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EXHIBIT 10.4
THIS NOTE WAS ORIGINALLY ISSUED ON NOVEMBER
9, 2007 AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), OR ANY STATE
SECURITIES ACT, AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR AN EXEMPTION
THEREFOR UNDER THE ACT OR ANY SUCH STATE SECURITIES LAWS THAT
MAY BE APPLICABLE.
SECURED CONVERTIBLE NOTE
Houston, Texas
No. CN-__
November 9, 2007
$_____
FOR VALUE RECEIVED , SENTINEL
EMERGENCY RESPONSE TECHNOLOGY, INC., a Nevada corporation
(hereinafter called the “ Borrower ”), hereby
promises to pay to the order of _____________, or its registered
assigns (the “ Holder ”) the sum of
$__________, on November 9, 2010 (the “Maturity
Date ”), and to pay interest on the unpaid principal
balance hereof at the rate of five percent (5%) (the “
Interest Rate ”) per annum from November 9, 2007
(the “ Issue Date ”) until the same becomes
due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise. Any amount of principal or
interest on this Secured Convertible Note (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. All payments due
hereunder (to the extent not converted into the Borrower’s
common stock, $.001 par value per share (the “Common
Stock” ), in accordance with the terms hereof) shall
be made in lawful money of the United States of America.
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. 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.
Pursuant to that certain Assignment, Assumption
and Consent Agreement dated as of November 9, 2007, by and among
the Borrower, the Holder and certain other parties thereto, the
Borrower assumed $________ of the obligations (the “
Assumed Obligation ”) of Aegis Assessments, Inc., a
Delaware corporation (“ Aegis ”), to the
Holder pursuant to a Secured Convertible Note dated February 16,
2006 executed by Aegis in favor of the Holder. The Holder
acknowledges and agrees that this Note is being executed and
delivered by the Borrower in exchange for the cancellation of
the Assumed Obligation and that upon execution and delivery of
this Note to the Holder, the Assumed Obligation shall be deemed
paid in full and extinguished.
This Note is free from all taxes, liens, claims
and encumbrances with respect to the issuance hereof 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.
The obligations of the Borrower under its
Secured Convertible Notes in the aggregate principal amount of
$1,000,000 (of which this Note is one) (the “
Convertible Notes ”), Secured Convertible Notes in
the aggregate principal amount of $70,000 (the “
Deferred Convertible Notes ”) and Secured
Convertible Notes in the aggregate principal amount of $566,615
(the “ Loan Notes ”) are secured by the
collateral set forth in that certain Security Agreement of even
date herewith by and among the Borrower, the Holder and certain
other parties thereto (the “ Security Agreement
”). Reference is made to the Security Agreement for
a description of the nature and extent of the security for the
Convertible Notes, the Deferred Convertible Notes and the Loan
Notes and the rights with respect to such security of the
Holder. The Convertible Notes, the Deferred Convertible
Notes and the Loan Notes are pari passu with respect to the
collateral securing such notes and in right of payment;
provided , however , that the Deferred Convertible
Notes may be paid in full or in part prior to the Conversion
Trigger Date (as defined in the Deferred Convertible Notes) (the
“ Optional Prepayment Exception ”). The
Convertible Notes, the Deferred Convertible Notes and the Loan
Notes are referred to collectively herein as the “
Secured Notes ”.
The following terms shall apply to this
Note:
ARTICLE I. CONVERSION
RIGHTS
1.1
Conversion Right .
