EXHIBIT 10.2
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
16.66% SENIOR CONVERTIBLE NOTE DUE March 31, 2007
OF
KNOCKOUT HOLDINGS, INC.
Note No.: ____ Original Principal Amount: $[________]
Issuance Date: September 12, 2005
This note ("Note") is one of a duly authorized issue of Notes of Knockout
Holdings, Inc., a corporation duly organized and existing under the laws of the
State of Delaware (the "Company"), designated as the Company's 16.66% Senior
Convertible Notes Due March 31, 2007 ("Maturity Date") in an aggregate principal
amount (when taken together with the original principal amounts of all other
Notes) of $2,800,000 (together, the "Notes").
FOR VALUE RECEIVED, the Company hereby promises to pay to the order of
[_________________________] or its registered assigns or successors-in-interest
("Holder") the principal sum of $[_____________], together with all accrued but
unpaid interest thereon, if any, on the Maturity Date, to the extent such
principal amount and interest has not been repaid or converted into the
Company's Common Stock, $0.001 par value per share (the "Common Stock"), in
accordance with the terms hereof. Interest on the unpaid and unconverted
principal balance hereof shall accrue at the rate of sixteen and 66/100 percent
(16.66%) per annum from the date of original issuance hereof (the "Issuance
Date"). Payments on the Note shall be made in accordance with Section 1 hereof.
Interest on this Note shall accrue daily commencing on the Issuance Date and
shall be computed on the basis of a 360-day year, 30-day months and actual days
elapsed and shall be payable in accordance with Section 1 hereof. Unless
otherwise agreed or required by applicable law, payments will be applied first
to any unpaid collection costs, then to unpaid interest and fees and any
remaining amount to principal.
Except as otherwise provided herein, all payments of principal and
interest on this Note shall be made in lawful money of the United States of
America by wire transfer of immediately available funds to such account as the
Holder may from time to time designate by written notice in accordance with the
provisions of this Note or by Company check. Whenever any amount expressed to be
due by the terms of this Note is due on any day which is not a Business Day (as
defined below), the same shall instead be due on the next succeeding day which
is a Business Day.
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Purchase Agreement dated on or about the Issuance Date
pursuant to which the Notes were originally issued (the "Purchase Agreement").
For purposes hereof the following terms shall have the meanings ascribed to them
below:
"Bankruptcy Event" means any of the following events: (a) the Company
commences a case or other proceeding under any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the Company; (b)
there is commenced against the Company any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company is adjudicated
insolvent or bankrupt or any order of relief or other order approving any such
case or proceeding is entered; (d) the Company suffers any appointment of any
custodian or the like for it or any substantial part of its property that is not
discharged or stayed within 60 days; (e) the Company makes a general assignment
for the benefit of creditors; (f) the Company fails to pay, or states that it is
unable to pay or is unable to pay, its debts generally as they become due; (g)
the Company calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (h) the Company, by
any act or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action for
the purpose of effecting any of the foregoing.
"Business Day" shall mean any day other than a Saturday, Sunday or a day
on which commercial banks in the City of New York are authorized or required by
law or executive order to remain closed.
"Change in Control Transaction" will be deemed to exist if (i) there
occurs any consolidation, merger or other business combination of the Company
with or into any other corporation or other entity or person (whether or not the
Company is the surviving corporation), or any other corporate reorganization or
transaction or series of related transactions in which in any of such events the
voting stockholders of the Company prior to such event cease to own thirty-three
percent (33%) or more of the voting power, or corresponding voting equity
interests, of the surviving corporation after such event (including without
limitation any "going private" transaction under Rule 13e-3 promulgated pursuant
to the Exchange Act or tender offer by the Company under Rule 13e-4 promulgated
pursuant to the Exchange Act for twenty percent (20%) or more of the Company's
Common Stock), (ii) any person (as defined in Section 13(d) of the Exchange
Act), together with its affiliates and associates (as such terms are defined in
Rule 405 under the Act), beneficially owns or is deemed to beneficially own (as
described in Rule 13d-3 under the Exchange Act without regard to the 60-day
exercise period) in excess of fifty percent (50%) of the Company's voting power,
(iii) there is a replacement of more than one-half of the members of the
Company's Board of Directors which is not approved by those individuals who are
members of the Company's Board of Directors on the date thereof, (iv) in one or
a series of related transactions, there is a sale or transfer of all or
substantially all of the assets of the Company, determined on a consolidated
basis, or (v) the Company enters into any agreement providing for an event set
forth in (i), (ii), (iii) or (iv) above.
