Document:

Third Incremental Facility Amendment

 

Exhibit 10.1
 
 
THIRD INCREMENTAL FACILITY AMENDMENT (this “Amendment”) dated as of May 18, 2011, among MOMENTIVE SPECIALTY CHEMICALS HOLDINGS LLC, a Delaware limited liability company (“Holdings”), MOMENTIVE SPECIALTY CHEMICALS INC., a New Jersey corporation (the “U.S. Borrower”), MOMENTIVE SPECIALTY CHEMICALS CANADA INC., a Canadian corporation (the “Canadian Borrower”), MOMENTIVE SPECIALTY CHEMICALS B.V., a company organized under the laws of The Netherlands (the “Dutch Borrower”), MOMENTIVE SPECIALTY CHEMICALS UK LIMITED, a corporation organized under the laws of England and Wales, and BORDEN CHEMICAL UK LIMITED, a corporation organized under the laws of England and Wales (together, the “U.K. Borrowers” and, together with the U.S. Borrower, the Canadian Borrower and the Dutch Borrower, the “Borrowers”), the LENDERS (as defined below) party hereto and JPMORGAN CHASE BANK, N.A., as administrative agent (in such capacity, the “Administrative Agent”) under the Third Amended and Restated Credit Agreement referred to below, being the first amendment to the THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of January 29, 2010, among Holdings, the Borrowers, the Lenders party thereto from time to time and the agents, arrangers and bookrunners party thereto, as in effect immediately prior to this Amendment (the “Credit Agreement”).
A.Pursuant to the Credit Agreement, the Lenders and the Issuing Banks (such terms and each other capitalized term used but not defined herein having the meaning assigned to such term in the Credit Agreement (as amended hereby)) have extended credit to the Borrowers, and have agreed to extend credit to the Borrowers, in each case pursuant to the terms and subject to the conditions set forth therein.
B.Pursuant to Section 2.21 of the Credit Agreement, the Borrowers have requested the Incremental Lenders (as defined below) to provide Incremental Revolving Facility Commitments in the aggregate principal amount set forth on Schedule 1 hereto to be effective as of May 31, 2011.
C.The Incremental Lenders are willing to provide such Incremental Revolving Facility Commitments and to make Borrowings thereunder available to the Borrowers pursuant to the terms and subject to the conditions set forth herein.
D.Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and subject to the conditions set forth herein, the parties hereto hereby agree as follows:
SECTION 1.Defined Terms.  As used in this Amendment, the following terms have the meanings specified below:  
“Amendment Transactions” shall mean the execution and delivery of this Amendment and the Reaffirmation Agreement (as defined in Section 8(f) hereof) by each Person party hereto or thereto, the satisfaction of the conditions to the effectiveness hereof and thereof and the consummation of the transactions contemplated hereby and thereby.
“Commitment Letter” shall mean the Extended Revolving Facility Commitment Letter dated December 7, 2009, by and among the U.S. Borrower, the Incremental Lenders as of such date and the other parties party thereto.
“Incremental Lenders” shall mean the persons listed on Schedule 1 hereto (other than any such person that has ceased to be a party hereto pursuant to an Assignment and Acceptance in accordance with Section 9.04 of the Credit Agreement), as well as any person that becomes an “Incremental Lender” hereunder pursuant to Section 9.04 of the Credit Agreement.
“Majority Commitment Parties” shall mean, at any time, those Incremental Lenders having Third Incremental Revolving Facility Commitments representing more than 50% of the sum of all Third Incremental Revolving Facility Commitments in effect at such time.
“Third Incremental Effective Date” shall mean the date on which all the conditions set forth or referred to in Section 8 hereof shall have been satisfied (or to the extent permitted under the Credit Agreement, waived by the Administrative Agent and each of the Incremental Lenders).
“Third Incremental Revolving Facility Commitment” shall mean, with respect to each Incremental Lender, the commitment of such Incremental Lender to provide Incremental Revolving Facility Commitments on and following the Third Incremental Effective Date, as set forth on Schedule 1 hereto or in the Assignment and Acceptance Agreement pursuant to which such Incremental Lender shall have assumed its Incremental Revolving Facility Commitment, as applicable. The aggregate amount of the Incremental Revolving Facility Commitments of all Incremental Lenders as of the date of this Amendment is $199,641,888.89, of which $110,503,000.00 are European Tranche Commitments, $45,236,111.22 are Canadian Tranche Commitments and $43,902,777.67 are U.S. Tranche Commitments.
SECTION 2.Commitment.  Subject to the terms and conditions set forth herein, each Incremental Lender agrees to provide Third Incremental Revolving Facility Commitments and to make Borrowings thereunder available to the U.S. Borrower, the Canadian Borrower, the Dutch Borrower, or the UK Borrowers, as applicable, on and following the Third Incremental Effective Date in a principal 

1

 

