EXHIBIT 10.2
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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. 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 OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO XXXXXX, INC., THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, XXXXXX, INC., a Delaware corporation (hereinafter
called the "Borrower"), hereby 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 or successors in interest, on order, without demand, the
sum of One Million Five Hundred Thousand Dollars ($1,500,000 ), together with
any accrued and unpaid interest and fees on January 14, 2006 (the "Maturity
Date"). Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof between the Borrower and the Holder (the "Purchase Agreement").
The following terms shall apply to this Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1 Interest Rate. Interest payable on this Note shall accrue at the "base
rate" or "prime rate" published in the Wall Street Journal from time to time,
plus one and one quarter percent (1.25%) (the "Contract Rate") commencing on
January 14, 2004 and be payable in arrears on the first day of each consecutive
calendar month thereafter, and on the Maturity Date, accelerated or otherwise,
due and payable as described below. In no event shall the Contract Rate be less
than five and one quarter percent (5.25%).
1.2 Principal. The Borrower shall make repayments of principal on the Note
as follows:
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Date Principal Payment Date Principal Payment
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5/1/2004 15,000 3/1/2005 67,500
6/1/2004 30,000 4/1/2005 75,000
7/1/2004 45,000 5/1/2005 75,000
8/1/2004 52,500 6/1/2005 75,000
9/1/2004 52,500 7/1/2005 82,500
10/1/2004 60,000 8/1/2005 82,500
11/1/2004 60,000 9/1/2005 105,000
12/1/2004 60,000 10/1/2005 105,000
1/1/2005 67,500 11/1/2005 105,000
2/1/2005 67,500 12/1/2005 105,000
1/1/2006 Balance
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ARTICLE II
BORROWER PAYMENT OPTIONS
2.1 Monthly Payments in Cash or Common Stock. The Borrower shall make
monthly payments of (i) accrued and unpaid interest on the aggregate principal
of the Note (plus any payments due and owing under the Purchase Agreement and
the Note not previously paid) and (ii) payments of principal according to the
schedule set forth in Section 1.2 hereof (collectively, the "Monthly Amount")
beginning on May 1, 2004 and on the first day of each consecutive calendar month
thereafter (each a "Repayment Date"). Subject to the terms hereof, the
Corporation has the sole option to determine whether to satisfy payment of the
Monthly Amount in full on each Repayment Date either in cash or in shares of
Common Stock, or a combination of both. The Corporation shall deliver to the
Holder a written irrevocable notice in the form of Exhibit B attached hereto
electing to pay such Monthly Amount in full on such Repayment Date in either
cash or Common Stock, or a combination of both ("Repayment Election Notice").
Such Repayment Election Notice shall be delivered to the Holder at least ten
(10) days prior to the applicable Repayment Date (the date of such notice being
hereinafter referred to as the "Notice Date"). If such Repayment Election Notice
is not delivered within the prescribed period set forth in the preceding
sentence, then the repayment shall be made in cash. If the Corporation elects or
is required to repay all or a portion of the Monthly Amount in cash on a
Repayment Date, then, with respect to the portion of the Monthly Amount to be
paid in cash, on such Repayment Date the Corporation shall pay to the Holder an
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amount equal to (x) 103% of the principal portion of the Monthly Amount plus (y)
any accrued and unpaid interest in satisfaction of such obligation. If the
Corporation repays all or a portion of the Monthly Amount in shares of Common
Stock, the number of such shares to be issued for such Repayment Date shall be
the number determined by dividing (x) the portion of the Monthly Amount to be
paid in shares of Common Stock, by (y) (100% of the average closing price for
the three trading days immediately prior to closing) $3.50 (the "Fixed
Conversion Price"). .
2.2 No Effective Registration. Notwithstanding anything to the contrary
herein, the Corporation shall be prohibited from exercising its right to repay
the Monthly Amount in shares of Common Stock (and must deliver cash in respect
thereof) on the applicable Repayment Date if at any time from the Notice Date
until the time at which the Holder receives such shares there fails to exist an
effective registration statement or an Event of Default hereunder exists or
occurs, unless otherwise waived in writing by the Holder in whole or in part at
the Holder's option.
