THIS NOTE, THE WARRANTS ISSUABLE HEREUNDER AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE AND EXERCISE OF THE WARRANTS HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED,
OR OTHERWISE TRANSFERRED, DISPOSED OF OR OFFERED FOR SALE, IN WHOLE OR IN
PART, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THAT ACT
COVERING THIS NOTE AND/OR SUCH COMMON STOCK, OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO USCI, INC., THAT AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
Principal Sum: $1,000,000
Holder: Xxxxxx Xxxxxxxxx
CONVERTIBLE RESTATED NOTE
(the "Note")
USCI, INC.
USCI, INC., a Delaware corporation (hereinafter called the "Company"), hereby
promises to pay the Principal Sum to the order of Holder on or before August
1, 1998. This Note shall accrue interest until maturity at the rate of 8% per
annum, payable at maturity. The Note shall accrue interest after maturity,
payable on demand, at the rate of 15% per annum. Interest shall be computed
on the basis of a 360-day year. All payments and prepayments hereunder shall
be applied first to accrued interest and then to principal.
1. This Note is one of the "Restated Notes" being issued under a Private
Placement Purchase Agreement between the Company and the Holder (the
"Purchase Agreement") in replacement of the Prior Notes referred to in the
Purchase Agreement. The term "Registration Statement" shall have the
meaning attributed thereto in the Purchase Agreement, and the term
"Effective Date" means the date on which the Registration Statement shall
be declared to be effective.
2. Issuance of Warrants.
(a) For each month (or portion thereof) from and after November 1,
1997 until the principal of this Note and all accrued interest
thereon is paid in full, the Company shall on the written demand
of Holder issue to Holder warrants in the form of Exhibit 1 (the
"Warrants") to purchase a number of shares of common stock of the
Company equal to 100,000 for each $1,000,000 of the initial
principal amount hereof (whether or not any partial prepayments
have been made against such initial principal amount), with
appropriate pro ration for initial principal amounts of less than
$1,000,000. Holder may make one or more demands as aforesaid at
any time or times until the 60th day after the later to occur of
the Effective Date or the payment in full of the principal and
accrued interest of this Note.
(b) For example, if the initial principal amount of this Note is
$1,000,000, then notwithstanding that a $400,000 partial
prepayment is made by the Company on March 1, 1998, the Company
shall on Holder's demand made on or after March 1, 1998 issue to
Holder 500,000 Warrants. By way of further example, if any portion
of this Note thereafter remains outstanding on April 1, 1998, the
Company shall on demand of Holder made on or after such date issue
to Holder 100,000 additional Warrants.
3. Increase in Interest Rate.
(a) If the Effective Date has not occurred by June 30, 1998, then, in
addition to the Holder's other remedies the interest rate under
the Note shall be increased to 18% per annum (or, if less, the
highest rate permitted by law) until the Effective Date.
(b) If the Effective Date has not occurred by September 30, 1998,
then, in addition to the Holder's other remedies, the interest
rate under the Note shall be further increased to 24% per annum
(or, if less, the highest rate permitted by law) until the
Effective Date.
4. Conversion Rights.
(a) In the event that the principal and all accrued interest on this
Note have not been paid in full by the close of business on August
1, 1998, then until such principal and all accrued interest are
thereafter paid in full, the principal and accrued interest on
this Note shall be convertible by Subscriber from time to time, in
whole or in part, into shares of common stock of the Company
("Common Stock") at the lesser (the "Conversion Price") of $5 per
share (the "Cap") or 80% of the average closing sales price of
the Common Stock during the last five trading days prior to
conversion. If on any such date there are no sales prices, the
closing bid price for such date shall be used instead. Holder's
conversion rights are in addition to, and not in limitation of,
Xxxxxx's other rights and remedies to enforce its rights under
this Note. After maturity, the Company shall give to the Holder
not less than 30 days' and not more than 45 days' prior written
notice before the Company may repay this Note without Xxxxxx's
prior written consent or demand. In addition, without Xxxxxx's
prior written consent, the Company may not repay this Note after
maturity prior to the Effective Date.
