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Exhibit 10.2 Form of Callable Secured Convertible Note due March 17, 2007
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM,
SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD
PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT.
CALLABLE SECURED CONVERTIBLE NOTE
Valencia, California
March 17, 2005 $__________
FOR VALUE RECEIVED, CONECTISYS CORPORATION, a Colorado corporation (hereinafter
called the "Borrower"), hereby promises to pay to the order of
___________________ or registered assigns (the "Holder") the sum of
$__________, on March 17, 2007 (the "Maturity Date"), and to pay interest on
the unpaid principal balance hereof at the rate of eight percent (8%) (the
"Interest Rate") per annum from March 17, 2005 (the "Issue Date") until the
same becomes due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise, or so much thereof as may be advanced and be
outstanding, with interest thereon, to be computed on each advance from the
date of its disbursement. Any amount of principal or interest on this Note
which is not paid when due shall bear interest at the rate of fifteen percent
(15%) per annum from the due date thereof until the same is paid ("Default
Interest"). Interest shall commence accruing on the Issue Date, shall be
computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable quarterly provided that no interest shall be due and
payable for any month in which the Trading Price (as such term is defined
below) of the Common Stock (as such term is defined below) is greater than
$.0035 for each Trading Day (as such term is defined below) of the month. All
payments due hereunder (to the extent not converted into common stock, no par
value per share, of the Borrower (the "Common Stock") in accordance with the
terms hereof) shall be made in lawful money of the United States of America
provided that interest payable for the first month following the Issue Date
shall be payable on the date hereof and deemed for all purposes as a prepayment
of such obligation. All payments shall be made at such address as the Holder
shall hereafter give to the Borrower by written notice made in accordance with
the provisions of this Note. Whenever any amount expressed to be due by the
terms of this Note is due on any day which is not a business day, the same
shall instead be due on the next succeeding day which is a business day and, in
the case of any interest payment date which is not the date on which this Note
is paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date.
As used in this Note, the term "business day" shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in the city of New York,
New York are authorized or required by law or executive order to remain closed.
Each capitalized term used herein, and not otherwise defined, shall have the
meaning ascribed thereto in that certain Securities Purchase Agreement, dated
March 17, 2005, pursuant to which this Note was originally issued (the
"Purchase Agreement").
This Note is free from all taxes, liens, claims and encumbrances with respect
to the issue thereof and shall not be subject to preemptive rights or other
similar rights of shareholders of the Borrower and will not impose personal
liability upon the holder thereof. The obligations of the Borrower under this
Note shall be secured by that certain Security Agreement and Intellectual
Property Security Agreement, each dated March 17, 2005 by and between the
Borrower and the Holder.
The following terms shall apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right from time to time, and
at any time on or prior to the earlier of (i) the Maturity Date and (ii) the
date of payment of the Default Amount (as defined in Article III) pursuant to
Section 1.6(a) or Article III, the Optional Prepayment Amount (as defined in
Section 5.1 or any payments pursuant to Section 1.7, each in respect of the
remaining outstanding principal amount of this Note to convert all or any part
of the outstanding and unpaid principal amount of this Note into fully paid and
non-assessable shares of Common Stock, as such Common Stock exists on the Issue
Date, or any shares of capital stock or other securities of the Borrower into
which such Common Stock shall hereafter be changed or reclassified at the
conversion price (the "Conversion Price") determined as provided herein (a
"Conversion"); provided, however, that in no event shall the Holder be entitled
to convert any portion of this Note in excess of that portion of this Note upon
conversion of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Notes or the unexercised or unconverted portion
of any other security of the Borrower (including, without limitation, the
