Exhibit 4.05
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 LIQUIDIX,
INC., THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE I
FOR VALUE RECEIVED, LIQUIDIX, INC., a Florida corporation (hereinafter
called the "BORROWER"), hereby promises to pay to Kazi Management VI, Inc. (the
"HOLDER") on order, without demand, the sum of Two Hundred and Fifty Thousand
Dollars ($250,000), with simple interest accruing at the annual rate of 8%, on
August 28, 2004 (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 five (5) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of fifteen percent (15%) per annum above the then
applicable interest rate hereunder shall apply to the amounts owed hereunder.
1.2 CONVERSION PRIVILEGES. The Conversion Privileges set forth in
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. Interest payable on this Note shall accrue at the
annual rate of eight percent (8%) and be payable in arrears commencing June 30,
2002 and on the last day of each quarter 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.
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ARTICLE II
CONVERSION RIGHTS
At any time during the term of this Note, the Holder may
deliver a written notification (the "NOTICE OF CONVERSION") to the Borrower
setting forth the portion of the principal amount of the Note and/or interest
due and payable (the "INVESTMENT AMOUNT") that the Holder exercises its
conversion rights with respect thereto, subject to the terms and provisions set
forth below. Notwithstanding, Borrower may, at its option, pay interest due and
payable on the Note in cash or in freely tradable shares of Common Stock at the
Conversion Price.
2.1. CONVERSION INTO THE BORROWER'S COMMON STOCK.
(a) The Holder shall have the right, but not the obligation,
from and after the Borrower's receipt of an Notice of Conversion or the
occurrence of any Event of Default, as the case may be, and then at any time
until this Note is fully paid, to convert the principal portion of this Note
and/or interest due and payable set forth in each such Notice of Conversion or
the entire principal portion of this Note and/or interest due and payable
following the occurrence or an Event of Default, as the case may be, into fully
paid and nonassessable shares of common stock of the Borrower as such stock
exists on the date of issuance of this Note, or any shares of capital stock of
the 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
Borrower of a Notice of Conversion as described in Section 9 of the Subscription
Agreement entered into between the Borrower and certain persons who are
signatories thereto, including the Holder, relating to this Note (the "PURCHASE
AGREEMENT") of the Holder's written request for conversion (the date of giving
such notice of conversion being a "CONVERSION DATE"), the 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 Borrower 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
Purchase 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 of the Note to be converted and interest, if any, 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) $0.30 ("MAXIMUM
BASE PRICE"); or (ii) sixty percent (60%) of the average of the three 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 ten (10) trading days prior
to but not including Conversion Date.
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(c) The Conversion Price described above shall be subject to
adjustment from time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:
A. Merger, 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 person or entity, 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) During the period the conversion right exists, the
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. The Borrower represents that upon issuance, such shares
will be duly and validly issued, fully paid and non-assessable. The Borrower
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.
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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
installment of principal or interest hereon or on any other promissory note
issued pursuant to the Purchase Agreement, when due and such failure continues
for a period of five (5) days after the due date.
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 Purchase
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading.
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
be entered or filed against the Borrower or any of its property or other assets
for more than $50,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.
3.6 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
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.
3.7 DELISTING. Delisting of the Common Stock from the Principal Market
or such other principal exchange on which the Common Stock is listed for
trading; the Borrower's failure to comply with the conditions for listing; or
notification 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
and cure periods, under any one or more obligations in an aggregate monetary
amount in excess of $50,000.
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3.9 STOP TRADE. An SEC stop trade order or Principal Market trading
suspension.
3.10 FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. The
Borrower's 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 DEFAULT UNDER SECURITY. An Event of Default occurs under and as
defined in the Security Agreement dated as of the date hereof between the
Borrower and the Holder as such agreement may be amended, modified and
supplemented from time to time, and such Event of Default is not cured during
any applicable cure or grace period.
ARTICLE IV
MISCELLANEOUS
4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of the 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
be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
Borrower at the address as set forth on the signature page to the Subscription
Agreement executed in connection herewith and to the Holder at the address set
forth on the signature page to the Subscription Agreement for such Holder, with
a copy to Xxxx X. Xxxx, Esq., Law Offices of Xxxx X. Xxxx, 0000 Xxxxxxxx Xxxx.,
Xxxxx 000, Xxx Xxxxxxx, XX 00000, Facsimile: 000-000-0000, or at such other
address as the Borrower or the Holder may designate by ten days advance written
notice to the other parties hereto. A Notice of Conversion shall be deemed given
when made to the Borrower pursuant to the Subscription Agreement.
4.3 AMENDMENT PROVISION. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
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4.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and 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 Note,
the 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
accordance with the laws of the State of California, without regard to
principles of conflicts of laws. 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 or in the federal courts located in the
state of California. Both parties and the individual signing this Note 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. In the event that any provision of this
Note is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or unenforceability of any other provision
of this Note.
4.7 MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to
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 be paid (in whole or in part) prior to
the Maturity Date without the consent of the Holder.
4.9 SECURITY INTEREST. The holder of this Note has been granted a
security interest in shares of common stock of the Borrower more fully described
in a Security Agreement.
4.10 CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in
its name by its Chief Executive Officer on this 28th day of August 2002.
LIQUIDIX, INC.
By:_____________________________
WITNESS:
________________________________
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NOTICE OF CONVERSION
--------------------
(To be executed by the 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 LIQUIDIX, INC. on ?,
2002 into Shares of Common Stock of LIQUIDIX, INC. (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: _______________________________________________________________________
_______________________________________________________________________
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