Exhibit 4.2
THIS NOTE AND
ANY COMMON STOCK ISSUABLE UPON THE CONVERSION OF THIS NOTE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), OR APPLICABLE STATE SECURITIES LAWS (THE
“STATE ACTS”), AND MAY NOT BE OFFERED, SOLD, OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
Z TRIM HOLDINGS,
INC.
8% CONVERTIBLE SENIOR SECURED
NOTE
DUE [24 Months from
Issuance]
Date: _________,
2008 $_________
For value received, Z TRIM HOLDINGS, INC., an
Illinois corporation (the “ Company ”),
hereby promises to pay to the order of [
INVESTOR] , a __________ (together with its successors and
permitted assigns, the “ Holder ”),
in accordance with the terms hereinafter
provided, the principal amount of _______________ ($___________)
(the “ Principal Amount ”). The
Company is issuing this convertible senior secured note (this
“ Note ” and, collectively with all other notes
issued in connection with the Offering Memorandum, the
“Notes”) to the Holder pursuant to the
Subscription Agreement (the “ Subscription Agreement
”) executed and delivered in connection
with the Offering Memorandum (the “Private
Offering”). As used herein, the term “
Issuance Date ” means _________,
2008.
The Company hereby promises to pay to the order
of the Holder the Principal Amount in United States Dollars in
immediately available funds to the Holder at the address of the
Holder as set forth in the Security Agreement (as defined below),
or at such other place as the Holder may designate from time to
time in writing to the Company, on [24 months from issuance]
(the “ Maturity Date ”) or such earlier date as
the Holder elects, with interest to the Holder on the aggregate
unconverted and then outstanding Principal Amount in accordance
with the provisions hereof. All interest payments under
or pursuant to this Note shall be made in Common Shares (as defined
below) pursuant to Section 1.1 hereof.
This Note is secured by a Security Agreement
dated the date hereof (the “ Security Agreement
”) among the Company and Holder in favor
of the Holder covering certain collateral (the “
Collateral ”), all as more
particularly described and provided therein, and is entitled to the
benefits thereof. The Security Agreement, the Uniform
Commercial Code financing statements on form UCC-1 filed in
connection with the Security Agreement and any and all other
documents executed and delivered by the Company to the Holder under
which the Holder is granted Liens on assets of the Company are
collectively referred to as the “ Security Documents
.”
ARTICLE I
THE NOTE
Section
1.1
Interest . Interest on the Principal Amount of
this Note shall commence accruing on the Issuance Date and shall
accrue daily at a rate of eight percent (8%) per annum (the “
Interest Rate ”) until payment in full of the
Principal Amount and all accrued and unpaid interest and other
amounts which may become due hereunder have been
made. Interest shall be computed on the basis of a
365-day year and actual days elapsed. Accrued interest
on the Principal Amount of this Note (the “ Interest
Amount ”) shall either be payable to the Holder, on the
Maturity Date or quarterly at the Holder’s option in shares
of common stock of the Company, par value $0.0005 per share (the
“ Common Shares ”). The number of
Common Shares to be issued to the Holder shall be equal to the
result obtained by dividing (x) the Interest Amount by (y) the
Conversion Price (as defined in Section 3.2(a)
below). Payment of the Interest Amount in Common Shares
shall occur pursuant to Section 3.3.
Section
1.2
Ranking and Covenants .
(a) Except
as set forth on Schedule 1 attached hereto, no indebtedness
of the Company or any subsidiary of the Company is senior to this
Note in right of payment, whether with respect to interest, damages
or upon liquidation or dissolution or otherwise. Until
this Note is fully paid and discharged in full, the Company shall
not, and shall not permit any subsidiary of the Company to,
directly or indirectly, incur any indebtedness for borrowed money
(excluding accounts payable incurred in the ordinary course of
business) unless such indebtedness is expressly subordinated to
this Note pursuant to a written subordination agreement acceptable
in form, scope and substance to the Holder in its sole and absolute
discretion. Notwithstanding the foregoing, the Company
may enter into an additional $__________ offering of 8% convertible
senior secured notes (the “ Additional Offering
”) on substantially similar terms and conditions as this
Note, except that such notes shall be convertible for Common Shares
at the lower of $.50 per share or the volume weighted average price
of the Common Shares on the primary trading market on which the
Common Shares are listed or quoted, for the ten (10) trading day
period ending on October 1, 2008. The Notes and any note
issued by the Company pursuant to the Additional Offering shall
rank pari passu with the Company’s obligations under this
Note and may be secured equally and ratably by Liens, on or with
respect to any of the Company’s property or assets now owned
or hereafter acquired or any interest therein or any income or
profits therefrom and shall have the benefit, to the full extent
that and with such priority as the obligations under this
Note.