amount not to exceed such Incremental Lender's Third Incremental Revolving Facility Commitment and subject to the other terms and conditions set forth in the Credit Agreement.
SECTION 3.Amendments to Section 1.01.  (a)   On the Third Incremental Effective Date, Section 1.01 of the Credit Agreement shall be amended by adding the following definitions in the appropriate alphabetical order:  
“Third Incremental Amendment” shall mean the Third Incremental Facility Amendment, dated as of May 18, 2011, among Holdings, the Borrowers, the Incremental Lenders party thereto and the Administrative Agent.
“Third Incremental Effective Date” shall have the meaning set forth in Section 1 of the Third Incremental Amendment.
“Third Incremental Revolving Facility Commitment” shall have the meaning assigned to such term in the Third Incremental Amendment.
“Third Incremental Revolving Facility Lender” shall mean a Lender with a Third Incremental Revolving Facility Commitment or an outstanding Revolving Facility Loan made thereunder.
(a)  On the Third Incremental Effective Date the definition of the term “ABR” in Section 1.01 of the Credit Agreement shall be amended by deleting the first sentence in its entirety and replacing it with the following sentence “'ABR' shall mean, for any day, a rate per annum equal to (i) the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1⁄2 of 1% and (ii) solely with respect to ABR Borrowings made under the Third Incremental Revolving Facility Commitments, the greatest of clauses (a) and (b) above and the Adjusted Eurocurrency Rate for a 1-month Interest Period plus 1%”.
(b)  On the Third Incremental Effective Date the definition of the term “Applicable Margins for Revolving Loans and Swingline Loans” in Section 1.01 of the Credit Agreement shall be amended by (1) inserting the text “shall mean, (a) for Revolving Facility Loans and Swingline Loans other than those made under the Third Incremental Revolving Facility Commitments:” immediately prior to the table set forth therein, (2) inserting the text “and (b) for Revolving Facility Loans and Swingline Loans made under the Third Incremental Revolving Facility Commitments, (i) 3.00% for ABR/Base Rate Revolving Loans and ABR Swingline Loans and (ii) 4.50% for Eurocurrency Revolving Loans and Base Rate Swingline Loans.” immediately following the table set forth therein and (3) inserting the text “other than those made under the Third Incremental Revolving Facility Commitments” after the phrase “Revolving Loans and Swingline Loans” in the last paragraph.
(c)  On the Third Incremental Effective Date the definition of the term “Canadian Tranche Commitment” in Section 1.01 of the Credit Agreement shall be amended by replacing the text “Schedule 2.01 to the November 2006 Credit Agreement” set forth therein with the text “Schedule 1 to the Third Incremental Amendment”, and is further amended by replacing the text “as of the Effective Date is $50.0 million” set forth therein with the text “as of the Third Incremental Effective Date is $45,236,111.22”
(d)  On the Third Incremental Effective Date the definition of the term “Canadian Tranche Letters of Credit” in Section 1.01 of the Credit Agreement shall be deleted in its entirety and replaced by the following text:  
“Canadian Tranche Letters of Credit” shall mean Letters of Credit issued or deemed outstanding under the Canadian Tranche, including, without limitation, those Letters of Credit deemed outstanding under the Canadian Tranche pursuant to the Third Incremental Amendment. 
(e)  On the Third Incremental Effective Date the definition of the term “Early Maturity Notes” in Section 1.01 of the Credit Agreement shall be amended by deleting the text “and” immediately preceding the text “(b)” set forth therein and replacing it with the punctuation “, ”, and shall be further amended by inserting the text “and (c) with respect to the Third Incremental Revolving Facility Commitments, any debt securities issued by the U.S. Borrower or any of the Subsidiaries other than Indebtedness issued by a Foreign Subsidiary that is not a Foreign Subsidiary Loan Party that is denominated in currencies other than the U.S. Dollar in the form of notes offered or arranged outside the United States and not placed with investors that regularly invest in the U.S. financial markets) with a final maturity prior to the date that is 91 days after the Revolving Facility Maturity Date with respect to the Third Incremental Revolving Facility Commitments” immediately prior to the period at the end of such definition. 
(f)  On the Third Incremental Effective Date the definition of the term “European Tranche Commitment” in Section 1.01 of the Credit Agreement shall be amended by replacing the text “Schedule 2.01 to the November 2006 Credit Agreement” set forth therein with the text “Schedule 1 to the Third Incremental Amendment”, and shall be further amended by replacing the text “as of the Amendment Effective Date is $125.0 million” set forth therein with the text “as of the Third Incremental Effective Date is $110,503,000.00”
(g)  On the Third Incremental Effective Date the definition of the term “European Tranche Letters of Credit” in Section 1.01 of the Credit Agreement shall be amended by inserting the text “, including, without limitation, those Letters of Credit deemed outstanding under the European Tranche pursuant to the Third Incremental Amendment” immediately prior to the period at the end of such definition.

2

 

(h)  On the Third Incremental Effective Date the definition of the term “Loan Documents” in Section 1.01 of the Credit Agreement shall be amended by inserting the text “the Third Incremental Amendment,” immediately following the text “the Amendment Agreement,” set forth therein.
(i)  On the Third Incremental Effective Date the definition of the term “Revolving Facility Maturity Date” in Section 1.01 of the Credit Agreement shall be amended by replacing the text “and (b)” set forth therein with the text “, (b) with respect to the Third Incremental Revolving Facility Commitments, 91 days prior to the Term Facility Maturity Date applicable to the Original Maturity Term Loans; provided that if, on any Early Maturity Test Date, the aggregate principal amount of Early Maturity Notes that mature within 91 days after such Early Maturity Test Date exceeds $200.0 million, the Revolving Facility Maturity Date shall be such Early Maturity Test Date and (c)”.
(j)  On the Third Incremental Effective Date the definition of the term “U.S. Tranche Commitment” in Section 1.01 of the Credit Agreement shall be amended by replacing the text “Schedule 2.01 to the November 2006 Credit Agreement” set forth therein with the text “Schedule 1 to the Third Incremental Amendment”, and shall be further amended by replacing the text “as of the Amendment Effective Date is $50.0 million” set forth therein with the text “as of the Third Incremental Effective Date is $43,902,777.67”
SECTION 4.Amendment to Section 2.01.  On the Third Incremental Effective Date, Section 2.01(a) of the Credit Agreement shall be amended by inserting the text “(or following the Third Incremental Effective Date, the total European Tranche Commitments)” immediately following the text “exceeding $125.0 million” set forth therein.
SECTION 5.Amendment to Section 2.13.  On the Third Incremental Effective Date, Section 2.13(a) of the Credit Agreement shall be amended by inserting the text “with respect to Revolving Facility Commitments other than Third Incremental Revolving Facility Commitments and equal to 4.50% per annum with respect to Third Incremental Revolving Facility Commitments” immediately following the text “0.50% per annum” set forth therein.  
SECTION 6.Amendment to Section 9.05.  From and after the Third Incremental Effective Date, Section 9.05 of the Credit Agreement shall be amended by replacing the text “Cravath, Swaine & Moore LLP“ set for therein with the text “Simpson Thacher & Bartlett LLP”.
SECTION 7.Terms Generally.  From and after the Third Incremental Effective Date, references to “European Tranche”, “Canadian Tranche” and “U.S. Tranche” and related terms and references as used in the Credit Agreement shall, unless the context otherwise requires, refer only to the corresponding Tranches of the Third Incremental Revolving Facility Commitments and the Borrowings thereunder.
SECTION 8.Conditions to Amendments and Funding.  The amendments to the Credit Agreement and the obligations of the Incremental Lenders to provide the Third Incremental Revolving Facility Commitments and make the Borrowings thereunder available to the Borrowers hereunder shall not become effective until each of the following conditions is satisfied (or waived by the Administrative Agent and each of the Incremental Lenders):
(a)  The Administrative Agent shall have received from Holdings, the Borrowers and the Incremental Lenders party hereto, either (i) a counterpart of this Amendment signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Amendment) that such party has signed a counterpart of this Amendment.
(b)  The Administrative Agent shall have received, on behalf of itself, the Lenders and each Issuing Bank on or prior to the Third Incremental Effective Date, a written opinion of (i) O'Melveny & Myers LLP, special counsel for Holdings and the Borrowers, in form and substance reasonably satisfactory to the Administrative Agent and its counsel and (ii) local foreign counsel as specified on Schedule 2 hereto or otherwise reasonably satisfactory to the Administrative Agent and its counsel, in each case (A) dated as of the Third Incremental Effective Date, (B) addressed to the Administrative Agent, the Lenders and each Issuing Bank as of the Third Incremental Effective Date and (C) in form and substance substantially consistent with such opinions that have been delivered in connection with prior incremental facilities under the Credit Agreement, and each of Holdings and each Borrower hereby instructs its counsel to deliver such opinions.  
(c)  The Administrative Agent shall have received a certificate from the chief financial officer of the U.S. Borrower dated the Third Incremental Effective Date certifying the solvency of the U.S. Borrower and its subsidiaries, on a consolidated basis after giving effect to this Amendment and any Revolving Facility Loans to be made on the Third Incremental Effective Date, in a form substantially similar to such certificates that have been provided in connection with prior incremental facilities under the Credit Agreement.
(d)  On the Third Incremental Effective Date, (i) the conditions set forth in paragraphs (b) and (c) of Section 4.01 of the Credit Agreement shall be satisfied, (ii) the Administrative Agent shall have received a certificate of a Responsible Officer of the Borrowers, dated as of the Third Incremental Effective Date, confirming compliance with the conditions set forth in clause (i) of this paragraph (d) and (iii) all other conditions set forth in the Credit Agreement (as it may be amended, modified or waived as of the Third Incremental Effective Date) that are applicable to the effectiveness of an Incremental Revolving Facility Commitment at such time shall be satisfied.
(e)  The Administrative Agent and the Incremental Lenders shall have received all fees and other amounts 

