[FORM OF SENIOR SECURED NOTE]
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES. SENIOR SECURED NOTE
$________________ New York, New York
April 2, 2004
FOR VALUE RECEIVED, the undersigned, Cadence Resources Corporation, a Utah
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
____________________________ (the "Lender"), (i) the principal amount of
_______________ United States Dollars ($___________) (the "Original Principal
Amount", as may be reduced from time to time as a result of prepayments made in
accordance with the terms of this Senior Secured Note, the "Principal Amount"),
on March 31, 2006 (the "Maturity Date"), and (ii) interest on the Principal
Amount at the Interest Rate (as defined below) from the date hereof (the
"Issuance Date") through and including the Maturity Date, whether or not such
Principal Amount remains outstanding on the Maturity Date, payable quarterly on
the last day of each Calendar Quarter during the period beginning on the
Issuance Date and ending on, and including, the Maturity Date (each, an
"Interest Date") with the first Interest Date being June 30, 2004. For purposes
of this Senior Secured Note, "Interest Rate" shall mean the rate of 10% per
annum; provided, that so long as the Borrower is in breach of Section 4.12(b) of
the Securities Purchase Agreement (as defined below), such rate shall equal 15%
per annum. For purposes of this Senior Secured Note, "Calendar Quarter" shall
mean each of: the period beginning on and including January 1 and ending on and
including March 31; the period beginning on and including April 1 and ending on
and including June 30; the period beginning on and including July 1 and ending
on and including September 30; and the period beginning on and including October
1 and ending on and including December 31.
This Senior Secured Note (including all Senior Secured Notes issued in exchange,
transfer or replacement hereof, this "Note") is one of an issue of senior
secured notes issued pursuant to the Securities Purchase Agreement (as defined
below) (collectively, the "Notes" and such other senior secured notes, the
"Other Notes"). Capitalized terms not otherwise defined herein shall have the
meanings ascribed to such term in the Securities Purchase Agreement by and among
the Borrower and the buyers referred to therein dated as of the Issuance Date
(the "Securities Purchase Agreement").
1
Any Principal Amount or interest hereunder that is not paid when due
(whether upon an Interest Date, the Maturity Date, a Mandatory Prepayment Date
(as defined herein), prepayment, acceleration or otherwise) shall bear interest
from the day when due until such amount is paid in full, payable on demand, at
the rate of 18% per annum (the "Default Rate"). All interest shall be computed
on the basis of a year of 360 days for the actual number of days (including the
first day but excluding the last day) elapsed. Notwithstanding any other
provision of this Note, interest paid or becoming due hereunder shall in no
event exceed the maximum rate permitted by applicable law.
All payments made to the Lender on account of any Principal Amount shall
be noted by the Lender on the schedule that is attached hereto and hereby made a
part hereof; provided, however, that any error or omission by the Lender in this
regard shall not affect the obligation of the Borrower to pay the full amount of
the Principal Amount and interest on this Note.
If any amount payable hereunder shall be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
interest payable hereon.
Both the Principal Amount and interest are payable in lawful money of the
United States and in immediately available funds at such place as the Lender
shall designate in writing to the Borrower.
The Borrower may, at its option and upon not less than two Business Days'
prior written notice to the Lender, prepay all or any portion of the Principal
Amount of this Note provided, that, (i) other than in connection with the
required prepayments pursuant to the immediately following paragraph, the
Borrower, in connection with such prepayment, shall pay all amounts of interest
that would be due to the Lender on such prepaid Principal Amount through the
Maturity Date had the Borrower not prepaid this Note, and (ii) the Borrower
makes the prepayments in the same proportion and manner pursuant to each of the
Other Notes.
On each of September 30, 2005 and December 31, 2005 (each, a "Mandatory
Prepayment Date"), the Borrower shall prepay to the Lender (and the lenders
under the Other Notes) ten percent (10%) of the Original Principal Amount of
this Note plus accrued and unpaid interest on such principal amount (and takes
similar action as to the Other Notes); provided that the Borrower shall not be
required to make a prepayment on such Mandatory Prepayment Date if the Weighted
Average Price (as defined below) of the Common Stock is more than $5.00 (subject
to appropriate adjustments for stock splits, stock dividends, stock combinations
and other similar transactions after the Issuance Date) on each of the twenty
Trading Days immediately preceding such the applicable Mandatory Prepayment
Date.
2
For purposes of this Note, "Weighted Average Price" means, as of any date,
the dollar volume-weighted average price for the Common Stock on the Trading
Market (as defined in the Securities Purchase Agreement) during the period
beginning at 9:30:01 a.m., New York City Time (or such other time as the Trading
Market publicly announces is the official open of trading), and ending at
4:00:00 p.m., New York City Time (or such other time as the Trading Market
publicly announces is the official close of trading) as reported by Bloomberg
through its "Volume at Price" functions, or, if the foregoing does not apply,
the dollar volume-weighted average price of the Common Stock in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York City Time (or such other
time as the Trading Market publicly announces is the official open of trading),
and ending at 4:00:00 p.m., New York City Time (or such other time as the
Trading Market publicly announces is the official close of trading) as reported
by Bloomberg, or, if no dollar volume weighted average price is reported for
such security by Bloomberg for such hours, the average of the highest closing
bid price and the lowest closing ask price of any of the market makers for such
security as reported in the "pink sheets" by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Weighted Average Price cannot be
calculated for the Common Stock on a particular date on any of the foregoing
bases, the Weighted Average Price of the Common Stock on such date shall be the
fair market value as mutually reasonably determined by the Borrower and the
Lender. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during the
applicable calculation period.