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"Conversion Price" shall equal $.50 (which Conversion Price shall be
subject to adjustment as set forth herein).
"Default Rate" shall mean the lower of eighteen percent (18%) per annum or
the highest rate permitted by law.
"Effective Date" means the date on which a Registration Statement covering
all the Underlying Shares and other Registrable Securities (as defined in the
Registration Rights Agreement) is declared effective by the SEC.
"Effective Registration" shall mean (i) the resale of all Registrable
Securities (as defined in the Registration Rights Agreement) is covered by an
effective registration statement in accordance with the terms of the
Registration Rights Agreement which registration statement is not subject to any
suspension or stop order; (ii) the resale of such Registrable Securities may be
effected pursuant to a current and deliverable prospectus that is not subject at
the time to any blackout or similar circumstance; and (iii) the requisite number
of shares of Common Stock shall have been duly authorized and reserved for
issuance as required by the terms of the Purchase Agreement and this Note.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Issuance Date" shall mean the date of this Note.
"Maturity Date" shall mean March 31, 2007.
"Principal Amount" shall refer to (i) the original principal amount of
this Note, less (ii) all amounts of principal previously repaid or converted.
"Principal Market" shall mean a principal market or exchange on which the
Common Stock is then listed for trading.
"Registration Statement" shall have the meaning set forth in the
Registration Rights Agreement.
"Required Holders" means the Holders of not less than 50% in aggregate
principal amount of the Notes then outstanding exclusive of any Notes then owned
by either the Company or any of its Affiliates.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Trading Day" shall mean a day on which there is trading on the Principal
Market.
The following terms and conditions shall apply to this Note:
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Section 1. Payments of Principal and Interest.
(a) Maturity Date. On the Maturity Date, the Company shall pay to
the Holder all outstanding Principal Amount and all accrued but unpaid interest
thereon, in accordance with this Section 1.
(b) Certain Additional Payments by the Company. Any payment by the
Company to the Holder hereunder, whether for principal, interest or otherwise,
shall not be subject to any deduction, withholding or offset for any reason
whatsoever except to the extent required by law, and the Company represents that
to its best knowledge no deduction, withholding or offset is so required for any
tax or any other reason.
(c) Redemption. (i) In the event of a Change in Control Transaction,
the Company shall redeem in cash all of the Notes for a redemption price equal
to 125% of the amount of the outstanding Principal Amount, plus accrued and
unpaid interest thereon to the applicable redemption date. The Company shall
give the Holder written notice of such redemption under this Section 1(e)(i) not
less than ten (10) days prior to the date fixed for such redemption, in each
case specifying such redemption date, the Principal Amount of the Notes (and
accrued and unpaid interest thereon) to be redeemed and terms of such Change in
Control Transaction in detail. Upon receipt of such redemption notice, the
Holder may convert at the ten applicable Conversion Price, in lieu of such
redemption, at any time prior to the date fixed for such redemption, all or any
part of Principal Amount and accrued and unpaid interest designated by the
Company for redemption.
(ii) At any time after the date hereof, the Company may redeem
in cash all of the Note for a redemption price equal to 125% of the amount of
the outstanding Principal Amount, plus accrued and unpaid interest thereon to
the applicable redemption date. The Company shall give the Holder written notice
of such redemption under this Section 1(e)(ii) not less than ten (10) days prior
to the date fixed for such redemption, in each case specifying such redemption
date and the Principal Amount of the Note (and accrued and unpaid interest
thereon) to be redeemed. Upon receipt of such redemption notice, the Holder may
convert at the then applicable Conversion Price, in lieu of such redemption, at
any time prior to the date fixed for such redemption, all or any part of
Principal Amount and accrued and unpaid interest designated by the Company for
redemption.
Section 2. Conversion.
