into which and for which the shares of the Old common Stock formerly represented
Execution Copy
THIS NOTE AND THE SECURITIES INTO WHICH IT MAY BE CONVERTIBLE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED OTHER THAN TO AFFILIATES
OF THE HOLDER HEREOF UNLESS AND UNTIL REGISTERED UNDER THE ACT OR IN AN OPINION
OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE BORROWER, AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE FOR SUCH
OFFER, SALE, OR TRANSFER, PLEDGE OR HYPOTHECATION.
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
$1,070,972.22 March 14, 2006
FOR VALUE RECEIVED, the undersigned, CAL-BAY INTERNATIONAL, INC., a Nevada
corporation (the "Borrower"), does hereby promise to pay to the order of
PROFESSIONAL OFFSHORE OPPORTUNITIES FUND LIMITED ("Holder"), or its respective
assigns, c/o Professional Traders Management, LLC, ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇▇,▇▇▇ ▇▇▇▇ 11590 the principal sum (inclusive of interest and costs)
of One Million Seventy Thousand Nine Hundred Seventy-Two Dollars and Twenty-Two
Cents ($1,070,972.22). All amounts owed under this Note shall be payable in
full on March 14, 2007 (the "Maturity Date").
ARTICLE I
TERMS OF PAYMENT
1.1 Prepayments
The Borrower may not prepay this Note without prior written approval of Holder,
which may be withheld or conditioned on the payment of additional consideration,
as determined in ▇▇▇▇▇▇'s absolute discretion.
1.2 Payment and Computation
All computations of interest shall be made by ▇▇▇▇▇▇ on the basis of a year of
360 days for the actual number of days (including the first day but excluding
the last day)occurring in the period for which such interest is payable.
Whenever any payment to be made hereunder shall be stated to be due on a day
which is not a business day, such payment shall be made on the next succeeding
day and such extension of time shall in such casebe included in the computation
of payment of interest.
1.3 Conversion.
The Holder may at any time convert this Note, in whole or in part, upon written
notice to the Borrower specifying the amount to be converted, into freely
tradable shares of the Borrower's common stock, CUSIP# ▇▇▇▇▇▇▇▇▇, at a per share
price equal to 80% of the average closing bid price of such common stock on the
OTCBB for the three days immediately preceding the date conversion hereof is
exercised. Upon conversion of this Note, the outstanding principal so converted
shall be converted upon delivery of the Conversion Notice without any further
action by the Holder and whether or not the Note is surrendered to the Borrower.
In the event the Holder elects to convert less than the entire principal amount
of this Note, the Borrower shall issue a new Note of like tenor to the Holder
evidencing the principal amount not converted. On notice to the Borrower,
▇▇▇▇▇▇ may elect to satisfy Borrower's conversion obligation from the shares
pledged pursuant to the Pledge Agreement, referenced in Section 4.10. If the
Borrower issues any convertible or other securities at a price or with a
conversion price (the "Issue Price") lower than the applicable conversion price
set forth above (assuming a conversion of this Note on the date of such
issuance), in all events the conversion price of this Note shall thereafter be
the lower of (x) the Issue Price or (y) the conversion price calculated in
accordance with this Note. Notwithstanding the provisions of this Note, in no
event (except (i) as specifically provided in this Note as an exception to this
provision, (ii) during the forty-five (45)day period prior to the Maturity Date,
or (iii) while there is outstanding a tender offer for any or all of the shares
of the Borrower's common stock) shall the Holder be entitled to convert this
Note, or the Borrower have the obligation to issue shares upon such conversion
of all or any portion of this Note to the extent that, after such conversion the
sum of (1) the number of shares of common stock beneficially owned by the Holder
and its affiliates (other than shares of common stock which may be deemed
beneficially owned through ownership of the unconverted portion of the Note or
other right to purchase common stock or through the ownership of the unconverted
portion of convertible securities), and (2) the number of shares of common stock
issuable upon the conversion of the Note with respect to which the determination
of the proviso is being made, would result in beneficial ownership by the Holder
and its affiliates of more than 4.99% of the outstanding shares of common stock
(after taking into account the shares to be issued to the Holder upon such
conversion). For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 12(d) of the
Securities Exchange Act of 1934, as amended except as otherwise provided in
clause (1) of such sentence.
