Exhibit 99.1
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT
OR STATE LAW OR AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
$1,525,000 Los Angeles, California
July 20, 2006
MFC DEVELOPMENT CORP.
ADSOUTH MARKETING, LLC.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, MFC Development Corp., a Delaware corporation
("MFC") and Adsouth Marketing, LLC ("Purchaser," and, together with MFC, the
"Company," hereby jointly and severally promise to pay to the order of Adsouth
Partners, Inc., a Nevada corporation ("Payee"), the principal amount of one
million five hundred twenty five thousand dollars ($1,525,000) at the time and
in the manner set forth in Article 1 of this Note. Interest on the outstanding
principal balance shall be paid monthly at the rate of interest set forth in
Section 1(a), 1(b) and 1(d) of this Note, as the case may be. Accrued interest
shall also be payable at such time as any payment of principal of this Note is
made. Interest shall be computed on the basis of a 360-day year, using the
number of days actually elapsed.
ARTICLE 1.
Payment of Principal and Interest on the Note
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(a) This Note shall bear interest as follows, subject to the
provisions of Sections 1(b) and 1(d) of this Note.
(i) During the period ending on October 20, 2006 (the "first
period"), this Note shall bear interest at the rate of nine and one-half percent
(9.5%) per annum.
(ii) During the period commencing October 21, 2006 and
ending on January 20, 2007 (the "second period"), this Note shall bear interest
at the rate of ten and one-half percent (10.5%) per annum.
(iii) During the period commencing January 21, 2007 and
ending on April 20, 2007 (the "third period"), this Note shall bear interest at
the rate of eleven and one-half percent (11.5%) per annum.
(iv) (x) Subsequent to April 20, 2007 or (y) if the Company
shall not have fulfilled its obligations under the Registration Rights Agreement
that relate to registration of the Conversion Shares as hereinafter defined and
the continuing effectiveness of the registration statement, this Note shall bear
interest at the rate of eighteen percent (18%) per annum; provided however, that
a failure to fulfill obligations can only be asserted if Payee has provided
written notice to the Company of a purported failure which remains uncured
thirty (30) days after Company's receipt of such notice and provided further
that no increase in interest rate under this Section 1(a)(iv) shall be
considered an Event of Default hereunder.
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(b) Notwithstanding the provisions of Section 1(a) of this Note:
(i) In the event that twenty five percent (25%) of the
principal amount of this Note that is outstanding at the beginning of the first
period, together with accrued interest, is paid prior to the end of the first
period, the interest rate in effect for the first period shall continue as the
interest rate for the second period.
(ii) In the event that twenty five percent (25%) of the
principal amount of this Note that is outstanding at the beginning of the second
period, together with accrued interest, is paid prior to the end of the second
period, the interest rate in effect for the second period shall continue as the
interest rate for the third period.
(c) The principal amount of this Note shall be subject to
adjustment as provided in that certain asset purchase agreement (the "Purchase
Agreement") dated as of June 22, 2006 by and between the Company, on the one
hand, and Payee and certain of its subsidiaries, on the other hand. References
to the principal amount of this Note shall reflect any adjustments pursuant to
this Section 2(c). Further, to the extent adjustments are pending pursuant to
the Purchase Agreement, the Company's obligation to pay such disputed portion of
the Note shall be suspended until such dispute is resolved and any payments so
deferred or suspended shall be paid in full at such time as the dispute is
resolved.
(d) Payment of the principal amount of this Note, together with
accrued interest, shall be made on demand at any time commencing April 21, 2007;
provided, however, that if at least fifty percent (50%) of the principal amount
of this Note, together with accrued interest thereon, shall have been paid by
5:00 P.M. Eastern time on the last day of the second period the remaining
principal (the "Remaining Principal Amount") and interest shall be payable as
follows:
(i) The date on which the Company shall have paid fifty
percent (50%) of the principal amount of this Note pursuant to Section 1(d) is
referred to as the "Section 1(d) Payment Date."
