EXHIBIT 10.27
THIS NOTE AND ANY SHARES ACQUIRED UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING THIS NOTE, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THIS NOTE REASONABLY SATISFACTORY TO THE COMPANY,
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
CONVERTIBLE PROMISSORY NOTE
Note Amount: $100,000 December 11, 2003
Guardian Technologies International, Inc., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to Xxxxxxx X. Xxxx
("Holder"), the principal sum of One Hundred Thousand Dollars ($100,000) with
interest as provided below. The Company agrees that proceeds under this Note may
only be used for the expressed purpose as defined in "Allowed Use of Proceeds."
1. Payment.
a. Payment. Subject to the provisions of Section 3 hereof relating to
the conversion of this Note, principal and accrued interest hereof
shall be payable sixty (60) days from the date of this Note (the
"Maturity Date"). Payments hereunder shall be made by the Company to
the Holder, at the address as provided to the Company by the Holder
in writing, in lawful money of the United States of America.
Interest shall accrue with respect to the unpaid principal amount of
the loan from the date of this Note until the Maturity Date at a
flat rate of ten percent (10%) or $10,000. Interest at a rate of
eighteen (18%) percent per annum, computed on a 365 day year, will
be accrued to the outstanding principal and interest, beginning on
the sixty-first (61st) day and until such time as the principal and
interest have been repaid or converted per Section 3(b).
b. Prepayment. The Company shall have the right at any time and without
penalty to prepay, in whole or in part, the principal outstanding
and/or the interest accrued hereunder.
2. Certain Definitions.
a. "Allowed Use of Proceeds" shall mean solely for the acquisition of
the MCubiX source code from Diagnos, Inc.
b. "Bridge Notes" shall mean the series of notes, of which this Note is
a part, dated on or about the date hereof, each of which are
identical, other than the date of the Note and identity of the
Holder.
c. "Financing" shall mean the first closing of the proposed Private
Placement offered through Xxxxxxx Xxxxxx & Company Financial
Services.
d. "Financing Securities" shall mean the shares of equity securities of
the Company sold in the Financing. e. "Obligations" shall mean all
outstanding principal and accrued interest due hereunder.
3. Conversion.
a. Conversion Upon Financing. This Note shall convert, at the Holder's
option, into the Financing Securities upon the closing of the
Financing. The Holder may elect to convert 100% of the principal and
interest due, or any part thereof. The Holder is hereby granted the
right to convert this note into the Financing on a last dollar in
basis. The Holder is guaranteed a participatory position in the
Financing.
b. Conversion Upon Available Funds in Escrow. To the extent that
sufficient funds to repay the outstanding principal and accrued
interest have been deposited in escrow as part of the Financing, but
have not closed by the Maturity Date, the Holder shall earn
additional interest on the outstanding principal and interest at the
interest rate described in Section 1(a) above. In addition to the
interest on the Note, the Holder shall be entitled to receive four
thousand (4,000) stock purchase warrants for every thirty (30) days
the Note is outstanding beyond the Maturity Date, granting the right
to purchase one share of Common Stock for each warrant issued, at a
price of $2.50 per share. The stock purchase warrants shall expire
eighteen months after the issue date of the warrants. Closing of the
funds in escrow must occur within the thirty (30) days immediately
following the Maturity Date of the Note.
c. Conversion Absent Financing within sixty (60) days of execution of
this Note. If no Financing shall have occurred within sixty (60)
days of the execution of this Note, then the Holder shall be
entitled to forty thousand (40,000) stock warrants entitling the
Holder to purchase one share of Common Stock for each warrant at a
price of $2.50 per share. The warrants shall have an eighteen (18)
month expiration. The Holder may elect to convert all or part of the
amount owing under this Note. The stock purchase warrants will be
allocated on a pro rata basis to the shares converted (i.e.
conversion of1/2of the outstanding principal interest will result in
20,000 stock purchase warrants [40,000/2].
