EXHIBIT 4.1
-----------
THIS NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
ANY STATE SECURITIES LAWS OR THE PROVISIONS OF THIS NOTE.
CDKNET.COM, INC.
6% SUBORDINATED CONVERTIBLE NOTE
DUE OCTOBER 15, 2005
Number:
---------------------------------------------
Principal: $
------------------------------------------
Original Issue Date: ,2004
--------------------------------
Registered Holder:
----------------------------------
(name)
CDKnet.com, Inc., a Delaware corporation (the "Company") with principal
offices at 948 US Highway 22, North Plainfield, NJ 07060, for value received,
hereby promises to pay the registered holder hereof (the "Holder") the principal
sum set forth above on October 15, 2005 (the "Maturity Date"), in such coin or
currency of the United States of America as at the time of payment shall be the
legal tender for the payment of public and private debts, and to pay interest,
less any amounts required by law to be deducted or withheld, computed on the
basis of a 365-day year, on the unpaid principal balance hereof from the date
hereof (the "Original Issue Date"), at the rate of 6% per year, until such
principal sum shall have become due and payable, or has been converted by the
Holder pursuant to Section 5, below. Interest shall be paid, on Maturity, or if
the principal of the Note is earlier converted pursuant to Section 3 below or
redeemed in accordance with Section 4 below, upon such conversion or redemption.
All references herein to dollar amounts refers to U.S. dollars.
By acceptance and purchase of this Note, the registered holder hereof
agrees with the Company that the Note shall be subject to the following terms
and conditions:
1. Authorization of Notes. The Company has authorized the issue and
sale of a 6% Subordinated Convertible Note due October 15, 2005 (the "Note,"
such term includes any notes which may be issued in exchange or in replacement
thereof) in the aggregate principal amount of not more than U.S. $500,000.
2. Transfer or Exchange. Prior to due presentation to the Company for
transfer of this Note, the Company and any agent of the Company may treat the
person in whose name this Note is duly registered on the Company's Note Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes.
1
3. Option to Convert Principal and Interest into Equity Securities. The
Company has disclosed to Holder, and Holder acknowledges, that the Company
intends to offer securities of the Company (which may consist of voting stock or
other securities convertible into Common Stock or warrants to obtain the Common
Stock; hereafter, collectively, "Equity Securities") for sale to one or more
investors pursuant to a private offering. The Company hereby agrees not to
complete such an offering of Equity Securities for a period of one year without
first offering to Holder the opportunity to convert all or a portion of the
total indebtedness under this Note (principal and all accrued interest hereafter
"Total Indebtedness") to the purchase of such Equity Securities upon the same
terms offered to other investors, provided the Investor will not have the right
to convert in the manner without the Company's consent if: (i) the purchase
price of the Equity Securities is less than $1.25 per share; and (ii) the
principal and interest due on the Note is paid at the Closing of the Equity
Offering in full. The Company shall give notice to Holder prior to any such
sale, which notice shall fully disclose the material terms thereof, and Holder
shall have a prior right and option for 5 days following receipt of such notice
to convert all or any portion of the Total Indebtedness to the purchase of a
portion of the Equity Securities.
4. Redemption.
4.1 Optional Redemption. Subject to the Holder's right of
conversion set forth in Section 3, the Company shall have the right, at its sole
option and election made in accordance with Section 4.3(d) and subject to
Section 4.3(d), to redeem the Note, in whole but not in part, at the Redemption
Price of 105% of the principal (plus accrued and unpaid interest):
4.2. Mandatory Redemption. In the event the Company raises at
least $2 million of net proceeds in a private or public offering of equity
securities (a "Financing Event") the Company shall make an offer to acquire the
Notes, in accordance with the procedures set forth in Section 4.3(b), for the
face principal amount (plus accrued and unpaid interest).
4.3. Redemption Procedures. (a) Notice of any prepayment of
Notes pursuant to Section 4.1 shall be mailed at least 5 but not more than 20
days prior to the date fixed for redemption to, each Holder of Notes to be
redeemed, at such Holder's address as it appears in the Note Register. In order
to facilitate the redemption of Notes, the Board of Directors may fix a record
date for the determination of Notes to be redeemed which shall be a date at
least 2 days following the date of the notice.
