EXHIBIT 10.2
NEITHER THESE SECURITIES NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN
RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
16.66% SENIOR CONVERTIBLE NOTE DUE March 31, 2007
OF
KNOCKOUT HOLDINGS, INC.
Note No.: ____
Original Principal Amount: $[________]
Issuance Date: September 12, 2005
This note
("Note") is one of a duly authorized issue of Notes of Knockout
Holdings, Inc., a corporation duly
organized and existing under the laws of the
State of Delaware (the "Company"),
designated as the Company's 16.66% Senior
Convertible Notes Due March 31, 2007
("Maturity Date") in an aggregate principal
amount (when taken together with the
original principal amounts of all other
Notes) of $2,800,000 (together, the
"Notes").
FOR VALUE
RECEIVED, the Company hereby promises to pay to the order of
[_________________________] or its
registered assigns or successors-in-interest
("Holder") the principal sum of
$[_____________], together with all accrued but
unpaid interest thereon, if any, on the
Maturity Date, to the extent such
principal amount and interest has not been
repaid or converted into the
Company's Common Stock, $0.001 par value
per share (the "Common Stock"), in
accordance with the terms hereof. Interest
on the unpaid and unconverted
principal balance hereof shall accrue at
the rate of sixteen and 66/100 percent
(16.66%) per annum from the date of
original issuance hereof (the "Issuance
Date"). Payments on the Note shall be made
in accordance with Section 1 hereof.
Interest on this Note shall accrue daily
commencing on the Issuance Date and
shall be computed on the basis of a 360-day
year, 30-day months and actual days
elapsed and shall be payable in accordance
with Section 1 hereof. Unless
otherwise agreed or required by applicable
law, payments will be applied first
to any unpaid collection costs, then to
unpaid interest and fees and any
remaining amount to principal.
Except as
otherwise provided herein, all payments of principal and
interest on this Note shall be made in
lawful money of the United States of
America by wire transfer of immediately
available funds to such account as the
Holder may from time to time designate by
written notice in accordance with the
provisions of this Note or by Company
check. Whenever any amount expressed to be
due by the terms of this Note is due on any
day which is not a Business Day (as
defined below), the same shall instead be
due on the next succeeding day which
is a Business Day.
<PAGE>
Capitalized terms used herein and not otherwise defined shall have
the
meanings set forth in the Purchase
Agreement dated on or about the Issuance Date
pursuant to which the Notes were originally
issued (the "Purchase Agreement").
For purposes hereof the following terms
shall have the meanings ascribed to them
below:
"Bankruptcy Event" means any of the following events: (a) the
Company
commences a case or other proceeding under
any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or
liquidation or similar law of any
jurisdiction relating to the Company; (b)
there is commenced against the Company any
such case or proceeding that is not
dismissed within 60 days after
commencement; (c) the Company is adjudicated
insolvent or bankrupt or any order of
relief or other order approving any such
case or proceeding is entered; (d) the
Company suffers any appointment of any
custodian or the like for it or any
substantial part of its property that is not
discharged or stayed within 60 days; (e)
the Company makes a general assignment
for the benefit of creditors; (f) the
Company fails to pay, or states that it is
unable to pay or is unable to pay, its
debts generally as they become due; (g)
the Company calls a meeting of its
creditors with a view to arranging a
composition, adjustment or restructuring of
its debts; or (h) the Company, by
any act or failure to act, expressly
indicates its consent to, approval of or
acquiescence in any of the foregoing or
takes any corporate or other action for
the purpose of effecting any of the
foregoing.
"Business
Day" shall mean any day other than a Saturday, Sunday or a day
on which commercial banks in the City of
New York are authorized or required by
law or executive order to remain
closed.
