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...
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.
THIS
NOTE
DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A PARTIAL
REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR CONVERSION
OF
ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT REPRESENTED BY THIS
NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT AND ACCRUED INTEREST SET FORTH
BELOW.
6
% CONVERTIBLE NOTE DUE JUNE 30, 2011
OF
PET
EXPRESS SUPPLY, INC.
|
Note No.: _________
Issuance
Date: July ___, 2008
|
Original
Principal Amount: $_________
|
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This
Note
(“Note”)
is one
of a duly authorized issue of Notes of PET
EXPRESS SUPPLY, INC.,
a
corporation duly organized and existing under the laws of the State of Nevada
(the
“Corporation”),
issued pursuant to that certain Loan and Security Agreement dated as of July
25,
2008, by and among the Corporation and the lenders named therein (the
“Loan
Agreement”),
a
copy of which is on file at the principal office of the Corporation, and
designated as the Corporation’s 6% Convertible Notes Due June
30,
2011 (the “Maturity
Date”)
in an
aggregate principal amount (when taken together with the original principal
amounts of all other Notes) which does not exceed Five Million U.S. Dollars
(U.S. $5,000,000).
FOR
VALUE
RECEIVED,
the
Corporation hereby promises to pay to the order of
_____________________________________________ or
its
registered assigns or successors-in-interest (“Holder”)
the
principal sum of ________________________________________ Dollars
(U.S. $______), together with all accrued but unpaid interest thereon, if any,
on the Maturity Date, to the extent such principal amount and interest has
not
been repaid or converted into the Corporation’s Common Stock, par value $0.001
per share (the “Common
Stock”),
in
accordance with the terms hereof.
Interest
on the unpaid and unconverted principal balance hereof shall accrue at the
rate
of 6% per annum from the date of original issuance hereof (the “Issuance
Date”)
until
the same becomes due and payable on the Maturity Date, or such earlier date
upon
acceleration or by conversion, redemption or repayment in accordance with the
terms hereof or of the other Agreements. Interest on this Note shall accrue
daily commencing on the Issuance Date and shall be computed on the basis of
a
360-day year, 30-day months and actual days elapsed and shall be payable in
accordance with Section 1 hereof. Unless otherwise agreed or required by
applicable law, payments will be applied first to any unpaid collection costs,
then to unpaid interest and fees and any remaining amount to
principal.
1
All
payments of principal and interest on this Note shall be made, at the
Corporation’s option (i) in lawful money of the United States of America by wire
transfer of immediately available funds to such account as the Holder may from
time to time designate by written notice in accordance with the provisions
of
this Note or by company check, or (ii) paid in kind through adjustment of the
Conversion Price. This Note may not be prepaid in whole or in part except as
otherwise provided herein or in the Loan Agreement. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not
a
Business Day (as defined below), the same shall instead be due on the next
succeeding day which is a Business Day.
Capitalized
terms used herein and not otherwise defined herein shall have the meanings
set
forth in the Loan Agreement. For purposes hereof the following terms shall
have
the meanings ascribed to them below:
“Bankruptcy
Event”
means
any of the following events: (a) the Corporation or any subsidiary commences
a
case or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or
similar law of any jurisdiction relating to the Corporation or any subsidiary
thereof; (b) there is commenced against the Corporation or any subsidiary any
such case or proceeding that is not dismissed within 60 days after commencement;
(c) the Corporation or any subsidiary is adjudicated insolvent or bankrupt
or
any order of relief or other order approving any such case or proceeding is
entered; (d) the Corporation or any subsidiary suffers any appointment of any
custodian or the like for it or any substantial part of its property that is
not
discharged or stayed within 60 days; (e) the Corporation or any subsidiary
makes
a general assignment for the benefit of creditors; (f) the Corporation or any
subsidiary fails to pay, or states that it is unable to pay or is unable to
pay,
its debts generally as they become due; (g) the Corporation or any subsidiary
calls a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or (h) the Corporation or any
subsidiary, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate
or
other action for the purpose of effecting any of the foregoing.
“Business
Day”
shall
mean any day other than a Saturday, Sunday or a day on which commercial banks
in
the City of New York are authorized or required by law or executive order to
remain closed.