(b) In the event that the Holder elects to exercise its conversion
rights hereunder, such conversion shall be effective when Holder
shall give to the Company written notice of such election (which
may be effected by facsimile). The Company shall, within two
business days after receipt by the Company of notice of conversion
and the Note being converted, DWAC to Holder (or, at Holder's
option, deliver to Holder certificates for) the shares of Common
Stock issuable on such conversion.
(c) The Note shall be convertible at any time only to the extent that
Holder would not as a result of such conversion (and after taking
into account any and all other Common Stock then beneficially
owned by Holder, whether pursuant to the Warrants or otherwise)
beneficially own more than 4.99% of the then outstanding Common
Stock. Beneficial ownership shall be defined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934. The opinion
of counsel to Xxxxxx shall prevail in the event of any dispute on
the calculation of Xxxxxx's beneficial ownership.
(d) If any capital reorganization or reclassification of the common
stock, or consolidation, or merger of the Company with or into
another corporation, or the sale or conveyance of all or
substantially all of its assets to another corporation shall be
effected, then, as a condition precedent of such reorganization or
sale, the Cap shall be appropriately adjusted and the following
additional provision shall be made: The Holder of the Note shall
from and after the date of such reorganization or sale have the
right to receive (in lieu of the shares of common stock of the
Company immediately theretofore receivable with respect to the
Note, upon the exercise of conversion rights), such shares of
stock, securities or assets as would have been issued or payable
with respect to or in exchange for the number of outstanding
shares of such common stock immediately theretofore receivable
with respect to the Note (assuming the Note were then
convertible). In any such case, appropriate provision shall be
made with respect to the rights and interests of the Holder to the
end that such conversion rights (including, without limitation,
provisions for appropriate adjustments) shall thereafter be
applicable, as nearly as may be practicable in relation to any
shares of stock, securities or assets thereafter deliverable upon
the exercise thereof.
(e) The Company shall take whatever action is required by NASDAQ
("NASDAQ Action") to approve the issuance of shares on conversion
of the Notes and exercise of the Warrants issued to the
Subscribers (each such term as defined in the Purchase Agreement).
The Company represents and warrants, and Holder acknowledges, that
without taking any NASDAQ Action, the maximum number of shares
which will be issued on conversion of the Notes and exercise of
the Warrants is 2,000,000, issuable on a first converted-first
exercised basis. Should NASDAQ Action not be completed by May 31,
1998, then until such NASDAQ Action is completed, the Company
shall on demand by Holder made at any time or times redeem any
portion of the Note which Holder proposes to convert but may not
then convert because NASDAQ Action has not been completed. The
redemption price shall be equal to 125% of the principal and/or
interest proposed to be converted. The redemption price shall be
payable within five business days after demand for redemption is
made, and shall accrue interest payable in demand at 11% per
annum.
5. The Company covenants and agrees that all shares of Common Stock which
may be issued upon conversion of this Note will, upon issuance, be duly
and validly issued, fully paid and non-assessable and no personal liability
will attach to the holder thereof. The Company shall at all times reserve
sufficient shares for issuance on conversion and exercise of the Notes and
the Warrants (as defined in the Purchase Agreement). The Company shall use
its best efforts promptly to list on NASDAQ all shares of Common Stock
which are issued upon conversion of this Note.
6. Purchase for Investment. The Holder, by acceptance hereof, acknowledges
that the Note, the Warrants (and the Common Stock into which the Note is
convertible and into which the Warrants are exercisable) have not been
registered under the Act, covenants and agrees with the Company that such
Holder is taking and holding such securities for investment purposes and
not with a view to, or for sale in connection with, a distribution thereof
and that such securities may not be assigned, hypothecated or otherwise
disposed of in the absence of an effective registration statement under the
Act or an opinion of counsel for the Holder, which counsel shall be
reasonably satisfactory to the Company, to the effect that such disposition
is in compliance with the Act, and represents and warrants that such Holder
is an "accredited investor" that such Holder has, or with its
representative has, such knowledge and experience in financial and business
matters to be capable of evaluating the merits and risks in respect of such
securities and is able to bear the economic risk of such investment.
