EXHIBIT 4.3
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING THIS NOTE,
THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR, IF REQUESTED BY
THE COMPANY, THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR HOLDER OF THIS NOTE
REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT.
XXXXX.XXX, INC.
8% CONVERTIBLE UNSECURED PROMISSORY NOTE
$____,000.00 May ___, 2005
Redmond, Washington
FOR VALUE RECEIVED, Xxxxx.xxx, Inc., a Washington corporation (the
"Company"), hereby unconditionally promises to pay to _________________
("Holder"), or Holder's registered assigns, at such place or places as Holder
may from time to time designate in writing, the aggregate principal sum of
______________ THOUSAND DOLLARS AND 00/100 CENTS ($___,000.00), together with
all accrued and unpaid interest thereon, as provided herein. All unpaid
principal, together with the balance of unpaid and accrued interest and other
amounts payable hereunder, shall be due and payable in cash on demand at any
time upon and after the earlier of (a) June 30, 2007 (the "Maturity Date"), or
(b) the occurrence of an Event of Default (as defined herein). This 8%
Convertible Unsecured Promissory Note (this "Note") is one of a series of
convertible unsecured promissory notes of the Company in the aggregate principal
amount of up to Five Million Dollars ($5,000,000), or such greater amount as
determined by the Company (the "Notes"), issued to accredited investors pursuant
to a certain 8% Convertible Unsecured Promissory Note Purchase Agreement, by and
among the Company and each purchaser of a Note. All cash payments by the Company
under this Note shall be in immediately available funds.
A. Definitions.
1. "Change of Control Event" shall mean (a) any transaction in which the
Company consummates a merger, consolidation, share exchange or other transaction
or series of related transactions resulting in the exchange of the outstanding
shares of the Company for securities of or other consideration issued, or caused
to be issued, by an acquiring entity or any of its affiliates, in any such case
if the shareholders of the Company immediately prior to such event own less than
a majority of the outstanding voting equity securities of the surviving entity
immediately following the event, or (b) a sale, lease, exclusive license or
other disposition of all or substantially all of the assets of the Company.
2. "Majority of the Noteholders" shall mean at least a
majority-in-interest of holders of the Notes (such majority determined on the
basis of each Holder's proportionate share of the aggregate unpaid principal
amount of all Notes then outstanding). Where action is taken by a Majority of
the Noteholders, such action shall be binding on each holder of a Note, whether
or not such holder has consented in writing to such action.
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3. "Note Conversion Shares" shall mean the shares of Common Stock (or
Allowed Consideration) issuable upon conversion of this Note pursuant to Section
B.3.(a) or Section B.3.(b), including any securities of another company for
which the Company's Common Stock has been exchanged.
4. "Obligations" shall mean the outstanding principal and accrued but
unpaid interest due hereunder and any additional amounts payable pursuant to the
terms hereof.
5. "Automatic Conversion Date" shall mean the ninetieth (90th) consecutive
trading day on which the Publicly Traded Securities have been actively traded
over-the-counter or on a national securities exchange or quotation system at a
closing bid price which is at or above $3.00 per share (as adjusted for any
stock splits, dividends, recapitalizations and the like).
6. "Publicly Traded Securities" shall mean a class of the Company's equity
securities that is registered under Section 12(g) or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or a class of equity
securities of another company or entity that is registered under Section 12(g)
or 15(d) of the Exchange Act, for which a class of the Company's equity
securities has been exchanged.
B. Interest; Conversion Terms.
1. Interest. Interest shall accrue with respect to the principal amount
loaned hereunder from the date hereof until such principal is fully paid or
converted, at eight percent (8.0%) simple interest per annum (computed on the
basis of a 365-day year, based upon the actual days elapsed); provided, however,
that, upon the occurrence of an Event of Default, the principal balance
hereunder shall bear interest from and after the date of the Event of Default at
a rate of ten percent (10.0%) simple interest per annum (computed on the basis
of a 365-day year, based upon the actual days elapsed).
2. Prepayment. The Company may prepay all or any portion of the Notes at
any time without penalty, fee or acceleration; provided, however, that the
Company shall give Holder twenty (20) days' prior written notice of such
prepayment, during which time Holder may elect to convert the outstanding
principal amount and accrued but unpaid interest under the Note pursuant to
Section B.3.(b) by giving the Company written notice of Xxxxxx's election (the
"Notice Period"). Any such prepayment shall be made on a pro rata basis to each
Holder of a Note, based on the principal amount of the Notes then outstanding at
the time of prepayment, and will be applied first to the payment of expenses due
under each Note, second to interest accrued on each Note and third, if the
amount of prepayment exceeds the amount of all such expenses and accrued
interest, to the payment of principal of each Note.
