Exhibit
10.2
THIS NOTE,
THE SHARES OF COMMON STOCK AND/OR OTHER
SECURITIES ISSUABLE UPON
CONVERSION OF
THIS NOTE (THE "SECURITIES") HAVE BEEN
ACQUIRED FOR INVESTMENT
PURPOSES ONLY
AND MAY NOT BE TRANSFERRED UNTIL (i) A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") SHALL HAVE
BECOME
EFFECTIVE WITH
RESPECT THERETO OR
(ii) RECEIPT BY THE COMPANY OF AN OPINION OF
COUNSEL REASONABLY
SATISFACTORY TO THE
COMPANY TO THE EFFECT THAT REGISTRATION
UNDER THE ACT IS NOT REQUIRED IN CONNECTION
WITH SUCH PROPOSED TRANSFER NOR IS
IN VIOLATION
OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL
BE
ENDORSED UPON
ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE AND ANY
SECURITIES
ISSUABLE UPON
CONVERSION
OF THIS NOTE.
XA, INC.
11% SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
Bridge Note
No.: ___
October 26, 2006
FOR
VALUE RECEIVED, XA, Inc., a Nevada
corporation (collectively with all
of its Subsidiaries, as defined in the SPA (as defined
below), the "COMPANY")
-------
with its principal executive office at 875 North
Michigan Avenue, Suite 2626,
Chicago, IL 60611,
promises to pay to the order of G. Chris Andersen (the
"PAYEE" or the "HOLDER OF THIS NOTE") or registered assigns on the
earlier of
-----
--------------------
(i) December 26, 2007; or (ii) if so elected by the Payee, upon
consummation by
the Company of a merger, combination or sale of substantially all
of its assets
or the purchase by a single entity or person or group of affiliated
entities or
persons of more than fifty (50%) percent of the voting stock of the
Company (the
"MATURITY DATE"),
the principal amount
of ONE HUNDRED THOUSAND ($100,000) (the
--------------
"PRINCIPAL AMOUNT") in
such coin or currency of the United States of America as
-----------------
at the time of payment shall be legal tender for the payment of
public and
private debts.
Interest on this Note shall accrue on the Principal Amount
outstanding from
time to time at a rate per annum
computed in accordance with
Section 3 hereof and shall be payable on the Maturity Date,
or earlier upon
conversion of
this Note in accordance with the
provisions of Section 6 hereof
---------
(or as may otherwise be provided in this Note). Nothing
in item (ii) of this
paragraph shall
be construed as the consent by the
holder of this Note to any
action otherwise prohibited by the terms of this Note or as a
waiver of any such
prohibition.
This Note replaces and supersedes the prior 11% Senior Secured
Convertible
Promissory Note
entered into between the Payee and the Company dated as
of
September 26,
2006.
This
Note is secured by a Security Agreement dated the
date hereof (the
"SECURITY AGREEMENT")
of the Company in favor of the Payee and all other
------------------
Noteholders covering
certain collateral (the "COLLATERAL"), all as more
----------
particularly described
and provided therein, and is entitled to the
benefits
thereof. The
Security Agreement, the Uniform Commercial Code financing
statements in
connection
with the Security Agreement and any and all
other
documents executed
and delivered by the Company to the Payee under
which the
Payee is granted liens
on assets of the Company are collectively referred to as
the "SECURITY
DOCUMENTS."
-------------------
<PAGE>
Each
payment by the Company pursuant to this Note
shall be made without
set-off or
counterclaim
and in immediately available funds.
The
Company (i) waives presentment, demand,
protest or notice of any kind
in connection
with this Note and (ii) agrees, in the event of an Event
of
Default, to
pay to the holder of this Note, on
demand, all costs and expenses
(including reasonable
legal fees and
expenses) incurred in connection with the
enforcement and
collection
of this Note.
This
Note and other identical Notes in the aggregate principal amount of
up
to $1,500,000 (the "NOTES") are issued to the Payee in connection
with a private
-----
placement (the "BRIDGE
FINANCING") by the Company of its of Notes and Warrants
----------------
(the "INVESTMENT
WARRANTS") through Laidlaw & Company (UK) Ltd. ("LAIDLAW"),
as
-------------------
-------
non-exclusive
placement agent,
pursuant and in accordance with a
Securities
Purchase Agreement dated the date hereof by and among the Company,
the Payee and
all other purchasers of Notes (the "SPA"), a copy of which agreement is
---
available for
inspection at the Company's principal office. Notwithstanding
any
provision to the contrary contained herein, this Note is subject
and entitled to
certain terms,
conditions,
covenants and
agreements contained in the SPA. Any
transferee of
this Note, by its acceptance hereof,
assumes the obligations of
the Payee in the SPA
with respect to the conditions and procedures for transfer
of this Note. Reference to the SPA shall in no way impair the
absolute and
unconditional
obligation of
the Company to pay both principal hereof and
interest hereon
as provided herein.
