CONVERTIBLE NOTE
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 ARTWORK AND BEYOND THAT SUCH REGISTRATION IS NOT REQUIRED.
FOR VALUE RECEIVED, Artwork and Beyond, Inc., a Delaware
corporation (hereinafter called "BORROWER"), hereby promises to pay to
_______________________________ ____________________________, Fax No.:
_______________ (the "HOLDER") or order, without demand, the sum of
_____________________________ Dollars ($________) on December 31, 2005 (the
"MATURITY DATE").
The following terms shall apply to this Note:
ARTICLE I
PAYMENT PROVISIONS
1.1 PAYMENT GRACE PERIOD. The Borrower shall have a ten (10)
day grace period to pay any monetary amounts due under this Note, after which
grace period a default interest rate of 20% per annum shall apply to the amounts
owed hereunder.
1.2 CONVERSION PRIVILEGES. The Conversion Privileges set forth
in Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.
1.3 INTEREST RATE. Simple interest payable on this Note shall
accrue at the annual rate of five percent (5%) and be payable on the Date of
Conversion or Maturity Date or as otherwise provided herein. At the sole
election of the Company, interest shall be paid, either in cash or in shares of
the Company's Common Stock. If the interest is paid in shares, such shares shall
be valued at the average closing bid for the five (5) days prior to the date
payment is made.
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ARTICLE II
CONVERSION RIGHTS
2.1. CONVERSION INTO THE BORROWER'S COMMON STOCK.
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(a) The Holder shall have the right, at any time during the
period between the date on which the Common Stock is first publicly traded and
the third year anniversary of such date (the "CONVERSION PERIOD") to convert any
outstanding and unpaid principal portion of this Note, and at the Company's
election, the interest accrued on the Note, (the date of giving of such notice
of conversion being a "CONVERSION DATE") into fully paid and nonassessable
shares of common stock of Borrower as such stock exists on the date of issuance
of this Note, or any shares of capital stock of Borrower into which such stock
shall hereafter be changed or reclassified (the "COMMON STOCK") at the
conversion price as defined in Section 2.1(b) hereof (the "CONVERSION PRICE"),
determined as provided herein. Upon delivery to the Company of a Notice of
Conversion, Borrower shall issue and deliver to the Holder that number of shares
of Common Stock for the portion of the Note converted in accordance with the
foregoing. In addition, accrued but unpaid interest on the Note through the
Conversion Date shall be paid at such times in cash or Common Stock as provided
above. 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, at
the election of the Company, accrued and unpaid interest) of the Note to be
converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the Conversion
Price shall be fifty percent (50%) of the average closing bid for the five (5)
days prior to the Conversion Date, PROVIDED THAT the Conversion Price shall not
be less than fifty cents ($0.50) and PROVIDED FURTHER THAT the Conversion Price
shall not exceed three dollars ($3.00) for the first thirty-one (31) days
following the date on which the Holder has the right to convert his Note into
Common Stock, after which time period there shall be no ceiling on the
Conversion Price.
(c) Notwithstanding the foregoing, on the final day of the
Conversion Period (as defined below), the Note shall be automatically converted
into that number of shares calculated pursuant to the provisions of SECTION
2.1(A). Borrower shall issue and deliver to the Holder that number of shares of
Common Stock for the portion of the Note converted in accordance with the
foregoing. In addition, accrued but unpaid interest on the Note through the
Conversion Date shall be paid at such times in cash or Common Stock as provided
above.
(d) The Company may, any time, pre-pay this Note and the
accrued interest hereon upon thirty (30) days prior notice (the "Prepayment
Notice"), PROVIDED THAT the average closing bid of the publicly traded Common
Stock is in excess of three dollars ($3.00) for the five days prior to the date
of the Prepayment Notice.
(e) The Conversion Price described in Section 2.1(b) above and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Sections 2.1(a) and 2.1(b), shall be subject to
adjustment from time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:
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▇. ▇▇▇▇▇▇, Sale of Assets, etc. If the Borrower at
any time shall consolidate with or merge into or sell or convey all or
substantially all its assets to any other corporation, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of shares or
other securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with respect
to the securities subject to the conversion or purchase right immediately prior
to such consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. 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 portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase such number 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.
C. 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.
(f) During the Conversion Period, 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.
Borrower represents that upon issuance, such shares will be duly and validly
issued, fully paid and non-assessable. ▇▇▇▇▇▇▇▇ 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.
2.2 METHOD OF CONVERSION. This Note may be converted by the
Holder in whole or in part as described in Section 2.1(a) hereof. Upon partial
conversion of this Note, a new Note containing the same date and provisions of
this Note shall 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.
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ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default
("EVENT OF DEFAULT") shall, at the option of the Holder hereof, make all sums of
principal and interest then remaining unpaid hereon and all other amounts
payable hereunder immediately due and payable, all without demand, presentment
or notice, or grace period, all of which hereby are expressly waived, except as
set forth below:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails
to pay any installment of principal or interest hereon when due and such failure
continues for a period of ten (10) days after the due date. The ten (10) day
period described in this Section 3.1 is the same ten (10) day period described
in Section 1.1 of the Note.
3.2 RECEIVER OR TRUSTEE. The Borrower 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.
3.3 JUDGMENTS. Any money judgment, writ or similar final
process shall be entered or filed against Borrower or any of its property or
other assets for more than $100,000, and shall remain unvacated, unbonded or
unstayed for a period of forty-five (45) days.
3.4 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 and if instituted against Borrower are not dismissed within 45 days of
initiation.
ARTICLE IV
MISCELLANEOUS
4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of 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.
4.2 NOTICES. Any notice herein required or permitted to be
given shall be in writing and may be personally served or sent by fax
transmission (with copy sent by regular, certified or registered mail or by
overnight courier). For the purposes hereof, the address and fax number of the
Holder is as set forth on the first page hereof. The address and fax number of
the Borrower shall be artwork and Beyond, Inc.▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇. Both ▇▇▇▇▇▇ and Borrower may
change the address and fax number for service by service of notice to the other
as herein provided.
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4.3 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.
4.4 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.
4.5 COST OF COLLECTION. If default is made in the payment of
this Note, Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
4.6 GOVERNING LAW. This Note shall be governed by and
construed in accordance with the laws of the State of New York. 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 Agreement 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.
4.7 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.
IN WITNESS WHEREOF, ▇▇▇▇▇▇▇▇ has caused this Note to be signed in its
name by its President on this _____ day of _____ 2002.
ARTWORK AND BEYOND, INC.
By: __________________________________
▇▇▇▇▇▇ ▇▇▇▇, Chief Executive Officer
WITNESS:
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NOTICE OF CONVERSION
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(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by ARTWORK AND BEYOND,
INC. (the "Company") on March ____, 2002 into Shares of Common Stock of the
Company according to the conditions set forth in such Note, as of the date
written below.
Date of Conversion:______________
Conversion Price: ________________
Shares To Be Delivered: ___________
Signature: ______________________
Print Name: ___________________________
Address: ______________________________
______________________________