Exhibit 4.2 8% Convertible Note
NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE 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.
No. 6 US $500,000
XXXXXXXXXX.XXX HOLDINGS, INC.
8% CONVERTIBLE NOTE
DUE MARCH 31, 2002
THIS Note is one of a series of duly authorized and issued notes of
Xxxxxxxxxx.xxx Holdings, Inc., a Colorado corporation, having a principal place
of business at 000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxxxx Xxxxxxxx,
Xxxxxx X0X 0X0 (the "Company"), designated as its 8% Convertible Notes, due
March 31, 2002, in the aggregate principal amount of Three Million Dollars
($3,000,000) (the "Notes"). All references to $ (dollars) shall be to US$
(United States Dollars).
FOR VALUE RECEIVED, the Company promises to pay to Amro International,
S.A., or its registered assigns (the "Holder"), the principal sum of Five
Hundred Thousand Dollars ($500,000), on March 31, 2002 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 outstanding
principal amount of this Note at the rate of 8% per annum, in cash or shares of
Common Stock (as defined in Section 7), on each Conversion Date and on the
Maturity Date (as defined herein). Subject to the terms and conditions herein,
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 ten Trading Days (as
defined in Section 7) prior to each Conversion 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 pursuant to the terms of Section 4(a)(i) (the
Company may indicate in such notice that the election contained in such notice
shall continue for later periods until revised). Subject to Section 4(a)(i)(B),
failure to timely provide such written notice shall be deemed an election by the
Company to pay the interest on such Conversion Date in shares of Common Stock
pursuant to the terms of Section 4(a)(i). Interest shall be calculated on the
basis of a 360-day year and shall accrue daily commencing on the Original Issue
Date (as defined in Section 7) 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 (as
defined in Section 7) in whose name this Note is registered on the records of
the Company regarding registration and transfers of Notes (the "Note Register").
All overdue accrued and unpaid interest to be paid in cash hereunder shall
entail a late fee at the rate of 18% per annum (or such lower maximum amount of
interest permitted to be charged under applicable law) (to accrue daily, from
the date such interest is due hereunder through and including the date of
payment), payable in cash.
This Note is subject to the following additional provisions:
Section 1. This Note is exchangeable for an equal aggregate principal
amount of Notes of different authorized denominations of at least $50,000 (or
such lesser principal amount as shall then be outstanding under this Note), as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
Section 2. This Note has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 7) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Note, the Company and any agent of the Company may treat the
Person (as defined in Section 7) 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.
Section 3. 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 the principal of, interest on
or liquidated damages in respect of, any Notes (other than a failure
to pay the Put Price (as, defined in Section 7), the remedy of which
is contained in Section 5), free of any claim of subordination, within
five days of the date the same shall become due and payable (whether
on a Conversion Date or the Maturity Date or by acceleration or
otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of any of the Transaction Documents (as defined in Section 7)
other than such covenants or agreements which are the specific subject
of another Event of Default under this Section 3, and such failure or
breach shall not have been remedied within twenty days after the date
on which notice of such failure or breach shall have been given;
(iii) 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 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 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 the Company or any subsidiary thereof is
adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or 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 the
Company or any subsidiary thereof makes a general assignment for the
benefit of creditors; or 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 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 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 any corporate or other action is taken by the Company or
any subsidiary thereof for the purpose of effecting any of the
foregoing;
(iv) the Company 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 long term leasing or
factoring arrangement of the Company in an amount exceeding one
hundred thousand dollars ($100,000), 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;
(v) the Common Stock shall not be eligible for quotation on and
quoted for trading on the OTC Bulletin Board ("OTC') or listed for
trading on the Nasdaq SmallCap Market, New York Stock Exchange,
American Stock Exchange or the Nasdaq National Market (each, a
"Subsequent Market") and shall not again be eligible for and quoted or
listed for trading thereon within five Trading Days;
(vi) the Company shall be a party to any Change of Control
Transaction (as defined in Section 7), shall agree to sell or dispose
all or in excess of 40% 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
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more than a de minimis number of shares of Common Stock or other
equity securities of the Company (other than redemptions of Underlying
Shares (as defined in Section 7));
(vii) an Underlying Shares Registration Statement (as defined in
Section 7) shall not have been declared effective by the Commission
(as defined in Section 7) on or prior to the 180th day after the
Original Issue Date;
(viii) if, during the Effectiveness Period (as defined in the
Registration Rights Agreement (as defined in Section 8)), the
effectiveness of the Underlying Shares Registration Statement lapses
for any reason or the Holder shall not be permitted to resell
Registrable Securities (as defined in the Registration Rights
Agreement) under the Underlying Shares Registration Statement, in
either case, for more than twenty Trading Days (which need not be
consecutive Trading Days);
(ix) an Event (as defined in the Registration Rights Agreement)
shall not have been cured to the satisfaction of the Holder prior to
the expiration of thirty days from the Event Date (as defined in the
Registration Rights Agreement) relating thereto (other than an Event
resulting from a failure of an Underlying Shares Registration
Statement to be declared effective by the Commission on or prior to
the 180th day after the Original Issue Date, which shall be covered by
Section 3(a)(vii));
(x) the Company shall fail for any reason to deliver certificates
to a Holder prior to the twelfth day after a Conversion Date pursuant
to and in accordance with Section 4(b) or the Company shall provide
notice to the Holder, including by way of public announcement, at any
time, of its intention not to comply with requests for conversions of
any Notes in accordance with the terms hereof; or
(xi) the Company shall fail for any reason to deliver the payment
in cash pursuant to a Buy-In (as defined herein) within seven days
after notice is delivered hereunder.
