PROMISSORY NOTE CONVERSION AGREEMENT
Exhibit 10.1
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This
Promissory Note Conversion Agreement (the “Agreement”), dated as of April 4,
2008, is entered into by and between Tao Minerals, Ltd (“Tao”) Outboard
Investments Ltd., (“Outboard”), with reference to the following:
WHEREAS,
Outboard has purchased, and/or will be purchasing, certain Debt (as such term is
defined in a Debt Sale Agreement entered into by and between the parties and
Epsom Investment Services NV dated April 4, 2008) evidenced by a certain
Promissory Note (“Promissory Note”) issued by Tao to Outboard relating to a
certain Stock Subscription Agreement entered into by and between Tao and Epsom
Investment Services NV, as set forth in more detail on Exhibit A attached
hereto; and
WHEREAS,
the parties desire to provide for certain conversion provisions relating to the
Promissory Note.
NOW,
THEREFORE, in consideration of the mutual promises and covenants contained
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Conversion
Right. Each of Outboard and Tao agree that the Promissory Note
shall be converted or exchanged (each a “Conversion”) through one or a series of
such Conversions, up to the full principal balance thereof, into shares of the
common stock of Tao (the “Tao Common Stock”) (calculated as to each such
conversion to the nearest 1/100th of a
share). The number of shares of Tao Common Stock into which the
Promissory Note may be converted is equal to the dollar amount of the Promissory
Note, or portion thereof, being converted divided by the Conversion
Price. The Conversion Price shall be equal to 30% of the lowest
closing bid price of the Tao Common Stock during the five trading days prior to
Outboard’s election to convert. Upon the conversion of the full
principal balance and all accrued and unpaid interest of each Promissory Note
into shares of the Tao Common Stock, as set forth above, no further rights shall
exist under such Promissory Note with respect to the connection of interest or
other amounts under the Promissory Note by the holder thereof.
For so
long as Tao honors the terms of each Conversion Notice delivered by Outboard to
Tao and effects each such Conversion as submitted by Outboard within the
applicable time periods set forth in this Agreement. Outboard shall
not otherwise demand cash payment upon any outstanding sums of principal and
accrued and unpaid interest under the Promissory Note. In the event
that Tao refuses or otherwise fails to honor any Conversion Notice submitted to
Tao by Outboard and/or Tao fails to effect such Conversion within the applicable
time period set forth herein, Outboard shall have the
right, at Outboard’s sole discretion, to declare any or all amounts, including
outstanding principal and accrued and unpaid interest, under the Promissory Note
immediately due and payable by Tao and Tao shall deliver such payment for all
such outstanding sums owed under the Promissory Note to Outboard within five
days of Outboard’s demand for payment thereof.”
2.
Exercise of Conversion
Privilege.
(a) Conversion
of a Promissory Note may be exercised, within the allotted time, by Outboard by
telecopying an executed and completed Conversion Notice to Tao. Each date on
which a Conversion Notice is telecopied to Tao in accordance with the provisions
of this Section shall constitute a Conversion Date. Tao shall convert or
exchange the Promissory Note and issue the Tao Common Stock in the manner
provided below in this Section, and all voting and other rights associated with
the beneficial ownership of the Tao Common Stock issued at Conversion shall vest
with Outboard, effective as of the Conversion Date at the time specified in the
Conversion Notice. The Conversion Notice also shall state the name or names
(with addresses) of the persons who are to become the holders of the Tao Common
Stock issued at Conversion in connection with such Conversion. As promptly as
practicable after the receipt of the Conversion Notice as aforesaid, but in any
event not more than two business days after Tao’s receipt of such Conversion
Notice, Tao shall (i) issue the Tao Common Stock in accordance with the
provisions of this Section and (ii) cause to be mailed for delivery by overnight
courier to Outboard a certificate or certificate(s) representing the number of
Tao Common Shares to which Outboard is entitled by virtue of such Conversion.
Such Conversion shall be deemed to have been effected at the time at which the
Conversion Notice indicates, and at such time the rights of Outboard as the
holder of the Promissory Note, as such (except if and to the extent that any
principal amount thereof remains unconverted), shall cease and the person and
persons in whose name or names the Tao Common Stock issued at conversion shall
be issuable shall be deemed to have become the holder or holders of record of
the shares of common stock represented thereby, and all voting and other rights
associated with the beneficial ownership of such shares of common stock shall at
such time vest with such person or persons. The Conversion Notice shall
constitute a contract between Outboard and Tao, whereby Outboard shall be deemed
to subscribe for the number of shares of Tao Common Stock which it will be
entitled to receive upon such Conversion and, in payment and satisfaction of
such subscription, to surrender the Promissory Note and to release Tao from all
liability thereon (except if and to the extent that any principal amount of the
Promissory Note remains unconverted).
