Exhibit 10.1
"Neither this note nor the securities into which it is convertible have been
registered under the Securities Act of 1933, as amended (the "Act") or any
state securities laws. This note and the securities into which it is
convertible are subject to certain investment restrictions and the repurchase
provisions set forth in the Second Amended and Restated Articles of
Incorporation of the Issuer, as the same may be amended and/or restated from
time to time. this note and The securities into which it is convertible may
not be sold, offered for sale or transferred in the absence of either an
effective registration under the Act and applicable state securities laws, or
an opinion of counsel satisfactory to the issuer that such registration is not
required.
LEGACY CARD COMPANY, INC.
CONVERTIBLE PROMISSORY NOTE
$ 1,000,000.00 __April 18, 2005__
FOR VALUE RECEIVED, Legacy Card Company, Inc., a Nevada corporation (the
"Company"), promises to pay to the order of , or its
authorized successors or assigns (the "Holder"), in lawful money of the United
States of America and in immediately available funds, the principal sum of
Dollars ($ ), or so much thereof as may be
outstanding from time to time (the "Outstanding Principal Amount"), together
with interest thereon as set forth herein (this "Note"). This Note is one of
several convertible promissory notes being issued by the Company on the date
hereof in a bridge financing with aggregate proceeds of at least One Million
and 00/100 Dollars ($1,000,000.00), (this Note and the other convertible
promissory notes issued pursuant to such bridge financing shall collectively
be referred to as the "Notes"). Each of the Notes shall be identical to the
other Notes except with respect to the principal amount and the name of the
holder.
1. Defined Terms. For purposes of this Note, the terms listed below shall
have the respective meanings set forth below:
1.1 "Articles of Formation" means the Company's Articles of Formation,
as the same may be amended and/or restated from time to time.
1.2 "Conversion Price" means $1.10 per share, or such other adjusted
price per share to be paid for the Conversion Shares upon conversion of the
Outstanding Principal Amount of this Note, and any accrued and unpaid interest
thereon, pursuant to the provisions of Section 7 below.
1.3 "Conversion Shares" means the fully paid and nonassessable shares
of the Company into which the Outstanding Principal Amount of this Note, and
any accrued and unpaid interest thereon, shall be automatically convertible
pursuant to the provisions of Section 7 below.
1.4 "Investor Representative" means __________________________ whom
the Holders agree will act on behalf of each Holder and all of the Holders
with respect to any matter relating to this Note or the Subscription Agreement
and Letter of Investment Intent signed by the original Holder.
1.5 "Maturity Date" means __________, 2005, that date which is six
calendar months after the date of issue hereof; provided, however, that such
date will automatically be extended for, and a Maturity Date will not occur
until, an additional twenty-five (25) days thereafter if the Company has set a
date for its shareholders meeting to approve the Reverse Merger Transaction
and has mailed its notice of meeting and solicitation materials to
shareholders prior to the expiration of the initial ninety (90) day period.
1.6 "Public Company" means a corporation which has its common stock
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and is subject to the periodic reporting
requirements, and has timely filed such reports, during the past 12 months,
pursuant to Sections 13 and 14 of the Exchange Act, or a corporation that
voluntarily files reports under Section 15(d) of the Exchange Act, and has
timely filed such reports during the past 12 months, the capital stock of
which corporation is traded on a nationally recognized securities medium, not
less than the National Association of Securities Dealers, Inc.'s OTC
Electronic Bulletin Board and with which the Company's Board of Directors
agrees to conduct a Reverse Merger Transaction and closes the same.
1.7 "Public Company Stock" means all outstanding capital stock of the
Public Company.
1.8 "Reverse Merger Transaction" means the consummation and closing of
a reverse merger transaction, contemplated to be effected in the form of a tax
free "A" reorganization pursuant to I.R.C. Section 368(a)(2)(E), with the
Public Company, upon the completion of which the Company shall survive as a
subsidiary of the Public Company, and resulting in the current shareholders of
the Company (including holders of all outstanding options, warrants, the
Conversion Shares and all securities that are convertible into equity of the
Company.