3. Conversion.
(a) Automatic Conversion. Effective as of 5:00 p.m. Pacific Time on
the Automatic Conversion Date, the outstanding principal amount under this Note
and all accrued but unpaid interest shall be automatically converted in full
into Note Conversion Shares. The number of Note Conversion Shares to be issued
upon such conversion shall be equal to the number obtained by dividing (i) the
outstanding principal amount and accrued but unpaid interest under this Note on
the date of conversion by (ii) a price per share equal to 85% of the average of
the closing bid prices of the Publicly Traded Securities over the 30-trading day
period ending on the Automatic Conversion Date ("Automatic Conversion Price").
The number of Note Conversion Shares issuable to Holder upon such conversion
shall be rounded down to the nearest whole number.
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(b) Optional Conversion. If this Note is not sooner paid or
converted, then (i) at any time after a class of the Company's equity securities
becomes Publicly Traded Securities or have been exchanged for a class of equity
securities that constitute Publicly Traded Securities, (ii) during the Notice
Period, (iii) upon a Change of Control Event, or (iv) on or after the Maturity
Date, the outstanding principal amount and accrued but unpaid interest under
this Note will be convertible in full and not in part, upon the written election
of the Holder, into Note Conversion Shares, effective as of 5:00 p.m. Pacific
Time on the date on which the Company accepts the Holder's written election to
convert this Note. The number of Note Conversion Shares to be issued upon such
conversion shall be equal to the number obtained by dividing (x) the outstanding
principal amount and accrued but unpaid interest under this Note on the date of
conversion , if Xxxxxx's written election is received by the Company prior to
the Automatic Conversation date, by (y) a conversion price equal to $1.50 per
share (as adjusted for any stock splits, dividends, recapitalizations and the
like) (the "Optional Conversion Price"). The number of Note Conversion Shares
issuable to Holder upon such conversion shall be rounded down to the nearest
whole number.
(c) Mechanics and Effects of Conversion. As soon as practicable
after conversion of this Note, and upon surrender of this Note, the Company will
deliver or cause to be issued in the name of and delivered to Holder a
certificate or certificates representing the number of Note Conversion Shares to
which Holder shall be entitled on such conversion. No fractional shares will be
issued on conversion of this Note, and in lieu thereof Holder shall be entitled
to payment in cash of the amount of this Note not converted into Note Conversion
Shares. Upon full conversion of this Note and the issuance of the certificate(s)
and payment of cash for fractional shares as contemplated herein, the Company
shall be forever released from all its Obligations and liabilities under this
Note.
(d) Notice Regarding Change of Control Event. At least ten (10) days
prior to the anticipated closing of a Change of Control Event, written notice
shall be delivered to the Holder of this Note pursuant to Section E.5 below
notifying Holder of the terms and conditions of the Change of Control Event, the
amount of the outstanding principal amount and accrued but unpaid interest under
this Note, the anticipated date on which any such conversion will occur and
calling upon such Holder to inform the Company whether Holder intends to elect
to convert the outstanding principal amount and accrued but unpaid interest into
Note Conversion Shares. Following notice of the Change of Control Event, any
conversion of this Note by Holder may be made contingent upon the consummation
of such Change of Control Event, if so elected by Xxxxxx in the notice of
conversion.
(e) No Rights as Shareholder. Prior to its conversion, this Note
shall not entitle Holder to any voting rights or to any other rights as a
shareholder of the Company or to any other rights whatsoever except the rights
stated herein or in the agreements referenced herein.
(f) Withholding Obligations; Form 1099. Holder authorizes the
Company to withhold from Holder, or to demand cash payment from Holder for, any
taxes required to be withheld from Holder on the conversion of this Note, or, to
reduce or eliminate such withholding, to provide the Company with an fully
executed and completed IRS Form W-9. Xxxxxx acknowledges that the Company may
issue Holder a Form 1099, reporting the interest, to the Internal Revenue
Service (even if the interest is converted into stock), in accordance with law.
