NEITHER THESE SECURITIES NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER
OF THE NOTE IN THE EVENT OF A PARTIAL REDEMPTION OR CONVERSION.
AS A RESULT, FOLLOWING ANY REDEMPTION OR CONVERSION OF ANY
PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT
AND ACCRUED INTEREST SET FORTH BELOW.
10% SENIOR SECURED CONVERTIBLE PROMISSORY
NOTE DUE ___, 2008
OF
TERRA NOSTRA RESOURCES CORP.
Note No.: ______________
Original Principal Amount: $_______
Issuance Date: ________, 2007
THIS NOTE is one of a duly authorized
issue of Notes issued by TERRA NOSTRA RESOURCES CORP., a
corporation duly organized and existing under the laws of the
State of Nevada ( the “
Company ”), designated as the Company’s 10%
Senior Secured Convertible Promissory Note Due ________, 2008
(“ Maturity Date ”) in an aggregate principal
amount equal to Twelve Million Five Hundred Thousand U.S.
Dollars (U.S. $12,500,000.00) (the “ Notes
” ).
FOR VALUE RECEIVED , the Company
hereby promises to pay to the order of_______________________,
or its registered assigns or successors-in-interest (
“ Holder ” ) the principal sum
of _____________________U.S. Dollars (U.S. $_____________)
together with all accrued but unpaid interest thereon, if any,
on the Maturity Date, to the extent such principal amount and
interest has not been converted into the Company’s Common
Stock, $0.001 par value per share (the “ Common
Stock ” ), in accordance with the terms hereof.
Interest on the unpaid principal balance hereof shall
accrue at the rate of 10% per annum from the original date of
issuance, ___________________, 2007 (the “
Issuance Date ” ), until the same becomes
due and payable on the Maturity Date, or such earlier date upon
acceleration or by conversion or redemption in accordance with
the terms hereof or of the other Transaction Documents.
Interest on this Note shall accrue daily commencing on the
Issuance Date and shall be computed on the basis of a 360-day
year, 30-day months and actual days elapsed and shall be payable
in
accordance with Section 1 hereof.
Notwithstanding anything contained herein, this Note shall
bear interest (“ Default Interest ”) at a
rate equal to the lower of eighteen percent (18%) per annum or
the highest rate permitted by law (the “ Default
Rate ”) upon the occurrence of an Event of Default
(defined below) retroactive to the Issuance Date of this Note on
the unpaid Principal Amount of this Note outstanding from time
to time through the date on which such Event of Default ceases
to exist. Unless otherwise agreed or required by
applicable law, payments will be applied first to any unpaid
collection costs, then to unpaid interest and fees and any
remaining amount to principal.
Except as otherwise provided herein, all
payments of principal and interest on this Note shall be made in
lawful money of the United States of America by wire transfer of
immediately available funds to such account as the Holder may
from time to time designate by written notice in accordance with
the provisions of this Note. This Note may not be prepaid
in whole or in part except as otherwise provided herein or in
the Transaction Documents. Whenever any amount expressed
to be due by the terms of this Note is due on any day which is
not a Business Day (as defined below), the same shall instead be
due on the next succeeding day which is a Business Day.
Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Securities
Purchase Agreement dated on or about the Issuance Date pursuant
to which the Note was originally issued (the “
Purchase Agreement ” ). For purposes hereof
the following terms shall have the meanings ascribed to them
below:
“ Agent ” means Wollmuth
Maher & Deutsch LLP who has been appointed as the Agent for
the holders of the Notes, pursuant to the Pledge Agreement, and
who shall act in accordance with the terms and conditions
contained therein.
“ Bankruptcy Event ” means
any of the following events: (a) the Company or any subsidiary
commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction relating to the Company or any subsidiary
thereof; (b) there is commenced against the Company or any
subsidiary any such case or proceeding that is not dismissed
within 30 days after commencement; (c) the Company or any
subsidiary is adjudicated insolvent or bankrupt or any order of
relief or other order approving any such case or proceeding is
entered; (d) the Company or any subsidiary suffers any
appointment of any custodian or the like for it or any
substantial part of its property that is not discharged or
stayed within 30 days; (e) the Company or any subsidiary makes a
general assignment for the benefit of creditors; (f) the Company
or any subsidiary, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of
the foregoing or takes any corporate or other action for the
purpose of effecting any of the foregoing.