Subsequent to the date the U.S. Securities and Exchange
Commission (the “ SEC ”) declares the
Borrower’s Registration Statement on Form SB-2 (or, if
Form SB-2 is not then available, on such form of registration
statement as is then available to effect a shelf registration by
Borrower of its Common Stock) (the " Registration
Statement ") registering the resale of the shares of Common
Stock underlying the Secured Notes (the " Resale Shares
") effective (the “ Effective Date ”) and at
any time thereafter that the Registration Statement is current
and effective covering the shares of Common Stock to be issued
in connection with a Conversion (as defined below), 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, (ii) the date of
payment of the Default Amount (as defined below), or (iii) the
date of payment pursuant to Section 1.6(a) or Article III, 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 thereafter 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 this Note or the unexercised or
unconverted portion of any other security of the Borrower
(including, without limitation, other Secured Notes), subject to
a limitation on conversion or
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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 four and ninety nine hundredths percent (4.99%) of
the outstanding shares of Common Stock. 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 of
conversion 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 the
conversion date specified in the Notice of Conversion (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,
provided , however , that the Borrower shall have
the right to pay any or all interest in cash, plus (3)
Default Interest, if any, on the amounts referred to in the
immediately preceding clauses (1) and/or (2),
provided , however , that the Borrower shall have
the right to pay any or all Default Interest in cash,
plus (4) at the Holder’s option, any amounts owed
to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
In addition, the Holder agrees that it will limit
conversion of all of its Secured Notes in the aggregate to no
more than the greater of (1) $20,000, or (2) seven percent (7%)
of the aggregate outstanding principal amount of the Secured
Notes held by such Holder, per calendar month.
1.2
Conversion Price .
(a)
Calculation of Conversion Price .
The Conversion Price shall be the Variable Conversion
Price (as defined below) (subject, in each case, to equitable
adjustments for stock splits, stock dividends or rights
offerings by the Borrower relating to the Borrower’s
securities, combinations, recapitalization, reclassifications
and similar events). The “ Variable Conversion
Price ” shall mean the Applicable Percentage (as
defined below) multiplied by the Market Price (as defined
below). “ 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
(as defined below) period ending one Trading Day prior to the
Conversion Date. “ Trading Price ”
means, for any security as of any date, the intraday trading
price or the closing price, as applicable, on the Pink Sheets,
NASD Over-the-Counter Bulletin Board, NASDAQ Global Market,
NASDAQ Global Select Market, NASDAQ Capital Market, American
Stock Exchange or New York Stock Exchange (collectively, the
“ Markets ”). 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 a
majority of the Holders of the Secured Notes being converted.
“ Trading Day ” shall mean any day on
which the Common Stock is traded for any period on the principal
securities exchange or other securities market on which the
Common Stock is then being traded. “ Applicable
Percentage ” shall mean fifty percent (50%);
provided , however , that the Applicable
Percentage shall be increased to (i)
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fifty five percent (55%) in the event that the
Registration Statement is filed on or before the date that is
sixty (60) days subsequent to the Issue Date, and (ii) sixty
percent (60%) in the event that the Effective Date occurs on a
date that is one hundred eighty (180) days subsequent to the
Issue Date.
(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 more than fifty
percent (50%) of the Borrower’s outstanding 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 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
or the person, group or entity 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 . The
Borrower covenants that during the period the conversion right
exists, the Borrower will use its best efforts to 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 the then-outstanding
Secured Notes. The Borrower will use its best efforts at
all times to have authorized and reserved the number of shares
that are actually issuable upon full conversion of the
then-outstanding Secured Notes (based on the Conversion Price of
the Secured Notes in effect from time to time) (the “
Reserved Amount ”). 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 Secured 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
then-outstanding Secured Notes. The Borrower (i)
acknowledges that, upon a Conversion, it will instruct 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.
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If at any time the Holder 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 the
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 cash, paid to the Holder by the fifth (5
th ) day of the month following the month in which it
has accrued, or
(b)
in Common Stock, and the Holder may 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 (5
th ) 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).
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
Effective 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
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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 three (3)
business days after such receipt (and, solely in the case of
conversion of the entire unpaid principal amount hereof,
surrender of this Note) (such third business day being
hereinafter referred to as the “ Deadline ”)
in accordance with the terms hereof.
(e)
Obligation of the 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,
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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.
(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 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 commercially reasonable best efforts to
cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the
account of the Holder’s Prime Broker with DTC through its
Deposit Withdrawal Agent Commission 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) business 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 $1,000 per day in
cash, for each day beyond the Deadline that the Borrower fails
to deliver such Common Stock but in no event shall such payment
exceed $5,000 in the aggregate. Such cash amount shall be
paid to the 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
Securities Act of 1933, as amended (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 Holder
who agrees to sell or otherwise transfer the shares only in
accordance with this Section 1.5 and who is an “accredited
inve
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