Contract
EXECUTIVE
COPY
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933, AS AMENDED. SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED
HEREUNDER MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR
AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE
PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF
TO
THE SECRETARY OF THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES.
THE
OBLIGATIONS REPRESENTED BY THIS NOTE ARE SUBJECT TO A SUBORDINATION
AGREEMENT AMONG THE COMPANY, THE HOLDER, AND ONE OR MORE LENDERS OF THE
COMPANY; A COPY OF SUCH AGREEMENT MAY BE OBTAINED FROM THE COMPANY UPON
WRITTEN REQUEST.
WINWIN
GAMING, INC.
SECURED
CONVERTIBLE PROMISSORY NOTE
$____________ | April __, 2006 |
WINWIN
GAMING, INC.,
a
Delaware corporation (the “Company”),
for
value received, promises to pay to ________________,
or its
assigns (the “Holder”),
the
principal sum of ____________ Dollars ($_______), plus simple interest thereon
at the rate of seven and a half percent (7.5%) per annum (the “Base
Rate”),
and
such interest to be payable monthly in arrears, the first such payment to be
due
and payable on the first day of the first full month following the date hereof,
until the entire principal amount outstanding remaining unpaid shall become
due
and payable, provided that, upon an Event of Default (as defined below), the
interest rate shall increase to twelve percent (12%) per annum (the
“Default
Rate”),
and
continuing through the date on which such Event of Default is cured to Holder’s
satisfaction, after which the interest rate shall return to the Base Rate,
provided further that, such interest payments may be deferred to the Maturity
Date with the Holder’s prior written consent. Interest on this Note shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
This
Note
will automatically mature and the entire outstanding principal amount, together
with accrued, but unpaid, interest, shall become due and payable upon written
demand by the Holder, which demand may be made at any time after the earlier
of
(i) one hundred eighty (180) days following the date hereof, (ii) an Event
of
Default, or (iii) the closing of any equity or equity-related financing (an
“Equity
Financing”)
by the
Company in which the gross proceeds to the Company (not taking into account
broker’s fees, commission and/or expenses relating thereto) are at least Two
Million Five Hundred Thousand Dollars ($2,500,000), it being understood and
agreed that the conversion of the Company’s currently outstanding senior debt
into shares of the Company’s equity securities shall not be deemed an equity or
equity-related financing for this purpose (the “Maturity
Date”),
unless, prior to such time, this Note shall have been converted into shares
of
the Company’s capital stock pursuant to Section 1
hereof.
Payments
of both principal and interest are to be made at the address of the Holder
set
forth in Section 8(d) below or at such other place in the United States as
the Holder shall designate to the Company in writing in lawful currency of
the
United States of America.
This
Note
is one of a series of notes issued pursuant to that certain Secured Convertible
Note and Warrant Purchase Agreement (the “Agreement”),
dated
as of even date herewith, by and among the Company, the initial Holder and
the
other Purchasers as parties thereto, which is incorporated herein by reference
as though fully set forth herein. This Note shall be referred to herein as
the
“Note”
and
all
Notes issued under the Agreement shall be referred to as the “Notes”).
The
following is a statement of the additional rights of the Holder and the
additional conditions to which this Note is subject, and to which the Holder,
by
the acceptance of this Note, further agrees:
1. Conversion.
(a) Optional
Conversion.
At any
time prior to the Maturity Date, the outstanding principal balance and accrued
and unpaid interest of this Note may be converted in whole or in part, at the
option of the Holder, into (i) shares of common stock, $0.01 par value per
share, of the Company (“Common
Stock”)
at a
conversion price of fifty cents ($0.50) per share (the “Conversion
Price”)
or
(ii) securities of the type issued by the Company in any Equity Financing at
a
conversion price equal to the issuance price at which such securities are sold
in such Equity Financing; provided however, that the Conversion Price shall
be
adjusted in accordance with Section
1(b), (c), (d), (e) and (f)
hereof,
and the Company shall deliver notice of such adjustment to the Holder in
accordance with Section
1(g)
of this
Note. The Company shall effectuate the conversion of the Note within ten (10)
Business Days (as defined in the Agreement) of receipt of a notice of conversion
from the Holder.
(b) Adjustments
to Conversion Price.
