EXHIBIT 4.2
EXHIBIT A
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE 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 AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: May 2, 2005
$3,000,000.00
11% SENIOR SECURED NOTE DUE MAY 2, 2008
THIS NOTE is one of a series of duly authorized and issued 11% Senior
Secured Notes of Knockout Holdings, Inc., a Delaware corporation, having a
principal place of business at 000 X. Xxxxxxxxx Xxx., Xxxxxxxxx, XX 00000-0000
(the "Company"), designated as its 11% Senior Secured Note, due May 2, 2008 (the
"Note(s)").
FOR VALUE RECEIVED, the Company promises to pay to DCOFI MASTER LDC or its
registered assigns (the "Holder"), the principal sum of $3,000,000 on May 2,
2008 or such earlier date as the Notes are required or permitted to be repaid as
provided hereunder (the "Maturity Date"), and to pay interest to the Holder on
the aggregate then outstanding principal amount of this Note in accordance with
the provisions hereof. This Note is subject to the following additional
provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Note: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and (b)
the following terms shall have the following meanings:
"Alternate Consideration" shall have the meaning set forth in
Section 5(c).
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on
which banking institutions in the State of New York are authorized or
required by law or other government action to close.
"Change of Control Transaction" means the occurrence of any of (i)
an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange
Act) of effective control (whether through legal or beneficial ownership
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of capital stock of the Company, by contract or otherwise) of in excess of
33% of the voting securities of the Company, or (ii) a replacement at one
time or within a one-year period of more than one-half of the members of
the Company's board of directors which is not approved by a majority of
those individuals who are members of the board of directors on the date
hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was
approved by a majority of the members of the board of directors who are
members on the date hereof), or (iii) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i) or (ii).
"Common Stock" means the common stock, par value $0.001, of the
Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Equity Conditions" shall mean, during the period in question, (i)
the Company shall have duly honored all redemptions scheduled to occur, if
any, (ii) all liquidated damages and other amounts owing in respect of the
Notes shall have been paid; (iii) there is an effective Registration
Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future),
(iv) the Common Stock is trading on the Trading Market and all of the
shares issuable pursuant to the Transaction Documents are listed for
trading on a Trading Market (and the Company believes, in good faith, that
trading of the Common Stock on a Trading Market will continue
uninterrupted for the foreseeable future), (v) there is a sufficient
number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all of the shares issuable pursuant to
the Transaction Documents, (vi) there is then existing no Event of Default
or event which, with the passage of time or the giving of notice, would
constitute an Event of Default, (vii) all of the shares issued or issuable
pursuant to the transaction proposed would not violate the limitations set
forth in Section 4, and (viii) no public announcement of a pending or
proposed Fundamental Transaction, Change of Control Transaction or
acquisition transaction has occurred that has not been consummated.
"Escrow Agreement" shall mean the escrow agreement, in the form of
Exhibit E attached to the Purchase Agreement.
"Event of Default" shall have the meaning set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fundamental Transaction" shall have the meaning set forth in
Section 5(c) hereof.
"Interest Conversion Rate" means 85% the average VWAP for the 20
days immediately prior to the applicable Interest Payment Date.
"Late Fees" shall have the meaning set forth in the second paragraph
to this Note.
"Mandatory Prepayment Amount" shall equal the sum of 115% of the
principal amount of the Notes outstanding, plus all accrued and unpaid
interest thereon.
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"Monthly Redemption" shall mean the redemption of the Note pursuant
to Section 6(a) hereof.
"Monthly Redemption Amount" shall mean, as to a Monthly Redemption,
1/21st the original principal amount in the aggregate among all Holders.
"Monthly Redemption Date" means the first Business Day of each
month, commencing 15 months after the Original Issue Date and ending upon
the full redemption of this Note.
