EXHIBIT 10.36
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
UNIVERSAL COMMUNICATION SYSTEMS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
SECURED CONVERTIBLE NOTE
FOR VALUE RECEIVED, UNIVERSAL COMMUNICATION SYSTEMS, INC., a Nevada
corporation (hereinafter called "Borrower"), hereby promises to pay to ALPHA
CAPITAL AKTIENGESELLSCHAFT, Xxxxxxxxx 0, 0000 Xxxxxxxxxxx, Vaduz, Lichtenstein,
Fax: 000-00-00000000 (the "Holder") or order, without demand, the sum of Seven
Hundred and Fifty Thousand Dollars ($750,000.00), or such lesser portion of the
Purchase Price as shall have been funded by the Holder pursuant to the terms of
the Subscription Agreement (as hereinafter defined), with simple interest
accruing on August 19, 2007 (the "Maturity Date"), if not paid sooner.
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, the Borrower may not pay
this Note, without the consent of the Holder, until one year after the later of
the date the Event of Default has been cured or one year after the Maturity
Date.
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, when the principal and remaining
accrued but unpaid interest shall be due and payable, or sooner as described
below. INTEREST SHALL ACCRUE ON EACH PORTION OF THE PURCHASE PRICE FROM THE DATE
THE FUNDS ARE TRANSMITTED FROM THE HOLDER DIRECTLY TO BORROWER.
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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 completed Notice of Conversion, a form of
which is annexed hereto, Borrower shall issue and deliver to the Holder within
three (3) business days from the Conversion Date (such third day being the
"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 equal to $0.02.
(c) The Conversion 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:
A. Merger, 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 or agree to 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 the above-described 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. The
reduction of the Conversion Price described in this paragraph is in addition to
other rights of the Holder described in this Note and the Subscription
Agreement.
(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
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 issuable 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. 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.
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 provisions 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. 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
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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 waive the conversion limitation described in this
Section 2.3, in whole or in part, 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%.
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 for relief under any bankruptcy law or any
other law for the relief of debtors, or the issuance of any notice in relation
to such event 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 Principal Market; failure to comply with the
requirements for continued listing on the Bulletin Board for a period of five
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.
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3.8 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.
3.9 Stop Trade. An SEC or judicial stop trade order or Principal Market
trading suspension that lasts for five or more consecutive trading days.
3.10 Failure to Deliver Common Stock or Replacement Note. Borrower'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.
3.11 Non-Registration Event. The occurrence of a Non-Registration Event
as described in Section 11.4 of the Subscription Agreement.
3.12 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.
3.13 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.
ARTICLE IV
SECURITY INTEREST
4. Security Interest/Waiver of Automatic Stay. This Note is secured by
a security interest granted to the Holder pursuant to a Security Agreement, as
delivered by Borrower to Holder. The Borrower acknowledges and agrees that
should a proceeding under any bankruptcy or insolvency law be commenced by or
against the Borrower, or if any of the Collateral (as defined in the Security
Agreement) should become the subject of any bankruptcy or insolvency proceeding,
then the Holder should be entitled to, among other relief to which the Holder
may be entitled under the Transaction Documents and any other agreement to which
the Borrower and Holder are parties (collectively, "Loan Documents") and/or
applicable law, an order from the court granting immediate relief from the
automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to
exercise all of its rights and remedies pursuant to the Loan Documents and/or
applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY
IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY
ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION
OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION,
11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN
ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES
UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby consents to
any motion for relief from stay that may be filed by the Holder in any
bankruptcy or insolvency proceeding initiated by or against the Borrower and,
further, agrees not to file any opposition to any motion for relief from stay
filed by the Holder. The Borrower represents, acknowledges and agrees that this
provision is a specific and material aspect of the Loan Documents, and that the
Holder would not agree to the terms of the Loan Documents if this waiver were
not a part of this Note. The Borrower further represents, acknowledges and
agrees that
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this waiver is knowingly, intelligently and voluntarily made, that neither the
Holder nor any person acting on behalf of the Holder has made any
representations to induce this waiver, that the Borrower has been represented
(or has had the opportunity to be represented) in the signing of this Note and
the Loan Documents and in the making of this waiver by independent legal counsel
selected by the Borrower and that the Borrower has discussed this waiver with
counsel.
ARTICLE V
MISCELLANEOUS
5.1 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.
5.2 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: Universal Communication
Systems, Inc., 000 Xxxxxxx Xxxx, Xxxxx 00X, Xxxxx Xxxxx, XX 00000, Attn: Xxxxxxx
X. Xxxxxxx, CEO, telecopier: (000) 000-0000, with a copy by telecopier only
to:Torys LLP, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, XX 00000, Attn: Xxxxxx X. Xxxx,
Esq., telecopier: (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.
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. 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.
5.5 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.
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5.6 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.
5.7 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.
5.8 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 all the rights of a shareholder of the Borrower
with respect to the shares of Common Stock to be received by Holder after
delivery by the Holder of a Conversion Notice to the Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by an authorized officer as of the ____ day of August, 2005.
UNIVERSAL COMMUNICATION SYSTEMS, INC.
By:________________________________
Name:
Title:
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 UNIVERSAL COMMUNICATION
SYSTEMS, INC. on August ___, 2005 into Shares of Common Stock of UNIVERSAL
COMMUNICATION SYSTEMS, 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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