EXHIBIT 10.4
Q MATRIX, INC.
____________________
10% CONVERTIBLE PROMISSORY NOTE
____________________
_________________, 2004
THIS NOTE AND ANY SECURITIES INTO WHICH IT IS CONVERTIBLE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT AND SUCH LAWS OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS.
Q MATRIX, INC.
10% CONVERTIBLE PROMISSORY NOTE
$____________________ Santa Rosa, California
__________, 2004
Q Matrix, Inc., a Delaware corporation (the "Company"), the principal
office of which is located at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇, for value received, hereby promises to pay to
_____________________________, or its registered assigns ("Holder"), the sum
of _______________________________ dollars ($_________), or such lesser amount
as shall then equal the outstanding principal amount hereof on the terms and
conditions set forth hereinafter. The principal hereof and any unpaid accrued
interest hereon, as set forth below, shall be due and payable in cash, unless
converted into shares of Common Stock (the "Stock") pursuant to Section 5
hereof, on the earlier to occur of: (i) the two (2) year anniversary of the
date of this Note; or (ii) when declared due and payable by the Holder upon
the occurrence of an Event of Default (as defined below).
Payment of all amounts due hereunder shall be made by mail to the
registered address of the Holder. This Note is issued in connection with the
transactions described in that certain Agreement and Investment Letter between
the Company and the Investors described therein, dated as of _________ , 2004
(the "Subscription Agreement"). The holder of this Note is subject to certain
restrictions set forth in the Subscription Agreement and shall be entitled to
certain rights and privileges set forth in the Subscription Agreement. This
Note is one of the Notes referred to as the "Notes" in the Subscription
Agreement.
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject, and to which the Holder hereof,
by the acceptance of this Note, agrees:
1. Definitions. As used in this Note, the following terms, unless the
context otherwise requires, have the following meanings:
(i) "Company" includes any person which shall succeed to or assume
the obligations of the Company under this Note.
(ii) "Holder," when the context refers to a holder of this Note,
shall mean any person who shall at the time be the registered holder of this
Note.
2. Interest. Simple interest shall accrue on the outstanding principal
balance of this Note at the rate of ten percent (10%) per annum, or the
maximum rate permitted by law, whichever is less, from the date of issuance of
this Note through the date this Note is fully repaid or converted into Common
Stock. Interest shall be paid monthly by the 15th day following each calendar
month end.
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3. Events of Default. If any of the events specified in this Section 3
shall occur (herein individually referred to as an "Event of Default"), the
Holder of the Note may, so long as such condition exists, declare the entire
principal and unpaid accrued interest hereon immediately due and payable, by
notice in writing to the Company:
(i) Default in the payment of the principal and unpaid accrued
interest of this Note when due and payable if such default is not cured by the
Company within ten (10) days after the Holder has given the Company written
notice of such default; or
(ii) The institution by the Company of proceedings to be adjudicated
as bankrupt or insolvent, or the consent by it to institution of bankruptcy or
insolvency proceedings against it or the filing by it of a petition or answer
or consent seeking reorganization or release under the federal Bankruptcy Act,
or any other applicable federal or state law, or the consent by it to the
filing of any such petition or the appointment of a receiver, liquidator,
assignee, trustee or other similar official of the Company, or of any
substantial part of its property, or the making by it of an assignment for the
benefit of creditors, or the taking of corporate action by the Company in
furtherance of any such action; or
(iii) If, within sixty (60) days after the commencement of an action
against the Company (and service of process in connection therewith on the
Company) seeking any bankruptcy, insolvency, reorganization, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such action shall not have been resolved in favor of the Company
or all orders or proceedings thereunder affecting the operations or the
business of the Company stayed, or if the stay of any such order or proceeding
shall thereafter be set aside, or if, within sixty (60) days after the
appointment without the consent or acquiescence of the Company of any trustee,
receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company, such appointment shall not have been vacated.
4. Prepayment. The Company may not prepay the principal of this Note in
whole or in part at any time prior to due date of this Note without the
consent of the Holder. However, the Company may pay accrued interest at
anytime, in whole or in part, without consent of Holder.
5. Conversion.
5.1 Voluntary Conversion. At the option of the Holder, the entire
outstanding principal amount of this Note, together with accrued interest
thereon (the "Note Amount"), shall be converted into Common Stock upon the
sale and issuance of Common Stock by the Company in a PIPE ("Private
Investment in a Public Entity") offering resulting in gross proceeds of not
less than $1,000,000 (a "Qualified Offering"). The rights, preferences and
privileges of the Common Stock issuable upon conversion of the Note shall be
established in connection with the sale of the Common Stock in a Qualified
Offering. The price at which this Note is converted into Common Stock (the
"Conversion Price") shall be the price at which the Common Stock is sold in a
Qualified Offering. If the Qualified Offering is sold as units consisting of
shares of Common Stock and warrants to purchase Common Stock, the unit
purchase price shall be allocated to the shares of common stock and warrants
as described in the offering documents for the Qualified Offering, or as
determined by the Board of Directors if the allocation of the unit price is
not described in the offering documents. Upon conversion of the Note, Holder
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shall be entitled to receive the number of shares of Common Stock that is
equal to the Note Amount for such Note at the time of conversion, divided by
the Conversion Price.
