3% CONVERTIBLE NOTE DUE SEPTEMBER 2, 2012
EXHIBIT
10.2
NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
THIS
NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A PARTIAL
REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR
CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT AND INTEREST
AMOUNTS SET FORTH BELOW.
3% CONVERTIBLE NOTE DUE
SEPTEMBER 2, 2012
OF
LIBERATOR,
INC.
This
Note (“Note”) is
a duly authorized Note of LIBERATOR, INC., a corporation duly
organized and existing under the laws of the State of Nevada (the “Company”), designated as the
Company's 3% Convertible Note Due SEPTEMBER 2, 2012 (“Maturity Date”) in the
principal amount of Two Hundred Fifty Thousand Dollars (US$250,000.00)(the
“Note”).
For
Value Received, the Company hereby promises to pay to the order Hope Capital Inc. or its
registered assigns or successors-in-interest (“Holder”) the principal sum of
Two Hundred Fifty Thousand Dollars (US$250,000.00), together with all accrued
but unpaid Interests thereto, if any, on the Maturity Date, to the extent such
principal amount and Interest has not been repaid with or converted into the
Company's Common Stock (the “Common Stock”), in accordance
with the terms hereof. This Note shall accrue interest daily on the
unpaid principal balance hereof at the rate of 3% per annum from the date of
original issuance hereof (the “Issuance Date”) until the
same becomes due and payable on the Maturity Date, or such earlier date upon
acceleration or by conversion or redemption in accordance with the terms
hereof. Such interest shall accrue daily commencing on the Issuance
Date and shall be computed on the basis of a 360-day year and shall be payable
in accordance with Section 2 hereof. Notwithstanding anything
contained herein, this Note shall bear interest on the due and unpaid Principal
Amount from and after the occurrence and during the continuance of an Event of
Default pursuant to Section 5(a), at the rate (the “Default Rate”) equal to the
lower of twenty percent (20%) per annum or, if lower, the highest rate permitted
by law. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs, then to unpaid
default interest and Interest Amounts (as defined below), and fees and any
remaining amount to principal.
All
payments of principal, interest and default interest on this Note which are not
paid in shares of Common Stock as permitted or required hereunder shall be made
in lawful money of the United States of America by wire transfer of immediately
available funds to such account as the Holder may from time to time designate by
written notice in accordance with the provisions of this Note or by Company
check. This Note may not be prepaid in whole or in part except as
otherwise provided herein. Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day (as defined
below), the same shall instead be due on the next succeeding day which is a
Business Day.
The
following terms and conditions shall apply to this Note:
Section
1. Definitions. For purposes
hereof the following terms shall have the meanings ascribed to them
below:
“Bankruptcy
Event” means any of the following events: (a) the Company or any
subsidiary commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt evidenced by this Note, relief
of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction relating to the Company or any subsidiary thereof; (b) there is
commenced against the Company or any subsidiary any such case or proceeding that
is not dismissed within 60 days after commencement; (c) the Company or any
subsidiary is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered; (d) the Company or any
subsidiary suffers any appointment of any custodian or the like for it or any
substantial part of its property that is not discharged or stayed within 60
days; (e) the Company or any subsidiary makes a general assignment for the
benefit of creditors; (f) the Company or any subsidiary fails to pay, or states
that it is unable to pay or is unable to pay, its undisputed debts generally as
they become due; or (g) the Company or any subsidiary, by any act or failure to
act, expressly indicates its consent to, approval of or acquiescence in any of
the foregoing or takes any corporate or other action for the purpose of
effecting any of the foregoing.
“Business
Day” shall mean any day other than a Saturday, Sunday or a day on which
commercial banks in the City of New York are authorized or required by law or
executive order to remain closed.
