SUB-URBAN BRANDS, INC. Subordinated Promissory Note Due Date: as set forth herein
Dated:
November
_____, 2006
NEITHER
THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
| No. VC-__ |
$500,000
|
Due
Date: as set forth herein
This
Subordinated Promissory Note (the “Note”)
is
issued by Sub-Urban Brands, Inc., a
Nevada
corporation (the “Obligor”),
to
______________, (the “Holder.
FOR
VALUE RECEIVED,
the
Obligor hereby promises to pay to the Holder or its successors and assigns
the
principal sum of Five Hundred Thousand Dollars ($500,000) together with accrued
but unpaid interest on August
____, 2007 (the
“Maturity
Date”),
in
accordance with the following terms:
Interest.
Interest shall accrue on the outstanding principal balance hereof at an annual
rate equal to eight percent (8%). Interest shall be calculated on the basis
of a
360-day year and the actual number of days elapsed, to the extent permitted
by
applicable law. Interest hereunder will be paid on the Maturity Date to the
Holder or its assignee (as defined in Section
5)
in
whose name this Note is registered on the records of the Obligor regarding
registration and transfers of Notes (the “Note
Register”).
This
Note
is subject to the following additional provisions:
Section
1. This
Note
is exchangeable for an equal aggregate principal amount of Notes of different
authorized denominations, as requested by the Holder surrendering the same.
No
service charge will be made for such registration of transfer or
exchange.
Section
2. Events
of Default.
(a) An
“Event
of Default”,
wherever used herein, means any one of the following events (whatever the reason
and whether it shall be voluntary or involuntary or effected by operation of
law
or pursuant to any judgment, decree or order of any court, or any order, rule
or
regulation of any administrative or governmental body):
(i) Any
default in the payment of the principal of, interest on or other charges in
respect of this Note, free of any claim of subordination, as and when the same
shall become due and payable (whether on a Conversion Date or the Maturity
Date
or by acceleration or otherwise);
(ii) The
Obligor shall fail to observe or perform any other covenant, agreement or
warranty contained in, or otherwise commit any breach or default of any
provision of this Note (except as may be covered by Section
2(a)(i)
hereof)
or any Transaction Document (as defined in Section
5)
which
is not cured with in the time prescribed, including without limitation Obligor’s
obligation to timely deliver shares of Common Stock upon conversion of this
Note
and exercise of the Warrant;
(iii) The
Obligor or any subsidiary of the Obligor shall commence, or there shall be
commenced against the Obligor or any subsidiary of the Obligor under any
applicable bankruptcy or insolvency laws as now or hereafter in effect or any
successor thereto, or the Obligor or any subsidiary of the Obligor commences
any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of
any
jurisdiction whether now or hereafter in effect relating to the Obligor or
any
subsidiary of the Obligor or there is commenced against the Obligor or any
subsidiary of the Obligor any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 61 days; or the Obligor or any
subsidiary of the Obligor is adjudicated insolvent or bankrupt; or any order
of
relief or other order approving any such case or proceeding is entered; or
the
Obligor or any subsidiary of the Obligor suffers any appointment of any
custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for
a
period of sixty one (61) days; or the Obligor or any subsidiary of the Obligor
makes a general assignment for the benefit of creditors; or the Obligor or
any
subsidiary of the Obligor shall fail to pay, or shall state that it is unable
to
pay, or shall be unable to pay, its debts generally as they become due; or
the
Obligor or any subsidiary of the Obligor shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Obligor or any subsidiary of the Obligor shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence
in
any of the foregoing; or any corporate or other action is taken by the Obligor
or any subsidiary of the Obligor for the purpose of effecting any of the
foregoing;
(iv) The
Obligor or any subsidiary of the Obligor shall default in any of its obligations
under any other Note or any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under which there
may be issued, or by which there may be secured or evidenced any indebtedness
for borrowed money or money due under any long term leasing or factoring
arrangement of the Obligor or any subsidiary of the Obligor in an amount
exceeding $200,000, whether such indebtedness now exists or shall hereafter
be
created and such default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;
(v) The
Obligor or any subsidiary of the Obligor shall be a party to any Change of
Control Transaction (as defined in Section
5);
(b) During
the time that any portion of this Note is outstanding, if any Event of Default
has occurred and shall continue for a period of ten (10) days after a notice
of
such default has been delivered by the Holder to the Obligor (the “Notice
Period”),
the
full principal amount of this Note, together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become at the
Holder's election, immediately due and payable in cash, provided
however,
the
Holder may request (but shall have no obligation to request) payment of such
amounts in Common Stock of the Obligor. The Holder need not provide and the
Obligor hereby waives any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any grace period
(other than the Notice Period) enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Xxxxxx at any time prior to payment
