EXECUTION VERSION
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), NOR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THIS
SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND THIS SECURITY MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OF IT UNDER THE ACT OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE MAKER THAT SUCH SALE
OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT. THIS SECURITY MAY NOT BE
TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THIS NOTE AND THE SECURITIES
PURCHASE AGREEMENT, DATED OCTOBER __, 2005 (THE "PURCHASE AGREEMENT"), AND NO
TRANSFER OF THIS SECURITY SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH
CONDITIONS SHALL HAVE BEEN COMPLIED WITH. THE TRANSFERABILITY OF THIS SECURITY
IS SUBJECT TO THE TRANSFER RESTRICTIONS SET FORTH HEREIN AND IN THE PURCHASE
AGREEMENT, A COPY OF WHICH WILL BE PROVIDED TO THE HOLDER HEREOF UPON WRITTEN
REQUEST TO THE MAKER.
IT & E INTERNATIONAL GROUP
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
THIS SENIOR SECURED NOTE IS MADE AND DELIVERED PURSUANT TO THE PURCHASE
AGREEMENT AND SUBJECT TO THE TERMS AND CONDITIONS THEREOF. THIS SENIOR SECURED
NOTE IS SECURED BY THE COLLATERAL DESCRIBED IN A CERTAIN SECURITY AGREEMENT,
DATED AS OF EVEN DATE HEREWITH (THE "SECURITY AGREEMENT").
October __, 2005
$------
FOR VALUE RECEIVED, IT & E INTERNATIONAL GROUP, a Nevada corporation
(the "Maker"), promises to pay, in cash or Common Stock at the option of the
Holder (in accordance with Section 4 hereof), to the order of [COMVEST
INVESTMENT PARTNERS II LLC, a Delaware limited liability company] or its
registered assigns (the "Holder") upon a written request of the Holder, on or
before a date which shall be the earlier of (i) three (3) months following the
Closing Date, (ii) a merger or combination of the Company or the sale, transfer
or other disposition of all or substantially all of the assets of the Company or
(iii) the acquisition by a single entity, person or a "group" within the meaning
of Rule 13d-1 of the Exchange Act, of more than fifty percent (50%) of the
voting power or capital stock of the Company (on a fully-diluted basis) or (iv)
the issuance by the Maker of Common Stock Equivalents other than an Exempt
Issuance, whereby the Maker shall pay an amount equal to Fifty Percent (50%) of
the net proceeds received by the Maker from such sale (or a lesser amount if the
aggregate outstanding principal and interest is less that 50% of the net
proceeds) (the "Demand Date") the principal amount of _______ Million __________
Dollars ($______) together with all accrued
and unpaid interest thereon, unless this Note is sooner converted in accordance
with the terms set forth herein. All capitalized terms used but not defined
herein shall have the meaning set forth in the Purchase Agreement.
1. Interest Rate. The unpaid balance of the principal amount of this
Note shall accrue simple interest (the "Interest") at a rate (the "Interest
Rate") per annum as follows:
Month 1 of the Senior Secured Note No interest
Month 2 of the Senior Secured Note No interest
Month 3 of the Senior Secured Note No interest
Month 4 and thereafter of the Senior Secured Note 12% per annum
Interest shall begin accruing as of the date that is three (3) months after the
date hereof through the Demand Date. Interest shall accrue on a monthly basis
and on the date of a conversion, if applicable, and shall be computed on the
basis of a 365-day year, for the actual number of days involved. If any Event of
Default has occurred and is continuing, the Senior Secured Note shall bear
interest at a rate of the then-applicable Interest plus four percent (4%) per
annum until such time as such Event of Default has been cured.
2. Payment of Principal Xxxxxx and Interest. Accrued Interest shall
be due and payable on a monthly basis. Such payments shall be made either by
wire transfer or by delivery to the Holder of a check payable to the Holder.