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(b) If,
at any time after the date of this Agreement, (i) Tao challenges, disputes or
denies the right of Outboard to effect the Conversion of a Promissory Note into
shares of Tao Common Stock or otherwise dishonors or rejects any Conversion
Notice delivered in accordance with this Section or (ii) any third party who is
not and has never been an affiliate of Outboard commences any lawsuit or legal
proceeding or otherwise asserts any claim before any court or public or
governmental authority which seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of Outboard hereof to effect any Conversion of the
Promissory Note into shares of Tao Common Stock, then Outboard shall have the
right, but not the obligation, by written notice to Tao, to require Tao to
promptly redeem the Promissory Note for cash at one hundred and ten percent
(110%) of the principal amount thereof, together with all accrued and unpaid
interest thereon to the date of redemption. Under any of the circumstances set
forth above, Tao shall be responsible for the payment of all costs and expenses
of Outboard, including reasonable legal fees and expenses, as and when incurred
in defending itself in any such action or pursuing its rights hereunder (in
addition to any other rights of Outboard).
(c) Outboard
shall be entitled to exercise its conversion privilege set forth herein
notwithstanding the commencement of any case under the Bankruptcy Code. In the
event Tao is a debtor under the Bankruptcy Code, Tao hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C. § 362
in respect of Outboard’s conversion privilege. Tao hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. § 362 in
respect of the conversion of the Promissory Note. Tao agrees, without cost or
expense to Outboard, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. § 362.
(d) Tao
shall provide Outboard, at its expense, any Rule 144 legal opinion in accordance
with customary rules and regulations as enforced by the SEC, and in form and
substance acceptable to Outboard that would be required to enable Outboard to
sell the shares of Tao Common Stock issued at any Conversion.
(e) Outboard
may effect a Conversion of all or any portion of any of the Promissory Note by
telecopying or otherwise delivering to Tao an executed notice setting forth the
amount and identity of all or any portion of the Promissory Note that is to be
so converted or exchanged for Tao Common Stock (the “Conversion
Notice”). No other action on the part of Outboard shall be required
to so effect such Conversion
3. Adjustments. The
Conversion Price and the number of shares deliverable upon conversion of the
Promissory Note are subject to adjustment from time to time as
follows:
(a) Reclassification,
Etc. In case Tao shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another company (where Tao is
not the survivor or where there is a change in or distribution with respect to
the common stock of Tao), sell, convey, transfer or otherwise dispose of all or
substantially all its property, assets or business to another person or company,
or effectuate a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of Tao is disposed of (each, a “Fundamental Corporate
Change”) and, pursuant to the terms of such Fundamental Corporate Change,
shares of common stock of the successor or acquiring corporation, or any cash,
shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation (“Other Property”) are to be
received by or distributed to the holders of Tao Common Stock, then Outboard
shall have the right thereafter, at its sole option, to (x) require Tao to
prepay the Promissory Note for cash at one hundred and ten percent (110%) of the
principal amount thereof, together with all accrued and unpaid interest thereon
to the date of prepayment, (y) receive the number of shares of common stock
of the successor or acquiring corporation or of Tao, if it is the surviving
corporation, and Other Property as is receivable upon or as a result of such Fundamental
Corporate Change by a holder of the number of shares of common stock into which
the outstanding portion of the Promissory Note may be converted at the
Conversion Price applicable immediately prior to such Fundamental Corporate
Change or (z) require Tao, or such successor, resulting or purchasing
corporation, as the case may be, to, without benefit of any additional
consideration therefor, execute and deliver to Outboard a debenture with
substantial identical rights, privileges, powers, restrictions and other terms
as the Promissory Note and the rights of conversion and/or exchange as set forth
in this Agreement in an amount equal to the amount outstanding under the
Promissory Note immediately prior to such Fundamental Corporate Change. For
purposes hereof, “common stock
of the successor or acquiring corporation” shall include stock of such
corporation of any class which is not preferred as to dividends or assets over
any other class of stock of such corporation and which is not subject to
prepayment and shall also include any evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe for
or purchase any such stock. The foregoing provisions shall similarly apply to
successive Fundamental Corporate Changes.