ARTICLE II
REPRESENTATIONS AND WARRANTIES; COVENANTS
2.1 Representations and Warranties.
The Borrower represents and warrants as follows: (i) the Borrower is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada; (ii) the execution, delivery and
performance by the Borrower of this Note are within the Borrower's powers,
have been duly authorized by all necessary action, and do not contravene (A)
the Borrower's certificate of formation or operating agreement or (B) (x) any
law or (y) any agreement or document binding on or affecting the Borrower,(iii)
no authorization orapproval or other action by,and no notice to or filing with,
any governmental authority, regulatory body or third person is required for the
due execution, delivery and performance by the Borrower of this Note; (iv) this
Note constitutes the legal, valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms except as
enforcement hereof may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors'rights generally and subject to the
applicability ofgeneral principles of equity;(v) the Borrower has all requisite
power and authority to own and operate its property and assets and to conduct
its business as now conducted and proposed to be conducted and to consummate
the transactions contemplated hereby; (vi) the Borrower is duly qualified to
conduct its business and is in good standing in each jurisdiction in which the
character of the properties owned or leased by it, or in which the transaction
of its business makes such qualification necessary;(vi) there is no pending or,
to the Borrower 's knowledge, threatened action or proceeding affecting the
Borrower before any governmental agency or arbitrator which challenges or
relates to this Note or which may otherwise have a material adverse effect on
the Borrower; (viii) after giving effect to the transactions contemplated by
this Note, the Borrower is Solvent; (ix) the financial statements of the
Borrower delivered to Holder fairly present the financial condition of the
Borrower and the results of operations of the Borrower for the period ended on
the date thereof and since the date thereofthere has been no event which either
individually or in the aggregate with other events since such date has resulted
in a material adverse effect on the Borrower; (x) the Borrower is not in
violation or default of any provision of (A)its certificate of incorporation or
by-laws, each as currently in effect, or (B) any instrument, judgment, order,
write, decree or contract, statute, rule or regulation to which the Borrower is
subject, and (xi) this Note is validly issued, free of any taxes, liens, and
encumbrances related to the issuance hereof and is not subject to preemptive
right or other similar right of stockholders of the Borrower.
2.2 Covenants.
So long as any principal or interest is due hereunder and shall remain unpaid,
the Borrower will, unless the Holder shall otherwise consent in writing:
(a) Maintain and preserve its existence, rights and privileges and timely
file all periodic reports required under all applicable securities laws,
including, without limitation, a Form 8-K, within three days after the date
hereof, or such other appropriate form to report the closing of the financing
evidenced by this Note;(b) Not incur any Indebtedness, other than
Indebtedness incurred in the ordinary course of business, unless such
Indebtedness is subordinated to the prior payment in full of this Note on
terms satisfactory to the Holder in its discretion. WITHOUT LIMITING THE
FOREGOING, THE BORROWER COVENANTS THAT IT WILL NOT CREATE, INCUR, ASSUME OR
SUFFER TO EXIST ANY INDEBTEDNESS (OTHER THAN TRADE ACCOUNTS PAYABLE IN THE
ORDINARY COURSE OF BUSINESS IN ACCORDANCE WITH CUSTOMARY TRADE TERMS), EXCEPT
(I) INDEBTEDNESS IN RESPECT OF THIS NOTE AND (II) UNSECURED INDEBTEDNESS
EXPRESSLY JUNIOR AND SUBORDINATE IN RIGHT OF PAYMENT TO ALL INDEBTEDNESS IN
RESPECT OF THIS NOTE. (c) Not (i) directly or indirectly sell, lease or
otherwise dispose of (A) any of its property or assets other than in its
ordinary course of business or (B) substantially all of its properties and
assets, in the aggregate, to any person(s), whether in one transaction or in a
series of transactions over any period of time, (ii) merge into or with or
consolidate with any other person or (iii) adopt any plan or arrangement for
the dissolution or liquidation of the Borrower.(d) Give written notice to
Holder upon the occurrence of an Event of Default (as defined below) or any
event but for the giving of notice or lapse of time, or both, would constitute
an Event of Default within five (5) Business Days of such event.(e) Use the
proceeds from the issuance of this Note solely for payments to employees, and
not in any way for any purpose that entails a violation of, or is inconsistent
with, Regulation U of the Board of Governors of the Federal Reserve System of
the United States of America.(f) Comply in all material respects with
all applicable laws (whether federal, state or local and whether statutory,
administrative or judicial or other) and with every applicable lawful
governmental order (whether administrative or judicial).(g) Not declare or
pay any cash dividend on or redeem or repurchase any of its membership interest.
(h) Not (i) make any advance or loan to any person, firm or corporation,
except for reasonable travel or business expenses advanced to the Company's
employees or independent contractors in the ordinary course of business, or
(ii) acquire all or substantially all of the assets of another entity.
(i) Not prepay any Indebtedness, except for trade payables incurred in the
ordinary course of the Borrower's business.
(j) The Company shall not intentionally take any action which would impair
the rights and privileges of this Note set forth herein or the rights and
privileges of the Holder of this Note.