(b) Promptly following a Financing Event (but in no
event more than 5 Business Days thereafter), the Company shall mail to each
Holder of Notes, at such Holder's address as it appears in the Note Register,
notice of such a Financing Event, which notice shall set forth each Holder's
right to require the Company to redeem any or all Notes held by it. The Company
shall thereafter, during a period of 10 days from the date of such notice redeem
any Notes, in whole or in part, at the option of the Holder, upon at least 5
days' written notice to the Company by such Holder specifying (i) the principal
amount of Notes to be redeemed and (ii) the redemption date.
(c) On the date of any redemption being made pursuant
to Section 4.1 or 4.2 which is specified in a notice given pursuant to this
Section 4.3 the Company shall wire transfer to such Holder in immediately
available funds the Redemption Price for the principal amount of Notes so
redeemed, together with an amount equal to all accrued and unpaid interest
thereon to the date of redemption.
2
5. Restrictions on Transferability. The Note shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 5, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Note.
Holder, by acceptance of this Note, agrees to be bound by the provisions of this
Section 5.
5.1 Restrictive Legend. The Holder by accepting this Note
agrees that this Note may not be assigned or otherwise transferred unless and
until (i) the Company has received an opinion of counsel for the Holder that
such securities may be sold pursuant to an exemption from registration under the
Securities Act or (ii) a registration statement relating to such securities has
been filed by the Company and declared effective by the Commission.
Except as otherwise provided in this Section 5, the Note shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"This Note and the securities represented hereby have not been
registered under the Securities Act of 1933, as amended, or
any state securities laws and may not be transferred in
violation of such Act, the rules and regulations thereunder or
any state securities laws or the provisions of this Note."
5.2 Notice of Proposed Transfers. Prior to any Transfer or
attempted Transfer of any Note, the Holder shall give five (5) days' prior
written notice (a "Transfer Notice") to the Company of Holder's intention to
effect such Transfer, describing the manner and circumstances of the proposed
Transfer, and obtain from counsel to Holder an opinion that the proposed
Transfer of such Note may be effected without registration under the Securities
Act or state securities laws. After the Company's receipt of the Transfer Notice
and opinion, such Holder shall thereupon be entitled to Transfer such Note, in
accordance with the terms of the Transfer Notice. Each Note issued upon such
Transfer shall bear the restrictive legends set forth in Section 5.1, unless in
the opinion of such counsel such legend is not required in order to ensure
compliance with the Securities Act.
5.3 Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 5, the restrictions imposed by this Section upon the
transferability of the Notes, and the legend requirements of Section 5.1 shall
terminate as to any particular Note (i) when and so long as such security shall
have been effectively registered under the Securities Act and applicable state
securities laws and disposed of pursuant thereto or (ii) when the Company shall
have received an opinion of counsel that such shares may be transferred without
registration thereof under the Securities Act and applicable state securities
laws. Whenever the restrictions imposed by Section 5 shall terminate as to this
Note, as hereinabove provided, the Holder hereof shall be entitled to receive
from the Company upon written request of the Holder, at the expense of the
Company, a new Note bearing the following legend in place of the restrictive
legend set forth hereon:
3
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN NOTE
CONTAINED IN SECTION 5 HEREOF TERMINATED ON ___________, 20__,
AND ARE OF NO FURTHER FORCE AND EFFECT."
All Notes issued upon registration of transfer, division or combination
of, or in substitution for, any Note or entitled to bear such legend shall have
a similar legend endorsed thereon. Whenever the restrictions imposed by this
Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legends set forth in Section 5.1.
6. Subordination. Any right of the Holder to payment of principal or
interest from the Company shall be subordinated to the claims and rights of the
holders of the Senior Debt ("Senior Debt Holders"). "Senior Debt" means all
Indebtedness of the Company to financial institutions or secured debt other than
the Notes, whether outstanding on the date of execution of this Note or
thereafter created, incurred or assumed, except (x) any such Indebtedness that
by the terms of the instrument or instruments by which such Indebtedness was
created, assumed or incurred expressly provides that it (i) is junior in right
of payment to the Notes or (ii) ranks pari passu in right of payment with the
Notes and (y) any amendments, modifications or supplements to, or any renewals,
extensions, deferrals, refinancing and refunding of, any of the foregoing. Any
cash payment of principal or interest to the Holder shall be collected, enforced
or received by the Holder as trustee for the Senior Debt Holders and paid over
to the Senior Debt Holders. The Holder agrees that in the event of any payment
of principal or interest by the Company to the Holder by reason of any
receivership, insolvency or bankruptcy proceeding, or proceeding for
reorganization or readjustment of the Company or its properties, or otherwise,
then, in any such event, the Senior Debt Holders shall be preferred in the
payment of their claims over the claim of the Holder to payment of principal or
interest against the Company or its properties, and the claims of the Senior
Debt Holders shall be first paid and satisfied in full before any payment or
distribution of any kind or character, whether in cash or property, shall be
made to the Holder. Provided, however, that this Section 8 shall not apply to
any payment of principal or interest made to the Holder while the Company is
solvent and not in default with respect to its Senior Debt.