(b) During the time that any portion of this Note remains outstanding,
if any Event of Default occurs and is continuing, the full principal amount
of this Note (and, at the Holder's option, all other Notes then held by
such Holder), together with interest and other amounts owing in respect
thereof, to the date of acceleration shall at the written election of the
Holders become, immediately due and payable in cash in accordance with the
following sentence. The aggregate amount payable upon an Event of Default
shall be equal to the sum of (i) the Mandatory Prepayment Amount (as
defined in Section 7) plus (ii) the product of (A) the number of Underlying
Shares issued in respect of conversions hereunder within thirty days prior
to the date of a declaration of an Event of Default and then held by the
Holder and (B) the Per Share Market Value (as defined in Section 7) on the
date prepayment is due or the date the full prepayment price is paid,
whichever is greater. Interest shall accrue on the prepayment amount
hereunder from the seventh day after such amount is due (being the date of
an Event of Default) through the date of prepayment in full thereof at the
rate of 18% per annum (or such lesser maximum amount that is permitted to
be paid by applicable law), to accrue daily from the date such payment is
due hereunder through and including the date of payment. All Notes and
Underlying Shares for which the full prepayment price 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
(other than such grace period as may be specified within a particular Event
of Default) enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Any such
declaration may be rescinded and annulled by Xxxxxx at any time prior to
payment hereunder. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section 4. Conversion.
(a) (i) Conversion at Option of Holder. (A) This Note shall be
convertible into shares of Common Stock at the option of the Holder at any
time and from time to time (1) from and after a Put Default Date (as
defined in Section 5) with respect to the principal amount of the Note
subject to the Put Notice (as defined in Section 5) giving rise thereto and
(2) from and after a Notice Date (as defined in Section 6) with respect to
the
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principal amount of the Note subject to the applicable Optional Prepayment
Notice (as defined in Section 6). Notwithstanding the foregoing, this Note
may not be converted by the Holder prior to the 120th following the
Original Issue Date. The number of shares of Common Stock issuable upon a
conversion hereunder shall be determined by adding the sum of (i) the
quotient obtained by dividing (x) the outstanding principal amount of this
Note to be converted and (y) the Conversion Price (as defined herein), and
(ii) the amount equal to the product of (x) the outstanding principal
amount of this Note to be converted and (y)(I) the product of (1) the
quotient obtained by dividing .08 by 360 and (2) the number of days for
which such principal amount was outstanding, divided by (II) the Conversion
Price on the Conversion Date, provided, that if the Company shall have
timely elected to pay the interest due on a Conversion Date in cash
pursuant to the terms hereof, subsection (ii) shall not be used in the
calculation of the number of shares of Common Stock issuable upon a
conversion hereunder.
(B) Notwithstanding anything to the contrary contained herein, if
on any Conversion Date or on the Maturity Date:
(1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to pay interest hereunder in
shares of Common Stock;
(2) after the Interest Effectiveness Date (as defined in
Section 7) such shares of Common Stock (x) are not registered for
resale pursuant to an effective Underlying Shares Registration
Statement and (y) may not be sold without volume restrictions
pursuant to Rule 144(k) promulgated under the Securities Act (as
defined in Section 7), as determined by counsel to the Company
pursuant to a written opinion letter, addressed to the Company's
transfer agent in the form and substance acceptable to the
applicable Holder and such transfer agent (if the shares of
Common Stock are permitted by the Holder to be delivered under
this clause (2) prior to the Effectiveness Date (as defined in
the Registration Rights Agreement) and thereafter an Underlying
Shares Registration Statement shall be declared effective by the
Commission, the Company shall, within three Trading Days after
the date of such declaration of effectiveness, exchange such
shares for shares of Common Stock that are free of restrictive
legends of any kind);
(3) the Common Stock is not listed or quoted on the OTC or
on a Subsequent Market;
(4) the Company has failed to timely satisfy its conversion
obligations hereunder; or
(5) the issuance of such shares of Common Stock would result
in a violation of Sections 4(a)(iii)(A) and (B),
then, at the option of the Holder, the Company, in lieu of
delivering shares of Common Stock pursuant to Section 4(a)(i)(A)(ii),
shall deliver, within three Trading Days of each applicable Conversion
Date, an amount in cash equal to the product of (a) the outstanding
principal amount of the Notes to be converted on such Conversion Date
and (b) the product of (x) the quotient obtained by dividing .08 by
360 and (y) the number of days for which such principal amount was
outstanding.
(C) The Holder shall effect conversions by surrendering the Notes
(or such portions thereof) to be converted, together with the form of
conversion notice attached hereto as Exhibit A (a "Conversion Notice")
to the Company. Each Conversion Notice shall specify the principal
amount of Notes to be converted and the date on which such conversion
is to be effected, which date may not be prior to the date such
Conversion Notice is delivered hereunder (a "Conversion Date"). If no
Conversion Date is specified in a Conversion Notice, the Conversion
Date shall be the date that such Conversion Notice is delivered
hereunder. Subject to Section 4(b), each Conversion Notice, once
given, shall be irrevocable. If the Holder is converting less than all
of the principal amount represented by the Note(s) tendered by the
Holder with the Conversion Notice, or if a conversion hereunder cannot
be effected in full for any reason, the Company shall honor such
conversion to the extent permissible hereunder and shall promptly
deliver to such Holder (in the manner and within the time set forth in
Section 4(b)) a new Note for such principal amount as has not been
converted.