3. Conversion into Preferred Stock and Common Stock.
(a) Series D Preferred Stock. This Note shall automatically
convert into shares of Series D Convertible Preferred Stock without any action
required by either the Maker or the Holder as soon as the Maker has sufficient
Series D Convertible Preferred Shares authorized for issuance ("Automatic
Conversion"). Initially the Note shall be converted into shares of Series D
Convertible Preferred Stock based upon the Preferred Conversion Ratio (for
purposes hereof "Preferred Conversion Ratio" shall mean the quotient arrived at
by dividing the principal amount of this Note plus any accrued Interest by the
Preferred Conversion Price) subject to adjustment as hereinafter provided, and
the "Preferred Conversion Price" initially shall be $1,000. Promptly after the
date of Automatic Conversion, Holder shall deliver this Note to the Company for
cancellation in exchange for a certificate representing the applicable number of
shares of Series D Preferred Stock.
(b) Interest Payments. Any unpaid accrued Interest shall be
paid to the Holder on the date of the Automatic Conversion by wire transfer.
(c) Common Stock. On the Demand Date, and to the extent that
the Maker has sufficient shares of Common Stock available for issuance, the
Holder may request that payment be made in whole or in part in shares of Common
Stock, based upon the Common Conversion Ratio (for purposes hereof "Common
Conversion Ratio" shall mean the quotient arrived at by dividing the principal
amount of this Note plus any accrued Interest by the Conversion Price) subject
to adjustment as hereinafter provided, and the "Common Conversion Price"
initially shall be $0.07 per share, (the "Common Conversion Price"). Promptly
after the
2
date of the request from the Holder, Holder shall deliver this Note to the
Company for cancellation in exchange for a certificate representing the
applicable number of shares of Common Stock.
4.
Adjustment Provisions. The Preferred Conversion Price and the
Common Conversion Price and number and kind of shares or other securities to be
issued upon conversion determined pursuant to this Note shall be subject to
adjustment from time to time upon the happening of certain events, as follows:
(a) Reclassification. If the Maker 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, shall
thereafter be deemed to evidence the right to convert this Note into 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 (i) immediately prior
to, or (ii) immediately after, such reclassification or other change at the sole
election of the holder of this Note.
(b) 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 or any
preferred stock issued by the Maker 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.
(c) Share Issuances. If and whenever the Maker issues or
sells, or in accordance with Section 5(c) hereof is deemed to have issued or
sold, any shares of Common Stock for an effective consideration per share of
less than the then Common Stock Conversion Price (as defined herein) or for no
consideration then, the Conversion Price shall be adjusted pursuant to this
Section 5(c). Such adjustment shall be made whenever shares of Common Stock or
an instrument convertible into Common Stock are issued (except (i) pursuant to
Sections 4(a) or (b) above; (ii) for an Exempt Issuance). For purposes of this
Section an "Exempt Issuance" shall mean the issuance of (a) shares of Common
Stock options or shares of Common Stock issued upon the exercise of any such
options to employees, officers or directors of the Maker pursuant to any stock
or option plan duly adopted by a majority of the non-employee members of the
Board of Directors of the Maker or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise of or conversion of any convertible securities, options or warrants
issued and outstanding on the date of issuance, provided that such securities
have not been amended, (c) the securities issued or issuable hereunder or
pursuant to the Securities Purchase Agreement between the Maker and the holder,
dated as of the date hereof, (d) issuances in connection with mergers,
acquisitions, joint ventures or other transactions with an unrelated third party
in a bona fide transaction the purpose of which is not fundraising, or (e)
issuances at fair market value to the Maker's suppliers, consultants and other
providers of services and goods not to exceed $100,000 to any one Person, and
not to exceed an aggregate of $250,000 in any fiscal year without the prior
written consent of the holder. For purposes hereof, the issuance of any security
of the Maker convertible into or
3
exercisable or exchangeable for Common Stock shall result in an adjustment to
the Conversion Price upon the issuance of such securities pursuant to the
formula below.
If the Maker issues any additional shares of Common Stock or Preferred
Stock for a consideration per share less than the rate at which the Note is
convertible into Common Stock or the Note is convertible into Series D Preferred
Shares, based upon the then applicable Common Conversion Price or Preferred
Conversion Price, as the case may be, then the Common Conversion Price or the
Preferred Conversion Price, as the case may be, shall be adjusted by multiplying
the then applicable Common Conversion Price or Preferred Conversion Price, as
the case may be, by the following fraction:
A + B
(A + B) + [((C - D) x B) / C]
A = The total amount of common shares (in the case of a dilutive
common stock issuance) or the total amount of the preferred shares (in the case
of a dilutive preferred stock issuance) issuable upon conversion of the Note, as
the case may be.
