EXHIBIT 4.2
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE 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 AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: December 15, 2004
$275,000.00
12% SENIOR SUBORDINATED SECURED NOTE DUE JUNE 15, 2005
THIS NOTE is one of a series of duly authorized and issued 12% Senior
Subordinated Secured Notes of Knobias, Inc., a Delaware corporation, having a
principal place of business at 000 Xxxxxxxxx Xxxxx, Xxxxxxxxx, XX 00000 (the
"Company"), designated as its 12% Senior Subordinated Secured Note, due June 15,
2005 (the "Note(s)").
FOR VALUE RECEIVED, the Company promises to pay to DCOFI MASTER LDC or its
registered assigns (the "Holder"), the principal sum of $275,000.00 on June 15,
2005 or such earlier date as the Notes are required or permitted to be repaid as
provided hereunder (the "Maturity Date"), and to pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of this Note in
accordance with the provisions hereof. This Note is subject to the following
additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Note: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and (b)
the following terms shall have the following meanings:
"Alternate Consideration" shall have the meaning set forth in
Section 4(c).
"Balance" means the difference between $500,000 and the aggregate
amount of the Company's 12% Secured Notes due June 15, 2005 outstanding.
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"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on
which banking institutions in the State of New York are authorized or
required by law or other government action to close.
"Change of Control Transaction" means the occurrence of any of (i)
an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange
Act) of effective control (whether through legal or beneficial ownership
of capital stock of the Company, by contract or otherwise) of in excess of
33% of the voting securities of the Company, or (ii) a replacement at one
time or within a three year period of more than one-half of the members of
the Company's board of directors which is not approved by a majority of
those individuals who are members of the board of directors on the date
hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was
approved by a majority of the members of the board of directors who are
members on the date hereof), or (iii) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i) or (ii).
"Common Stock" means the common stock, $ .01 par value, of the
Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Event of Default" shall have the meaning set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fundamental Transaction" shall have the meaning set forth in
Section 4(c) hereof.
"Late Fees" shall have the meaning set forth in the second paragraph
to this Note.
"Mandatory Prepayment Amount" for any Notes shall equal the sum of
(i) (A) 100% of the principal amount of Notes to be prepaid, plus all
accrued and unpaid interest thereon if such prepayment shall occur on or
before ninety (90) days from the date hereof, or (B) 105% of the principal
amount of Notes to be prepaid, plus all accrued and unpaid interest
thereon if such prepayment shall occur after ninety (90) days from the
date hereof and prior to the Maturity Date and (ii) all other amounts,
costs, expenses and liquidated damages due in respect of such Notes.
"Original Issue Date" shall mean the date of the first issuance of
the Notes regardless of the number of transfers of any Note and regardless
of the number of instruments which may be issued to evidence such Note.
"Penalty Shares" means 100,000 shares of registered Common Stock
issuable to the Holder in accordance with the terms herein.
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"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of December 15, 2004, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Subsidiary" shall have the meaning given to such term in the
Purchase Agreement.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq SmallCap Market, the American Stock Exchange, the New York
Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
Section 2. Interest and Prepayments.
a) Payment of Interest in Cash. The Company shall pay interest to
the Holder on the aggregate and outstanding principal amount of this Note
at the rate of 12% per annum, payable monthly in cash on the first day of
each month, beginning on the first such date after the Original Issue Date
and on the Maturity Date (except that, if any such date is not a Business
Day, then such payment shall be due on the next succeeding Business Day).
b) Payment of Unused Line Fee. The Company shall pay a fee in cash
to the Holder equal to 4% per annum on the Balance until such time as the
Purchaser delivers the Balance to the Company. This fee shall be payable
monthly on the first day of each month, beginning on the first such date
after the Original Issue Date and on the Maturity Date (except that, if
any such date is not a Business Day, then such payment shall be due on the
next succeeding Business Day).
c) Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate of 20% per annum (or such
lower maximum amount of interest permitted to be charged under applicable
law) ("Late Fee") which will accrue daily, from the date such interest is
due hereunder through and including the date of payment.
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d) Optional Prepayment. The Company shall have the right to prepay,
in cash, all or a portion of the Notes for an amount equal to such
percentage of the principal amount to be repaid as set forth in (i) and
(ii) below, plus all accrued and unpaid interest thereon:
(i) In the event that the Notes are prepaid on or prior to
ninety (90) days from the date hereof, the prepayment shall be 100%.
(ii) In the event that the Notes are prepaid after o ninety
(90) days from the date hereof, the prepayment shall be 105%.
e) Mandatory Prepayment. In the event that the Company or its
Subsidiaries sell debt or equity securities of any kind and receive
proceeds in excess of $2,000,000 from such sale (regardless of whether the
proceeds are received through one or more transactions), upon the closing
of any such transaction, the Company shall be required to repay, in cash,
all of the Notes in such percentages as set forth in Sections 2(d)(i) and
(ii) above, plus all accrued and unpaid interest thereon.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Note is exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations,
as requested by the Holder surrendering the same. No service charge will
be made for such registration of transfer or exchange.
b) Investment Representations. This Note has been issued subject to
certain investment representations of the original Holder set forth in the
Purchase Agreement and may be transferred or exchanged only in compliance
with the Purchase Agreement and applicable federal and state securities
laws and regulations.
c) Reliance on Note Register. Prior to due presentment to the
Company for transfer of this Note, the Company and any agent of the
Company may treat the Person in whose name this Note is duly registered on
the Note Register as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes, whether or not this Note is
overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
Section 4. Certain Adjustments.
a) Stock Dividends and Stock Splits. 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 shares of its Common
Stock or any other equity or equity equivalent securities payable in
shares of Common Stock, (B) subdivide outstanding shares of Common Stock
into a larger number of shares, (C) combine (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of
shares, or (D) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then the Penalty Shares shall be
adjusted accordingly. 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, combination or re-classification.
