THIS SECURED CONVERTIBLE NOTE AND THE SECURITIES ISSUABLE UPON ITS CONVERSION
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON ITS
CONVERSION MAY BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
Q COMM INTERNATIONAL, INC.
SECURED CONVERTIBLE NOTE
------------------------
$200,000.00 Dated: August 9, 2001
For value received, Q COMM INTERNATIONAL, INC., a Utah corporation with
its principal place of business at 0000 Xxxxx 0000 Xxxx, Xxxx, XX 00000
(hereafter the "Issuer"), hereby promises to pay to the order of AMERICAN
PAYMENT SYSTEMS, INC., a Connecticut corporation, with an address at One Hamden
Center, 0000 Xxxxxxx Xxxxxx, 0xx Xxxxx, Xxxxxx, XX 00000 (hereafter the "Payee")
on the Maturity Date the principal sum of Two Hundred Thousand Dollars and
no/100 ($200,000.00) or such part thereof as then remains unpaid, together with
interest at a rate (before default) equal to six percent (6%) per annum,
accruing monthly in arrears.
Principal and interest shall be payable in lawful money of the United
States of America, at the address of Payee set forth above or at such other
place as the legal holder may designate from time to time in writing to the
Issuer. Interest shall be computed on the basis of a 360-day year and a 30-day
month.
This Secured Convertible Note is the Note referred to in the Secured
Convertible Note Purchase and Security Agreement, dated as of the date hereof
(the "Agreement"), between the Issuer and the Payee, as the same may be amended,
modified or supplemented from time to time, by mutual written consent, which
Agreement, as amended, is incorporated by reference herein. Except as otherwise
provided, capitalized terms used herein shall have the same meanings as are
assigned to such terms in the Agreement. This Note is entitled to the benefits
of and is subject to the terms, conditions and provisions of the Agreement. The
Agreement, among other things, contains provisions for acceleration of the
maturity hereof and/or the foreclosure on and sale of the Collateral securing
this Note upon the happening of certain stated events, and also for repayments
of the principal hereof prior to maturity upon the terms, conditions and
provisions specified.
Issuer agrees to pay all taxes or duties levied or assessed against
Payee on account of this Note or the Agreement, or upon the Collateral for which
a security interest is granted under the Agreement. Issuer further agrees to pay
all costs, expenses and attorneys' fees incurred by Xxxxx in any proceeding for
collection of the debt evidenced hereby, or in any action to enforce its rights
in the Collateral granted under the Agreement upon the happening of an Event of
Default as provided for in the Agreement or in any litigation or controversy
arising from or connected with this Note or the Agreement.
Upon the occurrence of an Event of Default, and in addition to any
other rights and remedies set forth in the Agreement, which are incorporated
herein by reference, including without limitation, the option to accelerate
payment of the principal and interest then outstanding under this Note or
foreclosing on the Collateral securing this Note pursuant to Section 7 of the
Agreement, at the option of the Payee, Payee may pay insurance premiums, taxes
and assessments, and any other expenses which may be reasonable or necessary to
protect the Collateral securing this Note or to protect or sustain the lien
created under the Agreement. Any such payment made by the Payee pursuant to said
option shall be added to the principal balance due hereunder and shall bear
interest at the Default Rate from the date of payment by the Payee and shall be
payable or convertible on demand with interest from the date of payment by the
Payee.
ARTICLE 1
DEFINITIONS
1.1 Definitions. For all purposes of this Note, the following terms
-----------
shall have the meanings indicated:
Affiliate - shall mean with respect to any person, any entity which
controls, is controlled by, or under common control with, such person or any
entity formed as a result of a reorganization of such person.
Agreement - shall mean the Secured Convertible Note Purchase and
Security Agreement of even date herewith by and between the Issuer and Payee.
Commission - shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
Conversion Price - means $0.30 per Share (as adjusted for any stock
split, stock combination, recapitalization or similar transaction with respect
to the Issuer's capital stock).
Default Rate - shall mean the lesser of (a) 11% per annum or (b) the
maximum legal interest rate.
Maturity Date - December 6, 2001.
Note - shall mean this Secured Convertible Note, or any replacement
thereof.
Payee - shall have the meaning set forth in the first paragraph of this
Note appearing after the title of this Note.
Securities Act - shall mean the Securities Act of 1933, as amended.