“Conversion
Price”
shall
equal $4.00.
“Convertible
Securities”
means
any convertible securities, warrants, options or other rights to subscribe
for
or to purchase or exchange for, shares of Common Stock.
“Exchange
Act”
shall
mean the Securities Exchange Act of 1934, as amended.
2
“Interest
Payment Date”
shall
mean March 31st,
June
30th
September 30th,
and
December 31st
of each
year commencing on September 30, 2008, provided that if any such day is not
a
Business Day, then such Payment Date shall mean the immediately preceding day
which is a Business Day.
“Per
Share Selling Price”
shall
include the amount actually paid by any Person for each share of Common Stock
in
a sale or issuance by the Corporation. In the event a fee is paid by the
Corporation in connection with such transaction directly or indirectly to such
Person being sold or issued such securities or its affiliates (other than for
transaction expenses up to $50,000), any such fee shall be deducted from the
selling price pro rata to all shares sold in the transaction to arrive at the
Per Share Selling Price. A sale of shares of Common Stock shall include the
sale
or issuance of rights, options, warrants or convertible, exchangeable or
exercisable securities under which the Corporation is or may become obligated
to
issue shares of Common Stock, and in such circumstances the Per Share Selling
Price of the Common Stock covered thereby shall also include the exercise,
exchange or conversion price thereof (in addition to the consideration received
by the Corporation upon such sale or issuance less the fee amount as provided
above). In case of any such security issued in a Variable Rate Transaction
or an
MFN Transaction, the Per Share Selling Price shall be deemed to be the lowest
conversion or exercise price at which such securities are converted or exercised
or might have been converted or exercised in the case of a Variable Rate
Transaction, or the lowest adjustment price in the case of an MFN Transaction,
over the life of such securities. If shares are issued for a consideration
other
than cash, the Per Share Selling Price shall be the fair value of such
consideration as determined in good faith by independent certified public
accountants mutually acceptable to the Corporation and the
Purchaser.
“Principal
Amount”
shall
refer to the sum of (i) the original principal amount of this Note, (ii) all
accrued but unpaid interest hereunder, and (iii) any default payments owing
under the Agreements but not previously paid or added to the Principal
Amount.
“Principal
Market”
shall
mean the OTC Bulletin Board or such other principal market or exchange on which
the Common Stock is then listed for trading.
“Registrable
Securities”
means
shares of Common Stock issued by the Corporation upon conversion of this in
accordance with the terms of this Note and the Loan Agreement.
“Securities
Act”
shall
mean the Securities Act of 1933, as amended.
“Trading
Day”
shall
mean a day on which there is trading on the Principal Market.
“Underlying
Shares”
means
the shares of Common Stock into which the Notes are convertible (including
interest or principal payments in Common Stock as set forth herein) in
accordance with the terms hereof and the Loan Agreement.
“Variable
Rate Transaction”
shall
mean a transaction in which the Corporation issues or sells, or agrees to issue
or sell (a) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive additional
shares of, Common Stock either (x)
at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the Common Stock at any
time
after the initial issuance of such debt or equity securities, (y) with a fixed
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related
to the business of the Corporation or the market for the Common Stock (but
excluding standard stock split anti-dilution provisions), or (z) under a warrant
exercisable for a number of shares based upon and/or varying with the trading
prices of or quotations for the Common Stock at any time after the initial
issuance of such warrant, or (b) any securities of the Corporation pursuant
to
an “equity
line”
structure whereby the Corporation may sell securities at future determined
prices.
