EXHIBIT 4.2
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THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF
(COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("THE ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND
MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION OR RECEIPT BY MAKER OF AN OPINION OF COUNSEL (WHICH COUNSEL SHALL
BE REASONABLY ACCEPTABLE TO MAKER) IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO MAKER THAT THE SECURITIES MAY BE SOLD, TRANSFERRED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH STATE SECURITIES LAWS.
FORM OF
CONVERTIBLE NOTE
$250,000 February 13, 2002
For value received, the undersigned, Tremor Entertainment, Inc.,
a Nevada corporation (the "Maker"), hereby unconditionally promises to pay to
the order of Xxxxx Xxxx (the "Holder"), at such place as the Holder may
designate, the principal sum of Two Hundred Fifty Thousand Dollars ($250,000) on
May 12, 2002 (the "Maturity Date"), together with interest on the outstanding
and unpaid principal amount of this Note, in arrears, accruing at the rate of
ten percent (10%) per annum, commencing on the date hereof and continuing until
the Maturity Date or as otherwise deemed paid upon either the conversion or
prepayment of this Note (computed on the basis of a year of 360 days for the
actual number of days elapsed), in accordance with this Note. All payments
hereunder shall be in lawful money of the United States and in immediately
available funds.
1. PAYMENT OF PRINCIPAL; PREPAYMENT
(a) Unless earlier becoming due and payable in accordance with Section
6 hereof, at the Maturity Date the outstanding principal amount of this Note
plus all accrued and unpaid interest herein shall be due and payable in cash or,
at the option of either the Holder or the Maker, converted into that number of
shares of the common stock, par value $.001 per share, of Tremor Entertainment,
Inc. (the "Common Stock") in accordance with Section 2 hereof.
(b) The Maker may, at its option, prepay all or a portion of the
outstanding principal amount of this Note, at any time and from time to time,
prior to the Maturity Date without premium or penalty. Each prepayment shall be
applied first to the payment of all interest accrued hereunder on the date of
any prepayment, and the balance of any such prepayment shall be applied to the
principal amount hereof.
2. CONVERSION TO COMMON STOCK.
(a) At any time (the "Conversion Date") on or prior to the Maturity
Date, either the Holder or the Maker may, at its option, elect to convert all or
any portion of the outstanding principal amount of this Note at the Conversion
Date into that number of shares of the Common Stock equal to the quotient of (x)
the outstanding principal amount of this Note (or the portion thereof being
converted) divided by (y) the Conversion Price (as defined in Section 2(b)
below) then in effect (the "Conversion Shares").
(b) The Conversion Price (the "Conversion Price"), with respect to any
conversion of Notes, shall be an amount to be mutually determined by the Holder
and the Maker on or prior to March 13, 2002; provided, however, that if the
Holder and the Maker are unable in good faith to agree upon the determination of
the Conversion Price by such date, then such parties shall, within two (2)
business days thereafter, appoint a mutually agreeable nationally recognized
certified public accounting firm or independent, reputable investment bank to
determine the Conversion Price. If the Holder and the Maker are unable to
mutually agree upon the timely selection of such an accounting firm or bank, as
the case may be, then the parties agree to the appointment of a nationally
recognized certified public accounting firm or investment bank by the American
Arbitration Association. The parties agree that such accounting firm or bank
shall have no other authority hereunder other than to determine the Conversion
Price. Such a determination shall be made within five (5) business days of the
appointment of such accounting firm or bank and shall be conclusive, final and
binding upon all parties hereto. The Holder and the Maker shall each pay
one-half of the fees and expenses of the services performed by any such
accounting firm or bank, as the case may be.
3. CONVERSION PROCEDURE.
(a) To convert all or any portion of the outstanding principal amount
of this Note, the party seeking to convert pursuant to Section 2(a) hereof (the
"Initiating Party") shall: (i) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 5:00 p.m. (California time) on the Conversion Date, a
copy of a fully executed notice of conversion in the form attached hereto as
EXHIBIT A (the "Conversion Notice") to the other party and (ii) upon
confirmation of receipt of the Conversion Notice by such other party, as
provided herein, (A) the Initiating Party shall surrender to a common carrier
for overnight delivery to the other party the originally executed Conversion
Notice and (B) the Holder shall surrender to a common carrier for overnight
delivery to the Maker the original Note to be converted.
