the
time of the issuance or sale of such Convertible Securities for such
price per share. For the purposes of this Section 7(a)(ii), the
"lowest price per share for which one share of Common Stock is
issuable upon such conversion or exchange or exercise" shall be equal
to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the issuance or sale of the Convertible Security and upon
the conversion or exchange or exercise of such Convertible Security.
- 14 -
No further adjustment of the Conversion Price shall be made upon the
actual issuance of such share of Common Stock upon conversion or
exchange or exercise of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of the Conversion Price had been or
are to be made pursuant to other provisions of this Section 7(a), no
further adjustment of the Conversion Price shall be made by reason of
such issue or sale.
(iii) 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, exchange or
exercise of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable or
exercisable for Common Stock changes at any time, the Conversion Price
in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such
Options or Convertible Securities 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. For
purposes of this Section 7(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the Issuance Date are
changed in the manner described in the immediately preceding sentence,
then such Option or Convertible Security and the Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed
to have been issued as of the date of such change. No adjustment shall
be made if such adjustment would result in an increase of the
Conversion Price then in effect.
(iv) Calculation of Consideration Received. In case any Option is
-------------------------------------
issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a
consideration of $.01. If any Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the
net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Company will be the fair value of such
consideration, except where such consideration consists of publicly
traded securities, in which case the amount of consideration received
by the Company will be the Closing Sale Price of such securities on
the date of receipt. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options
or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or publicly traded securities will be
determined jointly by the Company and the Required Holders. If such
parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within
fourteen (14) Business Days after the tenth (10th) day following the
Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The determination of
such appraiser shall be deemed binding
- 15 -
upon all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
(b) Adjustment of Conversion Price upon Subdivision or Combination of
------------------------------------------------------------------
Common Stock. If the Company at any time on or after the Issuance Date
-------------
subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock
into a greater number of shares, the Conversion Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company
at any time on or after the Issuance Date combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination will be proportionately
increased.
(c) Other Events. If any event occurs of the type contemplated by the
------------
provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights, other rights with equity
features or any distribution or dividend of securities on the preferred
stock of the Company existing on the date hereof), then the Company's Board
of Directors will make an appropriate adjustment in the Conversion Price so
as to protect the rights of the Holder under this Note; provided that no
such adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 7. The Company shall within one (1) Business Day
notify each of the holders of any of the Notes of any change to the
Conversion Price and describe in reasonable detail the basis for such
change.
(8) HOLDER'S RIGHT OF OPTIONAL REDEMPTION. From time to time on and after
--------------------------------------
the eighth (8th) anniversary of the Issuance Date, the Holder shall have the
right, in its sole discretion, to require that the Company redeem (each, a
"Holder Optional Redemption") up to all of the then applicable Conversion Amount
of this Note (the "Available Holder Optional Redemption Amount") by delivering
written notice thereof (a "Holder Optional Redemption Notice") to the Company.
The Holder Optional Redemption Notice shall indicate the Conversion Amount of
the Available Holder Optional Redemption Amount the Holder is electing to have
redeemed (the "Holder Optional Redemption Amount"). The portion of this Note
subject to redemption pursuant to this Section 8 shall be redeemed by the
Company in cash at a price equal to 107% of the Holder Optional Redemption
Amount (the "Holder Optional Redemption Price"). Redemptions required by this
Section 8 shall be made in accordance with the provisions of Section 12.
Notwithstanding anything to the contrary in this Section 8, but subject to
Section 3(d), until the Holder receives the Holder Optional Redemption Price,
the Holder Optional Redemption Amount may be converted, in whole or in part, by
the Holder into
- 16 -
Common Stock pursuant to Section 3, and any such conversion shall reduce the
Holder Optional Redemption Amount in the manner set forth by the Holder in the
applicable Conversion Notice.
(9) OPTIONAL REDEMPTIONS AT THE COMPANY'S ELECTION.
----------------------------------------------
(a) General. At any time from and after the eighth (8th) anniversary
-------
of the Issuance Date, so long as there has been no Equity Conditions
Failure, the Company shall have the right, to redeem all or any portion of
the Conversion Amount then remaining under this Note (the "Optional
Redemption Amount") as designated in the Optional Redemption Notice, as of
the Optional Redemption Date (an "Optional Redemption"). The portion of
this Note subject to redemption pursuant to this Section 9(a) shall be
redeemed by the Company in cash at a price equal to the 107% of the
Conversion Amount being redeemed (the "Optional Redemption Price"). The
Company may exercise its right to require redemption under this Section 9
by delivering a written notice thereof by facsimile and overnight courier
to all, but not less than all, of the holders of Notes (the "Optional
Redemption Notice" and the date all of the holders received such notice is
referred to as the "Optional Redemption Notice Date") and each Optional
Redemption Notice shall be irrevocable. The Optional Redemption Notice
shall state (1) the date on which the Optional Redemption shall occur (the
"Optional Redemption Date") which date shall be not less than five (5)
Trading Days nor more than thirty (30) Trading Days after the Optional
Redemption Notice Date, and (2) the aggregate Conversion Amount of the
Notes which the Company has elected to be subject to Optional Redemption
from all of the holders of the Notes pursuant to this Section 9(a) (and
analogous provisions under the Other Notes) on the Optional Redemption
Date. The Company may not effect more than one (1) Optional Redemption.
Notwithstanding anything to the contrary in this Section 9(a), until the
Optional Redemption Price is paid, in full, the Optional Redemption Amount
may be converted, in whole or in part, by the holders into shares of Common
Stock pursuant to Section 3. All Conversion Amounts converted by the Holder
into such Common Stock after the Optional Redemption Notice Date shall
reduce the Optional Redemption Amount of this Note required to be redeemed
on the Optional Redemption Date. Redemptions made pursuant to this Section
9 shall be made in accordance with Section 12.
(b) Pro Rata Redemption Requirement. If the Company elects to cause an
-------------------------------
Optional Redemption with respect to this Note pursuant to Section 9(a),
then it must simultaneously take the same action with respect to the other
Notes and make simultaneous payments of the applicable amounts to be paid
to each holder of the other Notes. If the Company elects to cause an
Optional Redemption pursuant to Section 9(a) (or similar provisions under
the other Notes) with respect to less than all of the Conversion Amounts of
the Notes then outstanding, then the Company shall require a proportionate
redemption of a Conversion Amount from each of the holders of the Notes
equal to the product of (i) the aggregate Conversion Amount of all the
Notes which the Company has elected to cause to be redeemed pursuant to
Section 9(a), multiplied by (ii) a fraction, the numerator of which is the
Conversion Amount of the applicable Note on the Optional Redemption Date
and the denominator of which is the sum of the aggregate Conversion Amounts
of all Notes on the Optional Redemption Date (such fraction with respect to
each holder is referred to as its "Redemption Allocation Percentage", and
such amount with respect to each holder is referred to as its "Pro Rata
Redemption Amount"), In the event that a holder of any Notes shall sell
- 17 -
or otherwise transfer any of such holder's Notes, the transferee shall be
allocated a pro rata portion of such holder's Redemption Allocation
Percentage and Pro Rata Redemption Amount.
(10) NONCIRCUMVENTION. The Company hereby covenants and agrees that the
----------------
Company will not, by amendment of its Certificate of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other action,
avoid or seek to avoid the observance or performance of any of the terms of this
Note, and will at all times in good faith carry out all of the provisions of
this Note and take all action as may be required to protect the rights of the
Holder of this Note.
(11) RESERVATION OF AUTHORIZED SHARES.
--------------------------------
(a) Reservation. Commencing on the Issuance Date and until the
-----------
Authorized Share Stockholder Approval Date or the Authorized Share
Stockholder Consent Effective Date, as the case may be, the Company shall
reserve in respect of the conversion of the Notes not less than 100,000,000
shares of Common Stock. Immediately on and after the Authorized Share
Stockholder Approval Date or the Authorized Share Stockholder Consent
Effective Date, as the case may be, the Company shall reserve out of its
authorized and unissued Common Stock a number of shares of Common Stock for
each of the Notes equal to 130% of the Conversion Rate with respect to the
Conversion Amount of each of the Notes as of the Issuance Date and, for so
long thereafter as any of the Notes are outstanding, the Company shall take
all action necessary to reserve and keep available out of its authorized
and unissued Common Stock, solely for the purpose of effecting the
conversion of the Notes, 130% of the number of shares of Common Stock as
shall from time to time be necessary to effect the conversion of all of the
Notes then outstanding; provided that at no time shall the number of shares
of Common Stock so reserved be less than the number of shares required to
be reserved by the previous sentence (without regard to any limitations on
conversions) (the "Required Reserve Amount"). The initial number of shares
of Common Stock reserved for conversions of the Notes and each increase in
the number of shares so reserved shall be allocated pro rata among the
holders of the Notes based on the principal amount (including capitalized
interest) of the Notes held by each holder at the Issuance Date or on the
date of any increase in the number of reserved shares, as the case may be
(the "Authorized Share Allocation"). In the event that a holder shall sell
or otherwise transfer any of such holder's Notes, each transferee shall be
allocated a pro rata portion of such holder's Authorized Share Allocation.
Any shares of Common Stock reserved and allocated to any Person which
ceases to hold a Prencen Note or Watershed Note, respectively, shall be
re-allocated to the remaining holders of each Prencen Note or Watershed
Note, respectively, pro rata based on the principal amount (including
capitalized interest) of such Notes then held by such holders.
(b) Insufficient Authorized Shares. If at any time after the
---------------------------------
Authorized Share Stockholder Approval Date or the Authorized Share
Stockholder Consent Effective Date, as the case may be, while any of the
Notes remain outstanding the Company does not have a sufficient number of
authorized and reserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon conversion of the Notes at least a number of
shares of Common Stock equal to the Required Reserve Amount (an "Authorized
Share Failure"), then the Company shall immediately take all action
necessary to increase the Company's authorized
- 18 -
shares of Common Stock to an amount sufficient to allow the Company to
reserve the Required Reserve Amount for the Notes then outstanding. Without
limiting the generality of the foregoing sentence, as soon as practicable
after the date of the occurrence of an Authorized Share Failure, but in no
event later than sixty (60) days after the occurrence of such Authorized
Share Failure, the Company shall hold a meeting of its shareholders for the
approval of an increase in the number of authorized shares of Common Stock.
In connection with such meeting, the Company shall provide each shareholder
with a proxy statement and shall use its best efforts to solicit its
shareholders' approval of such increase in authorized shares of Common
Stock and to cause its board of directors to recommend to the shareholders
that they approve such proposal.
(12) REDEMPTIONS.
-----------
(a) Mechanics. Subject to Section 12(b), the Company shall deliver the
---------
applicable Event of Default Redemption Price to the Holder within seven (7)
Business Days after the Event of Default Redemption Trigger Date. Subject
to Section 12(b), if the Holder has submitted a Change of Control
Redemption Notice in accordance with Section 5(b), the Company shall
deliver the applicable Change of Control Redemption Price to the Holder
concurrently with the consummation of such Change of Control if such notice
is received prior to the consummation of such Change of Control and within
five (5) Business Days after the Company's receipt of such notice
otherwise. Subject to Section 12(b), the Company shall deliver the Holder
Optional Redemption Price to the Holder within five (5) Business Days after
the Company's receipt of the Holder Optional Redemption Notice. The Company
shall deliver the Optional Redemption Price to the Holder on the applicable
Optional Redemption Date. Subject to pro rata redemption requirement in
Section 25(c), in the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall (at the Holder's request)
promptly cause to be issued and delivered to the Holder a new Note (in
accordance with Section 19(d)) representing the outstanding Principal which
has not been redeemed. In the event that the Company does not pay the
applicable Redemption Price to the Holder within the time period required,
at any time thereafter and until the Company pays such unpaid Redemption
Price in full, the Holder shall have the option, in lieu of redemption, to
require the Company to promptly return to the Holder all or any portion of
this Note representing the Conversion Amount that was submitted for
redemption and for which the applicable Redemption Price (together with any
Late Charges thereon) has not been paid. Upon the Company's receipt of such
notice, (x) the Redemption Notice shall be null and void with respect to
such Conversion Amount, (y) the Company shall, at the Holder's request,
immediately return this Note, or issue a new Note (in accordance with
Section 19(d)) to the Holder representing such Conversion Amount and (z)
the Conversion Price of this Note or such new Notes and all of the other
outstanding Notes shall be adjusted to the lesser of (A) the Conversion
Price as in effect on the date on which the Redemption Notice is voided and
(B) the lowest Closing Bid Price during the period beginning on and
including the date on which the Redemption Notice is delivered to the
Company and ending on and including the date on which the Redemption Notice
is voided. The Holder's delivery of a notice voiding a Redemption Notice
and exercise of its rights following such notice shall not affect the
Company's obligations to capitalize Late Charges which have accrued prior
to the date of such notice with respect to the Conversion Amount subject to
such notice.
- 19 -
(b) Redemption by Other Holders. Notwithstanding anything else
------------------------------
contained herein, upon the Company's receipt of notice from any of the
holders of the Notes for redemption or repayment as a result of an event or
occurrence substantially similar to the events or occurrences described in
Section 4(b), Section 5(b) or Section 8 (each, an "Other Redemption
Notice"), the Company shall immediately, but no later than one (1) Business
Day of its receipt thereof), forward to the Holder by facsimile a copy of
such notice. If the Company receives a Redemption Notice and one or more
Other Redemption Notices, during the fifteen (15) Business Day period
beginning on and including the date which is seven (7) Business Days prior
to the Company's receipt of the Holder's Redemption Notice and ending on
and including the date which is seven (7) Business Days after the Company's
receipt of the Holder's Redemption Notice and the Company is unable to
redeem all principal, interest and other amounts designated in such
Redemption Notice(s) and such Other Redemption Notices received during such
fifteen (15) Business Day period (the last day of such fifteen-day period,
the "Consolidation Date"), then the Company shall redeem on the
Consolidation Date a pro rata amount from each holder of the Notes
(including the Holder) based on the applicable Conversion Amounts of the
Notes submitted for redemption pursuant to such Redemption Notice(s) and
such Other Redemption Notices received by the Company during such fifteen
(15) Business Day period, provided, however, such pro rata payment shall
not cure any default or Event of Default occurring hereunder resulting from
such failure to fully pay the amount otherwise due on this Note.
(13) SECURITY. The Obligations are secured to the extent and in the manner
--------
set forth in the Security Documents.
(14) VOTING RIGHTS. The Holder shall have no voting rights as the holder of
-------------
this Note, except as required by law, including but not limited to the Delaware
General Corporation Law, and as expressly provided in this Note.
(15) COVENANTS.
---------
(a) Rank. All payments due under this Note (i) shall rank pari passu
----
with all of the Notes and (ii) shall be senior to all other Indebtedness of
the Company and its Subsidiaries other than Permitted Senior Indebtedness
and Indebtedness that is permitted to be senior or pari passu to the
Permitted Senior Indebtedness pursuant to the terms of the Permitted Senior
Indebtedness.
(b) Indebtedness. So long as any Obligations are outstanding, the
------------
Company shall not, and the Company shall not permit any of its Subsidiaries
to, directly or indirectly, incur or guarantee, assume or suffer to exist
any Indebtedness, other than Permitted Indebtedness.
(c) Existence of Liens. So long as any Obligations are outstanding,
------------------
the Company shall not, and the Company shall not permit any of its
Subsidiaries to, directly or indirectly, allow or suffer to exist any
mortgage, lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights) owned
by the Company or any of its Subsidiaries (collectively, "Liens") other
than Permitted Liens.
- 20 -
(d) Restricted Payments. After the Permitted Senior Indebtedness has
--------------------
been repaid in full, Company shall not, and the Company shall not permit
any of its Subsidiaries to, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of
cash or cash equivalents (in whole or in part, whether by way of open
market purchases, tender offers, private transactions or otherwise), all or
any portion of any Permitted Indebtedness (other than Permitted Senior
Indebtedness), whether by way of payment in respect of principal of (or
premium, if any) or interest on, such Indebtedness if at the time such
payment is due or is otherwise made or, after giving effect to such
payment, an event constituting, or that with the passage of time and
without being cured would constitute, an Event of Default has occurred and
is continuing.
(e) Restriction on Redemption and Cash Dividends. Until all of the
----------------------------------------------
Notes have been converted, redeemed or otherwise fully repaid, the Company
shall not, directly or indirectly, redeem, repurchase or declare or pay any
cash dividend or distribution on its capital stock without the prior
express written consent of the Required Holders.
(f) Dispositions. After the Permitted Senior Indebtedness has been
------------
repaid in full and so long as any Obligations are outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to,
convey, sell, lease or sublease, transfer or otherwise dispose of, whether
in one transaction or a series of related transactions, all or any part of
its business, property or assets, whether now owned or hereafter acquired
(or agree to do any of the foregoing); provided, however, that the Company
and its Subsidiaries may (i) sell inventory in the ordinary course of
business, (ii) dispose of obsolete or worn-out equipment in the ordinary
course of business and (iii) dispose of the non-core assets set forth on
Schedule 15(f) hereto.
(g) Additional Guaranties and Collateral Security. The Company and
------------------------------------------------
each Subsidiary shall cause each Subsidiary of the Company not in existence
on the Issuance Date, to execute and deliver to the Collateral Agent
promptly and in any event within five (5) Business Days after the
formation, acquisition or change in status thereof (i) a Guarantee
guaranteeing the Obligations, (ii) a joinder to the Security Agreement, and
(iii) such other agreements, instruments, approvals, legal opinions or
other documents reasonably requested by the Collateral Agent in order to
create, perfect, establish the third priority of (subject to Permitted
Liens) or otherwise protect any Lien purported to be covered by the
Security Agreement or otherwise to effect the intent that such Subsidiary
shall become bound by all of the terms, covenants and agreements contained
in the this Note and that all property and assets of such Subsidiary shall
become Collateral for the Obligations.
(h) Affiliated Transactions. Neither the Company nor any Subsidiary
------------------------
shall, without the consent of each Watershed Fund that then holds any
Watershed Notes (Watershed Capital Partners, L.P. ("WCP"), Watershed
Capital Institutional Partners, L.P. ("WCI") and any Affiliates of WCP,
collectively, the "Watershed Funds"), which consent may be withheld by any
such Watershed Fund in its sole and absolute discretion:
(i) enter into or make payments under any consulting, management
agreement and/or similar agreement or arrangement with the Prencen
Group and/or any of its Affiliates;
- 21 -
(ii) enter into any Subsequent Placement with the Prencen Group
and/or any of its Affiliates; provided, however, that no such consent
shall be required if (1) such Subsequent Placement is on commercially
reasonable terms and on an arm's-length basis, (2) such Subsequent
Placement is approved by a majority of the non-interested members of
the board of directors of the Company meeting in a separate session
and (3) the holders of the Notes have the right to participate in such
Subsequent Placement pursuant to Section 4(o) of the Securities
Purchase Agreements;
(iii) enter into any debt financing agreement or other financing
arrangement (other than a Subsequent Placement) with the Prencen Group
and/or any of its Affiliates; or
(iv) except as provided in the foregoing clause (ii), enter into
any transaction with any Affiliate of the Company and/or the Prencen
Group, other than for (A) ordinary course executive and employee
compensation arrangements, including, without limitation, salary,
equity compensation and bonuses, for directors, officers and employees
of the Company approved by the compensation committee of the Company's
board of directors, (B) the exchange contemplated in Section 3(e)
hereof, (C) any transaction or transactions providing for payments
which do not and cannot, in the aggregate, exceed $250,000 per annum
and (D) the performance of the Company's obligations pursuant to the
Securities Purchase Agreements, the Registration Rights Agreement, the
Series B Certificate of Designations and the Series B-1 Certificate of
Designations (each as defined in the Prencen Securities Purchase
Agreement) for the Preferred Shares, the Warrants and the Notes;
provided, however, that for the purposes of the foregoing clauses (A)
and (C), such transactions must be on arm's-length terms and approved
by a majority of the non-interested directors of the board of
directors of the Company.
Notwithstanding the foregoing, no consent of any Watershed Fund shall be
required pursuant to this Section 15(h) unless (x) on the applicable date
of determination, the Watershed Funds own in the aggregate at least 50% of
the original principal amount (without regard for any capitalized interest
added to such principal amount as of such date of determination) of the
Watershed Notes; provided, however, that if any portion of the original
principal amount of the Watershed Notes are exchanged, pursuant to Section
3(e), for New Securities, the principal amount of such notes exchanged for
any such New Securities received by the Watershed Funds on such date of
determination in exchange for such original principal amount of the
Watershed Notes shall be taken into account in determining whether the
Watershed Funds meet the foregoing ownership threshold or (y) the Watershed
Facility has not been repaid in full.
(i) No Additional Notes. Except with respect to any issuances in which
-------------------
a holder of Notes may participate in accordance with Section 4(o) of the
Securities Purchase Agreements and issuances made pursuant to Sections 18
and 19(a) - (c) of this Note, the Company shall not after the Closing (as
defined in the Securities Purchase Agreements) issue any notes or other
instruments that are pari passu with the Notes.
