EXHIBIT 10.6
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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 XXX.XXX, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
SECURED REVOLVING NOTE
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FOR VALUE RECEIVED, XXX.XXX, INC. a Delaware corporation (the "BORROWER")
promises to pay to LAURUS MASTER FUND, LTD., c/o Ironshore Corporate Services
Ltd., P.O. Box 1234 G.T., Queensgate House, South Church Street, Grand Cayman,
Cayman Islands, Fax: 000-000-0000 (the "Holder") or its registered assigns, on
order, the sum of Seven Hundred Fifty Thousand Dollars ($750,000) without
duplication of any amounts owing by Borrower to Holder under the Minimum
Borrowing Notes (as defined in the Security Agreement referred to below), or, if
different, the aggregate outstanding principal amount of all "Loans" made and
allocated hereto (as such term is defined in the Security Agreement referred to
below), together with any accrued and unpaid interest hereon, on August 1, 2006
(the "MATURITY DATE").
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Security Agreement between the Borrower and the
Holder dated as of August 31, 2004 (as amended, modified and supplemented from
time to time, the "SECURITY AGREEMENT").
The following terms shall apply to this Secured Revolving Note:
ARTICLE I
CONTRACT RATE & PREPAYMENTS
1.1. Interest Rate. Subject to Sections 4.3 and 5.7 hereof, interest
payable on this Note shall accrue at a rate per annum equal to the Prime Rate,
plus two percent (2.00%) (the "CONTRACT RATE"). The Contract 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 six percent (6.00 %) nor greater than seven
percent (7.00%).
1.2. Contract Rate Adjustments and Payments. The Contract Rate shall be
subject to further adjustment as set forth herein on the last business day of
each month hereafter until the Maturity Date (each a "Determination Date"). If
(i) the Borrower shall have registered the shares of the Borrower's common stock
underlying each of the conversion of the Minimum
Borrowing Note and the exercise of that certain Warrant issued to the Holder on
the date hereof 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 for the five (5) trading days immediately preceding a Determination Date
exceeds the then applicable Fixed Conversion Price (as defined in the Minimum
Borrowing Note) by at least twenty five percent (25%), the Contract Rate for the
succeeding calendar month shall automatically be reduced by 200 basis points
(200 b.p.) (2.0.%) therefore and for each incremental twenty five percent (25%)
increase in the Market Price of the Common Stock above the then applicable Fixed
Conversion Price. If (i) the Borrower shall not have registered the shares of
the Borrower's common stock underlying the conversion of the Minimum Borrowing
Note and the exercise of that certain warrant issued to the holder on the date
hereof on a registration statement declared effective by the SEC and which
remains effective, and (ii) the Market Price of the Common Stock as reported by
Bloomberg, L.P. on the principal market 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 Contract Rate for
the succeeding calendar month shall automatically be decreased by 100 basis
points (100 b.p.) (1.0.%) therefore and 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 October 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").
ARTICLE II
HOLDER'S CONVERSION RIGHTS
2.1. Optional Conversion. Subject to the terms of this Article II, the
Holder shall have the right, but not the obligation, at any time until the
Maturity Date, or during an Event of Default (as defined in Article IV), and,
subject to the limitations set forth in Section 2.2 hereof, to convert all or
any portion of the outstanding Principal Amount and/or accrued interest and fees
due and payable into fully paid and nonassessable restricted shares of the
Common Stock at the Fixed Conversion Price (defined below). For purposes hereof,
subject to Section 2.7 hereof, the initial "FIXED CONVERSION PRICE" means $0.28
(105% of the average of the closing price of the Common Stock for the ten (10)
trading days immediately prior to the date hereof.) The shares of Common Stock
to be issued upon such conversion are herein referred to as the "CONVERSION
SHARES."
2.2. Conversion Limitation. .4.99% 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 shares of Common Stock which, when added to the number of shares of
Common Stock otherwise beneficially owned by
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such Holder (with respect to such Holder, such number of shares of Common Stock
herein referred to as the Holder's "BENEFICIAL OWNERSHIP") including those
issuable upon exercise of warrants held by such Holder would exceed 4.99% of the
outstanding shares of Common Stock of the Borrower at the time of conversion.
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. In connection with any obligation of the Borrower
to issue to the holder shares of Common Stock pursuant to the terms hereof, the
Holder will inform the Borrower of such Xxxxxx's Beneficial Ownership. Subject
to Section 2.3 below, the conversion limitation described in this Section 2.2
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 75 days prior notice to the Borrower.
