March 1, 2006
CONVERTIBLE NOTE
THIS NOTE AND THE COMMON STOCK INTO WHICH IT IS CONVERTIBLE
(COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR UNDER THE LAWS
OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE
OFFERED OR SOLD UNLESS THEY ARE REGISTERED UNDER THE ACT AND
UNDER THE LAWS OF THE STATES WHERE EACH SALE IS MADE, OR AN
EXEMPTION FROM REGISTRATION REQUIREMENTS IS AVAILABLE IN THE
OPINION OF COUNSEL SATISFACTORY TO THE BORROWER.
FOR VALUE RECEIVED, DCI USA, INC., a Delaware corporation with an
address at 0 Xxxx Xxxxxx, Xxxxx Xxxx, Xxx Xxxx (hereinafter called "Borrower"),
hereby promises to pay to XXXXXXXX XXXX XXXX or assigns (the "Holder"), with an
address at c/o Adv. Xxxxx Xxxxxxx of 00 Xxxxxxxx Xxxxx Xxxxxx, Xxx-Xxxx, Xxxxxx
00000, the aggregate principal amount of the Loan (as defined below) which is
outstanding from time to time and evidenced hereby plus interest thereon as set
forth below.
Until the earlier of the second anniversary of the date of this Note or
the date on which this Note is converted into shares, upon at least two (2)
business days' prior written notice to the Holder, the Borrower may borrow from
the Holder, from time to time, any amount in increments of $1,000 and the Holder
shall advance to the Borrower such amount that is so requested by the Borrower;
provided, however, that the aggregate principal amount outstanding under this
Note shall not exceed THREE HUNDRED THOUSAND ($300,000) DOLLARS at any given
time and the Holder shall not be obligated to make any advances if an Event of
Default has occurred and is continuing. The principal amount borrowed and
outstanding under this Note is sometimes referred to herein as the "Loan".
Interest shall accrue on the outstanding principal amount of this Note
at the rate of eight (8%) percent per annum, beginning on the date of this Note
until this Note is paid in full. The principal amount of this Note and all
accrued and unpaid interest shall be due and payable on the second anniversary
of the date of this Note (the "Maturity Date"). Upon the occurrence and during
the continuance of any Event of Default (as defined below), the amounts then due
and payable under this Note (including the entire principal and accrued interest
if such payments are accelerated at the election of the Holder) shall bear
interest equal to the lesser of (a) the maximum amount permitted to be charged
under applicable law or (b) twenty-one (21%) percent per annum from the due date
thereof until paid in full or such Event of Default has been cured or waived
(the "Default Interest Rate").
The following additional terms shall apply to this Note:
ARTICLE I
GENERAL
1.1 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect from the date hereof until the
principal amount of this Note and all interest accrued hereon are paid in full.
1.2 Payment Records. The amount, date and unpaid balance of the Loan
shall be as evidenced by the applicable books and records of the Holder, which
shall be conclusive evidence thereof in the absence of manifest error. The
Holder is hereby authorized to endorse such particulars of the Loan on the grid
attached hereto.
1.3 Payment on Non-Business Day. If this Note, or any payment
hereunder, falls due on a Saturday, Sunday or a New York public holiday, this
Note shall fall due or such payment shall be made on the next succeeding
business day and such additional time shall be included in the computation of
any interest payable hereunder.
1.4 Cost of Collection. If any payment due hereunder is not paid when
due, the Borrower agrees to pay all costs of collection, including attorney's
fees, all of which shall be added to the amount due hereunder, such charges to
bear interest at the Default Interest Rate. In addition, if this Note is
referred by Xxxxxx to any attorney for collection, the Borrower shall pay all
attorney fees incurred by Xxxxxx therefor.
1.5 Prepayment. The Borrower may prepay all or part of this Note
without penalty provided that Xxxxxxxx gives the Holder at least five (5)
business days' advance written notice prior to the date of such prepayment and
gives the Holder the opportunity to convert this Note into shares of common
stock during such five-day period.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount due
under this Note and all unpaid interest accrued hereon, into shares of common
stock ("Common Stock") of Borrower, as set forth below.
2.1 Conversion.
(a) At the option of the Holder, the principal amount of this Note plus
all accrued and unpaid interest hereon (the "Outstanding Balance"), or any part
of the Outstanding Balance, shall be converted into shares of Common Stock at
the conversion price of $.05 (five cents) per share (the "Conversion Price").
The number of shares (the "Conversion Shares") to be issued to the Holder upon
conversion of this Note shall be equal to the portion of the Outstanding Balance
which is converted divided by the Conversion Price.
2.2 Provisions Applicable to All Conversions.
(a) All shares issued upon conversion of this Note shall be validly
issued, fully paid and nonassessable. Upon the surrender of this Note, the
Borrower's securities to be issued upon each conversion of this Note shall be
delivered to the Holder not later than five (5) business days after Holder has
delivered its request for conversion. Upon request by the Holder from time to
time, the Borrower shall promptly deliver to Holder a certificate of Borrower's
executive officer setting forth the Borrower's total authorized and outstanding
Common Stock and other capital stock and all securities convertible into such
Common Stock or capital stock, in any event with a level of detail satisfactory
to the Holder.
