THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO XXXXXX, INC., THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, XXXXXX, INC., a Delaware corporation (hereinafter
called 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, without demand, the
sum of Two Million Dollars ($2,000,000), together with any accrued and unpaid
interest and fees on July 31, 2005 (the "Maturity Date"). 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").
The following terms shall apply to this Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1 Interest Rate. Interest payable on this Note shall accrue at the "base
rate" or "prime rate" published in the Wall Street Journal from time to
time, plus one and one quarter percent (1.25%) (the "Contract Rate")
commencing on July 31, 2003 and be payable in arrears on the first day of
each consecutive calendar month thereafter, and on the Maturity Date,
accelerated or otherwise, due and payable as described below. In no event
shall the Contract Rate be less than five and one quarter percent (5.25%).
1.2 Principal. The Borrower shall make repayments of principal on the Note as
follows:
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---------- ---------------------- ---------- ------------------------
Date Principal Payment Date Principal Payment
---------- ---------------------- ---------- ------------------------
12/1/2003 20,000 10/1/2004 90,000
1/1/2004 40,000 11/1/2004 100,000
2/1/2004 60,000 12/1/2004 100,000
3/1/2004 70,000 1/1/2004 100,000
4/1/2004 70,000 2/1/2005 110,000
5/1/2004 80,000 3/1/2005 110,000
6/1/2004 80,000 4/1/2005 140,000
7/1/2004 80,000 5/1/2005 140,000
8/1/2004 90,000 6/1/2005 140,000
9/1/2004 90,000 7/1/2005 140,000
8/1/2005 Balance
---------- ---------------------- ---------- ------------------------
ARTICLE II
BORROWER PAYMENT OPTIONS
2.1 Monthly Payments in Cash or Common Stock. The Borrower shall make monthly
payments of (i) accrued and unpaid interest on the aggregate principal of
the Note (plus any payments due and owing under the Purchase Agreement and
the Note not previously paid) and (ii) payments of principal according to
the schedule set forth in Section 1.2 hereof (collectively, the "Monthly
Amount") beginning on December 1, 2003 and on the first day of each
consecutive calendar month thereafter (each a "Repayment Date"). Subject to
the terms hereof, the Corporation has the sole option to determine whether
to satisfy payment of the Monthly Amount in full on each Repayment Date
either in cash or in shares of Common Stock, or a combination of both. The
Corporation shall deliver to the Holder a written irrevocable notice in the
form of Exhibit B attached hereto electing to pay such Monthly Amount in
full on such Repayment Date in either cash or Common Stock, or a
combination of both ("Repayment Election Notice"). Such Repayment Election
Notice shall be delivered to the Holder at least ten (10) days prior to the
applicable Repayment Date (the date of such notice being hereinafter
referred to as the "Notice Date"). If such Repayment Election Notice is not
delivered within the prescribed period set forth in the preceding sentence,
then the repayment shall be made in cash. If the Corporation elects or is
required to repay all or a portion of the Monthly Amount in cash on a
Repayment Date, then, with respect to the portion of the Monthly Amount to
be paid in cash, on such Repayment Date the Corporation shall pay to the
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Holder an amount equal to (x) 103% of the principal portion of the Monthly
Amount plus (y) any accrued and unpaid interest in satisfaction of such
obligation. If the Corporation repays all or a portion of the Monthly
Amount in shares of Common Stock, the number of such shares to be issued
for 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)
(100% of the average closing price for the three trading days immediately
prior to closing) $1.55 (the "Fixed Conversion Price"). .
2.2 No Effective Registration. Notwithstanding anything to the contrary herein,
the Corporation shall be prohibited from exercising its right to repay the
Monthly Amount in shares of Common Stock (and must deliver cash in respect
thereof) on the applicable Repayment Date if at any time from the Notice
Date until the time at which the Holder receives such shares there fails to
exist an effective registration statement or an Event of Default hereunder
exists or occurs, unless otherwise waived in writing by the Holder in whole
or in part at the Holder's option.
2.3 Common Stock Payment Restrictions. Notwithstanding anything to the contrary
herein, if the volume weighted average price of the Common Stock as
reported by Bloomberg, L.P. on the Principal Market for any of the 10
trading days preceding a Repayment Date was less than 120% of the Fixed
Conversion Price, and the Corporation has elected to pay all or a portion
of the Monthly Amount in shares of Common Stock, then, instead of the
Company delivering the required number of shares of Common Stock on the
Repayment Date, the Holder and the Company may mutually agree to convert an
amount equal to what the Company elected to pay in shares of Common Stock
at a conversion price equal to 87% of the volume weighted average price of
the three (3) lowest days during the twenty (20) trading days immediately
preceding the Conversion Date. Any part of the Monthly Amount not converted
into shares of Common Stock by the following Repayment Date shall be paid
by the Company in cash on such following Repayment Date. Any such cash
payments not made on or before such repayment Date shall be added to the
next succeeding Monthly Amount. At any time during the relevant month or
mutual agreement per above is not attained, the Company shall pay the
Monthly Amount, or the unconverted part thereof, in cash and the conversion
price set forth in this Section 2.3 shall no longer be applicable.
