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NEITHER THE SECURITIES REPRESENTED BY THIS
INSTRUMENT OR THE UNDERLYING
SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE
INSTRUMENT GOVERNING THE APPLICABLE SECURITY AND PURSUANT TO AN
EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO COUNSEL
TO THE ISSUER
THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND
ANY APPLICABLE
STATE SECURITIES LAWS IS AVAILABLE.
ELECTRONIC GAME CARD, INC.
UNSECURED CONVERTIBLE PROMISSORY NOTE
$ _________ March 24, 2005
New York, New York
1. Principal and Interest; Liquidation Rights.
1.1 Electronic Game Card, Inc., a Nevada corporation (the
"Company"), for
value received, hereby promises to pay to the order of
_____________ or his,
her, their or its assigns (the "Investor" or the "Holder") the
amount
____________________ Dollars ($_________), as set forth
hereinafter. All
capitalized terms used and not otherwise defined herein shall
have the meaning
ascribed to such terms in that certain Securities Purchase
Agreement, dated as
of March 24, 2005, by and among the Company and various
purchasers including,
without limitation, the Holder (the "Securities Purchase
Agreement").
1.2 This Note shall be due and payable on Holder's written
demand which
may be made on or after March 31, 2007 (the "Termination Date"),
unless this
Note has theretofore been converted into shares of the Company's
"Series A
Preferred Stock" or "Common Stock" (as such terms are defined in
the Securities
Purchase Agreement") pursuant to the terms of this Note.
Commencing on the
Termination Date, all principal hereunder shall be payable upon
demand.
Notwithstanding anything to the contrary in this Note, however,
the Holder of
this Note will receive payments of interest on this Note, to the
extent that
this Note remains outstanding and unpaid, at the same times, and
in the same
manner, as dividends would have been paid on the Series A
Preferred Stock, on an
as-converted-into-Series-A-Preferred-Stock basis, pursuant to
the provisions of
the Certificate of Designations attached hereto as Annex A,
whether or not the
Series A Preferred Stock is authorized and issued. In addition,
the Holder of
this Note will have liquidation rights in respect of this Note
for so long as
this Note is outstanding, to the extent that this Note remains
outstanding and
unpaid, on an as-converted-into-Series-A-Preferred-Stock basis,
pursuant to the
provisions of the Certificate of Designations attached hereto as
Annex A, until
the unpaid principal amount and interest on this Note is paid in
full, whether
or not the Series A Preferred Stock is authorized and
issued.
1.3 Upon conversion of the principal hereunder into the Series A
Preferred
Stock or Common Stock pursuant to Section 3 hereof, this Note
shall be
surrendered to the Company for cancellation.
<PAGE>
1.4 Payments are to be made at the address of the Holder set
forth in
Section 8 below or at such other place in the United States as
the Holder shall
designate to the Company in writing, in lawful money of the
United States of
America except as otherwise provided in this Note.
1.5 This Note is issued pursuant to the Securities Purchase
Agreement and
is one of a number of "Convertible Promissory Notes" (as such
term is defined in
the Securities Purchase Agreement) issued by the Company in the
"Offering" (as
such term is defined in the Securities Purchase Agreement). The
provisions of
this Note are a statement of the rights of the Holder and the
conditions to
which this Note is subject and to which the Holder, by the
acceptance of this
Note, agrees.
2. Prepayment. Notwithstanding anything else set forth herein,
the Company
may not pre-pay this Note in whole or in part.
3. Conversion.
3.1 Conversion of Outstanding Principal.
(a) Automatic Conversion of Outstanding Principal. The
entire
outstanding principal balance hereunder shall be automatically
converted into a
number of fully paid and nonassessable whole shares of the
Series A Preferred
Stock, determined in accordance with Section 3.2(a), immediately
upon the
Company being authorized to issue the same. Upon conversion,
this Note shall be
canceled and no further amounts shall be due hereunder.