1.9 "Reverse Merger Date" means the date on which the Company
completes the closing of a Reverse Merger Transaction.
2. Maturity. Except as set forth in Sections 7 and 8 hereof, the entire
Outstanding Principal Amount, together with all accrued and unpaid interest
thereon, shall be due and payable upon written demand from the Investor
Representative to the Company, at any time on or after the Maturity Date.
3. Interest. This Note shall bear interest on the Outstanding Principal
Amount at the rate of eight percent (8%) per annum from the date of issue
until this Note is paid in full or converted.
4. Unsecured Debt. This Note is unsecured in all respects and shall rank
equal in right of payment to all other unsecured debt of the Company.
5. No Prepayment Without Consent. This Note may not be prepaid by the
Company without the prior written consent of the Investor Representative.
Upon obtaining the written consent from the Investor Representative, all Notes
may be prepaid, in whole or in part (including all or part of the Outstanding
Principal Amount of the Notes and accrued Interest therein), as provided in
such written consent.
6. Payment. Unless earlier converted automatically in accordance with
Section 7 hereof, payment of the Outstanding Principal Amount of the Note and
Interest accrued thereon shall be made at the business address of the Holder
hereof, upon written demand from the Investor Representative to the Company,
at any time after the Maturity Date. If the payments to be made by the
Company shall become due on a date which is not a business day, such payment
may be made on the next succeeding business day, with the same force and
effect as if made on the originally stated date and no interest will accrue
for the period after such originally stated date. All computations of
interest payable under this Note shall be made on the basis of the actual
number of calendar days elapsed divided by 360. All payments hereunder shall
be applied first to any unpaid accrued interest, and second to repayment of
the Outstanding Principal Amount. All payments by the Company under this Note
shall be made without set-off, defense or counterclaim and shall be free and
clear and without any deduction or withholding for any taxes or fees of any
nature whatever, unless the obligation to make such deduction or withholding
is imposed by law.
7. Conversion; Issuance of Stock.
7.1 Automatic Conversion. In the event that the Company completes a
Reverse Merger Transaction or otherwise itself becomes a Public Company on or
prior to the Maturity Date, the Outstanding Principal Amount of this Note, and
any accrued and unpaid interest thereon, shall be automatically converted,
without any act by the Company, the Investor Representative or the Holder
hereof and at a price per share equal to the Conversion Price, into Conversion
Shares, which Conversion Shares shall thereafter be immediately and
automatically exchanged for Public Company Stock, concurrently with and upon
the terms and subject to conditions of the Reverse Merger Transaction.
7.2 Manner of Automatic Conversion and Exchange.
(a) As of that time which is immediately prior to (or
simultaneously with) consummation of the Reverse Merger Transaction, Holder
shall automatically and without any act by the Company or the Holder be deemed
to be the holder of the Conversion Shares and, whether or not Holder has
previously surrendered this Note, Holder shall cease to have any rights
pursuant to this Note, but shall have all of the rights granted to it as a
holder of the Conversion Shares. Upon conversion of the Outstanding Principal
Amount of this Note and accrued but unpaid interest thereon into Conversion
Shares as provided herein, the provisions of this Note relating to the
obligation of the Company to pay principal and interest to Holder, set forth
above, shall be null and void and no payment of principal and interest shall
be owed or paid by the Company to Holder pursuant to this Note.
(b) As of such time as the Reverse Merger Transaction is
consummated, and upon the terms and subject to the conditions of such Reverse
Merger Transaction, Holder shall automatically and without any act by the
Company or the Holder be deemed to be the holder of Public Company Stock and
Holder shall cease to have any rights pursuant to the Conversion Shares, but
shall have all of the rights granted to it as a holder of Public Company
Stock. To receive a certificate representing any shares of Public Company
Stock for which the Conversion Shares shall be exchanged, Holder shall
surrender this Note to the Company. As soon as practicable after the
surrender of this Note, the Company shall issue and deliver to Holder a
certificate for that number of shares of Public Company Stock issuable to
Holder upon exchange of Holder's Conversion Shares, as determined in
accordance with the terms and conditions of the Reverse Merger Transaction.