B = Actual common shares (in the case of a dilutive common stock
issuance) or preferred shares (in the case of a dilutive preferred stock
issuance) sold in the offering
C = Common Conversion Price (in the case of a dilutive common
stock issuance) or Preferred Conversion Price (in the case of a dilutive
preferred stock issuance), as the case may be
D = The Offer Price
(d) Computation of Consideration. For purposes of any
computation respecting consideration received pursuant to Section 4(c) above,
the following shall apply:
(i) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Maker for any underwriting of
the issue or otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market value
thereof as determined in good faith by the Board of Directors of the Maker
(irrespective of the accounting treatment thereof); and
(iii) upon any such exercise, the aggregate
consideration received for such securities shall be deemed to be the
consideration received by the Maker for the issuance of such securities
plus the additional minimum consideration, if any, to be received by the
Maker upon the conversion or exchange thereof (the
4
consideration in each case to be determined in the same manner as provided
in subsections (i) and (ii) of this Section 4(d)).
(e) If, at any time after any adjustment of the Conversion
Price shall have been made pursuant to Section 4(c) as the result of any
issuance of warrants, rights or convertible securities, and either (1) such
warrants or rights, or the rights of conversion or exchange in such other
convertible securities, shall expire, and all or a portion of such warrants or
rights, or the right of conversion or exchange with respect to all or a portion
of such other convertible securities, as the case may be, shall not have been
exercised, or (2) the consideration per share for which shares of Common Stock
are issuable pursuant to such warrants or rights, or such other convertible
securities, shall be increased or decreased by virtue of provisions therein
contained, then such previous adjustments shall be rescinded and annulled and
the additional shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Thereunpon, a recomputation shall be made of the effect of such
rights or options or other convertible securities on the then outstanding
Warrants, but not on any then outstanding Warrant Shares, on the basis of (x)
treating the number of additional shares of Common Stock or other property, if
any, theretofore actually issued or issuable pursuant to the previous exercise
of any such warrants or rights or any such right of conversion or exchange, as
having been issued on the date or dates of any such exercise and for the
consideration actually received and receivable therefor, and (y) treating any
such warrants or rights or any such other convertible securities which then
remain outstanding as having been granted or issued immediately after the time
of such increase or decrease of the consideration per share for which shares of
Common Stock or other property are issuable under such warrants or rights or
other convertible securities.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Maker at its expense shall promptly compute such adjustment or readjustment
in accordance with the terms hereof and furnish to each holder of the Series D
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Maker shall, upon the written request at any time of any holder of the
Series D Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Ratio at the time in effect and (iii) the number of shares of Common
Stock and the type and amount, if any, of other property which at the time would
be received upon the conversion of the Series D Preferred Stock.
5. Protective Provisions. So long as this Note is outstanding the
Maker shall not, without first obtaining the approval (by vote or written
consent), as provided by the Delaware General Corporation Law of the holders of
at least fifty percent (50%) of the then outstanding Notes of this kind:
(a) alter, amend or repeal (whether by merger, consolidation
or otherwise) the rights, preferences or privileges of the Series D Preferred
Stock, or any capital stock of the Maker so as to affect adversely the Series D
Preferred Stock or this Note;
5
(b) alter, amend or repeal, the Articles of Incorporation or
By-laws, in a manner that would adversely affect the voting power of the Series
D Preferred Stock or any other rights or privileges of the holders of the Series
D Preferred Stock or this Note;
(c) create any new class or series of capital stock having a
preference over the Series D Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Maker ("Senior Securities");
(d) create any new class or series of capital stock ranking
pari passu with the Series D Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Maker ("Pari Passu Securities");
(e) issue any Senior Securities or Pari Passu Securities;
(f) issue or sell any shares of Common Stock or securities
convertible into Common stock for no consideration or for a consideration per
share less than the then in effect Conversion Ratio, except that, no adjustment
to the Conversion Ratio will be made in the case of an Exempt Issuance;
(g) increase the par value of the Common Stock;
(h) directly or indirectly pay or declare any dividend, make
any distribution upon, redeem or repurchase any shares of capital stock (except
a dividend on, or distribution upon, the Series D Preferred Stock or pursuant to
a stock option or award under a plan approved by the Board of Directors); (ii)
agree to any provision in any agreement that would impose any restriction on our
ability to honor the exercise of any rights of the holders of the Series D
Preferred Stock or this Note; or
(i) enter into any transaction, including, without limitation,
any purchase, sale, lease or exchange of property, the rendering of any service
or the payment of any management, advisory or similar fees, with any of its
affiliates, unless such transaction is (i) in the ordinary course of business,
and (ii) upon fair and reasonable terms no less favorable to the Maker than it
would obtain in a comparable arm's length transaction with a person which is not
an affiliate.
