THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED AS OF THE
DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES,
INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS
OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT AND
REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF DEFAULT FOLLOWING
WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED.
No. 1 Up to $500,000
E-REX, INC.
10% Convertible Note
E-REX, INC., a Nevada corporation (together with its successors, the
"Company"), for value received hereby promises to pay to Auxiliarius Fortunare,
LLC or his registered assigns, the principal sum of up to Five Hundred Thousand
Dollars ($500,000.00) or, if less, the principal amount of this Note then
outstanding, on the Maturity Date to the Holder in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts, and to pay interest on (each an "Interest
Payment Date") (i) the Maturity Date, (ii) each Conversion Date, as hereafter
defined, and (iii) the date the principal amount of the Convertible Notes shall
be declared to be or shall automatically become due and payable, on the
principal sum hereof outstanding in like coin or currency, at the rates per
annum set forth below. The Maturity Date shall be that date which is two (2)
years from the date of each delivery of part or all of the principal amount as
set forth below.
The Holder shall be required to deliver the principal amount under this
Note according to the following schedule:
(a) Holder shall deliver the sum of $10,000 every seven (7) days
beginning on the seventh (7th) day following the conditions precedent (each a
"Funding Day"):
(i) the effectiveness within 120 days of the Closing Date as
defined in the Agreement (and continued effectiveness) of a Registration
Statement filed with the Securities and Exchange Commission which registers the
resale of the shares of Company common stock to be received by the Holder upon
conversion of some or all of the principal amount of this Note; and
(ii) the average trading volume of the Company's common stock
during the fifteen (15) trading days preceding each Funding Day is within the
range set forth in the table attached hereto and made a part hereof as Exhibit
II; and
(iii) the average Closing Bid Price of the Company's common
stock during the fifteen (15) trading days preceding the Funding Day is within
the range set forth in the table attached hereto and made a part hereof as
Exhibit II.
(iv) the conditions precedent set forth in (a)(ii) and
(a)(iii), and the Conversion Price applicable to any given funding traunche,
shall be reset based on the table set forth in Exhibit II based on the Closing
Bid Price on each applicable Funding Day.
(b) Holder shall have no obligation to deliver the principal
amount under this Note unless and until the conditions set forth above have been
satisfied.
The interest rate shall be ten percent (10%) per annum (the "Interest
Rate") or, if less, the maximum rate permitted by applicable law. Past due
amounts (including interest, to the extent permitted by law) will also accrue
interest at the Interest Rate plus two percent (2%) per annum or, if less, the
maximum rate permitted by applicable law, and will be payable on demand
("Default Interest"). Interest on this Convertible Note will be calculated on
the basis of a 360-day year of twelve (12) months. All payments of principal
and interest hereunder shall be made for the benefit of the Holder pursuant to
the terms of the Agreement (hereafter defined). Except as otherwise provided in
this Convertible Note, the interest payable on each Interest Payment Date shall
be added to the outstanding principal amount of this Convertible Note on such
date and thereafter be considered part of the outstanding principal amount. The
Company may elect to pay the interest payable on any Interest Payment Date in
cash, provided it gives the registered holder written notice of such election at
least five (5) Business Days prior to the applicable Interest Payment Date and
pays the same by such date. On each Conversion Date, interest shall be paid in
shares of Common Stock on the portion of the principal balance of the
Convertible Note then being converted. The number of shares of Common Stock
issued as interest shall be determined by dividing the dollar amount of interest
due on the applicable Interest Payment Date by the Conversion Price or Default
Conversion Price then in effect.
This Convertible Note (this "Convertible Note") is one of a duly authorized
issuance of $500,000 original aggregate principal amount of Convertible Notes of
the Company referred to in that certain Securities Purchase Agreement dated as
of the date hereof between the Company and the Purchasers named therein (the
"Agreement"). The Agreement contains certain additional agreements among the
parties with respect to the terms of this Convertible Note, including, without
limitation, provisions which (A) limit the conversion rights of the Holder, (B)
specify voluntary and mandatory repayment, prepayment and redemption rights and
obligations and (C) specify Events of Default following which the remaining
balance due and owing hereunder may be accelerated. All such provisions are an
integral part of this Convertible Note and are incorporated herein by reference.
This Convertible Note is transferable and assignable to one or more Persons, in
accordance with the limitations set forth in the Agreement.
The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Convertible
Note and particulars of this Convertible Note held by such holder and of all
transfers of this Convertible Note. References to the Holder or "Holders" shall
mean the Person listed in the Register as the registered holder of such
Convertible Notes. The ownership of this Convertible Note shall be proven by
the Register.
1. Certain Terms Defined. All terms defined in the Agreement and not
-----------------------
otherwise defined herein shall have for purposes hereof the meanings provided
for in the Agreement.