“Change in Control
Transaction” will be deemed to exist if, other than the transactions
contemplated by the Common Stock Purchase Agreement (“Stock Purchase Agreement”) by
and among the Company and WES Consulting, Inc., a Florida corporation (“WES”),
(i) there occurs any consolidation, merger or other business combination of the
Company with or into any other corporation or other entity or person (whether or
not the Company is the surviving corporation), or any other corporate
reorganization or corporate transaction or series of related transactions in
which in any of such events the voting stockholders of the Company prior to such
event cease to own 50% or more of the voting power, or corresponding voting
equity interests, of the surviving corporation after such event (including
without limitation any “going private” transaction under Rule 13e-3 promulgated
pursuant to the Exchange Act or tender offer by the Company under Rule 13e-4
promulgated pursuant to the Exchange Act for 20% or more of the Company's Common
Stock), (ii) any person (as defined in Section 13(d) of the Exchange Act),
together with its affiliates and associates (as such terms are defined in Rule
405 under the Securities Act), beneficially owns or is deemed to beneficially
own (as described in Rule 13d-3 under the Exchange Act without regard to the
60-day exercise period) in excess of 50% of the Company's voting power other
than Xxxxx X. Xxxxxxxx, (iii) there is a replacement of more than one-half of
the members of the Company’s Board of Directors which is not approved by those
individuals who are members of the Company's Board of Directors on the date
thereof, (iv) in one or a series of related transactions, there is a sale or
transfer of all or substantially all of the assets of the Company, determined on
a consolidated basis, (v) the Company enters into an agreement providing for an
event set forth in (i), (ii), (iii) or (iv) above, or (vi) any of the foregoing
occurs with respect to the Company or any subsidiary.
2
“Company"
includes the corporation initially executing this Note and any entity or person
which shall succeed to or assume the obligations and/or assets of the Company
under this Note pursuant to an Organic Change (as hereinafter defined) or
otherwise.
“Conversion
Price” shall
equal $0.25, which Conversion Price shall be subject to adjustment as set forth
herein.
“Convertible
Securities” means other than the securities that may be issued pursuant
to any convertible securities, warrants, options or other rights to subscribe
for or to purchase or exchange for, shares of Common Stock.
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as
amended.
“Market
Price” shall equal the average of the daily VWAPs over the ten (10)
consecutive Trading Days immediately preceding the date on which the Market
Price is being determined.
“Per Share Selling
Price” shall include the amount actually paid by third parties for each
share of Common Stock in a sale or issuance by the Company. In the
event a fee is paid by the Company in connection with such transaction directly
or indirectly to such third party or its affiliates, any such fee shall be
deducted from the selling price pro rata to all shares sold in the transaction
to arrive at the Per Share Selling Price. A sale of shares of Common
Stock shall include the sale or issuance of Convertible Securities, and in such
circumstances the Per Share Selling Price of the Common Stock covered thereby
shall also include the exercise, exchange or conversion price thereof (in
addition to the consideration received by the Company upon such sale or issuance
less the fee amount as provided above). In case of any such security
issued in a Variable Rate Transaction or MFN Transaction, the Per Share Selling
Price shall be deemed to be the lowest conversion or exercise price at which
such securities are converted or exercised or might have been converted or
exercised, or the lowest adjustment price, as the case may be, over the life of
such securities. If shares are issued for a consideration other than
cash, the Per Share Selling Price shall be the fair value of such consideration
as determined in good faith by independent certified public accountants mutually
acceptable to the Company and the Holder. In the event the Company
directly or indirectly effectively reduces the conversion, exercise or exchange
price for any Convertible Securities which are currently outstanding, then the
Per Share Selling Price shall equal such effectively reduced conversion,
exercise or exchange price.
“Principal
Amount” shall refer to the sum of (i) the original principal amount of
this Note, (ii) all accrued but unpaid Interest Amounts hereunder, and (iii) any
default payments (including default interest) owing under the Note but not
previously paid or added to the Principal Amount.
“Principal
Market” shall mean the OTCBB or such other principal market, exchange or
electronic quotation system on which the Common Stock is then listed for
trading.
“Securities
Act” shall mean the Securities Act of 1933, as amended.
3
“Trading
Day” shall mean
a day on which there is trading on the Principal Market.