(a) Conversion Right. Subject to the terms hereof and restrictions
and limitations contained herein, the Holder shall have the right, at such
Holder's option, at any time and from time to time, to convert the outstanding
Principal Amount and the accrued but unpaid interest under this Note, in whole
or in part, into shares of Common Stock at the then applicable Conversion Price
by delivering to the Company, at least 5 Trading Days before the Maturity Date,
a fully executed notice of conversion in the form of conversion notice attached
hereto as Exhibit A (the "Conversion Notice"), which may be initially
transmitted by facsimile (provided the original Conversion Notice and this Note
is delivered to the Holder within 3 Trading Days following such facsimile
transmission).
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(b) Common Stock Issuance upon Conversion.
(i) Conversion Date Procedures. Upon conversion of this Note
pursuant to Section 2(a) above, the outstanding Principal Amount and interest
hereunder shall be converted into such number of fully paid, validly issued and
non-assessable shares of Common Stock, free of any liens, claims and
encumbrances as is determined by dividing the outstanding Principal Amount and
interest being converted by the Conversion Price. The date of any Conversion
Notice hereunder shall be referred to herein as the "Conversion Date". If a
conversion under this Note cannot be effected in full in accordance with the
terms hereof, or if the Holder is converting less than all of the outstanding
Principal Amount and interest hereunder pursuant to a Conversion Notice, on the
Maturity Date, the Company shall deliver to the Holder a Note (containing the
same terms a the Note herein) for such outstanding Principal Amount as has not
been converted if this Note has bee surrendered to the Company for partial
conversion. The Holder shall surrender this Note to the Company within 3 Trading
Days of any conversion, in whole or in part. .
(ii) Stock Certificates. Providing that an Effective
Registration Statement is effective, or providing the Conversion Notice is dated
more than two (2) years after the Issuance Date (provided the Holder is not then
deemed an affiliate of the Company in the case of reliance on the 2-year holding
period), the Company will deliver to the Holder not later than three (3) Trading
Days after the Conversion Date, a certificate or certificates which shall be
free of restrictive legends and trading restrictions, representing the number of
shares of Common Stock being acquired upon the conversion of this Note. If in
the case of any conversion hereunder, such certificate or certificates are not
delivered to the Holder by the third Trading Day after the Conversion Date, the
Holder shall be entitled by written notice to the Company at any time on or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return this Note
tendered for conversion. If the Company fails to deliver to the Holder such
certificate or certificates pursuant to this Section 2(b) (free of any
restrictions on transfer or legends, if such shares have been registered or if
the Note has been held beyond two years from the Issuance Date) in accordance
herewith, on or prior to the sixth Trading Day after the Conversion Date, the
Company shall pay to the Holder, in cash, an amount equal to .25% of the
Principal Amount subject to such conversion for each Trading Day thereafter
until such certificate(s) are delivered to the Holder or until the conversation
is rescinded by the Holder, whichever shall first occur.
(iii) Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Conversion. In addition to any other rights available to the
Holder, if the Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to Section 4(d)(ii) by the third Trading
Day after the Conversion Date, and if after such third Trading Day the Holder is
required by its brokerage firm to purchase (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by such Holder of
the shares of Common Stock which the Holder anticipated receiving upon
conversion (a "Buy-In"), then the Company shall (A) pay in cash to the Holder
(in addition to any remedies available to or elected by the Holder) the amount
by which (x) the Holder's total purchase price (including brokerage commissions,
if any) for the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue multiplied by (2) the actual sale price
of the Common Stock at the time of the sale (including brokerage commissions, if
any) giving rise to such purchase obligation and (B) at the option of the
Holder, either reissue Notes in principal amount equal to the principal amount
5
of the attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company timely complied with
its delivery requirements under Section 4(d). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of Notes with respect to which
the actual sale price of the shares of Common Stock at the time of the sale
(including brokerage commissions, if any) giving rise to such purchase
obligation was a total of $10,000 under clause (A) of the immediately preceding
sentence, the Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In. Notwithstanding anything contained herein to
the contrary, if a Holder requires the Company to make payment in respect of a
Buy-In for the failure to timely deliver certificates hereunder and the Company
timely pays in full such payment, the Company shall not be required to pay such
Holder under Section 4(d)(ii) in respect of the certificates resulting in such
Buy-In.
