EXHIBIT 10.35
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
PROVO INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
CONVERTIBLE NOTE
----------------
FOR VALUE RECEIVED, PROVO INTERNATIONAL INC., a Delaware corporation
(hereinafter called "Borrower"), hereby promises to pay to ALPHA CAPITAL
XXXXXXXXXXXXXXXXXX, Xxxxxxxxx 0, 0000 Xxxxxxxxxxx, Xxxxx, Xxxxxxxxxxxx, Fax:
000-00-00000000 (the "Holder") or order, without demand, the sum of Five
Hundred Thousand Dollars ($500,000.00), with simple interest accruing at the
annual rate of eight percent (8%), on January 27, 2006 (the "Maturity Date").
This Note has been entered into pursuant to the terms of a
subscription agreement between the Borrower and the Holder, dated of even date
herewith (the "Subscription Agreement"), and shall be governed by the terms of
such Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set
forth in the Subscription Agreement. The following terms shall apply to this
Note:
ARTICLE I
GENERAL PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day
grace period to pay any monetary amounts due under this Note, after which
grace period a default interest rate of fifteen percent (15%) per annum shall
apply to the amounts owed hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the occurrence of an
Event of Default. The Note shall be payable in full on the Maturity Date,
unless previously converted into Common Stock in accordance with Article II
hereof; provided, that if an Event of Default has occurred (whether or not
such Event of Default is continuing), the Borrower may not pay this Note on or
after the Maturity Date, without the consent of the Holder.
1.3 Interest Rate. Simple interest payable on this Note shall accrue
at the annual rate of eight percent (8%) and be payable upon each Conversion,
June 30, 2004 and semi-annually thereafter, and on the Maturity Date,
accelerated or otherwise, when the principal and remaining accrued but unpaid
interest shall be due and payable, or sooner as described below.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal due under
this Note into Shares of the Borrower's Common Stock, $.01 par value per share
("Common Stock") as set forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the date of
the issuance of this Note and then at any time until this Note is fully paid,
to convert any outstanding and unpaid principal portion of this Note, and
accrued interest, at the election of the Holder (the date of giving of such
notice of conversion being a "Conversion Date") into fully paid and
nonassessable shares of Common Stock as such stock exists on the date of
issuance of this Note, or any shares of capital stock of Borrower into which
such Common Stock shall hereafter be changed or reclassified, at the
conversion price as defined in Section 2.1(b) hereof (the "Conversion Price"),
determined as provided herein. Upon delivery to the Borrower of a Notice of
Conversion as described in Section 7 of the Subscription Agreement of the
Holder's written request for conversion, Borrower shall issue and deliver to
the Holder within three business days from the Conversion Date ("Delivery
Date") that number of shares of Common Stock for the portion of the Note
converted in accordance with the foregoing. At the election of the Holder, the
Borrower will deliver accrued but unpaid interest on the Note in the manner
provided in Section 1.3 through the Conversion Date directly to the Holder on
or before the Delivery Date (as defined in the Subscription Agreement). The
number of shares of Common Stock to be issued upon each conversion of this
Note shall be determined by dividing that portion of the principal of the Note
and interest to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof,
the Conversion Price per share shall be $.25 ("Maximum Base Price").
(c) The Maximum Base Price and number and kind of shares or
other securities to be issued upon conversion determined pursuant to Section
2.1(a), shall be subject to adjustment from time to time upon the happening of
certain events while this conversion right remains outstanding, as follows:
X. Xxxxxx, Sale of Assets, etc. If the Borrower at any time
shall consolidate with or merge into or sell or convey all or substantially
all its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with
respect to the securities subject to the conversion or purchase right
immediately prior to such consolidation, merger, sale or conveyance. The
foregoing provision shall similarly apply to successive transactions of a
similar nature by any such successor or purchaser. Without limiting the
generality of the foregoing, the anti-dilution provisions of this Section
shall apply to such securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance.
B. 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 portion thereof 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 immediately prior to
such reclassification or other change.
C. 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 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.
D. Share Issuance. At any time this Note is outstanding,
except for the Excepted Issuances (as defined in the Subscription Agreement),
the Borrower shall offer, issue or agree to issue any Common Stock or
securities convertible into or exercisable for shares of Common Stock to any
person, firm or corporation at a price per share or conversion or exercise
price per share which shall be less than the Conversion Price, then the
Conversion Price or other price at which Common Stock may be purchased upon
conversion of this Note is automatically reduced to such lower price per
share. The Borrower will notify the Holder within two business days of the
occurrence of any event which results in the reduction of the Conversion
Price.
E. For purposes of Section 2.1(c)(D) above, Fair Market
Value of a share of Common Stock as of a particular date (the "Determination
Date") shall mean the Fair Market Value of a share of the Borrower's Common
Stock. Fair Market Value of a share of Common Stock as of a Determination Date
shall mean:
(i) If the Borrower's Common Stock is traded on an exchange
or is quoted on the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") National Market
System, the NASDAQ SmallCap Market or the American Stock
Exchange, Inc., then the closing or last sale price,
respectively, reported for the last business day immediately
preceding the Determination Date.
