PROMISSORY NOTE CONVERSION AGREEMENT
Exhibit
No. 10.29
This
Promissory Note Conversion Agreement (the “Agreement”), dated as of January 29,
2007, is entered into by and between Shearson Financial, Inc., a Nevada
corporation (“Shearson”) and La Jolla Cove Investors, Inc., a California
corporation (“LJCI”), with reference to the following:
WHEREAS,
LJCI has purchased, and/or will be purchasing, certain Promissory Notes
(“Promissory Notes”) issued by Shearson to various individuals and/or entities,
as set forth in more detail on Exhibit A attached hereto; and
WHEREAS,
the parties desire to provide for certain conversion provisions relating
to the
Promissory Notes.
NOW,
THEREFORE, in consideration of the mutual promises and convenants contained
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Conversion
Right. Each
of
LJCI and Shearson agree that each Promissory Note shall be converted or
exchanged (each, a “Conversion”), in whole, up to the full principal balance
thereof, into shares of the common stock of Shearson (the “Shearson Common
Stock”) (calculated as to each such conversion to the nearest 1/100th
of a
share), within 60 days from the date of LJCI’s purchase of the Promissory Note.
The number of shares of Shearson Common Stock into which the Promissory Notes
may be converted is equal to the dollar amount of the Promissory Note being
converted divided by the Conversion Price. The Conversion Price shall be
equal
to 82% of the average of the volume weighted average price of the shares
of the
Shearson Common Stock during the five trading days prior to LJCI’s election to
convert.
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2.
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Exercise
of Conversion Privilege.
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(a) Conversion
of a Promissory Note may be exercised, within the allotted time, by LJCI
by
telecopying an executed and completed Conversion Notice to Shearson. Each
date
on which a Conversion Notice is telecopied to Shearson in accordance with
the
provisions of this Section shall constitute a Conversion Date. Shearson shall
convert or exchange the Promissory Note and issue the Shearson Common Stock
in
the manner provided below in this Section, and all voting and other rights
associated with the beneficial ownership of the Shearson Common Stock issued
at
Conversion shall vest with LJCI, effective as of the Conversion Date at the
time
specified in the Conversion Notice. The Conversion Notice also shall state
the
name or names (with addresses) of the persons who are to become the holders
of
the Shearson Common Stock issued at Conversion in connection with such
Conversion. As promptly as practicable after the receipt of the Conversion
Notice as aforesaid, but in any event not more than two business days after
Shearson’s receipt of such Conversion Notice, Shearson shall (i) issue the
Shearson Common Stock in accordance with the provisions of this Section and
(ii)
cause to be mailed for delivery by overnight courier to LJCI a certificate
or
certificate(s) representing the number of Shearson Common Shares to which
LJCI
is entitled by virtue of such Conversion. Such Conversion shall be deemed
to
have been effected at the time at which the Conversion Notice indicates,
and at
such time the rights of LJCI as the holder of the Promissory Note, as such
(except if and to the extent that any principal amount thereof remains
unconverted), shall cease and the person and persons in whose name or names
the
Shearson Common Stock issued at conversion shall be issuable shall be deemed
to
have become the holder or holders of record of the shares of common stock
represented thereby, and all voting and other rights associated with the
beneficial ownership of such shares of common stock shall at such time vest
with
such person or persons. The Conversion Notice shall constitute a contract
between LJCI and Shearson, whereby LJCI shall be deemed to subscribe for
the
number of shares of Shearson Common Stock which it will be entitled to receive
upon such Conversion and, in payment and satisfaction of such subscription,
to
surrender the Promissory Note and to release Shearson from all liability
thereon
(except if and to the extent that any principal amount of the Promissory
Note
remains unconverted).
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(b) If,
at
any time after the date of this Agreement, (i) Shearson challenges, disputes
or
denies the right of LJCI to effect the Conversion of a Promissory Note into
shares of Shearson Common Stock or otherwise dishonors or rejects any Conversion
Notice delivered in accordance with this Section or (ii) any third party
who is
not and has never been an affiliate of LJCI commences any lawsuit or legal
proceeding or otherwise asserts any claim before any court or public or
governmental authority which seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of LJCI hereof to effect any Conversion of the
Promissory Note into shares of Shearson Common Stock, then LJCI shall have
the
right, but not the obligation, by written notice to Shearson, to require
Shearson to promptly redeem the Promissory Note for cash at one hundred and
ten
percent (110%) of the principal amount thereof, together with all accrued
and
unpaid interest thereon to the date of redemption. Under any of the
circumstances set forth above, Shearson shall be responsible for the payment
of
all costs and expenses of LJCI, including reasonable legal fees and expenses,
as
and when incurred in defending itself in any such action or pursuing its
rights
hereunder (in addition to any other rights of LJCI).