2.3 Common Stock Payment Restrictions. Notwithstanding anything to the
contrary herein, if the volume weighted average price of the Common Stock as
reported by Bloomberg, L.P. on the Principal Market for any of the 10 trading
days preceding a Repayment Date was less than 120% of the Fixed Conversion
Price, and the Corporation has elected to pay all or a portion of the Monthly
Amount in shares of Common Stock, then, instead of the Company delivering the
required number of shares of Common Stock on the Repayment Date, the Holder and
the Company may mutually agree to convert an amount equal to what the Company
elected to pay in shares of Common Stock at a conversion price equal to 87% of
the volume weighted average price of the three (3) lowest days during the twenty
(20) trading days immediately preceding the Conversion Date. Any part of the
Monthly Amount not converted into shares of Common Stock by the following
Repayment Date shall be paid by the Company in cash on such following Repayment
Date. Any such cash payments not made on or before such repayment Date shall be
added to the next succeeding Monthly Amount. At any time during the relevant
month or mutual agreement per above is not attained, the Company shall pay the
Monthly Amount, or the unconverted part thereof, in cash and the conversion
price set forth in this Section 2.3 shall no longer be applicable.
2.4 Optional Prepayments in Common Stock. In the event that the Common
Stock trades on the Principal Market at a volume weighted average price greater
than 120% of the Fixed Conversion Price for a period of at least ten (10)
consecutive trading days, then the Borrower may, at its sole option, provide the
Holder written notice ("Call Notice") requiring the conversion at the Fixed
Conversion Price of all or a portion of the Note held by the Holder (subject to
the limitation provided for in Section 3.3) as of the date set forth in such
Call Notice (the "Call Date"). The Call Date shall be at least twenty (20)
trading days following the date of the Call Notice, provided a registration
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statement covering resales of that number of Conversion Shares provided for in
the Call Notice has been declared effective and is available for use. The number
of Conversion Shares to be issued in connection with any such conversion
pursuant to a particular Call Notice pursuant to this Section 3.9 shall not
exceed 25% of the aggregate dollar trading volume of the Common Stock for the
twenty (20) trading days immediately preceding the Call Date. If the price of
the Common Stock falls below 120% of the Conversion Price during the twenty (20)
trading day period preceding the Call Date, then the Holder will no longer be
required to convert the Note pursuant to such Call Notice. The Company shall not
be permitted to give the Holder more than one notice during any 20-day period.
2.5 Optional Redemption. The Company will have the option of redeeming the
Note ("Optional Redemption") by paying to the Purchaser a sum of money equal to
one hundred fifteen percent (115%) of the principal amount of the Note together
with accrued but unpaid interest thereon and any and all other sums due, accrued
or payable to the Purchaser arising under this Agreement, Note or any other
document delivered herewith ("Redemption Amount") outstanding on the day notice
of redemption ("Notice of Redemption") is given to a Purchaser ("Redemption
Date"). . A Notice of Redemption may not be given in connection with any portion
of Note for which notice of conversion has been given by the Purchaser at any
time before receipt of a Notice of Redemption. The Redemption Amount must be
paid in good funds to the Purchaser no later than the seventh (7th) business day
after the Redemption Date ("Optional Redemption Payment Date"). In the event the
Company fails to pay the Redemption Amount by the Optional Redemption Payment
Date, then such Redemption Notice will be null and void. A Notice of Redemption
may be given by the Company, provided no Event of Default, as described in the
Note shall have occurred or be continuing.
ARTICLE III
CONVERSION RIGHTS
3.1. Holder's Conversion Rights. If the closing price of the Common Stock
is greater than the Fixed Conversion Price, and the registration statement
required by Section 10 of the Purchase Agreement has been declared effective by
the Securities Exchange Commission, the Holder shall have the right, but not the
obligation to convert the principal portion of this Note and/or interest due and
payable into fully paid and nonassessable shares of common stock of the Borrower
as such stock exists on the date of issuance of this Note.
