Exhibit 10.71
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 ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED,OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
NOTE OR SUCH COMMON SHARES, AS APPLICABLE, UNDER SAID ACT AND ANY APPLICABLE
STATES SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE MINIMUM BORROWING NOTE
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FOR VALUE RECEIVED, VENTURES-NATIONAL INCORPORATED D/B/A TITAN
GENERAL HOLDINGS, INC. a Utah corporation (the "BORROWER") promises to pay to
LAURUS MASTER FUND, LTD., c/o Ironshore Corporate Services Ltd., P.O. Box 1234
G.T., Queensgate House, South Church Street, Grand Cayman, Cayman Islands, Fax:
000-000-0000 (the "HOLDER") or its registered assigns, on order, the sum of ONE
MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000), of, if different, the
aggregate principal amount of all "LOANS" (as such term is defined in the
Security Agreement referred to below), together with any accrued and unpaid
interest hereon, on November 20, 2006 (the "MATURITY DATE").
Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in the Security Agreement between Borrower and
the Holder dated as of November 20, 2003 (as amended, modified and supplemented
from time to time, the "SECURITY AGREEMENT").
The following terms shall apply to this Minimum Borrowing Note (the "NOTE"):
ARTICLE I
INTEREST
1.1 INTEREST RATE AND PAYMENTS. Subject to Sections 5.3 and 6.7
hereof, interest payable on this Note shall accrue at a rate per annum equal to
the "PRIME RATE" published in THE WALL STREET JOURNAL from time to time, plus
three percent (3%) (the "CONTRACT RATE"). The Prime Rate shall be increased or
decreased as the case may be for each increase or decrease in the Prime Rate in
an amount equal to such increase or decrease in the Prime Rate; each change to
be effective as of the day of the change in such rate in accordance with the
terms of the Security Agreement. Subject to the immediately following sentence,
the Contract Rate shall not be less than seven percent (7%). The Contract Rate
shall be adjusted as follows: if (i) the Company shall have registered the
shares of the Company's common stock underlying the conversion of this Note and
that certain warrant issued to Holder of even date herewith on a registration
statement declared effective by the Securities Exchange Commission, and (ii) the
volume weighted average price of the Common Stock as reported by Bloomberg, L.P.
on the principal market for the Common Stock for any of the ten (10) trading
days immediately preceding an Interest Payment Date (defined below) exceeds the
then applicable Fixed Conversion Price (as
hereinafter defined) by twenty five percent (25%), the Contract Rate for the
succeeding calendar month shall automatically be reduced by twenty five basis
points (25 b.p.) for such period PROVIDED, HOWEVER, that in no event will the
Contract Rate hereunder be reduced to less than 0.00%.. Interest shall be
payable monthly in arrears commencing on December 1, 2003 and on the first day
of each consecutive calendar month thereafter, (each, an "INTEREST PAYMENT
DATE").
ARTICLE II
ADVANCES, BORROWER CONVERSION RIGHTS, PAYMENTS UNDER NOTE
2.1. MECHANICS OF ADVANCES. All Loans evidenced by this Note
shall be made in accordance with the terms and provisions of the Security
Agreement.
2.2. FIXED CONVERSION PRICE. For purposes hereof, subject to
Section 3.5 hereof, the "FIXED CONVERSION PRICE" means $0.77.
2.3. NO EFFECTIVE REGISTRATION. Notwithstanding anything to the
contrary herein, the Borrower shall be prohibited from exercising its right to
repay any amount hereunder in shares of Common Stock if at any time from the
Call Date (defined below) for such payment through the date upon which such
payment is made by delivery of certificates for shares of Common Stock, there
fails to exist an effective current Registration Statement (as defined in the
Registration Rights Agreement) covering the shares of Common Stock to be issued,
or if an Event of Default hereunder exists and is continuing, unless such
requirement is otherwise waived in writing by the Holder in whole or in part at
the Holder's option.
