Contract
THIS
NOTE
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO
REGISTERED OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND LAWS IS
AVAILABLE.
RED
MOON,
INC.
| $300,000.00 |
January
22, 2008
|
Red
Moon,
Inc., a Delaware corporation (the "Company"), for value received hereby promises
to pay to Zoom Technologies, Inc. (such person or any permitted transferee,
the
"Holder"), the principal sum of Three Hundred Thousand Dollars ($300,000) on
the
Maturity Date (as defined below) together with simple interest on the principal
amount outstanding at the rate of six percent (6%) per annum, which interest
shall be calculated on the basis of actual days elapsed and a 360-day year.
Interest accrued on the outstanding principal amount shall be payable quarterly
to the Holder within seven (7) days after each December 31, March 31, June
30
and September 30, commencing on June 30, 2008. This Note is issued by the
Company pursuant to a Convertible Note Purchase Agreement of even date herewith
by and among the Company and the original holder of this Note (the “Purchase
Agreement”). Reference is made to the Purchase Agreement for a statement of
certain additional rights and benefits to which the Holder is entitled. For
purposes of this Note, “Maturity Date” shall mean the third annual anniversary
of the date hereof. The obligations of the Company hereunder are secured by
a
first priority lien on certain equipment of the Company, as set forth in that
certain Security Agreement, dated of even date hereof, and by and between the
Company and the Holder.
1. Payment
Provisions.
1.1 Payments
on this Note.
The
Company shall make payments of principal of, and any interest on, this Note
when
due.
1.2 Prepayment
of Principal.
The
principal indebtedness represented by this Note may be prepaid in whole or
in
part at any time and from time to time, without premium, at the option of the
Company without the consent of the Holder hereof.
2. Default.
The
entire unpaid principal of this Note, together with all accrued and unpaid
interest on the original principal amount, shall become and be immediately
due
and payable upon written demand of the Holder, without any other notice or
demand of any kind or any presentment or protest, if any one of the following
events (an "Event of Default") shall occur and be continuing at the time of
such
demand, whether voluntarily or involuntarily, or, without limitation, occurring
or brought about by operation of law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or regulation of
any
governmental body:
2.1 Payment
Defaults.
If the
Company shall fail to pay any installment of principal of or interest on this
Note when due and such failure continues for ten (10) business
days;
2.2 Voluntary
Reorganization, etc.
If the
Company (i) makes a general assignment for the benefit of creditors, (ii)
applies for, consents to, acquiesces in, files a petition or an answer seeking,
or admits (by answer, default or otherwise) the material allegations of a
petition filed against it seeking the appointment of a trustee, receiver,
liquidator, debtor in possession, or assignee in bankruptcy or insolvency of
itself or of all or a substantial portion of its assets, or a reorganization,
arrangement with creditors or other remedy, relief or adjudication available
to
or against a debtor under any bankruptcy or insolvency law or any law relating
to relief of debtors, or (iii) admits in writing its inability to pay its debts
generally as they become due;
2.3 Involuntary
Reorganization, etc.
If a
decree, order or judgment shall have been entered adjudging the Company as
bankrupt or insolvent, or appointing a receiver, liquidator, trustee, debtor
in
possession or assignee in bankruptcy or insolvency for it or for all or a
substantial portion of its assets, or approving a petition seeking a
reorganization, arrangement, or the winding up or liquidation of its affairs
on
the grounds of insolvency or nonpayment of debts, and such decree, order or
judgment shall remain undischarged and unstayed for a period of 120 days; or
if
any substantial part of the property of the Company is sequestered or attached
and shall not be returned to the possession of the Company or released from
such
attachment within 120 days;
2.4 Liquidation
or Organic Transaction.
If the
Company voluntarily begins the process of liquidation, winding up or dissolving
the Company (which events are not part of those set forth in Section 2.2 or
2.3
above) or consummates an Organic Transaction. For purposes of this Note, an
Organic Transaction shall mean (i) the sale of all or substantially all of
the
stock or assets of the Company, (ii) the consummation of a merger or
consolidation in which either the Company is not the surviving entity or a
majority of the stockholders of the Company immediately prior to such merger
or
consolidation are no longer a majority of the stockholders of the Company after
such merger or consolidation, or (iii) the consummation of an initial public
offering by the Company that results in gross proceeds to the Company or its
stockholders of at least $10,000,000 and a share price of at least $10.00 per
share;
2.5 Failure
to Deliver Financial Statements.
