JUNIOR CONVERTIBLE NOTE
$740,000.00
Houston,
Texas
August 21, 2008
FOR VALUE
RECEIVED, the undersigned, REMOTE KNOWLEDGE, INC., a Delaware corporation
(“Borrower”), hereby promises to pay to the order of ____________ (“Lender”), at
its designated office, in lawful money of the United States of America, the
principal sum of _________________________, or such lesser amount as is advanced
hereunder, together with interest thereon at the rate set forth
below.
1. (a) All
principal outstanding under this Note from and after the date of this Note shall
bear interest prior to maturity at a rate equal to the lesser of (i) the Maximum
Rate and (ii) twelve percent (12%) per annum.
(b) If an Event of Default has
occurred all principal outstanding under this Note shall bear interest at the
lesser of (i) the Maximum Rate and (ii) eighteen percent (18%) per
annum.
2. Interest
on the indebtedness evidenced by this Note shall be computed on the basis of a
year of 360 days and the actual number of days elapsed (including the first day
but excluding the last day) unless such calculation would result in a usurious
rate in which case interest shall be calculated on the basis of a year of 365 or
366 days, as the case may be.
3. Principal
of and interest on this Note shall be due and payable on the Maturity Date
except as otherwise provided herein.
4. Xxxxxx
agrees to fund this Note to Borrower in accordance with the express terms hereof
in one or more advances. Borrower may not reborrow any portion of
this Note which is repaid hereunder.
5. This Note
is issued pursuant to the terms of the Credit Agreement (as hereinafter defined)
and is entitled to the benefits of the Credit Agreement.
6. (a) At
any time and from time to time, Lender may elect, upon not less than
seventy-five (75) days notice to Borrower, at its sole discretion, by written
notice to Xxxxxxxx, to convert or exchange all or any part of the amounts
outstanding under this Note and any accrued and unpaid interest thereon into
Borrower common stock (“Conversion Interests”) as reflected
below. Each $0.04 of the outstanding balance of this Note (the
“Conversion Price”) may be converted into or exchanged for one (1) share of
Borrower common stock based on 62,500,000 outstanding shares of Borrower stock
(the “Common Stock”) on a fully diluted basis.
The
Conversion Price shall be subject to adjustment from time to time as hereinafter
provided in order to prevent the dilution of Xxxxxx’s right to acquire shares of
Xxxxxxxx’s Common Stock hereunder. Upon each adjustment of the
Conversion Price, Lender shall thereafter be entitled to acquire, at the
Conversion Price resulting from such adjustment, the number of shares of the
Common Stock obtained by multiplying the Conversion Price in effect immediately
prior to such adjustment by the number of shares of Common Stock purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Conversion Price resulting from such adjustment.
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The
Conversion Price shall be subject to adjustment from time to time as
follows:
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(i)
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Stock Splits and
Combinations. If Borrower effects a subdivision of the Common
Stock, the Conversion Price in effect immediately before such subdivision
shall be proportionately decreased. If Borrower shall at any
time or from time to time after the date hereof combine the Common Stock
into a smaller number of shares, the Conversion Price in effect
immediately before such combination shall be proportionately
increased.
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(ii)
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Common Stock Dividends
and Distributions. If Borrower makes a dividend or other
distribution payable in additional shares of Common Stock, in each such
event, the Conversion Price shall be decreased by multiplying the
Conversion Price then in effect by a fraction, the numerator of which is
the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance and the denominator of
which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance plus the number of shares
of Common Stock issuable in payment of such dividend or
distribution.
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(iii)
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Capital
Reorganizations. If there is a capital reorganization of Common
Stock, provision shall be made so that Lender shall thereafter be entitled
to receive upon the exercise hereof the number of shares of Common Stock
deliverable upon exercise immediately prior to such event would have been
entitled as a result of such capital
reorganization.
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(iv)
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Other
Adjustment. In the event of any other event or
circumstance which results in any increase in or other change to the
issued and outstanding shares of the Common Stock of the Borrower from and
after the date hereof, including without limitation, any public or private
offering of securities by the Borrower and any issuance of securities in
connection with any merger, acquisition, disposition or other similar
transaction, such that Lender’s right to acquire such shares of Common
Stock will be diluted as a percentage of Borrower’s outstanding shares of
Common Stock following such event or circumstance, the Conversion Price
shall be adjusted as necessary in order to prevent any such
dilution.