3

 

due and payable on or prior to the Third Incremental Effective Date pursuant to the Commitment Letter in connection with the Amendment Transactions, it being agreed that the Administrative Agent and the Incremental Lenders waive their right to receive compensation pursuant to Section 2.17 of the Credit Agreement on any existing Revolving Facility Loan of such Incremental Lenders.
(f)  The Administrative Agent shall have received a reaffirmation agreement substantially in the form of Exhibit A hereto (the “Reaffirmation Agreement”) and any other reaffirmation agreements, amendments to security documents or other agreements that the Administrative Agent, in consultation with counsel, reasonably determines are necessary to ensure the continuation of any guarantee and the continuation and perfection of any Lien, in each case, provided for under the Loan Documents (which shall not include the German Guarantor and its subsidiaries), in each case, duly executed by the applicable Loan Parties and any other Persons party thereto and dated as of the Third Incremental Effective Date.
(g)  The Administrative Agent shall have received an updated Perfection Certificate not less than twenty days and no more than thirty days prior to the Third Incremental Effective Date.
(h)  No waiver, amendment or modification of the Credit Agreement shall have been effected on or prior to the Third Incremental Effective Date that by its terms adversely affects the rights in respect of payments or collateral of the Third Incremental Revolving Facility Lenders differently from those of Lenders participating in any other Tranche under the Credit Agreement, without the consent of the Majority of Commitment Parties under the Third Incremental Revolving Facility (it being agreed that the Required Lenders (as defined in the Credit Agreement) may waive, in whole or in part, any prepayment required by Section 2.12 of the Credit Agreement so long as the application of any prepayment still required to be made is not changed).
Notwithstanding the foregoing, the obligations of the Incremental Lenders to provide the Third Incremental Revolving Facility Commitments and to make the Borrowings thereunder available to the Borrowers shall not become effective unless each of the foregoing conditions is satisfied at or prior to 5:00 p.m., New York City Time on May 31, 2011 (and, in the event such conditions are not so satisfied, this Amendment shall terminate at such time). 
SECTION 9.Third Incremental Effective Date.  On or prior to the Third Incremental Effective Date, the applicable Borrowers shall submit a Borrowing Request to the Administrative Agent for Borrowings under the Third Incremental Revolving Facility Commitments in an amount sufficient to repay on the Third Incremental Effective Date all amounts outstanding with respect to the existing European Tranche, Canadian Tranche and U.S. Tranche, and the Administrative Agent shall apply the proceeds of such Borrowings to the repayment of such Tranches.  On the Third Incremental Effective Date, all outstanding Letters of Credit issued under the existing European Tranche and all outstanding Letters of Credit and B/A's issued under the existing Canadian Tranche shall be deemed Letters of Credit or B/A's, as applicable, outstanding under the corresponding Tranche of the Third Incremental Revolving Facility Commitments.
SECTION 10.Representations and Warranties.  The Borrowers represent and warrant to the Administrative Agent and to each of the Incremental Lenders that:  
(a)  This Amendment has been duly authorized, executed and delivered by the Borrowers and constitutes, and each other Loan Document when executed and delivered by each Loan Party that is party thereto will constitute, a legal, valid and binding obligation of such Loan Party enforceable against each such Loan Party in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or other similar laws affecting creditors' rights generally, (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (iii) implied covenants of good faith and fair dealing.
(b)  Neither the performance by any Loan Party of the Amendment Transactions, nor compliance by such Loan Party with the terms and provisions of the Reaffirmation Agreement (and, in the case of the Borrowers, this Amendment), will (i) violate (A) any provision of law, statute, rule or regulation, or of the certificate or articles of incorporation or other constitutive documents (including any partnership, limited liability company or operating agreements) or by‐laws of such Loan Party, (B) any applicable order of any court or any rule, regulation or order of any Governmental Authority or (C) any provision of any indenture, certificate of designation for preferred stock, agreement or other instrument to which such Loan Party is a party or by which any of them or any of their property is or may be bound, (ii) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under, give rise to a right of or result in any cancellation or acceleration of any right or obligation (including any payment) or to a loss of a material benefit under any such indenture, certificate of designation for preferred stock, agreement or other instrument, where any such conflict, violation, breach or default referred to in clause (i) or (ii) of this Section 10(b), would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or (iii) result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by Holdings (prior to a Qualified IPO), the Borrowers or any Subsidiary Loan Party, other than the Liens created by the Loan Documents and Permitted Liens.
(c)  The representations and warranties set forth in Article III of the Credit Agreement are true and correct in all material respects on and as of the Third Incremental Effective Date, with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all material respects as of such earlier date).
(d)  Immediately prior to and after giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing.
SECTION 11.Effectiveness; Amendments; Counterparts. This Amendment shall become effective as of the date first above 

