CONVERTIBLE NOTE
THIS NOTE AND THE COMMON STOCK INTO WHICH IT IS CONVERTIBLE
(COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR UNDER THE
LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES NAY NOT
BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS
THAT TERM IS DEFINED IN REGULATION S UNDER THE ACT), UNLESS THEY
ARE REGISTERED UNDER THE ACT AND UNDER THE LAWS OF THE STATES
WHERE EACH SALE IS MADE, OR AN EXEMPTION OR SAFE HARBOR FROM SUCH
REGISTRATION REQUIREMENTS IS AVAILABLE IN THE OPINION OF COUNSEL
TO THE HOLDER THEREOF SATISFACTORY TO THE COMPANY AND ITS COUNSEL.
FOR VALUE RECEIVED, ▇▇▇▇ COMMUNICATIONS, INC., a Delaware
corporation (hereinafter called "Borrower"), hereby promises to pay to
BALMORE FUNDS S.A., ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, P.O. Box 4603, Zurich, Switzerland, Fax
No.: ▇▇▇-▇▇▇-▇▇▇-▇▇▇▇ (the "Holder") or order, without demand, the sum of
$500,000.00, with simple interest accruing at the annual rate of 8%, on
October 15, 1999 (the "Maturity Date"), as such date may be extended by
agreement of the parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED 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 16% 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 from the 41st day after
the date hereof until the Note principal and interest are paid in full.
1.3 Interest Rate. At the Maturity Date, accelerated or
otherwise, the Borrower shall pay interest at the annual rate of 8% per annum
together with such principal payment.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount
and interest due under this Note into Shares of the Borrower's Common Stock
as set forth below.
1
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the
date 41 days following issuance of this Note and then at any time on or prior
to the Maturity Date, as it may be extended by agreement of the parties
hereto, or until this Note is fully paid, to convert any outstanding and
unpaid principal portion of this Note and accrued interest of $25,000 or
greater amount (or any lesser amount representing the full remaining
outstanding and unpaid principal portion and at the Holder's election, the
accrued interest 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 the delivery of this Note to the escrow
agent ("Escrow Agent") identified in Section 9 of the subscription agreement
entered into between the Company and Holder (the "Subscription Agreement")
and in the escrow agreement ("Escrow Agreement") referred to therein,
accompanied, preceded or followed by notice from the Holder to the Company or
Escrow Agent of the Holder's written request for conversion, subject further
to the terms of the Escrow Agreement, as defined below, Borrower shall issue
and deliver to the Holder within three business days from the Conversion Date
that number of shares of Common Stock for the portion of the Note and/or
interest converted in accordance with the foregoing and a new Note in the
form hereof for the balance of the principal amount hereof, and/or interest
if any. 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/or interest on 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 seventy-two percent (72%) of the
average closing bid price for the Common Stock on the NASDAQ SmallCap Market,
or on any securities exchange or other securities market on which the Common
Stock is then being traded, for the five (5) trading days immediately
preceding the Conversion Date, or the date of this Note, whichever is lesser.
(c) The Conversion Price and number and kind of shares of
other securities to be issued upon conversion determined pursuant to Section
2.1(a) and 2.l(b), shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding,
as follows:
▇. ▇▇▇▇▇▇, 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
2
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
D. Share Issuance. Subject to the provisions of
this Section, if the Borrower at any time shall issue any shares of Common
Stock prior to the conversion of the entire principal amount of the Note
(otherwise than as: (i) provided in Sections 2.1 (c)A, 2.l(c)B or 2.l(c)C or
this subparagraph D; (ii) pursuant to options, warrants, Series A Preferred
Stock, Series B Preferred Stock, or other obligations to issue shares,
outstanding on the date hereof as described in the Reports and Other Written
Information, as such terms are defined in the Subscription Agreement; [(i)
and (ii) above, are hereinafter referred to as the "Existing Option
Obligations"] for a consideration less than the Conversion Price that would
be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Conversion Price shall be reduced as follows: (i)
the number of shares of Common Stock outstanding immediately prior to such
issue shall be multiplied by the Conversion Price in effect at the time of
such issue and the product shall be added to the aggregate consideration, if
any, received by the Borrower upon such issue of additional shares of Common
Stock; and (ii) the sum so obtained shall be divided by the number of shares
of Common Stock outstanding immediately after such issue. The resulting
quotient shall be the adjusted conversion price. Except for the Existing
Option Obligations and options that may be issued under any employee
incentive stock option and/or any nonqualified stock option plan adopted by
the Company, for purposes of this adjustment, the issuance of any security of
the Borrower carrying the right to convert such security into shares of
Common Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists,
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
3
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 and agents who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the conversion of this Note.
