Exhibit 10.8
10% CONVERTIBLE NOTE
$100,000
Date of Issue: April 10, 2001
Digital Descriptor Systems, Inc. (a Delaware corporation) (hereinafter referred
to as the "Company" or "Borrower") is indebted and, for value received, herewith
promises to pay to:
Xxxx Xxxxxxxxxx
or to his order, (together with any assignee, jointly or severally, the "Holder"
or "Lender") on the date which is six (6) months following the date of issue
(the "Original Due Date"), unless later extended by the Lender, in his sole
discretion, by Xxxxxx delivering written notice to Borrower within five (5)
business days prior to the Original Due Date of his desire to extend such
maturity, which notice shall contain the new maturity date which shall not be
more than 180 days following the Original Due Date (the "Due Date"), the sum of
One Hundred Thousand ($100,000), or, if less, so much thereof as may be
outstanding from time to time (the "Principal Amount") and to pay interest on
the Principal Amount at the rate of Ten percent (10%) per annum as provided
herein. In furtherance thereof, and in consideration of the premises, covenants,
promises, representations and warranties hereinafter set forth the Borrower
hereby agrees as follows:
1. Interest. Interest on the Principal Amount outstanding from time to time
shall accrue at the rate of 10% per annum, shall be based on a year of 360
days and shall be payable on the Original Due Date, or if Lender extends
such date, the Due Date. Overdue principal and interest on the Note shall,
to the extent permitted by applicable law, bear interest at the rate of 10%
per annum. All payments of both principal and interest, shall be made at
the address of the Holder hereof as it appears in the books and records of
the Borrower, or at such other place as may be designated by the Holder
hereof. Payments of both principal and interest are to be made in lawful
money of the United States.
2. Maturity. If not converted by the Holder as hereinafter set forth, this
Note shall mature on the Original Due Date or if Lender extends such Date,
the Due Date at which time all then remaining unpaid principal, interest
and any other charges then due hereunder shall be due and payable in full.
3. Prepayment. The principal amount hereof, together with interest thereon,
may be prepaid, in whole or in part, prior to the scheduled maturity of
this Note without premium or penalty. The Holder's conversion rights under
paragraph 4 shall be extinguished if and to the extent that the Note is
paid before the Holder gives its "Conversion Notice," as the term is
defined in paragraph 4.
4. Conversion Right. The Holder of this Note shall have the right at Holder's
sole option, at any time after the date which is thirty (30) days prior to
the Original Due Date, or at any time during any extension of maturity
provided by Lender in accordance with the first paragraph of this Note, to
convert all or, in multiples of $5,000, any part of this Note into such
number of fully paid and nonassessable shares of common stock, $.001 par
value, of the Company (the "Common Stock") as shall be provided herein. The
Holder may exercise the conversion right by giving written notice (the
"Conversion Notice") to Borrower of the exercise of such right and stating
the name or names in which the stock certificate or stock certificates for
the shares of Common Stock are to be issued and the address to which such
certificates shall be delivered. The Conversion Notice shall be accompanied
by a duly executed assignment of the portion of the Note that Holder
desires to convert. The number of shares of Common Stock that shall be
issuable upon conversion of the Note or any portion thereof shall equal the
face amount of the Note or portion thereof divided by the Conversion Price
as defined below and in effect on the date the Conversion Notice is given.
