Attached files
| file | filename |
|---|---|
| 8-K - ZANETT INC | v180226_8k.htm |
| EX-10.1 - ZANETT INC | v180226_ex10-1.htm |
| EX-10.2 - ZANETT INC | v180226_ex10-2.htm |
| EX-10.3 - ZANETT INC | v180226_ex10-3.htm |
EXHIBIT
4.1
THIS
CONVERTIBLE NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR
UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER
COUNSEL TO THE HOLDER OF SUCH NOTE WHICH OTHER COUNSEL IS SATISFACTORY TO THE
COMPANY THAT SUCH NOTE AND/OR COMMON STOCK MAY BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR APPLICABLE STATE SECURITIES LAWS.
THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
ZANETT,
INC.
7.95%
Convertible Subordinated Note
Due
March 31, 2015
Issuance
Date: March 31, 2010
ZANETT, INC., a Delaware
corporation (the "Company"), for value received,
hereby promises to pay Seven Million One Hundred Thirty One Thousand Nine
Hundred Eighty Three Dollars and No Cents ($7,131,983.00) to Rockport
Investments Ltd. or its permitted assigns (the "Holder") upon due presentation
and surrender of this note, on March 31, 2015 (the "Maturity Date"), the principal
amount referenced above as original issue amount, and accrued interest thereon
as hereinafter provided.
This note
is a $7,131,983.00 7.95% Convertible Subordinated Note (hereafter the "Note").
I. PAYMENT
OF PRINCIPAL AND INTEREST; METHOD OF PAYMENT.
A. Principal. The principal of this
Note shall be repaid on the Maturity Date.
C.G.
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D.H.
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B. Interest. Interest
(computed on the basis of a 360-day year of twelve 30-day months) on the unpaid
portion of said principal amount from time to time outstanding shall commence
accruing in arrears from the Issuance Date set forth above at the rate of seven
and 95/100 percent (7.95%) per annum (the "Stated Interest Rate"), which
interest shall be payable to the Holder quarterly in arrears on March 31, June
30, September 30 and December 31 of each year, beginning on June 30,
2010. Interest payments shall be made in cash pursuant to the
provisions of Section I.C. below; provided, however, that the Company shall have
the right to request the Holder's consent that any interest payment be made in
Common Stock. Any such payment in Common Stock shall be calculated by
dividing the amount of accrued but unpaid interest by the lower of (i) the
then-applicable Conversion Price (as defined in Section V.B.(i) below) and (ii)
the average of the Closing Sales Price (as defined in Section V.B.(ii) below)
for the Company's Common Stock during the twenty (2) consecutive trading day
period ending one trading day prior to the applicable interest payment
date.
C. Method of
Payment. Subject to the options set forth in Section I.B. and
Article VII that payments be made in Common Stock, payment of the principal and
accrued interest on this Note shall be made in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts. Both principal hereof and
interest thereon are payable in lawful money of the United States of America at
the Holder's address above or such other address as the Holder shall designate
from time to time by written notice to the Company. The Company will
pay or cause to be paid all sums becoming due hereon for principal and interest
by wire transfer sent to an account for which the Holder provides information to
the Company or check sent to the Holder's above address or to such other address
as Holder may designate for such purpose from time to time by written notice to
the Company, without any requirement for the presentation of this Note or making
any notation thereon except that the Holder hereof agrees that payment of the
final amount due shall be made only upon surrender of this Note to the Company
for cancellation.
II. UNSECURED
INDEBTEDNESS; SUBORDINATION.
A. Unsecured
Indebtedness. The Holder acknowledges that the Company's
obligations under this Note are unsecured, and that the Holder shall not have
any of the rights and remedies provided to secured parties or noteholders by the
Delaware Uniform Commercial Code ("UCC") and other applicable
laws.
B. Subordination. The
Holder acknowledges that its rights hereunder are subordinate to the Company's
obligations to Bank of America, N.A. (or, in the event the Company's senior
credit facility with Bank of America, N.A. is refinanced with another senior
lender, to the Company's obligations to such senior lender) to the extent
provided under the terms of that certain subordination agreement among Bank of
America, N.A. or such other senior lender, the Company and the
Holder.
III. EVENTS
OF DEFAULT.
It shall
be an Event of Default with respect to this Note upon the occurrence and
continuation uncured of any of the following events:
C.G.
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D.H.
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A. a
default in the payment of the principal or interest on this Note, when and as
the same shall become due and payable, either by the terms hereof or otherwise
and said default continues uncured for a period of fifteen (15) business
days;
B. the
Company's (i) failure to deliver the required number of shares of the Company's
common stock, $0.001 par value per share (the "Common Stock") within ten (10)
business days after the surrender of this Note for conversion as set forth in
Section V.A. hereof;
C. default
in the performance, or breach, of any covenant of the Company in this Note
(other than a covenant or a default which is elsewhere herein specifically dealt
with as an Event of Default), and continuance of such default or breach uncured
for a period of thirty (30) days; or
D. the
entry of a decree or order by a court having jurisdiction adjudging the Company
a bankrupt or insolvent, or approving a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company, under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of the Company or of any substantial part of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of one hundred
twenty (120) days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
Federal or state bankruptcy, insolvency, or other similar law, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under federal bankruptcy law or any other applicable Federal or state law, or
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Company in furtherance of any such action.