warrants issued by the Borrower pursuant to the Purchase Agreement) subject to
a limitation on conversion or exercise analogous to the limitations contained
herein) and (2) the number of shares of Common Stock issuable upon the
conversion of the portion of this Note with respect to which the determination
of this proviso is being made, would result in beneficial ownership by the
Holder and its affiliates of more than 4.99% of the outstanding shares of
Common Stock and provided further that the Holder shall not be entitled to
convert any portion of this Note during any month immediately succeeding a
Determination Date occurring during a month in which the Borrower exercises its
prepayment option pursuant to Section 5.2 of this Note. For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulations 13D-G thereunder, except as otherwise
provided in clause (1) of such proviso. The number of shares of Common Stock
to be issued upon each conversion of this Note shall be determined by dividing
the Conversion Amount (as defined below) by the applicable Conversion Price
then in effect on the date specified in the notice of conversion, in the form
attached hereto as Exhibit A (the "Notice of Conversion"), delivered to the
Borrower by the Holder in accordance with Section 1.4 below; provided that the
Notice of Conversion is submitted by facsimile (or by other means resulting in,
or reasonably expected to result in, notice) to the Borrower before 6:00 p.m.,
New York, New York time on such conversion date (the "Conversion Date"). The
term "Conversion Amount" means, with respect to any conversion of this Note,
the sum of (1) the principal amount of this Note to be converted in such
conversion plus (2) accrued and unpaid interest, if any, on such principal
amount at the interest rates provided in this Note to the Conversion Date plus
(3) Default Interest, if any, on the amounts referred to in the immediately
preceding clauses (1) and/or (2) plus (4) at the Holder's option, any amounts
owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to
Section 2(c) of that certain Registration Rights Agreement, dated as of March
17, 2005, executed in connection with the initial issuance of this Note and the
other Notes issued on the Issue Date (the "Registration Rights Agreement").
The term "Determination Date" means the last business day of each month after
the Issue Date.
1.2 Conversion Price.
(a) Calculation of Conversion Price. The Conversion Price shall be the lesser
of (i) the Variable Conversion Price (as defined herein) and (ii) the Fixed
Conversion Price (as defined herein) (subject, in each case, to equitable
adjustments for stock splits, stock dividends or rights offerings by the
Borrower relating to the Borrower's securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events). The "Variable Conversion
Price" shall mean the Applicable Percentage (as defined herein) multiplied by
the Market Price (as defined herein). "Market Price" means the average of the
lowest three (3) Trading Prices (as defined below) for the Common Stock during
the twenty (20) Trading Day period ending one Trading Day prior to the date the
Conversion Notice is sent by the Holder to the Borrower via facsimile (the
"Conversion Date"). "Trading Price" means, for any security as of any date,
the intraday trading price on the Over-the-Counter Bulletin Board (the "OTCBB")
as reported by a reliable reporting service mutually acceptable to and
hereafter designated by Holders of a majority in interest of the Notes and the
Borrower or, if the OTCBB is not the principal trading market for such
security, the intraday trading price of such security on the principal
securities exchange or trading market where such security is listed or traded
or, if no intraday trading price of such security is available in any of the
foregoing manners, the average of the intraday trading prices of any market
makers for such security that are listed in the "pink sheets" by the National
Quotation Bureau, Inc. If the Trading Price cannot be calculated for such
security on such date in the manner provided above, the Trading Price shall be
the fair market value as mutually determined by the Borrower and the holders of
a majority in interest of the Notes being converted for which the calculation
of the Trading Price is required in order to determine the Conversion Price of
such Notes. "Trading Day" shall mean any day on which the Common Stock is
traded for any period on the OTCBB, or on the principal securities exchange or
other securities market on which the Common Stock is then being traded.
"Applicable Percentage" shall mean 40.0%. The "Fixed Conversion Price" shall
mean $.005.