(ii) If the Borrower's Common Stock is not traded on an
exchange or on the NASDAQ National Market System, the NASDAQ
SmallCap Market or the American Stock Exchange, Inc., but is
traded in the over-the-counter market, then the mean of the
closing bid and asked prices reported for the last business
day immediately preceding the Determination Date.
(iii) Except as provided in clause (d) below, if the
Borrower's Common Stock is not publicly traded, then as the
Holder and the Borrower agree or in the absence of agreement
by arbitration in accordance with the rules then standing of
the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by
education and training to pass on the matter to be decided.
(iv) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a
liquidation, dissolution or winding up pursuant to the
Borrower's charter, then all amounts to be payable per share
to holders of the Common Stock pursuant to the charter in
the event of such liquidation, dissolution or winding up,
plus all other amounts to be payable per share in respect of
the Common Stock in liquidation under the charter, assuming
for the purposes of this clause (d) that all of the shares
of Common Stock then issuable upon exercise of all of the
Warrants are outstanding at the Determination Date.
(d) Whenever the Conversion Price is adjusted pursuant to
Section 2.1(c) above, the Borrower shall promptly mail to the Holder a notice
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
(e) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock not less than two
hundred percent (200%) of the number of shares of the Common Stock upon the
full conversion of this Note. Borrower represents that upon issuance, such
shares will be duly and validly issued, fully paid and non-assessable.
Xxxxxxxx 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.
(f) The terms of this Note are modifiable by the Holder pursuant
to but not limited to Section 12(b) of the Subscription Agreement.
2.2 Method of Conversion. This Note may be converted by the Holder in
whole or in part as described in Section 2.1(a) hereof and the Subscription
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, 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.
2.3 Maximum Conversion. The Holder shall not be entitled to convert
on a Conversion Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number
of shares of Common Stock beneficially owned by the Holder and its affiliates
on a Conversion Date, (ii) any Common Stock issuable in connection with the
unconverted portion of the Note, and (iii) the number of shares of Common
Stock issuable upon the conversion of the Note with respect to which the
determination of this provision is being made on a Conversion Date, which
would result in beneficial ownership by the Holder and its affiliates of more
than 9.99% of the outstanding shares of Common Stock of the Borrower on such
Conversion Date. For the purposes of the provision to the immediately
preceding sentence, beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be
limited to aggregate conversions of only 9.99% and aggregate conversion by the
Holder may exceed 9.99%. The Holder shall have the authority and obligation to
determine whether the restriction contained in this Section 2.3 will limit any
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 Notes are convertible shall be the responsibility and
obligation of the Holder. The Holder may void the conversion limitation
described in this Section 2.3 upon and effective after 61 days prior written
notice to the Borrower. The Holder may allocate which of the equity of the
Borrower deemed beneficially owned by the Holder shall be included in the
9.99% amount described above and which shall be allocated to the excess above
9.99%.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of
principal and interest then remaining unpaid hereon and all other amounts
payable hereunder immediately due and payable, upon demand, without
presentment, or grace period, all of which hereby are expressly waived, except
as set forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay
any installment of principal, interest or other sum due under this Note when
due and such failure continues for a period of ten (10) days after the due
date. The ten (10) day period described in this Section 3.1 is the same ten
(10) day period described in Section 1.1 hereof.
3.2 Breach of Covenant. The Borrower breaches any material covenant
or other term or condition of the Subscription Agreement or this Note in any
material respect and such breach, if subject to cure, continues for a period
of ten (10) business days after written notice to the Borrower from the
Holder.
3.3 Breach of Representations and Warranties. Any material
representation or warranty of the Borrower made herein, in the Subscription
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading in any
material respect as of the date made and the Closing Date.
3.4 Receiver or Trustee. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final process
shall be entered or filed against Borrower or any of its property or other
assets for more than $50,000, and shall remain unvacated, unbonded or unstayed
for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any
law, or the issuance of any notice in relation to such event, for the relief
of debtors shall be instituted by or against the Borrower and if instituted
against Borrower are not dismissed within 45 days of initiation.
3.7 Delisting. Delisting of the Common Stock from the American Stock
Exchange ("Amex") or such other principal exchange on which the Common Stock
is listed for trading; failure to comply with the requirements for continued
listing on the Amex for a period of three consecutive trading days; or
notification from the Amex or any Principal Market that the Borrower is not in
compliance with the conditions for such continued listing on the Amex or other
Principal Market.
3.8 Stop Trade. An SEC stop trade order or Principal Market trading
suspension that lasts for five or more consecutive trading days.