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Notwithstanding
the foregoing, no adjustment in the Conversion Price shall be made in connection
with or as a result of any dilutive issuance of common shares related to a
compensatory issuance of common shares to the employees or directors of Borrower
as approved by Xxxxxxxx’s board of directors.
All
election notices, once given by the Lender, shall be revocable until the date
ten (10) days prior to the date the election is effected. Borrower
hereby agrees to take all action and to execute, deliver and file such documents
or instruments, including, without limitation,
amendments to its charter and constituent documents, as may be required in order
to give effect to Xxxxxx’s conversion rights under this paragraph.
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(b) To the
extent of Xxxxxxxx’s delivery to the Lender of the number of Conversion
Interests into which this Note, whether in whole or in part, is convertible
pursuant to the election made above (together with the cash payment in lieu of
any fractional share of Conversion Interests as contemplated below), such
delivery will be deemed to satisfy Borrower’s obligation to pay the principal
amount of this Note and the accrued and unpaid interest. At
Borrower’s option, all the accrued and unpaid interest related to any such
converted principal amount shall be payable in cash by Borrower in lieu of any
Conversion Interests.
(c) No
conversion shall result in the issuance of fractional shares of Conversion
Interests. If Lender would otherwise be entitled to a fractional
share, then Borrower shall pay to the Lender an amount equal to the conversion
value of such fractional share unless the Lender has elected to maintain its
commitment under this Note.
(d) Upon any
conversion of this Note into Conversion Interests, Borrower shall, at its
expense, deliver to Lender as soon as practicable a certificate representing the
number of Conversion Interests to which Lender is entitled as provided in
paragraph (a) above at which time Xxxxxx shall surrender this Note to Borrower
if all the outstanding principal hereof and accrued interest thereon is being
converted or exchanged. In the event Lender elects to convert or
exchange less than all of the outstanding principal of and accrued interest on
this Note, the unconverted portion of such principal and interest shall remain
outstanding and Borrower shall promptly issue a replacement promissory note
evidencing such outstanding amount in exchange for the
Note. Irrespective of the date of issuance and delivery of any
certificates with respect thereto, shares or units of Conversion Interests
purchased by conversion as provided herein shall be, and deemed to be, issued to
Lender as the record owner of such shares as of the close of business on the
date on which this Note shall have been surrendered as aforesaid.
(e) Borrower,
upon conversion of this Note, covenants that all shares or units of Conversion
Interests that may be issued upon conversion of this Note will, upon issuance
thereof, be validly issued, fully paid and nonassessable and free from all
preemptive rights, taxes, liens and charges in respect of the issue
thereof. Issuance of certificates for Conversion Interests upon the
conversion provided herein shall be made without charge to Lender for any issue
or transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by Borrower, and such
certificates shall be issued in the name of Lender.
(f) Lender
acknowledges that this Note does not entitle Lender, by virtue solely of this
Note, to any voting rights or other rights as a holder of any Conversion
Interests of Borrower prior to the conversion provided for herein.
(g) Borrower
covenants that its issuance of this Note shall constitute full authority to its
officers who are charged with the duty of executing certificates to execute and
issue the necessary certificates for shares or units of Conversion Interests
upon the conversion of this Note.
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(h) Conversions
are subject to a $200,000.00 minimum conversion amount in the aggregate for this
Note and all other Junior Convertible Notes outstanding under the Credit
Agreement (or such lesser amount as may be outstanding under this Note and all
other Junior Convertible Notes outstanding under the Credit
Agreement.)
7. As used
in this Note, the following terms shall have the respective meanings indicated
below:
“Business
Day” means any day on which commercial banks are not authorized or required to
close in Houston, Texas.
“Cash
Flow” means Cash Flow From Operating Activities, as such term is defined by
Statement of Financial Accounting Standards No. 95.
“Credit
Agreement” means that certain Credit Agreement dated as of even date herewith
among Borrower, Muragai LLC, a Delaware limited liability company (the “Lender
Representative”), as Lender Representative and as a Lender, and, the other
Lenders a party thereto (collectively, the “Lenders”), as the same may be
amended, modified, restated and/or supplemented from time to time.