Conversion shall be deemed to have been effected on the date the Conversion
Notice is given (the "Conversion Date"). Within ten (10) business days
after receipt of the Conversion Notice, Borrower shall issue and deliver by
hand against a signed receipt therefor or by United States registered mail
return receipt requested, to the address designated in the Conversion
Notice, a stock certificate or stock certificates of Borrower representing
the number of shares of Common Stock to which Holder is entitled and (if
applicable) a check or cash in payment of all interest accrued and unpaid
on the Note up to and including the Conversion Date unless Holder elects to
apply such interest to the Conversion Price in accordance with Section 4(c)
below. The conversion rights will be governed by the following provisions:
(a) Conversion Price: On the issue date hereof and until such time as an
adjustment shall occur, the Conversion Price per share shall be an
amount equal to 50% of the mean average price of the common stock of
the Borrower for the ten (10) trading days prior to notice of
conversion per share; provided, however, that the Conversion Price
shall be subject to adjustment at the times, and in accordance with the
provisions, as follows:
i) Adjustment of Issuance of Shares at less than the Conversion
Price: If and whenever any shares of Additional Common Stock (as
defined below) shall be issued by the Company (the "Stock Issue
Date") for a consideration per share less than the Conversion
Price, then in each such case the Conversion Price shall be
reduced to a new Conversion Price in amount equal to the
consideration per share received by the Company for the shares of
Additional Common Stock then issued; and, in the case of shares
issued without consideration, the initial Conversion Price shall
be reduced in amount and the number of shares issued upon
conversion shall be increased in an amount so as to maintain for
the Holder the right to convert the Note into shares equal in
amount to the same percentage interest in the Common Stock of the
Company as existed for the Holder immediately preceding the Stock
Issue Date.
ii) Sale of Shares: In the event of the issuance of shares of
Additional Common Stock for a consideration part or all of which
shall be cash, the amount of the cash consideration therefor shall
be deemed to be the amount of the cash received by the Company for
such shares, after any compensation or discount in the sale,
underwriting or purchase thereof by underwriters or dealers or
others performing similar services or for any expenses incurred in
connection therewith.
iii) Reclassification of Shares: In case of the reclassification of
securities into shares of Common Stock, the shares of Common Stock
issued in such reclassification shall be deemed to have been
issued for a consideration other than cash. Shares of Additional
Common Stock issued by way of dividend or other distribution on
any class of stock of the Company shall be deemed to have been
issued without consideration.
iv) Split-up or Combination of Shares: In the event issued and
outstanding shares of Common Stock shall be subdivided or split up
into a greater number of shares of the Common Stock, the
Conversion Price shall be proportionately decreased, and in the
event issued and outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the
Conversion Price shall be proportionately increased, such increase
or decrease, as the case may be, becoming effective at the time of
record of the split-up or combination, as the case may be.
v) Additional Common Stock: The term "Additional Common Stock" herein
shall mean all shares of Common Stock hereafter issued by the
Company (including Common Stock held in the treasury of the
Company), except Common Stock issued upon the conversion of any
portion of the Note.
(b) Adjustment for Mergers, Consolidations, Etc.:
i) In the event of distribution to all Common Stock holders of any
stock, indebtedness of the Company or assets (excluding cash
dividends or distributions from retained earnings) or other rights
to purchase securities or assets, then, after such event, the Note
will be convertible into the kind and amount of securities, cash
and other property which the Holder of the Note would have been
entitled to receive if the Holder owned the Common Stock issuable
upon conversion of the Note immediately prior to the occurrence of
such event.
ii) In the event of any capital reorganization, reclassification of
the stock of the Company (other than a change in par value or as a
result of a stock dividend, subdivision, split up or combination
of shares), or consolidation or merger of the Company with or into
another person or entity (other than a consolidation or merger in
which the Company is the continuing corporation and which does not
result in any change in the Common Stock) or of the sale,
exchange, lease, transfer or other disposition of all or
substantially all of the properties and assets of the Company as
an entirety or the participation by the Company in an exchange of
shares as the corporation the stock of which is to be acquired,
this Note shall be convertible into the kind and number of shares
of stock or other securities or property of the Company (or of the
corporation resulting from such consolidation or surviving such
merger or to which such properties and assets shall have been
sold, exchanged, leased, transferred or otherwise disposed, or
which was the corporation whose securities were exchanged for
those of the Company), to which the Holder of the Note would have
been entitled to receive if the Holder owned the Common Stock
issuable upon conversion of the Note immediately prior to the
occurrence of such event. The provisions of the foregoing
sentences of this Section 4(b)(ii) shall similarly apply to
successive reorganizations, reclassifications, consolidations,
mergers, sales, exchanges, leases, transfers or other dispositions
or other share exchanges.
iii) Notice of Adjustment: (A) In the event the Company shall propose
to take any action which shall result in an adjustment in the
Conversion Price, the Company shall give notice to the Holder,
which notice shall specify the record date, if any, with respect
to such action and the date on which such action is to take place.