3.9 Failure to Deliver Common Stock or Replacement Note. Xxxxxxxx's
failure to timely deliver Common Stock to the Holder pursuant to and in the
form required by this Note and Sections 7 and 11 of the Subscription
Agreement, and if required, a replacement Note.
3.10 Non-Registration Event. The occurrence of a Non-Registration
Event as described in Section 11.4 of the Subscription Agreement.
3.11 Reverse Splits. The Borrower effectuates a reverse split of its
common stock without the prior written consent of the Holder.
3.12 Security Agreement. An "Event of Default" as defined in the
Security Agreement dated at or about the date of this Note delivered by
Borrower to Holder (the "Security Agreement").
3.13 Cross Default. A default by the Borrower of a material term,
covenant, warranty or undertaking of any other agreement to which the Borrower
and Holder are parties, or the occurrence of a material event of default under
any such other agreement, in each case, which is not cured after any required
notice and/or cure period.
ARTICLE IV
SECURITY INTEREST
4. Security Interest/Waiver of Automatic Stay. This Note is secured
by a security interest granted to the Collateral Agent for the benefit of the
Holder pursuant to the Security Agreement, as delivered by Borrower to Holder.
The Borrower acknowledges and agrees that should a proceeding under any
bankruptcy or insolvency law be commenced by or against the Borrower, or if
any of the Collateral (as defined in the Security Agreement) should become the
subject of any bankruptcy or insolvency proceeding, then the Holder should be
entitled to, among other relief to which the Holder may be entitled under the
Note, Security Agreement, Subscription Agreement and any other agreement to
which the Borrower and Holder are parties (collectively, "Loan Documents")
and/or applicable law, an order from the court granting immediate relief from
the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to
exercise all of its rights and remedies pursuant to the Loan Documents and/or
applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC
STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY
ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER
SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT
LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR
INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND
REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby
consents to any motion for relief from stay that may be filed by the Holder in
any bankruptcy or insolvency proceeding initiated by or against the Borrower
and, further, agrees not to file any opposition to any motion for relief from
stay filed by the Holder. The Borrower represents, acknowledges and agrees
that this provision is a specific and material aspect of the Loan Documents,
and that the Holder would not agree to the terms of the Loan Documents if this
waiver were not a part of this Note. The Borrower further represents,
acknowledges and agrees that this waiver is knowingly, intelligently and
voluntarily made, that neither the Holder nor any person acting on behalf of
the Holder has made any representations to induce this waiver, that the
Borrower has been represented (or has had the opportunity to he represented)
in the signing of this Note and the Loan Documents and in the making of this
waiver by independent legal counsel selected by the Borrower and that the
Borrower has discussed this waiver with counsel.
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of 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. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice. Any notice or other communication
required or permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by facsimile, with accurate confirmation generated
by the transmitting facsimile machine, at the address or number designated
below (if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery
(if delivered other than on a business day during normal business hours where
such notice is to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be: (i) if to the Borrower to:
Provo International Inc., Xxx Xxxx Xxxx Xxxxx, 0xx Floor, Pearl River, New
York 10965, Attn: Xxxxxxx X. Xxxx, Chief Executive Officer, telecopier: (845)
623-8669, with a copy by telecopier only to: Xxxxxxx Berlin Xxxxxxx Xxxxxxxx,
LLP, 0000 X Xxxxxx, X.X., Xxxxx 000, Xxxxxxxxxx, X.X. 00000, Attn: Xxxx X.
XxXxxxxxxx, Esq., telecopier: (000) 000-0000, and (ii) if to the Holder, to
the name, address and telecopy number set forth on the front page of this
Note, with a copy by telecopier only to Grushko & Xxxxxxx, P.C., 000 Xxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (212)
697-3575.
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.
5.5 Cost of Collection. If default is made in the payment of this
Note, 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. 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 Agreement 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.
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 Redemption. This Note may not be redeemed or paid before the
Maturity Date, and if an Event of Default has occurred after the Maturity Date
without the consent of the Holder.
5.9 Shareholder Status. The Holder shall not have rights as a
shareholder of the Borrower with respect to unconverted portions of this Note.
However, the Holder will have the right of a shareholder of the Borrower with
respect to the Shares of Common Stock to be received after delivery by the
Holder of a Conversion Notice to the Borrower.
IN WITNESS WHEREOF, Xxxxxxxx has caused this Note to be signed in its
name by an authorized officer on this 27th day of January, 2004.
PROVO INTERNATIONAL INC.
By: /s/ Xxxxxxx X. Xxxx-Xxxxxxxx
Name: Xxxxxxx X. Xxxx-Xxxxxxxx
Title: CEO
WITNESS:
______________________________________
NOTICE OF CONVERSION
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(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by PROVO INTERNATIONAL
INC. on January 27, 2004 into Shares of Common Stock of PROVO INTERNATIONAL
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:________________________________________________________________________
____________________________________________________________________
