Exhibit
4.2
This
Note and the securities issuable on conversion hereof have not been
registered under the Securities Act of 1933, as amended (the
“Securities Act”), or state securities law and may not
be transferred or sold unless (i) registered under the Securities
Act and applicable state securities laws or (ii) an exemption from
registration is available at the time of such transfer or
sale.
GVI SECURITY SOLUTIONS,
INC.
6% Subordinated Secured
Convertible Promissory Note
|
$____,000
|
As of October 4, 2006
|
FOR VALUE RECEIVED, GVI SECURITY SOLUTIONS,
INC., a Delaware corporation (“ Borrower ”),
hereby promises to pay to the order of ____________________ (the
“ Payee ”), with an address at
____________________________________________________, on October 1,
2009 (the “Maturity Date”), the principal sum of
_________________________ _________________ ($______), together
with all interest that has accrued thereon from the date hereof in
accordance with the terms of this Subordinated Secured Promissory
Note (this “Note”).
Interest on the outstanding principal balance of
this Note shall accrue from the date hereof until paid in full at
the rate of 6% per annum, calculated on the basis of a 365 day
year, and shall be due and payable quarterly on December 31, March
30, June 30 and September 30 of each year. Interest shall be
payable, at the Borrower’s election, either (i) in cash, or
(ii) in shares of the Borrower’s common stock, par value
$.001 per share (“ Common Stock ”) valued at the
Conversion Price (defined below) as from time to time in
effect.
On the Maturity Date, the principal amount of
this Note shall be repaid in cash, or at Borrower’s option,
provided that the average of the closing sales price of the Common
Stock for the 10 trading days immediately preceding Maturity Date,
as reported by the Nasdaq Stock Market, the NASD OTC Bulletin
Board, the Pink Sheets LLC, or such other principal market on which
the Common Stock is then traded or quoted, equals or exceeds 150%
of the Conversion Price at such time, in shares of Common Stock
valued at such Conversion Price.
This Note has been issued together with other
identical promissory notes in the aggregate principal amount of up
to $5 million (the “ Other Notes ”), and has
been issued to Payee pursuant to a Subscription Agreement between
Borrower and Payee (the “ Subscription Agreement
”). This Note is subject to the terms, conditions, covenants
and agreements set forth in the Subscription Agreement.
The payment of principal of and interest on this
Note is subordinate to the payment of the indebtedness of Borrower
to Laurus Master Fund Ltd. in the manner and to the extent provided
for in that certain Subordination Agreement between Laurus Master
Fund Ltd., Payee and the payees under the Other Notes (such payees,
together with the Payee, the “ Holders
”).
This Note is secured by a Security Agreement of
even date herewith of the Borrower in favor of W-net, Inc., as
collateral agent for the Holders covering certain collateral, all
as more particularly described and provided therein, and is
entitled to the benefits thereof.
Upon the occurrence of any of the following
(each, an “ Event of Default ”), other than the
Events of Default referred to in clause (b) or (c) below, Payee may
declare by notice to Borrower any and all obligations of Borrower
hereunder to be immediately due and payable, and upon the
occurrence of any Event of Default referred to in clause (b) or (c)
below, any and all obligations of Borrower hereunder shall
automatically become due and payable immediately without notice or
demand:
(a) Borrower shall default in the payment of any
amount due under this Note and shall not cure such default within
15 business days after Borrower receives written notice of such
default from Payee;
(b) Borrower shall (i) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of
the United States Code or any other Federal or state bankruptcy,
insolvency or similar law, (ii) consent to the institution of, or
fail to controvert in a timely and appropriate manner, any such
proceeding or the filing of any such petition, (iii) apply for or
consent to the employment of a receiver, trustee, custodian or
similar official for Borrower or for a substantial part of its
property, (iv) file an answer admitting the material allegations of
a petition filed against it in any such proceeding, (v) make a
general assignment for the benefit of its creditors, (vi) admit in
writing its inability to pay its debts as they come due or (vii)
take corporate action for the purpose of effecting any of the
foregoing; or
(c) an involuntary proceeding shall be commenced or
an involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of Borrower or of a
substantial part of its property, under Title 11 of the United
States Code or any other Federal or state bankruptcy, insolvency or
similar law, (ii) the appointment of a receiver, trustee, custodian
or similar official for Borrower or for a substantial part of its
property or (iii) the winding-up or liquidation of Borrower; and
such proceeding or petition shall continue undismissed for 60 days
or an order or decree approving or ordering any of the foregoing
shall continue unstayed and in effect for 60 days.
This Note incorporates the following additional
terms:
1. Payee by acceptance of this Note covenants and
represents to Borrower that this Note and any securities issued on
exercise of the conversion privilege contained herein are being
acquired by the Payee without a view to distribution and that the
Payee will at no time transfer, assign or dispose of this Note or
such securities except in compliance with the requirements of the
Securities Act of 1933, as amended, and applicable state securities
laws.
2. Borrower may prepay this Note at any time
following the Conversion Date (defined below) without any penalty
or premium, in whole or from time to time in part, upon written
notice given at least five business days prior to the date fixed
for such prepayment, subject to the right of Payee to exercise its
conversion rights hereunder with respect to the unpaid principal of
and interest accrued on this Note, at any time after the giving of
such notice until the time of such prepayment. All payments
received by Payee shall be applied first to the payment of all
accrued interest payable hereunder.
3.
(a) Subject to and upon compliance with the
provisions of Sections 3 and 4 hereof, following the Conversion
Date, the Payee may, at its option, at any time thereafter, convert
all or any portion of the principal amount of this Note, together
with a