"Original Issue Date" shall mean the date of the first issuance of
the Notes regardless of the number of transfers of any Note and regardless
of the number of instruments which may be issued to evidence such Note.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Prepayment Amount" for any Notes shall equal the sum of (i) (A)
108% of the principal amount of Notes to be prepaid, plus all accrued and
unpaid interest thereon if such prepayment shall occur on or before one
year from the date hereof, or (B) 105% of the principal amount of Notes to
be prepaid, plus all accrued and unpaid interest thereon if such
prepayment shall occur after one year but before two years from the date
hereof, or (C) 102% of the principal amount of the Notes to be prepaid,
plus all accrued and unpaid interest thereon if such prepayment shall
occur after two years but before three years from the date hereof, and
(ii) all other amounts, costs, expenses and liquidated damages due in
respect of such Notes.
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of May 2, 2005, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Subsidiary" shall have the meaning given to such term in the
Purchase Agreement.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq SmallCap Market, the American Stock Exchange, the New York
Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
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"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the primary
Trading Market on which the Common Stock is then listed or quoted as
reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30
a.m. EST to 4:02 p.m. Eastern Time) using the VAP function; (b) if the
Common Stock is not then listed or quoted on the Trading Market and if
prices for the Common Stock are then reported in the "Pink Sheets"
published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (c) in all other
cases, the fair market value of a share of Common Stock as determined by a
nationally recognized-independent appraiser selected in good faith by
Purchasers holding a majority of the principal amount of Notes then
outstanding.
Section 2. Interest and Prepayments.
a) Payment of Interest in Cash or Kind. The Company shall pay
interest to the Holder on the aggregate then outstanding principal amount
of this Note at the rate of 11% per annum, payable quarterly in arrears,
beginning on the first such date after the Original Issue Date and on the
Maturity Date (except that, if any such date is not a Business Day, then
such payment shall be due on the next succeeding Business Day) and on each
Monthly Redemption Date (as to that principal amount then being redeemed)
(each such date, an "Interest Payment Date"), in cash. The first 15
months' interest shall be held in escrow pursuant to the terms of the
Escrow Agreement. After the expiration of 15 months from the Original
Issue Date, the Company shall have the option to pay the interest in
shares of Common Stock at the Interest Conversion Rate, or cash, or a
combination thereof; provided, however, payment in shares of Common Stock
may only occur if during the 20 Trading Days immediately prior to the
applicable Interest Payment Date all of the Equity Conditions have been
met, the payment in shares of Common Stock would not exceed 25% of the
trading volume for any of the previous 10 Trading Days and the Company
shall have given the Holder notice in accordance with the notice
requirements set forth below.
b) Company's Election to Pay Interest in Kind. Subject to the
terms and conditions herein, after the expiration of 15 months from the
Original Issue Date hereof, the decision whether to pay interest hereunder
in shares of Common Stock or cash shall be at the discretion of the
Company. Not less than 10 Trading Days prior to each Interest Payment
Date, the Company shall provide the Holder with written notice of its
election to pay interest hereunder either in cash or shares of Common
Stock (the Company may indicate in such notice that the election contained
in such notice shall continue for later periods until revised). Within 10
Trading Days prior to an Interest Payment Date, the Company's election
(whether specific to an Interest Payment Date or continuous) shall be
irrevocable as to such Interest Payment Date. Subject to the
aforementioned conditions, failure to timely provide such written notice
shall be deemed an election by the Company to pay the interest on such
Interest Payment Date in cash.
c) Interest Calculations. Interest shall be calculated on the
basis of a 360-day year and shall accrue daily commencing on the Original
Issue Date until payment in full of the principal sum, together with all
accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the Person in
whose name this Note is registered on the records of the Company regarding
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registration and transfers of Notes (the "Note Register"). Except as
otherwise provided herein, if at any time the Company pays interest
partially in cash and partially in shares of Common Stock, then such
payment shall be distributed ratably among the Holders based upon the
principal amount of Notes held by each Holder.
d) Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate of 20% per annum (or such
lower maximum amount of interest permitted to be charged under applicable
law) ("Late Fee") which will accrue daily, from the date such interest is
due hereunder through and including the date of payment. Notwithstanding
anything to the contrary contained herein, if on any Interest Payment Date
the Company has elected to pay interest in Common Stock and is not able to
pay accrued interest in the form of Common Stock because it does not then
satisfy the conditions for payment in the form of Common Stock set forth
above, then, at the option of the Holder, the Company, in lieu of
delivering either shares of Common Stock pursuant to this Section 2 or
paying the regularly scheduled cash interest payment, shall deliver,
within three Trading Days of each applicable Interest Payment Date, an
amount in cash equal to the product of the number of shares of Common
Stock otherwise deliverable to the Holder in connection with the payment
of interest due on such Interest Payment Date and the highest VWAP during
the period commencing on the Interest Payment Date and ending on the
Trading Day prior to the date such payment is made.
e) Optional Prepayment. The Company shall have the right to
prepay, in cash, all or a portion of the Notes for an amount equal to such
percentage of the principal amount to be repaid as set forth in (i), (ii),
and (iii) below, plus all accrued and unpaid interest thereon:
(i) In the event that the Notes are prepaid on or prior to
one year from the date hereof, the prepayment shall be 108%.
(ii) In the event that the Notes are prepaid after one year
but on or before two years from the date hereof, the prepayment shall be
105%.
(iii) In the event that the Notes are prepaid after two years
but on or before three years from the date hereof, the prepayment shall be
102%.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Note is exchangeable for an
equal aggregate principal amount of Notes of different authorized
denominations, as requested by the Holder surrendering the same. No
service charge will be made for such registration of transfer or exchange.
b) Investment Representations. This Note has been issued subject
to certain investment representations of the original Holder set forth in
the Purchase Agreement and may be transferred or exchanged only in
compliance with the Purchase Agreement and applicable federal and state
securities laws and regulations.
c) Reliance on Note Register. Prior to due presentment to the
Company for transfer of this Note, the Company and any agent of the
Company may treat the Person in whose name this Note is duly registered on
the Note Register as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes, whether or not this Note is
overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
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Section 4. Share Issuance Limitations; Xxxxxx's Restriction on Shares. The
Company's right to pay interest or a monthly redemption through the issuance of
shares of Common Stock pursuant to Sections 2(a), (b), and 6(a), shall be
limited to the extent that after the issuance of such shares, the Holder
(together with the Holder's affiliates) would beneficially own in excess of 9.9%
of the number of shares of the Common Stock outstanding immediately after such
issuance. Except as set forth in the preceding sentence, for purposes of this
Section 4, beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act. For purposes of this Section 4, in determining the
number of outstanding shares of Common Stock, the Holder may rely on the number
of outstanding shares of Common Stock as reflected in (x) the Company's most
recent Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company's Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the Company shall
within two Trading Days confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, by the Holder or its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The provisions of this Section 4 may be waived by the
Holder upon, at the election of the Holder, not less than 61 days' prior notice
to the Company, and the provisions of this Section 4 shall continue to apply
until such 61st day (or such later date, as determined by the Holder, as may be
specified in such notice of waiver).
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time
while the Notes are outstanding: (A) shall pay a stock dividend or
otherwise make a distribution or distributions on shares of its Common
Stock or any other equity or equity equivalent securities payable in
shares of Common Stock, (B) subdivide outstanding shares of Common Stock
into a larger number of shares, (C) combine (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of
shares, or (D) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then the Warrant Shares shall be
adjusted accordingly. Any adjustment made pursuant to this Section 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, combination or re-classification.
b) Calculations. All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case
may be. The number of shares of Common Stock outstanding at any given time
shall not include shares of Common Stock owned or held by or for the
account of the Company, and the description of any such shares of Common
Stock shall be considered one issue or sale of Common Stock. For purposes
of this Section 4, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number
of shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.