(16) PARTICIPATION. The Holder, as the holder of this Note, shall be
-------------
entitled to such dividends paid and distributions made to the holders of Common
Stock to the same extent as if the Holder had converted this Note into Common
Stock (without regard to any
- 22 -
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
(17) VOTE TO CHANGE THE TERMS OF NOTES. The affirmative vote at a meeting
---------------------------------
duly called for such purpose or the written consent without a meeting of the
Required Holders shall be required for any consent, waiver, change or amendment
to this Note or the Other Notes; provided, however, that no such consent,
waiver, change or amendment as applied to any of the Notes held by any
particular holder of Notes, shall, without the written consent of that
particular holder, (i) reduce the Interest Rate; (ii) reduce the amount of
Principal or, any other amounts payable on, or change the Maturity Date of, the
Notes; (iii) make any change that adversely affects the conversion rights of the
Notes (including, without limitation, the provisions contained in Sections 3 and
7 hereof); (iv) reduce any of the Redemption Prices, the timing of the payment
of any Redemption Prices, or amend or modify in any manner adverse to the
holders of the Notes the Company's obligation to make such payments, whether
through an amendment or waiver of provisions in the covenants, definitions or
otherwise; (v) modify the provisions with respect to the right of the holders of
the Notes to cause the Company to redeem the Notes; (vi) make any Interest or
Principal or other payments on the Notes payable other than as set forth herein;
(vii) modify any of the provisions of, or impair the right of any holder of
Notes under, this Section 17; (viii) release any obligor on the Notes or release
all or substantially all of the collateral security the Notes, except as
permitted by the Security Documents as they exist on the Issuance Date; (ix)
amend, modify or change the provisions contained in: Section 3(e) (Holder's
Right of Exchange); Section 4(a)(iii)(A) (Event of Default For Failure to Make
Payment at Maturity); Section 4(c) (Absence of Event of Default in Certain
Circumstances); Section 6 (Rights Upon Issuance of Purchase Rights and Other
Corporate Events); Section 10 (Circumvention) to the extent any such amendment,
modification or change thereto relates to any matter required to be approved by
each holder of Notes pursuant to this Section 17; Section 12 (Redemptions);
Section 15(g) (Additional Guaranties and Collateral Security); Section 15(h)
(Affiliated Transactions); Section 25(a) (Notices); Section 25(c) (Pro Rata
Rights); or Section 29(b) (Affiliate); or (x) amend, modify or change the
condition in any provision of this Note or the other Notes that restricts the
application of any such provision until the Permitted Senior Indebtedness has
been repaid in full. Neither the Company nor any of its Subsidiaries will,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of Interest, fees or otherwise, to any holder for or as inducement to any
consent, waiver or amendment of any of the terms or provisions of the Notes
unless such consideration is paid pro rata (based on Conversion Amounts) to all
holders of Notes. Other than as may be expressly contemplated by the Notes, so
long as any Notes remain outstanding, at no time shall the Company or any of its
Subsidiaries, directly or indirectly, purchase or offer to purchase any of the
outstanding Notes or exchange or offer to exchange for any consideration
(including, without limitation, for cash, securities, property or otherwise) any
outstanding Notes unless the Company or such Subsidiary, as applicable,
purchases, offers to purchase, exchanges or offers to exchange the outstanding
Notes of all of the holders for the same consideration (on a pro rata basis in
accordance with each holder's percentage ownership of then outstanding Notes)
and on identical terms. If any changes, amendments, alterations, waivers or
modifications are made to any Note, such identical changes, amendments,
alterations, waivers or modifications shall be made to each of the other Notes.
The limitations set forth in this Section 17 shall apply mutatis mutandis with
respect to any analogous provision contained in any of the other Transaction
Documents.
- 23 -
(18) TRANSFER. This Note may be offered, sold, assigned or transferred by
--------
the Holder without the consent of the Company, subject only to the provisions of
Section 2(g) of the Securities Purchase Agreements; provided, however, that any
such sale, assignment or transfer is in a minimum amount equal to the lesser of
(a) $1,000,000 and (b) the outstanding Principal amount, Interest and Late
Charges, if any, of this Note; provided, further, however, that such minimum
amount shall not apply to any sale, assignment or transfer to an Affiliate of
the Holder.
(19) REISSUANCE OF THIS NOTE.
-----------------------
(a) Transfer. If all or a portion of this Note is to be transferred,
--------
the Holder shall surrender this Note to the Company, whereupon the Company
will forthwith issue and deliver upon the order of the Holder a new Note
(in accordance with Section 19(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and,
if less then the entire outstanding Principal is being transferred, a new
Note (in accordance with Section 19(d)) to the Holder representing the
outstanding Principal not being transferred. The Holder and any assignee,
by acceptance of this Note, acknowledge and agree that, by reason of the
provisions of Section 3(c)(iii), following conversion or redemption of any
portion of this Note, the outstanding Principal represented by this Note
may be less than the Principal stated on the face of this Note.
(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of
---------------------------------
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the
Company in customary form and, in the case of mutilation, upon surrender
and cancellation of this Note, the Company shall execute and deliver to the
Holder a new Note (in accordance with Section 19(d)) representing the
outstanding Principal.
(c) Note Exchangeable for Different Denominations. This Note is
-------------------------------------------------
exchangeable, upon the surrender hereof by the Holder at the principal
office of the Company, for a new Note or Notes (in accordance with Section
19(d) and in principal amounts of at least $100,000) representing in the
aggregate the outstanding Principal of this Note, and each such new Note
will represent such portion of such outstanding Principal as is designated
by the Holder at the time of such surrender.
(d) Issuance of New Notes. Whenever the Company is required to issue a
---------------------
new Note pursuant to the terms of this Note, such new Note (i) shall be of
like tenor with this Note, (ii) shall represent, as indicated on the face
of such new Note, the Principal remaining outstanding (or in the case of a
new Note being issued pursuant to Section 19(a) or Section 19(c), the
Principal designated by the Holder which, when added to the principal
represented by the other new Notes issued in connection with such issuance,
does not exceed the Principal remaining outstanding under this Note
immediately prior to such issuance of new Notes), (iii) shall have an
issuance date, as indicated on the face of such new Note, which is the same
as the Issuance Date of this Note, (iv) shall have the same rights and
conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges on the Principal and Interest of this Note, from
the Issuance Date.
- 24 -
(20) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
---------------------------------------------------------------------
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
-----------------
addition to all other remedies available under this Note and any of the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
(21) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note
----------------------------------------------------
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the reasonable
costs incurred by the Holder for such collection, enforcement or action or in
connection with such bankruptcy, reorganization, receivership or other
proceeding, including, but not limited to, attorneys' fees and disbursements.
(22) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
-----------------------
drafted by the Company and all the holders of Notes and shall not be construed
against any Person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.
(23) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
---------------------------------
the Holder 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.
(24) DISPUTE RESOLUTION. In the case of a dispute as to the determination
-------------------
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Conversion Rate or any Redemption Price,
the Company shall submit the disputed determinations or arithmetic calculations
via facsimile within one (1) Business Day of receipt, or deemed receipt, of the
Conversion Notice or Redemption Notice or other event giving rise to such
dispute, as the case may be, to the Holder. If the Holder and the Company are
unable to agree upon such determination or calculation 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 (a) the disputed determination of the Closing Bid Price, the Closing
Sale Price or the Weighted Average Price to an independent, reputable investment
bank selected by the Company and approved by the Holder or
- 25 -
(b) the disputed arithmetic calculation of the Conversion Rate or any Redemption
Price to the Company's independent, outside accountant. The Company, at the
Company's expense, shall cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than five (5) Business Days from
the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error. To the extent
that any determination of any Closing Bid Price, Closing Sale Price or the
Weighted Average Price or calculation of the Conversion Price, Conversion Rate
or any Redemption Price hereunder affects any conversion price, conversion rate
or redemption price in connection with any conversion, redemption or payment to
be made with respect to the other Notes, such determination or calculation shall
also be applied in connection with any such conversions, redemptions or payments
under the other Notes.
(25) NOTICES; PAYMENTS.
-----------------
(a) Notices. Whenever notice is required to be given under this Note,
-------
unless otherwise provided herein, such notice shall be given in accordance
with Section 9(f) of the Securities Purchase Agreements. The Company shall
provide the Holder with prompt written notice of all actions taken pursuant
to this Note, including in reasonable detail a description of such action
and the reason therefor. Without limiting the generality of the foregoing,
the Company will give written notice to the holders of all Notes (i)
immediately upon any adjustment of the Conversion Price (and in no event
later than one (1) Business Day thereafter), including any adjustment to
the Conversion Price made following any calculation of such price pursuant
to the dispute resolution mechanism set forth in Section 24, setting forth
in reasonable detail, and certifying, the calculation of such adjustment,
(ii) at least twenty (20) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights
to vote with respect to any Fundamental Transaction, dissolution or
liquidation, provided in each case that such information shall be made
known to the public prior to or in conjunction with such notice being
provided to the Holder.
(b) Payments. Whenever any payment of cash is to be made by the
--------
Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the
account of the Company and sent via overnight courier service to such
Person at such address as previously provided to the Company in writing
(which address, in the case of each of the Purchasers, shall initially be
as set forth on the Schedules of Buyers attached to the Securities Purchase
Agreements); provided that the Holder may elect to receive a payment of
cash via wire transfer of immediately available funds by providing the
Company with prior written notice setting out such request and the Holder's
wire transfer instructions. Whenever any amount expressed to be due by the
terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day
and, in the case of any Interest Date which is not the date on which this
Note is paid in full, the extension of the due date thereof shall not be
taken into account for purposes of determining the amount of Interest due
on such date. Any amount of Principal or other amounts due under the
Transaction Documents, other than Interest, which
- 26 -
is not paid when due shall result in a late charge being incurred and
payable by the Company in an amount equal to interest on such amount at the
rate of fifteen percent (15%) per annum from the date such amount was due
until the same is paid in full ("Late Charge"). All payments of any
Redemption Price to be made by the Company to the Holder hereunder shall
also include payment in respect of any other Obligations then due and
owing, including without limitation, Interest thereon.
(c) Pro Rata Rights. All payments and/or distributions required to be
---------------
made by the Company hereunder on a pro rata basis among all holders of the
Notes or certain holders of the Notes shall be made simultaneously and
ratably among all such holders of Notes or such lesser group of holders of
the Notes, as applicable. Notwithstanding anything else contained herein,
the Holder retains the sole power with respect to this Note to effect the
conversion(s) provided in Section 3 and elect to redeem all or a portion of
this Note pursuant to Sections 5(b) and 8, and in no event shall any other
Person or Person(s) be able to interfere with or take away any such rights.
(26) CANCELLATION. After all the Obligations (excluding any Obligations
------------
that are contingent, unmatured or otherwise unknown at the time of payment) at
any time owed have been paid in full, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued; provided, however, that any contingent, unmatured or unknown claims
arising under the Transaction Documents that are known as of the date of payment
or that mature or become known thereafter and which would otherwise be
considered Obligations hereunder shall survive the cancellation of this Note.
(27) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
----------------
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreements.
(28) GOVERNING LAW; JURISDICTION; JURY TRIAL. This Note shall be construed
----------------------------------------
and enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Note shall be governed by, the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. The Company hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof at the address set forth in Section 9(f) of
the Securities Purchase Agreements, or in the case of a transferee of any Note,
at such address provided to the Company by such holder at the time of such
transfer, and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any
- 27 -
right to serve process in any manner permitted by law. In the event that any
provision of this Note is invalid or unenforceable under any applicable statute
or rule of law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of this Note. Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Company in any other jurisdiction to collect on the Company's
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder. EACH OF THE COMPANY AND THE HOLDER HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR
ANY TRANSACTION CONTEMPLATED HEREBY.
(29) CERTAIN DEFINITIONS. For purposes of this Note, the following terms
--------------------
shall have the following meanings:
(a) "Acquisition" means the acquisition of the Calgon and Healing
Gardens brands from Coty, Inc. and certain of its affiliates by Ascendia
Brands Co., Inc., and certain of its Affiliates pursuant to that certain
Asset Purchase Agreement, dated as of January 17, 2007.
(b) "Affiliate" means, with respect to any specified Person, a Person
that directly, or indirectly through one or more intermediaries, controls,
is controlled by or is under common control with, such specified Person (it
being understood that a Person shall be deemed to "control" another Person,
for purposes of this definition, if such Person directly or indirectly has
the power to direct or cause the direction of the management and policies
of such other Person, whether through holding beneficial ownership
interests in such other Person, through contracts or otherwise). For the
avoidance of doubt, no Watershed Fund shall be deemed an Affiliate of the
Company or any of its Subsidiaries in respect of the ownership by one or
more of such Watershed Fund's of Notes, Conversion Shares (as defined in
the Watershed Securities Purchase Agreement) and/or Permitted Senior
Indebtedness.
(c) "Approved Stock Plan" means any employee benefit plan which has
been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer or director
for services provided to the Company.
(d) "Authorized Share Stockholder Approval" has the meaning ascribed
to such term in the Securities Purchase Agreements.
(e) "Authorized Share Stockholder Approval Date" has the meaning
ascribed to such term in the Securities Purchase Agreements.
(f) "Authorized Share Stockholder Consent" has the meaning ascribed to
such term in the Securities Purchase Agreements.
- 28 -
(g) "Authorized Share Stockholder Consent Effective Date" has the
meaning ascribed to such term in the Securities Purchase Agreements.
(h) "Authorized Share Stockholder Meeting Deadline" has the meaning
ascribed to such term in the Securities Purchase Agreements.
(i) "Bloomberg" means Bloomberg Financial Markets.
(j) "Business Day" means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(k) "Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other
equivalents (however designated and whether or not voting) of corporate
stock, and (ii) with respect to any Person that is not a corporation, any
and all partnership, membership or other equity interests of such Person.
(l) "Change of Control" means any Fundamental Transaction other than
(i) any reorganization, recapitalization or reclassification of the Common
Stock in which holders of the Company's voting power immediately prior to
such reorganization, recapitalization or reclassification continue after
such reorganization, recapitalization or reclassification to hold publicly
traded securities and, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation)
of such entity or entities, or (ii) pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of the
Company.
(m) "Closing Bid Price" and "Closing Sale Price" means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Eligible Market that is the
primary market for such security, as reported by Bloomberg, or, if such
Eligible Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the case may
be, then the last bid price or last trade price, respectively, of such
security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if no Eligible Market is the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, 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 or
last trade price, respectively, 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 or last trade price, respectively,
is reported for such security by Bloomberg, the average of the bid prices,
or the ask prices, respectively, of any market makers for such security as
reported in the "pink sheets" by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the
foregoing bases, the Closing Bid Price or the Closing Sale Price, as the
case may be, of such security on such date shall be the fair market value
as mutually determined by the Company and the Holder. If the Company and
the Holder are unable to agree upon the fair market value of such security,
then such dispute shall be resolved pursuant to Section 24. All such
- 29 -
determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during the
applicable calculation period.
(n) "Collateral Agent" shall mean the "Agent" as defined in the
Security Agreement.
(o) "Common Stock Deemed Outstanding" means, at any given time, the
number of shares of Common Stock outstanding at such time, plus the number
of shares of Common Stock deemed to be outstanding pursuant to Sections
7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding
any Common Stock owned or held by or for the account of the Company or
issuable upon conversion or exercise, as applicable, of the Notes, the
Preferred Shares and the Warrants.
(p) "Contingent Obligation" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to
any indebtedness, lease, dividend or other obligation of another Person if
the primary purpose or intent of the Person incurring such liability, or
the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of
such liability will be protected (in whole or in part) against loss with
respect thereto.
(q) "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.
(r) "Eligible Market" means the Principal Market, The New York Stock
Exchange, Inc., The NASDAQ Global Select Market, The NASDAQ Global Market
or The NASDAQ Capital Market.
(s) "Equity Conditions" means that each of the following conditions is
satisfied: (i) on each day during the period beginning six months prior to
the applicable date of determination and ending on and including the
applicable date of determination (the "Equity Conditions Measuring
Period"), either (x) the Registration Statement filed pursuant to the
Registration Rights Agreement shall be effective and available for the
resale of all remaining Registrable Securities in accordance with the terms
of the Registration Rights Agreement and there shall not have been any
Grace Periods (as defined in the Registration Rights Agreement) or (y) all
shares of Common Stock issuable upon conversion of the Notes and Preferred
Shares and exercise of the Warrants shall be eligible for sale without
restriction and without the need for registration under any applicable
federal or state securities laws; (ii) on each day during the Equity
Conditions Measuring Period, the Common Stock is designated for quotation
on the Principal Market and shall not have been suspended from trading on
such exchange or market (other than suspensions of not more than two days
and occurring prior to the applicable date of determination due to business
announcements by the Company) nor shall delisting or suspension by such
exchange or market been threatened or pending either (A) in writing by such
exchange or market or (B) by falling below the minimum listing maintenance
requirements of such exchange or market; (iii) during the one (1) year
period
- 30 -
ending on and including the date immediately preceding the applicable date
of determination, the Company shall have delivered shares of Common stock
issuable upon conversion of the Notes to the holders on a timely basis as
set forth in Section 3(c)(i) hereof (and analogous provisions under the
Other Notes); (iv) any applicable shares of Common Stock to be issued in
connection with the event requiring determination may be issued in full
without violating Section 3(d) hereof and the rules or regulations of the
Principal Market; (v) during the Equity Conditions Measuring Period, the
Company shall not have failed to timely make any payments within five (5)
Business Days of when such payment is due pursuant to any Transaction
Document; (vi) during the Equity Conditions Measuring Period, there shall
not have occurred either (A) the public announcement of a pending, proposed
or intended Fundamental Transaction which has not been abandoned,
terminated or consummated or (B) an Event of Default or an event that with
the passage of time or giving of notice would constitute an Event of
Default; (vii) the Company shall have no knowledge of any fact that would
cause (x) the Registration Statements required pursuant to the Registration
Rights Agreement not to be effective and available for the resale of all
remaining Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (y) any shares of Common Stock issuable
upon conversion of the Notes and Preferred Shares and shares of Common
Stock issuable upon exercise of the Warrants not to be eligible for sale
without restriction pursuant to Rule 144(k) and any applicable state
securities laws; (viii) the Company otherwise shall have been in material
compliance with and shall not have materially breached any provision,
covenant, representation or warranty of any Transaction Document; and (ix)
the Transaction Stockholder Approval and the Authorized Share Stockholder
Approval shall have been obtained.
(t) "Equity Conditions Failure" means that on any determination date
from the Optional Redemption Notice Date through and including the Optional
Redemption Date, the Equity Conditions have not been satisfied (or waived
in writing by the Holder).
(u) "Exchange Agreement" means that certain Amendment and Exchange
Agreement, dated as of December 27, 2006, by and among the Company, Prencen
Lending LLC and Prencen LLC.
(v) "Excluded Security" means any Common Stock issued or issuable: (i)
in connection with any Approved Stock Plan; (ii) upon conversion of the
Notes; (iii) upon exercise of the Existing Stockholder Warrants (as defined
in Securities Purchase Agreement); (iv) upon conversion, exercise or
exchange of any Options or Convertible Securities which are outstanding on
the day immediately preceding the Issuance Date, provided that the terms of
such Options or Convertible Securities are not amended, modified or changed
on or after the Issuance Date; or (v) in connection with any stock split,
stock dividend, recapitalization or similar transaction by the Company for
which adjustment is made pursuant to Section 7(b).
(w) "Fundamental Transaction" means that the Company shall (or in the
case of clause (vi) any "person" or "group" (as these terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act)), directly or
indirectly, in one or more related transactions, (i) consolidate or merge
with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company to
another Person, or (iii) allow
- 31 -
another Person or Persons to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of the outstanding shares
of Voting Stock (not including any shares of Voting Stock held by the
Person or Persons making or party to, or associated or affiliated with the
Person or Persons making or party to, such purchase, tender or exchange
offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person
whereby such other Person acquires more than the 50% of either the
outstanding shares of Voting Stock (not including any shares of Voting
Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such
stock purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock, or (vi) is or shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 50% of the aggregate ordinary voting
power represented by issued and outstanding Common Stock.
(x) "GAAP" means United States generally accepted accounting
principles, consistently applied.
(y) "Guarantee" means (i) the guarantee of each Subsidiary Guarantor
and (ii) each guarantee substantially in the form of Exhibit E-1 and/or
Exhibit E-2 to the Prencen Securities Purchase Agreement and in the form of
Exhibit D-1 and/or Exhibit D-2 to the Watershed Securities Purchase
Agreement made by any other Subsidiary in favor of the holders of the Notes
(or the Collateral Agent for the benefit of the Collateral Agent and the
holders of the Notes) pursuant to Section 15(g), in each case as such
agreement may be amended, modified, supplemented or reaffirmed.
(z) "Hedging Agreement" means any interest rate, foreign currency,
commodity or equity swap, collar, cap, floor or forward rate agreement, or
other agreement or arrangement designed to protect against fluctuations in
interest rates or currency, commodity or equity values (including, without
limitation, any option with respect to any of the foregoing and any
combination of the foregoing agreements or arrangements), and any
confirmation executed in connection with any such agreement or arrangement.
(aa) "Highest Lawful Rate" means the maximum lawful interest rate, if
any, that at any time or from time to time may be contracted for, charged,
or received under the laws applicable to the Holder which are presently in
effect or, to the extent allowed by law, under such applicable laws which
may hereafter be in effect and which allow a higher maximum nonusurious
interest rate than applicable laws now allow.
(bb) "Holder Pro Rata Amount" means a fraction (i) the numerator of
which is the Principal amount of this Note on the date of determination and
(ii) the denominator of which is the aggregate principal amount of all
Notes outstanding on such date.
