Exhibit
10.54
THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO DIAMOND ENTERTAINMENT CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
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Principal Amount
$1,000,000.00
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Issue Date: November 30,
2006
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SECURED CONVERTIBLE
NOTE
FOR VALUE
RECEIVED, DIAMOND ENTERTAINMENT CORPORATION, a New Jersey
corporation (hereinafter called "Borrower"), hereby promises to pay
to LONGVIEW FUND, LP, 600 Montgomery Street, 44th Floor, San
Francisco, CA 94111, Fax: (415) 981-5301 (the "Holder") or order,
without demand, the sum of One Million Dollars ($1,000,000.00),
with interest accruing thereon, on November 30, 2008 (the "Maturity
Date"), if not retired sooner.
This Note has been entered into pursuant to the
terms of a subscription agreement between the Borrower and the
Holder, dated of even date herewith (the “Subscription
Agreement”), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein,
all capitalized terms used in this Note shall have the same meaning
as is set forth in the Subscription Agreement. The following terms
shall apply to this Note:
ARTICLE
I
GENERAL
PROVISIONS
1.1 Interest Rate . Interest payable on this Note shall accrue at
the annual rate of twelve percent (12%) and be payable on the
90 th
day after the Issue Date and on the
last day of each calendar quarter thereafter and on the Maturity
Date, accelerated or otherwise, when the principal and remaining
accrued but unpaid interest shall be due and payable, or sooner as
described below.
1.2 Payment Grace Period . The Borrower shall have a five (5) day grace
period to pay any monetary amounts due under this Note, after which
grace period a default interest rate of fifteen percent (15%) per
annum.
1.3 Conversion Privileges . The Conversion Privileges set forth in Article
II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the
occurrence of an Event of Default. The Note shall be payable in
full on the Maturity Date, unless previously converted into Common
Stock in accordance with Article II hereof; provided, that if an
Event of Default has occurred, the Borrower may not pay this Note,
without the consent of the Holder, until one year after the later
of the date the Event of Default has been cured or one year after
the Maturity Date.
ARTICLE
II
CONVERSION
RIGHTS
The Holder shall have the right to convert the
principal and any interest due under this Note into Shares of the
Borrower's Common Stock, no par value per share (“Common
Stock”) as set forth below.
2.1. Conversion into the Borrower's Common
Stock .
(a) The Holder shall have the right from and after
the date of the issuance of this Note and then at any time until
this Note is fully paid, to convert any outstanding and unpaid
principal portion of this Note, and accrued interest, at the
election of the Holder (the date of giving of such notice of
conversion being a "Conversion Date") into fully paid and
nonassessable shares of Common Stock as such stock exists on the
date of issuance of this Note, or any shares of capital stock of
Borrower into which such Common Stock shall hereafter be changed or
reclassified, at the conversion price as defined in Section 2.1(b)
hereof (the "Conversion Price"), determined as provided herein. The
Borrower shall have the option from and after the date of issuance
of this Note and then at any time until this Note is fully paid, to
convert any accrued interest into fully paid non-assessable
registered shares of Common Stock valued at 85% of the average of
the daily volume weighted average price (“VWAP”) during
the five trading days ending the day prior to a payment date. Upon
delivery to the Borrower of a completed Notice of Conversion, a
form of which is annexed hereto, Borrower shall issue and deliver
to the Holder within three (3) business days after the Conversion
Date (such third day being the “Delivery Date”) that
number of shares of Common Stock for the portion of the Note
converted in accordance with the foregoing. At the election of the
Holder, the Borrower will deliver accrued but unpaid interest on
the Note, if any, through the Conversion Date directly to the
Holder on or before the Delivery Date (as defined in the
Subscription Agreement). The number of shares of Common Stock to be
issued upon each conversion of this Note shall be determined by
dividing that portion of the principal of the Note and interest, if
any, to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section
2.1(c) hereof, the Conversion Price per share shall be equal to
[a number equal to $12,000,000 pre-money valuation on a
fully diluted basis] .
