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EXHIBIT 10.5
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE
SECURITIES LAWS. 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
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY
SATISFACTORY TO SYNERGY BRANDS INC. THAT SUCH REGISTRATION IS
NOT REQUIRED.
SECURED CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, SYNERGY BRANDS INC., a Delaware corporation
(the
"Borrower"), hereby promises to pay to LAURUS MASTER FUND, LTD.,
c/o M&C
Corporate Services Limited, P.O. Box 309 GT, Ugland House, South
Church Street,
George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080
(the "Holder") or
its registered assigns or successors in interest, on order, the
sum of FIVE
HUNDRED THOUSAND Dollars ($500,000), together with any accrued
and unpaid
interest hereon, on January 25, 2008 (the "Maturity Date") if
not sooner paid.
Capitalized terms used herein without definition shall have the
meanings
ascribed to such terms in that certain Securities Purchase
Agreement dated as of
the date hereof between the Borrower and the Holder (the
"Purchase Agreement").
The following terms shall apply to this Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1(a) Interest Rate. Subject to Sections 4.10 and 5.6 hereof,
interest
payable on this Note shall accrue at a rate per annum (the
"nterest Rate")
equal to the "prime rate" published in The Wall Street Journal
from time to
time, plus three (3%). The prime rate shall be increased or
decreased as the
case may be for each increase or decrease in the prime rate in
an amount equal
to such increase or decrease in the prime rate; each change to
be effective as
of the day of the change in such rate. Subject to Section 1.1(b)
hereof, the
Interest Rate shall not be less than eight percent (8.0%) and
shall not exceed
twelve percent (12%). Interest shall be (i) calculated on the
basis of a 360 day
year, (ii) payable monthly, in arrears, commencing on February
1, 2005 and on
the first business day of each consecutive calendar month
thereafter until the
Maturity Date (and on the Maturity Date), whether by
acceleration or otherwise
(each, a "Repayment Date"). Notwithstanding anything to the
contrary contained
in Section 1.1(a) or (b), in no event shall the Interest Rate be
less than zero
percent (0%).
1.1 (b) Interest Rate Adjustment. The Interest Rate shall be
calculated on
the last business day of each month hereafter until the Maturity
Date (each a
"Determination Date") and shall be subject to adjustment as set
forth herein. If
(i) the Borrower shall have registered the shares of the
Borrower's common stock
underlying each of the conversion of the Note and that certain
warrant issued to
Holder on a registration statement declared effective by the
Securities and
Exchange Commission (the "SEC"), and (ii) the market price (the
"Market Price")
of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market (as
defined below) for the five (5) trading days immediately
preceding a
Determination Date exceeds the then applicable Fixed Conversion
Price by at
least twenty five percent (25%), the Interest Rate for the
succeeding calendar
month shall automatically be reduced by 200 basis points (200
b.p.) (2.0.%) for
each incremental twenty five percent (25%) increase in the
Market Price of the
Common Stock above the then applicable Fixed Conversion Price.
If (i) the
Borrower shall not have registered the shares of the Borrower's
common stock
underlying the conversion of the Note and that certain warrant
issued to Holder
on a registration statement declared effective by the SEC and
which remains
effective, and (ii) the Market Price of the Common Stock as
reported by
Bloomberg, L.P. on the principal market for the five (5) trading
days
immediately preceding a Determination Date exceeds the then
applicable Fixed
Conversion Price by at least twenty five percent (25%), the
Interest Rate for
the succeeding calendar month shall automatically be decreased
by 100 basis
points (100 b.p.) (1.0.%) for each incremental twenty five
percent (25%)
increase in the Market Price of the Common Stock above the then
applicable Fixed
Conversion Price.
