Exhibit 10.4
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK 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 AND ANY
APPLICABLE STATES SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO CREATIVE VISTAS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE MINIMUM BORROWING NOTE
FOR VALUE RECEIVED, CREATIVE VISTAS, INC., an Arizona corporation (the
"BORROWER"), promises to pay to LAURUS MASTER FUND, LTD., M&C Corporate Services
Limited, P.O. Box 309 GT, Xxxxxx House, South Church Street, Xxxxxx Town, Grand
Cayman, Cayman Islands, Fax: 000-000-0000 (the "HOLDER") or its registered
assigns, on order, the sum of One Million Dollars ($1,000,000), of, if
different, the aggregate principal amount of all "Loans" (as such term is
defined in the Security Agreement referred to below), together with any accrued
and unpaid interest hereon, on September 30, 2007 (the "MATURITY DATE").
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Security Agreement between Borrower, certain
Subsidiaries of the Borrower and the Holder dated as of September 30, 2004 (as
amended, modified and supplemented from time to time, the "SECURITY AGREEMENT").
The following terms shall apply to this Minimum Borrowing Note (this "Note"):
ARTICLE I
INTEREST
1.1 Contract Rate. Subject to Sections 4.2, 5.1 and 6.7 hereof,
interest payable on this Note shall accrue at a rate per annum equal to the
"prime rate" published in The Wall Street Journal from time to time, plus two
percent (2%) (the "CONTRACT RATE"). The Prime Rate shall be increased or
decreased as the case may be for each increase or decrease in the Prime Rate in
an amount equal to such increase or decrease in the Prime Rate; each change to
be effective as of the day of the change in such rate in accordance with the
terms of the Security Agreement. Subject to Section 1.2, the Contract Rate shall
not be less than six percent (6 %).
1.2 Contract Rate Adjustments and Payments. The Contract Rate shall
be calculated on the last business day of each month hereafter until the
Maturity Date (each a "Determination Date") and shall be subject to adjustment
as set forth herein. If (i) the Borrower shall have registered the shares of the
Borrower's common stock underlying each of the conversion of the Note and that
certain warrant and option issued to Holder on a registration statement declared
effective by the Securities and Exchange Commission (the "SEC"), and (ii) the
market price (the "Market Price") of the Common Stock as reported by Bloomberg,
L.P. on the Principal Market (as defined below) for the five (5) trading days
immediately preceding a Determination Date exceeds the then applicable Fixed
Conversion Price by at least twenty five percent (25%), the Contract Rate for
the succeeding calendar month shall automatically be reduced by 25 basis points
(25 b.p.) (0.25%) for each incremental twenty five percent (25%) increase in the
Market Price of the Common Stock above the then applicable Fixed Conversion
Price. Notwithstanding the foregoing (and anything to the contrary contained in
herein), in no event shall the Contract Rate be less than zero percent (0%).
Interest shall be (i) calculated on the basis of a 360 day year, and (ii)
payable monthly, in arrears, in cash, commencing on November 1, 2004 and on the
first business day of each consecutive calendar month thereafter until the
Maturity Date (and on the Maturity Date), whether by acceleration or otherwise
(each, a "CONTRACT RATE PAYMENT DATE").
ARTICLE II
ADVANCES, PAYMENTS UNDER NOTE
2.1. Mechanics of Advances. All Loans evidenced by this Note shall
be made in accordance with the terms and provisions of the Security Agreement.
2.2. Fixed Conversion Price. For purposes hereof, subject to Section
3.5 hereof, the initial "FIXED CONVERSION PRICE" means $3.00.
2.3. No Effective Registration. Notwithstanding anything to the
contrary herein, the Holder shall not be required accept shares of Common Stock
as payment following a conversion by the Holder if there fails to exist an
effective current Registration Statement (as defined in the Registration Rights
Agreement) covering the shares of Common Stock to be issued, or if an Event of
Default hereunder exists and is continuing, unless such requirement is otherwise
waived in writing by the Holder in whole or in part at the Holder's option.
