EXHIBIT 10.11
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (I) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT
WITH RESPECT TO THESE SECURITIES, OR (II) PURSUANT TO A SPECIFIC EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING
OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE ISSUER, OR OTHER COUNSEL
REASONABLY ACCEPTABLE TO THE ISSUER, THAT THE PROPOSED DISPOSITION IS CONSISTENT
WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR OTHER SIMILAR SECURITIES LAW.
FIRST AMERICAN RAILWAYS, INC.
CONVERTIBLE SECURED NOTE
$__________ April 26, 1996
New York, New York
FOR VALUE RECEIVED, First American Railways, Inc., a Florida
corporation, and its successor by merger or consolidation (the "Company"),
promises to pay to the order of______________________________________________
(the "Holder"), the principal amount of______________________________ DOLLARS
($__________), and to pay interest (computed on the basis of a 360-day year of
30-day months) ("Interest") (a) on the unpaid principal amount at the rate of
ten percent (10%) semiannually on April 30th and October 31st, commencing on
October 31, 1996 (each, an "Interest Payment Date") and (b) to the extent
permitted by law on any overdue payment of the principal amount at the rate of
twelve percent (12%) per annum. Principal and accrued but unpaid Interest
hereunder shall be due and payable on demand on or after the Maturity Date (as
defined in SECTION 5 hereof), unless prepaid by the Company in accordance with
SECTION 4 hereof or converted by the Holder in accordance with SECTION 6 hereof.
Payments of principal and Interest shall be made in lawful money of the
United States of America by check and mailed to the address designated by the
Holder in the subscription agreement (the "Subscription Agreement") for the
subscription hereof.
This Note is one of several secured convertible notes (collectively,
the "Notes") offered by the Company (the "Financing") to several holders
(collectively, the "Holders") in the form of units along with (i) shares (the
"Shares") of common stock of the Company, no par value per share (the "Common
Stock"), and (ii) Series A redeemable common stock purchase warrants (the
"Series A Redeemable Warrants"), pursuant to a Confidential
Placement Memorandum, together with all amendments thereof and supplements and
exhibits thereto (the "Memorandum"). The Shares, the Series A Redeemable
Warrants (including the Series A Redeemable Warrants referenced in SECTION 4
hereof), the shares of Common Stock issuable upon exercise of the Series A
Redeemable Warrants, (the "Series A Warrant Shares") and the Note Shares
referenced in SECTION 6 hereof are sometimes referred to collectively as the
"Securities." This Note may be held by Capital Growth International, LLC
("CGI"), the Company's placement agent in connection with the Financing, or its
officers and affiliates.
This Note is subject to the terms and conditions of a certain General
Security Agreement (the "Security Agreement") between CGI, as security agent for
the benefit of the Holders, and the Company dated April 26, 1996, as it now
exists or may be amended, and the following terms and conditions:
1. COLLATERALIZATION
(a) SECURITY AGREEMENT. The Company has granted to CGI, as agent
for the Holders of this Note, a security interest in and a lien (the "Lien")
upon all of the Company's right, title and interest in and to certain property
of the Company (the "Collateral"), which Lien shall be first in priority to all
future liens, all as more fully set forth and subject to the terms of the
Security Agreement. The Collateral shall include but not be limited to all of
the accounts receivable, inventory, equipment, intellectual property and fixed
assets of the Company and the proceeds of all of the foregoing. In the event of
the occurrence of an Event of Default (as defined in the SECTION 2 hereof), CGI,
as security agent for the benefit of the Holders, shall have all of the rights
and remedies of a secured party under the Uniform Commercial Code of the State
of Florida and all applicable federal and state laws as the same shall be in
effect on the date hereof and from time to time thereafter for so long as this
Note shall remain unpaid. Any recovery effected by CGI with respect to the
Collateral shall be for the benefit of the several Holders of the Notes pro rata
to the principal amount of the Notes held by such Holders.
