THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY BE TRANSFERRED
ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED. THIS LEGEND
SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE.
CONVERTIBLE NOTE
$150,000.00 June 11, 2003
New York, New York
1. Consideration FOR VALUE RECEIVED, SUNCOAST NATURALS, INC., a Delaware
corporation (the "undersigned" or the "Company"), hereby promises to pay to the
order of GOLDSTRAND INVESTMENTS, INC., a Delaware corporation (the "holder" or
the "Registered Holder"), at its offices located at 1040 First Avenue, Suite
190, New York 10022, or at such other place as the holder shall designate to the
undersigned in writing, in lawful money of the United States of America or in
New York Clearing House Funds, the principal amount of One Hundred Fifty
Thousand Dollars ($150,000.00) on the Maturity Date (as defined below). The
Company promises to pay the entire said principal sum, together with interest
thereon, in accordance with the terms of this Note (as hereinafter defined
below).
2. Payment. On October 13, 2003 (the "Maturity Date"), the Company shall
pay to the holder the entire unpaid principal amount on this Note. The Company
shall also pay to the holder interest on said principal sum of this Note at the
rate of twelve percent (12%) per annum, accruing from and after the date hereof.
Such interest payments shall commence on July 1, 2003 and shall thereafter be
paid on the first business day of each consecutive calendar month, and on the
Maturity Date, accelerated or otherwise.
Principal and interest shall be payable at the most recent address as the
Registered Holder shall have designated to the Company in writing. No payment of
the principal of this Note may be made prior to the Maturity Date by the Company
without the consent of the Registered Holder.
3. Overdue Interest Payments. Interest on the indebtedness evidenced by
this Note after default or maturity accelerated or otherwise shall be due and
payable at the rate of eighteen (18%) percent per annum, subject to the
limitations of applicable law.
4. Holidays. If this Note or any installment hereof becomes due and payable
on a Saturday, Sunday or public holiday under the laws of the State of New York,
the due date hereof shall be extended to the next succeeding business day. All
payments received by the holder shall be applied first to the payment of all
accrued interest payable hereunder.
5. Issuance of Notes. This Note has been issued by the Company pursuant to
the authorization of the Board of Directors of the Company (the "Board"). This
Note together
with any Notes from time to time issued in replacement thereof, whether pursuant
to transfer and assignment, partial conversion thereof or otherwise, are
collectively referred to herein as "Notes".
6. Conversion. (a) Subject to the provisions hereof, the holder shall have
the right, at its sole and exclusive option, at any time prior to the Maturity
Date, to convert all or any portion of the outstanding principal amount of this
Note into such number of shares of Common Stock, par value $.001 per share, of
the Company (the "Common Stock"), at the fixed rate of $0.66 of such principal
amount per share (the "Conversion Price"). Accordingly, based upon the
Conversion Price, in the event that the holder elects to convert the entire
principal amount of this Note, then the entire $150,000.00 principal amount of
this Note shall be converted into 225,000 shares of Common Stock. The shares of
Common Stock issuable upon conversion of this Note, if any, are hereinafter
collectively referred to as the "Conversion Shares".
(b) The holder shall exercise its right to convert the Notes hereunder by
faxing an executed and completed Notice of Conversion to the Company, and the
holder shall deliver, within (3) business days thereafter, the original Notice
of Conversion (and the related original Notes) to the Company by hand delivery
or by express courier, duly endorsed. Each date on which a Notice of Conversion
is faxed to the Company in accordance with the provisions hereof shall be deemed
to be a "Conversion Date". The Company will transmit the certificates
representing the Conversion Shares issuable upon conversion of this Note, upon
such conversion, to the holder via express courier as soon as practicable, but
in all events no later than three (3) business days after the Conversion Date.
For purposes of this Agreement, such conversion of the Notes shall be deemed to
have been made immediately prior to the close of business on the Conversion Date
(the "Delivery Date").
(c) If the entire outstanding principal amount of this Note is not
converted, then the Company shall also issue and deliver to such holder a new
Note of like tenor in the principal amount equal to the principal amount which
was not converted and dated the Conversion Date. Each conversion shall be deemed
to have been effected immediately prior to the close of business on the date on
which a Notice of Conversion shall have been delivered as aforesaid and the
person or persons in whose name or names any certificate of certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of the Conversion Shares represented thereby
at such time on such date.
(d) All of the Conversion Shares shall, upon delivery, be duly authorized,
validly issued and fully paid and nonassessable.
(e) The issuance of certificates for the Conversion Shares upon any
conversion of this Note shall be made without charge to the holder for any tax
or other expense in respect to the issuance of such certificates, all of which
taxes and expenses shall be paid by the Company, and such certificates
evidencing the Conversion Shares shall be issued only in the name of the
registered holder of this Note.
