March 1, 2006
CONVERTIBLE NOTE
THIS NOTE AND THE COMMON STOCK INTO WHICH IT IS CONVERTIBLE
(COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR UNDER THE LAWS
OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE
OFFERED OR SOLD UNLESS THEY ARE REGISTERED UNDER THE ACT AND
UNDER THE LAWS OF THE STATES WHERE EACH SALE IS MADE, OR AN
EXEMPTION FROM REGISTRATION REQUIREMENTS IS AVAILABLE IN THE
OPINION OF COUNSEL SATISFACTORY TO THE BORROWER.
FOR VALUE RECEIVED, DCI USA, INC., a Delaware corporation with
an
address at 8 Bond Street, Great Neck, New York (hereinafter called
"Borrower"),
hereby promises to pay to JONATHAN ILAN OFIR or assigns (the
"Holder"), with an
address at c/o Adv. Doron Elkayam of 52 Menachem Begin Street,
Tel-Aviv, Israel
67137, the aggregate principal amount of the Loan (as defined
below) which is
outstanding from time to time and evidenced hereby plus interest
thereon as set
forth below.
Until the earlier of the second anniversary of the date of this
Note or
the date on which this Note is converted into shares, upon at least
two (2)
business days' prior written notice to the Holder, the Borrower may
borrow from
the Holder, from time to time, any amount in increments of $1,000
and the Holder
shall advance to the Borrower such amount that is so requested by
the Borrower;
provided, however, that the aggregate principal amount outstanding
under this
Note shall not exceed THREE HUNDRED THOUSAND ($300,000) DOLLARS at
any given
time and the Holder shall not be obligated to make any advances if
an Event of
Default has occurred and is continuing. The principal amount
borrowed and
outstanding under this Note is sometimes referred to herein as the
"Loan".
Interest shall accrue on the outstanding principal amount of this
Note
at the rate of eight (8%) percent per annum, beginning on the date
of this Note
until this Note is paid in full. The principal amount of this Note
and all
accrued and unpaid interest shall be due and payable on the second
anniversary
of the date of this Note (the "Maturity Date"). Upon the occurrence
and during
the continuance of any Event of Default (as defined below), the
amounts then due
and payable under this Note (including the entire principal and
accrued interest
if such payments are accelerated at the election of the Holder)
shall bear
interest equal to the lesser of (a) the maximum amount permitted to
be charged
under applicable law or (b) twenty-one (21%) percent per annum from
the due date
thereof until paid in full or such Event of Default has been cured
or waived
(the "Default Interest Rate").
The following additional terms shall apply to this Note:
<PAGE>
ARTICLE I
GENERAL
1.1 Conversion Privileges. The Conversion Privileges set forth
in
Article II shall remain in full force and effect from the date
hereof until the
principal amount of this Note and all interest accrued hereon are
paid in full.
1.2 Payment Records. The amount, date and unpaid balance of the
Loan
shall be as evidenced by the applicable books and records of the
Holder, which
shall be conclusive evidence thereof in the absence of manifest
error. The
Holder is hereby authorized to endorse such particulars of the Loan
on the grid
attached hereto.
1.3
Payment on Non-Business Day. If this Note, or any payment
hereunder, falls due on a Saturday, Sunday or a New York public
holiday, this
Note shall fall due or such payment shall be made on the next
succeeding
business day and such additional time shall be included in the
computation of
any interest payable hereunder.
1.4 Cost of Collection. If any payment due hereunder is not paid
when
due, the Borrower agrees to pay all costs of collection, including
attorney's
fees, all of which shall be added to the amount due hereunder, such
charges to
bear interest at the Default Interest Rate. In addition, if this
Note is
referred by Holder to any attorney for collection, the Borrower
shall pay all
attorney fees incurred by Holder therefor.
1.5 Prepayment. The
Borrower may prepay all or part of this Note
without penalty provided that Borrower gives the Holder at least
five (5)
business days' advance written notice prior to the date of such
prepayment and
gives the Holder the opportunity to convert this Note into shares
of common
stock during such five-day period.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount
due
under this Note and all unpaid interest accrued hereon, into shares
of common
stock ("Common Stock") of Borrower, as set forth below.
2.1 Conversion.
(a) At the option of the Holder, the principal amount of this Note
plus
all accrued and unpaid interest hereon (the "Outstanding Balance"),
or any part
of the Outstanding Balance, shall be converted into shares of
Common Stock at
the conversion price of $.05 (five cents) per share (the
"Conversion Price").
The number of shares (the "Conversion Shares") to be issued to the
Holder upon
conversion of this Note shall be equal to the portion of the
Outstanding Balance
which is converted divided by the Conversion Price.
2.2 Provisions Applicable to All Conversions.
(a) All shares issued upon conversion of this Note shall be
validly
issued, fully paid and nonassessable. Upon the surrender of this
Note, the
Borrower's securities to be issued upon each conversion of this
Note shall be
delivered to the Holder not later than five (5) business days after
Holder has
delivered its request for conversion. Upon request by the Holder
from time to
time, the Borrower shall promptly deliver to Holder a certificate
of Borrower's
executive officer setting forth the Borrower's total authorized and
outstanding
Common Stock and other capital stock and all securities convertible
into such
Common Stock or capital stock, in any event with a level of detail
satisfactory
to the Holder.
2
<PAGE>
(b)
A. Merger, Sale
of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or
substantially all its
assets to any other entity, this Note shall thereafter evidence the
right to
purchase such number and kind of shares or other securities and
property as
would have been issuable or distributable on account of such
consolidation,
merger, sale or conveyance, upon or with respect to the securities
subject to
the conversion or purchase right immediately prior to such
consolidation,
merger, sale or conveyance. The foregoing provision shall similarly
apply to
successive transactions of a similar nature by any such successor
or purchaser.
Without limiting the generality of the foregoing, the anti-dilution
provisions
of this Section 2.2(b) shall apply to such securities of such
successor or
purchaser after any such consolidation, merger, sale or
conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the
same or a
different number of securities of any class or classes, this Note
shall
thereafter evidence the right to purchase such number and kind of
securities as
would have been issuable as the result of such change with respect
to the Common
Stock immediately prior to such reclassification or other
change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller
number of
shares of Common Stock, or if a dividend is paid on the Common
Stock in shares
of Common Stock, the applicable conversion price shall be
proportionately
reduced in the case of subdivision of shares or stock dividend
or
proportionately increased in the case of combination of shares, in
each such
case by the ratio which the total number of shares of Common Stock
outstanding
immediately after such event bears to the total number of shares of
Common Stock
outstanding immediately prior to such event.
2.3 Method of Conversion. If the Holder converts the entire amount
of
this Note, the Holder shall surrender this Note at the principal
office of the
Borrower. Upon partial exercise hereof, the grid attached hereto
will be revised
to reflect the appropriate reduction in the outstanding amount of
the Loan.
ARTICLE III
EVENTS OF DEFAULT
The occurrence of any of the following events of default (each
an
"Event of Default") shall, at the option of the Holder, make all
sums of
principal and interest then remaining unpaid hereon and all other
amounts
payable hereunder immediately due and payable:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay
the
principal of this Note or interest hereon when due.
3
<PAGE>
3.2 Breach of Covenant. The Borrower breaches any material covenant
or
other material term or condition of this Note.
3.3 Breach of Repre
