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Exhibit 10.27
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FAMILY ROOM ENTERTAINMENT CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
Principal Amount: $1,000,000.00
Issue Date: June 5, 2007
Purchase Price: $800,000.00
CONVERTIBLE NOTE
FOR
VALUE RECEIVED, FAMILY ROOM ENTERTAINMENT CORPORATION, a New
Mexico corporation (hereinafter called "Borrower"), hereby
promises to pay to LONGVIEW FUND, LP., 600 Montgomery Street,
44
th Floor,
San Francisco, CA 94111, Fax: (415) 981-5301 (the "Holder"),
without demand, the sum of One Million Dollars ($1,000,000), with
simple and unpaid interest thereon, on June 5, 2009 (the "Maturity
Date"), if not paid sooner.
This
Note has been entered into pursuant to the terms of a
Subscription Agreement between the Borrower, the Holder and
certain other subscribers of the Borrower’s convertible
notes, dated of even date herewith (the “Subscription
Agreement”), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined
herein, all capitalized terms used in this Note shall have the
same meaning as is set forth in the Subscription Agreement.
The following terms shall apply to this Note:
ARTICLE I
GENERAL PROVISIONS
1.1
Payment Grace Period .
The Borrower shall have a five (5) business day grace period to pay
any monetary amounts due under this Note, after which grace period
and during the pendency of an Event of Default (as defined in
Article III) a default interest rate of fifteen percent (15%) per
annum shall apply to the amounts owed hereunder.
1.2.
Interest Rate .
Simple interest payable on this Note shall accrue at the annual
rate of twelve percent (12%). Accrued interest on this Note will be
payable in cash on December 31, 2007, June 30, 2008, December 31,
2008, June 30, 2009 and on the Maturity Date, accelerated or
otherwise, when the principal and remaining accrued but unpaid
interest shall be due and payable.
1.3.
Delivery of Revenues .
The Borrower shall deliver to Owen Naccarato, Esq. promptly after
receipt by the Borrower, of all funds received by the Borrower
representing revenue, income, sales proceeds and all other liquid
proceeds derived from its operations and business. Such funds will
be held by Owen Naccarato, Esq. in trust on behalf of Holder and
promptly transmitted by him to Holder pursuant to instructions
given by Holder from time to time. Such distributions, when
received by Holder, will be applied to amounts due under this Note
in the manner set forth in Section 1.5.
1.4.
Conversion Privileges .
The conversion rights of the Holder as set forth in Article II of
this Note shall remain in full force and effect immediately from
the date hereof and until the Note is paid in full regardless of
the occurrence of an Event of Default. The principal amount of the
Note and the remaining accrued but unpaid interest shall be payable
in full on the Maturity Date, unless previously paid or converted
into Common Stock in accordance with Article II
hereof.
1.5.
Application of Payments .
Payments received by Holder from Borrower shall be applied first to
outstanding liquidated and other damages, then to accrued but
unpaid interest and then to principal.
ARTICLE II
CONVERSION RIGHTS
The
Holder shall have the right to convert the entire principal
amount under this Note and the accrued but unpaid interest
thereon into shares of the Borrower's Common Stock as set
forth below.
2.1.
Voluntary Conversion into the Borrower's Common Stock
.
(a)
The
Holder shall have the right from and after the Issue Date of
the issuance of this Note and then at any time until this Note
is fully paid, to convert any outstanding and unpaid principal
portion of this Note, at the election of the Holder (the date
of giving of such notice of conversion being a "Conversion
Date") into fully paid and nonassessable shares of Common
Stock as such stock exists on the date of issuance of this
Note, or any shares of capital stock of Borrower into which
such Common Stock shall hereafter be changed or reclassified,
at the conversion price as defined in Section 2.1(b) hereof
(the "Conversion Price"), determined as provided herein. Upon
delivery to the Borrower of a completed Notice of Conversion,
a form of which is annexed hereto, Borrower shall issue and
deliver to the Holder within three (3) business days after the
Conversion Date (such third day being the “Delivery
Date”) that number of shares of Common Stock for the
portion of the Note converted in accordance with the
foregoing. The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by
dividing that portion of the principal of the Note to be
converted, by the Conversion Price.
