THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “ACT”). THE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT
TO RULE 144 OR REGULATION S UNDER SAID ACT.
CALLABLE SECURED CONVERTIBLE
NOTE
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Irvine, California
|
|
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July 31, 2008
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$22,000
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FOR VALUE RECEIVED, PACIFICAP ENTERTAINMENT
HOLDINGS, INC., a Nevada corporation (hereinafter called the
“ Borrower ”), hereby promises to pay to the
order of AJW MASTER FUND, LTD. or registered assigns (the “
Holder ”) the sum of $22,000, on July 31,
2011 (the “ Maturity Date ”), and to pay
interest on the unpaid principal balance hereof at the rate of
twelve percent (12%) per annum from July 31, 2008 (the “
Issue Date ”) until the same becomes due and payable,
whether at maturity or upon acceleration or by prepayment or
otherwise. Any amount of principal or interest on this
Note which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date thereof until the
same is paid (“ Default Interest
”). Interest shall commence accruing on the issue
date, shall be computed on the basis of a 365-day year and the
actual number of days elapsed and shall be payable, quarterly on
March 31, June 30, September 30 and December 31 of each
year beginning on the last day of the first full quarter after the
Issue Date. All payments due hereunder (to the extent
not converted into common stock, $.001 par value per share, of the
Borrower (the “ Common Stock ”) in accordance
with the terms hereof) shall be made in lawful money of the United
States of America. All payments shall be made at such
address as the Holder shall hereafter give to the Borrower by
written notice made in accordance with the provisions of this
Note. Whenever any amount expressed to be due by the
terms of this Note is due on any day which is not a business day,
the same shall instead be due on the next succeeding day which is a
business day and, in the case of any interest payment date which is
not the date on which this Note is paid in full, the extension of
the due date thereof shall not be taken into account for purposes
of determining the amount of interest due on such
date. As used in this Note, the term “business
day” shall mean any day other than a Saturday, Sunday or a
day on which commercial banks in the city of New York, New York are
authorized or required by law or executive order to remain
closed. Each capitalized term used herein, and not
otherwise defined, shall have the meaning ascribed thereto in that
certain Securities Purchase Agreement, dated July 31, 2008,
pursuant to which this Note was originally issued (the “
Purchase Agreement ”).
This Note is free from all taxes, liens, claims
and encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of
stockholders of the Borrower and will not impose personal liability
upon the holder thereof. The obligations of the Borrower
under this Note shall be secured by that certain Security Agreement
and that certain Intellectual Property Security Agreement by and
between the Borrower and the Holder, each dated July 31, 2008.
!
The following terms shall apply to this
Note:
ARTICLE
I. CONVERSION RIGHTS
1.1
Conversion
Right .
The Holder shall have
the right from time to time, and at any time on or prior to the
earlier of (i) the Maturity Date and (ii) the date of payment of
the Default Amount (as defined in Article III) pursuant to Section
1.6(a) or Article III, the Optional Prepayment Amount (as defined
in Section 5.1 or any payments pursuant to Section 1.7, each in
respect of the remaining outstanding principal amount of this Note
to convert all or any part of the outstanding and unpaid principal
amount of this Note into fully paid and non-assessable shares of
Common Stock, as such Common Stock exists on the Issue Date, or any
shares of capital stock or other securities of the Borrower into
which such Common Stock shall hereafter be changed or reclassified
at the conversion price (the “ Conversion
Price ”) determined as provided herein (a “
Conversion ”); provided , however , that
in no event shall the Holder be entitled to convert any portion of
this Note in excess of that portion of this Note upon conversion of
which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the Notes or
the unexercised or unconverted portion of any other security of the
Borrower subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (2) the number
of shares of Common Stock issuable upon the conversion of the
portion of this Note with respect to which the determination of
this proviso is being made, would result in beneficial ownership by
the Holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock. For purposes of the proviso to
the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulations 13D-G thereunder,
except as otherwise provided in clause (1) of such
proviso. The number of shares of Common Stock to be
issued upon each conversion of this Note shall be determined by
dividing the Conversion Amount (as defined below) by the applicable
Conversion Price then in effect on the date specified in the notice
of conversion, in the form attached hereto as Exhibit A (the
“ Notice of Conversion ”), delivered to the
Borrower by the Holder in accordance with Section 1.4 below;
provided that the Notice of Conversion is submitted by facsimile
(or by other means resulting in, or reasonably expected to result
in, notice) to the Borrower before 6:00 p.m., New York, New York
time on such conversion date (the “ Conversion Date
”).