(b) ESCROW AGREEMENT. On or before each closing of the Financing,
the Company shall irrevocably deposit in trust (the "Interest Escrow Account")
with Sterling National Bank & Trust Company of New York or such other agent
reasonably acceptable to the Company and CGI (the "Escrow Agent"), pursuant to
an escrow agreement (the "Escrow Agreement") an amount sufficient to meet the
Company's Interest payment obligations under the Notes issued at such closing
for the first twelve months after the issuance of such Notes. The Escrow
Agreement shall provide that the Escrow Agent shall make payments of Interest on
the Notes when due directly to the respective Holders at each such Holder's
respective address as set forth in the respective Subscription Agreements, which
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addresses shall be delivered to the Escrow Agent by the Company within three (3)
business days of each closing of the Financing and updated thereafter by the
Company. The Company shall be responsible for all expenses and fees of the
Escrow Agent in connection with the Escrow Account. The Escrow Agent will have
no obligations or duties with respect to the Interest Escrow Account other than
those set forth in the Escrow Agreeement.
(c) SINKING FUND PAYMENTS. The Company shall irrevocably deposit
in trust (the "Principal Escrow Account") with the Escrow Agent pursuant to the
Escrow Agreement, the following cash amounts (the "Principal Escrow Payments")
on or before each of the following dates (the "Principal Escrow Payment Dates")
to secure the Company's obligation to pay the principal amount of the Notes
outstanding on the Maturity Date:
PRINCIPAL ESCROW PAYMENTS DUE
(REPRESENTED AS A PERCENT OF
PRINCIPAL AMOUNT OF NOTES
OUTSTANDING ON SUCH PRINCIPAL
PRINCIPAL ESCROW ESCROW PAYMENT DATE)
PAYMENT DATES
Third anniversary date of the
first closing of the Financing.. 33 1/3%
Quarterly thereafter until (and
including) the Maturity Date.... 8 1/3%
The Company's obligations under the Notes, the Security Agreement and the Escrow
Agreement shall survive until the Notes are no longer outstanding. The Escrow
Agreement shall provide that the Escrow Agent shall, from the Principal Escrow
Account, make payments of principal on the Notes when due directly to the
respective Holders at each such Holder's respective address as set forth in the
respective Subscription Agreements, which addresses shall be delivered to the
Escrow Agent by the Company within three (3) business days of each closing of
the Financing and updated thereafter by the Company. The Escrow Agent will have
no obligations or duties with respect to the Principal Escrow Account other than
those set forth in the Escrow Agreement.
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2. DEFAULT
(a) DEFAULT. The occurrence of any one or more of the following
events shall constitute an event of default (an "Event of Default") hereunder:
(i) if the Company shall default in the punctual payment of
any sum payable with respect to, or in the observance or
performance of any of the agreements, promises,
covenants, terms and conditions of any of, the Notes,
any Obligations (as defined in the Security Agreement),
the Security Agreement or the Escrow Agreement;
(ii) if any warranty, representation or statement of fact
made herein or in the Security Agreement or the Escrow
Agreement by the Company is false or misleading in any
material respect when made;
(iii) in the event of loss, theft, substantial damage to or
destruction of any of the Collateral (as defined in the
Security Agreement) which is not covered by insurance,
or the making or filing of any levy, or execution on, or
seizure, attachment or garnishment of, any of the
Collateral;
(iv) if the Company shall be dissolved or liquidated or any
proceeding for dissolution or liquidation of the Company
is commenced or the Company fails to maintain its
corporate existence;
(v) if the Company becomes insolvent (however defined or
evidenced) or makes an assignment for the benefit of
creditors;
(vi) if there shall be filed by or against the Company any
petition for any relief under the bankruptcy laws of the
United States now or hereafter in effect or any
proceeding shall be commenced with respect to the
Company under any insolvency, readjustment of debt,
reorganization, dissolution, liquidation or similar law
or statute of any jurisdiction now or hereafter in
effect (whether at law or in equity), provided that in
the case of any involuntary filing or the commencement
of any involuntary proceeding against the Company such
proceeding or petition shall have
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continued undismissed and unvacated for a least 60 days;
(vii) if the usual business of the Company shall cease or be
terminated or suspended;
(viii) if any proceeding, procedure or remedy supplementary to
or in enforcement of judgment shall be commenced
against, or with respect to any property of, the
Company; or
(ix) if any petition or application to any court or tribunal,
at law or in equity, be filed by or against the Company
for the appointment of any receiver or trustee for the
Company or any part of the property of the Company,
provided that in the case of any involuntary filing
against the Company, such proceeding or appointment
shall have continued undismissed and unvacated for at
least 60 days.
