THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO GO ONLINE NETWORKS CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
CONVERTIBLE NOTE
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FOR VALUE RECEIVED, GO ONLINE NETWORKS CORPORATION, a Delaware corporation
(hereinafter called "Borrower"), hereby promises to pay to LAURUS MASTER FUND,
LTD., c/o Onshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House,
South Church Street, Grand Cayman, Cayman Islands, Fax: 000-000-0000 (the
"Holder") or order, without demand, the sum of Five Hundred Thousand Dollars
($500,000.00), with simple interest accruing at the annual rate of 8%, on May 3,
2003 (the "Maturity Date").
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace
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period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of twenty percent (20%) per annum shall apply to the
amounts owed hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
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Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.
1.3 Interest Rate. Subject to the Holder's right to convert, interest
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payable on this Note shall accrue at the annual rate of eight percent (8%) and
be payable in arrears commencing September 30, 2001 and quarterly thereafter,
and on the Maturity Date, accelerated or otherwise, when the principal and
remaining accrued but unpaid interest shall be due and payable, or sooner as
described below.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock as set
forth below.
2.1. Conversion into the Borrower's Common Stock.
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(a) The Holder shall have the right from and after the issuance of this
Note and then at any time until this Note is fully paid, to convert any
outstanding and unpaid principal portion of this Note, and/or at the Holder's
election, the interest accrued on the Note, (the date of giving of such notice
of conversion being a "Conversion Date") into fully paid and nonassessable
shares of common stock of Borrower as such stock exists on the date of issuance
of this Note, or any shares of capital stock of Borrower into which such stock
shall hereafter be changed or reclassified (the "Common Stock") at the
conversion price as defined in Section 2.1(b) hereof (the "Conversion Price"),
determined as provided herein. Upon delivery to the Company of a Notice of
Conversion as described in Section 9 of the subscription agreement entered into
between the Company and Holder relating to this Note (the "Subscription
Agreement") of the Holder's written request for conversion, Borrower shall issue
and deliver to the Holder within three business days from the Conversion Date
that number of shares of Common Stock for the portion of the Note converted in
accordance with the foregoing. At the election of the Holder, the Company will
deliver accrued but unpaid interest on the Note through the Conversion Date
directly to the Holder on or before the Delivery Date (as defined in the
Subscription Agreement). The number of shares of Common Stock to be issued upon
each conversion of this Note shall be determined by dividing that portion of the
principal (and interest, at the election of the Holder) of the Note to be
converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lower of (i) eighty (80%) of the average
of the ten lowest closing bid prices for the Common Stock on the NASD OTC
Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American
Stock Exchange, or New York Stock Exchange (whichever of the foregoing is at the
time the principal trading exchange or market for the Common Stock, the
"Principal Market"), or if not then trading on a Principal Market, such other
principal market or exchange where the Common Stock is listed or traded for the
thirty (30) trading days prior to but not including the Closing Date (as
defined in the Subscription Agreement) in connection with which this Note is
issued ("Maximum Base Price"); or (ii) eighty percent (80%) percent of the
average of the ten lowest closing bid prices for the Common Stock on the
Principal Market, or on any securities exchange or other securities market on
which the Common Stock is then being listed or traded, for the sixty (60)
trading days prior to but not including the Conversion Date.
(c) The Maximum Base Price described in Section 2.1(b)(i) above and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.1(a) and 2.1(b), shall be subject to adjustment
from time to time upon the happening of certain events while this conversion
right remains outstanding, as follows:
X. Xxxxxx, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence the
right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of Common Stock
are subdivided or combined into a greater or smaller number of shares of Common
Stock, or if a dividend is paid on the Common Stock in shares of Common Stock,
the Conversion Price shall be proportionately reduced in case of subdivision of
shares or stock dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.
D. Share Issuance. Subject to the provisions of this Section, if the
Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; (ii)
pursuant to options, warrants, or other obligations to issue shares, outstanding
on the date hereof as described in the Reports and Other Written Information, as
such terms are defined in the Subscription Agreement (which agreement is
incorporated herein by this reference); or (iii) Excepted Issuances, as defined
in Section 12 of the Subscription Agreement; [(i), (ii) and (iii) above, are
hereinafter referred to as the "Existing Option Obligations"] for a
consideration less than the Conversion Price that would be in effect at the time
of such issue, then, and thereafter successively upon each such issue, the
Conversion Price shall be reduced as follows: (i) the number of shares of
Common Stock outstanding immediately prior to such issue shall be multiplied by
the Conversion Price in effect at the time of such issue and the product shall
be added to the aggregate consideration, if any, received by the Borrower upon
such issue of additional shares of Common Stock; and (ii) the sum so obtained
shall be divided by the number of shares of Common Stock outstanding immediately
after such issue. The resulting quotient shall be the adjusted conversion
price. Except for the Existing Option Obligations, for purposes of this
adjustment, the issuance of any security of the Borrower carrying the right to
convert such security into shares of Common Stock or of any warrant, right or
option to purchase Common Stock shall result in an adjustment to the Conversion
Price upon the issuance of shares of Common Stock upon exercise of such
conversion or purchase rights.