3.2 Conversion Mechanics. (a) The number of shares of Common Stock to be
issued upon each conversion of this Note shall be determined by dividing that
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portion of the principal and interest and fees of the Note to be converted, if
any, by the Fixed Conversion Price as of the Conversion Date. In the event of
any conversions of outstanding principal amount under this Note in part pursuant
to this Article III, such conversions shall be deemed to constitute conversions
of outstanding principal amount applying to Monthly Amounts for the Repayment
Dates in chronological order.
By way of example, if the original principal amount of this Note is
$1,500,000 and the Holder converted $50,000 of such original principal amount
prior to the first Repayment Date, then (1) the principal amount of the Monthly
Amount due on the first Repayment Date would equal $0, (2) the principal amount
of the Monthly Amount due on the second Repayment Date would equal $0 and (3)
the principal amount of the Monthly Amount due on the third Repayment Date would
be $40,000. The Borrower shall deliver a Notice of Conversion as described in
Section 9 of the Securities Purchase Agreement entered into between the Borrower
and the Holder relating to this Note (the "Purchase Agreement") of the Holder's
written request for conversion (the date of giving such notice of conversion
being a "Conversion Date").
(b) The Fixed Conversion Price and number and kind of shares or other
securities to be issued upon conversion is subject to adjustment from time to
time upon the occurrence of certain events, as follows:
A. 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 in shares of Common
Stock, the Fixed Conversion Price or the Conversion Price, as the case may be,
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.
B. 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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3.3 Issuance of New Note. This Note may be converted by the Borrower or
Holder in whole or in part as described herein and Section 9 of the Purchase
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall, at the request of the Holder and upon
the cancellation of this Note, be issued by the Borrower to the Holder for the
principal balance of this Note and interest which shall not have been converted
or paid. The Borrower will pay no costs, fees or any other consideration to the
Holder for the production and issuance of a new Note.
ARTICLE IV
EVENTS OF DEFAULT
If an Event of Default occurs and is continuing, the Borrower's rights
under Article II shall immediately cease and be of no further effect until such
time as the Event of Default has been cured or waived by the Holder. Upon the
occurrence and continuance of an Event of Default beyond any applicable grace
period, the Holder may make all sums of principal, interest and other fees then
remaining unpaid hereon and all other amounts payable hereunder due and payable
within five (5) days of written notice from Holder to Borrower (each period
being a "Default Notice Period") of an Event of Default (as defined below). In
the event of such an acceleration, the amount due and owing to the Holder shall
be 130% of the outstanding principal amount of the Note (plus accrued and unpaid
interest and fees, if any) (the "Acceleration Rate") until such Event of Default
shall have been cured or waived in writing by the Holder, if applicable. If
during the Default Notice Period, Borrower cures the Event of Default (other
than a payment default described in section 4.1 below), the Event of Default
will no longer exist and any rights Holder had pertaining to or arising from the
Event of Default will no longer exist.
If after the Default Notice Period the Borrower has not repaid in full
amount then due hereunder, then, and only then, the conversion price hereunder
shall be reduced and shall be equal to the lower of (i) the Fixed Conversion
Price; or (ii) seventy percent (70%) of the average of the three lowest closing
prices for the Common Stock on the Principal Market, for the thirty (30) trading
days prior to but not including the Conversion Date until such Event of Default
shall have been cured or waived in writing by the Holder. The "Principal Market"
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.
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The occurrence of any of the following events is an Event of Default ("Event of
Default"):
4.1 Failure to Pay Principal, Interest or other Fees. The Borrower fails to
pay any installment of principal, interest or other fees hereon or on any other
promissory note issued pursuant to the Purchase Agreement and this Note, when
due and such failure continues for a period of fourteen (14) business days after
the due date.
4.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of this Note or the Purchase Agreement in any material
respect and such breach, if subject to cure, continues for a period of twenty
(20) days after written notice to the Borrower from the Holder.
4.3 Breach of Representations and Warranties. Any material representation
or warranty of the Borrower made herein, in the Purchase Agreement, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection therewith shall be false or misleading and shall not be cured for a
period of twenty (20) business days after written notice thereof is received by
the Borrower from the Holder.