d. Conversion Price Upon Financing. In the event of a conversion
pursuant to subsection 3(a) hereof, the number of shares of the
Financing Securities to be issued upon conversion of the Obligations
shall equal the aggregate amount of the Obligations divided by the
price per share of the Financing Securities issued and sold in the
Financing plus any other considerations contained in the Financing.
e. Conversion Price Absent Financing. In the event of a conversion
pursuant to subsections 3(b) or 3(c) hereof, the number of shares of
the Common Stock to be issued upon conversion of this Note shall
equal the aggregate amount of the Obligations divided by $1.50 .
f. Notice Regarding Financing. Written notice shall be delivered to the
Holder of this Note at the address so indicated on the execution
page of the Note and Warrant Purchase Agreement notifying the Holder
of the terms and conditions of the Financing, the applicable
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conversion price, the date on which a conversion may occur and
calling upon such Holder to surrender the Note to the Company for
cancellation and conversion/repayment in the manner and at the place
designated.
g. Mechanics and Effect of Conversion. No fractional shares of
Financing Securities or Common Stock shall be issued upon conversion
of this Note. Notwithstanding any other provision of this Note or
the Note and Common Stock Warrant Purchase Agreement, upon the
conversion of the Obligations under this Note, in lieu of the
Company issuing any fractional shares to the Holder, the Company
shall pay to the Holder in cash the amount of the Obligations that
is not so converted. Upon conversion of this Note pursuant hereto,
the Holder shall surrender this Note, duly endorsed, at the
principal office of the Company and shall execute such documents as
are reasonably required to be executed by all purchasers of the
Financing Securities. The Company shall, as soon as practicable
thereafter, issue and deliver to such Holder at such principal
office a certificate or certificates for the number of shares of the
Financing Securities or Common Stock to which the Holder shall be
entitled upon such conversion (bearing such legends as are required
by applicable state and federal securities laws in the opinion of
counsel to the Company), together with any other securities and
property to which the Holder is entitled upon such conversion under
the terms of this Note. Upon full conversion of this Note pursuant
to the terms hereof, the Company shall be forever released from all
its obligations and liabilities under this Note. Upon conversion of
this Note into Financing Securities or Common Stock, the Holder
shall be entitled to all rights and privileges afforded by the
Company to other holders of such Financing Securities or Common
Stock.
4. Events of Default. The occurrence of any of the following shall constitute
an "Event of Default" under this Note and the Note and Common Stock
Warrant Purchase Agreement of even date herewith (the "Purchase
Agreement"):
a. Failure to Pay. The Company shall fail to pay (i) when due any
principal payment on the due date hereunder or (ii) any interest or
other payment required under the terms of this Note on the date due
and such payment shall not have been made within fifteen (15) days
of Company's receipt of Xxxxxx's written notice to the Company of
such failure to pay; or
b. Voluntary Bankruptcy or Insolvency Proceedings. The Company shall
(i) apply for or consent to the appointment of a receiver, trustee,
liquidate or custodian of itself or of all or a substantial part of
its property, (ii) make a general assignment for the benefit of its
or any of its creditors, (iii) be dissolved or liquidated in full or
in part, (iv) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or consent to any such relief or to the
appointment of or taking possession of its property by any official
in an involuntary case or other proceeding commenced against it, or
(v) take any action for the purpose of effecting any of the
foregoing; or
c. Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for
the appointment of a receiver, trustee, liquidator or custodian of
the Company or of all or a substantial part of the property thereof,
or an involuntary case or other proceedings seeking liquidation,
reorganization or other relief with respect to the Company or the
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debts thereof under any bankruptcy, insolvency or other similar law
or hereafter in effect shall be commenced and an order for relief
entered or such proceeding shall not be dismissed or discharged
within thirty (30) days of commencement.
