Exhibit 10.2
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. 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
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO GVI SECURITY SOLUTIONS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
SECURED CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, GVI SECURITY SOLUTIONS, INC., a Delaware corporation
(the "BORROWER"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o
Ironshore 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
its registered assigns or successors in interest, on order, the sum of Five
Million Dollars ($5,000,000), together with any accrued and unpaid interest
hereon, on May 27, 2007 (the "MATURITY DATE") if not sooner paid.
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof between the Borrower and the Holder (the "PURCHASE AGREEMENT").
This is the Note referred to in the Purchase Agreement, and all forms, terms and
provisions thereof are expressly incorporated herein by reference.
The following terms shall apply to this Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1(a) Interest Rate. Subject to Sections 4.11 and 5.6 hereof, interest
payable on this Note shall accrue at a rate per annum (the "INTEREST Rate")
equal to the "prime rate" published in The Wall Street Journal from time to
time, plus two percent (2.0%). The Interest Rate shall be increased or decreased
as the case may be for each increase or decrease in the prime rate in an amount
equal to such increase or decrease in the prime rate; each change to be
effective as of the day of the change in such rate. Subject to Section 1.1(b)
hereof, the Interest Rate shall not be less than six percent (6.0%). Interest
shall be (i) calculated on the basis of a 360 day year, (ii) payable monthly, in
arrears, commencing on June 1, 2004 and on the first business day of each
consecutive calendar month thereafter until the Maturity Date (and on the
Maturity Date), whether by acceleration or otherwise (each, a "REPAYMENT DATE").
1.1 (b) Interest Rate Adjustment. The Interest Rate shall be calculated on
the last business day of each month hereafter until the Maturity Date (each a
"DETERMINATION DATE") and be subject to adjustment as set forth herein. If (i)
the Borrower shall have an effective registration statement under the Securities
Act of 1933, as amended, with respect to the shares of the Borrower's common
stock, par value $.001 per share ("COMMON STOCK") issuable upon (x) conversion
of the Note, and (y) exercise of that certain warrant of even date herewith
issued to Holder (collectively, the "UNDERLYING SHARES"), and (ii) the average
closing market price (the "MARKET PRICE") of the Common Stock as reported by
Bloomberg, L.P. on the Principal Market (as defined below) for the five (5)
trading days immediately preceding a Determination Date exceeds the then
applicable Fixed Conversion Price by at least twenty five percent (25%), the
Interest Rate for the succeeding calendar month shall automatically be reduced
by 200 basis points (200 b.p.) (2.0%) for each incremental twenty five percent
(25%) increase in the Market Price of the Common Stock above the then applicable
Fixed Conversion Price. If (i) the Borrower shall not have an effective
registration statement with respect to the Underlying Shares, and (ii) the
Market Price of the Common Stock as reported by Bloomberg, L.P. on the Principal
Market for the five (5) trading days immediately preceding a Determination Date
exceeds the then applicable Fixed Conversion Price by at least twenty five
percent (25%), the Interest Rate for the succeeding calendar month shall
automatically be decreased by 100 basis points (100 b.p.) (1.0%) for each
incremental twenty five percent (25%) increase in the Market Price of the Common
Stock above the then applicable Fixed Conversion Price.
