EXHIBIT 10.4
THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF 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 AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
SMOKY MARKET FOODS, INC.
CONVERTIBLE PROMISSORY NOTE
$[_________] ___________ __, 2006
Note Number: __
FOR VALUE RECEIVED, Smoky Market Foods, Inc., a Nevada corporation (the
"COMPANY") promises to pay to [_________________] ("INVESTOR"), or its
registered assigns, in lawful money of the United States of America the
principal sum of [_________] Dollars ($[_________]), or such lesser amount as
shall equal the outstanding principal amount hereof, together with interest from
the date of this Note on the unpaid principal balance at a rate equal to 9% per
annum, computed on the basis of the actual number of days elapsed and a year of
365 days. All unpaid principal, together with any then unpaid and accrued
interest and other amounts payable hereunder, shall be due and payable on the
earlier of (i) December 1, 2006 (the "MATURITY DATE"), or (ii) when, upon or
after the occurrence of an Event of Default (as defined below), such amounts are
declared due and payable by Investor or made automatically due and payable in
accordance with the terms hereof. This Note is issued pursuant to the Securities
Purchase Agreement, dated as of June __, 2006 (as amended, modified or
supplemented, the "PURCHASE AGREEMENT") between the Company and Investor.
The following is a statement of the rights of Investor and the
conditions to which this Note is subject, and to which Investor, by the
acceptance of this Note, agrees:
1. DEFINITIONS. As used in this Note, the following capitalized terms
have the following meanings:
(a) "COMMON STOCK" shall mean the common stock, par value
$.001 per share, of the Company.
(b) "COMPANY" includes the corporation initially executing
this Note and any Person which shall succeed to or assume the obligations of the
Company under this Note.
(c) "EVENT OF DEFAULT" has the meaning given in SECTION 4
hereof.
(d) "INVESTOR" shall mean the Person specified in the
introductory paragraph of this Note or any Person who shall at the time be the
registered holder of this Note.
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(e) "LIEN" shall mean, with respect to any property, any
security interest, mortgage, pledge, lien, claim, charge or other encumbrance
in, of, or on such property or the income therefrom, including, without
limitation, the interest of a vendor or lessor under a conditional sale
agreement, capital lease or other title retention agreement, or any agreement to
provide any of the foregoing, and the filing of any financing statement or
similar instrument under the Uniform Commercial Code or comparable law of any
jurisdiction.
(f) "SEVENTY-FIVE PERCENT (75%) MAJORITY IN INTEREST" shall
mean seventy-five percent (75%) or more of the aggregate outstanding principal
amount of notes issued pursuant to the Purchase Agreement or other agreements
with substantially similar terms to the Purchase Agreement.
(g) "MATERIAL ADVERSE EFFECT" shall mean a material adverse
effect on (a) the business, assets, operations, prospects or financial or other
condition of the Company; (b) the ability of the Company to pay or perform the
Obligations in accordance with the terms of this Note and the other Transaction
Documents and to avoid an Event of Default, or an event which, with the giving
of notice or the passage of time or both, would constitute an Event of Default
under any Transaction Document; or (c) the rights and remedies of Investor under
this Note, the other Transaction Documents or any related document, instrument
or agreement.
(h) "PURCHASE AGREEMENT" has the meaning given in the
introductory paragraph hereof.
(i) "OBLIGATIONS" shall mean and include all loans, advances,
debts, liabilities and obligations, howsoever arising, owed by the Company to
Investor pursuant to the terms of this Note or the Purchase Agreement,
including, all interest, fees, charges, expenses, attorneys' fees and costs and
accountants' fees and costs chargeable to and payable by the Company hereunder
and thereunder.
(j) "PERSON" shall mean and include an individual, a
partnership, a corporation (including a business trust), a joint stock company,
a limited liability company, an unincorporated association, a joint venture or
other entity or a governmental authority.
(k) "REGISTRABLE SECURITIES" shall mean (i) shares of Common
Stock issued or issuable pursuant to the conversion of the Note or exercise of
the Warrant issued under the Purchase Agreement, (ii) shares of Common Stock
issued or issuable pursuant to the conversion of any Note or exercise of a
Warrant issued under a purchase agreement with substantially similar terms and
conditions as the Purchase Agreement, and (iii) any Common Stock issued as a
dividend or other distribution with respect to or in exchange for or in
replacement of the shares referenced in (i) and (ii) above; PROVIDED, HOWEVER,
that Registrable Securities shall not include any shares of Common Stock
described in clause (i) or (ii) above which have previously been registered or
which have been sold to the public either pursuant to a registration statement
or Rule 144 (y) which are eligible for re-sale pursuant to subsection (k) of
Rule 144 or (z) which have been sold in a private transaction in which the
transferor's rights under this Agreement are not validly assigned in accordance
with this Agreement.
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(l) "RULE 144" shall mean Rule 144 promulgated under the
Securities Act.
(m) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
(n) "TRANSACTION DOCUMENTS" shall mean this Note, the Purchase
Agreement and the Warrants issued under the Purchase Agreement.
