1
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 PATH 1 NETWORK TECHNOLOGIES INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, PATH 1 NETWORK TECHNOLOGIES INC., a Delaware
corporation (hereinafter called "Borrower"), hereby promises to pay to
_______________________(the "Holder") on order, without demand, the sum of
___________________________, with simple interest accruing at the annual rate
of 4%, on April 12, 2003 (the "Maturity Date").
The following 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 immediately from the date hereof and
until the Note is paid in full.
1.2 Interest Rate. Subject to the Holder's right to convert, interest
payable on this Note shall accrue at the annual rate of eight percent (4%) and
be payable in arrears commencing June 30, 2002 and quarterly 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 amount and
interest due under this Note into Shares of the Borrower's Common Stock and
Warrants as set forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after 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/or at the
Holder's election with the Company's consent, the interest accrued on the
Note, (the date of giving of such notice of conversion being a "Conversion
Date") into fully paid and nonassessable shares of common stock of Borrower
as such stock exists on the date of issuance of this Note, or any shares of
capital stock of Borrower into which such stock shall hereafter be changed
or reclassified (the "Common Stock") at the conversion price as defined in
Section 2.1(b) hereof (the "Conversion Price"), determined as provided
herein. Upon delivery to the Company of a Notice of Conversion as described
in Section 9 of the subscription agreement entered into between the Company
and Holder relating to this Note (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 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 Company
will deliver accrued but unpaid interest on the Note 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 to be converted and interest, if
any, by the Conversion Price.
(b) the Conversion Price per share shall be $1.20.
(c) The Maximum Base Price described in Section 2.1(b)(i) above and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.1(a) and 2.1(b), 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) 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.
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 Conversion into the Borrower's Warrants. The Holder of this Note will
receive warrants equal to 100% of the principal amount of this Note upon
conversion (the "Warrants"). The Warrants shall be exercisable for five years at
an exercise price of $1.60 and shall have a cashless exercise provision.
ARTICLE III
MISCELLANEOUS
3.1 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.
3.2 Notices. Any notice herein required or permitted to be given shall be
in writing and may be personally served or sent by fax transmission (with copy
sent by regular, certified or registered mail or by overnight courier). For the
purposes hereof, the address and fax number of the Holder is as set forth on the
first page hereof. The address and fax number of the Borrower shall be Path 1
Network Technologies Inc., 0000 Xxxxx Xxxxx, Xxxxx 000, Xxx Xxxxx, Xxxxxxxxxx
00000, Fax: (000) 000-0000. Both Xxxxxx and Borrower may change the address and
fax number for service by service of notice to the other as herein provided.
Notice of Conversion shall be deemed given when made to the Company pursuant to
the Subscription Agreement.
3.3 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.
3.4 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.
3.5 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.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Xxxxxxxx has caused this Note to be signed in its name
by its Chief Executive Officer on this 12th day of April 2002.
PATH 1 NETWORK TECHNOLOGIES INC.
By:________________________________
WITNESS:
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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 PATH 1 NETWORK TECHNOLOGIES
INC. on April 1, 2002 into Shares of Common Stock of PATH 1 NETWORK TECHNOLOGIES
INC. (the "Company") 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:________________________________________________________________________
________________________________________________________________________