(ii) This Note shall bear interest, from and after the
Section 1(d) Payment Date, at the rate of interest equal to the interest rate
announced by XX Xxxxxx Xxxxx Bank as its prime rate (regardless of whether that
rate is the lowest rate charged by said bank) (the "Prime Rate") plus 400 basis
points, subject to Section 2(c) of this Note.
(iii) The Company shall make a monthly payment of principal
in the amount equal to three percent (3%) of the Remaining Principal Amount.
Such payment shall be made on the same day of the month that is the calendar day
prior to the Section 1(d) Payment Date, commencing with the calendar month
immediately following the Section 1(d) Payment Date and concluding with the
twenty fourth (24th) month thereafter. For example, if the Section 1(d) Payment
Date is January 8, 2007, the payments pursuant to this Section 1(d) (iii) shall
be made on seventh (7th) day of each month thereafter, commencing February 7,
2007 through and including January 7, 2009.
(iv) The twelfth (12th) payment pursuant to Section 1(d)
(ii) shall be accompanied by a payment of principal equal to twenty eight
percent (28%) of the Remaining Principal Xxxxxx.
(v) The Company may, at any time, make an additional payment
on account of the Remaining Principal Amount, without penalty or premium;
provided, that (x) such payment shall be accompanied by accrued interest to the
date of such payment and (y) the remaining payments due pursuant to this Section
1(d) shall be reduced on a pro rata basis.
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(e) In the event that MFC, Purchaser or any of their respective
subsidiaries completes a Qualified Financing, as hereinafter defined, the
Company shall, contemporaneously with the Qualified Financing, make a payment
equal to not less fifty percent (50%) of the then outstanding principal amount
of this Note; provided, however, that if the Qualified Financing is received in
installments, the payments due pursuant to this Section 1(e) shall be made pro
rata, based on the percentage that the amount received in each installment bears
to the total amount to be received.
(f) A Qualified Financing shall mean the sale by MFC, Purchaser
or any of its their respective subsidiaries, at any time during the one hundred
eighty (180) days following the date of this Note, whether in one transaction or
a series of transactions which need not be related transactions, of the
Company's capital stock, or other securities convertible into the Company's
capital stock, from which the gross proceeds received by the Company and its
subsidiaries, prior to any underwriting, brokerage or finders' fee or commission
or other offering expenses, in such transaction(s) total at least five million
dollars ($5,000,000).
(g) The term Qualified Financing Price shall mean (i) with
respect to a Qualified Financing involving the sale of MFC's common stock, par
value $.001 per share ("Common Stock") the price per share (or weighted average
price per share in a series of transactions) at which Common Stock is sold, or
(ii) with respect to a Qualified Financing involving the sale of MFC's
convertible securities, the amount determined by dividing (x) the proceeds
received by MFC from the Qualified Financing by (y) the number of shares of
Common Stock which would be be issuable upon such conversion or exercise on the
date of the Qualified Financing. If the Qualified Financing involves both Common
Stock and convertible securities, the weighted average price per share of Common
Stock, determined in provided in this Section 1(g), shall be used. There shall
only be a single Qualified Financing.
(h) As used in this Note, obligations and covenants of the
Company are the joint and several obligations of MFC and Purchaser.
ARTICLE 2.