2
(f) The Company hereby covenants and agrees with the holder that, in
addition to all costs and expenses to be paid and reimbursed by the Company
pursuant to the terms of the Offering, the Company will pay or cause to be paid
the following: (a) on or prior to the date hereof, all fees, disbursements and
expenses of the holder's counsel in connection with the preparation and
execution of the Notes up to a maximum of $15,000.00; and (b) all other costs
and expenses incident to the performance of its obligations in respect of the
registration of the Conversion Shares or otherwise under this Note.
7. REGISTRATION RIGHTS.
(a) Registration Rights Granted. The Company hereby grants the following
registration rights to the holder:
The Company shall file a registration statement on Form SB-2 (or such other
form that it is eligible to use)(the "Registration Statement") in order to
register all of the Conversion Shares for resale and distribution under the
Securities Act of 1933, as amended (the "Securities Act"), with the Securities
and Exchange Commission (the "Commission") on or prior to June 13, 2003 (the
"Filing Date"), and shall cause such Registration Statement to, in all events,
be declared effective within 120 days following the Filing Date, i.e., on or
prior to October 13, 2003 (the "Effective Date"). Following the Effective Date,
the Registration Statement shall thereafter remain effective until the resale of
all of Conversion Shares pursuant to Section 7(b)(ii) below. The Company shall
register all (but not less than all) of the Conversion Shares hereunder. The
Registration Statement set forth in this Section 7(a) shall include and cover
all of the Conversion Shares plus up to (but not exceeding) 1,625,000 additional
shares of Common Stock. Accordingly, the Registration Statement shall cover an
aggregate of 1,850,000 shares of Common Stock.
(b) Registration Procedures. The Company shall, as expeditiously as
possible:
(i) prepare and file with the Commission, on or prior to the Filing
Date, the Registration Statement as set forth in Section 7(a) above with respect
to the Conversion Shares; and cause such Registration Statement to be declared
effective on or prior to the Effective Date; and cause the Registration
Statement to remain effective thereafter for the period set forth in Section
7(b)(ii) below; and promptly provide to the holder copies of all filings and
Commission letters of comment;
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective
until the resale of all of the Conversion Shares hereunder;
(iii) furnish to the holder such number of copies of the Registration
Statement and the prospectus included therein (including each preliminary
prospectus) as the holder reasonably may request to facilitate the public sale
or disposition of the securities covered by the Registration Statement;
3
(iv) register or qualify the Conversion Shares covered by the
Registration Statement under the securities or "blue sky" laws of such
jurisdictions as may be requested by the holder; provided, however, that the
Company shall not, for any such purpose, be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction;
(v) list the Conversion Shares covered by such Registration Statement
with any securities exchange on which the Common Stock of the Company is then
listed;
(vi) immediately notify the holder at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing; and
(vii) make available for inspection by the holder and any attorney,
accountant or other agent retained by the holder, all publicly available
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
publicly available information reasonably requested by the attorney, accountant
or agent of such holder.
(c) Registration Defaults. In the event, however, that the Registration
Statement is: (i) not filed with the Commission for any reason whatsoever on or
prior to June 13, 2003; or (ii) not declared effective by the Commission for any
reason whatsoever on or prior to October 13, 2003, then any such failure to file
or be declared effective shall constitute an event of default pursuant to
Section 11(d) hereof (the "Registration Default"). Upon the occurrence of any
such Registration Default, then the holder shall be entitled to exercise all of
its rights and remedies under this Note and the Pledge Agreement (as hereinafter
defined) in addition to any other rights and remedies which holder may be
entitled to exercise at law, in equity or otherwise. Notwithstanding anything to
the contrary contained in this Agreement, the Convertible Note or any other
document or instrument, upon the occurrence of any Registration Default, then
the holder may, at its sole and exclusive option, elect not to accept any
payment of principal, interest or other sums under the Convertible Note, or any
other cure by the Company and/or Pledgor (as hereinafter defined), and may
exercise (in addition to any other available rights or remedies at law, in
equity or otherwise) any or all of the rights and remedies set forth in this
Note and/or Pledge Agreement.
(d) Registration Expenses. All expenses incurred by the Company in
complying with this Section 7, including without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the NASD, transfer taxes, fees of
transfer agents and registrars, fees of (and disbursements incurred by) counsel
for the holder and
4
costs of insurance, are included in the "Registration Expenses" hereunder. The
Company shall solely and exclusively pay as and when due all such Registration
Expenses.
(e) Indemnification.
