WINSONIC DIGITAL MEDIA GROUP, LTD. 6% CONVERTIBLESUBORDINATED PROMISSORY NOTE
Exhibit
4.1
THIS
NOTE
AND THE UNDERLYING SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES
ONLY
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE
"ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND
THE UNDERLYING SECURITIES MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED
OR
OTHERWISE OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND UNDER ANY APPLICABLE STATE SECURITIES
LAWS. THE PAYOR (AS DEFINED BELOW), IN ITS SOLE DISCRETION, SHALL
HAVE THE RIGHT TO REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE
COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN
CONNECTION WITH ANY PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION
OF ANY
APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON
ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE.
WINSONIC
DIGITAL MEDIA GROUP, LTD.
6%
CONVERTIBLESUBORDINATED PROMISSORY NOTE
|
$__________
|
October
12, 2007
|
FOR
VALUE
RECEIVED, Winsonic Digital Media Group, Ltd., a Nevada corporation
("Payor"), having its executive office at 000 Xxxxxxxx Xxxxxx, Xxxxx
0000, Xxxxxxx, Xxxxxxx 00000 promises to pay to ____________ ("Payee"),
having
an address at ___________________ (or at such other place as Payee
may from time to time hereafter direct by notice in writing to Payor),
the
principal sum of ____________________ ($_______) plus
accrued interest, on the first to occur of the following dates:
(i) October
12, 2008 (the "Maturity Date");
(ii) the
date on which all outstanding amounts under this Note are prepaid in full
pursuant to Section 2 hereof (the "Prepayment Date");
(iii) the
date (the "Conversion Date") on which (1) the outstanding principal
amount of this Note plus accrued interest is automatically converted into
the
Payor's common stock, par value $0.001 per share (the "Common Stock")
pursuant to Section 4.2 hereof or (2) the Payee elects to convert this
Note into
Common Stock of the Payor pursuant to Section 4.1 hereof, which election
may be
made at any time by Payee by delivering a conversion notice in writing
to Payor;
and
(iv)
any
other date on which the principal amount of, or accrued unpaid
interest
on,
this
Note is declared to be, or becomes, due and payable pursuant to its terms
prior
to the Maturity Date (the "Acceleration Date").
1. Computation
of Interest; Payments.
1.1. The
principal amount of this Note outstanding from time to time shall bear
interest
at the rate of six percent (6%) per annum (the "Interest Rate") from the
date hereof through the earliest to occur of (i) the Maturity Date;
(ii) the Prepayment Date; (iii) the Conversion Date or (iv) the
Acceleration Date.
1.2. Interest
accrued on this Note shall only be payable on the earliest to occur of
(i) the
Maturity Date; (ii) the Prepayment Date; (iii) the Conversion Date or (iv)
the
Acceleration Date.
1.3. All
payments made by the Payor on this Note shall be applied first to the payment
of
accrued unpaid interest on this Note and then to the reduction of the unpaid
principal balance of this Note.
1.4. In
the
event that the date for the payment of any amount payable under this Note
falls
due on a Saturday, Sunday or public holiday under the laws of the State
of New
York, the time for payment of such amount shall be extended to the next
succeeding business day and interest at the Interest Rate shall continue
to
accrue on any principal amount so effected until the payment thereof on
such
extended due date.
2.
Prepayment. The
Payor may, without prior notice, prepay the outstanding principal and accrued
but unpaid interest of this Note in whole at any time, or in part from
time to
time, without penalty, fee or charge. Each prepayment of this Note
shall first be applied to interest accrued through the date of prepayment
and
then to principal.
3.
Merger
Transaction. On or before the Maturity Date, if the
Payor completes a transaction (“Merger Transaction”) in which (a) Payor is
merged or consolidated with or into any other corporation in which the
shareholders of the Payor shall own less than 50% of the voting securities
of
the surviving corporation or (b) the acquirer purchases all or substantially
all
of the Payor’s assets, the unpaid principal and accrued and unpaid interest
outstanding under the Note will be due and payable upon the closing of
the
Merger Transaction (the "Merger Acceleration Date"), subject to the
Payee’s rights of conversion set forth in Section 4.1(b) below.
4.
Conversion.
4.1.
Voluntary
Conversion.
(a) Any holder
of this Note has the right, at the holder's option, at any time and prior
to
payment or conversion of this Note, to convert any then unpaid principal
of this
Note (together with any accrued and unpaid interest due under this Note),
in
whole but not in part, into a whole number of shares of the Payor's Common
Stock
at a price per share equal to $0.20 (subject to appropriate adjustments
as set
forth herein, the "Conversion Price") upon satisfaction of the conditions
set forth in this Section 4.
2
(b) On or
before the Maturity Date, if the Payor completes a Merger Transaction,
the Payee
shall have the option for thirty (30) days prior to the Merger Acceleration
Date
to convert any then unpaid principal of this Note (together with any accrued
and
unpaid interest due under this Note) into a whole number of shares of the
Payor's Common Stock at a price per share equal to the Conversion Price
upon
satisfaction of the conditions set forth in this Section 4.
4.2.