Section 3. Conversion Price Adjustments.
(a) Stock Dividends, Splits and Combinations. If the Company, at any
time while the Notes are outstanding (A) shall pay a stock dividend or otherwise
make a distribution or distributions on any equity securities (including
instruments or securities convertible into or exchangeable for such equity
securities) in shares of Common Stock, (B) subdivide outstanding Common Stock
into a larger number of shares, or (C) combine outstanding Common Stock into a
smaller number of shares, then the Conversion Price in effect immediately prior
to such event shall be adjusted to a number equal to such Conversation Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding before such event and the denominator of which shall
be the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination.
(b) Distributions. If the Company, at any time while the Notes are
outstanding, shall distribute to all holders of Common Stock evidences of its
indebtedness or assets or cash or rights or warrants to subscribe for or
purchase any security of the Company, then concurrently with such distributions
to holders of Common Stock, the Company shall distribute to holders of the Notes
the amount of such indebtedness, assets, cash or rights or warrants which the
holders of Notes would have received had all their Notes been converted into
Common Stock at the Conversion Price immediately prior to the record date for
such distribution.
(c) Subsequent Equity Sales. If the Company at any time while the
Notes are outstanding, shall offer, sell, grant any option to purchase or offer,
sell or grant any right to reprice its securities, or otherwise dispose of or
issue (or announce any offer, sale, grant or any option to purchase or other
disposition) any Common Stock or Common Stock Equivalents (but with the
exception of Excluded Issuances) entitling any entity or person to acquire
shares of Common Stock, at an effective price per share less than the then
Conversion Price (such lower price, the "Base Share Price" and such issuances
collectively, a "Dilutive Issuance"), as adjusted hereunder (if the holder of
the Common Stock or Common Stock Equivalents so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which is issued in connection with such issuance, be
entitled to receive shares of Common Stock at an effective price per share which
is less than the Conversion Price, such issuance shall be deemed to have
occurred for less than the Conversion Price), then, the Conversion Price shall
be reduced to equal the Base Share Price. Such adjustment shall be made whenever
such Common Stock or Common Stock Equivalents are issued. The Company shall
6
notify the Holder in writing, no later than the Trading Day following the
issuance of any Common Stock or Common Stock Equivalents subject to this
section, indicating therein the applicable issuance price, or of applicable
reset price, exchange price, conversion price and other pricing terms (such
notice the "Dilutive Issuance Notice"). For purposes of clarification, whether
or not the Company provides a Dilutive Issuance Notice pursuant to this Section
3(c), upon the occurrence of any Dilutive Issuance, after the date of such
Dilutive Issuance the Holder is entitled to receive a number of shares of Common
Stock upon conversion based upon the Base Share Price regardless of whether the
Holder accurately refers to the Base Share Price in the Notice of Conversion.
"Common Stock Equivalents" shall means (a) any rights, warrants or options to
purchase or otherwise acquire Common Stock or (b) any stock or securities
directly or indirectly convertible into or exchangeable for Common Stock.
"Excluded Issuances" shall mean (A) any issuance by the Company of securities in
connection with a strategic partnership or a joint venture (the primary purpose
of which is not to raise equity capital), (B) any issuance by the Company of
securities as consideration for a merger or consolidation or the acquisition of
a business, product, license or other assets of another person or entity, (C)
any Common Stock Equivalents outstanding as of the Issuance Date; (D) options to
purchase shares of Common Stock issued to employees of the Company; and (E) any
issuance by the Company of securities in consideration for services rendered,
provided, an aggregate of no more than 1,000,000 shares of Common Stock are
issued or issuable in reliance on this clause (E).
(c) Rounding of Adjustments. All calculations under this Section 3
shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be.
(d) Notice of Adjustments. Whenever any Conversion Price is adjusted
as provided herein, the Company shall promptly deliver to each holder of the
Notes, a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment, provided
that any failure to so provide such notice shall not affect the automatic
adjustment hereunder.
(e) Intentionally Omitted.
