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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Sarasota, Florida
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July 29, 2005
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$511,000
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FOR
VALUE RECEIVED , SKYLYNX COMMUNICATIONS, INC. , a
Delaware corporation (hereinafter called the " Borrower "),
hereby promises to pay to the order of AJW Offshore, Ltd. or
registered assigns (the " Holder ") the sum of $511,000, on
July 29, 2008 (the "Maturity Date "), and to pay interest on
the unpaid principal balance hereof at the rate of eight percent
(8%) (the " Interest Rate ") per annum from July 29, 2005
(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 provided that no interest shall be due and
payable for any month in which the Trading Price (as such term is
defined below) is greater than $.08125 for each Trading Day (as
such term is defined below) of the month. All payments due
hereunder (to the extent not converted into common stock, $.0001
par value per share (the "Common Stock" ) in accordance with
the terms hereof) shall be made in lawful money of the United
States of America provided that interest due and payable for the
first six (6) months following the Issue Date shall be paid on the
date hereof. 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 29, 2005, 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 shareholders 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 Intellectual Property Security
Agreement, each dated July 29, 2005 by and between the Borrower and
the Holder.
The
following terms shall apply to this Note:
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 (including, without limitation, the warrants issued by the
Borrower pursuant to the Purchase Agreement) 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 4.99% of the outstanding shares of Common
Stock and provided further that the Holder shall not
be entitled to convert any portion of this Note during any month
immediately succeeding a Determination Date on which the Borrower
exercises its prepayment option pursuant to Section 5.2 of this
Note. 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 29,
2005, executed in connection with the initial issuance of this Note
and the other Notes issued on the Issue Date (the " Registration
Rights Agreement "). The term "Determination Date" means
the last business day of each month after the Issue Date.
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 60.0%. The " Fixed
Conversion Price " shall mean $.13.
a.
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 Stockholder Approval (as defined in the
Agreement), 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 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) business 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:
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"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."
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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 as