Exhibit 10.2
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO TRIMEDIA ENTERTAINMENT GROUP, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
SECURED CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, TRIMEDIA ENTERTAINMENT GROUP, LLC, a Delaware
corporation (the "BORROWER"), hereby promises to pay to IL RESOURCES, LLC, a
Delaware limited liability company, (the "HOLDER"), or its registered assigns or
successors in interest, on order, the sum of One Million Five Hundred Ninety
Thousand Dollars ($1,590,000) (the "Principal Amount"), together with any
accrued and unpaid interest hereon, on May 30, 2006 (the "MATURITY DATE") if not
sooner paid.
Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in that certain Securities Purchase Agreement
dated as of the date hereof between the Borrower and the Holder (as amended,
modified or supplemented from time to time, the "PURCHASE AGREEMENT").
The following terms shall apply to this Note:
ARTICLE I
INTEREST
1.1 Interest Rate. Interest on the Principal Amount outstanding under
this Secured Convertible Term Note ("Note") shall accrue at a rate per annum
(the "Interest Rate") equal to twelve percent (12%). Interest shall be (i)
calculated on the basis of a 360 day year, and (ii) payable in cash via wire
transfer monthly, in arrears, commencing on June 1, 2005 and on the first
business day of each consecutive calendar month thereafter until the Maturity
Date (and on the Maturity Date), whether by acceleration or otherwise (each, a
"PAYMENT DATE") unless the Holder gives the Borrower written notification that
it desires for a particular month's interest payment to be paid in fully paid
and nonassessable shares of common stock, $.001 par value, of the Borrower (the
"COMMON STOCK"), based on a per share stock price equal to Conversion Price (as
defined in Section 4(a)) such price per share being subject to adjustment at the
times, and in accordance with the provisions as set forth in section 4(a).
Overdue principal and interest on the Note shall, to the extent permitted by
applicable law, bear interest at the rate of 21.00% per annum. All payments of
both principal and interest shall be made at the address of the Holder hereof as
it appears in the books and records of the Borrower or at such other place as
may be designated by the Holder hereof in writing to Borrower.
ARTICLE II
OPTIONAL REDEMPTION
2.1 Optional Redemption in Cash. The Borrower will have the option of
prepaying this Note ("OPTIONAL REDEMPTION") by paying to the Holder a sum of
money equal to one hundred percent (100%) of the principal amount of this Note
together with accrued but unpaid interest thereon and any and all other sums
due, accrued or payable to the Holder arising under this Note, the Purchase
Agreement, or any Related Agreement (the "REDEMPTION AMOUNT") outstanding on the
day written notice of redemption (the "NOTICE OF REDEMPTION") is given to the
Holder. The Notice of Redemption shall specify the date for such Optional
Redemption (the "REDEMPTION PAYMENT DATE") which date shall be seven (7)
business days after the date of the Notice of Redemption (the "REDEMPTION
PERIOD"). A Notice of Redemption shall not be effective with respect to any
portion of this Note for which the Holder has a pending election to convert
pursuant to Section 3.1, or for conversions initiated or made by the Holder
pursuant to Section 3.1 during the Redemption Period. The Redemption Amount
shall be determined as if such Xxxxxx's conversion elections had been completed
immediately prior to the date of the Notice of Redemption. On the Redemption
Payment Date, the Redemption Amount must be paid in good funds to the Holder. In
the event the Borrower fails to pay the Redemption Amount on the Redemption
Payment Date as set forth herein, then such Redemption Notice will be null and
void.
ARTICLE III
CONVERSION RIGHTS
3.1. Holder's Conversion Rights. The Holder shall have the right, but
not the obligation, to convert all or any portion of the then aggregate
outstanding principal amount of this Note, together with interest and fees due
hereon, into shares of Common Stock subject to the terms and conditions set
forth in this Article III. The Holder may exercise such right by delivery to the
Borrower of a written notice of conversion not less than one (1) day prior to
the date upon which such conversion shall occur.