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c) Fundamental Transaction. If, at any time while this Note is
outstanding, (A) the Company effects any sale of all or substantially all
of its assets in one or a series of related transactions, (B) any tender
offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or
(C) the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or
property (in any such case, a "Fundamental Transaction"), then upon
issuance of the Warrant Shares, the Holder shall have the right to
receive, for each Underlying Share that would have been issuable absent
such Fundamental Transaction, the same kind and amount of securities, cash
or property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of one share of Common Stock (the
"Alternate Consideration"). If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon issuance of the Warrant
Shares following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder
a new note consistent with the foregoing provisions. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply
with the provisions of this paragraph (c) and insuring that this Note (or
any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.
Section 6. Monthly Redemption
a) Monthly Redemption. On each Monthly Redemption Date, the
Company shall redeem each Holder's Pro Rata Portion of the Monthly
Redemption Amount plus accrued but unpaid interest, the sum of all
liquidated damages and any other amounts then owing to such Holder in
respect of the Note. For purposes of this subsection 6(a) only, "Pro Rata
Portion" is the ratio of (x) the principal amount of this Note on the
Original Issue Date to (y) the sum of the aggregate original principal
amounts of the Notes issued to all Holders. If any Holder shall no longer
hold Notes, then the Pro Rata Portion shall be recalculated to exclude
such Holder's principal amount from clause (y) above and the Monthly
Redemption Amount shall be allocated pro-rata among the remaining Holders.
The Monthly Redemption Amount due on each Monthly Redemption Date shall be
paid in cash; provided, however, as to any Monthly Redemption and upon 10
Trading Days' prior written irrevocable notice, in lieu of a cash
redemption payment, the Company may elect to pay 100% of a Monthly
Redemption in shares of Common Stock based on a conversion price equal to
85% of the average of the 20 consecutive VWAPs immediately prior to the
applicable Monthly Redemption Date (subject to adjustment for any stock
dividend, stock split, stock combination or other similar event affecting
the Common Stock during such 20 Trading Day period); provided, however,
that the Company may not pay the Monthly Redemption Amount in shares of
Common Stock unless, on the Monthly Redemption Date and during the 20
Trading Day period immediately prior to the Monthly Redemption Date, the
Equity Conditions have been satisfied and the payment in shares of Common
Stock would not exceed 25% of the trading volume for any of the previous
10 Trading Days.
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b) Redemption Procedure. The payment of cash and/or issuance of
Common Stock, as the case may be, pursuant to a Monthly Redemption shall
be made on the Monthly Redemption Date. If any portion of the cash payment
for a Monthly Redemption shall not be paid by the Company by the
respective due date, interest shall accrue thereon at the rate of 20% per
annum (or the maximum rate permitted by applicable law, whichever is less)
until the payment of the Monthly Redemption Amount, plus all amounts owing
thereon is paid in full. Alternatively, if any portion of the Monthly
Redemption Amount remains unpaid after such date, the Holders subject to
such redemption may elect, by written notice to the Company given at any
time thereafter, to invalidate ab initio such redemption, notwithstanding
anything herein contained to the contrary.
Section 7. Negative Covenants. So long as any portion of this Note is
outstanding, the Company will not and will not permit any of its Subsidiaries to
directly or indirectly, without the prior written approval of the Holder:
a) enter into, create, incur, assume or suffer to exist any
indebtedness of any kind other than (i) indebtedness in the ordinary
course of business and in an amount less than $25,000, (ii) indebtedness
the net proceeds from which is used to prepay the Note in full pursuant to
Section 2(e);
b) enter into, create, incur, assume or suffer to exist any liens
of any kind, on or with respect to any of its property or assets now owned
or hereafter acquired or any interest therein or any income or profits
therefrom other than in connection with (i) indebtedness the net proceeds
from which is used to prepay the Note in full pursuant to Section 2(e); c)
amend its certificate of incorporation, bylaws or other charter documents
so as to adversely affect any rights of the Holder;
d) repay, repurchase or offer to repay, repurchase or otherwise
acquire any of its Common Stock, Preferred Stock, or other equity
securities; or
e) enter into any agreement with respect to any of the foregoing.
