Exhibit 10.5
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT AND ANY
APPLICABLE STATES SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO CREATIVE VISTAS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
SECURED REVOLVING NOTE
FOR VALUE RECEIVED, CREATIVE VISTAS, INC., an Arizona
corporation (the "BORROWER") promises to pay to LAURUS MASTER FUND, LTD., M&C
Corporate Services Limited, P.O. Box 309 GT, Xxxxxx House, South Church Street,
Xxxxxx Town, Grand Cayman, Cayman Islands, Fax: 000-000-0000 (the "HOLDER") or
its registered assigns, on order, the sum of Two Million Dollars ($2,000,000)
without duplication of any amounts owing by Borrower to Holder under the Minimum
Borrowing Notes (as defined in the Security Agreement referred to below), or, if
different, the aggregate principal amount of all "Loans" (as such term is
defined in the Security Agreement referred to below), together with any accrued
and unpaid interest hereon, on September 30, 2007 (the "MATURITY DATE").
Capitalized terms used herein without definition shall have
the meanings ascribed to such terms in the Security Agreement between the
Borrower, certain Subsidiaries party thereto and the Holder dated as of
September 30, 2004 (as amended, modified and supplemented from time to time, the
"SECURITY AGREEMENT").
The following terms shall apply to this Note:
ARTICLE I
CONTRACT RATE & PREPAYMENTS
1.1. Interest Rate. Subject to Sections 3.2, 4.1 and 5.7
hereof, interest payable on this Note shall accrue at a rate per annum equal to
the "prime rate" published in The Wall Street Journal from time to time, plus
two percent (2%) (the "Contract Rate"). The Prime Rate shall be increased or
decreased as the case may be for each increase or decrease in the Prime Rate in
an amount equal to such increase or decrease in the Prime Rate; each change to
be effective as of the day of the change in such rate in accordance with the
terms of the Security Agreement. Subject to Section 1.2, the Contract Rate shall
not be less than six percent (6%).
1.2. Contract Rate Adjustments and Payments. The Contract Rate
shall be calculated on the last business day of each month hereafter until the
Maturity Date (each a "Determination Date") and shall be subject to adjustment
as set forth herein. If (i) the Borrower shall have registered the shares of the
Borrower's common stock underlying each of the conversion of the Note and that
certain warrant and option issued to Holder on a registration
statement declared effective by the Securities and Exchange Commission (the
"SEC"), and (ii) the market price (the "Market Price") of the Common Stock as
reported by Bloomberg, L.P. on the Principal Market (as defined below) for the
five (5) trading days immediately preceding a Determination Date exceeds the
then applicable Fixed Conversion Price by at least twenty five percent (25%),
the Contract Rate for the succeeding calendar month shall automatically be
reduced by 25 basis points (25 b.p.) (0.25%) for each incremental twenty five
percent (25%) increase in the Market Price of the Common Stock above the then
applicable Fixed Conversion Price. Notwithstanding the foregoing (and anything
to the contrary contained in herein), in no event shall the Contract Rate be
less than zero percent (0%). Interest shall be (i) calculated on the basis of a
360 day year, and (ii) payable monthly, in arrears, in cash, commencing on
November 1, 2004 and on the first business day of each consecutive calendar
month thereafter until the Maturity Date (and on the Maturity Date), whether by
acceleration or otherwise (each, a "CONTRACT RATE PAYMENT DATE"). The
outstanding principal balance of this Note, together with any accrued but unpaid
interest hereon may be prepaid at any time without penalty.
1.3 Allocation of Principal to Minimum Borrowing Note. In the
event that the amount due and payable hereunder should equal or exceed
$1,000,000, to the extent that the outstanding balance on Minimum Borrowing Note
shall be less than $500,000 (the difference of $1,000,000 less the actual
balance of the Minimum Borrowing Note, the "Available Minimum Borrowing"), such
portion of the balance hereof as shall equal the Available Minimum Borrowing
shall be deemed to be simultaneously extinguished on this Note and transferred
to, and evidenced by, a Minimum Borrowing Note.