(b) Conversion Price During Major Announcements. Notwithstanding anything
contained in Section 1.2(a) to the contrary, in the event the Borrower (i)
makes a public announcement that it intends to consolidate or merge with any
other corporation (other than a merger in which the Borrower is the surviving
or continuing corporation and its capital stock is unchanged) or sell or
transfer all or substantially all of the assets of the Borrower or (ii) any
person, group or entity (including the Borrower) publicly announces a tender
offer to purchase 50% or more of the Borrower's Common Stock (or any other
takeover scheme) (the date of the announcement referred to in clause (i) or
(ii) is hereinafter referred to as the "Announcement Date"), then the
Conversion Price shall, effective upon the Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined below), be
equal to the lower of (x) the Conversion Price which would have been applicable
for a Conversion occurring on the Announcement Date and (y) the Conversion
Price that would otherwise be in effect. From and after the Adjusted Conversion
Price Termination Date, the Conversion Price shall be determined as set forth
in this Section 1.2(a). For purposes hereof, "Adjusted Conversion Price
Termination Date" shall mean, with respect to any proposed transaction or
tender offer (or takeover scheme) for which a public announcement as
contemplated by this Section 1.2(b) has been made, the date upon which the
Borrower (in the case of clause (i) above) or the person, group or entity (in
the case of clause (ii) above) consummates or publicly announces the
termination or abandonment of the proposed transaction or tender offer (or
takeover scheme) which caused this Section 1.2(b) to become operative.
1.3 Authorized Shares. Subject to the Stockholder Approval (as defined in the
Agreement), the Borrower covenants that during the period the conversion right
exists, the Borrower will reserve from its authorized and unissued Common Stock
a sufficient number of shares, free from preemptive rights, to provide for the
issuance of Common Stock upon the full conversion of this Note and the other
Notes issued pursuant to the Purchase Agreement. The Borrower is required at
all times to have authorized and reserved two times the number of shares that
is actually issuable upon full conversion of the Notes (based on the Conversion
Price of the Notes or the Exercise Price of the Warrants in effect from time to
time) (the "Reserved Amount"). The Reserved Amount shall be increased from
time to time in accordance with the Borrower's obligations pursuant to Section
4(h) of the Purchase Agreement. The Borrower represents that upon issuance,
such shares will be duly and validly issued, fully paid and non-assessable. In
addition, if the Borrower shall issue any securities or make any change to its
capital structure which would change the number of shares of Common Stock into
which the Notes shall be convertible at the then current Conversion Price, the
Borrower shall at the same time make proper provision so that thereafter there
shall be a sufficient number of shares of Common Stock authorized and reserved,
free from preemptive rights, for conversion of the outstanding Notes. The
Borrower (i) acknowledges that it has irrevocably instructed its transfer agent
to issue certificates for the Common Stock issuable upon conversion of this
Note, and (ii) agrees that its issuance of this Note shall constitute full
authority to its officers and agents who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for shares
of Common Stock in accordance with the terms and conditions of this Note.
If, at any time a Holder of this Note submits a Notice of Conversion, and the
Borrower does not have sufficient authorized but unissued shares of Common
Stock available to effect such conversion in accordance with the provisions of
this Article I (a "Conversion Default"), subject to Section 4.8, the Borrower
shall issue to the Holder all of the shares of Common Stock which are then
available to effect such conversion. The portion of this Note which the Holder
included in its Conversion Notice and which exceeds the amount which is then
convertible into available shares of Common Stock (the "Excess Amount") shall,
notwithstanding anything to the contrary contained herein, not be convertible
into Common Stock in accordance with the terms hereof until (and at the
Holder's option at any time after) the date additional shares of Common Stock
are authorized by the Borrower to permit such conversion, at which time the
Conversion Price in respect thereof shall be the lesser of (i) the Conversion
Price on the Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date thereafter elected by the Holder in respect
thereof. In addition, the Borrower shall pay to the Holder payments
("Conversion Default Payments") for a Conversion Default in the amount of (x)
the sum of (1) the then outstanding principal amount of this Note plus (2)
accrued and unpaid interest on the unpaid principal amount of this Note through
the Authorization Date (as defined below) plus (3) Default Interest, if any, on
the amounts referred to in clauses (1) and/or (2), multiplied by (y) .24,
multiplied by (z) (N/365), where N = the number of days from the day the holder