(c) LJCI
shall be entitled to exercise its conversion privilege set forth herein
notwithstanding the commencement of any case under the Bankruptcy Code. In
the
event Shearson is a debtor under the Bankruptcy Code, Shearson hereby waives
to
the fullest extent permitted any rights to relief it may have under 11 U.S.C.
§
362 in respect of LJCI’s conversion privilege. Shearson hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C.
§ 362
in respect of the conversion of the Promissory Notes. Shearson agrees, without
cost or expense to LJCI, to take or consent to any and all action necessary
to
effectuate relief under 11 U.S.C. § 362.
(d) Shearson
shall provide LJCI, at its expense, any Rule 144(k) legal opinion in accordance
with customary rules and regulations as enforced by the SEC, and in form
and
substance acceptable to LJCI that would be required to enable LJCI to sell
the
shares of Shearson Common Stock issued at any Conversion.
3. Adjustments. The
Conversion Price and the number of shares deliverable upon conversion of
the
Promissory Notes are subject to adjustment from time to time as
follows:
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(a) Reclassification,
Etc. In
case
Shearson shall reorganize its capital, reclassify its capital stock, consolidate
or merge with or into another company (where Shearson is not the survivor
or
where there is a change in or distribution with respect to the common stock
of
Shearson), sell, convey, transfer or otherwise dispose of all or substantially
all its property, assets or business to another person or company, or effectuate
a transaction or series of related transactions in which more than fifty
percent
(50%) of the voting power of Shearson is disposed of (each, a “Fundamental
Corporate Change”)
and,
pursuant to the terms of such Fundamental Corporate Change, shares of common
stock of the successor or acquiring corporation, or any cash, shares of stock
or
other securities or property of any nature whatsoever (including warrants
or
other subscription or purchase rights) in addition to or in lieu of common
stock
of the successor or acquiring corporation (“Other
Property”)
are to
be received by or distributed to the holders of Shearson Common Stock, then
LJCI
shall have the right thereafter, at its sole option, to (x) require Shearson
to
prepay the Promissory Notes for cash at one hundred and ten percent (110%)
of
the principal amount thereof, together with all accrued and unpaid interest
thereon to the date of prepayment, (y) receive the number of shares of
common stock of the successor or acquiring corporation or of Shearson, if
it is
the surviving corporation, and Other Property as is receivable upon or as
a
result of such
Fundamental Corporate Change by a holder of the number of shares of common
stock
into which the outstanding portion of the Promissory Notes may be converted
at
the Conversion Price applicable immediately prior to such Fundamental Corporate
Change or (z) require Shearson, or such successor, resulting or purchasing
corporation, as the case may be, to, without benefit of any additional
consideration therefor, execute and deliver to LJCI a debenture with substantial
identical rights, privileges, powers, restrictions and other terms as the
Promissory Notes and the rights of conversion and/or exchange as set forth
in
this Agreement in an amount equal to the amount outstanding under the Promissory
Notes immediately prior to such Fundamental Corporate Change. For purposes
hereof, “common
stock of the successor or acquiring corporation”
shall
include stock of such corporation of any class which is not preferred as
to
dividends or assets over any other class of stock of such corporation and
which
is not subject to prepayment and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into
or
exchangeable for any such stock, either immediately or upon the arrival of
a
specified date or the happening of a specified event and any warrants or
other
rights to subscribe for or purchase any such stock. The foregoing provisions
shall similarly apply to successive Fundamental Corporate Changes.
4. Certain
Conversion Limits. For
the
conversion period, if and to the extent that, on any date, the holding by
LJCI
of the Promissory Notes would result in LJCI being deemed the beneficial
owner of
more
than 9.99% of the then outstanding shares of Shearson common stock, then
LJCI
shall not have the right, and Shearson shall not have the obligation, to
convert
or exchange any portion of the Promissory Notes as shall cause LJCI to be
deemed
the beneficial owner of more than 9.99% of the then outstanding shares of
Shearson Common Stock. If any court of competent jurisdiction shall determine
that the foregoing limitation is ineffective to prevent LJCI from being deemed
the beneficial owner of more than 9.99% of the then outstanding shares of
Shearson Common Stock, then Shearson shall prepay such portion of the Promissory
Notes as shall cause LJCI not to be deemed the beneficial owner of more than
9.99% of the then outstanding shares of Shearson Common Stock. Upon such
determination by a court of competent jurisdiction, LJCI shall have no interest
in or rights under such portion of the Promissory Notes that is so prepaid.