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(b)
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 entity, this Note shall thereafter 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 2.2(b) 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 shall
thereafter evidence the right to purchase such number 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 applicable conversion price shall be proportionately
reduced in the 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.
2.3 Method of Conversion. If the Holder converts the entire amount of
this Note, the Holder shall surrender this Note at the principal office of the
Borrower. Upon partial exercise hereof, the grid attached hereto will be revised
to reflect the appropriate reduction in the outstanding amount of the Loan.
ARTICLE III
EVENTS OF DEFAULT
The occurrence of any of the following events of default (each an
"Event of Default") shall, at the option of the Holder, make all sums of
principal and interest then remaining unpaid hereon and all other amounts
payable hereunder immediately due and payable:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the
principal of this Note or interest hereon when due.
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3.2 Breach of Covenant. The Borrower breaches any material covenant or
other material term or condition of this Note.
3.3 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein or in any Note or certificate given in
writing pursuant hereto or in connection herewith shall be false or misleading
in any material respect.
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 its 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 process shall be
entered or filed against Borrower or any of its property or other assets for
more than $100,000, and shall remain unvacated, unbonded or unstayed for a
period of thirty (30) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.
ARTICLE IV
REPRESENTATIONS OF BORROWER
Representations and Warranties of the Borrower. The Borrower hereby
represents and warrants to the Holder that:
4.1 Organization, Good Standing and Qualification. The Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite organizational power and
authority to carry on its business.
4.2 Capitalization. The outstanding capital stock of the Borrower, and
its outstanding options, warrants and other rights to acquire shares of the
Borrower's capital stock, are as set forth in the Borrower's public filings with
the Securities and Exchange Commission ("Public Filings").
4.3 Authorization. All organizational action on the part of the
Borrower, its officers and directors necessary for the authorization, execution
and delivery of this Note and the performance of all obligations of the Borrower
hereunder and the authorization, issuance and delivery of the securities
issuable upon conversion of this Note ("Conversion Shares") has been taken and
the Note constitutes valid and legally binding obligations of the Borrower,
enforceable against the Borrower in accordance with its terms.
4.4 Valid Issuance of Securities. The Conversion Shares, when issued
and delivered in accordance with the terms hereof, will be duly and validly
issued, fully paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under applicable state and federal securities
laws. The Conversion Shares will be issued in compliance with all applicable
federal and state securities laws. The Conversion Shares have been duly and
validly reserved for issuance.
4.5 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Borrower is
required in connection with the consummation of the transactions contemplated by
this Note.
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4.6 Litigation. Except as may be disclosed in the Public Filings, there
is no action, suit or proceeding pending or, to the Borrower's knowledge,
currently threatened against the Borrower that questions the validity of this
Note or the right of the Borrower to enter into it, or to consummate the
transactions contemplated hereby. Except as may be disclosed in the Public
Filings, the Borrower is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality that might result, either individually or in the aggregate, in
any material adverse changes in the assets, condition or affairs of the
Borrower, financially or otherwise, or any change in the current equity
ownership of the Borrower. Except as may be disclosed in the Public Filings,
there is no action, suit or proceeding by the Borrower or any of its
subsidiaries currently pending or which the Borrower or any of its subsidiaries
intends to initiate.
4.7 Compliance with Other Instruments. The Borrower is not in violation
or default of any provisions of its Certificate of Incorporation or By-laws or,
except as may be disclosed in the Public Filings, of any material instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound or of any provision of federal or state statute, rule or regulation
applicable to the Borrower. The execution, delivery and performance of this Note
and the consummation of the transactions contemplated hereby will not result in
any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Borrower.
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgency 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 or other communications given or made
hereunder shall be in writing and shall be deemed delivered the day telecopied
(with copy mailed by overnight courier) to the party to receive the same at its
address set forth below or to such other address as either party shall hereafter
give to the other by notice duly made under this Section 5.2: (i) if to the
Borrower, to Xxxxxxx Xxxxx at the address of Borrower set forth above, fax
number: ______________; and (ii) if to the Holder, to the address of Holder set
forth above, fax number: ______________.
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. The Holder may assign the rights and obligations
under this Note to a third party upon written notice to the Borrower. 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.
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5.5 Governing Law. This Note has been executed in and shall be governed
by the internal laws of the State of New York, without regard to the principles
of conflict of laws. Borrower consents to the jurisdiction of the courts sitting
in New York, New York in connection with any and all actions arising under this
Note.
IN WITNESS WHEREOF, Xxxxxxxx has caused this Note to be signed in its
name by its duly authorized officer on this 1st day of March, 2006.
DCI USA, INC.
By: /s/Xxxxxxxx Xxxx Xxxx
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Name: Xxxxxxxx Xxxx Xxxx
Title: Chief Executive Officer
AGREED:
/s/ Xxxxxxxx Xxxx Xxxx
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XXXXXXXX XXXX XXXX
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GRID for CONVERTIBLE NOTE
MADE BY DCI USA, INC.
_______________, 2006
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Date Amount of Loan Advanced Amount of Payment or Interest Initials Unpaid Balance
Other Credit Holder/Borrower
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