(b) Optional Conversion of Outstanding Principal. In addition,
the
holder of this Note may convert the outstanding principal
balance of this Note,
at such holder's discretion, directly into such number of fully
paid and
nonassessable whole shares of Common Stock equal to the
outstanding principal
balance hereof divided by the then applicable Common Conversion
Price, if the
Series A Preferred is not authorized and issued, at any time
from and after the
date of this Note. Upon conversion, this Note shall be canceled
and no further
amounts shall be due hereunder.
3.2 Shares Issuable.
(a) The number of whole shares of Series A Preferred Stock
into
which this Note may be converted pursuant to Section 3.1(a)
shall be determined
by dividing the aggregate principal amount outstanding hereunder
by $1.50.
(b) If this Note is converted directly into shares of the
Common
Stock pursuant to Section 3.1(b), this Note shall be converted
in such number of
shares of Common Stock equal to the outstanding principal
balance hereof divided
by the then applicable Common Conversion Price. The initial
"Common Conversion
Price" shall equal $1.50, and shall be subject to adjustment as
set forth in
Section 3.3:
3.3 Adjustments to the Common Conversion Price. The Common
Conversion
Price in effect at any time and the number and kind of
securities issuable upon
cnversion of this Note under Section 3.1(b) shall be subject to
adjustment from
time to time upon the happening of certain events as
follows:
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<PAGE>
(a) Definition of Additional Stock. The term "Additional Shares
of Common
Stock" includes all shares of Common Stock issued by the Company
after the
original date of issuance of this Note, other than:
(i) (a) Shares of Common Stock issuable or issued to the
Company's employees, directors or consultants pursuant to a
stock
option plan or restricted stock plan or other compensation
plan
approved by the Board or (b) securities and options, warrants
and
other rights to purchase securities issued to financial
institutions
or lessors in connection with commercial credit agreements,
equipment financings or similar transactions; provided that
the
aggregate number of shares of Common Stock issued pursuant
to
clauses (a) and (b), calculated on a fully-diluted basis as
converted or exercised into Common Stock, in excess of 20% of
the
Company's shares of Common Stock outstanding at any time shall
be
deemed to be Additional Shares of Common Stock;
(ii) Shares of Common Stock issued or issuable pursuant to
securities outstanding at the Date of Issuance or agreements
to
issue such securities or underlying shares of Common Stock
which
agreements are outstanding at the Date of Issuance;
(iii) Shares of Common Stock issued or issuable pursuant to
subsection 3.3(b)(4) below;
(iv) Shares of Common Stock issuable upon exercise of
options
or warrants, or upon conversion of convertible securities or
other
rights, outstanding as of the original date of issuance of
this
Note, as well as options and warrants and shares of Common
Stock
issued or issuable upon exercise of options or warrants issued
in
connection with the sale by the Company of the Company's Series
A
Convertible Preferred Stock, and the shares of Common Stock
issued
or issuable upon conversion of shares of the Company's Series
A
Convertible Preferred Stock; and
(v) Securities and options, warrants and rights to purchase
securities issued to other corporations, persons or entities
in
connection with acquisitions, mergers or similar business
combinations, partnership arrangements, strategic alliances,
licensing arrangements or similar non-capital raising
transactions
approved by the Company's Board of Directors, including within
this
exception securities and option, warrants and rights to
purchase
securities issued to raise capital provided that the use of
proceeds
is to consummate such non-capital raising transactions.