“Event of
Default” has the meaning set forth in the Credit Agreement.
“Junior
Convertible Notes” means the Notes (as defined in the Credit
Agreement).
“Lender
Representative” has the meaning set forth in the Credit Agreement.
“Lien”
means any lien, mortgage, security interest, tax lien, financing statement,
pledge, charge, hypothecation, assignment, preference, priority or other
encumbrance of any kind or nature whatsoever (including, without limitation, any
conditional sale or title retention agreement), whether arising by contract,
operation of law or otherwise.
“Loan
Documents” means the Credit Agreement, this Note and all security agreements,
deeds of trust, pledge agreements, assignments, letters of credit, guaranties,
certificates and other instruments, documents, and agreements, if any, executed
and delivered pursuant to or in connection with this Note, as such instruments,
documents, and agreements may be amended, modified, renewed, extended, or
supplemented from time to time.
“Material
Adverse Effect” means a material adverse effect on (a) the business, operations,
property or condition (financial or otherwise) of Borrower and its subsidiaries,
taken as a whole, (b) the ability of Borrower to pay the Obligations or the
ability of Borrower or any Guarantor to perform its respective obligations under
this Note or any of the other Loan Documents or (c) the validity or
enforceability of this Note or any of the other Loan Documents, or the rights or
remedies of Lender hereunder or thereunder.
“Maturity
Date” means August 21, 2013.
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“Maximum
Rate” means the maximum rate of nonusurious interest permitted from day to day
by applicable law, including Chapter 303 of the Texas Finance Code (the “Code”)
(and as the same may be incorporated by reference in other Texas
statutes). To the extent that Chapter 303 of the Code is relevant to
any holder of this Note for the purposes of determining the Maximum Rate, each
such holder elects to determine such applicable legal rate pursuant to the
“weekly ceiling,” from time to time in effect, as referred to and defined in
Chapter 303 of the Code; subject, however, to the limitations on such applicable
ceiling referred to and defined in the Code, and further subject to any right
such holder may have subsequently, under applicable law, to change the method of
determining the Maximum Rate.
“Obligations”
means (a) all obligations, indebtedness and liabilities of Borrower to Lender,
now existing or hereafter arising, including, without limitation, the
obligations, indebtedness and liabilities of Borrower under the Credit
Agreement, this Note and the other Loan Documents, and (b) all interest accruing
thereon and all attorneys’ fees and other expenses incurred in the enforcement
or collection thereof.
“Person”
means any individual, corporation, limited liability company, business trust,
association, company, partnership, joint venture, governmental authority, or
other entity.
8. Borrower
may prepay this Note, in whole or in part, without premium or penalty, subject
to a $500,000.00 minimum prepayment amount in the aggregate for this Note and
all other Junior Convertible Notes outstanding under the Credit Agreement (or
such lesser amount as may be outstanding in the aggregate under this Note and
all other Junior Convertible Notes outstanding under the Credit Agreement) upon
the later of, and at any time after the later of, (a) thirty-six (36) months
after the date hereof or (b) the achievement by Borrower of positive Cash Flow
for three (3) consecutive fiscal quarters. Prior to any such
prepayment Borrower shall give Lender written notice thereof, and Lender shall
have thirty (30) days thereafter to convert in accordance with the terms hereof
and the Credit Agreement all or any portion of this Note prior to such
prepayment. Any prepayment shall include the payment of all accrued
unpaid interest under this Note through the date of any such
prepayment.
9. Borrower
shall make a mandatory prepayment on this Note from time to time at the demand
of the Lender Representative stating that Xxxxxxx holding at least fifty-one
percent (51%) of the outstanding Obligations have elected to cause Borrower to
prepay the Obligations in whole or in part in an amount reasonably determined by
Lender Representative (given Borrower’s then available funds) at any time after
Borrower has achieved positive Cash Flow for three (3) consecutive fiscal
quarters.
10. Borrower
shall make a mandatory payment of interest due under this Note from time to time
at the demand of Lender Representative in an amount reasonably determined by the
Lender Representative (given Borrower’s then available funds) at any time after
Xxxxxxxx has achieved positive Cash Flow for at least one fiscal
quarter.