1.
No
Prepayment.
This Note may not be prepaid prior to
the Maturity
--------------
Date (except
as otherwise provided by Section 6, herein).
2.
Investment Warrants.
In consideration for the loan evidenced by the
--------------------
Notes, the Company shall issue to the holders of the Notes
five-year
Investment
Warrants to
purchase in the aggregate 225,000 shares of
the Company's common
stock, $.001
par value per share (the "COMMON
STOCK") at an exercise price of
------------
$1.10 per share. The
Holder of this Note may at any time that this Note remains
outstanding present this Note to the Company in payment of the
exercise price of
all or any portion of the Investment Warrants.
The Holder of
this Note is
purchasing $100,000
in Notes (which
represents a portion of the full amount of
the Notes being offered) and is being issued 15,000 five-year Investment
Warrants in
connection
with such investment.
3.
Computation of
Interest.
-------------------------
A. Base Interest Rate. Subject to Subsections 3B and 3C
below, the
--------------------
---------------------
outstanding Principal
Amount shall bear interest at the rate of eleven
(11%) percent
per annum.
B. Penalty
Interest. In the event the Note is not repaid on the
-----------------
Maturity Date,
the rate of interest applicable to the unpaid
Principal
Amount shall be
adjusted to eighteen (18%) percent per annum from the date
of
default until repayment; provided, that in
no event shall the interest
rate
exceed the Maximum Rate provided in Section 3C below.
-----------
<PAGE>
C. Maximum
Rate. In the event that it is determined
that, under the
--------------
laws
relating to usury applicable to the Company or the indebtedness
evidenced by this Note
("APPLICABLE USURY LAWS"), the interest charges and
---------------------
fees
payable by the Company in connection herewith
or in connection with
any
other document or instrument executed and delivered in connection
herewith cause
the effective interest
rate applicable to the indebtedness
evidenced by
this Note to exceed the maximum rate allowed by law
(the
"MAXIMUM RATE"), then such interest shall be recalculated for the
period in
------------
question and
any excess over the Maximum Rate paid with
respect to such
period shall
be credited, without further agreement or notice, to the
Principal Amount
outstanding
hereunder to reduce said balance by such
amount with
the same force and effect as though the Company had
specifically
designated such extra
sums to be so applied to principal and
the
Payee had agreed to accept such extra payment(s) as a
premium-free
prepayment. All
such deemed
prepayments shall be applied to the principal
balance payable
at maturity. In no event shall any agreed-to or
actual
exaction as
consideration
for this Note exceed the limits imposed or
provided by Applicable
Usury Laws in the jurisdiction in which the Company
is
resident applicable to the use or detention
of money or to forbearance
in
seeking its collection in the jurisdiction in which the Company
is
resident.
4.
Covenants of
Company. For the
purposes of this Section 4, the term
----------------------
"Company" shall
include all of the Subsidiaries (as defined in the SPA).
A. Affirmative
Covenants.