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(ii) Automatic Conversion. Subject to the provisions in this
paragraph, the principal amount of Notes for which conversion notices have
not previously been received or for which prepayment has not been made or
required hereunder shall be automatically converted on the second
anniversary of the Original Issue Date (the "Automatic Conversion Date")
pursuant to Section 4(a)(i), at the Conversion Price on such date. The
conversion contemplated by this paragraph shall not occur if (a) (1) an
Underlying Securities Registration Statement is not then effective that
names the Holder as a selling stockholder thereunder and (2) the Holder is
not permitted to resell Underlying Shares pursuant to Rule 144(k)
promulgated under the Securities Act, without volume restrictions, as
evidenced by an opinion letter of counsel acceptable to the Holder and the
transfer agent for the Common Stock; or (b) there are not sufficient shares
of Common Stock authorized and reserved for issuance upon such conversion.
Notwithstanding anything herein to the contrary, the Automatic Conversion
Date shall be extended (on a day-for-day basis) for any Trading Days after
the Effectiveness Date that the Holder is unable to resell Underlying
Shares due to (a) the Common Stock not being listed for trading on the OTC
or any Subsequent Market, (b) the failure of an Underlying Securities
Registration Statement to be declared effective by the Commission or, if so
declared, to remain effective during the Effectiveness Period as to all
Underlying Shares, or (c) the suspension of the Holder's right to resell
Underlying Shares thereunder. Notwithstanding anything to the contrary
contained herein, a conversion pursuant to this Section shall not be
subject to the provisions of Section 4(a)(iii).
(iii) Certain Conversion Restrictions.
(i) (1) A Holder may not convert Notes or receive shares of
Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the
Holder, together with any affiliate thereof, beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act (as
defined in Section 7) and the rules promulgated thereunder) in excess
of 4.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of, and payment of interest
on, the Notes held by such Holder after application of this Section.
Since the Holder will not be obligated to report to the Company the
number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in
the issuance of shares of Common Stock in excess of 4.999% of the then
outstanding shares of Common Stock without regard to any other shares
which may be beneficially owned by the Holder or an affiliate thereof,
the Holder shall have the authority and obligation to determine
whether the restriction contained in this Section will limit any
particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of Notes are
convertible shall be the responsibility and obligation of the Holder.
If the Holder has delivered a Conversion Notice for a principal amount
of Notes that, without regard to any other shares that the Holder or
its affiliates may beneficially own, would result in the issuance in
excess of the permitted amount hereunder, the Company shall notify the
Holder of this fact and shall honor the conversion for the maximum
principal amount permitted to be converted on such Conversion Date in
accordance with the periods described in Section 4(b) and, at the
option of the Holder, either retain any principal amount tendered for
conversion in excess of the permitted amount hereunder for future
conversions or return such excess principal amount to the Holder. The
provisions of this Section may be waived by a Holder (but only as to
itself and not to any other Holder) upon not less than 61 days prior
notice to the Company. Other Holders shall be unaffected by any such
waiver.
(2) A Holder may not convert Notes or receive shares of
Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in
the Holder, together with any affiliate thereof, beneficially
owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules promulgated thereunder) in excess of
9.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of, and payment of
interest on, the Notes held by such Holder after application of
this Section. Since the Holder will not be obligated to report to
the Company the number of shares of Common Stock it may hold at
the time of a conversion hereunder, unless the conversion at
issue would result in the issuance of shares of Common Stock in
excess of 9.999% of the then outstanding shares of Common Stock
without regard to any other shares which may be beneficially
owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the
restriction contained in this Section will limit any particular
conversion hereunder and to the extent that the Holder determines
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that the limitation contained in this Section applies, the
determination of which portion of the principal amount of Notes
are convertible shall be the responsibility and obligation of the
Holder. If the Holder has delivered a Conversion Notice for a
principal amount of Notes that would result in the issuance of in
excess of the permitted amount hereunder, without regard to any
other shares that the Holder or its affiliates may beneficially
own, the Company shall notify the Holder of this fact and shall
honor the conversion for the maximum principal amount permitted
to be converted on such Conversion Date in accordance with the
periods described in Section 4(b) and, at the option of the
Holder, either retain any principal amount tendered for
conversion in excess of the permitted amount hereunder for future
conversions or return such excess principal amount to the Holder.
The provisions of this Section may be waived by a Holder (but
only as to itself and not to any other Holder) upon not less than
61 days prior notice to the Company. Other Holders shall be
unaffected by any such waiver.