(b) Upon receipt of a facsimile copy of a Conversion Notice, the Holder
or the Maker, as applicable, shall immediately send, via facsimile, a
confirmation of receipt of such Conversion Notice to such other party.
(c) Upon receipt by the Maker of the original Note to be converted in
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whole or in part pursuant to a Conversion Notice, together with the original
Conversion Notice, duly executed and acknowledged, the Maker or its designated
transfer agent (the "Transfer Agent"), as applicable, shall promptly issue to
the address specified in the Conversion Notice, a certificate, registered in the
name of the Holder or its designee, for that number of shares of Common Stock to
which the Holder shall be entitled (the "Conversion Shares"). If the outstanding
principal amount of this Note submitted for conversion is greater than the
outstanding principal amount of this Note being converted, then the Maker shall,
as soon as practicable, issue and deliver to the Holder a new original Note
representing the aggregate principal amount not converted.
(d) 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 Maker shall pay an amount of cash to the Holder
equal to the product of such fraction multiplied by the closing price of the
Common Stock on the Conversion Date.
(e) Anything to the contrary contained herein notwithstanding, the
Maker shall not be obligated to issue certificate(s) evidencing the Conversion
Shares issuable upon conversion of this Note unless the original Note is either
delivered to the Maker or the Holder notifies the Maker that such Note has been
lost, stolen, or destroyed, and executes an agreement reasonably satisfactory to
the Maker to indemnify the Maker from any loss incurred by it in connection
therewith.
(f) The Holder hereby further acknowledges that the obligation of the
Maker to issue the Conversion Shares upon the conversion of this Note shall be
subject to such Holder's cooperation with the Maker, including, without
limitation, the confirmation of the investment representations and warranties to
the Maker made in Section 5 hereof, as of the Conversion Date.
4. RESERVATION OF COMMON STOCK. At all times during which this Note
remains outstanding, the Maker agrees to reserve and keep available for issuance
to the Holder an authorized number of shares of Common Stock sufficient to
permit the conversion in full of this Note. The Maker represents that the
Conversion Shares, when issued upon conversion of this Note, shall be validly
issued, fully paid and non-assessable and not subject to any lien or
encumbrance.
5. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The Holder hereby
acknowledges that this Note (and the Conversion Shares, if any, issuable upon
the conversion of this Note) is given to the Holder in reliance upon the
Holder's representations and warranties to the Maker, which by its acceptance of
this Note the Holder hereby confirms, as follows:
(a) Own Account. That the Note and the Conversion Shares, if any
(collectively, the "INVESTMENT SECURITIES"), being acquired by the Holder are
being acquired for investment for the Holder's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Holder has no present intention of selling, granting
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any participation in, or otherwise distributing the same. By acknowledging this
Note, the Holder further represents and warrants that the Holder does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Investment Securities.
(b) Disclosure of Information. In making the decision to acquire the
Investment Securities, the Holder relied solely upon its independent
investigation and due diligence regarding the business of the issuer of the
Investment Securities and an investment in the Investment Securities. The Holder
did not rely upon any representations or warranties made by or on behalf of the
issuer of the Investment Securities. The Holder acknowledged that it had an
opportunity to consult with its own attorney regarding legal matters concerning
the issuer of the Investment Securities and an investment in the Investment
Securities and to consult with its tax advisor regarding the tax consequences of
acquiring the Investment Securities;
(c) Accredited Investor. The Holder is aware of what constitutes, and
fully understands the definition of, an "Accredited Investor," as that term is
defined in Regulation D promulgated under the Act and under the laws of each
state of which the Holder is a resident, and is an "Accredited Investor" for
purpose of said Regulation D and the laws of each state in which the Holder is a
resident;
(d) Restricted Securities. The Holder understands that the Investment
Securities have not been, and will not be, registered under the Securities Act
of 1933, as amended (the "Securities Act"), by reason of a specific exemption
from the registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the Holder's representations made herein. The Holder understands that the
Investment Securities are "restricted securities" under applicable U.S. federal
and state securities laws and that, pursuant to these laws, the Holder must hold
the Investment Securities indefinitely unless they are registered with the
Securities and Exchange Commission and qualified by state authorities, or an
exemption from such registration and qualification requirements is available.