Automatic
Conversion. On or before the Maturity Date, if the Payor
completes an offering of its preferred stock, Common Stock or a combination
of
preferred stock and Common Stock for gross proceeds of at least $3,000,000
(an
"Equity Financing"), the then unpaid principal of this Note (together
with any accrued and unpaid interest due under this Note) will automatically
convert into a whole number of shares of the Payor's Common Stock at a
price per
share equal to the Conversion Price.
4.3.
Conversion
Procedures.
(a) Notice
of Conversion Pursuant to Section 4.1. Before the Payee shall be
entitled to convert this Note pursuant to Section 4.1 hereof, it shall
surrender
this Note, and shall give written notice to the Payor (the "Conversion
Notice") at its principal office, of the election to convert the same at
least five business days prior to the effective date of such
conversion. The Conversion Notice shall state the principal amount
and accrued and unpaid interest which the Payee elects to convert, the
number of
shares of Payor's Common Stock to be issued in connection with such conversion
and the effective date of such conversion (the "Voluntary Conversion
Date"). Payee shall cooperate with Payor and provide Payor with
additional documentation or information upon reasonable request in order
to
enable the Conversion Shares to be issued.
(b) Notice
of Conversion Pursuant to Section 4.2. If this Note is
automatically converted pursuant to Section 4.2, written notice shall be
delivered to the Payee of this Note at the address last shown on the records
of
the Payor for the Payee or given by the Payee to the Payor for the purpose
of
notice, or, if no such address appears or is given, at the place where
the
principal office of the Payor is located, notifying the Payee of the conversion
to be effected and the applicable conversion price, the principal amount
of the
Note to be converted, the amount of accrued interest to be converted, the
date
on which such conversion will occur (the "Automatic Conversion Date" and
collectively with the Voluntary Conversion Date, the "Conversion Date")
and calling upon such Payee to surrender to the Payor, in the manner and
at the
place designated, the Note.
(c) Mechanics
of Conversion. If this Note is to be converted pursuant to this
Section 4, (i) Payee shall tender to Payor this Note for cancellation on
or
prior to the Conversion Date and (ii) as soon as practicable following
receipt
of this Note for cancellation, but in no event later than ten business
days
following such receipt, the Payor shall deliver to the Payee a certificate
or
certificates representing the number of shares of the Payor's Common Stock
to
which the Payee is entitled pursuant to this Section 4. Conversion of
this Note shall be deemed to have been made as of the Conversion
Date.
3
(d) No
Fractional Shares. No fractional shares of the Payor's Common Stock shall be
issued upon conversion of this Note. In lieu of issuing any
fractional shares of the Payor's Common Stock, Payor shall round up any
conversion calculations so that only whole integrals of Common Stock shall
be
issued upon conversion.
(e) Effect
of Conversion. The delivery to the Payee of a certificate
evidencing the shares of Common Stock into which this Note has been converted
shall be deemed to satisfy the Payor's obligation to pay, when due, the
principal and interest under this Note so converted. Any interest
converted shall be deemed paid and not cancelled, extinguished or
forfeited.
(f) Taxes on
Conversion. The Payor shall pay any and all documentary stamp or
similar issue or transfer taxes or any other taxes payable in respect of
the
issue or delivery of Common Stock to Payee upon conversion of this
Note.
(g) Reservation
of Common Stock. The Payor shall at all times when this Note
shall be outstanding, reserve and keep available out of its authorized
but
unissued Common Stock, a number of shares of Common Stock as shall from
time to
time be sufficient to effect the conversion of this Note. The Payor
shall, from time to time in accordance with the law of the state of the
Payer's
incorporation, take such corporate action as shall be necessary to ensure
that
the Payor may validly and legally issue fully paid and nonassessable shares
of
Common Stock to effect the conversion of this Note.
(h) Adjustment
for Reorganization, Consolidation, Merger or Reclassification. If
after the date hereof the Payor shall (i) effect a reorganization,
(ii) consolidate with or merge into any other person or entity, (iii)
change the shares of Common Stock issuable upon conversion of this Note
into the
same or a different number of shares of any class(es) or series of stock,
whether by reclassification or otherwise or (iv) sell or transfer all or
substantially all of its properties or assets to any other person or entity
under any plan or arrangement contemplating the dissolution of the Payor,
then,
in each such case, the Payee, upon the conversion of this Note as provided
in
this Section 4 at any time or from time to time after the consummation
of such
reorganization, consolidation, reclassification, merger or sale, or the
effective date of such dissolution, as the case may be, shall receive,
in lieu
of the shares of Common Stock issuable on such conversion immediately prior
to
such consummation or such effective date, as the case may be, the stock
and
property (including cash) to which the Payee would have been entitled upon
the
consummation of such reorganization, consolidation, reclassification or
merger,
or in connection with such dissolution, as the case may be, if the Note
had been
converted immediately prior thereto (assuming the payment by the Payee
of the
Conversion Price therefor as required hereby).
5.
Piggy-Back
Registration Rights.