7.3 Adjustment of Conversion Price.
(a) The Conversion Price applicable to any conversion of this
Note into Conversion Shares pursuant to Section 7.1 above shall be subject to
appropriate adjustments to reflect stock splits (forward and reverse), stock
dividends, combinations, mergers, reorganizations and other fundamental
capitalization changes after the date hereof (other than issuance of the
Company's capital stock pursuant to the exercise of outstanding options and
warrants).
(b) Except for (i) the grant of options or warrants to purchase
Common Stock to employees, directors or consultants of the Company, or
pursuant to the Company's Employee Stock Purchase Plan or other similar
incentive plan, as approved from time to time by the Company's Board of
Directors or a committee thereof, and the issuance of shares of Common Stock
pursuant to the exercise of such options or warrants; (ii) the issuance of
shares of Common Stock pursuant to the exercise of options or warrants
outstanding prior to the original issuance of this Note that were approved by
the Company's Board of Directors or a committee thereof; and (iii) the
issuance of shares of Common Stock pursuant to the acquisition of a business
or stock of another entity or person, which is approved by the Company's Board
of Directors or a committee thereof, if and whenever the Company shall issue
or sell any shares of its Common Stock for a consideration per share less than
the Conversion Price in effect immediately prior to the time of such issuance
or sale, then, forthwith upon such issue or sale, the Conversion Price shall
be reduced to such lesser price. No such adjustment of the Conversion Price,
however, shall be made in an amount less than 2% of the Conversion Price in
effect on the date of such adjustment, but any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which, if any, together with any such adjustment so
carried forward, shall be an amount equal to or greater than 2% of the
Conversion Price then in effect.
8. Registration Rights. The Holder shall have registration rights under
the terms of this Note with respect to any Conversion Shares (or Public
Company Stock, as the case may be, following consummation of the Reverse
Merger Transaction) issuable upon the conversion of this Note, upon the terms
and subject to the conditions set forth in that certain Registration Rights
Agreement of even date herewith by and among the Company, the Holder and the
other Holders of this Note who are party thereto (the "Registration Rights
Agreement"), provided that the Holder agrees to be bound by all of the terms
and conditions of the Registration Rights Agreement and duly executes and
delivers the same. The Conversion Shares, or the Public Company Stock as the
case may be following a Reverse Merger Transaction, shall be included in the
definition of "Registrable Common" under the terms of the Registration Rights
Agreement and the Company shall promptly take all such actions as may be
reasonably necessary to assure that the Registration Rights Agreement is
amended to reflect such inclusion.
9. Covenants of Company. The Company covenants that all of the Conversion
Shares will, upon issuance thereof, be duly authorized and issued, fully
paid and nonassessable and that an adequate number of Conversion Shares shall
be reserved therefor.
10. Default.
10.1 Events of Default. An "Event of Default" will be deemed to occur
upon the happening of any of the following: (a) the failure to pay when due
any Outstanding Principal Amount or interest payable hereunder, (b) the filing
against the Company which is not dismissed within sixty (60) days thereafter,
or by the Company, of a petition in bankruptcy or for an arrangement or
reorganization, (c) the making by the Company of a general assignment of its
assets for the benefit of creditors, (d) the appointment of a receiver or
trustee for the Company, (e) the institution of liquidation or dissolution or
reorganization proceedings with respect to the Company, (f) the Company
becoming unable or admitting in writing an inability to pay its debts
generally as they become due, (g) any representation or warranty set forth in
that certain Subscription Agreement and Letter of Investment Intent pursuant
to which this Note was acquired shall be untrue in any material respect on the
date as of which the facts set forth therein are stated or certified and the
Company shall have failed to cure the same for a period of ten (10) days after
receipt of notice thereof, or (h) if the Company does not complete a Reverse
Merger Transaction or otherwise itself becomes a Public Company on or prior to
the Maturity Date,.