3
“VWAP”
shall
mean the daily dollar volume-weighted average sale price for the Common Stock
on
the Principal Market on any particular Trading Day during the period beginning
at 9:30 a.m., New York City Time (or such other time as the Principal Market
publicly announces is the official open of trading), and ending at 4:00 p.m.,
New York City Time (or such other time as the Principal Market publicly
announces is the official close of trading), as reported by Bloomberg through
its “Volume
at Price”
functions or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30 a.m.,
New
York City Time (or such other time as the Principal Market publicly announces
is
the official open of trading), and ending at 4:00 p.m., New York City Time
(or
such other time as the Principal Market publicly announces is the official
close
of trading), as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average
of
the highest printed execution price and the lowest printed execution price
reported in the “pink
sheets”
by the
National Quotation Bureau, Inc. If the VWAP cannot be calculated for such
security on such date on any of the foregoing bases, the VWAP of such security
on such date shall be the fair market value as mutually determined by the
Corporation and the holders of at least a majority of the aggregate Principal
Amount outstanding under the Notes. All such determinations of VWAP shall to
be
appropriately and equitably adjusted in accordance with the provisions set
forth
herein for any stock dividend, stock split, stock combination or other similar
transaction occurring during any period used to determine the Conversion Price
(or other period utilizing VWAPs).
The
following terms and conditions shall apply to this Note:
Section
1. Interest
Payments.
Subject
to and in accordance with the terms of this Section 1, on each Interest Payment
Date the Corporation shall pay to the Holder all interest accrued to date on
the
entire outstanding principal amount of this Note (“Interest
Amount”).
Subject to the terms hereof, the Corporation shall have the right to satisfy
payment of the Interest Amount in full on each Interest Payment Date either
in
cash or in kind at the Corporation’s option. If the Corporation elects or is
required to pay any Interest Amount in cash on an Interest Payment Date, then
on
such Interest Payment Date the Corporation shall pay to the Holder an amount
equal to such Interest Amount in satisfaction of such obligation. If the
Corporation elects to pay any Interest Amount in kind, the conversion price
shall be adjusted as provided in Section 3. All holders of Notes must be treated
the same with respect to such payment of the Interest Amount in cash or in
kind.
4
Section
2. Subsequent Debt.
So long
as any Principal Amount of Notes is outstanding, the Corporation and its
subsidiaries shall not directly or indirectly, without the affirmative vote
of
the holders of at least 75% of the outstanding Principal Amount of the Notes
then outstanding, incur or permit to exist additional indebtedness which is
senior to the Notes, or incur, assume or permit to exist any lien, mortgage,
security interest or encumbrance (other than statutory liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being
contested in good faith, if such reserve or other appropriate provision, if
any,
as shall be required by GAAP shall have been made in respect thereof) on any
of
its assets, except for (a) the security interest granted to the holders of
the
notes
listed on Schedule 1 attached to the Loan Agreement, issued by the Corporation
to the holders thereof,
(b)
indebtedness and liens currently outstanding pursuant to agreements as currently
in effect on the Issuance Date, (c) indebtedness and liens pursuant to
agreements for financing in which the proceeds shall be principally used for
acquisitions by the Corporation of other businesses, and (d) capital leases,
financing for equipment and purchase money security interests.
Section
3. Conversion.
(a)
Voluntary
Conversion Right.
Subject
to the terms hereof and restrictions and limitations contained herein, the
Holder shall have the right, at such Holder’s option, at any time and from time
to time to convert the outstanding Principal Amount under this Note in whole
or
in part by delivering to the Corporation a fully executed notice of conversion
in the form of conversion notice attached hereto as Exhibit
A
(the
“Conversion
Notice”),
which
may be transmitted by facsimile or electronic transmission.
(b)
Common
Stock Issuance upon Conversion.
(i) Conversion
Date Procedures.
Upon
conversion of this Note pursuant to Section 3(a) above, the outstanding
Principal Amount hereunder shall be converted into such number of fully paid,
validly issued and non-assessable shares of Common Stock, free of any liens,
claims and encumbrances, as is determined by dividing the outstanding Principal
Amount being converted by the then applicable Conversion Price. The date of
any
Conversion Notice hereunder shall be referred to herein as the “Conversion
Date”.
If a
conversion under this Note cannot be effected in full for any reason, or if
the
Holder is converting less than all of the outstanding Principal Amount hereunder
pursuant to a Conversion Notice, the Corporation shall promptly deliver to
the
Holder (but no later than five Trading Days after the Conversion Date) a Note
for such outstanding Principal Amount as has not been converted if this Note
has
been surrendered to the Corporation for partial conversion. The Holder shall
not
be required to physically surrender this Note to the Corporation upon any
conversion hereunder unless the full outstanding Principal Xxxxxx represented
by
this Note is being converted or repaid. The Holder and the Corporation shall
maintain records showing the outstanding Principal Amount so converted and
repaid and the dates of such conversions or repayments or shall use such other
method, reasonably satisfactory to the Holder and the Corporation, so as not
to
require physical surrender of this Note upon each such conversion or
repayment.