IV. REMEDIES
UPON DEFAULT.
A. Default Rate; Late
Charge. Upon the occurrence of an Event of Default hereunder,
the interest rate otherwise payable hereunder shall increase immediately and
without notice and thereafter shall be payable at a rate of twenty-four percent
(24%) per annum (the “Default
Rate”), until the Event of Default has been cured, or in the event the
principal of this Note has been accelerated, until this Note is paid in full,
including the period following entry of any judgment on or relating to this
Note. Interest on any such judgment shall accrue and be payable at the Default
Rate, and not at the Stated Interest Rate, after judgment, any execution
thereon, and until actual receipt by the holder of payment in full of this Note
and said judgment. Interest at the Default Rate shall be collectible as part of
any judgment hereunder.
B. Acceleration. Upon
each occurrence of an Event of Default and at any time during the continuation
thereof (unless the principal of this Note shall already have become and be due
and payable), the Holder, by notice in writing given to the Company, may declare
the principal of the Note then outstanding to be due and payable immediately,
and upon any such declaration the same shall become and be due and payable
immediately, anything herein contained to the contrary
notwithstanding.
C.G.
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D.H.
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C. Proceedings and
Actions. During the continuation of any one or more Events of
Default, the Holder may institute such actions or proceedings in law or equity
as it shall deem expedient for the protection of its rights and may prosecute
and enforce its claims, against all assets of the Company except as hereinafter
set forth and shall be entitled to receive therefrom payment on such claims up
to an amount not exceeding the principal amount of this Note plus accrued
interest to the date of payment plus reasonable expenses of
collection.
V. CONVERSION.
A. Exercise of Conversion
Privilege. Each Holder may, at any time and from
time to time prior to the earlier of (i) the Optional Prepayment Date (as
defined in Section VII.A.) upon which this Note is prepaid in full and (ii) the
Maturity Date, but not prior to the Company obtaining approval of the holders of
its Common Stock of the issuance of this Note and the shares of Common Stock
upon conversion of this Note), convert (an "Optional Conversion") all or
any part of the then-outstanding principal amount of the Note into a number of
fully paid and nonassessable shares of Common Stock determined in accordance
with the following formula:
Principal Amount being
Converted + Accrued but Unpaid Interest
Conversion
Price
Interest
on the Note shall accrue through and including the business day prior to the
Conversion Date and shall be credited towards the exercise of the conversion
rights hereunder. If this Note is converted in part only, the Company
will issue a new Note for the principal amount not so converted. For
purposes of this Note, the "Conversion Date" means, for
any Optional Conversion, the date specified in the notice of conversion in the
form attached hereto (the "Notice of Conversion"), so
long as a copy of the Notice of Conversion is faxed (or delivered by other means
resulting in notice) to the Corporation before 5:00 p.m., New York City time, on
the Conversion Date indicated in the Notice of Conversion; provided, however, that if
the Notice of Conversion is not so faxed or otherwise delivered before such
time, then the Conversion Date shall be the date the holder faxes or otherwise
delivers the Notice of Conversion to the Corporation.
B. Conversion Price.
(i) Definition. "Conversion Price" means $2.08,
or, at the option of the converting holder (if the Common Stock of the
Corporation remains listed for trading on the NASDAQ Capital Market), the
greater of the Variable Conversion Price (as defined in subparagraph (ii) below)
and the Threshold Conversion Price (as defined below), in any case subject to
adjustment as provided herein. If the Common Stock of the Corporation
is delisted from trading on the NASDAQ Capital Market, the Conversion Price
shall be equal to the lowest Closing Sales Price of the Common Stock in the
twenty-day period immediately preceding the date of such
delisting. "Threshold Conversion Price"
means $0.10.
C.G.
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D.H.
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(ii) Calculation of Conversion
Price. Once in each calendar year, the Holder shall have the
right to reset the Conversion Price to the greater of (a) the Variable
Conversion Price and (b) the Threshold Conversion Price. The "Variable Conversion Price"
shall mean the average of the Closing Sales Price for the Company's Common Stock
during the twenty (20) consecutive trading day period ending one trading day
prior to the date the holder delivers to the Company
(Attention: Secretary) a notice indicating its election to reset the
Conversion Price. Upon receipt of such notice from the holder, the
Company shall confirm the new Conversion Price via fax (or other written notice)
to the holder. "Closing Sales Price" means,
for any security as of any date, the last sales price of such security on the
principal trading market where such security is listed or traded as reported by
Bloomberg Financial Markets, Yahoo! Finance (or a comparable reporting service
of national reputation selected by the Company and reasonably acceptable to the
Holder if Bloomberg Financial Markets or Yahoo! Finance is not then reporting
closing sales prices of such security) (collectively, "Bloomberg/Yahoo!"), or if the
foregoing does not apply, the last reported sales price of such security on a
national exchange or in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg/Yahoo!, or, if no such price is
reported for such security by Bloomberg/Yahoo!, the average of the bid prices of
all market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC, in each case for such date or, if such date was not a trading day
for such security, on the next preceding date which was a trading
day. If the Closing Sales Price cannot be calculated for such
security as of either of such dates on any of the foregoing bases, the Closing
Sales Price of such security on such date shall be the 20-day average of the
last available closing bid price of the Common Stock.