4.4 Bankruptcy, Receiver or Trustee. Pledgor shall (i) apply for, consent
to, or suffer to exist the appointment of, or the taking of possession by, a
receiver, custodian, trustee, liquidator or other fiduciary 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 any state or 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 ninety (90) 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..
4.5 Judgments. Any money judgment, writ or similar final process shall be
entered or filed against the Borrower or any of its property or other assets for
more than $500,000, and shall remain unvacated, unbonded or unstayed for a
period of ninety (90) days.
4.6 Intentionally omitted.
4.7 Stop Trade. An SEC stop trade order or Principal Market trading
suspension of the Common Stock for 5 consecutive days or 5 days during a period
of 10 consecutive days, excluding in all cases a suspension of all trading on a
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Principal Market, provided that the Borrower shall not have been able to cure
such trading suspension within 30 days of the notice thereof or list the Common
Stock on another Principal Market within 60 days of such notice.
4.8 Failure to Deliver Common Stock or Replacement Note. The Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 9 of the Purchase Agreement, or if required a
replacement Note when due and such failure continues for a period of seven (7)
business days after the due date.
4.9 Intentionally omitted.
DEFAULT RELATED PROVISIONS
4.10 Payment Grace Period. The Borrower shall have a three (3) business day
grace period to pay any monetary amounts due under this Note or the Purchase
Agreement, after which grace period a default interest rate of five percent (5%)
per annum above the then applicable interest rate hereunder shall apply to the
monetary amounts due.
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 the Note is paid in full.
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 shall be deemed effectively given: (a) upon personal delivery to
the party notified, (b) when sent by telephonically confirmed facsimile if sent
during normal business hours of the recipient, if not, then on the next business
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day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
Borrower at the address as set forth on the signature page to the Purchase
Agreement executed in connection herewith, with a copy to Xxxxxxxx X. Xxxxxxxxx,
Esq., Xxxxxxxxx Xxxx & Xxxx, LLP, 000 Xxxxx Xxxx Xxxxxx, Xxxxxxxxxx, XX, 00000,
and to the Holder at the address set forth on the signature page to the Purchase
Agreement for such Holder, with a copy to Xxxx X. Xxxxxx, Esq., 000 Xxxx 00xx
Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, facsimile number (000) 000-0000, or
at such other address as the Borrower or the Holder may designate by ten days
advance written notice to the other parties hereto. A Notice of Conversion shall
be deemed given when made to the Borrower pursuant to the Purchase 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.
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 after written notice
to Xxxxxxxx.
5.5 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.
5.6 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.
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5.7 Security Interest. The holder of this Note has been granted a security
interest in certain assets of the Borrower more fully described in a Security
Agreement.
5.8 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.
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IN WITNESS WHEREOF, each Borrower has caused this Note to be signed in its
name effective as of this 14th day of January, 2004 .
XXXXXX, INC.
By: /s/ Xxxxx X. Xxxxxxx
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Name: Xxxxx X. Xxxxxxx
Title: EVP-CFO
WITNESS:
/s/ Xxxx Xxx Xxxxxx
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EXHIBIT A
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 due on the
Note issued by XXXXXX, INC. on January ___, 2004 into Shares of Common Stock of
XXXXXX, INC. (the "Company") according to the conditions set forth in such Note,
as of the date written below.
Date of Conversion:
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Shares To Be Delivered:
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Signature:
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Print Name:
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Address:
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EXHIBIT B
FORM OF REPAYMENT ELECTION NOTICE
To: [HOLDER AT HOLDER'S ADDRESS]
Pursuant to Section 2.1 of the Note of Xxxxxx, Inc. issued on January __,
2004 , we hereby notify you that we are irrevocably electing to repay the
outstanding Monthly Amount (as defined in the Note) due on the Repayment Date
(as defined in the Note) which occurs on ______, 20__ (CHECK ONE):
_____ In full in cash on such Repayment Date.
_____ In full in shares of the Company's Common Stock within three (3)
trading days following such Repayment Date.
_____ In part in cash in the amount of $______ on such Repayment Date,
and in part in shares of the Company's Common Stock (in the
amount of ______ shares) within three (3) trading days following
such Repayment Date.
Xxxxxx, Inc.
By:
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Name:
Title:
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