5
(ii) Stock
Certificates or DWAC.
The
Corporation will deliver to the Holder not later than two (2) Trading Days
after
the Conversion Date, a certificate or certificates which shall be free of
restrictive legends and trading restrictions, representing the number of shares
of Common Stock being acquired upon the conversion of this Note.
(iii) Conversion
Limitations. The
Corporation shall not effect any conversion of this Note, and the Holder shall
not have the right to convert any portion of this Note, pursuant to Section
3 or
otherwise, to the extent that after giving effect to the issuance of Common
Stock after conversion as set forth on the applicable Conversion Notice, the
Holder (together with the Holder’s Affiliates, and any other person or entity
acting as a group together with the Holder or any of the Holder’s Affiliates),
would beneficially own in excess of the Beneficial Ownership Limitation (as
defined below). For purposes of the foregoing sentence, the number of shares
of
Common Stock beneficially owned by the Holder and its Affiliates shall include
the number of shares of Common Stock issuable upon conversion of this Note
with
respect to which such determination is being made, but shall exclude the number
of shares of Common Stock which would be issuable upon (A) conversion of the
remaining, unconverted portion of this Note beneficially owned by the Holder
or
any of its Affiliates and (B) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Corporation (including,
without limitation, any other Common Stock Equivalents) subject to a limitation
on conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 3(b)(iii), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”)
and
the rules and regulations promulgated thereunder, it being acknowledged by
the
Holder that the Corporation is not representing to the Holder that such
calculation is in compliance with Section 13(d) of the Exchange Act and the
Holder is solely responsible for any schedules required to be filed in
accordance therewith. To the extent that the limitation contained in this
Section 3(b)(iii) applies, the determination of whether this Note is convertible
(in relation to other securities owned by the Holder together with any
Affiliates) and of which portion of this Note is convertible shall be in the
sole discretion of the Holder, and the submission of a Conversion Notice shall
be deemed to be the Holder’s determination of whether this Note is convertible
(in relation to other securities owned by the Holder together with any
Affiliates) and of which portion of this Note is convertible, in each case
subject to the Beneficial Ownership Limitation, and the Corporation shall have
no obligation to verify or confirm the accuracy of such determination. In
addition, a determination as to any group status as contemplated above shall
be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Section 3(b)(iii),
in determining the number of outstanding shares of Common Stock, a Holder may
rely on the number of outstanding shares of Common Stock as reflected in (A)
the
Corporation’s most recent periodic or annual report, as the case may be, (B) a
more recent public announcement by the Corporation or (C) any other notice
by
the Corporation or the Corporation’s Transfer Agent setting forth the number of
shares of Common Stock outstanding. Upon the written or oral request of a
Holder, the Corporation shall within two Trading Days confirm orally and in
writing to the Holder the number of shares of Common Stock then outstanding.
In
any case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the
Corporation, including this Note, by the Holder or its Affiliates since the
date
as of which such number of outstanding shares of Common Stock was reported.
The
“Beneficial
Ownership Limitation”
shall
be 4.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable upon
conversion of this Note. The Holder, upon not less than 61 days’ prior notice to
the Corporation, may increase or decrease the Beneficial Ownership Limitation
provisions of this Section 3(b)(iii), provided that the Beneficial Ownership
Limitation in no event exceeds 9.99% of the number of shares of the Common
Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock upon conversion of this Note held by the Holder and the provisions of
this
Section 3(b)(iii) shall continue to apply. Any such increase or decrease will
not be effective until the 61st day after such notice is delivered to the
Corporation. The provisions of this paragraph shall be construed and implemented
in a manner otherwise than in strict conformity with the terms of this Section
3(b)(iii) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership Limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Note.
6
(c)
Conversion
Price Adjustments.