C. Mechanics of
Conversion. In order to effect an Optional Conversion, the
Holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice
of Conversion to the Company (Attention: Secretary) and (y) surrender or cause
to be surrendered the Note as soon as practicable thereafter to the
Company. Upon receipt by the Company of a facsimile copy of a Notice
of Conversion from a holder, the Company shall promptly send, via facsimile or
other reasonable means, a confirmation to such holder stating that the Notice of
Conversion has been received, the date upon which the Company expects to deliver
the Common Stock issuable upon such Optional Conversion and the name and
telephone number of a contact person at the Company regarding the Optional
Conversion. The Company shall not be obligated to issue shares of
Common Stock upon an Optional Conversion unless either the Note is delivered to
the Company as provided above, or the Holder notifies the Company that the Note
has been lost, stolen or destroyed and delivers the documentation to the Company
required by Section XII.E. hereof.
D. Delivery of Common Stock Upon
Conversion. Upon the surrender of Note accompanied by a Notice
of Conversion, the Company (itself, or through its transfer agent) shall, no
later than the later of (a) the fifth (5th)
business day following the Conversion Date and (b) the business day following
the date of such surrender (or, in the case of lost, stolen or destroyed
certificates, after provision of indemnity pursuant to Section XII.E) (the
"Delivery Period"),
issue and deliver (i.e., deposit with a nationally recognized overnight courier
service, postage prepaid) to the holder or its nominee (x) that number of shares
of Common Stock issuable upon conversion of the principal amount of the Note
being converted and (y) a note representing the principal amount of the Note not
being converted, if any.
C.G.
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D.H.
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E. Taxes. The Company
shall pay any and all taxes that may be imposed upon it with respect to the
issuance and delivery of the shares of Common Stock upon the conversion of the
Note.
F. No Fractional
Shares. If any conversion of the Note would result in the
issuance of a fractional share of Common Stock, such fractional share shall, in
the Company’s sole discretion, be payable in cash based upon the twenty day
average Closing Sales Price of the Common Stock calculated on the date
immediately preceding the date of filing of the Notice of Conversion, and the
number of shares of Common Stock issuable upon conversion of the Note shall be
the next lower whole number of shares. If the Company elects not to,
or is unable to, make such a cash payment, the holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of Common
Stock.
G. Conversion
Disputes. In the case of any dispute with respect to a
conversion, the Company shall promptly issue the number of shares of Common
Stock that are not disputed in accordance with Section V.B.(i)
above. If such dispute involves the calculation of the Conversion
Price, and such dispute is not promptly resolved by discussion between the
relevant holder and the Company, the Company shall submit the disputed
calculations to an independent outside accountant via facsimile within three
business days of receipt of the Notice of Conversion. The accountant, at the
Company’s sole expense, shall promptly audit the calculations and notify the
Company and the holder of the results no later than three business days from the
date it receives the disputed calculations. The accountant’s
calculation shall be deemed conclusive, absent manifest error. The
Company shall then issue the appropriate number of shares of Common Stock in
accordance with Section V.B.(i) above.
VI. ADJUSTMENTS
TO THE CONVERSION PRICE.
A. Dividends; Reclassifications,
etc. In the event that the Company shall, at any time
prior to the exercise of conversion rights hereunder: (i) declare or
pay to the holders of the Common Stock a dividend payable in any kind of shares
of capital stock of the Company; or (ii) combine, subdivide or otherwise
reclassify its Common Stock into the same or a different number of shares with
or without par value, or in shares of any class or classes; or (iii) transfer
its property as an entirety or substantially as an entirety to any other
company; or (iv) make any distribution of its assets to holders of its Common
Stock as a liquidation or partial liquidation dividend or by way of return of
capital; then, in each case, each Conversion Price, and the number and kind of
shares of Common Stock receivable upon conversion of this Note, in effect at the
time of the record date for such dividend or distribution, or of the effective
date of such subdivision, combination or reclassification, shall be
proportionally adjusted so that the holder upon the subsequent exercise of
conversion rights, shall receive, in addition to or in substitution for the
shares of Common Stock to which it would otherwise be entitled upon such
exercise, such additional shares of capital stock or scrip of the Company, or
such reclassified shares of capital stock of the Company, or such shares of the
securities or property of the Company resulting from such transfer, or such
assets of the Company, which it would have been entitled to receive had it
exercised these conversion rights prior to the happening of any of the foregoing
events. Such adjustment shall be made successively whenever any of
the foregoing events shall occur.
C.G.
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D.H.
