ROEX, INC.
(A California Corporation)
12% SUBORDINATED CONVERTIBLE NOTE
$___________ PRINCIPAL AMOUNT
DUE JUNE 30, 2002
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF AS
PROVIDED HEREIN HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE LAWS OF ANY STATE OR OTHER JURISDICTION. TRANSFER OF THIS
NOTE AND SUCH SECURITIES IS RESTRICTED PURSUANT TO SUCH LAWS.
Irvine, California
, 1999
$
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1. Note.
1.1 Roex, Inc., a California corporation (the "Company" or the
"Borrower"), hereby promises to pay to the order of ___________________________
(the "Holder") the amount of $_____________ by June 30, 2002 ("Due Date") and to
pay interest at twelve percent (12%) per annum on the outstanding principal.
Interest payments shall be made quarterly beginning on September 30, 1999 and
thereafter on each June 30, September 30, December 31 and March 31 until the
Note is paid in full, to the Holder in lawful money of the United States at
________________________________ , or at such other place as the Holder may
specify in writing.
1.2 In the event the Company does not make, when due, any payment of
principal or interest required to be made hereunder, the Company will pay, on
demand, interest on the amount of any overdue payment of principal or interest
for the period following the Due Date of such payment, at a rate of thirteen
percent (13%) per annum.
2. Default.
In the event of an occurrence of an occurrence of any event of default
specified below, the principal and all accrued interest on the Note shall become
immediately due and payable without notice, except as specified below. The
occurrence of any of the following events shall constitute an event of default
under this Note:
2.1 The Company fails to make any payment hereunder when due,
which failure has not been cured within thirty (30) days following such failure.
2.2 If the Borrower shall file a petition to take advantage of
any insolvency act; make an assignment for the benefit of its creditors;
commence a proceeding for the appointment of a receiver, trustee, liquidator or
conservator of itself of a whole or any substantial part of its property; file a
petition or answer seeking reorganization or arrangement or similar relief under
the federal bankruptcy laws or any other applicable law or statute of the United
States of America or any state; or
2.3 If a court of competent jurisdiction shall enter an order,
judgment or decree appointing a custodian, receiver, trustee, liquidator or
conservator of the Borrower or of the whole or any substantial part of its
properties, or approve a petition filed against the Borrower seeking
reorganization or arrangement or similar relief under the federal bankruptcy
laws or any other applicable law or statute of the United States of America or
any state; or if, under the provisions of any other law for the relief or aid of
debtors, a court of competent jurisdiction shall assume custody or control of
the Borrower or of the whole or any substantial part of its properties; or if
there is commenced against the Borrower any proceeding for any of the foregoing
relief and such proceeding or petition remains undismissed for a period of 30
days; or if the Borrower by any act indicates its consent to or approval of any
such proceeding or petition; or
2.4 If (i) any judgment, remaining unpaid, unstayed or
undismissed for a period of 60 days is rendered against the Borrower which by
itself or together with all other such judgments rendered against the Borrower
remaining unpaid, unstayed or undismissed for a period of 60 days, is in excess
of $50,000, or (ii) there is any attachment or execution against the Borrower's
properties remaining unstayed or undismissed for a period of 60 days which by
itself or together with all other attachments and executions against the
Borrower's properties remaining unstayed or undismissed for a period of 60 days
is for an amount in excess of $50,000.
3. Conversion.
3.1 Conversion Rights. The Holder will have the right, at its
option, to convert the Note into Shares of Common Stock of the Company (the
"Shares") at any time before the close of business on June 30, 2002 at the
conversion rate then in effect.
The initial conversion rate is 1,333 Shares of Common
Stock per $2,000 principal amount at maturity of the Note, subject to
adjustments in certain events. No fractional Share or scrip representing a
fractional Share will be issued upon conversion of the Notes. Cash will be paid
in lieu of any fractional Shares equal to the then current market value of such
fractional Share. A Holder may
convert a portion of the Notes provided that the portion is $1,000 principal
amount at maturity or an integral multiple thereof.
The conversion rate will be appropriately adjusted if the
Company (a) pays a dividend or makes a distribution on its Shares of Common
Stock which is paid or made in Shares of Common Stock, (b) subdivides or
reclassifies its outstanding Shares of Common Stock, (c) combines its
outstanding Shares of Common Stock into a smaller number of Shares of Common
Stock, (d) issues Shares of Common Stock, or issues rights or warrants to all
Holders of its Common Stock entitling them to subscribe for or purchase Shares
of Common Stock (or securities convertible into Common Stock other than
promissory notes similar to the Note up to $240,000.00), at a price per Share
less than $1.50 per Share, or (e) distributes to all Holders of its Common Stock
evidences of its indebtedness or assets (excluding any dividend paid in cash out
of legally available funds) subject to the limitation that adjustments by reason
of any of the foregoing need not be made until they result in a cumulative
change in the conversion rate of at least five percent (5%). The conversion rate
will not be adjusted upon the conversion of presently outstanding stock options
or warrants.