2. Covenants. Unless the Majority Holders otherwise consent in
---------
writing, the Company covenants and agrees to observe and perform each of its
covenants, obligations and undertakings contained in the Agreement, which
obligations and undertakings are expressly assumed herein by the Company and
made for the benefit of the holder hereof.
3. Payment of Principal. The Company shall repay the remaining unpaid
---------------------
balance on this Convertible Note on the Maturity Date. The Company may, and
shall be obligated to, prepay all or a portion of this Convertible Note on the
terms specified in the Agreement.
4.1 Conversion of Convertible Note. The Holder shall have the right,
--------------------------------
at its option, at any time from and after the date of the Agreement, to convert
the principal amount of this Convertible Note, or any portion of such principal
amount, into that number of fully paid and nonassessable shares of Common Stock
(as such shares shall then be constituted) determined pursuant to this Section
4.1. The number of shares of Common Stock to be issued upon each conversion of
this Convertible Note shall be determined by dividing the Conversion Amount (as
defined below) by the Conversion Price in effect on the date (the "Conversion
Date") a Notice of Conversion is delivered to the Company by the Holder by
facsimile or other reasonable means of communication dispatched prior to 5:00
p.m., Florida Time. The term "Conversion Amount" means, with respect to any
conversion of this Convertible Note, the sum of (1) the principal amount of this
Convertible Note to be converted in such conversion plus (2) accrued and unpaid
interest, if any, on such principal amount at the interest rates provided in
this Convertible Note to the Conversion Date plus (3) Default Interest, if any,
on the interest referred to in the immediately preceding clause (2); the term
"Conversion Price" means $0.008 per share, unless the price and trading volume
of the Company's common stock require that the Conversion Price be reset as set
forth in Exhibit II attached hereto and made a part hereof, in which case the
Conversion Price shall be as set forth therein.
4.2 Irrevocable Instructions to Transfer Agent. Consistent with Section
----------------------------------------------
7.10 of the Agreement, the Company (i) shall promptly irrevocably instruct its
transfer agent to issue certificates for the Common Stock issuable upon
conversion of this Convertible Note and (ii) agrees that its issuance of this
Convertible Note shall constitute full authority to its officers and agents who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock in accordance with the
terms and conditions of this Convertible Note.
4.3 Method of Conversion
----------------------
(a) Notwithstanding anything to the contrary set forth herein, upon
conversion of this Convertible Note in accordance with the terms hereof, the
Holder shall not be required to physically surrender this Convertible Note to
the Company unless the entire unpaid principal amount of this Convertible Note
is so converted. Rather, records showing the principal amount converted (or
otherwise repaid) and the date of such conversion or repayment shall be
maintained on a ledger substantially in the form of Annex I attached hereto (a
-------
copy of which shall be delivered to the Company and the Escrow Agent with each
Notice of Conversion). It is specifically contemplated that the Company hereof
shall act as the calculation agent for conversions and repayments. In the event
of any dispute or discrepancies, such records maintained by the Company shall be
controlling and determinative in the absence of manifest error. The Holder and
any assignee, by acceptance of this Convertible Note, acknowledge and agree
that, by reason of the provisions of this paragraph, following a conversion of a
portion of this Convertible Note, the principal amount represented by this
Convertible Note will be the amount indicated on Annex I attached hereto (which
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may be less than the amount stated on the face hereof).
(b) The Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock or other securities or property on conversion of this
Convertible Note in a name other than that of the Holder (or in street name),
and the Company shall not be required to issue or deliver any such shares or
other securities or property unless and until the person or persons (other than
the Holder or the custodian in whose street name such shares are to be held for
the Holder's account) requesting the issuance thereof shall have paid to the
Company the amount of any such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
(c) Upon receipt by the Company and Escrow Agent of a Notice of
Conversion, the Holder shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, the outstanding principal amount and the
amount of accrued and unpaid interest on this Convertible Note shall be reduced
to reflect such conversion, and, unless the Company defaults on its obligations
under this Article 4, all rights with respect to the portion of this Convertible
Note being so converted shall forthwith terminate except the right to receive
the Common Stock or other securities, cash or other assets, as herein provided,
on such conversion. If the Holder shall have given a Notice of Conversion as
provided herein, the Company's obligation to issue and deliver the certificates
for shares of Common Stock shall be absolute and unconditional, irrespective of
the absence of any action by the Holder to enforce the same, any waiver or
consent with respect to any provision thereof, the recovery of any judgment
against any person or any action by the Holder to enforce the same, any failure
or delay in the enforcement of any other obligation of the Company to the Holder
of record, or any setoff, counterclaim, recoupment, limitation or termination,
or any breach or alleged breach by the Holder of any obligation to the Company,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with such conversion. The
date of receipt (including receipt via telecopy) of such Notice of Conversion
shall be the Conversion Date so long as it is received before 5:00 p.m., Florida
Time, on such date.
