EXHIBIT 4.1
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NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN
THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OF ANY STATE, AND THE SAME HAVE BEEN (OR WILL BE, WITH
RESPECT TO THE SECURITIES ISSUABLE UPON CONVERSION HEREOF) ISSUED IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED
UNDER SUCH SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
NONNEGOTIABLE 2% SECURED CONVERTIBLE PROMISSORY NOTE
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$250,000 Ridgefield, Connecticut
October 19, 2004
FOR VALUE RECEIVED, the undersigned, Global Matrechs, Inc., a Delaware
corporation (the "Maker"), hereby promises to pay to Southridge Partners LP (the
"Payee") the principal sum of two hundred and fifty thousand dollars ($250,000)
in one installment due on October 19, 2006 (the "Maturity Date") together with
interest from and after the date hereof at the rate of two percent (2%) per
annum computed on the unpaid principal balance on the basis of a 360-day year.
All payments made hereunder shall be made in immediately available funds. By
acceptance of this Note, the Payee represents, warrants, covenants and agrees
that it will abide by and be bound by its terms. Capitalized terms not otherwise
defined herein shall have the meaning set forth in that certain Securities
Purchase Agreement dated October 19, 2004 by and between the Maker and the
Payee.
1. Conversion. The Payee shall have the option at any time to convert
all or a portion of the outstanding principal and interest on this Note into a
number of shares of common stock, $0.001 par value per share (the "Common
Stock") equal to a fraction, the numerator of which shall be the amount of
principal and interest being so converted and the denominator of which shall be
equal to the Conversion Price (the "Conversion Shares"). The "Conversion Price"
shall initially be $0.02.
2. Restrictions on Conversion. Notwithstanding anything to the contrary
contained herein, the number of Conversion Shares that may be acquired by the
Payee upon any conversion of this Note (or otherwise in respect hereof) shall be
limited to the extent necessary to insure that, following such conversion, the
total number of shares of Common Stock then beneficially owned by such Payee and
its affiliates and any other persons whose beneficial ownership of Common Stock
would be aggregated with the Payee's for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), does not
exceed 4.999% of the total number of issued and outstanding shares of Common
Stock (including for such purpose the shares of Common Stock issuable upon such
conversion). For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder.
3. Prepayment. If at any time the Market Price (as defined below) of
the Maker's Common Stock remains less than $0.03 cents for ten (10) consecutive
trading days, then at the written election of the Payee provided not later than
the 10th calendar day following the last day of such 10 trading day period, the
Maker shall within 60 days of the receipt of such election prepay the principal
amount outstanding at the time of such prepayment plus a premium (a "Prepayment
Premium") equal to 40% of the principal amount being prepaid plus accrued
interest. For the purposes of this Section 3, the "Market Price" shall equal the
closing price per share of the Common Stock on such date as reported by a
nationally recognized stock exchange price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on the New York Stock Exchange, the American Stock Exchange, the Nasdaq National
Market, the Nasdaq SmallCap Market or the OTC Bulletin Board, the bid price per
share of the Common Stock on the primary market or exchange on which the Common
Stock is then listed or quoted; (b) if prices for the Common Stock are then
reported in the "Pink Sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock so
reported; or (c) in all other cases, the fair market value of a share of Common
Stock as determined by an independent qualified appraiser selected in good faith
and paid for by the Payee.
4. Adjustment for Dividends, Distributions, Subdivisions, Combinations,
Mergers, Consolidations or Sale of Assets.
(a) Manner of Adjustment.
(i) Stock Dividends, Distributions or Subdivisions. In
the event the Maker shall issue shares of Common Stock in a stock dividend,
stock distribution or subdivision, the Conversion Price in effect immediately
before such stock dividend, stock distribution or subdivision shall,
concurrently with the effectiveness of such stock dividend, stock distribution
or subdivision, be proportionately decreased and the number of shares of Common
Stock issuable upon conversion of this Note shall be proportionately increased.
(ii) Combinations or Consolidations. In the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Conversion Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased and the number of shares of Common
Stock issuable upon conversion of this Note shall be proportionately decreased.
(iii) Adjustment for Reclassification, Exchange or
Substitution. In the event that the class of securities issuable upon the
conversion of this Note shall be changed into the same or a different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification or otherwise, then and in each such event the Payee shall have
the right thereafter to convert this Note for the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification, or other change, by Payees of the number of shares of the
class of securities into which such Note might have been
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convertible for immediately prior to such reorganization, reclassification, or
change, all subject to further adjustment as provided herein.
(iv) Adjustment for Merger, Consolidation or Sale of
Assets. In the event that the Maker shall merge or consolidate with or into
another entity or sell all or substantially all of its assets, this Note shall
thereafter be convertible for the kind and amount of shares of stock or other
securities or property to which a Payee of the number of shares of Common Stock
of the Maker deliverable upon conversion of this Note would have been entitled
upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Maker's Board of Directors) shall
be made in the application of the provisions set forth in this Section 4 with
respect to the rights and interest thereafter of the Payee of this Note, to the
end that the provisions set forth in this Section 4 shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of this Note.
(b) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Maker at its expense shall promptly compute such adjustment or readjustment
in accordance with the terms hereof and furnish to the Payee a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based.
(c) Closing of Books. The Maker shall at no time close its
transfer books against the transfer of any shares of Common Stock issued or
issuable upon the conversion of this Note in any manner which interferes with
the timely and proper issuance of such shares.