ARTICLE II
HOLDER'S CONVERSION RIGHTS
2.1. Optional Conversion. Subject to the terms of this Article
II, the Holder shall have the right, but not the obligation, at any time until
the Maturity Date, or during an Event of Default (as defined in Article IV),
and, subject to the limitations set forth in Section 2.2 hereof, to convert all
or any portion of the outstanding principal amount of this Note ("Principal
Amount") and/or accrued interest and fees due and payable hereon into fully paid
and nonassessable restricted shares of the Common Stock at the Fixed Conversion
Price (defined below). For purposes hereof, subject to Section 2.5 hereof, the
initial "Fixed Conversion Price" means $ 3.00. The shares of Common Stock to be
issued upon such conversion are herein referred to as the "Conversion Shares."
2.2. Conversion Limitation. Notwithstanding anything contained
herein to the contrary, the Holder shall not be entitled to convert, or be
required to receive pursuant to the terms of this Note, an amount that would be
convertible into that number of shares of Common Stock which would, when added
to the number of shares of Common Stock otherwise beneficially owned by such
Holder including those issuable upon exercise of warrants and options held by
such Holder exceed 4.99% of the outstanding shares of Common Stock of the
Borrower at the time of conversion. For the purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act
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and Regulation 13d-3 thereunder. The conversion limitation described in this
Section 3.2 shall automatically become null and void without any notice to
Borrower upon the occurrence and during the continuance beyond any applicable
grace period of an Event of Default, or upon 75 days prior notice to the
Borrower.
2.3. Mechanics of Xxxxxx's Conversion. In the event that the
Holder elects to convert this Note into Common Stock, the Holder shall give
notice of such election by delivering an executed and completed notice of
conversion ("NOTICE OF CONVERSION") to the Borrower and such Notice of
Conversion shall provide a breakdown in reasonable detail of the Principal
Amount, accrued interest and fees that are being converted. On each Conversion
Date (as hereinafter defined) and in accordance with its Notice of Conversion,
the Holder shall make the appropriate reduction to the Principal Amount, accrued
interest and fees as entered in its records and shall provide written notice
thereof to the Borrower within two (2) business days after the Conversion Date.
Each date on which a Notice of Conversion is delivered or telecopied to the
Borrower in accordance with the provisions hereof shall be deemed a Conversion
Date (the "CONVERSION DATE"). A form of Notice of Conversion to be employed by
the Holder is annexed hereto as Exhibit A. Pursuant to the terms of the Notice
of Conversion, the Borrower will issue instructions to the transfer agent
accompanied by an opinion of counsel, if such an opinion of counsel is required
by the transfer agent, within two (2) business day of the date of the delivery
to Borrower of the Notice of Conversion and shall cause the transfer agent to
transmit the certificates representing the Conversion Shares to the Holder (if
eligible, such certificates shall be delivered by crediting the account of the
Holder's designated broker with the Depository Trust Corporation ("DTC") through
its Deposit Withdrawal Agent Commission ("DWAC") system within three (3)
business days after receipt by the Borrower of the Notice of Conversion (the
"DELIVERY DATE")). In the case of the exercise of the conversion rights set
forth herein the conversion privilege shall be deemed to have been exercised and
the Conversion Shares issuable upon such conversion shall be deemed to have been
issued upon the date of receipt by the Borrower of the Notice of Conversion. The
Holder shall be treated for all purposes as the record holder of such Common
Stock, unless the Holder provides the Borrower written instructions to the
contrary.
2.4. Late Payments. The Borrower understands that a delay in
the delivery of the shares of Common Stock in the form required pursuant to this
Article beyond the Delivery Date could result in economic loss to the Holder. As
compensation to the Holder for such loss, the Borrower agrees to pay late
payments to the Holder for late issuance of such shares in the form required
pursuant to this Article III upon conversion of the Note, in the amount equal to
$250 per business day after the Delivery Date. The Borrower shall pay any
payments incurred under this Section in immediately available funds upon written
demand from Holder.
2.5. Adjustment Provisions. The Fixed Conversion Price and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.1 shall be subject to adjustment from time to
time upon the happening of certain events while this conversion right remains
outstanding, as follows:
A. Reclassification. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid Principal Amount and accrued
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interest thereon, shall thereafter be deemed to evidence the right
to purchase an adjusted number of such securities and kind of securities as
would have been issuable as the result of such change with respect to the Common
Stock (i) immediately prior to or (ii) immediately after, such reclassification
or other change at the sole election of the Holder.
B. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock or any
preferred stock issued by the Borrower in shares of Common Stock, the Fixed
Conversion Price shall be proportionately reduced in case of subdivision of
shares or stock dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.