If the
Company fails to (i) deliver to the Holder audited financial reports within
90
days after the end of the Company’s fiscal year, prepared by an accounting firm
reasonably acceptable to the Holder; (ii) deliver to the Holder quarterly
unaudited financial reports within 40 days after the end of each of the
Company’s first three fiscal quarters, reviewed by an accounting firm reasonably
acceptable to the Holder; (iii) use its best efforts to deliver to the Holder
monthly unaudited financial reports within 30 days after the end of each month
and an annual budget and business plan 30 days prior to the beginning of a
fiscal year.
2.6 Subordination
of Other Debt. This
Note
shall be senior to all long term liabilities of the Company and senior to all
current liabilities of the Company over $11,000. Failure of the Company to
deliver agreements from all holders of such debt of the Company acknowledging
the priority of the Note to such debt and subordinating such debt to the Note
shall be deemed an Event of Default. In addition, it shall be deemed an Event
of
Default if the Company shall incur any additional indebtedness without the
prior
written consent of the Holder, except for indebtedness in the ordinary course
of
business and in individual amounts not to exceed $50,000. It will be a condition
to the purchase of the Note that the holders of all of the currently outstanding
investor notes of the Company agree to freeze the accrual of interest under
such
notes as of January 1, 2008 and agree that from and after such date, no further
interest will accrue or be payable under such notes beyond that which has
accrued as of December 31, 2007, and failure to obtain or comply with such
agreements shall be deemed an Event of Default.
2.7 Interest
after an Event of Default.
From
and after the date of an Event of Default and through the date on which the
Holder is paid in full, the interest rate applicable to the amounts due
hereunder shall be the higher of eighteen percent per annum (18%) or the highest
rate allowable by law.
2.8 Failure
to Comply with Certain Covenants.
If the
Company fails to perform any of its obligations under Section 7.1 of that
certain Option Agreement, dated as of even date hereof, and by and among the
Company, the Holder and the “Holder” parties thereto.
3. Conversion.
3.1
Conversion.
At any
time that there are amounts outstanding under this Note, the Holder has the
right, at its option, to convert the full outstanding aggregate principal amount
of this Note and any like notes (collectively, the “Conversion Amount”) into
fully paid and non-assessable shares of the Company’s Series A Preferred Stock
(“Series A Stock). In order to exercise this conversion privilege, the Holder
shall surrender this Note to the Company during normal business hours at the
Company’s principal executive offices, accompanied by written notice in form
reasonably satisfactory to the Company that the Holder elects to convert the
Conversion Amount specified in such notice. As soon as practicable, the Company
shall issue a stock certificate in the name of the Holder of this Note for
the
shares of Series A Stock issuable upon conversion.
3.2 Shares
Issuable Upon Conversion. The
number of shares of Series A Stock to be issued upon conversion shall be based
on the Conversion Amount. If the Conversion Amount is equal to or greater than
Five Hundred Thousand Dollars ($500,000) (the “Target Amount”), the Company
shall issue the Holder shares of Series A Stock equal to twenty percent (20%)
of
the fully diluted capitalization of the Company at the time of issuance (the
“Base Amount”). If the Conversion Amount is less than Five Hundred Thousand
Dollars ($500,000), the shares of Series A Stock to be issued shall be equal
to
the Base Amount multiplied by a percentage determined by dividing the Conversion
Amount by the Target Amount.
3.3 Fractional
Shares.
No
fractional shares of Series A Stock, as applicable, shall be issued upon
conversion of this Note but a cash payment will be made with respect to any
fraction of a share which would otherwise be issued upon the surrender of this
Note, or portion thereof, for conversion.
3.4 Accrued
Interest.
Upon
conversion of this Note, the Company shall not be required to pay any accrued
but unpaid interest on the amount so converted up to the date that this Note
is
converted into Series A Stock.
3.5 Rights
upon issuance of Stock.