(cc) "Indebtedness" of any Person means, without duplication (i) all
indebtedness for borrowed money, (ii) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services, including
(without limitation) "capital leases" in accordance with generally accepted
accounting principles (other than trade payables entered into in the
ordinary course of business), (iii) all reimbursement or payment
obligations with respect to
- 32 -
letters of credit, surety bonds and other similar instruments, (iv) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (v) all indebtedness created
or arising under any conditional sale or other title retention agreement,
or incurred as financing, in either case with respect to any property or
assets acquired with the proceeds of such indebtedness (even though the
rights and remedies of the seller or bank under such agreement in the event
of default are limited to repossession or sale of such property), (vi) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently
applied for the periods covered thereby, is classified as a capital lease,
(vii) all indebtedness referred to in clauses (i) through (vi) above
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any
Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (viii)
all Contingent Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (i) through (vii) above.
(dd) "Interest Rate" means, (i) initially, nine percent (9.0%) per
annum and (ii) subject to the third sentence of Section 2, (A) in the event
that the Company has not obtained the Authorized Share Stockholder Approval
by the Authorized Share Stockholder Meeting Deadline, eleven percent
(11.0%) and (B) in the event that the Company has not obtained the
Authorized Share Stockholder Approval by June 30, 2007, thirteen percent
(13.0%), in each case subject to adjustment as provided herein.
(ee) "Obligations" means all present and future indebtedness,
obligations, and liabilities of the Company and any Subsidiary Guarantor to
the Collateral Agent and the holders of the Notes under the Transaction
Documents, whether or not the right of payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
disputed, undisputed, legal, equitable, secured, unsecured, and whether or
not such claim is discharged, stayed or otherwise affected by any
proceeding referred to in Section 4(a). Without limiting the generality of
the foregoing, the Obligations of the Company and each Subsidiary Guarantor
under the Notes and the other Transaction Documents include (a) the
obligation to pay principal, interest, charges (including Late Charges),
expenses, fees, attorneys' fees and disbursements, indemnities and other
amounts payable by such Person thereunder, and (b) the obligation of such
Person to reimburse any amount in respect of any of the foregoing that the
Collateral Agent or any holder of Notes (in its sole discretion) may elect
to pay or advance on behalf of such Person.
(ff) "Options" means any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.
(gg) "Parent Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market, or,
if there is more than one such Person or Parent Entity, the Person or
Parent Entity with the largest public market capitalization as of the date
of consummation of the Fundamental Transaction.
- 33 -
(hh) "Permitted Financing" means, in one or more transactions, any
issuance or sale, or in accordance with Section 7(a), any deemed issuance
or sale of Common Stock (i) which issuance or sale does not exceed
$5,000,000 in the aggregate, (ii) is at a consideration per share greater
than 90% of the arithmetic average of the Weighted Average Price of the
Common Stock for the ten (10) consecutive Trading Days ending on the date
immediately prior to the execution of the definitive agreement for such
Permitted Financing for any and all transactions and (iii) where if
warrants are issued in such Permitted Financing, such warrants are
exercisable for not more than 25% of the shares of Common Stock issued or
issuable in such Permitted Financing and such warrants have an exercise
price that is equal to or greater than the arithmetic average of the
Weighted Average Price of the Common Stock for the ten (10) consecutive
Trading Days ending on the date immediately prior to the execution of the
definitive agreement for such Permitted Financing.
(ii) "Permitted Indebtedness" means (i) prior to the repayment in full
of the Permitted Senior Indebtedness, the Permitted Senior Indebtedness and
all Indebtedness permitted to exist pursuant to the terms of the Permitted
Senior Indebtedness (ii) Indebtedness evidenced by this Note and the Other
Notes, (iii) Indebtedness evidenced by the Coty Note (as defined in the
Securities Purchase Agreements) and any additional promissory note issued,
or any increase in the principal amount of the Coty Note made, in an amount
equal to the In-Kind Amount in connection with payment of the Coty Earn-Out
Payment (each as defined in the Securities Purchase Agreements), (iv) other
unsecured Indebtedness in an aggregate amount not to exceed $20,000,000
outstanding at any time incurred by the Company and/or any of its
Subsidiaries that is made expressly subordinate in right of payment to the
Indebtedness evidenced by this Note, as reflected in a written agreement
acceptable to the Holder and approved by the Holder in writing, and which
Indebtedness does not provide at any time for (1) the payment, prepayment,
repayment, repurchase or defeasance, directly or indirectly, of any
principal or premium, if any, thereon until ninety-one (91) days after the
Maturity Date or later and (2) total interest and fees at a rate in excess
of the Interest Rate hereunder, (v) Indebtedness secured by Permitted
Liens, (vi) Indebtedness to trade creditors incurred in the ordinary course
of business, and (vii) extensions, refinancings and renewals of any items
of Permitted Indebtedness; provided that, the principal amount is not
increased or the terms modified to impose more burdensome terms upon the
Company or its Subsidiary, as the case may be.
(jj) "Permitted Liens" means (A) prior to the repayment in full of the
Permitted Senior Indebtedness, the Liens securing the Permitted Senior
Indebtedness and all "Permitted Liens" as defined pursuant to the terms of
the Permitted Senior Indebtedness and (B) after the Permitted Senior
Indebtedness has been repaid in full, (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP, (ii)
any statutory Lien arising in the ordinary course of business by operation
of law with respect to a liability that is not yet due or delinquent, (iii)
any Lien created by operation of law, such as materialmen's liens,
mechanics' liens and other similar liens, arising in the ordinary course of
business with respect to a liability that is not yet due or delinquent or
that are being contested in good faith by appropriate proceedings, (iv)
Liens securing the Obligations, (v) Liens (A) upon or on any equipment
acquired or held by the Company or any of its Subsidiaries to secure the
purchase price of such equipment or indebtedness incurred solely for the
purpose of financing the acquisition or lease of such equipment, or (B)
existing on such equipment at the time of its acquisition, provided that
- 34 -
the Lien is confined solely to the property so acquired and improvements
thereon, and the proceeds of such equipment, (vi) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clauses (i) and (v) above,
provided that any extension, renewal or replacement Lien shall be limited
to the property encumbered by the existing Lien and the principal amount of
the Indebtedness being extended, renewed or refinanced does not increase,
(vii) leases or subleases and licenses and sublicenses granted to others in
the ordinary course of the Company's business, not interfering in any
material respect with the business of the Company and its Subsidiaries
taken as a whole, (viii) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payments of custom duties in
connection with the importation of goods and (ix) Liens arising from
judgments, decrees or attachments in circumstances not constituting an
Event of Default under Section 4(a)(vii).
(kk) "Permitted Senior Indebtedness" means (i) the WFF Facility and
(ii) the Watershed Facility.
(ll) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(mm) "Preferred Shares" has the meaning ascribed to such term in the
Exchange Agreement.
(nn) "Prencen Group" means Prencen Lending LLC, Prencen LLC and/or
Prencen Capital Management, L.P.
(oo) "Prencen Note" means the Note issued pursuant to the Prencen
Securities Purchase Agreement.
(pp) "Principal Market" means the American Stock Exchange.
(qq) "Redemption Notices" means, collectively, the Event of Default
Redemption Notices, the Change of Control Redemption Notices, the Holder
Optional Redemption Notice and the Optional Redemption Notices and each of
the foregoing, individually, a Redemption Notice.
(rr) "Redemption Premium" means (i) in the case of the Events of
Default described in Section 4(a)(i) - (iv) and (vii) - (xiv), 125% or (ii)
in the case of the Events of Default described in Section 4(a)(v) - (vi),
100%.
(ss) "Redemption Prices" means, collectively, the Event of Default
Redemption Price, Change of Control Redemption Price, the Holder Optional
Redemption Price and the Optional Redemption Price and, each of the
foregoing, individually, a Redemption Price.
(tt) "Registration Rights Agreement" means that certain Registration
Rights Agreement dated as of February 9, 2007 by and among the Company and
the initial holders of the Notes, as such agreement may be amended,
modified or supplemented,
- 35 -
relating to, among other things, the registration of the resale of the
shares of Common Stock owned by Prencen Lending LLC and the shares of
Common Stock issuable upon conversion of the Notes and the Preferred Shares
and exercise of the Warrants.
(uu) "Required Holders" means the holders of Notes representing at
least a majority of the aggregate principal amount of the Notes then
outstanding.
(vv) "SEC" means the United States Securities and Exchange Commission.
(ww) "Securities Purchase Agreements" means, collectively, (i) that
certain Third Amended and Restated Securities Purchase Agreement dated as
of February 9, 2007 by and among the Company, Prencen LLC and Prencen
Lending LLC, as the same may be amended, modified or supplemented from time
to time (the "Prencen Securities Purchase Agreement") and (ii) that certain
Securities Purchase Agreement dated as of February 9, 2007 by and among the
Company, Watershed Capital Partners, L.P. and Watershed Capital
Institutional Partners, L.P., as the same may be amended, modified or
supplemented from time to time (the "Watershed Securities Purchase
Agreement").
(xx) "Security Agreement" means a Security Agreement made by the
Company or any Subsidiary in favor of the Collateral Agent for the benefit
of the Collateral Agent and the holders of the Notes, substantially in the
form of Exhibit D to the Prencen Securities Purchase Agreement and in the
form of Exhibit C to the Watershed Securities Purchase Agreement, as such
agreement may be amended, modified, supplemented, securing the Obligations.
(yy) "Security Documents" has the meaning ascribed to such term in the
Securities Purchase Agreements.
(zz) "Subsequent Placement" has the meaning ascribed to such term in
the Securities Purchase Agreements.
(aaa) "Subsidiary Guarantor" has the meaning ascribed to such term in
the Security Documents.
(bbb) "Successor Entity" means the Person, which may be the Company,
formed by, resulting from or surviving any Fundamental Transaction or the
Person with which such Fundamental Transaction shall have been made so long
as such entity's common stock or equivalent equity security is quoted or
listed for trading on an Eligible Market, provided that if such Person is
not a publicly traded entity whose common stock or equivalent equity
security is quoted or listed for trading on an Eligible Market, Successor
Entity shall mean such Person's Parent Entity.
(ccc) "Trading Day" means any day on which the Common Stock are traded
on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock are then traded;
provided that "Trading Day" shall not include any day on which the Common
Stock are scheduled to trade on any such exchange or market for
- 36 -
less than 4.5 hours or any day that the Common Stock are suspended from
trading during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing time of
trading on any such exchange or market, then during the hour ending at
4:00:00 p.m., New York Time).
(ddd) "Transaction Documents" has the meaning ascribed to such term in
the Securities Purchase Agreements.
(eee) "Transaction Stockholder Approval" has the meaning ascribed to
such term in the Securities Purchase Agreements.
(fff) "Voting Stock" of a Person means capital stock of such Person of
the class or classes pursuant to which the holders thereof have the general
voting power to elect, or the general power to appoint, at least a majority
of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
(ggg) "Warrants" has the meaning ascribed to such term in the Prencen
Securities Purchase Agreement, and shall include all warrants issued in
exchange therefor or replacement thereof.
(hhh) "Watershed Facility" means the Second Lien Credit Agreement
dated as of February 9, 2007 between the Company and each of its
Subsidiaries signatory thereto, as borrowers, the lenders signatory
thereto, Wells Fargo Foothill, Inc., as the collateral agent, and Watershed
Administrative, LLC, as the administrative agent and the documents executed
in connection therewith, in each case as such documents may be amended,
amended and restated, modified or supplemented from time to time.
(iii) "Watershed Notes" means the Notes issued pursuant to the
Watershed Securities Purchase Agreement.
(jjj) "Weighted Average Price" means, for any security as of any date,
the dollar volume-weighted average price for such security on the Eligible
Market that is the primary market for such securities during the period
beginning at 9:30:01 a.m., New York Time (or such other time as the
Eligible Market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York Time (or such other time as such Eligible
Market publicly announces is the official close of trading) as reported by
Bloomberg through its "Volume at Price" functions, or, if the foregoing
does not apply, the dollar volume-weighted average price of such security
in the over-the-counter market on the electronic bulletin board for such
security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such Eligible Market publicly announces is the official
open of trading), and ending at 4:00:00 p.m., New York Time (or such other
time as such market publicly announces is the official close of trading) as
reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the
- 37 -
Weighted Average Price cannot be calculated for such security on such
particular date on any of the foregoing bases, the Weighted Average Price
of such security on such date shall be the fair market value as mutually
determined by the Company and the Required Holders. If the Company and the
Required Holders are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 24. All
such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during the
applicable calculation period.
(kkk) "WFF Facility" means the Credit Agreement dated as of February
9, 2007 between the Company and each of its Subsidiaries signatory thereto,
as borrowers, and Wells Fargo Foothill, Inc. ("WFF") as arranger and
administrative agent and the other lenders party thereto and the documents
executed in connection therewith, in each case as such documents may be
amended, amended and restated, modified or supplemented from time to time.
(30) DISCLOSURE. Upon receipt or delivery by the Company of any notice in
----------
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries, the Company
shall within one (1) Business Day after any such receipt or delivery publicly
disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains
material, nonpublic information, relating to the Company or its Subsidiaries,
the Company shall indicate to the Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.
(31) USURY SAVINGS CLAUSE. Notwithstanding any other provision herein, the
--------------------
aggregate interest rate charged with respect to the Principal (including any
capitalized interest), including all charges or fees in connection therewith
deemed in the nature of interest under applicable law, shall not exceed the
Highest Lawful Rate. If the rate of interest (determined without regard to the
preceding sentence) under this Note at any time exceeds the Highest Lawful Rate,
the outstanding amount of the Principal shall bear interest at the Highest
Lawful Rate until the total amount of interest due hereunder equals the amount
of interest which would have been due hereunder if the stated rates of interest
set forth in this Note had at all times been in effect. In addition, if when the
Conversion Amount is repaid in full the total interest due hereunder (taking
into account the increase provided for above) is less than the total amount of
interest which would have been due hereunder if the stated rates of interest set
forth in this Note had at all times been in effect, then to the extent permitted
by law, the Company shall pay to the Holder an amount equal to the difference
between the amount of interest paid and the amount of interest which would have
been paid if the Highest Lawful Rate had at all times been in effect.
Notwithstanding the foregoing, it is the intention of the Holder and the Company
to conform strictly to any applicable usury laws. Accordingly, if the Holder
contracts for, charges, or receives any consideration which constitutes interest
in excess of the Highest Lawful Rate, then any such excess shall be cancelled
automatically and, if previously paid, shall at the Holder's option be applied
to the outstanding Conversion Amount or be refunded to the Company.
- 38 -
(32) INTERCREDITOR AGREEMENT. This Note is subject to the terms and
provisions of the Intercreditor Agreement dated as of February 9, 2007, (as
amended, restated, supplemented, or otherwise modified from time to time, the
"Intercreditor Agreement"), by and among Wells Fargo Foothill, Inc., as First
Lien Agent, Wells Fargo Foothill, Inc., as Second Lien Collateral Agent,
Watershed Administrative, LLC, as Second Lien Administrative Agent, Wells Fargo
Foothill, Inc., as Third Lien Collateral Agent, and Prencen Lending LLC,
Watershed Capital Partners, L.P. and Watershed Capital Institutional Partners,
L.P., as Third Lien Lenders and Prencen LLC. In the event of any conflict
between the terms of the Intercreditor Agreement and this Note, the terms of the
Intercreditor Agreement shall govern and control. For the avoidance of doubt, no
payments may be made hereunder to the extent prohibited by the Intercreditor
Agreement.
[Signature Page Follows]
- 39 -
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as
of the Issuance Date.
ASCENDIA BRANDS, INC.
/s/ Andrew W. Sheldrick
By:--------------------------------------------------
Name: Andrew W. Sheldrick
Title: General Counsel & Secretary
SCHEDULE 15(f)
The stock in and assets of Cenuco, Inc., a Florida corporation, and all assets
presently associated with the health and beauty care business outside the United
States
EXHIBIT I
ASCENDIA BRANDS, INC.
CONVERSION NOTICE
Reference is made to Secured Convertible Note (the "Note") issued to the
undersigned by Ascendia Brands, Inc. (the "Company"). In accordance with and
pursuant to the Note, the undersigned hereby elects to convert the amount of the
Conversion Amount (as defined in the Note) of the Note indicated below into
shares of Common Stock par value $0.001 per share (the "Common Stock"), as of
the date specified below.
Date of Conversion:
--------------------------------------------------------
Aggregate Conversion Amount to be converted:
-------------------------------
Notwithstanding anything to the contrary contained herein, this Conversion
Notice shall constitute a representation by the holder of the Note submitting
this Conversion Notice that, after giving effect to the conversion provided for
in this Conversion Notice, such holder (together with its affiliates) will not
have beneficial ownership (together with the beneficial ownership of such
Person's affiliates) of a number of shares of Common Stock which exceeds the
Maximum Percentage of the total outstanding shares of Company Common Stock as
determined pursuant to the provisions of Section 3(d)(i) of the Note.
Please confirm the following information:
Conversion Price:
----------------------------------------------------------
Number of shares of Common Stock to be issued:
-----------------------------
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to:
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
Facsimile Number:
----------------------------------------------------------
Authorization:
-------------------------------------------------------------
By:
-------------------------------------------------------------------
Title:
-----------------------------------------------------------
Dated:
--------------------------------------------------------------------------
Account Number:
------------------------------------------------------------
(if electronic book entry transfer)
Transaction Code Number:
---------------------------------------------------
(if electronic book entry transfer)
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
American Stock Transfer & Trust Company to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
February 9, 2007 from the Company and acknowledged and agreed to by American
Stock Transfer & Trust Company.
ASCENDIA BRANDS, INC.
By:--------------------------------------------------
Name:
Title:
EXHIBIT 3
to
SCHEDULE 13D
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS
OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 19(a) HEREOF. THE PRINCIPAL
AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.
THIS NOTE IS SUBJECT TO THE TERMS AND PROVISIONS OF THE INTERCREDITOR AGREEMENT
DATED AS OF FEBRUARY 9, 2007 (AS AMENDED, RESTATED, SUPPLEMENTED, OR OTHERWISE
MODIFIED FROM TIME TO TIME, THE "INTERCREDITOR AGREEMENT"), BY AND AMONG WELLS
FARGO FOOTHILL, INC., AS FIRST LIEN AGENT, WELLS FARGO FOOTHILL, INC., AS SECOND
LIEN COLLATERAL AGENT, WATERSHED ADMINISTRATIVE, LLC, AS SECOND LIEN
ADMINISTRATIVE AGENT, WELLS FARGO FOOTHILL, INC., AS THIRD LIEN COLLATERAL
AGENT, AND PRENCEN LENDING LLC, WATERSHED CAPITAL PARTNERS, L.P., AND WATERSHED
CAPITAL INSTITUTIONAL PARTNERS, L.P., AS THIRD LIEN LENDERS AND PRENCEN LLC. IN
THE EVENT OF ANY CONFLICT BETWEEN THE TERMS OF THE INTERCREDITOR AGREEMENT AND
THIS NOTE, THE TERMS OF THE INTERCREDITOR AGREEMENT SHALL GOVERN AND CONTROL.
ASCENDIA BRANDS, INC.
SECURED CONVERTIBLE NOTE
Issuance Date: February 9, 2007 Original Principal Amount: U.S. $7,915,432.00
FOR VALUE RECEIVED, Ascendia Brands, Inc., a Delaware corporation (the
"Company") hereby promises to pay to the order of WATERSHED CAPITAL
INSTITUTIONAL PARTNERS, L.P. or registered assigns ("Holder") the amount set out
above as the Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, and including the amount of any
Capitalized Interest (as
defined below), the "Principal") when due, whether upon the Maturity Date (as
defined below), acceleration, redemption or otherwise (in each case in
accordance with the terms hereof) and to pay interest ("Interest") on any
outstanding Principal at a rate per annum equal to the Interest Rate, from the
date set out above as the Issuance Date until the Obligations hereunder are paid
in full, whether upon an Interest Date (as defined below), the Maturity Date,
acceleration, conversion, redemption or otherwise (in each case in accordance
with the terms hereof). This Note is one of the Secured Convertible Notes issued
pursuant to the Securities Purchase Agreements. The notes issued under the
Prencen Securities Purchase Agreement are referred to as the "Other Notes"; and
the Other Notes together with the notes issued pursuant to the Watershed
Securities Purchase Agreement are collectively referred to as the "Notes".
Certain capitalized terms used herein are defined in Section 29.
(1) MATURITY. On the Maturity Date, the Company shall pay to the Holder an
--------
amount in cash equal to all of the Obligations then due and owing hereunder. The
"Maturity Date" shall be December 30, 2016, as may be extended in writing at the
sole option of the Holder (i) in the event that an Event of Default (as defined
in Section 4(a)) shall have occurred and be continuing or any event shall have
occurred and be continuing which with the passage of time and the failure to
cure would result in an Event of Default, in which case, the Maturity Date shall
be extended until the later of the date such Event of Default is cured and the
date there no longer exists any event which with the passage of time and the
failure to cure would result in an Event of Default and (ii) through the date
that is ten (10) days after the consummation of a Change of Control in the event
that a Change of Control is publicly announced or a Change of Control Notice (as
defined in Section 5) is delivered prior to the Maturity Date. On the Business
Day immediately preceding the Maturity Date, the Company shall deliver a written
notice to the Holder certifying that (A) (1) no Event of Default has occurred
and is continuing and (2) no event has occurred and is continuing which with the
passage of time and the failure to cure would result in an Event of Default or
(B) an event specified in clause (A) has occurred and is continuing.