“VWAP” shall mean the daily dollar
volume-weighted average sale price for the Common Stock on the Principal Market
on any particular Trading Day during the period beginning at 9:30 a.m., New York
City Time (or such other time as the Principal Market publicly announces is the
official open of trading), and ending at 4:00 p.m., New York City Time (or such
other time as the Principal Market publicly announces is the official close of
trading), as reported by Bloomberg through its "Volume at Price" functions or,
if the foregoing does not apply, the dollar volume-weighted average price of
such security in the over-the-counter market on the electronic bulletin board
for such security during the period beginning at 9:30 a.m., New York City Time
(or such other time as the Principal Market publicly announces is the official
open of trading), and ending at 4:00 p.m., New York City Time (or such other
time as the Principal Market publicly announces is the official close of
trading), as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the OTCBB or the "pink sheets" by
the National Quotation Bureau, Inc. If the VWAP cannot be calculated
for such security on such date on any of the foregoing bases, the VWAP of such
security on such date shall be the fair market value as mutually determined by
the Company and the holder of the Note. All such determinations of
VWAP shall to be appropriately and equitably adjusted in accordance with the
provisions set forth herein for any stock dividend, stock split, stock
combination or other similar transaction occurring during any period used to
determine the Market Price (or other period utilizing VWAPs).
Section
2. Interest.
(a) Payment Dates. On the Maturity Date,
the Company shall pay in cash the dollar amount of interest accrued on the
principal amount hereunder (“Interest
Amount”).
Section
3. Conversion.
(a) Conversion
Right. Subject to the terms hereof and restrictions and
limitations contained herein, Holder shall have the right, at such Holder's
option, at any time and from time to time to convert the outstanding Principal
Amount and Interest Amount into Common Stock under this Note in whole or in part
by delivering a fully executed notice of conversion in the form of conversion
notice attached hereto as Exhibit A (the “Conversion Notice”), which
may be transmitted by facsimile. Any recapitalization, reorganization,
reclassification, consolidation or merger of the Company with or into another
entity or person, or any sale of all or substantially all of the Company's
assets to another entity or person, or other similar transaction which, in each
case, is effected in such a way that holders of equity of the Company (the “Shares”) are entitled to
receive (either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for the Shares is referred to herein as an
"Organic
Change." At any time from and after the Effective Date and
prior to the Maturity Date, if an Organic Change shall have been consummated,
the Holder shall have the option to choose to receive, in lieu of cash payment
hereunder that number of fully paid and non-assessable shares of Common Stock of
the corporation initially executing this Note and any entity or person which
shall succeed to or assume the obligations and/or assets of the Company,
determined by dividing the aggregate unpaid Principal Amount and Accrued
Interest due on this Note as of the date of the Conversion Notice by the
Conversion Price. Notwithstanding anything to the contrary herein,
only that portion of this Note and the outstanding Principal Amount and Interest
Amount hereunder shall be convertible into Common Stock if and to the extent
that such conversion would not result in the Holder hereof exceeding the
limitations contained in, or otherwise violating the provisions of, Section 3(i)
below.
4
(b) Common Stock Issuance Upon
Conversion.
(i) Conversion Date
Procedures. Upon conversion of this Note pursuant to Section
3(a) above, the outstanding Principal Amount and Interest Amount hereunder shall
be converted into such number of fully paid, validly issued and non-assessable
shares of Common Stock, free of any liens, claims and encumbrances, as is
determined by dividing the outstanding Principal Amount and Interest Amount
being converted by the then applicable Conversion Price. The date of
any Conversion Notice hereunder shall be referred to herein as the “Conversion
Date”. If a conversion under this Note cannot be effected in
full for any reason, or if the Holder is converting less than all of the
outstanding Principal Amount and Interest Amount hereunder pursuant to a
Conversion Notice, the Company shall promptly deliver to the Holder (but no
later than five Trading Days after the Conversion Date) a Note for such
outstanding Principal Amount and Interest Amount as has not been converted if
this Note has been surrendered to the Company for partial
conversion. The Holder shall not be required to physically surrender
this Note to the Company upon any conversion hereunder unless the full
outstanding Principal Xxxxxx and Interest Amount represented by this Note is
being converted. The Holder and the Company shall maintain records
showing the outstanding Principal Amount and Interest Amount so converted and
the dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical
surrender of this Note upon each such conversion.