(i) Interest
Paid in Kind. If
the
Corporation elects to pay any Interest Amount in kind as provided in Section
1
of this Note, the conversion price shall be adjusted to reflect the
proportionate increase in the number of shares of Common Stock issuable to
Holder on conversion after payment of the Interest Amount in full on the
applicable Interest Payment Date. Any adjustment made pursuant to this Section
3(c)(i) shall become effective immediately after the applicable Interest Payment
Date.
(ii) Stock
Dividends, Splits and Combinations.
If the
Corporation or any of its subsidiaries, at any time while the Notes are
outstanding (A) shall pay a stock dividend or otherwise make a distribution
or
distributions on any equity securities (including instruments or securities
convertible into or exchangeable for such equity securities) in shares of Common
Stock, (B) subdivide outstanding Common Stock into a larger number of shares,
or
(C) combine outstanding Common Stock into a smaller number of shares, then
the
Conversion Price shall be multiplied by a fraction, the numerator of which
shall
be the number of shares of Common Stock outstanding before such event and the
denominator of which shall be the number of shares of Common Stock outstanding
after such event. Any adjustment made pursuant to this Section 3(c)(ii) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision
or
combination.
(iii) Distributions.
If the
Corporation or any of its subsidiaries, at any time while the Notes are
outstanding, shall distribute to all holders of Common Stock evidences of its
indebtedness or assets or cash or rights or warrants to subscribe for or
purchase any security of the Corporation or any of its subsidiaries (excluding
those referred to in Section 3(c)(i) above), then concurrently with such
distributions to holders of Common Stock, the Corporation shall distribute
to
holders of the Notes the amount of such indebtedness, assets, cash or rights
or
warrants which the holders of Notes would have received had all their Notes
been
converted into Common Stock at the Conversion Price.
7
(iv) Common
Stock Issuances. For
a period commencing on the date of the Loan Agreement and continuing until
the
second anniversary thereof, if the Corporation or any of its subsidiaries (A)
issues or sells any Common Stock or Convertible Securities, or (B) directly
or
indirectly effectively reduces the conversion, exercise or exchange price for
any Convertible Securities which are currently outstanding (other than pursuant
to terms existing on the date hereof), at or to an effective Per Share Selling
Price (the “Lower Per Share Selling Price”) which is less than the then
applicable Conversion Price, then in each such case, the Conversion Price in
effect immediately prior to such issue or sale or record date shall be
automatically reduced effective concurrently with such issue or sale to
the
Lower
Per
Share Selling Price
(which
figure shall be appropriately and equitably adjusted as provided herein for
stock splits, stock dividends, and similar events).
The
foregoing provisions of this subsection shall not apply to issuances or sales
of
(x)
Common
Stock upon conversion, exercise or exchange of Convertible Securities
outstanding on the issuance date hereof in accordance with the terms in effect
on such issuance date, (y) Common Stock or Convertible Securities under the
Corporation’s duly adopted stock option and bonus plans for employees and
directors, or (z) Common Stock or Convertible Securities
issued
in a merger/acquisition transaction to which the Corporation is a
party.
For the
purposes of the foregoing adjustments, in the case of the issuance of any
Convertible Securities, the maximum number of shares of Common Stock issuable
upon exercise, exchange or conversion of such Convertible Securities shall
be
deemed to be outstanding, provided that no further adjustment shall be made
upon
the actual issuance of Common Stock upon exercise, exchange or conversion of
such Convertible Securities. For purposes of this Section 3(c)(iv), if an event
occurs that triggers more than one of the above adjustment provisions, then
only
one adjustment shall be made and the calculation method which yields the
greatest downward adjustment in the affected Conversion Price shall be
used.
(v) Rounding
of Adjustments.
All
calculations under this Section 3 or Section 1 shall be made to 4 decimal places
for dollar amounts or the nearest 1/100th of a share, as the case may
be.
(vi) Notice
of Adjustments.
Whenever any affected Conversion Price is adjusted pursuant to Section 3(c)(i),
(ii) or (iii) above, the Corporation shall promptly deliver to each holder
of
the Notes, a notice setting forth the affected Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment, provided that any failure to so provide such notice shall not affect
the automatic adjustment hereunder.