(2) INTEREST. Interest on this Note shall commence accruing on the Issuance
--------
Date and shall be computed on the basis of a 365-day year and actual days
elapsed and shall be payable in arrears on the last day of each calendar month
during the period beginning on the Issuance Date and ending on, and including,
the date that this Note is repaid in full (each, an "Interest Date") with the
first Interest Date being February 28, 2007. Interest shall be payable on each
Interest Date, to the record holder of this Note on the applicable Interest Date
by capitalizing such Interest on and as of each Interest Date by adding it to
the then outstanding Principal of this Note (the "Capitalized Interest"). Upon
the occurrence and during the continuance of an Event of Default, or, the
occurrence and continuation of any of the events described in Sections 4(a)(i),
4(a)(ii), 4(a)(iii)(B), 4(a)(iv)(B), or 4(a)(vii) through 4(a)(xiii) prior to
such time as the Permitted Senior Indebtedness has been repaid in full, the
Interest Rate on the Obligations shall be increased to fifteen percent (15%). In
the event that such Event of Default or event, as applicable, is subsequently
cured, such increased Interest Rate shall no longer be in effect as of the date
of such cure; provided that the Interest as calculated at such increased rate
during the continuance of such Event of Default or event, as applicable, shall
continue to apply to the extent relating to the days after the occurrence of
such Event of Default or event, as applicable, through and including the date of
cure of such Event of Default or event. In addition, to the extent that the
Company owes the Holder any Permitted Accrued Third Lien
- 2 -
Fees/Penalties (as defined in Section 9 of the Intercreditor Agreement), such
owed amounts shall, until paid by the Company to the Holder to the extent
allowed by the Intercreditor Agreement, accrue interest at the then applicable
Interest Rate under this Note and the interest on such Permitted Accrued Third
Lien Fees/Penalties shall be capitalized at the same time(s) and in the same
manner that interest on the Principal of this Note is capitalized.
(3) CONVERSION OF NOTES. This Note shall be convertible into shares of
--------------------
common stock of the Company, $0.001 par value per share (the "Common Stock"), on
the terms and conditions set forth in this Section 3.
(a) Conversion Right. Subject to the provisions of Section 3(d), at
-----------------
any time or times on or after the Issuance Date, the Holder shall be
entitled to convert any portion of the outstanding and unpaid Conversion
Amount (as defined below) into fully paid and nonassessable shares of
Common Stock in accordance with Section 3(c), at the Conversion Rate (as
defined below). The Company shall not issue any fraction of a share of
Common Stock upon any conversion. If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round
such fraction of a share of Common Stock up to the nearest whole share. The
Company shall pay any and all taxes that may be payable with respect to the
issuance and delivery of Common Stock upon conversion of any portion of the
Conversion Amount.
(b) Conversion Rate. The number of shares of Common Stock issuable
----------------
upon conversion of any portion of the Conversion Amount pursuant to Section
3(a) shall be determined by dividing (x) such Conversion Amount by (y) the
Conversion Price (the "Conversion Rate").
(i) "Conversion Amount" means the sum of (A) the Principal under
this Note, (B) accrued and uncapitalized interest, with respect to
such Principal and (C) accrued and unpaid Late Charges (as defined in
Section 25(b)) with respect to such Principal and Interest.
(ii) "Conversion Price" means, as of any Conversion Date (as
defined below) or other date of determination, $0.42, subject to
adjustment as provided herein.
(c) Mechanics of Conversion.
-----------------------
(i) Optional Conversion. To convert any portion of the Conversion
-------------------
Amount into shares of Common Stock on any date (a "Conversion Date"),
the Holder shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 11:59 p.m., New York Time, on such date, a copy
of an executed notice of conversion in the form attached hereto as
Exhibit I (the "Conversion Notice") to the Company and (B) if required
by Section 3(c)(iii), surrender this Note to a common carrier for
delivery to the Company as soon as practicable on or following such
date (or an indemnification undertaking with respect to this Note in
the case of its loss, theft or destruction). On or before the first
(1st) Trading Day following the date of receipt of a Conversion
Notice, the Company shall transmit by facsimile a confirmation of
receipt of such Conversion Notice
- 3 -
to the Holder and the Company's transfer agent (the "Transfer Agent").
On or before the third (3rd) Trading Day following the date of receipt
of a Conversion Notice (the "Share Delivery Date"), the Company shall
(1) provided that the Transfer Agent is participating in the Fast
Automated Securities Transfer Program of the Depository Trust Company
("DTC") credit such aggregate number of shares of Common Stock to
which the Holder shall be entitled to the Holder's or its designee's
participant account with DTC through its Deposit Withdrawal Agent
Commission system or (2) if the Transfer Agent is not participating in
the DTC Fast Automated Securities Transfer Program, issue and deliver
no later than the Share Delivery Date, 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. If this Note is physically
surrendered for conversion pursuant to Section 3(c)(iii) and the
outstanding Principal of this Note is greater than the Principal
portion of the Conversion Amount being converted, then the Company
shall as soon as practicable and in no event later than three Business
Days after receipt of this Note and at its own expense, issue and
deliver to the holder a new Note (in accordance with Section 19(d))
representing the outstanding Principal not converted. The Person or
Persons entitled to receive the shares of Common Stock issuable upon a
conversion of all or a portion of this Note shall be treated for all
purposes as the record holder or holders of such shares of Common
Stock on the Conversion Date.
(ii) Company's Failure to Timely Convert. If the Company shall
-------------------------------------
fail to issue a certificate to the Holder or credit the Holder's
participant account with DTC for the number of shares of Common Stock
to which the Holder is entitled upon conversion of any portion of the
Conversion Amount on or prior to the date which is five (5) Trading
Days after the Conversion Date (a "Conversion Failure"), then (A) the
Company shall pay damages to the Holder for each day of such
Conversion Failure until the earlier of the date such failure is cured
and the Revocation Date (as defined below) in an amount equal to 1.5%
of the product of (I) the aggregate number of shares of Common Stock
not issued to the Holder on or prior to the Share Delivery Date and to
which the Holder is entitled, and (II) the Closing Sale Price of the
Common Stock on the Share Delivery Date and (B) the Holder, upon
written notice to the Company, may void its Conversion Notice with
respect to, and retain or have returned, as the case may be, any
portion of this Note that has not been converted pursuant to such
Conversion Notice (the date such notice is given, the "Revocation
Date"); provided that the voiding of a Conversion Notice shall not
affect the Company's obligations to make any payments which have
accrued prior to the date of such notice pursuant to this Section
3(c)(ii) or otherwise and once such payment is made no Conversion
Failure shall exist with respect to such voided portion of such
conversion. In addition to the foregoing, if within three (3) Trading
Days after the Company's receipt of the facsimile copy of a Conversion
Notice the Company shall fail to issue and deliver a certificate to
the Holder or credit the Holder's participant account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon
such holder's conversion of any portion of the Conversion Amount, and
if on or after such scheduled Share Delivery Date the Holder purchases
(in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by the Holder of Common Stock issuable upon
such conversion that the Holder anticipated receiving from the Company
(a "Buy-In"), then the Company
- 4 -
shall, within three (3) Trading Days after the Holder's request and in
the Holder's discretion, either (i) pay cash to the Holder in an
amount equal to the Holder's total purchase price (including brokerage
commissions and other out-of-pocket expenses, if any) for the shares
of Common Stock so purchased (the "Buy-In Price"), at which point the
Company's obligation to deliver such certificate or credit such
Holder's participant account with DTC (and to issue such Common Stock)
shall terminate and the Conversion Amount of this Note shall be
reduced by the Conversion Amount applicable to such portion of the
failed Conversion Notice, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such
Common Stock or credit such Holder's participant account with DTC and
pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of
Common Stock, times (B) the Closing Bid Price on the Conversion Date.
(iii) Registration; Book-Entry. The Company shall maintain a
-------------------------
register (the "Register") for the recordation of the names and
addresses of the holders of each Note and the principal amount of the
Notes held by such holders (the "Registered Notes"). The entries in
the Register shall be conclusive and binding for all purposes absent
manifest error. The Company and the holders of the Notes shall treat
each Person whose name is recorded in the Register as the owner of a
Note for all purposes, including, without limitation, the right to
receive payments of Principal and Interest hereunder, notwithstanding
notice to the contrary. A Registered Note may be assigned or sold in
whole or in part only by registration of such assignment or sale on
the Register. Upon its receipt of a request to assign or sell all or
part of any Registered Note by a Holder, the Company shall record the
information contained therein in the Register and issue one or more
new Registered Notes in the same aggregate principal amount as the
principal amount of the surrendered Registered Note to the designated
assignee or transferee pursuant to Section 19. Notwithstanding
anything to the contrary set forth herein, upon conversion of any
portion of this Note in accordance with the terms hereof, the Holder
shall not be required to physically surrender this Note to the Company
unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior
written notice (which notice may be included in a Conversion Notice)
requesting reissuance of this Note upon physical surrender. The Holder
and the Company shall maintain records showing the Principal converted
and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to
necessitate the physical surrender of this Note upon conversion.
(iv) Pro Rata Conversion; Disputes. In the event that the Company
-----------------------------
receives a Conversion Notice from more than one holder of Notes for
the same Conversion Date and the Company can convert some, but not
all, of such portions of the Notes submitted for conversion, the
Company, subject to Section 3(d), shall convert from each holder of
Notes electing to have Notes converted on such date a pro rata amount
of such holder's portion of its Notes submitted for conversion based
on the principal amount of Notes submitted for conversion on such date
by such holder relative to the aggregate principal amount of all Notes
submitted for conversion on such date; provided, however, that no
holder shall receive shares of Common Stock upon conversion of its
Note in excess of its Authorized Share Allocation (as defined in
Section 11(a)); provided, further,
- 5 -
however, such pro rata conversion shall not cure any default or Event
of Default occurring hereunder resulting from such failure to fully
effect the conversion otherwise required by this Note. In the event of
a dispute as to the number of shares of Common Stock issuable to the
Holder in connection with a conversion of this Note, the Company shall
issue to the Holder the number of shares of Common Stock not in
dispute and resolve such dispute in accordance with Section 24.
(d) Limitations on Conversions.
--------------------------
(i) Beneficial Ownership. The Company shall not effect any
---------------------
conversion of this Note, and the Holder of this Note shall not have
the right to convert any portion of this Note pursuant to Section
3(a), to the extent that after giving effect to such conversion, and
taking into account all other shares of Common Stock beneficially
owned by the Holder and its Affiliates, the Holder (together with the
Holder's Affiliates) would beneficially own in excess of 9.99% (the
"Maximum Percentage") of the number of shares of Common Stock
outstanding immediately after giving effect to such conversion. For
purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by the Holder and its Affiliates shall
include the number of shares of Common Stock issuable upon conversion
of this Note with respect to which the determination of such sentence
is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) conversion of the remaining,
nonconverted portion of this Note beneficially owned by the Holder or
any of its Affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of the
Company (including, without limitation, any Other Notes or warrants)
subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of
its Affiliates, in each case if such conversion or exercise of such
instrument is not permitted in order to keep the Holder's beneficial
ownership of Common Stock at or below the Maximum Percentage. Except
as set forth in the preceding sentence, for purposes of this Section
3(d)(i), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For
purposes of this Section 3(d)(i), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number
of outstanding shares of Common Stock as reflected in (x) the
Company's most recent Form 10-K, Form 10-Q or Form 8-K, as the case
may be, (y) a more recent public announcement by the Company or (z)
any other notice by the Company or the Transfer Agent setting forth
the number of shares of Common Stock outstanding. For any reason and
at any time, upon the written or oral request of the Holder, the
Company shall within one (1) Business Day confirm orally and in
writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Note, by the
Holder or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. By written notice to
the Company, the Holder may from time to time increase or decrease the
Maximum Percentage to any other percentage specified in such notice so
long as such specified Maximum Percentage shall not exceed 9.99%;
provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is
- 6 -
delivered to the Company, and (ii) any such increase or decrease will
apply only to the Holder and not to any other holder of Notes.
(ii) Principal Market Regulation. Without limiting the rights of
---------------------------
the Holder under Section 11 hereunder, the Company shall not be
obligated to issue any shares of Common Stock upon conversion of this
Note, the Other Notes or the Preferred Shares or exercise of the
Warrants, and the Holder of this Note shall not have the right to
receive upon conversion of this Note any shares of Common Stock, if
the issuance of such shares of Common Stock would exceed the aggregate
number of shares of Common Stock which the Company may issue upon
conversion or exercise, as applicable, of the Notes, the Preferred
Shares and Warrants without breaching the Company's obligations under
the rules or regulations of the Principal Market (the "Exchange Cap"),
except that such limitation shall not apply in the event that the
Company (A) obtains the approval of its stockholders as required by
the applicable rules of the Principal Market for issuances of Common
Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required,
which opinion shall be reasonably satisfactory to the Required
Holders. Until such approval or written opinion is obtained, (1) the
Watershed Funds (as defined in Section 15(h)) shall not be issued in
the aggregate upon conversion of the Watershed Notes shares of Common
Stock in an amount greater than 11.6% of the Exchange Cap and (2) the
Prencen Group shall not be issued in the aggregate, upon conversion or
exercise, as applicable, of the Prencen Note, Preferred Shares or
Warrants, shares of Common Stock in an amount greater than 88.4% of
the Exchange Cap (with respect to each of the Watershed Funds and the
Prencen Group, the "Exchange Cap Allocation"). In the event that any
of the Watershed Funds and/or the Prencen Group shall sell or
otherwise transfer any of such holder's Notes, the transferee shall be
allocated a pro rata portion of such holder's Exchange Cap Allocation,
and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation
allocated to such transferee. In the event that any holder of Notes
shall convert all of such holder's Notes into a number of shares of
Common Stock which, in the aggregate, is less than such holder's
Exchange Cap Allocation, then the difference between such holder's
Exchange Cap Allocation and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective
Exchange Cap Allocations of the remaining holders of Notes on a pro
rata basis in proportion to the aggregate principal amount of the
Notes then held by each such holder.
(e) Holder's Right of Exchange. To the extent, but only to the extent,
--------------------------
required by the Principal Market pursuant to its listing requirements at
any time following the consummation of the Acquisition, up to $40,000,000
in outstanding Principal amount of the Notes together with any accrued and
unpaid Interest thereon and Late Charges on such Principal and Interest, if
any (such amount, the "Exchange Amount") shall be exchanged on a pro rata
basis (the "Exchange") for a new series of convertible preferred stock that
will be convertible into the Company's Common Stock (the "New Securities")
of the Company, which New Securities shall have such rights, designations
and preferences as the Required Holders and the Company shall mutually
agree. Upon the consummation of the Exchange, the Company shall (i) deliver
to the Holder the Holder Pro Rata Amount of the New Securities and (ii) pay
to the Holder, in cash, an amount equal to 15% of the Holder Pro Rata
Amount of the
- 7 -
Exchange Amount by wire transfer of immediately available funds in
accordance with the Holder's written wire transfer instructions.
(4) RIGHTS UPON EVENT OF DEFAULT.
----------------------------
(a) Event of Default. Each of the following events shall constitute an
----------------
"Event of Default":
(i) after the Permitted Senior Indebtedness has been repaid in
full, (A) the failure of the applicable Registration Statement
required to be filed pursuant to the Registration Rights Agreement to
be declared effective by the SEC on or prior to the date that is sixty
(60) days after the applicable Effectiveness Deadline (as defined in
the Registration Rights Agreement), or (B) while the applicable
Registration Statement is required to be maintained effective pursuant
to the terms of the Registration Rights Agreement, the effectiveness
of the applicable Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is
unavailable to any holder of the Notes for sale of all of such
holder's Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of
ten (10) consecutive days or for more than an aggregate of thirty (30)
days in any 365-day period (other than days during an Allowable Grace
Period (as defined in the Registration Rights Agreement));
(ii) after the Permitted Senior Indebtedness has been repaid in
full, the suspension from trading or failure of the Common Stock to be
listed on an Eligible Market for a period of five (5) consecutive
Trading Days or for more than an aggregate of ten (10) Trading Days in
any 365-day period;
(iii) (A) the failure to pay to the Holder any amount due on this
Note or any other Transaction Document on the Maturity Date and (B)
after the Permitted Senior Indebtedness has been repaid in full, the
Company's failure to pay to the Holder any amount of Principal
(including, without limitation, the Company's failure to pay any
redemption payments), Interest, Late Charges or other amounts (other
than Registration Delay Payments) when and as due under this Note or
any other Transaction Document (as defined in the Securities Purchase
Agreements) to which the Holder is a party, except, in the case of a
failure to pay Interest and Late Charges when and as due, in which
case only if such failure continues for a period of at least three (3)
Business Days;
(iv) (A) the occurrence of both an event of default under and
acceleration of any Permitted Senior Indebtedness and (B) after the
Permitted Senior Indebtedness has been repaid in full, the occurrence
of any default under or acceleration prior to maturity of any
Indebtedness of the Company or any of its Subsidiaries (as defined in
Section 3(a) of the Securities Purchase Agreements), other than with
respect to any Other Notes;
(v) the Company or any of its Subsidiaries, pursuant to or within
the meaning of Title 11, U.S. Code, or any similar Federal, foreign or
state law for
- 8 -
the relief of debtors (collectively, "Bankruptcy Law"), (A) commences
a voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment of
a receiver, trustee, assignee, liquidator or similar official (a
"Custodian"), (D) makes a general assignment for the benefit of its
creditors or (E) admits in writing that it is generally unable to pay
its debts as they become due;
(vi) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (A) is for relief against the Company or
any of its Subsidiaries in an involuntary case, (B) appoints a
Custodian of the Company or any of its Subsidiaries or (C) orders the
liquidation of the Company or any of its Subsidiaries and such order
or decree remains undismissed or unstayed for a period of sixty (60)
days;
(vii) after the Permitted Senior Indebtedness has been repaid in
full, a final judgment or judgments for the payment of money
aggregating in excess of $500,000 are rendered against the Company or
any of its Subsidiaries and which judgments are not, within sixty (60)
days after the entry thereof, bonded, discharged or stayed pending
appeal, or are not discharged within sixty (60) days after the
expiration of such stay; provided, however, that any judgment which is
covered by insurance or an indemnity from a creditworthy party shall
not be included in calculating the $500,000 amount set forth above so
long as the Company provides the Holder a written statement from such
insurer or indemnity provider (which written statement shall be
reasonably satisfactory to the Holder) to the effect that such
judgment is covered by insurance or an indemnity and the Company will
receive the proceeds of such insurance or indemnity within thirty (30)
days of the issuance of such judgment;
(viii) after the Permitted Senior Indebtedness has been repaid in
full, the Company breaches any representation, warranty, covenant or
other term or condition of any Transaction Document that is not
specifically addressed by any other Event of Default set forth in this
Section 4(a), except, subject to clause (ii) hereof, (i) in the case
of a breach of a covenant which is curable, only if such breach
continues for a period of at least ten (10) consecutive Business Days
or (ii) in the case of any breach that arises solely by virtue of the
Transaction Stockholder Approval or the Authorized Share Stockholder
Approval not being obtained at or prior to the Closing Date specified
in the Securities Purchase Agreements and the amendments to the
certificate of incorporation of the Company not having been filed with
the Secretary of State of Delaware to effectuate the amendments
specified in clauses (x) and (y) of Section 4(p)(ii) of the Securities
Purchase Agreements at or prior to the Closing Date specified in the
Securities Purchase Agreements;
(ix) after the Permitted Senior Indebtedness has been repaid in
full, any breach or failure in any respect to comply with Section 15
of this Note;
(x) after the Permitted Senior Indebtedness has been repaid in
full, failure to obtain the Authorized Share Stockholder Consent or
the Authorized Share Stockholder Approval, as the case may be, by June
1, 2007;
- 9 -
(xi) after the Permitted Senior Indebtedness has been repaid in
full, the Company or any Subsidiary shall fail to perform or comply
with any covenant or agreement contained in the Security Agreement or
any other Security Document to which it is a party;
(xii) after the Permitted Senior Indebtedness has been repaid in
full, any material provision of any Security Document (as reasonably
determined by the Collateral Agent) shall at any time for any reason
(other than pursuant to the express terms thereof) cease to be valid
and binding on or enforceable against the Company or any Subsidiary
intended to be a party thereto, or the validity or enforceability
thereof shall be contested by any party thereto, or a proceeding shall
be commenced by the Company or any Subsidiary or any governmental
authority having jurisdiction over any of them, seeking to establish
the invalidity or unenforceability thereof, or the Company or any
Subsidiary shall deny in writing that it has any liability or
obligation purported to be created under any Security Document;
(xiii) after the Permitted Senior Indebtedness has been repaid in
full, the Security Agreement or any other Security Document, after
delivery thereof pursuant hereto, shall for any reason fail or cease
to create a valid and perfected and, except to the extent permitted by
the terms hereof or thereof, Lien in favor of the Collateral Agent for
the benefit of the holders of the Notes on any Collateral (as defined
in the Security Documents) purported to be covered thereby; or
(xiv) any Event of Default (as defined in the Other Notes) occurs
with respect to any Other Notes.
(b) Redemption Right. Upon the occurrence of an Event of Default with
-----------------
respect to this Note or any Other Note, the Company shall within one (1)
Business Day deliver written notice thereof via facsimile and overnight
courier (an "Event of Default Notice") to all of the holders of Notes.
