FORM OF CONVERTIBLE NOTE
FORM
OF CONVERTIBLE NOTE
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY
THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED
AS OF THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT
ITS
PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE
PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE
CONVERSION RIGHTS OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT,
PREPAYMENT AND REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF
DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE
ACCELERATED.
No. 1 $1,250,000
of
Royal
Spring Water, Inc.
Royal
Spring Water, Inc., a Nevada
corporation (together with its successors, the “Company”), for value received
hereby promises to pay to:
GCA
Strategic Investment Fund Limited
(the
“Holder”) and registered assigns, the principal sum of One Million Two Hundred
Fifty Thousand ($1,250,000) or, if less, the principal amount of this Note
then
outstanding, on the Maturity Date by wire transfer of immediately available
funds to the Holder in such coin or currency of the United States of America
as
at the time of payment shall be legal tender for the payment of public and
private debts. The Maturity Date is December ___, 2008.
Upon
an Event of Default, and until
such Default has been cured, interest shall accrue at a rate of 18% per annum
(“Default Interest”). All payments of principal and interest
hereunder shall be made for the benefit of the Holder pursuant to the terms
of
the Agreement (hereafter defined).
This
Convertible Note (this
“Convertible Note”) is issued by the Company pursuant to that certain Securities
Purchase Agreement dated as of the date hereof between the Company and the
Purchaser named therein (the “Agreement”).
1
The
Agreement contains certain additional agreements among the parties with respect
to the terms of this Convertible Note, including, without limitation, provisions
which (A) limit the conversion rights of the Holder, (B) specify voluntary
and
mandatory redemption rights and obligations and (C) specify Events of
Default following which the remaining balance due and owing hereunder may be
accelerated. All such provisions are an integral part of this
Convertible Note and are incorporated herein by reference. This
Convertible Note is transferable and assignable to one or more Persons, in
accordance with the limitations set forth in the Agreement.
The
Company shall keep a register (the
“Register”) in which shall be entered the names and addresses of the registered
holder of this Convertible Note and particulars of this Convertible Note held
by
such holder and of all transfers of this Convertible Note. References
to the Holder or “Holders” shall mean the Person listed in the Register as
registered holder of such Convertible Notes. The ownership of this
Convertible Note shall be proven by the Register.
This
Note
is secured by a Security Agreement dated December 22, 2006 made by the Company
and Holder creating a security interest in favor of Holder in certain of the
Company’s assets described in the Security Agreement.
The
Security Agreement contains certain
additional agreements among the parties with respect to the terms of this Note,
including, without limitation, provisions which (A) specify voluntary and
mandatory repayment, prepayment and (B) specify Events of Default following
which the remaining balance due and owing hereunder may be
accelerated. All such provisions are an integral part of this Note
and are incorporated herein by reference.
1. Certain
Terms Defined. All terms defined in the Agreement and not
otherwise defined herein shall have for purposes hereof the meanings provided
for in the Agreement.
2. Covenants. The
Company covenants and agrees to observe and perform each of its covenants,
obligations and undertakings contained in the Agreement, which obligations
and
undertakings are expressly assumed herein by the Company and made for the
benefit of the holder hereof.
3. Payment
of Principal.
|
3.1
|
Prepayment
of
Note. For so long as no Event of Default shall have
occurred and is continuing and the Company is not in receipt of a
Notice
of Conversion from the Holder of the Note, the Company may, at its
option,
prepay, in whole or in part, this Convertible Note for a pre-payment
price
(the “Prepayment Price”) equal to the greater of (i) 110% of the
outstanding principal amount of the Note plus all accrued and unpaid
interest if any, and any outstanding liquidated damages, if any,
or (ii)
(x) the number of Common Shares into which the Notes are then convertible,
times (y) the average VWAP of the Common Shares for the five (5)
trading
days immediately prior to the date that the Note is called for redemption,
plus accrued and unpaid
interest.
|
2
|
|
Any
partial prepayment of the Convertible Note, at any time after issuance,
shall be credited to the principal amount of the Convertible Note
on a
dollar for dollar basis. The Company shall not be entitled to
send any notice of prepayment and begin the prepayment procedure
unless it
has (i) the appropriate Prepayment Price, in cash, available in
a demand
or other immediately available account in a bank or similar financial
institution or equivalent means acceptable to Holder or (ii) immediately
available credit facilities, in the amount of the appropriate Prepayment
Price, with a bank or similar financial institution on the date
the
prepayment notice is sent to the Holders of this Convertible
Note. Provided, however, the Company will process any Notice of
Conversion received prior to the issuance of a notice of prepayment;
and
further provided that, after a notice of prepayment has been issued,
the
Holder may issue a Notice of Conversion which will not be honored
unless
the Company fails to make the prepayment payment when due. In
the event of such failure, the Notice of Conversion will be honored
as of
the date of the Notice of
Conversion.
|
3.2 Payment
on Maturity Date. The Company shall repay the remaining
unpaid balance of this Convertible Note on the Maturity Date.