(vii) Notice
of Certain Events. If:
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A.
|
the
Corporation shall declare a dividend (or any other distribution)
on its
Common Stock; or
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B.
|
the
Corporation shall declare a special nonrecurring cash dividend on
or a
redemption of its Common Stock; or
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8
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C.
|
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the
Corporation shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares
of
capital stock of any class or of any rights;
or
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D.
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the
approval of any stockholders of the Corporation shall be required
in
connection with any reclassification of the Common Stock of the
Corporation, any consolidation or merger to which the Corporation
is a
party, any sale or transfer of all or substantially all of the assets
of
the Corporation, of any compulsory share exchange whereby the Common
Stock
is converted into other securities, cash or property, provided that
such
approval shall not be require in connection with any transaction
in which
the proceeds shall be principally used for acquisitions by the Corporation
of other businesses; or
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E.
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the
Corporation shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the
Corporation;
|
then
the
Corporation shall cause to be filed at each office or agency maintained for
the
purpose of conversion of this Note, and shall cause to be either (i) emailed
or
(ii) mailed to the Holder at its last address as it shall appear upon the books
of the Corporation, on or prior to the date notice to the Corporation’s
stockholders generally is given, a notice stating (x)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock
of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange.
(d)
Reservation
and Issuance of Underlying Securities.
The
Corporation covenants that it will at all times reserve and keep available
out
of its authorized and unissued Common Stock solely for the purpose of issuance
upon conversion of this Note (including repayments in stock), free from
preemptive rights or any other actual contingent purchase rights of persons
other than the holders of the Notes, not less than such number of shares of
Common Stock as shall be issuable (taking into account the adjustments under
this Section 3) upon the conversion of this Note hereunder in Common Stock
(including repayments in stock). The Corporation covenants that all shares
of
Common Stock that shall be so issuable shall, upon issue, be duly authorized,
validly issued, fully paid, nonassessable and freely tradable.
(e)
No
Fractions.
Upon a
conversion hereunder the Corporation shall not be required to issue stock
certificates representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of
a
share based on the closing price of a share of Common Stock at such time. If
the
Corporation elects not, or is unable, to make such cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
9
(f)
Charges,
Taxes and Expenses.
Issuance of certificates for shares of Common Stock upon the conversion of
this
Note (including repayment in stock) shall be made without charge to the holder
hereof for any issue or transfer tax or other incidental expense in respect
of
the issuance of such certificate, all of which taxes and expenses shall be
paid
by the Corporation, and such certificates shall be issued in the name of the
Holder or in such name or names as may be directed by the Holder; provided,
however,
that in
the event certificates for shares of Common Stock are to be issued in a name
other than the name of the Holder, this Note when surrendered for conversion
shall be accompanied by an assignment form; and provided further,
that
the Corporation shall not be required to pay any tax or taxes which may be
payable in respect of any such transfer.
(g)
Cancellation.
After
all of the Principal Amount (including accrued but unpaid interest and default
payments at any time owed on this Note) have been paid in full or converted
into
Common Stock, this Note shall automatically be deemed canceled and the Holder
shall promptly surrender the Note to the Corporation at the Corporation’s
principal executive offices.
(h)
Forced
Conversion.
Subject
to the terms hereof, the Corporation shall have the right to compel the Holder
to convert up to 100% of the principal amount of Notes then held by the Holder
by delivering a written notice (a “Forced
Conversion Notice”)
to the
Holder; provided that (1) such Forced Conversion Notice must specify the
principal amount of Notes to be converted, and (2) all Holders of Notes shall
be
treated proportionately with respect to the Corporation’s election to force
conversion of the Notes pursuant to this provision. Such conversion shall be
effective on the date of such Forced Conversion Notice. Such forced conversion
shall be subject to and governed by all the provisions relating to voluntary
conversion of this Note contained herein. Notwithstanding anything contained
herein, the Corporation shall not be entitled to exercise any forced conversion
right set forth in this subsection 3(j) unless at the effective date of the
Forced Conversion (i) the resale of all Underlying Shares is covered by an
effective registration statement, which registration statement is not subject
to
any suspension or stop orders, or any such Underlying Shares may be sold
pursuant to Rule 144 (or any successor provision) of the Securities Act; (ii)
the requisite number of shares of Common Stock has been duly authorized and
reserved for issuance as required by the terms of this Note; (iii) the
VWAP
on each Trading Day is greater than $7.00;
(iv)
none of the Corporation or any direct or indirect subsidiary of the Corporation
shall be subject to any bankruptcy, insolvency or similar proceeding; and (viii)
the average
daily trading volume for the preceding fifteen (15) Trading Days exceeds
50,000.