Subject to the Intercreditor Agreement, at any time after the earlier of
the holders' receipt of an Event of Default Notice and the holders becoming
aware of an Event of Default, a holder of Notes may elect to require the
Company to redeem all of its Note by delivering written notice thereof (the
"Event of Default Redemption Notice") to the Company. Notwithstanding the
foregoing, the Company shall only be required to consummate a redemption
pursuant to this Section 4(b) upon the Company's receipt of Event of
Default Redemption Notices from one or more holders of Notes constituting
the Required Holders (the "Event of Default Redemption Trigger Date") and
the Company shall notify all of the holders of the Notes of the receipt of
such redemption notices promptly, but in no event later than (1) Business
Day, following the Event of Default Redemption Trigger Date; provided,
however, if an Event of Default exists at the Maturity Date, any holder of
the Notes may exercise its right to require the redemption by the Company
of such holder's Note under this Section 4(b). Subject to the Intercreditor
Agreement, as of the Event of Default Redemption Trigger Date, the Company
shall be required to redeem all of the outstanding Notes in accordance with
this Section 4(b). Each Note redeemed by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal to the
greater of (i) the product of (x) the portion of the Conversion Amount to
be redeemed and (y) the Redemption Premium and (ii) the product of (A) the
Conversion Rate with respect to such Conversion Amount in
- 10 -
effect at such time as the Required Holders deliver an Event of Default
Redemption Notice and (B) the greatest of the Closing Sale Price of the
Common Stock on the date immediately preceding such Event of Default, the
Closing Sale Price of the Common Stock on the date immediately following
such Event of Default and the Closing Sale Price of the Common Stock on the
Event of Default Redemption Trigger Date (the "Event of Default Redemption
Price"). Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 12. To the extent redemptions
required by this Section 4(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. The parties hereto
agree that in the event of the Company's redemption of all or a portion of
such Note under this Section 4(b), the holders' damages would be uncertain
and difficult to estimate because of the parties' inability to predict
future interest rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the holders. Accordingly, any
Redemption Premium due under this Section 4(b) is intended by the parties
to be, and shall be deemed, a reasonable estimate of the holders' actual
loss of its investment opportunity and not as a penalty. Notwithstanding
anything to the contrary in this Section 4, but subject to Section 3(d),
until the Holder receives the Event of Default Redemption Price, the Holder
may convert this Note, in whole or in part, into Common Stock pursuant to
Section 3, and any such conversion shall reduce the amount otherwise
redeemable pursuant to this Section 4.
(c) Absence of Event of Default in Certain Circumstances.
---------------------------------------------------------------
Notwithstanding anything in this Note to the contrary, until the Permitted
Senior Indebtedness has been repaid in full, no Event of Default shall
occur under this Note or any Other Note or any other Transaction Document
unless an event of default has occurred or contemporaneously occurs under
and pursuant to the terms of the Permitted Senior Indebtedness.
(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
---------------------------------------------------------
(a) Assumption. The Company shall not enter into or be party to a
----------
Fundamental Transaction unless (i) the Successor Entity assumes in writing
all of the obligations of the Company under this Note and the other
Transaction Documents in accordance with the provisions of this Section
5(a) pursuant to written agreements in form and substance satisfactory to
the Required Holders and approved by the Required Holders prior to such
Fundamental Transaction, including agreements to deliver to each holder of
Notes in exchange for such Notes a security of the Successor Entity
evidenced by a written instrument substantially similar in form and
substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest
rates of the Notes held by such holder, having similar conversion rights as
the Notes and having similar ranking to the Notes, and satisfactory to the
Required Holders and (ii) the Successor Entity (including its Parent
Entity) is a publicly traded corporation whose common stock is quoted on or
listed for trading on an Eligible Market. Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note referring to the "Company" shall
refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company
under this Note with the same effect as if such Successor Entity had been
named as the Company herein. Upon
- 11 -
consummation of the Fundamental Transaction, the Successor Entity shall
deliver to the Holder confirmation that there shall be issued upon
conversion or redemption of this Note at any time after the consummation of
the Fundamental Transaction, in lieu of the shares of Common Stock (or
other securities, cash, assets or other property) issuable upon the
conversion of the Notes prior to such Fundamental Transaction, such shares
of publicly traded common stock (or their equivalent) of the Successor
Entity, and the Conversion Price of this Note in effect immediately prior
to such Fundamental Transaction shall be adjusted so that upon conversion
of this Note immediately after such Fundamental Transaction the Holder
shall be entitled to receive the aggregate number of shares of the
Successor Entity that the Holder would have been entitled to receive if the
Note had been converted immediately prior to such Fundamental Transaction,
as adjusted thereafter in accordance with the provisions of this Note. The
provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any
limitations on the conversion of this Note.
(b) Redemption Right. No sooner than fifteen (15) days nor later than
-----------------
ten (10) days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company
shall deliver written notice thereof via facsimile and overnight courier to
the Holder (a "Change of Control Notice"). Subject to the Intercreditor
Agreement, at any time during the period beginning after the Holder's
receipt of a Change of Control Notice and ending twenty (20) Trading Days
after the consummation of such Change of Control, the Holder may require
the Company to redeem all or any portion of this Note by delivering written
notice thereof ("Change of Control Redemption Notice") to the Company,
which Change of Control Redemption Notice shall indicate that portion of
the Conversion Amount the Holder is electing to redeem. The portion of this
Note subject to redemption pursuant to this Section 5 shall be redeemed by
the Company in cash at a price equal to the greater of (i) the product of
(x) that portion of the Conversion Amount being redeemed and (y) the
quotient determined by dividing (A) the greatest of the Closing Sale Price
of the Common Stock immediately prior to the consummation of the Change of
Control, the Closing Sale Price immediately following the public
announcement of such proposed Change of Control and the Closing Sale Price
of the Common Stock immediately prior to the public announcement of such
proposed Change of Control by (B) the Conversion Price and (ii) 120% of
that portion of the Conversion Amount being redeemed (the "Change of
Control Redemption Price"). Redemptions required by this Section 5 shall be
made in accordance with the provisions of Section 12 and shall have
priority to payments to stockholders in connection with a Change of
Control. To the extent redemptions required by this Section 5(b) are deemed
or determined by a court of competent jurisdiction to be prepayments of
this Note by the Company, such redemptions shall be deemed to be voluntary
prepayments. Notwithstanding anything to the contrary in this Section 5,
but subject to Section 3(d), until the Change of Control Redemption Price
is paid in full, that portion of the Conversion Amount submitted for
redemption under this Section 5(b) may be converted, in whole or in part,
by the Holder into Common Stock pursuant to Section 3. The parties hereto
agree that in the event of the Company's redemption of any portion of this
Note under this Section 5(b), the Holder's damages would be uncertain and
difficult to estimate because of the parties' inability to predict future
interest rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the Holder. Accordingly, any
redemption premium due under this Section 5(b) is intended by the parties
to be, and shall be deemed, a reasonable estimate of the Holder's actual
loss of its investment opportunity and not as a penalty.
- 12 -
(6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
------------------------------------------------------------------
(a) Purchase Rights. If at any time the Company grants, issues or
----------------
sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property (other than the Existing Stockholder
Warrants (as defined in the Securities Purchase Agreement)) pro rata to the
record holders of any class of Common Stock (the "Purchase Rights"), then
the Holder will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock
acquirable upon complete conversion of this Note (without taking into
account any limitations or restrictions on the convertibility of this Note)
immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
(b) Other Corporate Events. In addition to and not in substitution for
----------------------
any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are
entitled to receive securities or other assets with respect to or in
exchange for shares of Common Stock (a "Corporate Event"), the Company
shall make appropriate provision to ensure that the Holder will thereafter
have the right to receive upon a conversion of this Note, at the Holder's
option, (i) in addition to the shares of Common Stock receivable upon such
conversion, such securities or other assets to which the Holder would have
been entitled with respect to such shares of Common Stock had such shares
of Common Stock been held by the Holder upon the consummation of such
Corporate Event (without taking into account any limitations or
restrictions on the convertibility of this Note) or (ii) in lieu of the
shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common
Stock in connection with the consummation of such Corporate Event in such
amounts as the Holder would have been entitled to receive had this Note
initially been issued with conversion rights for the form of such
consideration (as opposed to shares of Common Stock) at a conversion rate
for such consideration commensurate with the Conversion Rate. Provision
made pursuant to the preceding sentence shall be in a form and substance
satisfactory to the Required Holders. The provisions of this Section shall
apply similarly and equally to successive Corporate Events and shall be
applied without regard to any limitations on the conversion or redemption
of this Note.
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
----------------------------------------
(a) Adjustment of Conversion Price upon Issuance of Common Stock. If
-------------------------------------------------------------
and whenever on or after the Issuance Date, the Company issues or sells, or
in accordance with this Section 7(a) is deemed to have issued or sold, any
shares of Common Stock (including the issuance or sale of shares of Common
Stock owned or held by or for the account of the Company, but excluding
shares of Common Stock deemed to have been issued or sold by the Company in
connection with any Excluded Security) for a consideration per share less
than a price (the "Applicable Price") equal to the Conversion Price in
effect immediately prior to such issue or sale (the foregoing a "Dilutive
Issuance"), then immediately upon such Dilutive Issuance, the Conversion
Price then in effect shall be reduced to an amount equal to
- 13 -
the lowest price per share at which any share of Common Stock were issued
or sold or deemed to be issued or sold (in accordance with this Section
7(a)) in connection with such Dilutive Issuance; provided, however, that if
the Company issues or sells, or is deemed to have issued or sold, any
shares of Common Stock in a Dilutive Issuance that is a Permitted
Financing, then immediately after such Dilutive Issuance, the Conversion
Price then in effect shall be reduced to an amount equal to the product of
(A) the Conversion Price in effect immediately prior to such Dilutive
Issuance and (B) the quotient determined by dividing (1) the sum of (I) the
product derived by multiplying the Conversion Price in effect immediately
prior to such Dilutive Issuance and the number of shares of Common Stock
Deemed Outstanding immediately prior to such Dilutive Issuance plus (II)
the consideration, if any, received by the Company upon such Dilutive
Issuance, by (2) the product derived by multiplying (I) the Conversion
Price in effect immediately prior to such Dilutive Issuance by (II) the
number of shares of Common Stock Deemed Outstanding immediately after such
Dilutive Issuance. For purposes of determining the adjusted Conversion
Price under this Section 7(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants or
-------------------
sells any Options and the lowest price per share for which one share
of Common Stock is issuable upon the exercise of any such Option or
upon conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option is less than the Conversion
Price, immediately prior thereto, then each such share of Common Stock
underlying such Option shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the granting or
sale of such Option for such price per share. For purposes of this
Section 7(a)(i), the "lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option" shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Common Stock upon
granting or sale of the Option, upon exercise of the Option and upon
conversion or exchange or exercise of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the
Conversion Price shall be made upon the actual issuance of such share
of 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 or exercise of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any
------------------------------------
manner issues or sells any Convertible Securities and the lowest price
per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise thereof is less than the Conversion
Price, immediately prior thereto, then each such share of Common Stock
underlying such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company at the
time of the issuance or sale of such Convertible Securities for such
price per share. For the purposes of this Section 7(a)(ii), the
"lowest price per share for which one share of Common Stock is
issuable upon such conversion or exchange or exercise" shall be equal
to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the issuance or sale of the Convertible Security and upon
the conversion or exchange or exercise of such Convertible Security.
- 14 -
No further adjustment of the Conversion Price shall be made upon the
actual issuance of such share of Common Stock upon conversion or
exchange or exercise of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of the Conversion Price had been or
are to be made pursuant to other provisions of this Section 7(a), no
further adjustment of the Conversion Price shall be made by reason of
such issue or sale.
(iii) 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, exchange or
exercise of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable or
exercisable for Common Stock changes at any time, the Conversion Price
in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such
Options or Convertible Securities 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. For
purposes of this Section 7(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the Issuance Date are
changed in the manner described in the immediately preceding sentence,
then such Option or Convertible Security and the Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed
to have been issued as of the date of such change. No adjustment shall
be made if such adjustment would result in an increase of the
Conversion Price then in effect.
(iv) Calculation of Consideration Received. In case any Option is
-------------------------------------
issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a
consideration of $.01. If any Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the
net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Company will be the fair value of such
consideration, except where such consideration consists of publicly
traded securities, in which case the amount of consideration received
by the Company will be the Closing Sale Price of such securities on
the date of receipt. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options
or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or publicly traded securities will be
determined jointly by the Company and the Required Holders. If such
parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within
fourteen (14) Business Days after the tenth (10th) day following the
Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The determination of
such appraiser shall be deemed binding
- 15 -
upon all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
(b) Adjustment of Conversion Price upon Subdivision or Combination of
------------------------------------------------------------------
Common Stock. If the Company at any time on or after the Issuance Date
-------------
subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock
into a greater number of shares, the Conversion Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company
at any time on or after the Issuance Date combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination will be proportionately
increased.
(c) Other Events. If any event occurs of the type contemplated by the
------------
provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights, other rights with equity
features or any distribution or dividend of securities on the preferred
stock of the Company existing on the date hereof), then the Company's Board
of Directors will make an appropriate adjustment in the Conversion Price so
as to protect the rights of the Holder under this Note; provided that no
such adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 7. The Company shall within one (1) Business Day
notify each of the holders of any of the Notes of any change to the
Conversion Price and describe in reasonable detail the basis for such
change.
(8) HOLDER'S RIGHT OF OPTIONAL REDEMPTION. From time to time on and after
--------------------------------------
the eighth (8th) anniversary of the Issuance Date, the Holder shall have the
right, in its sole discretion, to require that the Company redeem (each, a
"Holder Optional Redemption") up to all of the then applicable Conversion Amount
of this Note (the "Available Holder Optional Redemption Amount") by delivering
written notice thereof (a "Holder Optional Redemption Notice") to the Company.
The Holder Optional Redemption Notice shall indicate the Conversion Amount of
the Available Holder Optional Redemption Amount the Holder is electing to have
redeemed (the "Holder Optional Redemption Amount"). The portion of this Note
subject to redemption pursuant to this Section 8 shall be redeemed by the
Company in cash at a price equal to 107% of the Holder Optional Redemption
Amount (the "Holder Optional Redemption Price"). Redemptions required by this
Section 8 shall be made in accordance with the provisions of Section 12.
Notwithstanding anything to the contrary in this Section 8, but subject to
Section 3(d), until the Holder receives the Holder Optional Redemption Price,
the Holder Optional Redemption Amount may be converted, in whole or in part, by
the Holder into
- 16 -
Common Stock pursuant to Section 3, and any such conversion shall reduce the
Holder Optional Redemption Amount in the manner set forth by the Holder in the
applicable Conversion Notice.
(9) OPTIONAL REDEMPTIONS AT THE COMPANY'S ELECTION.
----------------------------------------------
(a) General. At any time from and after the eighth (8th) anniversary
-------
of the Issuance Date, so long as there has been no Equity Conditions
Failure, the Company shall have the right, to redeem all or any portion of
the Conversion Amount then remaining under this Note (the "Optional
Redemption Amount") as designated in the Optional Redemption Notice, as of
the Optional Redemption Date (an "Optional Redemption"). The portion of
this Note subject to redemption pursuant to this Section 9(a) shall be
redeemed by the Company in cash at a price equal to the 107% of the
Conversion Amount being redeemed (the "Optional Redemption Price"). The
Company may exercise its right to require redemption under this Section 9
by delivering a written notice thereof by facsimile and overnight courier
to all, but not less than all, of the holders of Notes (the "Optional
Redemption Notice" and the date all of the holders received such notice is
referred to as the "Optional Redemption Notice Date") and each Optional
Redemption Notice shall be irrevocable. The Optional Redemption Notice
shall state (1) the date on which the Optional Redemption shall occur (the
"Optional Redemption Date") which date shall be not less than five (5)
Trading Days nor more than thirty (30) Trading Days after the Optional
Redemption Notice Date, and (2) the aggregate Conversion Amount of the
Notes which the Company has elected to be subject to Optional Redemption
from all of the holders of the Notes pursuant to this Section 9(a) (and
analogous provisions under the Other Notes) on the Optional Redemption
Date. The Company may not effect more than one (1) Optional Redemption.
Notwithstanding anything to the contrary in this Section 9(a), until the
Optional Redemption Price is paid, in full, the Optional Redemption Amount
may be converted, in whole or in part, by the holders into shares of Common
Stock pursuant to Section 3. All Conversion Amounts converted by the Holder
into such Common Stock after the Optional Redemption Notice Date shall
reduce the Optional Redemption Amount of this Note required to be redeemed
on the Optional Redemption Date. Redemptions made pursuant to this Section
9 shall be made in accordance with Section 12.
(b) Pro Rata Redemption Requirement. If the Company elects to cause an
-------------------------------
Optional Redemption with respect to this Note pursuant to Section 9(a),
then it must simultaneously take the same action with respect to the other
Notes and make simultaneous payments of the applicable amounts to be paid
to each holder of the other Notes. If the Company elects to cause an
Optional Redemption pursuant to Section 9(a) (or similar provisions under
the other Notes) with respect to less than all of the Conversion Amounts of
the Notes then outstanding, then the Company shall require a proportionate
redemption of a Conversion Amount from each of the holders of the Notes
equal to the product of (i) the aggregate Conversion Amount of all the
Notes which the Company has elected to cause to be redeemed pursuant to
Section 9(a), multiplied by (ii) a fraction, the numerator of which is the
Conversion Amount of the applicable Note on the Optional Redemption Date
and the denominator of which is the sum of the aggregate Conversion Amounts
of all Notes on the Optional Redemption Date (such fraction with respect to
each holder is referred to as its "Redemption Allocation Percentage", and
such amount with respect to each holder is referred to as its "Pro Rata
Redemption Amount"), In the event that a holder of any Notes shall sell
- 17 -
or otherwise transfer any of such holder's Notes, the transferee shall be
allocated a pro rata portion of such holder's Redemption Allocation
Percentage and Pro Rata Redemption Amount.
(10) NONCIRCUMVENTION. The Company hereby covenants and agrees that the
----------------
Company will not, by amendment of its Certificate of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other action,
avoid or seek to avoid the observance or performance of any of the terms of this
Note, and will at all times in good faith carry out all of the provisions of
this Note and take all action as may be required to protect the rights of the
Holder of this Note.
(11) RESERVATION OF AUTHORIZED SHARES.
--------------------------------
(a) Reservation. Commencing on the Issuance Date and until the
-----------
Authorized Share Stockholder Approval Date or the Authorized Share
Stockholder Consent Effective Date, as the case may be, the Company shall
reserve in respect of the conversion of the Notes not less than 100,000,000
shares of Common Stock. Immediately on and after the Authorized Share
Stockholder Approval Date or the Authorized Share Stockholder Consent
Effective Date, as the case may be, the Company shall reserve out of its
authorized and unissued Common Stock a number of shares of Common Stock for
each of the Notes equal to 130% of the Conversion Rate with respect to the
Conversion Amount of each of the Notes as of the Issuance Date and, for so
long thereafter as any of the Notes are outstanding, the Company shall take
all action necessary to reserve and keep available out of its authorized
and unissued Common Stock, solely for the purpose of effecting the
conversion of the Notes, 130% of the number of shares of Common Stock as
shall from time to time be necessary to effect the conversion of all of the
Notes then outstanding; provided that at no time shall the number of shares
of Common Stock so reserved be less than the number of shares required to
be reserved by the previous sentence (without regard to any limitations on
conversions) (the "Required Reserve Amount"). The initial number of shares
of Common Stock reserved for conversions of the Notes and each increase in
the number of shares so reserved shall be allocated pro rata among the
holders of the Notes based on the principal amount (including capitalized
interest) of the Notes held by each holder at the Issuance Date or on the
date of any increase in the number of reserved shares, as the case may be
(the "Authorized Share Allocation"). In the event that a holder shall sell
or otherwise transfer any of such holder's Notes, each transferee shall be
allocated a pro rata portion of such holder's Authorized Share Allocation.
Any shares of Common Stock reserved and allocated to any Person which
ceases to hold a Prencen Note or Watershed Note, respectively, shall be
re-allocated to the remaining holders of each Prencen Note or Watershed
Note, respectively, pro rata based on the principal amount (including
capitalized interest) of such Notes then held by such holders.
(b) Insufficient Authorized Shares. If at any time after the
---------------------------------
Authorized Share Stockholder Approval Date or the Authorized Share
Stockholder Consent Effective Date, as the case may be, while any of the
Notes remain outstanding the Company does not have a sufficient number of
authorized and reserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon conversion of the Notes at least a number of
shares of Common Stock equal to the Required Reserve Amount (an "Authorized
Share Failure"), then the Company shall immediately take all action
necessary to increase the Company's authorized
- 18 -
shares of Common Stock to an amount sufficient to allow the Company to
reserve the Required Reserve Amount for the Notes then outstanding. Without
limiting the generality of the foregoing sentence, as soon as practicable
after the date of the occurrence of an Authorized Share Failure, but in no
event later than sixty (60) days after the occurrence of such Authorized
Share Failure, the Company shall hold a meeting of its shareholders for the
approval of an increase in the number of authorized shares of Common Stock.
In connection with such meeting, the Company shall provide each shareholder
with a proxy statement and shall use its best efforts to solicit its
shareholders' approval of such increase in authorized shares of Common
Stock and to cause its board of directors to recommend to the shareholders
that they approve such proposal.
(12) REDEMPTIONS.
