FORM OF CONVERTIBLE NOTE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED AS OF THE
DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES,
INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS
OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT AND
REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF DEFAULT FOLLOWING
WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED.
No. 1 $2,200,000
CONVERTIBLE NOTE
of
Galaxy Minerals, Inc., a Florida corporation (together with its
successors, the "Company"), for value received hereby promises to pay to:
GCA Strategic Investment Fund Limited
(the "Holder") and registered assigns, the principal sum of Two Million Five
Hundred Thousand ($2,200,000) or, if less, the principal amount of this Note
then outstanding, on the Maturity Date by wire transfer of immediately available
funds to the Holder in such coin or currency of the United States of America as
at the time of payment shall be legal tender for the payment of public and
private debts. The Maturity Date is May ___, 2007.
Upon an Event of Default, and until such Default has been cured, interest
shall accrue at a rate of 12% per annum ("Default Interest"). All payments of
principal and interest hereunder shall be made for the benefit of the Holder
pursuant to the terms of the Agreement (hereafter defined).
This Convertible Note (this "Convertible Note") is one of a duly
authorized issuance of up to $6,000,000 aggregate principal amount Convertible
Notes made by the Company referred to in that certain Securities Purchase
Agreement dated as of the date hereof between the Company and the Purchaser
named therein (the "Agreement"). The Agreement contains certain additional
agreements among the parties with respect to the terms of this Convertible Note,
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including, without limitation, provisions which (A) limit the conversion rights
of the Holder, (B) specify voluntary and mandatory redemption rights and
obligations and (C) specify Events of Default following which the remaining
balance due and owing hereunder may be accelerated. All such provisions are an
integral part of this Convertible Note and are incorporated herein by reference.
This Convertible Note is transferable and assignable to one or more Persons, in
accordance with the limitations set forth in the Agreement.
The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Convertible
Note and particulars of this Convertible Note held by such holder and of all
transfers of this Convertible Note. References to the Holder or "Holders" shall
mean the Person listed in the Register as registered holder of such Convertible
Notes. The ownership of this Convertible Note shall be proven by the Register.
This Note is secured by a Deed to Secure Debt and Security Agreement (the
"Deed") dated April __, 2005 made by the Company and Holder creating a security
interest in favor of Holder in certain of the Company's real properties
described in the Deed.
The Deed contains certain additional agreements among the parties with
respect to the terms of this Note, including, without limitation, provisions
which (A) specify voluntary and mandatory repayment, prepayment and (B) specify
Events of Default following which the remaining balance due and owing hereunder
may be accelerated. All such provisions are an integral part of this Note and
are incorporated herein by reference.
1. Certain Terms Defined. All terms defined in the Agreement and not otherwise
defined herein shall have for purposes hereof the meanings provided for in the
Agreement.
2. Covenants. The Company covenants and agrees to observe and perform each of
its covenants, obligations and undertakings contained in the Agreement, which
obligations and undertakings are expressly assumed herein by the Company and
made for the benefit of the holder hereof.
3. Prepayment of Note. For so long as no Event of Default shall have occurred
and is continuing and the Company is not in receipt of a Notice of Conversion
from the Holder of the Note, the Company may, at its option, prepay, in whole or
in part, this Convertible Note for a pre-payment price (the "Prepayment Price")
equal to the Redemption Price set forth herein below. Any partial prepayment of
the Convertible Note, at any time after issuance, shall be credited to the
principal amount of the Convertible Note on a dollar for dollar basis. The
Company shall not be entitled to send any notice of prepayment and begin the
prepayment procedure unless it has (i) the appropriate Prepayment Price, in
cash, available in a demand or other immediately available account in a bank or
similar financial institution or equivalent means acceptable to Holder or (ii)
immediately available credit facilities, in the amount of the appropriate
Prepayment Price, with a bank or similar financial institution on the date the
prepayment notice is sent to the Holders of this Convertible Note. Provided,
however, the Company will process any Notice of Conversion received prior to the
issuance of a notice of prepayment; and further provided that, after a notice of
prepayment has been issued, the Holder may issue a Notice of Conversion which
will not be honored unless the Company fails to make the prepayment payment when
due. In the event of such failure, the Notice of Conversion will be honored as
of the date of the Notice of Conversion.