5.1. Defined
Terms. As used in this Section 5, terms defined elsewhere herein
shall have their assigned meanings and each of the following terms shall
have
the following meanings (such definitions to be applicable to both the plural
and
singular of the terms defined):
(a) Registrable
Securities; Effectiveness Period. The term "Registrable
Securities" shall mean any shares of Payor's Common Stock issuable upon
conversion of this Note in accordance with the terms and conditions
hereof. For the purposes of
4
this
Section 5, securities will cease to be Registrable Securities when (A)
a
registration statement under the Act, covering such Registrable Securities
has
been declared effective and (1) such Registrable Securities have been disposed
of pursuant to such effective registration statement or (2) such registration
statement has remained effective for 270 consecutive days, (B) such Registrable
Securities are transferred pursuant to an exemption from the registration
requirements of the Act, including, without limitation, Rules 144 and 144A
promulgated thereunder, (C) such Registrable Securities are eligible for
sale
pursuant to Rule 144(k) of the Act (or any similar provision then in force)
or
(D) such Registrable Securities have been otherwise transferred and the
Payor,
in accordance with applicable law and regulations, has delivered new
certificates or other evidences of ownership for such securities which
are not
subject to any stop transfer order or other restriction on transfer ((A)
through
(D) collectively referred to herein as the "Effectiveness
Period").
(b) Rightsholders. The
term "Rightsholder" shall include the Payee, all successors and assigns
of the Payee and all transferees of Registrable Securities where such transfer
affirmatively includes the transfer and assignment of the rights of the
Payee
under this Note with respect to the transferred Registrable Securities
and such
transferee agrees in writing to assume all of the Payee’s agreements,
obligations and liabilities under this Note.
5.2. Piggy-Back
Registration.
(a) If,
at any time on or after the date hereof and prior to the Maturity Date,
the
Payor proposes to file a registration statement under the Act with respect
to an
offering by the Payor or any other party of any class of equity security
similar
to any Registrable Securities (other than a registration statement on Form
S-4
or Form S-8 or any successor form or a registration statement filed solely
in
connection with a stock option or other employee benefit plan, an exchange
offer, a business combination transaction or an offering of securities
solely to
the existing stockholders or employees of the Payor), then the Payor, on
each
such occasion, shall give written notice (each, a "Piggy-Back Notice") of
such proposed filing to all of the Rightsholders owning Registrable Securities
at least fifteen days before the anticipated filing date of such registration
statement, and such Piggy-Back Notice also shall be required to offer to
such
Rightsholders the opportunity to register such aggregate number of Registrable
Securities as each such Rightsholder may request. Each such
Rightsholder shall have the right, exercisable for the five days immediately
following the giving of a Piggy-Back Notice, to request, by written notice
(each, a "Holder Notice") to the Payor, the inclusion of all or any
portion of the Registrable Securities of such Rightsholders in such registration
statement. The Payor shall use reasonable efforts to cause the
managing underwriter(s) of a proposed underwritten offering to permit the
inclusion of the Registrable Securities which were the subject of all Holder
Notices in such underwritten offering on the same terms and conditions
as any
similar securities of the Payor included therein. Notwithstanding
anything to the contrary contained in this Section 5.2(1), if the managing
underwriter(s) of such underwritten offering or any proposed underwritten
offering delivers a written opinion to the Rightsholders of Registrable
Securities which were the subject of all Holder Notices that the total
amount
and kind of securities which they, the Payor and any other person intend
to
include in such offering is such as to materially and adversely affect
the
success of such offering, then the amount of securities to be offered for
the
accounts of such Rightsholders and persons other than the Payor shall be
eliminated or reduced pro rata (based on the amount of securities owned
by such
Rightsholders and other
5
persons
which carry registration rights) to the extent necessary to reduce the
total
amount of securities to be included in such offering to the amount recommended
by such managing underwriter(s) in the managing underwriter’s written
opinion.
(b) Number
of Piggy-Back Registrations; Expenses. The obligations of the
Payor under this Section 5 shall be unlimited with respect to each
Rightsholder. Subject to the provisions of Section 5.4 hereof, the
Payor will pay all Registration Expenses (as defined below) in connection
with
any registration of Registrable Securities effected pursuant to this Section
5,
but the Payor shall not be responsible for the payment of any underwriter’s
discount, commission or selling concession in connection therewith.
(c) Withdrawal
or Suspension of Registration Statement. Notwithstanding anything
contained to the contrary in this Section 5, the Payor shall have the absolute
right, whether before or after the giving of a Piggy-Back Notice or receipt
of a
Holder Notice, to determine not to file a registration statement to which
the
Rightsholders shall have the right to include their Registrable Securities
therein, to withdraw such registration statement or to delay or suspend
pursuing
the effectiveness of such registration statement. In the event of
such a determination after the giving of a Piggy-Back Notice, the Payor
shall
give notice of such determination to all Rightsholders and, thereupon,
(A) in
the case of a determination not to register or to withdraw such registration
statement, the Payor shall be relieved of its obligation under this Section
5 to
register any of the Registrable Securities in connection with such registration
and (B) in the case of a determination to delay the registration, the Payor
shall be permitted to delay or suspend the registration of Registrable
Securities pursuant to this Section 5.2 for the same period as the delay
in the
registration of such other securities. No registration effected under
this Section 5 shall relieve the Payor of its obligation to effect any
registration upon demand otherwise granted to a Rightsholder under any
other
agreement with the Payor.
5.3. Registration
Procedures.