-----------
(a) Mechanics. Subject to Section 12(b), the Company shall deliver the
---------
applicable Event of Default Redemption Price to the Holder within seven (7)
Business Days after the Event of Default Redemption Trigger Date. Subject
to Section 12(b), if the Holder has submitted a Change of Control
Redemption Notice in accordance with Section 5(b), the Company shall
deliver the applicable Change of Control Redemption Price to the Holder
concurrently with the consummation of such Change of Control if such notice
is received prior to the consummation of such Change of Control and within
five (5) Business Days after the Company's receipt of such notice
otherwise. Subject to Section 12(b), the Company shall deliver the Holder
Optional Redemption Price to the Holder within five (5) Business Days after
the Company's receipt of the Holder Optional Redemption Notice. The Company
shall deliver the Optional Redemption Price to the Holder on the applicable
Optional Redemption Date. Subject to pro rata redemption requirement in
Section 25(c), in the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall (at the Holder's request)
promptly cause to be issued and delivered to the Holder a new Note (in
accordance with Section 19(d)) representing the outstanding Principal which
has not been redeemed. In the event that the Company does not pay the
applicable Redemption Price to the Holder within the time period required,
at any time thereafter and until the Company pays such unpaid Redemption
Price in full, the Holder shall have the option, in lieu of redemption, to
require the Company to promptly return to the Holder all or any portion of
this Note representing the Conversion Amount that was submitted for
redemption and for which the applicable Redemption Price (together with any
Late Charges thereon) has not been paid. Upon the Company's receipt of such
notice, (x) the Redemption Notice shall be null and void with respect to
such Conversion Amount, (y) the Company shall, at the Holder's request,
immediately return this Note, or issue a new Note (in accordance with
Section 19(d)) to the Holder representing such Conversion Amount and (z)
the Conversion Price of this Note or such new Notes and all of the other
outstanding Notes shall be adjusted to the lesser of (A) the Conversion
Price as in effect on the date on which the Redemption Notice is voided and
(B) the lowest Closing Bid Price during the period beginning on and
including the date on which the Redemption Notice is delivered to the
Company and ending on and including the date on which the Redemption Notice
is voided. The Holder's delivery of a notice voiding a Redemption Notice
and exercise of its rights following such notice shall not affect the
Company's obligations to capitalize Late Charges which have accrued prior
to the date of such notice with respect to the Conversion Amount subject to
such notice.
- 19 -
(b) Redemption by Other Holders. Notwithstanding anything else
------------------------------
contained herein, upon the Company's receipt of notice from any of the
holders of the Notes for redemption or repayment as a result of an event or
occurrence substantially similar to the events or occurrences described in
Section 4(b), Section 5(b) or Section 8 (each, an "Other Redemption
Notice"), the Company shall immediately, but no later than one (1) Business
Day of its receipt thereof), forward to the Holder by facsimile a copy of
such notice. If the Company receives a Redemption Notice and one or more
Other Redemption Notices, during the fifteen (15) Business Day period
beginning on and including the date which is seven (7) Business Days prior
to the Company's receipt of the Holder's Redemption Notice and ending on
and including the date which is seven (7) Business Days after the Company's
receipt of the Holder's Redemption Notice and the Company is unable to
redeem all principal, interest and other amounts designated in such
Redemption Notice(s) and such Other Redemption Notices received during such
fifteen (15) Business Day period (the last day of such fifteen-day period,
the "Consolidation Date"), then the Company shall redeem on the
Consolidation Date a pro rata amount from each holder of the Notes
(including the Holder) based on the applicable Conversion Amounts of the
Notes submitted for redemption pursuant to such Redemption Notice(s) and
such Other Redemption Notices received by the Company during such fifteen
(15) Business Day period, provided, however, such pro rata payment shall
not cure any default or Event of Default occurring hereunder resulting from
such failure to fully pay the amount otherwise due on this Note.
(13) SECURITY. The Obligations are secured to the extent and in the manner
--------
set forth in the Security Documents.
(14) VOTING RIGHTS. The Holder shall have no voting rights as the holder of
-------------
this Note, except as required by law, including but not limited to the Delaware
General Corporation Law, and as expressly provided in this Note.
(15) COVENANTS.
---------
(a) Rank. All payments due under this Note (i) shall rank pari passu
----
with all of the Notes and (ii) shall be senior to all other Indebtedness of
the Company and its Subsidiaries other than Permitted Senior Indebtedness
and Indebtedness that is permitted to be senior or pari passu to the
Permitted Senior Indebtedness pursuant to the terms of the Permitted Senior
Indebtedness.
(b) Indebtedness. So long as any Obligations are outstanding, the
------------
Company shall not, and the Company shall not permit any of its Subsidiaries
to, directly or indirectly, incur or guarantee, assume or suffer to exist
any Indebtedness, other than Permitted Indebtedness.
(c) Existence of Liens. So long as any Obligations are outstanding,
------------------
the Company shall not, and the Company shall not permit any of its
Subsidiaries to, directly or indirectly, allow or suffer to exist any
mortgage, lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights) owned
by the Company or any of its Subsidiaries (collectively, "Liens") other
than Permitted Liens.
- 20 -
(d) Restricted Payments. After the Permitted Senior Indebtedness has
--------------------
been repaid in full, Company shall not, and the Company shall not permit
any of its Subsidiaries to, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of
cash or cash equivalents (in whole or in part, whether by way of open
market purchases, tender offers, private transactions or otherwise), all or
any portion of any Permitted Indebtedness (other than Permitted Senior
Indebtedness), whether by way of payment in respect of principal of (or
premium, if any) or interest on, such Indebtedness if at the time such
payment is due or is otherwise made or, after giving effect to such
payment, an event constituting, or that with the passage of time and
without being cured would constitute, an Event of Default has occurred and
is continuing.
(e) Restriction on Redemption and Cash Dividends. Until all of the
----------------------------------------------
Notes have been converted, redeemed or otherwise fully repaid, the Company
shall not, directly or indirectly, redeem, repurchase or declare or pay any
cash dividend or distribution on its capital stock without the prior
express written consent of the Required Holders.
(f) Dispositions. After the Permitted Senior Indebtedness has been
------------
repaid in full and so long as any Obligations are outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to,
convey, sell, lease or sublease, transfer or otherwise dispose of, whether
in one transaction or a series of related transactions, all or any part of
its business, property or assets, whether now owned or hereafter acquired
(or agree to do any of the foregoing); provided, however, that the Company
and its Subsidiaries may (i) sell inventory in the ordinary course of
business, (ii) dispose of obsolete or worn-out equipment in the ordinary
course of business and (iii) dispose of the non-core assets set forth on
Schedule 15(f) hereto.
(g) Additional Guaranties and Collateral Security. The Company and
------------------------------------------------
each Subsidiary shall cause each Subsidiary of the Company not in existence
on the Issuance Date, to execute and deliver to the Collateral Agent
promptly and in any event within five (5) Business Days after the
formation, acquisition or change in status thereof (i) a Guarantee
guaranteeing the Obligations, (ii) a joinder to the Security Agreement, and
(iii) such other agreements, instruments, approvals, legal opinions or
other documents reasonably requested by the Collateral Agent in order to
create, perfect, establish the third priority of (subject to Permitted
Liens) or otherwise protect any Lien purported to be covered by the
Security Agreement or otherwise to effect the intent that such Subsidiary
shall become bound by all of the terms, covenants and agreements contained
in the this Note and that all property and assets of such Subsidiary shall
become Collateral for the Obligations.
(h) Affiliated Transactions. Neither the Company nor any Subsidiary
------------------------
shall, without the consent of each Watershed Fund that then holds any
Watershed Notes (Watershed Capital Partners, L.P. ("WCP"), Watershed
Capital Institutional Partners, L.P. ("WCI") and any Affiliates of WCP,
collectively, the "Watershed Funds"), which consent may be withheld by any
such Watershed Fund in its sole and absolute discretion:
(i) enter into or make payments under any consulting, management
agreement and/or similar agreement or arrangement with the Prencen
Group and/or any of its Affiliates;
- 21 -
(ii) enter into any Subsequent Placement with the Prencen Group
and/or any of its Affiliates; provided, however, that no such consent
shall be required if (1) such Subsequent Placement is on commercially
reasonable terms and on an arm's-length basis, (2) such Subsequent
Placement is approved by a majority of the non-interested members of
the board of directors of the Company meeting in a separate session
and (3) the holders of the Notes have the right to participate in such
Subsequent Placement pursuant to Section 4(o) of the Securities
Purchase Agreements;
(iii) enter into any debt financing agreement or other financing
arrangement (other than a Subsequent Placement) with the Prencen Group
and/or any of its Affiliates; or
(iv) except as provided in the foregoing clause (ii), enter into
any transaction with any Affiliate of the Company and/or the Prencen
Group, other than for (A) ordinary course executive and employee
compensation arrangements, including, without limitation, salary,
equity compensation and bonuses, for directors, officers and employees
of the Company approved by the compensation committee of the Company's
board of directors, (B) the exchange contemplated in Section 3(e)
hereof, (C) any transaction or transactions providing for payments
which do not and cannot, in the aggregate, exceed $250,000 per annum
and (D) the performance of the Company's obligations pursuant to the
Securities Purchase Agreements, the Registration Rights Agreement, the
Series B Certificate of Designations and the Series B-1 Certificate of
Designations (each as defined in the Prencen Securities Purchase
Agreement) for the Preferred Shares, the Warrants and the Notes;
provided, however, that for the purposes of the foregoing clauses (A)
and (C), such transactions must be on arm's-length terms and approved
by a majority of the non-interested directors of the board of
directors of the Company.
Notwithstanding the foregoing, no consent of any Watershed Fund shall be
required pursuant to this Section 15(h) unless (x) on the applicable date
of determination, the Watershed Funds own in the aggregate at least 50% of
the original principal amount (without regard for any capitalized interest
added to such principal amount as of such date of determination) of the
Watershed Notes; provided, however, that if any portion of the original
principal amount of the Watershed Notes are exchanged, pursuant to Section
3(e), for New Securities, the principal amount of such notes exchanged for
any such New Securities received by the Watershed Funds on such date of
determination in exchange for such original principal amount of the
Watershed Notes shall be taken into account in determining whether the
Watershed Funds meet the foregoing ownership threshold or (y) the Watershed
Facility has not been repaid in full.
(i) No Additional Notes. Except with respect to any issuances in which
-------------------
a holder of Notes may participate in accordance with Section 4(o) of the
Securities Purchase Agreements and issuances made pursuant to Sections 18
and 19(a) - (c) of this Note, the Company shall not after the Closing (as
defined in the Securities Purchase Agreements) issue any notes or other
instruments that are pari passu with the Notes.
(16) PARTICIPATION. The Holder, as the holder of this Note, shall be
-------------
entitled to such dividends paid and distributions made to the holders of Common
Stock to the same extent as if the Holder had converted this Note into Common
Stock (without regard to any
- 22 -
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
(17) VOTE TO CHANGE THE TERMS OF NOTES. The affirmative vote at a meeting
---------------------------------
duly called for such purpose or the written consent without a meeting of the
Required Holders shall be required for any consent, waiver, change or amendment
to this Note or the Other Notes; provided, however, that no such consent,
waiver, change or amendment as applied to any of the Notes held by any
particular holder of Notes, shall, without the written consent of that
particular holder, (i) reduce the Interest Rate; (ii) reduce the amount of
Principal or, any other amounts payable on, or change the Maturity Date of, the
Notes; (iii) make any change that adversely affects the conversion rights of the
Notes (including, without limitation, the provisions contained in Sections 3 and
7 hereof); (iv) reduce any of the Redemption Prices, the timing of the payment
of any Redemption Prices, or amend or modify in any manner adverse to the
holders of the Notes the Company's obligation to make such payments, whether
through an amendment or waiver of provisions in the covenants, definitions or
otherwise; (v) modify the provisions with respect to the right of the holders of
the Notes to cause the Company to redeem the Notes; (vi) make any Interest or
Principal or other payments on the Notes payable other than as set forth herein;
(vii) modify any of the provisions of, or impair the right of any holder of
Notes under, this Section 17; (viii) release any obligor on the Notes or release
all or substantially all of the collateral security the Notes, except as
permitted by the Security Documents as they exist on the Issuance Date; (ix)
amend, modify or change the provisions contained in: Section 3(e) (Holder's
Right of Exchange); Section 4(a)(iii)(A) (Event of Default For Failure to Make
Payment at Maturity); Section 4(c) (Absence of Event of Default in Certain
Circumstances); Section 6 (Rights Upon Issuance of Purchase Rights and Other
Corporate Events); Section 10 (Circumvention) to the extent any such amendment,
modification or change thereto relates to any matter required to be approved by
each holder of Notes pursuant to this Section 17; Section 12 (Redemptions);
Section 15(g) (Additional Guaranties and Collateral Security); Section 15(h)
(Affiliated Transactions); Section 25(a) (Notices); Section 25(c) (Pro Rata
Rights); or Section 29(b) (Affiliate); or (x) amend, modify or change the
condition in any provision of this Note or the other Notes that restricts the
application of any such provision until the Permitted Senior Indebtedness has
been repaid in full. Neither the Company nor any of its Subsidiaries will,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of Interest, fees or otherwise, to any holder for or as inducement to any
consent, waiver or amendment of any of the terms or provisions of the Notes
unless such consideration is paid pro rata (based on Conversion Amounts) to all
holders of Notes. Other than as may be expressly contemplated by the Notes, so
long as any Notes remain outstanding, at no time shall the Company or any of its
Subsidiaries, directly or indirectly, purchase or offer to purchase any of the
outstanding Notes or exchange or offer to exchange for any consideration
(including, without limitation, for cash, securities, property or otherwise) any
outstanding Notes unless the Company or such Subsidiary, as applicable,
purchases, offers to purchase, exchanges or offers to exchange the outstanding
Notes of all of the holders for the same consideration (on a pro rata basis in
accordance with each holder's percentage ownership of then outstanding Notes)
and on identical terms. If any changes, amendments, alterations, waivers or
modifications are made to any Note, such identical changes, amendments,
alterations, waivers or modifications shall be made to each of the other Notes.
The limitations set forth in this Section 17 shall apply mutatis mutandis with
respect to any analogous provision contained in any of the other Transaction
Documents.
- 23 -
(18) TRANSFER. This Note may be offered, sold, assigned or transferred by
--------
the Holder without the consent of the Company, subject only to the provisions of
Section 2(g) of the Securities Purchase Agreements; provided, however, that any
such sale, assignment or transfer is in a minimum amount equal to the lesser of
(a) $1,000,000 and (b) the outstanding Principal amount, Interest and Late
Charges, if any, of this Note; provided, further, however, that such minimum
amount shall not apply to any sale, assignment or transfer to an Affiliate of
the Holder.
(19) REISSUANCE OF THIS NOTE.
-----------------------
(a) Transfer. If all or a portion of this Note is to be transferred,
--------
the Holder shall surrender this Note to the Company, whereupon the Company
will forthwith issue and deliver upon the order of the Holder a new Note
(in accordance with Section 19(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and,
if less then the entire outstanding Principal is being transferred, a new
Note (in accordance with Section 19(d)) to the Holder representing the
outstanding Principal not being transferred. The Holder and any assignee,
by acceptance of this Note, acknowledge and agree that, by reason of the
provisions of Section 3(c)(iii), following conversion or redemption of any
portion of this Note, the outstanding Principal represented by this Note
may be less than the Principal stated on the face of this Note.
(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of
---------------------------------
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the
Company in customary form and, in the case of mutilation, upon surrender
and cancellation of this Note, the Company shall execute and deliver to the
Holder a new Note (in accordance with Section 19(d)) representing the
outstanding Principal.
(c) Note Exchangeable for Different Denominations. This Note is
-------------------------------------------------
exchangeable, upon the surrender hereof by the Holder at the principal
office of the Company, for a new Note or Notes (in accordance with Section
19(d) and in principal amounts of at least $100,000) representing in the
aggregate the outstanding Principal of this Note, and each such new Note
will represent such portion of such outstanding Principal as is designated
by the Holder at the time of such surrender.
(d) Issuance of New Notes. Whenever the Company is required to issue a
---------------------
new Note pursuant to the terms of this Note, such new Note (i) shall be of
like tenor with this Note, (ii) shall represent, as indicated on the face
of such new Note, the Principal remaining outstanding (or in the case of a
new Note being issued pursuant to Section 19(a) or Section 19(c), the
Principal designated by the Holder which, when added to the principal
represented by the other new Notes issued in connection with such issuance,
does not exceed the Principal remaining outstanding under this Note
immediately prior to such issuance of new Notes), (iii) shall have an
issuance date, as indicated on the face of such new Note, which is the same
as the Issuance Date of this Note, (iv) shall have the same rights and
conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges on the Principal and Interest of this Note, from
the Issuance Date.
- 24 -
(20) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
---------------------------------------------------------------------
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
-----------------
addition to all other remedies available under this Note and any of the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
(21) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note
----------------------------------------------------
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the reasonable
costs incurred by the Holder for such collection, enforcement or action or in
connection with such bankruptcy, reorganization, receivership or other
proceeding, including, but not limited to, attorneys' fees and disbursements.
(22) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
-----------------------
drafted by the Company and all the holders of Notes and shall not be construed
against any Person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.
(23) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
---------------------------------
the Holder 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.
(24) DISPUTE RESOLUTION. In the case of a dispute as to the determination
-------------------
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Conversion Rate or any Redemption Price,
the Company shall submit the disputed determinations or arithmetic calculations
via facsimile within one (1) Business Day of receipt, or deemed receipt, of the
Conversion Notice or Redemption Notice or other event giving rise to such
dispute, as the case may be, to the Holder. If the Holder and the Company are
unable to agree upon such determination or calculation 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 (a) the disputed determination of the Closing Bid Price, the Closing
Sale Price or the Weighted Average Price to an independent, reputable investment
bank selected by the Company and approved by the Holder or
- 25 -
(b) the disputed arithmetic calculation of the Conversion Rate or any Redemption
Price to the Company's independent, outside accountant. The Company, at the
Company's expense, shall cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than five (5) Business Days from
the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error. To the extent
that any determination of any Closing Bid Price, Closing Sale Price or the
Weighted Average Price or calculation of the Conversion Price, Conversion Rate
or any Redemption Price hereunder affects any conversion price, conversion rate
or redemption price in connection with any conversion, redemption or payment to
be made with respect to the other Notes, such determination or calculation shall
also be applied in connection with any such conversions, redemptions or payments
under the other Notes.
(25) NOTICES; PAYMENTS.
-----------------
(a) Notices. Whenever notice is required to be given under this Note,
-------
unless otherwise provided herein, such notice shall be given in accordance
with Section 9(f) of the Securities Purchase Agreements. The Company shall
provide the Holder with prompt written notice of all actions taken pursuant
to this Note, including in reasonable detail a description of such action
and the reason therefor. Without limiting the generality of the foregoing,
the Company will give written notice to the holders of all Notes (i)
immediately upon any adjustment of the Conversion Price (and in no event
later than one (1) Business Day thereafter), including any adjustment to
the Conversion Price made following any calculation of such price pursuant
to the dispute resolution mechanism set forth in Section 24, setting forth
in reasonable detail, and certifying, the calculation of such adjustment,
(ii) at least twenty (20) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights
to vote with respect to any Fundamental Transaction, dissolution or
liquidation, provided in each case that such information shall be made
known to the public prior to or in conjunction with such notice being
provided to the Holder.
(b) Payments. Whenever any payment of cash is to be made by the
--------
Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the
account of the Company and sent via overnight courier service to such
Person at such address as previously provided to the Company in writing
(which address, in the case of each of the Purchasers, shall initially be
as set forth on the Schedules of Buyers attached to the Securities Purchase
Agreements); provided that the Holder may elect to receive a payment of
cash via wire transfer of immediately available funds by providing the
Company with prior written notice setting out such request and the Holder's
wire transfer instructions. Whenever any amount expressed to be due by the
terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day
and, in the case of any Interest Date which is not the date on which this
Note is paid in full, the extension of the due date thereof shall not be
taken into account for purposes of determining the amount of Interest due
on such date. Any amount of Principal or other amounts due under the
Transaction Documents, other than Interest, which
- 26 -
is not paid when due shall result in a late charge being incurred and
payable by the Company in an amount equal to interest on such amount at the
rate of fifteen percent (15%) per annum from the date such amount was due
until the same is paid in full ("Late Charge"). All payments of any
Redemption Price to be made by the Company to the Holder hereunder shall
also include payment in respect of any other Obligations then due and
owing, including without limitation, Interest thereon.
(c) Pro Rata Rights. All payments and/or distributions required to be
---------------
made by the Company hereunder on a pro rata basis among all holders of the
Notes or certain holders of the Notes shall be made simultaneously and
ratably among all such holders of Notes or such lesser group of holders of
the Notes, as applicable. Notwithstanding anything else contained herein,
the Holder retains the sole power with respect to this Note to effect the
conversion(s) provided in Section 3 and elect to redeem all or a portion of
this Note pursuant to Sections 5(b) and 8, and in no event shall any other
Person or Person(s) be able to interfere with or take away any such rights.
(26) CANCELLATION. After all the Obligations (excluding any Obligations
------------
that are contingent, unmatured or otherwise unknown at the time of payment) at
any time owed have been paid in full, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued; provided, however, that any contingent, unmatured or unknown claims
arising under the Transaction Documents that are known as of the date of payment
or that mature or become known thereafter and which would otherwise be
considered Obligations hereunder shall survive the cancellation of this Note.
(27) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
----------------
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreements.