4. Covenants as to Note Conversion Shares. The Company covenants and
agrees that all Note Conversion Shares issued pursuant to the terms of this Note
(the "Reserved Shares") will, upon their issuance, be validly issued and
outstanding, fully paid and nonassessable and free from all taxes, liens, and
charges with respect to the issuance thereof. The Company further covenants and
agrees that the Company will at all times have authorized and reserved a
sufficient number of the Reserved Shares to provide for the
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conversion rights represented by this Note. If at any time while this Note
remains outstanding the number of authorized but unissued shares of Common Stock
shall not be sufficient to permit the conversion of this Note, the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
5. Consolidation or Merger of the Company. If the Company is a party to
(a) any consolidation, merger or share exchange with another corporation in
which the Company is not the survivor, (b) any consolidation or merger of
another entity into the Company in which the Company is the survivor but, in
connection therewith, the Company's equity securities are changed into or
exchanged for stock or other securities of any other entity, or (c) any capital
reorganization or reclassification of its Common Stock, pursuant to any of which
transactions the holders of the Company's capital stock are entitled to receive
with respect to or in exchange for such capital stock, stock or other
securities, whether alone or together with any other consideration (such
consideration being the "Allowed Consideration"), then as a condition of such
transaction, lawful and adequate provisions shall be made whereby Holder hereof
shall thereafter have the right to purchase and receive (in lieu of the Note
Conversion Shares of the Company immediately theretofore purchasable and
receivable upon the conversion of this Note) such Allowed Consideration as may
be issued or payable with respect to or in exchange for the number of such Note
Conversion Shares immediately theretofore purchasable and receivable upon the
conversion of this Note. In any such case, appropriate provisions shall be made
with respect to the rights and interests of Holder of this Note to the end that
the provisions hereof (including, without limitation, provisions for adjustments
of the Automatic Conversion Price and the Optional Conversion Price, as the case
may be, and the number of shares purchasable and receivable upon the conversion
of this Note) shall thereafter be applicable, as nearly as may be reasonably
practicable (as determined in good faith by the Company's Board of Directors,
whose judgment shall be final and binding on all Noteholders), in relation to
the Allowed Consideration thereafter deliverable upon the conversion hereof. The
Company will not effect any such consolidation or merger, unless, in connection
with the consummation thereof, the successor corporation resulting from such
consolidation or merger shall assume by written instrument the obligation to
deliver to such Holder such Allowed Consideration as, in accordance with the
foregoing provisions, such Holder may be entitled to purchase.
6. No Impairment. Except and to the extent as waived or consented to by
Holder, the Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Note and in the taking
of all such action as may be necessary or appropriate in order to protect the
conversion rights of Holder against impairment.
C. Subordination. The indebtedness evidenced by this Note is hereby expressly
subordinated, to the extent and in the manner hereinafter set forth, in right of
payment to the prior payment in full of all the Company's Senior Indebtedness,
as hereinafter defined:
1. Senior Indebtedness. As used in this Note, the term "Senior
Indebtedness" shall mean the principal of and accrued but unpaid interest on:
(a) all indebtedness of the Company to banks, commercial finance lenders,
insurance companies or other financial institutions or lessors regularly engaged
in the business of lending money or financing business properties or operations,
which is for money borrowed by the Company, and (b) any such indebtedness or any
debentures, notes or other evidence of indebtedness
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issued in exchange for or to refinance such Senior Indebtedness, or any
indebtedness arising from the satisfaction of such Senior Indebtedness by a
guarantor.
2. Default on Senior Indebtedness. If any portion or all of the Senior
Indebtedness shall be declared due and payable, then, (a) so long as such Senior
Indebtedness remains due and payable, no amount shall be paid by the Company in
respect of the outstanding principal balance of this Note or accrued but unpaid
interest on this Note, unless and until the portion of the Senior Indebtedness
then due and payable shall be paid in full, and (b) no claim or proof of claim
shall be filed with the Company by or on behalf of Xxxxxx of this Note by a
Majority of the Noteholders, that shall assert any right to receive any payments
in respect of the outstanding principal balance and accrued but unpaid interest
on this Note, except subject to the payment in full of the principal of and
accrued but unpaid interest on all of the Senior Indebtedness then outstanding.
If there occurs an event of default that has been declared in writing with
respect to any Senior Indebtedness, or in the instrument under which any Senior
Indebtedness is outstanding, permitting the holder of such Senior Indebtedness
to accelerate the maturity thereof, then, the Company shall immediately notify
Holder in writing, and unless and until such event of default shall have been
cured or waived or shall have ceased to exist, or all Senior Indebtedness then
due and payable shall have been paid in full, no payment shall be made in
respect of the outstanding principal balance or accrued but unpaid interest on
this Note, unless within thirty (30) days after the happening of such event of
default, the maturity of such Senior Indebtedness shall not have been
accelerated.