(a) Obligations
of the Payor. The Payor will, in connection with any registration
pursuant to Section 5.2 hereof, as expeditiously as possible:
(1) prepare
and file with the Securities and Exchange Commission (the "Commission") a
registration statement under the Act on any appropriate form chosen by
the
Payor, in the Payor’s sole discretion, which shall be available for the sale of
all Registrable Securities in accordance with the intended method(s) of
distribution thereof set forth in all applicable Holder Notices, and use
the
Payor’s commercially reasonable efforts to cause such registration statement
to
become effective as soon thereafter as reasonably practicable; provided,
that, at least five business days before filing with the Commission of
such
registration statement, the Payor shall furnish to each Rightsholder whose
Registrable Securities are to be included therein draft copies of such
registration statement, including all exhibits thereto; and provided,
further, the Payor shall modify or amend the registration statement
as it
relates to such Rightsholder as reasonably requested by such Rightsholder
on a
timely basis, and shall reasonably consider other changes to the registration
statement (but not including any exhibit or document incorporated therein
by
reference) reasonably requested by such Rightsholder on a timely basis,
in light
of the requirements of the Act and any other applicable laws and
regulations.
6
(2) prepare
and file with the Commission such amendments and supplements to a registration
statement and the prospectus used in connection therewith as may be necessary
to
keep the registration statement effective and to comply with the provisions
of
the Act with respect to the sale or other disposition of all securities
covered
by the registration statement during the Effectiveness Period;
(3) furnish
to such Rightsholder such number of copies of a prospectus, including a
preliminary prospectus, in conformation with the requirements of the Act,
and
such other documents, as such Rightsholder may reasonably request;
(4) use
its reasonable efforts to register or qualify the Registrable Securities
included in such registration statement under such other securities or
blue sky
laws of such jurisdictions as any Rightsholder whose Registrable Securities
are
included in such registration statement reasonably requests in writing
and do
any and all other acts and things which may be necessary or advisable to
enable
such Rightsholder to consummate the disposition in such jurisdictions of
such
Registrable Securities; provided, that the Payor will not be required to
(i) qualify generally to do business in any jurisdiction where it would
not
otherwise be required to qualify but for this clause (4), (ii) subject
itself to
taxation in any such jurisdiction or (iii) take any action which would
subject
it to general service of process in any such jurisdiction;
(5) notify
each Rightsholder of any Registrable Securities covered by the registration
statement, promptly at any time when a prospectus relating thereto is required
to be delivered under the Act, of the occurrence of a Discontinuation Event
(as
defined below). For purposes of this Section 5.3(a)(5), a
"Discontinuation Event" shall mean (i) when the Commission notifies the
Payor that there will be a “review” of such registration statement and whenever
the Commission comments in writing on such registration statement and until
the
Payor has addressed the comments in a supplemented prospectus and/or amended
registration statement and/or supplementally; (ii) any request by the Commission
or any other Federal or state governmental authority for amendments or
supplements to such registration statement or prospectus or for additional
information and until the request has been responded to; (iii) the issuance
by
the Commission of any stop order suspending the effectiveness of such
registration statement covering any or all of the Registrable Securities
or the
initiation of any proceedings for that purpose; (iv) the receipt by the
Payor of
any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale
in
any jurisdiction, or the initiation or threatening, in writing, of any
proceeding for such purpose; and/or (v) the occurrence of any event or
passage
of time that makes the financial statements included in such registration
statement ineligible for inclusion therein or any statement made in such
registration statement or prospectus or any document incorporated or deemed
to
be incorporated therein by reference untrue in any material respect or
that
requires any revisions to such registration statement, prospectus or other
documents so that, in the case of such registration statement or prospectus,
as
the case may be, it will not contain any untrue statement of a material
fact or
omit to state any material fact required to be stated therein or necessary
to
make the statements therein in light of the circumstances under which they
were
made, not misleading;
7
(6) use
reasonable efforts to obtain the withdrawal of any order suspending the
effectiveness of such registration statement at the earliest possible time
and
to prevent the entry of such an order;
(7) make
available for inspection by each Rightsholder whose Registrable Securities
are
included in such registration statement, any underwriter(s) participating
in any
disposition pursuant to such registration statement, and any representative,
agent or employee of or attorney or accountant retained by any such Rightsholder
or underwriter(s) (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the Payor
(collectively, the "Records") and cause the officers, directors and
employees of the Payor to supply all information reasonably requested by
any
such Inspector in connection with such registration statement; provided,
that records which the Payor determines, in good faith, to be confidential
and
which it notifies the Inspectors are confidential shall not be disclosed
by the
Inspectors, unless (i) the release of such Records is ordered pursuant
to a
subpoena or other order from a court of competent jurisdiction or (ii)
the
disclosure of such Records is required by any applicable law or regulation
or
any governmental regulatory body with jurisdiction over such Rightsholder
or
underwriter; provided, further, that such Rightsholder or
underwriter(s) agree that such Rightsholder or underwriter(s) will, upon
learning the disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Payor and allow the Payor, at the Payor’s
expense, to undertake appropriate action to prevent disclosure of the Records
deemed confidential;
(8) cooperate
with the Rightsholder whose Registrable Securities are included in such
registration statement and the managing underwriter(s), if any, to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be sold thereunder, not bearing any restrictive legends,
and
enable such Registrable Securities to be in such denominations and registered
in
such names as such Rightsholder or any managing underwriter(s) may reasonably
request at least two business days prior to any sale of Registrable