6. Conversion Procedure.
6.1 Notice of Voluntary Conversion. At least ten (10) days prior
to closing of a Qualified Offering, the Company shall provide Holder with
written notice of such Qualified Offering. Within five (5) days of receipt of
such notice, if the Holder elects to convert this Note into Common Stock
pursuant to Section 5.1, Holder shall submit a Notice of Election in the form
of Exhibit A hereto stating that the Holder elects to convert this Note into
Common Stock. The Holder shall surrender this Note at the office of the
Company with its election to convert the same, and shall state therein the
name or names in which the certificate or certificates for Common Stock are to
be issued. The Company shall, in accordance with the terms of the Qualified
Offering, issue and deliver to the Holder of this Note a certificate or
certificates for the number of shares of Common Stock to which the Holder of
this Note shall be entitled, together with any other securities and property
to which the Holder is entitled upon such conversion under the terms of this
Note, including a check payable to the Holder for any cash amount payable
pursuant to Section 7 below. Such conversion shall be deemed to have been
made upon closing of the Qualified Offering, and the person or persons
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such Common Stock
as of such date.
7. Mechanics and Effect of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of this Note. In lieu of the Company
issuing any fractional shares to the Holder upon the conversion of this Note,
the Company shall pay to the Holder the amount of outstanding principal and
accrued interest that is not so converted, such payment to be made as set
forth above. Upon conversion of this Note, the Company shall be forever
released from all its obligations and liabilities under this Note, except that
the Company shall be obligated to pay the Holder, within ten (10) days after
the date of such conversion, any interest accrued and unconverted up to and
including the date of such conversion, and no more.
8. Assignment. Subject to the restrictions on transfer described in
Section 10 below, the rights and obligations of the Company and the Holder of
this Note shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties.
9. Waiver and Amendment. Any provision of this Note may be amended,
waived or modified upon the written consent of the Company and holders of more
than fifty percent (50%) of the principal amount of all then outstanding Notes
issued pursuant to the Subscription Agreement.
10. Transfer of This Note or Securities Issuable on Conversion Hereof.
With respect to any offer, sale or other disposition of this Note or
securities into which such Note may be converted, the Holder will give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of such ▇▇▇▇▇▇'s counsel, to the effect that
such offer, sale or other distribution may be effected without registration or
qualification (under any federal or state law then in effect). Promptly upon
receiving such written notice and reasonably satisfactory opinion, if so
requested, the Company, as promptly as practicable, shall notify such Holder
that such Holder may sell or otherwise dispose of this Note or such
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securities, all in accordance with the terms of the notice delivered to the
Company. If a determination has been made pursuant to this Section 10 that
the opinion of counsel for the Holder is not reasonably satisfactory to the
Company, the Company shall so notify the Holder promptly after such
determination has been made. Each Note thus transferred and each certificate
representing the securities thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Act, unless in the opinion of counsel for the Company such legend is not
required in order to ensure compliance with the Act. The Company may issue
stop transfer instructions to its transfer agent in connection with such
restrictions.
11. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.
12. Notices. Any notice or other communication between the parties
hereto shall be in writing and shall be delivered personally or by United
States mail and shall be deemed delivered upon receipt if sent by personal
delivery, and three (3) business days after deposit if sent by United States
mail. Such notices or communications shall be sent to the following addresses:
(a) if to the Company, at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇,
or at such other address or addresses as may have been furnished in writing by
the Company to the Holder, with a copy to
__________________________________________________________.; and (b) if to the
Holder, at the address set forth on his or her signature page to the
Subscription Agreement, or at such other address or addresses as may have been
furnished to the Company in writing.
13. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon the Holder or any other person any rights
whatsoever as a unit holder of the Company; and no dividends or interest shall
be payable or accrued in respect of this Note or the interest represented
hereby or the Common Stock obtainable hereunder until, and only to the extent
that, this Note shall have been converted.
14. Headings; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.
15. Dispute Resolution. In the event that any dispute between the
parties regarding the terms of this Agreement is not resolved by informal
negotiation between the parties, the matter shall be referred to the nearest
office of J.A.M.S./ENDISPUTE for mediation, that is, an informal, non-binding
conference or conferences between the parties in which a neutral panelist will
seek to guide the parties to a resolution of the matter. Each party agrees to
pay its own costs in connection with the mediation and its proportionate share
of the fees and costs of J.A.M.S./ENDISPUTE in connection with the mediation.
Each party agrees to spend a minimum of at least six (6) hours in attempting
to mediate the dispute (unless it is resolved in less than six (6) hours). If
the dispute is not resolved in such time, the parties may elect to continue
mediation or either party may commence litigation or binding arbitration.
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16. Attorney Fees. In the event that any dispute among any parties
hereto should result in litigation or arbitration, the prevailing party in
such dispute shall be entitled to recover from the other party all reasonable
fees, costs and expenses of enforcing any right of the prevailing party,
including without limitation, reasonable attorneys' fees and expenses, all of
which shall be deemed to have accrued upon the commencement of such action and
shall be paid whether or not such action is prosecuted to judgment. Any
judgment or order entered in such action shall contain a specific provision
providing for the recovery of attorney fees and costs incurred in enforcing
such judgment and an award of prejudgment interest from the date of the breach
at the maximum rate allowed by law. The prevailing party shall mean the party
who is determined in the proceeding to have prevailed or who prevails by
dismissal, default or otherwise and not necessarily the party in whose favor a
judgment or other decision is rendered.
IN WITNESS WHEREOF, the Company has caused this Note to be issued as of
the date first set forth above.
Q Matrix, Inc.
By: ________________________
Its: _______________________
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EXHIBIT A
NOTICE OF ELECTION
TO Q Matrix
The undersigned, the holder of the foregoing Note, hereby surrenders such
Note and elects to convert such Note into Common Stock of Q Matrix, Inc., and
requests that the certificates for such shares be issued in the name of, and
delivered to, ______________________, whose address and Tax ID or Social
Security Number are stated below.
Dated: ____________, 200_
___________________________________________
(Signature must conform in all respects to
name of ▇▇▇▇▇▇ as specified on the face of
the Note)
___________________________________________
___________________________________________
(Address)
___________________________________________
(Tax ID or Social Security Number)