Exhibit 10.1
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FAMILY ROOM ENTERTAINMENT CORPORATION THAT SUCH REGISTRATION IS
NOT REQUIRED.
CONVERTIBLE NOTE
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FOR VALUE RECEIVED, FAMILY ROOM ENTERTAINMENT CORPORATION, a
New Mexico corporation (hereinafter called "Borrower"), hereby promises to pay
to ALPHA CAPITAL XXXXXXXXXXXXXXXXXX, Xxxxxxxxx 0, 0000 Xxxxxxxxxxx,Xxxxx,
Xxxxxxxxxxxx, Fax: 000-00-00000000 (the "Holder") or order, without demand, the
sum of Five Hundred Thousand Dollars ($500,000.00), with simple interest payable
in cash quarterly commencing June 30, 2003, accruing at the annual rate of 8%,
on January 10th, 2004 (the "Maturity Date").
This Note has been entered into pursuant to the terms of a
subscription agreement between the Borrower and the Holder, dated of even date
herewith (the "Subscription Agreement"), and shall be governed by the terms of
such Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:
ARTICLE I
GENERAL PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10)
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business day grace period to pay any monetary amounts due under this Note, after
which grace period a default interest rate of fifteen percent (15%) per annum
shall apply to the amounts owed hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth
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in Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the occurrence of an
Event of Default. The Note shall be payable in full on the Maturity Date, unless
previously converted into Common Stock in accordance with Article II hereof;
provided, that if the Borrower violates or breaches in any material respect any
of its covenants or agreements to register the Registrable Securities pursuant
to Section 8 of the Subscription Agreement, the Borrower may not pay this Note
after the Maturity Date, without the consent of the Holder.
1.3 Interest Rate. Simple interest payable on this Note shall
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accrue at the annual rate of eight percent (8%) and be payable quarterly in cash
commencing June 30, 2003, and on the Maturity Date, accelerated or otherwise,
when the principal and remaining accrued but unpaid interest shall be due and
payable, or sooner as described below.
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ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal due
under this Note into Shares of the Borrower's Common Stock, $.001 par value per
share ("Common Stock") as set forth below.
2.1. Conversion into the Borrower's Common Stock.
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(a) The Holder shall have the right from and after the date of
the issuance of this Note and then at any time until this Note is fully paid, to
convert any outstanding and unpaid principal portion of this Note, and at the
election of the Holder, accrued interest (the date of giving of such notice of
conversion being a "Conversion Date") into fully paid and nonassessable shares
of Common Stock as such stock exists on the date of issuance of this Note, or
any shares of capital stock of Borrower into which such Common Stock shall
hereafter be changed or reclassified, at the conversion price as defined in
Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein.
Upon delivery to the Borrower of a Notice of Conversion as described in Section
9 of the Subscription Agreement of the Holder's written request for conversion,
Borrower shall issue and deliver to the Holder within three business days from
the Conversion Date ("Delivery Date") that number of shares of Common Stock for
the portion of the Note converted in accordance with the foregoing. At the
election of the Holder, the Borrower will deliver accrued but unpaid interest on
the Note in the manner provided in Section 1.3 through the Conversion Date
directly to the Holder on or before the Delivery Date (as defined in the
Subscription Agreement). 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 of the Note and interest to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c)
hereof, the Conversion Price per share shall be the lower of (i) $.30 ("Maximum
Base Price") or (ii) sixty-five percent (65%) of the average of the three lowest
Closing Bid Prices for the Common Stock on the OTC Pink Sheets, NASD OTC
Bulletin Board (or successor entity or proposed "Bulleting Board Exchange"),
NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange,
or New York Stock Exchange, as applicable, or if not then trading on any of the
foregoing, such other principal market or exchange where the Common Stock is
listed or traded (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock, the "Principal Market") for the
thirty Trading Days preceding the Conversion Date. Closing Bid Price shall mean
the last closing bid price as reported by Bloomberg Financial. Trading Day shall
mean any day on which the New York Stock Exchange is open for three or more
hourse.
(c) The Maximum Base Price and number and kind of shares or
other securities to be issued upon conversion determined pursuant to Section
2.1(a), shall be subject to adjustment from time to time upon the happening of
certain events while this conversion right remains outstanding, as follows:
X. Xxxxxx, 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
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evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall,
by reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities 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) 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 that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Xxxxxxxx agrees that its issuance
of this Note shall constitute full authority to its officers, agents, and
transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the
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Holder in whole or in part as described in Section 2.1(a) hereof and the
Subscription Agreement. Upon partial conversion of this Note, a new Note
containing the same date and provisions of this Note shall, at the request of
the Holder, be issued by the Borrower to the Holder for the principal balance of
this Note and interest which shall not have been converted or paid.
2.3 Maximum Conversion. The Holder shall not be entitled to
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convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates on a Conversion Date, (ii) any Common Stock issuable in connection
with the unconverted portion of the Note, and (iii) the number of shares of
Common Stock issuable upon the conversion of the Note with respect to which the
determination of this provision is being made on a Conversion Date, which would
result in beneficial ownership by the Holder and its affiliates of more than
9.99% of the outstanding shares of Common Stock of the Company on such
Conversion Date. For the purposes of the provision 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 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate conversions of only 9.99% and aggregate conversion by the Holder may
exceed 9.99%. The Holder shall have the authority and obligation to determine
whether the restriction contained in this Section 2.3 will limit any conversion
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hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
Notes are convertible shall be the responsibility and obligation of the Holder.