7. Replacement of Note Certificate. Upon receipt of evidence
satisfactory to the Company of the certificate loss, theft, destruction or
mutilation of the Note certificate and, in the case of any such loss, theft or
destruction, upon delivery of a bond of indemnity satisfactory to the Company,
or, in the case of any such mutilation, upon surrender and cancellation of the
Note certificate, the Company will issue a new Note certificate, of like tenor,
in lieu of such lost, stolen, destroyed or mutilated Note certificate.
8. Covenants of the Company. So long as any of the Notes remain
outstanding, the Company shall:
(a) Not pay any dividends in cash and/or property or
other assets of the Company in respect of its Common
Stock or otherwise; and
4
(b) Not enter into a loan secured by the property and/or
assets of the Company or any of its subsidiaries with
(i) any director, officer or 5% stockholder of the
Company, (ii) any entity in which a director, officer
or 5% stockholder has an interest as an officer,
director, partner, beneficiary of a trust or is a 5%
or more equity holder of such entity, or (iii) any
parent, spouse, child or grandchild of an officer,
director or 5% stockholder of the Company upon terms
no less favorable to the Company than those which
could be obtained from an "arms-length" lender.
9. Default. If any of the following events (herein called "Events of
Default") shall occur:
(a) if the Company shall default in the payment or
prepayment of any part of the principal of any of the
Notes after the same shall become due and payable,
whether at maturity or at a date fixed for prepayment
or by acceleration or otherwise, and such default
shall continue for more than 30 days; or
(b) if the Company shall default in the payment of any
installment of interest on any of the Notes for more
than 30 days after the same shall become due and
payable; or
(c) if the Company shall make an assignment for the
benefit of creditors; or
(d) if the Company shall dissolve; terminate its
existence; become insolvent on a balance sheet basis;
commence a voluntary case under the federal
bankruptcy laws or under any other federal or state
law relating to insolvency or debtor's relief; permit
the entry of a decree or order for relief against the
Company in an involuntary case under the federal
bankruptcy laws or under any other applicable federal
or state law relating to insolvency or debtor's
relief; permit the appointment or consent to the
appointment of a receiver, trustee, or custodian of
the Company or of any of the Company's property; make
an assignment for the benefit of creditors; or
(e) if the Company shall default in the performance of or
compliance with any agreement, condition or term
contained in this Note or any of the other Notes and
such default shall not have been cured within 30 days
after such default; or
(f) Any of the representations or warranties made by the
Company herein, in the Subscription Agreement, or in
any certificate or financial or other statements
heretofore or hereafter furnished by or on behalf of
the Company in connection with the execution and
delivery of this Note or the Subscription Agreement
shall be false or misleading in any material respect
at the time made;
then and in any such event the Holder of this Note shall have the option (unless
the default shall have theretofore been cured) by written notice to the Company
to declare the Note to be due and payable, whereupon the Note shall forthwith
5
mature and become due and payable, at the applicable prepayment price on the
date of such notice, without presentment, demand, protest or further notice of
any kind, all of which are hereby expressly waived, anything contained in this
Note to the contrary notwithstanding. Upon the occurrence of an Event of
Default, the Company shall promptly notify the Holder of this Note in writing
setting out the nature of the default in reasonable detail.
10. Remedies on Default.
10.1 Acceleration of Maturity. If any Event of Default shall
have occurred and be continuing, the Holder or Holders of at least 50.1% in
aggregate principal amount of outstanding Notes may, by notice to the Company,
declare the entire outstanding principal balance of the Notes, premium, if any,
and all accrued and unpaid interest thereon, to be due and payable immediately,
and upon any such declaration the entire outstanding principal balance of the
Notes, premium, if any, and said accrued and unpaid interest shall become and be
immediately due and payable, without presentment, demand, protest or other
notice whatsoever, all of which are hereby expressly waived, anything in the
Notes (except as set forth in Section 11 hereof) to the contrary
notwithstanding.