submits a Notice of Conversion giving rise to a Conversion Default (the
"Conversion Default Date") to the date (the "Authorization Date") that the
Borrower authorizes a sufficient number of shares of Common Stock to effect
conversion of the full outstanding principal balance of this Note. The
Borrower shall use its best efforts to authorize a sufficient number of shares
of Common Stock as soon as practicable following the earlier of (i) such time
that the Holder notifies the Borrower or that the Borrower otherwise becomes
aware that there are or likely will be insufficient authorized and unissued
shares to allow full conversion thereof and (ii) a Conversion Default. The
Borrower shall send notice to the Holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of Holder's
accrued Conversion Default Payments. The accrued Conversion Default Payments
for each calendar month shall be paid in cash or shall be convertible into
Common Stock (at such time as there are sufficient authorized shares of Common
Stock) at the applicable Conversion Price, at the Borrower's option, as
follows:
(a) In the event Borrower elects to make such payment in cash, cash payment
shall be made to Holder by the fifth (5th) day of the month following the month
in which it has accrued; and
(b) In the event Borrower elects to make such payment in Common Stock, the
Borrower shall convert such payment amount into Common Stock at the Conversion
Price (as in effect at the time of conversion) at any time after the fifth
(5th) day of the month following the month in which it has accrued in
accordance with the terms of this Article I (so long as there is then a
sufficient number of authorized shares of Common Stock).
The Borrower's election shall be made in writing to the Holder at any time
prior to 6:00 p.m., New York, New York time, on the third day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, the Borrower shall be deemed to have elected to pay in cash.
Nothing herein shall limit the Holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Borrower's failure
to maintain a sufficient number of authorized shares of Common Stock, and each
holder shall have the right to pursue all remedies available at law or in
equity (including degree of specific performance and/or injunctive relief).
1.4 Method of Conversion.
(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be
converted by the Holder in whole or in part at any time from time to time after
the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by
facsimile or other reasonable means of communication dispatched on the
Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to
Section 1.4(b), surrendering this Note at the principal office of the Borrower.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the
contrary set forth herein, upon conversion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this
Note to the Borrower unless the entire unpaid principal amount of this Note is
so converted. The Holder and the Borrower shall maintain records showing the
principal amount so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the Borrower, so
as not to require physical surrender of this Note upon each such conversion.
In the event of any dispute or discrepancy, such records of the Borrower shall
be controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any portion of this Note is converted as
aforesaid, the Holder may not transfer this Note unless the Holder first
physically surrenders this Note to the Borrower, whereupon the Borrower will
forthwith issue and deliver upon the order of the Holder a new Note of like
tenor, registered as the Holder (upon payment by the Holder of any applicable
transfer taxes) may request, representing in the aggregate the remaining unpaid
principal amount of this Note. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Note, the unpaid and
unconverted principal amount of this Note represented by this Note may be less
than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock or other securities or property on conversion of this
Note in a name other than that of the Holder (or in street name), and the
Borrower shall not be required to issue or deliver any such shares or other
securities or property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be held for the
Holder's account) requesting the issuance thereof shall have paid to the
Borrower the amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower
from the Holder of a facsimile transmission (or other reasonable means of
communication) of a Notice of Conversion meeting the requirements for
conversion as provided in this Section 1.4, the Borrower shall issue and
deliver or cause to be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable upon such conversion within two (2)
business days after such receipt (and, solely in the case of conversion of the
entire unpaid principal amount hereof, surrender of this Note) (such second
business day being hereinafter referred to as the "Deadline") in accordance
with the terms hereof and the Purchase Agreement (including, without
limitation, in accordance with the requirements of Section 2(g) of the Purchase
Agreement that certificates for shares of Common Stock issued on or after the
effective date of the Registration Statement upon conversion of this Note shall
not bear any restrictive legend).