“ Business Day ” shall mean
any day other than a Saturday, Sunday or a day on which
commercial banks in the City of New York are authorized or
required by law or executive order to remain closed.
“ Conversion Price ”
shall be $1.75 (U.S.) per share (which Conversion Price shall be
subject to adjustment as set forth herein).
2
“ Convertible Securities ”
means any convertible securities, warrants, options or other
rights to subscribe for or to purchase or exchange for, shares
of Common Stock.
“ Debt ” shall mean
indebtedness of any kind.
“ Effective Date ” means the
date on which a Registration Statement covering all the
Underlying Shares and other Registrable Securities (as defined
in the Registration Rights Agreement) is declared effective by
the SEC.
“ Effective Registration ”
shall have the meaning set forth in the Purchase Agreement.
“ Exchange Act ” shall mean
the Securities Exchange Act of 1934, as amended.
“ Market Price ” shall equal
the average closing price of the Common Stock on the Principal
Market for the five (5) Trading Days immediately preceding the
date on which such Market Price is being determined.
“ Per Share Selling Price ”
shall include the amount actually paid by third parties for each
share of Common Stock in a sale or issuance by the Company.
A sale of shares of Common Stock shall include the sale or
issuance of rights, options, warrants or convertible,
exchangeable or exercisable securities, issued or sold on or
subsequent to the Closing Date, under which the Company is or
may become obligated to issue shares of Common Stock, and in
such circumstances the Per Share Selling Price of the Common
Stock covered thereby shall also include the exercise, exchange
or conversion price thereof (in addition to the consideration
received by the Company upon such sale or issuance less the fee
amount as provided above). If shares are issued for a
consideration other than cash, the Per Share Selling Price shall
be the fair value of such consideration as determined in good
faith by the board of directors of the Company.
“ Principal Amount ” shall
refer to the sum of (i) the original principal amount of this
Note, (ii) all accrued but unpaid interest (including Default
Interest, if any) hereunder, and (iii) any default payments
owing under the Transaction Documents but not previously paid or
added to the Principal Amount.
“ Principal Market ” shall
mean the OTC Bulletin Board or such other principal market or
exchange on which the Common Stock is then listed for
trading.
“ Qualified Financing ” shall
mean the sale for cash by the Company in a transaction or series
of related transactions of debt, equity, equity-linked
securities or any combination thereof generating gross proceeds
to the Company (including the amount of any Notes tendered in
connection therewith) of at least $35,000,000.
“ Registration Statement
” shall have the meaning set forth in the Registration
Rights Agreement.
“ Securities Act ” shall mean
the Securities Act of 1933, as amended.
“ Trading Day ” shall mean a
day on which there is trading on the OTC Bulletin Board or such
other market or exchange on which the Common Stock is then
principally traded.
3
“ Underlying Shares ” means
the shares of Common Stock into which the Note is convertible
(including repayment in Common Stock as set forth herein) in
accordance with the terms hereof and the Purchase Agreement.
The following terms and conditions shall apply
to this Note:
Section 1.
Payments of
Principal and Interest .
(a)
Interest Payments. The Company
shall pay all accrued but unpaid interest (including Default
Interest, if any) on the Principal Amount of this Note (the
“ Quarterly Amount ”), on the first business
day of each consecutive calendar quarter (each an “
Interest Payment Date ”). The Quarterly
Amount shall be paid in cash.
(b)
Payment of Principal.
Subject to the provisions hereof, including, without
limitation, the right to obtain prepayment of the Principal
Amount provided herein, the Principal Amount of this Note shall
be due and payable on the Maturity Date. Payment of the
Principal Amount shall be effected in cash.
(c) Prepayment of Note. The Company has the option to repay
all unpaid principal and interest due on the Note at any time prior
to the Maturity Date, provided that the Company shall provide to
the Holders written notice of any intended prepayment at least
fifteen (15) business days prior to the date of such
prepayment.
