Exhibit 4.1 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 APPLICABLE 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 OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IDO SECURITY INC. THAT SUCH REGISTRATION
IS NOT REQUIRED.
Principal Amount
$___________ Issue
Date: October 31, 2008
SECURED CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, IDO SECURITY INC., a Nevada corporation
(hereinafter called "Borrower"), hereby promises to pay to
_____________________________________________,
______________________________________________________________ (the
"Holder") or order, without demand, the sum of
__________________________________ Dollars ($_________)
(“Principal Amount”), with simple and unpaid interest
accruing thereon, on April 30, 2010 (the "Maturity Date"), if not
retired sooner.
This Note has been entered into pursuant to the terms of a
subscription agreement between the Borrower and the Holder, dated
of even date herewith (the “Subscription Agreement”),
and shall be governed by the terms of such Subscription
Agreement. Unless otherwise separately defined herein,
all capitalized terms used in this Note shall have the same meaning
as is set forth in the Subscription Agreement. The
following terms shall apply to this Note:
ARTICLE I
INTEREST: AMORTIZATION; SECURITY AGREEMENT
1.1.
Interest Rate. Subject to Section 6.7 hereof,
interest payable on this Note shall accrue on the outstanding
Principal Amount at a rate per annum (the "Interest Rate") of ten
percent (10%). Interest on the outstanding Principal
Amount shall accrue from the date of this Note and shall be payable
in arrears together with, at the same time and in the same manner
as payment of Principal Amount and on the Maturity Date, whether by
acceleration or otherwise. For purposes of calculating
the conversion price pursuant to Article II, each interest due date
shall be deemed the Repayment Date, as defined in Section 1.2.
1.2. Minimum
Monthly Principal Payments. Amortizing payments of
the outstanding Principal Amount of this Note and accrued interest
shall commence on the sixth month anniversary date of this Note and
on the same day of each month thereafter (each a “Repayment
Date”) until the Principal Amount has been repaid in full,
whether by the payment of cash or by the conversion of such
Principal Amount and interest into Common Stock pursuant to the
terms hereof. Subject to Article II and Article III
below, on each Repayment Date, the Borrower shall make payments to
the Holder in an amount equal to 8.33% of the initial Principal
Amount, the amount of accrued but unpaid or unconverted interest on
the entire Principal Amount as of such Repayment Date, and any
other amounts which are then owing under this Note that have not
been paid (collectively, the “Monthly
Amount”). Amounts of conversions of Principal
Amount and made by the Holder or Borrower pursuant to Article II or
Article III and amounts redeemed pursuant to Article II of this
Note shall be applied first against outstanding fees and damages,
then outstanding already payable accrued interest and then to
Principal Amounts of not yet due Monthly Amounts commencing with
the last Monthly Amount next payable and thereafter to Monthly
Amounts in reverse chronological order. Any Principal
Amount, interest and any other sum arising under this Note and the
Subscription Agreement that remains outstanding on the Maturity
Date shall be due and payable on the Maturity Date.
1
1.3. Default
Interest Rate. Following the occurrence and during the
continuance of an Event of Default (as defined in Article IV),
which, if susceptible to cure is not cured within five (5) days,
otherwise then from the first date of such occurrence, the annual
interest rate on this Note shall (subject to Section 4.7) be
fifteen percent (15%). Such interest shall be due and
payable together with regular scheduled Monthly Amounts.
ARTICLE II
CONVERSION REPAYMENT
2.
Payment of Monthly Amount in Cash or Common
Stock. Subject to Section 3.2 hereof, the Borrower, at
the Borrower’s election, shall pay the Monthly Amount not
later than four (4) business days after the relevant Repayment Date
(i) in cash in an amount equal to 110% of the Principal Amount
component of the Monthly Amount and 100% of all other components of
the Monthly Amount, or (ii) in Common Stock at an applied
conversion rate equal to the lesser of (A) the Fixed Conversion
Price (as defined in section 3.1 hereof), or (B) seventy-five
percent (75%) of the average of the closing price of the common
stock as reported by Bloomberg L.P. for the Principal Market for
the five trading days preceding the relevant Repayment
Date. The Borrower must contemporaneously deliver to
Holder supporting calculation for the amount of cash paid or shares
of Common Stock delivered. Amounts paid with shares of
Common Stock must be delivered to the Holder as described in
Section 3.3(b). Payment amounts and form
must be made to all Other Holders in proportion to the relative
Note principal held by the Holder and the Other
Holders. Borrower must give Holder fifteen (15) trading
days notice prior to each Repayment Date if Borrower will pay the
Monthly Amount in cash, otherwise such payment will be made by
delivery of shares of Common Stock. The foregoing
sentence notwithstanding such Monthly Amount if to be paid with
shares of Common Stock will be automatically deferred
(“Deferred Payment”) unless the Holder gives notice to
the Borrower at least five (5) days before a Repayment Date that
the Holder will accept payment of such Monthly Amount in the form
of Common Stock. The Conversion Price of each Deferred
Payment will be the lesser of (i) the Conversion Price (as defined
in Section 3.1 hereof), or (ii) seventy-five percent (75%) of the
average of the closing prices of the Common Stock as reported by
Bloomberg L.P. for the Principal Market for the five (5) trading
days preceding the date a Notice of Conversion (a form of which is
annexed as Exhibit A to this Note) is given by Holder to the
Borrower with respect to such Deferred Payment. The
foregoing notwithstanding, no amount payable hereunder may be paid
in shares of Common Stock by the Borrower without the consent of
the Holder after and during the pendency of an Event of Default (or
an event that with the passage of time or the giving of notice
could become an Event of Default), unless waived in writing by the
Holder. Common Stock delivered pursuant to this
Section 2 must be immediately resellable and transferable by the
Holder without any additional holding period.