4

 

written when the Administrative Agent shall have received counterparts of this Amendment bearing the signatures of Holdings, the Borrowers and the Incremental Lenders.  This Amendment may not be amended nor may any provision hereof be waived except pursuant to a writing signed by Holdings, the Borrowers, the Administrative Agent and each Incremental Lender.  This Amendment may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract.  Delivery of an executed counterpart of a signature page of this Amendment by telecopy shall be effective as delivery of a manually executed counterpart of this Amendment.
SECTION 12.Credit Agreement.  Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lenders, the Agents, the Issuing Banks, the Borrowers or any other Loan Party under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect.  Nothing herein shall be deemed to entitle the Borrowers to any future consent to, or waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or different circumstances.  As of the Third Incremental Effective Date, any reference to the Credit Agreement shall mean the Credit Agreement as modified hereby.  This Amendment shall constitute an “Incremental Assumption Agreement”, the Incremental Lenders shall constitute “Lenders”, this Amendment and the Reaffirmation Agreement shall constitute “Loan Documents”, the Revolving Facility Loans made under the Third Incremental Revolving Facility Commitments shall constitute “Incremental Revolving Facility Loans” and the Third Incremental Revolving Facility Commitments shall constitute “Incremental Revolving Facility Commitments”, in each case for all purposes of the Credit Agreement and the other Loan Documents.
SECTION 13.No Novation.  This Amendment shall not extinguish the Loans outstanding under the Credit Agreement.  Nothing herein contained shall be construed as a substitution or novation of the Loans outstanding under the Credit Agreement, which shall remain outstanding after the Third Incremental Effective Date as modified hereby.  Notwithstanding any provision of this Amendment, the provisions of Sections 2.16, 2.17, 2.18 and 9.05 of the Credit Agreement as in effect immediately prior to the Third Incremental Effective Date will continue to be effective as to all matters arising out of or in any way related to facts or events existing or occurring prior to the Third Incremental Effective Date.
SECTION 14.Applicable Law; Waiver of Jury Trial.  (A) THIS AMENDMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATING TO THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
(B)  EACH PARTY HERETO HEREBY AGREES AS SET FORTH IN SECTION 9.12 OF THE CREDIT AGREEMENT AS IF SUCH SECTION WERE SET FORTH IN FULL HEREIN.
SECTION 15.Jurisdiction.  Each party hereto agrees to be governed by Section 9.16 of the Credit Agreement. 
SECTION 16.Expenses.  The Borrowers agree to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with this Amendment, to the extent required by Section 9.05 of the Credit Agreement.
SECTION 17.Headings.  The Section headings used herein are for convenience of reference only, are not part of this Amendment and are not to affect the construction of, or to be taken into consideration in interpreting this Amendment.
SECTION 18.Severability.  Any provision of this Amendment held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.  The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
 

5

 

 
 
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first written above. 
	
		
	MOMENTIVE SPECIALTY CHEMICALS HOLDINGS LLC,

	By:

	 
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
	
		
	MOMENTIVE SPECIALTY CHEMICALS INC.,

	By:

	 
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
	
		
	MOMENTIVE SPECIALTY CHEMICALS CANADA INC.,

	By:

	 
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
 
	
		
	MOMENTIVE SPECIALTY CHEMICALS B.V.,

	By:

	 
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
 
	
		
	MOMENTIVE SPECIALTY CHEMICALS UK LIMITED,

	By:

	 
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
 
	
		
	BORDEN CHEMICAL UK LIMITED,

	By:

	 
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 

6

 

	
		
	J.P. MORGAN CHASE BANK, N.A.,
as Administrative Agent and as an Incremental Lender

	By:

	 
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
 
	
		
	BANK OF AMERICA, N.A. 
as an Incremental Lender

	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
 
	
		
	CASPIAN CAPITAL PARTNERS L.P., 
as an Incremental Lender

	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
	
		
	CASPIAN SELECT CREDIT MASTER FUND LTD., 
as an Incremental Lender

	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
	
		
	CITIBANK, N.A., 
as an Incremental Lender

	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
 

7

 

	
		
	CITIBANK, N.A., CANADIAN BRANCH, 
as an Incremental Lender

	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
 
	
		
	CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,
as an Incremental Lender

	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

	 
	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
 
	
		
	CREDIT SUISSE AG, TORONTO BRANCH,
as an Incremental Lender

	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

	 
	 

	 
	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
 
	
		
	THE FOOTHILL GROUP, INC.,
as an Incremental Lender

	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
 

8

 

	
		
	MORGAN STANLEY SENIOR FUNDING, INC.,
as an Incremental Lender

	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
 
	
		
	NATIONWIDE LIFE INSURANCE COMPANY,
as an Incremental Lender

	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
 
	
		
	UBS LOAN FINANCE LLC,
as an Incremental Lender

	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

	 
	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

 
 
 
	
		
	UBS AG CANADA BRANCH,
as an Incremental Lender

	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

	 
	 

	By:
	/s/ Authorized Signatory

	 
	Name:

	 
	Title:

9

 

 
SCHEDULE 1
Third Incremental Revolving Facility Commitments
 
	
					
	Incremental Lender
	European Tranche
	Canadian Tranche
	U.S. Tranche
	Total Commitment

	JPMorgan Chase Bank, N.A.
	$31,958,333.00
	$8,916,667.00
	$—
	$40,875,000.00

	Bank of America, N.A.
	$15,277,778.00
	$6,111,111.00
	$6,111,111.00
	$27,500,000.00

	Caspian Capital Partners L.P.
	$—
	$—
	$2,669,000.00
	$2,669,000.00

	Caspian Select Credit Master Fund Ltd.
	$—
	$—
	$4,581,000.00
	$4,581,000.00

	Citibank, N.A. 
(and with respect to the Canadian Tranche, Citibank, N.A., Canadian Branch)
	$25,520,833.33
	$10,208,333.34
	$—
	$35,729,166.67

	Credit Suisse AG, Cayman Islands Branch
(and with respect to the Canadian Tranche, Credit Suisse AG, Toronto Branch)
	$13,888,888.90
	$5,555,555.55
	$5,555,555.55
	$25,000,000.00

	The Foothill Group, Inc.
	$11,634,944.44
	$—
	$9,652,777.78
	$21,287,722.22

	Morgan Stanley Senior Funding, Inc.
	$8,333,333.33
	$8,333,333.33
	$8,333,333.34
	$25,000,000.00

	Nationwide Life Insurance Company
	$—
	$—
	$7,000,000.00
	$7,000,000.00

	UBS Loan Finance LLC
	$3,888,889.00
	$—
	$—
	$3,888,889.00

	UBS AG Canada Branch
	$—
	$6,111,111.00
	$—
	$6,111,111.00

	Total
	$110,503,000.00
	$45,236,111.22
	$43,902,777.67
	$199,641,888.89

 

 

SCHEDULE 2
Local Foreign Counsel
 
Clifford Chance (Belgian counsel)
Clifford Chance (Czech counsel)
Clifford Chance (German counsel)
Clifford Chance (Italian counsel)
Clifford Chance (Spanish counsel)
Clifford Chance (UK counsel )
NautaDutilh (Dutch counsel)
Arias, Fabrega & Fabrega (Panamanian counsel)
Stikemen Elliott LLP (Ontario, Quebec, Alberta and British Columbia counsels)
Stewart McKelvey Stirling Scales (Nova Scotia counsel)
Noerr Stiefenhofer Lutz (Czech Counsel)
Freshfields Bruckhaus Deringer LLP (German Counsel)
NTMC (Italian counsel)
Reaffirmation Agreement

 

EXHIBIT A
Reaffirmation Agreement
 
See attached.
 