3.2 Conversion Limitation. Notwithstanding anything contained herein to
the contrary, the Holder shall not be entitled to convert pursuant to the terms
of this Note an amount that would be convertible into that number of Conversion
Shares which would exceed the difference between the number of shares of Common
Stock beneficially owned by such Holder or issuable upon exercise of warrants
held by such Holder and 9.99% of the outstanding shares of Common Stock of the
Borrower. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13d-3 thereunder. The Holder may void the Conversion Share
limitation described in this Section 3.2 upon 75 days prior notice to the
Borrower.
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3.3 Mechanics of Xxxxxx's Conversion. (a) In the event that the Holder
elects to convert all or a portion of the outstanding balance of this Note into
Common Stock, the Holder shall give notice of such election by delivering an
executed and completed notice of conversion ("NOTICE OF CONVERSION") to the
Borrower and such Notice of Conversion shall provide a breakdown in reasonable
detail of the Principal Amount, accrued interest and fees being converted. On
each Conversion Date (as hereinafter defined) and in accordance with its Notice
of Conversion, the Holder shall make the appropriate reduction to the Principal
Amount, accrued interest and fees as entered in its records and shall provide
written notice thereof to the Borrower within two (2) business days after the
Conversion Date. Each date on which a Notice of Conversion is delivered or
telecopied to the Borrower in accordance with the provisions hereof shall be
deemed a Conversion Date (the "CONVERSION DATE"). A form of Notice of Conversion
to be employed by the Holder is annexed hereto as Exhibit A.
(b) Pursuant to the terms of the Notice of Conversion, the Borrower
will issue instructions to the transfer agent accompanied by an opinion of
counsel within one (1) business day of the date of the delivery to Borrower of
the Notice of Conversion and shall cause the transfer agent to transmit the
certificates representing the Conversion Shares to the Holder. In the case of
the exercise of the conversion rights set forth herein the conversion privilege
shall be deemed to have been exercised and the Conversion Shares issuable upon
such conversion shall be deemed to have been issued upon the date of receipt by
the Borrower of the Notice of Conversion. The Holder shall be treated for all
purposes as the record holder of such Common Stock, unless the Holder provides
the Borrower written instructions to the contrary.
3.4 Conversion Mechanics.
(a) The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
principal and interest and fees to be converted, if any, by the then applicable
Conversion Price.
(b) On the issue date hereof and until such time as an adjustment shall
occur, the Conversion Price shall be $.50 per share. The 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 Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the case
of combination of shares, in each such case by the ratio which the total number
of shares of Common Stock outstanding immediately after such event bears to the
total number of shares of Common Stock outstanding immediately prior to such
event.
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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C. Share Issuances. Subject to the provisions of this Section 3.4, if
the Borrower shall at any time prior to the conversion or repayment in full of
the Principal Amount issue any shares of Common Stock or securities convertible
into Common Stock to a person other than the Holder (except (i) pursuant to
Subsections A or B above; (ii) pursuant to options, warrants, or other
obligations to issue shares outstanding on the date hereof as disclosed to
Holder in writing; or (iii) pursuant to options that may be issued under any
employee incentive stock option and/or any qualified stock option plan adopted
by the Borrower) for a consideration per share (the "OFFER PRICE") less than the
Conversion Price in effect at the time of such issuance, then the Conversion
Price shall be immediately reset to such lower Offer Price at the time of
issuance of such securities.
D. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed
to evidence the right to purchase an adjusted number of such securities and kind
of securities as would have been issuable as the result of such change with
respect to the Common Stock immediately prior to such reclassification or other
change.
3.5 Issuance of New Note. Upon any partial conversion of this Note, a
new Note containing the same date and provisions of this Note shall, at the
request of the Holder, be issued by the Borrower to the Holder for the principal
balance of this Note and interest which shall not have been converted or paid.
Subject to the provisions of Article IV, the Borrower will pay no costs, fees or
any other consideration to the Holder for the production and issuance of a new
Note.