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4. Certain Conversion
Limits. For the period during which Outboard holds any of the
Promissory Note, if and to the extent that, on any date, the holding by Outboard
of the Promissory Note would result in Outboard being deemed the beneficial
owner of more than 4.99% of the then Outstanding shares of the common stock of
Tao, then Outboard shall not have the obligation, to convert or exchange any
portion of the Promissory Note as shall cause Outboard to be deemed the
beneficial owner of more than 4.99% of the then Outstanding shares of the common
stock of Tao. If any court of competent jurisdiction shall determine
that the foregoing limitation is ineffective to prevent Outboard from being
deemed the beneficial owner of more than 4.99% of the then Outstanding shares of
the common stock of Tao, then Tao shall prepay such portion of the Promissory
Note as shall cause Outboard not to be deemed the beneficial owner of more than
4.99% if the then Outstanding shares of the common stock of Tao. Upon
such determination by a court of competent jurisdiction, Outboard shall have no
interest in or rights under such portion of the Promissory Note that is so
prepaid. Such prepayment shall be for cash at a prepayment price if
one hundred and ten percent (110%) of the principal amount thereof, together
with all accrued and unpaid interest thereon to the date of
prepayment. For purposes of this Section, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
thereunder. “Outstanding” when used with references to the common
stock of Tao means, on any date of determination, all issued and outstanding
shares of the common stock of Tao , and includes all such shares of the common
stock of Tao issuable in respect of outstanding scrip or any certificates
representing fractional interests in such shares of the common stock of Tao;
provided,
however, that any such shares of the common stock of Tao directly or
indirectly owned or held by or for the account of Tao or any subsidiary of Tao
shall not be deemed “Outstanding” for purposes hereof.
5. Representations and
Warranties of Tao. In connection with the transactions
provided for herein, Tao hereby represents and warrants to Outboard
that:
(a) Organization, Good Standing
and Qualification. Tao is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Nevada and
has all requisite corporate power and authority to carry on its business as now
conducted. Tao is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure to so qualify would have a material
adverse effect on its business or properties.
(b) Authorization. All
corporate action has been taken on the part of Tao, its officers, directors and
stockholders necessary for the authorization, execution and delivery of this
Agreement and the conversion or exchange of the Promissory Note. Except as may
be limited by applicable bankruptcy, insolvency, reorganization, or similar laws
relating to or affecting the enforcement of creditors’ rights, Tao has taken all
corporate action required to make all of the obligations of Tao reflected in the
provisions of this Agreement, and the Promissory Note, the valid and enforceable
obligations they purport to be. Except as otherwise indicated in this
Section 5, the conversion or exchange of the Promissory Note into shares of
Tao Common Stock as contemplated herein, will not be subject to the preemptive
rights of any stockholder of the Company. Tao has authorized
sufficient shares of Tao Common Stock to allow for conversion or exchange of the
Promissory Note as described in Section 1 and Section 2.
(c) Compliance with Other
Instruments. Neither the authorization, execution and delivery
of this Agreement, nor the issuance and delivery of the shares of Tao Common
Stock upon the conversion or exchange of the Promissory Note, will constitute or
result in a material default or violation of any law or regulation applicable to
Tao or any material term or provision of Tao’s current Articles of Incorporation
or bylaws or any material agreement or instrument by which it is bound or to
which its properties or assets are subject.
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(d) Issuance of Common
Stock. The shares of Tao Common Stock to be issued and
delivered upon Conversion of the Promissory Note will be duly and validly
issued, fully paid and nonassessable and will be issued in compliance with all
applicable federal and state securities laws. The offer, sale and issuance of
the shares of Tao Common Stock to be issued and delivered upon Conversion of the
Promissory Note will be exempt from the registration requirements of the
Securities Act, and will have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws and federal securities
laws.
(e) Litigation. There
is no action, suit, proceeding or investigation pending or currently threatened
against Tao that questions the validity of the Promissory Note or this
Agreement, or the right of Tao to convert or exchange the Promissory Note, or to
consummate the transactions contemplated hereby, or that might result, either
individually or in the aggregate, in any material adverse change in the assets,
business, properties, prospects, or financial condition of Tao. The foregoing
includes, without limitation, any action, suit, proceeding, or investigation
pending or currently threatened involving the negotiations by Tao with potential
backers of, or investors in, Tao or its proposed business. Tao is not a party
to, or to the best of its knowledge, named in the order, writ, injunction,
judgment, or decree of any court, government agency, or instrumentality. There
is no action, suit, or proceeding by Tao currently pending or that Tao currently
intends to initiate.
6. Governing
Law. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Florida, United States of America.