1.2 Minimum Monthly Principal Payments. Amortizing payments of
the
aggregate principal amount outstanding under this Note at any
time (the
"Principal Amount") shall begin on August 1, 2005 and shall
recur on the first
business day of each succeeding month thereafter until the
Maturity Date (each,
an "Amortization Date"). Subject to Article 3 below, beginning
on the first
Amortization Date, the Borrower shall make monthly payments to
the Holder on
each Repayment Date, each in the amount of $16,666.67, together
with any accrued
and unpaid interest to date on such portion of the Principal
Amount plus any and
all other amounts which are then owing under this Note but have
not been paid
(collectively, the "Monthly Amount"). Any Principal Amount that
remains
outstanding on the Maturity Date shall be due and payable on the
Maturity Date.
<PAGE>
ARTICLE II
CONVERSION REPAYMENT
2.1 (a) Payment of Monthly Amount in Cash or Common Stock. Each
month by
the tenth (10th) business day prior to each Amortization Date
(the "Notice
Date"), the Holder shall deliver to Borrower a written notice in
the form of
Exhibit B attached hereto converting the Monthly Amount payable
on the next
Repayment Date in either cash or Common Stock, or a combination
of both (each, a
"Repayment Notice"). If a Repayment Notice is not delivered by
the Holder on or
before the applicable Notice Date for such Repayment Date, then
the Borrower
shall pay the Monthly Amount due on such Repayment Date in cash.
Any portion of
the Monthly Amount paid in cash on a Repayment Date, shall be
paid to the Holder
an amount equal to 103% of the principal portion of the Monthly
Amount due and
owing to Holder on the Repayment Date. If the Holder converts
all or a portion
of the Monthly Amount in shares of Common Stock as provided
herein, the number
of such shares to be issued by the Borrower to the Holder on
such Repayment Date
shall be the number determined by dividing (x) the portion of
the Monthly Amount
to be paid in shares of Common Stock, by (y) the then applicable
Fixed
Conversion Price. For purposes hereof, the initial "Fixed
Conversion Price"
means $4.00.
(b) Monthly Amount Conversion Guidelines. Subject to Sections
2.1(a), 2.2,
and 3.2 hereof, the Holder shall convert all or a portion of the
Monthly Amount
due on each Repayment Date in shares of Common Stock if the
average closing
price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market
for the five (5) trading days immediately preceding such
Repayment Date was
greater than 115% of the Fixed Conversion Price, provided,
however, that such
conversions shall not exceed twenty five percent (25%) of the
aggregate dollar
trading volume of the Common Stock for the five (5) day trading
period
immediately preceding delivery of a Notice of Conversion to the
Borrower. Any
part of the Monthly Amount due on a Repayment Date that the
Holder has not
converted into shares of Common Stock shall be paid by the
Borrower in cash on
such Repayment Date. Any part of the Monthly Amount due on such
Repayment Date
which must be paid in cash (as a result of the closing price of
the Common Stock
on one or more of the five (5) trading days preceding the
applicable Repayment
Date being less than 115% of the Fixed Conversion Price) shall
be paid in cash
at the rate of 103% of the Monthly Amount otherwise due on such
Repayment Date,
within three (3) business days of the applicable Repayment
Date.
2.2 No Effective Registration. Notwithstanding anything to the
contrary
herein, none of the Borrower's obligations to the Holder may be
converted into
Common Stock unless (i) either (x) an effective current
Registration Statement
(as defined in the Registration Rights Agreement) covering the
shares of Common
Stock to be issued in connection with satisfaction of such
obligations exists,
or (y) an exemption from registration of the Common Stock is
available to
pursuant to Rule 144 of the Securities Act, and (ii) no Event of
Default
hereunder exists and is continuing, unless such Event of Default
is cured within
any applicable cure period or is otherwise waived in writing by
the Holder in
whole or in part at the Holder's option.
Any amounts converted by the Holder pursuant to this Section 2.2
shall be
deemed to constitute payments of outstanding fees, interest and
principal
arising in connection with Monthly Amounts for the remaining
Repayment Dates, in
chronological order.