Events of Default and Acceleration
----------------------------------
(a) Events of Default Defined. The entire unpaid principal amount
of this Note, together with interest thereon shall, on written notice to the
Company given by the holders of this Note, forthwith become and be due and
payable if any one or more the following events ("Events of Default") shall have
occurred (for any reason whatsoever and whether such happening shall be
voluntary or involuntary or be affected or come about by operation of law
pursuant to or in compliance with any judgment, decree, or order of any court or
any order, rule or regulation of any administrative or governmental body) and be
continuing. An Event of Default shall occur:
(i) if failure shall be made in the payment of the principal
of or interest on this Note when and as the same shall become due and such
failure shall continue for a period of ten (10) business days after such payment
is due; or
(ii) if the Company shall violate or breach any of the
covenants contained in the Note or any of the covenants in the Purchase
Agreement that relate to a payment obligation of the Company and such violation
or breach shall continue for thirty (30) days after written notice of such
breach shall have been received by the Company from Payee; or
(iii) if the Company or any Material Subsidiary shall
consent to the appointment of a receiver, trustee or liquidator of itself or of
a substantial part of its property or shall
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make a general assignment for the benefit of creditors, or shall file a
voluntary petition in bankruptcy, or an answer seeking reorganization in a
proceeding under any bankruptcy law (as now or hereafter in effect) or an answer
admitting the material allegations of a petition filed against the Company or
any Material Subsidiary, in any such proceeding, or shall by voluntary petition,
answer or consent, seek relief under the provisions of any other now existing or
future bankruptcy or other similar law providing for the reorganization or
winding up of corporations, or an arrangement, composition, extension or
adjustment with its or their creditors, or shall, in a petition in bankruptcy
filed against it or them be adjudicated a bankrupt, or the Company or any
Material Subsidiary or their directors or a majority of its stockholders shall
vote to dissolve or liquidate the Company or any Material Subsidiary other than
a liquidation involving a transfer of assets from a Subsidiary to the Company or
another Subsidiary; or
(iv) if an involuntary petition shall be filed against the
Company or any Material Subsidiary seeking relief against the Company or any
Material Subsidiary under any now existing or future bankruptcy, insolvency or
other similar law providing for the reorganization or winding up of
corporations, or an arrangement, composition, extension or adjustment with its
or their creditors, and such petition shall not be vacated or set aside within
ninety (90) days from the filing thereof; or
(v) if a court of competent jurisdiction shall enter an
order, judgment or decree appointing, without consent of the Company or any
Material Subsidiary, a receiver, trustee or liquidator of the Company or any
Material Subsidiary, or of all or any substantial part of the property of the
Company or any Material Subsidiary, or approving a petition filed against the
Company or any Material Subsidiary seeking a reorganization or arrangement of
the Company or any Material Subsidiary under the Federal bankruptcy laws or any
other applicable law or statute of the United States of America or any State
thereof, or any substantial part of the property of the Company or any Material
Subsidiary shall be sequestered; and such order, judgment or decree shall not be
vacated or set aside within ninety (90) days from the date of the entry thereof;
or
(vi) if, under the provisions of any law for the relief or
aid of debtors, any court of competent jurisdiction shall assume custody or
control of the Company or any Material Subsidiary or of all or any substantial
part of the property of the Company or any Material Subsidiary and such custody
or control shall not be terminated within ninety (90) days from the date of
assumption of such custody or control.
(b) Rights of Note Holder. Nothing in this Note shall be
construed to modify, amend or limit in any way the right of the holder of this
Note to bring an action against the Company.
(c) Default Interest Rate. If there shall occur an Event or
Default, the interest rate shall, from and after the date of such Event of
Default, be the greater of (i) eighteen percent (18%) per annum or (ii) the
Prime Rate plus 400 basis points.
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ARTICLE 3.
Conversion
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(a) Right of Conversion.
(i) At any time after the last day of the second period, the
holder of this Note shall have the right to convert all or any part of the
principal amount of this Note outstanding from time to time and accrued interest
thereon into such number of shares of Common Stock at the conversion price
hereinafter defined (the "Conversion Price");. The Conversion Shares shall be
restricted securities, as defined in Rule 144 of the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), and shall bear a restrictive legend similar to the
legend appearing on this Note. The holders of the Conversion Shares shall have
the rights set forth in the Registration Rights Agreement.
(ii) Notwithstanding any other provision of this Note, if
the Company shall pay fifty percent (50%) of the principal amount of this Note,
together with accrued interest, before the commencement of the Third Period, the
holder of this Note shall have no right to convert this Note unless an Event of
Default shall occur. If an Event of Default shall occur, the holder of this Note
shall have all rights of conversion set forth in this Article 3.