(b) Except for Permitted Liens (as defined
in Section 6.14 below) and Liens granted in connection with the
Additional Offering, until this Note is fully paid and discharged
in full, the Company shall not, and shall not permit any subsidiary
of the Company to, directly or indirectly, incur any Lien (as
defined in Section 6.14 below) on or with respect to any of the
Collateral now owned or hereafter acquired, or any interest therein
or any income or profits therefrom, without the prior written
consent of the Holder.
(c) Until this Note is fully paid and
discharged in full, the Company shall not, and shall not permit any
subsidiary of the Company to, directly or indirectly, without the
prior written consent of the Holder, redeem, purchase or otherwise
acquire any of the Company’s capital stock or set aside any
monies for such a redemption, purchase or other
acquisition.
(d) The Company shall perform any and all acts
and execute any and all documents (including, without limitation,
the execution, amendment or supplementation of any financing
statement and continuation statement) for filing under the
provisions of the Uniform Commercial Code (the “ UCC
”), and the rules and regulations thereunder, or any other
statute, rule or regulation of any applicable jurisdiction which
are necessary at the request of the Holder or its counsel in order
to maintain in favor of the Holder of the Note, a valid and
perfected Lien on and security interest in the
Collateral.
Section
1.3
Payment on Non-Business Days . Whenever any payment to be
made shall be due on a Saturday, Sunday or a public holiday under
the laws of the State of Illinois, such payment may be due on the
next succeeding business day and such next succeeding day shall be
included in the calculation of the Interest Amount on such
date.
Section
1.4
Transfers . This Note may not be sold, transferred or
otherwise disposed of by the Holder to any Person without the
express written consent of the Company, which consent shall not be
unreasonably withheld.
Section
1.5
Replacement . Upon receipt of a duly executed and notarized
written statement from the Holder with respect to the loss, theft
or destruction of this Note (or any replacement hereof) and a
standard indemnity reasonably satisfactory to the Company, or, in
the case of a mutilation of this Note, upon surrender and
cancellation of such Note, the Company shall issue a new Note, of
like tenor and amount, in lieu of such lost, stolen, destroyed or
mutilated Note. The Holder hereby unconditionally agrees
to indemnify and hold harmless the Company against any claims,
loss, liabilities, damages and expenses that may arise directly or
indirectly on account of the actual or alleged loss, mutilation,
theft or destruction of the original Note or the issuance of a new
Note in exchange for said Note.
ARTICLE II
EVENTS OF DEFAULT;
REMEDIES
Section
2.1
Events of Default . The occurrence of any of the following
events shall be an “ Event of Default ”
under this Note:
(a) Any default in the payment of (i) the
Principal Amount or (ii) Interest Amount on, or liquidated damages
in respect of, any Note, in each case free of any claim of
subordination, as and when the same shall become due and payable
(whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise) which default, solely in the case of a
default under clause (ii) above, is not cured within five Trading
Days;
(b) the Company’s notice to the
Holder, including by way of public announcement, at any time, of
its inability to comply or its intention not to comply with proper
requests for conversion of this Note into Common Shares;
or
(c) the Company shall fail for any reason
to deliver certificates to a Holder prior to the fifth Trading Day
after a Conversion Date pursuant to and in accordance with Section
3.3 or the Company shall provide notice to the Holder, including by
way of public announcement, at any time, of its intention not to
comply with the requests for conversion of any Notes in accordance
with the terms hereof; or
(d) default shall be made in the
performance or observance of (i) any covenant, condition or
agreement contained in this Note or any of the other Transaction
Documents (other than a breach by the Company of its obligations to
deliver Common Shares to the Holder upon conversion which breach is
addressed in clause (c) above) which failure is not cured within
the earlier to occur of (A) five (5) Trading Days after the Holder
delivers written notice to the Company of the occurrence thereof or
(B) ten (10) Trading Days after the Company shall become or
should have become aware of such failure;
(e) a default or event of default (subject
to any grace or cure period provided for in the applicable
agreement, document or instrument) shall occur under (i) any of the
Transaction Documents other than the Notes, or (ii) any other
material agreement, lease, document or instrument to which the
Company or any subsidiary is bound, which default, solely in the
case of a default under (ii) above, is not cured, within 10 Trading
Days;
(f) any representation or warranty made by
the Company herein or in the Security Documents, the Registration
Rights Agreement, or any other Transaction Document or other
report, financial statement or certificate made or delivered to the
Holder or other holder of Notes shall prove to have been false or
incorrect or breached in a material respect on the date as of which
made; or
(g) the Company or any subsidiary shall
(i) apply for or consent to the appointment of, or the taking
of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property or assets,
(ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the United
States Bankruptcy Code (as now or hereafter in effect) or under the
comparable laws of any jurisdiction (foreign or domestic),
(iv) file a petition seeking to take advantage of any
bankruptcy, insolvency, moratorium, reorganization or other similar
