CONVERTIBLE NOTE
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 KAIRE HOLDINGS INCORPORATED THAT SUCH REGISTRATION IS NOT
REQUIRED.
CONVERTIBLE
NOTE
FOR
VALUE
RECEIVED, KAIRE HOLDINGS INCORPORATED, a Delaware corporation (hereinafter
called "Borrower"), hereby promises to pay to LONGVIEW
FUND, LP, 000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxxxxxxx, XX 00000, Fax:
(000)
000-0000
(the
"Holder") or order, without demand, the sum of One Hundred Fifty Thousand
Dollars ($150,000), including simple interest accruing at the annual rate of
12%, on or before December 13, 2007 (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 twelve percent
(12%) and be payable semi-annually on June 1st
and
December 1st
for each
year in which the Note is outstanding.
1
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, $.001 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 6 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 until the maturity date
of
the Note, the Conversion Price per share shall be equal to seventy percent
(70%)
of the average of the five (5) lowest closing bid prices of the Common Stock
as
reported by Bloomberg, L.P. for the Principal Market for the twenty (20) trading
days preceding a Conversion Date.
(c) The
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.
2
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. So long as this Note is outstanding, if the Borrower shall issue
any
shares of Common Stock except for the employee stock options, or in connection
with the exercise of Warrants, options or upon the conversion of convertible
instruments outstanding on the issue date of this Note and as described in
the
Borrower’s Reports (as defined in the Subscription Agreement) for a
consideration less than the Fair Market Value (as defined in Section 2(c)(E)
below) for such shares at the time of such issue, then, and thereafter
successively upon each such issue, the Conversion Price shall be reduced as
follows: (i) the number of shares of Common Stock outstanding immediately prior
to such issue shall be multiplied by the Conversion Price in effect at the
time
of such issue and the product shall be added to the aggregate consideration,
if
any, received by the Borrower upon such issue of additional shares of Common
Stock; and (ii) the sum so obtained shall be divided by the number of shares
of
Common Stock outstanding immediately after such issue. The resulting quotient
shall be the adjusted Conversion Price. For purposes of this adjustment, the
issuance of any security of the Borrower carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price
upon
the issuance of shares of Common Stock upon exercise of such conversion or
purchase rights.
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:
(a) 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.
(b) 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.
(c) 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.
(d) 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.
3
(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 a sufficient number of shares to provide
for the issuance of 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
11(c) 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 4.99% 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 4.99% and aggregate
conversion by the Holder may exceed 4.99%. 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
4.99% amount described above and which shall be allocated to the excess above
4.99%.
4
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 OTC Bulletin Board (“OTCBB”) 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 OTCBB
for a
period of three consecutive trading days; or notification from the OTC Bulletin
Board or any Principal Market that the Borrower is not in compliance with the
conditions for such continued listing on the OTCBB or other Principal
Market.
3.8 Stop
Trade.
An SEC
or judicial 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 6 and 10 of the Subscription
Agreement, or, if required, a replacement Note.
3.10 Non-Registration
Event.
The
occurrence of a Non-Registration Event as described in Section 9 of the
Subscription Agreement.
5
3.11 Reverse
Splits.
The
Borrower effectuates a reverse split of its common stock without ten days prior
written notice to the Holder.
3.12 Non-Payment.
A
default by the Borrower under any one or more obligations in an aggregate
monetary amount in excess of $75,000 for more than twenty days after the due
date, unless the Borrower is contesting the validity of such obligation in
good
faith.
3.13 Reservation
Default.
Failure
by the Borrower to have reserved for issuance upon conversion of the Note the
amount of Common stock as set forth in this Note and the Subscription
Agreement.
3.14 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
MISCELLANEOUS
4.1 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.
4.2 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: Kaire
Holdings Incorporated, 000
Xxxxx
Xxxxxx, Xxxxx X, Xxxxxxxx, XX 00000, telecopier number: (000) 000-0000, with
a
copy by telecopier only to: Xxxx X. Xxxxxxxxx, Esq., Xxxxxxxxx & Associates,
00000 Xxx Xxxxxx Xxxxxx, Xxxxx 000, Xxxxxx, XX 00000, xxxxxxxxxx: (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: (000) 000-0000.
4.3 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.
6
4.4 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.
4.5 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.
4.6 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.
4.7 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.
4.8 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.
7
IN
WITNESS WHEREOF,
Xxxxxxxx has caused this Note to be signed in its name by an authorized officer
as of the 13th day of December, 2005.
KAIRE
HOLDINGS INCORPORATED
/s/
Xxxxxx Xxxxxxxx
By:________________________________
Name:
Title:
WITNESS:
______________________________________
8
NOTICE
OF CONVERSION
(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 KAIRE HOLDINGS INCORPORATED on
December ____, 2005 into Shares of Common Stock of KAIRE HOLDINGS INCORPORATED
(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:_____________________________________________________________________________
____________________________________________________________________________
9