(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the
Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder
of record of the Common Stock issuable upon such conversion, the outstanding
principal amount and the amount of accrued and unpaid interest on this Note
shall be reduced to reflect such conversion, and, unless the Borrower defaults
on its obligations under this Article I, all rights with respect to the portion
of this Note being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets, as herein
provided, on such conversion. If the Holder shall have given a Notice of
Conversion as provided herein, the Borrower's obligation to issue and deliver
the certificates for Common Stock shall be absolute and unconditional,
irrespective of the absence of any action by the Holder to enforce the same,
any waiver or consent with respect to any provision thereof, the recovery of
any judgment against any person or any action to enforce the same, any failure
or delay in the enforcement of any other obligation of the Borrower to the
holder of record, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder of any obligation to
the Borrower, and irrespective of any other circumstance which might otherwise
limit such obligation of the Borrower to the Holder in connection with such
conversion. The Conversion Date specified in the Notice of Conversion shall be
the Conversion Date so long as the Notice of Conversion is received by the
Borrower before 6:00 p.m., New York, New York time, on such date.
(f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering
physical certificates representing the Common Stock issuable upon conversion,
provided the Borrower's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon
request of the Holder and its compliance with the provisions contained in
Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to
cause its transfer agent to electronically transmit the Common Stock issuable
upon conversion to the Holder by crediting the account of Holder's Prime Broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system.
(g) Failure to Deliver Common Stock Prior to Deadline. Without in any way
limiting the Holder's right to pursue other remedies, including actual damages
and/or equitable relief, the parties agree that if delivery of the Common Stock
issuable upon conversion of this Note is more than three (3) days after the
Deadline (other than a failure due to the circumstances described in Section
1.3 above, which failure shall be governed by such Section) the Borrower shall
pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that
the Borrower fails to deliver such Common Stock. Such cash amount shall be
paid to Holder by the fifth day of the month following the month in which it
has accrued or, at the option of the Holder (by written notice to the Borrower
by the first day of the month following the month in which it has accrued),
shall be added to the principal amount of this Note, in which event interest
shall accrue thereon in accordance with the terms of this Note and such
additional principal amount shall be convertible into Common Stock in
accordance with the terms of this Note.
1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion
of this Note may not be sold or transferred unless (i) such shares are sold
pursuant to an effective registration statement under the Act or (ii) the
Borrower or its transfer agent shall have been furnished with an opinion of
counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the shares
to be sold or transferred may be sold or transferred pursuant to an exemption
from such registration or (iii) such shares are sold or transferred pursuant to
Rule 144 under the Act (or a successor rule) ("Rule 144") or (iv) such shares
are transferred to an "affiliate" (as defined in Rule 144) of the Borrower who
agrees to sell or otherwise transfer the shares only in accordance with this
Section 1.5 and who is an Accredited Investor (as defined in the Purchase
Agreement). Except as otherwise provided in the Purchase Agreement (and
subject to the removal provisions set forth below), until such time as the
shares of Common Stock issuable upon conversion of this Note have been
registered under the Act as contemplated by the Registration Rights Agreement
or otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold,
each certificate for shares of Common Stock issuable upon conversion of this
Note that has not been so included in an effective registration statement or
that has not been sold pursuant to an effective registration statement or an
exemption that permits removal of the legend, shall bear a legend substantially
in the following form, as appropriate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR
REGULATION S UNDER SAID ACT."
The legend set forth above shall be removed and the Borrower shall issue to the
Holder a new certificate therefor free of any transfer legend if (i) the
Borrower or its transfer agent shall have received an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Common Stock
may be made without registration under the Act and the shares are so sold or
transferred, (ii) such Holder provides the Borrower or its transfer agent with
reasonable assurances that the Common Stock issuable upon conversion of this
Note (to the extent such securities are deemed to have been acquired on the
same date) can be sold pursuant to Rule 144 or (iii) in the case of the Common
Stock issuable upon conversion of this Note, such security is registered for
sale by the Holder under an effective registration statement filed under the
Act or otherwise may be sold pursuant to Rule 144 without any restriction as to
the number of securities as of a particular date that can then be immediately
sold. Nothing in this Note shall (i) limit the Borrower's obligation under the
Registration Rights Agreement or (ii) affect in any way the Holder's
obligations to comply with applicable prosp