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b) Calculations. All calculations under this Section 4 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
The number of shares of Common Stock outstanding at any given time shall
not include shares of Common Stock owned or held by or for the account of
the Company, and the description of any such shares of Common Stock shall
be considered one issue or sale of Common Stock. For purposes of this
Section 4, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares, if any) issued and outstanding.
c) Fundamental Transaction. If, at any time while this Note is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, other than the Merger, (B) the
Company effects any sale of all or substantially all of its assets in one
or a series of related transactions, (C) any tender offer or exchange
offer (whether by the Company or another Person) is completed pursuant to
which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company effects
any reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then upon issuance of the Penalty Shares, the
Holder shall have the right to receive, for each Penalty Share that would
have been issuable absent such Fundamental Transaction, the same kind and
amount of securities, cash or property as it would have been entitled to
receive upon the occurrence of such Fundamental Transaction if it had
been, immediately prior to such Fundamental Transaction, the holder of one
share of Common Stock (the "Alternate Consideration"). If holders of
Common Stock are given any choice as to the securities, cash or property
to be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration it receives upon
issuance of the Penalty Shares following such Fundamental Transaction. To
the extent necessary to effectuate the foregoing provisions, any successor
to the Company or surviving entity in such Fundamental Transaction shall
issue to the Holder a new note consistent with the foregoing provisions.
The terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving
entity to comply with the provisions of this paragraph (c) and insuring
that this Note (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
Section 6. Penalty Share Issuance. In addition to all of the remedies
available to the Holder pursuant to Section 8, in the event that the principal
amount of the Note, together with all accrued, but unpaid, interest is not paid
within two (2) Trading Days of the Maturity Date, the Company shall issue the
Penalty Shares to the Holder.
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Section 7. Negative Covenants. So long as any portion of this Note is
outstanding, the Company will not and will not permit any of its Subsidiaries to
directly or indirectly:
a) enter into, create, incur, assume or suffer to exist any
indebtedness or liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein
or any income or profits therefrom that is senior to, or pari passu with,
in any respect, the Company's obligations under the Notes;
b) amend its certificate of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Holder;
c) repay, repurchase or offer to repay, repurchase or otherwise
acquire any of its Common Stock, Preferred Stock, or other equity
securities; or
d) enter into any agreement with respect to any of the foregoing.
Section 8. Events of Default.
a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
i. any default in the payment of (A) the principal of amount
of any Note, or (B) interest (including Late Fees) on, or damages in
respect of, any Note, in each case free of any claim of
subordination, as and when the same shall become due and payable
(whether on the Maturity Date or by acceleration or otherwise) which
default, solely in the case of an interest payment or other default
under clause (B) above, is not cured, within 2 Trading Days;
ii. the Company shall fail to observe or perform any other
covenant or agreement contained in this Note or any of the other
Transaction Documents which failure is not cured, if possible to
cure, within the earlier to occur of (A) 5 Trading Days after notice
of such default sent by the Holder or by any other Holder and (B) 10
Trading Days after the Company shall become or should have become
aware of such failure;
iii. a default or event of default (subject to any grace or
cure period provided for in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents
other than the Notes, or (B) any other material agreement, lease,
document or instrument to which the Company or any Subsidiary is
bound;
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iv. any representation or warranty made herein, in any other
Transaction Document, in any written statement pursuant hereto or
thereto, or in any other report, financial statement or certificate
made or delivered to the Holder or any other holder of Notes shall
be untrue or incorrect in any material respect as of the date when
made or deemed made;
v. (i) the Company or any of its Subsidiaries shall commence,
or there shall be commenced against the Company or any such
Subsidiary, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the
Company or any Subsidiary commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the
Company or any Subsidiary thereof or (ii) there is commenced against
the Company or any Subsidiary thereof any such bankruptcy,
insolvency or other proceeding which remains undismissed for a
period of 60 days; or (iii) the Company or any Subsidiary thereof is
adjudicated by a court of competent jurisdiction insolvent or
bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or (iv) the Company or any Subsidiary
thereof suffers any appointment of any custodian or the like for it
or any substantial part of its property which continues undischarged
or unstayed for a period of 60 days; or (v) the Company or any
Subsidiary thereof makes a general assignment for the benefit of
creditors; or (vi) the Company shall fail to pay, or shall state
that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or (vii) the Company or any Subsidiary
thereof shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts;
or (viii) the Company or any Subsidiary thereof shall by any act or
failure to act expressly indicate its consent to, approval of or
acquiescence in any of the foregoing; or (ix) any corporate or other
action is taken by the Company or any Subsidiary thereof for the
purpose of effecting any of the foregoing;
vi. the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an
amount exceeding $150,000, whether such indebtedness now exists or
shall hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable;
vii. the Common Stock shall not be eligible for quotation on
or quoted for trading on a Trading Market and shall not again be
eligible for and quoted or listed for trading thereon within five
Trading Days;
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viii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or
dispose of all or in excess of 33% of its assets in one or more