(iii) In order to exercise the conversion right, the holder
of this Note shall surrender this Note at the office of the Company together
with written instructions specifying the portion of the principal amount of and
accrued interest on this Note which the holder elects to convert and the
registration and delivery of certificates for shares of Common Stock issuable
upon such conversion. The shares of Common Stock issuable upon conversion of
principal and interest on this Note are referred to as the "Conversion Shares."
The number of Conversion Shares to be issued upon any whole or partial
conversion of this Note shall be determined by dividing the amount of principal
and interest being converted by the Conversion Price in effect on the date of
such conversion, which shall be the date this Note is delivered to the Company
for conversion. The holder shall thereupon be deemed the holder of the shares of
Common Stock so issued. If this Note shall have been converted in part, the
holder of this Note shall be entitled to a new Note representing the unpaid
principal balance of such Note remaining after deducting the principal amount of
the Note converted.
(b) At any such time as the Company has made the fifty percent
(50%) payment pursuant to f Section 1(d) , the Company shall have the right to
force conversion of this Note into Common Stock by issuing to the holder of this
Note such number of shares of Common Stock determined by dividing one hundred
fifteen percent (115%) of the total amount of principal and interest being
converted pursuant to this Section 1(h) by the Conversion Price, as hereinafter
defined; provided, however, that the Company shall only exercise this right if,
at such the time of such exercise, the shares of Common Stock to be so issued
shall be subject to a current and effective registration statement or all of
such shares may be sold pursuant to Rule 144(k) of the Commission pursuant to
the Securities Act, or any subsequent similar rule.
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(c) Conversion Price. The Conversion Price shall mean the lesser
of (i) one dollar ($1.00) per share or (ii) the greater of (x) the Qualified
Financing Price or (y) fifty cents ($.50), subject to adjustment as hereinafter
provided.
(d) Adjustment in Conversion Price. If the Company shall,
subsequent to the date of initial issuance of this Note, (A) pay a dividend or
make a distribution on its shares of Common Stock in shares of Common Stock, (B)
subdivide or reclassify its outstanding Common Stock into a greater number of
shares, or (C) combine or reclassify its outstanding Common Stock into a smaller
number of shares or otherwise effect a reverse split, the Conversion Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision or other combination or reclassification
shall be proportionately adjusted upward or downward, as the case may be in
accordance with generally accepted accounting principles. Such adjustment shall
be made successively whenever any event listed in this Section 3(d) shall occur.
(e) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock or the class issuable upon conversion of this
Note) or in case of any sale, lease or conveyance to another corporation of the
property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
holder of this Note shall have the right thereafter by converting this Note, to
purchase the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, capital reorganization and other
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock which might have been purchased upon conversion of this
Note immediately prior to such reclassification, change, consolidation, merger,
sale or conveyance. Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Note. The foregoing provisions of this Section 3(e) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances. In the event that in connection with any such capital
reorganization or reclassification, consolidation, merger, sale or conveyance,
additional shares of Common Stock shall be issued in exchange, conversion,
substitution or payment, in whole in part, for a security of the Company other
than Common Stock, such transaction shall be treated as a reclassification or
reorganization pursuant to this Section 3(e).
(f) Fractional Shares. No fractional shares or script
representing fractional shares shall be issued upon the conversion of any Notes.
If, upon any full or partial conversion of this Note, the holder would, except
for the provisions of this Section 3(f), be entitled to receive a fractional
share of Common Stock, then the number of shares to be issued on such conversion
shall be rounded up to the nearest whole number of shares.
(g) Registration Rights Agreement. The holders of the Conversion
Shares shall have all rights provided to Payee pursuant to the registration
rights agreement (the "Registration Agreement") dated the date of this Note
between the Company and Payee.
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ARTICLE 4.
Miscellaneous
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(a) Transferability. The holder of this Note may transfer this
Note with the consent of MFC, which consent shall not be unreasonably withheld
or delayed. Any such transfer will be made in a transaction exempt from
registration pursuant to the Securities Act and applicable state securities law.
The Company shall treat as the owner of this Note the person shown as the owner
on its books and records.