2.4 Optional Prepayments in Common Stock. In the event that the Common Stock
trades on the Principal Market at a volume weighted average price greater
than 120% of the Fixed Conversion Price for a period of at least ten (10)
consecutive trading days, then the Borrower may, at its sole option,
provide the Holder written notice ("Call Notice") requiring the conversion
at the Fixed Conversion Price of all or a portion of the Note held by the
Holder (subject to the limitation provided for in Section 3.3) as of the
date set forth in such Call Notice (the "Call Date"). The Call Date shall
be at least twenty (20) trading days following the date of the Call Notice,
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provided a registration statement covering resales of that number of
Conversion Shares provided for in the Call Notice has been declared
effective and is available for use. The number of Conversion Shares to be
issued in connection with any such conversion pursuant to a particular Call
Notice pursuant to this Section 3.9 shall not exceed 25% of the aggregate
dollar trading volume of the Common Stock for the twenty (20) trading days
immediately preceding the Call Date. If the price of the Common Stock falls
below 120% of the Conversion Price during the twenty (20) trading day
period preceding the Call Date, then the Holder will no longer be required
to convert the Note pursuant to such Call Notice. The Company shall not be
permitted to give the Holder more than one notice during any 20-day period.
2.5 Optional Redemption. The Company will have the option of redeeming the Note
("Optional Redemption") by paying to the Purchaser a sum of money equal to
one hundred fifteen percent (115%) of the principal amount of the Note
together with accrued but unpaid interest thereon and any and all other
sums due, accrued or payable to the Purchaser arising under this Agreement,
Note or any other document delivered herewith ("Redemption Amount")
outstanding on the day notice of redemption ("Notice of Redemption") is
given to a Purchaser ("Redemption Date"). . A Notice of Redemption may not
be given in connection with any portion of Note for which notice of
conversion has been given by the Purchaser at any time before receipt of a
Notice of Redemption. The Redemption Amount must be paid in good funds to
the Purchaser no later than the seventh (7th) business day after the
Redemption Date ("Optional Redemption Payment Date"). In the event the
Company fails to pay the Redemption Amount by the Optional Redemption
Payment Date, then such Redemption Notice will be null and void. A Notice
of Redemption may be given by the Company, provided no Event of Default, as
described in the Note shall have occurred or be continuing.
ARTICLE III
CONVERSION RIGHTS
3.1. Holder's Conversion Rights . If the closing price of the Common Stock is
greater than the Fixed Conversion Price, and the registration statement
required by Section 10 of the Purchase Agreement has been declared
effective by the Securities Exchange Commission, the Holder shall have the
right, but not the obligation to convert the principal portion of this Note
and/or interest due and payable into fully paid and nonassessable shares of
common stock of the Borrower as such stock exists on the date of issuance
of this Note.
3.2 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
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portion of the principal and interest and fees of the Note to be converted,
if any, by the Fixed Conversion Price as of the Conversion Date. 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 Repayment Dates in chronological order.
By way of example, if the original principal amount of this Note is
$2,000,000 and the Holder converted $100,000 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 $40,000. The Borrower shall deliver a
Notice of Conversion as described in Section 9 of the Securities Purchase
Agreement entered into between the Borrower and the Holder relating to this
Note (the "Purchase Agreement") of the Holder's written request for
conversion (the date of giving such notice of conversion being a
"Conversion Date").
(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:
A. 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.
B. 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.
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3.3 Issuance of New Note. This Note may be converted by the Borrower or Holder
in whole or in part as described herein and Section 9 of the Purchase
Agreement. Upon partial conversion of this Note, a new Note containing the
same date and provisions of this Note shall, at the request of the Holder
and upon the cancellation of this Note, 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.
ARTICLE IV
EVENTS OF DEFAULT
If an Event of Default occurs and is continuing, the Borrower's rights
under Article II shall immediately cease and be of no further effect until such
time as the Event of Default has been cured or waived by the Holder. 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 due and payable
within five (5) days of written notice from Holder to Borrower (each period
being a "Default Notice Period") of an Event of Default (as defined below). In
the event of such an acceleration, the amount due and owing to the Holder shall
be 130% of the outstanding principal amount of the Note (plus accrued and unpaid
interest and fees, if any) (the "Acceleration Rate") until such Event of Default
shall have been cured or waived in writing by the Holder, if applicable. If
during the Default Notice Period, Borrower cures the Event of Default (other
than a payment default described in section 4.1 below), the Event of Default
will no longer exist and any rights Holder had pertaining to or arising from the
Event of Default will no longer exist.
If after the Default Notice Period the Borrower has not repaid in full
amount then due hereunder, then, and only then, the conversion price hereunder
shall be reduced and shall be equal to the lower of (i) the Fixed Conversion
Price; or (ii) seventy percent (70%) of the average of the three lowest closing
prices for the Common Stock on the Principal Market, for the thirty (30) trading
days prior to but not including the Conversion Date until such Event of Default
shall have been cured or waived in writing by the Holder. The "Principal Market"
shall include 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.