6. Additional Covenants. The Maker shall, if so requested by Xxxxxx,
promptly provide the following information:
(a) Annual Financial Statements. Unless filed with the
Securities and Exchange Commission (the "Commission") through XXXXX and publicly
available through the XXXXX system, copies of the consolidated balance sheet of
the Maker and its subsidiaries, as of the end of the immediately preceding
fiscal year and the related consolidated statements of income, stockholders'
equity and cash flows for such fiscal year, prepared in accordance with
generally accepted accounting principles and certified by a firm of independent
public accountants of recognized national standing or such other independent
public accountants, in either case, as unanimously selected by the Board;
6
(b) Quarterly Financial Statements. Unless filed with the
Commission through XXXXX and publicly available through the XXXXX system, copies
of the consolidated balance sheet of the Corporation and its subsidiaries, and
the related consolidated statements of income, stockholders' equity and cash
flows, unaudited but prepared in accordance with generally accepted accounting
principles, such consolidated balance sheet, consolidated statements of income,
stockholders' equity and cash flows to be as of the end of each quarter
following the end of the immediately preceding fiscal year, in each case with
comparative statements for the prior fiscal year; provided, however, that, to
the extent the information in this Section 6 is requested by the Holder, Holder
shall hold and treat all such information confidential;
(c) Accountant's Letters. Copies of each accountant's
management letter and other written report submitted to the Maker by its
independent public accountants in connection with an annual or interim audit of
the books of the Maker or any of its subsidiaries;
(d) Notices. Copies of notices of all actions that could
materially and adversely affect the Maker or any of its subsidiaries; and
(e) Other Information. Any other information regarding the
business, prospects, financial condition, operations, property or affairs of the
Maker as Holder may reasonably request.
7. Security Interest. This Note shall be senior in lien priority to
all other Indebtedness (existing or future) of the Maker (other than Permitted
Liens (as defined in the Security Agreement)) and shall be secured by a first
priority perfected lien and security interest in the Collateral (as defined in
the Security Agreement).
8. Events of Default. This Note shall become due and payable upon
any of the following events, herein called "Events of Default":
(a) failure of the Maker to pay the principal amount, interest
or any other amounts due under this Note as and when due;
(b) a material breach by the Maker, or the material failure by
the Maker to perform, any representation, warranty, covenant or agreement made
by the Maker in this Note or any other Transaction Document, or any related
instrument, document or agreement (subject to any applicable cure periods);
(c) Maker's application for, or Maker's consent to, the
appointment of a receiver, trustee or liquidator for the Maker or any of its
properties;
(d) filing by the Maker of a voluntary petition in bankruptcy
or a petition or an answer seeking reorganization or an arrangement with
creditors;
(e) the entry against the Maker of a court order approving a
petition filed against it under the federal bankruptcy laws by a creditor other
than the Holder, which order shall not have been vacated or set aside or
otherwise terminated within sixty (60) days;
7
(f) with respect to any instrument or agreement for borrowed
money to which the Maker is or becomes a party, (i) an event of default has
occurred and has been declared by any third party to such instrument or
agreement, the amount of the declared default exceeds Fifty Thousand Dollars
($50,000), and such third party has accelerated any payments due under such
instrument or agreement or (ii) an event of default has occurred and has been
declared by any third party to such instrument or agreement, the amount of the
declared default exceeds Three Hundred Thousand Dollars ($300,000), provided,
that the foregoing shall not constitute a default if the Maker, with advise of
its legal counsel, has made a good faith determination that such amount is not
due and that the Maker has valid and reasonable defenses against non-payment of
such amount.