Securities;
(9) comply
with all applicable rules and regulations of the Commission and promptly
make
generally available to its security holders an earnings statement covering
a
period of twelve months commencing, (i) in an underwritten offering, at
the end
of any fiscal quarter in which Registrable Securities are sold to
underwriter(s), or (ii) in a non-underwritten offering, with the first
month of
the Payor’s first fiscal quarter beginning after the effective date of such
registration statement, which earnings statement in each case shall satisfy
the
provisions of Section 11(a) of the Act;
(10) provide
a CUSIP number for all Registrable Securities not later than the effective
date
of the registration statement relating to the first public offering of
Registrable Securities of the Payor pursuant hereto;
(11) enter
into such customary agreements (including an underwriting agreement in
customary
form) and take all such other actions reasonably requested by the Rightsholders
holding a majority of the Registrable Securities included in such registration
statement or the managing underwriter(s) in order to expedite and facilitate
the
disposition of such Registrable Securities and in such connection, whether
or
not an underwriting
8
agreement
is entered into and whether or not the registration is an underwritten
registration, (i) make such representations and warranties, if any, to the
holders of such Registrable Securities and any underwriter(s) with respect
to
the registration statement, prospectus and documents incorporated by reference,
if any, in form, substance and scope as are customarily made by issuers
to
underwriter(s) in underwritten offerings and confirm the same if and when
requested, (ii) obtain opinions of counsel to the Payor and updates thereof
addressed to each such Rightsholder and the underwriter(s), if any, with
respect
to the registration statement, prospectus and documents incorporated by
reference, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such Rightsholders and underwriter(s), (iii) obtain a "comfort"
letter from the Payor’s independent certified public accountants addressed to
such Rightsholders and to the underwriter(s), if any, which letters shall
be in
customary form and cover matters of the type customarily covered in "comfort"
letters by accountants in connection with underwritten public offerings,
and
(iv) deliver such documents and certificates as may be reasonably requested
by
the Rightsholders holding a majority of such Registrable Securities and
managing
underwriter(s), if any, to evidence compliance with any customary conditions
contained in the underwriting agreement or other agreement entered into
by the
Payor; each such action required by this clause (11) shall be done at each
closing under such underwriting or similar agreement or as and to the extent
required thereunder; and
(12) if
requested by the holders of a majority of the Registrable Securities included
in
such registration statement, use its best efforts to cause all Registrable
Securities which are included in such registration statement to be listed,
subject to notice of issuance, by the date of the first sale of such Registrable
Securities pursuant to such registration statement, on each securities
exchange,
if any, on which securities similar to the Registered Securities are
listed.
(b) Obligations
of Rightsholders. In connection with any registration of
Registrable Securities of a Rightsholder pursuant to Section 5.2
hereof:
(1) The
Payor may require that each Rightsholder whose Registrable Securities are
included in such registration statement furnish to the Payor such information
regarding the distribution of such Registrable Securities and such Rightsholder
as the Payor may from time to time reasonably request in writing;
(2) Each
Rightsholder agrees by its acquisition of such Registrable Securities that,
upon
receipt of any notice from the Payor of the happening of any Discontinuation
Event, shall forthwith discontinue disposition of Registrable Securities
pursuant to the registration statement covering such Registrable Securities
until such Rightsholder’s receipt of the copies of the supplemented prospectus
and/or amended registration statement or until it is advised in writing
by the
Payor that the use of the applicable prospectus may be resumed, and, in
either
case, has received copies of any additional or supplemental filings that
are
incorporated or deemed to be incorporated by reference in such prospectus
or
registration statement; and
(3) It
shall be a condition precedent to the Payor's obligation to take any action
pursuant to this Section 5 in respect of the Registrable Securities that
are to
be registered at the request of any Rightsholder that such Rightsholder
shall
furnish to the Payor
9
such
information regarding the securities held by such Rightsholder, the intended
method of disposition thereof and any other information as the Payor shall
reasonably request and as shall be required in connection with the action
taken
by the Payor. No Rightsholder may participate in any underwritten
registration hereunder unless such Rightsholder (i) agrees to sell such
holder’s
securities on the basis provided in any underwriting arrangements approved
by
the persons entitled hereunder to approve such arrangements and to comply
with
Regulation M under the Securities Exchange Act of 1934, as amended and
(ii)
completes and executes all questionnaires, appropriate and limited powers
of
attorney, escrow agreements, indemnities, underwriting agreements and other
documents reasonably required under the terms of such underwriting
arrangement.
5.4. Registration
Expenses. All expenses incident to the performance of or
compliance with this Note by the Payor, including, without imitation, all
registration and filing fees of the Commission, NASD, Inc. and other agencies,
fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), rating agency fees, printing
expenses, messenger and delivery expenses, internal expenses (including,
without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the fees and expenses incurred in connection
with
the listing, if any, of the Registrable Securities on any securities exchange
and fees and disbursements of counsel for the Payor and the Payor’s independent
certified public accountants (including the expenses of any special audit
or
"comfort" letters required by or incidental to such performance), Act or
other
liability insurance (if the Payor elects to obtain such insurance), the
fees and
expenses of any special experts retained by the Payor in connection with
such
registration and the fees and expenses of any other person retained by
the Payor
(but not including any underwriting discounts or commissions attributable
to the
sale of Registrable Securities or other out-of-pocket expenses of the
Rightsholders, or the agents who act on their behalf, unless reimbursement
is
specifically approved by the Payor) will be borne by the Payor. All
such expenses are herein referred to as "Registration
Expenses".
