THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THIS NOTE UNDER SAID ACT AND ANY APPLICABLE STATES SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO GLOBAL DIGITAL
SOLUTIONS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE MINIMUM BORROWING NOTE
FOR VALUE RECEIVED, GLOBAL DIGITAL SOLUTIONS, INC. a New Jersey
corporation (the "Borrower") promises to pay to LAURUS MASTER FUND,
LTD., c/o Ogier Fiduciary Services (Cayman) Limited, P.O. Box 1234,
Queensgate House, South Church Street, Xxxxxx Town, Grand Cayman,
Cayman Islands, British West Indies, Fax: 000-000-0000 (the "Holder")
or its registered assigns, on order, the sum of Five Hundred Thousand
Dollars ($500,000), of, if different, the aggregate principal amount of
all "Loans" (as such term is defined in the Security Agreement referred
to below), together with any accrued and unpaid interest hereon, on
July 28, 2007 (the "Maturity Date").
Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in the Security Agreement between
Borrower, certain Subsidiaries of the Borrower and the Holder dated as
of July 28, 2004 (as amended, modified and supplemented from time to
time, the "Security Agreement").
The following terms shall apply to this Minimum Borrowing Note (this
"Note"):
INTEREST
1.1 Contract Rate. Subject to Sections 4.10, 5.1 and 6.7 hereof,
interest payable on this Note shall accrue at a rate per annum equal to
the "prime rate" published in The Wall Street Journal from time to
time, plus three percent (3%) (the "Contract Rate"). The Prime Rate
shall be increased or decreased as the case may be for each increase or
decrease in the Prime Rate in an amount equal to such increase or
decrease in the Prime Rate; each change to be effective as of the day
of the change in such rate in accordance with the terms of the Security
Agreement. Subject to Section 1.2, the Contract Rate shall not be less
than seven percent (7%).
1.2 Contract Rate Adjustments and Payments. The Contract Rate shall
be calculated on the last business day of each month hereafter until
the Maturity Date (each a "Determination Date") and shall be subject to
adjustment as set forth herein. If (i) the Borrower shall have
registered the shares of the Borrower's common stock underlying each of
the conversion of the Note and that certain warrant issued to Holder on
a registration statement declared effective by the Securities and
Exchange Commission (the "SEC"), and (ii) the market price (the "Market
Price") of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market (as defined below) for the five (5) trading days
immediately preceding a Determination Date exceeds the then applicable
Fixed Conversion Price by at least twenty five percent (25%), the
Interest Rate for the succeeding calendar month shall automatically be
reduced by 25 basis points (25 b.p.) (0.25.%) for each incremental
twenty five percent (25%) increase in the Market Price of the Common
Stock above the then applicable Fixed Conversion Price. Notwithstanding
the foregoing (and anything to the contrary contained in herein), in no
event shall the Contract Rate be less than zero percent (0%).
Interest shall be (i) calculated on the basis of a 360 day year, and
(ii) payable monthly, in arrears, commencing on September 1, 2004 and
on the first business day of each consecutive calendar month thereafter
until the Maturity Date (and on the Maturity Date), whether by
acceleration or otherwise (each, a "Contract Rate Payment Date").
ADVANCES, PAYMENTS UNDER NOTE
Mechanics of Advances. All Loans evidenced by this Note shall be made
in accordance with the terms and provisions of the Security Agreement.
Fixed Conversion Price. For purposes hereof, subject to Section 3.5
hereof, the initial "Fixed Conversion Price" means $ 0.85.
No Effective Registration. Notwithstanding anything to the
contrary herein, the Holder shall not be required accept shares of
Common Stock as payment following a conversion by the Holder if there
fails to exist an effective current Registration Statement (as defined
in the Registration Rights Agreement) covering the shares of Common
Stock to be issued, or if an Event of Default hereunder exists and is
continuing, unless such requirement is otherwise waived in writing by
the Holder in whole or in part at the Holder's option.