10.2 Rights on Default. If an Event of Default occurs and is
continuing without cure following the Company's receipt of written notice
thereof from the Investor Representative for a period of at least thirty (30)
days, the Investor Representative may declare the Outstanding Principal Amount
of this Note, together with any accrued and unpaid interest thereon, if not
already due, to be due and payable immediately, by written notice to the
Company. Upon any such declaration, such principal and interest will become
due and payable immediately. Notwithstanding the foregoing, if an Event of
Default under "Default .1(h)" occurs the Holders of the Notes shall receive in
the aggregate, at their option, twenty percent interest in the voting
interests of the Company.
10.3 Enforcement. If the Investor Representative, on behalf of the
Holders, declares the Outstanding Principal Amount of this Note, together with
all accrued and unpaid interest on this Note, due and payable immediately, the
Investor Representative or the Holder may proceed, subject, however, to all
the terms and conditions hereof, to protect and enforce its rights by an
action at law, suit in equity, or other appropriate proceeding.
11. Restrictions on Transfer. The Holder represents and warrants to the
Company that (i) this Note and any Conversion Shares into which this Note is
convertible are being acquired for investment for the Holder's own account and
not with the view to, or for resale in connection with, any distribution or
public offering thereof; and (ii) the Holder understands that neither this
Note nor the Conversion Shares have been registered under the Securities Act
of 1933, as amended (the "Securities Act") or any state securities laws by
reason of their contemplated issuance in transactions exempt from the
registration requirements of the Securities Act and applicable state
securities laws, and that the reliance of the Company and others upon these
exemptions is predicated in part upon this representation by the Holder.
Neither the Note nor the Conversion Shares may be transferred or resold
without prior registration under the Securities Act and any applicable state
securities laws.
12. Miscellaneous.
12.1 Headings. The headings in this Note are inserted for convenience
only and will not affect the meaning or interpretation of all or any part of
this Note.
12.2 Construction. Wherever possible, each provision of this Note will
be interpreted in such a manner as to be effective and valid under applicable
law, but if any provision of this Note is prohibited by or invalid under
applicable law, such provision will be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Note.
12.3 Amendment; Waivers. Neither this Note nor any term hereof may be
waived, amended, discharged, modified, changed, or terminated, nor shall any
waiver of any provision hereof be effective except by an instrument in writing
signed by the Investor Representative and the Company. The failure of the
Investor Representative or the Company to exercise any right, remedy, power,
or privilege hereunder in any instance will not constitute a waiver thereof,
or of any other right or remedy, and no single or partial exercise of any
right or remedy shall preclude any other or further exercise thereof or of any
other right or remedy.
12.4 Governing Law. This Note will be governed by and interpreted and
construed in accordance with the internal laws of the State of Minnesota
(without reference to principles of choice of law).
12.5 Registration Rights. The Holders shall have the right to include
all of the Conversion Shares as part of any registration of securities filed
by the Company and must be notified in writing in advance of such filing.
Holders shall have ten (10) business days to notify the Company in writing as
to whether the Company is to include Holders or not include the Holders as
part of the registration. All registration expenses incurred by the Company
in complying with this Agreement shall be paid by the Company.
12.6 Representations. The Company represents and warrants (a) the
transactions contemplated hereby and the Letter of Intent on which the Notes
are based (i) have been approved by all members of the Company, and (ii) are
permitted under the Company's operating agreement; and (b) the Company in good
standing with the state of formation. The Company covenants that it shall not
issue any membership interests (or any other form of equity or debt) so long
as the Notes are outstanding without the written consent of all Holders (which
consent may be withheld for any reason). The Managing Member is authorized to
execute the Notes on behalf of the Company and bind the Company to the terms
hereof.
12.7 Warrants. The Holders of the Notes shall receive warrants to
purchase fifty percent of the shares into which the Notes are convertible.
The warrants shall be evidenced by an appropriate document evidencing the
precise term of the warrants, as more fully set forth in that certain letter
of intent.
IN WITNESS WHEREOF, the Company has executed and delivered this Note in
favor of the Holder as of the date and year first set forth above.
LEGACY CARD COMPANY, INC.
By:
Name:____________________________________
Its:
____________________________