 

 
REAFFIRMATION AGREEMENT (this “Agreement”), dated as of May 31, 2011, among MOMENTIVE SPECIALTY CHEMICALS HOLDINGS LLC, a Delaware limited liability company (“Holdings”), MOMENTIVE SPECIALTY CHEMICALS INC., a New Jersey corporation (the “U.S. Borrower”), MOMENTIVE SPECIALTY CHEMICALS CANADA INC., a Canadian corporation (the “Canadian Borrower”), MOMENTIVE SPECIALTY CHEMICALS B.V., a company organized under the laws of The Netherlands (the “Dutch Borrower”), MOMENTIVE SPECIALTY CHEMICALS UK LIMITED, a corporation organized under the laws of England and Wales, and BORDEN CHEMICAL UK LIMITED, a corporation organized under the laws of England and Wales (together, the “U.K. Borrowers” and, together with the U.S. Borrower, the Canadian Borrower and the Dutch Borrower, the “Borrowers”), each other subsidiary of Holdings identified on the signature pages hereto (each, a “Subsidiary Party” and together with Holdings and the Borrowers, the “Reaffirming Parties”) and JPMORGAN CHASE BANK, N.A. (“JPMCB”), as Administrative Agent and Collateral Agent under the Amended Credit Agreement referred to below.
WHEREAS Holdings, the Borrowers, the Incremental Lenders (as defined therein) party thereto, and JPMCB, as Administrative Agent have entered into the Third Incremental Facility Amendment dated as of May 18, 2011 (the “Amendment”), which amends the Third Amended and Restated Credit Agreement dated as of January 29, 2010 (the “Existing Credit Agreement” and, as amended after giving effect to the Amendment, the “Amended Credit Agreement”), among Holdings, the Borrowers, the lenders party thereto from time to time and the agents party thereto;
WHEREAS each of the Reaffirming Parties is party to one or more of the Security Documents (such term and each other capitalized term used but not defined herein having the meaning assigned to such terms in the Amended Credit Agreement);
WHEREAS each Reaffirming Party expects to realize, or has realized, substantial direct and indirect benefits as a result of the Amendment becoming effective and the consummation of the transactions contemplated thereby; and
WHEREAS the execution and delivery of this Agreement is a condition precedent to the consummation of the transactions contemplated by the Amendment.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE II
Reaffirmation/Amendment
SECTION 1.Reaffirmation.  (a)   Each of the Reaffirming Parties (i) hereby consents to the Amendment and the transactions contemplated thereby, (ii) hereby confirms its guarantees, pledges, hypothecs, grants of security interests and other agreements, as applicable, under each of the Security Documents to which it is party and (iii) agrees that notwithstanding the effectiveness of the Amendment and the consummation of the transactions contemplated thereby, such guarantees, pledges, hypothecs, grants of security interests and other agreements shall continue to be in full force and effect and shall accrue to the benefit of the Lenders under the Amended Credit Agreement.  Each of the Reaffirming Parties further agrees to take any action that may be required or that is reasonably requested by the Administrative Agent to ensure compliance by Holdings and the Borrowers with Section 5.10 of the Amended Credit Agreement and hereby reaffirms its obligations under each similar provision of each Security Document to which it is party.
(a)  Each of the Reaffirming Parties party to each of the Security Documents securing the Obligations of the Borrowers hereby confirms and agrees that (i) the outstanding Term Loans (it being understood that the Dutch Term Loan Obligations are not secured by any Collateral (as defined in the Collateral Agreement) of Holdings, the U.S. Borrower or any Domestic Subsidiary Loan Party) and Tranche C-3 Credit-Linked Deposits have constituted and continue to constitute Loan Document Obligations (as defined in the Collateral Agreement) and (ii) the Canadian Tranche Revolving Facility Loans, European Tranche Revolving Facility Loans, Swingline Loans and U.S. Tranche Revolving Facility Loans have constituted and continue to constitute Loan Document Obligations (as defined in the Collateral Agreement).
SECTION 2.Amendment.  On and after the effectiveness of the Amendment, (i) each reference in each Security Document to the “Credit Agreement”, “thereunder”, “thereof” or words of like import shall mean and be a reference to the Amended Credit Agreement, as such agreement may be amended, modified or supplemented and in effect from time to time, and (ii) the definition of any term defined in any Security Document by reference to the terms defined in the “Credit Agreement” shall be amended to be defined by reference to the defined term in the Amended Credit Agreement, as the same may be amended, modified or supplemented and in effect from time to time. 
ARTICLE III
Representations and Warranties
Each Reaffirming Party hereby represents and warrants, which representations and warranties shall survive execution and delivery of this Agreement, as follows:

 

SECTION 1.Organization.  Such Reaffirming Party is duly organized and validly existing in good standing under the laws of the jurisdiction of its formation (or, if applicable in a foreign jurisdiction, enjoys the equivalent status under the laws of any jurisdiction outside the United States).
SECTION 2.Authority; Enforceability.  Such Reaffirming Party has the power and authority to execute, deliver and carry out the terms and provisions of this Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement.  Such Reaffirming Party has duly executed and delivered this Agreement, and this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or other similar laws affecting creditors' rights generally, (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (iii) implied covenants of good faith and fair dealing.
SECTION 3.Security Documents.  The representations and warranties of such Reaffirming Party contained in each Security Document are true and correct in all material respects on and as of the date hereof with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall have been true and correct as of such earlier date).
SECTION 4.Undertakings. National Borden Chemical Germany GmbH undertakes to ensure that Momentive Specialty Chemicals GmbH (formerly entitled Hexion Specialty Chemicals GmbH) registers its change of name in the Czech commercial register (where it is registered as a shareholder of Momentive Specialty Chemicals Pardubice s.r.o., identification number 257 65 302) within 30 Business Days of signing hereof.
ARTICLE IV
Miscellaneous
Notices.  All notices and other communications hereunder shall be made at the addresses, in the manner and with the effect provided in Section 9.01 of the Amended Credit Agreement, provided that, for this purpose, the address of each Reaffirming Party shall be the one specified for the U.S. Borrower under the Amended Credit Agreement.
SECTION 1.Expenses.  The parties hereto acknowledge and agree that JPMCB and the Lenders shall be entitled to reimbursement of expenses as provided in Section 9.05 of the Amended Credit Agreement.
SECTION 2.Security Document.  This Agreement is a Security Document executed pursuant to the Amended Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof.
SECTION 3.Section Captions.  Section captions used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement.
SECTION 4.Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns.
SECTION 5.Amendment. This Agreement may be waived, modified or amended only by a written agreement executed by each of the parties hereto.
SECTION 6.Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original but all of which shall together constitute one and the same agreement.  Delivery of an executed counterpart of a signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement.
SECTION 7.Applicable Law; Waiver of Jury Trial; Jurisdiction.  
(A)  THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
(B)  EACH PARTY HERETO HEREBY AGREES AS SET FORTH IN SECTION 9.12 OF THE AMENDED CREDIT AGREEMENT AS IF SUCH SECTION WERE SET FORTH IN FULL HEREIN.
(C)  EACH PARTY HERETO HEREBY AGREES AS SET FORTH IN SECTION 9.16 OF THE AMENDED CREDIT AGREEMENT AS IF SUCH SECTION WERE SET FORTH IN FULL HEREIN.
SECTION 8.No Novation. Neither this Agreement nor the execution, delivery or effectiveness of the Amendment shall 