So long as any Principal Amount or interest shall remain unpaid, the
Borrower shall not, and shall not permit any of its Subsidiaries, unless the
Lender shall otherwise consent in writing, to:
(a) Merge or consolidate with any Person.
(b) Sell, convey, transfer, lease or dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its
assets to any Person or, or abandon all or substantially all of its assets.
(c) Directly or indirectly, incur or guarantee, assume or suffer to
exist any Indebtedness not in existence as of the date hereof as set forth on
Annex I hereto or permit any of its Subsidiaries, directly or indirectly, to
incur or guarantee, assume or suffer to exist any Indebtedness not in existence
as of the date hereof as set forth on Annex I hereto.
If any of the following shall occur (each, a "Default"): (a) the Borrower
shall fail to pay any Principal Amount of or interest on this Note or any Other
Note when due (whether upon an Interest Date, a Mandatory Prepayment Datethe
Maturity Date, prepayment, acceleration or otherwise); (b) any representation or
warranty made by Borrower in any Transaction Document shall have been incorrect
when made; or (c) the Borrower shall be in breach of or fail to perform or
observe any term, covenant or agreement contained in any Transaction Document
(other than a failure under Section 4.12(b) of the Securities Purchase
Agreement); (d) the Borrower is in breach of Section 4.12(b) of the Securities
Purchase Agreement as of the 6 month anniversary of the Issuance Date; (e) the
Borrower shall fail to pay any Indebtedness, or any interest or premium thereon,
4
when due (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Indebtedness, or any other default under any agreement or instrument relating to
any such Indebtedness, or any other event, shall occur and shall continue after
the applicable grace period, if any, specified in such agreement or instrument,
if the effect of such default or event is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or any such Indebtedness
shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment), prior to the stated maturity
thereof; or (f) one or more judgments or orders for the payment of money
exceeding any applicable insurance coverage by more than $100,000 in the
aggregate shall be rendered against the Borrower or any of its subsidiaries, and
either (i) enforcement proceedings shall have been commenced by any creditor
upon any such judgment or order, or (ii) there shall be any period of 10
consecutive days during which a stay of enforcement of any such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
(g) shall be generally not paying its debts as such debts become due, or shall
admit in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding shall be
instituted by or against any such person or entity seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for such
person or entity or for any substantial part of its property; or the Borrower or
any of its subsidiaries shall take any action to authorize or effect any of the
actions set forth above in this clause (g); or (h) any provision of any
Transaction Document shall at any time for any reason be declared to be null and
void by a court of competent jurisdiction, or the validity or enforceability
thereof shall be contested by the Borrower, or a proceeding shall be commenced
by the Borrower seeking to establish the invalidity or unenforceability thereof,
or the Borrower shall deny that it has any liability or obligation hereunder or
thereunder; or (i) the Security Agreement shall for any reason fail or cease to
create a valid and perfected and, except to the extent permitted by the terms
hereof or thereof, first priority lien on or security interest in any of the
collateral purported to be covered thereby; or (i) a material adverse change in
the condition or operations, financial or otherwise, of the Borrower or any of
its subsidiaries, as determined by the Lender in its sole discretion, shall
occur and written notice thereof shall have been given to the Borrower by the
Lender;
then (i) in connection with a Default pursuant to the foregoing clause (g), the
outstanding Principal Amount of this Note and all other amounts due hereunder,
including, without limitation, any interest owing through the Maturity Date,
shall be immediately due and payable, without diligence, presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
(ii) the Lender may declare the outstanding Principal Amount of this Note and
all other amounts due hereunder, including, without limitation, any interest
owing through the Maturity Date, to be immediately due and payable, whereupon
the outstanding principal amount of this Note and all such other amounts shall
become and shall be forthwith due and payable, without diligence, presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, and (iii) the Lender may exercise any and all of its other rights under
applicable law, hereunder and under the Security Agreement.
This Note shall be senior to all other Indebtedness of the Company and its
Subsidiaries.
The Borrower hereby indemnifies and holds harmless the Lender and its
members, officers, employees, partners, agents, affiliates and advisors and each
of their respective directors, officers, employees, agents and advisors (each,
an "Indemnified Party") from and against any and all actions, claims, damages,
losses, liabilities, fines, penalties, costs and expenses of any kind
(including, without limitation, counsel fees and disbursements in connection
with any subpoena, investigative, administrative or judicial proceeding, whether
or not the Indemnified Party shall be designated a party thereto) which may be
incurred by the Indemnified Party or which may be claimed against the
Indemnified Party by any Person by reason of or in connection with the
execution, delivery or performance of, or any transaction contemplated by, or
action taken or omitted to be taken by the Lender under, this Note. The
indemnification required hereunder shall be made by periodic payments to the
Lender of the amount thereof during the course of the investigation or defense,
as and when bills are received or indemnified damages are incurred. Nothing in
this paragraph is intended to limit the Borrower's obligations contained in this
Note. Without prejudice to the survival of any other obligation of the Borrower
hereunder, the indemnities and obligations of the Borrower contained in this
paragraph shall survive the payment in full of all obligations.