2. INTEREST. Accrued interest on this Note shall be payable at maturity
of the principal amount hereunder.
3. PREPAYMENT. This Note may be prepaid at any time without penalty.
4. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "EVENT OF Default" under this Note and the other Transaction
Documents:
(a) FAILURE TO PAY. The Company shall fail to pay (i) when due
any principal or interest payment on the due date hereunder or (ii) any other
payment required under the terms of this Note or any other Transaction Document
on the date due and such payment shall not have been made within ten days of the
Company's receipt of Investor's written notice to the Company of such failure to
pay; or
(b) BREACHES OF COVENANTS. The Company shall fail to observe
or perform any other covenant, obligation, condition or agreement contained in
this Note or the other Transaction Documents (other than those specified in
SECTIONS 4(A)) and (i) such failure shall continue for 15 days after the Company
receives notice thereof from Investor, or (ii) if such failure is not curable
within such 15-day period, but is reasonably capable of cure within 30 days,
either (A) such failure shall continue for 30 days or (B) the Company shall not
have commenced a cure in a manner reasonably satisfactory to Investor within the
initial 15-day period; or
(c) VOLUNTARY BANKRUPTCY OR INSOLVENCY PROCEEDINGS. The
Company shall (i) apply for or consent to the appointment of a receiver,
trustee, liquidator or custodian of itself or of all or a substantial part of
its property, (ii) be unable, or admit in writing its inability, to pay its
debts generally as they mature, (iii) make a general assignment for the benefit
of its creditors, (iv) be dissolved or liquidated, (v) commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or consent to any such relief or to the
appointment of or taking possession of its property by any official in an
involuntary case or other proceeding commenced against it, or (vi) take any
action for the purpose of effecting any of the foregoing; or
(d) INVOLUNTARY BANKRUPTCY OR INSOLVENCY PROCEEDINGS.
Proceedings for the appointment of a receiver, trustee, liquidator or custodian
of the Company or of all or a substantial part of the property thereof, or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to the Company or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in effect shall be
commenced and an order for relief entered or such proceeding shall not be
dismissed or discharged within 30 days of commencement.
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5. RIGHTS OF INVESTOR UPON DEFAULT. Upon the occurrence or existence of
any Event of Default (other than an Event of Default described in SECTIONS 4(D))
and at any time thereafter during the continuance of such Event of Default,
Investor may, with the consent of holders of Seventy-five Percent (75%) Majority
in Interest, by written notice to the Company, declare all outstanding
Obligations payable by the Company hereunder to be immediately due and payable
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived, anything contained herein or in the other
Transaction Documents to the contrary notwithstanding. Upon the occurrence or
existence of any Event of Default described in SECTIONS 4(D), immediately and
without notice, all outstanding Obligations payable by the Company hereunder
shall automatically become immediately due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived, anything contained herein or in the other Transaction
Documents to the contrary notwithstanding. In addition to the foregoing
remedies, upon the occurrence or existence of any Event of Default, Investor may
exercise any other right, power or remedy granted to it by the Transaction
Documents or otherwise permitted to it by law, either by suit in equity or by
action at law, or both.
6. CONVERSION.
(a) AUTOMATIC CONVERSION. In the event that prior to the
Maturity Date, the NASD issues a trading symbol with respect to trading of the
Common Stock on the OTC Bulletin Board or the OTC Pink Sheets (which event is
hereinafter referred to as "COMMENCEMENT OF TRADING"), then the outstanding
principal amount of and all accrued interest under this Note shall automatically
convert into that number of shares of the Common Stock as is determined by
dividing such principal amount, plus accrued interest, by $0.10 per share
(adjusted to reflect subsequent stock dividends, stock splits, combinations or
recapitalizations). Investor also agrees to deliver the original of this Note
(or a notice to the effect that the original Note has been lost, stolen or
destroyed and an agreement acceptable to the Company whereby the holder agrees
to indemnify the Company from any loss incurred by it in connection with this
Note) promptly following receipt of notification of Commencement of Trading;
PROVIDED, HOWEVER, that upon the Commencement of Trading, this Note shall be
deemed converted and of no further force and effect, whether or not it is
delivered for cancellation as set forth in this sentence.
(b) OPTIONAL CONVERSION. The entire outstanding principal
amount of, and all accrued interest under this Note shall be convertible at the
option of Investor into that number of shares of the Common Stock as is
determined by dividing such principal amount, plus accrued interest, by $0.10
per share (adjusted to reflect subsequent stock dividends, stock splits,
combinations or recapitalizations). Before Investor shall be entitled to convert
this Note into shares of Common Stock under this SECTION 6(B), it shall
surrender this Note, duly endorsed, at the office of the Company and shall give
written notice to the Company at its principal corporate office, of the election
to convert the same pursuant to this Section, and shall state therein the amount
of the unpaid principal amount of this Note to be converted and the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. The Company shall, as soon as practicable thereafter, issue and
deliver at such office to Investor a certificate or certificates for the number
of shares of Common Stock to which Investor shall be entitled upon conversion
(bearing such legends as are required by the stock purchase agreement, the
Purchase Agreement and applicable state and federal securities laws in the
opinion of counsel to the Company), together with a replacement Note (if any
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principal amount is not converted) and any other securities and property to
which Investor is entitled upon such conversion under the terms of this Note,
including a check payable to Investor for any cash amounts payable as described
in SECTION 7(C). The conversion shall be deemed to have been made immediately
prior to the close of business on the date of the surrender of this Note, and
the Person or Persons entitled to receive the shares of Common Stock upon such
conversion shall be treated for all purposes as the record Investor of such
shares of Common Stock as of such date.