(d) Taxes . Company may withhold
and pay over to the relevant authorities any backup withholding
from any interest payment to be made to the Holder to the extent
that such withholding is required by the Internal Revenue Code
or any other applicable federal law, rule, or regulation.
Section 2.
Seniority . The
obligations of the Company hereunder shall rank senior to all
other Debt of the Company, whether now or hereinafter existing;
provided that the Bridge Notes shall rank pari passu with
the debt described in Section 4(a) of this Note.
Section 3.
Conversion .
(a)
Conversion by Holder . Subject to
the terms hereof and restrictions and limitations contained
herein, the Holder shall have the right, at Holder’s
option, at any time and from time to time to convert, in part or
in whole, the outstanding Principal Amount under this Note into
shares of Common Stock by delivering to the Company a fully
executed notice of conversion in the form of conversion notice
attached hereto as Exhibit A (the “
Conversion Notice ” ), which may be
transmitted by facsimile (with the original mailed on the same
date by certified or registered mail, postage prepaid and return
receipt requested) on the date of conversion (the “
Conversion Date ”). Upon the closing of
a Qualified Financing, Holder shall have the option to (i)
tender all or a portion of the outstanding principal balance
plus accrued and unpaid interest (including Default Interest, if
any) on this Note (in lieu of cash) as consideration to purchase
the securities issued by the Company in such Qualified
Financing, or (ii) require the Company to repay all or a portion
the outstanding principal balance plus accrued and unpaid
interest (including Default Interest, if any) on this Note. In
the event that the Company closes any debt or equity financing
(an “ Other Financing ”) prior to a Qualified
Financing, Holder shall
4
have the right, in its sole discretion, to
tender all or a portion of the outstanding principal balance
plus accrued and unpaid interest (including Default Interest, if
any) on this Note (in lieu of cash) together with any warrants
in connection herewith as consideration to purchase the
securities issued by the Company in such Other Financing.
(b)
Conversion Date Procedures . Upon
conversion of this Note pursuant to this Section 3, the
outstanding Principal Amount hereunder shall be converted into
such number of fully paid, validly issued and non-assessable
shares of Common Stock (or such other securities as provided for
by Section 3(d)(vi) hereof), free of any liens, claims and
encumbrances, as is determined by dividing the amount being
converted by the then applicable Conversion Price. If a
conversion under this Note cannot be effected in full for any
reason, the Company shall, upon request by the Holder, promptly pay to the Holder in cash (but no
later than five (5) Trading Days after the Conversion Date) an
amount equal to the greater of (i) such outstanding Principal
Amount as has not been converted and (ii) the Market Price of
the Underlying Shares of such outstanding unconverted Principal
Amount as of the Conversion Date.
(c)
Stock Certificates or DWAC . The
Company will deliver to the Holder not later than seven (7)
Trading Days after the Conversion Date, a certificate or
certificates which shall be free of restrictive legends and
trading restrictions (assuming that the Registration Statement
has been declared effective), representing the number of shares
of Common Stock being acquired upon the conversion of this Note.
In lieu of delivering physical certificates representing
the shares of Common Stock issuable upon conversion of this
Note, provided the Company’s transfer agent is
participating in the Depository Trust Company (“
DTC ”) Fast Automated Securities Transfer (“
FAST ”) program, upon request of the Holder, the
Company shall use commercially reasonable efforts to cause its
transfer agent to electronically transmit such shares issuable
upon conversion to the Holder (or its designee), by crediting
the account of the Holder’s (or such designee’s)
prime broker with DTC through its Deposit Withdrawal At
Custodian system (provided that the same time periods herein as
for stock certificates shall apply).
(d)
Conversion Price Adjustments .
(i)
Stock Dividends, Splits and Combinations
. If the Company or any of its subsidiaries, at any time
while the Note is outstanding (A) shall pay a stock dividend or
otherwise make a distribution or distributions on any equity
securities (including instruments or securities convertible into
or exchangeable for such equity securities but excluding any
stockholder rights granted pursu
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