SECURED DEMAND CONVERTIBLE PROMISSORY NOTE
$2,000,000.00 Executed at: _____________, California
Dated: February 2, 2004
theglobe.com, inc. a Delaware corporation (the "Company"), the principal
office of which is located at 110 East Broward Boulevard, Suite 1400, Fort
Lauderdale, Florida 33301, for value received, hereby promises to pay to Michael
S. Egan and S. Jacqueline Egan, as tenants by the entirety, or their permitted
assigns (the "Holder"), the sum of Two Million Dollars ($2,000,000.00), or such
lesser amount as shall then equal the outstanding principal amount hereof,
together with interest thereon at the rate of ten percent (10%) per annum, on
the terms and conditions set forth hereinafter. This Note is issued in
accordance with and is subject to the provisions of that certain Note Purchase
Agreement between the Company and the Holder, among others, dated on or about
February 2, 2004 (the "Note Purchase Agreement"). For purposes of this Note, the
holders of Notes representing at least a majority of the outstanding principal
of all the Notes in the aggregate issued pursuant to the Note Purchase Agreement
are referred to herein as the "Majority Holders"). Other defined terms used
herein and not otherwise specifically defined herein shall have the same
meanings as set forth in the Note Purchase Agreement.
The following is a statement of the rights of the Holder and the
conditions to which this Note is subject, and to which the Holder, by the
acceptance of this Note, agrees:
1. Principal and Interest. Except as provided herein and in Section 5
hereof, all payments under this Note shall be by cashier's check, wire transfer
or other immediately available funds payable in United States currency. The
principal hereof shall be due and payable two business days following any DEMAND
for payment, which DEMAND may be made by the Holder at anytime (the "Maturity
Date"). Accrued interest, at the rate mentioned above, shall be due and payable
on the Maturity Date.
2. Events of Default. Each of the following events shall be deemed an
Event of Default hereunder: (i) the Company fails to timely pay all then
outstanding principal and accrued interest ON DEMAND; (ii) the Company files a
petition or action for relief under any bankruptcy, insolvency or moratorium law
or any other law for the relief of, or relating to, debtors, now or hereafter in
effect, or makes any assignment for the benefit of creditors or takes any action
in furtherance of any of the foregoing; (iii) an involuntary petition is filed
against the Company (unless such petition is dismissed or discharged within
sixty (60) days) under any bankruptcy statute now or hereafter in effect, or a
custodian, receiver, trustee, assignee for the benefit of creditors (or other
similar official) is appointed to take possession, custody or control of any
property of the Company; or (iv) the Company defaults on any of its obligations
or breaches any of its representations, warranties or covenants in the Note
Purchase Agreement or the Security Agreement and such breach remains uncured for
a period of five (5) business days after notice thereof from the Majority
Holders.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall: at the option of the
Holder in the case of an Event of
Default of the nature specified in clause (i) above; automatically in the case
of an Event of Default pursuant to clauses (ii) or (iii) above; and at the
option of the Majority Holders in the case of an Event of Default pursuant to
clause (iv) above, be immediately due, payable and collectible by Holder
pursuant to applicable law. Subject to the foregoing, Holder shall have all
rights and may exercise any remedies available to it under law, successively or
concurrently. In addition, at any time or times during which an Event of Default
shall then exist or upon the maturity of this Note, the interest rate under this
Note shall be equal to the lesser of: (i) eighteen percent (18%) per annum; or
(ii) the maximum rate of interest permitted by applicable law, and shall be due
and payable ON DEMAND.
3. Security. The Company's obligations hereunder shall be secured by a
security interest in and upon the "Collateral" (as defined in the Security
Agreement) of the Company. Such security interest shall be senior to all other
creditors except with respect to outstanding obligations to the holders of the
Company's Secured Convertible Promissory Notes dated May 22, 2003 in the
aggregate principal amount of $1,750,000 (the "Outstanding Senior Notes"), as to
which the Notes shall share the security interest on a pari passu basis. The
Company agrees to execute and deliver to the Holder in form and substance
reasonably satisfactory to Holder, a security agreement, financing statement and
such other documents as may be reasonably necessary to perfect Holder's security
interest.
4. Prepayment. The Company may not prepay this Note in whole or in part at
any time without the prior written consent of the Majority Holders. In
recognition of Holder's conversion rights pursuant to Section 5 hereof, such
consent may be withheld in the sole discretion of the Majority Holders.
