THIS NOTE AND THE
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE
NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY
APPLICABLE STATE SECURITIES LA WS. NEITHER THE NOTE NOR SUCH
SHARES
OF
COMMON STOCK MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED
OR
HYPOTHECA TED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE
SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LA WS,
OR
AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THA T AN
EXEMPTION FROM SUCH REGIS TRA TION IS A VAILABLE.
AIRTRAX, INC.
SERIES A CONVERTIBLE NOTE
$400,000
FOR
VALUE RECEIVED, Airtrax, Inc., a New Jersey corporation (the
"Company"), promises
to pay to Motivated Minds, LLC, an Arizona limited
liability company,
whose address is 3116
E. Shea Boulevard, PMB
191, Phoenix,
Arizona 85028 or
registered
assigns (the
"Holder"),
the sum of Four
Hundred
Thousand Dollars
($400,000) in lawful
money of the United States of America on
or before the Maturity
Date as defined
herein, with all
Interest thereon as
defined and specified herein.
1.
Interest. This Note shall bear interest
("Interest")
equal to twelve
percent (12%) per annum on the unpaid principal balance from the Issue Date to
the Maturity Date or any extension thereof, but not less than $4,000.
Interest
will be computed on a three hundred sixty (360)-day year. The Company shall
pay
all accrued Interest
on or before the Maturity Date. The Company shall pay
the
Interest in cash,
provided that the Company will pay the Interest in restricted
Common Stock or a combination of cash and Restricted
Stock if Holder
notifies
the Company within
five (5) Business
Days, as defined
below, of the
Interest
payment date of its
decision to take the
payment of
Interest in restricted
Common Stock. The
Common Stock will be valued for these purposes at Conversion
Price, as such term is defined in Paragraph 5, "Conversion of
Note." In no event
shall the rate of
Interest payable
on this Note
exceed the
maximum rate of
interest permitted to be charged under applicable law.
2.
Payments. All payments
under this Note shall first be credited against
costs and expenses
provided for in this Note, second to the payment of any
penalties, third to
the payment of accrued and unpaid Interest, if any, and the
remainder shall be credited against principal. All payments due hereunder
shall
be payable in legal
tender of the United
States of America, and in same day
funds delivered
to Holder by cashier's check, certified check, bank wire
transfer or any other means of guaranteed funds to the mailing address
provided
below, or at such
other place as Holder
shall designate in writing for such
purpose from time to time. If a payment under this Note
otherwise would become
due and payable on a Saturday, Sunday or legal holiday (any other day being a
"Business Day"),
the due date of the
payment shall be extended to the next
succeeding Business
Day, and Interest, if
any, shall be payable thereon during
such extension.
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<PAGE>
3.
Pre-Payments
and Maturity Date.
This Note shall be due
and payable in
full, including all accrued Interest thereon, on October 20, 2006
(the "Maturity
Date"). At any time on or prior to the Maturity Date, the Company
shall have the
right to prepay this
Note, in whole or in
part without
penalty, on ten (10)
days' advance notice
to Holder and subject to the right of Holder to convert in
advance of such prepayment date. On such prepayment
date, the Company will
pay
in respect of the
redeemed Note cash equal to the face
amount plus accrued
Interest on the Note (or portion thereof) redeemed. The Company
will prepay this
Note in full, or to
the extent of the
proceeds, from the next debt or equity
financing that the
Company closes after
the Issue Date but before the Maturity
Date.
4.
Fees
4.1 Commissions,
Fees and Expenses Paid
in Cash. The Company
will pay
the following fees and expenses in connection with and upon the
issuance of this
Note and funding
of the loan
represented
by the Note:
(i) a commission of
$20,000 to
Source Capital Group, Inc., Attn: Richard Kelly, registered
representative; (ii) a
commission of $20,000
to Ascendiant
Securities,
LLC,
Attn: Michael
Cole; and (iii) fees and expenses of
Holder's legal counsel
of
$7,500. Holder will deduct the foregoing commissions, fees and
expenses from the
loan proceeds
to the Company on the Issue Date, such that Holder will fund
$352,500 directly to the Company and the balance to the foregoing
parties.
4.2 Fees Paid in
Warrants. The
Company will issue Common Stock and
Common Stock Purchase Warrants (the "Warrants") in the form set
forth as Exhibit
A in connection
with and upon
issuance of this Note
as follows:
(i) 256,410
Warrants to Holder;
(ii) 12,821 Warrants
to Source Capital Group, Inc. and/or
its designees; and
(iii) 12,820 Warrants to Ascendiant Securities, LLC and/or
its designees.
5.
Conversion of Note
5.1
Conversion of
Note/Conversion Price.
This Note is convertible, at
the option of Holder,
into shares of the
Company's Common
Stock (the "Common
Stock") at any time after the Issue Date and prior to the close of
business on
the Business Day preceding the Maturity Date at the rate of $1.56
per share (the
"Conversion Price"),
subject to adjustment as hereinafter provided. The Company
will provide written notice of its intent to prepay the Note in
whole or in part
prior to the Maturity
Date. In such case, Holder will have five (5)
Business
Days following
the date on which Holder receives such written notice to
determine whether Holder will convert all or part of the Note into
Common Stock.
