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EXHIBIT 10.5
THIS NOTE WAS ORIGINALLY ISSUED ON NOVEMBER
9, 2007 PURSUANT TO AN ASSET PURCHASE AGREEMENT DATED NOVEMBER
9, 2007 BY AND AMONG THE ISSUER OF THIS NOTE AND CERTAIN OTHER
PERSONS (THE “AGREEMENT”), 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 EXECEMPTION THEREFORE UNDER THE ACT OR ANY
SUCH STATE SECURITIES LAWS THAT MAY BE APPLICABLE. THE
TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS SET
FORTH IN THE AGREEMENT. THE ISSUED OF THIS NOTE WILL
FURNISH A COPY OF THESE PROVISIONS TO THE HOLDER HEREOF WITHOUT
CHAGRE UPON WRITTEN REQUEST.
SENTINEL EMERGENCY RESPONSE TECHNOLOGY, INC.
SECURED CONVERTIBLE NOTE
Houston, Texas
No. DCN-___
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 _________________, a
____________, or its registered assigns (the “
Holder ”) the sum of $__________, on the earlier of
(i) the Company receiving gross proceeds of not less than
$300,000 as the result of the issuance of any additional debt or
equity securities (including any combination thereof) (the
“ Accelerated Maturity ”) or (ii) May 8, 2008
(the “ May Maturity Date ”) (collectively,
the Accelerated Maturity and the May Maturity Date shall be
referred to herein as the “ Maturity Date ”).
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.
This Note is issued as part of a series of three
Notes on the date hereof to the Holder, ___________________ No.
DCN-___ and ___________, DCN-___ (the “ Deferred
Notes ”). Prior to the Maturity Date, in the
event the Company receives any revenue, it shall within 10
business days of actual receipt distribute such funds according
to the delivery instructions set forth herein to the entities
set forth above in pro rata proportion based on the then
outstanding amount of principal due to each Holder under the
Deferred Notes.
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 following terms shall apply to this
Note:
ARTICLE I. CONVERSION
RIGHTS
1.1
Conversion Right .
Subsequent to the later of (a) the date the U.S.
Securities and Exchange Commission declares the Registration
Statement effective (the “ Effective Date ”),
and (b) May 8, 2008 (the “ Conversion Trigger 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 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
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defined below) by the applicable Conversion
Price then in effect on the date specified in the notice of
conversion, in the form attached hereto as Exhibit B (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 the principal amount of this Note to be converted in such
conversion. 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 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
period ending one Trading Day prior to the Conversion Date (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.
(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)
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for which a public announcement as contemplated
by this Section 1.2(b) has been made, the date upon which the
Borrower (in the case of clause (i) above) or the person, group
or entity (in the case of clause (ii) above) 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, on or prior to the Effective Date, 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.
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 then outstanding principal
amount of this Note as of the date the Holders submits a Notice
of Conversion giving rise to a Conversion Default (the “
Conversion Default Date ”) to the 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 “ Authorization Date
”). 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
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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
Issue 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 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
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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 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, 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
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