(c) FRACTIONAL SHARES; INTEREST; EFFECT OF CONVERSION. No
fractional shares shall be issued upon conversion of this Note. In lieu of the
Company issuing any fractional shares to Investor upon the conversion of this
Note, the Company shall pay to Investor an amount equal to the product obtained
by multiplying the conversion price by the fraction of a share not issued
pursuant to the previous sentence. In addition, the Company shall pay to
Investor any interest accrued on the amount converted and on the amount to be
paid to the Company pursuant to the previous sentence. Upon conversion of this
Note in full and the payment of any amounts specified in this SECTION 7(C), the
Company shall be forever released from all its obligations and liabilities under
this Note.
7. SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer
described in SECTIONS 9 and 10 below, the rights and obligations of the Company
and Investor shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties.
8. WAIVER AND AMENDMENT. Any provision of this Note may be amended,
waived or modified upon the written consent of the Company and the holders of a
Seventy-five Percent (75%) Majority in Interest.
9. TRANSFER OF THIS NOTE OR SECURITIES ISSUABLE ON CONVERSION HEREOF.
With respect to any offer, sale or other disposition of this Note or securities
into which such Note may be converted, Investor will give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of Xxxxxxxx's counsel, or other evidence if reasonably
satisfactory to the Company, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect). Upon receiving such written notice and
reasonably satisfactory opinion, if so requested, or other evidence, the
Company, as promptly as practicable, shall notify Investor that Investor may
sell or otherwise dispose of this Note or such securities, all in accordance
with the terms of the notice delivered to the Company. If a determination has
been made pursuant to this SECTION 9 that the opinion of counsel for Investor,
or other evidence, is not reasonably satisfactory to the Company, the Company
shall so notify Investor promptly after such determination has been made. Each
Note thus transferred and each certificate representing the securities thus
transferred shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with the Securities Act, unless in
the opinion of counsel for the Company such legend is not required in order to
ensure compliance with the Securities Act. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions. Subject
to the foregoing transfers of this Note shall be registered upon registration
books maintained for such purpose by or on behalf of the Company as provided in
the Purchase Agreement. Prior to presentation of this Note for registration of
transfer, the Company shall treat the registered holder hereof as the owner and
holder of this Note for the purpose of receiving all payments of principal and
interest hereon and for all other purposes whatsoever, whether or not this Note
shall be overdue and the Company shall not be affected by notice to the
contrary.
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10. ASSIGNMENT BY THE COMPANY. Neither this Note nor any of the rights,
interests or obligations hereunder may be assigned, by operation of law or
otherwise, in whole or in part, by the Company without the prior written consent
of the holders of a Seventy-five Percent (75%) Majority in Interest or by
Investor without the prior written consent of the Company.
11. NOTICES. All notices, requests, demands, consents, instructions or
other communications required or permitted hereunder shall in writing and faxed,
mailed or delivered to each party at the respective addresses of the parties as
set forth in the Purchase Agreement, or at such other address or facsimile
number as the Company shall have furnished to Investor in writing. All such
notices and communications will be deemed effectively given the earlier of (i)
when received, (ii) when delivered personally, (iii) one business day after
being delivered by facsimile (with receipt of appropriate confirmation), (iv)
one business day after being deposited with an overnight courier service of
recognized standing or (v) four days after being deposited in the U.S. mail,
first class with postage prepaid.
12. PAYMENT. Payment shall be made in lawful tender of the United
States.
13. DEFAULT RATE; USURY. During any period in which an Event of Default
has occurred and is continuing, the Company shall pay interest on the unpaid
principal balance hereof at a rate per annum equal to the rate otherwise
applicable hereunder plus five percent (5%). In the event any interest is paid
on this Note which is deemed to be in excess of the then legal maximum rate,
then that portion of the interest payment representing an amount in excess of
the then legal maximum rate shall be deemed a payment of principal and applied
against the principal of this Note.
14. WAIVERS. The Company 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.
15. GOVERNING LAW. This Note and all actions arising out of or in
connection with this Note shall be governed by and construed in accordance with
the laws of the State of Iowa, without regard to the conflicts of law provisions
of the State of Iowa or of any other state.
The Company has caused this Note to be issued as of the date first
written above.
SMOKY MARKET FOODS, INC.
a Nevada corporation
By: _________________________________
Name: _______________________________
Title:_______________________________
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