5. Conversion.
5.1 Voluntary Conversion. The Holder of this Note has the right, at
the Holder's option, at any time prior to payment in full of the principal
balance of this Note, to convert the outstanding principal under this Note, in
accordance with the provisions of Section 5.2 hereof, in whole or in part, but
in denominations of not less than Ten Thousand Dollars ($10,000) (unless the
entire principal balance of this Note is being converted), into fully paid and
nonassessable shares of Common Stock of the Company. Subject to Section 6 below,
the number of shares of Common Stock into which the outstanding principal of
this Note may be converted ("Conversion Shares") shall be determined by dividing
the principal amount for which conversion is requested by the Conversion Price
(as defined below) in effect at the time of such conversion. The initial
"Conversion Price" shall be Ninety Eight Cents ($.98); provided, however, that
(in addition to the adjustments provided in Section 6 below), the initial
Conversion Price shall be adjusted as follows with regard to a "Qualified
Private Offering": (i) in the event that the Qualified Private Offering shall
close on or before February 29, 2004, and raise gross proceeds of at least
Fifteen Million Dollars ($15,000,000), the Conversion Price shall equal the
sales price per share of Common Stock sold in such Qualified Private Offering
and (ii) in the event the Qualified Private Offering shall close after February
29, 2004 or for less than $15 million, the Conversion Price shall equal eighty
percent of the sales price per share of Common Stock sold in such Offering. The
term "Qualified Private Offering" shall mean a private offering of securities by
the Company for gross proceeds of at least Seven Million Five Hundred Thousand
Dollars ($7,500,000) and which closes not later than March 31, 2004.
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5.2 Conversion Procedure. Before the Holder shall be entitled to
convert this Note into shares of Common Stock, it shall give written notice by
mail, postage prepaid, to the Company at its principal corporate office, of the
election to convert the Note, and shall state therein the name or names in which
the certificate for shares of Common Stock are to be issued. A closing for such
conversion shall be held at the offices of the Company on the fifth business day
following the date of deposit of the notice in the mail or such other date
mutually acceptable to the Holder and the Company. At such closing the Company
shall issue and deliver to the Holder of this Note a certificate or certificates
(bearing such legends as are required under applicable state and federal
securities laws in the opinion of counsel to the Company) for the number of
shares of Common Stock to which the Holder shall be entitled as aforesaid,
together with a check made payable to the Holder in the amount of any accrued
interest on the principal amount converted to the date of such conversion, and
the Holder shall surrender this Note. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of mailing of
Holder's written notice of exercise (the "Effective Date"), and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date.
5.3 Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of this Note. In lieu of the Company issuing any
fractional shares to the Holder upon the conversion of this Note, the Company
shall pay to the Holder the amount of outstanding principal that is not so
converted. If the conversion is for less than the entire outstanding principal
balance of this Note, then the Company shall issue a replacement Note to the
Holder representing the unconverted principal balance.
6. Conversion Price Adjustments.
6.1 Adjustments for Subdivision, Dividends, Combinations or
Consolidations of Common Stock. If the Company shall at any time or from time to
time after the date that this Note is issued (the "Original Issue Date") effect
a combination or consolidation of the outstanding Common Stock, 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. In the event the Company shall
declare or pay any dividend on the Common Stock payable in Common Stock or in
the event the outstanding shares of Common Stock shall be subdivided, by
reclassification or otherwise than by payment of a dividend in Common Stock,
into a greater number of shares of Common Stock, the Conversion Price in effect
immediately prior to such dividend or subdivision shall be proportionately
decreased. Such adjustment shall take place (i) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend and (ii) in the case of any such subdivision, at the close of business
on the date immediately prior to the date upon which such corporate action
becomes effective. If such record date shall have been fixed and such dividend
shall not have been fully paid on the date fixed therefor, the adjustment
previously made in the applicable Conversion Price that became effective on such
record date shall be canceled as of the close of business on such record date,
and thereafter the applicable Conversion Price shall be adjusted as of the time
of actual payment of such dividend.
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6.2 Adjustment for Other Dividends and Distributions. If the Company
at any time or from time to time after the Original Issue Date makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock, in each such event provision shall be made so
that the holder of the Note shall receive upon conversion thereof, in addition
to the number of shares of Common Stock receivable thereupon, the amount of
other securities of the Company that it would have received had its Note been
converted for Common Stock on the date of such event and had it thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 6 with respect to the rights of the Holder or with respect to such
other securities by their terms.