1.2 Minimum Monthly Principal Payments. Amortizing payments of the
aggregate principal amount outstanding under this Note at any time (the
"PRINCIPAL AMOUNT") shall begin on the first business day in September, 2004 and
shall recur and be due and payable on the first business day of each succeeding
month thereafter until the Maturity Date (each, an "AMORTIZATION DATE") as set
forth in the table below:
--------------------------------------------------------------------------------
Month Principal Amount Month Principal Amount
--------------------------------------------------------------------------------
9/04 $75,000 4/06 $150,000
--------------------------------------------------------------------------------
10/04 $75,000 5/06 $150,000
--------------------------------------------------------------------------------
11/04 $75,000 6/06 $190,000
--------------------------------------------------------------------------------
12/04 $75,000 7/06 $190,000
--------------------------------------------------------------------------------
1/05 $75,000 8/06 $190,000
--------------------------------------------------------------------------------
2/05 $75,000 9/06 $190,000
--------------------------------------------------------------------------------
3/05 $75,000 10/06 $190,000
--------------------------------------------------------------------------------
4/05 $75,000 11/06 $190,000
--------------------------------------------------------------------------------
2
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5/05 $75,000 12/06 $190,000
--------------------------------------------------------------------------------
6/05 $150,000 1/07 $190,000
--------------------------------------------------------------------------------
7/05 $150,000 2/07 $190,000
--------------------------------------------------------------------------------
8/05 $150,000 3/07 $190,000
--------------------------------------------------------------------------------
9/05 $150,000 4/07 $190,000
--------------------------------------------------------------------------------
10/05 $150,000 5/07 $435,000
--------------------------------------------------------------------------------
11/05 $150,000
--------------------------------------------------------------------------------
12/05 $150,000
--------------------------------------------------------------------------------
1/06 $150,000
--------------------------------------------------------------------------------
2/06 $150,000
--------------------------------------------------------------------------------
3/06 $150,000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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Subject to Section 3 below, beginning on the first Amortization Date, the
Borrower shall make monthly payments to the Holder on each Repayment Date, each
in the amount set forth above, together with any accrued and unpaid interest to
date on such portion of the Principal Amount plus any and all other amounts
which are then due and owing under this Note but have not been paid
(collectively, the "MONTHLY AMOUNT"). Any Principal Amount that remains
outstanding on the Maturity Date shall be due and payable on the Maturity Date.
ARTICLE II
CONVERSION REPAYMENT
2.1 (a) Payment of Monthly Amount in Cash or Common Stock. Each month, no
later than the fifth (5th) business day prior to each Amortization Date (the
"NOTICE DATE"), subject to 2.1(b), the Holder shall deliver to Borrower a
written notice in the form of Exhibit B attached hereto stating the Monthly
Amount payable on the next Repayment Date in cash or converted into Common
Stock, or a combination of both (each, a "REPAYMENT NOTICE"). Subject to Section
2.1(b), if a Repayment Notice is not delivered by the Holder on or before the
applicable Notice Date for such Repayment Date, then the Borrower shall pay the
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Monthly Amount due on such Repayment Date in cash. If the Holder converts all or
a portion of the Monthly Amount into shares of Common Stock as provided herein,
the number of such shares to be issued by the Borrower to the Holder on such
Repayment Date shall be the number determined by dividing (x) the portion of the
Monthly Amount to be paid in shares of Common Stock, by (y) the then applicable
Fixed Conversion Price. For purposes hereof, the initial "FIXED CONVERSION
PRICE" means $2.70
(b) Monthly Amount Conversion Guidelines. Subject to Sections 2.1(a), 2.2,
and 3.2 hereof, the Holder shall convert all or a portion of the Monthly Amount
due on each Repayment Date into shares of Common Stock if the average closing
price of the Common Stock as reported by Bloomberg, L.P. on the Principal Market
for the five (5) trading days immediately preceding the applicable Repayment
Date is greater than or equal to 110% of the Fixed Conversion Price, so that the
Holder shall be paid the Monthly Amount due to the Holder on such Repayment Date
in shares of Common Stock, provided, however, that the amount of the Monthly
Amount payable in Common Stock on the applicable Repayment Date shall, if
applicable, be limited to thirty five percent (35%) of the aggregate dollar
trading volume of the Common Stock for the ten (10) day trading period
immediately preceding the applicable Notice Date. Any part of the Monthly Amount
due on a Repayment Date that the Holder has not converted into Common Stock
pursuant to this Section 2.1(b) shall be paid by the Borrower in cash within
three (3) Business Days of the applicable Repayment Date.
2.2 No Effective Registration. Notwithstanding anything to the contrary
herein, none of the Borrower's obligations to the Holder may be paid in shares
of Common Stock unless (i) either (x) an effective current Registration
Statement (as defined in the Registration Rights Agreement) covering the shares
of Common Stock issuable upon conversion of this Note exists or (y) an exemption
from registration of the Common Stock is available to the Holder pursuant to
Rule 144 of the Securities Act and (ii) no Event of Default hereunder exists and
is continuing, unless such Event of Default is cured within any applicable cure
period or is otherwise waived in writing by the Holder in whole or in part at
the Holder's option.