3.6 Registration Rights. The Holder has certain rights with respect to
the registration of shares of Common Stock issued upon the conversion of this
Note pursuant to the terms of the Loan Agreement.
ARTICLE IV
EVENTS OF DEFAULT
Upon the occurrence and continuance of an Event of Default beyond any
applicable grace period, the Holder may make all sums of principal, interest and
other fees then remaining unpaid hereon and all other amounts payable hereunder
immediately due and payable.
The occurrence of any of the following events set forth in Sections 4.1
through 4.10, inclusive, is an "EVENT OF DEFAULT":
4.1 Failure to Pay Principal, Interest or other Fees. The Borrower
fails to pay when due any installment of principal, interest or other fees
hereon in accordance herewith, or the Borrower fails to pay when due any amount
due under any other promissory note issued by Borrower, and in any such case,
such failure shall continue for a period of three (3) days following the date
upon which any such payment was due.
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4.2 Breach of Covenant. The Borrower breaches any covenant or any other
term or condition of this Note or the Purchase Agreement in any material
respect, or the Borrower or any of its Subsidiaries breaches any covenant or any
other term or condition of any Related Agreement in any material respect and, in
any such case, such breach, if subject to cure, continues for a period of
fifteen (15) days after the occurrence thereof.
4.3 Breach of Representations and Warranties. Any representation or
warranty made by the Borrower in this Note or the Purchase Agreement, or by the
Borrower or any of its Subsidiaries in any Related Agreement, shall, in any such
case, be false or misleading in any material respect on the date that such
representation or warranty was made or deemed made.
4.4 Receiver or Trustee. The Borrower or any of its Subsidiaries shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed.
4.5 Judgments. Any money judgment, writ or similar final process shall
be entered or filed against the Borrower or any of its Subsidiaries or any of
their respective property or other assets for more than $50,000, and shall
remain unvacated, unbonded or unstayed for a period of thirty (30) days.
4.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
of its Subsidiaries.
4.7 Stop Trade. An SEC stop trade order or Principal Market trading
suspension of the Common Stock shall be in effect for five (5) consecutive days
or five (5) days during a period of ten (10) consecutive days, excluding in all
cases a suspension of all trading on a Principal Market, provided that the
Borrower shall not have been able to cure such trading suspension within thirty
(30) days of the notice thereof or list the Common Stock on another Principal
Market within sixty (60) days of such notice. The "Principal Market" for the
Common Stock shall include the NASD OTC Bulletin Board, NASDAQ SmallCap Market,
NASDAQ National Market System, American Stock Exchange, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock, or any securities exchange or other
securities market on which the Common Stock is then being listed or traded.
4.8 Failure to Deliver Common Stock or Replacement Note. The Borrower
shall fail (i) to timely deliver Common Stock to the Holder pursuant to and in
the form required by this Note if such failure to timely deliver Common Stock
shall not be cured within two (2) business days or (ii) to deliver a replacement
Note to Holder within seven (7) business days following the required date of
such issuance pursuant to this Note, the Purchase Agreement or any Related
Agreement (to the extent required under such agreements).
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4.9 Default Under Related Agreements or Other Agreements. The
occurrence and continuance of any Event of Default (as defined in the Purchase
Agreement or any Related Agreement) or any event of default (or similar term)
under any other indebtedness.
4.10 Change in Control. The occurrence of a change in the controlling
ownership of the Borrower.
4.11 Sale of Assets. The Borrower shall execute any agreement, letter,
memorandum of understanding or similar document relating to the transfer,
disposition or sale of all or substantially all of the assets of the Borrower to
anyone without the approval of the Lender.
4.12 Defaults. A default by the Borrower with respect to any other
indebtedness in excess of $50,000 due to the Lender or any other third party.
4.13 Invalidity. The issuance of a determination by a court of
competent jurisdiction that one or more Related Agreements or one or more
material provisions of any of the Related Agreements is unenforceable, or the
issuance of an injunction against the enforcement of any of the Related
Agreements or material provision.