(b) REMEDIES UPON DEFAULT. If any Event of Default shall occur
for any reason, then and in any such event, in addition to all rights and
remedies of the Holder under the Security Agreement, applicable law or
otherwise, all such rights and remedies being cumulative, not exclusive and
enforceable alternatively, successively and concurrently, the Holder may, at its
option, declare any or all of the Company's obligations, liabilities and
indebtedness owing to the Holder under the Security Agreement and all amounts
owing under this Note, to be due and payable, whereupon the then unpaid balance
hereof, together with all interest accrued thereon, shall forthwith become due
and payable, together with interest accruing thereafter at the then applicable
interest rate stated above until the indebtedness evidenced by this Note is paid
in full, plus the costs and expenses of collection hereof, including, but not
limited to, attorney's fees and legal expenses.
(c) THE COMPANY'S WAIVERS. The Company (i) waives diligence,
demand, presentment, protest and notice of any kind, (ii) agrees that it will
not be necessary for the Holder to first institute suit in order to enforce
payment of this Note and (iii) consents to any one or more extensions or
postponements of time of payment, release, surrender or substitution of
collateral security, or forbearance or other indulgence, without notice or
consent. The pleading of any statute of limitations as a defense to any demand
against the Company is hereby expressly waived by the Company.
(d) CERTAIN OBLIGORS. The Holder shall not be required to resort
to any Collateral for payment, but may proceed against the Company and any
guarantors or endorsees hereof in such order and manner as the Holder may
choose. None of the rights of the
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Holder shall be waived or diminished by any failure or delay in the exercise
thereof.
3. COVENANTS. The Company covenants and agrees that, so long as this
Note is outstanding and unpaid:
(a) PAYMENT OF NOTE. The Company will punctually pay or cause to
be paid the principal, premium, if any, and Interest on this Note at the dates
and places and in the manner specified herein. Any sums required to be withheld
from any payment of principal, premium, if any, or Interest on this Note by
operation of law or pursuant to any order, judgment, execution, treaty, rule or
regulation may be withheld by the Company and paid over in accordance therewith.
In the event any restriction is placed upon payment of principal, premium, if
any, or Interest by virtue of a currency or monetary control law, rule or
regulation of the United States Federal Government, as set forth in a written
notice delivered to the Holder within thirty (30) days after the imposition of
such a restriction, such payments shall be deposited to the account of the payee
in a bank, trust company or other financial institution, as directed by the
payee. Such payment or deposit will be deemed payment to the Holder.
(b) MAINTENANCE OF CORPORATE EXISTENCE; MERGER AND CONSOLIDATION.
The Company will at all times cause to be done all things necessary or
appropriate to preserve and keep in full force and effect its corporate
existence and all of its rights and franchises and shall not consolidate with or
merge into any other corporation or transfer all or substantially all of its
assets to any person unless (i) the corporation formed by such consolidation or
into which the Company is merged or to which the assets of the Company are
transferred is a corporation that expressly assumes all of the obligations of
the Company under this Note and (ii) after giving effect to such transaction, no
Event of Default and no event which, after notice or lapse of time, or both,
would become an Event of Default, shall have occurred and be continuing.
(c) MAINTENANCE OF PROPERTIES. The Company will reasonably
maintain in good repair, working order and condition, reasonable wear and tear
excepted, its properties and other assets, and from time to time make all
necessary or desirable repairs, renewals and replacements thereto.
(d) PAYMENT OF TAXES. The Company will use its best efforts to
pay or discharge or cause to be paid, set aside for payment or discharge, before
the same shall become delinquent, all taxes, assessments and governmental
charges levied or imposed upon the Company or upon its income, profits or
property; provided, that the Company shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claim
whose amount or validity is being contested in good faith by appropriate
proceedings.