 

extinguish the obligations for the payment of money outstanding under the Existing Credit Agreement, the Collateral Agreement or discharge or release the Lien or priority of any Security Document or any other security therefor.  Nothing herein contained shall be construed as a substitution or novation of the obligations outstanding under the Existing Credit Agreement, the Collateral Agreement or instruments securing the same, which shall remain in full force and effect, except to any extent modified hereby or by instruments executed concurrently herewith.  Nothing implied in this Agreement, the Amendment or in any other document contemplated hereby or thereby shall be construed as a release or other discharge of Holdings, any Borrower or any Subsidiary Party under any Security Document from any of its obligations and liabilities as “Holdings”, a “Borrower”, the “U.S. Borrower”, the “Canadian Borrower”, the “Dutch Borrower”, the “U.K. Borrowers”, a “Subsidiary Loan Party”, a “Pledgor”, a “Guarantor” or a “Grantor” under the Existing Credit Agreement, the Collateral Agreement or the other Security Documents.  Each of the Existing Credit Agreement, the Collateral Agreement and the other Security Documents shall remain in full force and effect, until (as applicable) and except to any extent modified hereby or by the Amendment or in connection herewith and therewith.
SECTION 9.Limitation.  With respect to any Foreign Security Documents and any Foreign Pledge Agreements, notwithstanding anything herein to the contrary, the terms and provisions of this Agreement shall apply only to the extent permitted under the governing law of the applicable Foreign Security Document or Foreign Pledge Agreement.  If any provision of this Agreement limits, qualifies or conflicts with a provision of any Foreign Security Document or Foreign Pledge Agreement, the applicable provision of such Foreign Security Document or Foreign Pledge Agreement shall govern.
SECTION 10.Post-Closing German Collateral Matters.  With respect to the German Guarantor, the Borrowers shall use all commercially reasonable efforts to cause each such person and each Subsidiary Loan Party that is a subsidiary of such person to provide reasonably satisfactory evidence of the continuing first-priority perfected Liens under the Security Documents after giving effect to the Amendment.
 
 
	
		
	MOMENTIVE Specialty Chemicals Holdings LLC,

	By

	 
	 

	 
	Name: George F. Knight

	 
	Title:   Senior Vice President and Treasurer

 
	
		
	MOMENTIVE SPECIALTY CHEMICALS INC.,

	By

	 
	 

	 
	Name: Ellen G. Berndt

	 
	Title:   Vice President and Corporate Secretary

 
	
		
	MOMENTIVE SPECIALTY CHEMICALS CANADA INC.,

	By

	 
	 

	 
	Name: Ellen G. Berndt

	 
	Title:   Secretary

 
 

 

	
		
	MOMENTIVE SPECIALTY CHEMICALS B.V.,

	By

	 
	 

	 
	Name:

	 
	Title:

 
 
	
		
	BORDEN CHEMICAL UK LIMITED,

	By

	 
	 

	 
	Name:

	 
	Title:

 
	
		
	MOMENTIVE SPECIALTY CHEMICALS UK LIMITED,

	By

	 
	 

	 
	Name:

	 
	Title:

 
 
	
		
	BORDEN CHEMICAL FOUNDRY, LLC

	By

	 
	 

	 
	Name: Ellen G. Berndt

	 
	Title:  Vice President and Secretary

 
 
	
		
	MOMENTIVE INTERNATIONAL INC.,

	By

	 
	 

	 
	Name: Ellen G. Berndt

	 
	Title:  Vice President and Secretary

 
 

 

	
		
	MOMENTIVE SPECIALTY CHEMICALS Investments, Inc.,

	By

	 
	 

	 
	Name: Ellen G. Berndt

	 
	Title:  Vice President and Secretary

 
 
	
		
	HEXION U.S. FINANCE CORP.,

	By

	 
	 

	 
	Name: Ellen G. Berndt

	 
	Title:  Vice President and Secretary

 
	
		
	HSC CAPITAL CORPORATION,

	By

	 
	 

	 
	Name: Ellen G. Berndt

	 
	Title:  Vice President and Secretary

 
 
	
		
	LAWTER INTERNATIONAL INC.,

	By

	 
	 

	 
	Name: Ellen G. Berndt

	 
	Title:  Vice President and Secretary

 
 
	
		
	OILFIELD TECHNOLOGY GROUP, INC.,

	By

	 
	 

	 
	Name: Ellen G. Berndt

	 
	Title:  Vice President and Secretary

 
 

 

	
		
	MOMENTIVE CI HOLDING COMPANY (china) llc,

	By

	 
	 

	 
	Name: Ellen G. Berndt

	 
	Title:  Vice President and Secretary

 
	
		
	NL COOP HOLDINGS LLC,

	By

	 
	 

	 
	Name: Ellen G. Berndt

	 
	Title:  Vice President and Secretary

 
 
	
		
	HEXION NOVIA SCOTIA FINANCE, ULC

	By

	 
	 

	 
	Name: George F. Knight

	 
	Title:   Vice President and Treasurer

 
 
	
		
	MOMENTIVE SPECIALTY CHEMICALS FOREST PRODUCTS GMBH

	By

	 
	 

	 
	Name:

	 
	Title:

 
	
		
	HEXION SPECIALTY CHEMICALS HOLDING GERMANY GMBH

	By

	 
	 

	 
	Name:

	 
	Title:

 

 

	
		
	MOMENTIVE SPECIALTY CHEMICALS LEUNA GMBH

	By

	 
	 

	 
	Name:

	 
	Title:

 
 
	
		
	MOMENTIVE SPECIALTY CHEMICALS HOLDING B.V.,

	By

	 
	 

	 
	Name:

	 
	Title:

 
 
	
		
	MOMENTIVE SPECIALTY CHEMICALS WESSELING GMBH

	By

	 
	 

	 
	Name:

	 
	Title:

 
 
	
		
	NEW NIMBUS GMBH & CO. KG

	By

	 
	 

	 
	Name:

	 
	Title:

 
 
	
		
	RESOLUTION RESEARCH NEDERLAND B.V.,

	By

	 
	 

	 
	Name:

	 
	Title:

 
 

 

	
		
	MOMENTIVE SPECIALTY CHEMICALS STANLOW LIMITED

	By

	 
	 

	 
	Name:

	 
	Title:

 
	
		
	COMBINED COMPOSITE TECHNOLOGIES LIMITED,

	By

	 
	 

	 
	Name:

	 
	Title:

 
 
	
		
	RESOLUTION SPECIALTY MATERIALS ROTTERDAM B.V.,

	By

	 
	 

	 
	Name:

	 
	Title:

 
 
 
	
		
	NATIONAL BORDEN CHEMICAL GERMANY GMBH,

	By

	 
	 

	 
	Name:

	 
	Title:

 
 
	
		
	MOMENTIVE SPECIALTY CHEMICALS LEUNA GMBH & CO. KG

	By

	 
	 

	 
	Name:

	 
	Title:

 
 

 

	
		
	HEXION IAR HOLDINGS (HK) LIMITED

	By

	 
	 

	 
	Name: George Knight

	 
	Title:

 
 
	
		
	MOMENTIVE SPECIALTY CHEMICALS FINANCE B.V.