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B. Assumption Following Corporate
Change. The Company shall not engage in any (i) consolidation
or merger of the Company with any other entity (other than a merger in which the
Company is the surviving or continuing entity and its capital stock is
unchanged) or (ii) any sale or transfer of all or substantially all of the
assets of the Company (any of the foregoing, a "Corporate Change") unless, as
a precondition to the consummation thereof, the entity into which the Company is
consolidated or merged or whose capital stock or assets the holders of the
Common Stock are entitled to receive as a result of such Corporate Change (such
other entity the "Other
Entity"), assumes in writing all of the obligations of the Company under
this Note pursuant to written agreements in form and substance satisfactory to
the Holder, including agreements to deliver to the Holder in exchange for this
Note a promissory note of the Other Entity evidenced by a written instrument
substantially similar in form and substance to the Note and with appropriate
provisions such that the rights and interests of the Holder and the economic
value of this Note are in no way diminished by such Corporate Change, including,
without limitation, having a principal amount and interest rate equal to the
principal amount and the interest rate of this Note and having similar ranking
to this Note, reasonably satisfactory to the Holder. Upon the
occurrence of any Corporate Change, the Other Entity shall succeed to, and be
substituted for (so that from and after the date of such Corporate Change, the
provisions of this Note referring to the "Company" shall refer instead to the
Other 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 Other Entity had been named as the Company
herein. Upon consummation of the Corporate Change, the Other Entity
shall deliver to the Holder confirmation that there shall be issued upon
conversion of this Note at any time after the consummation of the Corporate
Change, in lieu of the shares of the Company's Common Stock (or other
securities, cash, assets or other property) issuable upon the conversion of this
Note prior to such Corporate Change, such shares of common stock (or its
equivalent) of the Other Entity; provided, that the Conversion Price for the
shares of the Other Entity shall be economically equal to the Conversion Price
under this Note (as adjusted for stock splits, dividends, combinations and other
similar events).
C. Dilutive
Issuances.
(i) Adjustment Upon Dilutive
Issuance. If, at any time during the period from the Issuance
Date through the earlier of (i) the Optional Prepayment Date upon which the Note
is prepaid in full and (ii) the Maturity Date, the Company issues or sells, or
in accordance with subparagraph (ii) of this Section VI.C is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Conversion Price on the date of issuance
or sale (or deemed issuance or sale) (a "Dilutive Issuance"), then
effective immediately upon the Dilutive Issuance, the Conversion Price shall be
adjusted by multiplying the then-applicable Conversion Price by a fraction, (i)
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such Dilutive Issuance (calculated on a fully-diluted
basis), and (ii) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Dilutive Issuance (calculated on
a fully-diluted basis), and the product so obtained shall thereafter be the new
and adjusted Conversion Price, which, as so adjusted, shall be readjusted in the
same manner upon the consummation of any successive Dilutive
Issuance. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Paragraph C(i) if such adjustment would result in an increase
in the Conversion Price.
C.G.
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D.H.
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(ii) Effect on Conversion Price
of Certain Events. For purposes of determining the adjusted
Conversion Price under Paragraph C(i) of this Article VI, the following will be
applicable:
(a) Issuance of Purchase
Rights. If the Company issues or sells any options, warrants
or other rights to purchase or subscribe for Common Stock or convertible
securities of the Company ("Purchase Rights"), whether or
not immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Purchase Rights (and the price of any
conversion of convertible securities of the Company, if applicable) is less than
the Conversion Price in effect on the date of issuance or sale of such Purchase
Rights, then the maximum total number of shares of Common Stock issuable upon
the exercise of all such Purchase Rights (assuming full conversion, exercise or
exchange of convertible securities, if applicable) shall, as of the date of the
issuance or sale of such Purchase Rights, be deemed to be outstanding and to
have been issued and sold by the Company for such price per
share. For purposes of the preceding sentence, the "price per share
for which Common Stock is issuable upon the exercise of such Purchase Rights"
shall be determined by dividing (A) the total amount, if any, received or
receivable by the Company as consideration for the issuance or sale of all such
Purchase Rights, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Purchase Rights,
plus, in the case of convertible securities issuable upon the exercise of such
Purchase Rights, the minimum aggregate amount of additional consideration
payable upon the conversion, exercise or exchange thereof (determined in
accordance with the calculation method set forth in subparagraph (ii)(b) of this
Article VI) at the time such convertible securities first become convertible,
exercisable or exchangeable, by (B) the maximum total number of shares of Common
Stock issuable upon the exercise of all such Purchase Rights (assuming full
conversion, exercise or exchange of convertible securities, if
applicable). No further adjustment to the Conversion Price shall be
made upon the actual issuance of such Common Stock upon the exercise of such
Purchase Rights or upon the conversion, exercise or exchange of convertible
securities issuable upon exercise of such Purchase Rights.
(b) Issuance of Convertible
Securities. If the Company issues or sells any convertible
securities, whether or not immediately convertible, exercisable or exchangeable,
and the price per share for which Common Stock is issuable upon such conversion,
exercise or exchange is less than the Conversion Price in effect on the date of
issuance or sale of such convertible securities, then the maximum total number
of shares of Common Stock issuable upon the conversion, exercise or exchange of
all such convertible securities shall, as of the date of the issuance or sale of
such convertible securities, be deemed to be outstanding and to have been issued
and sold by the Company for such price per share. If the convertible
securities so issued or sold do not have a fluctuating conversion or exercise
price or exchange ratio, then for the purposes of the preceding sentence, the
"price per share for which Common Stock is issuable upon such conversion,
exercise or exchange" shall be determined by dividing (A) the total amount, if
any, received or receivable by the Company as consideration for the issuance or
sale of all such convertible securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the conversion,
exercise or exchange thereof (determined in accordance with the calculation
method set forth in this subparagraph (ii)(b) of this Article VI) at the time
such convertible securities first become convertible, exercisable or
exchangeable, by (B) the maximum total number of shares of Common Stock issuable
upon the exercise, conversion or exchange of all such convertible
securities. No further adjustment to the Conversion Price shall
be made upon the actual issuance of such Common Stock upon conversion, exercise
or exchange of such convertible securities.