Shares - shall mean and include the Issuer's authorized common stock,
par value $0.001 per share, as constituted on the date hereof, and shall also
include any shares of stock of any class or series of the Issuer's hereafter
authorized which shall substitute for or replace such common stock as
constituted on the date hereof.
Term of this Note - shall mean the period beginning on the date of
initial issuance and ending on the Maturity Date.
2
ARTICLE 2
PAYMENT AND LIMITED PREPAYMENT
2.1 Payments. The entire amount of this Note then outstanding and not
--------
previously converted into Shares shall be due and payable with accrued interest
thereon on the Maturity Date.
2.3 Limited Prepayment Option. This Note may not be prepaid in whole or
-------------------------
in part without the prior written consent of APS.
2.4 Payment in Kind.
--------------
(a) On the Maturity Date, the Issuer may repay all principal
and interest owed hereunder by assigning the Collateral to the Payee. In such
event, the Issuer shall execute and deliver to the Payee such agreements, make
such representations, covenants and indemnities and deliver such instruments of
assignment and bills of sale to the Payee as the Payee may reasonably request to
effect such assignment.
(b) At the Payee's option, in lieu of receiving cash in the
amount of the entire outstanding principal amount hereof with accrued interest
thereon on the Maturity Date pursuant to Section 2.1 above, the Payee may, at
its option, upon ten (10) days' prior written notice to the Issuer, request that
all principal and interest owed hereunder be paid by assignment by the Issuer to
the Payee of the Collateral. In such event, the Issuer shall execute and deliver
to the Payee such agreements, make such representations, covenants and
indemnities and deliver such instruments of assignment and bills of sale to the
Payee as the Payee may reasonably request to effect such assignment.
ARTICLE 3
REGISTRATION, EXCHANGE REPLACEMENT
3.1 Registration, etc. The Issuer shall maintain at its principal
-------------------
office a register and shall record therein the name and address of the Payee,
the address to which notices are to be sent, and the address to which payments
are to be made as designated by said Xxxxx. No transfer of this Note shall be
valid unless a registered Payee or the successors or assigns or the duly
appointed attorney of such registered Payee requests such transfer to be made on
such register, upon surrender thereof for exchange as hereinafter provided,
accompanied by an instrument in writing, duly executed in form reasonably
satisfactory to the Issuer's counsel. Any replacement, transfer or subdivision
of this Note shall be registered on the date of execution by the Issuer. The
registered Payee of this Note shall be that person in whose name the Note has
been so registered by the Issuer. The registered Payee shall be deemed the owner
of the Note for all purposes.
3.2 Transfer and Exchange. Subject to the provisions of Section 9.3
----------------------
hereof, the registered Payee of this Note may, prior to the Maturity Date,
surrender such Note at the principal office of the Issuer for transfer or
exchange. Each new Note shall be made payable to such person or persons, or
registered assigns, as the registered Payee of such surrendered Note may
designate in writing, and such transfer or exchange shall be made in such a
manner that no gain or loss of principal or interest shall result therefrom;
provided, however, that the Issuer shall have no duty to issue a new Note in the
3
name of any transferee of the registered Payee unless and until such registered
Payee furnishes to the Issuer an opinion of counsel, reasonably satisfactory to
the Issuer's counsel, that the proposed transfer is exempt from the registration
requirements of the Securities Act and any applicable state securities laws.
3.3 Replacement. Upon receipt of evidence satisfactory to the Issuer of
-----------
the loss, theft, destruction or mutilation of this Note and, if requested in the
case of any such loss, theft or destruction, upon delivery of an indemnity
agreement or security reasonably satisfactory to the Issuer, or, in the case of
any such mutilation, upon surrender and cancellation of such Note, the Issuer
will issue a new Note, in the amount of the unpaid principal balance of the
lost, stolen, destroyed or mutilated Note and dated the date to which interest
has been paid, in lieu of such lost, stolen, destroyed or mutilated Note.
ARTICLE 4
CONVERSION
4.1 Conversion. (a) The Payee of this Note, any Affiliate thereof or
----------
any person or entity which becomes a Payee of this Note has the right, at any
time but prior to payment in full of the principal balance of this Note, to
convert this Note, in accordance with the provisions of Section 4.2 hereof, in
whole or in part for the principal amount then outstanding (plus an amount equal
to accrued interest hereunder) into fully paid and nonassessable Shares of the
Issuer. The Shares into which this Note may be converted shall be determined by
dividing the aggregate principal amount (together with accrued and unpaid
interest to the date of conversion) by the Conversion Price.