2.3. 19.99% Limitation. Notwithstanding anything contained herein to the
contrary, the number of shares of Common Stock issuable by the Borrower and
acquirable by the Holder at a price below $0.24 per share pursuant to the terms
of this Note, the Security Agreement or any Ancillary Agreement, shall not
exceed an aggregate of 19.99% of the total issued and outstanding shares
(calculated in accordance with applicable Principal Market rules and
regulations) shares of the Borrower's Common Stock (subject to appropriate
adjustment for stock splits, stock dividends, or other similar recapitalizations
affecting the Common Stock) or otherwise violate the Borrower's obligations
under the rules and regulations of the Principal Market (the "MAXIMUM COMMON
STOCK ISSUANCE"), unless Stockholder Approval shall first be obtained in
accordance with Section 13(u) of the Security Agreement. Borrower shall not be
obligated to issue such shares of Common Stock in excess of the Maximum Common
Stock Issuance unless and until the Borrower obtains the Stockholder Approval at
its next annual meeting of stockholders in accordance with applicable Principal
Market rules and regulations.
2.4 Optional Prepayment in Cash. (a) Subject to Section 2.4(b) hereof, the
Borrower will have the option of prepaying this Note in full ("OPTIONAL
PREPAYMENT") by paying to the Holder a sum of money equal to one hundred percent
(100%) of the then outstanding 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 "PREPAYMENT AMOUNT"). The
Borrower may exercise its prepayment right by delivery of written notice (the
"Notice of Prepayment") to the Holder and otherwise complying with the
provisions of this Section 2.4.
(b) Any Notice of Prepayment delivered pursuant to this Section 2.4 shall
specify the date for such Optional Prepayment (the "PREPAYMENT PAYMENT DATE")
which date shall be seven (7) days after the date of the Notice of Prepayment
(the "PREPAYMENT PERIOD"). A Notice of Prepayment 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 2.1, or for
conversions made by the Holder pursuant to Section 2.1 during the Prepayment
Period of all or any portion of the then outstanding debt under this Note.
Subject to Conversion by Holder as herein provided, on the Prepayment Payment
Date, the Prepayment Amount shall be determined as of such Xxxxxx's conversion
elections had been completed immediately prior to the date of the notice of
Prepayment. On the Prepayment Payment Date, the Prepayment Amount (plus any
additional interest and fees accruing on this Note during the Prepayment Period)
must be irrevocably paid in full in immediately available funds to the Holder.
In the event the Borrower fails to pay the Prepayment Amount on the Prepayment
Payment Date, then
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such Prepayment Notice will be null and void. If Holder effects a conversion of
all of the outstanding indebtness of this Note during the Prepayment Period,
this Note shall be deemed fully paid and terminated upon such conversion without
any further obligation of Borrower hereunder.
2.4. Mechanics of Xxxxxx's Conversion. In the event that the Holder elects
to convert this Note 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 one (1) business day 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.
2.5. 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 II
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 II upon conversion of this 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.
2.6. Adjustment Provisions. The Fixed Conversion Price and number and kind
of shares or other securities to be issued upon conversion determined pursuant
to Section 2.1 shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding, as
follows:
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A. Reclassification. 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.
B. 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.
C. Share Issuances. Subject to the provisions of this Section 2.6, 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 pursuant to: (i)
Subsections A or B above; (ii) securities issued, or deemed issued (as provided
below), to directors, officers, employees or consultants of the Borrower or a
subsidiary of the Borrower in connection with their service as directors of the
Borrower or a subsidiary of the Borrower, their employment by the Borrower or a
subsidiary of the Borrower or their retention as consultants by the Borrower or
a subsidiary of the Borrower under any stock agreement and/or stock plan adopted
by the Borrower, plus such number of shares of Common Stock which are
repurchased by the Borrower from such persons pursuant to contractual rights
held by the Borrower and at repurchase prices not exceeding the respective
original purchase prices paid by such persons to the Borrower therefor; (iii)
shares of Common Stock issuable upon exercise of options, warrants or other
obligations outstanding as of the date hereof; (iv) shares of Common Stock
issuable upon the conversion of the Borrower's Preferred Stock in existence on
the date hereof; and (v) shares of Common Stock issued as payment of interest in
accordance with the terms of the notes issued pursuant to that Note and Warrant
Purchase Agreement dated as of July 18, 2003 by and among the Borrower and the
investors named therein) 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 pursuant to the formula below:
If the Corporation issues any additional shares pursuant to Section 2.6C
above then, and thereafter successively upon each such issue, the Fixed
Conversion Price shall be adjusted by multiplying the then applicable Fixed
Conversion Price by the following fraction:
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A + B
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(A + B) + [((C - D) x B) / C]
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A = Total amount of shares convertible pursuant to this
Note.