Any amounts paid in shares of Common Stock pursuant to this Section 2.2
shall be deemed to constitute payments of outstanding fees, interest and
principal arising in connection with Monthly Amounts for the remaining Repayment
Dates, in chronological order.
2.4 Optional Redemption in Cash. The Borrower will have the option of
prepaying this Note ("OPTIONAL REDEMPTION") by paying to the Holder a sum of
money equal to one hundred twenty percent (120%) of the principal amount then
outstanding under this Note together with accrued but unpaid interest thereon
and any and all other sums due, accrued or payable to the Holder arising under
this Note, the Purchase Agreement, or any Related Agreement (the "REDEMPTION
AMOUNT") outstanding on the Redemption Payment Date (defined below) specified in
the written notice of redemption (the "NOTICE OF REDEMPTION"). The Notice of
Redemption shall specify the date for such Optional Redemption (the "REDEMPTION
PAYMENT DATE") which date shall be seven (7) business days after the date of the
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Notice of Redemption (the "REDEMPTION PERIOD"). A Notice of Redemption shall not
be effective with respect to any portion of this Note for which the Holder has
previously delivered a Notice of Conversion (defined below), or for any portion
of this Note for which a Notice of Conversion is delivered during the Redemption
Period. The Redemption Amount shall be determined as if the Holder's conversion
elections had been completed immediately prior to the date of the Notice of
Redemption. On the Redemption Payment Date, the Redemption Amount must be paid
in good funds to the Holder. In the event the Borrower fails to pay the
Redemption Amount on the Redemption Payment Date as set forth herein, then such
Redemption Notice will be null and void.
ARTICLE III
CONVERSION RIGHTS
3.1. Holder's Conversion Rights. The Holder shall have the right, but not
the obligation, to convert all or any portion of the then aggregate outstanding
principal amount of this Note, together with interest and fees due hereon, into
shares of Common Stock subject to the terms and conditions set forth in this
Article III. The shares of Common Stock to be issued upon such conversion are
herein referred to as the "Conversion Shares." The Holder may exercise such
right by delivery to the Borrower of a written notice of conversion not less
than one (1) day prior to the date upon which such conversion shall occur.
3.2 Conversion Limitation. Notwithstanding anything contained herein to
the contrary, the Holder shall not be entitled to convert pursuant to the terms
of this Note an amount that would be convertible into that number of Conversion
Shares which would exceed the difference between the number of shares of Common
Stock beneficially owned by such Holder or issuable upon exercise of warrants
held by such Holder and 4.99% of the outstanding shares of Common Stock of the
Borrower. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13d-3 thereunder. The Holder may void the Conversion Share
limitation described in this Section 3.2 upon 75 days prior notice to the
Borrower or without any notice requirement upon an Event of Default.
3.3 Mechanics of Xxxxxx's Conversion. (a) In the event that the Holder
elects to convert this Note into Common Stock, the Holder shall give notice of
such election by delivering an executed and completed notice of conversion
("NOTICE OF CONVERSION") to the Borrower and such Notice of Conversion shall
provide a breakdown in reasonable detail of the Loans, accrued interest and fees
that are being converted. On each Conversion Date (as hereinafter defined) and
in accordance with its Notice of Conversion, the Holder shall make the
appropriate reduction to the Loans outstanding hereunder, accrued interest and
fees as entered in its records and shall provide written notice thereof to the
Borrower within two (2) business days after the Conversion Date. Each date on
which a Notice of Conversion is delivered or telecopied to the Borrower in
accordance with the provisions hereof shall be deemed a Conversion Date (the
"CONVERSION Date"). A form of Notice of Conversion to be employed by the Holder
is annexed hereto as Exhibit A. Pursuant to the terms of the Notice of
Conversion, the Borrower will within one (1) Business Day of the date of the
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delivery to Borrower of the Notice of Conversion, instruct its counsel to issue
an opinion with respect to the issuance of the Conversion Shares, and instruct
the transfer agent to transmit the certificates representing the Conversion
Shares to the Holder either by hand delivery, or if it is capable, by crediting
the account of the Holder's designated broker with the Depository Trust
Corporation ("DTC") through its Deposit Withdrawal Agent Commission ("DWAC")
system within three (3) Business Days after receipt by the Borrower of the
Notice of Conversion. In the case of the exercise of the conversion rights set
forth herein the conversion privilege shall be deemed to have been exercised and
the Conversion Shares issuable upon such conversion shall be deemed to have been
issued upon the date of receipt by the Borrower of the Notice of Conversion. The
Holder shall be treated for all purposes as the record holder of such Common
Stock, unless the Holder provides the Borrower written instructions to the
contrary.