7. Consent to
Jurisdiction. The parties (i) hereby irrevocably submit to the
jurisdiction of the State and Federal courts of the State of Florida for the
purposes of any suit, action or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereunder and (ii) hereby waive, and
agree not to assert in any such suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of such court, that the suit, action
or proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. The parties consent to process being served in
any such suit, action or proceeding by mailing a copy thereof to such party at
the address in effect for notices to it under this Agreement and agree that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this section shall affect or limit any right to serve
process in any other manner permitted by law.
8. Waiver of Jury
Trial. To the fullest extent permitted by law, each of the
parties hereto hereby knowingly, voluntarily and intentionally waives its
respective rights to a jury trial of any claim or cause of action based upon or
arising out of this Agreement or any other document or any dealings between them
relating to the subject matter of this Agreement and other documents. Each party
hereto (i) certifies that neither of their respective representatives, agents or
attorneys has represented, expressly or otherwise, that such party would not, in
the event of litigation, seek to enforce the foregoing waivers and (ii)
acknowledges that it has been induced to enter into this Agreement by, among
other things, the mutual waivers and certifications herein.
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9. Attorneys'
Fees. In the event of any legal action between the parties
with respect to this Agreement or the subject matter hereof, the prevailing
party shall be entitled to recover reasonable attorneys' fees in addition to
court costs and litigation expenses incurred in said legal action, regardless of
whether such legal action is prosecuted to judgment.
10. Notices. Any
notice, demand or other communication required or permitted under this Agreement
shall be deemed given and delivered when in writing and (a) personally served
upon the receiving party, or (b) upon hand delivery by telex (with correct
answer back received), telecopy or facsimile at the address or number designated
below (if delivered on a business day during normal business hours where such
notice is to be received), or (c) upon the third (3rd) calendar day after
mailing to the receiving party by either United States registered or certified
mail, postage prepaid, or (d) the next delivery day after mailing to the
receiving party by FedEx or other comparable overnight delivery service,
delivery charges prepaid, and addressed as follows:
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To:
Tao Minerals, Ltd.
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Tao
Minerals, Ltd.
Oficina
501 Edificio Colmena
Xxxxxxx
00X XX0 X Xxx 00
Xxxxxxxx
Xxxxxxxxx
Columbia
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To
Outboard Investments Ltd.:
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Outboard
Investments Ltd.
BCM Cape
Building
Leeward
Highway Providenciales
Turks and
Caicos, BWI
Facsimile:
(000) 000-0000
11. Severability. In
the event that any provision of this Agreement becomes or is declared by a court
of competent jurisdiction to be illegal, unenforceable or invalid, then this
Agreement shall continue in full force and effect without said provision. If
this Agreement continues in full force and effect as provided above, the parties
shall replace the invalid provision with a valid provision which corresponds as
far as possible to the spirit and purpose of the invalid provision.
12. Counterparts. This
Agreement may be executed in any number of counterparts, each of which may be
executed by less than all of the parties hereto, each of which shall be
enforceable against the parties actually executing such counterparts, and all of
which together shall constitute one document. Facsimile execution shall be
deemed originals.
13. Entire
Agreement. This Agreement constitute the entire agreement
between the parties with respect to the subject matter hereof, and supersede all
prior oral or written agreements, representations or warranties between the
parties other than those set forth herein or herein provided for.
14. Successors and
Assigns. The provisions hereof shall inure to the benefit of,
and be binding upon, the permitted successors and assigns, heirs, executors, and
administrators of the parties hereto.
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15. Amendment and
Waiver. No modification or waiver of any provision of this
Agreement shall be binding upon the party against whom it is sought to be
enforced, unless specifically set forth in writing signed by an authorized
representative of that party. A waiver by any party of any of the terms or
conditions of this Agreement in any one instance shall not be deemed or
construed to be a waiver of such terms or conditions for the future, or of any
subsequent breach thereof. The failure by any party hereto at any time to
enforce any of the provisions of this Agreement, or to require at any time
performance of any of the provisions hereof, shall in no way to be construed to
be a waiver of such provisions or to affect either the validity of this
Agreement or the right of any party to thereafter enforce each and every
provision of this Agreement.
IN
WITNESS WHEREOF, Tao and Outboard have duly executed this Agreement as of the
date first above written.
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Tao
Minerals, Ltd.
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Outboard
Investments Ltd.
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By:
/s/ Xxxxx X. Xxxxxx
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By: Xxxx
X. X’Xxxxx
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||
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Name:
Xxxxx X. Xxxxxx
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Name: Xxxx
X. X’Xxxxx
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Title:
President
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Title: Director
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EXHIBIT
A
Promissory
Note
Promissory
Note between Tao and Epsom Investment Services N.V. dated as of ____________,
2008 in the principal amount of $620,000.
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