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(e) COMPLIANCE WITH STATUTES. The Company will comply in all
material respects with all applicable statutes and regulations of the United
States of America and of any state or municipality, and of any agency thereof,
in respect of the conduct of business and the ownership of property by the
Company; provided, that nothing contained in this SECTION 3(e) shall require the
Company to comply with any such statute or regulations so long as its legality
or applicability shall be contested in good faith.
(f) REPORTS; FINANCIAL STATEMENTS; NO ADVERSE CHANGE. The
financial statements of the Company included in the Memorandum did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances in which they were made, not misleading. The
Company's financial statements included in the Memorandum (including the related
notes and schedules) fairly present, as of January 31, 1996, the financial
position of the Company and results of operations of the Company for the periods
set forth therein (subject, in the case of unaudited statements, to the omission
of certain notes not ordinarily accompanying such unaudited financial
statements, and to normal year-end audit adjustments which are not material in
amount or effect), in each case in accordance with generally accepted accounting
principles consistently applied during the period involved. Since January 31,
1996, there has been no material adverse change in the Company's business,
properties, financial condition or results of operations.
(g) RESTRICTIONS ON DIVIDENDS, REDEMPTIONS, ETC. The Company will
not (i) declare or pay any dividend or make any other distribution of the
Company, except dividends or distributions payable in equity securities of the
Company, or (ii) purchase, redeem or otherwise acquire or retire for value any
equity securities of the Company, except (A) equity securities acquired upon
conversion thereof into other equity securities of the Company and (B) any
equity security issued to employees, directors of others performing services in
accordance with agreements providing for such repurchase at original cost upon
termination of employment, membership on the Board of Directors or other
affiliation with the Company.
(h) TRANSACTIONS WITH AFFILIATES. The Company will not itself,
and will not permit any officer, director or holder of 5% or more of the
Company's Common Stock, to engage in any transaction of any kind or nature with
any affiliate of the Company, other than transactions with any wholly-owned
subsidiary of the Company or pursuant to the terms of any agreement existing as
of the date hereof between the Company and any affiliate of the Company, unless
such transaction, or in the case of a course of related or similar transactions
or continuing transactions, such course of transactions or continuing
transactions is or are upon terms which
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are fair to the Company and which are reasonably similar to, or more beneficial
to the Company than the terms deemed likely to occur in similar transactions
with unrelated persons under the same circumstances.
(i) LIENS. The Company will not create, incur or suffer to exist
any future liens, claims, or encumbrances of any kind whatsoever upon any of its
assets or properties which have priority over the Notes, except those permitted
under the Security Agreement or this Note.
4. OPTIONAL PREPAYMENT
(a) If this Note has not been converted by the Holder in
accordance with SECTION 6 hereof, all, but not less than all, of the outstanding
Notes, may be prepaid by the Company in accordance with the terms hereof.
(b) The prepayment price shall equal the outstanding principal
amount of this Note together with accrued but unpaid interest (the "Prepayment
Price"), provided that the Prepayment Circumstances exist on the date of the
notice of prepayment. The "Prepayment Circumstances" shall exist if (i) the
Securities are registered under the Securities Act of 1933, as amended (the
"Securities Act") and applicable "Blue Sky" laws, (ii) a current prospectus is
then available for the resale of the Securities and (iii) the closing bid price
of the Common Stock as reported by Nasdaq, the OTC Bulletin Board, or such other
market on which the Common Stock is then traded, exceeds $5.00 per share for the
20 consecutive trading days ending on the fifth trading day prior to the date of
the notice of prepayment.
(c) If the Prepayment Circumstances do not exist on the date of
the notice of prepayment, in addition to payment of the Prepayment Price, the
Company shall issue to the Holder one Series A Redeemable Warrants for each
$3.50 in principal amount of this Note that is to be prepaid.
(d) At least 30 days but not more than 60 days before a
prepayment date, the Company shall mail a notice of prepayment to each Holder of
the Notes. The notice shall state (i) the prepayment date, (ii) the Prepayment
Price, (iii) the Conversion Price (as defined in SECTION 6(a) hereof), (iv)
whether or not the Prepayment Circumstances existed on the date of the notice of
prepayment and, if not, the number of Series A Redeemable Warrants to be issued
to the Holder upon prepayment, (v) that the Notes may be converted in accordance
with SECTION 6 hereof at any time before the close of business on the prepayment
date, (vi) that Notes must be surrendered to the Company to collect the
Prepayment Price and (vii) that interest on Notes called for prepayment ceases
to accrue on and after the prepayment date.