2.4. OPTIONAL PAYMENTS IN COMMON STOCK. Subject to Section 2.3
hereof, if the Company elects to pay interest or prepay principal and the
average closing price of the Common Stock on the Principal Market is greater
than 110% of the Fixed Conversion Price for a period of at least five (5)
consecutive trading days, then the Borrower may, AT ITS SOLE OPTION, provide the
Holder written notice (a "CALL NOTICE") requiring the conversion at the Fixed
Conversion Price of all or a portion of the outstanding interest or principal of
this Note (subject to compliance with Section 2.3 and 3.2), together with
accrued interest on the amount being prepaid, as of the date set forth in such
Call Notice (the "CALL DATE"). The Call Date shall be at least ten (10) trading
days following the date of the Call Notice. On the Call Date the Borrower shall
deliver to the Holder certificates evidencing the shares of Common Stock issued
in satisfaction of the principal and/or interest being retired. Notwithstanding
the foregoing, the Borrower's right to issue shares of Common Stock in payment
of obligations under this Note shall be subject to the limitation that the
number of shares of Common Stock issued in connection with any Call Notice shall
not exceed 25% of the aggregate dollar trading volume of the Common Stock for
the ten (10) trading days immediately preceding the Call Date (as such volume is
reported by Bloomberg, L.P.). If the price of the Common Stock falls below 110%
of the Fixed Conversion Price during the ten (10) trading day period immediately
preceding the Call Date, then the Holder will then be required to convert only
such amount of the Note as shall equal twenty five percent (25%) of the
aggregate dollar trading volume (as such volume is reported by Bloomberg L.P.)
for each day that the Common Stock has exceeded 110% of the
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then applicable Fixed Conversion Price. The Borrower shall not be permitted to
give the Holder more than one Call Notice under this Note during any 22-day
period.
2.5 Optional Redemption in Cash. The Borrower will have the
option of prepaying this Note in full ("OPTIONAL REDEMPTION") by paying to the
Holder a sum of money equal to one hundred fifteen percent (115%) of the
principal amount of this Note together with accrued but unpaid interest thereon
and any and all other sums due, accrued or payable to the Holder arising under
this Note, the Security Agreement, or any Ancillary Agreement (as defined in the
Security Agreement) (the "REDEMPTION AMOUNT") outstanding on the day written
notice of redemption (the "NOTICE OF REDEMPTION") is given to the Holder, which
Notice of Redemption shall specify the date for such Optional Redemption (the
"REDEMPTION PAYMENT DATE"). A Notice of Redemption shall not be effective with
respect to any portion of this Note for which the Holder has a pending election
to convert pursuant to Section 3.1 and the Redemption Amount shall be determined
as if such election to convert had been completed immediately prior to the date
of the Notice of Redemption. The Redemption Payment Date shall not be earlier
than the day after the date of the Notice of Redemption and not later than seven
(7) days after the date of the Notice of Redemption. On the Redemption Payment
Date, the Redemption Amount must be paid in good funds to the Holder. In the
event the Borrower fails to pay the Redemption Amount by the Redemption Payment
Date, then such Redemption Notice will be null and void.
ARTICLE III
HOLDER'S CONVERSION RIGHTS
3.1. OPTIONAL CONVERSION. Subject to the terms of this Article
III, the Holder shall have the right, but not the obligation, at any time until
the Maturity Date, or thereafter during an Event of Default (as defined in
Article IV), and, subject to the limitations set forth in Section 3.2 hereof, to
convert all or any portion of the outstanding principal amount and/or accrued
interest and fees due and payable into fully paid and nonassessable shares of
the Common Stock at the Fixed Conversion Price. The shares of Common Stock to be
issued upon such conversion are herein referred to as the "CONVERSION SHARES."