2.4. Optional Redemption in Cash. The Borrower will have the option
of prepaying this Note ("OPTIONAL REDEMPTION") by paying to the Holder a sum of
money equal to one hundred twenty five percent (125%) of the principal amount of
this Note together with accrued but unpaid interest thereon and any and all
other sums due, accrued or payable to the Holder arising under this Note, the
Security Agreement, or any Ancillary Agreement (as defined in the Security
Agreement) (the "REDEMPTION AMOUNT") on the day written notice of redemption
(the "NOTICE OF REDEMPTION") is given to the Holder. The Notice of Redemption
shall specify the date for such Optional Redemption (the "REDEMPTION PAYMENT
DATE") which date shall be seven (7) days after the date of the Notice of
Redemption (the "REDEMPTION PERIOD"). A Notice of Redemption shall not be
effective with respect to any portion of this Note for which the Holder has
previously delivered a Notice of Conversion (defined below) pursuant to Section
3.1, or for conversions elected to be made by the Holder pursuant to Section 3.1
during the Redemption Period. The Redemption Amount shall be determined as if
such Xxxxxx's conversion elections had been completed immediately prior to the
date of the Notice of Redemption. On the Redemption Payment Date, the Redemption
Amount (plus any additional interest and fees accruing on the Notes during the
Redemption Period) must be irrevocably paid in full in immediately available
funds to the Holder. In the event the Borrower fails to pay the Redemption
Amount on the Redemption Payment Date, then such Redemption Notice will be null
and void.
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ARTICLE III
HOLDER'S CONVERSION RIGHTS
3.1. Optional Conversion. Subject to the terms of this Article III,
the Holder shall have the right, but not the obligation, at any time until the
Maturity Date, or thereafter during an Event of Default (as defined in Article
V), and, subject to the limitations set forth in Section 3.2 hereof, to convert
all or any portion of the then outstanding principal of this Note (the
"Principal Amount") and/or accrued interest and fees due and payable thereon, in
each case, into fully paid and nonassessable shares of the Common Stock at the
Fixed Conversion Price. The shares of Common Stock to be issued upon such
conversion are herein referred to as the "CONVERSION SHARES."
3.2. Conversion Limitation. Notwithstanding anything contained
herein to the contrary, the Holder shall not be entitled to convert, an amount
that would be convertible into that number of shares of Common Stock which
would, at such time exceed, when added to the number of shares of Common Stock
otherwise beneficially owned by such Holder including those issuable upon
exercise of warrants and options held by such Holder, 4.99% of the outstanding
shares of Common Stock of the Borrower at the time of conversion. For the
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and Regulation
13d-3 thereunder. The conversion limitation described in this Section 3.2 shall
automatically become null and void without any notice to Borrower upon the
occurrence and during the continuance beyond any applicable grace period of an
Event of Default, or upon 75 days prior notice to the Borrower.
3.3. Mechanics of Xxxxxx's Conversion. In the event that the Holder
elects to convert this Note into Common Stock, the Holder shall give notice of
such election by delivering an executed and completed notice of conversion
("NOTICE OF CONVERSION") to the Borrower and such Notice of Conversion shall
provide a breakdown in reasonable detail of the Principal Amount, accrued
interest and fees that are being converted. On each Conversion Date (as
hereinafter defined) and in accordance with its Notice of Conversion, the Holder
shall make the appropriate reduction to the Principal Amount, accrued interest
and fees as entered in its records and shall provide written notice thereof to
the Borrower within two (2) business days after the Conversion Date. Each date
on which a Notice of Conversion is delivered or telecopied to the Borrower in
accordance with the provisions hereof shall be deemed a Conversion Date (the
"CONVERSION DATE"). A form of Notice of Conversion to be employed by the Holder
is annexed hereto as Exhibit A. Pursuant to the terms of the Notice of
Conversion, the Borrower will issue instructions to the transfer agent
accompanied by an opinion of counsel, if such opinion of counsel is required by
the transfer agent, within two (2) business days of the date of the delivery to
Borrower of the Notice of Conversion and shall cause the transfer agent to
transmit the certificates representing the Conversion Shares to the Holder (if
eligible, such certificates shall be delivered by crediting the account of the
Holder's designated broker with the Depository Trust Corporation ("DTC") through
its Deposit Withdrawal Agent Commission ("DWAC") system within three (3)
business days after receipt by the Borrower of the Notice of Conversion (the
"DELIVERY DATE")). In the case of the exercise of the conversion rights set
forth herein the conversion privilege shall be deemed to have been exercised and
the Conversion Shares issuable upon such conversion shall be deemed to have been
issued upon the date of receipt by the Borrower of the Notice of Conversion. The
Holder shall be treated for all purposes as the record holder of such Common
Stock, unless the Holder provides the Borrower written instructions to the
contrary.
