SECURED CONVERTIBLE TERM NOTE

 

                                                                     EXHIBIT 4.2

 

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 FAST EDDIE RACING STABLES,   INC. THAT SUCH   REGISTRATION IS NOT

REQUIRED.

 

                          SECURED CONVERTIBLE TERM NOTE

 

      FOR VALUE RECEIVED, FAST EDDIE RACING STABLES, INC., a Florida 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 Three

Million   Dollars   ($3,000,000),   together   with any accrued and unpaid   interest

hereon,   on March 9, 2008 (the "Maturity Date") if not sooner paid. The original

principal amount of this Note subject to amortizing payments pursuant to Section

1.2 hereof is hereinafter   referred to as the "Amortizing   Principal Amount" and

the remaining original principal amount of this Note is hereinafter   referred to

as the   "Non-Amortizing   Principal Amount." The Amortizing   Principal Amount and

the Non-Amortizing   Principal Amount are collectively   referred to herein as the

"Principal Amount".

 

      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   principal   amount of this Note that is   contained   in the   Restricted

Account   (as   defined in the   Restricted   Account   Agreement   referred to in the

Purchase Agreement) on the date of the issuance of this Note is Two Million Five

Hundred Thousand Dollars ($2,500,000).

 

      The following terms shall apply to this Note:

 

                                     ARTICLE I

                             INTEREST & AMORTIZATION

 

      1.1 (a) Interest Rate.   Subject to Sections   1.1(b),   4.12 and 5.6 hereof,

interest   payable on this Note shall   accrue at a rate per annum (the   "Interest

Rate") equal to the "prime rate"   published in The Wall Street Journal from time

to time, plus three percent (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. Interest shall be calculated

on the basis of a 360 day year.   Interest shall accrue but not be payable during

the period commencing on the date hereof and ending on March 31, 2005.

 

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Interest   on the   Amortizing   Principal   Amount   shall be   payable   monthly,   in

arrears,   commencing   on April 1, 2005 and on the first day of each   consecutive

calendar month thereafter   (each, a "Repayment   Date") and on the Maturity Date,

whether by acceleration   or otherwise.   Accrued   interest on the   Non-Amortizing

Principal   Amount shall be payable only on the Maturity Date or, in the event of

the   redemption   or   conversion   of   all or any   portion   of the   Non-Amortizing

Principal Amount,   accrued interest on the amount so redeemed or converted shall

be paid on the date of redemption or conversion, as the case may be.

 

      1.1 (b) Interest   Rate   Adjustment.   The Interest Rate shall be subject to

adjustment on the last business day of each month   hereafter   until the Maturity

Date   (each   a   "Determination   Date").   If on any   Determination   Date   (i) the

Borrower shall have registered under the Securities Act of 1933, as amended (the

"Securities   Act"), the shares of Common Stock underlying each of the conversion

of this Note and the exercise of the Warrant issued 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)

consecutive   trading days immediately   preceding such 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 25 basis points (25 b.p.) (0.25%) for each incremental twenty five

percent   (25%)   increase in the Market Price of the Common Stock above the Fixed

Conversion   Price,    after   giving   effect   to   adjustments   set   forth   herein.

Notwithstanding   the   foregoing   (and   anything   to the   contrary   contained   in

herein), in no event shall the Interest Rate be less than zero percent (0%).

 

      1.2   Minimum   Monthly   Principal   Payments.   Amortizing   payments   of   the

outstanding   principal   amount   of this   Note not   contained   in the   Restricted

Account (as defined in the Restricted   Account Agreement) shall begin on July 1,

2005 and shall recur on each   succeeding   Repayment   Date   thereafter   until the

Amortizing   Principal Amount has been repaid in full,   whether by the payment of

cash or by the   conversion of such   principal   into Common Stock pursuant to the

terms   hereof.   Subject to Section   2.1 and Article 3 below,   on each   Repayment