In the
event the Company shall at any time after the Closing (as defined in the
Agreement) issue Additional Shares of Common Stock (defined herein), without
consideration or for a consideration per share less than the applicable
Conversion Price in effect immediately prior to such issue (“Dilutive
Issuance”),
then
the Conversion Price shall be adjusted to a price determined by multiplying
the
Conversion Price in effect immediately prior to the Dilutive Issuance by a
fraction:
(1) the
numerator of which shall be (A) the number of shares of Common Stock issued
or
issuable upon the exercise of all outstanding options, warrants and convertible
securities outstanding immediately
prior to the Dilutive Issuance, plus (B) the number of shares of Common Stock
that the aggregate consideration, if any, received by the Company in connection
with the Dilutive Issuance would purchase at the then applicable Conversion
Price, and
(2) the
denominator of which shall be (A) the number of shares of Common Stock issued
or
issuable on exercise of all outstanding options, warrants and convertible
securities outstanding immediately prior to the Dilutive Issuance, plus (B)
the
number of shares of Common Stock issued or deemed issued in the Dilutive
Issuance;
-2-
provided
that
if such
issuance or deemed issuance was without consideration, then the Company shall
be
deemed to have received an aggregate of one tenth of one cent ($.001) of
consideration for all such Additional Shares of Common Stock issued or deemed
to
be issued. For
purposes of the foregoing paragraph, “Additional
Shares of Common Stock”
shall
mean any issuances of equity securities (or securities convertible into equity
securities) of the Company, other than the following:
a. |
shares
of Common Stock issued or issuable by reason of a dividend, stock split,
split-up or other distribution of shares of Common Stock as described
in
Section 1(c), (d) or (e) hereof;
|
b. |
up
to Thirteen Million Six Hundred Eighty-Nine Thousand Seven Hundred
Seventeen (13,689,717) shares of Common Stock actually issued upon
the
exercise of stock options;
|
c. |
shares
of Common Stock actually issued upon the exercise, exchange or conversion
of options, warrants, convertible and other securities outstanding
as of
the date hereof and as set forth on Schedule
4.2
of
the Agreement, in each case provided such issuance is pursuant to the
terms of such option or convertible security;
|
d. |
shares
of Common Stock issuable upon conversion of the Notes and upon exercise
of
the Warrants; and
|
e. |
securities
in connection with a transaction where all of the Holders have indicated
in writing that the transaction should be exempt from the anti-dilution
adjustment provisions hereof.
|
(c) Adjustment
for Stock Splits and Combinations.
If the
Company, at any time before the Maturity Date shall split, subdivide or combine
the outstanding shares of Common Stock into a different number of shares of
Common Stock, then (i) in the case of a split or subdivision, the Conversion
Price for such securities shall be proportionately decreased and the shares
of
Common Stock issuable upon conversion of this Note shall be proportionately
increased, and (ii) in the case of a combination, the Conversion Price shall
be
proportionately increased and the securities issuable upon conversion of this
Note shall be proportionately decreased.
(d) Adjustments
for Dividends in Stock or Other Securities or Property.
If,
while this Note or any portion hereof remains outstanding and unexpired, the
holders of Common Stock, as applicable, shall have received, or, on or after
the
record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefor, additional shares of
Common Stock, as applicable, by way of dividend, then and in each case, this
Note shall represent the right to convert into, in addition to the number of
shares of the security receivable upon exercise of this Note, and without
payment of any additional consideration therefor, the amount of such additional
shares of Common Stock, as applicable, that such holder would hold on the date
of such conversion had it been the holder of record of that number of shares
of
Common Stock, as applicable, receivable upon exercise of this Note on the date
hereof and had thereafter, during the period from the date hereof to and
including the date of such exercise, retained such shares and/or all other
additional stock available by it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this
Section
1.
-3-
(e) Reclassification,
etc.
If the
Company, at any time while this Note or any portion thereof remains outstanding
and unexpired, by reclassification of securities or otherwise, shall change
any
of the securities as to which conversion rights under this Note exist into
the
same or a different number of securities of any other class or classes, this
Note shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities that were subject to the purchase rights under this Note
immediately prior to such reclassification or other change and the Conversion
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section
1.