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3.4. Late Payments. The Borrower understands that a delay in the
delivery of the shares of Common Stock in the form required pursuant to this
Article beyond the Delivery Date could result in economic loss to the Holder. As
compensation to the Holder for such loss, the Borrower agrees to pay late
payments to the Holder for late issuance of such shares in the form required
pursuant to this Article III upon conversion of the Note, in the amount equal to
$250 per business day after the Delivery Date. The Borrower shall pay any
payments incurred under this Section in immediately available funds upon written
demand from Holder.
3.5. Adjustment Provisions. The Fixed Conversion Price and number
and kind of shares or other securities to be issued upon conversion determined
pursuant to Section 2.2 shall be subject to adjustment from time to time upon
the happening of certain events while this conversion right remains outstanding,
as follows:
A. 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 Amount 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 (i) immediately prior to or (ii) immediately after
such reclassification or other change at the sole election of the Holder.
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 Borrower in shares of Common Stock, the Fixed
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. Subject to the provisions of this Section
3.5, if the Borrower shall at any time prior to the conversion or repayment in
full of the Principal Amount issue any shares of Common Stock or securities
convertible into Common Stock to a person other than the Holder (except (i)
pursuant to Subsections A or B above; (ii) pursuant to options, warrants or
other obligations to issue shares outstanding on the date hereof as disclosed to
Holder in writing, including, without limitation, shares issuable upon the
conversion of warrants issued on or prior to the date hereof and held by Xxxxxxx
Securities or its affiliates and shares issuable upon conversion of that certain
$100,000 promissory note of AC Technical Ltd. issued prior to the date hereof in
favor of Xxxxxx Xxxxxx; or (iii) pursuant to options that may be issued under
any employee incentive stock option and/or any qualified stock option plan
adopted by the Borrower; (iv) pursuant to securities issued to the original
Holder on the date hereof; or (v) pursuant to securities issued in connection
with acquisitions or strategic transactions the primary purpose of which is not
raising capital, so long as, in the case of this clause (v), such shares of
Common Stock so issued (or securities convertible into Common Stock so issued)
are restricted and do not become freely or publicly traded in any respect prior
to the two year anniversary of the issuance thereof) for a consideration per
share (the "OFFER PRICE") less than any Fixed Conversion Price in effect at the
time of such issuance, then such Fixed Conversion Price applicable to a portion
of the outstanding principal amount of this Note (and all interest, fees, costs
and expenses related thereto) equal to the fair market value of the aggregate
consideration paid for, or attributable to, such shares of Common Stock or
securities convertible into Common Stock (the "Aggregate Consideration") shall
be immediately reset to such lower Offer Price at the time of issuance of such
securities (provided that, in the event that the outstanding principal amount of
this Note is greater than the respective Aggregate Consideration, the Holder
shall determine in its sole discretion which portion of the outstanding
principal amount of this Note shall have a "reset" Fixed Conversion Price as a
result of such issuance). For example, in the event that the Aggregate
Consideration equals $1,000,000, a Fixed Conversion Price applicable a principal
amount of this Note equal to $1,000,000 (plus all interest, fees, costs and
expenses related thereto) shall be reset to the Offer Price if the Offer Price
is less than such Fixed Conversion Price in effect at the time of such issuance.