Optional Redemption in Cash. The Borrower will have the option
of prepaying this Note ("Optional Redemption") by paying to the Holder
a sum of money equal to one hundred thirty percent (130%) of the
principal amount of this Note together with accrued but unpaid interest
thereon and any and all other sums due, accrued or payable to the
Holder arising under this Note, the Security Agreement, or any
Ancillary Agreement (as defined in the Security Agreement) (the
"Redemption Amount") on the day written notice of redemption (the
"Notice of Redemption") is given to the Holder. The Notice of
Redemption shall specify the date for such Optional Redemption (the
"Redemption Payment Date") which date shall be seven (7) days after the
date of the Notice of Redemption (the "Redemption Period"). A Notice of
Redemption shall not be effective with respect to any portion of this
Note for which the Holder has previously delivered a Notice of
Conversion (defined below) pursuant to Section 3.1, or for conversions
elected to be made by the Holder pursuant to Section 3.1 during the
Redemption Period. The Redemption Amount shall be determined as if
such Xxxxxx's conversion elections had been completed immediately prior
to the date of the Notice of Redemption. On the Redemption Payment
Date, the Redemption Amount (plus any additional interest and fees
accruing on the Notes during the Redemption Period) must be irrevocably
paid in full in immediately available funds to the Holder. In the
event the Borrower fails to pay the Redemption Amount on the Redemption
Payment Date, then such Redemption Notice will be null and void.
HOLDER'S CONVERSION RIGHTS
Optional Conversion. Subject to the terms of this Article III, the
Holder shall have the right, but not the obligation, at any time until
the Maturity Date, or thereafter during an Event of Default (as defined
in Article V), and, subject to the limitations set forth in Section 3.2
hereof, to convert all or any portion of the then outstanding Principal
Amount and/or accrued interest and fees due and payable into fully paid
and nonassessable shares of the Common Stock at the Fixed Conversion
Price. The shares of Common Stock to be issued upon such conversion are
herein referred to as the "Conversion Shares."
Conversion Limitation. Notwithstanding anything contained herein to the
contrary, the Holder shall not be entitled to convert pursuant to the
terms of this Note an amount that would be convertible into that number
of Conversion Shares which would exceed, at such time, the difference
between the number of shares of Common Stock beneficially owned by such
Holder or issuable upon exercise of warrants held by such Holder and
four and ninety nine percent (4.99%) of the outstanding shares of
Common Stock of the Borrower. For the purposes of the immediately
preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13d-3
thereunder. The Conversion Shares limitation described in this Section
3.2 shall automatically become null and void without any notice to
Borrower upon the occurrence and during the continuance beyond any
applicable grace period of an Event of Default, or upon seventy five
(75) days prior notice to the Borrower.
Mechanics of Xxxxxx's Conversion. In the event that the Holder elects
to convert all or any portion of the then Principal Amount, accrued
interest and fees into Common Stock, the Holder shall give notice of
such election by delivering an executed and completed notice of
conversion ("Notice of Conversion") to the Borrower and such Notice of
Conversion shall provide a breakdown in reasonable detail of the
Principal Amount, accrued interest and fees that are being converted.