(b) Dividend, Subdivision, Combination or Reclassification of
Common
Stock. In the event that the Company shall at any time or from
time to time
after the issuance of this Note but prior to the conversion
hereof:
(1) make a dividend or distribution on the outstanding shares of
Common
Stock payable in capital stock;
(2) subdivide or reclassify or reorganize its outstanding shares
of
Common Stock into a greater number of shares;
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<PAGE>
(3) combine or reclassify or reorganize its outstanding shares
of Common
Stock into a smaller number of shares; or
(4) issue, by reclassification of its Common Stock or other
reorganization, any Additional Shares of Common Stock;
then the number and kind of Common Stock or other securities
issuable upon
conversion of this Note pursuant to Section 3.1(b) shall be
adjusted so that the
Holder upon conversion hereof shall be entitled, upon such
conversion, to
receive the kind and number of shares of Common Stock or other
securities of the
Company that the Holder would have owned or have been entitled
to receive after
the happening of any of the events described above had this Note
been converted
pursuant to Section 3.1(b) into Common Stock immediately prior
to the happening
of such event or any record date with respect thereto. Whenever
the number of
shares of Common Stock purchasable upon conversion hereof is
adjusted as herein
provided, the Common Conversion Price shall be adjusted by
multiplying the
Common Conversion Price by a fraction, the numerator of which is
equal to the
number of shares of Common Stock issuable prior to the
adjustment and the
denominator of which is equal to the number of shares of Common
Stock issuable
after the adjustment. An adjustment made pursuant to this
Section 3.3(b) shall
become effective immediately after the record date in the case
of a dividend or
distribution and shall become effective immediately after the
effective date in
the case of a subdivision, combination or issuance. If, as a
result of an
adjustment made pursuant to this Section 3.3(b), the Holder of
this Note
thereafter surrendered for conversion shall become entitled to
receive shares of
two or more classes of capital stock or shares of Common Stock
and any other
class of capital stock of the Company, the Board (whose good
faith determination
shall be applied fairly and ratably to all Holders of Notes and
shall be
conclusive and shall be described in a written notice to all
Holders of Notes
promptly after such adjustment) shall determine in good faith
the allocation of
the adjusted Common Conversion Price between or among the shares
of such classes
of capital stock or shares of Common Stock and such other class
of capital
stock. The adjustment to the number of shares of Common Stock
purchasable upon
the conversion of this Note described in this Section 3.3(b)
shall be made each
time any event listed in paragraphs (i) through (iv) of this
Section 3.3(b)
occurs.
(c) Issuance of Common Stock Below Common Conversion Price. If
the
Company shall issue any Additional Shares of Common Stock after
the date hereof
(excluding any such issuance for which an adjustment is made
under the foregoing
subsection (b)), for no consideration or for a consideration per
share less than
the Common Conversion Price in effect on the date of and
immediately prior to
such issue, then in such event, the Common Conversion Price
shall be reduced,
concurrently with such issue, to a price equal to the quotient
obtained by
dividing:
(A) an amount equal to (x) the total number of shares of
Common Stock outstanding immediately prior to such issuance or
sale
multiplied by the Common Conversion Price in effect immediately
prior to
such issuance or sale, plus (y) the aggregate consideration
(before
deduction of transaction expenses or commission or underwriting
discounts
or allowances in connection therewith) received or deemed to be
received
by the Company, if any, upon such issuance or sale, by
(B) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
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<PAGE>
(d) Issuance of Options and Convertible Securities Deemed
Issuance
of Additional Shares of Common Stock. If the Company, at any
time or from time
to time after the original date of issuance of this Note, shall
issue any
options, warrants or other rights to purchase Common Stock
(collectively,
"Options") or securities that, by their terms, directly or
indirectly, are
convertible into or exchangeable for shares of Common Stock
("Convertible
Securities") (in each case other than those securities excluded,
pursuant to
Section 3.3(a), from the definition of "Additional Shares of
Common Stock") or
shall fix a record date for the determination of holders of any
class of
securities entitled to receive any such Options or Convertible
Securities, in
each case other than those securities excluded, pursuant to
Section 3.3(a), from
the definition of "Additional Shares of Common Stock", then the
maximum number
of shares of Common Stock (as set forth in the instrument
relating thereto
without regard to any provision contained therein for a
subsequent adjustment of
such number) issuable upon the exercise of such Options or, in
the case of
Convertible Securities and Options therefor, the conversion or
exchange of such
Convertible Securities, shall be deemed to be Additional Shares
of Common Stock
issued as of the time of such issue or, in case such a record
date shall have
been fixed, as of the close of business on such record date,
provided that in
any such case in which Additional Shares of Common Stock are
deemed to be issued
pursuant to this Section 3.3(d):
(i) no further adjustment
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