5.5. Indemnification;
Contribution.
(a) Indemnification
by the Payor. The Payor agrees to indemnify and hold harmless, to
the full extent permitted by law, each Rightsholder, its officers and directors
and each person who controls such Rightsholder (within the meaning of the
Act),
if any, and any agent thereof against all losses, claims, damages, liabilities
and expenses incurred by such party pursuant to any actual or threatened
suit,
action, proceeding or investigation (including reasonable attorney’s fees and
expenses) arising out of or based upon any untrue or alleged untrue statement
of
a material fact contained in any registration statement, prospectus or
preliminary prospectus or any omission or alleged omission to state therein
a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances
under
which they were made) not misleading, except insofar as the same arise
out of or
are based upon, any such untrue statement or omission based upon information
with respect to such Rightsholder furnished in writing to the Payor by
such
Rightsholder expressly for use therein.
(b) Indemnification
by Rightsholder. In connection with any
10
registration
statement in which a Rightsholder is participating, each such Rightsholder
will
be required to furnish to the Payor in writing such information with respect
to
such Rightsholder as the Payor reasonably requests for use in connection
with
any such registration statement or prospectus, and each Rightsholder agrees
to
the extent it is such a holder of Registrable Securities included in such
registration statement, and each other such holder of Registrable Securities
included in such Registration Statement hereby agrees, to indemnify, to
the full
extent permitted by law, the Payor, the directors and officers of the Payor
and
each person who controls the Payor (within the meaning of the Act) and
any agent
thereof, against any losses, claims, damages, liabilities and expenses
(including reasonable attorney’s fees and expenses) incurred by such party
pursuant to any actual or threatened suit, action, proceeding or investigation
arising out of or based upon any untrue or alleged untrue statement of
a
material fact or any omission or alleged omission of a material fact necessary,
to make the statements therein (in the case of a prospectus, in the light
of the
circumstances under which they are made) not misleading, to the extent,
but only
to the extent, that such untrue statement or omission is based upon information
relating to such Rightsholder or other holder furnished in writing to the
Payor
expressly for use therein.
(c) Conduct
of Indemnification Proceedings. Promptly after receipt by an indemnified
party under this Section 5.5 of written notice of the commencement of any
action, proceeding, suit or investigation or threat thereof made in writing
for
which such indemnified party may claim indemnification or contribution
pursuant
to this Note, such indemnified party shall notify in writing the indemnifying
party of such commencement or threat; but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
which the indemnifying party may have to any indemnified party
(A) hereunder, unless the indemnifying party is actually prejudiced
thereby, or (B) otherwise than under this Section 5.5. In case any
such action, suit or proceeding shall be brought against any indemnified
party,
and the indemnified party shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and the indemnifying party shall assume the defense thereof, with
counsel reasonably satisfactory to the indemnified party, and the obligation
to
pay all expenses relating thereto. The indemnified party shall have
the right to employ separate counsel in any such action, suit or proceeding
and
to participate in the defense thereof, but the fees and expenses of such
counsel
shall be at the expense of such indemnified party unless (A) the indemnifying
party has agreed to pay such fees and expenses, (B) the indemnifying party
shall
have failed to assume the defense of such action, suit or proceeding or
to
employ counsel reasonably satisfactory to the indemnified party therein
or to
pay all expenses relating thereto or (C) the named parties to any such
action or
proceeding (including any impleaded parties) include both the indemnified
party
and the indemnifying party and the indemnified party shall have been advised
by
counsel that there may be one or more legal defenses available to the
indemnified party which are different from or additional to those available
to
the indemnifying party and which may result in a conflict between the
indemnifying party and such indemnified party (in which case, if the indemnified
party notifies the indemnifying party in writing that the indemnified party
elects to employ separate counsel at the expense of the indemnifying party,
the
indemnifying party shall not have the right to assume the defense of such
action
or proceeding on behalf of the indemnified party; it being understood,
however,
that the indemnifying party shall not, in connection with any one such
action,
suit or proceeding or separate but substantially similar or related actions,
suits or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the
11
fees
and
expenses of more than one separate firm of attorneys at any time for the
indemnified party, which firm shall be designated in writing by the indemnified
party).
(d) Contribution. If
the indemnification provided for in this Section 5.5 from the indemnifying
party
is unavailable to an indemnified party hereunder in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a
result
of such losses, claims, damages, liabilities or expenses (A) in such proportion
as is appropriate to reflect the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other or (B) if the
allocation provided by clause (A) above is not permitted by applicable
law, in
such proportion as is appropriate to reflect not only the relative benefits
received by the indemnifying party on the one hand and the indemnified
party on
the other but also the relative fault of the indemnifying party and indemnified
party, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and the indemnified parties shall
be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or
omission
or alleged omission to state a material fact, has been made by, or relates
to
information supplied by, such indemnifying party or indemnified parties,
and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a party
as a result of the losses, claims, damages, liabilities and expenses referred
to
above shall be deemed to include, subject to the limitation set forth in
Section
5.5, any legal or other fees or expenses reasonably incurred by such party
in
connection with any investigation or proceeding.