The Holders acknowledge that the Company intends to enter into a customary
inventory and receivables bank financing and upon receipt of such
financing, the Holders and the Company will negotiate in good faith and in
a timely manner in respect of making such modifications to the Transaction
Documents as are necessary to permit such financing.
Section 8. Events of Default.
a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
i. any default in the payment of (A) the principal of amount
of any Note, or (B) interest (including Late Fees) on, or damages in
respect of, any Note, in each case free of any claim of
subordination, as and when the same shall become due and payable
(whether on the Maturity Date or by acceleration or otherwise) which
default, solely in the case of an interest payment or other default
under clause (B) above, is not cured, within 2 Trading Days;
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ii. the Company shall fail to observe or perform any other
covenant or agreement contained in this Note or any of the other
Transaction Documents which failure is not cured, if possible to
cure, within the earlier to occur of (A) 5 Trading Days after notice
of such default sent by the Holder or by any other Holder and (B) 10
Trading Days after the Company shall become or should have become
aware of such failure;
iii. a default or event of default (subject to any grace or
cure period provided for in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents
other than the Notes, or (B) any other material agreement, lease,
document or instrument to which the Company or any Subsidiary is
bound;
iv. any representation or warranty made herein, in any other
Transaction Document, in any written statement pursuant hereto or
thereto, or in any other report, financial statement or certificate
made or delivered to the Holder or any other holder of Notes shall
be untrue or incorrect in any material respect as of the date when
made or deemed made;
v. (i) the Company or any of its Subsidiaries shall commence,
or there shall be commenced against the Company or any such
Subsidiary, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the
Company or any Subsidiary commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the
Company or any Subsidiary thereof or (ii) there is commenced against
the Company or any Subsidiary thereof any such bankruptcy,
insolvency or other proceeding which remains undismissed for a
period of 60 days; or (iii) the Company or any Subsidiary thereof is
adjudicated by a court of competent jurisdiction insolvent or
bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or (iv) the Company or any Subsidiary
thereof suffers any appointment of any custodian or the like for it
or any substantial part of its property which continues undischarged
or unstayed for a period of 60 days; or (v) the Company or any
Subsidiary thereof makes a general assignment for the benefit of
creditors; or (vi) the Company shall fail to pay, or shall state
that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or (vii) the Company or any Subsidiary
thereof shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts;
or (viii) the Company or any Subsidiary thereof shall by any act or
failure to act expressly indicate its consent to, approval of or
acquiescence in any of the foregoing; or (ix) any corporate or other
action is taken by the Company or any Subsidiary thereof for the
purpose of effecting any of the foregoing;
vi. the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any
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long term leasing or factoring arrangement of the Company in an
amount exceeding $50,000, whether such indebtedness now exists or
shall hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable;
vii. the Common Stock shall not be eligible for quotation on
or quoted for trading on a Trading Market and shall not again be
eligible for and quoted or listed for trading thereon within five
Trading Days;
viii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or
dispose of all or in excess of 33% of its assets in one or more
transactions (whether or not such sale would constitute a Change of
Control Transaction) or shall redeem or repurchase more than a de
minimis number of its outstanding shares of Common Stock or other
equity securities of the Company (other than repurchases of shares
of Common Stock or other equity securities of departing officers and
directors of the Company; provided such repurchases shall not exceed
$50,000, in the aggregate, for all officers and directors during the
term of this Note);
b) Remedies Upon Event of Default. If any Event of Default
occurs, the full principal amount of this Note, together with interest and
other amounts owing in respect thereof, to the date of acceleration shall
become, at the Holder's election, immediately due and payable in cash. The
aggregate amount payable upon an Event of Default shall be equal to the
Mandatory Prepayment Amount. Commencing 5 days after the occurrence of any
Event of Default that results in the eventual acceleration of this Note,
the interest rate on this Note shall accrue at the rate of 20% per annum,
or such lower maximum amount of interest permitted to be charged under
applicable law. All Notes for which the full Mandatory Prepayment Amount
hereunder shall have been paid in accordance herewith shall promptly be
surrendered to or as directed by the Company. The Holder need not provide
and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law.