(g) the Maker agrees to pay in full settlement of any
litigation, proceeding or action, or a judgment is entered by a court of
competent jurisdiction with respect to any litigation, proceeding or action
involving the Maker (other than any settlement entered into or judgment entered
with respect to obligations incurred by the Maker in the ordinary course of
business and which were accrued for on the balance sheet of the Maker in the
ordinary course of business), of at least Three Hundred Thousand Dollars
($300,000) in any one instance or One Million Dollars ($1,000,000) in the
aggregate, in each case that is not covered by any insurance maintained by the
Maker.
9. Transferability. Subject to compliance with applicable federal
and state securities laws, this Note shall be transferable solely in accordance
with Section 5.8 of the Purchase Agreement. In no event may the Holder assign
this Note separate from an assignment of its rights under the Security
Agreement. Any such transfer shall be effected by the presentation of this Note
to the Maker for transfer, accompanied by a duly completed and executed
Assignment Form in the form attached hereto as Exhibit A, and an opinion of
counsel of the Holder in form reasonably satisfactory to the Maker that the
transfer may be properly made under an exemption from registration under the
Securities Act and applicable state securities laws. Any transfer made in
violation of this Section 6 shall be void.
10. Definitions. As used in this Note, the following term shall have
the following meaning:
"Business Day" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by Law to be closed in The City of
New York.
11. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing, and shall be deemed delivered upon
personal delivery or facsimile transmission, one (1) business day after being
sent via a reputable nationwide overnight courier services, or two (2) business
days after deposit in the mail addressed as follows:
8
If to the Maker:
IT & E International Group
000 Xxxxx Xxxxx Xx Xxxxx, Xxxxx 000
Xxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile No.: (000) 000-0000
With copies to:
Xxxxx & Xxxxxxx, LLP
000 X. Xxxxxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
If to the Holder: [change address for other holders]
COMVEST INVESTMENT PARTNERS II LLC
Xxx Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxx Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxx Xxxxxxxx
Facsimile No.:
---------------------
With a copy to: [for ComVest note only]
Xxxxxxxxx Xxxxxxx, LLP
The MetLife Building
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esq.
Facsimile No.: (000) 000-0000
Either party may change by notice the address to which notices to it are to be
addressed.
12. Successors and Assigns. All covenants, agreements and
undertakings in this Note by or on behalf of any of the parties shall bind and
inure to the benefit of the respective successors and assigns of the parties.
13. Governing Law. This Note shall be governed by, construed under
and interpreted and enforced in accordance with laws of the State of New York,
without giving effect to principles of choice of law. Any action or proceeding
arising out of or relating to this Note shall be commenced in a federal or state
court having competent jurisdiction in the State of New York, and for the
purpose of any such action or proceeding, each of the parties and any assignees
thereof submits to the personal jurisdiction of the State of New York. The
parties hereby irrevocably consent to the exclusive personal jurisdiction of any
state or federal court for New York County in the State of New York or the
Southern District of New York. The parties hereby
9
waive any objection to venue and any objection based on a more convenient forum
in any action instituted under this Note.
14. Remedies. The Maker stipulates that the remedies at law of the
Holder in the event of any default or threatened default by the Maker in the
performance of or compliance with any of the terms of this Note are not and will
not be adequate, and that such terms may be specifically enforced by a decree
for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
15. Amendments. The terms and provisions of this Note may not be
modified, altered or amended except in accordance with Section 8.1 of the
Security Agreement.
16. Headings. The descriptive headings of the several paragraphs of
this Note are inserted for purposes of reference only, and shall not affect the
meaning or construction of any of the provisions hereof.
10
IN WITNESS WHEREOF, the Maker has executed this Note and has delivered
it to the Holder, on the day and year first above written.
IT & E INTERNATIONAL GROUP
By:
------------------------------------------
Name:
Title:
EXHIBIT A
ASSIGNMENT
FOR VALUED RECEIVED, the undersigned Holder of the attached Senior
Secured Note (the "Note") issued by IT & E International Group (the "Maker")
hereby sells, assigns and transfers unto the persons below, all right, title and
interest of the undersigned in and to the obligations evidenced by the Note, and
does hereby irrevocably constitute and appoint _______________________
attorney-in-fact to transfer the Note on the books of the Maker with full power
of substitution in the premises.
Dated:
-------------------------
Signature:
------------------------
Fill in for new Registration of Note:
---------------------------------
Name of Noteholder
Address of Noteholder:
--------------------------
--------------------------
--------------------------