(b) Late Payments. The Borrower understands that a delay in the delivery
of the shares of Common Stock in the form required pursuant to this Article
beyond three (3) Business Days after Xxxxxxxx's receipt of the Conversion Notice
(the "DELIVERY DATE") could result in economic loss to the Holder. As
compensation to the Holder for such loss, in the event Borrower fails to
instruct the transfer agent or its counsel within one (1) Business Day as
required by Section 3.3, and as a result thereof, certificates representing the
Conversion Shares are not delivered to the Holder on or before the Delivery
Date, the Borrower agrees to pay late payments to the Holder for late issuance
of such shares in the form required pursuant to this Article III upon conversion
of the Note, in the amount equal to $500 per Business Day for each day Borrower
fails to provide such instructions to its transfer agent and/or its counsel, but
solely if Borrower fails to provide such instructions to its transfer agent
and/or its counsel as provided in Section 3.3 above. The Borrower shall pay any
payments incurred under this Section in immediately available funds upon demand.
3.4 Conversion Mechanics.
(a) 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 and fees to be converted, if any, by the then applicable Fixed
Conversion Price. In the event of any conversions of outstanding principal
amount under this Note in part pursuant to this Article III, such conversions
shall be deemed to constitute conversions of outstanding principal amount
applying to Monthly Amounts for the remaining Repayment Dates in chronological
order. By way of example, if the original principal amount of this Note is
$5,000,000 and the Holder converted $200,000 of such original principal amount
prior to the first Repayment Date, then (1) the principal amount of the Monthly
Amount due on the first Repayment Date would equal $0, (2) the principal amount
of the Monthly Amount due on the second Repayment Date would equal $0 and (3)
the principal amount of the Monthly Amount due on the third Repayment Date would
be $50,000.
(b) The Fixed Conversion Price and number and kind of shares or other
securities to be issued upon conversion is subject to adjustment from time to
time upon the occurrence of certain events, as follows:
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A. 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 Amount 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.
B. 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 Fixed Conversion Price or the Conversion Price, as the case may be, 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.
C. Share Issuances. Subject to the provisions of this Section 3.4, if the
Borrower shall at any time prior to the conversion or repayment in full of the
Principal Amount issue any shares of Common Stock or securities convertible into
Common Stock to a person other than the Holder (except (i) pursuant to
Subsections A or B above; (ii) pursuant to options, warrants, or other
obligations to issue shares outstanding on the date hereof as disclosed to
Holder in writing; (iii) pursuant to options that may be issued under any
employee incentive stock option and/or any qualified stock option plan adopted
by the Borrower; (iv) in connection with an underwritten public offering of the
Borrower's securities; (v) pursuant to a merger or acquisition transaction
approved by Borrower's Board of Directors; (vi) to a "strategic partner" as
determined by Borrower's Board of Directors; or (vii) to Holder or any of its
Affiliates) for a consideration per share (the "Offer Price") less than the
Fixed Conversion Price in effect at the time of such issuance, then the Fixed
Conversion Price shall be immediately reset pursuant to the formula below.
If the Company issues any additional shares pursuant to Section 3.4
above then, and thereafter successively upon each such issue, the Fixed
Conversion Price shall be adjusted by multiplying the then applicable Fixed
Conversion Price by the following fraction:
-------------------------------
A + B
-------------------------------
(A + B) + [((C - D) x B) / C]
-------------------------------
A = Total amount of shares convertible pursuant to this Note.
