CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT
Exhibit 10.4
CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT
THIS CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT (this "AGREEMENT") dated as of _______________, is entered into between 3Pea Technologies, Inc., a Nevada corporation (the "COMPANY" or "3PEA"), and _____________ ("Investor").
WHEREAS, 3PEA is seeking $2,500,000 in loans in the form of convertible promissory notes; and
Accordingly, the parties hereto agree as follows:
ARTICLE I
As used in this Agreement, the following terms shall have the following meanings:
"TRANSACTION DOCUMENTS" means this Agreement, the Note, the Accredited Investor Certificate attached hereto as EXHIBIT B and all other certificates, documents, agreements and instruments delivered to Investor under or in connection with this Agreement.
ARTICLE II
1
ARTICLE III
SECTION 3.02 REPAYMENT OF THE NOTES. The principal amount and
accrued interest outstanding under each Note hereunder shall be due and payable on or before the second anniversary of the date of issuance of such Note (the "MATURITY DATE"), unless earlier prepaid under Section 3.03, converted under Section 3.05 (in which event interest will be forgiven).
SECTION 3.05 CONVERSIONS OF NOTES.
(a) RIGHT TO CONVERT. Investor may convert note between March 30, 2006 and March 30, 2007 subject to and upon compliance with the provisions of this Agreement. Investor shall have the right, at its option, to convert the outstanding principal amount under the Note, into the number of fully paid and non-assessable shares of 3PEA Common Stock. This number is obtained by dividing the principal amount under such Note surrendered for conversion by the Conversion Price (as defined below).
(b) EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON STOCK ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS. In order to exercise the right to conversion with respect to a Note, Investor shall surrender the Note and shall give written notice of conversion to 3PEA that Investor elects to convert the Note in said notice. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of 3PEA Common Stock which shall be issued.
2
As promptly as practicable, but in no event more than 15 Business Days after satisfaction of the requirements for conversion set forth above, 3PEA shall issue and shall deliver to Investor, a certificate or certificates for the number of full shares issuable upon conversion. A check or cash will be issued for any fractional shares.
(d) EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any of the following events occur, namely (i) any consolidation, merger or combination of 3PEA with another corporation as a result of which holders of 3PEA Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock (a "Merger"), or (ii) any sale or conveyance of the properties and assets of 3PEA as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock (an "Asset Sale"). In this event, 3PEA or the successor or purchasing corporation, as the case may be, shall execute with Investor an amendment to this Agreement providing that all issued and outstanding Note shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance.
(e) RESERVATION OF SHARES; SHARES TO BE FULLY PAID. 3PEA shall provide, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares to provide for the conversion of the Notes as such Notes are presented for conversion. From the execution of this Agreement, 3PEA will take all corporate action which may, in the opinion of its counsel, be necessary in order that 3PEA may validly and legally issue shares of such 3PEA Common Stock at such adjusted Conversion Price.
3PEA covenants that all shares of 3PEA Common Stock which may be issued upon conversion of Notes will upon issue be fully paid and non-assessable by 3PEA.
SECTION 3.06 ISSUANCE OF FUTURE WARRANT in order to induce the Purchaser to enter into the aforesaid loan transaction and to make said loan to the Borrowers, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties covenant and agree as follows:
(a) Issuance of Warrant at conversion date of Note or upon repayment
(b) The Warrant will represent one share for each dollar invested.
3
(c) Upon the Note conversion date between March 30, 2006 and March 30, 2007 , the Company will issue to the Investor a warrant (the "WARRANT") to purchase shares of Common Stock of the Company (such shares of Common Stock shall be available at $1.50 with an exercise period between March 30, 2006 and March 30, 2008 ..
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
(a) ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has all requisite corporate power and authority to carry on its business as now conducted. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership, or similar arrangement.
(i) COMMON STOCK. ______________ shares of Common Stock of which, ________________ shares are outstanding.
(ii) The outstanding shares of Common Stock have all been duly and validly authorized and issued, fully paid and nonassessable, and were issued in accordance with the registration or qualification provisions of the Securities Act and any relevant state securities laws or pursuant to valid exemptions therefrom.
4
(j) TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due, except those contested by it in good faith. The provision for taxes of the Company as shown in the Financial Statements is adequate for taxes due or accrued as of the date thereof.
(a) AUTHORIZATION. Investor has full power and authority to enter into this Agreement and the Transaction Documents, and each such agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms.
5
(b) PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with Investor in reliance upon its representation to 3PEA, which by its execution hereof Investor hereby confirms, that the Notes to be received by it, the Common Stock issuable upon conversion of the Notes will be acquired for investment for its own account. By executing this Agreement, Investor further represents that it does not 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 Securities.
(d) INVESTMENT EXPERIENCE. Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Notes. If other than an individual, Investor also represents it has not been organized for the purpose of acquiring the Notes.
(i) "These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Securities Act or an opinion of counsel satisfactory to the Company that such registration is not required or unless sold pursuant to Rule 144 of such Securities Act."
(ii) Any legend required by the laws of the State of Nevada
6
ARTICLE V
(a) The representations and warranties of 3PEA contained in Section 4.01 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing.
(b) The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing.
(a) The representations and warranties of Investor contained in Section 4.02 shall be true on and as of the Closing as though such representations and warranties had been made on and as of such dates.