The Company covenants
and agrees that, so
----------------------
long
as this Note shall be outstanding, it will perform the obligations
set
forth in this Section 4A, unless it has otherwise obtained the
prior
-----------
written consent
of the Payee:
(i) Taxes and Levies. The Company will promptly pay and
discharge
----------------
all taxes,
assessments,
and governmental charges or levies
imposed
upon
the Company or upon its income and profits, or
upon any of its
property, before
the same shall become delinquent, as well as
all
claims for
labor, materials and supplies which, if unpaid, might
become a lien or charge upon such properties or any part
thereof;
provided, however,
that the Company shall
not be required to pay and
--------
-------
discharge any
such tax, assessment,
charge, levy or claim so long as
the
validity thereof shall be contested in good
faith by appropriate
proceedings and
the Company shall set aside on its books
adequate
reserves in
accordance with
generally accepted accounting principles
("GAAP") with
respect to any such tax, assessment, charge,
levy or
------
claim so contested;
(ii) Maintenance of Existence. The Company will do or cause to
be
------------------------
done all things reasonably necessary to preserve and keep in full
force and effect its corporate existence, rights
and franchises and
comply with
all laws applicable to the Company, except where the
failure to comply
could not reasonably be expected to have a material
adverse effect
on the Company;
(iii) Maintenance
of Property. The Company will at all times
-------------------------
maintain, preserve,
protect and keep such property material to
the
conduct of
its business in good
repair, working order and condition,
and from time to time make all needful and
proper repairs, renewals,
replacements and
improvements thereto as shall be reasonably required
in the conduct of its business;
<PAGE>
(iv) Insurance. The Company will, to the extent necessary for
the
----------
operation of
its business, keep adequately insured by
financially
sound reputable
insurers, all property of a character usually insured
by similar
corporations and carry
such other insurance as is usually
carried by
similar corporations;
(v) Books and Records. The Company will at all
times keep true
-------------------
and correct books, records and accounts reflecting all of its
business
affairs and
transactions
in accordance with GAAP. Such books and
records shall
be open at reasonable
times and upon reasonable notice
to the inspection of the Payee or its agents, subject to the
execution
by such persons of a reasonable non-disclosure agreement;
(vi) Underlying
Securities. The
Company agrees to keep reserved
----------------------
such number
of shares of Common
Stock as will permit full conversion
of the Notes at any
time or from time to time at the Conversion Price
(as defined
herein);
(vii) Notice
of Certain Events. The Company will give prompt
---------------------------
written notice (with a
description in reasonable detail) to the Payee
of:
(a) the occurrence of any Event of Default (as
defined in Section 5
---------
hereof), or
any event which, with the giving of notice or the
lapse of
time, would
constitute
an Event of Default,
or an event of default under
any
document or instrument
evidencing or governing any indebtedness of the
Company and
the delivery of any notice effecting
the acceleration of any
such
indebtedness;
and
(b) the occurrence of any litigation, arbitration or
governmental
investigation or
proceeding not previously disclosed by the Company to the
Payee in writing which has been instituted or, to the
knowledge of the
Company, is
threatened,
against the Company or to which any of its
properties, assets
or revenues is subject
which, if adversely determined,
would reasonably
be expected to have a material adverse effect on
the
Company;
(c) any material adverse development which shall occur in any
litigation,
arbitration or
governmental
investigation
or proceeding
previously disclosed
by the Company to the Payee; and
(viii) Security
Interests. The Company shall perform any and all
------------------
acts and execute any and all documents (including, without
limitation,
the execution, amendment or supplementation of any financing
statement
and continuation
statement)
for filing under the provisions of
the
Uniform Commercial
Code (the "UCC"), and the rules and
regulations
---
thereunder, or any other statute, rule or regulation of any
applicable
jurisdiction which
are necessary (and/or
advisable at the request of
the Holders
or its counsel) in order to maintain in favor of
the
holders of the Notes, a valid and perfected lien on the Collateral
(as
defined in
the Security Agreement), subject only to the Prior
Purchasers' (as
defined in the SPA) and the prior first priority
security interest
of LaSalle Bank National Association liens.
<PAGE>
(ix) Access.
The Company will grant
holders of this Note access
------
to Company
facilities and
personnel during normal business hours and
with reasonable
advance notification. The Company will deliver to the
Holders annual,
quarterly financial statements and copies of other
financial and other
documents and/or information reasonably requested
by the Holder.
B.
Negative Covenants.
The Company covenants and agrees that, so long
------------------
as
this Note shall be outstanding, it will perform the
obligations set
forth in this Section 4B unless it has otherwise obtained the prior
written
----------
consent of
all Holders:
(i) Liquidation,
Dissolution. The
Company will not liquidate or
-------------------------
dissolve, consolidate
with, or merge into or with, any other
corporation or
other entity, except
that any wholly-owned subsidiary
may merge with another wholly-owned subsidiary or with the Company
(so
long as the Company is the surviving entity
and no Event of Default
shall occur
as a result thereof).
(ii) Sales of Assets.
The Company will not sell, transfer, lease
---------------
or otherwise
dispose of, or grant options, warrants or
other rights
with respect to, all or a substantial part of its properties or
assets
(an "ASSET
TRANSACTION") to any
person or entity, provided that this
------------------
clause (ii)
shall not restrict any disposition made
in the ordinary
course of business and consisting of:
(a) capital goods that
are obsolete or have no remaining useful life;
or
(b) finished
goods inventories.
(iii) Redemptions. The
Company will not redeem or repurchase any
-----------
outstanding securities
of the Company;
(iv) Indebtedness. The
Company will not hereafter create, incur,
------------
assume or suffer to
exist, contingently or otherwise, any indebtedness
(other than
(i) indebtedness incurred in the Company's historic
business and
in the ordinary course of the Company's
business, and
(ii) up to $1,500,00 aggregate principal amount of promissory notes
on
the terms and conditions substantially identical to the Notes, the
net
proceeds of
which will be used to
repay the Company's outstanding 6%
Convertible Notes issued to certain investors pursuant to
Subscription
Agreements dated
as of June 30, 2004 (the "PARI
NOTES"), which Pari
----------
Notes are pari passu to the Notes), which is not expressly
subordinated in
right of payment and otherwise to the Notes.