Such notice shall be given on or before the earlier of thirty (30)
days before the record date or the date which such action shall be
taken. Such notice shall also set forth all facts material to the
effect of such action on the Conversion Price and the number, kind
or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or
deliverable upon conversion of this Note. (B) Following completion
of an event wherein the Conversion Price shall be adjusted, the
Company shall furnish to the Holder a statement, signed by the
Chief Executive Officer of the Company, of the facts creating such
adjustment and specifying the resultant adjusted Conversion Price
then in effect.
(c) The Holder may, at his sole option, apply any accrued interest and/or
principal outstanding on the Conversion Date towards the Conversion
Price.
5. Reservation of Shares. Borrower warrants and agrees that it shall at all
times reserve and keep available, free from preemptive rights, sufficient
authorized and unissued, or of treasury, shares of Common Stock to effect
conversion of this Note upon the terms and conditions contained herein.
6. Registration Rights. The Borrower has filed a Registration Statement on
Form SB-2 under the United States Security Act of 1933 and has included
this Convertible Note and the underlying common stock thereunder from
transfer by the Holder except if and unless the shares are duly registered
for sale pursuant to the Securities Act of 1993, as amended, or the
transfer is duly exempt from registration.
7. Taxes. The Borrower shall pay any documentary or other transactional taxes
attributable to the issuance or delivery of this Note or the shares of
Common Stock issued upon conversion by the Holder (excluding any federal,
state or local income taxes and any franchise taxes or taxes imposed upon
the Holder by the jurisdiction, or any political subdivision thereof, under
which such Holder is organized or is qualified to do business).
8. Default.
(a) Event of Default: An "Event of Default" shall exist if any one or more
of the following events (herein collectively called "Events of
Default") shall occur and be continuing:
i) Borrower shall fail to pay (or shall state in writing an intention
not to pay or its inability to pay), when due or no later than 10
days thereof, any installment of interest on or principal of, the
Note or any fee, expense or other payment required hereunder;
ii) Any representation or warranty made under this Note shall prove to
be untrue or inaccurate in any material respect as of the date on
which such representation or warranty is made;
iii) Default in the performance of any of the covenants or agreements
of Borrower contained under the Note, which default is not
remedied within thirty (30) days after written notice thereof to
Borrower from Lender, provided that such thirty (30) day grace
period shall not apply to default of any payment requirement or
notice covenant made by Borrower;
iv) Borrower and/or its subsidiaries and/or affiliates, if any, shall
(A) apply for or consent to the appointment of a receiver,
trustee, custodian, intervenor or liquidator of itself, or of all
or substantially all, of its assets, (B) file a voluntary petition
in bankruptcy, admit in writing that it is unable to pay its debts
as they become due or generally not pay its debts as they become
due, (C) make a general assignment for the benefit of creditors,
(D) file a petition or answer seeking reorganization of an
arrangement with creditors or to take advantage of any bankruptcy
or insolvency laws, (E) file an answer admitting the material
allegations of, or consent to, or default in answering, a petition
filed against it in any bankruptcy, reorganization or insolvency
proceeding, or (F) take corporate action for the purpose of
effecting any of the foregoing;
v) An involuntary petition or complaint shall be filed against
Borrower or any of its subsidiaries, if any, seeking its
bankruptcy or reorganization or the appointment of a receiver,
custodian, trustee, intervenor or liquidator, or all or
substantially all of Borrower's assets, and such petition or
complaint shall not have been dismissed within sixty (60) days of
the filing thereof or an order, order for relief judgement or
decree shall be entered by any court of competent jurisdiction or
other competent authority approving a petition or complaint
seeking reorganization of Borrower or its subsidiary, if any, or
appointing a receiver, custodian, trustee, intervenor or
liquidator of such person, or of all or substantially all of such
person' assets; or
vi) The failure of Borrower to issue and deliver shares of Common
Stock as provided herein upon conversion of the Note.