(f) Notice of Certain Events. If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
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D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of
any compulsory share of exchange whereby the
Common Stock is converted into other securities,
cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up
of the affairs of the Company,
then the Company shall cause to be mailed to the Holder at its last address as
it shall appear upon the books of the Company, on or prior to the date notice to
the Company's stockholders generally is given, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, securities issuance, consolidation, merger,
sale, transfer or share exchange is expected to become effective or close, and
the date as of which it is expected that holders of Common Stock of record shall
be entitled to exchange their shares of Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange.
(g) Notice of Certain Other Events. If:
A. the Company enters into, creates, incurs, assumes or
suffers to exist any indebtedness of any kind in excess
of $50,000, in a single transaction or series of related
transactions, other than (a) indebtedness existing on
the date hereof; (b) indebtedness of the Company to its
Subsidiary; (c) indebtedness arising out of trade
accounts payable and other accrued liabilities arising
in the ordinary course of business that are not overdue
by 90 days or more or are being contested in good faith;
(d) indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar
instrument; or
B. the Company makes a cash disbursement in excess of
$1,000,000, in a single transaction or series of related
transactions, other than transactions which have been
disclosed in a SEC Filing prior to the Issuance Date or
which is disclosed in a SEC Filing within five (5) days
of such disbursement,
provided the Holder is subject to a confidentiality agreement with the Company
reasonably acceptable to the Company, the Company shall cause to be mailed to
the Holder at its last address as it shall appear upon the books of the Company,
notice of such indebtedness or disbursement.
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Section 4. Reservation and Issuance of Underlying Securities. The Company
covenants that it will at all times after the effectiveness of the amendment to
its Certificate of Incorporation increasing the number of authorized shares of
Common Stock (as described in the Purchase Agreement) reserve and keep available
out of its authorized and unissued Common Stock solely for the purpose of
issuance upon conversion of this Note and repayments in stock, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the holders of the Notes, not less than such number of shares of
Common Stock as shall be issuable (taking into account the adjustments under
Section 3) upon the conversion of this Note hereunder in Common Stock. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly authorized, validly issued, fully paid and
nonassessable.
Section 5. No Fractions. Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the closing price of a share of Common Stock
at such time. If the Company elects not, or is unable, to make such a cash
payment, the Holder shall be entitled to receive, in lieu of the final fraction
of a share, one whole share of Common Stock.
Section 6. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the conversion of this Note and repayment in stock shall be
made without charge to the holder hereof for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or names as may be directed by
the Holder; provided, however, that in the event certificates for shares of
Common Stock are to be issued in a name other than the name of the Holder, this
Note when surrendered for conversion shall be accompanied by an assignment form;
and provided further, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any such transfer.
Section 7. Cancellation. After all of the Principal Amount (including accrued
but unpaid interest and default payments at any time owed on this Note) have
been paid in full or converted into Common Stock, this Note shall automatically
be deemed canceled and the Holder shall promptly surrender the Note to the
Company at the Company's principal executive offices.
Section 8. Notices Procedures. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder shall be in writing and
delivered personally, by confirmed facsimile, or by a nationally recognized
overnight courier service to the Company at the facsimile telephone number or
address of the principal place of business of the Company as set forth in the
Purchase Agreement. Any and all notices or other communications or deliveries to
be provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, or by a nationally recognized overnight courier
service addressed to the Holder at the facsimile telephone number or address of
the Holder appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of business of the
Holder. Any notice or other communication or deliveries hereunder shall be
deemed delivered (i) upon receipt, when delivered personally, (ii) when sent by
facsimile, upon receipt if received on a Business Day prior to 5:00 p.m.
(Eastern Time), or on the first Business Day following such receipt if received
on a Business Day after 5:00 p.m. (Eastern Time) or (iii) upon receipt, when
deposited with a nationally recognized overnight courier service.
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Section 9. Defaults and Remedies.
(a) Events of Default. An "Event of Default" is: (i) a default in
payment of any amount due hereunder which default continues uncured for more
than 5 Trading Days after the due date thereof; (ii) a default in the timely
issuance of Underlying Shares upon and in accordance with terms hereof, within 5
Trading Days following such payment date; (iii) failure by the Company for 10
Trading Days after written notice has been received by the Company to comply
with any material provision of any of the Notes, the Purchase Agreement or the
Registration Rights Agreement; (iv) a material breach by the Company of its
covenants, representations or warranties in the Purchase Agreement or
Registration Rights Agreement that remains uncured 10 Trading Days following
receipt by the Company of written notice of such breach; or (v) if the Company
is subject to any Bankruptcy Event.