For purposes hereof, the issuance of any security of the Borrower convertible
into or exercisable or exchangeable for Common Stock shall result in an
adjustment to the Fixed Conversion Price at the time of issuance of such
securities.
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D. Computation of Consideration. For purposes of any
computation respecting consideration received pursuant to Subsection C above,
the following shall apply:
(a) 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 Borrower for any underwriting of the issue or
otherwise in connection therewith;
(b) 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 Borrower (irrespective
of the accounting treatment thereof); and
(c) Upon any such exercise, the aggregate consideration
received for such securities shall be deemed to be the consideration received by
the Borrower for the issuance of such securities plus the additional minimum
consideration, if any, to be received by the Borrower upon the conversion or
exchange thereof (the consideration in each case to be determined in the same
manner as provided in clauses (a) and (b) of this Subsection (D)).
3.6. Reservation of Shares. During the period the conversion right
exists, the 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. The Borrower represents that upon issuance,
such shares will be duly and validly issued, fully paid and non-assessable. The
Borrower 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.
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3.7. Registration Rights. The Holder has been granted registration
rights with respect to the shares of Common Stock issuable upon conversion of
this Note as more fully set forth in a Registration Rights Agreement dated as of
the date hereof between the Borrower and the Holder.
3.8 Mandatory Conversion. Notwithstanding anything herein to the
contrary, subject to the conversion limitations set forth in Section 3.2, if,
after the date a registration statement covering the resale of the Conversion
Shares is declared effective, and so long as such registration statement remains
effective, (A) the closing price for any ten (10) consecutive trading days (a
"Conversion Period") exceeds 135% of the then effective Fixed Conversion Price,
the Holder will, within ten (10) trading days of any such Conversion Period,
convert all or part of the then outstanding Principal Amount of this Note plus
all accrued, but unpaid interest thereon. The Holder shall only be required to
effect such a conversion referred to in the immediately preceding sentence if
each of the following shall be true: (i) there is an effective registration
statement pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the Conversion Shares issued to the Holder (or such
Conversion Shares are eligible under Rule 144 of the Securities Act); (ii) there
is a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all the Conversion Shares as are
issuable to the Holder upon such conversion of this Note pursuant to this
Section 3.8 and (iii) the amount of this Note to be so converted pursuant to
this Section 3.8 (when combined with the amount of the secured convertible term
note issued by the Borrower to the Holder on the date hereof to be so converted
pursuant to Section 3.6 thereof and the amount of any other promissory note
issued by the Borrower to the Holder required to be similarly manditorily
converted) does not exceed ten percent (10%) of the aggregate dollar trading
volume of the Common Stock during the Conversion Period.
ARTICLE IV
EVENTS OF DEFAULT
4.1. The occurrence of any of the events set forth in Section 19 of
the Security Agreement shall constitute an Event of Default ("EVENT OF DEFAULT")
hereunder.
DEFAULT RELATED PROVISIONS
4.2 Default Interest Rate. Following the occurrence and during the
continuance of an Event of Default and following the expiration of all
applicable notice and cure periods related thereto, the Borrower shall pay
additional interest on this Note on a monthly basis in an amount equal to
eighteen percent (18%) per annum and all outstanding Obligations, including
unpaid interest, shall continue to accrue such additional interest from the date
of such Event of Default until the date such Event of Default is cured or
waived.
4.3 Conversion Privileges. The conversion privileges set forth in
Article III shall remain in full force and effect immediately from the date
hereof and until this Note is paid in full.
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4.4 Cumulative Remedies. The remedies under this Note shall be
cumulative.