(f) Registration
Statement.
Pursuant to Section
2.4(b)
of the
Investor Rights Agreement, in the event that the registration statement required
to be filed by the Company thereunder is not declared effective within one
hundred eighty (180) days following the Closing, the Conversion Price shall
be
reduced by $0.025 per share for each thirty (30) day period that the
effectiveness of the registration statement is delayed, but in no event shall
this provision cause the Conversion Price to be reduced below $0.40 per
share.
(g) Notices.
Whenever the Conversion Price or number of shares purchasable hereunder shall
be
adjusted pursuant to subsection
1(b), (c), (d), (e) or (f)
hereof,
the Company shall promptly issue a certificate to the Holder, signed by the
Chief Financial Officer of the Company, setting forth, in reasonable detail,
the
event requiring the adjustment, the amount of the adjustment, the method by
which the adjustment was calculated and the Conversion Price and number of
shares issuable hereunder after giving effect to such adjustment.
2. Mechanics
of Conversion.
(a) Fractional
Shares.
No
fractional shares of Common Stock shall be issued upon conversion of this Note.
In lieu of any fractional shares to which the Holder would otherwise be
entitled, the Company shall pay cash equal to such fraction multiplied by the
Conversion Price.
(b) Stock
Certificates.
The
Company shall, as soon as practicable thereafter, issue and deliver to the
holder of this Note, or to its nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which it shall be
entitled as aforesaid. Such conversion shall be deemed to have been made, as
applicable, immediately prior to the close of business on the date of the
closing of the transaction which causes the automatic conversion set forth
above
in Section 1.
The
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holders of
such
shares of Common Stock on such date.
-4-
3. Security.
This
Note is secured under that certain Security Agreement of even date herewith
by
and among the Company, the initial Holder and the other Purchasers party thereto
(the “Security
Agreement”).
Reference is hereby made to the Security Agreement for a description of the
nature and extent of the security for this Note and the rights with respect
to
such security of the Holder of this Note.
4. Default
and Remedies.
(a) Event
of Default.
An
“Event
of Default”
shall
exist under this Note upon the happening of any of the following events or
conditions, without demand or notice from the Holder:
(i) failure
to make any payments required hereunder within three (3) Business Days (as
defined in the Agreement) of (A) such payment becoming due, or (B) following
notice given in accordance with the terms of this Note;
(ii) breach
or
failure to observe or perform any of the agreements, warranties, representations
or covenants in this Note, the Agreement, the Security Agreement, or the
Investor Rights Agreement, which breach or failure is not cured within thirty
(30) days after the receipt of written notice thereof by the Holder or the
holder of any of the Notes;
(iii) any
petition in bankruptcy being filed by or against Company or any proceedings
in
bankruptcy, insolvency or under any other laws relating to the relief of
debtors, being commenced for the relief or readjustment of any indebtedness
of
Company, either through reorganization, composition, extension or otherwise,
and
which, in the case of any involuntary proceedings shall be acquiesced to by
Company or shall continue for a period of ninety (90) days undismissed,
undischarged or unbonded;
(iv) the
making by Company of an assignment for the benefit of creditors, which
assignment results in a material adverse effect upon Company and is not cured
within thirty (30) days after the receipt of written notice thereof by the
Holder or the holder of any of the Notes;
(v) the
appointment of a receiver of any property of Company which shall not be vacated
or removed within ninety (90) days after appointment; or
(vi) upon
the
date thirty (30) days following the occurrence of any event of default under
the
terms of any of the Company’s indebtedness or the acceleration of any
indebtedness of the Company, which occurrence or acceleration results in a
material adverse effect upon Company.
(b) Remedies.
Upon
the occurrence of an Event of Default under Section 4(a) hereof, at the option
and upon the declaration of the Holder of the Note, the entire unpaid principal
and accrued and unpaid interest on this Note shall, without presentment, demand,
protest, or notice of any kind, all of which are hereby expressly waived, be
forthwith due and payable, and Holder may immediately and without expiration
of
any period of grace, enforce payment of all amounts due and owing under this
Note and exercise any and all other remedies granted to it at law, in equity
or
otherwise.
-5-
5. Charges,
Taxes and Expenses.