The term “ Conversion Amount
” means, with respect to any conversion of this Note, the sum
of (1) the principal amount of this Note to be converted in such
conversion plus (2) accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this Note
to the Conversion Date plus (3) Default Interest, if any, on
the amounts referred to in the immediately preceding clauses (1)
and/or (2) plus (4) at the Holder’s option, any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g)
hereof or pursuant to Section 2(c) of that certain Registration
Rights Agreement, dated as of July 31, 2008, executed in connection
with the initial issuance of this Note and the other Notes issued
on the Issue Date (the “ Registration Rights Agreement
”).
1.2
Conversion
Price .
(a)
Calculation of Conversion
Price . The Conversion Price shall be the lesser of (i)
the Variable Conversion Price (as defined herein) and (ii) the
Fixed Conversion Price (as defined herein) (subject, in each case,
to equitable adjustments for stock splits, stock dividends or
rights offerings by the Borrower relating to the Borrower’s
securities or the securities of any subsidiary of the Borrower,
combinations, recapitalization, reclassifications, extraordinary
distributions and similar events). The “
Variable Conversion Price ” shall mean the Applicable
Percentage (as defined herein) multiplied by the Market Price (as
defined herein). “ Market Price ”
means the average of the lowest three (3) Trading Prices (as
defined below) for the Common Stock during the twenty (20) Trading
Day period ending one Trading Day prior to the date the Conversion
Notice is sent by the Holder to the Borrower via facsimile (the
“ Conversion Date ”). “
Trading Price ” means, for any security as of any
date, the intraday trading price on the Over-the-Counter Bulletin
Board (the “ OTCBB ”) as reported by a reliable
reporting service mutually acceptable to and hereafter designated
by Holders of a majority in interest of the Notes and the Borrower
or, if the OTCBB is not the principal trading market for such
security, the intraday trading price of such security on the
principal securities exchange or trading market where such security
is listed or traded or, if no intraday trading price of such
security is available in any of the foregoing manners, the average
of the intraday trading prices of any market makers for such
security that are listed in the “pink sheets” by the
National Quotation Bureau, Inc. If the Trading Price
cannot be calculated for such security on such date in the manner
provided above, the Trading Price shall be the fair market value as
mutually determined by the Borrower and the holders of a majority
in interest of the Notes being converted for which the calculation
of the Trading Price is required in order to determine the
Conversion Price of such Notes. “ Trading
Day ” shall mean any day on which the Common Stock is
traded for any period on the OTCBB, or on the principal securities
exchange or other securities market on which the Common Stock is
then being traded. “ Applicable Percentage
” shall mean 25.0%. The “ Fixed
Conversion Price ” shall mean $.02.
(b)
Conversion Price During Major
Announcements . Notwithstanding anything contained in Section
1.2(a) to the contrary, in the event the Borrower (i) makes a
public announcement that it intends to consolidate or merge with
any other corporation (other than a merger in which the Borrower is
the surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the
assets of the Borrower or (ii) any person, group or entity
(including the Borrower) publicly announces a tender offer to
purchase 50% or more of the Borrower’s Common Stock (or any
other takeover scheme) (the date of the announcement referred to in
clause (i) or (ii) is hereinafter referred to as
the “ Announcement Date ”), then the
Conversion Price shall, effective upon the Announcement Date and
continuing through the Adjusted Conversion Price Termination Date
(as defined below), be equal to the lower of (x) the Conversion
Price which would have been applicable for a Conversion occurring
on the Announcement Date and (y) the Conversion Price that would
otherwise be in effect.
From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set
forth in this Section 1.2(a). For purposes
hereof, “ Adjusted Conversion Price Termination
Date ” shall mean, with respect to any proposed
transaction or tender offer (or takeover scheme) for which a public
announcement as contemplated by this Section 1.2(b) has been made,
the date upon which the Borrower (in the case of clause (i) above)
or the person, group or entity (in the case of clause (ii) above)
consummates or publicly announces the termination or abandonment of
the proposed transaction or tender offer (or takeover scheme) which
caused this Section 1.2(b) to become operative.