Date, the Borrower shall make payments to the Holder in the amount of $14,705.88

(the "Monthly Principal Amount"),   together with any accrued and unpaid interest

then due on such   portion of the   Amortizing   Principal   Amount plus any and all

other   amounts which are then owing under this Note that have not been paid (the

Monthly   Principal   Amount,   together with such accrued and unpaid   interest and

such   other   amounts,   collectively,   the   "Monthly   Amount") ;   provided   that,

following   a release   of an   amount of funds   from the   Restricted   Account   (as

defined in the Restricted   Account   Agreement) for the purposes set forth in the

Restricted Account Side Letter (other than with respect to a release that occurs

as a result of a conversion of any Principal   Amount) (each, a "Release Amount")

each Monthly   Principal   Amount due on any Repayment   Date occurring on or after

the 90th day following any such release shall be increased by an amount equal to

(x) such   Release   Amount   divided by (y) the sum of (I) the number of Repayment

Dates   occurring   on or after   the   90th day   following   any   such   release   and

remaining   until the Maturity Date plus (II) one (1). Any Principal   Amount that

remains   outstanding   on the   Maturity   Date   shall   be due and   payable   on the

Maturity Date.

 

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                                   ARTICLE II

                              CONVERSION REPAYMENT

 

      2.1 (a) Payment of Monthly Amount in Cash or Common Stock.   If the Monthly

Amount   (or a portion   thereof   of such   Monthly   Amount if such   portion of the

Monthly   Amount   would have been   converted   into shares of Common Stock but for

Section 3.2) is required to be paid in cash pursuant to Section 2.1(b), then the

Borrower   shall pay the   Holder an amount   equal to the   Monthly   Amount due and

owing to the Holder on the Repayment   Date in cash. If the Monthly   Amount (or a

portion of such Monthly Amount if not all of the Monthly Amount may be converted

into shares of Common   Stock   pursuant to Section 3.2) is required to be paid in

shares of Common Stock pursuant to Section 2.1(b),   the number of such shares to

be issued by the   Borrower to the Holder on such   Repayment   Date (in respect of

such   portion of the Monthly   Amount   converted   into in shares of Common   Stock

pursuant to Section 2.1(b)),   shall be the number determined by dividing (x) the

portion of the Monthly Amount   converted into shares of Common Stock, by (y) the

then applicable Fixed Conversion Price. For purposes hereof,   the initial "Fixed

Conversion Price" means $0.83.

 

            (b)   Monthly   Amount   Conversion   Guidelines.   Subject   to   Sections

2.1(a), 2.2 and 3.2 hereof, the Holder shall convert into shares of Common Stock

all or a portion of the Monthly   Amount due on each   Repayment Date according to

the following   guidelines   (collectively,   the "Conversion   Criteria"):   (i) the

average closing price of the Common Stock as reported by Bloomberg,   L.P. on the

Principal Market for the five (5) consecutive trading days immediately preceding

such   Repayment   Date   shall   be   greater   than or   equal   to 120% of the   Fixed

Conversion   Price and (ii) the amount of such   conversion does not exceed twenty

five percent (25%) of the aggregate   dollar   trading   volume of the Common Stock

for the twenty two (22) day trading period immediately   preceding the applicable

Repayment Date. If the Conversion Criteria are not met, the Holder shall convert

only such part of the Monthly   Amount that meets the   Conversion   Criteria.   Any

part of the Monthly   Amount due on a Repayment Date that the Holder has not been

able to   convert   into   shares   of   Common   Stock   due to   failure   to meet   the

Conversion   Criteria,   shall be paid by the   Borrower in cash   within   three (3)

business days following the applicable Repayment Date.

 

            (c) Application of Conversion Amounts.   Any amounts converted by the

Holder pursuant to Section 2.1(b) shall be deemed to constitute   payments of, or

applied against, (i) first,   outstanding fees, (ii) second,   accrued interest on

the Amortizing   Principal   Amount,   and (iii) third,   the   Amortizing   Principal

Amount.