C.G.
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D.H.
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(c) Change in Option Price or Conversion
Rate. If there is a change at any time in (A) the amount of
additional consideration payable to the Company upon the exercise of any
Purchase Rights; (B) the amount of additional consideration, if any, payable to
the Company upon the conversion, exercise or exchange of any convertible
securities; or (C) the rate at which any convertible securities are convertible
into or exercisable or exchangeable for Common Stock (in each such case, other
than under or by reason of provisions designed to protect against dilution), the
Conversion Price in effect at the time of such change shall be readjusted to the
Conversion Price which would have been in effect at such time had such Purchase
Rights or convertible securities still outstanding provided for such changed
additional consideration or changed conversion, exercise or exchange rate, as
the case may be, at the time initially issued or sold.
(d) Calculation of Consideration
Received. If any Common Stock, Purchase Rights or convertible
securities are issued or sold for cash, the consideration received therefor will
be the amount received by the Company therefor, after deduction of all
underwriting discounts or allowances in connection with such issuance, grant or
sale. In case any Common Stock, Purchase Rights or convertible
securities are issued or sold for a consideration part or all of which shall be
other than cash, including in the case of a strategic or similar arrangement in
which the other entity will provide services to the Company, purchase services
from the Company or otherwise provide intangible consideration to the Company,
the amount of the consideration other than cash received by the Company
(including the net present value of the consideration expected by the Company
for the provided or purchased services) shall be the fair market value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the Closing
Sales Price thereof as of the date of receipt. In case any Common
Stock, Purchase Rights or convertible securities are issued in connection with
any merger or consolidation in which the Company is the surviving Company, the
amount of consideration therefor will be deemed to be the fair market value of
such portion of the net assets and business of the non-surviving Company as is
attributable to such Common Stock, Purchase Rights or convertible securities, as
the case may be. The Company shall calculate, using standard commercial
valuation methods appropriate for valuing such assets, the fair market value of
any consideration other than cash or securities; provided, however, that if the Holder
does not agree to such fair market value calculation within three business days
after receipt thereof from the Company, then such fair market value shall be
determined in good faith by an investment banker or other appropriate expert of
national reputation selected by the Company and reasonably acceptable to the
Holder, with the costs of such appraisal to be borne by the
Company.
C.G.
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D.H.
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(iii) Exceptions to Adjustment of
Conversion Price. Notwithstanding the foregoing, no adjustment
to the Conversion Price shall be made pursuant to this Article VI.C. in
connection with any Excluded Issuance, as defined herein. For
purposes of this Article VI.C., "Excluded Issuance" means (A)
the issuance of Common Stock upon the exercise or conversion of any convertible
securities or Purchase Rights (including, without limitation, options or
warrants to purchase Common Stock) outstanding on the date of this Note in
accordance with the terms of such convertible securities and Purchase Rights;
(B) the grant of options to purchase Common Stock, with exercise prices not less
than the market price of the Common Stock on the date of grant, which are issued
to employees, officers, directors or consultants of the Company for the primary
purpose of soliciting or retaining their employment or service pursuant to an
equity compensation plan approved by the Company’s Board of Directors, and the
issuance of Common Stock upon the exercise thereof (up to a maximum of five
percent (5%) of the then-outstanding Common Stock of the Company); (C) the
conversion of the Note, or (D) the issuance of securities pursuant to any
equipment financing from a bank or similar financial or lending institution
approved by the Board of Directors.
D. Other Action Affecting Conversion
Price. If, at any time after the date of this Note, the
Company takes any action affecting the Common Stock that would be covered by
Article VI.A, C. or D, but for the manner in which such action is taken or
structured, which would in any way diminish the value of this Note, then the
Conversion Price shall be adjusted in such manner as the Board of Directors of
the Company shall in good faith determine to be equitable under the
circumstances.
E. Registration of Transfer or
Conversion. The Company shall maintain books for the transfer
and registration of Notes. Upon the transfer of any Note in
accordance with the provisions of Article X hereof, the Company shall issue and
register the Note in the names of the new holder. The Notes shall be
signed manually by the Chief Executive Officer, President, or the Secretary of
the Company. The Company shall convert, from time to time, any
outstanding Notes (or part thereof) upon the books to be maintained by the
Company for such purpose upon surrender thereof for conversion properly endorsed
or accompanied by appropriate instructions for conversion. Subject to
the terms of this Note, upon surrender of this Note the Company shall promptly,
but no later than three (3) business days after the date of such surrender,
issue and deliver to or upon the written order of the Holder of such Note and in
such name or names as such Holder may designate, a certificate or certificates
for the number of full shares of Common Stock due to such Holder upon the
conversion of this Note (the "Conversion
Shares"). Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become the Holder of record of such Conversion Shares as of the
date of the surrender of this Note; provided, however, that if,
at the date of surrender the transfer books of the Common Stock shall be closed,
the certificates for the Conversion Shares shall be issuable as of the next date
on which such books shall be opened and until such date the Company shall be
under no duty to deliver any certificate for such Conversion Shares; provided, further, however,
that such transfer books, unless otherwise required by law or by applicable rule
of any national securities exchange, shall not be closed at any one time for a
period longer than five (5) consecutive days nor longer than twenty (20) days
(which need not be consecutive) in any 12 month period.