	By

	 
	 

	 
	Name:

	 
	Title:

 
	
		
	MOMENTIVE INTERNATIONAL HOLDINGS COÖPERATIEF U.A.

	By

	 
	 

	 
	Name:

	 
	Title:

 
 
	
		
	MOMENTIVE SPECIALTY CHEMICALS EUROPE B.V.

	By

	 
	 

	 
	Name:

	 
	Title:

 
	
		
	BORDEN CHEMICAL FINANCE LIMITED

	By

	 
	 

	 
	Name:

	 
	Title:

 

 

	
		
	BORDEN INTERNATIONAL HOLDINGS LIMITED

	By

	 
	 

	 
	Name:

	 
	Title:

 
 
	
		
	MOMENTIVE SPECIALTY CHEMICALS BARBASTRO S.A.,

	By

	 
	 

	 
	Name:

	 
	Title:

 
 
 
	
		
	JPMORGAN CHASE BANK, N.A., as Administrative Agent and Collateral Agent,

	By

	 
	 

	 
	Name:

	 
	Title:ex4_5.htm

EXHIBIT 4.5

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 (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY 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.

Principal Amount: $20,000.00                                                                                                Issue Date: January 11, 2011

Purchase Price: $20,000.00

CONVERTIBLE PROMISSORY NOTE

FOR VALUE RECEIVED, FLINT TELECOM GROUP, INC., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of David Dunne, an Irish corporation, or registered assigns (the “Holder”) the sum of Twenty Thousand Dollars ($20,000.00) together with any interest as set forth herein, on or before January 11, 2012 (the “Maturity Date”), and to accrue interest each month on the unpaid principal balance hereof at the rate of eighteen percent (18%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.  This Note may be prepaid in whole or in part at any time. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty five percent (25%) per annum from the due date thereof until the same is paid (“Default Interest”).  Interest shall commence accruing on the Issue Date, shall be computed on the basis of a 365-day year and the actual number of days elapsed.  All payments due hereunder (to the extent not converted into common stock, $0.01 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America.  All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note.  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 payment 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.  As used in this Note, the term “business day” shall mean

  

  

  

any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.

This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.

The following terms shall apply to this Note:

ARTICLE I.                      CONVERSION RIGHTS

1.1 Conversion Right.  The Holder shall have the right at any time on or prior to the later of: (i) the Maturity Date; and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non- assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price  (the “Conversion Price”) determined as provided herein (a “Conversion”).  The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”).  The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Borrower’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, provided, however, that the Company shall have the right to pay any or all interest in cash plus (3) at the Borrower’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

1.2 Conversion Price.

(a) Calculation of Conversion Price.  The Conversion Price shall be the Variable Conversion Price (as defined herein) (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).  The “Variable Conversion Price” shall mean the Applicable Percentage (as defined herein) multiplied by the Market Price (as defined herein).  “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Borrower via

  

  

  

facsimile (the “Conversion Date”).  “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”) mutually acceptable to Borrower and Holder and hereafter designated by Holders of a majority in interest of the Notes and the Borrower or, if the OTCBB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc.  If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes.  “Trading Day” shall mean any day on which the Common Stock is traded for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.  “Applicable Percentage” shall mean 50%.

 

(b) Conversion Price During Major Announcements.  Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the  “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a).  For purposes hereof,  “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

1.3 Authorized Shares.  The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement.  The Borrower is required at all times to have authorized and reserved one times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Note in effect from time to time; initially 4,000,000 shares) (the “Reserved Amount”).  The Reserved Amount shall be increased from time to time in accordance with the Borrower’s

  

  

  

obligations pursuant to Section 4(g) of the Purchase Agreement.  The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable.  In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes.  The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time a Holder of this Note submits a Notice of Conversion, and the Borrower does not have sufficient authorized but unissued shares of Common Stock available to effect such conversion in accordance with the provisions of this Article I (a “Conversion Default”), the Borrower shall issue to the Holder all of the shares of Common Stock which are then available to effect such conversion.  The portion of this Note which the Holder included in its Conversion Notice and which exceeds the amount which is then convertible into available shares of Common Stock (the “Excess Amount”) shall, notwithstanding anything to the contrary contained herein, not be convertible into Common Stock in accordance with the terms hereof until (and at the Holder’s option at any time after) the date additional shares of Common Stock are authorized by the Borrower to permit such conversion, at which time the Conversion Price in respect thereof shall be the lesser of (i) the Conversion Price on the Conversion Default Date (as defined below) and (ii) the Conversion Price on the Conversion Date thereafter elected by the Holder in respect thereof.  In addition, the Borrower shall pay to the Holder payments (“Conversion Default Payments”) for a Conversion Default in the amount of (x) the sum of (1) the then outstanding principal amount of this Note plus (2) accrued and unpaid interest on the unpaid principal amount of this Note through the Authorization Date (as defined below) plus (3) Default Interest, if any, on the amounts referred to in clauses (1) and/or (2), multiplied by (y) .24, multiplied by (z) (N/365), where N = the number of days from the day the holder submits a Notice of Conversion giving rise to a Conversion Default (the “Conversion Default Date”) to the date (the “Authorization Date”) that the Borrower authorizes a sufficient number of shares of Common Stock to effect conversion of the full outstanding principal balance of this Note.  The Borrower shall use its best efforts to authorize a sufficient number of shares of Common Stock as soon as practicable following the earlier of (i) such time that the Holder notifies the Borrower or that the Borrower otherwise becomes aware that there are or likely will be insufficient authorized and unissued shares to allow full conversion thereof and (ii) a Conversion Default.  The Borrower shall send notice to the Holder of the authorization of additional shares of Common Stock, the Authorization Date and the amount of Holder’s accrued Conversion Default Payments.  The accrued Conversion Default Payments for each calendar month shall be paid in cash or shall be convertible into Common Stock (at such time as there are sufficient authorized shares of Common Stock) at the applicable Conversion Price, at the Borrower’s option, as follows:

  

  

  

(a) In the event Holder elects to take such payment in cash, cash payment shall be made to Holder by the fifth (5th) day of the month following the month in which it has accrued; and

(b) In the event Holder elects to take such payment in Common Stock, the Holder may convert such payment amount into Common Stock at the Conversion Price (as in effect at the time of conversion) at any time after the fifth day of the month following the month in which it has accrued in accordance with the terms of this Article I (so long as there is then a sufficient number of authorized shares of Common Stock).