(b) Remedies upon Event of Default: If an Event of Default shall have
occurred and be continuing, then Lender may exercise any one or more of
the following rights and remedies:
i) declare the unpaid Principal Amount of, and all interest then
accrued but unpaid on, the Note and any other liabilities
hereunder to be forthwith due and payable, whereupon the same
shall forthwith become due and payable without presentment,
demand, protest, notice of default, notice of acceleration or of
intention to accelerate or other notice of any kind, all of which
Borrower hereby expressly waives, anything contained herein or in
the Note to the contrary notwithstanding in which event the Lender
may, in its sole discretion, immediately exercise its conversion
rights provided for in Section 4 hereof,
ii) reduce any claim to judgment, and/or;
(c) Remedies Nonexclusive: Each right, power or remedy of the Holder upon
the occurrence of any Event of Default as provided for in this Note or
now or hereafter existing at law or in equity or by statute shall be
cumulative and concurrent and shall be in addition to every other
right, power or remedy provided for in this Note or now or hereafter
existing at law or in equity or by statute, and the exercise or
beginning of the exercise by the Holder of any one or more of such
rights, powers or remedies shall not preclude the simultaneous or later
exercise by the Holder of any or all such other rights, powers or
remedies.
(d) Expenses: Upon the occurrence of a Default or an Event of Default,
which occurrence is not cured within the applicable grace period, if
any provided therefor, Xxxxxxxx agrees to pay and shall pay all costs
and expenses (including Xxxxxx's attorney's fees and expenses)
reasonably incurred by Lender in connection with the preservation and
enforcement of Xxxxxx's rights under the Note.
9. Failure to Act and Waiver. No failure or delay by the Holder to require the
performance of any term or terms of this Note or nor to exercise any right,
or any remedy shall constitute a waiver of any such term or of any right or
of any default, nor shall such delay or failure preclude the Holder from
exercising any such right, power or remedy at any later time or times. By
accepting payment after the due date of any amount payable under this Note,
the Holder shall not be deemed to waive the right either to require payment
when due of all other amounts payable, or to later declare a default for
failure to effect such payment of any such other amount. The failure of the
Holder of this Note to give notice of any failure or breach of the Borrower
under the Note shall not constitute a waiver of any right or remedy in
respect of such continuing failure or breach or any subsequent failure or
breach.
10. Consent to Jurisdiction. The Borrower hereby agrees and consents that any
action, suit or proceeding arising out of this Note may be brought in any
appropriate court in the State of Illinois including the United States
District Court for the Northern District of Illinois, or in any other court
having jurisdiction over the subject matter, all at the sole election of
the Holder hereof, and by the issuance and execution of this Note the
Borrower irrevocably consents to the jurisdiction of each such court.
Borrower irrevocably consents to the service of any complaint, summons,
notice or other process relating to any action or proceeding by delivery
thereof to it by hand or by any other manner provided for in Section 11
hereof.
11. Notices. All notices and communications under this Note shall be in writing
and shall be either delivered in person and accompanied by a signed receipt
therefor, or mailed first-class United States certified mail return receipt
requested, postage prepaid, and addressed as follows; (i) if to the
Borrower at 000 Xxxxxxx Xxxxxxx, Xxxxxxxx Xxxxx, Xxxxxxxxxxxx 00000; and,
(ii) if to the Holder of this Note, to the address (a) of such Holder as it
appears on the books of the Borrower if, or (b) in the case of a partial
assignment to one or more Holder(s), to the Lender's agent for notice, if
applicable. Any notice of communication shall be deemed given and received
as of the date of such delivery of delivered; or if mailed, then three days
after the date of mailing.
12. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF COMMONWEALTH OF PENNSYLVANIA.
* * *
IN WITNESS WHEREOF, the undersigned Borrower have caused this Note to
be duly executed under its corporate seal on the date of issue above stated.
BORROWER
Address for Notice Digital Descriptor Systems, Inc.
By:_________________________________
Title: President
Attest by:__________________________
Title: Secretary
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
common stock, $0.001 par value per share (the "Common Stock"), of Digital
Descriptor Systems, Inc. (the "Company") according to the conditions hereof, as
of the date written below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates and opinions
as reasonably requested by the Company in accordance therewith. No fee will be
charged to the bolder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Payment of Interest in Kind Yes
No
If yes, $_______ of Interest Accrued on
Account of Conversion at Issue
Number of shares of Common Stock to be issued
Applicable Conversion Price
Signature
Name
Address
