EXHIBIT 4.2
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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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$125,000 Ridgefield, Connecticut
April 11, 2005
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 one hundred thousand dollars ($125,000) in one
installment due on April 11, 2007 (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 January 31, 2005 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 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":
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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
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
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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.
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.
(c) 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.
(d) 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.
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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.
IN WITNESS WHEREOF, the Maker, by its appropriate officers thereunto
duly authorized, has executed this Note as of this 11th day of April, 2005.
GLOBAL MATRECHS, INC.
By: /s/ Michael Sheppard
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Name: Michael Sheppard
Title: President
Address: 90 Grove Street
Suite 201
Ridgefield, CT 06877
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