ARTICLE III
EVENTS OF DEFAULT
3.1 Events of Default.
If any of the following events ("Events of Default") shall occur and be
continuing:
(a) The Borrower shall fail to pay any principal of, or interest on, this
Note when due; or
(b) Any representation or warranty made by the Borrower or any other person
or entity under this Note or under any Pledge Agreement executed and delivered
simultaneously herewith, the Registration Rights Agreement dated the date hereof
between the Borrower and the Holder, the Warrants dated the date hereof issued
by the Borrower to the Holder and the Deed of Trust dated the date hereof issued
by the Borrower in favor of the Holder (collectively referred to herein with the
Note as the "Loan Documents"), shall prove to have been incorrect in any
material respect when made; or
(c) The Borrower or any other person or entity shall fail to perform or
observe any other term, covenant or agreement contained in any Loan Document on
its part to be performed or observed, or there is any other breach of any Loan
Document; or
(d) The Borrower shall generally not pay its debts as such debts become due,
or shall admit in writing its inability to pay its debts generally, or shall
make a general assignment for the benefit of creditors; or any proceeding shall
be instituted by or against the Borrower or any of its subsidiaries seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, or other similar official for it or
for any substantial part of its property and such proceeding is not dismissed
within 90 days after commencement; or the Borrower shall take any corporate
action to authorize any of the actions set forth above in this subsection (d);
or
(e) Any judgment or order for the payment of money in excess of $20,000
shall be rendered against the Borrower and there shall be any period of five(5)
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; or
(f) The sale by the Borrower of all or substantially all of its assets; or
(g) The Borrower shall fail to pay any Indebtedness in excess of $20,000
(other than Indebtedness evidenced by this Note) when due (after any applicable
grace period) or any such Indebtedness shall be declared due and payable or
required to be prepaid, prior to the stated maturity thereof; then, and in any
such event, Holder may, by notice to the Borrower, declare this Note, all
interest thereon and all other amounts payable under this Note to be forthwith
due and payable, whereupon this Note, all such interest and all such amounts
shall become and be forthwith due and payable, with interest on such sum to
accrue at a default rate of 18% per annum, or the highest rate permitted by law,
through the date of judgment, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower,
and the Holder shall have the right to exercise all rights under applicable law
and hereunder; provided that upon the occurrence and continuation of an Event of
Default pursuant to clause (d) above all amounts due hereunder shall
automatically be due and payable without notice to the Company and the Holder
shall have the right to exercise any and all remedies under applicable laws.
ARTICLE IV
MISCELLANEOUS
4.1 Amendments, Etc.
No amendment or waiver of any provision of this Note, nor consent to any
departure by the Borrower herefrom, shall in any event be effective unless
the same shall be in writing and signed by ▇▇▇▇▇▇ and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
4.2 Notice, Etc.
Any notice required by the provisions of this Note will be in writing and will
be deemed effectively given: (a) upon personal delivery to the partyto be
notified; (b) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient; if not, then on the next business day; (c)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (d) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt, and delivered as follows:
If to the Borrower:
Cal-Bay International, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, CEO
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
If to Holder:
Professional Offshore Opportunity Fund Limited
c/o Professional Traders Management, LLC
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: Manager
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
or, as to each party,at such other address as shall be designated by such party
in a written notice to the other parties.
4.3 Borrower's Wiring Instructions:
▇▇▇▇▇ Fargo Bank
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
P. ▇▇▇-▇▇▇-▇▇▇▇
FBO
Cal-Bay International, Inc.
A/C # xxxxxxxxxx
ABA# xxxxxxxxx
4.4 No Waiver; Remedies.
No failure on the part of Holder to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or future exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
4.5 Accounting Terms.
All accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles consistently applied,
except as otherwise stated herein.
4.6 Cost and Expenses.
The Borrower agrees to pay on demand all losses, costs and expenses (including
reasonable counsel fees and expenses), in connection with the preparation and
negotiation of and the enforcement of this Note and any other Loan Document and
any other instruments and documents delivered in connection herewith, and in
connection with enforcement ofany judgments obtained by Holderagainst Borrower.
▇▇▇▇▇▇▇▇ also agrees that ▇▇▇▇▇▇'s cost and expenses through the date of this
Note are $20,000, which shall be deducted from the amounts advanced hereunder
and charged against principal.
4.7 Binding Effect; Governing Law.
This Note shall be binding upon and inure to the benefit of the Borrower and
Holder and their respective successors and assigns; provided that the Borrower
may not assign this Note, in whole or in part,by operation of law or otherwise,
without the prior written consent of the Holder.Holder may assign or otherwise
participate out all or part of, or any interest in, its rights and benefits
hereunder and to the extent of such assignment or participation such assignee
shall have the same rights and benefits against the Borrower as it would have
had if it were the Holder. This Note shall be governedby, and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of laws.