(e) The holder shall not be entitled to convert a portion
of the Note into that number of shares of Common Stock which upon conversion
would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owed by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Note), and (ii) the number of shares of Common
Stock issuable upon the conversion of the Note with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder or its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Borrower. For the purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 1 3d-3 thereunder, except as otherwise
provided in clause (i) of such proviso.
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). Subject further to
the terms of the Escrow Agreement, upon partial exercise hereof 1 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 which shall
riot have been converted.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event
of Default") including a Material Adverse Event, as defined in Section 3.7,
shall, at the option of the Holder hereof, make all sums or 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 written notice to the Borrower
from the Holder.
3.2 Breach of Covenant. The Borrower breaches any covenant or
other term or condition of this Note and such breach continues for a period
of seven (7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any
representation or warranty of the Borrower made herein, in the Subscription
Agreement entered into by the Holder and Borrower in connection with this
Note, or in any agreement, statement or certificate given in writing pursuant
hereto or in connection herewith shall be false or misleading.
4
3.4 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.
3.5 Judgments. Any money judgment, writ or similar 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 sixty (60) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings ~ other proceedings or relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by or against
the Borrower.
3.7 Material Adverse Event. The occurrence of a Material
Adverse Event involving the Company, shall mean (i) delisting of the Common
Stock from the NASDAQ SmallCap Market; (ii) a concession by the Company of a
default under any one or more obligations in an aggregate monetary amount in
excess of $100,000; and (iii) an SEC stop trade order or NASDAQ trading
suspension, if either applies for a period of ten days or longer.
3.8 Failure to Deliver Common Stock. The failure to timely
deliver Common Stock to the Escrow Agent pursuant to Section 2.1 of the
Escrow Agreement and Sections 2.(o) and 9 of the Subscription Agreement and
the failure to timely deliver such Common Stock to the Holder within three
business days from the Conversion Date in the form of unlegended shares of
Common Stock freely transferable on the books and records of the Company, and
with such opinions and approvals so that the Common Stock will be immediately
transferable by Borrower's transfer agent, subject to Regulation S, as same
may be amended, may result in economic loss to the Holder if a conversion
occurs and the requisite shares are not delivered to the Holder. As
compensation to the Holder for any loss which may occur in connection with
the foregoing, not otherwise the fault of the Escrow Agent, the Borrower
agrees to pay late payments to the Holder in accordance with the following
schedule (where "No. of Business Days Late" is defined as the number of
business days beyond the date the Holder is entitled to delivery of Common
Stock on conversion in the required form described above):
Late Payment For Each $10,000
of Convertible Note Principal
No. Business Days Late Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
5
10 $1000
>10 $1000 + $1000 for each Business
Day Late beyond 10 Days
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgency 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 ▇▇▇▇ Communications, Inc., ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇,
President, fax number (▇▇▇) ▇▇▇-▇▇▇▇. Both ▇▇▇▇▇▇ and Borrower may change the
address and fax number for service by service of notice to the other as
herein provided. Notice of Conversion shall be deemed given when made to the
Escrow Agent pursuant to the Escrow Agreement.
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 arid assigns, and shall inure to the benefit of the Holder
and its successors and assignees, and may be assigned after the 40th day
after the date of this Note.
4.5 Cost of Collection. If default is made in the payment of
this Note, Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
4.6 Governing Law. This Note shall be deemed to have been
executed in and shall be governed by the internal laws of the State of
Delaware, without regard to the principles of conflict of laws.
4.7 Maximum Payments. Nothing contained herein shall be deemed
to establish or require the i)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.
6
IN WITNESS WHEREOF, ▇▇▇▇▇▇▇▇ has caused this Note to be signed in
its name by its Chief Executive Officer on this 22nd day of October, 1997.