5. Miscellaneous. This Convertible Note shall be deemed to be a
-------------
contract made under the laws of the State of Florida, and for all purposes shall
be governed by and construed in accordance with the laws of said State. The
parties hereto, including all guarantors or endorsers, hereby waive presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Convertible Note,
except as specifically provided herein, and assent to extensions of the time of
payment, or forbearance or other indulgence without notice. The Company hereby
submits to the exclusive jurisdiction of the United States District Court for
the State of Florida and of any Florida state court for purposes of all legal
proceedings arising out of or relating to this Convertible Note. The Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum. The Company hereby irrevocably
waives any and all right to trial by jury in any legal proceeding arising out of
or relating to this Convertible Note. Notwithstanding anything to the contrary
in the foregoing, at the election of the Holder, any dispute between the Holder
and the Company may be arbitrated, rather than litigated in the courts, before
and in accordance with the rules of the American Arbitration Association. The
Company agrees to submit to and participate in any such arbitration.
The Holder of this Convertible Note by acceptance of this Convertible Note
agrees to be bound by the provisions of this Convertible Note which are
expressly binding on such Holder.
[Signature page follows]
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: October 14, 2002
E-REX, INC.,
a Nevada corporation
/s/ Carl Dilley
-----------------
By: Carl Dilley
------------
Its: President
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ANNEX I
CONVERSION AND REPAYMENT LEDGER
PRINCIPAL INTERESTED CONVERTED PRINCIPAL NEW PRINCIPAL
DATE BALANCE OR PAID CONVERTED OR PAID BALANCE ISSUER INITIALS HOLDER INITIALS
- ---- --------- -------------------- ----------------- ------------- --------------- ---------------
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Convertible
Note)
The undersigned hereby irrevocably elects to convert $______________ of the
above Convertible Note into shares of Common Stock of E-Rex, Inc., a Nevada
corporation ("Company") according to the conditions set forth in such
Convertible Note, as of the date written below.
If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer and other taxes and charges
payable with respect thereto.
Date of Conversion:______________________________________
Applicable Conversion Price $0.008 (unless reset pursuant to
----------------------------------------------
Section 4.1 of the Note.
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Signature:_________________________________________________
[Print Name of Holder and Title of Signer]
Address:___________________________________________________
___________________________________________________________
SSN or EIN:______________________________________________
Shares are to be registered in the following name:
Name:______________________________________________________
Address:___________________________________________________
Tel:_______________________________________________________
Fax:_______________________________________________________
SSN or EIN:______________________________________________
Shares are to be sent or delivered to the following account:
Account Name:_____________________________________________
Address:___________________________________________________
Tel:_______________________________________________________
Fax:_______________________________________________________
SSN or EIN:______________________________________________
EXHIBIT II
EREX FUNDING RESET PROVISION TABLE
AVERAGE 15 DAYS CONVERTIBLE MINIMUM 15 PRIOR WEEKLY
PRIOR CLOSING NOTE TRADING DAYS TRANCHE
BID PRICE CONVERSION PRICE DAILY VOLUME FUNDING
Reset Provision 12 . . . . . . . . $ 0.25 $ 0.188 60,000 $ 10,000
Reset Provision 11 . . . . . . . . $ 0.15 $ 0.113 90,000 $ 10,000
Reset Provision 10 . . . . . . . . $ 0.10 $ 0.075 140,000 $ 10,000
Reset Provision 9. . . . . . . . . $ 0.08 $ 0.060 170,000 $ 10,000
Reset Provision 8. . . . . . . . . $ 0.05 $ 0.038 270,000 $ 10,000
Reset Provision 7. . . . . . . . . $ 0.04 $ 0.030 350,000 $ 10,000
Reset Provision 6. . . . . . . . . $ 0.025 $ 0.019 550,000 $ 10,000
Reset Provision 5. . . . . . . . . $ 0.015 $ 0.011 900,000 $ 10,000
DOC EXECUTION PARAMETERS . . . . . $ 0.009 $ 0.007 1,500,000 $ 10,000
Reset Provision 1. . . . . . . . . $ 0.007 $ 0.006 1,900,000 $ 10,000
- ---------------------------------- ---------------- ----------------- ---------------- --------
Reset Provision 2. . . . . . . . . $ 0.006 $ 0.005 2,200,000 $ 10,000
Reset Provision 3. . . . . . . . . $ 0.005 $ 0.004 2,700,000 $ 10,000
Reset Provision 4. . . . . . . . . $ 0.004 $ 0.003 3,400,000 $ 10,000