B = Actual shares sold in the offering
C = Fixed Conversion Price
D = Offering 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 at the time of
issuance of such securities. Notwithstanding the immediately
foregoing, no adjustment to the then applicable Fixed Conversion Price
shall be made if such adjustment, as calculated pursuant to this
Section 2.6(C), would result in a change to the then applicable Fixed
Conversion Price of less than $0.01.
D. Computation of Consideration. For purposes of any computation
respecting consideration received pursuant to Subsection C above, the
following shall apply:
(a) 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;
(b) 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
(c) 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)).
2.7. 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.
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ARTICLE III
EVENTS OF DEFAULT
The occurrence of any of the events set forth in Sections 3.1 and 3.2,
shall be an Event of Default ("EVENT OF DEFAULT"):
3.1. Failure to Pay Principal, Interest or other Fees. Subject to Section
3.3, the Borrower fails to pay when due any installment of principal, interest
or other fees hereon or on any other Note issued pursuant to the Security
Agreement, or the Borrower fails to pay when due any amount due under any other
promissory note issued by the Borrower, when due in accordance with the terms
thereof where such failure to pay has had, or could reasonably be expected to
have a Material Adverse Effect.
3.2 Other Events of Default. . The occurrence of any other Event of Default
set forth in Section 19 of the Security Agreement.
3.3 Payment Grace Period. The Borrower shall have a five (5) business day
grace period to pay any monetary amounts due under this Note or the Security
Agreement or any Ancillary Agreement.
3.4 Conversion Privileges. The conversion privileges set forth in Article
II shall remain in full force and effect immediately from the date hereof and
until this Note is paid in full.
3.5 Cumulative Remedies. The remedies under this Note shall be cumulative.
ARTICLE IV
DEFAULT PAYMENTS
4.1. 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
all obligations of Borrower under the Security Agreement, to require the
Borrower to make a Default Payment ("DEFAULT PAYMENT"). The Default Payment
shall be 112% 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.
4.2. Default Payment Date and Default Notice Period. The Default Payment
shall be due and payable on the fifth business day after an Event of Default as
defined in Article III ("DEFAULT PAYMENT DATE") has occurred and is continuing
beyond any applicable grace period. The period between date upon which of an
Event of Default has occurred and is continuing beyond any applicable grace
period and the Default Payment Date shall be the "DEFAULT PERIOD." If during the
Default Period, the Borrower cures the Event of Default, the Event of Default
will no longer exist and any additional rights the Holder had triggered by the
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occurrence and continuance of an Event of Default will no longer exist,
including, without limitation, the right to receive the Default Payment. If the
Event of Default is not cured during the Default Notice Period, all amounts
payable hereunder shall be due and payable on the Default Payment Date, all
without further demand, presentment or notice, or grace period, all of which
hereby are expressly waived.
4.3. Default Interest Rate. Following the occurrence and during the
continuance of an Event of Default, interest on this Note shall automatically be
increased to the Default Rate, and all outstanding Obligations under this Note,
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.
ARTICLE V
MISCELLANEOUS
5.1. 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.
5.2. 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.
5.3. 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.
5.4. 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.
5.5. 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.
5.6. 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
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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.
5.7. 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.
5.8. Security Interest and Guarantee. The Holder has been granted a
security interest in certain assets of the Borrower as more fully described in
the Security Agreement. 5.9. 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.]
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IN WITNESS WHEREOF, the Borrower has caused this Secured Convertible
Revolving Note to be signed in its name effective as of this 31st day of August,
2004.
XXX.XXX, INC.
By: /s/ Xxxxxx X. XxXxxxxx
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Name: Xxxxxx X. XxXxxxxx
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Title: Chief Financial Officer
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WITNESS:
/s/ Xxxx X. Xxxxxxx
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Xxxx X. Xxxxxxx
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NOTICE OF CONVERSION
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(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 Revolving Note issued
by XXX.Xxx, Inc. on _______ __, 2004 into Shares of Common Stock of XXX.xxx,
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 ____________________________________________________
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