Such
prepayment shall be for cash at a prepayment price of one hundred and ten
percent (110%) of the principal amount thereof, together with all accrued
and
unpaid interest thereon to the date of prepayment.
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5. Representations
and Warranties of Shearson. In
connection with the transactions provided for herein, Shearson hereby represents
and warrants to LJCI that:
(a) Organization,
Good Standing and Qualification. Shearson
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Nevada and has all requisite corporate power and
authority to carry on its business as now conducted. Shearson is duly qualified
to transact business and is in good standing in each jurisdiction in which
the
failure to so qualify would have a material adverse effect on its business
or
properties.
(b) Authorization. All
corporate action has been taken on the part of Shearson, its officers, directors
and stockholders necessary for the authorization, execution and delivery
of this
Agreement and the conversion or exchange of the Promissory Notes. Except
as may
be limited by applicable bankruptcy, insolvency, reorganization, or similar
laws
relating to or affecting the enforcement of creditors’ rights, Shearson has
taken all corporate action required to make all of the obligations of Shearson
reflected in the provisions of this Agreement, and the Promissory Notes,
the
valid and enforceable obligations they purport to be. [Except
as
otherwise indicated in this Section 5, the conversion or exchange of the
Promissory Notes into shares of Shearson Common Stock as contemplated herein,
will not be subject to the preemptive rights of any stockholder of the
Company. Shearson
has authorized sufficient shares of Shearson Common Stock to allow for
conversion or exchange of the Promissory Notes as described in Section 1
and
Section 2.
(c) Compliance
with Other Instruments. Neither
the authorization, execution and delivery of this Agreement, nor the issuance
and delivery of the shares of Shearson Common Stock upon the conversion or
exchange of the Promissory Notes, will constitute or result in a material
default or violation of any law or regulation applicable to Shearson or any
material term or provision of Shearson’s current Articles of Incorporation or
bylaws or any material agreement or instrument by which it is bound or to
which
its properties or assets are subject.
(d) Issuance
of Common Stock. The
shares of Shearson Common Stock to be issued and delivered upon Conversion
of
the Promissory Notes will be duly and validly issued, fully paid and
nonassessable and will be issued in compliance with all applicable federal
and
state securities laws. The offer, sale and issuance of the shares of Shearson
Common Stock to be issued and delivered upon Conversion of the Promissory
Notes
will be exempt from the registration requirements of the Securities Act,
and
will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements
of
all applicable state securities laws and federal securities laws.
(e) Litigation. There
is
no action, suit, proceeding or investigation pending or currently threatened
against Shearson that questions the validity of the Promissory Notes or this
Agreement, or the right of Shearson to convert or exchange the Promissory
Notes,
or to consummate the transactions contemplated hereby, or that might result,
either individually or in the aggregate, in any material adverse change in
the
assets, business, properties, prospects, or financial condition of Shearson.
The
foregoing includes, without limitation, any action, suit, proceeding, or
investigation pending or currently threatened involving the negotiations
by
Shearson with potential backers of, or investors in, Shearson or its proposed
business. Shearson is not a party to, or to the best of its knowledge, named
in
the order, writ, injunction, judgment, or decree of any court, government
agency, or instrumentality. There is no action, suit, or proceeding by Shearson
currently pending or that Shearson currently intends to initiate.
6. Governing
Law. This
Agreement shall in all respects be construed, interpreted and enforced in
accordance with and governed by the laws of the State of California, United
States of America.
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7. Consent
to Jurisdiction. The
parties (i) hereby irrevocably submit to the jurisdiction of the United States
District Court sitting in the District of San Diego and the courts of the
State
of California located in San Diego county for the purposes of any suit, action
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereunder and (ii) hereby waive, and agree not to assert in
any
such suit, action or proceeding, any claim that it is not personally subject
to
the jurisdiction of such court, that the suit, action or proceeding is brought
in an inconvenient forum or that the venue of
the
suit, action or proceeding is improper. The parties consent to process being
served in any such suit, action or proceeding by mailing a copy thereof to
such
party at the address in effect for notices to it under this Agreement and
agree
that such service shall constitute good and sufficient service of process
and
notice thereof. Nothing in this section shall affect or limit any right to
serve
process in any other manner permitted by law.