 

      2.2 No Effective   Registration.   Notwithstanding   anything to the contrary

herein,   no amount   payable   hereunder may be converted into Common Stock unless

(a) either (i) an effective   current   Registration   Statement (as defined in the

Registration   Rights Agreement) covering the shares of Common Stock to be issued

in   satisfaction   of   such   obligations    exists,   or   (ii)   an   exemption   from

registration   of the   Common   Stock   is   available   pursuant   to Rule 144 of the

Securities Act, and (b) 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.

 

      2.3 Optional Redemption of Amortizing Principal Amount. The Borrower will

have the option of prepaying the outstanding Amortizing Principal Amount

("Optional Amortizing

 

<PAGE>

 

Redemption"),   in whole or in part, by paying to the Holder a sum of money equal

to (i) one hundred twenty five percent (125%) of the Amortizing Principal Amount

to be redeemed,   together with accrued but unpaid interest   thereon and (ii) any

and all other sums due,   accrued or   payable   to the Holder   arising   under this

Note, the Purchase Agreement or any Related Agreement (the preceding clauses (i)

and (ii),   collectively,   the "Amortizing   Redemption Amount") on the Amortizing

Redemption   Payment Date (as defined   below).   The Borrower shall deliver to the

Holder a notice of redemption (the "Notice of Amortizing Redemption") specifying

the date for such Optional   Amortizing   Redemption (the   "Amortizing   Redemption

Payment Date"),   which date shall be not less than seven (7) business days after

the date of the Notice of Amortizing   Redemption (the   "Redemption   Period").   A

Notice of   Amortizing   Redemption   shall not be   effective   with   respect to any

portion of the   Amortizing   Principal   Amount 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

Amortizing   Redemption Amount shall be determined as if such Holder's conversion

elections   had been   completed   immediately   prior to the date of the   Notice of

Amortizing Redemption. On the Amortizing Redemption Payment Date, the Amortizing

Redemption   Amount   shall be paid in good funds to the Holder.   In the event the

Borrower   fails   to pay   the   Amortizing   Redemption   Amount   on the   Amortizing

Redemption   Payment   Date as set forth   herein,   then such Notice of   Amortizing

Redemption will be null and void.

 

       2.4 Optional   Redemption of Non-Amortizing   Principal Amount. The Borrower

will have the option of repaying the outstanding Non-Amortizing Principal Amount

("Optional   Non-Amortizing   Redemption"),   in whole or in part,   by   paying   the

Holder   a sum of   money   equal   to one   hundred   twenty   percent   (120%)   of the

Non-Amortizing Principal Amount to be redeemed, together with accrued but unpaid

interest thereon (the "Non-Amortizing   Redemption Amount") on the Non-Amortizing

Redemption Date (as defined   below).   The Borrower shall deliver to the Holder a

written   notice   of   redemption   (the   "Notice   of   Non-Amortizing   Redemption")

specifying    the   date   for   such   Optional    Non-Amortizing    Redemption    (the

"Non-Amortizing   Redemption Date"),   which date shall be not less than seven (7)

business   days after the date of the Notice of   Non-Amortizing   Redemption   (the

"Non-Amortizing Redemption Period"). A Notice of Non-Amortizing Redemption shall

not be   effective   with respect to any portion of the   Non-Amortizing   Principal

Amount 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   Non-Amortizing   Redemption   Period.   The   Non-Amortizing

Redemption   Amount shall be determined as if the Holder's   conversion   elections

had been completed immediately prior to the date of the Notice of Non-Amortizing

Redemption. On the Non-Amortizing Redemption Date, the Non-Amortizing Redemption

Amount   shall be paid (i) in good funds to the Holder,   (ii) by   furnishing   the

Holder written   direction to notify the bank holding the   Restricted   Account to

release   from the   Restricted   Account   and deliver to the Holder a sum of money

equal to the Non-Amortizing Redemption Amount, or (iii) if the amount on deposit

in the Restricted Account is less than the Non-Amortizing   Redemption Amount, by

furnishing   the   Holder   written   direction   to   n