(b) Investor shall have funded the principal amount of the Notes as specified in Sections 2.01
ARTICLE VI
(b) PAYMENT OF TAXES. 3PEA will pay and discharge all taxes..
7
(e) LICENSES. 3PEA will use commercially reasonable efforts to obtain and maintain all licenses.
(h) VISIT RIGHTS. The Company shall permit Investor, at Investor's expense, to visit the Company's office, and to discuss the Company's affairs, finances and accounts with its officers upon mutually acceptable arrangements.
ARTICLE VII
8
ARTICLE VIII
To Investor:
To:______________
Address: ______________________
Attn: _____________________
Fax: ____________________
To the Company:
3Pea Technologies, Inc.
0000 X. Xxxxxx Xxxx, Xxxxx 0
Xxx Xxxxx, Xxxxxx 00000
Attn: Xxxx X. Xxxxxxxx
Fax: (000) 000-0000
9
SECTION 8.06 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with the law of the State of Nevada.
SECTION 8.12 BLUE SKY NOTICES:
IT IS ANTICIPATED THAT THE SECURITIES DESCRIBED HEREIN MAY BE OFFERED FOR SALE IN SEVERAL STATES. THE SECURITIES BLUE SKY LAWS OF SOME OF THOSE STATES REQUIRE THAT CERTAIN CONDITIONS AND RESTRICTIONS RELATING TO THE OFFERING BE DISCLOSED. A DESCRIPTION OF THE RELEVANT CONDITIONS AND RESTRICTIONS REQUIRED BY THE STATES IN WHICH THE COMPANY MAY OFFER ITS SECURITIES FOR SALE IS SET FORTH BELOW.
SECTION 8.13 STATE NOTICE REQUIREMENTS
NOTICE REQUIREMENTS IN STATES WHERE SHARES MAY BE SOLD ARE AS FOLLOWS:
NOTICE TO ARIZONA RESIDENTS
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE ARIZONA SECURITIES ACT AND CANNOT BE RESOLD UNLESS THEY ARE REGISTERED UNDER SUCH ACT OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
10
NOTICE TO CALIFORNIA RESIDENTS
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY TO ANY INTEREST THEREIN OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER’S RULES.
NOTICE TO ILLINOIS RESIDENTS
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECRETARY OF STATE OF ILLINOIS OR THE STATE OF ILLINOIS, NOR HAS THE SECRETARY OF STATE OF ILLINOIS OR THE STATE OF ILLINOIS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NOTICE TO NEVADA RESIDENTS
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER APPLICABLE SECURITIES LAWS OF NEVADA AND THEREFORE CANNOT BE RESOLD OR TRANSFERRED UNLESS THEY ARE SUBSEQUENTLY REGISTERED OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
NOTICE TO OHIO RESIDENTS
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE OHIO SECURITIES ACT, BY REASON OF SPECIFIC EXEMPTIONS THEREUNDER RELATING TO THE LIMITED AVAILABILITY OF THE OFFERING. THESE SECURITIES CANNOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF TO ANY PERSON OR ENTITY UNLESS THEY ARE SUBSEQUENTLY REGISTERED OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
11
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED.
THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION WHEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISK OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
(COMPANY)
By:
-------------------------------------------
Date:
-------------------------------------------
Name:
---------------------------------------
Title:
----------------------------------------
(INVESTOR)
By:
-------------------------------------------
Date:
--------------------------------------------
Name:
---------------------------------------
Title:
----------------------------------------
12
--Signature Page to the Convertible Note Purchase Agreement—
EXHIBIT A
FORM OF CONVERTIBLE PROMISSORY NOTE
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED FOR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IS AN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
3PEA TECHNOLOGIES, INC.
CONVERTIBLE PROMISSORY NOTE
$________
Las Vegas, Nevada
March 30, 2005
FOR VALUE RECEIVED, 3 PEA TECHNOLOGIES, INC., a Nevada corporation ("MAKER" or "3PEA"), promises to pay to the order of ___________________
("HOLDER"), the principal sum of _________________ ( $ ______________), together with interest from the date of this Note on the unpaid principal balance at a rate of 6.0% per annum. Interest shall be computed as simple annual interest on the basis of a year of 360 days for the actual number of days occurring in the period for which such commitment fee or interest is payable. Payment shall be made by Maker to Holder at the address of ___________________ or to such other address of Holder as it shall designate in a written notice to Maker.
This Note is issued pursuant to that certain Convertible Note Purchase Agreement dated as of ________________, between Maker and Holder (the "AGREEMENT"). Terms used herein have the meanings assigned to those terms in the Agreement, unless otherwise defined herein.
The unpaid principal on this Note (or any portion thereof) shall be convertible at the election of Holder into shares of 3PEA Common Stock pursuant to the terms and conditions set forth in the Agreement.
If action is instituted to collect this Note, Maker will pay all costs and expenses, including reasonable attorneys' fees, incurred in connection with such action. Maker hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.
13
The holding of any provision of this Note to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provisions and the other provisions of this Note shall remain in full force and effect.
This Note shall be construed in accordance with the laws of the state of Nevada, without regard to the conflicts of law provisions of the state of Nevada or of any other state.
The Maker has caused this Convertible Promissory Note to be issued as of the date first above written.
3PEA TECHNOLOGIES, INC.
By:
----------------------------------------
Name:
------------------------------------
Title:
-------------------------------------
14