1.3
Authorized
Shares . Subject to the Stockholder Approval,
the Borrower covenants that during the period the conversion right
exists, the Borrower will reserve from its authorized and unissued
Common Stock a sufficient number of shares, free from preemptive
rights, to provide for the issuance of Common Stock upon the full
conversion of this Note and the other Notes issued pursuant to the
Purchase Agreement. The Borrower is required at all
times to have authorized and reserved two (2) times the number of
shares that is actually issuable upon full conversion of the Notes
(based on the Conversion Price of the Notes or the Exercise Price
of the Warrants in effect from time to time) (the “
Reserved Amount ”). The Reserved Amount
shall be increased from time to time in accordance with the
Borrower’s obligations pursuant to Section 4(h) of the
Purchase Agreement. The Borrower represents that upon
issuance, such shares will be duly and validly issued, fully paid
and non-assessable. In addition, if the Borrower shall
issue any securities or make any change to its capital structure
which would change the number of shares of Common Stock into which
the Notes shall be convertible at the then current Conversion
Price, the Borrower shall at the same time make proper provision so
that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights,
for conversion of the outstanding Notes. The Borrower
(i) acknowledges that it has irrevocably instructed its transfer
agent to issue certificates for the Common Stock issuable upon
conversion of this Note, and (ii) agrees that its issuance of
this Note shall constitute full authority to its officers and
agents who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for
shares of Common Stock in accordance with the terms and conditions
of this Note.
If, at any time a Holder of this
Note submits a Notice of Conversion, and the Borrower does not have
sufficient authorized but unissued shares of Common Stock available
to effect such conversion in accordance with the provisions of this
Article I (a “ Conversion Default ”), subject to
Section 4.8, the Borrower shall issue to the Holder all of the
shares of Common Stock which are then available to effect such
conversion. The portion of this Note which the Holder
included in its Conversion Notice and which exceeds the amount
which is then convertible into available shares of Common Stock
(the “ Excess Amount ”) shall, notwithstanding
anything to the contrary contained herein, not be convertible into
Common Stock in accordance with the terms hereof until (and at the
Holder’s option at any time after) the date additional shares
of Common Stock are authorized by the Borrower to permit such
conversion, at which time the Conversion Price in respect thereof
shall be the lesser of (i) the Conversion Price on the Conversion
Default Date (as defined below) and (ii) the Conversion Price on
the Conversion Date thereafter elected by the Holder in respect
thereof.
In addition, the Borrower shall pay to the
Holder payments (“ Conversion Default Payments
”) for a Conversion Default in the amount of (x) the sum
of (1) the then outstanding principal amount of this Note
plus (2) accrued and unpaid interest on the unpaid principal
amount of this Note through the Authorization Date (as defined
below) plus (3) Default Interest, if any, on the amounts
referred to in clauses (1) and/or (2), multiplied by (y)
.24, multiplied by (z) (N/365), where N = the number of days
from the day the holder submits a Notice of Conversion giving rise
to a Conversion Default (the “ Conversion Default Date
”) to the date (the “ Authorization Date
”) that the Borrower authorizes a sufficient number of shares
of Common Stock to effect conversion of the full outstanding
principal balance of this Note. The Borrower shall use
its best efforts to authorize a sufficient number of shares of
Common Stock as soon as practicable following the earlier of (i)
such time that the Holder notifies the Borrower or that the
Borrower otherwise becomes aware that there are or likely will be
insufficient authorized and unissued shares to allow full
conversion thereof and (ii) a Conversion Default. The
Borrower shall send notice to the Holder of the authorization of
additional shares of Common Stock, the Authorization Date and the
amount of Holder’s accrued Conversion Default
Payments. The accrued Conversion Default Payments for
each calendar month shall be paid in cash or shall be convertible
into Common Stock (at such time as there are sufficient authorized
shares of Common Stock) at the applicable Conversion Price, at the
Borrower’s option, as follows:
(a)
In the event Holder elects to take
such payment in cash, cash payment shall be made to Holder by the
fifth (5 th
) day of the month following the
month in which it has accrued; and
(b)
In the event Holder elects to take
such payment in Common Stock, the Holder may convert such payment
amount into Common Stock at the Conversion Price (as in effect at
the time of conversion) at any time after the fifth day of the
month following the month in which it has accrued in accordance
with the terms of this Article I (so long as there is then a
sufficient number of authorized shares of Common Stock).