(28) GOVERNING LAW; JURISDICTION; JURY TRIAL. This Note shall be construed
----------------------------------------
and enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Note shall be governed by, the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. The Company hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof at the address set forth in Section 9(f) of
the Securities Purchase Agreements, or in the case of a transferee of any Note,
at such address provided to the Company by such holder at the time of such
transfer, and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any
- 27 -
right to serve process in any manner permitted by law. In the event that any
provision of this Note is invalid or unenforceable under any applicable statute
or rule of law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of this Note. Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Company in any other jurisdiction to collect on the Company's
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder. EACH OF THE COMPANY AND THE HOLDER HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR
ANY TRANSACTION CONTEMPLATED HEREBY.
(29) CERTAIN DEFINITIONS. For purposes of this Note, the following terms
--------------------
shall have the following meanings:
(a) "Acquisition" means the acquisition of the Calgon and Healing
Gardens brands from Coty, Inc. and certain of its affiliates by Ascendia
Brands Co., Inc., and certain of its Affiliates pursuant to that certain
Asset Purchase Agreement, dated as of January 17, 2007.
(b) "Affiliate" means, with respect to any specified Person, a Person
that directly, or indirectly through one or more intermediaries, controls,
is controlled by or is under common control with, such specified Person (it
being understood that a Person shall be deemed to "control" another Person,
for purposes of this definition, if such Person directly or indirectly has
the power to direct or cause the direction of the management and policies
of such other Person, whether through holding beneficial ownership
interests in such other Person, through contracts or otherwise). For the
avoidance of doubt, no Watershed Fund shall be deemed an Affiliate of the
Company or any of its Subsidiaries in respect of the ownership by one or
more of such Watershed Fund's of Notes, Conversion Shares (as defined in
the Watershed Securities Purchase Agreement) and/or Permitted Senior
Indebtedness.
(c) "Approved Stock Plan" means any employee benefit plan which has
been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer or director
for services provided to the Company.
(d) "Authorized Share Stockholder Approval" has the meaning ascribed
to such term in the Securities Purchase Agreements.
(e) "Authorized Share Stockholder Approval Date" has the meaning
ascribed to such term in the Securities Purchase Agreements.
(f) "Authorized Share Stockholder Consent" has the meaning ascribed to
such term in the Securities Purchase Agreements.
- 28 -
(g) "Authorized Share Stockholder Consent Effective Date" has the
meaning ascribed to such term in the Securities Purchase Agreements.
(h) "Authorized Share Stockholder Meeting Deadline" has the meaning
ascribed to such term in the Securities Purchase Agreements.
(i) "Bloomberg" means Bloomberg Financial Markets.
(j) "Business Day" means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(k) "Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other
equivalents (however designated and whether or not voting) of corporate
stock, and (ii) with respect to any Person that is not a corporation, any
and all partnership, membership or other equity interests of such Person.
(l) "Change of Control" means any Fundamental Transaction other than
(i) any reorganization, recapitalization or reclassification of the Common
Stock in which holders of the Company's voting power immediately prior to
such reorganization, recapitalization or reclassification continue after
such reorganization, recapitalization or reclassification to hold publicly
traded securities and, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation)
of such entity or entities, or (ii) pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of the
Company.
(m) "Closing Bid Price" and "Closing Sale Price" means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Eligible Market that is the
primary market for such security, as reported by Bloomberg, or, if such
Eligible Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the case may
be, then the last bid price or last trade price, respectively, of such
security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if no Eligible Market is the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, 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 or
last trade price, respectively, 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 or last trade price, respectively,
is reported for such security by Bloomberg, the average of the bid prices,
or the ask prices, respectively, of any market makers for such security as
reported in the "pink sheets" by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the
foregoing bases, the Closing Bid Price or the Closing Sale Price, as the
case may be, of such security on such date shall be the fair market value
as mutually determined by the Company and the Holder. If the Company and
the Holder are unable to agree upon the fair market value of such security,
then such dispute shall be resolved pursuant to Section 24. All such
- 29 -
determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during the
applicable calculation period.
(n) "Collateral Agent" shall mean the "Agent" as defined in the
Security Agreement.
(o) "Common Stock Deemed Outstanding" means, at any given time, the
number of shares of Common Stock outstanding at such time, plus the number
of shares of Common Stock deemed to be outstanding pursuant to Sections
7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding
any Common Stock owned or held by or for the account of the Company or
issuable upon conversion or exercise, as applicable, of the Notes, the
Preferred Shares and the Warrants.
(p) "Contingent Obligation" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to
any indebtedness, lease, dividend or other obligation of another Person if
the primary purpose or intent of the Person incurring such liability, or
the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of
such liability will be protected (in whole or in part) against loss with
respect thereto.
(q) "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.
(r) "Eligible Market" means the Principal Market, The New York Stock
Exchange, Inc., The NASDAQ Global Select Market, The NASDAQ Global Market
or The NASDAQ Capital Market.
(s) "Equity Conditions" means that each of the following conditions is
satisfied: (i) on each day during the period beginning six months prior to
the applicable date of determination and ending on and including the
applicable date of determination (the "Equity Conditions Measuring
Period"), either (x) the Registration Statement filed pursuant to the
Registration Rights Agreement shall be effective and available for the
resale of all remaining Registrable Securities in accordance with the terms
of the Registration Rights Agreement and there shall not have been any
Grace Periods (as defined in the Registration Rights Agreement) or (y) all
shares of Common Stock issuable upon conversion of the Notes and Preferred
Shares and exercise of the Warrants shall be eligible for sale without
restriction and without the need for registration under any applicable
federal or state securities laws; (ii) on each day during the Equity
Conditions Measuring Period, the Common Stock is designated for quotation
on the Principal Market and shall not have been suspended from trading on
such exchange or market (other than suspensions of not more than two days
and occurring prior to the applicable date of determination due to business
announcements by the Company) nor shall delisting or suspension by such
exchange or market been threatened or pending either (A) in writing by such
exchange or market or (B) by falling below the minimum listing maintenance
requirements of such exchange or market; (iii) during the one (1) year
period
- 30 -
ending on and including the date immediately preceding the applicable date
of determination, the Company shall have delivered shares of Common stock
issuable upon conversion of the Notes to the holders on a timely basis as
set forth in Section 3(c)(i) hereof (and analogous provisions under the
Other Notes); (iv) any applicable shares of Common Stock to be issued in
connection with the event requiring determination may be issued in full
without violating Section 3(d) hereof and the rules or regulations of the
Principal Market; (v) during the Equity Conditions Measuring Period, the
Company shall not have failed to timely make any payments within five (5)
Business Days of when such payment is due pursuant to any Transaction
Document; (vi) during the Equity Conditions Measuring Period, there shall
not have occurred either (A) the public announcement of a pending, proposed
or intended Fundamental Transaction which has not been abandoned,
terminated or consummated or (B) an Event of Default or an event that with
the passage of time or giving of notice would constitute an Event of
Default; (vii) the Company shall have no knowledge of any fact that would
cause (x) the Registration Statements required pursuant to the Registration
Rights Agreement not to be effective and available for the resale of all
remaining Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (y) any shares of Common Stock issuable
upon conversion of the Notes and Preferred Shares and shares of Common
Stock issuable upon exercise of the Warrants not to be eligible for sale
without restriction pursuant to Rule 144(k) and any applicable state
securities laws; (viii) the Company otherwise shall have been in material
compliance with and shall not have materially breached any provision,
covenant, representation or warranty of any Transaction Document; and (ix)
the Transaction Stockholder Approval and the Authorized Share Stockholder
Approval shall have been obtained.
(t) "Equity Conditions Failure" means that on any determination date
from the Optional Redemption Notice Date through and including the Optional
Redemption Date, the Equity Conditions have not been satisfied (or waived
in writing by the Holder).
(u) "Exchange Agreement" means that certain Amendment and Exchange
Agreement, dated as of December 27, 2006, by and among the Company, Prencen
Lending LLC and Prencen LLC.
(v) "Excluded Security" means any Common Stock issued or issuable: (i)
in connection with any Approved Stock Plan; (ii) upon conversion of the
Notes; (iii) upon exercise of the Existing Stockholder Warrants (as defined
in Securities Purchase Agreement); (iv) upon conversion, exercise or
exchange of any Options or Convertible Securities which are outstanding on
the day immediately preceding the Issuance Date, provided that the terms of
such Options or Convertible Securities are not amended, modified or changed
on or after the Issuance Date; or (v) in connection with any stock split,
stock dividend, recapitalization or similar transaction by the Company for
which adjustment is made pursuant to Section 7(b).
(w) "Fundamental Transaction" means that the Company shall (or in the
case of clause (vi) any "person" or "group" (as these terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act)), directly or
indirectly, in one or more related transactions, (i) consolidate or merge
with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company to
another Person, or (iii) allow
- 31 -
another Person or Persons to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of the outstanding shares
of Voting Stock (not including any shares of Voting Stock held by the
Person or Persons making or party to, or associated or affiliated with the
Person or Persons making or party to, such purchase, tender or exchange
offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person
whereby such other Person acquires more than the 50% of either the
outstanding shares of Voting Stock (not including any shares of Voting
Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such
stock purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock, or (vi) is or shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 50% of the aggregate ordinary voting
power represented by issued and outstanding Common Stock.
(x) "GAAP" means United States generally accepted accounting
principles, consistently applied.
(y) "Guarantee" means (i) the guarantee of each Subsidiary Guarantor
and (ii) each guarantee substantially in the form of Exhibit E-1 and/or
Exhibit E-2 to the Prencen Securities Purchase Agreement and in the form of
Exhibit D-1 and/or Exhibit D-2 to the Watershed Securities Purchase
Agreement made by any other Subsidiary in favor of the holders of the Notes
(or the Collateral Agent for the benefit of the Collateral Agent and the
holders of the Notes) pursuant to Section 15(g), in each case as such
agreement may be amended, modified, supplemented or reaffirmed.
(z) "Hedging Agreement" means any interest rate, foreign currency,
commodity or equity swap, collar, cap, floor or forward rate agreement, or
other agreement or arrangement designed to protect against fluctuations in
interest rates or currency, commodity or equity values (including, without
limitation, any option with respect to any of the foregoing and any
combination of the foregoing agreements or arrangements), and any
confirmation executed in connection with any such agreement or arrangement.
(aa) "Highest Lawful Rate" means the maximum lawful interest rate, if
any, that at any time or from time to time may be contracted for, charged,
or received under the laws applicable to the Holder which are presently in
effect or, to the extent allowed by law, under such applicable laws which
may hereafter be in effect and which allow a higher maximum nonusurious
interest rate than applicable laws now allow.
(bb) "Holder Pro Rata Amount" means a fraction (i) the numerator of
which is the Principal amount of this Note on the date of determination and
(ii) the denominator of which is the aggregate principal amount of all
Notes outstanding on such date.
(cc) "Indebtedness" of any Person means, without duplication (i) all
indebtedness for borrowed money, (ii) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services, including
(without limitation) "capital leases" in accordance with generally accepted
accounting principles (other than trade payables entered into in the
ordinary course of business), (iii) all reimbursement or payment
obligations with respect to
- 32 -
letters of credit, surety bonds and other similar instruments, (iv) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (v) all indebtedness created
or arising under any conditional sale or other title retention agreement,
or incurred as financing, in either case with respect to any property or
assets acquired with the proceeds of such indebtedness (even though the
rights and remedies of the seller or bank under such agreement in the event
of default are limited to repossession or sale of such property), (vi) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently
applied for the periods covered thereby, is classified as a capital lease,
(vii) all indebtedness referred to in clauses (i) through (vi) above
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any
Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (viii)
all Contingent Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (i) through (vii) above.
(dd) "Interest Rate" means, (i) initially, nine percent (9.0%) per
annum and (ii) subject to the third sentence of Section 2, (A) in the event
that the Company has not obtained the Authorized Share Stockholder Approval
by the Authorized Share Stockholder Meeting Deadline, eleven percent
(11.0%) and (B) in the event that the Company has not obtained the
Authorized Share Stockholder Approval by June 30, 2007, thirteen percent
(13.0%), in each case subject to adjustment as provided herein.
(ee) "Obligations" means all present and future indebtedness,
obligations, and liabilities of the Company and any Subsidiary Guarantor to
the Collateral Agent and the holders of the Notes under the Transaction
Documents, whether or not the right of payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
disputed, undisputed, legal, equitable, secured, unsecured, and whether or
not such claim is discharged, stayed or otherwise affected by any
proceeding referred to in Section 4(a). Without limiting the generality of
the foregoing, the Obligations of the Company and each Subsidiary Guarantor
under the Notes and the other Transaction Documents include (a) the
obligation to pay principal, interest, charges (including Late Charges),
expenses, fees, attorneys' fees and disbursements, indemnities and other
amounts payable by such Person thereunder, and (b) the obligation of such
Person to reimburse any amount in respect of any of the foregoing that the
Collateral Agent or any holder of Notes (in its sole discretion) may elect
to pay or advance on behalf of such Person.
(ff) "Options" means any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.
(gg) "Parent Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market, or,
if there is more than one such Person or Parent Entity, the Person or
Parent Entity with the largest public market capitalization as of the date
of consummation of the Fundamental Transaction.
- 33 -
(hh) "Permitted Financing" means, in one or more transactions, any
issuance or sale, or in accordance with Section 7(a), any deemed issuance
or sale of Common Stock (i) which issuance or sale does not exceed
$5,000,000 in the aggregate, (ii) is at a consideration per share greater
than 90% of the arithmetic average of the Weighted Average Price of the
Common Stock for the ten (10) consecutive Trading Days ending on the date
immediately prior to the execution of the definitive agreement for such
Permitted Financing for any and all transactions and (iii) where if
warrants are issued in such Permitted Financing, such warrants are
exercisable for not more than 25% of the shares of Common Stock issued or
issuable in such Permitted Financing and such warrants have an exercise
price that is equal to or greater than the arithmetic average of the
Weighted Average Price of the Common Stock for the ten (10) consecutive
Trading Days ending on the date immediately prior to the execution of the
definitive agreement for such Permitted Financing.
(ii) "Permitted Indebtedness" means (i) prior to the repayment in full
of the Permitted Senior Indebtedness, the Permitted Senior Indebtedness and
all Indebtedness permitted to exist pursuant to the terms of the Permitted
Senior Indebtedness (ii) Indebtedness evidenced by this Note and the Other
Notes, (iii) Indebtedness evidenced by the Coty Note (as defined in the
Securities Purchase Agreements) and any additional promissory note issued,
or any increase in the principal amount of the Coty Note made, in an amount
equal to the In-Kind Amount in connection with payment of the Coty Earn-Out
Payment (each as defined in the Securities Purchase Agreements), (iv) other
unsecured Indebtedness in an aggregate amount not to exceed $20,000,000
outstanding at any time incurred by the Company and/or any of its
Subsidiaries that is made expressly subordinate in right of payment to the
Indebtedness evidenced by this Note, as reflected in a written agreement
acceptable to the Holder and approved by the Holder in writing, and which
Indebtedness does not provide at any time for (1) the payment, prepayment,
repayment, repurchase or defeasance, directly or indirectly, of any
principal or premium, if any, thereon until ninety-one (91) days after the
Maturity Date or later and (2) total interest and fees at a rate in excess
of the Interest Rate hereunder, (v) Indebtedness secured by Permitted
Liens, (vi) Indebtedness to trade creditors incurred in the ordinary course
of business, and (vii) extensions, refinancings and renewals of any items
of Permitted Indebtedness; provided that, the principal amount is not
increased or the terms modified to impose more burdensome terms upon the
Company or its Subsidiary, as the case may be.
(jj) "Permitted Liens" means (A) prior to the repayment in full of the
Permitted Senior Indebtedness, the Liens securing the Permitted Senior
Indebtedness and all "Permitted Liens" as defined pursuant to the terms of
the Permitted Senior Indebtedness and (B) after the Permitted Senior
Indebtedness has been repaid in full, (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP, (ii)
any statutory Lien arising in the ordinary course of business by operation
of law with respect to a liability that is not yet due or delinquent, (iii)
any Lien created by operation of law, such as materialmen's liens,
mechanics' liens and other similar liens, arising in the ordinary course of
business with respect to a liability that is not yet due or delinquent or
that are being contested in good faith by appropriate proceedings, (iv)
Liens securing the Obligations, (v) Liens (A) upon or on any equipment
acquired or held by the Company or any of its Subsidiaries to secure the
purchase price of such equipment or indebtedness incurred solely for the
purpose of financing the acquisition or lease of such equipment, or (B)
existing on such equipment at the time of its acquisition, provided that
- 34 -
the Lien is confined solely to the property so acquired and improvements
thereon, and the proceeds of such equipment, (vi) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clauses (i) and (v) above,
provided that any extension, renewal or replacement Lien shall be limited
to the property encumbered by the existing Lien and the principal amount of
the Indebtedness being extended, renewed or refinanced does not increase,
(vii) leases or subleases and licenses and sublicenses granted to others in
the ordinary course of the Company's business, not interfering in any
material respect with the business of the Company and its Subsidiaries
taken as a whole, (viii) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payments of custom duties in
connection with the importation of goods and (ix) Liens arising from
judgments, decrees or attachments in circumstances not constituting an
Event of Default under Section 4(a)(vii).
(kk) "Permitted Senior Indebtedness" means (i) the WFF Facility and
(ii) the Watershed Facility.
(ll) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(mm) "Preferred Shares" has the meaning ascribed to such term in the
Exchange Agreement.
(nn) "Prencen Group" means Prencen Lending LLC, Prencen LLC and/or
Prencen Capital Management, L.P.
(oo) "Prencen Note" means the Note issued pursuant to the Prencen
Securities Purchase Agreement.
(pp) "Principal Market" means the American Stock Exchange.
(qq) "Redemption Notices" means, collectively, the Event of Default
Redemption Notices, the Change of Control Redemption Notices, the Holder
Optional Redemption Notice and the Optional Redemption Notices and each of
the foregoing, individually, a Redemption Notice.
(rr) "Redemption Premium" means (i) in the case of the Events of
Default described in Section 4(a)(i) - (iv) and (vii) - (xiv), 125% or (ii)
in the case of the Events of Default described in Section 4(a)(v) - (vi),
100%.
(ss) "Redemption Prices" means, collectively, the Event of Default
Redemption Price, Change of Control Redemption Price, the Holder Optional
Redemption Price and the Optional Redemption Price and, each of the
foregoing, individually, a Redemption Price.
(tt) "Registration Rights Agreement" means that certain Registration
Rights Agreement dated as of February 9, 2007 by and among the Company and
the initial holders of the Notes, as such agreement may be amended,
modified or supplemented,
- 35 -
relating to, among other things, the registration of the resale of the
shares of Common Stock owned by Prencen Lending LLC and the shares of
Common Stock issuable upon conversion of the Notes and the Preferred Shares
and exercise of the Warrants.
(uu) "Required Holders" means the holders of Notes representing at
least a majority of the aggregate principal amount of the Notes then
outstanding.
(vv) "SEC" means the United States Securities and Exchange Commission.
(ww) "Securities Purchase Agreements" means, collectively, (i) that
certain Third Amended and Restated Securities Purchase Agreement dated as
of February 9, 2007 by and among the Company, Prencen LLC and Prencen
Lending LLC, as the same may be amended, modified or supplemented from time
to time (the "Prencen Securities Purchase Agreement") and (ii) that certain
Securities Purchase Agreement dated as of February 9, 2007 by and among the
Company, Watershed Capital Partners, L.P. and Watershed Capital
Institutional Partners, L.P., as the same may be amended, modified or
supplemented from time to time (the "Watershed Securities Purchase
Agreement").
(xx) "Security Agreement" means a Security Agreement made by the
Company or any Subsidiary in favor of the Collateral Agent for the benefit
of the Collateral Agent and the holders of the Notes, substantially in the
form of Exhibit D to the Prencen Securities Purchase Agreement and in the
form of Exhibit C to the Watershed Securities Purchase Agreement, as such
agreement may be amended, modified, supplemented, securing the Obligations.
(yy) "Security Documents" has the meaning ascribed to such term in
the Securities Purchase Agreements.
(zz) "Subsequent Placement" has the meaning ascribed to such term in
the Securities Purchase Agreements.
(aaa) "Subsidiary Guarantor" has the meaning ascribed to such term in
the Security Documents.
(bbb) "Successor Entity" means the Person, which may be the Company,
formed by, resulting from or surviving any Fundamental Transaction or the
Person with which such Fundamental Transaction shall have been made so long
as such entity's common stock or equivalent equity security is quoted or
listed for trading on an Eligible Market, provided that if such Person is
not a publicly traded entity whose common stock or equivalent equity
security is quoted or listed for trading on an Eligible Market, Successor
Entity shall mean such Person's Parent Entity.
(ccc) "Trading Day" means any day on which the Common Stock are traded
on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock are then traded;
provided that "Trading Day" shall not include any day on which the Common
Stock are scheduled to trade on any such exchange or market for
- 36 -
less than 4.5 hours or any day that the Common Stock are suspended from
trading during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing time of
trading on any such exchange or market, then during the hour ending at
4:00:00 p.m., New York Time).
(ddd) "Transaction Documents" has the meaning ascribed to such term in
the Securities Purchase Agreements.
(eee) "Transaction Stockholder Approval" has the meaning ascribed to
such term in the Securities Purchase Agreements.
(fff) "Voting Stock" of a Person means capital stock of such Person of
the class or classes pursuant to which the holders thereof have the general
voting power to elect, or the general power to appoint, at least a majority
of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
(ggg) "Warrants" has the meaning ascribed to such term in the Prencen
Securities Purchase Agreement, and shall include all warrants issued in
exchange therefor or replacement thereof.