The
parties hereto agree that it would
not be just and equitable if contribution pursuant to this Section 5.5(d)
were
determined by pro rata allocation or by any other method of allocation
which
does not take into account the equitable considerations referred to in
clauses
(A) and (B) of the immediately preceding paragraph. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of
the Act) shall be entitled to contribution from any person who was not
guilty of
such fraudulent misrepresentation.
(e) Limitation. Notwithstanding
anything to the contrary contained in this Section 5.5, no holder of Registrable
Securities shall be liable for indemnification and contribution payments
aggregating an amount in excess of the maximum amount received by such
holder in
connection with any sale of Registrable Securities as contemplated
herein.
6. Covenants
of Payor.
Payor
covenants and agrees that, so long as this Note remains outstanding and
unpaid,
in whole or in part:
6.1. Payor
will not sell, transfer or dispose of a material part of its
assets;
6.2. Payor
will promptly pay and discharge all lawful taxes, assessments and governmental
charges or levies imposed upon it, its income and profits, or any of its
property, before the same shall become in default, as well as all lawful
claims
for labor, materials and supplies which, if unpaid, might become a lien
or
charge upon such properties or any part thereof; provided,
however, that Payor or such subsidiary shall not be required to
pay
and
12
6.3. discharge
any such tax, assessment, charge, levy or claim so long as the validity
thereof
shall be contested in good faith by appropriate proceedings and Payor or
such
subsidiary, as the case may be, shall set aside on its books adequate reserves
with respect to any such tax, assessment, charge, levy or claim so
contested;
6.4. Payor
will do or cause to be done all things necessary to preserve and keep in
full
force and effect its corporate existence, rights and franchises and
substantially comply with all laws applicable to Payor as its counsel may
advise;
6.5. Payor
will at all times maintain, preserve, protect and keep its property used
or
useful in the conduct of its business in good repair, working order and
condition (except for the effects of reasonable wear and tear in the ordinary
course of business) and will, from time to time, make all necessary and
proper
repairs, renewals, replacements, betterments and improvements
thereto;
6.6. Payor
will, promptly following the occurrence of an Event of Default (defined
below)
or of any condition or event which, with the giving of notice or the lapse
of
time or both, would constitute an Event of Default, furnish a statement
of
Xxxxx's Chief Executive Officer or Chief Financial Officer to Payee setting
forth the details of such Event of Default or condition or event and the
action
which Payor intends to take with respect thereto;
6.7. Payor
will, and will cause each of its subsidiaries to, at all times maintain
books of
account in which all of its financial transactions are duly recorded in
conformance with generally accepted accounting principles; and
6.8. On
or after March 31, 2008, in the
event of:
(a) any
taking by Payor of a record of any of the holders of any class of securities
for
any purpose, including, but not limited to, determining the holders who
are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or
any other securities or property, or to receive an other right; or
(b) any
special or annual meeting of holders of the Payor’s Common Stock or any action
by holders of the Common Stock of Payor in lieu of such a meeting;
or
(c) any
capital reorganization of Payor, any reclassification of recapitalization
of the
capital stock of Payor or any transfer of all or substantially all of the
assets
of Payor to or consolidation or merger of Payor with or into any other
person;
or
(d) any
proposed issuance or grant by Payor to the existing holders of Common Stock
of
any securities (including but not limited to convertible securities), or
any
right or option to subscribe for any securities;
Payor
will mail or cause to be mailed to the holder of record of this Note a
notice
specifying (i) the date on which any such record is or was to be taken and
the purpose therefore, (ii) the date and purpose of any shareholders meeting
or
proposed shareholders action without meeting, (iii) the date on which any
such
sale, reorganization, reclassification, recapitalization, transfer,
13
consolidation,
merger, dissolution, liquidation or winding-up is to be consummated,
and the
time, if any, to be fixed, as of which the holders of record of Common
Stock are
to surrender or exchange such shares of Common Stock for securities or
other
property deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up
and (iv)
the amount and character of any securities, or rights or options with
respect
thereto, proposed to be issued or granted, the date of such proposed
issuance or
grant and the persons or class of persons to whom such proposed issue
or grant
is to be offered or made. Such notice shall be mailed at least fifteen
(15) days
prior to the record date, shareholders meeting (or shareholders action
without
meeting) or other event specified in this Section 6.7.
7. Events
of Default.
7.1. The
term
"Event of Default" shall mean the occurrence of any of the
following:
(a) The
dissolution of Payor or any vote in favor thereof by the board of directors
and
shareholders of Payor; or
(b) Payor
makes an assignment for the benefit of creditors, or files with a court
of
competent jurisdiction an application for appointment of a receiver or
similar
official with respect to it or any substantial part of its assets, or Payor
files a petition seeking relief under any provision of the Federal Bankruptcy
Code or any other federal or state statute now or hereafter in effect affording
relief to debtors, or any such application or petition is filed against
Payor,
which application or petition is not dismissed or withdrawn within sixty
(60)
days from the date of its filing; or
(c) Payor
fails to pay the principal amount, or interest on, or any other amount
payable
under, this Note as and when the same becomes due and payable; and such
default
is not cured within thirty (30) days of such default or
(d) Xxxxx
admits in writing its inability to pay its debts as they mature; or
(e) Payor
sells all or substantially all of its assets or merges or is consolidated
with
or into another corporation; or
(f) A
proceeding is commenced to foreclose a security interest or lien in any
property
or assets of Payor as a result of a default in the payment or performance
of any
debt in excess of $5,000,000 and secured by such property or assets of
Payor or
of any subsidiary of Payor; or
(g) Payor
defaults in the due observance or performance of any covenant, condition
or
agreement and/or commits a material breach of the representations or warranties
in this Note, (other than the default specified in Section 7.1(c) above)
and
such default continues uncured for a period of sixty (60) days.