(b)
Subject to adjustment as provided for in Section 2.1(c) hereof, the
Conversion Price per share of Common Stock shall be $0.0005
(“Conversion Price”).
(c)
The
Conversion Price and the number and kind of shares or other
securities to be issued upon conversion of this Note, shall be
subject to adjustment from time to time upon the happening of
certain events while this conversion right remains
outstanding, as follows:
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
corporation, this Note, as to the unpaid principal portion thereof
and accrued interest thereon, shall thereafter be deemed to
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 shall apply to such securities of such successor or
purchaser or surviving entity of the surviving corporation 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 of the
Borrower’s capital stock that may be issued or outstanding,
this Note, as to the unpaid principal amount thereof and accrued
interest thereon, shall thereafter be deemed to evidence the right
to purchase an adjusted number of such securities and kind of
securities as would have been issuable as the result of such change
with respect to the shares of Common Stock subject to the
conversion of this Note 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
Conversion Price shall be proportionately reduced in 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.
D.
Share Issuance .
So long as this Note is outstanding, if the Borrower shall issue or
agree to issue any shares of Common Stock other than with respect
to any Excepted Issuances for a consideration less than the
Conversion Price in effect at the time of such issue, then, and
thereafter successively upon each such issue, the Conversion Price
shall be reduced to such other lower issue price. For purposes of
this adjustment, the issuance of any security carrying the right to
convert such security into shares of Common Stock or of any
warrant, right or option to purchase Common Stock shall result in
an adjustment to the Conversion Price upon the issuance of the
above-described security and again upon the issuance of shares of
Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the then applicable
Conversion Price. The reduction of the Conversion Price described
in this paragraph is in addition to other rights of the Holder
described in this Note and the Subscription Agreement.
(d)
Whenever
the Conversion Price is adjusted pursuant to Section 2.1(c)
above, the Borrower shall promptly provide notice to the
Holder setting forth the Conversion Price after such
adjustment and setting forth a statement of the facts
requiring such adjustment.
(e)
The
Borrower will reserve from its authorized and unissued shares
of Common Stock, the number of shares of Common Stock during
the time periods and in the amounts described in the
Subscription Agreement. The Borrower represents that upon
issuance, such shares of Common Stock will be duly and validly
issued, fully paid and non-assessable. The Borrower agrees
that its issuance of this Note shall constitute full authority
to its officers, agents, and transfer agents who are charged
with the duty of executing and issuing stock certificates to
execute and issue the necessary certificates for shares of the
Borrower’s Common Stock upon the conversion of this
Note.
2.2
No Fractional Shares .
No fractional shares of Common Stock shall be issued upon
conversion of this Note, but an adjustment in cash will be made, in
respect of any fraction of a share (which will be valued based on
the Conversion Price) which would otherwise be issuable upon the
surrender of this Note for conversion and a check in the amount of
the value of such fractional share shall be delivered to the
Holder.
2.3
Method of Conversion .
This Note may be converted by the Holder in whole or in part as
described in Section 2.1(a) hereof and the Subscription Agreement.
Upon partial conversion of this Note, a new Note containing the
same date and provisions of this Note shall, at the request of the
Holder, be issued by the Borrower to the Holder for the principal
balance of this Note and interest which shall not have been
converted or paid.
2.4
Maximum Conversion .
The Holder shall not be entitled to convert on a Conversion Date
that amount of the Note in connection with that number of shares of
Common Stock which would be in excess of the sum of (i) the number
of shares of Common Stock beneficially owned by the Holder and its
affiliates on a Conversion Date, and (ii) the number of shares of
Common Stock issuable upon the conversion of the Note with
re
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