(ii) Stock Certificates or
DWAC. The Company will deliver to the Holder not later than
three (3) Trading Days after the Conversion Date, a certificate or certificates,
which shall be free of restrictive legends and trading restrictions if the
registration statement has been declared effective, representing the number of
shares of Common Stock being acquired upon the conversion of this
Note. In lieu of delivering physical certificates representing the
shares of Common Stock issuable upon conversion of this Note, provided the
Company's transfer agent is participating in the Depository Trust Company
(“DTC”) Fast Automated
Securities Transfer (“FAST”) program, upon request
of the Holder, the Company shall use commercially reasonable efforts to cause
its transfer agent to electronically transmit such shares issuable upon
conversion to the Holder (or its designee), by crediting the account of the
Holder’s (or such designee’s) prime broker with DTC through its Deposit
Withdrawal Agent Commission (“DWAC”)system (provided that
the same time periods herein as for stock certificates shall
apply). If in the case of any conversion hereunder, such certificate
or certificates are not delivered to or as directed by the Holder by the fifth
Trading Day after the Conversion Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return this Note tendered for
conversion. If the conversion has not been rescinded in accordance
with the previous sentence and the Company fails to deliver to the Holder such
certificate or certificates (or shares through DTC) pursuant to this Section
3(b) (free of any restrictions on transfer or legends, if such shares have been
registered) in accordance herewith, prior to the seventh Trading Day after the
Conversion Date, the Company shall pay to the Holder, in cash, an amount equal
to 1% of the Principal Amount per month until such delivery takes place (pro
rated for partial months).
5
(c) Conversion Price
Adjustments.
(i) Stock Dividends, Splits and
Combinations. If the Company or any of its subsidiaries, at
any time while the Note is outstanding (A) shall pay a stock dividend or
otherwise make a distribution or distributions on any equity securities, (B)
subdivide outstanding Common Stock into a larger number of shares, or (C)
combine outstanding Common Stock into a smaller number of shares, then each
Conversion Price (as defined below) shall be multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
before such event and the denominator of which shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 3(c)(i) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination.
(ii) Distributions. If
the Company or any of its subsidiaries, at any time while the Note is
outstanding, shall distribute to all holders of Common Stock evidences of its
indebtedness or assets or cash or rights or warrants to subscribe for or
purchase any security of the Company or any of its subsidiaries, then
concurrently with such distributions to holders of Common Stock, the Company
shall distribute to holder of the Note the amount of such indebtedness, assets,
cash or rights or warrants which the holder of Note would have received had all
the Note then held been converted into Common Stock at the applicable Conversion
Price immediately prior to the record date for such distribution.
(iii) Rounding of Adjustments. All calculations under
this Section 3 or Section 2 shall be made to the nearest cent or the nearest
1/100th of a share, as the case may be.
(iv) Notice of Adjustments. Whenever any Conversion
Price is adjusted pursuant to Section 3(c)(i) or (ii) above, the Company shall
promptly deliver to the holder of the Note, a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment, provided that any failure to so provide
such notice shall not affect the automatic adjustment hereunder.
(v) Change in Control
Transactions. In case of any Change in Control Transaction,
the Holder shall have the right thereafter to, at its option, (A) convert this
Note, in whole or in part, at the then applicable Conversion Price into the
shares of stock and other securities, cash and/or property receivable upon or
deemed to be held by holders of Common Stock following such Change in Control
Transaction, and the Holder shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common Stock of the
Company into which this Note could have been converted immediately prior to such
Change in Control Transaction would have been entitled if such conversion were
permitted, subject to such further applicable adjustments set forth in this
Section 3 or (B) require the Company or its successor to redeem this Note, in
whole or in part, at a redemption price equal to the outstanding Principal
Amount and Interest Amount being redeemed. The terms of any such
Change in Control Transaction shall include such terms so as to continue to give
to the Holders the right to receive the amount of securities, cash and/or
property upon any conversion or redemption following such Change in Control
Transaction to which a holder of the number of shares of Common Stock
deliverable upon such conversion would have been entitled in such Change in
Control Transaction, and default interest and Interest Amounts payable hereunder
shall be in cash or such new securities and/or property, at the Holder’s
option. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
6
(vi) Notice of Certain
Events. If:
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A.