transactions (whether or not such sale would constitute a Change of
Control Transaction) or shall redeem or repurchase more than a de
minimis number of its outstanding shares of Common Stock or other
equity securities of the Company (other than repurchases of shares
of Common Stock or other equity securities of departing officers and
directors of the Company; provided such repurchases shall not exceed
$100,000, in the aggregate, for all officers and directors during
the term of this Note);
b) Remedies Upon Event of Default. If any Event of Default occurs,
the full principal amount of this Note, together with interest and other
amounts owing in respect thereof, to the date of acceleration shall
become, at the Holder's election, immediately due and payable in cash. The
aggregate amount payable upon an Event of Default shall be equal to the
Mandatory Prepayment Amount. Commencing 5 days after the occurrence of any
Event of Default that results in the eventual acceleration of this Note,
the interest rate on this Note shall accrue at the rate of 20% per annum,
or such lower maximum amount of interest permitted to be charged under
applicable law. All Notes for which the full Mandatory Prepayment Amount
hereunder shall have been paid in accordance herewith shall promptly be
surrendered to or as directed by the Company. The Holder need not provide
and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law.
Such declaration may be rescinded and annulled by Xxxxxx at any time prior
to payment hereunder and the Holder shall have all rights as a Note holder
until such time, if any, as the full payment under this Section shall have
been received by it. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holders hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized
overnight courier service, addressed to the Company, at the address set
forth above, facsimile number (000) 000-0000, ATTN: X. XXX XXXXXX,
PRESIDENT, or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holders delivered in accordance
with this Section. 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, sent by a nationally recognized
overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Xxxxxx 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 given and effective
on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:30 p.m. (New York City time), (ii)
the date after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in
this Section later than 5:30 p.m. (New York City time) on any date and
earlier than 11:59 p.m. (New York City time) on such date, (iii) the
second Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given.
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b) Absolute Obligation. Except as expressly provided herein, no
provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of,
interest and liquidated damages (if any) on, this Note at the time, place,
and rate, and in the coin or currency, herein prescribed. This Note is a
direct debt obligation of the Company. This Note ranks pari passu with all
other Notes now or hereafter issued under the terms set forth herein
c) Lost or Mutilated Note. If this Note shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange
and substitution for and upon cancellation of a mutilated Note, or in lieu
of or in substitution for a lost, stolen or destroyed Note, a new Note for
the principal amount of this Note so mutilated, lost, stolen or destroyed
but only upon receipt of evidence of such loss, theft or destruction of
such Note, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
d) Security Interest/Subordination. This Note is a direct debt
obligation of the Company and, pursuant to the Security Agreement is
secured by a second priority perfected security interest in all of the
assets of the Company for the benefit of the Holders. The obligations of
the Company to the Holders are subordinated in right of payment to the
obligations owing to the holders of the 8% Senior Subordinated Secured
Convertible Notes of the Company.
e) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Note shall be governed by
and construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated
by any of the Transaction Documents (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced in the state and federal courts
sitting in the City of New York, Borough of Manhattan (the "New York
Courts"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of
any of the Transaction Documents), and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of any such court, or such
New York Courts are improper or inconvenient venue for such proceeding.
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising
out of or relating to this Note or the transactions contemplated hereby.
If either party shall commence an action or proceeding to enforce any
provisions of this Note, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees
and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
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f) Waiver. Any waiver by the Company or the Holder of a breach of
any provision of this Note shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Note. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Note on one or more occasions
shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term
of this Note. Any waiver must be in writing.
g) Severability. If any provision of this Note is invalid, illegal
or unenforceable, the balance of this Note shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If
it shall be found that any interest or other amount deemed interest due
hereunder violates applicable laws governing usury, the applicable rate of
interest due hereunder shall automatically be lowered to equal the maximum
permitted rate of interest. The Company covenants (to the extent that it
may lawfully do so) that it shall not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any
stay, extension or usury law or other law which would prohibit or forgive
the Company from paying all or any portion of the principal of or interest
on this Note as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the performance
of this indenture, and the Company (to the extent it may lawfully do so)
hereby expressly waives all benefits or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or
impeded the execution of any power herein granted to the Holder, but will
suffer and permit the execution of every such as though no such law has
been enacted.
h) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
i) Headings. The headings contained herein are for convenience only,
do not constitute a part of this Note and shall not be deemed to limit or
affect any of the provisions hereof.
*********************
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
by a duly authorized officer as of the date first above indicated.
KNOBIAS, INC.
/s/ X. XXX XXXXXX
-----------------
X. Xxx Xxxxxx, President
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