"Change in
Control Transaction" will be deemed to exist if (i) there
occurs any consolidation, merger or other
business combination of the Company
with or into any other corporation or other
entity or person (whether or not the
Company is the surviving corporation), or
any other corporate reorganization or
transaction or series of related
transactions in which in any of such events the
voting stockholders of the Company prior to
such event cease to own thirty-three
percent (33%) or more of the voting power,
or corresponding voting equity
interests, of the surviving corporation
after such event (including without
limitation any "going private" transaction
under Rule 13e-3 promulgated pursuant
to the Exchange Act or tender offer by the
Company under Rule 13e-4 promulgated
pursuant to the Exchange Act for twenty
percent (20%) or more of the Company's
Common Stock), (ii) any person (as defined
in Section 13(d) of the Exchange
Act), together with its affiliates and
associates (as such terms are defined in
Rule 405 under the Act), beneficially owns
or is deemed to beneficially own (as
described in Rule 13d-3 under the Exchange
Act without regard to the 60-day
exercise period) in excess of fifty percent
(50%) of the Company's voting power,
(iii) there is a replacement of more than
one-half of the members of the
Company's Board of Directors which is not
approved by those individuals who are
members of the Company's Board of Directors
on the date thereof, (iv) in one or
a series of related transactions, there is
a sale or transfer of all or
substantially all of the assets of the
Company, determined on a consolidated
basis, or (v) the Company enters into any
agreement providing for an event set
forth in (i), (ii), (iii) or (iv)
above.
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<PAGE>
"Conversion Price" shall equal $.50 (which Conversion Price shall
be
subject to adjustment as set forth
herein).
"Default
Rate" shall mean the lower of eighteen percent (18%) per annum
or
the highest rate permitted by law.
"Effective
Date" means the date on which a Registration Statement covering
all the Underlying Shares and other
Registrable Securities (as defined in the
Registration Rights Agreement) is declared
effective by the SEC.
"Effective
Registration" shall mean (i) the resale of all Registrable
Securities (as defined in the Registration
Rights Agreement) is covered by an
effective registration statement in
accordance with the terms of the
Registration Rights Agreement which
registration statement is not subject to any
suspension or stop order; (ii) the resale
of such Registrable Securities may be
effected pursuant to a current and
deliverable prospectus that is not subject at
the time to any blackout or similar
circumstance; and (iii) the requisite number
of shares of Common Stock shall have been
duly authorized and reserved for
issuance as required by the terms of the
Purchase Agreement and this Note.
"Exchange
Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Issuance
Date" shall mean the date of this Note.
"Maturity
Date" shall mean March 31, 2007.
"Principal
Amount" shall refer to (i) the original principal amount of
this Note, less (ii) all amounts of
principal previously repaid or converted.
"Principal
Market" shall mean a principal market or exchange on which the
Common Stock is then listed for
trading.
"Registration Statement" shall have the meaning set forth in
the
Registration Rights Agreement.
"Required
Holders" means the Holders of not less than 50% in aggregate
principal amount of the Notes then
outstanding exclusive of any Notes then owned
by either the Company or any of its
Affiliates.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Trading
Day" shall mean a day on which there is trading on the
Principal
Market.
The
following terms and conditions shall apply to this Note:
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<PAGE>
Section 1. Payments of Principal and
Interest.
(a) Maturity Date. On the Maturity Date, the Company shall pay
to
the Holder all outstanding Principal Amount
and all accrued but unpaid interest
thereon, in accordance with this Section
1.
(b) Certain Additional Payments by the Company. Any payment by
the
Company to the Holder hereunder, whether
for principal, interest or otherwise,
shall not be subject to any deduction,
withholding or offset for any reason
whatsoever except to the extent required by
law, and the Company represents that
to its best knowledge no deduction,
withholding or offset is so required for any
tax or any other reason.
(c) Redemption. (i) In the event of a Change in Control
Transaction,
the Company shall redeem in cash all of the
Notes for a redemption price equal
to 125% of the amount of the outstanding
Principal Amount, plus accrued and
unpaid interest thereon to the applicable
redemption date. The Company shall
give the Holder written notice of such
redemption under this Section 1(e)(i) not
less than ten (10) days prior to the date
fixed for such redemption, in each
case specifying such redemption date, the
Principal Amount of the Notes (and
accrued and unpaid interest thereon) to be
redeemed and terms of such Change in
Control Transaction in detail. Upon receipt
of such redemption notice, the
Holder may convert at the ten applicable
Conversion Price, in lieu of such
redemption, at any time prior to the date
fixed for such redemption, all or any
part of Principal Amount and accrued and
unpaid interest designated by the
Company for redemption.