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the
Company shall declare a dividend (or any other distribution) on its Common
Stock; or
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B.
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the
Company shall declare a special nonrecurring cash dividend on or a
redemption of its Common Stock; or
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C.
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the
Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights;
or
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D.
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the
approval of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock of the Company,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share of exchange whereby the Common Stock is converted into
other securities, cash or property;
or
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E.
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the
Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the
Company;
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then the
Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of this Note, and shall cause to be mailed to the Holder
at its last address as it shall appear upon the books of the Company, on or
prior to the date notice to the Company's stockholders generally is given, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of Common Stock of record to
be entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange.
(d) Reservation and Issuance of
Underlying Securities. The Company covenants that it will at
all times reserve and keep available out of its authorized and unissued Common
Stock solely for the purpose of issuance upon conversion of this Note (including
repayments in stock), free from preemptive rights or any other actual contingent
purchase rights of persons other than the holder of the Note, not less than such
number of shares of Common Stock as shall be issuable (taking into account the
adjustments under this Section 3 but without regard to any ownership limitations
contained herein) upon the conversion of this Note hereunder in Common
Stock. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid, nonassessable.
(e) No
Fractions. Upon a conversion hereunder the Company shall not
be required to issue stock certificates representing fractions of shares of
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the closing price of a share of Common
Stock at such time. If the Company elects not, or is unable, to make
such a cash payment, the Holder shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
7
(f) Charges, Taxes and
Expenses. Issuance of certificates for shares of Common Stock
upon the conversion of this Note shall be made without charge to the holder
hereof 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 the Company, and such certificates shall be issued in the name of the Holder
or in such name or names as may be directed by the Holder; provided, however, that in the
event certificates for shares of Common Stock are to be issued in a name other
than the name of the Holder, this Note when surrendered for conversion shall be
accompanied by an assignment form; and provided further, that the
Company shall not be required to pay any tax or taxes which may be payable in
respect of any such transfer.
(g) Cancellation. After
all of the Principal Amount (including accrued but unpaid interest and Interest
Amounts and default payments at any time owed on this Note) have been paid in
full or converted into Common Stock, this Note shall automatically be deemed
canceled and the Holder shall promptly surrender the Note to the Company at the
Company’s principal executive offices.
(h) Notices
Procedures. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by confirmed facsimile, or by a nationally recognized overnight courier service
to the Company at the facsimile telephone number or address of the principal
place of business of the Company: 0000 Xxxxxxx Xxxxxxxxxx Xxxxx, Xxxxxxxxx, XX,
00000. Any and all notices or other communications or deliveries to
be provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, or by a nationally recognized overnight courier
service addressed to the Holder at the facsimile telephone number or address of
the Holder appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of business of the
Holder. Any notice or other communication or deliveries hereunder
shall be deemed delivered (i) upon receipt, when delivered personally, (ii) when
sent by facsimile, upon receipt if received on a Business Day prior to 5:00 p.m.
(Eastern Time), or on the first Business Day following such receipt if received
on a Business Day after 5:00 p.m. (Eastern Time) or (iii) upon receipt, when
deposited with a nationally recognized overnight courier service.
(i) Beneficial Ownership
Limitation. Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by the Holder
upon conversion pursuant to the terms hereof shall not exceed a number that,
when added to the total number of shares of Common Stock deemed beneficially
owned by such Holder (other than by virtue of the ownership of securities or
rights to acquire securities (including the Note) that have limitations on the
Holder’s right to convert, exercise or purchase similar to the limitation set
forth herein), together with all shares of Common Stock deemed beneficially
owned at such time (other than by virtue of the ownership of securities or
rights to acquire securities that have limitations on the right to convert,
exercise or purchase similar to the limitation set forth herein) by the holder’s
“affiliates” at such time (as defined in Rule 144 of the Securities Act) (“Aggregation Parties”) that
would be aggregated for purposes of determining whether a group under Section
13(d) of the Exchange Act exists, would exceed 9.9% of the total issued and
outstanding shares of the Common Stock (the “Restricted Ownership
Percentage”). Each holder shall have the right (x) at any time
and from time to time to reduce its Restricted Ownership Percentage immediately
upon notice to the Company and (y) (subject to waiver) at any time and from time
to time, to increase its Restricted Ownership Percentage immediately in the
event of the announcement as pending or planned, of a Change in Control
Transaction. The Company’s obligation to issue shares of Common Stock
which would exceed such limits referred to in this Section 3(i) shall be
suspended to the extent necessary until such time, if any, as shares of Common
Stock may be issued in compliance with such restrictions.