Upon
conversion of any portion of this Note, the parties agree that they will use
good faith efforts to negotiate and execute all documentation reasonably
requested by Xxxxxx. It is agreed and acknowledged that the parties will use
the
National Venture Capital Association (“NVCA”) forms as the basis for any
document for which there is a reasonably applicable NVCA form, with such
additions, deletions, modifications and the like as may be necessary to reflect
the transaction between the parties. Any shares of Series A Stock issued to
the
Holder upon conversion shall have the same rights, preferences, restrictions
and
obligations as all other shares of Series A Stock.
4. Loss,
Theft, Destruction or Mutilation.
Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note and, in the case of such loss, theft or destruction,
upon delivery to the Company of an indemnity undertaking reasonably satisfactory
to the Company, or, in the case of any such mutilation, upon surrender of this
Note to the Company, the Company will issue a new note, of like tenor and
principal amount, in lieu of or in exchange for such lost, stolen, destroyed
or
mutilated Note.
5. Notices
and Demands.
All
notices, demands and communications provided for in this Note or made under
this
Note shall be delivered, mailed registered or certified mail with postage
prepaid, or telegraphed, addressed in each case as follows:
|
(a)
|
To
the Company:
|
|
|
Red
Moon, Inc.
|
||
|
000
Xxxxxxx Xxxxx, Xxxxx 000
|
||
|
Plano,
Texas 75075
|
||
|
Attn:
Xxxxx Xxxxxxxx, President and CEO
|
||
|
(b)
|
To
the Holder of this Note:
|
|
|
Zoom
Technologies, Inc.
|
||
|
000
Xxxxx Xxxxxx
|
||
|
Boston,
MA 02111
|
||
|
Attn:
Xxxxx Xxxxxxx, President and CEO
|
||
|
with
a copy to:
|
||
|
Xxxxx,
Xxxxxx-Xxxxx & Xxxxxxxxx, P.C.
|
||
|
Reservoir
Place
|
||
|
0000
Xxxxxxx Xxxx
|
||
|
Waltham,
MA 02451
|
||
|
Attention:
Xxxxxxx X. Xxxxxx, Esq.
|
or
such
other address as may, after the date of this Note, be designated by the Holder
or the Company by notice given to the other party as the address to which
communications under this Note shall thereafter be delivered or
mailed.
Notices,
demands and communications shall be deemed to have been given or made when
so
delivered, mailed or telegraphed.
6. Present
Intent.
By
acceptance of this Note, the Holder acknowledges that this Note is being
acquired without a present intention of resale or distribution, and that this
Note will not be transferred, pledged or otherwise disposed of by the Holder
in
the absence of an effective registration statement under the Securities Act
of
1933, as amended, or an opinion of counsel reasonably satisfactory to the
Company that such registration is, under the circumstances, not
required.
7. Miscellaneous
Provisions.
7.1 No
Oral Modifications.
Neither
this Note nor any term of this Note may be changed, waived, discharged or
terminated orally, but may only be amended or modified by an instrument in
writing signed by all of the parties hereto.
7.2 Binding
Effect.
This
Note shall be binding upon and inure to the benefit of the Company, the Holder
of this Note and their respective heirs, successors and assigns.
7.3 Governing
Law.
This
Note shall be governed by the laws of the Commonwealth of Massachusetts. To
the
extent permitted by applicable law, the Company waives the right to trial by
jury in any such action or proceeding.
7.4 Recourse.
Recourse under this Note shall be to the assets of the Company only and in
no
event to the officers, directors or stockholders of the Company.
7.5 Costs.
The
undersigned will pay all reasonable costs and expenses of collection, including
attorneys' fees and disbursements, appraiser's fees and court costs, incurred
or
paid by the Holder in enforcing this Note, to the extent permitted by law,
including all costs and reasonable attorneys' fees incurred in any appeal,
bankruptcy proceeding, or other proceeding.
7.6 Transfer.
This
Note may be transferred in whole or in part by the Holder with the prior written
consent of the Company, which shall not be unreasonably
withheld.
IN
WITNESS WHEREOF, the Company has caused this Note to be executed in its
corporate name by its duly authorized officer this 22nd
day of
January, 2008.
|
RED
MOON, INC.
|
|||
|
[Corporate
Seal]
|
By:
|
/s/Xxxxx Xxxxxxxx
|
|
|
Xxxxx Xxxxxxxx, President and CEO
|
|||
Attest:
|
/s/Xxxxx Xxxxxxxx
|
Secretary