The Holder may void the conversion limitation described in this Section 2.3 upon
75 days prior written notice to the Borrower. The Holder may allocate which of
the equity of the Company deemed beneficially owned by the Holder shall be
included in the 9.99% amount described above and which shall be allocated to the
excess above 9.99%.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default
("Event of Default") shall, at the option of the Holder hereof, make all sums of
principal and interest then remaining unpaid hereon and all other amounts
payable hereunder immediately due and payable, upon demand, without presentment,
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
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to pay any installment of principal, interest or other sum due under this Note
when due and such failure continues for a period of ten (10) days after the due
date. The ten (10) day period described in this Section 3.1 is the same ten (10)
business day period described in Section 1.1 hereof.
3.2 Breach of Covenant. The Borrower breaches any material
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covenant, undertaking or other term or condition of the Subscription Agreement
or this Note in any material respect and such breach, if permitted to be cured,
continues for a period of ten (10) business days after written notice to the
Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any material
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representation or warranty of the Borrower made herein, in the Subscription
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading in any
material respect as of the date made and the Closing Date.
3.4 Receiver or Trustee. The Borrower shall make an assignment
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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 final
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process shall be entered or filed against Borrower or any of its property or
other assets for more than $50,000, and shall remain unvacated, unbonded or
unstayed for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
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liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower and if instituted against Borrower are not dismissed within 45 days of
initiation.
3.7 Delisting. Delisting of the Common Stock from the OTC
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Bulletin Board ("OTCBB") or such other principal exchange on which the Common
Stock is listed for trading; failure to comply with the requirements for
continued listing on the OTCBB for a period of three consecutive trading days;
or notification from the OTC Bulletin Board or any Principal Market that the
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Borrower is not in compliance with the conditions for such continued listing on
the OTCBB or other Principal Market. Should the Common Stock be delisted from
the OTCBB for the sole reason that the OTCBB has been dissolved, then the
Company shall not be in default unless it fails to be immediately listed on a
successor entity or the proposed "Bulleting Board Exchange."
3.8 Stop Trade. An SEC stop trade order or Principal Market
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trading suspension that lasts for five or more consecutive trading days.
3.9 Failure to Deliver Common Stock or Replacement Note.
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Borrower's failure to timely deliver Common Stock to the Holder pursuant to and
in the form required by this Note and Section 8 and Section 9 of the
Subscription Agreement, or, if required, a replacement Note.
3.10 Non-Registration Event. The occurrence of a
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Non-Registration Event as described in Section 8.4 of the Subscription
Agreement.
3.11 Failure to Reserve Common Stock. The failure of the
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Company to reserve the amount of Common Stock required by Section 6(f) of the
Subscription Agreement.
3.12 Cross Default. A default by the Borrower of a material
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term, covenant, warranty or undertaking of any other agreement to which the
Borrower and Holder are parties, or the occurrence of a material event of
default under any such other agreement, in each case, which is not cured after
any required notice and/or cure period.
ARTICLE IV
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MISCELLANEOUS
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4.1 Failure or Indulgence Not Waiver. No failure or delay on
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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. All notices, demands, requests, consents,
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approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, 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 the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Borrower to: to Family Room
Entertainment Corporation, 0000 Xxxxx Xxxxxxx Xxxxxx, Xxxx Xxxxxxxx Xxxxxxxx,
Xxxxx 000, Xxx Xxxxxxx, XX 00000, telecopier: (000) 000-0000, with a copy by
telecopier only to: Xxxx X. Xxxxxxxxx, Esq., 00000 Xxxxxxxxx, Xxxxx 000, Xxxxxx,
XX 00000, telecopier: (000) 000-0000, and (ii) if to the Holder, to the name,
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address and telecopy number set forth on the front page of this Note, with a
copy by telecopier only to Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx
0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (000) 000-0000.
4.3 Amendment Provision. The term "Note" and all reference
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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
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Borrower and its successors and assigns, and shall inure to the benefit of the
Holder and its successors and assigns.
4.5 Cost of Collection. If default is made in the payment of
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this Note, Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and
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construed in accordance with the laws of the State of New York. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of New
York or in the federal courts located in the state of New York. Both parties and
the individual signing this Agreement on behalf of the Borrower agree to submit
to the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed
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to establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
4.8 Redemption. This Note may not be redeemed or paid before
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or after the Maturity Date without the consent of the Holder.
4.9 Shareholder Status. The Holder shall have rights as a
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shareholder of the Borrower with respect to Common Stock receivable after the
giving of a Notice of Conversion, whether or not such Common Stock is issued or
delivered.
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IN WITNESS WHEREOF, Xxxxxxxx has caused this Note to be signed in its
name by an authorized officer on this 10th day of January, 2003.
AMILY ROOM ENTERTAINMENT CORPORATION
By: /s/ Xxxxxx Xxxxx
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Name:
Title:
WITNESS:
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NOTICE OF CONVERSION
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(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by FAMILY ROOM
ENTERTAINMENT CORPORATION on January ____, 2003 into Shares of Common Stock of
FAMILY ROOM ENTERTAINMENT CORPORATION (the "Company") according to the
conditions set forth in such Note, as of the date written below.
Date of Conversion:___________________________________________________________
Conversion Price:_____________________________________________________________
Shares To Be Delivered:_______________________________________________________
Signature:____________________________________________________________________
Print Name:___________________________________________________________________
Address:______________________________________________________________________
______________________________________________________________________
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