4.8 Jurisdiction.
THE BORROWER CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING AGAINST IT UNDER,
ARISING OUT OF OR IN ANY MANNER RELATING TO THIS NOTE, OR ANY OTHER INSTRUMENT
OR DOCUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH, SHALL BE BROUGHT
EXCLUSIVELY IN ANY COURT OF THE STATE OF NEW YORK OR IN THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE, IN THE
COUNTY OF NEW YORK. THE BORROWER, BY THE EXECUTION AND DELIVERY OF THIS NOTE,
EXPRESSLY AND IRREVOCABLY CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF
ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDINGS. THE BORROWER AGREES THAT
PERSONAL JURISDICTION OVER IT MAY BE OBTAINED BY THE DELIVERY OF A SUMMONS
(POSTAGE PREPAID)IN ACCORDANCE WITH THE PROVISIONS OF SECTION 4.2 OF THIS NOTE.
ASSUMING DELIVERY OF THE SUMMONS IN ACCORDANCE WITH THE PROVISIONS OF SECTION
4.2 OF THIS NOTE, THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY
ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OF FORUM NON CONVENIENS
OR ANY SIMILAR BASIS. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS SECTION
4.8 SHALL PRECLUDE THE HOLDER FROM COMMENCING AN ACTION IN ANY OTHER
JURISDICTION IN CONNECTION WITH ITS ENFORCEMENT OF ANY SECURITY PROVIDED IN
CONNECTION WITH THIS NOTE.
4.9 Waiver of Presentment.
The Borrower waives presentment, notice of dishonor, notice of protest,
presentment and demand in connection with the delivery, acceptance,
performance or default of this Note.
4.10 Security.
This Note is secured by and is entitled to the benefits of the Pledge Agreement
dated the date hereof between ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and the Holder and the Deed
of Trust dated the date hereof by the Borrower in favor of the Holder.
ARTICLE V
INDEMNIFICATION
The Borrower hereby agrees to indemnify and hold harmless the Holder and its
respective affiliates, directors, officers, partners,employees and other agents
and representatives from and against any and all liabilities, judgments,claims,
settlements, losses, damages,reasonable fees (including attorneys',accountants'
and other experts' fees and disbursements), liens, taxes, penalties,obligations
and expenses incurred or suffered by any such person or entity arising from, by
reason of or in connection with any misrepresentation or breach of any
representation, warranty or covenant of the Company contained in this Note or
other documents delivered by the Company pursuant to or in connection with this
Note or otherwise in connection with or as a result of or related to the
execution,delivery or performance of this Note or the transactions contemplated
hereby. The indemnification provisions of this ARTICLE V shall survive
repayments in full of this Note.
ARTICLE VI
DEFINITIONS
As used herein, the following terms are defined as follows:
6.1 "Indebtedness" with respect to any person or entityshall mean all items
(other than capital stock, capital surplus, retained earnings, obligations
payable in capital stock of such person or entity and deferred credits) which
in accordance with generally accepted accounting principals wouldbe included in
determining total liabilities as shown on the liability side of a balance sheet
of such person as at the date of which Indebtedness is to be determined. The
term "Indebtedness" shall also include, whether or not so reflected, (i)
indebtedness, obligations and liabilities secured by any lien on property of
such person whether or not the indebtedness secured thereby shall have been
assumed by such person, and (ii) all guaranties of any of the above.
Notwithstanding the foregoing, in determining the indebtedness of any person,
there shall be included all indebtedness of such person deemed to be
extinguished under generally accepted accounting principles but for which such
person or entity remains legally liable.
6.2 "Pledge Agreement" shall mean the Pledge Agreement datedthe date hereof
between ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇.
6.3 "Solvent" shall mean, with respect to any person or entity on a
particular date, that on such date (i) the fair value of the property of such
person or entity is not less than the total amount of the liabilities of such
person or entity, (ii) the present fair salable value of the assets of such
person or entity is not less than the amount required to pay the probable
liability on such person's existing debts as they become absolute and matured,
(iii) such person or entity is able to realize upon its assets and pay its
debts and other liabilities, (iv) such person or entity does not intend to, and
does not believe that it will, incur debts or liabilities beyond such person or
entity's ability to pay as such debts and liabilities mature and (v)such person
or entity is not engaged in business or a transaction, and is not about to
engage in a business or a transaction, for which such person's or entity's
property would constitute unreasonably small capital.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by its
officer duly authorized, as of the date first above written.
CAL-BAY INTERNATIONAL,INC.
By: \S\▇▇▇▇▇ ▇ ▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇ ▇▇▇▇▇▇
Title: President, Cal Bay International, Inc.