(i) In the event of a registration of any Conversion Shares under the
Securities Act pursuant to this Section 7, the Company will indemnify and hold
harmless the holder, and its officers, directors and each other person, if any,
who controls the holder within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which the holder,
or such persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement
(including the Registration Statement) under which such Conversion Shares were
registered under the Securities Act pursuant to this Section 7, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the holder, and each
such person for any reasonable legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by the holder or any such person in writing specifically for use in
any such document.
(ii) In the event of a registration of the Conversion Shares under the
Securities Act pursuant to this Section 7, the holder will indemnify and hold
harmless the Company, and its officers, directors and each other person, if any,
who controls the Company within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Conversion Shares were registered under the Securities Act pursuant
to this Section 7 (including the Registration Statement), any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such person for any reasonable legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the holder will be liable in any
such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished in writing to the Company by the holder specifically for use in any
such document.
(iii) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect
5
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 7(e)(iii) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 7(e)(iii) if and to the extent the indemnifying party is prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 7(e)(iii) for any legal expenses subsequently incurred
by such indemnified party in connection with the defense thereof; if the
indemnified party retains its own counsel, then the indemnified party shall pay
all fees, costs and expenses of such counsel; provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party, and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party, or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, then the indemnified parties shall have the right to
select separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
8. Representations of the Company.
The Company hereby represents and warrants to the holder as follows:
a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
the Company's subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its respective jurisdiction. Each of the
Company and its subsidiaries is duly qualified as a foreign corporation in all
jurisdictions in which the failure to so qualify would have a material adverse
effect on the Company, and its subsidiaries. Schedule 8(a) sets forth all
subsidiaries of the Company wherein the Company owns any outstanding capital
stock or equity interests of any such entities.
b. Capitalization. On the date hereof, the authorized capital of the
Company consists of: (i) 25,000,000 shares of Common Stock, par value $.001 per
share, of which 3,850,000 are issued and outstanding; and (ii) 1,000,000 shares
of unclassified Preferred Stock, of which 100,000 shares Series A Redeemable
Preferred Stock are issued and outstanding. Schedule 8(b) sets forth all of the
options, warrants and convertible securities of the Company, and any other
rights to acquire securities of the Company (collectively, the "Derivative
Securities") which are outstanding on the date hereof, including in each case:
(i) the name and class of such Derivative Securities; (ii) the issue date of
such Derivative Securities;, (iii) the number of shares of Common Stock into
which such Derivative Securities are convertible as of the date hereof, (iv) the
conversion or exercise price or prices of such Derivative Securities as of
6
the date hereof (v) the expiration date of any conversion or exercise rights
held by the owners of such Derivative Securities; and (vi) any registration
rights associated with such Derivative Securities or outstanding Common Stock.
c. Conversion Shares. The Conversion Shares, when issued, shall be duly and
validly issued, fully paid and non-assessable, and shall not subject the holder
thereof to personal liability by reason of being such a holder. There are no
preemptive rights of any stockholder of the Company, as such, to acquire any of
the Conversion Shares.
d. Reporting Company Status. The Common Stock is not presently registered
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Pursuant to Section 13 hereof, the Company shall promptly file
with the Commission all reports and documents required to be filed to register
the Common Stock, and shall thereafter file and maintain all reports on a
current basis, pursuant to the Exchange Act. e. Authorized Shares. The Company
has legally available a sufficient number of authorized and unissued shares of
Common Stock as may be necessary to effect the conversion of this Note. The
Company understands and acknowledges the potentially dilutive effect to the
Common Stock of the issuance of shares of Common Stock upon conversion of this
Note. The Company further acknowledges that its obligation to issue Conversion
Shares upon conversion of this Note is absolute and unconditional regardless of
the dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company and notwithstanding the commencement of any
case under 11 U.S.C. ss. 101 (the "Bankruptcy Code"). In the event the Company
becomes a debtor under the Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C. ss.
362 in respect of the conversion of this Note. The Company agrees, without cost
or expense to the holder, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. ss. 362.
f. Legality. The Company has the requisite corporate power and authority to
and to issue and deliver this Note and the Conversion Shares.
g. Transaction Agreements. This Note and the Pledge Agreement
(collectively, the "Primary Documents"), and the transactions contemplated
hereby and thereby, have been duly and validly authorized by the Company and
this Note has been duly executed and delivered by the Company, and this Note is,
and the Primary Documents, when executed and delivered by the Company, will each
be, a legal, valid and binding agreement of the Company, enforceable in
accordance with their respective terms, except to the extent that enforcement of
this Note and each of the Primary Documents may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and to general principles of
equity.
