THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OR APPLICABLE STATE SECURITIES LAWS. 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 AIRTRAX INC. THAT SUCH REGISTRATION
IS NOT REQUIRED.
SERIES A CONVERTIBLE NOTE
FOR VALUE RECEIVED, AIRTRAX INC., a New Jersey corporation (hereinafter
called "Borrower"), hereby promises to pay to, ________________________, 00
Xxxxxx Xxxxxx Xxxxxx, Xxxxxxx, Xxxxxxx, X0X 0X0, Xxxxxx, Fax: (000) 000-0000,
with simple interest accruing at the annual rate of 6%, on the sooner of August
10, 2005 or the date of the Approval, as defined in the Subscription Agreement
(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 six percent (6%) and be payable upon each Conversion, and on the
Maturity Date, accelerated or otherwise, either in the form of freely-tradeable
Common Stock, which shall be valued at the conversion price in effect at the
Maturity Date, or cash, each at the Company's option, 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, no par value per share ("Common
Stock") as set forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) Provided the Approval (as defined in the Subscription Agreement) is
obtained, then the Holder shall have the right from and after the Approval Date
(as defined in the Subscription Agreement) and thereafter 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; provided, however, that the Company may in its discretion
require that the Holder convert all or a portion of the Note pursuant to Section
7.7 of the Subscription Agreement and the Holder may in its discretion require
that the Company redeem all or a portion of the Note pursuant to Section 7.2 of
the Subscription Agreement. 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 five (5) 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 $1.30 ("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 that may be issued or
outstanding, 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.
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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 Excepted Issuances (as
defined in the Subscription Agreement) for a consideration less than the
Conversion Price in effect at the time of such issue, then, and thereafter
successively upon each such issue, the Conversion Price shall be reduced to such
other lower issue price. For purposes of this adjustment, the issuance of any
security 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 security and again upon
the issuance of shares of Common Stock upon exercise of such conversion or
purchase rights if such issuance is at a price lower than the then applicable
Conversion Price.
(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,
but not less than the amount of shares of Common Stock required to be reserved
pursuant to the Subscription Agreement. 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 Mandatory Conversion. Provided an Event of Default has not occurred,
then commencing after the later of both the Approval Date and Effective Date and
ending ten (10) days after the later of the Approval Date and Effective Date,
the Borrower will have the option by written notice to the Holder ("Notice of
Mandatory Conversion") of compelling the Holder to convert up to 100% of the
outstanding and unpaid principal of the Notes and accrued interest, thereon,
into Common Stock at the Conversion Price then in affect ("Mandatory
Conversion"). The date the Notice of Mandatory Conversion is given is the
"Mandatory Conversion Date." The Notice of Mandatory Conversion shall specify
the aggregate principal amount of the Note which is subject to Mandatory
Conversion, which amount may not exceed in the aggregate, for all Holders who
receive Notes similar in term and tenure as this Note, the dollar volume of
Common Stock traded on the Principal Market during the seven (7) trading days
immediately preceding the Mandatory Conversion Date. Mandatory Conversion
Notices must be given proportionately to all Holders of Notes who received Notes
similar in term and tenure as this Note. A Notice of Mandatory Conversion may
not be given unless the Registration Statement described in Section 11.1 (iv) of
the Subscription Agreement is effective for the unrestricted public resale of
Shares and Warrant Shares. The Borrower shall reduce the amount of Note
principal and interest subject to a Notice of Mandatory Conversion by the amount
of Note Principal and interest for which the Holder had delivered a Notice of
Conversion to the Borrower during the seven (7) trading days preceding the
Mandatory Conversion Date. Each Mandatory Conversion Date shall be a deemed
Conversion Date and the Borrower will be required to deliver the Common Stock
issuable pursuant to a Mandatory Conversion Notice in the same manner and time
period as described in Section 2.2 of the Note.
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2.4 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.
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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 $100,000, 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
("Bulletin Board") 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 Bulletin Board for a period of three consecutive trading days; or
notification from the Bulletin Board or any Principal Market that the Borrower
is not in compliance with the conditions for such continued listing on the
Bulletin Board 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 7 and 11 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 11.4 of the Subscription Agreement.
3.11 Approval Default. A default by the Borrower in obtaining Shareholder
Approval as described in Section 7.9 of the Subscription Agreement.
3.12 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 which is not cured after any required notice and/or cure period.
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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: Airtrax Inc., 000X Xxxxxxx
Xxxxxx, Xxxxxxxxx, Xxx Xxxxxx 00000, Attn: Xxxxx Xxxxx, CEO, telecopier: (609)
567-7895, with a copy by telecopier only to: Xxxxxxxxx Xxxx Xxxxxxxx Xxxxxxx
LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, telecopier number:
(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.
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.
6
4.8 Redemption. This Note may not be redeemed or paid without the consent
of the Holder.
4.9 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 as of the 11th day of February, 2005.
AIRTRAX INC.
By:_/s/ Xxxxx Xxxxx
-------------------
Name: Xxxxx Xxxxx
Title: President and CEO
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 AIRTRAX INC. on February
__, 2005 into Shares of Common Stock of AIRTRAX 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:________________________________________________________________
________________________________________________________________
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