(d) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Xxxxxxxx agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the Holder in
---------------------
whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall, at the request of the Holder, be issued
by the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any
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installment of principal or interest hereon when due and such failure continues
for a period of ten (10) days after the due date. The ten (10) day period
described in this Section 3.1 is the same ten (10) day period described in
Section 1.1 hereof.
3.2 Breach of Covenant. The Borrower breaches any material covenant or
------------------
other term or condition of this Note in any material respect and such breach, if
subject to cure, continues for a period of seven (7) days after written notice
to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any material
--------------------------------------------
representation or warranty of the Borrower made herein, in the Subscription
Agreement entered into by the Holder and Borrower in connection with this Note,
or in any agreement, statement or certificate given in writing pursuant hereto
or in connection therewith shall be false or misleading in any material respect.
3.4 Receiver or Trustee. The Borrower shall make an assignment for the
-------------------
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final process shall
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be entered or filed against Borrower or any of its property or other assets for
more than $100,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
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proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower and if
instituted against Borrower are not dismissed within 45 days of initiation.
3.7 Delisting. Delisting of the Common Stock from the Principal Market
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or such other principal exchange on which the Common Stock is listed for
trading; Borrower's failure to comply with the conditions for listing; or
notification from the Principal Market that the Borrower is not in compliance
with the conditions for such continued listing.
3.8 Concession. A concession by the Borrower, after applicable notice
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and cure periods, under any one or more obligations in an aggregate monetary
amount in excess of $150,000.
3.9 Stop Trade. An SEC stop trade order or Principal Market trading
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suspension.
3.10 Failure to Deliver Common Stock or Replacement Note. Borrower's
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failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 9 of the Subscription Agreement, or if
required a replacement Note.
3.11 Registration Default. The occurrence of a Non-Registration Event
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as described in Section 10.4 of the Subscription Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part
---------------------------------
of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
4.2 Notices. Any notice herein required or permitted to be given shall
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be in writing and may be personally served or sent by fax transmission (with
copy sent by regular, certified or registered mail or by overnight courier).
For the purposes hereof, the address and fax number of the Holder is as set
forth on the first page hereof. The address and fax number of the Borrower
shall be Go Online Networks Corporation, 0000 Xxxxx Xxxxxxxxx, Xxxxx 000, Xxxxx
Xxxx, XX 00000, telecopier number: (000) 000-0000, with a copy for informational
purposes only to: Xxxxxx Law Group, 000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxx
Xxxxx, XX 00000, attn: X. Xxxxxxx Xxxxxx, Esq., telecopier number: (949)
719-1988. Both Xxxxxx and Borrower may change the address and fax number for
service by service of notice to the other as herein provided. Notice of
Conversion shall be deemed given when made to the Company pursuant to the
Subscription Agreement.
4.3 Amendment Provision. The term "Note" and all reference thereto, as
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used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and
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its successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this
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Note, Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
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accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individual signing this Agreement on behalf of the Borrower agree to submit to
the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed to
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establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate
of interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
4.8 Prepayment. This Note may not be paid prior to the Maturity Date
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without the consent of the Holder.
4.9 Security Interest. The holder of this Note has been granted a
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security interest in common stock of the Company more fully described in a
Security Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Xxxxxxxx has caused this Note to be signed in its name by
its Chief Executive Officer on this 3rd day of May, 2001.
GO ONLINE NETWORKS CORPORATION
By: /s/ Xxxxxx X. Xxxxxxxx
WITNESS: /s/ Xxxxxxxx Xxxxxx
NOTICE OF CONVERSION
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(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by GO ONLINE NETWORKS
CORPORATION on May 3, 2001 into Shares of Common Stock of GO ONLINE NETWORKS
CORPORATION (the "Company") according to the conditions set forth in such Note,
as of the date written below.
Date of
Conversion:____________________________________________________________________
Conversion
Price:_________________________________________________________________________
Shares To Be
Delivered:_____________________________________________________________________
Signature:_____________________________________________________________________
Print
Name:__________________________________________________________________________
Address:_______________________________________________________________________
_______________________________________________________________________________