Issuance of a certificate for shares of Common Stock upon the conversion of
this
Note shall be made without charge to the Holder for any issue or transfer tax
or
other incidental expense in respect of the issuance of such certificate, all
of
which taxes and expenses shall be paid by the Company, and such certificate
shall be issued in the name of the Holder, or such certificates shall be issued
in such name or names as may be directed by the Holder; provided,
however,
that in
the event certificates for shares of Common Stock (or replacement Notes) are
to
be issued in a name other than the name of the Holder, this Note when
surrendered for exercise or transfer shall be accompanied by the Assignment
Form
attached hereto duly executed by the Holder; and provided further,
that
upon any transfer involved in the issuance or delivery of any certificates
for
shares of Common Stock or replacement Notes, the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto. Any transfer shall be subject to (i) the
transferee’s agreement in writing to be subject to the applicable terms of this
Note and (ii) compliance with all applicable state and federal securities
laws (including the delivery of investment representation letters, legal
opinions and market stand-off agreements reasonably satisfactory to the Company,
if such are requested by the Company). The Holder agrees that Holder shall
execute such documents, and perform such acts, which are reasonably required
to
assure that the conversion hereof is consummated in compliance with all
applicable laws.
6. No
Rights as Stockholder.
This
Note does not entitle the Holder to any voting rights or other rights as a
stockholder of the Company prior to the conversion hereof.
7. Loss,
Theft or Destruction of Note.
Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft or destruction of this Note and of indemnity or security reasonably
satisfactory to it, the Company will make and deliver a new Note which shall
carry the same rights to interest (unpaid and to accrue) carried by this Note,
stating that such Note is issued in replacement of this Note, making reference
to the original date of issuance of this Note (and any successors hereto) and
dated as of such cancellation.
8. Miscellaneous.
(a) Issue
Date; Governing Law.
The
provisions of this Note shall be construed and shall be given effect in all
respect as if it had been issued and delivered by the Company on the earlier
of
the date hereof or the date of issuance of any Note for which this Note is
issued in replacement. This Note shall be binding upon any successors or assigns
of the Company. This Note shall constitute a contract under the laws of the
State of New York and for all purposes shall be construed in accordance with
and
governed by the laws of the State of New York.
(b) Restrictions.
The
Holder acknowledges that the shares of capital stock acquired upon the
conversion of this Note will be subject to restrictions upon its resale imposed
by state and federal securities laws and the provisions of the Company’s
certificate of incorporation, as it may have been, or be amended from time
to
time in accordance with its terms.
(c) Assignment.
Neither
this Note nor any of the rights, interests or obligations hereunder may be
assigned, by operation of law or otherwise, in whole or in part by the Holder
to
any person or entity without the prior written consent of the Company except
(assuming compliance with applicable state and federal securities laws) in
connection with an assignment in whole to an affiliate of the Holder or to
a
successor corporation to the Holder resulting from a merger or consolidation
of
the Holder with or into another corporation or the sale of all or substantially
all of the Holder’s properties and assets. Effective upon any such assignment,
the person or entity to whom such rights, interests and obligations were
assigned shall have and exercise all of the Holder’s rights, interest and
obligations hereunder as if such person or entity were the original Holder
of
this Note.
-6-
(d) Notices.
Any
notice, request or other communications required or permitted hereunder shall
be
given upon personal delivery or upon the seventh day following mailing by
registered airmail (or certified first class mail if both the addresser and
addressee are located in the United States), postage prepaid and addressed
to
the parties as follows:
To the Company: |
WINWIN GAMING, INC.
0000
Xxxx Xxxxxx, Xxxxx 000
Xxx
Xxxxx, Xxxxxx 00000
Tel:
(000) 000-0000
FAX:
(000) 000-0000
Attn:
Xxxxxxx Xxxxxx
|
|
To Holder: | At the address listed on such Holder’s signature page to the Agreement |
or
to
such other single place as any single addressee shall designate by written
notice to the other addressees.