5. Miscellaneous.
(a) Restricted Securities. By acceptance hereof, the Payee
understands and agrees that this Note is a "restricted security" under the
federal securities laws inasmuch as it is being acquired from the Maker in a
transaction not involving a public offering and has not been the subject of
registration under the Securities Act and that under such laws and applicable
regulations such securities may be resold in the absence of registration under
the Securities Act only in certain limited circumstances. The Payee hereby
represents that it is familiar with Rule 144, as promulgated by the Securities
and Exchange Commission under the Securities Act, as currently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
(b) Legends. It is understood that this Note shall bear the
legend (in addition to any legends which may be required, in the opinion of the
Maker's counsel, by the securities laws of the state where the Payee is located)
set forth on the first page of this Note.
6. The following shall constitute an "Event of Default":
(a) The Maker shall default in the payment of principal or
interest on this Note and same shall continue for a period of twenty (20) days;
or
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(b) The Maker shall (1) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or (2) apply for or
consent to the appointment of a trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
(c) A trustee, liquidator or receiver shall be appointed for
the Maker or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
(d) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of
the Maker and shall not be dismissed within sixty (60) days thereafter; or
(e) Except for any judgments, settlements or related
litigations or actions disclosed in the Maker's Annual Report on Form 10-K for
the year ended December 31, 2003, any money judgment, writ or warrant of
attachment, or similar process in excess of One Hundred Fifty Thousand
($150,000) Dollars in the aggregate shall be entered or filed against the Maker
or any of its properties or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of sixty (60) days; or
(f) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Maker and, if
instituted against the Maker, shall not be dismissed within sixty (60) days
after such institution or the Maker shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such proceeding;
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Payee (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Payee and in the Payee's sole discretion, the Payee may consider all
obligations under this Note immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by the Company, anything herein or in any note or other instruments contained to
the contrary notwithstanding, and the Payee may immediately enforce any and all
of the Payee's rights and remedies provided herein or any other rights or
remedies afforded by law. Upon the occurrence of any Event of Default as set
forth herein and during any period that the Company shall have failed to make
payment of any principal or Interest due hereunder, at the option of Payee and
without notice to the Company, the Interest shall be added to the outstanding
principal balance hereof, and the entire outstanding principal balance, as so
adjusted, shall bear interest thereafter until paid at an annual rate of
eighteen percent (18%) (the "Default Rate").
7. Presentment. Except as set forth herein, the Maker waives
presentment, demand and presentation for payment, notice of nonpayment and
dishonor, protest and notice of protest and expressly agrees that this Note or
any payment hereunder may be extended from time to time by the Payee without in
any way affecting the liability of the Maker.
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8. All provisions herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Payee for the use of the money advanced or to be advanced
hereunder exceed the maximum rate of interest allowed to be charged under
applicable law (the "Maximum Rate"), regardless of whether or not there has been
an acceleration of the payment of principal as set forth herein. If, from any
circumstances whatsoever, the fulfillment of any provision of this Note or any
other agreement or instrument now or hereafter evidencing, securing or in any
way relating to the indebtedness evidenced hereby shall involve the payment of
interest in excess of the Maximum Rate, then, ipso facto, the obligation to pay
interest hereunder shall be reduced to the Maximum Rate; and if from any
circumstance whatsoever, Payee shall ever receive interest, the amount of which
would exceed the amount collectible at the Maximum Rate, such amount as would be
excessive interest shall be applied to the reduction of the principal balance
remaining unpaid hereunder and not to the payment of interest. This provision
shall control every other provision in any and all other agreements and
instruments existing or hereafter arising between the Maker and Payee with
respect to the indebtedness evidenced hereby.
9. In the event this Note is placed in the hands of an attorney for
collection, or if Payee incurs any costs incident to the collection of the
indebtedness evidenced hereby, the Maker agrees to pay to Payee an amount equal
to all such costs, including without limitation all reasonable attorneys' fees
and all court costs.
10. Notices.
(a) Notices to the Payee. Whenever any provision of this Note
requires a notice to be given or a request to be made to the Payee by the Maker,
then and in each such case, any such notice or request shall be in writing and
shall be sent by registered or certified mail, return receipt requested with
postage thereon fully prepaid to the Payee at its address set forth on the first
page of this Note or at such other address as the Payee may from time to time
designate in writing.
(b) Notices to the Maker. Whenever any provision of this Note
requires a notice to be given or a request to be made to the Maker by the Payee,
any such notice or request shall be in writing and shall be sent by registered
or certified mail, return receipt requested with postage thereon fully prepaid
to the Maker at its address set forth on the signature page or at such other
address as the Maker may from time to time designate in writing.
11. Construction; Governing Law. The validity and construction of this
Note and all matters pertaining hereto are to be determined in accordance with
the laws of the state of New York without regard to the conflicts of law
principles thereof.
12. Amendments. Neither this Note nor any of its provisions may be
changed, waived or modified without the written consent of both the Maker and
the Payee.
13. Successors. This Note shall be a binding obligation of any
successor of the Maker.
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IN WITNESS WHEREOF, the Maker, by its appropriate officers thereunto
duly authorized, has executed this Note as of this 19th day of October, 2004.
GLOBAL MATRECHS, INC.
By: /s/ Michael Sheppard
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Name: Michael Sheppard
Title: President
Address: 90 Grove Street, Suite 201
Ridgefield, Connecticut 06877
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