hereunder. No such rescission or annulment shall affect any subsequent Event
of
Default or impair any right consequent thereon
Section
3. Notices.
Any
notices, consents, waivers or other communications required or permitted to
be
given under the terms hereof must be in writing and will be deemed to have
been
delivered: (i) upon receipt, when delivered personally; (ii) upon receipt,
when
sent by facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
(1) trading day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same.
The
addresses and facsimile numbers for such communications shall be:
|
If
to the Company, to:
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0000
Xxxxxxxx Xxx, Xxxx X
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Los
Angeles, CA 90045
|
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Attention:
Xxx Xxxxxxx, CEO
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Telephone: 000.000.0000
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Facsimile:
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If
to the Holder:
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or
at
such other address and/or facsimile number and/or to the attention of such
other
person as the recipient party has specified by written notice given to each
other party three (3) business days prior to the effectiveness of such change.
Written confirmation of receipt (i) given by the recipient of such notice,
consent, waiver or other communication, (ii) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (iii)
provided by a nationally recognized overnight delivery service, shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from
a
nationally recognized overnight delivery service in accordance with clause
(i),
(ii) or (iii) above, respectively.
Section
4. Definitions.
For the
purposes hereof, the following terms shall have the following
meanings:
“Business
Day”
means
any day except Saturday, Sunday and any day which shall be a federal legal
holiday in the United States or a day on which banking institutions are
authorized or required by law or other government action to close.
“Change
of Control Transaction”
means
the occurrence of (a) an acquisition after the date hereof by an individual
or
legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Obligor, by contract or otherwise) of in
excess of fifty percent (50%) of the voting securities of the Obligor (except
that the acquisition of voting securities by the Holder shall not constitute
a
Change of Control Transaction for purposes hereof), (b) a replacement at one
time or over time of more than one-half of the members of the board of directors
of the Obligor which is not approved by a majority of those individuals who
are
members of the board of directors on the date hereof (or by those individuals
who are serving as members of the board of directors on any date whose
nomination to the board of directors was approved by a majority of the members
of the board of directors who are members on the date hereof), (c) the merger,
consolidation or sale of fifty percent (50%) or more of the assets of the
Obligor or any subsidiary of the Obligor in one or a series of related
transactions with or into another entity, or (d) the execution by the Obligor
of
an agreement to which the Obligor is a party or by which it is bound, providing
for any of the events set forth above in (a), (b) or (c).
“Common
Stock”
means
the common stock, par value $0.001, of the Obligor and stock of any other class
into which such shares may hereafter be changed or reclassified.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
“Original
Issue Date”
shall
mean the date of the first issuance of this Note regardless of the number of
transfers and regardless of the number of instruments, which may be issued
to
evidence such Note.
“Person”
means
a
corporation, an association, a partnership, organization, a business, an
individual, a government or political subdivision thereof or a governmental
agency.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Trading
Day”
means
a
day on which the shares of Common Stock are quoted on the OTC or quoted or
traded on such Subsequent Market on which the shares of Common Stock are then
quoted or listed; provided, that in the event that the shares of Common Stock
are not listed or quoted, then Trading Day shall mean a Business
Day.
“Transaction
Documents”
means
the any other agreement delivered in connection with this note, including,
without limitation, the Warrant Agreement of even date herewith.