4. Conversion.
4.1 Conversion
of Convertible Note. Subject to Section 5 hereof, the
Holder shall have the right, at its option, at any time from and after the
date
of this Convertible Note, to convert the outstanding principal amount of the
Convertible Note. This Convertible Note shall be convertible into
that number of fully paid and nonassessable shares of Common Stock (as such
shares shall then be constituted) determined pursuant to this Section
4.1. The number of shares of Common Stock to be issued upon each
conversion of this Convertible Note shall be determined by dividing the
Conversion Amount (as defined below) by the Conversion Price in effect on the
date (the “Conversion Date”) a Notice of Conversion is delivered to the Company,
as applicable, by the Holder by facsimile or other reasonable means of
communication dispatched prior to 5:00 p.m., E.S.T. The term
“Conversion Amount” means, with respect to any conversion of this Convertible
Note, the sum of (1) the principal amount of this Convertible Note to be
converted in such conversion plus (2) accrued and unpaid interest, if any,
on
such principal amount at the interest rates provided in this Convertible Note
to
the Conversion Date plus (3) Default Interest, if any, on the interest referred
to in the immediately preceding clause (2) plus (4) at the Holder’s option, any
amounts owed to the Holder pursuant to Section 4.3 hereof, Section 10.1 of
the
Agreement or Section 10.4 of the Agreement.
4.2 Conversion
Price. At the option of the Holder, any portion or all of
the outstanding principal amount of this Convertible Note shall be converted
into a number of shares of Common Stock at the conversion price (the “Conversion
Price”) equal to 85% of the volume weighted average prices (“VWAP”), as reported
on Bloomberg, L.P., for the twenty (20) trading days immediately prior to the
date of the related notice of conversion.
The
Notes
will provide for adjustment of the Conversion Price upon events such as the
subdivision or consolidation of the Common Shares, etc.
3
4.3 Authorized
Shares.
(a) Consistent
with Section 7.11 of the Agreement, the Company (i) shall promptly irrevocably
instruct the Company's transfer agent to issue certificates for the Common
Stock
issuable upon conversion of this Convertible Note and (ii) agrees that its
issuance of this Convertible 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 in accordance with the terms and conditions of this Convertible
Note.
(b) If
at any time the Holder submits a Notice of Conversion and (x) the Company does
not have sufficient authorized but unissued shares of Common stock available
to
effect such conversion in full in accordance with Article 4 or (y) the Company
is prohibited by the OTC Bulletin Board or the Market on which the Common Shares
are listed and traded at that time to effect such conversion in full, without
shareholder approval, the Company shall issue to the Holder all of the shares
of
Common Stock which are then available to effect such conversion. The
portion of this Convertible Note which the Holder included in its Conversion
Notice and which exceeds the amount which is then convertible into available
shares of Common Stock (the “Excess Amount”) shall, notwithstanding anything to
the contrary contained herein, not be convertible into Common Stock until the
date additional shares of Common Stock are authorized by the Company, or its
shareholders, as applicable. The Company shall use its best efforts
to authorize, or cause its shareholders to authorize within 40 days of the
submission of the Conversion Notice, a sufficient number of shares of Common
Stock to effect the full conversion set forth in the Conversion
Notice.
(c) In
no event shall the Company issue upon conversion of this Convertible Note more
than the maximum number of shares allowable without shareholder approval under
the applicable rules of the OTC Bulletin Board or the Market on which the Common
Shares are listed and traded unless the Company shall have obtained approval
by
the shareholders of the Company or a waiver of such requirement. Once
the maximum number of shares has been issued (the date of which is hereinafter
referred to as the “Maximum Conversion Date”), unless the Company shall have
obtained shareholder approval or a waiver of such requirement within 40 days
of
the Maximum Conversion Date, the Company shall pay to the Fund the Redemption
Price.
(d) The
Maximum Number of Shares shall be subject to adjustment from time to time for
stock splits, stock dividends, combinations, capital reorganizations and similar
events relating to the Common Stock occurring after the date hereof as
contemplated by Article XI of the Agreement.
4
In
the
event that the Company obtains Stockholder Approval, approval of the OTC
Bulletin Board or the Market on which the Common Shares are listed and traded
at
that time, or otherwise is able to increase the number of
shares to be issued above the Maximum Number of Shares (such increased number
being the “New Maximum Number of Shares”), the references to Maximum Number of
Shares above shall be deemed to be, instead, references to the New Maximum
Number of Shares.
4.4 Method
of Conversion.