Such declaration may be rescinded and annulled by Xxxxxx at any time prior
to payment hereunder and the Holder shall have all rights as a Note holder
until such time, if any, as the full payment under this Section shall have
been received by it. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holders hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized
overnight courier service, addressed to the Company, at the address set
forth above, facsimile number (000) 000-0000, ATTN: XXXXX XXXXXX, CHIEF
FINANCIAL OFFICER, or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders delivered
in accordance with this Section. 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, sent by a nationally
recognized overnight courier service addressed to each Holder at the
facsimile telephone number or address of such Xxxxxx 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
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other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 5:30 p.m. (New York City time),
(ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 5:30 p.m. (New York City time) on any
date and earlier than 11:59 p.m. (New York City time) on such date, (iii)
the second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no
provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of,
interest and liquidated damages (if any) on, this Note at the time, place,
and rate, and in the coin or currency, herein prescribed. This Note is a
direct debt obligation of the Company. This Note ranks pari passu with all
other Notes now or hereafter issued under the terms set forth herein
c) Lost or Mutilated Note. If this Note shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange
and substitution for and upon cancellation of a mutilated Note, or in lieu
of or in substitution for a lost, stolen or destroyed Note, a new Note for
the principal amount of this Note so mutilated, lost, stolen or destroyed
but only upon receipt of evidence of such loss, theft or destruction of
such Note, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
d) Security Interest. This Note is a direct debt obligation of
the Company and, pursuant to the Security Agreement is secured by a
perfected security interest in all of the assets of the Company for the
benefit of the Holders. The Holder agrees that it will subordinate its
perfected security interest to any security interest in connection with
inventory and receivables bank financing that the Company obtains.
e) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Note shall be governed by
and construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated
by any of the Transaction Documents (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced in the state and federal courts
sitting in the City of New York, Borough of Manhattan (the "New York
Courts"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of
any of the Transaction Documents), and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of any such court, or such
New York Courts are improper or inconvenient venue for such proceeding.
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising
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out of or relating to this Note or the transactions contemplated hereby.
If either party shall commence an action or proceeding to enforce any
provisions of this Note, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees
and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
f) Waiver. Any waiver by the Company or the Holder of a breach of
any provision of this Note shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Note. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Note on one or more occasions
shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term
of this Note. Any waiver must be in writing.
g) Severability. If any provision of this Note is invalid,
illegal or unenforceable, the balance of this Note shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it
shall nevertheless remain applicable to all other persons and
circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder violates applicable laws governing usury,
the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum permitted rate of interest. The Company
covenants (to the extent that it may lawfully do so) that it shall not at
any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law or other law
which would prohibit or forgive the Company from paying all or any portion
of the principal of or interest on this Note as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the Company
(to the extent it may lawfully do so) hereby expressly waives all benefits
or advantage of any such law, and covenants that it will not, by resort to
any such law, hinder, delay or impeded the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every
such as though no such law has been enacted.
h) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
i) Headings. The headings contained herein are for convenience
only, do not constitute a part of this Note and shall not be deemed to
limit or affect any of the provisions hereof.
*********************
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
by a duly authorized officer as of the date first above indicated.
KNOCKOUT HOLDINGS, INC.
/s/ Xxxxx Xxxxxx
----------------------------------
Xxxxx Xxxxxx,
Chief Financial Officer
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