Exhibit 4.1
PROMISSORY NOTE MODIFICATION AGREEMENT
THIS INSTRUMENT, entered into as of this 15/th/ day of July 2002, by and
between VillageEDOCS ("Borrower") and Xxxxx X. Xxxxxxxx (the "Lender").
W I T N E S S E T H:
WHEREAS, the Lender is the holder of that certain promissory notes (the
"Notes") from Borrower, a schedule of which is attached as Exhibit A, which
Notes represents working capital advances made for the benefit of Borrower by
Lender; and
WHEREAS, said Notes provide that under certain conditions and at the option
of Lender such Notes are convertible into equity securities of the Borrower; and
WHEREAS, the original due date of said Notes are listed on Exhibit A; and
NOW, THEREFORE, in consideration of One Dollar ($1.00) paid by Borrower and
other good and valuable consideration, receipt of which is acknowledged by
Lender, the parties agree as follows:
1. Recitals. The above recitals are true and correct and are incorporated
herein by reference.
2. Piggyback Registration Right. In further consideration of the Lender's
extending credit and other financing accommodations to Borrower, the Borrower
hereby agrees that with respect to all previously unregistered shares of common
stock held by the Borrower, whether issued for cash or for conversion of the
Notes ("Registrable Securities"), if the Borrower shall determine to register
any of its shares of Common Stock for its own account, other than a registration
relating solely to employee benefit plans, or a registration relating solely to
a Rule 145 transaction, or a registration on any registration form that does not
permit secondary sales, the Borrower will:
(a) promptly give to Lender written notice thereof; and
(b) use its best efforts to include in such registration (and
any related qualification under the blue sky laws or other compliance), and
in any underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made by Lender within Twenty
(20) days after the written notice from the Borrower is given. Such written
request may specify all or a part of Lender's Registrable Securities, and
shall specify that the Lender's Registrable Securities are intended to be
sold in a public distribution.
If the registration of which the Borrower gives notice is for a registered
public offering involving an underwriting, the Borrower shall so advise the
Lender as a part of the written notice. In such event, the right of the Lender
to registration pursuant to this agreement shall be conditioned upon Lender's
participation in such underwriting and the inclusion of the Lender's Registrable
Securities in the underwriting to the extent provided herein. The Lender shall
(together with the Borrower) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected by the
Borrower.
Notwithstanding any other provisions of this agreement, if the representative of
the underwriters advises the Borrower in writing that marketing factors require
a limitation on the number of shares to be underwritten, the representative may
(subject to the limitations set forth below) exclude all Registrable Securities
from, or limit the number of Registrable Securities to be included in, the
registration and underwriting. The Borrower shall so advise the Lender, and the
number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated first to the Borrower for
securities being sold for its own account and thereafter to the Lender, pro rata
with any other holders of Common Stock having registration rights. If the Lender
does not agree to the terms of any such underwriting, he shall be excluded
therefrom by written notice from the Borrower or the underwriter. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
If shares are so withdrawn from the registration or if the number of shares of
Registrable Securities to be included in such registration was previously
reduced as a result of marketing factors, the Borrower shall then offer to all
persons who have retained the right to include securities in the registration
the right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to be
allocated among the persons requesting additional inclusion pro rata amongst
those persons requesting inclusion.
All registration expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2 hereof shall be borne by the
Borrower. In the case of each registration effected by the Borrower pursuant to
this agreement, the Borrower will keep Lender advised in writing as to the
initiation of each registration and as to the completion thereof, at its
expense, the Borrower will use its best efforts to:
(a) Keep such registration effective for a period of one hundred
twenty (120) days or until the Lender has completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 120-days period shall be extended
for a period of time equal to the period the Lender refrains from selling
any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Borrower; and (ii)
in the case of any registration of Registrable Securities on Form S-3 which
are intended to be offered on a continuous or delayed basis, such 120-day
period shall be extended, if necessary, to keep the registration statement
effective until all such Registrable Securities are sold, provided that
Rule 145, or any successor rule under the Securities Act of 1933, as
amended (the "Securities Act"), permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the
Securities Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment that (I) includes any
prospectus required by Section 10(a)(3) of the Securities Act or (II)
reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation
by reference
of information required to be included in (I) and (II) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") in the
registration statement.
(b) Prepare and file with the Securities and Exchange Commission (the
"Commission") such amendments and supplements to such registration
statement and the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement;
(c) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as the
Lender from time to time may reasonably request;
(d) Notify the Lender at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or incomplete in
the light of the circumstances then existing, and at the request of Lender,
prepare and furnish to the Lender a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such shares, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading or incomplete in the light of the
circumstances then existing; and
(e) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months, but not more than eighteen months,
beginning with the first month after the effective date of the Registration
Statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act.