(b) (i) Not later than three Trading Days after any Conversion
Date, the Company will deliver to the Holder (i) a certificate or
certificates which shall be free of restrictive legends and trading
restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement) representing the number of shares of Common Stock
being acquired upon the conversion of Notes (subject to the
limitations set forth in Section 4(a)(iii) hereof), (ii) Notes in a
principal amount equal to the principal amount of Notes not converted,
and (iii) a bank check in the amount of accrued and unpaid interest
(if the Company has timely elected or is required to pay accrued
interest in cash), provided, that the Company shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable
upon conversion of the principal amount of Notes until Notes are
delivered for conversion to the Company, or the Holder notifies the
Company that such Notes have been lost, stolen or destroyed and
provides a bond (or other adequate security) reasonably satisfactory
to the Company to indemnify the Company from any loss incurred by it
in connection therewith. The Company shall, upon request of the
Holder, if available, use its reasonable best efforts to deliver any
certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing
similar functions. If in the case of any Conversion Notice such
certificate or certificates are not delivered to or as directed by the
applicable Holder by the third Trading Day after a 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 the certificates representing the principal
amount of Notes tendered for conversion.
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i) by the
third Trading Day after the Conversion Date, the Company shall
pay to such Holder, in cash, as liquidated damages and not as a
penalty, $4,000 for each Trading Day after such third Trading Day
until such certificates are delivered. Nothing herein shall limit
a Holder's right to pursue actual damages or declare an Event of
Default pursuant to Section 3 for the Company's failure to
deliver certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder
shall have the right to pursue all remedies available to it at
law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. Further, if the
Company shall not have delivered any cash due in respect of
conversions of Notes or as payment of interest thereon by the
third Trading Day after the Conversion Date, the Holder may, by
notice to the Company, require the Company to issue shares of
Common Stock pursuant to Section 4(c), except that for such
purpose the Conversion Price applicable thereto shall be the
lesser of the Conversion Price on the Conversion Date and the
Conversion Price on the date of such Holder demand. Any such
shares will be subject to the provision of this Section.
(iii) In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i) by the
third Trading Day after the Conversion Date, and if after such
third Trading Day the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction
of a sale by such Holder of the Underlying Shares which the
Holder anticipated receiving upon such conversion (a "Buy-In"),
then the Company shall (A) pay in cash to the Holder (in addition
to any remedies available to or elected by the Holder) the amount
by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of
Common Stock that such Holder anticipated receiving from the
conversion at issue multiplied by (2) the market price of the
Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue
Notes in principal amount equal to the
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principal amount of the attempted conversion or deliver to the
Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its delivery
requirements under Section 4(b)(i). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted conversion of
Notes with respect to which the market price of the Underlying
Shares on the date of conversion was a total of $10,000 under
clause (A) of the immediately preceding sentence, the Company
shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In. Notwithstanding anything
contained herein to the contrary, if a Holder requires the
Company to make payment in respect of a Buy-In for the failure to
timely deliver certificates hereunder and the Company timely pays
in full such payment, the Company shall not be required to pay
such Holder liquidated damages under Section 4(b)(ii) in respect
of the certificates resulting in such Buy-In.
(c) (i) The conversion price in effect on any Conversion Date
(the "Conversion Price") shall be the lesser of (1) $3.72 (the
"Initial Conversion Price"), and (2) 88% of the average of the five
lowest Per Share Market Values during the thirty Trading Days
immediately preceding the applicable Conversion Date, provided, that
such number of Trading Days counted for calculation of the Conversion
Price may include Per Share Market Values for up to thirty Trading
Days prior to the date on which Conversion Notices may first be
delivered hereunder and that such thirty Trading Day period shall be
extended for the number of Trading Days during such period in which
(A) trading in the Common Stock is suspended by the OTC or a
Subsequent Market on which the Common Stock is then listed, or (B)
after the date declared effective by the Commission, the Underlying
Shares Registration Statement is not effective, or (C) after the date
declared effective by the Commission, the Prospectus included in the
Underlying Shares Registration Statement may not be used by the Holder
for the resale of Underlying Shares.
(ii) If the Company, at any time while any 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 Initial Conversion Price
shall be multiplied by a fraction of which the numerator shall be
the number of shares of Common Stock (excluding treasury shares,
if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock
outstanding after such event. 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. In any case in
which an adjustment under this Section 4(c)(ii) or Section
4(c)(iv) is required to be made effective as of the record date
for a specified event, if a Conversion Notice is delivered after
such record date and prior to the occurrence of the event, the
Company may elect to defer until the occurrence of such event
(provided, that if such event does not occur, then such
additional shares shall not be issued) issuing to the Holder the
shares of Common Stock, if any, in respect thereof over and above
the number of shares of Common Stock issuable upon such
conversion on the basis of the Initial Conversion Price prior to
adjustment, provided that the Company shall have delivered to the
Holder a due bill or other appropriate instrument reasonably
acceptable to the Holder evidencing the Holder's right to receive
such additional shares of Common Stock upon the occurrence of the
event requiring such adjustment.