ARTICLE V
DEFAULT PAYMENTS
5.1. Default Payment. If an Event of Default occurs and is
continuing beyond any applicable grace period, the Holder, at its option, may
elect, in addition to all rights and remedies of Holder under the Security
Agreement and the Ancillary Agreements and all obligations of Borrower under the
Security Agreement and the Ancillary Agreements, to require the Borrower to make
a Default Payment ("DEFAULT PAYMENT"). The Default Payment shall be 120% of the
outstanding principal amount of the Note, plus accrued but unpaid interest, all
other fees then remaining unpaid, and all other amounts payable hereunder. The
Default Payment shall be applied first to any fees due and payable to Holder
pursuant to the Notes or the Ancillary Agreements, then to accrued and unpaid
interest due on the Notes and then to outstanding principal balance of the
Notes.
5.2. Default Payment Date. The Default Payment shall be due and
payable immediately on the date that the Holder has exercised its rights
pursuant to Section 5.1 ("DEFAULT PAYMENT DATE").
ARTICLE VI
MISCELLANEOUS
6.1. General Interest Rules. Notwithstanding any provisions herein,
(i) in no event shall the aggregate "interest" (as that term is defined in
Section 347 of the Criminal Code (Canada) paid hereunder result in the receipt
by the Holder of interest at a "criminal rate" (as such term is construed under
the Criminal Code of Canada"); (ii) unless otherwise specified herein, whenever
any amount is payable hereunder as interest or as a fee which requires the
calculation of an amount using a percentage per annum, such amount shall be
calculated as of the date payment is due without application of the "deemed
reinvestment principle" or the "effective yield method"; and (iii) for purposes
of disclosure under the Interest Act (Canada) where interest is calculated
pursuant thereto at a rate based upon a year of 360, 365 or 366 days, as the
case may be (the "First Rate"), the rate or percentage of interest on a yearly
basis is equivalent to such First Rate multiplied by the actual number of days
in the year divided by 360, 365 or 366 , as the case may be.
6.2. Failure or Indulgence Not Waiver. No failure or delay on the
part of the 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.
6.3. Notices. Any notice herein required or permitted to be given
shall be in writing and provided in accordance with the terms of the Security
Agreement.
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6.4. Amendment Provision. The term "Note" and all reference 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, and any successor instrument as it may be amended or supplemented.
6.5. Assignability. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Security Agreement.
6.6. Cost of Collection. If default is made in the payment of this
Note, the Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
6.7. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. 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 to this Note 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. In the event that any provision of
this Note is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or unenforceability of any other provision
of this Note. Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action against the Borrower
in any other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court order in favor of Xxxxxx.
6.8. Maximum Payments. Nothing contained herein shall be deemed 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.
6.9. Security Interest and Guarantee. The Holder has been granted a
security interest (i) in certain assets of the Borrower and its Subsidiaries as
more fully described in (x) the Security Agreement, (y) the Master Security
Agreement dated as of the date hereof and (z) certain other Ancillary Agreements
and (ii) pursuant to the Stock Pledge Agreement dated as of the date hereof. The
obligations of the Borrower under this Note are guaranteed by certain
Subsidiaries of the Borrower pursuant to the Subsidiary Guaranty dated as of the
date hereof.
6.10. Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
[Balance of page intentionally left blank; signature page follows.]
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IN WITNESS WHEREOF, the Borrower has caused this Secured Convertible
Minimum Borrowing Note to be signed in its name effective as of this 30th day of
September, 2004.
CREATIVE VISTAS, INC.
By:/s/ Xxxxx Xxxxxxxxxx
-----------------------------------
Name: Xxxxx Xxxxxxxxxx
Title:CEO
WITNESS:
/s/ Xxxxxxx Xxxx
-----------------------------------
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NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Secured Convertible Minimum Borrowing
Note issued by Creative Vistas, Inc. on September __, 2004 into Shares of Common
Stock of Creative Vistas, Inc. (the "Borrower") according to the conditions set
forth in such Note, as of the date written below.
Date of Conversion:
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Conversion Price:
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Shares To Be Delivered:
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Signature:
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Print Name:
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Address:
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Holder DWAC
instructions
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