h. Non-Contravention. The execution and delivery of this Note and each of
the other Primary Documents, and the consummation by the Company of the other
transactions contemplated by this Note and each of the other Primary Documents,
does not and will not conflict with or result in a breach by the Company of any
of the terms or provisions of, or constitute a default under, the Articles of
Incorporation or By-laws of the Company, or any indenture, mortgage, deed of
trust or other agreement or instrument to which the Company andlor any of its
subsidiaries is a party, or by which the Company andlor its subsidiaries or any
of their
7
respective properties or assets are bound, or any existing applicable law, rule,
or regulation or any applicable decree, judgment or order of any court or United
States federal or state regulatory body, administrative agency, or any other
governmental body having jurisdiction over the Company and/or its subsidiaries
and/or any of their respective properties or assets.
i. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the entry into or the performance of this Note and the other
Primary Documents.
j. SEC Filings. None of the reports or documents filed by the Company with
the Commission contained, at the time they were filed, any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein, or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
k. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally) that has not been
disclosed in writing to the holder (i) that could reasonably be expected to have
a material adverse effect upon the condition (financial or otherwise) or the
earnings, business affairs, properties or assets of the Company andlor its
subsidiaries or (ii) that could reasonably be expected to materially and
adversely affect the ability of the Company to perform the obligations set forth
in the Primary Documents. The representations and warranties of the Company set
forth herein do not contain any untrue statement of a material fact or omit any
material fact necessary to make the statements contained herein, in light of the
circumstances under which they were made, not misleading.
1. Title to Properties; Liens and Encumbrances. Each of the Company and its
subsidiaries has good and marketable title to all of its material properties and
assets, both real and personal, and has good title to all its leasehold
interests.
m. Patents and Other Proprietary Rights. Each of the Company and its
subsidiaries has good title and ownership of all patents, trademarks, service
marks, trade names, copyrights, trade secrets, information, proprietary rights
and processes necessary for the conduct of its business as now conducted and as
proposed to be conducted, and such businesses do not and would not conflict with
or constitute an infringement on the rights of others.
n. Permits. Each of the Company and its subsidiaries has all franchises,
permits, licenses and any similar authority necessary for the conduct of its
business as now conducted. Neither the Company nor any of its subsidiaries is in
default in any respect under any of such franchises, permits, licenses or
similar authority.
o. Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company, after reasonable inquiry, threatened against or
affecting the Company andlor any of its subsidiaries, in which an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, condition (financial or other) or results of operations of
the Company andlor its subsidiaries, or the transactions contemplated by the
Primary Documents, or
8
which would adversely affect the validity or enforceability of or the authority
or ability of the Company to perform its obligations under, the Primary
Documents.
p. No Default. Each of the Company and its subsidiaries is not in default
in the performance or observance of any obligation, covenant or condition
contained in any indenture, mortgage, deed of trust or other instrument or
agreement to which it is a party or by which it or its property may be bound.
q. Transactions with Affiliates. There are no agreements, understandings or
proposed transactions between the Company and/or its subsidiaries and any of
their respective officers, directors and/or affiliates.
r. Employment Matters. Each of the Company and its subsidiaries is in
compliance in all material respects with all presently applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company and/or its subsidiaries would have any
liability; the Company andlor its subsidiaries has not incurred and does not
expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company and/or its subsidiaries would have any liability that is
intended to be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.
s. Insurance. Each of the Company and its subsidiaries maintains property
and casualty, general liability, personal injury and other similar types of
insurance with financially sound and reputable insurers that is adequate,
consistent with industry standards and its historical claims experience. The
Company has not received notice from, and after reasonable inquiry, has no
knowledge of any threat by, any insurer (that has issued any insurance policy to
the Company and/or any of its subsidiaries) that such insurer intends to deny
coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
t. Taxes. All applicable tax returns required to be filed by the Company
and each of its subsidiaries have been prepared and filed in compliance with all
applicable laws, or if not yet filed have been granted extensions of the filing
dates which extensions have not expired. All taxes, assessments, fees and other
governmental charges upon the Company and its subsidiaries, or upon any of their
respective properties, income or franchises, shown in such returns and on
assessments received by the Company or its subsidiaries to be due and payable
have been paid, or adequate reserves therefor have been set up if any of such
taxes are being contested in good faith.
u. Investment Company Act. The Company is not conducting, and does not
intend to conduct its business in a manner which would cause it to become, an
"investment company," as defined in Section 3(a) of the Investment Company Act
of 1940, as amended.