(iii) If the Company, at any time while any Notes are
outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to
subscribe for or purchase shares of Common Stock at a price per
share less than the Per Share Market Value at the record date
mentioned below, then the Conversion Price shall be multiplied by
a fraction, of which the denominator shall be the number of
shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the
number of shares of the Common Stock (excluding treasury shares,
if any) outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at
such Per Share Market Value. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become
effective immediately after the record
-28-
date for the determination of stockholders entitled to receive
such rights, options or warrants. However, upon the expiration of
any such right, option or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in
the Conversion Price pursuant to this Section, if any such right,
option or warrant shall expire and shall not have been exercised,
the Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting
any other adjustments in the Conversion Price made pursuant to
the provisions of this Section after the issuance of such rights
or warrants) had the adjustment of the Conversion Price made upon
the issuance of such rights, options or warrants been made on the
basis of offering for subscription or purchase only that number
of shares of the Common Stock actually purchased upon the
exercise of such rights, options or warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable
with respect to Common Stock Equivalents (as defined below), at
any time while Notes are outstanding, shall issue shares of
Common Stock or rights, warrants, options or other securities or
debt that are convertible into or exchangeable for shares of
Common Stock ("Common Stock Equivalents") entitling any Person to
acquire shares of Common Stock at a price per share less than the
Conversion Price (if the holder of the Common Stock or Common
Stock Equivalent so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights issued in connection with such
issuance, be entitled to receive shares of Common Stock at a
price less than the Conversion Price, such issuance shall be
deemed to have occurred for less than the Conversion Price), then
the Conversion Price shall be multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such shares of
Common Stock or such Common Stock Equivalents plus the number of
shares of Common Stock which the offering price for such shares
of Common Stock or Common Stock Equivalents would purchase at the
Conversion Price, and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of Common Stock
so issued or issuable, provided, that for purposes hereof, all
shares of Common Stock that are issuable upon conversion,
exercise or exchange of Common Stock Equivalents shall be deemed
outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such shares
of Common Stock or Common Stock Equivalents are issued. However,
upon the expiration of any Common Stock Equivalents the issuance
of which resulted in an adjustment in the Conversion Price
pursuant to this Section, if any such Common Stock Equivalents
shall expire and shall not have been exercised, the Conversion
Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other
adjustments in the Conversion Price made pursuant to the
provisions of this Section after the issuance of such Common
Stock Equivalents) had the adjustment of the Conversion Price
made upon the issuance of such Common Stock Equivalents been made
on the basis of offering for subscription or purchase only that
number of shares of Common Stock actually purchased upon the
exercise of such Common Stock Equivalents actually exercised.
Notwithstanding the foregoing, the following shall not be deemed
to be Common Stock Equivalents: (i) issuances pursuant to a grant
or exercise of stock or options which may hereafter be granted or
exercised under any employee benefit plan of the Company now
existing or to be implemented in the future; (ii) securities
issued pursuant to an underwritten public offering by the Company
(and not of any securities of a shareholder of the Company other
than up to 4% of the holdings of the Chief Executive Officer of
the Company if such participation is required by the rules and
regulations of the stock market on which such offering will take
place or by the rules and regulations of the securities authority
governing such stock market) resulting in gross proceeds to the
Company of not less than $10,000,000, where the price per share
of Common Stock offered is fixed and the underwriter is an
investment bank nationally recognized in the United States of
America (if the offering is to be conducted in the United States
of America or in Great Britain (if the offering is to be
conducted in Great Britain) ("equity lines of credit" or their
equivalents shall not satisfy this exception), (iii) up to
1,000,000 shares of Common Stock issued in an offering not
subject to the registration requirements of the Securities Act at
a fixed price of not less than $3.50 (with no direct or indirect
adjustments permissible to such fixed price at the closing or
over time), (iv) issuance pursuant to a private placement to
Xxxxxxxxx International, Inc., and (v) shares of Common Stock
issued as payment of the purchase price in connection with a
Strategic Transaction. For purposes of this Section, a "Strategic
Transaction" shall mean a transaction or relationship in which
the Company issues shares of Common Stock to an entity which is,
itself or through its subsidiaries, an operating company in a
business related to the business of the Company and in which the
Company receives material benefits in addition to the investment
of
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funds, but shall not include a transaction in which the Company
is issuing securities primarily for the purpose of raising
capital.
(v) If the Company, at any time while Notes are outstanding,
shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each
such case the Conversion Price at which Notes shall thereafter be
convertible shall be determined by multiplying the Conversion
Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the
Per Share Market Value determined as of the record date mentioned
above, and of which the numerator shall be such Per Share Market
Value on such record date less the then fair market value at such
record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share
of the Common Stock as determined by the Board of Directors in
good faith. In either case the adjustments shall be described in
a statement provided to the Holders of the portion of assets or
evidences of indebtedness so distributed or such subscription
rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned
above.
(vi) In case of any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock
is converted into other securities, cash or property, the Holders
shall have the right thereafter to, at their option, (A) convert
the then outstanding principal amount, together with all accrued
but unpaid interest and any other amounts then owing hereunder in
respect of this Note only into the shares of stock and other
securities, cash and property receivable upon or deemed to be
held by holders of the Common Stock following such
reclassification or share exchange, and the Holders of the Notes
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 the then outstanding principal amount,
together with all accrued but unpaid interest and any other
amounts then owing hereunder in respect of this Note could have
been converted immediately prior to such reclassification or
share exchange would have been entitled or (B) require the
Company to prepay the aggregate of its outstanding principal
amount of Notes, plus all interest and other amounts due and
payable thereon, at a price determined in accordance with Section
3(b). The entire prepayment price shall be paid in cash. This
provision shall similarly apply to successive reclassifications
or share exchanges.
(vii) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case
may be. Any adjustments which by reason of this Section are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment.