VII. PREPAYMENT;
PAYMENT AT MATURITY.
A. Payment at
Maturity. On the Maturity Date, all then-outstanding principal
and accrued but unpaid interest on the Note shall be due and payable, by payment
either solely in cash or solely in Common Stock, at the option of the
Holder. At least 60 days prior to the Maturity Date, the Holder shall
give written notice to the Company of its election whether to receive all
amounts then-owing solely in cash or solely in Common Stock of the
Company.
C.G.
_____
D.H.
_____
-10-
B. Optional
Prepayment.
(i) The
Company, at its option, may prepay the Note, in whole or in part, in accordance
with the provisions of this Article VII. If the Company elects to
prepay this Note, it shall give the Holder notice including the
following: (a) the date of any prepayment of this Note (the "Optional Prepayment Date"),
(b) the principal amount of the Note to be prepaid and the amount of accrued and
unpaid interest, if any, payable on the Optional Prepayment Date, and (c) that
the Company wishes to make such prepayment in cash or in Common
Stock. If the Company wishes to make any such prepayment in Common
Stock, the notice shall also request the Holder's consent that such prepayment
be made in Common Stock, and specify whether (x) the Company will make such
prepayment in cash if the Holder does not give its consent to prepayment in
Common Stock, or (y) the Company will not make such prepayment if the Holder
does not consent to prepayment in Common Stock. The Company shall
give notice to the Holder at least 30 days but not more than 45 days before the
Optional Prepayment Date (unless a shorter notice shall be satisfactory to the
Holder).
(ii) At
least 30 days but not more than 45 days before an Optional Prepayment Date, the
Company shall mail by first-class mail, or send via facsimile, a notice of
prepayment to the Holder to be prepaid. The notice shall identify the
principal amount and the amount of accrued and unpaid interest, if any, of the
Note to be prepaid and shall state (1) the Optional Prepayment Date, (2) the
prepayment price and the applicable Conversion Price (if prepayment in Common
Stock is contemplated), (3) whether the Company is requesting the Holder's
consent to prepayment in Common Stock, (4) if applicable, that the prepayment is
contingent on the Company's receipt from the Holder of its consent to receive
prepayment in Common Stock, (5) that the Note called for prepayment must be
surrendered to the Company to collect the prepayment price or to receive the
shares of Common Stock of the Company and (6) that, unless the Company defaults
in making such prepayment payment, interest on and other payments in respect of
the Note called for prepayment cease to accrue on and after the Optional
Prepayment Date. Once notice of prepayment is given in accordance
with this Article VII.B., the principal amount of the Note called for prepayment
become irrevocably due and payable on the Optional Prepayment Date at the
prepayment price, unless it has been specified in the notice that prepayment is
contingent on receipt of the Holder's consent to receive prepayment in Common
Stock, in which case the principal amount of the Note called for prepayment
becomes irrevocably due and payable once the Holder gives such
consent.
C. Prepayment
Price. The prepayment price for any optional prepayment
pursuant to this Article VII shall be as set forth below (expressed as
percentages of the then-outstanding aggregate principal amount), plus accrued
and unpaid interest, if any, thereon to the applicable prepayment
date:
C.G.
_____
D.H.
_____
-11-
|
Date of prepayment
|
Percentage of Face Amount
|
|||
|
Issuance Date – March 30, 2011
|
125 | % | ||
|
March 31, 2011 – March 30, 2012
|
120 | % | ||
|
March 31, 2012 – March 30, 2013
|
115 | % | ||
|
March 31, 2013 – March 30, 2014
|
110 | % | ||
|
March 31, 2014 – March 30, 2015
|
105 | % | ||
|
Maturity Date
|
100 | % | ||
D. Prepayment by Issuance of Common
Stock. On each prepayment date, the prepayment price of that
portion of the Note in respect of which the Company has received the consent of
the Holder to pay (in the case of an Optional Prepayment) or the Holder has
elected to be paid (in the case of payment at the Maturity Date) by issuance of
Common Stock of the Company, shall be paid by the Company by the issuance of a
number of shares of Common Stock of the Company determined in accordance with
Article V above.
VIII. RIGHTS
OF A STOCKHOLDER.
Beginning immediately upon the approval
of the stockholders of the Company of the issuance of this Note and the related
transactions and continuing until the earlier of (i) the Optional Prepayment
Date upon which the Note is prepaid in full and (ii) the Maturity Date, the
Holder shall be entitled to vote on all matters submitted to a vote of
stockholders of the Company. The number of shares to which the Holder
shall be entitled shall be determined in accordance with the following
formula:
Outstanding Principal Amount
+ Accrued but Unpaid Interest
$2.08
Unless
otherwise proscribed by the Certificate of Incorporation or By-laws of the
Company or the Delaware General Corporation Law, the Holder shall be entitled to
vote with the holders of Common Stock, voting together as one
class.