9
v. Agent Fees. The Company has not incurred any liability for any finder's
or brokerage fees or agent's commissions in connection with the offer and sale
of the transactions contemplated by this Agreement.
w. Private Offering. The offer, sale and issuance of this Note and the
Conversion Shares as contemplated hereby are exempt from the registration
requirements of the Securities Act. The Company agrees that neither the Company
nor anyone acting on its behalf will offer this Note or the Conversion Shares,
or any similar securities, for issuance or sale, or solicit any offer to acquire
any of the same from anyone so as to render the issuance and sale of such
securities subject to the registration requirements of the Securities Act. The
Company has not offered or sold this Note or the Conversion Shares, by any form
of general solicitation or general advertising, as such terms are used in Rule 5
02(c) under the Securities Act. Holder shall be able to duly resell, and duly
register for resale pursuant to the Securities Act and other applicable laws,
all of the Conversion Shares under the Registration Statement in accordance with
Section 7 hereof.
9. Covenants.
(a) The Company shall pay or caused to be paid all taxes, assessments and
governmental charges lawfully levied or assessed upon the Company andlor its
subsidiaries, and for their respective properties or any part thereof, and upon
its or their income for profits, and any part thereof, before the same shall
become delinquent; and shall duly observe, and conform to, all lawful
requirements of any governmental authority relative to any of its or their
properties, and all covenants, terms and conditions upon or under which any of
its or their properties are held; provided that nothing contained herein shall
require the Company and/or any of it subsidiaries to pay any such tax,
assessment or governmental charges so long as the validity thereof shall be
contested in good faith by appropriate proceedings and adequate reserves with
respect thereto shall have been set aside on the books of the Company.
(b) The Company andlor each of its subsidiaries at all times shall maintain
its corporate existence and right to carry on its business and will duly procure
all necessary renewals and extensions thereof and use its best efforts to
maintain, preserve and renew all of its rights, powers, privileges and
franchises.
(c) The Company shall not: (i) sell, assign (by operation or law or
otherwise) or otherwise dispose of, or grant any option with respect to, any of
the Common Stock; (ii) create or suffer to exist any pledge, lien, security
interest whatsoever upon or with respect to any of the Common Stock, except for
the liens under the Pledge Agreement; (iii) take any other action to permit the
Company to issue any additional Common Stock or shareholder interests, or to
issue any securities convertible into, or granting the right to purchase or
exchange for, any such Common Stock or shareholder interests of the Company; or
(iv) take any action or enter into any agreement or undertaking restricting the
right or ability of the holder to exercise any of its rights and remedies as set
forth in the Pledge Agreement.
(d) The Company shall at no time close its stock transfer books against
10
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
conversion of such Note.
(e) As used in this Note, the term "Common Stock" shall include all stock
of any class or classes (however designated) of the Company, authorized on or
after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily be entitled to vote for the election of the directors of the
Company.
(f) The Company and/or its subsidiaries shall not, by amendment of its
Articles of Incorporation or By-laws or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, and will at all times assist in good faith in the
carrying out of all the provisions of this Note and in the taking of all such
action as may be necessary or appropriate in order to protect the conversion
rights of the Registered Holders of this Note against impairment.
(g) In the event of any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the Company shall mail to each Registered Holder of the Notes,
at least ten (10) days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right.
10. Limitation on Certain Corporate Acts. The Company hereby covenants and
agrees that, upon any consolidation or merger or upon the transfer of all or
substantially all of the property or assets of the Company and/or its
subsidiaries, the due and punctual payment of the principal and interest on all
the Notes according to their tenor and the due and punctual performance and
observance of all the terms, covenants and conditions of this Note to be kept
and performed by the Company shall be expressly assumed by the corporation
formed by such consolidation, or into which the Company shall have merged or by
the purchaser of such property or assets; and such assumption shall be an
express condition of such merger or consolidation agreement or agreement for the
transfer of property or assets.