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3.1 Payment on Maturity Date. The Company shall repay the remaining unpaid
balance of this Convertible Note on the Maturity Date.
4. Conversion.
4.1 Conversion of Convertible Note. Subject to Section 5 hereof, the
Holder shall have the right, at its option, at any time from and
after the date of this Convertible Note, to convert the outstanding
principal amount of the Convertible Note. This Convertible Note
shall be convertible into that number of fully paid and
nonassessable shares of Common Stock (as such shares shall then be
constituted) determined pursuant to this Section 4.1. The number of
shares of Common Stock to be issued upon each conversion of this
Convertible Note shall be determined by dividing the Conversion
Amount (as defined below) by the Conversion Price in effect on the
date (the "Conversion Date") a Notice of Conversion is delivered to
the Company, as applicable, by the Holder by facsimile or other
reasonable means of communication dispatched prior to 5:00 p.m.,
E.S.T. The term "Conversion Amount" means, with respect to any
conversion of this Convertible Note, the sum of (1) the principal
amount of this Convertible Note to be converted in such conversion
plus (2) accrued and unpaid interest, if any, on such principal
amount at the interest rates provided in this Convertible Note to
the Conversion Date plus (3) Default Interest, if any, on the
interest referred to in the immediately preceding clause (2) plus
(4) at the Holder's option, any amounts owed to the Holder pursuant
to Section 4.3 hereof, Section 10.1 of the Agreement or Section 10.4
of the Agreement.
4.2 Conversion Price. At the option of the Holder, any portion or all of
the outstanding principal amount of this Convertible Note shall be
converted into a number of shares of Common Stock at the conversion
price (the "Conversion Price") equal to 95% of the average of the
three lowest closing bid prices, as reported on Bloomberg, L.P., for
the twenty (20) trading days immediately prior to the date of the
related notice of conversion.
4.3 Authorized Shares.
(a) Consistent with Section 7.11 of the Agreement, the Company (i)
shall promptly irrevocably instruct the Company's transfer agent to issue
certificates for the Common Stock issuable upon conversion of this
Convertible Note and (ii) agrees that its issuance of this Convertible
Note shall constitute full authority to its officers and agents who are
charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock in accordance with
the terms and conditions of this Convertible Note.
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(b) If at any time the Holder submits a Notice of Conversion and (x)
the Company does not have sufficient authorized but unissued shares of
Common stock available to effect such conversion in full in accordance
with Article 4 or (y) the Company is prohibited by the NASD
Over-the-Counter Bulletin Board (the "OTCBB") on which the Common Shares
are listed and traded at that time to effect such conversion in full,
without shareholder approval, the Company shall issue to the Holder all of
the shares of Common Stock which are then available to effect such
conversion. The portion of this Convertible Note which the Holder included
in its Conversion Notice and which exceeds the amount which is then
convertible into available shares of Common Stock (the "Excess Amount")
shall, notwithstanding anything to the contrary contained herein, not be
convertible into Common Stock until the date additional shares of Common
Stock are authorized by the Company, or its shareholders, as applicable.
The Company shall use its best efforts to authorize, or cause its
shareholders to authorize within 40 days of the submission of the
Conversion Notice, a sufficient number of shares of Common Stock to effect
the full conversion set forth in the Conversion Notice.
(c) In no event shall the Company issue upon conversion of this
Convertible Note more than the maximum number of shares allowable without
shareholder approval under the applicable rules of the OTCBB on which the
Common Shares are listed and traded unless the Company shall have obtained
approval by the shareholders of the Company or a waiver of such
requirement. Once the maximum number of shares has been issued (the date
of which is hereinafter referred to as the "Maximum Conversion Date"),
unless the Company shall have obtained shareholder approval or a waiver of
such requirement within 40 days of the Maximum Conversion Date, the
Company shall pay to the Fund the Redemption Price.
(d) The Maximum Number of Shares shall be subject to adjustment from
time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring
after the date hereof as contemplated by Article XI of the Agreement. In
the event that the Company obtains Stockholder Approval, approval of the
Nasdaq Small Cap Market or the OTCBB on which the Common Shares are listed
and traded at that time, or otherwise is able to increase the number of
shares to be issued above the Maximum Number of Shares (such increased
number being the "New Maximum Number of Shares"), the references to
Maximum Number of Shares above shall be deemed to be, instead, references
to the New Maximum Number of Shares.