(e) |
Choice
of Venue; Waiver of Right to Jury Trial.
|
(i) THIS
NOTE
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE DEEMED MADE,
EXECUTED, PERFORMED AND CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW
OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
NOTE OR ANY OTHER DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW
YORK
OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE
WHICH ARE LOCATED IN THE COUNTY OF NEW YORK, AND, BY EXECUTION AND DELIVERY
OF
THIS NOTE, EACH PARTY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT
OF
ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION
OF
THE AFORESAID COURTS. EACH PARTY HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM
THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER SUCH PARTY, AND AGREES
NOT
TO PLEAD OR CLAIM IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE
OR
ANY OTHER DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS THAT ANY SUCH COURT
LACKS PERSONAL JURISDICTION OVER SUCH PARTY. EACH PARTY FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS
IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED
OR
CERTIFIED MAIL, POSTAGE PREPAID, TO ANY SUCH PARTY AT ITS ADDRESS FOR NOTICES
AS
PROVIDED HEREIN, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS
AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION
OR
PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER DOCUMENT THAT SUCH SERVICE
OF
PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT
THE
RIGHT OF THE PARTY UNDER THIS NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
ANY PARTY IN ANY OTHER JURISDICTION.
-7-
(ii) EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE
TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING
OUT OF OR IN CONNECTION WITH THIS NOTE OR ANY OTHER DOCUMENT BROUGHT IN THE
COURTS REFERRED TO IN CLAUSE (i) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES
AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
(iii) EACH
OF
THE PARTIES TO THIS NOTE HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY
JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
NOTE, THE OTHER DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
(f) Enforcement.
The
Company shall pay all reasonable fees and expenses incurred by the Holder in
the
enforcement in any of the Company’s obligations hereunder not performed when
due. In the event of a dispute with regard to the interpretation of this Note,
the prevailing party shall be entitled to collect the cost of attorney’s fees,
litigation expenses or such other expenses as may be incurred in the enforcement
of the prevailing party’s rights hereunder.
(g) Amendment
or Waiver.
This
Note shall only be amended upon the prior written consent of the Holder and
the
Company.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
-8-
IN
WITNESS WHEREOF, the undersigned has caused this Secured Convertible Promissory
Note to be executed by its officer thereunto duly authorized.
COMPANY: | ||
WINWIN GAMING, INC. | ||
|
|
|
By: | /s/ | |
Name: |
||
Title: |
-9-
EXECUTIVE
COPY
NOTICE
OF CONVERSION
(To
convert the foregoing Note into shares of Common Stock or
any
equity securities of the Company, execute this form and supply required
information.)
To: WINWIN
GAMING, INC.
(1) The
undersigned hereby elects to convert the attached Secured Convertible Promissory
Note (the “Note”) into:
__________ |
__________
shares of Common Stock of WINWIN GAMING, INC. pursuant to Section
1(a) and
the other applicable terms of the attached Note;
or
|
__________ |
__________
shares of ___________ of WINWIN GAMING, INC. pursuant to Section
1(a) and
the other applicable terms of such
Note.
|
(2) In
converting this Note, the undersigned hereby confirms and acknowledges that
the
securities being issued hereby are being acquired solely for the account of
the
undersigned and not as a nominee for any other party, or for investment, and
that the undersigned will not offer, sell or otherwise dispose of any such
securities, except under circumstances that will not result in a violation
of
the Securities Act of 1933, as amended, or any applicable state securities
laws.
(3) Please
issue a certificate or certificates representing said securities in the name
of
the undersigned:
(Name) |
(4) Capitalized
terms used herein shall have the meanings ascribed to them in the
Note.
(Date)
|
(Signature)
|
|
(Print
Name)
|
EXECUTIVE
COPY
ASSIGNMENT
FORM
(To
be
signed only upon assignment of the Note)
FOR
VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto the assignee
named below all of the rights of the undersigned represented by the attached
Note with respect to the amount of principal covered by the Note set forth
below:
(Name
and
Address of Assignee Must Be Printed or Typewritten)
Name
of Assignee
|
Social
Security No.
or
Tax I.D. No.
|
Address
|
Principal
Amount
|
|||
and
does
hereby irrevocably constitute and appoint
Attorney
to transfer said Note on the books of the Company, with full power of
substitution in the premises.
Dated:
________
________________________________________________
Signature
of Registered Holder
Note: The
signature on this assignment must correspond with the names as it appears upon
the face of the Note in every particular, without alteration or enlargement
or
any change whatever.