(a) Notwithstanding
anything to the contrary set forth herein, upon conversion of this Convertible
Note in accordance with the terms hereof, the Holder shall not be required
to
physically surrender this Convertible Note to the Company unless the entire
unpaid principal amount of this Convertible Note is so
converted. Rather, records showing the principal amount converted (or
otherwise repaid) and the date of such conversion or repayment shall be
maintained on a ledger substantially in the form of Annex A attached
hereto (a copy of which shall be delivered to the Company or transfer agent
with
each Notice of Conversion). It is specifically contemplated that the
Holder hereof shall act as the calculation agent for conversions and
repayments. In the event of any dispute or discrepancies, such
records maintained by the Holder shall be controlling and determinative in
the
absence of manifest error or failure of Holder to record the principal amount
converted (or otherwise repaid) from time to time, in which events the record
of
the Company shall be controlling and determinative. The Holder and
any assignee, by acceptance of this Convertible Note, acknowledge and agree
that, by reason of the provisions of this paragraph, following a conversion
of a
portion of this Convertible Note, the principal amount represented by this
Convertible Note will be the amount indicated on Annex A attached hereto
(which may be less than the amount stated on the face hereof).
(b) The
Company shall not be required to pay any tax which may be payable in respect
of
any transfer involved in the issuance and delivery of shares of Common Stock
or
other securities or property on conversion of this Convertible Note in a name
other than that of the Holder (or in street name), and the Company shall not
be
required to issue or deliver any such shares or other securities or property
unless and until the person or persons (other than the Holder or the custodian
in whose street name such shares are to be held for the Holder’s account)
requesting the issuance thereof shall have paid to the Company the amount of
any
such tax or shall have established to the satisfaction of the Company that
such
tax has been paid.
5
(c) Subject
to Section 5 hereof, upon receipt by the Company of a Notice of Conversion,
the
Holder shall be deemed to be the holder of record of the Common Stock issuable
upon such conversion, the outstanding principal amount and the amount of accrued
and unpaid interest on this Convertible Note shall be deemed reduced to reflect
such conversion, and, unless the Company defaults on its obligations under
this
Article 4, all rights with respect to the portion of this Convertible Note
being
so converted shall forthwith terminate except the right to receive the Common
Stock or other securities, cash or other assets, as herein provided, on such
conversion. Subject to Section 5 hereof, if the Holder shall have
given a Notice of Conversion as provided herein, the Company’s obligation to
issue and deliver the certificates for shares of Common Stock shall be absolute
and unconditional, irrespective of the absence of any action by the Holder
to
enforce the same, any waiver or consent with respect to any provisions thereof,
the recovery of any judgment against any person or any action by the Holder
to
enforce the same, any failure or delay in the enforcement of any other
obligation of the Company to the Holder of record, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder of any obligation to the Company, and subject to Section 4.4(a)
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with such
conversion. The date of receipt (including receipt via telecopy) of
such Notice of Conversion shall be the Conversion Date so long as it is received
before 5:00 p.m., E.S.T., on such date.
(d) Notwithstanding
the foregoing, if a Holder has not received certificates for all shares of
Common Stock prior to the expiration of the Deadline with respect to a
conversion of any portion of this Convertible Note for any reason, then (unless
the Holder otherwise elects to retain its status as a holder of Common Stock
by
so notifying the Company), the Holder shall regain the rights of a Holder of
this Convertible Note with respect to such unconverted portions of this
Convertible Note and the Company shall, as soon as practicable, return such
unconverted Convertible Note to the holder or, if the Convertible Note has
not
been surrendered, adjust its records to reflect that such portion of this
Convertible Note not been converted. In all cases, the Holder shall
retain all of its rights and remedies including, without limitation, the right
to receive Conversion Default Payments to the extent required thereby for such
Conversion Default and any subsequent Conversion Default.
(e) In
lieu of delivering physical certificates representing the Common Stock issuable
upon conversion, provided the Company’s transfer agent is participating in the
Depository Trust Company (“DTC”) Fast Automated Securities Transfer program,
upon request of the Holder and its compliance with the provisions contained
in
Section 4.1 and in this Section 4.4, the Company shall use its best efforts
to
cause its transfer agent to electronically transmit the Common Stock issuable
upon conversion to the Holder by crediting the account of Holder’s Prime Broker
with DTC through its Deposit Withdrawal Agent Commission System.
6
5. Redemption
by
Company.
5.1 Mandatory
Redemption. In accordance with the provisions of the
Purchase Agreement, the Company may elect, or be required under certain
circumstances, to redeem in whole or in part, the remaining unpaid principal
amount of this Convertible Note, for cash at a redemption price (the “Redemption
Price”) equal to the greater of (A) the Prepayment Price and (B) (x) the number
of shares of Common Stock into which this Convertible Note is then convertible,
times (y) the VWAP of the Common Stock for the five (5) Trading Days as reported
by Bloomberg L.P. immediately preceding the date that this Convertible Note
is
called for redemption, plus accrued and unpaid Default Interest.