8. Waiver
of Jury Trial. To
the
fullest extent permitted by law, each of the parties hereto hereby knowingly,
voluntarily and intentionally waives its respective rights to a jury trial
of
any claim or cause of action based upon or arising out of this Agreement
or any
other document or any dealings between them relating to the subject matter
of
this Agreement and other documents. Each party hereto (i) certifies that
neither
of their respective representatives, agents or attorneys has represented,
expressly or otherwise, that such party would not, in the event of litigation,
seek to enforce the foregoing waivers and (ii) acknowledges that it has been
induced to enter into this Agreement by, among other things, the mutual waivers
and certifications herein.
9. Attorneys'
Fees. In
the
event of any legal action between the parties with respect to this Agreement
or
the subject matter hereof, the prevailing party shall be entitled to recover
reasonable attorneys' fees in addition to court costs and litigation expenses
incurred in said legal action, regardless of whether such legal action is
prosecuted to judgment.
10. Notices. Any
notice, demand or other communication required or permitted under this Agreement
shall be deemed given and delivered when in writing and (a) personally served
upon the receiving party, or (b) upon hand delivery by telex (with correct
answer back received), telecopy or facsimile at the address or number designated
below (if delivered on a business day during normal business hours where
such
notice is to be received), or (c) upon the third (3rd) calendar day after
mailing to the receiving party by either United States registered or certified
mail, postage prepaid, or (d) the next delivery day after mailing to the
receiving party by FedEx or other comparable overnight delivery service,
delivery charges prepaid, and addressed as follows:
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To
Shearson:
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Shearson
Financial Network, Inc.
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▇▇▇▇
▇▇.
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Facsimile:
▇▇▇-▇▇▇-▇▇▇▇
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To
LJCI:
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La
Jolla Cove Investors, Inc.
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▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇
▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
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11. Severability. In
the
event that any provision of this Agreement becomes or is declared by a court
of
competent jurisdiction to be illegal, unenforceable or invalid, then this
Agreement shall continue in full force and effect without said provision.
If
this Agreement continues in full force and effect as provided above, the
parties
shall replace the invalid provision with a valid provision which corresponds
as
far as possible to the spirit and purpose of the invalid provision.
12. Counterparts. This
Agreement may be executed in any number of counterparts, each of which may
be
executed by less than all of the parties hereto, each of which shall be
enforceable against the parties actually executing such counterparts, and
all of
which together shall constitute one document. Facsimile execution shall be
deemed originals.
13. Entire
Agreement. This
Agreement constitute the entire agreement between the parties with respect
to
the subject matter hereof, and supersede all prior oral or written agreements,
representations or warranties between the parties other than those set forth
herein or herein provided for.
14. Successors
and Assigns. The
provisions hereof shall inure to the benefit of, and be binding upon, the
permitted successors and assigns, heirs, executors, and administrators of
the
parties hereto.
15. Amendment
and Waiver. No
modification or waiver of any provision of this Agreement shall be binding
upon
the party against whom it is sought to be enforced, unless specifically set
forth in writing signed by an authorized representative of that party. A
waiver
by any party of any of the terms or conditions of this Agreement in any one
instance shall not be deemed or construed to be a waiver of such terms or
conditions for the future, or of any subsequent breach thereof. The failure
by
any party hereto at any time to enforce any of the provisions of this Agreement,
or to require at any time performance of any of the provisions hereof, shall
in
no way to be construed to be a waiver of such provisions or to affect either
the
validity of this Agreement or the right of any party to thereafter enforce
each
and every provision of this Agreement.
IN
WITNESS WHEREOF, Shearson and LJCI have duly executed this Agreement as of
the
date first above written.
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Shearson
Financial Network, Inc.
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La
Jolla Cove Investors, Inc.
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By:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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By:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
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Name:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name:
▇▇▇▇▇▇ ▇. ▇▇▇▇
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Title:
CEO
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Title:
Portfolio Manager
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EXHIBIT
A
Promissory
Notes
Promissory
Note between Shearson and ▇▇ ▇▇▇▇▇▇▇▇▇ dated as of June 1, 2004 in the principal
amount of $141,780.03.
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