Contract
This
Note
has not been registered under the Securities Act of 1933, as amended (the "1933
Act"), or under the provisions of any applicable state securities laws, but
has
been acquired by the registered holder hereof for purposes of investment and
in
reliance on statutory exemptions under the 1933 Act, and under any applicable
state securities laws. This Note may not be sold, pledged, transferred or
assigned except in a transaction which is exempt under provisions of the 1933
Act and any applicable state securities laws or pursuant to an effective
registration statement; and in the case of an exemption, only if the Company
has
received an opinion of counsel satisfactory to the Company that such transaction
does not require registration of this Note.
XXXXXXXXXXXXXXXXXXXXX.XXX,
INC.
| [_________], 2007 |
$[_______]
|
12%
CONVERTIBLE PROMISSORY NOTE
XxxXxxxxxxxxxXxxxxxxx.xxx,
Inc. (the "Company"), for value received, hereby promises to pay to [________],
or his registered assign (the "Holder") on the earlier of (i) August 31, 2007,
(ii) a Change of Control (as defined below); or (iii) the Company shall have
completed a subsequent financing with aggregate gross proceeds to the Company
of
$5,000,000 or more (collectively, the "Maturity Date"), at the principal offices
of the Company, the principal sum owed Holder on such date, and to pay interest
on the outstanding principal sum hereof at the rate of twelve percent (12%)
per
annum (the "Note") and _______
shares of common stock, par value $.001 per share, in accordance with the
Subscription Agreement, dated as of the date hereof, by and between the
Company and the Holder.
Any
amount of principal or interest on this Note which is not paid when due shall
bear interest at the rate of eighteen percent (18%) per annum from the due
date
thereof until the same is paid. Principal shall be payable on the Maturity
Date
in cash, interest on this Note shall be payable on the Maturity Date in cash
or,
at the option of the Company, in shares of common stock of the Company to
the Holder hereof at the office of the Company as hereinafter set forth,
provided that any payment otherwise due on a Saturday, Sunday or legal Bank
holiday may be paid on the following business day. The number of shares of
common stock to be issued by the Company for payment of principal or interest
hereunder, shall be determined in accordance with the conversion procedures
provided for in Section 2 herein. In the event that for any reason whatsoever
any interest or other consideration payable with respect to this Note shall
be
deemed to be usurious by a court of competent jurisdiction under the laws of
the
State of California or the laws of any other state governing the repayment
hereof, then so much of such interest or other consideration as shall be deemed
to be usurious shall be held by the holder as security for the repayment of
the
principal amount hereof and shall otherwise be waived.
For
purposes of this Note, “Change of Control” means the occurrence of one of the
following:
(i)
a
“person” or “group” within the meaning of Sections 13(d) and 14(d) of the
Securities and Exchange Act of 1934 (the “Exchange Act”), becomes the
“beneficial owner” (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of Employer (including options, warrants, rights and convertible
and
exchangeable securities) representing 51% or more of the combined voting power
of the Company’s then outstanding securities in any one or more
transactions;
(ii)
the
approval of any sale, lease, exchange or other transfer (in one transaction
or a
series of related transactions) of all, or substantially all, of the operating
assets of the Company, other than an internal restructuring of the
Company;
(iii)
the
approval of a merger or consolidation, or a transaction having a similar effect
unless such merger, consolidation or similar transaction is with a subsidiary
of
the Company or with another company, a majority of whose outstanding capital
stock is owned by the same persons or entities who own a majority of the
Company’s outstanding common stock at such time, where (A) the Company is not
the surviving corporation, (B) the majority of the common stock of the Company
is no longer held by the stockholders of the Company immediately prior to the
transaction, or (C) the Company’s common stock is converted into cash,
securities or other property (other than the common stock of a company into
which the Company is merged); or
(iv)
a
majority of the members of the Board of Directors of the Company are not persons
who (A) had been directors of the Company for at least the preceding 12
consecutive months or (B) when they initially were elected to the Board, (I)
were nominated (if they were elected by the stockholders) or elected (if they
were elected by the directors) with the affirmative vote of two-thirds of the
directors who were Continuing Directors (as defined below) at the time of the
nomination or election by the Board and (II) were not elected as a result of
an
actual or threatened solicitation of proxies or consents by a person other
than
the Board or an agreement intended to avoid or settle such a proxy solicitation
(the directors described in clauses (A) and (B) being “Continuing
Directors”).
1. Transfers
of Note to Comply with the 1933 Act
The
Holder agrees that this Note may not be sold, transferred, pledged, hypothecated
or otherwise disposed of except as follows: (1) to a person whom the Note may
legally be transferred without registration and without delivery of a current
prospectus under the 1933 Act with respect thereto and then only against receipt
of an agreement of such person to comply with the provisions of this Section
1
with respect to any resale or other disposition of the Note; or (2) to any
person upon delivery of a prospectus then meeting the requirements of the 1933
Act relating to such securities and the offering thereof for such sale or
disposition, and thereafter to all successive assignees.