ARTICLE III
CONVERSION RIGHTS
3.1.
Holder's Conversion Rights. Subject to Section
3.2, the Holder shall have the right, but not the obligation at all
times, to convert all or any portion of the then aggregate
outstanding Principal Amount of this Note, and/or accrued interest
into shares of Common Stock, subject to the terms and conditions
set forth in this Article III at the rate of $0.15 per share of
Common Stock (“Fixed Conversion Price”) as same may be
adjusted pursuant to this Note and the Subscription Agreement. The
Holder may exercise such right by delivery to the Borrower of a
written Notice of Conversion pursuant to Section 3.3.
2
3.2.
Conversion Limitation. The Holder shall not be
entitled to convert on a Conversion Date that amount of the Note in
connection with that number of shares of Common Stock which would
be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates on a Conversion
Date, (ii) any Common Stock issuable in connection with the
unconverted portion of the Note, and (iii) the number of shares of
Common Stock issuable upon the conversion of the Note with respect
to which the determination of this provision is being made on a
Conversion Date, which would result in beneficial ownership by the
Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock of the Borrower on such Conversion
Date. For the purposes of the provision 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 Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall
be limited to aggregate conversions of 4.99%. The Holder
shall have the authority and obligation to determine whether the
restriction contained in this Section 3.2 will limit any conversion
hereunder and to the extent that the Holder determines that the
limitation contained in this Section applies, the determination of
which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder. The
Holder may waive the conversion limitation described in this
Section 3.2, in whole or in part, upon and effective after 61 days
prior written notice to the Borrower to increase such percentage to
up to 9.99%. In all circumstances, the delivery by the Holder
of a Notice of Conversion as provided below shall be deemed to be
the Holder’s representation that such conversion conforms to
the provisions of this Section 3.2 and the Company shall be under
no obligation to verify or ascertain compliance by the Holder with
this provision.
3.3. Mechanics
of Holder's Conversion.
(a)
In the event that the Holder elects to
convert any amounts outstanding under this Note into Common Stock,
the Holder shall give notice of such election by delivering an
executed and completed notice of conversion (a "Notice of
Conversion") to the Borrower, which Notice of Conversion shall
provide a breakdown in reasonable detail of the Principal Amount,
accrued interest and amounts being converted. The
original Note is not required to be surrendered to the Borrower
until all sums due under the Note have been paid. On
each Conversion Date (as hereinafter defined) and in accordance
with its Notice of Conversion, the Holder shall make the
appropriate reduction to the Principal Amount, accrued interest and
fees as entered in its records. Each date on which a
Notice of Conversion is delivered or telecopied to the Borrower in
accordance with the provisions hereof shall be deemed a "Conversion
Date." A form of Notice of Conversion to be employed by the Holder
is annexed hereto as Exhibit A.
(b) Pursuant
to the terms of a Notice of Conversion, the Borrower will issue
instructions to the transfer agent accompanied by an opinion of
counsel, if so required by the Borrower's transfer agent and shall
cause the transfer agent to transmit the certificates representing
the Conversion Shares to the Holder by crediting the account of the
Holder's designated broker with the Depository Trust Corporation
("DTC") through its Deposit Withdrawal Agent Commission ("DWAC")
system within four (4) business days after receipt by the Borrower
of the Notice of Conversion (the "Delivery Date"). In the case of
the exercise of the conversion rights set forth herein the
conversion privilege shall be deemed to have been exercised and the
Conversion Shares issuable upon such conversion shall be deemed to
have been issued upon the date of receipt by the Borrower of the
Notice of Conversion. The Holder shall be treated for all purposes
as the record holder of such shares of Common Stock, unless the
Holder provides the Borrower written instructions to the
contrary. In the event that Conversion Shares
cannot be delivered to the Holder via DWAC, the Borrower shall
deliver physical certificates representing the Conversion Shares by
the Delivery Date.
3
3.4. Conversion
Mechanics.
(a)
The number of shares of Common Stock to be issued upon each
conversion of this Note pursuant to this Article III shall be
determined by dividing that portion of the Principal Amount and
interest and fees to be converted
|