(v) Negative Pledge.
Except for the Pari Notes, the Company will
---------------
not hereafter
create, incur, assume
or suffer to exist any mortgage,
pledge, hypothecation,
assignment,
security interest, encumbrance,
lien (statutory
or other), preference, priority or other security
agreement or preferential arrangement of any kind or nature
whatsoever
(including any conditional sale or other title retention agreement
and
any financing
lease) (each, a "LIEN") upon any of its property,
----
revenues or
assets, whether now
owned or hereafter acquired, except:
<PAGE>
(a) Liens for taxes, assessments or other governmental charges
or
levies not at the time
delinquent or thereafter payable without penalty or
being contested
in good faith by appropriate proceedings and for
which
adequate reserves in
accordance with GAAP shall have been set aside on its
books;
(b) Liens of carriers, warehousemen, mechanics, materialman and
landlords incurred in
the ordinary course of business for sums not overdue
or
being contested in good faith by
appropriate proceedings and for which
adequate reserves in
accordance with GAAP shall have been set aside on its
books;
(c) Liens (other than Liens arising under the Employee
Retirement
Income Security Act of
1974, as amended, or Section 412(n) of the Internal
Revenue Code
of 1986, as amended) incurred in the ordinary course of
business in
connection with
workers' compensation, unemployment insurance
or
other forms of governmental insurance or benefits, or to secure
performance of
tenders, statutory obligations, leases and contracts (other
than
for borrowed money) entered into in the ordinary course of business
or
to
secure obligations on surety or appeal bonds;
(d) judgment
Liens in existence
less than thirty (30) days after the
entry thereof
or with respect to which execution has been stayed;
(e) Liens in the nature of zoning
restrictions, easements and rights
or
restrictions
of record on the use of real property which do not
materially detract
from its value or impair its use;
(f) Liens arising by operation of law in favor of the owner or
sublessor of
leased premises and confined to the property rented;
(g) Liens arising from any litigation or proceeds which is being
contested in good faith by appropriate proceedings, provided,
however, that
no
execution or levy has been made; and
(h) Liens which secure indebtedness permitted by Section 4B(vii).
(vi) Investments.
The Company will not
purchase, own, invest in
-----------
or otherwise
acquire, directly or indirectly, any stock or other
securities or
make or permit to exist any investment or capital
contribution or acquire any interest whatsoever in any other person
or
entity or permit to exist any loans or advances for such
purposes
except for
investments in direct
obligations of the United States of
America or
any agency thereof, obligations
guaranteed by the United
States of America and
certificates of deposit or other obligations of
any bank or trust company organized under the laws of the United
States or any state thereof and having capital and surplus of at
least
$500,000,000; provided, however, that nothing contained in this
clause
(vi) shall
preclude the Company from making acquisitions for the
purpose of
expanding its business.
<PAGE>
(vii) Guaranteed
Indebtedness.
The Company shall not create,
------------------------
incur, assume
and/or permit to exist
any Guaranteed Indebtedness (as
defined below) to any
bank, lender, or any other person in connection
with any credit facilities extended by such
creditors to the Company
and/or any
of its Subsidiaries (as defined in the SPA), and/or
in
connection with
any other contracts or agreements. "GUARANTEED
INDEBTEDNESS" shall
mean as to any person, any obligation of
such
person guaranteeing,
providing comfort or otherwise supporting any
indebtedness, lease, dividend, or other obligation of any other
person
in any manner,
including any obligation or arrangement of such person
to (1) purchase or repurchase any such primary obligation, (2)
advance
or supply funds for
the purchase or payment of any primary obligation
or to maintain working capital or otherwise to maintain working
solvency or
any balance sheet condition; (3) purchase property,
securities or services primarily for the purpose of assuring the
owner
of any such obligation of the ability of
the Company to make payment
of such obligation; (4) protect the beneficiary of
such arrangement
from loss;
or (5) indemnify the
own of such obligation against loss.
(viii) Transactions
with Affiliates. Other than as may be
------------------------------
expressly permitted
in the SPA, the Company will not repay any
indebtedness or
enter into any transaction, including, without
limitation, the purchase, sale, lease or exchange of property, real
or
personal, the
purchase or sale of any security, the borrowing or
lending of any money, or the rendering of any service, with any
person
or entity affiliated with the Company
(including officers, directors
and shareholders
owning three (3%) percent or more of the
Company's
outstanding capital
stock).