(c) The Conversion Price and number and kind of
shares or other securities to be issued upon conversion determined
pursuant to Section 2.1(a), shall be subject to adjustment from
time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at
any time shall consolidate with or merge into or sell or convey all
or substantially all its assets to any other corporation, this
Note, as to the unpaid principal portion thereof and accrued
interest thereon, shall thereafter be deemed to evidence the right
to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of
such consolidation, merger, sale or conveyance, upon or with
respect to the securities subject to the conversion or purchase
right immediately prior to such consolidation, merger, sale or
conveyance. The foregoing provision shall similarly apply to
successive transactions of a similar nature by any such successor
or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such
securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance. This subsection does not
preclude the sale of the assets and the rights of the DVD and Video
business.
B. Reclassification, etc. If the Borrower at any
time shall, by reclassification or otherwise, change the Common
Stock into the same or a different number of securities of any
class or classes that may be issued or outstanding, this Note, as
to the unpaid principal portion thereof and accrued interest
thereon, shall thereafter be deemed to evidence the right to
purchase an adjusted number of such securities and kind of
securities as would have been issuable as the result of such change
with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations and Dividends. If
the shares of Common Stock are subdivided or combined into a
greater or smaller number of shares of Common Stock, or if a
dividend is paid on the Common Stock in shares of Common Stock, the
Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately
increased in the case of combination of shares, in each such case
by the ratio which the total number of shares of Common Stock
outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such
event..
D. Share Issuance. So long as this Note is
outstanding, if the Borrower shall issue or agree to issue any
shares of Common Stock except for the Excepted Issuances (as
defined in the Subscription Agreement) for a consideration less
than the Conversion Price in effect at the time of such issue,
then, and thereafter successively upon each such issue, the
Conversion Price shall be reduced to such other lower issue price.
For purposes of this adjustment, the issuance of any security
carrying the right to convert such security into shares of Common
Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon the
issuance of the above-described security and again upon the
issuance of shares of Common Stock upon exercise of such conversion
or purchase rights if such issuance is at a price lower than the
then applicable Conversion Price. The reduction of the Conversion
Price described in this paragraph is in addition to other rights of
the Holder described in this Note and the Subscription
Agreement.
(d) Whenever the Conversion Price is adjusted
pursuant to Section 2.1(c) above, the Borrower shall promptly mail
to the Holder a notice setting forth the Conversion Price after
such adjustment and setting forth a statement of the facts
requiring such adjustment.
(e) During the period the conversion right exists,
Borrower will reserve from its authorized and unissued Common Stock
not less than an amount of Common Stock equal to 150% of the amount
of shares of Common Stock issuable upon the full conversion of this
Note. Borrower represents that upon issuance, such shares will be
duly and validly issued, fully paid and non-assessable. Borrower
agrees that its issuance of this Note shall constitute full
authority to its officers, agents, and transfer agents who are
charged with the duty of executing and issuing stock certificates
to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
2.2 Method of Conversion . This Note may be converted by the Holder in
whole or in part as described in Section 2.1(a) hereof and the
Subscription Agreement. Upon partial conversion of this Note, a new
Note containing the same date and provisions of this Note shall, at
the request of the Holder, be issued by the Borrower to the Holder
for the principal balance of this Note and interest which shall not
have been converted or paid.
2.3 Optional Redemption of Principal
Amount . Provided an
Event of Default or an event which with the passage of time or the
giving of notice could become an Event of Default has not occurred,
whether or not such Event of Default has been cured, the Borrower
will have the option of prepaying the outstanding Principal amount
of this Note ("Optional Redemption"), in whole or in part, by
paying to the Holder a sum of money equal to one hundred and twenty
percent (120%) of the Principal amount to be redeemed, together
with accrued but unpaid interest thereon and any and all other sums
due, accrued or payable to the Holder arising under this Note or
any Transaction Document through the Redemption Payment Date as
defined below (the "Redemption Amount"). Borrower’s election
to exercise its righ