11. At all
times while this Note or any part thereof remains outstanding, Borrower will
maintain sufficient duly authorized and unissued common shares as may be
necessary to permit Lender to effect the conversion of the entire principal
balance hereof and accrued interest hereon.
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12. All
notices and other communications provided for in this Note and the other Loan
Documents shall be given as provided in the Credit Agreement.
13. Notwithstanding
anything to the contrary contained herein, no provision of this Note shall
require the payment or permit the collection of interest in excess of the
Maximum Rate. If any excess of interest in such respect is herein
provided for, or shall be adjudicated to be so provided, in this Note or
otherwise in connection with this loan transaction, the provisions of this
paragraph shall govern and prevail, and neither Borrower nor the sureties,
guarantors, successors or assigns of Borrower shall be obligated to pay the
excess amount of such interest, or any other excess sum paid for the use,
forbearance or detention of sums loaned pursuant hereto. If for any
reason interest in excess of the Maximum Rate shall be deemed charged, required
or permitted by any court of competent jurisdiction, any such excess shall be
applied as a payment and reduction of the principal of indebtedness evidenced by
this Note; and, if the principal amount hereof has been paid in full, any
remaining excess shall forthwith be paid to Borrower. In determining
whether or not the interest paid or payable exceeds the Maximum Rate, Borrower
and Lender shall, to the extent permitted by applicable law, (a) characterize
any non-principal payment as an expense, fee, or premium rather than as
interest, (b) exclude voluntary prepayments and the effects thereof, and (c)
amortize, prorate, allocate, and spread in equal or unequal parts the total
amount of interest throughout the entire contemplated term of the indebtedness
evidenced by this Note so that the interest for the entire term does not exceed
the Maximum Rate.
14. Upon the
occurrence of any Event of Default, Lender Representative may, at its option,
(a) declare the entire unpaid principal of and accrued interest on this Note
immediately due and payable without notice, demand, presentment, notice of
acceleration, notice of intent to accelerate, notice of intent to demand or
other formalities of any kind, all of which are hereby waived, and upon such
declaration, the same shall become and shall be immediately due and payable, and
(b) exercise its rights and remedies as provided in the Credit Agreement and the
other Loan Documents.
15. Borrower
hereby agrees to pay Lender on demand all reasonable costs and expenses incurred
by Lender in connection with the enforcement of this Note or any other Loan
Document, including, without limitation, the reasonable fees and expenses of
Xxxxxx’s legal counsel and (c) all other reasonable costs and expenses incurred
by Lender in connection with this Note or any other Loan Document.
16. THIS NOTE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS
NOTE IS PERFORMABLE IN XXXXXX COUNTY, TEXAS. ANY ACTION OR PROCEEDING
UNDER OR IN CONNECTION WITH THIS NOTE OR ANY LOAN DOCUMENT SHALL BE BROUGHT IN
ANY STATE OR FEDERAL COURT IN XXXXXX COUNTY, TEXAS, AND BORROWER HEREBY SUBMITS
TO THE JURISDICTION OF SUCH COURTS.
17. Borrower
and each surety, guarantor, endorser, and other party ever liable for payment of
any sums of money payable on this Note jointly and severally waive notice,
presentment, demand for payment, protest, notice of protest and non-payment or
dishonor, notice of acceleration, notice of intent to accelerate, notice of
intent to demand, diligence in collecting, grace, and all other formalities of
any kind, and consent to all extensions without notice for any period or periods
of time and partial payments, before or after maturity, and any impairment of
any collateral securing this Note, all without prejudice to the
holder. The holder shall similarly have the right to deal in any way,
at any time, with one or more of the foregoing parties without notice to any
other party, and to grant any such party any extensions of time for payment of
any of said indebtedness, or to grant any other indulgences or forbearances
whatsoever, without notice to any other party and without in any way affecting
the personal liability of any party hereunder.
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18. THIS
NOTE, AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE
AGREEMENT BETWEEN BORROWER AND LENDER WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND THEREOF AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS
OF BORROWER AND LENDER. THERE ARE NO ORAL AGREEMENTS BETWEEN BORROWER
AND LENDER.
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REMOTE
KNOWLDEGE, INC.,
a
Delaware corporation
By:
Xxxxx X. Xxxxx, President
[SIGNATURE
PAGE TO JUNIOR CONVERTIBLE NOTE _____________]