5. Rights of Holder Upon Default. Upon the occurrence or existence of any
Event of Default (other than an Event of Default referred to in Paragraphs
4(c) and at any time thereafter during the continuance of such Event of
Default, Holder may declare all outstanding Obligations payable by Company
hereunder to be immediately due and payable without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein or in the Purchase Agreement to the
contrary notwithstanding. Upon the occurrence or existence of any Event of
Default described in Paragraphs 4(c), immediately and without notice, all
outstanding Obligations payable by Company hereunder shall automatically
become immediately due and payable, without presentment, demand, protest
or any other notice of any kind, all of which are hereby expressly waived,
anything contained herein or in the Purchase Agreement to the contrary
notwithstanding. In addition to the foregoing remedies, upon the
occurrence or existence of any Event of Default, Holder may exercise any
other right, power or remedy granted to it by the Purchase Agreement or
otherwise permitted to it by law, either by suit in equity or by action at
law, or both.
6. Miscellaneous.
a. Amendment Provisions. Any provision of this Note other than the
principal amount and identity of the Holder may be amended, waived
or modified upon the written consent of the Company and the parties
providing at least a majority of the aggregate principal amounts
provided pursuant to the Bridge Notes. b. Severability. If any
provision of this Note is determined to be invalid, illegal or
unenforceable, in whole or in part, the validity, legality and
enforceability of any of the remaining provisions or portions of
this Note shall not in any way be affected or impaired thereby and
this Note shall nevertheless be binding between the Company and the
Holder.
c. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Delaware.
d. Binding Effect. This Note shall be binding upon, and shall inure to
the benefit of, the Company and the Holder and their respective
successors and assigns; provided, however, that the Company may not
assign its obligations hereunder without the Holder's prior written
consent.
e. Enforcement Costs. The Company agrees to pay all costs and expenses,
including, without limitation, reasonable attorneys' fees and
expenses, the Holder expends or incurs in connection with the
enforcement of this Note, the collection of any sums due hereunder,
any actions for declaratory relief in any way related to this Note,
or the protection or preservation of any rights of the Holder
hereunder.
f. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be duly given upon
receipt if personally delivered or mailed by registered or certified
mail, postage prepaid, or by recognized overnight courier or
personal delivery, addressed (i) if to Holder, at the address or
facsimile number of such Holder as set forth below such party's name
on Exhibit A to the Purchase Agreement, or at such other address or
number as such Holder shall have furnished to the Company in
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writing, or (ii) if to Company, at 00000 Xxxxxxxx Xxxxxx, Xxxxx 000,
Xxxxxx, Xxxxxxxx 00000, Attention: Chief Financial Officer or at
such other address as Company shall furnish to the Purchaser in
writing.
g. Payment. Payment shall be made in lawful tender of the United
States.
h. Transfer of Note or Securities Issuable on Conversion Hereof. This
Note or the securities issuable on conversion hereof may not be
transferred in violation of any restrictive legend set forth hereon
or thereon. Each new Note issued upon transfer of this Note, and
each security issuable on conversion hereof, shall bear the
restrictive legend set forth below, unless in the opinion of counsel
for Company such legend is not required in order to ensure
compliance with the Act:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT."
The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions. Subject to the foregoing, transfers of this
Note shall be registered upon registration books maintained for such purpose by
or on behalf of the Company as provided in the Purchase Agreement. Prior to
presentation of this Note for registration of transfer, the Company shall treat
the registered holder hereof as the owner and holder of this Note for the
purpose of receiving all payments of principal and interest hereon and for all
other purposes whatsoever, whether or not this Note shall be overdue and Company
shall not be affected by notice to the contrary.
i. Headings. Section headings used in this Note have been set forth
herein for convenience of reference only. Unless the contrary is
compelled by the context, everything contained in each section
hereof applies equally to this entire Note.
IN WITNESS WHEREOF, the Company has caused this Note to be issued as of
the date first written above.
Guardian Technologies International, Inc.
By: /s/ Xxxxxxx X. Xxxxxxx
Name: Xxxxxxx X. Xxxxxxx
Title: Chairman and Chief Executive Officer
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