(ii) At any time after the date hereof, the Company may redeem
in cash all of the Note for a redemption
price equal to 125% of the amount of
the outstanding Principal Amount, plus
accrued and unpaid interest thereon to
the applicable redemption date. The Company
shall give the Holder written notice
of such redemption under this Section
1(e)(ii) not less than ten (10) days prior
to the date fixed for such redemption, in
each case specifying such redemption
date and the Principal Amount of the Note
(and accrued and unpaid interest
thereon) to be redeemed. Upon receipt of
such redemption notice, the Holder may
convert at the then applicable Conversion
Price, in lieu of such redemption, at
any time prior to the date fixed for such
redemption, all or any part of
Principal Amount and accrued and unpaid
interest designated by the Company for
redemption.
Section 2. Conversion.
(a) Conversion Right. Subject to the terms hereof and
restrictions
and limitations contained herein, the
Holder shall have the right, at such
Holder's option, at any time and from time
to time, to convert the outstanding
Principal Amount and the accrued but unpaid
interest under this Note, in whole
or in part, into shares of Common Stock at
the then applicable Conversion Price
by delivering to the Company, at least 5
Trading Days before the Maturity Date,
a fully executed notice of conversion in
the form of conversion notice attached
hereto as Exhibit A (the "Conversion
Notice"), which may be initially
transmitted by facsimile (provided the
original Conversion Notice and this Note
is delivered to the Holder within 3 Trading
Days following such facsimile
transmission).
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<PAGE>
(b) Common Stock Issuance upon Conversion.
(i) Conversion Date Procedures. Upon conversion of this Note
pursuant to Section 2(a) above, the
outstanding Principal Amount and interest
hereunder shall be converted into such
number of fully paid, validly issued and
non-assessable shares of Common Stock, free
of any liens, claims and
encumbrances as is determined by dividing
the outstanding Principal Amount and
interest being converted by the Conversion
Price. The date of any Conversion
Notice hereunder shall be referred to
herein as the "Conversion Date". If a
conversion under this Note cannot be
effected in full in accordance with the
terms hereof, or if the Holder is
converting less than all of the outstanding
Principal Amount and interest hereunder
pursuant to a Conversion Notice, on the
Maturity Date, the Company shall deliver to
the Holder a Note (containing the
same terms a the Note herein) for such
outstanding Principal Amount as has not
been converted if this Note has bee
surrendered to the Company for partial
conversion. The Holder shall surrender this
Note to the Company within 3 Trading
Days of any conversion, in whole or in
part. .
(ii) Stock Certificates. Providing that an Effective
Registration Statement is effective, or
providing the Conversion Notice is dated
more than two (2) years after the Issuance
Date (provided the Holder is not then
deemed an affiliate of the Company in the
case of reliance on the 2-year holding
period), the Company will deliver to the
Holder not later than three (3) Trading
Days after the Conversion Date, a
certificate or certificates which shall be
free of restrictive legends and trading
restrictions, representing the number of
shares of Common Stock being acquired upon
the conversion of this Note. If in
the case of any conversion hereunder, such
certificate or certificates are not
delivered to the Holder by the third
Trading Day after the Conversion Date, the
Holder shall be entitled by written notice
to the Company at any time on or
before its receipt of such certificate or
certificates thereafter, to rescind
such conversion, in which event the Company
shall immediately return this Note
tendered for conversion. If the Company
fails to deliver to the Holder such
certificate or certificates pursuant to
this Section 2(b) (free of any
restrictions on transfer or legends, if
such shares have been registered or if
the Note has been held beyond two years
from the Issuance Date) in accordance
herewith, on or prior to the sixth Trading
Day after the Conversion Date, the
Company shall pay to the Holder, in cash,
an amount equal to .25% of the
Principal Amount subject to such conversion
for each Trading Day thereafter
until such certificate(s) are delivered to
the Holder or until the conversation
is rescinded by the Holder, whichever shall
first occur.
(iii) Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Conversion. In addition
to any other rights available to the
Holder, if the Company fails for any reason
to deliver to the Holder such