IX. LIMITATIONS
ON CERTAIN CONVERSIONS
The
conversion of the Note shall be subject to the following limitations (each of
which limitations shall be applied independently):
C.G.
_____
D.H.
_____
-12-
A. Cap Amount Applicable to
Conversions. If the Company is prohibited by Rule 5635(d) of
the NASDAQ Listing Rules, or any successor or similar rule, or the rules or
regulations of any other securities exchange on which the Common Stock is then
listed or traded, from issuing a number of shares of Common Stock upon
conversion of the Note pursuant to Article V in excess of a prescribed amount
(the "Cap Amount")
(without stockholder approval or otherwise), then the Company shall not issue
shares upon conversion of the Note in excess of the Cap
Amount. Assuming solely for purposes of this Paragraph A that such
Rule 5635(d) or similar rule is applicable, the Cap Amount shall be the number
of shares equal to 19.99% of the number of shares of Common Stock outstanding
immediately prior to the issuance of this Note. If there are multiple
Holders of the Note, the Cap Amount shall be allocated pro rata to the
Holders. In the event that, at any time from and after the date
hereof, the Company is prohibited from issuing shares of Common Stock upon
conversion of the Note as a result of the operation of this Paragraph A, the
Company shall immediately notify the Holder of such occurrence and the Company
shall prepay to the Holder in cash, within 30 days, an amount equal to the
Required Prepayment Amount (as defined below). The date of delivery
of the notice of prepayment required by this Section IX.A shall be called the
"Required Repayment Notice
Date." If the Company fails to make such prepayment
within 30 days after delivery of the notice required by this Section IX.A., then
the Holder shall be entitled to the remedies provided in Paragraph C of this
Article IX.
B. Required Prepayment
Amount. The "Required Prepayment Amount"
with respect to the Note means an amount equal to:
V
- [(OS x 0.1999) x CP]
where:
"V" means the then-outstanding
principal amount of the Note plus all accrued but unpaid interest thereon
through the Required Repayment Notice Date;
"OS" means the number of shares
of Common Stock of the Company outstanding on the Required Repayment Notice
Date;
"CP" means the Conversion Price
in effect on the Required Repayment Notice Date;
C. Prepayment
Defaults. If the Company fails to pay any holder the
Prepayment Amount with respect to the Note within 30 days after delivery of the
notice required by Section IX.A., then the Holder entitled to prepayment shall
be entitled to interest on the Prepayment Amount at a per annum rate equal to
the lower of twenty four percent (24%) and the highest interest rate permitted
by applicable law from the date on which the Company receives the Prepayment
Notice until the date of payment of the Prepayment Amount
hereunder.
X. TRANSFER
TO COMPLY WITH THE SECURITIES ACT OF 1933.
A. The
Holder of this Note acknowledges that this Note is being acquired solely for the
Holder’s own account and not as a nominee for any other party, and for
investment, and that the Holder shall not offer, sell or otherwise dispose of
this Note. This Note, any Note issued in substitution or replacement
therefore and the Common Stock issuable on conversion of the Note shall be
stamped or imprinted with a legend in substantially the following
form:
"THIS CONVERTIBLE NOTE AND THE
COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR UNDER ANY STATE SECURITIES
LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE
TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY
RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER OF
SUCH NOTE WHICH OTHER COUNSEL IS SATISFACTORY TO THE COMPANY THAT SUCH NOTE
AND/OR COMMON STOCK MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS.
C.G.
_____
D.H.
_____
-13-
THIS
CONVERTIBLE NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION HEREOF ARE
SUBJECT TO AN IRREVOCABLE PROXY DATED AS OF MARCH 31, 2010, AND ANY AMENDMENTS
THERETO, A COPY OF WHICH MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE
COMPANY."
B. The
Common Stock issuable upon conversion of this Note shall be stamped or imprinted
with a legend in substantially the following form:
"THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE ASSIGNED, TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT AND LAWS OR
PURSUANT TO AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER
OF THIS SECURITY WHICH OTHER COUNSEL IS SATISFACTORY TO THE COMPANY THAT SUCH
THIS SECURITY MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS.
THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN IRREVOCABLE PROXY DATED
AS OF MARCH 31, 2010, AND ANY AMENDMENTS THERETO, A COPY OF WHICH MAY BE
INSPECTED AT THE PRINCIPAL OFFICE OF THE COMPANY."
C.G.
_____
D.H.
_____
-14-
XI. RESERVED
SHARES.
A. Reserved Amount. On
or prior to the Issuance Date (subject to the approval of the stockholders of
the Company at the 2010 Annual Meeting of Stockholders), the Company shall
reserve 99,699,463 shares of its authorized but unissued shares of Common Stock
for issuance upon conversion of the Note, and, thereafter, the number of
authorized but unissued shares of Common Stock so reserved (the "Reserved Amount") shall at all
times be sufficient to provide for the full conversion of the Note outstanding
at the then current Conversion Price thereof. The Company covenants
that all shares issuable upon conversion of this Note shall be, at the time of
delivery of the certificates for such shares, validly issued and outstanding,
fully paid and non-assessable and that the issuance of such shares will not give
rise to preemptive rights in favor of existing shareholders.