law affecting the enforcement of creditors’ rights generally,
(v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any
jurisdiction (foreign or domestic), (vi) issue a notice of
bankruptcy or winding down of its operations or issue a press
release regarding same, (vii) fail to pay, or shall state that it
is unable to pay, or shall be unable to pay, its debts generally as
they become due, (viii) call a meeting of its creditors with a view
to arranging a composition, adjustment or restructuring of its
debts, (ix) by any act or failure to act expressly indicate its
consent to, approval of or acquiescence in any of the foregoing, or
(x) take any corporate or other action for the purpose of effecting
any of the foregoing;
(h) a
proceeding or case shall be commenced in respect of the Company or
any subsidiary, without its application or consent, in any court of
competent jurisdiction, seeking (i) the liquidation,
reorganization, moratorium, dissolution, winding up, or composition
or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of
all or any substantial part of its assets in connection with its
liquidation or dissolution or (iii) similar relief in respect
of it under any law providing for the relief of debtors, and such
proceeding or case described in clause (i), (ii) or (iii) shall
continue undismissed, or unstayed and in effect, for a period of
thirty (30) days or any order for relief shall be entered in an
involuntary case under United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any
jurisdiction (foreign or domestic) against the Company or any
subsidiary or action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing shall be taken with
respect to the Company or any subsidiary and shall continue
undismissed, or unstayed and in effect for a period of thirty (30)
days;
(i) the
Company or any subsidiary shall default in any of its obligations
under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which
there may be issued, or by which there may be secured or evidenced
any indebtedness for borrowed money or money due under any long
term leasing or factoring arrangement of the Company in an amount
exceeding $50,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and
payable;
(j) the
Common Shares shall not be eligible for quotation on or quoted for
trading on a trading market and shall not again be eligible for and
quoted or listed for trading thereon within five Trading
Days;
(k) the
Company shall redeem or repurchase more than a de minimis number of
its outstanding Common Shares or other equity securities of the
Company (other than redemptions of Conversion Shares and
repurchases of Common Shares or other equity securities of
departing officers and directors of the Company; provided that such
repurchases shall not exceed $50,000, in the aggregate, for all
officers and directors during the term of this Note;
(l) the
effectiveness of the applicable Registration Statement required to
be maintained effective pursuant to the terms of the Registration
Rights Agreement lapses for any reason (including, without
limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of such Holder’s Registrable Securities (as
defined in the Registration Rights Agreement) in accordance with
the terms of the Registration Rights Agreement, and such lapse or
unavailability continues for a period of five (5) consecutive
Trading Days or for more than an aggregate of ten (10) Trading Days
in any 365-day period (other than days during an Allowed Delay (as
defined in the Registration Rights Agreement);
(m) any
change in the composition, form of business association or
ownership of the Company, without Holder’s prior
consent;
(n) if
the Company ceases conducting its operations as currently in effect
as of the date hereof;
(o) the
Company shall fail for any reason to pay in full the amount of cash
due pursuant to a Buy-In within five Trading Days after notice
therefore is delivered hereunder or shall fail to pay all amounts
owed on account of an Event of Default within five days of the due
date.
Section
2.2
Remedies Upon An Event of Default . If an Event of Default
shall have occurred and shall be continuing, the Holder of this
Note may at any time at its option:
(a) demand that the principal amount of
this Note then outstanding shall be converted into shares of Common
Stock at the Conversion Price (as defined in Section 3.2(a) below)
then in effect; or declare immediately due and payable the full
Principal Amount of this Note, together with the Interest Amount
and other amounts owing in respect thereof, in cash, which
aggregate amount payable upon an Event of Default shall be equal to
the Mandatory Repayment amount, defined below; provided,
however, that upon the occurrence of an Event of Default
described in paragraphs (g) and (h) of Section 2.1, the outstanding
principal balance and accrued interest hereunder shall be
automatically due and payable. Commencing five (5) days
after the occurrence of any Event of Default that results in the
eventual acceleration of this Note, the Interest Rate shall accrue
at a rate of 18% per annum, or such lower maximum amount of
interest permitted to be charged under applicable
law. All Notes for which the full Mandatory Repayment
amount hereunder shall have been paid in accordance herewith shall
promptly be surrendered to or as directed by the
Company. The Holder need not provide and the Company
hereby waives any presentment, demand, protest or other notice of
any kind, and the Holder may immediately and without expiration of
any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable
law. Such declaration may be rescinded and
annulled by Holder at any time prior to payment hereunder and the
Holder shall have all rights as a Note holder until such time, if
any, as the full payment under this Section shall have been
received by it. No such rescission or annulment shall
affect any subsequent Event of Default or impair any right
consequent thereon.