4.4 Method of Conversion.
(a) Notwithstanding anything to the contrary set forth herein, upon
conversion of this Convertible Note in accordance with the terms hereof,
the Holder shall not be required to physically surrender this Convertible
Note to the Company unless the entire unpaid principal amount of this
Convertible Note is so converted. Rather, records showing the principal
amount converted (or otherwise repaid) and the date of such conversion or
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repayment shall be maintained on a ledger substantially in the form of
Annex A attached hereto (a copy of which shall be delivered to the Company
or transfer agent with each Notice of Conversion). It is specifically
contemplated that the Holder hereof shall act as the calculation agent for
conversions and repayments. In the event of any dispute or discrepancies,
such records maintained by the Holder shall be controlling and
determinative in the absence of manifest error or failure of Holder to
record the principal amount converted (or otherwise repaid) from time to
time, in which events the record of the Company shall be controlling and
determinative. The Holder and any assignee, by acceptance of this
Convertible Note, acknowledge and agree that, by reason of the provisions
of this paragraph, following a conversion of a portion of this Convertible
Note, the principal amount represented by this Convertible Note will be
the amount indicated on Annex A attached hereto (which may be less than
the amount stated on the face hereof).
(b) The Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery
of shares of Common Stock or other securities or property on conversion of
this Convertible Note in a name other than that of the Holder (or in
street name), and the Company shall not be required to issue or deliver
any such shares or other securities or property unless and until the
person or persons (other than the Holder or the custodian in whose street
name such shares are to be held for the Holder's account) requesting the
issuance thereof shall have paid to the Company the amount of any such tax
or shall have established to the satisfaction of the Company that such tax
has been paid.
(c) Subject to Section 5 hereof, upon receipt by the Company of a
Notice of Conversion, the Holder shall be deemed to be the holder of
record of the Common Stock issuable upon such conversion, the outstanding
principal amount and the amount of accrued and unpaid interest on this
Convertible Note shall be deemed reduced to reflect such conversion, and,
unless the Company defaults on its obligations under this Article 4, all
rights with respect to the portion of this Convertible Note being so
converted shall forthwith terminate except the right to receive the Common
Stock or other securities, cash or other assets, as herein provided, on
such conversion. Subject to Section 5 hereof, if the Holder shall have
given a Notice of Conversion as provided herein, the Company's obligation
to issue and deliver the certificates for shares of Common Stock shall be
absolute and unconditional, irrespective of the absence of any action by
the Holder to enforce the same, any waiver or consent with respect to any
provisions thereof, the recovery of any judgment against any person or any
action by the Holder to enforce the same, any failure or delay in the
enforcement of any other obligation of the Company to the Holder of
record, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder of any
obligation to the Company, and subject to Section 4.4(a) irrespective of
any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with such conversion. The date of
receipt (including receipt via telecopy) of such Notice of Conversion
shall be the Conversion Date so long as it is received before 5:00 p.m.,
E.S.T., on such date.
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(d) Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the expiration of the
Deadline with respect to a conversion of any portion of this Convertible
Note for any reason, then (unless the Holder otherwise elects to retain
its status as a holder of Common Stock by so notifying the Company), the
Holder shall regain the rights of a Holder of this Convertible Note with
respect to such unconverted portions of this Convertible Note and the
Company shall, as soon as practicable, return such unconverted Convertible
Note to the holder or, if the Convertible Note has not been surrendered,
adjust its records to reflect that such portion of this Convertible Note
has not been converted. In all cases, the Holder shall retain all of its
rights and remedies including, without limitation, the right to receive
Conversion Default Payments to the extent required thereby for such
Conversion Default and any subsequent Conversion Default.
(e) In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of the Holder and its
compliance with the provisions contained in Section 4.1 and in this
Section 4.4, the Company shall use its best efforts to cause its transfer
agent to electronically transmit the Common Stock issuable upon conversion
to the Holder by crediting the account of Holder's Prime Broker with DTC
through its Deposit Withdrawal Agent Commission System.
