FORM OF CONVERTIBLE NOTE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES
ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES
AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED,
SOLD OR OTHERWISE
TRANSFERRED
ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT,
DATED AS OF THE
DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY AT
ITS PRINCIPAL
EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES,
INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE
CONVERSION RIGHTS
OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY
REPAYMENT,
PREPAYMENT AND
REDEMPTION RIGHTS AND OBLIGATIONS
AND (C) SPECIFY EVENTS
OF DEFAULT
FOLLOWING
WHICH THE REMAINING BALANCE DUE AND OWING
HEREUNDER MAY BE ACCELERATED.
No. 1
$2,200,000
CONVERTIBLE NOTE
of
Galaxy
Minerals, Inc., a Florida corporation (together with its
successors, the "Company"), for value
received hereby promises to pay to:
GCA Strategic Investment Fund Limited
(the "Holder") and registered assigns, the
principal sum of Two Million Five
Hundred Thousand ($2,200,000) or, if less,
the principal amount of this Note
then outstanding, on the Maturity Date by
wire transfer of immediately available
funds to the Holder in such coin or
currency of the United States of America as
at the time of payment shall be legal
tender for the payment of public and
private debts. The Maturity Date is May
___, 2007.
Upon an
Event of Default, and until such Default has been cured,
interest
shall accrue at a rate of 12% per annum
("Default Interest"). All payments of
principal and interest hereunder shall be
made for the benefit of the Holder
pursuant to the terms of the Agreement
(hereafter defined).
This
Convertible Note (this "Convertible Note") is one of a duly
authorized issuance of up to $6,000,000
aggregate principal amount Convertible
Notes made by the Company referred to in
that certain Securities Purchase
Agreement dated as of the date hereof
between the Company and the Purchaser
named therein (the "Agreement"). The
Agreement contains certain additional
agreements among the parties with respect
to the terms of this Convertible Note,
1
<PAGE>
including, without limitation, provisions
which (A) limit the conversion rights
of the Holder, (B) specify voluntary and
mandatory redemption rights and
obligations and (C) specify Events of
Default following which the remaining
balance due and owing hereunder may be
accelerated. All such provisions are an
integral part of this Convertible Note and
are incorporated herein by reference.
This Convertible Note is transferable and
assignable to one or more Persons, in
accordance with the limitations set forth
in the Agreement.
The
Company shall keep a register (the "Register") in which shall
be
entered the names and addresses of the
registered holder of this Convertible
Note and particulars of this Convertible
Note held by such holder and of all
transfers of this Convertible Note.
References to the Holder or "Holders" shall
mean the Person listed in the Register as
registered holder of such Convertible
Notes. The ownership of this Convertible
Note shall be proven by the Register.
This Note
is secured by a Deed to Secure Debt and Security Agreement (the
"Deed") dated April __, 2005 made by the
Company and Holder creating a security
interest in favor of Holder in certain of
the Company's real properties
described in the Deed.
The Deed
contains certain additional agreements among the parties with
respect to the terms of this Note,
including, without limitation, provisions
which (A) specify voluntary and mandatory
repayment, prepayment and (B) specify
Events of Default following which the
remaining balance due and owing hereunder
may be accelerated. All such provisions are
an integral part of this Note and
are incorporated herein by reference.
1. Certain Terms Defined. All terms defined
in the Agreement and not otherwise
defined herein shall have for purposes
hereof the meanings provided for in the
Agreement.
2. Covenants. The Company covenants and
agrees to observe and perform each of
its covenants, obligations and undertakings
contained in the Agreement, which
obligations and undertakings are expressly
assumed herein by the Company and
made for the benefit of the holder
hereof.