3.2. CONVERSION LIMITATION. Notwithstanding anything contained
herein to the contrary, the Holder shall not be entitled to convert pursuant to
the terms of this Note an amount that would be convertible into that number of
Conversion Shares which would exceed the difference between the number of shares
of Common Stock beneficially owned by such Holder or issuable upon exercise of
warrants held by such Holder and 4.99% of the outstanding shares of Common Stock
of the Borrower. For the purposes of 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.
The Conversion Shares limitation described in this Section 3.2 shall
automatically become null and void without any notice to Borrower upon the
occurrence and during the continuance beyond any applicable grace period of an
Event of Default, or upon 75 days prior notice to the Borrower.
3.3. MECHANICS OF HOLDER'S CONVERSION. In the event that the
Holder elects to convert this Note into Common Stock, the Holder shall give
notice of such election by delivering an executed and completed notice of
conversion ("NOTICE OF CONVERSION") to the Borrower and
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such Notice of Conversion shall provide a breakdown in reasonable detail of the
Principal Amount, accrued interest and fees, if any, that are being converted.
On each Conversion Date (as hereinafter defined) and in accordance with its
Notice of Conversion, the Holder shall make the appropriate reduction to the
Principal Amount, accrued interest and fees as entered in its records and shall
provide written notice thereof to the Borrower within two (2) business days
after the Conversion Date. Each date on which a Notice of Conversion is
delivered or telecopied to the Borrower in accordance with the provisions hereof
shall be deemed a Conversion Date (the "CONVERSION DATE"). A form of Notice of
Conversion to be employed by the Holder is annexed hereto as Exhibit A. Pursuant
to the terms of the Notice of Conversion, the Borrower will issue instructions
to the transfer agent accompanied by an opinion of counsel within two (2)
business days of the date of the delivery to Borrower of the Notice of
Conversion and shall cause the transfer agent to transmit the certificates
representing the Conversion Shares to the Holder by crediting the account of the
Holder's designated broker with the Depository Trust Corporation ("DTC") through
its Deposit Withdrawal Agent Commission ("DWAC") system within three (3)
business days after receipt by the Borrower of the Notice of Conversion (the
"DELIVERY DATE"). In the case of the exercise of the conversion rights set forth
herein the conversion privilege shall be deemed to have been exercised and the
Conversion Shares issuable upon such conversion shall be deemed to have been
issued upon the date of receipt by the Borrower of the Notice of Conversion. The
Holder shall be treated for all purposes as the record holder of such Common
Stock, unless the Holder provides the Borrower written instructions to the
contrary.
3.4. LATE PAYMENTS. The Borrower understands that a delay in the
delivery of the shares of Common Stock in the form required pursuant to this
Article beyond the Delivery Date could result in economic loss to the Holder. As
compensation to the Holder for such loss, the Borrower agrees to pay late
payments to the Holder for late issuance of such shares in the form required
pursuant to this Article III upon conversion of the Note, in the amount equal to
$500 per business day after the Delivery Date. The Borrower shall pay any
payments incurred under this Section in immediately available funds upon demand.
3.5. ADJUSTMENT PROVISIONS. The Fixed Conversion Price and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.2 shall be subject to adjustment from time to
time upon the happening of certain events while this conversion right remains
outstanding, as follows:
A. 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 Amount 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.
B. 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 Fixed 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
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event bears to the total number of shares of Common Stock outstanding
immediately prior to such event.
C. SHARE ISSUANCES. Subject to the provisions of this
Section 3.5, if the Borrower shall at any time prior to the conversion or
repayment in full of the Principal Amount issue any shares of Common Stock to a
person other than the Holder (except (i) pursuant to Subsections A or B above;
(ii) pursuant to options, warrants, or other obligations to issue shares
outstanding on the date hereof as disclosed to Holder in writing; or (iii)
pursuant to options that may be issued under any employee incentive stock option
and/or any qualified stock option plan adopted by the Borrower) for a
consideration per share (the "OFFER PRICE") less than the Fixed Conversion Price
in effect at the time of such issuance, then the Fixed Conversion Price shall be
immediately reset to such lower Offer Price. For purposes hereof, the issuance
of any security of the Borrower convertible into or exercisable or exchangeable
for Common Stock shall result in an adjustment to the Fixed Conversion Price at
the time of issuance of such securities.