11. Events of Default. In case one or more of the following events of
default shall have occurred:
(a) default in the due and punctual payment of interest upon, or principal
of, this Note as and when the same becomes due and payable hereunder either at
maturity or otherwise; or
(b) failure to deliver the Conversion Shares required to be delivered
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upon conversion of this Note in the manner and at the time required hereunder;
or
(c) failure of the Company to have authorized the number of Conversion
Shares equal to the number of shares of Common Stock issuable upon conversion of
this Note; or
(d) the Registration Statement shall not be: (i) filed with the Commission
for any reason whatsoever on or prior to June 13, 2003; or (ii) declared
effective by the Commission for any reason whatsoever on or prior to October 13,
2003 (i.e., the Registration Default); or
(e) failure on the part of the Company to duly observe or perform any of
its other covenants or agreements contained in, or to cure any breach of a
representation or covenant contained in, this Note, the Primary Documents or any
other agreement or instrument entered into in connection therewith; or
(f) a decree or order by a court having jurisdiction has been entered
adjudging the Company and/or any of its subsidiaries bankrupt or insolvent, or
approving a petition seeking reorganization of the Company and/or any of its
subsidiaries under any applicable bankruptcy law and such decree or order has
continued undischarged or unstayed for a period of thirty (30) days; or a decree
or order of a court having jurisdiction for the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency of the Company
and/or any of its subsidiaries or of all or substantially all of its property,
or for the winding-up or liquidation of its affairs, has been entered, and has
remained in force undischarged or unstayed for a period of thirty (30) days; or
(g) the Company and/or any of its subsidiaries institutes proceedings to be
adjudicated a voluntary bankrupt, or consents to the filing of a bankruptcy
proceeding against it, or files a petition or answer or consent seeking
reorganization under applicable law, or consents to the filing of any such
petition or to the appointment of a receiver or liquidator or trustee or
assignee in bankruptcy or insolvency of it or of all or substantially all of its
property, or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts generally as they become due; or if the
Company and/or any of its subsidiaries shall suffer any writ of attachment or
execution or any similar process to be issued or levied against it or any
significant part of its property which is not released, stayed, bonded or
vacated within thirty (30) days after its issue or levy; or if the Company
and/or any of its subsidiaries takes corporate action in furtherance of any of
the aforesaid purposes or conditions; or
(h) if any event of default shall occur under any indenture, mortgage,
agreement, instrument or commitment evidencing or under which there is at the
time outstanding any indebtedness of the Company and/or any of its subsidiaries
in excess of $25,000.00, or which results in such indebtedness in an aggregate
amount (with other defaulted indebtedness) in excess of $25,000.00 becoming due
and payable prior to its due date and if such indenture or instrument so
requires, the holder or holders thereof (or a trustee on their behalf) shall
have declared such indebtedness due and payable; or
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(i) if a final judgment which, either alone or together with other
outstanding final judgments against the Company or any of its subsidiaries,
exceeds an aggregate of $25,000.00 shall be rendered against the Company and/or
any of its subsidiaries and such judgment shall have continued undischarged or
unstayed for thirty (30) days after entry thereof;
then, in each and every such case (other than those specified in clauses (f) and
(g) above), so long as such event of default has not been remedied and unless
the principal amount of all the Notes has already become due and payable, the
holder of this Note, by notice in writing to the Company, may declare the
principal amount of this Note and any interest accrued thereon, if not already
due and payable, to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
anything herein contained to the contrary notwithstanding; and, upon the
occurrence of the events specified in clauses (f) and (g) above, such principal
and interest shall automatically become and shall be due and payable immediately
without any action on the part of the holder, anything herein contained to the
contrary notwithstanding.
12. Pledge Agreement. In order to secure all of the obligations of the
Company under this Note and any document or instrument executed in connection
therewith, the holder, as Pledgee, and William J. Reilly, President and Chairman
of the Company, as Pledgor ("Reilly" or "Pledgor"), have entered into a Pledge
Agreement, dated as of the date hereof (the "Pledge Agreement"), pursuant to
which Reilly has pledged and granted to holder a security interest constituting
a first priority lien on, and has delivered to the holder, an aggregate of
2,000,000 shares of Common Stock of the Company, representing all of the shares
of Common Stock owned beneficially by Pledgor (the "Pledged Stock"). Each of the
shares of Pledged Stock shall be freely transferable without any legend or stop
order issued in connection therewith. The Company shall furnish to holder and
its counsel all documentation as may be required in order to evidence that each
of the shares of Pledged Stock is freely transferable, including without
limitation, an opinion of the Company's counsel in form and substance acceptable
to the holder and its counsel. The Pledge Agreement shall also provide that any
Registration Default and any other event or default set forth in this Note shall
constitute an event of default thereunder.
13. Transferability; Certain Additional Covenants and Acknowledgments.
a. This Note is not transferable, in whole or in part, except as otherwise
provided in this Section 13. The Registered Holder may submit a written request,
in person or by his duly authorized attorney, for a transfer of this Note on the
register of the Company maintained at its principal offices. The Company may
deem and treat the person in whose name this Note is registered as the absolute
owner hereof, for the purpose of receiving payment of the principal thereof and
interest hereon, whether or not the same shall be overdue, and for all other
purposes whatsoever, including but without limitation, the giving of any written
notices required hereunder, and the Company shall not be affected by any notice
to the contrary. Notwithstanding the foregoing, the holder may at any time
assign or transfer all or any part of its rights hereunder to any of its
affiliates without the consent or approval of the Company.
b. Transfer Restrictions. Holder acknowledges that this Note and the
Conversion Shares have not been registered under the Securities Act, and may not
be transferred
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unless: (A) subsequently registered thereunder; or (B) such securities are
transferred pursuant to an exemption from such registration. As set forth
herein, the Conversion Shares shall be so duly registered under the Securities
Act pursuant to the Registration Statement.