14
Remedies. Upon
the occurrence of an Event of Default, and at any time thereafter, the
holder of
this Note shall have the right (at such holder's option) to declare the
principal of, accrued unpaid interest on, and all other amounts payable
under
this Note to be forthwith due and payable, whereupon all such amounts shall
be
immediately due and payable to the holder of this Note, without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived. Forbearance by the holder of this Note to exercise its rights
with respect to any failure or breach of Payor shall not constitute a waiver
of
the right as to any subsequent failure or breach
8. Unconditional
Obligation. The obligations to make the payments provided for in
this Note are absolute and unconditional and not subject to any defense,
set-off, counterclaim, rescission, recoupment or adjustment
whatsoever.
9. Replacement
Of Note. On receipt of evidence
reasonably satisfactory to the Payor of the loss, theft, destruction or
mutilation of this Note, and, in each case of loss, theft or destruction,
delivery of an indemnity agreement reasonably satisfactory in form and
substance
to the Payor or, in the case of mutilation, on surrender and cancellation
of
this Note, the Payor at its expense shall execute and deliver, in lieu
of this
Note, a new note of like tenor.
10. Subordination. All
payments due under this Note shall be subordinated and made junior, in
all
respects to the payment in full of all principal, all interest accrued
thereon
and all other outstanding amounts under Institutional Indebtedness (hereinafter
defined), except Institutional Indebtedness, which, by its terms, is not
expressly senior in right of payment to this Note. The term
"Institutional Indebtedness" shall mean all existing and future senior
indebtedness incurred (a) by the Payor to banks, insurance companies, lease
financing institutions, or other lending institutions (other than small
business
investment companies or venture capital firms) regularly engaged in the
business
of lending money; and (b) any amendment, renewal, extension or refunding
of any
such debt. Each holder, by accepting a Note, agrees to the
subordination of this Note to such Institutional Indebtedness and authorizes
Payor to give it effect.
11. Miscellaneous.
11.1. The
headings of the various paragraphs of this Note are for convenience of
reference
only and shall in no way modify any of the terms or provisions of this
Note.
11.2. This
Note
may not be modified or discharged (other than by payment) except by a writing
duly executed by Xxxxx and Xxxxx.
11.3. All
notices required or permitted to be given hereunder shall be in writing
and
shall be deemed to have been duly given when personally delivered or sent
by
registered or certified mail (return receipt requested, postage prepaid),
facsimile transmission or overnight courier to the address of the intended
recipient as set forth in the preamble to this Note or at such other address
as
the intended recipient shall have hereafter given to the other party hereto
pursuant to the provisions of this Note.
11.4. This
Note
and the obligations of Payor and the rights of Payee shall be governed
by and
construed in accordance with the substantive laws of the State of New York
without giving effect to the choice of laws rules thereof.
15
11.5. This
Note
shall bind Payor and its successors and assigns and shall inure to the
benefit
of the Payee and its successors and assigns.
IN
WITHNESS WHEREOF, this Note has been
executed and delivered on the date specified above by the duly authorized
representative of the Payor.
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WINSONIC
DIGITAL MEDIA GROUP, LTD.
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|
By:
|
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|
Name:
|
Xxxxxxx
Xxxxxxx
|
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Title:
|
Chief
Executive Officer
|
||
Accepted
and Agreed to:
________________________________
16
NOTE
EXERCISE FORM
Dated:
_______________________
TO: Winsonic
Digital Media Group, Ltd. (the "Company")
I,
____________________, hereby
irrevocably elect to convert my 6% Convertible Subordinated Promissory
Note
dated ___________________ (the "Promissory Note") in the amount of
_______________, plus the accrued interest in the amount of ________________,
into ______________ shares of the Company's common stock par value $0.001
per
share (the "Common Stock") pursuant to Section 4 of said Promissory
Note.
I
ACKNOWLEDGE THAT SUCH SHARES OF COMMON STOCK HAVE NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED OR UNDER ANY APPLICABLE STATE SECURITIES
LAWS
AND SUCH SHARES OF COMMON STOCK MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS. THE COMPANY, IN ITS SOLE DISCRETION, SHALL
HAVE THE RIGHT TO REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE
COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN
CONNECTION WITH ANY PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION
OF ANY
APPLICABLE STATE SECURITIES LAWS.
|
Name:
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______________________________________________________ | ||
| (Please type or print in block letters) | |||
|
Tax
ID/SS #:
|
______________________________________________________ | ||
|
Address:
|
______________________________________________________ | ||
| ______________________________________________________ | |||
| ______________________________________________________ | |||
|
Signature:
|
______________________________________________________ | ||
|
(Signature
must conform in all respects to the name of the Noteholder as
set forth on
the face of this Note.)
|