▇▇▇▇ COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇ President & CEO
7
CONVERTIBLE NOTE
THIS NOTE AND THE COMMON STOCK INTO WHICH IT IS CONVERTIBLE
(COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR UNDER THE
LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES NAY NOT
BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS
THAT TERM IS DEFINED IN REGULATION S UNDER THE ACT), UNLESS THEY
ARE REGISTERED UNDER THE ACT AND UNDER THE LAWS OF THE STATES
WHERE EACH SALE IS MADE, OR AN EXEMPTION OR SAFE HARBOR FROM SUCH
REGISTRATION REQUIREMENTS IS AVAILABLE IN THE OPINION OF COUNSEL
TO THE HOLDER THEREOF SATISFACTORY TO THE COMPANY AND ITS COUNSEL.
FOR VALUE RECEIVED, ▇▇▇▇ COMMUNICATIONS, INC., a Delaware
corporation (hereinafter called "Borrower"), hereby promises to pay to
AUSTOST ANSTALT SCHAAN, 7440 Fuerstentum, Lichenstein ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇, Fax
No.: ▇▇▇-▇▇▇-▇▇▇▇▇▇▇▇▇ (the "Holder") or order, without demand, the sum of
$500,000.00, with simple interest accruing at the annual rate of 8%, on
October 15, 1999 (the "Maturity Date"), as such date may be extended by
agreement of the parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED 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 16% 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 from the 41st day after
the date hereof until the Note principal and interest are paid in full.
1.3 Interest Rate. At the Maturity Date, accelerated or
otherwise, the Borrower shall pay interest at the annual rate of 8% per annum
together with such principal payment.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount
and interest due under this Note into Shares of the Borrower's Common Stock
as set forth below.
1
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the
date 41 days following issuance of this Note and then at any time on or prior
to the Maturity Date, as it may be extended by agreement of the parties
hereto, or until this Note is fully paid, to convert any outstanding and
unpaid principal portion of this Note and accrued interest of $25,000 or
greater amount (or any lesser amount representing the full remaining
outstanding and unpaid principal portion and at the Holder's election, the
accrued interest on the Note (the date of giving of such notice of conversion
being a "Conversion Date'1) 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 the delivery of this Note to the escrow
agent ("Escrow Agent") identified in Section 9 of the subscription agreement
entered into between the Company and Holder (the "Subscription Agreement")
and in the escrow agreement (t'Escrow Agreement") referred to therein,
accompanied, preceded or followed by notice from the Holder to the Company or
Escrow Agent of the Holder's written request for conversion, subject further
to the terms of the Escrow Agreement, as defined below, Borrower shall issue
and deliver to the Holder within three business days from the Conversion Date
that number of shares of Common Stock for the portion of the Note and/or
interest converted in accordance with the foregoing and a new Note in the
form hereof for the balance of the principal amount hereof, and/or interest
if any. 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/or interest on 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 seventy-two percent (72%) of the
average closing bid price for the Common Stock on the NASDAQ SmallCap Market,
or on any securities exchange or other securities market on which the Common
Stock is then being traded, for the five (5) trading days immediately
preceding the Conversion Date, or the date of this Note, whichever is lesser.
(c) The Conversion Price and number and kind of shares of
other securities to be issued upon conversion determined pursuant to Section
2.1(a) and 2.l(b), shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding,
as follows:
▇. ▇▇▇▇▇▇, 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
2
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
D. Share Issuance. Subject to the provisions of
this Section, if the Borrower at any time shall issue any shares of Common
Stock prior to the conversion of the entire principal amount of the Note
(otherwise than as: (i) provided in Sections 2.1 (c)A, 2.l(c)B or 2.l(c)C or
this subparagraph D; (ii) pursuant to options, warrants, Series A Preferred
Stock, Series B Preferred Stock, or other obligations to issue shares,
outstanding on the date hereof as described in the Reports and Other Written
Information, as such terms are defined in the Subscription Agreement; [(i)
and (ii) above, are hereinafter referred to as the "Existing Option
Obligations"] for a consideration less than the Conversion Price that would
be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Conversion Price shall be reduced as follows: (i)
the number of shares of Common Stock outstanding immediately prior to such
issue shall be multiplied by the Conversion Price in effect at the time of
such issue and the product shall be added to the aggregate consideration, if
any, received by the Borrower upon such issue of additional shares of Common
Stock; and (ii) the sum so obtained shall be divided by the number of shares
of Common Stock outstanding immediately after such issue. The resulting
quotient shall be the adjusted conversion price. Except for the Existing
Option Obligations and options that may be issued under any employee
incentive stock option and/or any nonqualified stock option plan adopted by
the Company, for purposes of this adjustment, the issuance of any security of
the Borrower carrying the right to convert such security into shares of
Common Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists,
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
3
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 and agents who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the conversion of this Note.