(ix) Dividends.
The Company will not
accrue, declare or pay any
---------
cash dividends or
distributions, whether accrued or otherwise, on its
outstanding capital
stock, provided, however, that nothing herein
contained shall
prevent the Company from effecting a stock
split or
declaring or
paying any dividend consisting solely of
shares of any
class of Common Stock to the holders of shares of such class of
Common
Stock, provided
that (i) such stock split or stock dividend is
effected
equally across all classes of Common Stock and (ii) the
holder of the Note participates in such events
as if the holder had
converted the Note
immediately prior to such event into the number of
shares of Common Stock he would be entitled to
receive if he had so
converted;
(x) The Company will not make any create any direct and/or
indirect
subsidiaries;.
(xi) Other than
expressly permitted in the SPA, or pursuant to a
Qualified Private
Offering (as defined in Section 6 below), the
Company shall
not issue any additional securities
(xii) Other
than as expressly
permitted in the SPA, the Company
shall not provide and/or pay any cash bonus
or other compensation to
any of its employees, officers, directors and/or consultants in
excess
of what is expressly permitted in their respective employment
agreements (or if no agreements are in place, other than what has
been
historically
paid);
5.
Events of Default.
-------------------
<PAGE>
A. The term "Event of
Default" shall mean any of the events set forth
----------------
in
this Section 5A:
(i) Non-Payment of
Obligations. The Company shall default in the
---------------------------
payment of the
principal or accrued interest on this Note when and as
the same shall become due and payable, whether by
acceleration or
otherwise (and
solely with respect to a default in the payment of
accrued interest on this Note, such default is continuing for five
(5)
days).
(ii) Non-Performance
of Affirmative Covenants. The Company shall
----------------------------------------
default in the due
observance or performance of any material covenant
set forth in
Section 4A, which default shall continue uncured for five
----------
(5) business
days.
(iii) Non-Performance
of Negative Covenants. The Company
shall
---------------------------------------
default in the due observance or performance of any covenant set
forth
in Section
4B, which default shall continue uncured for two (2)
-----------
business days.
(iv) Bankruptcy, Insolvency, etc. The Company shall:
(a) generally
fail or be unable to pay, or admit in writing its
inability to
pay, its debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of
a
trustee, receiver,
sequestrator or other
custodian for the Company or any
of
its property, or make a general assignment for the benefit of
creditors;
(c) in the absence of such application, consent or acquiesce
in,
permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or
other custodian for the Company or for any part of
its
property, and such trustee, receiver, sequestrator or other
custodian shall
not
be discharged within thirty (30) days;
(d) permit
or suffer to exist the commencement of any
bankruptcy,
reorganization, debt
arrangement
or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution, winding up or
liquidation
proceeding, in
respect of the
Company, and, if such case or proceeding is
not
commenced by the Company or converted to a voluntary case, such
case or
proceeding shall
be consented to or
acquiesced in by the Company or shall
result in the entry of an order for relief
or shall remain for sixty (60)
days
undismissed;
or
(e) take any corporate action authorizing,
or in furtherance of, any
of
the foregoing;
(v) Cross-Default. The
Company shall default in the payment when
-------------
due (including
any applicable grace period) of any amount payable
<PAGE>
under any other obligation of the Company for money borrowed in
excess
of $50,000
, which default shall continue uncured for three (3)
business days;
(vi)
Cross-Acceleration.
Any indebtedness for borrowed money of
------------------
the Company
or any subsidiary in an aggregate principal amount
exceeding $50,000 (1) shall be duly declared to be or shall become
due
and payable
prior to the stated
maturity thereof or (2) shall not be
paid as and when the same becomes due and payable including any
applicable grace
period;
(vii) Judgments.
A judgment which, with other such
outstanding
---------
judgments against
the Company and its subsidiaries (in
each case to
the extent not covered by insurance), exceeds an aggregate of
$50,000,
shall be rendered against the Company or any
subsidiary and, within
twenty (20)
days after entry thereof, such judgment shall
not have
been vacated,
discharged or
otherwise satisfied or execution thereof
stayed pending
appeal, or, within thirty (30) days after the
expiration of
any such stay, such judgment shall not have been
discharged or
otherwise satisfied; and
(viii) Transaction
Documents.
The Company shall violate any
----------------------
material
representation,
warranty, covenant, agreement or obligation
set forth in t