On each Conversion Date (as hereinafter defined) and in accordance with
its Notice of Conversion, the Holder shall make the appropriate
reduction to the Principal Amount, accrued interest and fees as entered
in its records and shall provide written notice thereof to the Borrower
within two (2) business days after the Conversion Date. Each date on
which a Notice of Conversion is delivered or telecopied to the Borrower
in accordance with the provisions hereof shall be deemed a Conversion
Date (the "Conversion Date"). A form of Notice of Conversion to be
employed by the Holder is annexed hereto as Exhibit A. Pursuant to the
terms of the Notice of Conversion, the Borrower will issue instructions
to the transfer agent accompanied by an opinion of counsel within two
(2) business days of the date of the delivery to Borrower of the Notice
of Conversion and shall cause the transfer agent to transmit the
certificates representing the Conversion Shares to the Holder by
crediting the account of the Holder's designated broker with the
Depository Trust Corporation ("DTC") through its Deposit Withdrawal
Agent Commission ("DWAC") system within three (3) business days after
receipt by the Borrower of the Notice of Conversion (the "Delivery
Date"). In the case of the exercise of the conversion rights set forth
herein the conversion privilege shall be deemed to have been exercised
and the Conversion Shares issuable upon such conversion shall be deemed
to have been issued upon the date of receipt by the Borrower of the
Notice of Conversion. The Holder shall be treated for all purposes as
the record holder of such Common Stock, unless the Holder provides the
Borrower written instructions to the contrary.
Late Payments. The Borrower understands that a delay in the delivery of
the shares of Common Stock in the form required pursuant to this
Article beyond the Delivery Date could result in economic loss to the
Holder. As compensation to the Holder for such loss, the Borrower
agrees to pay late payments to the Holder for late issuance of such
shares in the form required pursuant to this Article III upon
conversion of the Note, in the amount equal to $500 per business day
after the Delivery Date. The Borrower shall pay any payments incurred
under this Section in immediately available funds upon demand.
Adjustment Provisions. The Fixed Conversion Price and number and kind
of shares or other securities to be issued upon conversion determined
pursuant to Section 2.2 shall be subject to adjustment from time to
time upon the happening of certain events while this conversion right
remains outstanding, as follows:
Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or
a different number of securities of any class or classes, this Note, as
to the unpaid Principal Amount and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted
number of such securities and kind of securities as would have been
issuable as the result of such change with respect to the Common Stock
(i) immediately prior to or (ii) immediately after such
reclassification or other change at the sole election of the Holder.
Stock Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock or
any preferred stock issued by the Borrower in shares of Common Stock,
the Fixed Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in
the case of combination of shares, in each such case by the ratio which
the total number of shares of Common Stock outstanding immediately
after such event bears to the total number of shares of Common Stock
outstanding immediately prior to such event.
Share Issuances. Subject to the provisions of this Section 3.5, if the
Borrower shall at any time prior to the conversion or repayment in full
of the Principal Amount issue any shares of Common Stock or securities
convertible into Common Stock to a person other than the Holder (except
(i) pursuant to Subsections A or B above; (ii) pursuant to options,
warrants, or other obligations to issue shares outstanding on the date
hereof as disclosed to Holder in writing; or (iii) pursuant to options
that may be issued under any employee incentive stock option and/or any
qualified stock option plan adopted by the Borrower) for a
consideration per share (the "Offer Price") less than the Fixed
Conversion Price in effect at the time of such issuance, then the Fixed
Conversion Price shall be immediately reset to such lower Offer Price.
For purposes hereof, the issuance of any security of the Borrower
convertible into or exercisable or exchangeable for Common Stock shall
result in an adjustment to the Fixed Conversion Price upon the issuance
of such securities.
Computation of Consideration. For purposes of any computation
respecting consideration received pursuant to Subsection C above, the
following shall apply:
- in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or
other expenses incurred by the Borrower for any underwriting of the
issue or otherwise in connection therewith;
- in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Borrower
(irrespective of the accounting treatment thereof); and
Upon any such exercise, the aggregate consideration received for such
securities shall be deemed to be the consideration received by the
Borrower for the issuance of such securities plus the additional
minimum consideration, if any, to be received by the Borrower upon the
conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (a) and (b) of
this Subsection (D)).
Reservation of Shares. During the period the conversion right exists,
the Borrower will reserve from its authorized and unissued Common Stock
a sufficient number of shares to provide for the issuance of Common
Stock upon the full conversion of this Note. The Borrower represents
that upon issuance, such shares will be duly and validly issued, fully
paid and non-assessable. The Borrower agrees that its issuance of this
Note shall constitute full authority to its officers, agents, and
transfer agents who are charged with the duty of executing and issuing
stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the conversion of this Note.