(b) exercise
or otherwise enforce any one or more of the Holder’s rights,
powers, privileges, remedies and interests under this Note, the
Security Agreement, or applicable law.
In connection with the Holder’s exercise
of any of its remedies hereunder, the Company shall use its
reasonable best efforts to cooperate with the Holder to the end
that the Holder’s rights hereunder will be
effectuated.
ARTICLE III
CONVERSION;
ANTIDILUTION
Section
3.1
Conversion . At any time on or after the Issuance
Date, at the request of the Holder (the “ Conversion
Election ”), this Note shall be convertible, in whole or
in part, into such number of fully paid and non-assessable Common
Shares as is determined by dividing (x) the outstanding
Principal Amount and the Interest Amount then accrued hereon by
(y) the Conversion Price (as defined in Section 3.2(a) hereof)
then in effect (the “ Conversion Rate ”);
provided, however, that the Conversion Price, defined below,
shall be subject to adjustment as described in Section 3.4 of this
Note. The Holder shall effect a Conversion Election by
delivering to the Company the form of Notice of Conversion attached
hereto as Exhibit B (a “ Notice of Conversion
”), specifying therein the principal amount of Notes to be
converted and the date on which such conversion is to be effected
(a “ Conversion Date ”). If no
Conversion Date is specified, in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is
provided hereunder. To effect Conversion Elections
hereunder, the Holder shall not be required to physically surrender
Notes to the company unless the entire Principal Amount of this
Note plus the Interest Amount thereon shall have been so
converted. Conversions hereunder shall have the effect
of lowering the outstanding Principal Amount in an amount equal to
the applicable conversion. The Holder and the Company
shall maintain records showing the Principal Amount converted and
the date of such conversions. The Company shall deliver
any objection to any Notice of Conversion within three (3) Trading
Days of receipt of such Notice of Conversion. In the
event of any dispute or discrepancy, the records of the Holder
shall be controlling and determinative in the absence of manifest
error. 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 may be
less than the amount stated on the face hereof. However,
at the Company’s request, the Holder shall surrender the Note
to the Company within five (5) Trading Days following such request
so that a new Note reflecting the correct Principal Amount may be
issued to Holder.
Section 3.2
Conversion Price .
(a) The term “ Conversion
Price ” shall mean $0.26, subject to
adjustment under Section 3.4 hereof. References herein
to the Conversion Price mean the Conversion Price as from time to
time adjusted pursuant to the provisions of Section 3.4 and in
effect on the applicable date.
(b) The term “ Conversion
Shares ” shall mean such Common
Shares issuable upon conversion of this Note.
Section
3.3
Mechanics of Conversion . Not later than five (5)
Trading Days after each Conversion Date (the last day of each such
period, a “ Delivery Date ”),
the Company or its designated transfer agent,
as applicable, shall issue and deliver to the Depository Trust
Company (“ DTC ”) account on the Holder’s
behalf via the Deposit Withdrawal Agent Commission System (“
DWAC ”) as specified in the Conversion
Election, registered in the name of the Holder or its designee, for
the number of Common Shares to which the Holder shall be
entitled. Notwithstanding the foregoing, in the
alternative, not later than the Delivery Date, the Company shall
deliver to the applicable Holder by express courier a certificate
or certificates representing the number of Conversion Shares being
acquired upon the conversion of this Note. If, in the
case of any Conversion Election such DWAC transfer or certificate
or certificates are not delivered to or as directed by the
applicable Holder by the Delivery Date, the Holder shall be
entitled by written notice to the Company at any time on or before
its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall
immediately return this Note tendered for conversion, whereupon the
Company and the Holder shall each be restored to their respective
positions immediately prior to the delivery of such Conversion
Election.
Section
3.4
Adjustment of Conversion Price .
(a) The
Conversion Price shall be subject to adjustment from time to time
as follows:
(i) Adjustments for Stock Splits and
Combinations . If the Company shall at any time or from time to
time after the Issuance Date, effect a stock split of the
outstanding Common Shares, the applicable Conversion Price in
effect immediately prior to the stock split shall be
proportionately decreased. If the Company shall at any
time or from time to time after the