B. Increases to Reserved
Amount. If the Reserved Amount for any three consecutive
trading days (the last of such three trading days being the "Authorization Trigger Date")
shall be less than one hundred percent (100%) of the number of shares of Common
Stock issuable upon full conversion of the then outstanding principal amount of
the Note, the Company shall promptly notify the Holder of such occurrence and
shall take prompt action (including, if necessary, seeking stockholder approval
to authorize the issuance of additional shares of Common Stock) to increase the
Reserved Amount to one hundred percent (100%) of the number of shares of Common
Stock then issuable upon full conversion of then outstanding principal amount of
the Note at the then current Conversion Price.
XII. MISCELLANEOUS.
A. No Recourse. No
recourse whatsoever, either directly or through the Company or any trustee,
receiver or assignee, shall be had in any event or in any manner against any
past, present or future stockholder, director or officer of the Company for the
payment of, principal of or interest on this Note or any of them or for any
claim based thereon or otherwise in respect this Note, this Note being a
corporate obligation only.
B. Registered Owner; Note
Non-Transferable. The Company shall consider and treat the
person in whose name this Note shall be registered as the absolute owner thereof
for all purposes whatsoever, and the Company shall not be affected by any notice
to the contrary. Subject to Article X, this Note shall be
transferable by the Holder in whole but not in part; provided that the Holder
agrees to notify the Company of such transfer and of the address of the
transferee and to submit appropriate evidence satisfactory to the Company (which
shall include, without limitation, an agreement of such transferee in writing to
be subject to the terms of the Irrevocable Proxy referred to in Article X of
this Note) regarding such transfer so that this Note may be registered in the
name of the transferee.
C. Notices. All
communications provided hereunder shall be in writing and, if to the Company,
delivered or mailed by registered or certified mail addressed to Zanett, Inc.,
635 Madison Avenue, 15th Floor,
New York, NY 10022, Attention: Chief
Executive Officer, or, if to the Holder at the address shown for the
Holder in the registration books maintained by the Company.
D. Stamp Tax. The
Company will pay any documentary stamp taxes attributable to the initial
issuance of the Common Stock issuable upon the conversion of this Note; provided, however, that the
Company shall not be required to pay any tax or taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificates
for the Common Stock in a name other than that of the Holder in respect of which
such Common Stock is issued, and in such case the Company shall not be required
to issue or deliver any certificate for the Common Stock until the person
requesting the same has paid to the Company the amount of such tax or has
established to the Company's satisfaction that such tax has been
paid.
C.G.
_____
D.H.
_____
-15-
E. Lost, Stolen or Mutilated
Notes. In case this Note shall be mutilated, lost, stolen or
destroyed, the Company may, in its discretion, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated Note, or in lieu of and
substitution for the Note, lost, stolen or destroyed, a new Note of like tenor
and representing an equivalent right or interest, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction and an
indemnity, if requested, also satisfactory to it.
F. Governing Law. This
Note shall be construed in accordance with and governed by the laws of the State
of Delaware, without giving effect to conflict of laws principles.
C.G.
_____
D.H.
_____
-16-
IN WITNESS WHEREOF, ZANETT,
INC. has caused this Note to be executed on behalf of the Company on this 31 day
of March, 2010.
|
ZANETT,
INC.
|
|||||
|
By:
|
|||||
|
Name:
|
|||||
|
Title:
|
|||||
|
Attest:
|
|||||
|
By:
|
|||||
|
Name:
|
|||||
|
Title:
|
|||||
C.G.
_____
D.H.
_____
-17-
CONVERSION
NOTICE
(To be
Executed by the Registered Holder
in order
to convert the Convertible Subordinated Debt)
The
undersigned hereby irrevocably elects to convert $[__________] in principal
amount of the Convertible Subordinated Debt due March 31, 2015 (the "Conversion") into shares of
common stock ("Common
Stock") of Zanett, Inc. (the "Company"), according to the
conditions of the Note issued in connection with the Convertible Subordinated
Debt due March 31, 2015 as of the date written below. If securities
are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto. No fee
will be charged to the holder for any conversion, except for transfer taxes, if
any. The Note is attached hereto (or evidence of loss, theft or
destruction attached).
Except as
may be provided below, the Company shall electronically transmit the Common
Stock issuable pursuant to this Notice of Conversion to the account of the
undersigned or its nominee (which is _________________) with DTC through its
Deposit Withdrawal Agent Commission System ("DTC Transfer").
In the
event of partial exercise, please note the details of this Conversion on the
Note such that the remaining principal amount is properly
reflected.
The
undersigned acknowledges and agrees that all offers and sales by the undersigned
of the securities issuable to the undersigned upon the Conversion have been or
will be made only pursuant to an effective registration of the transfer of the
Common Stock under the Securities Act of 1933, as amended (the "Act"), or pursuant to an
exemption from registration under the Act.
|
¨
|
In
lieu of receiving the shares of Common Stock issuable pursuant to this
Notice of Conversion by way of DTC Transfer, the undersigned hereby
requests that the Company issue and deliver to the undersigned physical
certificates representing such shares of Common
Stock.
|
|
Date
of Conversion:
|
|||||
|
Applicable
Conversion Price:
|
|||||
|
Signature:
|
|||||
|
Name:
|
|||||
|
Address:
|
|||||
C.G.
_____
D.H.
_____
-18-