Section
4. Defaults
and Remedies.
(a)
Events
of Default.
An
“Event
of Default”
is:
(i)
a default in payment of any amount due hereunder which default continues for
more than five (5) Business Days after the due date thereof; (ii) a default
in
the timely issuance of Underlying Shares upon and in accordance with terms
hereof, which default continues for five (5) Business Days after the Corporation
has received written notice informing the Corporation that it has failed to
issue shares or deliver stock certificates within the fifth day following the
Conversion Date; (iii) failure by the Corporation for fifteen (15) days after
written notice has been received by the Corporation to comply with any material
provision of any of the Notes, the Loan Agreement, or the Warrants issued
pursuant to the Loan Agreement (the “Warrants”) (including without limitation
the failure to issue the requisite number of shares of Common Stock upon
conversion hereof or of the Warrants; (iv) a material breach by the Corporation
of its representations or warranties in the Loan Agreement or the Warrants;
(v)
any default after any cure period under, or acceleration prior to maturity
of,
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for money borrowed
by
the Corporation for in excess of $200,000 or for money borrowed the repayment
of
which is guaranteed by the Corporation for in excess of $200,000, whether such
indebtedness or guarantee now exists or shall be created hereafter; or (vi)
if
the Corporation is subject to any Bankruptcy Event.
10
(b)
Remedies.
If an
Event of Default occurs and is continuing with respect to any of the Notes,
the
Holder may declare all of the then outstanding Principal Amount of this Note
and
all other Notes held by the Holder, including any interest due thereon, to
be
due and payable immediately, except that in the case of an Event of Default
arising from events described in clauses (v) and (vi) of Section 4(a), this
Note
shall become due and payable without further action or notice.
Section
5. Notice
Procedures.
Any and
all notices or other communications or deliveries to be provided by the Holder
hereunder, including, without limitation, any Conversion Notice, shall be in
writing and either (i) emailed or (ii) delivered personally, by confirmed
facsimile, or by a nationally recognized overnight courier service to the
Corporation at the facsimile telephone number or address of the Corporation
specified in the Loan Agreement. Any and all notices or other communications
or
deliveries to be provided by the Corporation hereunder shall be in writing
and
either (x)
emailed
or (y) delivered personally, by facsimile, or by a nationally recognized
overnight courier service addressed to the Holder at the facsimile telephone
number or address of the Holder appearing on the books of the Corporation,
or if
no such facsimile telephone number or address appears, at the principal place
of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed delivered (i) upon receipt, when emailed or delivered
personally, (ii) when sent by facsimile, upon receipt if received on a Business
Day prior to 5:00 p.m. (Eastern Time), or on the first Business Day following
such receipt if received on a Business Day after 5:00 p.m. (Eastern Time) or
(iii) upon receipt, when deposited with a nationally recognized overnight
courier service.
Section
8. General.
(a)
Payment
of Expenses.
The
Corporation agrees to pay all reasonable charges and expenses, including
attorneys’ fees and expenses, which may be incurred by the Holder in
successfully enforcing this Note and/or collecting any amount due under this
Note.
(b)
Amendment.
Neither
this Note nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Corporation and the
Holder.
11
(c)
Assignment,
Etc.
The
Holder may assign or transfer this Note to any transferee only with the prior
written consent of the Corporation, which may not be unreasonably withheld
or
delayed, provided that (i) the Holder may assign or transfer this Note to any
of
such Holder’s affiliates without the consent of the Corporation and
(ii) upon any Event of Default, the Holder may assign or transfer this Note
without the consent of the Corporation. The Holder shall notify the Corporation
of any such assignment or transfer promptly. This Note shall be binding upon
the
Corporation and its successors and shall inure to the benefit of the Holder
and
its successors and permitted assigns.
