EXHIBIT 10.2
FORM OF NOTE
EXHIBIT A
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 RIVER CAPITAL
GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
U.S. $___,000.00
FOR VALUE RECEIVED, RIVER CAPITAL
GROUP, INC., a Delaware corporation (hereinafter called
"Borrower"), hereby promises to pay to _______________
___________________, 1325 Howard Avenue #422, Burlingame, CA 94010,
Fax: (650) 343-2506 (the "Holder"), or order, without demand, the
sum of ________Thousand Dollars ($__00,000.00)
(“Principal”), upon the Maturity Date (as defined
below), with simple interest accruing at the Annual Rate (as
defined below). “Maturity Date” means the earlier of
(i) May 31, 2006 and (ii) the date on which a Change of Control (as
defined in Section 1.6 hereof) shall have occurred with respect to
the Borrower.
This Note has been entered into
pursuant to the terms of a subscription agreement between the
Borrower and the Subscribers signatory thereto (including the
Holder), dated of even date herewith (the “Subscription
Agreement”), and shall be governed by and entitled to all of
the rights and benefits provided under the terms of such
Subscription Agreement. In addition, this Note shall have the
benefit of all of the terms and provisions of that certain Security
Agreement dated the date hereof between the Borrower (as the
“Company” thereunder) and the Subscribers (as the
“Secured Parties” thereunder). 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
Annual Rate . The “Annual Rate” shall mean
simple interest which shall accrue at the annual rate equal to the
greater of (i) four percent (4%) above the prime rate announced
from time to time in The Wall Street Journal and (ii) eight percent
(8%).
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1.2 Quarterly Payments . Payments of interest will be due and payable
in installments on August 1, 2005, November 1, 2005, February 1,
2006 and on the Maturity Date, with each payment of interest to
include the entire amount of interest accrued but unpaid as of the
day of the payment. In the event the Company’s $.001 par
value common stock (“Common Stock”) has closing prices
of higher than $0.20 as reported by the “pink sheets”
published by the Pink Sheets LLC (formerly the National Quotation
Bureau Incorporated), or a similar organization or agency
succeeding to its functions of reporting prices (the “Pink
Sheets”), for the five (5) trading days preceding a monthly
payment due date (“Lookback Period”), then the
quarterly payment first due after the Lookback Period shall be
deferred at the Company’s option, until the Maturity Date.
Additional interest shall not accrue on the amount of interest so
deferred.
1.3 Prepayment . Subject to the proviso below, upon thirty (30)
days written notice to the Holder, the Borrower shall have the
right to prepay the principal amount of this note by paying to the
Holder 120% of the amount of principal to be prepaid, together with
interest accrued but unpaid on such principal, either in cash or in
shares of the Borrower's common stock, par value $.001 per share
(the "Common Stock"); provided , however , that this
prepayment right shall only be available to the Borrower after (i)
a Barbados insurance license shall have been granted to River
Reinsurance Limited and (ii) River Reinsurance Limited shall have
become a subsidiary of the Borrower, through merger, stock
purchase, consolidation, share exchange, asset purchase or
otherwise. For this purpose, shares of the Common Stock shall be
valued at its Fair Market Value (as defined below) on the date of
payment.
1.4 Conversion Privileges . The Conversion Privileges set forth in Article
II 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 Note shall be payable in
full on the Maturity Date, unless previously converted into Common
Stock in accordance with Article II hereof; provided, that if an
Event of Default has occurred (whether or not such Event of Default
is continuing), the Borrower may not pay this Note on or after the
Maturity Date, without the consent of the Holder.
1.5 Payment Grace Period . The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which
grace period a default interest rate of fifteen percent (15%) per
annum shall apply to the amounts owed hereunder.
1.6 Change of Control . A “Change of Control” shall be
deemed to have occurred with respect to the Borrower if as a result
of any transaction or series of related transactions (a) the
Borrower shall sell all or substantially all of its assets; (b) the
members of the Board of Directors of the Borrower immediately prior
to such transaction(s) shall cease to be a majority of the members
of the Board of Directors of the Borrower immediately after such
transaction(s), or; (c) the stockholders of the Borrower
immediately prior to such transaction(s) shall cease to own or
control a majority of the voting shares of the Borrower immediately
after such transaction(s).
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ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to
convert the principal due under this Note into shares of the
Borrower's Common Stock as set forth below.
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2.1
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Conversion into the Borrower's Common
Stock .
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(a) The Holder shall have the right from and after
the 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 and accrued interest, 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 Notice of Conversion as
described in Section 7 of the Subscription Agreement of the
Holder's written request for conversion, Borrower shall issue and
deliver to the Holder within three business days from the
Conversion Date (“Delivery Date”) that number of shares
of Common Stock for the portion of the Note converted in accordance
with the foregoing. At the election of the Holder, the Borrower
will deliver accrued but unpaid interest on the Note in the manner
provided in Section 1.2 hereof through the Conversion Date directly
to the Holder on or before the Delivery Date (as defined in the
Subscription Agreement). 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 and interest to
be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section
2.1(c) hereof, the Conversion Price per share shall be $0.50
(“Maximum Base Price”).
(c) The Maximum Base Price and number and kind of
shares or other securities to be issued upon conversion determined
pursuant to Section 2.1(a), shall be subject to adjustment from
time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:
(i)
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
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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 after any such
consolidation, merger, sale or conveyance.
(ii)
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, as to the unpaid principal portion 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 Common Stock immediately prior to such
reclassification or other change.
(iii) 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.
(iv) Share Issuance . So long as this Note is outstanding, if the
Borrower shall issue any shares of Common Stock except for Excepted
Issuances (as defined in the Subscription Agreement) for a
consideration less than the Fair Market Value (as defined in
Section 2(c)(v) below) for such shares at the time of such issue,
then, and thereafter successively upon each such issue, the
Conversion Price shall be reduced as follows: (i) the number
of
