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EXHIBIT 10.61
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.
PRINCIPAL AMOUNT $1,000,000.00
ISSUE DATE: MAY 4, 2007
SECURED CONVERTIBLE NOTE
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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 90th 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.
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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.
(c) Subject to adjustment as provided in Section 2.1(c)
hereof, the Conversion Price per share shall be equal to $0.45.
(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.
2
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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 right to prepay must be by notic