D. COMPUTATION OF CONSIDERATION. For purposes of any
computation respecting consideration received pursuant to Subsection C above,
the following shall apply:
(a) in the case of the issuance of shares of
Common Stock for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Borrower for any underwriting of the
issue or otherwise in connection therewith;
(b) in the case of the issuance of shares of
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market value
thereof as determined in good faith by the Board of Directors of the Borrower
(irrespective of the accounting treatment thereof); and
(c) upon any such exercise, the aggregate
consideration received for such securities shall be deemed to be the
consideration received by the Borrower for the issuance of such securities plus
the additional minimum consideration, if any, to be received by the Borrower
upon the conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (a) and (b) of this
Subsection (D)).
3.6. RESERVATION OF SHARES. During the period the conversion
right set forth in this Article III exists, the 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. The
Borrower represents that upon issuance, such shares will be duly and validly
issued, fully paid and non-assessable. The Borrower 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.
3.7. REGISTRATION RIGHTS. The Holder has been granted
registration rights with respect to the shares of Common Stock issuable upon
conversion of this Note as more fully set forth in a Registration Rights
Agreement dated the date hereof.
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ARTICLE IV
EVENTS OF DEFAULT
The occurrence of any of the following events is an Event of
Default ("EVENT OF DEFAULT"):
4.1. FAILURE TO PAY PRINCIPAL, INTEREST OR OTHER FEES. The
Borrower fails to pay when due any installment of principal, interest or other
fees hereon or on any other promissory note issued pursuant to the Security
Agreement, when due in accordance with the terms of such note.
4.2. BREACH OF COVENANT. The Borrower breaches any covenant or
other term or condition of this Note in any material respect and such breach, if
subject to cure, continues for a period of thirty (30) days after the occurrence
thereof.
4.3. BREACH OF REPRESENTATIONS AND WARRANTIES. Any material
representation or warranty of the Borrower made herein, or the Security
Agreement, or in any Ancillary Agreement shall be materially false or
misleading.
4.4. STOP TRADE. An SEC stop trade order or Principal Market
trading suspension of the Common Stock shall be in effect for 5 consecutive days
or 5 days during a period of 10 consecutive days, excluding in all cases a
suspension of all trading on a Principal Market, provided that the Borrower
shall not have been able to cure such trading suspension within 30 days of the
notice thereof or list the Common Stock on another Principal Market within 60
days of such notice. The "PRINCIPAL MARKET" for the Common Stock shall include
the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market
System, American Stock Exchange, or New York Stock Exchange (whichever of the
foregoing is at the time the principal trading exchange or market for the Common
Stock), or any securities exchange or other securities market on which the
Common Stock is then being listed or traded.
4.5. DEFAULT UNDER RELATED AGREEMENT. The occurrence of an Event
of Default under and as defined in the Security Agreement and/or the Ancillary
Agreements .
4.6 FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. The
Borrower's failure to timely deliver Common Stock to the Holder pursuant to and
in the form required by this Note, and Section 9 of the Security Agreement, or
if required, a replacement Note if such failure to timely deliver Common Stock
shall not be cured within two (2) business days or such failure to deliver a
replacement Note is not cured within seven (7) business days.
4.7 PAYMENT GRACE PERIOD. The Borrower shall have a three (3)
business day grace period to pay any monetary amounts due under this Note or the
Security Agreement or any Ancillary Agreements, after which grace period a
default interest rate of five percent (5%) per annum above the then applicable
interest rate hereunder shall apply to the monetary amounts due.