2.4 Optional Redemption in Cash. The Borrower will have the
option of
prepaying this Note ("Optional Redemption") by paying to the
Holder a sum of
money equal to one hundred twenty percent (120%) of the
principal amount of this
Note together with accrued and unpaid interest thereon and any
and all other
sums due, accrued or payable to the Holder arising under this
Note, the
Securities Purchase Agreement, or any Related Agreement (the
"Redemption
Amount") outstanding on the day written notice of redemption
(the "Notice of
Redemption") is given to the Holder. The Notice of Redemption
shall specify the
date for such Optional Redemption (the "Redemption Payment
Date") which date
shall be seven (7) business days after the date of the Notice of
Redemption (the
"Redemption Period"). A Notice of Redemption shall not be
effective with respect
to any portion of this Note for which the Holder has a pending
election to
convert pursuant to Section 3.1, or for conversions initiated or
made by the
Holder pursuant to Section 3.1 during the Redemption Period. The
Redemption
Amount shall be determined as if such Holder's conversion
elections had been
completed immediately prior to the date of the Notice of
Redemption. On the
Redemption Payment Date, the Redemption Amount must be paid in
good funds to the
Holder. In the event the Borrower fails to pay the Redemption
Amount on the
Redemption Payment Date as set forth herein, then such
Redemption Notice will be
null and void.
<PAGE>
ARTICLE III
CONVERSION RIGHTS
3.1. Holder's Conversion Rights. The Holder shall have the
right, but not
the obligation, to convert all or any portion of the then
aggregate outstanding
principal amount of this Note, together with interest and fees
due hereon, into
shares of Common Stock subject to the terms and conditions set
forth in this
Article III. The Holder may exercise such right by delivery to
the Borrower of a
written notice of conversion not less than one (1) day prior to
the date upon
which such conversion shall occur. The date upon which such
conversion shall
occur is (the "Conversion Date").
3.2 Conversion Limitation. Notwithstanding anything contained
herein to the
contrary, the Holder shall not be entitled to convert pursuant
to the terms of
this Note an amount that would be convertible into that number
of Conversion
Shares which would exceed the difference between the number of
shares of Common
Stock beneficially owned by such Holder or issuable upon
exercise of warrants
held by such Holder and 4.99% of the outstanding shares of
Common Stock of the
Borrower. For the purposes of the immediately preceding
sentence, beneficial
ownership shall be determined in accordance with Section 13(d)
of the Exchange
Act and Regulation 13d-3 thereunder. The Holder may void the
Conversion Share
limitation described in this Section 3.2 upon 75 days prior
notice to the
Borrower or without any notice requirement upon an Event of
Default.
Notwithstanding anything contained herein to the contrary, the
number of shares
of Common Stock issuable by the Borrower and acquirable by the
Holder at a price
below $2.48 per share pursuant to the terms of this Note, the
Purchase Agreement
or any Related Agreement, shall not exceed an aggregate of
436,012 shares of the
Borrower's Common Stock (subject to appropriate adjustment for
stock splits,
stock dividends, or other similar recapitalizations affecting
the Common Stock)
(the "Maximum Common Stock Issuance"), unless the issuance of
shares hereunder
in excess of the Maximum Common Stock Issuance shall first be
approved by the
Borrower's shareholders. If at any point in time and from time
to time the
number of shares of Common Stock issued pursuant to the terms of
this Note, the
Purchase Agreement or any Related Agreement, together with the
number of shares
of Common Stock that would then be issuable by the Borrower to
the Holder in the
event of a conversion or exercise pursuant to the terms of this
Note, the
Purchase Agreement or any Related Agreement, would exceed the
Maximum Common
Stock Issuance but for this Section 3.2, the Borrower shall
promptly call a
shareholders meeting to solicit shareholder approval for the
issuance of the
shares of Common Stock hereunder in excess of the Maximum Common
Stock Issuance.
3.3 Mechanics of Holder's Conversion. (a) In the event that the
Holder
elects to convert this Note into Common
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