2. Prepayment;
Conversion
The
principal amount of this Note may be prepaid by the Company, in whole or in
part
without premium or penalty, at any time. Upon any prepayment of the entire
principal amount of this Note, all accrued, but unpaid, interest shall be paid
to the Holder on the date of prepayment.
At
any
time prior to or at the time of repayment of this Note by the Company, the
Holder may elect to convert some or all of the principal and interest owing
on
this Note into shares of the Company’s common stock at the Conversion Rate (as
defined herein). The Holder may make additional elections to convert some or
all
of the principal and interest owing on this Note into shares of the Company’s
common stock, so long as any amounts shall be due to the Holder. Such election
to convert shall be evidenced by completion of the conversion notice attached
hereto and delivery of such notice to the Company. The Holder’s right to convert
the obligations due under this Note to common stock shall supercede the
Company’s right to repay such obligations in cash.
2
The
Conversion Rate shall equal the greater of (i) $0.25 or (ii) a price equal
to
the ten (10) day average of the closing trading price on the Over-the-Counter
Bulletin Board for the common stock of the Company, ending one trading day
prior
to the date a conversion notice is sent by the Holder to the Company, multiplied
by 67.5%.
3. Covenants
of Company
The
Company covenants and agrees that, so long as any principal of, or interest
on,
this Note shall remain unpaid, unless the Holder shall otherwise consent in
writing, it will comply with the following terms:
(a)
Reporting
Requirements.
The
Company will furnish to the Holder:
(i)
as
soon as possible, and in any event within ten (10) days after obtaining
knowledge of the occurrence of (A) an "Event of Default," as hereinafter
defined, (B) an event which, with the giving of notice or the lapse of time
or
both, would constitute an Event of Default, or (C) a material adverse change
in
the condition or operations, financial or otherwise, of the Company, taken
as
whole, the written statement of the Chief Executive Officer or the Chief
Financial Officer of the Company, setting forth the details of such Event of
Default, event or material adverse change and the action which the Company
proposes to take with respect thereto;
(ii)
promptly after the sending or filing thereof, copies of all financial
statements, reports, certificates of its Chief Executive Officer, Chief
Financial Officer or accountants and other information which the Company or
any
subsidiary sends to any holders (other than the Notes) of its
securities;
(iii)
promptly after the commencement thereof, notice of each action, suit or
proceeding before any court or other governmental authority or other regulatory
body or any arbitrator as to which there is a reasonable possibility of a
determination that would (A) materially impact the ability of the Company or
any
subsidiary to conduct its business, (B) materially and adversely affect the
business, operations or financial condition of the Company taken as a whole,
or
(C) impair the validity or enforceability of the Notes or the ability of the
Company to perform its obligations under the Notes.
(b) Compliance
with Laws. The
Company will comply, in all material respects with all applicable laws, rules,
regulations and orders, except to the extent that noncompliance would not have
a
material adverse effect upon the business, operations or financial condition
of
the Company taken as a whole.
3
(c) Preservation
of Existence.
The
Company will maintain and preserve, and cause each subsidiary, if any, to
maintain and preserve, its existence, and become or remain duly qualified and
in
good standing in each jurisdiction in which the failure to be so qualified
would
have a material adverse effect on the business, operations or financial
condition of the Company, taken as a whole.
(d) Maintenance
of Properties.
The
Company will maintain and preserve, all of its properties which are necessary
in
the proper conduct of its business in good working order and condition, ordinary
wear and tear excepted, and comply, at all times with the provisions of all
leases to which it is a party as lessee or under which it occupies property,
so
as to prevent any forfeiture or material loss thereof or
thereunder.
(e) Maintenance
of Insurance.
The
Company will maintain, with responsible and reputable insurers, insurance with
respect to its properties and business, in such amounts and covering such risks,
as is carried generally in accordance with sound business practice by companies
in similar businesses in the same localities in which the Company is
situated.
(f) Keeping
of Records and Books of Account.
The
Company will keep adequate records and books of account, with complete entries
made in accordance with generally accepted accounting principles, reflecting
all
of its financial and other business transactions.
(g) Compliance
with the Securities Exchange Act of 1934. The
Company shall comply in all respects with the requirements of the Securities
Exchange Act of 1934, including the filing of all reports due
thereunder.