7. Certain Payments. In the event the Company fails to give irrevocable
instructions to its transfer agent to DWAC or deliver certificates for
securities as required under this Note within two days after conversion ,
or if the Company fails timely to make a redemption payment as required
hereunder, then, without limiting Holder's other rights and remedies
(including, without limitation, rights and remedies available to Holder
upon an event of default), the Company shall forthwith pay to the Holder an
amount accruing at the rate of $500 per day for each day of such breach for
each $100,000 principal amount of this Note, with pro rata payments for
principal amounts of less than $100,000.
8. Events of Default and Acceleration of the Note.
(a) An "event of default" with respect to this Note shall exist if any
of the following shall occur, if:
(i) The Company shall breach or fail to comply with any
provision of this Note and such breach or failure shall
continue for 15 days after written notice by any Holder of
any Note to the Company.
(ii) A receiver, liquidator or trustee of the Company or of a
substantial part of its properties shall be appointed by
court order and such order shall remain in effect for more
than 15 days; or the Company shall be adjudicated bankrupt
or insolvent; or a substantial part of the property of the
Company shall be sequestered by court order and such order
shall remain in effect for more than 15 days; or a petition
to reorganize the Company under any bankruptcy,
reorganization or insolvency law shall be filed against the
Company and shall not be dismissed within 45 days after such
filing.
(iii) The Company shall file a petition in voluntary bankruptcy or
request reorganization under any provision of any
bankruptcy, reorganization or insolvency law, or shall
consent to the filing of any petition against it under any
such law.
(iv) The Company shall make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its
debts generally as they become due, or consent to the
appointment of a receiver, trustee or liquidator of the
Company, or of all or any substantial part of its
properties.
(b) If an event of default shall occur, the Holder may, in addition to
such Xxxxxx's other remedies, by written notice to the Company,
declare the principal amount of this Note, together with all
interest accrued thereon, to be due and payable immediately. Upon
any such declaration, such amount shall become immediately due and
payable and the Holder shall have all such rights and remedies
provided for under the terms of this Note and the Purchase
Agreement.
Miscellaneous. All notices, demands and other communications required or
permitted to be given hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person,
by telegram, by facsimile, recognized overnight mail carrier, telex or other
standard form of telecommunications, or by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows: (a) if to the
Holder, to such address as such Holder shall furnish to the Company in
accordance with this Section, or (b) if to the Company, to it at its
headquarters office, or to such other address as the Company shall furnish to
the Holder in accordance with this Section. This Note shall be governed and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such state. The federal
and state courts sitting in the City of New York shall have exclusive
jurisdiction over all matters relating to this Agreement. Trial by jury is
expressly waived.
Service of process may be effected in the manner provided for notices
hereunder, and such service in such manner shall be deemed the equivalent of
personal service.
The Company waives protest, notice of protest, presentment, dishonor, notice
of dishonor and demand. If any provision of this Note shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereof, but this Note shall be construed as if
such invalid or unenforceable provision had never been contained herein.
The waiver of any event of default or the failure of the Holder to exercise
any right or remedy to which it may be entitled shall not be deemed a waiver
of any subsequent event of default or of the Holder's right to exercise that
or any other right or remedy to which the Holder is entitled.
The Holder of this Note shall be entitled to recover its reasonable legal and
other costs of collecting on this Note, and such costs shall be deemed added
to the principal amount of this Note.
In addition to all other remedies to which the Holder may be entitled
hereunder, Xxxxxx shall also be entitled to decrees of specific performance
without posting bond or other security.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed on
the date set forth below
Dated: February 24, 1998
USCI, INC.
By: [authorized officer]