(hhh) "Watershed Facility" means the Second Lien Credit Agreement
dated as of February 9, 2007 between the Company and each of its
Subsidiaries signatory thereto, as borrowers, the lenders signatory
thereto, Wells Fargo Foothill, Inc., as the collateral agent, and Watershed
Administrative, LLC, as the administrative agent and the documents executed
in connection therewith, in each case as such documents may be amended,
amended and restated, modified or supplemented from time to time.
(iii) "Watershed Notes" means the Notes issued pursuant to the
Watershed Securities Purchase Agreement.
(jjj) "Weighted Average Price" means, for any security as of any date,
the dollar volume-weighted average price for such security on the Eligible
Market that is the primary market for such securities during the period
beginning at 9:30:01 a.m., New York Time (or such other time as the
Eligible Market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York Time (or such other time as such Eligible
Market publicly announces is the official close of trading) as reported by
Bloomberg through its "Volume at Price" functions, or, if the foregoing
does not apply, the dollar volume-weighted average price of such security
in the over-the-counter market on the electronic bulletin board for such
security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such Eligible Market publicly announces is the official
open of trading), and ending at 4:00:00 p.m., New York Time (or such other
time as such market publicly announces is the official close of trading) as
reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the
- 37 -
Weighted Average Price cannot be calculated for such security on such
particular date on any of the foregoing bases, the Weighted Average Price
of such security on such date shall be the fair market value as mutually
determined by the Company and the Required Holders. If the Company and the
Required Holders are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 24. All
such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during the
applicable calculation period.
(kkk) "WFF Facility" means the Credit Agreement dated as of February
9, 2007 between the Company and each of its Subsidiaries signatory thereto,
as borrowers, and Wells Fargo Foothill, Inc. ("WFF") as arranger and
administrative agent and the other lenders party thereto and the documents
executed in connection therewith, in each case as such documents may be
amended, amended and restated, modified or supplemented from time to time.
(30) DISCLOSURE. Upon receipt or delivery by the Company of any notice in
----------
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries, the Company
shall within one (1) Business Day after any such receipt or delivery publicly
disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains
material, nonpublic information, relating to the Company or its Subsidiaries,
the Company shall indicate to the Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.
(31) USURY SAVINGS CLAUSE. Notwithstanding any other provision herein, the
--------------------
aggregate interest rate charged with respect to the Principal (including any
capitalized interest), including all charges or fees in connection therewith
deemed in the nature of interest under applicable law, shall not exceed the
Highest Lawful Rate. If the rate of interest (determined without regard to the
preceding sentence) under this Note at any time exceeds the Highest Lawful Rate,
the outstanding amount of the Principal shall bear interest at the Highest
Lawful Rate until the total amount of interest due hereunder equals the amount
of interest which would have been due hereunder if the stated rates of interest
set forth in this Note had at all times been in effect. In addition, if when the
Conversion Amount is repaid in full the total interest due hereunder (taking
into account the increase provided for above) is less than the total amount of
interest which would have been due hereunder if the stated rates of interest set
forth in this Note had at all times been in effect, then to the extent permitted
by law, the Company shall pay to the Holder an amount equal to the difference
between the amount of interest paid and the amount of interest which would have
been paid if the Highest Lawful Rate had at all times been in effect.
Notwithstanding the foregoing, it is the intention of the Holder and the Company
to conform strictly to any applicable usury laws. Accordingly, if the Holder
contracts for, charges, or receives any consideration which constitutes interest
in excess of the Highest Lawful Rate, then any such excess shall be cancelled
automatically and, if previously paid, shall at the Holder's option be applied
to the outstanding Conversion Amount or be refunded to the Company.
- 38 -
(32) INTERCREDITOR AGREEMENT. This Note is subject to the terms and
provisions of the Intercreditor Agreement dated as of February 9, 2007, (as
amended, restated, supplemented, or otherwise modified from time to time, the
"Intercreditor Agreement"), by and among Wells Fargo Foothill, Inc., as First
Lien Agent, Wells Fargo Foothill, Inc., as Second Lien Collateral Agent,
Watershed Administrative, LLC, as Second Lien Administrative Agent, Wells Fargo
Foothill, Inc., as Third Lien Collateral Agent, and Prencen Lending LLC,
Watershed Capital Partners, L.P. and Watershed Capital Institutional Partners,
L.P., as Third Lien Lenders and Prencen LLC. In the event of any conflict
between the terms of the Intercreditor Agreement and this Note, the terms of the
Intercreditor Agreement shall govern and control. For the avoidance of doubt, no
payments may be made hereunder to the extent prohibited by the Intercreditor
Agreement.
[Signature Page Follows]
- 39 -
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as
of the Issuance Date.
ASCENDIA BRANDS, INC.
/s/ Andrew W. Sheldrick
By:--------------------------------------------------
Name: Andrew W. Sheldrick
Title: General Counsel & Secretary
SCHEDULE 15(f)
The stock in and assets of Cenuco, Inc., a Florida corporation, and all assets
presently associated with the health and beauty care business outside the United
States
EXHIBIT I
ASCENDIA BRANDS, INC.
CONVERSION NOTICE
Reference is made to Secured Convertible Note (the "Note") issued to the
undersigned by Ascendia Brands, Inc. (the "Company"). In accordance with and
pursuant to the Note, the undersigned hereby elects to convert the amount of the
Conversion Amount (as defined in the Note) of the Note indicated below into
shares of Common Stock par value $0.001 per share (the "Common Stock"), as of
the date specified below.
Date of Conversion:
--------------------------------------------------------
Aggregate Conversion Amount to be converted:
-------------------------------
Notwithstanding anything to the contrary contained herein, this Conversion
Notice shall constitute a representation by the holder of the Note submitting
this Conversion Notice that, after giving effect to the conversion provided for
in this Conversion Notice, such holder (together with its affiliates) will not
have beneficial ownership (together with the beneficial ownership of such
Person's affiliates) of a number of shares of Common Stock which exceeds the
Maximum Percentage of the total outstanding shares of Company Common Stock as
determined pursuant to the provisions of Section 3(d)(i) of the Note.
Please confirm the following information:
Conversion Price:
----------------------------------------------------------
Number of shares of Common Stock to be issued:
-----------------------------
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to:
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
Facsimile Number:
----------------------------------------------------------
Authorization:
-------------------------------------------------------------
By:
-------------------------------------------------------------------
Title:
-----------------------------------------------------------
Dated:
--------------------------------------------------------------------------
Account Number:
------------------------------------------------------------
(if electronic book entry transfer)
Transaction Code Number:
---------------------------------------------------
(if electronic book entry transfer)
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
American Stock Transfer & Trust Company to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
February 9, 2007 from the Company and acknowledged and agreed to by American
Stock Transfer & Trust Company.
ASCENDIA BRANDS, INC.
By:--------------------------------------------------
Name:
Title:
EXHIBIT 4
to
SCHEDULE 13D
VOTING AGREEMENT
VOTING AGREEMENT, dated as of February 9, 2007 (this "Agreement"), by
and among Ascendia Brands, Inc. (f/k/a Cenuco, Inc.), a Delaware corporation,
with headquarters located at 100 American Metro Boulevard, Suite 108, Hamilton,
NJ 08619 (the "Company"), and the stockholders listed on the signature pages
hereto under the heading "Stockholders" (each a "Stockholder" and collectively,
the "Stockholders").
WHEREAS, (i) the Company and certain investors (each, a "Prencen
Investor", and collectively, the "Prencen Investors") have entered into a Third
Amended and Restated Securities Purchase Agreement, dated as of February 9, 2007
(the "Prencen Securities Purchase Agreement"), pursuant to which, among other
things, the Company has agreed to issue to Prencen Lending LLC secured
convertible notes (the "Prencen Notes") which, among other things, will be
convertible into shares of the Company's common stock, par value $0.001 per
share (the "Common Stock"), in accordance with the terms thereof and (ii) the
Company and certain investors (each, a "Watershed Investor", and collectively,
the "Watershed Investors", and together with the Prencen Investors, each an
"Investor", and collectively, the "Investors") have entered into a Securities
Purchase Agreement, dated as of February 9, 2007 (the "Watershed Securities
Purchase Agreement", and together with the Prencen Securities Purchase
Agreement, the "Securities Purchase Agreements"), pursuant to which, among other
things, the Company has agreed to issue to the Watershed Investors secured
convertible notes (the "Watershed Notes", and together with the Prencen Notes,
the "Notes") which, among other things, will be convertible into Common Stock,
in accordance with the terms thereof.
WHEREAS, as of the date hereof, the Stockholders own and have the right
to vote, collectively, in excess of a majority of shares of the voting stock of
the Company, including, without limitation, the Common Stock, the Series A
Junior Participating Convertible Preferred Stock and any Common Stock issued or
issuable upon conversion of the Series A Junior Participating Convertible
Preferred Stock (collectively, the "Voting Stock"), which represent in the
aggregate in excess of a majority of the total issued and outstanding Voting
Stock of the Company.
WHEREAS, as a condition to the willingness of the Investors to enter
into the applicable Securities Purchase Agreements and the other Transaction
Documents (as defined in each of the Securities Purchase Agreements) and to
consummate the transactions contemplated thereby (collectively, the
"Transaction"), the Investors have required that each Stockholder agree, and in
order to induce each of the Investors to enter into the applicable Securities
Purchase Agreement and the other Transaction Documents, each Stockholder has
agreed, to enter into this Agreement with respect to all of the Voting Stock now
owned and which may hereafter be acquired by such Stockholder and any other
securities, if any, which such Stockholder is currently entitled to vote, or
after the date hererof, becomes entitled to vote, at any meeting of the
stockholders of the Company or in any action by written consent of the
stockholders of the Company (the "Other Securities").
WHEREAS, capitalized terms not defined herein shall have the meaning as
set forth in the Securities Purchase Agreements.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
VOTING AGREEMENT OF THE STOCKHOLDER
-----------------------------------
SECTION 1.01. Voting Agreement. Each Stockholder, severally and not
jointly, hereby agrees that at any meeting of the stockholders of the Company,
however called, and in any action by written consent of the Company's
stockholders, each of the Stockholders shall vote the Voting Stock and the Other
Securities: (a) so long as a Prencen Investor or any of its affiliates holds any
Securities or a Watershed Investor or any of its affiliates holds any Securities
(as defined in the Watershed Securities Purchase Agreement), in favor of (i) the
transaction resolutions that approve the transactions contemplated by the
Securities Purchase Agreements, including, without limitation, the issuance and
terms of the Notes and the conversion of the Notes into Common Stock, and the
approval of such transactions pursuant to applicable law and the rules and
regulations of the Principal Market (as defined in the Securities Purchase
Agreements) and (ii) the authorized share resolutions that approve (x) the
increase in the authorized shares of Common Stock of the Company from
225,000,000 shares to a number of shares of Common Stock that is no less than
such number of shares of Common Stock that would permit the Company to reserve
as of the Closing Date (as defined in the Securities Purchase Agreement) from
the authorized shares of Common Stock of the Company the Required Registration
Amount (as defined in the Registration Rights Agreement) of Common Stock of the
Company, (y) the amendment of the Certificate of Incorporation of the Company to
provide that the number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares of Common Stock then outstanding)
by the affirmative vote of the holders of a majority of the outstanding voting
securities of the Company, in accordance with applicable law and the rules and
regulations of the Principal Market and (z) the amendment of the Certificate of
Incorporation of the Company to eliminate Article VII thereof; (b) so long as a
Prencen Investor or any of its affiliates holds any Securities (as defined in
the Prencen Securities Purchase Agreement) or a Watershed Investor or any of its
affiliates holds any Securities (as defined in the Watershed Securities Purchase
Agreement), against any proposal or any other corporate action or agreement that
would result in a breach of any covenant, representation or warranty or any
other obligation or agreement of the Company under the Securities Purchase
Agreements or which could reasonably be expected to result in any of the
conditions to the Company's obligations under the Securities Purchase
Agreements, as applicable, not being fulfilled; (c) so long as a Prencen
Investor or any of its affiliates holds any Prencen Notes as and to the extent
provided in the Prencen Securities Purchase Agreement, in favor of one Person
(as defined in the Securities Purchase Agreements) designated by Prencen LLC and
nominated by the Company (the "Prencen Nominee") to serve on the board of
directors of the Company; and (d) if Prencen LLC requests the Company to take
action to remove the Prencen Nominee as a director, in support of such removal.
The failure of Prencen LLC or the Company to designate a Prencen Nominee shall
not constitute a waiver or elimination of such rights nor shall it prevent
Prencen LLC or the Company from exercising such rights prospectively. Each
Stockholder acknowledges receipt and review of a copy of the Securities Purchase
Agreements and the other Transaction Documents.
2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
-------------------------------------------------
Each Stockholder hereby represents and warrants, severally but not
jointly, to each of the Investors as follows:
SECTION 2.01. Authority Relative to This Agreement. Such Stockholder
has all necessary power and authority to execute and deliver this Agreement, to
perform his or its obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by such
Stockholder and constitutes a legal, valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its terms,
except (a) as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
now or hereafter in effect relating to, or affecting generally the enforcement
of creditors' and other obligees' rights, (b) where the remedy of specific
performance or other forms of equitable relief may be subject to certain
equitable defenses and principles and to the discretion of the court before
which the proceeding may be brought, and (c) where rights to indemnity and
contribution thereunder may be limited by applicable law and public policy.
SECTION 2.02. No Conflict. (a) The execution and delivery of this
Agreement by such Stockholder does not, and the performance of this Agreement by
such Stockholder shall not, (i) conflict with or violate any federal, state or
local law, statute, ordinance, rule, regulation, order, judgment or decree
applicable to such Stockholder or by which the Voting Stock or the Other
Securities owned by such Stockholder are bound or affected or (ii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the Voting Stock or the Other
Securities owned by such Stockholder pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which such Stockholder is a party or by which such
Stockholder or the Voting Stock or Other Securities owned by such Stockholder
are bound.
(b) The execution and delivery of this Agreement by such Stockholder
does not, and the performance of this Agreement by such Stockholder shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental entity by such Stockholder.
SECTION 2.03. Title to the Stock. As of the date hereof, such
Stockholder is the owner of the number of shares of Voting Stock set forth
opposite its name on Appendix A attached hereto, entitled to vote, without
restriction, on all matters brought before holders of capital stock of the
Company, which Voting Stock represent on the date hereof the percentage of the
outstanding stock and voting power of the Company set forth on such Appendix.
Such Voting Stock are all the securities of the Company owned, either of record
or beneficially, by such Stockholder. Such Voting Stock are owned free and clear
of all security interests, liens, claims, pledges, options, rights of first
refusal, agreements and limitations on such Stockholder's voting rights, charges
and other encumbrances of any nature whatsoever. No Stockholder has appointed or
granted any proxy, which appointment or grant is still effective, with respect
to the Voting Stock or Other Securities owned by such Stockholder.
3
ARTICLE III
COVENANTS
---------
SECTION 3.01. No Disposition or Encumbrance of Stock. Each Stockholder
hereby covenants and agrees that, except as contemplated by this Agreement, such
Stockholder shall not offer or agree to sell, transfer, tender, assign,
hypothecate or otherwise dispose of, grant a proxy or power of attorney with
respect to, or create or permit to exist any security interest, lien, claim,
pledge, option, right of first refusal, agreement or limitation (each, a
"Transfer") on such Stockholder's voting rights, charge or other encumbrance of
any nature whatsoever ("Encumbrance") with respect to the Voting Stock or Other
Securities, or directly or indirectly, initiate, solicit or encourage any Person
to take actions which could reasonably be expected to lead to the occurrence of
any of the foregoing; provided, however, that any such Stockholder may assign,
sell or transfer any Voting Stock or Other Securities provided that any such
recipient of the Voting Stock or Other Securities has delivered to the Company
and each Investor a written agreement in a form reasonably satisfactory to the
Investors that the recipient shall be bound by, and the Voting Stock and/or
Other Securities so transferred, assigned or sold shall remain subject to this
Agreement; provided, further, that after the Stockholder Approval has been
obtained, any such Stockholder may assign, sell or transfer any Voting Stock or
Other Securities in an open market transaction on the national securities
exchange upon which the Common Stock is listed for trading.
SECTION 3.02. Company Cooperation. The Company hereby covenants and
agrees that it will not, and each Stockholder irrevocably and unconditionally
acknowledges and agrees that the Company will not (and waives any rights against
the Company in relation thereto), recognize any Encumbrance on or Transfer of
any of the Voting Stock or Other Securities subject to this Agreement unless the
provisions of Section 3.01 have been complied with. The Company agrees to use
its reasonable best efforts to ensure that at any time in which any Stockholder
Approval is required pursuant to Section 4(p) of each of the Securities Purchase
Agreements, it will cause holders of Voting Stock or Other Securities
representing the percentage of outstanding capital stock required to vote in
favor of the Transaction in order for the Company to comply with its obligations
under Section 4(p) of each of the Securities Purchase Agreement to become party
to and bound by the terms and conditions of this Agreement and the Voting Stock
and Other Securities held by such holders to be subject to the terms and
conditions of this Agreement.
ARTICLE IV
MISCELLANEOUS
-------------
SECTION 4.01. Further Assurances. Each Stockholder will execute and
deliver such further documents and instruments and take all further action as
may be reasonably necessary in order to consummate the transactions contemplated
hereby.
SECTION 4.02. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that any Investor (without
being joined by any other Investor) shall be entitled to specific performance of
the terms hereof, in addition to any other
4
remedy at law or in equity. Any Investor shall be entitled to its reasonable
attorneys' fees in any action brought to enforce this Agreement in which it is
the prevailing party.
SECTION 4.03. Entire Agreement. This Agreement constitutes the entire
agreement among the Company and the Stockholders (other than the Securities
Purchase Agreements and the other Transaction Documents) with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
both written and oral, among the Company and the Stockholders with respect to
the subject matter hereof.
SECTION 4.04. Amendment. The provisions of this Agreement may not be
amended or waived, nor may this Agreement be terminated, except (i) by an
instrument in writing signed by the parties hereto and (ii) with the written
consent of the Investors.
SECTION 4.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
SECTION 4.06. Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. The parties hereby agree that
all actions or proceedings arising directly or indirectly from or in connection
with this Agreement shall be litigated only in the Supreme Court of the State of
New York or the United States District Court for the Southern District of New
York located in New York County, New York. The parties consent to the
jurisdiction and venue of the foregoing courts and consent that any process or
notice of motion or other application to any of said courts or a judge thereof
may be served inside or outside the State of New York or the Southern District
of New York by registered mail, return receipt requested, directed to the party
being served at its address set forth on the signature pages to this Agreement
(and service so made shall be deemed complete three (3) days after the same has
been posted as aforesaid) or by personal service or in such other manner as may
be permissible under the rules of said courts. Each of the Company and each
Stockholder irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action, or proceeding brought in such a court and any claim that any
such suit, action, or proceeding has been brought in an inconvenient forum. EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
5
SECTION 4.07. Third-Party Beneficiaries. The Investors shall be
intended third party beneficiaries of this Agreement to the same extent as if
they were parties hereto, and solely in order to enforce the provisions hereof.
[Signature Page Follows]
6
IN WITNESS WHEREOF, each Stockholder and the Company has duly executed
this Agreement.
THE COMPANY:
ASCENDIA BRANDS, INC.
By: /s/ Joseph A. Falsetti
---------------------------------------
Name: Joseph A. Falsetti
Title: President & Chief Executive Officer
Dated: February ___, 2007
Address: 100 American Metro Boulevard, Suite
108
Hamilton, NJ 08619
STOCKHOLDER:
DANA HOLDINGS, LLC
/s/ Joseph A. Falsetti
-----------------------------------
Name: Joseph A. Falsetti
Title: Manager
Dated: February ___, 2007
Address: c/o One Palmer Square
Suite 303
Princeton, NJ 08542
STOCKHOLDER:
MARNAN, LLC
/s/ Mark I. Massad
-----------------------------------
Name: Mark I. Massad
Title: Manager
Dated: February ___, 2007
Address: c/o One Palmer Square
Suite 303
Princeton, NJ 08542
STOCKHOLDER:
EDWARD J. DOYLE
-----------------------------------
Edward J. Doyle
Dated: February ___, 2007
Address: 316 Perry Cabin Drive
St. Michael's, MD 21663
STOCKHOLDER:
DANA HOLDINGS, LLC
-----------------------------------
Name: Joseph A. Falsetti
Title: Manager
Dated: February ___, 2007
Address: c/o One Palmer Square
Suite 303
Princeton, NJ 08542
STOCKHOLDER:
MARNAN, LLC
/s/ Mark I. Massad
-----------------------------------
Name: Mark I. Massad
Title: Manager
Dated: February ___, 2007
Address: c/o One Palmer Square
Suite 303
Princeton, NJ 08542
STOCKHOLDER:
EDWARD J. DOYLE
/s/ Edward J. Doyle
-----------------------------------
Edward J. Doyle
Dated: February ___, 2007
Address: 316 Perry Cabin Drive
St. Michael's, MD 21663
STOCKHOLDER:
FRANCO S. PETTINATO
/s/ Franco S. Pettinato
--------------------------------------------
Franco S. Pettinato
Dated: February ___, 2007
Address: c/o 100 American Metro Boulevard
Suite 108
Hamilton, NJ 08619
STOCKHOLDER:
PAUL TAYLOR
/s/ Paul Taylor
--------------------------------------------
Paul Taylor
Dated: February ___, 2007
Address: c/o Taylor, Colicchio & Silverman,
LLP
502 Carnegie Center, Suite 103
Princeton, NJ 08540