In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company is
the surviving corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in case of any statutory exchange of securities with another
corporation, there will be no adjustment of the conversion price, but each
Holder of the Notes then outstanding will have the right thereafter to convert
such Notes into the kind and amount of securities, cash or other property which
he would have owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale or conveyance had such Notes
been converted immediately prior to the effective date of such consolidation,
merger, statutory exchange, sale or conveyance. In the case of a cash merger of
the Company into another corporation or any other cash transaction of the type
mentioned above, the effect of these provisions would be that the conversion
features of the Notes would thereafter be limited to converting the Notes at the
conversion price in effect at such time into the same amount of cash per Share
that such Holder would have received had such Holder converted the Notes into
Common Stock immediately prior to the effective date of such cash merger or
transaction.
3.2 Mechanics of Conversion
The Note may be converted upon surrender of the Notes at
any time prior to the close of business on March 31, 2001 at the offices of the
Company, 2081 Business Center Drive, Suite 185, Irvine, California, with the
form of "Notice of Conversion" duly completed and executed as indicated. Shares
of Common Stock issued upon conversion will be fully paid and non-assessable.
4. Prepayment. Borrower may prepay any or all amounts due under this
Note at any time after one year from the date of this Note at 110% of the
principal amount of the Note together with accrued interest; provided, however,
that Borrower, as a condition to prepayment of some or all of the balance
hereof, shall deliver written notice of its intention to prepay at least 30
calendar days prior to the date of such prepayment ("Prepayment Date") and
cooperate with Holder in Holder's exercise of Holder's convertibility rights, as
set forth in Paragraph 3, above, if Holder elects to exercise such rights prior
to prepayment.
5. Subordination. The indebtedness evidenced by this Note shall be
subordinated in right of payment to the prior payment in full of all existing
and future Senior Indebtedness of the Company. Senior Indebtedness is defined in
the Promissory Note Purchase Agreement between the Company and the Holder.
6. Securities Law Compliance. The Holder understands that the right of
conversion of this Note is subject to full compliance with the provisions of all
applicable securities laws and the availability thereunder upon any conversion
of any exemption from registration thereunder for such conversion, and that the
certificate or certificates evidencing such Note and Shares will bear a legend
to the following effect:
"THE SECURITIES EVIDENCED HEREBY MAY NOT BE TRANSFERRED WITHOUT
(i) THE OPINION OF COUNSEL SATISFACTORY TO THIS CORPORATION THAT
SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
FEDERAL SECURITIES ACT OF 1933, AS AMENDED, OR (ii) SUCH
REGISTRATION."
7. Notices. Any notice herein required or permitted to be given shall be
in writing and may be personally served, sent by United States Mail, certified,
or by overnight delivery service. For the purposes hereof, the address of the
Holder and the address of the Company shall be as reflected in the Promissory
Note Purchase Agreement between the Purchaser and the Company of even date
herewith. Both the Holder and the Company may change the address for service by
written notice to the other as herein provided.
8. No Waiver: Rights and Remedies Cumulative. No failure on the part of
the Holder to exercise, and no delay in exercising any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise by the
Holder of any right hereunder preclude any other or further exercise thereof or
the exercise of any other right. The rights and remedies herein provided are
cumulative and not exclusive of any remedies or rights provided by law or by any
other agreement between the Borrower and the Holder.
9. Costs and Expenses. The Borrower shall reimburse the Purchaser for
all costs and expenses incurred by the Purchaser in connection with the
preparation, execution and closing of this Note and shall pay the reasonable
fees and disbursements of counsel to the Purchaser in connection with the
enforcement of the Purchaser's rights hereunder.
10. Amendments. No amendment, modification or waiver of any provision of
this Note nor consent to any departure by the Holder therefrom shall be
effective unless the same shall be in writing and signed by the Holder and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
11. Successors and Assigns. This Note shall be binding upon the Borrower
and its successors and assigns and the terms hereof shall inure to the benefit
of the Holder and its successors and assigns, including subsequent holders
hereof.
12. Severability. The provisions of this Note are severable, and if any
provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Note in any jurisdiction.
13. Waiver of Notice. The Borrower hereby waives presentment, demand for
payment, notice of protest and all other demands in connection with the
delivery, acceptance, performance, default or enforcement of this Note.
14. Governing Law. this Note has been executed in and shall be governed
by the laws of the State of California.
15. Note Holder is Not a Shareholder. No Holder of this Note, solely by
virtue of the ownership of this Note, shall be considered a shareholder of the
Company for any purpose, nor shall anything in this Note be construed to confer
on any Holder of this Note any rights of a shareholder of the Company including,
without limitation, any right to vote, give or withhold consent to any corporate
action, receive notice of meetings of shareholders or receive dividends.
16. Exchange and Replacement of Note. Upon surrender of this Note to the
Borrower, the Borrower shall execute and deliver, at its expense, one or more
new Notes of such denominations and in such names, as requested by the holder of
the surrendered Note. Upon receipt of evidence satisfactory to the Company of
the loss, theft, mutilation, or destruction of any Note, the Borrower will make
and deliver a new Note, of like tenor, at the request of the holder of such
Note.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
by its authorized officers as of the _______ day of _________________, 1999.
ATTEST: ROEX, INC.
By: By:
DEREK BURRESON RODNEY H. BURRESON
Secretary President and CEO