c. Filings. The Company undertakes and agrees that it will make all
required filings in connection with the sale of this Note or the Conversion
Shares, to the holder as required by United States laws and regulations, or by
any domestic securities exchange or trading market, and to provide copies
thereof to the holder promptly after such filing or filings.
d. Reporting Status. As promptly as possible following the filing of the
Registration Statement, the Company shall also file with the Commission Form
10-SB (or other form that the Company is eligible to use) and all other
documentation required to register the Common Stock under the Exchange Act. In
addition, so long as the holder beneficially owns this Note or any Conversion
Shares, the Company shall at all times file and maintain in a timely manner all
reports required to be filed with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act, and shall not terminate its status as an issuer required to
file reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination.
e. State Securities Filings. The Company shall from time to time promptly
take such action as the holder or any of its representatives, if applicable, may
reasonably request to qualify this Note and the Conversion Shares, for offering
and sale under the securities laws (other than United States federal securities
laws) of the jurisdictions in the United States as shall be so identified to the
Company, and to comply with such laws so as to permit the continuance of sales
therein, provided that in connection therewith, the Company shall not be
required to qualify as a foreign corporation or to file a general consent to the
service of process in any jurisdiction.
f. Use of Proceeds. The Company shall use all of the net proceeds from the
issuance of this Note and the Conversion Shares exclusively for working capital
purposes.
g. Reservation of Common Stock. The Company shall at all times have
authorized and reserved for the purpose of issuance of a sufficient number of
shares of Common Stock to provide for the Conversion Shares.
h. Tax Treatment. For all tax purposes, the parties hereto hereby
acknowledge, covenant and agree that the Notes have not been issued with, and
shall not be treated as having been issued with, original issue discount for
purposes of Section 305(e) andlor Sections 1271 through 1275 of the Internal
Revenue Code of 1986, as amended.
14. Transfer Agent Instructions.
a. The Company represents that no instruction, prior to the registration
and sale of the Conversion Shares issuable upon exercise of this Note, will be
given by the Company to the transfer agent and that the Conversion Shares shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Note, the Offering Documents, the Registration
Statement and applicable law.
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b. In lieu of delivering physical certificates representing the Conversion
Shares, provided the Company's transfer agent is participating in the Depositary
Trust Company ("DTC") Fast Automated Securities Transfer program, on the written
request of the holder, who shall have previously instructed the holder's prime
broker to confirm such request to the Company's transfer agent, the Company
shall cause its transfer agent to electronically transmit such Common Stock to
the holder by crediting the account of the holder's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system no later than
the applicable Delivery Date.
15. Remedies Cumulative. The rights, powers and remedies given to the payee
under this Note shall be in addition to all rights, powers and remedies given to
it by virtue of the Pledge Agreement, Primary Documents and any document or
instrument executed in connection therewith, or any statute or rule of law.
16. Non-Waiver. Any forbearance, failure or delay by the holder in
exercising any right, power or remedy under this Note, the Primary Documents any
documents or instruments executed in connection therewith or otherwise available
to the holder shall not be deemed to be a waiver of such right, power or remedy,
nor shall any single or partial exercise of any right, power or remedy preclude
the further exercise thereof
17. Modifications and Waivers. No modification or waiver of any provision
of this Note, the Primary Documents or any documents or instruments executed in
connection therewith shall be effective unless it shall be in writing and signed
by the holder, and any such modification or waiver shall apply only in the
specific instance for which given.
18. Attorneys' Fees. If this Note shall not be paid when due and shall be
placed by the Registered Holder hereof in the hands of an attorney for
collection, through legal proceedings or otherwise, or if this Note shall not be
converted into Conversion Shares on the Conversion Date, and an action is
brought by the Registered Holder with respect thereto, then the Company shall
pay attorneys' fees to the Registered Holder hereof, together with all costs and
expenses of collection or enforcement incurred in connection with any such
action.
19. Enforcement; Specific Performance. (a) In case any one or more events
of default set forth herein shall occur and be continuing, the Registered Holder
then may proceed to protect and enforce the rights of such holder by an action
at law, suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or for an injunction against a
violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law.
(b) The Company expressly agrees that the Registered Holder may not have
adequate remedies at law if the Company does not perform its obligations under
this Note. Upon a breach of the terms or covenants of this Note by the Company,
the Registered Holder shall, each in addition to all other remedies, be entitled
to obtain injunctive relief, and an order for specific performance of the
Company's obligations hereunder.