No fractional shares will be issued. In lieu thereof, the Company will pay cash
for fractional share
amounts equal to the fair market value of the Common Stock
as quoted as the closing bid price of the Common Stock on the date of
conversion.
5.2
Adjustment
Based Upon Stock Dividends, Combination of Shares or
Recapitalization.
5.2.1 The Conversion
Price shall be
adjusted to the price at which the
Company sells its Common Stock to any third party or parties in any
transaction,
or series of
transactions
taken together, that exceed $1,000,000. If the
transaction(s) involve
securitiesconvertible
into Common Stock, the Conversion
Price will be deemed to be the conversion price of the Common Stock for such
convertible securities. If there are a series of
transactions and the prices of
the Common Stock are
different in the transactions, the lowest price of the
Common Stock
sold in any of the
transactions
shall be deemed the adjusted
Conversion Price.
2
<PAGE>
5.2.2 The Conversion
Price shall also be
adjusted if the Company shall
at any time (i) pay a stock dividend on the Common
Stock; (ii) subdivide its
outstanding Common
Stock into a greater
number of shares;
(iii) combine its
outstanding Common
Stock into a smaller number of shares; (iv) issue by
reclassification of
its Common Stock any
other special
capital stock of the
Company; or
(v) distribute to all holders of Common Stock evidences of
indebtedness or assets
(excluding
cash dividends) or rights or warrants to
subscribe for Common Stock (other than those mentioned above). No adjustment of
the Conversion Price will be required until cumulative adjustments
amount to One
Dollar ($1.00)
per Note or more.
Upon the occurrence of an event requiring
adjustment of the Conversion Price, and thereafter,
Holder, upon surrender of
this Note for
conversion, shall be
entitled to receive the number of shares of
Common Stock or other
capital stock of the Company that Holder would have owned
or have been entitled
to receive after the happening of any of the events
described above had this Note been converted immediately prior to the
happening
of such event.
5.3
Adjustment
Based Upon Merger or Consolidation. In case of any
consolidation or
merger to which the Company is a party (other than a merger in
which the Company
is the surviving entity and which does not result in any
reclassification of or
change in the outstanding Common Stock of the Company),
or in case of any sale or conveyance to another person,
firm, or corporation
of
the property of the
Company as an entirety
or substantially
as an entirety,
Holder shall
have the right to
convert this Note into the kind and amount
of
securities and property (including cash) receivable upon such consolidation,
merger, sale or
conveyance
by Holder of the
number of shares of Common Stock
into which such Note might have been converted immediately prior
thereto.
5.4 Exercise of
Conversion Privilege.
5.4.1 The Conversion Privilege provided for in this Note shall be
exercisable by Holder
by written notice to the Company or its successor and the
surrender of this Note in exchange for the number of shares (or
other securities
and property,
including cash, in the
event of an adjustment of the Conversion
Price) into which this Note is convertible based upon the
Conversion Price.
5.4.2 Holder's
conversion right set
forth in this Paragraph 5.5 may be
exercised at any time
and from time to time but prior to payment in full of the
principal amount of
the accrued interest on this Note. Conversion rights will
expire at the close of business on the Business Day prior to the Maturity
Date
or redemption date of this Note.
5.4.3 Holder may exercise the right to convert all or any portion
of the
principal amount and
accrued Interest on this Note by delivery of (i) this Note
and (ii) a completed
Conversion Notice in
the form attached as
Exhibit A on a
Business Day to the Company's principal executive offices. Such
conversion shall
be deemed to have been made immediately prior to the close of business on the
Business Day of such delivery a conversion notice (the "Conversion
Date"), and
Holder shall be treated for all purposes as the record
holder of the shares
of
Common Stock into which this Note is converted as of such date.
3
<PAGE>
5.4.4 Upon
conversion
of the entire principal amount and accrued
Interest of this Note and the delivery of shares of Common Stock
upon conversion
of this Note, except as otherwise provided in Paragraph 21,
"Representations and
Warranties to Survive
Closing," the Company shall be forever released from all
of its obligations and liabilities under this Note.
5.5
Corporate Status of Common Stock to be Issued. All Common Stock (or
other securities in
the event of an adjustment of the Conversion Price) which
may be issued upon the conversion of this Note shall, upon issuance, be fully
paid and nonassessable.
5.6
Issuance of Certificates. Upon the conversion of this Note, the
Company
shall, within
five (5) Business Days of such conversion, issue to Holder a
certificate or
certificates
representing
the number of shares of the Common
Stock (or other
securities
in the event of an
adjustment
of the Conversion
Price) to which the conversion relates.
6.
Status of Holder of
Note. This Note
shall not entitle Holder to any
voting rights or other rights as a shareholder of the Company or to any
rights
whatsoever except the rights herein expressed, and no dividends
shall be payable
or accrue in respect of this Note or the securities issuable upon
the conversion
hereof unless and
until this Note shall be converted. Upon the conversion of
this Note, Holder
shall, to the extent permitted by law, be deemed to be
the
holder of record of the shares of Common Stock issuable upon such conversion,
notwithstanding that
the stock transfer
books of the
Company shall then be
closed or that the certificates representing such shares of Common Stock
shall
not then be actually delivered.