(e) The holder shall not be entitled to convert a portion
of the Note into that number of shares of Common Stock which upon conversion
would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owed by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Note), and (ii) the number of shares of Common
Stock issuable upon the conversion of the Note with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder or its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Borrower. For the purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 1 3d-3 thereunder, except as otherwise
provided in clause (i) of such proviso.
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). Subject further to
the terms of the Escrow Agreement, upon partial exercise hereof 1 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 which shall
riot have been converted.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event
of Default") including a Material Adverse Event, as defined in Section 3.7,
shall, at the option of the Holder hereof, make all sums or 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 written notice to the Borrower
from the Holder.
3.2 Breach of Covenant. The Borrower breaches any covenant or
other term or condition of this Note and such breach continues for a period
of seven (7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any
representation or warranty of the Borrower made herein, in the Subscription
Agreement entered into by the Holder and Borrower in connection with this
Note, or in any agreement, statement or certificate given in writing pursuant
hereto or in connection herewith shall be false or misleading.
4
3.4 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.
3.5 Judgments. Any money judgment, writ or similar 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 sixty (60) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings ~ other proceedings or relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by or against
the Borrower.
3.7 Material Adverse Event. The occurrence of a Material
Adverse Event involving the Company, shall mean (i) delisting of the Common
Stock from the NASDAQ SmallCap Market; (ii) a concession by the Company of a
default under any one or more obligations in an aggregate monetary amount in
excess of $100,000; and (iii) an SEC stop trade order or NASDAQ trading
suspension, if either applies for a period of ten days or longer.
3.8 Failure to Deliver Common Stock. The failure to timely
deliver Common Stock to the Escrow Agent pursuant to Section 2.1 of the
Escrow Agreement and Sections 2.(o) and 9 of the Subscription Agreement and
the failure to timely deliver such Common Stock to the Holder within three
business days from the Conversion Date in the form of unlegended shares of
Common Stock freely transferable on the books and records of the Company, and
with such opinions and approvals so that the Common Stock will be immediately
transferable by Borrower's transfer agent, subject to Regulation S, as same
may be amended, may result in economic loss to the Holder if a conversion
occurs and the requisite shares are not delivered to the Holder. As
compensation to the Holder for any loss which may occur in connection with
the foregoing, not otherwise the fault of the Escrow Agent, the Borrower
agrees to pay late payments to the Holder in accordance with the following
schedule (where "No. of Business Days Late" is defined as the number of
business days beyond the date the Holder is entitled to delivery of Common
Stock on conversion in the required form described above):
Late Payment For Each $10,000
of Convertible Note Principal
No. Business Days Late Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
5
10 $1000
>10 $1000 + $1000 for each Business
Day Late beyond 10 Days
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgency 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 ▇▇▇▇ Communications, Inc., ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇,
President, fax number (▇▇▇) ▇▇▇-▇▇▇▇. Both ▇▇▇▇▇▇ and Borrower may change the
address and fax number for service by service of notice to the other as
herein provided. Notice of Conversion shall be deemed given when made to the
Escrow Agent pursuant to the Escrow Agreement.
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 arid assigns, and shall inure to the benefit of the Holder
and its successors and assignees, and may be assigned after the 40th day
after the date of this Note.
4.5 Cost of Collection. If default is made in the payment of
this Note, Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
4.6 Governing Law. This Note shall be deemed to have been
executed in and shall be governed by the internal laws of the State of
Delaware, without regard to the principles of conflict of laws.
4.7 Maximum Payments. Nothing contained herein shall be deemed
to establish or require the i)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.
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IN WITNESS WHEREOF, ▇▇▇▇▇▇▇▇ has caused this Note to be signed in
its name by its Chief Executive Officer on this 22nd day of October, 1997.
▇▇▇▇ COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇ President & CEO
7