(b) On Maturity Date, at the Payee's sole option, the Issuer shall have
the obligation to discharge its obligations under this Note by either (i)
issuing to the Payee such number of fully paid and nonassessable Shares as
results from dividing the then outstanding balance of principal of this Note
(plus all accrued interest that has not been waived and remains unpaid) by the
Conversion Price, (ii) paying the entire amount of principal and interest then
outstanding in cash as directed by the Payee; or (iii) such combination of (i)
and (ii) as Payee shall determine in its sole discretion.
4.2 Conversion Procedure. Before the Payee shall be entitled to convert
--------------------
this Note into Shares, it shall surrender this Note at the office of the Issuer
and shall give written notice by mail, postage prepaid, to the Issuer at the
Issuer's principal corporate office, of the election to convert the same, and
shall state therein the name or names in which the certificate or certificates
evidencing the Shares shall be issued. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of this Note, and the person or persons entitled to receive the Shares
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Shares as of such date. This Note may be converted in
whole or in part.
4.3 Delivery of Share Certificates. As promptly as practicable after
-------------------------------
the conversion of this Note, the Issuer at its expense will issue and deliver to
the Payee a certificate evidencing the appropriate number of Shares issuable
upon such conversion.
4.4 No Fractional Shares. Fractional Shares shall not be issued upon
----------------------
the conversion of this Note but in any case where the Payee would otherwise be
entitled under the terms hereof to receive fractional Shares upon the complete
conversion of this Note, the Issuer shall, upon the conversion of this Note for
the largest number of whole Shares then called for, pay a sum in cash equal to
the excess of the value of such Fractional Shares (determined in such reasonable
manner as may be prescribed in good faith by the Board of Directors of the
Issuer) over the Conversion Price for such Fractional Shares.
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ARTICLE 5
ANTIDILUTION PROVISIONS
5.1 Adjustment of the Number of Shares. Upon each adjustment of the
-----------------------------------
Conversion Price as provided in Section 5.2, the Payee shall thereafter be
entitled to purchase, at the Conversion Price resulting from such adjustment,
the Shares (calculated to the nearest tenth of a Share) obtained by multiplying
the Conversion Price in effect immediately prior to such adjustment by the
number of Shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Conversion Price resulting
from such adjustment.
5.2 Adjustment of the Conversion Price. The Conversion Price shall be
-----------------------------------
subject to adjustment from time to time as follows:
(a) If, at any time during the Term of this Note, the number
of Shares outstanding is increased by a dividend or similar transaction payable
in Shares or by a subdivision or split -up of Shares, then following the record
date fixed for the determination of holders of Shares entitled to receive such
dividend, subdivision or split-up, the Conversion Price shall be appropriately
decreased so that the number of Shares issuable upon the exercise hereof shall
be increased in proportion to such increase in outstanding Shares.
(b) If, at any time during the Term of this Note, the number
of Shares outstanding is decreased by a combination of the outstanding Shares,
then, following the record date for such combination, the Conversion Price shall
be appropriately increased so that the number of Shares issuable upon the
exercise hereof shall be decreased in proportion to such decrease in outstanding
Shares.
(c) Whenever the Conversion Price shall be adjusted as
provided in this Article 5, the Issuer shall prepare a statement showing the
facts requiring such adjustment and the Conversion Price that shall be in effect
after such adjustment. The Issuer shall cause a copy of such statement to be
sent by mail, first class postage prepaid, to each Payee of this Note at its
address appearing on the Issuer's records.
(d) If the Issuer shall at any time or from time to time
during the Term of this Note issue Shares of the Issuer or rights, options,
warrants or other securities convertible into Shares, for no consideration or at
a price per Share which is lower than the then effective Conversion Price in
effect immediately prior to the issuance of such Shares, then the Conversion
Price shall be decreased to the price per Share that such Shares of the Issuer
(or rights, options, warrants or other securities convertible into Shares) are
issued or sold for or deemed issued or sold for pursuant to the further
provisions of this subsection. In no event shall an adjustment be made under
this subsection which results in an increase in the Conversion Price. Such
adjustment shall be made whenever such Shares, rights, options, warrants or
convertible securities are issued, and shall become effective immediately.
For the purposes of any adjustment of the Conversion Price pursuant to
this subsection the following provisions shall be applicable:
1. In the case of the issuance of Shares for cash, the
consideration shall be deemed to be the amount of
cash received by the Issuer.