7.
Reserve of Shares of Common Stock. The Company shall reserve out of
its
authorized shares of
Common Stock,
and other securities in the event of an
adjustment of the Conversion Price, a number of shares
sufficient to enable
it
to comply with its obligation to issue shares of Common Stock, and other
securities in the
event of an adjustment
of the Conversion Price, upon the
conversion of this Note.
8.
Transfer Restrictions; Exemption from Registration.
8.1 Holder is an
Accredited
Investor, as such term is defined Rule
501(a) of Regulation D under the Securities Act of 1933, as amended
(the "Act").
Holder has conducted its own due diligence regarding this investment and the
Company. Holder
understands
and can bear the risks associated with this
investment, including
the loss of its
entire investment in the Note and the
underlying Common
Stock.. Holder agrees that (i) this Note and the
shares of
Common Stock issuable in payment of Interest and upon conversion have not been
registered under the Act and may not be sold or transferred without
registration
under the Act or unless an exemption from such registration is available;
(ii)
Holder has acquired
this Note and will
acquire the Common Stock for its own
account for
investment
purposes only and not with a view
toward resale or
distribution; and
(iii) if a
registration statement
that includes the
Common
Stock is not effective
at the time
Common Stock is issued to Holder upon
conversion under this Note, and the Common Stock is not exempt from
registration
under Rule 144, then
the Common Stock shall
be inscribed
with the following
legend:
4
<PAGE>
THE
SECURITIES REPRESENTED
BY THIS CERTIFICATE
HAVE NOT BEEN
REGISTERED
UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT
FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
HOLDER'S COUNSEL,
IN A CUSTOMARY
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.
8.2
If an opinion of counsel of Holder provides that registration is not
required for the
proposed conversion
or transfer of this
Note or the proposed
transfer of the shares of Common Stock issuable upon conversion and that the
proposed conversion or transfer in the absence of registration
would require the
Company to take
any action including executing and filing forms or other
documents with the Securities and Exchange Commission (the "SEC") or any state
securities agency,
or delivering to Holder any form or document in order to
establish the right of Holder to effectuate the proposed conversion
or transfer,
the Company agrees
promptly, at its expense, to take any such action; and
provided, further,
that the Company will reimburse Holder in full for any
expenses (including
but not limited to the fees and disbursements of such
counsel, but
excluding brokers' commissions) incurred by Holder or owner of
shares of Common Stock on his, her or its behalf in connection with such
conversion or transfer of the Note or transfer of the shares of
Common Stock.
9.
Registration Rights.
9.1 Piggyback
Rights. Holder shall have the right to join with the
Company to register the Common Stock underlying the Note (the
"Underlying Common
Stock"), which term
shall include those
securities
issuable upon
conversion
hereof in accordance
with Paragraph 5,
"Conversion of Note," in a registration
statement filed by the
Company with the SEC under the Act, which registration
statement includes a
public offering of equity securities for cash, either
for
the account of the Company or for the account of any other person.
This right to
join with the Company in a registration statement under the Act is not
applicable to a registration statement filed by the Company with
the SEC on Form
S-4, S-8, or any other inappropriate form. If, at any time, the
Company proposes
to file a registration
statement as described
in this Paragraph 9.1, it shall,
at least thirty (30)
days prior to such
filing, give
written notice of such
proposed filing to Holder and its designees at their addresses
appearing on the
records of the
Company and shall offer to include in any such filing any
proposed disposition of the Underlying Common Stock. Within fifteen
(15) days of
receipt of the Company's notice of filing, the owners of the Underlying
Common
Stock may request
registration of the
Underlying
Common Stock
pursuant to a
written request setting forth the intended method of distribution
(or a request
that the Company
include Holder's
Underlying
Common Stock in the Company's
intended underwriting
agreement)
and such other data or information as the
Company or its counsel shall reasonably require and such Underlying
Common Stock
shall be included in
the registration
statement under the Act to the maximum
extent permissible.
5
<PAGE>
9.2 Registration Procedures. In connection with any
registration of its
securities, the
Company shall supply said owner(s) with copies of such
registration
statement, and
of the prospectus included therein, in such
quantities as may be
reasonably
necessary for the purpose of the proposed
disposition. The
Company will pay all registration expenses in connection with
the registration
pursuant to Paragraph
9.1. Such reasonable expenses will
include all
registration of filing
fees, all fees and
expenses of
compliance
with securities or blue sky laws, including reasonable fees and
disbursements of
one legal counsel for
Holder and any placement agents in connection with blue
sky qualifications
of the securities
being registered,
printing expenses
and
reasonable fees and disbursements of counsel for the Company and
its independent
certified public accountants, the fees and expenses associated with
any required
filing with the National Association of Securities Dealers,
Inc. ("NASD").
The
Company is not required to pay any fees or expenses of Holder,
placement agents
or legal counsel of Holder or placement agent, other than the blue sky
counsel
referred to above, or accountant or any other advisors, including any transfer
tax