8
Section
4. Principal
Prepayments. This Note may not
be prepaid in whole or in part except as otherwise provided herein.
Section
5. Defaults and
Remedies.
(a) Events of
Default. An “Event of Default”
is:
(i) a
default in payment of the Principal Amount under the Note on or after the date
such payment is due, or a default in payment of accrued but unpaid Interest
Amounts under the Note on or after the date such payment is due, which default
for interest payment continues for ten (10) days after written notice of such
non-payment has been received by the Company;
(ii) a
default in the timely issuance of underlying shares upon and in accordance with
terms hereof, which default continues for five (5) Business Days after the
Company has received written notice informing the Company that it has failed to
issue shares or deliver stock certificates within the third Trading Day
following the Conversion Date;
(iii) failure
by the Company for thirty (30) days after written notice has been received by
the Company to comply with any material provision of the Note, any warrant or
any other agreement between the Holder and the Company (including without
limitation the failure to issue the requisite number of shares of Common Stock
upon conversion hereof and the failure to redeem Note upon the Holder’s request
following a Change in Control Transaction pursuant to this Note);
(iv) an
uncured breach of any representation, warranty or statement made or furnished by
the Company to the Holder (or any collateral agent on behalf of the Holder)
under any agreement between the Holder and/or any of its affiliates and the
Company or any certificate of schedule required thereby,;
(v) the
dissolution or termination of the Company as a going concern; or
(vi) if
the Company is subject to any Bankruptcy Event.
(b) Remedies. If
an Event of Default occurs and is continuing with respect to the Note, the
Holder may declare all of the then outstanding Principal Amount of this Note,
including any default interest and Interest Amounts due thereon, to be due and
payable immediately, except that in the case of an Event of Default arising from
events described in clauses (ix) through (x) of Section 5(a), this Note shall
become due and payable without further action or notice.
Section
6. Registration
of Underlying Securities. The Company shall
include the underlying securities in the registration contemplated by Section
4.8 of the Recapitalization Agreement in an amount equal to
130% of the number of shares of Common Stock necessary to permit the conversion
in full of the Notes and warrants (without regard to any limitations on
beneficial ownership contained therein). Such registration statement
also shall cover, to the extent allowable under the 1933 Act and the Rules
promulgated thereunder (including Rule 416), such indeterminate number of
additional shares of Common Stock resulting from stock splits, stock dividends
or similar transactions with respect to the underlying
securities.
9
Section
7. General.
(a) Payment of
Expenses. The Company agrees to pay all reasonable charges and
expenses, including attorneys' fees and expenses, which may be incurred by the
Holder in successfully enforcing this Note and/or collecting any amount due
under this Note. This includes, without limitation and subject to any
limits under applicable law, Holder’s reasonable collection costs under Section
5(b) and Holder’s reasonable attorneys’ fees and legal expenses whether or not
there is a lawsuit, including reasonable attorneys’ fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals and any anticipated post-judgment collection
services. If not prohibited by applicable law, the Company also will
pay any court costs, in addition to all other sums provided by law.
(b) Savings
Clause. In case any provision of this Note is held by a court
of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby. In no event shall the amount of
interest paid or converted hereunder (which for this purpose shall include all
default interest, all Interest Amounts and all other consideration or charges
deemed to be interest) exceed the maximum rate of interest on the unpaid
principal balance hereof allowable by applicable law. If any sum is
collected in excess of the applicable maximum rate, the excess collected shall
be applied to reduce the principal debt. If the interest actually
collected hereunder is still in excess of the applicable maximum rate, the
interest rate shall be reduced so as not to exceed the maximum allowable under
law.
(c) Amendment. Neither
this Note nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Company and the
Holder.