C. Share Issuances. Subject to the provisions of this Section
2.5, if the Borrower shall at any time prior to the conversion or repayment in
full of the Principal Amount issue any shares of Common Stock or securities
convertible into Common Stock to a person other than the Holder (except (i)
pursuant to Subsections A or B above; (ii) pursuant to options, warrants or
other obligations to issue shares outstanding on the date hereof as disclosed to
Holder in writing, including, without limitation, shares issuable upon the
conversion of warrants issued on or prior to the date hereof and held by Xxxxxxx
Securities or its affiliates and shares issuable upon conversion of that certain
$100,000 promissory note of AC Technical Ltd. issued prior to the date hereof in
favor of Xxxxxx Xxxxxx; (iii) pursuant to options that may be issued under any
employee incentive stock option and/or any qualified stock option plan adopted
by the Borrower; (iv) pursuant to securities issued to the original Holder on
the date hereof; or (v) pursuant to securities issued in connection with
acquisitions or strategic transactions the primary purpose of which is not
raising capital, so long as, in the case of this clause (v), such shares of
Common Stock so issued (or securities convertible into Common Stock so issued)
are restricted and do not become freely or publicly traded in any respect prior
to the two year anniversary of the issuance thereof) for a consideration per
share (the "Offer Price") less than any Fixed Conversion Price in effect at the
time of such issuance, then such Fixed Conversion Price applicable to a portion
of the outstanding principal amount of this Note (and all interest, fees, costs
and expenses related thereto) equal to the fair market value of the aggregate
consideration paid for, or attributable to, such shares of Common Stock or
securities convertible into Common Stock (the "Aggregate Consideration") shall
be immediately reset to such lower Offer Price at the time of issuance of such
securities (provided that, in the event that the outstanding principal amount of
this Note is greater than the respective Aggregate Consideration, the Holder
shall determine in its sole discretion which portion of the outstanding
principal amount of this Note shall have a "reset" Fixed Conversion Price as a
result of such issuance).For purposes hereof, the issuance of any security of
the Borrower convertible into or exercisable or exchangeable for Common Stock
shall result in an adjustment to the Fixed Conversion Price at the time of
issuance of such securities.
D. Computation of Consideration. For purposes of any
computation respecting consideration received pursuant to Subsection C above,
the following shall apply:
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(a) in the case of the issuance of shares of Common Stock
for cash, the consideration shall be the amount of such cash, provided that in
no case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Borrower for any underwriting of the issue or otherwise
in connection therewith;
(b) in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined in
good faith by the Board of Directors of the Borrower (irrespective of the
accounting treatment thereof); and
(c) Upon any such exercise, the aggregate consideration
received for such securities shall be deemed to be the consideration received by
the Borrower for the issuance of such securities plus the additional minimum
consideration, if any, to be received by the Borrower upon the conversion or
exchange thereof (the consideration in each case to be determined in the same
manner as provided in clauses (a) and (b) of this Subsection (D)).
2.6. Reservation of Shares. During the period the conversion
right exists, the Borrower will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon the full conversion of this Note. The Borrower represents that upon
issuance, such shares will be duly and validly issued, fully paid and
non-assessable. The Borrower agrees that its issuance of this Note shall
constitute full authority to its officers, agents, and transfer agents who are
charged with the duty of executing and issuing stock certificates to execute and
issue the necessary certificates for shares of Common Stock upon the conversion
of this Note.
ARTICLE III
EVENTS OF DEFAULT
3.1. The occurrence of any of the events set forth in Section
19 of the Security Agreement shall constitute an Event of Default ("EVENT OF
DEFAULT") hereunder.
DEFAULT RELATED PROVISIONS
3.2 Default Interest Rate. Following the occurrence and during
the continuance of an Event of Default and following the expiration of all
applicable notice and cure periods related thereto, the Borrower shall pay
additional interest on this Note on a monthly basis in an amount equal to
eighteen percent (18%) per annum and all outstanding Obligations, including
unpaid interest, shall continue to accrue such additional interest from the date
of such Event of Default until the date such Event of Default is cured or
waived.
3.3 Conversion Privileges. The conversion privileges set forth
in Article III shall remain in full force and effect immediately from the date
hereof and until this Note is paid in full.
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3.4 Cumulative Remedies. The remedies under this Note shall be
cumulative.