B = Actual shares sold in the offering
C = Fixed Conversion Price
D = Offering price
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D. Computation of Consideration. For purposes of any computation
respecting consideration received pursuant to Subsection C above, the following
shall apply:
(a) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other expenses
incurred by the Borrower for any underwriting of the issue or otherwise in
connection therewith;
(b) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors of the Borrower (irrespective of the accounting
treatment thereof); and
(c) Upon any such exercise, the aggregate consideration received for
such securities shall be deemed to be the consideration received by the Borrower
for the issuance of such securities plus the additional minimum consideration,
if any, to be received by the Borrower upon the conversion or exchange thereof
(the consideration in each case to be determined in the same manner as provided
in clauses (a) and (b) of this Subsection (D)).
E. Reservation of Shares. 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.
3.5 Issuance of New Note. Upon any 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. The
Borrower will pay no costs, fees or any other consideration to the Holder for
the production and issuance of a new Note.
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ARTICLE IV
EVENTS OF DEFAULT
Upon the occurrence and continuance of an Event of Default beyond any
applicable grace period, the Holder may make all sums of principal, interest and
other fees then remaining unpaid hereon and all other amounts payable hereunder
immediately due and payable. In the event of such an acceleration, within five
(5) days after written notice from Holder to Borrower (each occurrence being a
"DEFAULT NOTICE PERIOD") the amount due and owing to the Holder shall be 115% of
the outstanding principal amount of the Note (plus accrued and unpaid interest
and fees, if any) (the "DEFAULT PAYMENT"). If, with respect to any Event of
Default, the Borrower cures the Event of Default, the Event of Default will be
deemed to no longer exist and any rights and remedies of Holder pertaining to
such Event of Default will be of no further force or effect. The Default Payment
shall be applied first to any fees due and payable to Holder pursuant to the
Note or the Related Agreements, then to accrued and unpaid interest due on the
Note and then to outstanding principal balance of the Note.
The occurrence of any of the following events set forth in Sections 4.1
through 4.10, inclusive, is an "EVENT OF DEFAULT":
4.1 Failure to Pay Principal, Interest or other Fees. The Borrower fails
to pay when due any installment of principal, interest or other fees hereon in
accordance herewith, or the Borrower fails to pay when due any amount due under
any other promissory note issued by Borrower to Holder, and in any such case,
such failure shall continue for a period of three (3) days following the date
upon which any such payment was due.
4.2 Breach of Covenant. The Borrower breaches any material covenant or any
other material term or condition of this Note or the Purchase Agreement in any
material respect, or the Borrower or any of its Subsidiaries breaches any
material covenant or any other material term or condition of any Related
Agreement in any material respect and, any such case, such breach, if subject to
cure, continues for a period of fifteen (15) days after notice from Holder of
the occurrence thereof.
4.3 Breach of Representations and Warranties. Any material representation
or warranty made by the Borrower in this Note or the Purchase Agreement, or by
the Borrower or any of its Subsidiaries in any Related Agreement, shall, in any
such case, be false or misleading in any material respect on the date that such
representation or warranty was made or deemed made.
4.4 Receiver or Trustee. The Borrower or any of its Subsidiaries 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.
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4.5 Judgments. Any money judgment, writ or similar final process shall be
entered or filed against the Borrower or any of its Subsidiaries or any of their
respective property or other assets for more than $250,000, and shall remain
unvacated, unbonded or unstayed for a period of thirty (30) days.
4.6 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 or any
of its Subsidiaries.
4.7 Stop Trade. An SEC stop trade order or Principal Market trading
suspension of the Common Stock shall be in effect for five (5) consecutive days
or five (5) days during a period of ten (10) consecutive days, excluding in all
cases a suspension of all trading on a Principal Market, provided that the
Borrower shall not have been able to cure such trading suspension within thirty
(30) days of the notice thereof or list the Common Stock on another Principal
Market within sixty (60) days of such notice. The "Principal Market" for the
Common Stock shall include the over-the-counter market, 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), or any
securities exchange)or other securities market on which the Common Stock is then
being listed or traded.
4.8 Failure to Deliver Transfer Agent Instructions. The Borrower shall
fail to instruct the transfer agent to deliver the Common Stock to the Holder as
required by this Note or Section 9 of the Securities Purchase Agreement, and as
a result thereof, certificates representing such shares of Common Stock are not
delivered to the Holder within ten business days after the date Borrower was
required to so instruct the transfer agent.