(d) Assignment,
Etc. The Holder may assign or transfer this Note in whole to
any transferee. The Holder shall notify the Company of any such
assignment or transfer promptly. This Note shall be binding upon the
Company and its successors and shall inure to the benefit of the Holder and its
successors and permitted assigns.
(e) Waiver.
(i) No
failure on the part of the Holder to exercise, and no delay in exercising any
right, remedy or power hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise by the Holder of any right, remedy or power
hereunder preclude any other or future exercise of any other right, remedy or
power. Each and every right, remedy or power hereby granted to the
Holder or allowed it by law or other agreement shall be cumulative and not
exclusive of any other, and may be exercised by the Holder from time to
time. The release of any party liable under this Note shall not
operate to release any other party liable under this Note.
10
(ii) Except
as otherwise provided herein, the Company and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, hereby expressly
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate,
all other notices whatsoever and bringing of suit and diligence in taking any
action to collect amounts called for hereunder, and will be directly and
primarily liable for the payment of all sums owing and to be owing hereunder,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
(f) Governing Law;
Jurisdiction.
(i) Governing
Law. THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAWS
PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW OF
ANY OTHER JURISDICTION.
(ii) Jurisdiction. The
Company irrevocably submits to the exclusive jurisdiction of any State or
Federal Court sitting in the State of New York, County of New York, over any
suit, action, or proceeding arising out of or relating to this
Note. The Company irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to the laying of the
venue of any such suit, action, or proceeding brought in such a court and any
claim that suit, action, or proceeding has been brought in an inconvenient
forum.
The
Company agrees that the service of process upon it mailed by certified or
registered mail (and service so made shall be deemed complete three days after
the same has been posted as aforesaid) or by personal service shall be deemed in
every respect effective service of process upon it in any such suit or
proceeding. Nothing herein shall affect Holder's right to serve
process in any other manner permitted by law. The Company agrees that
a final non-appealable judgement in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such judgment
or in any other lawful manner.
(iii) NO JURY TRIAL. THE
COMPANY HERETO KNOWINGLY AND VOLUNTARILY WAIVES ANY AND ALL RIGHTS IT MAY HAVE
TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED ON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS NOTE.
(g) Replacement
Notes. This Note may be exchanged by Holder at any time and
from time to time for a Note or Notes with different denominations representing
an equal aggregate outstanding Principal Amount, as reasonably requested by
Xxxxxx, upon surrendering the same. No service charge will be made
for such registration or exchange. In the event that Xxxxxx notifies
the Company that this Note has been lost, stolen or destroyed, a replacement
Note identical in all respects to the original Note (except for registration
number and Principal Amount, if different than that shown on the original Note),
shall be issued to the Holder, provided that the Holder executes and delivers to
the Company an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with this Note.
[Signature
Page Follows]
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IN WITNESS WHEREOF, the
Company has caused this Note to be duly executed on the day and in the year
first above written.
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LIBERATOR,
INC.
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By:
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Name:
Xxxxx X. Xxxxxxxx
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Title:
Chairman, Chief Executive Officer and
President
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12
EXHIBIT
A
FORM
OF CONVERSION NOTICE
(To be
executed by the Holder
in order
to convert a Note)
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Re:
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Note
(this “Note”) issued by LIBERATOR, INC. to Hope Capital, Inc. on or about
September __, 2009 in the original principal amount of
$250,000.00.
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The
undersigned hereby elects to convert the aggregate outstanding Principal Amount
(as defined in the Note) indicated below of this Note into shares of Common
Stock, $0.001 par value per share (the “Common Stock”), of LIBERATOR, INC. (the
“Company”) according to the conditions hereof, as of the date written
below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any. The undersigned represents as of the date hereof that, after
giving effect to the conversion of this Note pursuant to this Conversion Notice,
the undersigned will not exceed the “Restricted Ownership Percentage” contained
in Section 3(i) of this Note.
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Date
to Effect Conversion
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Aggregate
Principal Amount of Note Being Converted
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Number
of Shares of Common Stock to be Issued
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Applicable
Conversion Price
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Signature
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Name
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Address
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