Registration Rights. The Holder has been granted registration rights
with respect to the shares of Common Stock issuable upon conversion of
this Note as more fully set forth in a Registration Rights Agreement
dated as of the date hereof between the Borrower and the Holder.
EVENTS OF DEFAULT
The occurrence of any of the events set forth in Sections 4.1 through
4.9, inclusive, shall be an Event of Default ("Event of Default"):
Failure to Pay Principal, Interest or other Fees. The Borrower fails
to pay when due any installment of principal, interest or other fees
hereon or on any other promissory note issued pursuant to the Security
Agreement when due in accordance with the terms of such note, and in
any such case, such failure shall continue for a period of three(3)
days following the date upon which any such payment was due.
Breach of Covenant. The Borrower or any of its Subsidiaries breaches
any covenant or other term or condition of this Note in any material
respect and such breach, if subject to cure, continues for a period of
thirty (30) days after the occurrence thereof.
Breach of Representations and Warranties. Any representation or
warranty of the Borrower or any of its Subsidiaries made herein, or the
Security Agreement, or in any Ancillary Agreement shall be false or
misleading in any material respect.
Stop Trade. An SEC stop trade order or Principal Market trading
suspension of the Common Stock shall be in effect for five (5)
consecutive days or five (5) days during a period of ten (10)
consecutive days, excluding in all cases a suspension of all trading on
a Principal Market, provided that the Borrower shall not have been able
to cure such trading suspension within thirty (30) days of the notice
thereof or list the Common Stock on another Principal Market within
sixty (60) days of such notice. The "Principal Market" for the Common
Stock shall include the NASD OTC Bulletin Board, NASDAQ SmallCap
Market, NASDAQ National Market System, American Stock Exchange, or New
York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock), or any
securities exchange or other securities market on which the Common
Stock is then being listed or traded.
4.5 Bankruptcy, Receiver or Trustee. If Borrower or any of its
Subsidiaries shall (i) apply for, consent to or suffer to exist the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of creditors,
(iii) commence a voluntary case under the federal bankruptcy laws (as
now or hereafter in effect), (iv) be adjudicated a bankrupt or
insolvent, (v) file a petition seeking to take advantage of any other
law providing for the relief of debtors, (vi) acquiesce to, or fail to
have dismissed, within thirty (30) days, any petition filed against it
in any involuntary case under such bankruptcy laws, or (vii) take any
action for the purpose of effecting any of the foregoing.
4.6 Judgments. An attachment or levy is made upon Borrower's or any
of its Subsidiaries' assets having an aggregate value in excess of
$100,000 or a judgment, writ or similar final process is rendered
against Borrower or any if its Subsidiaries or their respective
property or other assets for more than $100,000 which shall not have
been vacated, discharged, stayed or bonded within thirty (30) days from
the entry thereof;
4.7 Default Under Other Agreements. The occurrence of an Event
of Default under and as defined in the Security Agreement or any
Ancillary Agreement or any event of default (or similar term) under any
other indebtedness.
4.8 Failure to Deliver Common Stock or Replacement Note. The
Borrower's failure to timely cause the delivery of the Common Stock to
the Holder pursuant to and in the form required by this Note and the
Security Agreement, if such failure to cause such delivery of the
Common Stock shall not be cured within two (2) days. If Borrower is
required to issue a replacement Note to Holder and Borrower shall
fail to execute and deliver such replacement Note within seven7)
Business Days.
4.9 Change in Control. The occurrence of a change in the
controlling ownership of the Borrower.
DEFAULT RELATED PROVISIONS
4.10 Default Interest Rate. Following the occurrence and during
the continuance of an Event of Default, interest on this Note shall
automatically be increased by two percent (2%) per month, and all
outstanding Obligations, including unpaid interest, shall continue to
accrue interest from the date of such Event of Default at such interest
rate applicable to such Obligations until such Event of Default is
cured or waived.