The Holder’s election shall be made in writing to the Borrower at any time prior to 6:00 p.m., New York, New York time, on the third day of the month following the month in which Conversion Default payments have accrued.  If no election is made, the Holder shall be deemed to have elected to receive cash.  Nothing herein shall limit the Holder’s right to pursue actual damages (to the extent in excess of the Conversion Default Payments) for the Borrower’s failure to maintain a sufficient number of authorized shares of Common Stock, and each holder shall have the right to pursue all remedies available at law or in equity (including degree of specific performance and/or injunctive relief).

1.4 Method of Conversion.

(a) Mechanics of Conversion.  Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

(b) Surrender of Note Upon Conversion.  Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted.  The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion.  In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error.  Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note.  The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

  

  

  

 

(c) Payment of Taxes.  The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.

(d) Delivery of Common Stock Upon Conversion.  Upon receipt by the Borrower from the Holder of a facsimile transmission (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) (such second business day being hereinafter referred to as the “Deadline”) in accordance with the terms hereof and the Purchase Agreement (including, without limitation, in accordance with the requirements of [Section 2(g)] of the Purchase Agreement that certificates for shares of Common Stock issued on or after the effective date of the Registration Statement upon conversion of this Note shall not bear any restrictive legend).

(e) Obligation of Borrower to Deliver Common Stock.  Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion.  If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion.  The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

  

  

  

(f) Delivery of Common Stock by Electronic Transfer.  In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

(g) Failure to Deliver Common Stock Prior to Deadline.  Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is more than three (3) business days after the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock.  Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note.

1.5 Concerning the Shares.  The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless  (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of  counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement).  Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

  

  

  

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE 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 (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY 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.”

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefor free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act and the shares are so sold or transferred, (ii) such Holder provides the Borrower or its transfer agent with reasonable assurances that the Common Stock issuable upon conversion of this Note (to the extent such securities are deemed to have been acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold.

1.6 Effect of Certain Events.

(a) Effect of Merger, Consolidation, Etc.  At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either:  (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof.  “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.

  

  

  

(b) Adjustment Due to Merger, Consolidation, Etc.  If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof.  The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b).  The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

(c) Adjustment Due to Distribution.  If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

(d) Adjustment Due to Dilutive Issuance.  If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a

  

  

  

“Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to 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 Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable).  No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.  For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower 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 Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities.  No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

(e) Purchase Rights.  If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have

  

  

  

acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) 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.

 

(f) Notice of Adjustments.  Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder of a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.  The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.

1.7 Trading Market Limitations.  Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date, subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof.  Once the Maximum Share Amount has been issued (the date of which is hereinafter referred to as the “Maximum Conversion Date”), the Borrower will use its best efforts to seek and obtain Shareholder Approval (or obtain such other relief as will allow conversions hereunder in excess of the Maximum Share Amount) as soon as practicable following the issuance of the Maximum Share Amount.  As used herein, “Shareholder Approval” means approval by the shareholders of the Borrower to authorize the issuance of the full number of shares of Common Stock which would be issuable upon full conversion of the then outstanding Notes but for the Maximum Share Amount.

1.8 Status as Shareholder.  Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms  of this Note.  Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon

  

  

  

as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted.  In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note.

 

ARTICLE II.                       CERTAIN COVENANTS

2.1 Distributions on Capital Stock.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.

2.2 Restriction on Stock Repurchases.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.

2.3 Borrowings.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, create, incur, assume or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof, (b) indebtedness to trade creditors or financial institutions incurred in the ordinary course of business or (c) borrowings, the proceeds of which shall be used to repay this Note.

2.4 Sale of Assets.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business.  Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.

2.5 Advances and Loans.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $50,000.

  

  

  

2.6 Contingent Liabilities.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, which shall not be unreasonably withheld, assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection and except assumptions, guarantees, endorsements and contingencies (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, and (b) similar transactions in the ordinary course of business.

 

 

ARTICLE III.                                 EVENTS OF DEFAULT

If any of the following events of default (each, an “Event of Default”) shall occur:

3.1 Failure to Pay Principal or Interest.  The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon a Trading Market Prepayment Event pursuant to Section 1.7, upon acceleration or otherwise;

3.2 Conversion and the Shares.  The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) days after the Borrower shall have been notified thereof in writing by the Holder;

3.3 Breach of Covenants.  The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder;

3.4 Breach of Representations and Warranties.  Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note;

  

  

  

3.5 Receiver or Trustee.  The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed;

3.6 Judgments.  Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld;

3.7 Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower;

3.8 Delisting of Common Stock.  The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange;

3.9 Failure to Comply with the Exchange Act.  The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act; or

3.10 Liquidation.  Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

3.11 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.

3.12 Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).

3.13 Financial Statement Restatement.  The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

  

  

  

3.14 Reverse Splits.  The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1, 3.2, 3.3, 3.4, 3.6, 3.8, or 3.8 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III, the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.  If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

ARTICLE IV.                                MISCELLANEOUS

4.1 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 privileges.  All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

  

  

  

4.2 Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

If to the Borrower, to:

FLINT TELECOM GROUP, INC.

375 N. Stephanie St., Suite 1411

Henderson, NV 89014

Attn: Vincent Browne, Chief Executive Officer

facsimile: [enter fax number]

If to the Holder:

DAVID DUNNE

Attn:

facsimile: [enter fax number]

facsimile: [enter fax number]

4.3 Amendments.  This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder.  The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.

4.4 Assignability.  This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns.  Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act).  Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

  

  

  

 

4.5 Cost of Collection.  If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

4.6 Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of Nevada or in the federal courts located in the state of Nevada.  The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The Company and Holder waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Note or any other agreement delivered in connection herewith 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 any agreement.   Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement 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 right to serve process in any other manner permitted by law.

4.7 Certain Amounts.  Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note.  The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.

4.8 Denominations.  At the request of the Holder, upon surrender of this Note, the Borrower shall promptly issue new Notes in the aggregate outstanding principal amount hereof, in the form hereof, in such denominations of at least $5,000 as the Holder shall request.

4.9 Purchase Agreement.  By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.

  

  

  

4.10 Notice of Corporate Events.  Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders).  In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time.  The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.10.

4.11 Remedies.  The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby.  Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

  

  

  

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this January 11, 2011.

FLINT TELECOM GROUP, INC.

By: _____/s/ Vincent Browne

Vincent Browne

Chief Executive Officer

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00190-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00190-of-00352.parquet"}]]