DEFAULT RELATED PROVISIONS
4.14 Default Interest Rate. Following the occurrence and during the
continuance of an Event of Default, interest on this Note shall automatically be
to twenty one percent (21%), and all outstanding obligations under this Note,
including unpaid interest, shall continue to accrue interest from the date of
such Event of Default at such interest rate applicable to such obligations until
such Event of Default is cured or waived.
4.15 Conversion Privileges. The conversion privileges set forth in
Article III shall remain in full force and effect immediately from the date
hereof and until this Note is paid in full.
4.16 Cumulative Remedies. The remedies under this Note shall be
cumulative.
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
5.2 Notices. Any notice herein required or permitted to be given shall
be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
Borrower at the address provided in the Purchase Agreement executed in
connection herewith, and to the Holder at the address provided in the Purchase
Agreement for such Holder, 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.
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5.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument issued pursuant to Section 3.5
hereof, as it may be amended or supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of this Section 5.4. This Note shall not be assigned by the
Borrower without the consent of the Holder. This Note may be transferred on the
books of the Borrower by the registered Holder hereof, or by Xxxxxx's attorney
duly authorized in writing, only upon (i) delivery to the Borrower of a duly
executed assignment of the Note, or part thereof, to the proposed new Holder,
along with a current notation of the amount of payments received and net
Principal Amount yet unfunded, and presentment of such Note to the Borrower for
issue of a replacement Note, or Notes, in the name of the new Holder, (ii) the
designation by the new Holder of such new Holder's agent(s) for notice, such
agent(s) to be the sole party(ies) to whom Borrower shall be required to provide
notice when notice to Xxxxxx is required hereunder and who shall be the sole
party(ies) authorized to represent the new Holder(s) in regard to modification
or waivers under the Note, the Loan Agreement, or other Loan Documents; and any
action, consent or waiver, (other than a compromise of principal and interest),
when given or taken by the new Holder's agent(s) for notice, shall be deemed to
be the action of the new Holder, as such holders are recorded on the books of
the Borrower, and (iii) compliance with the Securities Act of 1933, as amended,
and all other applicable state and federal securities laws.
5.5 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, 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 Pennsylvania or in the federal courts
located in the Commonwealth of Pennsylvania. 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. Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action against the Borrower
in any other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court in favor of the Holder.
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5.6 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
5.7 Security Interest and Guarantee. The Holder has been granted a
security interest (i) in certain assets of the Borrower and its Subsidiaries as
more fully described in the Security Agreement dated as of the date hereof and
(ii) pursuant to the Securities Pledge Agreement dated as of the date hereof.
The obligations of the Borrower under this Note are guaranteed by certain
Subsidiaries of the Borrower pursuant to the Subsidiary Guaranty dated as of the
date hereof.
5.8 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
5.9 Cost of Collection. If default is made in the payment of this Note,
the Borrower shall pay to Holder reasonable costs of collection, including
reasonable attorney's fees.
[Balance of page intentionally left blank; signature page follows.]
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IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in
its name effective as of this 5th day of May, 2005.
TRIMEDIA ENTERTAINMENT GROUP, INC
By: /s/Xxxxxxxxxxx Xxxxxxxx
--------------------------
Name: Xxxxx Xxxxxxxx
Title: Chief Executive Officer
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EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert all or part of the Note into
Common Stock
[Name and Address of Holder]
The Undersigned hereby converts $_________ of the principal (together with
associated accrued but unpaid interest) due under the Convertible Term Note
issued by TRIMEDIA ENTERTAINMENT GROUP, INC. dated May __, 2005 by delivery of
Shares of Common Stock of TRIMEDIA ENTERTAINMENT GROUP, INC. on and subject to
the conditions set forth in Article III of such Note.
1. Date of Conversion _______________________
2. Shares To Be Delivered: _______________________
By:_______________________________
Name:_____________________________
Title:____________________________
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