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(e) Once notice of prepayment is mailed, Notes called for
prepayment become due and payable on the prepayment date.
5. MATURITY
If this Note is not prepaid by the Company as provided in SECTION
4 hereof, or converted at the option of the Holder in accordance with SECTION 6
hereof, the principal amount of this Note, together with accrued but unpaid
interest, shall be due and payable on demand on April 26, 2001 (the "Maturity
Date").
6. CONVERSION.
If this Note is not prepaid by the Company in accordance with
SECTION 4 hereof, all, but not less than all, of the principal amount of this
Note, together with accrued but unpaid interest, may be converted into shares of
Common Stock (the "Note Shares") at the option of the Holder at any time on or
prior to the Maturity Date, subject to the terms and conditions set forth in
this SECTION 6. Upon conversion into Note Shares, the principal amount and
accrued but unpaid interest on this Note shall be discharged.
(a) CONVERSION PRICE. The number of Note Shares into which this
Note may be converted shall be determined by dividing the aggregate amount of
principal and accrued but unpaid interest outstanding on this Note on the
Conversion Date (as defined below) by three dollars and fifty cents ($3.50)
(subject to adjustment under certain circumstances) (the "Conversion Price").
(b) METHOD OF CONVERSION. Before the Holder shall be entitled to
receive Note Shares upon the conversion of this Note, the Holder shall surrender
this Note and deliver a Notice of Conversion (in the form attached hereto as
EXHIBIT A) to the office of the Company or its designated agent. The Notice of
Conversion shall state therein the amount(s) in which the certificate(s) for
Note Shares are to be issued. The time of conversion (the "Conversion Date")
shall be the close of business on the first business day following the date on
which the Company receives the Notice of Conversion. Interest on Notes converted
ceases to accrue on and after the date of the Notice of Conversion.
(c) ISSUANCE OF NOTE SHARES. The Company shall, as soo as
practicable after surrender of this Note and receipt of the Notice of
Conversion, but in no event more than three (3) business days thereafter, issue
and deliver to the Holder, a certificate(s) for the number of Note Shares to
which the Holder shall be entitled as aforesaid.
(d) NO FRACTIONAL SHARES. No fractional Note Shares shall be
issuable upon conversion of this Note. If the conversion of this Note would
result in the issuance of a fractional share of
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Common Stock, such fractional share shall be rounded up to the nearest whole
share and issued to the Holder.
(e) ADJUSTMENT OF CONVERSION PRICE; MERGER.
(i) If the Company at any time or from time to time while
this Note is issued and outstanding shall declare or
pay, without consideration, any dividend on the Common
Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by
stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any right to
acquire Common Stock), or if the outstanding shares of
Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of
shares of Common Stock, then the Conversion Price in
effect immediately before such event shall, concurrently
with the effectiveness of such event, be proportionately
decreased or increased, as appropriate. If the Company
shall declare or pay, without consideration, any
dividend on the Common Stock payable in any right to
acquire Common Stock for no consideration, then the
Company shall be deemed to have made a dividend payable
in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
(ii) If the Note Shares issuable upon this Note, if any,
shall be changed into the same or a different number of
shares of any other class or classes of stock, whether
by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares
provided for in SECTION 6(e)(i)), the Conversion Price
then in effect shall, concurrently with the
effectiveness of such reorganization or
reclassification, be proportionately adjusted so that
the Note Shares shall be convertible into, in lieu of
the number of shares of Common Stock which the Holder
would otherwise have been entitled to receive, a number
of shares of such other class or classes of stock
equivalent to the number of shares of Note Shares that
would have been subject to receipt by the Holder
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upon payment of Note Shares on this Note immediately
before that change.