(viii) Whenever either the Initial Conversion Price or the
Conversion Price is adjusted pursuant to any of Section 4(c)(ii)
- (v), the Company shall promptly mail to each Holder a notice
setting forth the Initial Conversion Price or Conversion Price
(as applicable) after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(ix) If (A) the Company shall declare a dividend (or any
other distribution) on the Common Stock; (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption
of the Common Stock; (C) 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; (D) the approval of any stockholders of
the Company shall be required in connection with any
reclassification of the Common Stock, 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, of any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up
of the affairs of the Company; then, in each case, the Company
shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Notes, and shall cause to be
mailed to the Holders at their last addresses as they shall
appear upon the stock books of the Company, at least 20 calendar
days prior to the applicable record or effective date hereinafter
specified, 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 the Common Stock of
record to be entitled to such dividend, distributions,
-30-
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
the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange, provided, that the failure to
mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to
be specified in such notice. Holders are entitled to convert
Notes during the 20-day period commencing the date of such notice
to the effective date of the event triggering such notice.
(x) In case of any (1) merger or consolidation of the
Company with or into another Person, or (2) sale by the Company
of more than one-half of the assets of the Company (on an as
valued basis) in one or a series of related transactions, a
Holder shall have the right to (A) if permitted under Section
3(b) hereof, exercise its rights of prepayment under Section 3(b)
with respect to such event, (B) convert its aggregate principal
amount of Notes then outstanding into the shares of stock and
other securities, cash and property receivable upon or deemed to
be held by holders of Common Stock following such merger,
consolidation or sale, and such Holder shall be entitled upon
such event or series of related events to receive such amount of
securities, cash and property as the shares of Common Stock into
which such aggregate principal amount of Notes could have been
converted immediately prior to such merger, consolidation or
sales would have been entitled, or (C) in the case of a merger or
consolidation, (x) require the surviving entity to issue shares
of convertible preferred stock or convertible debentures with
such aggregate stated value or in such face amount, as the case
may be, equal to the aggregate principal amount of Notes then
held by such Holder, plus all accrued and unpaid interest and
other amounts owing thereon, which newly issued shares of
preferred stock or debentures shall have terms identical
(including with respect to conversion) to the terms of this Note
(except, in the case of preferred stock, as may be required to
reflect the differences between equity and debt) and shall be
entitled to all of the rights and privileges of a Holder of Notes
set forth herein and the agreements pursuant to which the Notes
were issued (including, without limitation, as such rights relate
to the acquisition, transferability, registration and listing of
such shares of stock other securities issuable upon conversion
thereof), and (y) simultaneously with the issuance of such
convertible preferred stock or convertible debentures, shall have
the right to convert such instrument only into shares of stock
and other securities, cash and property receivable upon or deemed
to be held by holders of Common Stock following such merger or
consolidation. In the case of clause (C), the conversion price
applicable for the newly issued shares of convertible preferred
stock or convertible debentures shall be based upon the amount of
securities, cash and property that each share of Common Stock
would receive in such transaction and the Conversion Price in
effect immediately prior to the effectiveness or closing date for
such transaction. The terms of any such merger, sale or
consolidation shall include such terms so as to continue to give
the Holders the right to receive the securities, cash and
property set forth in this Section upon any conversion or
redemption following such event. This provision shall similarly
apply to successive such events.
(d) The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of Common
Stock solely for the purpose of issuance upon conversion of the Notes
and payment of interest on the Notes, each as herein provided, free
from preemptive rights or any other actual contingent purchase rights
of persons other than the Holders, not less than such number of shares
of the Common Stock as shall (subject to any additional requirements
of the Company as to reservation of such shares set forth in the
Purchase Agreement) be issuable (taking into account the adjustments
and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Notes and payment of interest
hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if the
Underlying Shares Registration Statement has been declared effective
under the Securities Act, registered for public sale in accordance
with such Underlying Shares Registration Statement.
(e) Upon a conversion hereunder the Company shall not be required
to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in
respect of any final fraction of a share based on the Per Share Market
Value 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.
-31-
(f) The issuance of certificates for shares of the Common Stock
on conversion of the Notes shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate, provided that
the Company shall not be required to pay any tax that may be payable
in respect of any transfer involved in the issuance and delivery of
any such certificate upon conversion in a name other than that of the
Holder of such Notes so converted and the Company shall not be
required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to
be provided by the Holders hereunder, including, without limitation,
any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid,
addressed to the Company, 000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000,
Xxxxxxxxx, Xxxxxxx Xxxxxxxx, Xxxxxx X0X 0X0 (facsimile number: (604)
331-1194, attention: Corporate Secretary, 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, with
a copy other than Conversion Notices to Xxxxxxxx & Xxxxxx, P.C.
(facsimile number (000) 000-0000), attention Xxxxxx Xxxxxxxx, Esq. 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 or sent by certified or registered mail, postage prepaid,
addressed to each Holder at the facsimile telephone number or address
of such 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 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 6:30 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 6:30 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 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.
Section 5. Put Option. At any time and from time to time commencing on the
120th calender day after the Original Issue Date, the Holder shall have the
right (the "Put Right") to request that the Company prepay up to 25% of the
original principal amount of this Note at a price equal to the Put Price (as
defined in Section 7) by delivering to the Company a written notice (a "Put
Notice") specifying (i) the outstanding principal amount of this Note subject to
the Put Right and the amount of all accrued and unpaid interest owing on such
principal amount, and the amount of liquidated damages (if any) then owing in
respect of such principal amount and (ii) the applicable Put Price. The Holder
shall not be entitled to deliver Put Notices for in excess of an aggregate of
25% of the original principal amount under this Note in any thirty day period;
provided, that, the amount of principal for which a Put Notice may be delivered
shall be measured on a cumulative basis from the date which the Put Notice may
first be delivered hereunder (for example, if prior to day 180 following the
Original Issue Date, Put Notices for only 10% of the original principal have
been delivered and paid, then on day 180 following the Original Issue Date a Put
Notice for up to 65% of the original principal amount may be delivered).
