EXHIBIT 10.39
THIS NOTE AND ANY SHARES ACQUIRED UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING THIS NOTE, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THIS NOTE REASONABLY SATISFACTORY TO THE COMPANY,
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
CONVERTIBLE PROMISSORY NOTE
Note Amount: $100,000 December 8, 2003
Guardian Technologies International, Inc., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to Xxxxxx X. Xxxxxxxxxxx
("Holder"), the principal sum of One Hundred Thousand Dollars ($100,000) with
interest as provided below.
1. Payment.
a. Payment. Subject to the provisions of Section 3 hereof
relating to the conversion of this Note, principal and accrued
interest hereof shall be payable sixty (60) days from the date
of this Note (the "Maturity Date"). Payments hereunder shall
be made by the Company to the Holder, at the address as
provided to the Company by the Holder in writing, in lawful
money of the United States of America. Interest shall accrue
with respect to the unpaid principal amount of the loan from
the date of this Note until the Maturity Date at a flat rate
of ten percent (10%) or $10,000. Interest at a rate of
eighteen (18%) percent per annum, computed on a 365 day year,
will be accrued to the outstanding principal and interest,
beginning on the sixty-first (61st) day and until such time as
the principal and interest have been repaid or converted per
Section 3(b).
b. Prepayment. The Company shall have the right at any time and
without penalty to prepay, in whole or in part, the principal
outstanding and/or the interest accrued hereunder.
2. Certain Definitions.
a. "Bridge Notes" shall mean the series of notes, of which this
Note is a part, dated on or about the date hereof, each of
which are identical, other than the date of the Note and
identity of the Holder.
b. "Financing" shall mean the first closing of the proposed
Private Placement offered through Xxxxxxx Xxxxxx & Company
Financial Services.
c. "Financing Securities" shall mean the shares of equity
securities of the Company sold in the Financing. d.
"Obligations" shall mean all outstanding principal and accrued
interest due hereunder.
3. Conversion.
a. Conversion Upon Financing. This Note shall convert, at the
Holder's option, into the Financing Securities upon the
closing of the Financing. The Holder may elect to convert 100%
of the principal and interest due, or any part thereof. The
Holder is hereby granted the right to convert this note into
the Financing on a last dollar in basis. The Holder is
guaranteed a participatory position in the Financing.
b. Conversion Upon Available Funds in Escrow. To the extent that
sufficient funds to repay the outstanding principal and
accrued interest have been deposited in escrow as part of the
Financing, but have not closed by the Maturity Date, the
Holder shall earn additional interest on the outstanding
principal and interest at the interest rate described in
Section 1(a) above. In addition to the interest on the Note,
the Holder shall be entitled to receive four thousand (4,000)
stock purchase warrants for every thirty (30) days the Note is
outstanding beyond the Maturity Date, granting the right to
purchase one share of Common Stock for each warrant issued, at
a price of $2.50 per share. The stock purchase warrants shall
expire eighteen months after the issue date of the warrants.
Closing of the funds in escrow must occur within the thirty
(30) days immediately following the Maturity Date of the Note.
c. Conversion Absent Financing within sixty (60) days of
execution of this Note. If no Financing shall have occurred
within sixty (60) days of the execution of this Note, then the
Holder shall be entitled to forty thousand (40,000) stock
warrants entitling the Holder to purchase one share of Common
Stock for each warrant at a price of $2.50 per share. The
warrants shall have an eighteen (18) month expiration. The
Holder may elect to convert all or part of the amount owing
under this Note. The stock purchase warrants will be allocated
on a pro rata basis to the shares converted (i.e. conversion
of1/2of the outstanding principal interest will result in
20,000 stock purchase warrants [40,000/2].
d. Conversion Price Upon Financing. In the event of a conversion
pursuant to subsection 3(a) hereof, the number of shares of
the Financing Securities to be issued upon conversion of the
Obligations shall equal the aggregate amount of the
Obligations divided by the price per share of the Financing
Securities issued and sold in the Financing plus any other
considerations contained in the Financing.
e. Conversion Price Absent Financing. In the event of a
conversion pursuant to subsections 3(b) or 3(c) hereof, the
number of shares of the Common Stock to be issued upon
conversion of this Note shall equal the aggregate amount of
the Obligations divided by $1.50 .
f. Notice Regarding Financing. Written notice shall be delivered
to the Holder of this Note at the address so indicated on the
execution page of the Note and Warrant Purchase Agreement
notifying the Holder of the terms and conditions of the
Financing, the applicable conversion price, the date on which
a conversion may occur and calling upon such Holder to
surrender the Note to the Company for cancellation and
conversion/repayment in the manner and at the place
designated.
g. Mechanics and Effect of Conversion. No fractional shares of
Financing Securities or Common Stock shall be issued upon
conversion of this Note. Notwithstanding any other provision
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of this Note or the Note and Common Stock Warrant Purchase
Agreement, upon the conversion of the Obligations under this
Note, in lieu of the Company issuing any fractional shares to
the Holder, the Company shall pay to the Holder in cash the
amount of the Obligations that is not so converted. Upon
conversion of this Note pursuant hereto, the Holder shall
surrender this Note, duly endorsed, at the principal office of
the Company and shall execute such documents as are reasonably
required to be executed by all purchasers of the Financing
Securities. The Company shall, as soon as practicable
thereafter, issue and deliver to such Holder at such principal
office a certificate or certificates for the number of shares
of the Financing Securities or Common Stock to which the
Holder shall be entitled upon such conversion (bearing such
legends as are required by applicable state and federal
securities laws in the opinion of counsel to the Company),
together with any other securities and property to which the
Holder is entitled upon such conversion under the terms of
this Note. Upon full conversion of this Note pursuant to the
terms hereof, the Company shall be forever released from all
its obligations and liabilities under this Note. Upon
conversion of this Note into Financing Securities or Common
Stock, the Holder shall be entitled to all rights and
privileges afforded by the Company to other holders of such
Financing Securities or Common Stock.
4. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under this Note and the Note and
Common Stock Warrant Purchase Agreement of even date herewith (the
"Purchase Agreement"):
a. Failure to Pay. The Company shall fail to pay (i) when due any
principal payment on the due date hereunder or (ii) any
interest or other payment required under the terms of this
Note on the date due and such payment shall not have been made
within fifteen (15) days of Company's receipt of Xxxxxx's
written notice to the Company of such failure to pay; or
b. Voluntary Bankruptcy or Insolvency Proceedings. The Company
shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidate or custodian of itself or of all
or a substantial part of its property, (ii) make a general
assignment for the benefit of its or any of its creditors,
(iii) be dissolved or liquidated in full or in part, (iv)
commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or consent to any such
relief or to the appointment of or taking possession of its
property by any official in an involuntary case or other
proceeding commenced against it, or (v) take any action for
the purpose of effecting any of the foregoing; or
c. Involuntary Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or
custodian of the Company or of all or a substantial part of
the property thereof, or an involuntary case or other
proceedings seeking liquidation, reorganization or other
relief with respect to the Company or the debts thereof under
any bankruptcy, insolvency or other similar law or hereafter
in effect shall be commenced and an order for relief entered
or such proceeding shall not be dismissed or discharged within
thirty (30) days of commencement.
5. Rights of Holder Upon Default. Upon the occurrence or existence of
any Event of Default (other than an Event of Default referred to in
Paragraphs 4(c) and at any time thereafter during the continuance of
such Event of Default, Holder may declare all outstanding
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Obligations payable by Company hereunder to be immediately due and
payable without presentment, demand, protest or any other notice of
any kind, all of which are hereby expressly waived, anything
contained herein or in the Purchase Agreement to the contrary
notwithstanding. Upon the occurrence or existence of any Event of
Default described in Paragraphs 4(c), immediately and without
notice, all outstanding Obligations payable by Company hereunder
shall automatically become immediately due and payable, without
presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived, anything contained herein or in
the Purchase Agreement to the contrary notwithstanding. In addition
to the foregoing remedies, upon the occurrence or existence of any
Event of Default, Holder may exercise any other right, power or
remedy granted to it by the Purchase Agreement or otherwise
permitted to it by law, either by suit in equity or by action at
law, or both.
6. Miscellaneous.
a. Amendment Provisions. Any provision of this Note other than
the principal amount and identity of the Holder may be
amended, waived or modified upon the written consent of the
Company and the parties providing at least a majority of the
aggregate principal amounts provided pursuant to the Bridge
Notes.
b. Severability. If any provision of this Note is determined to
be invalid, illegal or unenforceable, in whole or in part, the
validity, legality and enforceability of any of the remaining
provisions or portions of this Note shall not in any way be
affected or impaired thereby and this Note shall nevertheless
be binding between the Company and the Holder.
c. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Delaware.
d. Binding Effect. This Note shall be binding upon, and shall
inure to the benefit of, the Company and the Holder and their
respective successors and assigns; provided, however, that the
Company may not assign its obligations hereunder without the
Holder's prior written consent.
e. Enforcement Costs. The Company agrees to pay all costs and
expenses, including, without limitation, reasonable attorneys'
fees and expenses, the Holder expends or incurs in connection
with the enforcement of this Note, the collection of any sums
due hereunder, any actions for declaratory relief in any way
related to this Note, or the protection or preservation of any
rights of the Holder hereunder.
f. Notices. Any notice, request or other communication required
or permitted hereunder shall be in writing and shall be duly
given upon receipt if personally delivered or mailed by
registered or certified mail, postage prepaid, or by
recognized overnight courier or personal delivery, addressed
(i) if to Holder, at the address or facsimile number of such
Holder as set forth below such party's name on Exhibit A to
the Purchase Agreement, or at such other address or number as
such Holder shall have furnished to the Company in writing, or
(ii) if to Company, at 00000 Xxxxxxxx Xxxxxx, Xxxxx 000,
Xxxxxx, Xxxxxxxx 00000, Attention: Chief Financial Officer or
at such other address as Company shall furnish to the
Purchaser in writing.
g. Payment. Payment shall be made in lawful tender of the United
States.
h. Transfer of Note or Securities Issuable on Conversion Hereof.
This Note or the securities issuable on conversion hereof may
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not be transferred in violation of any restrictive legend set
forth hereon or thereon. Each new Note issued upon transfer of
this Note, and each security issuable on conversion hereof,
shall bear the restrictive legend set forth below, unless in
the opinion of counsel for Company such legend is not required
in order to ensure compliance with the Act:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT."
The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions. Subject to the foregoing, transfers of this
Note shall be registered upon registration books maintained for such purpose by
or on behalf of the Company as provided in the Purchase Agreement. Prior to
presentation of this Note for registration of transfer, the Company shall treat
the registered holder hereof as the owner and holder of this Note for the
purpose of receiving all payments of principal and interest hereon and for all
other purposes whatsoever, whether or not this Note shall be overdue and Company
shall not be affected by notice to the contrary.
i. Headings. Section headings used in this Note have been set
forth herein for convenience of reference only. Unless the
contrary is compelled by the context, everything contained in
each section hereof applies equally to this entire Note.
IN WITNESS WHEREOF, the Company has caused this Note to be issued as of
the date first written above.
Guardian Technologies International, Inc.
By:______________________________________
Name: Xxxxxxx X. Xxxxxxx
Title: Chairman and Chief Executive Officer
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