4.11 Conversion Privileges. The conversion privileges set forth in
Article III shall remain in full force and effect immediately from the
date hereof and until this Note is paid in full.
DEFAULT PAYMENTS
Default Payment. If an Event of Default occurs and is continuing
beyond any applicable grace period, the Holder, at its option, may
elect, in addition to all rights and remedies of Holder under the
Security Agreement and the Ancillary Agreements and all obligations of
Borrower under the Security Agreement and the Ancillary Agreements, to
require the Borrower to make a Default Payment ("Default Payment").
The Default Payment shall be 130% of the outstanding principal amount
of the Note, plus accrued but unpaid interest, all other fees then
remaining unpaid, and all other amounts payable hereunder. The Default
Payment shall be applied first to any fees due and payable to Holder
pursuant to the Notes or the Ancillary Agreements, then to accrued and
unpaid interest due on the Notes and then to outstanding principal
balance of the Notes.
Default Payment Date. The Default Payment shall be due and payable
immediately on the date that the Holder has exercised its rights
pursuant to Section 5.1 ("Default Payment Date").
Cumulative Remedies. The remedies under this Note shall be cumulative.
MISCELLANEOUS
Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
All rights and remedies existing hereunder are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
Notices. Any notice herein required or permitted to be given shall be
in writing and provided in accordance with the terms of the Security
Agreement.
Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so
amended or supplemented, and any successor instrument as it may be
amended or supplemented.
Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder
and its successors and assigns, and may be assigned by the Holder in
accordance with the requirements of the Security Agreement.
Cost of Collection. If default is made in the payment of this Note,
the Borrower shall pay the Holder hereof reasonable costs of
collection, including reasonable attorneys' fees.
Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to
principles of conflicts of laws. Any action brought by either party
against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in
the federal courts located in the state of New York. Both parties and
the individual signing this Note on behalf of the Borrower agree to
submit to the jurisdiction of such courts. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's
fees and costs. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with
such statute or rule of law. Any such provision which may prove
invalid or unenforceable under any law shall not affect the validity or
unenforceability of any other provision of this Note. Nothing
contained herein shall be deemed or operate to preclude the Holder from
bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower's obligations to Holder,
to realize on any collateral or any other security for such
obligations, or to enforce a judgment or other court order in favor of
Xxxxxx.
Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges
in excess of the maximum permitted by applicable law. In the event
that the rate of interest required to be paid or other charges
hereunder exceed the maximum permitted by such law, any payments in
excess of such maximum shall be credited against amounts owed by the
Borrower to the Holder and thus refunded to the Borrower.
Security Interest and Guarantee. The Holder has been granted a
security interest (i) in certain assets of the Borrower and its
Subsidiaries as more fully described in the Security Agreement and (ii)
pursuant to the Stock Pledge Agreement dated as of the date hereof.
The obligations of the Borrower under this Note are guaranteed by
certain Subsidiaries of the Borrower pursuant to the Subsidiary
Guaranty dated as of the date hereof.
Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation
of this Note to favor any party against the other.
[Balance of page intentionally left blank; signature page follows.]
IN WITNESS WHEREOF, the Borrower has caused this Secured Convertible
Minimum Borrowing Note to be signed in its name effective as of this
28th day of July, 2004.
GLOBAL DIGITAL SOLUTIONS, INC.
By:__________________________________
Name:
Title:
WITNESS:
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Secured Convertible Minimum
Borrowing Note issued by Global Digital Solutions, Inc. on July 28,
2004 into Shares of Common Stock of Global Digital Solutions, Inc. (the
"Borrower") according to the conditions set forth in such Note, as of
the date written below.
Date of Conversion:
Conversion Price:
Shares To Be Delivered:
Signature:
Print Name:
Address:
Holder DWAC instructions
(continued from previous page)
(continue.)
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