-32-
Section 6. Prepayment at the Option of the Company.
(a) The Company shall have the right at all time and any time after
the Original Issue Date, upon (x) if prior to the 120th day following the
Original Issue Date, three Trading Days' notice to the Holders and (y) if
on or after the 120th day following the Original Issue Date, fifteen
Trading Days' notice to the Holders (in either case, an "Optional
Prepayment Notice" and the date such notice is received by the Holders, the
"Notice Date"), to prepay all or a portion of the Notes then held by the
Holders at a cash price equal to the Optional Prepayment Price (as defined
below). From and after the 120th day following the Original Issue Date, the
Company may only deliver an Optional Prepayment Notice to the Holders if,
on the Notice Date (i) there is an effective Underlying Shares Registration
Statement pursuant to which the Holders are permitted to utilize the
prospectus thereunder to resell all of the issued Underlying Shares and all
of the Underlying Shares as are issuable upon conversion in full of the
principal amount of the Notes subject to the Optional Prepayment Notice and
(ii) the Common Stock is listed for trading on the OTC or on a Subsequent
Market. If any of the foregoing conditions shall cease to be in effect
during the period between the Notice Date and the date the Optional
Prepayment Price is paid in full, then the Holders subject to such
prepayment may elect, by written notice to the Company given at any time
after any of the foregoing conditions shall cease to be in effect, to
invalidate ab initio such Optional Prepayment Notice.
(b) The following provisions shall govern the rights of the Holders to
convert principal amounts of the Note subject to an Optional Prepayment
Notice.
(1) Prior to the 120th day following the Original Issue Date no
conversions of the Note may be tendered.
(ii) From and after the 120th day following the Original Issue
Date, the Holders may convert any portion of the
outstanding principal amount of the Notes subject to an
Optional Redemption Notice prior to the later of the Due
Date (as defined below) and the date that the Optional
Prepayment Price is paid in full. Any such principal amount
subject to a non-payment pursuant to a Put Notice under
Section 5 after the Put Exercise Date shall be convertible
at the lower of the Conversion Price under Section
4(c)(i)(1) and 4(c)(i)(2). Principal amount subject to an
Optional Prepayment Notice and not subject to a non-payment
pursuant to a Put Notice under Section 5 after the Put
Exercise Date shall be convertible at the Initial
Conversion Price.
(iii) If an Optional Redemption Notice is delivered prior to the
120th day following the Original Issue Date but the Due
Date or the date on which actual payment of the full
Optional Prepayment Price is made occurs on or after such
120th day, then the Holder may convert principal hereunder
subject to such Optional Prepayment Notice in accordance
with Clause (ii) above.
(iv) If a Put Notice is delivered prior to delivery of an
Optional Redemption Notice but the Due Date shall not have
occurred, then the Holder may convert principal hereunder
subject to such Optional Prepayment Notice in accordance
with Clause (ii) above.
(c) The Optional Prepayment Price is due on the (x) if the Optional
Prepayment Notice is delivered on three Trading Days' notice in accordance
with clause (x) of Section 6(a), the third Trading Day following the Notice
Date, and (y) if the Optional Prepayment Notice is delivered on fifteen
Trading Days' notice in accordance with clause (y) of Section 6(a), the
fifteenth Trading Day following the Notice Date (in either case, the "Due
Date"). If any portion of the Optional Prepayment Price shall not be paid
by the Company by expiration of such fifteenth Trading Day, interest shall
accrue thereon at the rate of 18% per annum (or the maximum rate permitted
by applicable law, whichever is less) until the Optional Prepayment Price
plus all such interest is paid in full. In addition, if any portion of the
Optional Prepayment Price remains unpaid after such date, the Holders
subject to such prepayment may elect, by written notice to the Company
given within 45 Trading Days after the Due Date, to invalidate ab initio
such prepayment, notwithstanding anything herein contained to the contrary.
If a Holder
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elects to invalidate such prepayment the Company shall promptly, and, in
any event, not later than three Trading Days from receipt of such Xxxxxx's
notice of such election, return to such Holder all of the Notes for which
the Optional Prepayment Price shall not have been paid in full and the
Holder shall return the portion of the Optional Prepayment Price, if any,
previously paid.
(d) The "Optional Prepayment Price" for the principal amount of the
Notes to be prepaid shall equal the sum of (i) (1) in the event that the
Due Date or, if payment made later, such later date, is between the
Original Issue Date and the 60th day following the Original Issue Date,
105% of the principal amount of the Notes, (2) in the event that the Due
Date or, if payment made later, such later date, is between the 61st day
and the 120th following the Original Issue Date, 110% of the principal
amount of the Notes to be prepaid, or (3) in the event that the Due Date
or, if payment made later, such later date, is at any time after 121st day
following the Original Issue Date, 115% of the principal amount of the
Notes to be prepaid and (ii) all interest, other amounts, costs, expenses
and liquidated damages due in respect of such Notes.