6.3 Adjustment for Reclassification, Exchange and Substitution. If
at any time or from time to time after the Original Issue Date, the Common Stock
issuable upon the conversion of the Note is changed into the same or a different
number of shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section 6), in any such event the Holder shall
have the right thereafter to convert this Note for the kind and amount of stock
and other securities and property receivable upon such recapitalization,
reclassification or other change by holders of the maximum number of shares of
Common Stock into which this Note could have been converted immediately prior to
such recapitalization, reclassification or change, all subject to further
adjustment as provided herein or with respect to such other securities or
property by the terms thereof.
6.4 Sale of Shares Below Conversion Price.
6.4.1 If at any time or from time to time the Company issues
or sells, or is deemed by the express provisions of this subsection 6.4.1 to
have issued or sold, Additional Shares of Common Stock (as defined herein),
other than as provided in Sections 6.1 through 6.3 above, for an Effective Price
(as defined herein) less than the then effective Conversion Price, then and in
each such case the then existing Conversion Price shall be reduced as of the
opening of business on the date of such issue or sale, to a price determined by
multiplying the Conversion Price by a fraction (i) the numerator of which shall
be (A) the number of shares of Common Stock Deemed Outstanding (as defined
herein) immediately prior to such issue or sale, plus (B) the number of shares
of Common Stock that the Aggregate Consideration Received (as defined herein) by
the Company for the total number of Additional Shares of Common Stock so issued
could purchase at such Conversion Price, and (ii) the denominator of which shall
be the number of shares of Common Stock Deemed Outstanding immediately prior to
such issue or sale plus the total number of Additional Shares of Common Stock so
issued. For the purposes of this paragraph, the number of shares of Common Stock
Deemed Outstanding as of a given date shall be the sum of (A) the number of
shares of Common Stock actually "Outstanding," (B) the number of shares of
Common Stock into which then outstanding Notes could be exercised if fully
exercised on the day immediately preceding the given date, and (C) the number of
shares of Common Stock which could be obtained through the exercise or
conversion of all other rights, options and convertible securities on the day
immediately preceding the given date.
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6.4.2 For the purpose of making any adjustment required under
this Section 6.4, the consideration received by the Company from any issue or
sale of securities shall (A) to the extent it consists of cash, be computed at
the net amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Company in connection with such issue or sale but without deduction of
any expenses payable by the Company, (B) to the extent it consists of property
other than cash, be computed at the fair value of that property as determined in
good faith by the Board, and (C) if Additional Shares of Common Stock,
Convertible Securities (as defined herein) or rights or options to purchase
either Additional Shares of Common Stock or Convertible Securities are issued or
sold together with other stock or securities or other assets of the Company for
a consideration that covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith by the
Board to be allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options.
6.4.3 For the purpose of the adjustment required under this
Section 6.4, if the Company issues or sells any rights or options for the
purchase of, stock or other securities convertible into, Additional Shares of
Common Stock (such convertible stock or securities being herein referred to as
"Convertible Securities") and if the Effective Price of such Additional Shares
of Common Stock is less than the Conversion Price, in each case the Company
shall be deemed to have issued at the time of the issuance of such rights or
options or Convertible Securities the maximum number of Additional Shares of
Common Stock issuable upon exercise or conversion thereof and to have received
as consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the issuance of
such rights or options or Convertible Securities, plus, in the case of such
rights or options, the minimum amounts of consideration, if any, payable to the
Company upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any, payable to
the Company (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) upon the conversion thereof, provided that, if
in the case of Convertible Securities the minimum amounts of such consideration
cannot be ascertained but are a function of antidilution or similar protective
clauses, the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses; provided further, that, if the
minimum amount of consideration payable to the Company upon the exercise or
conversion of rights, options or Convertible Securities is reduced over time or
on the occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; provided
further, that, if the minimum amount of consideration payable to the Company
upon the exercise or conversion of such rights, options or Convertible
Securities is subsequently increased, the Effective Price shall be again
recalculated using the increased minimum amount of consideration payable to the
Company upon the exercise or conversion of such rights, options or Convertible
Securities. No further adjustment of the Conversion Price, as adjusted upon the
issuance of such rights, options or Convertible Securities, shall be made as a
result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having been
exercised, the Conversion Price as adjusted upon the issuance of such rights,
options or Convertible Securities shall be readjusted to the Conversion Price
which would have been in effect had an adjustment been made on the basis that
the only Additional Shares of Common Stock so issued were the Additional Shares
of Common Stock, if any, actually issued or sold on the exercise of such rights
or options or rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the granting of all
such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted,
plus the consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities, provide
Securities, provided that such readjustment shall not apply to prior exercises
of the Note.