The Holder acknowledges that the Maker has no obligation to register or qualify
the Investment Securities for resale. The Holder further acknowledges that if an
exemption from registration or qualification is available, it may be conditioned
on various requirements including, but not limited to, the time and manner of
sale, the holding period for the Investment Securities, and on requirements
relating to the Maker which are outside of the Holder's control, and which the
Maker is under no obligation and may not be able to satisfy.
(e) Legends. The Holder understands that the Investment Securities, and
any securities issued in respect of or exchange for the Investment Securities,
may bear one or all of the following legends:
THE SECURITIES EVIDENCED BY THIS INSTRUMENT OR CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE
SECURITIES LAWS, AND NO INTEREST MAY
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BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID
SECURITIES, (B) THE ISSUER RECEIVES AN OPINION OF LEGAL
COUNSEL SATISFACTORY TO THE ISSUER STATING THAT SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION, OR (C) THE ISSUER
OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION.
6. EVENTS OF DEFAULT; EFFECT
(a) The occurrence at any time of any one or more of the following
events shall constitute an "Event of Default" under this Note: (i) the Maker's
failure to pay principal of, interest on or other amount when due under this
Note, which failure remains unremedied for a period of ten (10) days thereafter,
(ii) failure of the Maker to perform or default in the observance by the Maker
of any of the Maker's agreements, covenants and/or obligations set forth herein;
(iii) the dissolution, liquidation or termination of legal existence of the
Maker; (iv) the appointment of a receiver, trustee or similar official or agent
to take charge of or liquidate any property of assets of the Maker, or action by
any court to take jurisdiction of all or a substantial portion of the property
or assets of the Maker; (v) the sale of all or substantially all of the Maker's
property or assets; or (vi) the commencement of any proceeding by the Maker or
any other party under any provision of the Bankruptcy Code of the United States,
as now in existence or hereafter amended, or of any other proceeding under any
applicable federal or state law, now existing or hereafter in effect, relating
to bankruptcy, reorganization, insolvency, liquidation or otherwise, for the
relief of debtors or readjustment of indebtedness, by or against Maker;
PROVIDED, that with respect to any proceeding commenced against the Maker such
proceeding remains undismissed or unstayed for a period of 90 days, or any of
the actions sought in such proceedings occur.
(b) Upon the occurrence of an Event of Default, the outstanding
principal amount of this Note, together with accrued interest hereon, shall,
upon written notice from the Holder to the Maker, become immediately due and
payable without presentment, demand, protest or notice, all of which are hereby
expressly unconditionally and irrevocably waived by the Maker. Notwithstanding
the foregoing, the Holder may, at its option, elect to convert the principal
balance outstanding, together with accrued interest, at the time of the Event of
Default into that number of Conversion Shares as provided in Section 2 hereof.
7. TRANSFER. Subject to the limitations set forth on the legend on this
Note, this Note may be transferred, sold, pledged, hypothecated or otherwise
granted as security by the Holder. The obligations of the Maker hereunder may
not be assigned. This Note shall inure to the benefit of the transferees,
successors and assigns of the Holder of this Note and shall be binding upon the
successors of the Maker.
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8. NO RIGHTS AS STOCKHOLDER. Unless and until the issuance of any shares
of Common Stock upon conversion of this Note or the exercise of any warrant(s)
granted pursuant thereto, the Holder of this Note shall not have or exercise any
rights by virtue hereof as a stockholder of the Maker.
9. REPLACEMENT. Upon receipt by the Maker of a duly executed, notarized
and unsecured written statement from the Holder with respect to the loss, theft
or destruction of this Note (or any replacement hereof), and without requiring
an indemnity bond or other security, or, in the case of a mutilation of this
Note, upon surrender and cancellation of such Note, the Maker shall issue a new
Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or
mutilated Note.
10. WAIVERS, ETC. Failure by the Holder to insist upon the strict
performance by the Maker of any terms and provisions herein shall not be deemed
to be a waiver of any terms and provisions herein, and the Holder shall retain
the right thereafter to insist upon strict performance by the Maker of any and
all terms and provisions of this Note or any document securing the repayment of
this Note. The Maker waives diligence, demand, presentment for payment, notice
of nonpayment, protest and notice of protest, and notice of any renewals or
extensions of this Note. This Note may not be amended, modified or waived except
by an instrument in writing signed by the Maker and the Holder.