(iii) In case of any consolidation or merger of the Company
with any other corporation, limited liability company or
any other entity (each such transaction, a "Merger"),
the corporation formed by the Merger shall succeed to
the covenants, stipulations, promises and the agreements
contained in this Note. In the event of a Merger, the
Company shall make appropriate provisions so that the
Holder shall have the right thereafter to convert this
Note into the kind and amount of securities receivable
upon such Merger by a Holder of the number of securities
into which this Note might have been converted
immediately prior to a Merger. The above provisions
shall similarly apply to successive Mergers.
(iv) NOTICE OF ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Price
pursuant to this SECTION 6(e), the Company at its
expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and
prepare and furnish to the Holder a notice setting forth
such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is
based.
(f) RESERVATION OF STOCK. The Company shall at all times reserve
and keep available out its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of this Note into Note
Shares, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all of the Notes; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all of the Notes then, the Company will take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to its Articles of
Incorporation.
(g) ISSUE TAXES. The Company shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of Note
Shares; provided, that the Company shall not be
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obligated to pay any transfer taxes resulting from any transfer requested by the
Holder in connection with any such conversion.
7. OTHER PROVISIONS RELATING TO RIGHTS OF THE HOLDER OF THIS NOTE
(a) RIGHTS OF THE HOLDER OF THIS NOTE. This Note shall not
entitle the Holder to any of the rights of a shareholder of the Company,
including, without limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
shareholders or any other proceedings of the Company. This SECTION 7(a) shall
not affect the rights of the Holder in its capacity as a shareholder of the
Company upon conversion of this Note and issuance to the Holder of Note Shares
pursuant to SECTION (6) hereof.
(b) LOST, STOLEN, MUTILATED OR DESTROYED NOTE. If this Note shall
be mutilated, lost, stolen, or destroyed, the Company shall execute and deliver,
in exchange and substitution for and upon cancellation of a mutilated Note, or
in lieu of or in substitution for a lost, stolen, or destroyed Note, a new Note
for the principal amount of this Note so mutilated, lost, stolen, or destroyed
but only upon receipt of evidence (which may consist of a signed affidavit of
the Holder), of such loss, theft, or destruction of such Note, and of the
ownership thereof, and indemnity, if requested, all reasonably satisfactory to
the Company.
8. SECURITIES LAW COMPLIANCE; REGISTRATION RIGHTS
(a) RESTRICTIONS ON TRANSFER. The Holder and the Company
understand that each of (i) the Holder's right to convert this Note, (ii) the
ability of the Company to issue the Note Shares and (iii) the ability of the
Company to issue Series A Redeemable Warrants are subject to full compliance
with the provisions of all applicable securities laws and the availability
thereunder of an exemption from registration, and that the certificates
evidencing the Note Shares, the Series A Redeemable Warrants and the Series A
Warrant Shares, shall bear a legend to the following effect:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (I) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT
WITH RESPECT TO THESE SECURITIES, OR (II) PURSUANT TO A SPECIFIC EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING
OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE ISSUER, OR OTHER COUNSEL
REASONABLY ACCEPTABLE TO THE ISSUER, THAT THE PROPOSED DISPOSITION IS CONSISTENT
WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR OTHER SIMILAR SECURITIES LAW."
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(b) COMPLIANCE WITH LAWS. The Holder agrees to comply with all
applicable laws, rules and regulations of all federal and state securities
regulators, including but not limited to, the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., and applicable
state securities regulators with respect to disclosure, filings and any other
requirements resulting in any way from the issuance of this Note.
9. OTHER MATTERS
(a) BINDING EFFECT; ASSIGNMENT. The provisions of this Note
shall be binding upon and inure to the benefit of the parties hereto and the
successors and assigns of the Company.
(b) FURTHER ACTIONS. At any time and from time to time, the
Company and the Holder agree, without further consideration, to take such
actions and to execute and deliver such documents as the other may reasonably
request to consummate the transactions contemplated in this Note, including
without limitation, the due execution of the Security Agreement and the
execution and filing of financing statements with the appropriate filing offices
resulting in perfected security interests.