ARTICLE IV
DEFAULT PAYMENTS
4.1. Default Payment. If an Event of Default occurs and is
continuing beyond any applicable grace period, the Holder, at its option, may
elect, in addition to all rights and remedies of Holder under the Security
Agreement and the Ancillary Agreements and all obligations of Borrower under the
Security Agreement and the Ancillary Agreements, to require the Borrower to make
a Default Payment ("Default Payment"). The Default Payment shall be 120% of the
outstanding principal amount of the Note, plus accrued but unpaid interest, all
other fees then remaining unpaid, and all other amounts payable hereunder. The
Default Payment shall be applied first to any fees due and payable to Holder
pursuant to the Notes or the Ancillary Agreements, then to accrued and unpaid
interest due on the Notes and then to outstanding principal balance of the
Notes.
4.2. Default Payment Date. The Default Payment shall be due and
payable immediately on the date that the Holder has exercised its rights
pursuant to Section 5.1 ("Default Payment Date").
ARTICLE V
MISCELLANEOUS
5.1. General Interest Rules. Notwithstanding any provisions
herein, (i) in no event shall the aggregate "interest" (as that term is defined
in Section 347 of the Criminal Code (Canada) paid hereunder result in the
receipt by the Holder of interest at a "criminal rate" (as such term is
construed under the Criminal Code of Canada"); (ii) unless otherwise specified
herein, whenever any amount is payable hereunder as interest or as a fee which
requires the calculation of an amount using a percentage per annum, such amount
shall be calculated as of the date payment is due without application of the
"deemed reinvestment principle" or the "effective yield method"; and (iii) for
purposes of disclosure under the Interest Act (Canada) where interest is
calculated pursuant thereto at a rate based upon a year of 360, 365 or 366 days,
as the case may be (the "First Rate"), the rate or percentage of interest on a
yearly basis is equivalent to such First Rate multiplied by the actual number of
days in the year divided by 360, 365 or 366 , as the case may be.
5.2. Failure or Indulgence Not Waiver. No failure or delay on
the part of the Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
5.3. Notices. Any notice herein required or permitted to be
given shall be in writing and provided in accordance with the terms of the
Security Agreement.
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5.4. Amendment Provision. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument as it may be amended or supplemented.
5.5. Assignability. This Note shall be binding upon the
Borrower and its successors and assigns, and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the Holder in
accordance with the requirements of the Security Agreement.
5.6. Cost of Collection. If default is made in the payment of
this Note, the Borrower shall pay the Holder hereof reasonable costs of
collection, including reasonable attorneys' fees.
5.7. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties to this Note agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs. In the event that
any provision of this Note is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or unenforceability of
any other provision of this Note. Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Borrower in any other jurisdiction to collect on the Borrower's
obligations to Holder, to realize on any collateral or any other security for
such obligations, or to enforce a judgment or other court order in favor of
Xxxxxx.
5.8. Maximum Payments. Nothing contained herein shall be deemed
to establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
5.9. Security Interest and Guarantee. The Holder has been
granted a security interest (i) in certain assets of the Borrower and its
Subsidiaries as more fully described in (x) the Security Agreement, (y) the
Master Security Agreement dated as of the date hereof and (z) certain other
Ancillary Agreements and (ii) pursuant to the Stock Pledge Agreement dated as of
the date hereof. The obligations of the Borrower under this Note are guaranteed
by certain Subsidiaries of the Borrower pursuant to the Subsidiary Guarantydated
as of the date hereof
5.10. Construction. Each party acknowledges that its legal
counsel participated in the preparation of this Note and, therefore, stipulates
that the rule of construction that
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ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Note to favor any party against the other.
[Balance of page intentionally left blank; signature page follows.]
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IN WITNESS WHEREOF, the Borrower has caused this Secured
Convertible Revolving Note to be signed in its name effective as of this 30th
day of September, 2004.
CREATIVE VISTAS, INC.
By:_______________________________
Name:
Title:
WITNESS:
_____________________________
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NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the
principal and $_________ of the interest due on the Secured Convertible
Revolving Note issued by Creative Vistas, Inc. on September 30, 2004 into Shares
of Common Stock of Creative Vistas, Inc. (the "Borrower") according to the
conditions set forth in such Note, as of the date written below.
Date of Conversion:_____________________________________________________________
Conversion Price:_______________________________________________________________
Shares To Be Delivered:_________________________________________________________
Signature:______________________________________________________________________
Print Name:_____________________________________________________________________
Address:________________________________________________________________________
Holder DWAC __________________________________________________________________
instructions
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