The Borrower will indemnify Lender with respect to which registration,
qualification, or compliance has been effected pursuant to this agreement
against all expenses, claims, losses, damages, and liabilities (or actions,
proceedings, or settlements in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular, or other document (including any related
registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Borrower of the Securities Act or any rule or regulation thereunder applicable
to the Borrower and relating to action or inaction required of the Borrower in
connection with any such registration, qualification, or
compliance, and will reimburse the Lender for any legal and any other expenses
reasonably incurred in connection with investigating and defending or settling
any such claim, loss, damage, liability, or action, provided that the Borrower
will not be liable in any such case to the extent that any such claim, loss,
damage, liability, or expense arises out of or is based on any untrue statement
or omission based upon written information furnished to the Borrower by the
Lender and stated to be specifically for use therein. It is agreed that the
indemnity provision contained in this agreement shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Borrower (which consent has
not been unreasonably withheld).
The Lender will, if Registrable Securities held by him are included in the
securities as to which such registration, qualification, or compliance is being
effected, indemnify the Borrower, each of its directors, officers, partners,
legal counsel, and accountants and each underwriter, if any, of the Borrower's
securities covered by such a registration statement, each person who controls
the Borrower or such underwriter within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular, or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Borrower and its directors, officers, partners, legal counsel, and
accountants, persons, underwriters, or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability, or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Borrower by the Lender and
stated to be specifically for use therein; provided, however, that the
obligations of the Lender hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of the
Lender (which consent shall not be unreasonably withheld).
Each party entitled to indemnification under this agreement (the "Indemnified
Party") shall give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of such claim or any litigation
resulting therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting therefrom, shall
be approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this section, to the extent such failure is not
prejudicial. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
If the Indemnification provided for in this agreement is held by a court of
competent jurisdiction to be unavailable to an Indemnified Party with respect to
any loss, liability, claim, damage, or expense referred to therein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and of the Indemnified Party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations. The relative
fault of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
The Lender shall furnish to the Borrower such information regarding the Lender
and the distribution proposed by the Lender as the Borrower may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification, or compliance referred to in Section 2.
The registration rights granted to the Lender herein may be freely assigned,
transferred or otherwise conveyed.
3. Miscellaneous.
(a) Except as specifically modified hereby, all terms of the Notes,
as modified, are ratified and confirmed. Specifically, Borrower and Lender agree
to modify the due date of the Notes such that the Notes and any interest accrued
thereon shall be repaid at the Lender's option, whenever one of the following
events occurs:
i. A controlling interest in the Borrower is acquired by
a third party; or
ii. October 31, 2005; or
iii. The Borrower receives net cash proceeds from an
equity financing of $3,000,000 or more subsequent to
the date of this Promissory Note Modification
Agreement.
Additionally, Borrower and Lender agree that all or part of the unpaid principal
or accrued and unpaid interest of the Notes is convertible into the Borrower's
Common Stock at any time at the option of Lender at a conversion price equal to
the lower of $0.10 or the average of the Borrower's Common Stock closing bid
price on the OTC:BB, BBX, NASDAQ or other established securities exchange or
market for the ten (10) consecutive trading days prior to the date Lender
delivers written notice of his conversion election to Borrower. Partial
conversions shall be allowed and upon a full conversion the Notes shall be
deemed satisfied and paid in full. Notwithstanding, the Borrower shall have the
first right of refusal as to the Lender's exercise of conversion rights, meaning
that the Borrower at its option and upon receiving Lender's notice of intent to
convert, may repay the interest and principal amounts due under the Notes in
lieu of issuing shares of Borrower's common stock.
(b) Borrower acknowledges that the Notes, as modified, are in full
force and effect and are binding upon it, its successors and assigns without any
right or claim of offset other sum due. Lender expressly reserves all rights
against Borrower.
(c) Borrower has caused this Promissory Note Modification Agreement
to be executed by its duly authorized officer.
IN WITNESS WHEREOF, the undersigned have signed this Agreement the day and
year first above written.
WITNESSES: BORROWER:
VillageEDOCS.
_________________________ By: /s/ K. Xxxxx Xxxxxx
----------------------------------------
K. Xxxxx Xxxxxx
_________________________ Its: President and Chief Executive Officer
LENDER:
Xxxxx X. Xxxxxxxx
By: /s/ Xxxxx X. Xxxxxxxx
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Xxxxx X. Xxxxxxxx
Exhibit "A"
Schedule of Unsecured Convertible Promissory Notes Issued to Xxxxx X. Xxxxxxxx
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Date of Principal Due Interest Monthly Accrued Int.
Note Amount Date Rate Interest 6/30/2002
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6/30/1999 246,176.72 6/30/2002 10% 2,051.47 73,853.02
6/30/1999 61,569.86 6/30/2002 10% 513.08 18,470.96
11/7/2000 100,000.00 10/31/2003 10% 833.33 16,472.22
1/12/2001 100,000.00 10/31/2003 10% 833.33 14,677.42
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$ 507,746.58 $ 123,473.62
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