(c) MODIFICATION; WAIVER. This Note, the Security Agreement and
the Escrow Agreement set forth the entire understanding of the Company and the
Holder with respect to the subject matter hereof and supersede all existing
agreements between them concerning such subject matter. This Note may be
amended, modified, superseded, canceled, renewed or extended, and the terms
hereof may be waived, only by a written instrument signed by the Company and
Holders of at least fifty-one percent (51%) in principal amount of the Notes at
the time outstanding; provided, however, that the consent of a Holder shall be
required to modify the terms of this Note affecting the payment of principal
amount of, or Interest on, such Holder's Note or the term of such Holder's Note.
Any waiver by the Company or the Holder of a breach of any provision of this
Note shall not operate as or be construed to be a waiver of any other breach of
such provision or of any breach of any other provision of this Note. The failure
of the Company or the Holder to insist upon strict adherence to any term of this
Note on one or more occasions shall not be considered a waiver or deprive that
party of the right thereafter to insist upon strict adherence to that term or
any other term of this Note. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof or hereof,
nor shall any waiver on the part of any party of any right, power or privilege
hereunder preclude any other or further exercise hereof or the exercise of any
other right, power or privilege hereunder. Any waiver must be in writing. The
rights and remedies provided herein are cumulative and are not exclusive of any
rights or remedies which any party may otherwise have at law or in equity.
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(d) NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt if to (i)
the Company, to First American Railways, Inc., 1360 South Ocean Boulevard, Suite
1905, Pompano Beach, Florida 33062 and (ii) the Holder to such Holder at their
last address as shown on the books of the Company (or to such other address as
the party shall have furnished in writing in accordance with the provisions of
this SECTION 9(d)). Any notice or other communication given by certified mail
shall be deemed given at the time of certification thereof, except for a notice
changing a party's address which shall be deemed given at the time of receipt
thereof.
(e) SEVERABILITY. If any provision of this Note is invalid,
illegal, or unenforceable, the balance of this Note shall remain in effect, and
if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. The rate
of interest on this Note is subject to any limitations imposed by applicable
usury laws.
(f) HEADINGS. The headings in this Note are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Note.
(g) GOVERNING LAW. This Agreement shall be governed by and
construed in all respects under the laws of the State of New York, without
reference to its conflict of laws rules or principles. Any suit, action,
proceeding or litigation arising out of or relating to this Agreement shall be
brought and prosecuted in such federal or state court or courts located within
the State of New York as provided by law. The parties hereby irrevocably and
unconditionally consent to the jurisdiction of each such court or courts located
within the State of New York and to service of process by registered or
certified mail, return receipt requested, or by any other manner provided by
applicable law, and hereby irrevocably and unconditionally waive any right to
claim that any suit, action, proceeding or litigation so commenced has been
commenced in an inconvenient forum.
(h) DUE AUTHORIZATION. The execution and delivery of this Note
and the consummation of the transactions contemplated herein have been
authorized by the Board of Directors of the Company and by any necessary vote or
with the consent of the shareholders of the Company.
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IN WITNESS WHEREOF, the Company has caused this Note to be executed on
its behalf by its Chairman of the Board of Directors thereunto duly authorized.
FIRST AMERICAN RAILWAYS, INC.
BY:____________________________
Allen C. Harper
Chairman Of The Board Of Directors
ATTEST:
_________________________________
Mary Aceituno, Secretary
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EXHIBIT A
NOTICE OF CONVERSION
The undersigned being the holder of the attached Secured Convertible
Note(s) (the "Note(s)") due the Maturity Date (as defined in the Note) of First
American Railways, Inc. (the "Corporation"), hereby exercises the option to
convert the Note(s) into Note Shares (as defined in the Note(s)) in accordance
with the terms of the Note(s).
The amount of principal and accrued but unpaid interest outstanding on
the Note(s) as of the Conversion Date (as defined in the Note(s)) is $__________
and the number of Note Shares to be issued upon conversion [principal and
accrued but unpaid interest divided by the then effective Conversion Price per
Note Share] is $______________.
The undersigned directs that the Note Shares be issued in the name of
______________________________________ and delivered as soon as practicable and
in accordance with the provisions of the Note(s) to:
Full address: ________________________________________
________________________________________
________________________________________
________________________________________
Date: ________________________
______________________________
Name: [HOLDER]
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