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ARTICLE V
DEFAULT PAYMENTS
5.1. DEFAULT PAYMENT. If an Event of Default occurs, the Holder,
at its option, may elect, in addition to all rights and remedies of Holder under
the Security Agreement and all obligations of Borrower under the Security
Agreement, by written notice to the Borrower to require the Borrower to make a
Default Payment ("DEFAULT Payment"). The Default Payment shall be the
outstanding principal amount of the Note, plus accrued but unpaid interest, all
other fees then remaining unpaid, and all other amounts payable hereunder.
5.2. DEFAULT PAYMENT DATE AND DEFAULT NOTICE PERIOD. The Default
Payment shall be due and payable on the fifth business day after an Event of
Default has occurred and is continuing beyond any applicable grace period
("DEFAULT PAYMENT DATE"). The period between date upon which of an Event of
Default has occurred and is continuing beyond any applicable grace period and
the Default Payment Date shall be the "DEFAULT PERIOD." If during the Default
Period, the Borrower cures the Event of Default, the Event of Default will no
longer exist and any additional rights the Holder had triggered by the
occurrence and continuance of an Event of Default will no longer exist. If the
Event of Default is not cured during the Default Notice Period, all amounts
payable hereunder shall be due and payable on the Default Payment Date, all
without further demand, presentment or notice, or grace period, all of which
hereby are expressly waived.
5.3. DEFAULT INTEREST RATE. Following the occurrence and during
the continuance of an Event of Default beyond any applicable cure period,
interest on this Note shall automatically be increased to one and one half
percent (1.5%) per month, and all outstanding Obligations, including unpaid
interest, shall continue to accrue interest from the date of such Event of
Default at such interest rate applicable to such Obligations until such Event of
Default is cured or waived
5.4. CUMULATIVE REMEDIES. The remedies under this Note shall be
cumulative.
ARTICLE VI
MISCELLANEOUS
6.1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the 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.
6.2. NOTICES. Any notice herein required or permitted to be
given shall be in writing and provided in accordance with the terms of the
Security Agreement.
6.3. AMENDMENT PROVISION. The term "NOTE" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later
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amended or supplemented, then as so amended or supplemented, and any successor
instrument as it may be amended or supplemented.
6.4. 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 in accordance with
the requirements of the Security Agreement.
6.5. COST OF COLLECTION. If default is made in the payment of
this Note, the Borrower shall pay the Holder hereof reasonable costs of
collection, including reasonable attorneys' fees.
6.6. GOVERNING LAW. This Note shall be governed by and construed
in accordance with the laws of the State of New York, without regard to
principles of conflicts of laws. 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 city of New York, the state of New York. Both parties and the individual
signing this Note 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. In the event that any provision
of this Note is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or unenforceability of any other provision
of this Note. Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action against the Borrower
in any other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court order in favor of Xxxxxx.
6.7. 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.
6.8. SECURITY INTEREST. The Holder of this Note has been granted
a security interest in certain assets of the Borrower more fully described in
the Security Agreement dated as of November ___, 2003.
6.9. CONSTRUCTION. Each party acknowledges that its legal
counsel participated in the preparation of this Note and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Note to favor
any party against the other.
[Balance of page intentionally left blank; signature page follows.]
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IN WITNESS WHEREOF, the Borrower has caused this Secured
Convertible Revolving Note to be signed in its name effective as of this 20th
day of November, 2003.
VENTURES-NATIONAL INCORPORATED
D/B/A TITAN GENERAL HOLDINGS, INC.
By: /s/ Xxxxxx Xxxxxxx
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Name: Xxxxxx Xxxxxxx
Title: President
WITNESS:
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NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the
principal and $_________ of the interest due on the Secured Convertible
Revolving Note issued by VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL
HOLDINGS, INC. on September 11, 2003 into Shares of Common Stock of
VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. (the
"BORROWER") according to the conditions set forth in such Note, as of the date
written below.
Date of Conversion:
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Conversion Price:
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Shares To Be Delivered:
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Signature:
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Print Name:
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Address:
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Holder DWAC
instructions ---------------------------------------------------------