Section
5. Except
as
expressly provided herein, no provision of this Note shall alter or impair
the
obligations of the Obligor, which are absolute and unconditional, to pay the
principal of, interest and other charges (if any) on, this Note at the time,
place, and rate, and in the coin or currency, herein prescribed. This Note
is a
direct obligation of the Obligor. This Note ranks pari passu with all other
Notes (other than notes and other instruments issued in connection with the
ABF
Loan) now or hereafter issued under the terms set forth herein. As long as
this
Note is outstanding, the Obligor shall not and shall cause their subsidiaries
not to, without the consent of the Holder (which shall not be unreasonably
withheld), (i) amend its certificate of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Holder; (ii) repay,
repurchase or offer to repay, repurchase or otherwise acquire shares of its
Common Stock or other equity securities other than as to the Underlying Shares
to the extent permitted or required under the Transaction Documents; or (iii)
enter into any agreement with respect to any of the foregoing.
Section
6. This
Note
shall not entitle the Holder to any of the rights of a stockholder of the
Obligor, including without limitation, the right to vote, to receive dividends
and other distributions, or to receive any notice of, or to attend, meetings
of
stockholders or any other proceedings of the Obligor, unless and to the extent
converted into shares of Common Stock in accordance with the terms
hereof.
Section
7. If
this
Note is mutilated, lost, stolen or destroyed, the Obligor shall execute and
deliver, in exchange and substitution for and upon cancellation of the mutilated
Note, or in lieu of or in substitution for a lost, stolen or destroyed Note,
a
new Note for the principal amount of this Note so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Note, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Obligor.
Section
8. Except
for the ABF Loan and the Vision Opportunity Master Fund Ltd. Loan (in the
principal amount of $750,000), no indebtedness of the Obligor is senior to
this
Note in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. Without the Holder’s consent, the
Obligor will not and will not permit any of their subsidiaries to, directly
or
indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness of any kind, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
there from that is senior in any respect to the obligations of the Obligor
under
this Note.
Section
9. This
Note
shall be governed by and construed in accordance with the laws of the State
of
New York, without giving effect to conflicts of laws thereof. Each of the
parties consents to the jurisdiction of the Courts of the State of New York
sitting in New York County, New York and the U.S. District Court for the
Southern District of New York in connection with any dispute arising under
this
Note and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens
to the
bringing of any such proceeding in such jurisdictions.
Section
10. If
the
Obligor fails to comply with the terms of this Note, then the Obligor shall
reimburse the Holder promptly for all fees, costs and expenses, including,
without limitation, attorneys’ fees and expenses incurred by the Holder in any
action in connection with this Note, including, without limitation, those
incurred: (i) during any workout, attempted workout, and/or in connection with
the rendering of legal advice as to the Holder’s rights, remedies and
obligations, (ii) collecting any sums which become due to the Holder, (iii)
defending or prosecuting any proceeding or any counterclaim to any proceeding
or
appeal; or (iv) the protection, preservation or enforcement of any rights or
remedies of the Holder.
Section
11. Any
waiver by the Holder of a breach of any provision of this Note shall not operate
as or be construed to be a waiver of any other breach of such provision or
of
any breach of any other provision of this Note. The failure of the Holder to
insist upon strict adherence to any term of this Note on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this Note.
Any
waiver must be in writing.
Section
12. If
any
provision of this Note is invalid, illegal or unenforceable, the balance of
this
Note shall remain in effect, and if any provision is inapplicable to any person
or circumstance, it shall nevertheless remain applicable to all other persons
and circumstances. If it shall be found that any interest or other amount deemed
interest due hereunder shall violate applicable laws governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum permitted rate of interest. The Obligor covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law or other law which would prohibit or forgive
the Obligor from paying all or any portion of the principal of or interest
on
this Note as contemplated herein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of this
indenture, and the Obligor (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that
it will not, by resort to any such law, hinder, delay or impeded the execution
of any power herein granted to the Holder, but will suffer and permit the
execution of every such as though no such law has been enacted.
Section
13. THE
PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY
OF
THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON
OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL
OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR
THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.
IN
WITNESS WHEREOF,
the
Obligor has caused this Subordinated Promissory Note to be duly executed by
a
duly authorized officer as of the date set forth above.
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Title:
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