Exhibit 10.4
Convertible Promissory
Note
THIS NOTE AND THE SECURITIES ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
UNDER THE SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
CONVERTIBLE PROMISSORY
NOTE
OF
WILSON BROTHERS USA,
INC.
For value received, Wilson Brothers USA, Inc.,
an Illinois corporation (the “ Company
”), with principal offices at 1072 East U.S. Highway 175,
Kaufman, Texas 75142, hereby promises to pay to
the sum of
Dollars ($
) (the “Principal” ) plus continuously
compounding interest accrued on unpaid Principal at a rate equal to
eight percent (8%) per annum (or as otherwise provided in Section
6) from the date of this Note until the Principal hereof and all
interest accrued thereon is paid (or converted, as provided in
Section 2 hereof). The Principal of this Note and the interest
accrued thereon, shall be due and payable in full upon demand by
the Holder made on or after [
, ,
2010] at the principal offices of the Company in lawful
money of the United States, unless this Note shall have been
previously converted pursuant to Section 2 hereof.
1. Definitions
. The following
definitions shall apply for all purposes of this Note:
1.1 “ Act
” means as defined in the legend above.
1.2 “ Adjusted
Debt ” means the aggregate of the Company’s
debt for borrowed money, debt evidenced by notes, bonds or
indentures and debt under capital leases; provided, however, debt
secured by real estate mortgages shall not be included in the
aggregation of the Company’s Adjusted Debt.
1.3 “ Agreement
” means as defined in Section 16.
1.4 “ Common
Stock ” means the common stock of the Company, $0.01
par value per share.
1.5 “ Common Stock
Equivalents ” means as defined in Section 2.3
below.
1.6 “ Company
” means the “ Company ” as defined
above and includes any entity which shall succeed to or assume the
obligations of the Company under this Note.
1.7 “ Conversion
Price ” means an amount equal to (i) Fifty Cents
($0.50) in the event that the Company’s sales revenue for its
2005 fiscal year (based on the Company’s 2005 audited
financial statements) are less than $20,000,000, the
Company’s Gross Margin for its 2005 fiscal year (based on the
Company’s 2005 audited financial statements) is less than
35%, the Company’s EBITDA for its 2005 fiscal year (based on
the Company’s 2005 audited financial statements) is less than
$3,000,000 or upon a conversion in the event of a Sale
occurring on or prior to March 31, 2006 or if the Company
fails to file its Form 10-KSB for the year ended December 31, 2005
within one hundred twenty (120) days following the end of such
fiscal year, (ii) One Dollar ($1.00) in the event that the
Company’s sales revenue for its 2005 fiscal year (based on
the Company’s 2005 audited financial statements) are equal to
or greater than $20,000,000, the Company’s Gross Margin for
its 2005 fiscal year (based on the Company’s 2005 audited
financial statements) is equal to or greater than 35% and
the Company’s EBITDA for its 2005 fiscal year (based on the
Company’s 2005 audited financial statements) is equal to or
greater than $3,000,000, but the Company does not meet the
conditions set forth in (iii) below, or (iii) One Dollar Forty
Cents ($1.40) per share in the event that the Company’s sales
revenue for its 2005 fiscal year (based on the Company’s 2005
audited financial statements) are equal to or greater than
$22,000,000, the Company’s Gross Margin for its 2005 fiscal
year (based on the Company’s 2005 audited financial
statements) is equal to or greater than 35% and the
Company’s EBITDA for its 2005 fiscal year (based on the
Company’s 2005 audited financial statements) is equal to or
greater than $4,000,000. The Conversion Price is subject to
adjustment as provided herein.
1.8 “ Conversion
Stock ” means the Company’s capital stock or
other securities or property into which this Note may be converted
or applied pursuant to Section 2 hereof. The number and character
of shares of Conversion Stock are subject to adjustment as provided
herein and the term “ Conversion Stock ”
shall include stock and other securities and property at any time
receivable or issuable upon conversion of this Note in accordance
with its terms.
1.9 “ EBITDA
” means earnings before interest, taxes, depreciation and
amortization, as calculated in accordance with GAAP.
1.10 “GAAP
” means United States generally accepted accounting
principles.
1.11 “ Gross
Margin ” means the ratio of gross profits to sales
revenue, as calculated in accordance with GAAP.
1.12 “ Holder
” means any person who shall at the time be the registered
holder of this Note.
1.13 “ Note
” means this Convertible Promissory Note.
1.14 “ Principal
” means as defined in the first paragraph above.
1.15 “ Sale
” means the closing of a consolidation or merger of the
Company with or into another entity or other corporate
reorganization in which the Company is not the surviving entity, a
transaction or series of related transactions in which in excess of
fifty percent (50%) of the voting power of the Company is
transferred to a third party (or group of affiliated third
parties), or a sale of all or substantially all of the assets of
the Company.
2. Conversion
.
2.1 Conversion on Election of the
Holder . At any time after March 31, 2006 at the election of
the Holder but subject to the Company’s right of prepayment
in Section 2.5 below, the entire Principal and interest accrued on
this Note shall automatically be converted into shares of the
Company’s Common Stock at the Conversion Price.
2.2 Conversion in the Event of a
Sale . Subject to the Company’s right of prepayment in
Section 2.5 below, the entire Principal and interest accrued on
this Note may be converted, in the sole discretion of the Holder,
upon the closing of a Sale, into shares of the Company’s
Common Stock at the Conversion Price.
2.3 Conversion Price Adjustments
for Stock Splits and Subdivisions . In the event the Company
should at any time or from time to time after the date of issuance
hereof fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as
“Common Stock Equivalents” ) without
payment of any consideration by such holder for the additional
shares of Common Stock Equivalents, then, as of such record date
(or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price shall be
appropriately decreased so that the number of shares of Common
Stock issuable upon conversion of this Note shall be increased in
proportion to such increase of outstanding shares.
2.4 Conver