(b) Right to Encumber. Nothing in this Note shall restrict the
ability of the holder of this Note to pledge or hypothecate this Note or
otherwise use this Note as collateral for any obligation of the holder.
(c) WAIVER OF TRIAL BY JURY. IN ANY LEGAL PROCEEDING TO ENFORCE
PAYMENT OF THIS NOTE, THE COMPANY WAIVES TRIAL BY JURY.
(d) WAIVER OF ANY RIGHT OF COUNTERCLAIM. EXCEPT AS PROHIBITED BY
LAW, THE COMPANY HEREBY WAIVES ANY RIGHT TO ASSERT ANY CLAIM IT MAY HAVE AGAINST
THE HOLDER OF THIS NOTE BY WAY OF A COUNTERCLAIM (OTHER THAN A COMPULSORY
COUNTERCLAIM) IN ANY ACTION ON THIS NOTE.
(e) Usury Saving Provision. All payment obligations arising under
this Note are subject to the express condition that at no time shall the Company
be obligated or required to pay interest at a rate which could subject the
holder of this Note to either civil or criminal liability as a result of being
in excess of the maximum rate which the Company is permitted by law to contract
or agree to pay. If by the terms of this Note, the Company is at any time
required or obligated to pay interest at a rate in excess of such maximum rate,
the applicable rate of interest shall be deemed to be immediately reduced to
such maximum rate, and interest thus payable shall be computed at such maximum
rate, and the portion of all prior interest payments in excess of such maximum
rate shall be applied and shall be deemed to have been payments in reduction of
principal.
(f) Notice to Company. Notice to the Company shall be given to
the Company in the manner set forth in the Purchase Agreement.
(g) Governing Law. This Note shall be governed by the laws of the
State of California applicable to agreements executed and to be performed wholly
within such State. The Company hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court for the Central District of
California or any court of the State of California located in the County of Los
Angeles in any action, suit or proceeding arising out of or relating to this
Noteor any of the transactions contemplated hereby or thereby, and agrees that
any such action, suit or proceeding shall be brought only in such court,
provided, however, that such consent to jurisdiction is solely for the purpose
referred to in this Section and shall not be deemed to be a general submission
to the jurisdiction of said courts or in the State of California other than for
such purpose. Each party hereby irrevocably waives, to the fullest extent
permitted by Law, any objection that it may now or hereafter have to the laying
of the venue of any such action, suit or proceeding brought in such a court and
any claim that any such action, suit or proceeding brought in such a court has
been brought in an inconvenient forum.
(h) Expenses. In the event that either party commences a legal
proceeding in order to enforce its rights under this Note, the losing party
shall pay all reasonable legal fees and expenses incurred by the prevailing
party with respect thereto.
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IN WITNESS WHEREOF, the Company has executed this Note as of the date
and year first aforesaid.
MFC DEVELOPMENT CORP.
By:/S/______________________________
Xxxxx Xxxxxx, CEO
ADSOUTH MARKETING, LLC
By: MFC DEVELOPMENT CORP.
Its: Manager
By:/S/______________________________
Xxxxx Xxxxxx, CEO
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NOTICE OF CONVERSION
[To be Signed Only Upon Conversion
of Part or All of Notes]
MFC DEVELOPMENT CORP.
The undersigned, the holder of the foregoing Note, hereby surrenders
such Note for conversion into shares of Common Stock of MFC Development Corp. to
the extent of $ (*) unpaid principal amount of and interest due on such Note,
and requests that the certificates for such shares be issued in the name of
_____________________________________, and delivered to _______________________,
whose address is ______________________________________________________.
Dated:_______________
______________________________
(Signature)
(Signature must conform in all respects to name of holder as specified on the
face of the Note.)
(*) Insert here the unpaid principal amount of the Note (or, in the case of a
partial conversion, the portion thereof as to which the Note is being
converted). In the case of a partial conversion, a new Note will be issued and
delivered, representing the unconverted portion of the unpaid principal amount
of this Note, to or upon the order of the holder surrendering such Note.
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