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20. Governing Law. This Note and the rights and obligations of the parties
hereto, shall be governed, construed and interpreted according to the laws of
the State of New York. The Company agrees that any final judgment in any such
action or proceeding shall be conclusive and binding, and may be enforced in any
federal or state court in the United States by suit on the judgment or in any
other manner provided by law. Nothing contained in this Note shall affect or
limit the right of the Registered Holder to serve any process or notice or
motion or other application in any other manner permitted by law, or limit or
affect the right of the Registered Holder to bring any action or proceeding
against the Company or any of its property in the courts of any other
jurisdiction. The Company hereby consents to the jurisdiction of the federal
courts whose districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in connection
with any dispute arising under this Note, and hereby waives, to the maximum
extent permitted by law, any objection, including any objections based on forum
non conveniens, to the bringing of any such proceeding in such jurisdiction.
21. Waiver of Presentment, etc. The undersigned hereby waives presentment,
demand for payment, protest, notice of protest and notice of non-payment hereof.
22. Headings. The headings contained in this Note are for reference
purposes only and shall not affect the meaning of interpretation of this Note.
23. Notices. Any notice to any party required or permitted hereunder shall
be given in writing (unless otherwise specified herein) and shall be effective
upon personal delivery, via facsimile (upon receipt of confirmation of
error-free transmission) or two (2) business days following deposit of such
notice with a nationally recognized courier service, with postage prepaid and
addressed to such party at the address set forth in the first paragraph of this
Note with a copy to the Company at the address set forth below, and to the other
parties thereunto entitled at the following addresses, or at such other
addresses as a party may designate by five (5) days advance written notice to
each of the other parties hereto.
Company: Suncoast Naturals, Inc.
5422 Carrier Drive
Suite 309
Orlando, FL 32819
Tel: (407) 226-8889
Fax:
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With a copy to:
William J. Reilly, Esq.
5447 NW 42 Avenue
Boca Raton, FL 33496
Tel: 561- 995-4625
Fax: 561-995-4626
Registered Holder: Goldstrand Investments, Inc.
1040 First Avenue, Suite 190
New York, NY 10022
Tel: (212) 317-5970
Fax: (212) 317-9026
With a copy to:
Joshua Glikman, Esq.
Shiboleth, Yisraeli, Roberts & Zisman, L.L.P.
350 Fifth Avenue
Suite 6001
New York, NY 10118
Tel: (212) 244-4111
Fax: (212) 563-7108
24. Amendments and Modification. Changes in or additions to this Note may
be made, and compliance with any covenant or condition herein set forth may be
omitted only if the Company shall obtain the written consent from the Registered
Holder of this Note.
25. No Usury. Notwithstanding anything to the contrary set forth herein, in
no event shall the total amount of all charges payable under this Note, which
are or could be held to be in the nature of interest exceed the maximum rate
permitted to be charged under applicable law. In the event that the Registered
Holder shall receive any payment which is or would be in excess of that
permitted to be charged under any such applicable law, then such payment shall
have been, and shall be deemed to have been, made in error and shall be
automatically retained by Registered Holder and used to reduce the principal of
this Note.
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26. No Redemption. This Note shall not be subject to any redemption by the
Company, and shall not be subject to subordination to any other indebtedness of
the Company.
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IN WITNESS WHEREOF, the Company has caused this Note to be executed as of
the date first written above.
SUNCOAST NATURALS, INC.
By: /s/ William J. Reilly
--------------------------------
Name: William J. Reilly
Title: President
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NOTICE OF CONVERSION
The conversion form appearing below should only be executed by the Registered
Holder desiring to convert all or part of the principal amount of the Note
attached hereto.
CONVERSION FORM
Date:_______________________________________
TO: SUNCOAST NATURALS, INC.
The undersigned hereby exercises the conversion privilege upon the terms
and conditions set forth in the attached Note, to the extent of the maximum
number of shares of Common Stock issuable pursuant to the terms of Section 6 of
the Note, and accordingly, authorizes the Company to apply $___________
principal amount of the attached Note to payment in full for such shares of
Common Stock. Please register such shares and make delivery thereof as follows:
Registered in the Name of (Giving First or Middle Name in Full)
Name___________________________
(Please Print)
Address______________________
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DELIVERY INSTRUCTIONS
To be completed ONLY if Certificates are to be mailed to persons other than
the Registered Holder.
Name______________________________________________________________
(Please Print)
Address __________________________________________________________
Signature ________________________________________________________
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ASSIGNMENT
FOR VALUE RECIEVED, the undersigned hereby sells, assigns and transfers
unto ____________________________________ the within the Convertible Note and
all rights thereunder, hereby irrevocably authorizing the Company to transfer
said Note on the books of the Company, with full power or substitution in the
premises.
Dated ________________________________________________
Signature ____________________________________________
Print Name ___________________________________________
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