3. Effect of Subordination. Subject to the rights of holders of Senior
Indebtedness, pursuant to this Section C, to receive cash, securities or other
properties otherwise payable or deliverable to Holder of this Note, nothing
contained in this Section C shall impair, as between the Company and Holder, the
obligation of the Company, subject to the terms and conditions hereof, to pay to
Holder the outstanding principal balance of this Note and accrued but unpaid
interest hereon as and when the same became due and payable, or shall prevent
Holder of this Note, upon default hereunder, from exercising all right, powers
and remedies otherwise provided herein or by applicable law.
4. Subrogation. Subject to the payment in full of all Senior Indebtedness
and until this Note shall be paid in full, Holder shall be subrogated to the
rights of holders of Senior Indebtedness (to the extent of payments or
distribution previously made to such holders of Senior Indebtedness pursuant to
the provisions of Section C.2 above) to receive payments or distributions of
assets of the Company applicable to the Senior Indebtedness. No such payments or
distributions applicable to the Senior Indebtedness shall, as between the
Company and its creditors, other than the holders of Senior Indebtedness and
Holder, be deemed to be a payment by the Company to or on account of this Note.
5. Undertaking. By its acceptance of this Note, Xxxxxx agrees to execute
and deliver such documents as may be reasonably requested from time to time by
the Company or holders of Senior Indebtedness, as the case may be, in order to
implement the foregoing provisions of this Section C.
D. Default.
1. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under this Note:
(a) Failure to Pay. The Company shall fail to pay when due any
principal, any interest or other payment required under the terms of this Note
on the date due and such default shall continue unremedied for a period of ten
(10) Business Days after the Company's receipt of written notice from the
Majority of the Noteholders of such failure to pay.
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(b) Breach of this Note. Except in the case of Section D.1(a) above,
the Company shall be in material breach or default under any of the terms of
this Note, and such breach or default shall continue unremedied for a period of
thirty (30) Business Days after the Company's receipt of written notice from the
Majority of the Noteholders specifying such breach or default.
(c) Bankruptcy or Insolvency Proceedings.
(i) The Company shall (A) appoint, apply for or consent to the
appointment of a receiver, trustee, liquidator, custodian, assignee for the
benefit of creditors or similar judicial officer or agent to take possession,
custody, control or charge of or liquidate any of its property or assets, (B)
commence any voluntary proceeding under any provision of Title 11 of the United
States Code, as now or hereafter amended, or commence any other proceeding,
under any law, now or hereafter in force, relating to bankruptcy, insolvency,
reorganization, liquidation, or otherwise to the relief of debtors or the
readjustment of indebtedness, or (C) make any assignment for the benefit of
creditors or a composition or similar arrangement with such creditors;
(ii) The commencement against the Company of any involuntary
proceeding, or the consent by Company to any proceeding, of the kind described
in D.1.(b)(i) and such proceeding shall not have been dismissed within thirty
(30) days;
(iii) The Company is adjudicated bankrupt or insolvent or a
petition for reorganization is granted; or
(iv) The Company shall cause, or institute any proceeding for,
or there shall occur, the dissolution of the Company.
2. Rights of Holders Upon Default. If any Event of Default shall occur for
any reason, whether voluntary or involuntary, and be continuing, then a Majority
of the Noteholders may, by written notice to the Company, declare all or any
portion of the Obligations to be due and payable, whereupon the full outstanding
principal and interest hereunder shall be so declared due and payable shall be
and become immediately due and payable, without further notice, demand or
presentment, all of which are expressly waived by the Company. No Holder shall
individually have any right to take any legal action or bring any suit or pursue
any other collection remedy in respect of any one or more Notes, except in
conjunction with a Majority of the Noteholders. Additionally, no action arising
from or in connection with an Event of Default under this Note shall be taken
unless a Majority of the Noteholders have elected in writing to take such
action.
E. Other Provisions.
1. Waivers and Amendments. This Note may not be amended or modified, nor
may any of its terms be waived, except by a written instrument signed by (a) a
Majority of the Noteholders and the Company or (b) Holder and the Company. Any
amendment, modification or waiver made pursuant to clause (a) in the preceding
sentence will be binding on Holder regardless of whether such Holder signed such
instrument; provided, however, that no such amendment, modification or waiver of
this Note will be effective, without Holder's consent, if it affects Holder in a
disproportionate manner relative to the other holders of Notes; provided,
further, however, that the Company may amend the first paragraph of this Note,
without the consent of the Holder or a Majority of the Holders, to increase the
total amount to be raised by the Company through the issuance and sale of the
Notes.