The Holder’s election shall be
made in writing to the Borrower at any time prior to 6:00 p.m., New
York, New York time, on the third day of the month following the
month in which Conversion Default payments have
accrued. If no election is made, the Holder shall be
deemed to have elected to receive cash. Nothing herein
shall limit the Holder’s right to pursue actual damages (to
the extent in excess of the Conversion Default Payments) for the
Borrower’s failure to maintain a sufficient number of
authorized shares of Common Stock, and each holder shall have the
right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive
relief).
1.4
Method of
Conversion .
(a)
Mechanics of
Conversion . Subject to Section 1.1, this Note may be
converted by the Holder in whole or in part at any time from time
to time after the Issue Date, by (A) submitting to the
Borrower a Notice of Conversion (by facsimile or other reasonable
means of communication dispatched on the Conversion Date prior to
6:00 p.m., New York, New York time) and (B) subject to Section
1.4(b), surrendering this Note at the principal office of the
Borrower.
(b)
Surrender of Note Upon
Conversion . Notwithstanding anything to the contrary set
forth herein, upon conversion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically
surrender this Note to the Borrower unless the entire unpaid
principal amount of this Note is so converted. The
Holder and the Borrower shall maintain records showing the
principal amount so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the Holder
and the Borrower, so as not to require physical surrender of this
Note upon each such conversion. In the event of any
dispute or discrepancy, such records of the Borrower shall be
controlling and determinative in the absence of manifest
error. Notwithstanding the foregoing, if any portion of
this Note is converted as aforesaid, the Holder may not transfer
this Note unless the Holder first physically surrenders this Note
to the Borrower, whereupon the Borrower will forthwith issue and
deliver upon the order of the Holder a new Note of like tenor,
registered as the Holder (upon payment by the Holder of any
applicable transfer taxes) may request, representing in the
aggregate the remaining unpaid principal amount of this
Note. The Holder and any assignee, by acceptance of this
Note, acknowledge and agree that, by reason of the provisions of
this paragraph, following conversion of a portion of this Note, the
unpaid and unconverted principal amount of this Note represented by
this Note may be less than the amount stated on the face
hereof.
(c)
Payment of
Taxes . The Borrower shall not be required to pay any
tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock or other securities or
property on conversion of this Note in a name other than that of
the Holder (or in street name), and the Borrower shall not be
required to issue or deliver any such shares or other securities or
property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be
held for the Holder’s account) requesting the issuance
thereof shall have paid to the Borrower the amount of any such tax
or shall have established to the satisfaction of the Borrower that
such tax has been paid.
(d)
Delivery of Common Stock Upon
Conversion . Upon receipt by the Borrower from the Holder of
a facsimile transmission (or other reasonable means of
communication) of a Notice of Conversion meeting the requirements
for conversion as provided in this Section 1.4, the Borrower shall
issue and deliver or cause to be issued and delivered to or upon
the order of the Holder certificates for the Common Stock issuable
upon such conversion within two (2) business days after such
receipt (and, solely in the case of conversion of the entire unpaid
principal amount hereof, surrender of this Note) (such second
business day being hereinafter referred to as the “
Deadline ”) in accordance with the terms hereof and
the Purchase Agreement (including, without limitation, in
accordance with the requirements of Section 2(g) of the Purchase
Agreement that certificates for shares of Common Stock issued on or
after the effective date of the Registration Statement upon
conversion of this Note shall not bear any restrictive
legend).
(e)
Obligation of Borrower to
Deliver Common Stock . Upon receipt by the Borrower of a
Notice of Conversion, the Holder shall be deemed to be the holder
of record of the Common Stock issuable upon such conversion, the
outstanding principal amount and the amount of accrued and unpaid
interest on this Note shall be reduced to reflect such conversion,
and, unless the Borrower defaults on its obligations under this
Article I, all rights with respect to the portion of this Note
being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets,
as herein provided, on such conversion.