5. Redemption by Company.
5.1 Mandatory Redemption. In accordance with the provisions of the
Purchase Agreement, the Company may elect, or be required under
certain circumstances, to redeem in whole or in part, the remaining
unpaid principal amount of this Convertible Note, for cash at a
redemption price (the "Redemption Price") equal to the greater of
(A) the outstanding principal amount of the Note on the redemption
date plus any applicable accrued and unpaid interest and (B) (x) the
number of shares of Common Stock into which this Convertible Note is
then convertible, times (y) the average Closing Bid Price of Common
Stock for the five (5) Trading Days as reported by Bloomberg L.P.
immediately preceding the date that this Convertible Note is called
for redemption, plus accrued and unpaid Default Interest.
5.2 Mechanics of Redemption. The Company shall effect each such
redemption within seven business days of giving notice of its
election to redeem by facsimile with a copy by either overnight or
2-day courier to the Holder of this Convertible Note to be redeemed
at the address and facsimile number of such Holder appearing in the
Company's register for the Convertible Note. Such redemption notice
shall indicate whether the Company will redeem all or part of such
portion of the Convertible Note to be redeemed and the applicable
Redemption Price. The Company shall not be entitled to send any
notice of redemption and begin the redemption procedure unless it
has (i) the full amount of the Redemption Price, in cash, available
in a demand or other immediately available account in a bank or
similar financial institution or (ii) immediately available credit
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facilities, in the full amount of the Redemption Price, with a bank
or similar financial institution on the date the redemption notice
is sent to the Holder of this Convertible Note. Provided, however,
the Company will process any Notice of Conversion received prior to
the issuance of a notice of redemption; and further provided that,
after a notice of redemption has been issued, the Holder may issue a
Notice of Conversion which will not be honored unless the Company
fails to make the redemption payment when due. In the event of such
failure, the Notice of Conversion will be honored as of the date of
the Notice of Conversion. Additionally, if the Company fails to make
full payment of the Redemption Price of this Convertible Note being
redeemed by the seventh day following the notice of redemption, then
the Company waives its right to redeem any of the remaining then
outstanding Notes, unless approved by the Holder.
5.3 Payment of Redemption Price. The Redemption Price shall be paid to
the Holder of this Convertible Note within seven business days of
the delivery of the notice of such redemption to such Holder.
6. Miscellaneous. This Convertible Note shall be deemed to be a contract made
under the laws of the State of Florida, and for all purposes shall be governed
by and construed in accordance with the laws of said State. The parties hereto,
including all guarantors or endorsers, hereby waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Convertible Note, except as
specifically provided herein, and asset to extensions of the time of payment, or
forbearance or other indulgence without notice. The Company hereby submits to
the exclusive jurisdiction of the United States District Court for the State of
Florida and any state court sitting in Florida for purposes of all legal
proceedings arising out of or relating to this Convertible Note. The Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum. The Company hereby irrevocably
waives any and all right to trial by jury in any legal proceeding arising out of
or relating to this Convertible Note.
The Holder of this Convertible Note by acceptance of this Convertible Note
agrees to be bound by the provisions of this Convertible Note which are
expressly binding on such Holder.
Signature Page Follows
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: May ___, 2005
GALAXY MINERALS, INC.
By:
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Name: Xxxxxxx Xxxxxxx
Title: President
Convertible Note
ANNEX A
CONVERSION AND REPAYMENT LEDGER
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Interest Converted Principal Converted New Principal Issuer Initials Holder Initials
Date Principal Balance or Paid or Paid Balance
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FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
SPECIAL INSTRUCTIONS:
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Convertible Note)
The undersigned hereby irrevocably elects to convert $________ of
the principal balance of the Convertible Note into shares of Common Stock, ____
par value per share (the "Common Stock"), of Galaxy Minerals, Inc. (the
"Company") according to the conditions hereof, as of the date written below. No
fee will be charged to the Holder for any conversion, except for transfer taxes,
if any. The undersigned, as contemplated by Section 5.1 of the Securities
Purchase Agreement pursuant to which the Convertible Note was issued, hereby
states that the representations and warranties of the undersigned set forth
therein are true and correct in all material respects as of the date hereof
(provided, the undersigned makes no representations concerning its investment
intent with respect to the Common Stock received upon this conversion).
Conversion calculations:
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Date of Conversion
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Applicable Conversion Price
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Number of Shares
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Name/Signature
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Address:
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