5.2 Mechanics
of Redemption. The Company shall effect each such redemption
within seven business days of giving notice of its election to redeem by
facsimile with a copy by either overnight or 2-day courier to the Holder of
this
Convertible Note to be redeemed at the address and facsimile number of such
Holder appearing in the Company’s register for the Convertible
Note. Such redemption notice shall indicate whether the Company will
redeem all or part of such portion of the Convertible Note to be redeemed and
the applicable Redemption Price. The Company shall not be entitled to
send any notice of redemption and begin the redemption procedure unless it
has
(i) the full amount of the Redemption Price, in cash, available in a demand
or
other immediately available account in a bank or similar financial institution
or (ii) immediately available credit facilities, in the full amount of the
Redemption Price, with a bank or similar financial institution on the date
the
redemption notice is sent to the Holder of this Convertible
Note. Provided, however, the Company will process any Notice of
Conversion received prior to the issuance of a notice of redemption; and further
provided that, after a notice of redemption has been issued, the Holder may
issue a Notice of Conversion which will not be honored unless the Company fails
to make the redemption payment when due. In the event of such
failure, the Notice of Conversion will be honored as of the date of the Notice
of Conversion. Additionally, if the Company fails to make full
payment of the Redemption Price of this Convertible Note being redeemed by
the
seventh day following the notice of redemption, then the Company waives its
right to redeem any of the remaining then outstanding Notes, unless approved
by
the Holder.
5.3 Payment
of Redemption Price. The Redemption Price shall be paid to
the Holder of this Convertible Note within seven business days of the delivery
of the notice of such redemption to such Holder.
6. Miscellaneous. This
Convertible Note shall be deemed to be a contract made under the laws of the
State of California, and for all purposes shall be governed by and construed
in
accordance with the laws of said State. The parties hereto, including
all guarantors or endorsers, hereby waive presentment, demand, notice, protest
and all other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Convertible Note, except as specifically
provided herein, and asset to extensions of the time of payment, or forbearance
or other indulgence without notice.
7
The
Company hereby submits to the exclusive jurisdiction of the United States
District Court for the State of California and any state court sitting in
California for purposes of all legal proceedings arising out of or relating
to
this Convertible Note. The Company irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to
the
laying of the venue of any such proceeding brought in such a court and any
claim
that any such proceeding brought in such a court has been brought in an
inconvenient forum. The Company hereby irrevocably waives any and all
right to trial by jury in any legal proceeding arising out of or relating to
this Convertible Note.
The
Holder of this Convertible Note by
acceptance of this Convertible Note agrees to be bound by the provisions of
this
Convertible Note which are expressly binding on such Holder.
Signature
Page Follows
8
IN
WITNESS WHEREOF, the
Company has caused this instrument to be duly executed.
Dated:
December ___, 2006
|
ROYAL
SPRING WATER, INC.
|
|
By: /s/
▇▇▇▇
▇▇▇▇▇
|
|
Name: ▇▇▇▇
▇▇▇▇▇
|
|
Title: President
|
Convertible
Note
ANNEX
A
CONVERSION
AND REPAYMENT LEDGER
|
Date
|
Principal
Balance
|
Interest
Converted or Paid
|
Principal
Converted or Paid
|
New
Principal Balance
|
Issuer
Initials
|
Holder
Initials
|
FULL
NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME:
ADDRESS:
TEL
NO:
FAX
NO:
CONTACT
NAME:
DELIVERY
INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
ADDRESS:
TEL
NO:
FAX
NO:
CONTACT
NAME:
SPECIAL
INSTRUCTIONS
NOTICE
OF CONVERSION
(To
be
Executed by the Registered Holder
in
order
to Convert the Convertible Note)
The
undersigned hereby irrevocably
elects to convert $________ of the principal balance of the Convertible Note
into shares of Common Stock, ____ par value per share (the “Common Stock”), of
Royal Spring Water, Inc. (the “Company”) according to the conditions hereof, as
of the date written below. No fee will be charged to the Holder for
any conversion, except for transfer taxes, if any. The undersigned,
as contemplated by Section 5.1 of the Securities Purchase Agreement pursuant
to
which the Convertible Note was issued, hereby states that the representations
and warranties of the undersigned set forth therein are true and correct in
all
material respects as of the date hereof (provided, the undersigned makes no
representations concerning its investment intent with respect to the Common
Stock received upon this conversion).
Conversion
calculations:
Date
of Conversion
_______________________________________________
Applicable
Conversion Price
________________________________________
Number
of Shares
________________________________________________
Name/Signature
__________________________________________________
Address:
_______________________________________________________
_______________________________________________________
F:\WP\mems\LH1551.DOC