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EXHIBIT 10.5
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The Securities represented by this
Convertible Note have not been registered
under the Securities Act of 1933, as
amended ("Act"), or applicable state
securities laws ("State Acts") and shall
not be sold, hypothecated, donated or
otherwise transferred unless the Borrower
shall have received an opinion of
Legal Counsel for the Borrower, or such
other evidence as may be satisfactory to
Legal Counsel for the Borrower, to the
effect that any such transfer shall not
require registration under the Act and the
State Acts.
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STELLAR TECHNOLOGIES, INC.
12.00% SECURED CONVERTIBLE NOTE
$1,600,000
No: 1
DATE OF ISSUE: APRIL 1, 2005
STELLAR TECHNOLOGIES, INC. (a Colorado corporation)
(hereinafter
referred to as the "BORROWER") is indebted
and, for value received, herewith
promises to pay to:
TRIDENT GROWTH FUND, LP
or to its order, (together with any
assignee, jointly or severally, the "HOLDER"
or "LENDER") on or before the earlier of:
(i) April 30, 2006; (ii) the closing
date of Borrower's next public offering of
any of its securities for its own
account or (iii) the date of any Change of
Control of the Borrower (as such term
is defined in that certain Loan Agreement
between the Borrower and the Holder of
even date herewith (the "TERMINATION DATE")
(unless this Convertible Note shall
have been sooner called for redemption or
presented for conversion as herein
provided), the sum of One Million Six
Hundred Thousand Dollars ($1,600,000) (the
"PRINCIPAL AMOUNT") and to pay interest on
the Principal Amount at the rate of
twelve percent (12.00%) per annum as
provided herein. All capitalized terms not
defined herein shall have the meaning given
them in the Loan Agreement (as
defined below). In furtherance thereof, and
in consideration of the premises,
the Borrower covenants, promises and agrees
as follows:
1. INTEREST:
Interest on the Principal Amount outstanding from time to time
shall accrue at the rate of 12.00% per
annum and be payable in cash via wire
transfer in monthly installments commencing
April 30, 2005 and subsequent
payments shall be made on the last day of
each month thereafter until the
Principal Amount and all accrued and unpaid
interest shall have been paid in
full unless the Holder gives the Borrower
written notification that it desires
for a particular month's interest payment
to be paid in fully paid and
nonassessable shares of common stock, $.001
par value, of the Borrower (the
"COMMON STOCK"), based on a per share stock
price equal to Conversion Price (as
defined in Section 4(a)) such price per
share being subject to adjustment at the
times, and in accordance with the
provisions as set forth in section 4(a).
Overdue principal and interest on the
Convertible Note shall, to the extent
permitted by applicable law, bear interest
at the rate of 21.00% per annum. All
payments of both principal and interest
shall be made at the address of the
Holder hereof as it appears in the books
and records of the Borrower or at such
other place as may be designated by the
Holder hereof in writing to Borrower.
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2. MATURITY: If
not sooner redeemed or converted, this Convertible Note
shall mature on the earlier of: (i) April
30, 2006; (ii) the closing date of
Borrower's next public offering of any of
its securities for its own account; or
(iii) the date of any Change of Control of
the Borrower (as such term is defined
in that certain Loan Agreement between the
Borrower and the Holder of even date
herewith, at which time all then remaining
unpaid principal, interest and any
other charges then due under the Loan
Agreement shall be due and payable in full
via wire transfer.
3. OPTIONAL
REDEMPTION:
(a) On any interest payment date and after prior irrevocable notice
as
provided for below, the outstanding
principal amount of this Convertible Note is
redeemable at the option of the Borrower,
in whole or in part, at 100% of par.
(b) The Borrower may exercise its right to redeem prior to the
Termination Date by giving notice (the
"REDEMPTION NOTICE") thereof to the
Holder as such name appears on the books of
the Borrower, which notice shall
specify the terms of redemption (including
the place at which the Holder may
obtain payment), the total principal amount
to be redeemed (such principal
amount herein called the "REDEMPTION
AMOUNT") and the date for redemption (the
"REDEMPTION DATE"), which date shall not be
less than 90 days nor more than 120
days after the date of the Redemption
Notice. On the Redemption Date, the
Borrower shall pay all accrued unpaid
interest on the Convertible Note up to and
including the Redemption Date, and shall
pay to the Holder a dollar amount equal
to the Redemption Amount. In the event this
Convertible Note is called for
redemption, the conversion rights granted
hereunder will expire at the close of
business on the Redemption Date.