10.2 Conduct no Waiver, Collection Expenses. No course of
dealing on the part of any Holder, nor any delay or failure on the part of any
Holder to exercise any of its rights, shall operate as a waiver of such right or
otherwise prejudice such Holder's rights, powers and remedies. If the Company
fails to pay, when due, the principal or the premium, if any, or the interest on
any Note, the Company will pay to each Holder, to the extent permitted by law,
on demand, all costs and expenses incurred by such Holder in the collection of
any amount due in respect of any Note hereunder, including reasonable legal fees
incurred by such Holder in enforcing its rights hereunder.
10.3 Annulment of Acceleration. If a declaration is made in
accordance with Section 10.1, then and in-every such case, the Holder or Holders
of at least 50.1% in aggregate principal amount of outstanding Notes may, by an
instrument delivered to the Company, annul such declaration and the consequences
thereof, provided that at the time such declaration is annulled:
(i) no judgment or decree has been entered for the
payment of any monies due on the Notes or pursuant to this Agreement;
(ii) all arrears of interest on the Notes and all
other sums payable on the Notes and pursuant to this Agreement (except
any principal of or interest or premium on the Notes which has become
due and payable by reason of such declaration) shall have been duly
paid; and
(iii) every other Event of Default shall have been
duly waived or otherwise made good or cured.
6
11. Amendments. With the consent of the Holders of more than 50.1% in
aggregate principal amount of the Notes at the time outstanding, the Company,
when authorized by a resolution of its Board of Directors, may enter into a
supplementary agreement for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Note or of any
supplemental agreement or modifying in any manner the rights and obligations of
the holders of Notes or Common Stock issued upon conversion of the Notes, and of
the Company, provided, however, that no such supplemental agreement shall (a)
extend the fixed maturity of any Note, or reduce the principal amount thereof,
or reduce the rate or extend the time of payment of interest thereon, or alter
or impair the right to convert the same into Common Stock at the rates and upon
the terms provided in this Note, without the consent of the Holder of each of
the Notes so affected, or (b) reduce the aforesaid percentage of Notes, the
Holders of which are required to consent to any supplemental agreement, without
the consent of the Holders of all Notes then outstanding.
12. Changes, Waivers. etc. Neither this Note nor any provisions hereof
may be changed, waived, discharged or terminated orally, but only by a statement
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, except to the extent provided in Section 11
of this Note.
13. Entire Agreement. This Note embodies the entire agreement and
understanding between the Holder and the Company and supersedes all prior
agreements and understandings relating to the subject matter hereof.
14. Governing Law, Jurisdiction, etc.
(a) GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE
RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW
OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW
PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION
OTHER THAN SUCH STATE.
(b) Submission to Jurisdiction. Each of the parties
hereto hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of
the courts of the State of New York and of the United
States of America, in each case located in the County
of New York, for any action, proceeding or
investigation in any court or before any governmental
authority ("Litigation") arising out of or relating
to the Note and the transactions contemplated thereby
(and agrees not to commence any Litigation relating
thereto except in such courts), and further agrees
that service of any process, summons, notice or
document by U.S. registered mail to its respective
address set forth in the Letter Subscription
Agreement shall be effective service of process for
7
any Litigation brought against it in any such court.
Each of the parties hereto hereby irrevocably and
unconditionally waives any objection to the laying of
venue of any Litigation arising out of the Note or
the transactions contemplated hereby in the courts of
the State of New York or the United State of America,
in each case located in the County of New York, and
hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court
that any such Litigation brought in any such court
has been brought in an inconvenient forum.
(c) Service of Process. Nothing herein shall affect the
right of any holder of a Note to serve process in any
other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Company
in any other jurisdiction.
(d) WAIVER OF JURY TRIAL. THE COMPANY HEREBY WAIVES ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY ACTION, PROCEEDING OR LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION
WITH ANY OF THE NOTES.
(e) In the event of any dispute, question, controversy or
claim arising among the parties hereto which shall
arise out of or in connection with this Note, the
parties shall keep the proceeding related to such
controversy in strict confidence and shall not
disclose the nature of said dispute, the status of
the proceeding or any testimony, documents or
information obtained or exchanged in the course of
said proceeding without the express written consent
of all parties to such dispute.
CDKNET.COM, INC.
[Corporate Seal]
By __________________
Oleg Logvinov, CEO
Number:
-------------------------------
Name of Holder:
------------------------
Principal: $
----------------------------
Original Issue Date:
-------------------
8