All payments made by the Borrower hereunder will be made without setoff,
counterclaim or other defense. All such payments shall be made free and clear of
and without deduction for any present or future income, stamp or other taxes,
levies, imposts, deductions, charges, fees, withholding, restrictions or
conditions of any nature now or hereafter imposed, levied, collected, withheld
or assessed by any jurisdiction or by any political subdivision or taxing
authority thereof or therein, and all interest, penalties or similar
liabilities, excluding taxes on the overall net income of the Lender (such
non-excluded taxes are hereinafter collectively referred to as the "Taxes"). If
the Borrower shall be required by law to deduct or to withhold any Taxes from or
in respect of any amount payable hereunder, (i) the amount so payable shall be
increased to the extent necessary so that after making all required deductions
and withholdings (including Taxes on amounts payable to the Lender pursuant to
this sentence) the Lender receives an amount equal to the sum it would have
received had no such deductions or withholdings been made, (ii) the Borrower
shall make such deductions or withholdings and (iii) the Borrower shall pay the
full amount deducted or withheld to the relevant taxation authority in
accordance with applicable law. Whenever any Tax is payable by the Borrower, as
promptly as possible thereafter the Borrower shall send the Lender an official
receipt showing payment. In addition, the Borrower agrees to pay any present or
future taxes, charges or similar levies which arise from any payment made
hereunder or from the execution, delivery, performance, recordation or filing
of, or otherwise with respect to, this Agreement, the Note or any other Document
(hereinafter referred to as "Other Taxes"). The Borrower will indemnify the
Lender for the full amount of Taxes or Other Taxes (including, any Taxes or
Other Taxes on amounts payable to the Lender under this paragraph) paid by the
Lender and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, upon written demand by the Lender therefor.
Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Note must be in writing and will
be deemed to have been delivered: (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of transmission
is mechanically or electronically generated and kept on file by the sending
party); or (iii) one Business Day after deposit with an overnight courier
service, in each case properly addressed to the party to receive the same.
5
No failure on the part of the Lender to exercise, and no delay in
exercising, any right, power, privilege or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof by the Lender
preclude any other or further exercise thereof or the exercise of any other
right, power, privilege or remedy of the Lender. No amendment or waiver of any
provision of this Note, nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
Any provision hereof which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
The Borrower hereby agrees to pay on demand all costs and expenses
(including, without limitation, all fees and expenses of counsel to the Lender)
incurred by the Lender in connection with (i) the preparation, execution,
delivery, administration and amendment of this Note, and (iii) the enforcement
of the Lender's rights, and the collection of all amounts due, hereunder.
The Borrower hereby (i) irrevocably submits to the jurisdiction of any New
York State or Federal court sitting in New York City in any action or proceeding
arising out of or relating to this Note, (ii) waives any defense based on
doctrines of venue or forum non conveniens, or similar rules or doctrines, and
(iii) irrevocably agrees that all claims in respect of such an action or
proceeding may be heard and determined in such New York State or Federal court.
This Note is secured by, and entitled to the benefits of, the Security
Agreement.
This Note shall be governed by, and construed in accordance with, the laws
of the State of New York.
THE BORROWER AND THE LENDER (BY ITS ACCEPTANCE HEREOF) MUTUALLY WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS NOTE.
6
CADENCE RESOURCES CORPORATION
By:_______________________
Name:
Title:
Address:
6 East Rose Street
Walla Walla, Washington 99362
Attention: Howard Crosby, President
Telephone: (509) 526-3491
Facsimile: (509) 526-3492
7
SCHEDULE
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LOAN AND REPAYMENT OF PRINCIPAL
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Principal
Amount Paid or Principal Notation
of Loan Prepaid Balance Made By Date
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8
ANNEX I
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The Company has the following indebtedness, which indebtedness shall be paid in
full within 5 business days of the Issuance Date.
Date Maker Relation Amount Interest Due Date
to Company Rate
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2-13-2004 H Crosby President $250,000 12% 12-31-2004
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2-15-2004 G Dehekker Director $75,000 12% 12-31-2004
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2-15-2004 K Stulp Director $20,000 12% 12-31-2004
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3-01-2004 Dotson Ex. Affiliate $50,000 12% 12-31-2004
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3-01-2004 W. Herron None $15,000 12% 12-31-2004
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3-30-2004 Ruth Low None $300,000 0% 4-2-2004
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3-30-2004 Nathan A. Low Affiliate $250,000 0% 4-2-2004
Roth IRA
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3-30-2004 Lisa Low as None $450,000 0% 4-2-2004
Custodian for
Gabriel S.
Low UNYGMA
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9