(d)
No
Waiver.
No
failure on the part of the Holder to exercise, and no delay in exercising any
right, remedy or power hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise by the Holder of any right, remedy or power
hereunder preclude any other or future exercise of any other right, remedy
or
power. Each and every right, remedy or power hereby granted to the Holder or
allowed it by law or other agreement shall be cumulative and not exclusive
of
any other, and may be exercised by the Holder from time to time.
(e)
Governing
Law; Jurisdiction.
THIS
NOTE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAWS PROVISIONS THEREOF THAT
WOULD DEFER TO THE SUBSTANTIVE LAWS OF ANOTHER JURISDICTION. The Corporation
irrevocably submits to the exclusive jurisdiction of any State or Federal Court
sitting in the State of New York, County of New York, over any suit, action,
or
proceeding arising out of or relating to this Note. The Corporation irrevocably
waives, to the fullest extent permitted by law, any objection which it may
now
or hereafter have to the laying of the venue of any such suit, action, or
proceeding brought in such a court and any claim that suit, action, or
proceeding has been brought in an inconvenient forum. The Corporation agrees
that the service of process upon it mailed by certified or registered mail
(and
service so made shall be deemed complete three days after the same has been
posted as aforesaid) or by personal service shall be deemed in every respect
effective service of process upon it in any such suit or proceeding. Nothing
herein shall affect Holder’s right to serve process in any other manner
permitted by law. The Corporation agrees that a final non-appealable judgment
in
any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful
manner.
(f)
Replacement
Notes.
This
Note may be exchanged by Holder at any time and from time to time for a Note
or
Notes with different denominations representing an equal aggregate outstanding
Principal Amount, as reasonably requested by Xxxxxx, upon surrendering the
same.
No service charge will be made for such registration or exchange. In the event
that Xxxxxx notifies the Corporation that this Note has been lost, stolen or
destroyed, a replacement Note identical in all respects to the original Note
(except for registration number and Principal Amount, if different than that
shown on the original Note), shall be issued to the Holder, provided that the
Holder executes and delivers to the Corporation an agreement reasonably
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with the Note.
12
Signatures
on the following page.
13
IN
WITNESS WHEREOF,
the
Corporation has caused this Note to be duly executed on the day and in the
year
first above written.
PET
EXPRESS SUPPLY, INC.
| By: | |||
|
Xxxxxxxx
Xxxxxx
Chief
Executive Officer
|
|||
14
EXHIBIT
A
FORM
OF CONVERSION NOTICE
(To
be
executed by the Holder in
order to convert a Note)
Re: 6%
Convertible Note (“Note”)
issued
by PET EXPRESS SUPPLY, INC. to _____________________ in the original principal
amount of $ .
The
undersigned hereby elects to convert the aggregate outstanding Principal Amount
(as defined in the Note) indicated
below of this Note into
shares of Common Stock, par value $0.001 per share (the “Common
Stock”),
of PET
EXPRESS SUPPLY, INC. (the “Corporation”)
according to the conditions hereof, as of the date written below. If shares
are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the
Corporation in accordance therewith.
No
fee
will be charged to the holder for any conversion, except for such transfer
taxes, if any. The undersigned represents as of the date hereof that, after
giving effect to the conversion of this Note pursuant
to this Conversion Notice, the undersigned will not exceed the “Restricted
Ownership Percentage”
contained in Section 3(i) of
this
Note. Capitalized terms used herein and not otherwise defined shall have the
meaning ascribed thereto in the Note.
To
the
extent the undersigned intends to sell the Underlying Shares issued to the
undersigned upon conversion of this Note pursuant to a Registration Statement,
the undersigned agrees to comply with all applicable prospectus delivery
requirements under the 1933 Act with respect to such sale.
| Conversion information: | ||||
|
|
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|
Date
to Effect
Conversion
|
||||
|
Aggregate
Principal Amount
of Note Being Converted |
||||
|
Number of Shares of Common Stock to be Issued |
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|
Applicable Conversion Price |
||||
|
Signature |
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|
|
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|
Address |
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15