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2. Severability. If any provision of this Note is determined to be
invalid, illegal or unenforceable, in whole or in part, the validity, legality
and enforceability of any of the remaining provisions or portions of this Note
shall not in any way be affected or impaired thereby and this Note shall
nevertheless be binding between the Company and Holder.
3. Governing Law. This Note shall be governed by and interpreted in
accordance with the internal laws of the State of Washington. In any action
brought or arising out of this Note, the Company and Holder hereby consent to
the jurisdiction of any federal or state court having proper venue within the
State of Washington and also consent to the service of process by any means
authorized by the Washington law.
4. Binding Effect. This Note shall be binding upon, and shall inure to the
benefit of, the Company and Xxxxxx and their respective successors and assigns.
5. Notices. Any notice required or desired to be served, given or
delivered hereunder shall be in writing and in the form and manner specified
below, and shall be addressed to the party to be notified as follows:
If to the Company: Xxxxx.xxx, Inc.
0000 000xx Xxx XX
Xxxxxxx, XX 00000
Attention: Chief Executive Officer
With a copy to:
DLA Xxxxx Xxxxxxx Xxxx Xxxx US LLP
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000-0000
Attention: Xxxx X. Xxxxx
If to Holder: ___________________________________
___________________________________
___________________________________
or to such other address as each party designates to the other by notice in the
manner herein prescribed. Notice shall be deemed given hereunder if (a)
delivered personally or otherwise actually received, (b) sent by overnight
delivery service, or (c) mailed by first-class United States mail, postage
prepaid, registered or certified, with return receipt requested. Notice mailed
as provided in clause (iii) above shall be effective upon the expiration of
three (3) Business Days after its deposit in the United States mail. Notice
given in any other manner described herein shall be effective upon receipt by
the addressee thereof; provided, however, that if any notice is tendered to an
addressee and delivery thereof is refused by such addressee, such notice shall
be effective upon such tender unless expressly set forth in such notice.
"Business Day" means any day other than (x) a Saturday or Sunday, or (y) a day
on which banks in Seattle, Washington are required to be closed.
6. Costs. The Company agrees to pay reasonable costs of collection of any
amounts due hereunder arising as a result of any default hereunder, including
without limitation, reasonable attorneys' fees and expenses.
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7. Payment. Payment shall be made in lawful tender of the United States.
8. Transfer of Note or Securities Issuable on Conversion Hereof. Prior to
conversion, neither this Note nor any rights hereunder may be transferred by
Xxxxxx without the consent of the Company, except that Xxxxxx may freely assign
this Note to an affiliate of Holder. For purposes of this agreement, "affiliate"
shall be deemed to include with respect to a Holder: (a) a partnership or
limited liability company, its partners, members, shareholders, former partners,
former members or an affiliated entity managed by the same manager or managing
partner or management company, or managed or owned by an entity controlling,
controlled by, or under common control with, such member or manager or managing
partner or management company, or (b) an individual, his or her spouse or lineal
descendant or antecedent, or a trust or trusts for the exclusive benefit of
Holder or Holder spouse or lineal descendant or antecedent, in each such case in
connection with bona fide estate planning purposes. In the event this Note is
transferred in accordance with this Section E.8, the new holder shall be deemed
to be the "Holder" with respect to the provisions of this Note.
9. Replacement Note. If this Note is lost, stolen, mutilated or destroyed,
the Company shall issue a new Note of like denomination, tenor and date as this
Note, subject to the Company's right to require Holder to give the Company a
bond or other satisfactory security sufficient to indemnify the Company against
any claim that may be made against it (including any expense or liability) on
account of the alleged loss, theft, mutilation or destruction of this Note or
the issuance of such new Note.
10. Headings. Section headings used in this Note have been set forth
herein for convenience of reference only. Unless the contrary is compelled by
the context, everything contained in each section hereof applies equally to this
entire Note.
IN WITNESS WHEREOF, the Company has caused this 8% Convertible Unsecured
Promissory Note to be issued as of the date first written above.
XXXXX.XXX, INC.
By:___________________________________
Xxxx X. Xxxx
Chief Executive Officer
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