Section (ii Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the
State of New York or the Province of British Columbia, Canada 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 of
capital stock of the Company, by contract or otherwise) of in excess of 40%
of the voting securities of the Company, (ii) a replacement at one time or
over time 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), (iii) the merger of the Company with or into another entity that
is not wholly-owned by the Company, consolidation or sale of 50% or more of
the assets of the Company in one or a series of related transactions, or
(iv) 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), (ii) or (iii).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, no par value, of the Company
and stock of any other class into which such shares may hereafter have been
reclassified or changed.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Interest Effectiveness Date" means the earlier to occur of (x) the
Effectiveness Date and (y) the date that an Underlying Shares Registration
Statement is declared effective by the Commission.
"Mandatory Prepayment Amount" for any Notes shall equal the sum of (i)
the greater of (A) 120% of the principal amount of Notes to be prepaid,
plus all accrued and unpaid interest thereon, and (B) the principal amount
of Notes to be prepaid, plus all accrued and unpaid interest thereon,
divided by the Conversion Price on (x) the date the Mandatory Prepayment
Amount is demanded or otherwise due or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is less, multiplied by the Per
Share Market Value on (x) the date the Mandatory Prepayment Amount is
demanded or otherwise due or (y) the date the Mandatory Prepayment Amount
is paid in full, whichever is greater, and (ii) all other amounts, costs,
expenses and liquidated damages, if any, due in respect of such Notes.
-34-
"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.
"Per Share Market Value" means on any particular date means on any
particular date (a) the closing bid price per share of Common Stock on such
date on the Subsequent Market on which the Common Stock is then listed or
quoted, or if there is no such price on such date, then the closing bid
price on the Subsequent Market on the date nearest preceding such date, or
(b) if the Common Stock is not then listed or quoted on a Subsequent
Market, the closing bid price for a shares of Common Stock in the OTC, as
reported by the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at
the close of business on such date, or (c) if the Common Stock is not then
reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the Holder, or (d) if the Common
Stock are not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the
Holders of a majority of the Notes.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Note Purchase Agreement,
dated as of the Original Issue Date, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to time
in accordance with its terms.
"Put Price" for any Notes shall equal the sum of (i) 115% of the
principal amount of the Notes subject to the Put Right, plus all accrued
and unpaid interest thereon, and (ii) all other amounts, expenses, costs
and liquidated damages, if any, due in respect of such Notes.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, 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.
"Trading Day" means (a) a day on which the Common Stock is traded on a
Subsequent Market on which the Common Stock is then listed or quoted, as
the case may be, or (b) if the Common Stock is not listed on a Subsequent
Market, a day on which the Common Stock is traded in the over-the-counter
market, as reported by the OTC, or (c) if the Common Stock is not quoted on
the OTC, a day on which the Common Stock is quoted in the over-the-counter
market as reported by the National Quotation Bureau Incorporated (or any
similar organization or agency succeeding its functions of reporting
prices); provided, however, that in the event that the Common Stock is not
listed or quoted as set forth in (a), (b) and (c) hereof, then Trading Day
shall mean any day except Saturday, Sunday and any day which shall be a
legal holiday 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.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of Notes or as payment of interest in accordance with the terms
hereof.
"Underlying Shares Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares
and naming the Holder as a "selling stockholder" thereunder.
-35-
Section 8 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 obligation of the Company. This Note ranks
pari passu with all other Notes now or hereafter issued under the terms set
forth herein. As long as there are Notes outstanding, the Company shall not and
shall cause it subsidiaries not to, without the consent of the Holders, (i)
amend its certificate of incorporation, bylaws or other charter documents so as
to adversely affect any rights of the Holders; (ii) repay, repurchase or offer
to repay, repurchase or otherwise acquire shares of its Common Stock or other
equity securities other than as to the Underlying Shares to the extent permitted
or required under the Transaction Documents; or (iii) enter into any agreement
with respect to any of the foregoing. The Company may only voluntarily prepay
the outstanding principal amount on the Notes in accordance with Section 5
hereof.
Section 9 This Note shall not entitle the Holder to any of the rights of a
stockholder of the Company, including without limitation, the right to vote, to
receive dividends and other distributions, or to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company, unless
and to the extent converted into shares of Common Stock in accordance with the
terms hereof.
Section 10 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 and bond, if requested, all reasonably satisfactory to the Company.
Section 11 No indebtedness of the Company is senior to this Note in right
of payment, whether with respect to interest, damages or upon liquidation or
dissolution or otherwise. The Company will not and will not permit any of its
subsidiaries to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any indebtedness 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.
Section 12 This Note shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to conflicts of laws
thereof. The Company and the Holder hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, 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 that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument 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.
Section 13 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.
Section 14 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 shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
Section 15 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.
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IN WITNESS WHEREOF, the Company has caused this Convertible Note to be duly
executed by a duly authorized officer as of the date first above indicated.
XXXXXXXXXX.XXX HOLDINGS, INC.
By:___________________________________________________
Name:
Title:
Attest:
By:___________________________________________________
Name:
Title:
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Note)
The undersigned hereby elects to convert the attached Note into shares of common
stock, without par value (the "Common Stock"), of Xxxxxxxxxx.xxx Holdings, 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.
Conversion calculations: _________
Date to Effect Conversion
______________________________________________
Principal Amount of Notes to be Converted
______________________________________________
Number of shares of Common Stock to be Issued
______________________________________________
Applicable Conversion Price
______________________________________________
Signature
______________________________________________
Name
______________________________________________
Address