5
2. In the case of the issuance of Shares 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 Issuer,
irrespective of any accounting treatment.
3. In the case of the issuance of (i) options to
purchase or rights to subscribe for Shares, (ii)
securities by their terms convertible into or
exchangeable for Shares or (iii) options to purchase
or rights to subscribe for such convertible or
exchangeable securities:
(A) the aggregate maximum number of Shares
deliverable upon exercise of such options to
purchase or rights to subscribe for Shares
shall be deemed to have been issued at the
time such options or rights were issued and
for a consideration equal to the
consideration (determined in the manner
provided in subdivisions (1) and (2) above),
if any, received by the Issuer upon the
issuance of such options or rights plus the
minimum purchase price provided in such
options or rights for the Shares covered
thereby;
(B) the aggregate maximum number of Shares
deliverable upon conversion of or in
exchange for any such convertible or
exchangeable securities or upon the exercise
of options to purchase or rights to
subscribe for such convertible or
exchangeable securities and subsequent
conversions or exchanges thereof shall be
deemed to have been issued at the time such
securities were issued or such options or
rights were issued and for a consideration
equal to the consideration received by the
Issuer for any such securities and related
options or rights (excluding any cash
received on account of accrued interest or
accrued dividends), plus the additional
consideration, if any, to be received by the
Issuer upon the conversion or exchange of
such securities or the exercise of any
related options or rights (the consideration
in each case to be determined in the manner
provided in subdivisions (1) and (2) above);
(C) on any change in the number of Shares
deliverable upon exercise of any such
options or rights or conversion of or
exchange for such convertible or
exchangeable securities, other than a change
resulting from antidilution provisions
thereof, the Conversion Price shall
forthwith be readjusted to such Conversion
Price as would have obtained had the
adjustment made upon the issuance of such
options or rights related to such securities
not converted prior to such change being
made upon the basis of such change; and
(D) on the expiration of any such options or
rights, the termination of any such rights
to convert or exchange or the expiration of
any options or rights related to such
convertible or exchangeable securities, the
6
Conversion Price shall forthwith be
readjusted to such Conversion Price as would
have obtained had the adjustment made upon
the issuance of such options, rights,
securities or options or rights related to
such securities been made upon the basis of
the issuance of only the number of Shares
actually issued upon the conversion or
exchange of such securities or upon the
exercise of the options or rights related to
such securities.
(e) Whenever the Conversion Price shall be adjusted as
provided in this Article 5, the Issuer shall prepare a statement showing the
facts requiring such adjustment and the Conversion Price that shall be in effect
after such adjustment. The Issuer shall cause a copy of such statement to be
sent by mail, first class postage prepaid, to each Payee of this Note at its
address appearing on the Issuer's records.
ARTICLE 6
MERGERS, CONSOLIDATION, SALES
In the case of any proposed consolidation or merger of the Issuer with
another entity, or the proposed sale of all or substantially all of its assets
to another person or entity, or any proposed reorganization or reclassification
of the capital stock of the Issuer, then, as a condition of such consolidation,
merger, sale, reorganization or reclassification, lawful and adequate provision
shall be made whereby, in addition to other rights and remedies provided to the
Payee in the Agreement, the Payee of this Note shall thereafter have the right
to receive upon the basis and upon the terms and conditions specified herein, in
lieu of the Shares of the Issuer immediately theretofore purchasable hereunder,
such Shares, securities or assets as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable with
respect to or in exchange for the number of Shares purchasable hereunder
immediately before such consolidation, merger, sale, reorganization or
reclassification. In any such case appropriate provision shall be made with
respect to the rights and interests of the Payee of this Note to the end that
the provisions hereof shall thereafter be applicable as nearly as may be in
relation to any shares of Shares, securities or assets thereafter deliverable
upon the conversion of this Note.
ARTICLE 7
NO RIGHTS AS SHAREHOLDER
This Note shall not, except upon its conversion into Shares, entitle
the Payee to any of the rights of a shareholder of the Issuer.
ARTICLE 8
COVENANTS OF THE ISSUER
8.1 Transfer Restriction Legend. Each certificate for Shares shall bear
---------------------------
a restrictive legend referring to the Securities Act (and any additional legend
required by (i) any securities laws and (ii) any securities exchange upon which
such Shares may, at the time of such exercise be listed) unless at the time of
exercise such Shares shall be registered under the Securities Act:
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
7
counsel for the holder thereof addressed to the Issuer the securities
represented thereby are not, at such time, required by law to bear such legend.