11. MISCELLANEOUS.
(a) Notice. Any notice or other communication between parties hereto
shall be deemed given (i) if personally delivered, on the business day of such
delivery (as evidenced by the receipt of the personal delivery service), (ii) if
mailed certified or registered mail return receipt requested, four (4) business
days after being mailed, (iii) if delivered by overnight courier (with all
charges having been prepaid), on the business day of such delivery (as evidenced
by the receipt of the overnight courier service of recognized standing), or (iv)
if delivered by facsimile transmission, on the business day of such delivery if
sent by 5:00 p.m. in the time zone of the recipient, or if sent after that time,
on the next succeeding business day (as evidenced by the printed confirmation of
delivery generated by the sending party's telecopier machine). All such notices
or other communications shall be sent, if to the Holder, at
__________________________________ ________________________, or if to the Maker,
at Tremor Entertainment, Inc., 0000 Xxxx Xxxxxx Xxxxxx, Xxxxxxx XX 00000,
Attention: Xxxxx Xxxxxxxx, President, or to such address as may hereafter be
designated in writing by one party to the other. Any notice or other
communication hereunder shall be deemed given four (4) days after deposit in the
mail if mailed by certified mail, return receipt requested, or on the day after
deposit with an overnight courier service for next day delivery, or on the date
personally delivered.
(b) Entire Agreement. This Note embodies the entire agreement and
understanding between the Maker and the Holder and supersedes any and all
negotiations, prior discussions and preliminary and prior arrangements and
understandings related to the subject matter
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hereof. No provision of this
Agreement may be amended, modified or waived, except in writing signed by all of
the parties hereto.
(c) Governing Law. This Note shall be construed and enforced in
accordance with the laws of the State of California, without regard to its
conflicts of laws principles. Each of the Maker and the Holder hereby knowingly,
voluntarily and irrevocably waives any right it may have to a trial by jury in
respect of any claim based upon, arising out of or in connection with this Note
or the transactions contemplated hereby.
(d) Severability. This Note shall not be interpreted or construed with
any presumption against the party causing this agreement to be drafted. If any
of the terms or provisions of this Note is held by a court of competent
jurisdiction to be invalid, illegal or unenforceable, such invalidity,
illegality or unenforceability shall not affect or render invalid, illegal or
unenforceable any other term or provision of this Note and to the extent
permitted, such invalid, illegal or unenforceable term or provision shall be
amended and reframed in a manner that will be enforceable.
(e) Headings. Section headings in this Note are included herein for
purposes of convenience of reference only and shall not constitute a part of
this Note for any other purpose or taken into account in connection with the
construction or interpretation of this Note.
(f) Counterparts. This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same original
documents.
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed
by its officer thereunto duly authorized, as of the day and year first above
written.
Tremor Entertainment, Inc.
By:
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Xxxxx Xxxxxxxx, President
This Note, together with the investment
representations of the Holder contained
herein, are hereby acknowledged and
agreed to as of February 13, 2002 by:
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Xxxxx Xxxx, as Holder
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EXHIBIT A to CONVERTIBLE NOTE
CONVERSION NOTICE
Reference is made to that certain convertible note, in the outstanding principal
balance of $254,166.67 (the "Note"), between Tremor Entertainment, Inc. (as
Maker) and Xxxxx Xxxx, as Holder. In accordance with and pursuant to Section 2
of the Note, the undersigned Holder hereby elects to convert the principal
amount of the Note, as indicated below, into shares of Common Stock, par value
$.001 per share (the "Common Stock"), of the Maker, by tendering the original
Note specified below as of the date specified below.
Date of Conversion: April 12, 2002
Principal and Interest Amount of Note to be converted: $254,166.67
Date of Note: February 12, 2002
Please confirm the following information:
Conversion Price: $ 0.25
Number of shares of Common Stock to be issued: 1,016,666 shares
Please issue the Common Stock into which the Note is being converted and, if
applicable, any check drawn on an account of the Company in the following name
and to the following address:
Issue to:
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Address:
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Facsimile Number:
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Authorization
(signature)
Name:
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Dated:
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