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6.4.4 "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company or deemed to be issued pursuant to
this Section 6.4, whether or not subsequently reacquired or retired by the
Company, other than (A) shares of Common Stock issued upon exercise of this Note
or any of the Notes; (B) shares of Common Stock and/or options, warrants or
other Common Stock purchase rights, and the Common Stock issued pursuant to such
options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) issued or to be issued to
employees, officers or directors of, or consultants or advisors to, the Company
or any subsidiary pursuant to stock purchase or stock option plans or other
arrangements that are approved by the Board; (C) shares of Common Stock issued
pursuant to the exercise or conversion, as applicable, of options, warrants or
convertible securities outstanding as of the Original Issue Date and (D) shares
of Common Stock issued in a Qualified Offering. The "Effective Price" of
Additional Shares of Common Stock shall mean the quotient determined by dividing
the total number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold by the Company under this Section 6.4, into the
aggregate consideration received, or deemed to have been received by the Company
for such issue under this Section 6.4, for such Additional Shares of Common
Stock. The term "Qualified Offering" shall mean the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock (whether for the account of the Company or for the account of one
or more stockholders of the Company) to the public at an aggregate offering
price of not less than fifteen million dollars ($15,000,000).
6.5 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 6,
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each Holder a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request at any time of any Holder, furnish or cause to
be furnished to such Holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of the Note;
provided, however, that no adjustment need be made hereunder until the
cumulative affect of such adjustment to the Conversion Price is at least $.01.
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7. Assignment. Subject to the restrictions on transfer or assignment set
forth in the Note Purchase Agreement, the rights and obligations of the Company
and the Holder of this Note shall be binding upon and benefit the successors,
assigns, heirs, administrators and transferees of the parties.
8. Notices. All notices, requests, consents and other communications
hereunder to any party, shall be deemed to be sufficient if in writing and
contained (i) delivered in person, (ii) delivered and received by telex,
telecopier, telegram, if a confirmatory mailing in accordance herewith is also
made, (iii) duly sent by registered mail return receipt requested and postage
prepaid or (iv) duly sent by overnight delivery service, addressed to such party
at the address set forth in the Note Purchase Agreement. All such notices and
communications shall be deemed to have been received: (i) at the time personally
(including delivery by telex, telecopier and telegram), (ii) three days after
mailed to the foregoing persons at the addresses set forth above; (iii) the next
day when sent by overnight delivery service; provided that rejection or other
refusal to accept or inability to deliver because of changed address for which
no notice has been received shall also constitute receipt.
9. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon the Holder or any other person the right to vote or
to consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of the Company or any other matters or any rights
whatsoever as a stockholder of the Company; and no dividends or other
distributions shall be payable or accrued in respect of this Note or the
interest represented hereby or the Conversion Shares obtainable hereunder until,
and only to the extent that, this Note shall have been converted.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, excluding that body of law
relating to conflict of laws.
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IN WITNESS WHEREOF, the Company has caused this Note to be issued this
2nd day of February, 2004
theglobe.com, inc.
By:_____________________________________
Its:____________________________________
Name of Holder:____________________
Address:___________________________
___________________________
___________________________
Taxpayer ID#:______________________
NOTICE OF CONVERSION
(To Be Signed Only Upon Conversion of the Note)
TO: theglobe.com, inc.
110 East Broward Blvd.
14th Floor
Fort Lauderdale, Florida 33301
The undersigned, the Holder of the foregoing Note, hereby elects to
convert $_____________ of the unpaid principal amount of such Note into shares
of Common Stock of theglobe.com, inc., and requests that the certificate for
such shares be issued in the name of ___________________.
Dated:________________, 200__.
________________________________________
(Signature must conform in
all respects to name of Holder
as specified on the face of the Note
________________________________________
(Address)
________________________________________
________________________________________
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