3. Prepayment of Note. For so long as no
Event of Default shall have occurred
and is continuing and the Company is not in
receipt of a Notice of Conversion
from the Holder of the Note, the Company
may, at its option, prepay, in whole or
in part, this Convertible Note for a
pre-payment price (the "Prepayment Price")
equal to the Redemption Price set forth
herein below. Any partial prepayment of
the Convertible Note, at any time after
issuance, shall be credited to the
principal amount of the Convertible Note on
a dollar for dollar basis. The
Company shall not be entitled to send any
notice of prepayment and begin the
prepayment procedure unless it has (i) the
appropriate Prepayment Price, in
cash, available in a demand or other
immediately available account in a bank or
similar financial institution or equivalent
means acceptable to Holder or (ii)
immediately available credit facilities, in
the amount of the appropriate
Prepayment Price, with a bank or similar
financial institution on the date the
prepayment notice is sent to the Holders of
this Convertible Note. Provided,
however, the Company will process any
Notice of Conversion received prior to the
issuance of a notice of prepayment; and
further provided that, after a notice of
prepayment has been issued, the Holder may
issue a Notice of Conversion which
will not be honored unless the Company
fails to make the prepayment payment when
due. In the event of such failure, the
Notice of Conversion will be honored as
of the date of the Notice of
Conversion.
2
<PAGE>
3.1 Payment on Maturity Date. The Company
shall repay the remaining unpaid
balance of this Convertible Note on the
Maturity Date.
4. Conversion.
4.1
Conversion of
Convertible Note. Subject to Section 5 hereof, the
Holder shall have the right, at its option, at any time from
and
after the date of this Convertible Note, to convert the
outstanding
principal amount of the Convertible Note. This Convertible Note
shall be convertible into that number of fully paid and
nonassessable shares of Common Stock (as such shares shall then
be
constituted) determined pursuant to this Section 4.1. The number
of
shares of Common Stock to be issued upon each conversion of
this
Convertible Note shall be determined by dividing the Conversion
Amount (as defined below) by the Conversion Price in effect on
the
date (the "Conversion Date") a Notice of Conversion is delivered
to
the Company, as applicable, by the Holder by facsimile or other
reasonable means of communication dispatched prior to 5:00
p.m.,
E.S.T. The term "Conversion Amount" means, with respect to any
conversion of this Convertible Note, the sum of (1) the
principal
amount of this Convertible 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 Convertible Note
to
the Conversion Date plus (3) Default Interest, if any, on the
interest referred to in the immediately preceding clause (2)
plus
(4) at the Holder's option, any amounts owed to the Holder
pursuant
to Section 4.3 hereof, Section 10.1 of the Agreement or Section
10.4
of the Agreement.
4.2
Conversion
Price. At the option of the Holder, any portion or all of
the outstanding principal amount of this Convertible Note shall
be
converted into a number of shares of Common Stock at the
conversion
price (the "Conversion Price") equal to 95% of the average of
the
three lowest closing bid prices, as reported on Bloomberg, L.P.,
for
the twenty (20) trading days immediately prior to the date of
the
related notice of conversion.
4.3
Authorized
Shares.
(a) Consistent with Section 7.11 of the Agreement, the Company
(i)
shall
promptly irrevocably instruct the Company's transfer agent to
issue
certificates for the Common Stock issuable upon conversion of
this
Convertible Note and (ii) agrees that its issuance of this
Convertible
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 Convertible Note.
3
<PAGE>
(b) If at any time the Holder submits a Notice of Conversion and
(x)
the
Company does not have sufficient authorized but unissued shares
of
Common
stock available to effect such conversion in full in accordance
with
Article 4 or (y) the Company is prohibited by the NASD
Over-the-Counter Bulletin Board (the "OTCBB") on which the Common
Shares
are listed
and traded at that time to effect such conversion in full,
without shareholder approval, the
Company shall issue to the Holder all of
the shares
of Common Stock which are then available to effect such
conversion. The portion of this Convertible 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 until the date additional shares of
Common
Stock are
authorized by the Company, or its shareholders, as applicable.
The
Company shall use its best efforts to authorize, or cause its
shareholders to authorize within 40 days of the submission of
the
Conversion Notice, a sufficient
number of shares of Common Stock to effect
the full
conversion set forth in the Conversion Notice.
(c) In no event shall the Company issue upon conversion of this
Convertible Note more than the maximum number of shares allowable
without
sharehol