(b) Remedies. If an Event of Default occurs and is continuing with
respect to any of the Notes, the Required Holders may declare all of the then
outstanding Principal Amount of this Note and all other Notes held by the
Holders, including any interest due thereon, to be due and payable immediately
("Event of Acceleration"). The Company shall pay interest on such amount in cash
at the Default Rate to the Holder if such amount is not paid within 7 Trading
Days thereafter. The remedies under this Note shall be cumulative.
Section 10. General.
(a) Payment of Expenses. The Company agrees to pay all reasonable,
documented charges and expenses, including attorneys' fees and expenses, which
may be incurred by the Holder in successfully enforcing this Note and/or
collecting any amount due under this Note.
(b) Savings Clause. In case any provision of this Note is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby. In no event shall the amount of interest paid
hereunder exceed the maximum rate of interest on the unpaid principal balance
hereof allowable by applicable law. If any sum is collected in excess of the
applicable maximum rate, the excess collected shall be applied to reduce the
principal debt. If the interest actually collected hereunder is still in excess
of the applicable maximum rate, the interest rate shall be reduced so as not to
exceed the maximum allowable under law.
(c) Amendment. Neither this Note nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the Company and the Holder, provided, this Note and all the other Notes issued
pursuant to the Purchase Agreement (but not less than all such Notes
outstanding) may be amended from time to time upon the written consent of the
Company and the Required Holders.
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(d) Assignment, etc. The Holder may assign or transfer this Note to
any transferee (other than to competitors or vendors of the Company). The Holder
shall notify the Company of any such assignment or transfer promptly. This Note
shall be binding upon the Company and its successors and shall inure to the
benefit of the Holder and its successors and assigns.
(e) No Waiver. No failure on the part of the Holder to exercise, and
no delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
(f) Governing Law; Jurisdiction.
(i) Governing Law. This note will be governed by and construed
in accordance with the laws of the State of New York without regard to any
conflicts of laws provisions thereof that would otherwise require the
application of the law of any other jurisdiction.
(ii) No Jury Trial. The Company hereto knowingly and
voluntarily waives any and all rights it may have to a trial by jury with
respect to any litigation based on, or arising out of, under, or in connection
with, this Note.
(g) Replacement Notes. This Note may be exchanged by Holder at any
time and from time to time for a Note or Notes with different denominations
representing an equal aggregate outstanding Principal Amount, as reasonably
requested by Holder, upon surrendering the same. No service charge will be made
for the first such registration or exchange; thereafter, the Holder shall
reimburse the Company for its reasonable document fees and expenses (including
transfer agent and legal fees and expenses). In the event that Holder notifies
the Company that this Note has been lost, stolen or destroyed, a replacement
Note identical in all respects to the original Note (except for registration
number and Principal Amount, if different than that shown on the original Note),
shall be issued to the Holder, provided that the Holder executes and delivers to
the Company an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with the Note.
[Signature Page Follows]
11
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed on the day and in the year first above written.
KNOCKOUT HOLDINGS, INC.
By:
------------------------------------
Name:
Title:
Attest:
Sign:
--------------------------------
Print Name:
12
EXHIBIT A
FORM OF CONVERSION NOTICE
(To be executed by the Holder
in order to convert a Note)
Re: Note (this "Note") issued by Knockout Holdings, Inc. to
_____________________ on or about September ___, 2005 in the
original principal amount of $________________.
The undersigned hereby elects to convert the aggregate outstanding Principal
Amount (as defined in the Note) indicated below of this Note into shares of
Common Stock, $0.001 par value per share (the "Common Stock"), of Knockout
Holdings, Inc. (the "Company") according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
Conversion information:
----------------------------------------------------
Date to Effect Conversion
----------------------------------------------------
Aggregate Principal Amount of Note Being Converted
----------------------------------------------------
Number of Shares of Common Stock to be Issued
----------------------------------------------------
Applicable Conversion Price
----------------------------------------------------
Signature
----------------------------------------------------
Name
----------------------------------------------------
Address