4. CONVERSION
RIGHT: The Holder of this Convertible Note shall have the
right, at Holder's option, at any time on
or after of the Date of Issue of this
Convertible Note, to convert all, or, in
multiples of $50,000, any part of this
Convertible Note into such number of fully
paid and nonassessable shares of
Common Stock as shall be provided herein.
The holder of this Convertible Note
may exercise the conversion right by giving
written notice (the "CONVERSION
NOTICE") to the Borrower of the exercise of
such right and stating the name or
names in which the stock certificate or
stock certificates for the shares of
Common Stock are to be issued and the
address to which such certificates shall
be delivered. The Conversion Notice shall
be accompanied by the Convertible
Note. The number of shares of Common Stock
that shall be issuable upon
conversion of the Convertible Note shall
equal the then outstanding Principal
Amount plus all accrued and unpaid interest
due and payable on the Convertible
Note on the Conversion Date (defined below)
or portion thereof (in the
discretion of the Lender) divided by the
Conversion Price (as defined below) in
effect on the date the Conversion Notice is
given; provided, however, that in
the event that this Convertible Note shall
have been partially redeemed, shares
of Common Stock shall be issued pro rata,
rounded to the nearest whole share.
Conversion shall be deemed to have been
effected on the date the Conversion
Notice is delivered to Borrower (the
"CONVERSION DATE"). Within 10 business days
after the Conversion Date, Borrower shall
issue and deliver by hand against a
signed receipt therefor or by reputable
overnight delivery carrier to the
address designated in the Conversion
Notice, a stock certificate or stock
certificates of the Borrower representing
the number of shares of Common Stock
to which Holder is entitled and a check or
cash in payment of all interest
accrued and unpaid on the Convertible Note
being converted up to and including
the Conversion Date. The conversion rights
will be governed by the following
provisions:
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(a) CONVERSION PRICE: On the issue date hereof and until such time
as
an adjustment shall occur, the Conversion
price shall be $1.00 per share,
provided however, that the Conversion Price
shall be subject to adjustment at
the times, and in accordance with the
provisions, as follows:
(i) Adjustment for Issuance of Shares at less than the
Conversion
Price: If and whenever any Additional
Common Stock (as herein defined) shares
shall be issued by the Borrower (the "STOCK
ISSUE DATE") for a consideration per
share less than the Conversion Price, then
in each such case the initial
Conversion Price shall be reduced to a new
Conversion Price in an amount equal
to the consideration per share received by
the Borrower for the additional
shares of Common Stock then issued and the
number of shares issuable to Holder
upon conversion shall be proportionately
increased; and, in the case of shares
issued without consideration, the initial
Conversion Price shall be reduced in
amount and the number of shares issued upon
conversion shall be increased in an
amount so as to maintain for the Holder the
right to convert the Convertible
Note into shares equal in amount to the
same percentage interest in the Common
Stock of the Borrower as existed for the
Holder immediately preceding the Stock
Issue Date.
(ii) Consideration for Shares: In case of the issuance of
Additional Common Stock for a consideration
part or all of which shall be cash,
the amount of the cash consideration
therefor shall be deemed to be the amount
of the cash received by Borrower for such
shares, after any compensation or
discount in the sale, underwriting or
purchase thereof by underwriters or
dealers or others performing similar
services or for any expenses incurred in
connection therewith. In case of the
issuance of any shares of Additional Common
Stock for a consideration part or all of
which shall be other than cash, the
amount of the consideration therefor, other
than cash, shall be deemed to be the
then fair market value of the property
received as determined by an investment
banking firm selected by Lender.
(iii) Reclassification of Shares: In case of the
reclassification
of securities into shares of Common Stock,
the shares of Common Stock issued in
such reclassification shall be deemed to
have been issued for a consideration
other than cash. Shares of Additional
Common Stock issued by way of dividend or
other distribution on any class of stock of
the Borrower shall be deemed to have
been issued without consideration.
(iv) Split up or Combination of Shares: In case issued and
outstanding shares of Common Stock shall be
subdivided or split up into a
greater number of shares of the Common
Stock, the Conversion Price shall be
proportionately decreased, and in case
issued and outstanding shares of Common
Stock shall be combined into a smaller
number of shares of Common Stock, the
Conversion Price shall be proportionately
increased, such increase or decrease,
as the case may be, becoming effective at
the time of record of the split-up or
combination, as the case may be.
(v) The term "ADDITIONAL COMMON Stock" herein shall mean in the
most broadest sense all shares of Common
Stock hereafter issued by the Borrower
(including, but not limited to Common Stock
held in the treasury of the Borrower
and common stock purchasable via derivative
security or option on the date of
such grant), except Common Stock issued
upon the conversion of any of this
Convertible Note or Warrant.
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(b) Adjust