6
The occurrence of any of the following events is an Event of Default
("Event of Default"):
4.1 Failure to Pay Principal, Interest or other Fees. The Borrower fails to pay
any installment of principal, interest or other fees hereon or on any other
promissory note issued pursuant to the Purchase Agreement and this Note,
when due and such failure continues for a period of fourteen (14) business
days after the due date.
4.2 Breach of Covenant. The Borrower breaches any material covenant or other
term or condition of this Note or the Purchase Agreement in any material
respect and such breach, if subject to cure, continues for a period of
twenty (20) days after written notice to the Borrower from the Holder.
4.3 Breach of Representations and Warranties. Any material representation or
warranty of the Borrower made herein, in the Purchase Agreement, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection therewith shall be false or misleading and shall not be cured
for a period of twenty (20) business days after written notice thereof is
received by the Borrower from the Holder.
4.4 Bankruptcy, Receiver or Trustee. Pledgor shall (i) apply for, consent to,
or suffer to exist the appointment of, or the taking of possession by, a
receiver, custodian, trustee, liquidator or other fiduciary of itself or of
all or a substantial part of its property, (ii) make a general assignment
for the benefit of creditors, (iii) commence a voluntary case under any
state or federal bankruptcy laws (as now or hereafter in effect), (iv) be
adjudicated a bankrupt or insolvent, (v) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vi)
acquiesce to, or fail to have dismissed, within ninety (90) days, any
petition filed against it in any involuntary case under such bankruptcy
laws, or (vii) take any action for the purpose of effecting any of the
foregoing..
4.5 Judgments. Any money judgment, writ or similar final process shall be
entered or filed against the Borrower or any of its property or other
assets for more than $500,000, and shall remain unvacated, unbonded or
unstayed for a period of ninety (90) days.
4.6 Intentionally omitted.
4.7 Stop Trade. An SEC stop trade order or Principal Market trading suspension
of the Common Stock for 5 consecutive days or 5 days during a period of 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 30 days of the notice thereof or list
the Common Stock on another Principal Market within 60 days of such notice.
7
4.8 Failure to Deliver Common Stock or Replacement Note. The Borrower's failure
to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 9 of the Purchase Agreement, or if
required a replacement Note when due and such failure continues for a
period of seven (7) business days after the due date.
4.9 Intentionally omitted.
DEFAULT RELATED PROVISIONS
4.10 Payment Grace Period. The Borrower shall have a three (3) business day
grace period to pay any monetary amounts due under this Note or the
Purchase Agreement, after which grace period a default interest rate of
five percent (5%) per annum above the then applicable interest rate
hereunder shall apply to the monetary amounts due.
4.11 Conversion Privileges. The conversion privileges set forth in Article III
shall remain in full force and effect immediately from the date hereof and
until the Note is paid in full.
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 telephonically confirmed facsimile
if sent during normal business hours of the recipient, if not, then on the
8
next business day, (c) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one day
after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the Borrower at the address as set forth on the signature
page to the Purchase Agreement executed in connection herewith, with a copy
to Xxxxxxxx X. Xxxxxxxxx, Esq., Xxxxxxxxx Xxxx & Xxxx, LLP, 000 Xxxxx Xxxx
Xxxxxx, Xxxxxxxxxx, XX, 00000, and to the Holder at the address set forth
on the signature page to the Purchase Agreement for such Holder, with a
copy to Xxxx X. Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, 0xx 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.
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 after written
notice to Xxxxxxxx.
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 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.
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
9
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
5.7 Security Interest. The holder of this Note has been granted a security
interest in certain assets of the Borrower more fully described in a
Security Agreement.
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.
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IN WITNESS WHEREOF, each Borrower has caused this Note to be signed in its
name effective as of this 31st day of July, 2003.
XXXXXX, INC.
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------
Xxxxx X. Xxxxxxx
Executive Vice President - CFO
WITNESS:
/s/ Xxxx Xxx Xxxxxx
-------------------------------
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EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal due on the
Note issued by XXXXXX, INC. on July ___, 2003 into Shares of Common Stock of
XXXXXX, INC. (the "Company") according to the conditions set forth in such Note,
as of the date written below.
Date of Conversion:_____________________________________________________________
Shares To Be Delivered:_________________________________________________________
Signature:______________________________________________________________________
Print Name:_____________________________________________________________________
Address:________________________________________________________________________
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EXHIBIT B
FORM OF REPAYMENT ELECTION NOTICE
To: [HOLDER AT HOLDER'S ADDRESS]
Pursuant to Section 2.1 of the Note of Xxxxxx, Inc. issued on July __,
2003, we hereby notify you that we are irrevocably electing to repay the
outstanding Monthly Amount (as defined in the Note) due on the Repayment Date
(as defined in the Note) which occurs on ______, 20__ (CHECK ONE):
_____ In full in cash on such Repayment Date.
_____ In full in shares of the Company's Common Stock within three
(3) trading days following such Repayment Date.
_____ In part in cash in the amount of $______ on such Repayment
Date, and in part in shares of the Company's Common Stock
(in the amount of ______ shares) within three (3) trading
days following such Repayment Date.
Xxxxxx, Inc.
By:
--------------------------------------
Name:
Title:
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