4. Events
of Default and Remedies
(a)
Any
one or more of the following events which shall have occurred and be continuing
shall constitute an event of default ("Event of Default"):
(i)
Default
in the payment of interest upon this
Note, as and when the same shall become due; or
(ii)
Default
in the payment of the principal of this Note, as and when the same shall become
due; or
(iii) Default
in the payment of any other obligation of the Company in an amount in excess
of
$100,000; or
(iv)
The
Company shall fail to perform or observe any affirmative covenant contained
in
this Note and such Default, if capable of being remedied, shall not have been
remedied ten (10) days after written notice thereof shall have been given by
the
Holder to the Company; or
4
(v)
The
Company or any subsidiary (A) shall institute any proceeding or voluntary case
seeking to adjudicate it bankrupt or insolvent, or seeking dissolution,
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of
any
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for such the Company or any subsidiary or for any substantial
part of its property, or shall consent to the commencement against it of such
a
proceeding or case, or shall file an answer in any such case or proceeding
commenced against it consenting to or acquiescing in the commencement of such
case or proceeding, or shall consent to or acquiesce in the appointment of
such
a receiver, trustee, custodian or similar official; (B) shall be unable to
pay
its debts as such debts become due, or shall admit in writing its inability
to
apply its debts generally; (C) shall make a general assignment for the benefit
of creditors; or (D) shall take any action to authorize or effect any of the
actions set forth above in this subsection 3 (iv); or
(v)
Any
proceeding shall be instituted against the Company seeking to adjudicate it
a
bankrupt or insolvent, or seeking dissolution, liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for the Company or for any
substantial part of its property, and either such proceeding shall not have
been
dismissed or shall not have been stayed for a period of sixty (60) days or
any
of the actions sought in such proceeding (including, without limitation, the
entry of any order for relief against it or the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial
part
of its property) shall occur; or
(vi)
One
or more final judgments or orders for the payment of money in excess of $100,000
in the aggregate shall be rendered against the Company, and either (A)
enforcement proceedings shall have been commenced by any creditor upon any
such
judgment or order, or (B) there shall be any period of thirty (30) days during
which enforcement of any such judgment or order shall not be discharged, stayed
or fully satisfied.
(b)
If an
Event of Default described above has occurred, then the Holder may, without
further notice to the Company, declare the principal amount of this Note at
the
time outstanding, together with accrued unpaid interest thereon, and all other
amounts payable under this Note to be forthwith due and payable, whereupon
such
principal, interest and all such amounts shall become and be forthwith due
and
payable.
(c)
The
Company covenants that in case the principal of, and accrued interest on, the
Note becomes due and payable by declaration or otherwise, then the Company
will
pay in cash to the Holder of this Note, the whole amount that then shall have
become due and payable on this Note for principal or interest, as the case
may
be, and in addition thereto, such further amount as shall be sufficient to
cover
the costs and expenses of collection, including reasonable fees and
disbursements of the Holder's legal counsel. In case the Company shall fail
forthwith to pay such amount, the Holder may commence an action or proceeding
at
law or in equity for the collection of the sums so due and unpaid, and may
prosecute any such action or proceeding to judgment or final decree against
Company or other obligor upon this Note, wherever situated, the monies
adjudicated or decreed to be payable.
5
5. Miscellaneous
(a) This
Note
has been issued by the Company pursuant to authorization of the Board of
Directors of the Company.
(b) The
Company may consider and treat the entity in whose name this Note shall be
registered as the absolute owner thereof for all purposes whatsoever (whether
or
not this Note shall be overdue) and the Company shall not be affected by any
notice to the contrary. Subject to the limitations herein stated, the registered
owner of this Note shall have the right to transfer this Note by assignment,
and
the transferee thereof shall, upon his registration as owner of this Note,
become vested with all the powers and rights of the transferor. Registration
of
any new owners shall take place upon presentation of this Note to the Company
at
its principal offices, together with a duly authenticated assignment. In case
of
transfer by operation of law, the transferee agrees to notify the Company of
such transfer and of his address, and to submit appropriate evidence regarding
the transfer so that this Note may be registered in the name of the transferee.
This Note is transferable only on the books of the Company by the holder hereof,
in person or by attorney, on the surrender hereof, duly endorsed. Communications
sent to any registered owner shall be effective as against all holders or
transferees of the Note not registered at the time of sending the
communication.
(c) Payments
of principal and interest shall be made as specified above to the registered
owner of this Note. No interest shall be due on this Note for such period of
time that may elapse between the maturity of this Note and its presentation
for
payment.
(d) The
Holder shall not, by virtue, hereof, be entitled to any rights of a shareholder
in the Company, whether at law or in equity, and the rights of the Holder are
limited to those expressed in this Note.
(e) Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Note, and (in the case of loss, theft
or destruction) of reasonably satisfactory indemnification, and upon surrender
and cancellation of this Note, if mutilated, the Company shall execute and
deliver a new Note of like tenor and date.
(f) This
Note
shall be construed and enforced in accordance with the laws of the State of
California. The Company and the Holder hereby consent to the jurisdiction of
the
Courts of the State of California and the United States District Courts situated
therein in connection with any action concerning the provisions of this Note
instituted by the Holder against the Company.
6
IN
WITNESS WHEREOF, XxxXxxxxxxxxxXxxxxxxxx.xxx, Inc. caused this Note to be signed
in its name by its Chief Executive Officer.
| XXXXXXXXXXXXXXXXXXXXXX.XXX, INC | ||
| |
|
|
| By: | ||
|
Name: |
||
| Title: | ||
7
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 XxxXxxxxxxxxxXxxxxxxx.xxx, Inc. into
Shares of Common Stock according to the conditions set forth in such Note,
as of
the date written below.
Date
of
Conversion:____________________________________________________________________
Conversion
Price: Not to exceed $0.25 per share per stated formula:
Shares
To
Be
Delivered:_________________________________________________________________
Signature:____________________________________________________________________________
Print
Name:__________________________________________________________________________
Address:_____________________________________________________________________________
____________________________________________________________________________
8