4.9 Default Under Related Agreements or Other Agreements. The occurrence
and continuance of any Event of Default (as defined in any Related Agreement) or
any event of default (or similar term) under any other indebtedness which
results in the acceleration of obligations of the Borrower in the amount of
$250,000.
4.10 Change in Control. The occurrence of a change in the controlling
ownership of the Borrower; provided, however, that a change in the controlling
ownership of the Borrower shall be deemed not to occur if the person obtaining
such control possessed beneficial ownership, directly or indirectly, as of the
date hereof, of 35% or more of Borrower's outstanding shares of Common Stock.
DEFAULT RELATED PROVISIONS
4.11 Payment Grace Period. Following the occurrence and continuance of an
Event of Default beyond any applicable cure period hereunder, the Borrower shall
pay the Holder a default interest rate equal to three percent (3%) per annum
above the Interest Rate from time to time in effect on all amounts due and owing
under the Note, which default interest shall be payable upon demand.
10
4.12 Conversion Privileges. The conversion privileges set forth in Article
III shall remain in full force and effect immediately from the date hereof and
until this Note is paid in full.
4.13 Cumulative Remedies. The remedies under this Note shall be
cumulative.
ARTICLE V
MISCELLANEOUS
5.1 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.
5.2 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 provided in the Purchase Agreement executed in
connection herewith, and to the Holder at the address provided in the Purchase
Agreement for such Holder, with a copy to Xxxx X. Xxxxxx, Esq., 000 Xxxxx
Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, facsimile number (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 Purchase Agreement.
5.3 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, and any successor instrument issued pursuant to Section 3.5
hereof, as it may be amended or supplemented.
5.4 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 in accordance with the
requirements of the Purchase Agreement. This Note shall not be assigned by the
Borrower without the consent of the Holder.
5.5 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, 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 New York or in the federal courts located in the state of
New York. 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
11
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. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court in favor of the Holder.
5.6 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.
5.7 Security Interest and Guarantee. The Holder has been granted a
security interest (i) in certain assets of the Borrower and its Subsidiaries as
more fully described in the Master Security Agreement dated as of the date
hereof and (ii) pursuant to the Stock Pledge Agreement dated as of the date
hereof. The obligations of the Borrower under this Note are guaranteed by
certain Subsidiaries of the Borrower pursuant to the Subsidiary Guaranty dated
as of the date hereof.
5.8 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.
5.9 Cost of Collection. If default is made in the payment of this Note,
the Borrower shall pay to Holder reasonable costs of collection, including
reasonable attorney's fees.
[Balance of page intentionally left blank; signature page follows.]
12
IN WITNESS WHEREOF, the Borrower has caused this Convertible Term Note to
be signed in its name effective as of this 27th day of May, 2004.
GVI SECURITY SOLUTIONS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
WITNESS:
---------------------------------
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EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert all or part of the Note into
Common Stock
[Name and Address of Holder]
The Undersigned hereby converts $_________ of the principal due [plus $_________
of interest and fees] under the Convertible Term Note issued by GVI SECURITY
SOLUTIONS, INC. dated May __, 2004 by delivery of shares of Common Stock of GVI
SECURITY SOLUTIONS, INC. on and subject to the conditions set forth in Article
III of such Note.
1. Date of Conversion
---------------------------
2. Shares To Be Delivered:
---------------------------
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
14
EXHIBIT B
REPAYMENT NOTICE
(To be executed by the Holder in order to convert all or part of a Monthly
Amount into Common Stock)
[Name and Address of Holder]
Holder hereby elects to be repaid $_________ of the Monthly Amount due on
[specify applicable Repayment Date] under the Convertible Term Note issued by
GVI SECURITY SOLUTIONS, INC. dated _______, 200__ by delivery of Shares of
Common Stock of GVI SECURITY SOLUTIONS, INC. on and subject to the conditions
set forth in Article III of such Note.
1. Fixed Conversion Price: $
---------------------------------------
2. Amount to be paid: $
---------------------------------------
3. Shares To Be Delivered (2 divided by 1):
----------------------
4. Cash payment to be made by Borrower : $
----------------------
Date: LAURUS MASTER FUND, LTD.
--------------
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
15