8.2 Covenants as to Shares. The Issuer covenants and agrees that all
----------------------
Shares that may be issued upon the conversion of this Note will, upon issuance,
be validly issued, fully paid and nonassessable, and free from all taxes, liens
and charges with respect to the issue thereof.
8.3 Will Reserve Shares. The Issuer will reserve and set apart and have
-------------------
available for issuance at all times, free from preemptive or other preferential
rights, the number of Shares deliverable upon the conversion of this Note.
ARTICLE 9
MISCELLANEOUS
9.1 Governing Law. This Note shall be construed in accordance with the
-------------
internal laws of the State of Connecticut, without giving effect to its
conflicts of laws principles.
9.2 Headings. Article, section and subsection headings in this Note are
--------
included herein for convenience of reference only and shall not constitute a
part of this Note for any other purpose.
9.3 Successors and Assigns. The obligations of the Issuer set forth
-----------------------
herein shall be binding upon the successors and assigns of the Issuer.
9.4 Amendments, Waivers and Consents. Changes in or additions to this
---------------------------------
Note may be made only in the manner specified in Section 9.1 of the Agreement.
9.5 Waivers. EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED HEREIN, THE
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ISSUER, AND ALL OTHERS THAT MAY BECOME LIABLE FOR ALL OR ANY PART OF THE
OBLIGATIONS EVIDENCED BY THIS NOTE, HEREBY WAIVES PRESENTMENT, DEMAND, NOTICE OF
NONPAYMENT, PROTEST AND ALL OTHER DEMANDS AND NOTICES IN CONNECTION WITH THE
DELIVERY, ACCEPTANCE, PERFORMANCE OR ENFORCEMENT OF THIS NOTE, AND DOES HEREBY
CONSENT TO ANY NUMBER OF RENEWALS OR EXTENSIONS OF THE TIME OF PAYMENT HEREOF
AND AGREE THAT ANY SUCH RENEWALS OR EXTENSIONS MAY BE MADE WITHOUT NOTICE TO ANY
SUCH PERSONS AND WITHOUT AFFECTING THEIR LIABILITY HEREIN AND DO FURTHER CONSENT
TO THE RELEASE OF ANY PERSON LIABLE HEREON, (ALL WITHOUT AFFECTING THE LIABILITY
OF THE OTHER PERSONS, FIRMS, OR CORPORATIONS LIABLE FOR THE PAYMENT OF THIS
NOTE).
ADDITIONALLY ISSUER AND PAYEE EACH WAIVES THE RIGHT TO TRIAL BY JURY IN
ANY ACTION, DEFENSE, COUNTERCLAIM, CROSSCLAIM AND/OR ANY FORM OF PROCEEDING
BROUGHT IN CONNECTION WITH THIS NOTE OR RELATING TO ANY INDEBTEDNESS EVIDENCED
HEREBY AND/OR ANY COLLATERAL NOW OR HEREAFTER SECURING THIS NOTE. THIS
TRANSACTION IS A "COMMERCIAL TRANSACTION" WITHIN THE MEANING OF CHAPTER 903a OF
THE CONNECTICUT GENERAL STATUTES, AS AMENDED, AND THE ISSUER HEREBY VOLUNTARILY
AND KNOWLINGLY WAIVES ANY RIGHT WHICH THE ISSUER MIGHT HAVE HAD TO NOTICE AND A
HEARING UNDER SECTIONS 52-278a to 52-278g, INCLUSIVE, OF THE CONNECTICUT GENERAL
8
STATUTES, AS AMENDED, OR OTHER APPLICABLE FEDERAL, OR STATE LAW, IN THE EVENT
THAT THE PAYEE (OR ITS SUCCESSORS OR ASSIGNS) SEEKS ANY PREJUDGMENT REMEDY IN
CONNECTION WITH THIS NOTE OR ANY RELATED DOCUMENT.
[Signature page follows]
9
IN WITNESS WHEREOF, the undersigned has executed this Secured
Convertible Promissory Note on the date first above written.
Q COMM INTERNATIONAL, INC.
By: /s/
------------------------
Name:
Title:
This Note is secured inter alia,
----- ----
by a Secured Convertible Note
Purchase and Security Agreement,
of even date herewith.
10