If the Holder shall have given a Notice of
Conversion as provided herein, the Borrower’s obligation to
issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of the absence of any
action by the Holder to enforce the same, any waiver or consent
with respect to any provision thereof, the recovery of any judgment
against any person or any action to enforce the same, any failure
or delay in the enforcement of any other obligation of the Borrower
to the holder of record, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the
Holder of any obligation to the Borrower, and irrespective of any
other circumstance which might otherwise limit such obligation of
the Borrower to the Holder in connection with such
conversion. The Conversion Date specified in the Notice
of Conversion shall be the Conversion Date so long as the Notice of
Conversion is received by the Borrower before 6:00 p.m., New York,
New York time, on such date.
(f)
Delivery of Common Stock by
Electronic Transfer . In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, provided
the Borrower’s transfer agent is participating in the
Depository Trust Company (“ DTC ”) Fast
Automated Securities Transfer (“ FAST ”)
program, upon request of the Holder and its compliance with the
provisions contained in Section 1.1 and in this Section 1.4, the
Borrower shall use its best efforts to cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion
to the Holder by crediting the account of Holder’s Prime
Broker with DTC through its Deposit Withdrawal Agent Commission
(“ DWAC ”) system.
(g)
Failure to Deliver Common
Stock Prior to Deadline . Without in any way limiting the Holder’s
right to pursue other remedies, including actual damages and/or
equitable relief, the parties agree that if delivery of the Common
Stock issuable upon conversion of this Note is more than two (2)
days after the Deadline (other than a failure due to the
circumstances described in Section 1.3 above, which failure shall
be governed by such Section) the Borrower shall pay to the Holder
$2,000 per day in cash, for each day beyond the Deadline that the
Borrower fails to deliver such Common Stock. Such cash
amount shall be paid to Holder by the fifth day of the month
following the month in which it has accrued or, at the option of
the Holder (by written notice to the Borrower by the first day of
the month following the month in which it has accrued), shall be
added to the principal amount of this Note, in which event interest
shall accrue thereon in accordance with the terms of this Note and
such additional principal amount shall be convertible into Common
Stock in accordance with the terms of this Note.
1.5
Concerning the
Shares . The shares of Common Stock issuable
upon conversion of this Note may not be sold or transferred
unless (i) such shares are sold pursuant to an effective
registration statement under the Act or (ii) the Borrower or its
transfer agent shall have been furnished with an opinion
of counsel (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable
transactions) to the effect that the shares to be sold or
transferred may be sold or transferred pursuant to an exemption
from such registration or (iii) such shares are sold or
transferred pursuant to Rule 144 under the Act (or a successor
rule) (“ Rule 144 ”) or (iv) such shares are
transferred to an “affiliate” (as defined in Rule 144)
of the Borrower who agrees to sell or otherwise transfer the shares
only in accordance with this Section 1.5 and who is an Accredited
Investor (as defined in the Purchase
Agreement).
Except as otherwise provided in the Purchase
Agreement (and subject to the removal provisions set forth below),
until such time as the shares of Common Stock issuable upon
conversion of this Note have been registered under the Act as
contemplated by the Registration Rights Agreement or otherwise may
be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be
immediately sold, each certificate for shares of Common Stock
issuable upon conversion of this Note that has not been so included
in an effective registration statement or that has not been sold
pursuant to an effective registration statement or an exemption
that permits removal of the legend, shall bear a legend
substantially in the following form, as appropriate:
“THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF
COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR
REGULATION S UNDER SAID ACT.”
The legend set forth above shall be
removed and the Borrower shall issue to the Holder a new
certificate therefor free of any transfer legend if (i) the
Borrower or its transfer agent shall have received an opinion of
counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public
sale or transfer of such Common Stock may be made without
registration under the Act and the shares are so sold or
transferred, (ii) such Holder provides the Borrower or its transfer
agent with reasonable assurances that the Common Stock issuable
upon conversion of this Note (to the extent such securities are
deemed to have been acquired on the same date) can be sold pursuant
to Rule 144 or (iii) in the case of the Common Stock issuable upon
conversion of this Note, such security is registered for sale by
the Holder under an effective registration statement filed under
the Act or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date
that can then be immediately sold. Nothing in this Note
shall (i) limit the Borrower’s obligation under the
Registration Rights Agreement or (ii) affect in any way the
Holder’s obligations to comply with applicable prospectus
delivery requirements upon the resale of the securities referred to
herein.
1.6
Effect of Certain
Events .
(a)
Effect of Merger,
Consolidation, Etc . At the option of the Holder, the
sale, conveyance or disposition of all or substantially all of the
assets of t
