THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1)
PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES AND BLUE SKY
LAWS RELATING TO THE DISPOSITION OF SECURITIES, PROVIDED THAT AN OPINION OF
COUNSEL TO SUCH EFFECT IS PROVIDED TO THE COMPANY IN CONNECTION THEREWITH.
5G WIRELESS COMMUNICATIONS, INC.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
PN04-__ March __, 2004
$__________ Marina Del Rey, California
1. Principal and Interest.
1.1 5G Wireless Communications, Inc., a Nevada corporation (the
"COMPANY"), for value received, hereby promises to pay to the order of ________
(the "HOLDER") the amount of ______________ Dollars ($__________).
1.2 The Note shall bear interest of nine percent (9%) per annum,
simple interest. Interest on the Note shall be computed on the basis of a three
hundred sixty-five (365) day year and actual days elapsed.
1.3 Upon conversion of the principal and accrued interest hereunder
into capital stock sold in an Equity Financing (referred to herein for
convenience as the "CAPITAL STOCK") or common stock of the Company (the "COMMON
STOCK") upon termination hereof or otherwise pursuant to Section 5 hereof, this
Note shall be terminated in its entirety and surrendered to the Company for
cancellation.
1.4 The term of this Note is two years from the date of issuance
(the "TERM").
2. Events of Default. If any of the events specified in this Section 2
shall occur (herein individually referred to as an "EVENT OF DEFAULT"), the
Holder of the Note may, so long as such condition exists, declare the entire
principal and accrued interest hereon immediately due and payable, by notice in
writing to the Company:
2.1 The institution by the Company of proceedings to be adjudicated
as bankrupt or insolvent, or the consent by it to the institution of bankruptcy
or insolvency proceedings against it or the filing by it of a petition or answer
or consent seeking reorganization or release under the federal bankruptcy laws,
or any other applicable federal or state law, or the consent by it to the filing
of any such petition or the appointment of a receiver, liquidator, assignee,
trustee or other similar official of the Company, or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the taking of corporate action by the Company in furtherance of any such
action;
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2.2 If, within sixty (60) days after the commencement of an action
against the Company seeking any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such action shall not have been resolved in favor of the
Company or all orders or proceedings thereunder affecting the operations or the
business of the Company stayed, or if the stay of any such order or proceeding
shall thereafter be set aside, or if, within sixty (60) days after the
appointment without the consent or acquiescence of the Company of any trustee,
receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company, such appointment shall not have been vacated;
2.3 Any declared default of the Company under any Senior
Indebtedness (as defined below) that gives the holder thereof the right to
accelerate such Senior Indebtedness, and such Senior Indebtedness is in fact
accelerated by the holder;
2.4 Failure by the Company to observe or perform any obligations of
the Company to the Holder of the Note on or with respect to the transaction
evidenced by the Note; or
2.5 The institution of any proceeding for the dissolution or
termination of the Company voluntarily, involuntarily, or by operation of law.
3. Subordination. The indebtedness evidenced by the Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of all the Company's Senior
Indebtedness, if any, as hereinafter defined.
3.1 Senior Indebtedness. As used in the Note, the term "SENIOR
INDEBTEDNESS" shall mean the principal of and unpaid accrued interest on: (i)
all indebtedness of the Company to banks, commercial finance lenders, insurance
companies or other financial institutions regularly engaged in the business of
lending money, which is for money borrowed by the Company (whether or not
secured), (ii) any such indebtedness or any debentures, notes or other evidence
of indebtedness issued in exchange for or to refinance such Senior Indebtedness,
or any indebtedness arising from the satisfaction of such Senior Indebtedness by
a guarantor; and (iii) any senior indebtedness approved by the board of
directors of the Company in the future and designated as such.
3.2 Undertaking. By its acceptance of the Note, the Holder agrees to
execute and deliver such documents, in such form and having such terms as are
reasonably acceptable to the Holder, as may be reasonably requested from time to
time by the Company or the lender of any Senior Indebtedness in order to
implement the foregoing provisions of this Section 3.
4. Redemption. The Company may redeem this Note in whole or in part at any
time during the first 365 days from the Initial Closing as follows: (a) from and
through days 1 through 182 from the Initial Closing, the Company may redeem the
Notes by paying 130% of principal plus accrued interest through that date, and
(b) from days 183 through 365 from the Initial Closing, the Company may redeem
the Notes by paying 140% of principal plus accrued interest through that date.
Any redemption, in whole or in part, conducted by the Company shall be pro-rata
amongst all Holders of Notes.
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5. Conversion
5.1 Automatic Conversion. In the event of a Change of Control
(hereinafter defined) or in the event of the Note reaching its Term prior to a
conversion under section 5.2 below or redemption under section 4 above, then the
outstanding principal and accrued interest hereunder shall be automatically
converted into that number of fully paid and non-assessable whole shares of
Common Stock, determined in accordance with Section 5.3 hereof at the Common
Stock Conversion Price (hereinafter defined) immediately prior to the Term or
the consummation of the Change of Control, as applicable. Upon such conversion,
the Note shall be canceled.
5.2 Conversion.
(a) In the event the Company conducts a sale of Capital Stock
with aggregate gross proceeds received, by the Company of at least Three Million
Dollars ($3,000,000) (the "NEW FINANCING") prior to the Term of this Note and
prior to any other conversion hereof by Holder or redemption by the Company,
then all of the outstanding principal and accrued interest hereunder
automatically shall be converted into that number of fully paid and
non-assessable whole shares of capital Stock of the Company determined in
accordance with Section 5.3 hereof at the applicable Conversion Price
concurrently with the initial closing of the New Financing. Upon any such
conversion, this Note shall be canceled.
(b) Following the date hereof, at the election of the Holder,
all or a portion of the outstanding principal and accrued interest hereunder may
be converted into that number of fully paid and non-assessable whole shares of
Common Stock determined in accordance with Section 5.3 hereof at the applicable
Conversion Price. Upon any such conversion, the Note shall be canceled and
reissued in part if applicable.
5.3 Shares Issuable. The number of whole shares of Capital Stock or
Common Stock into which the Note shall be converted pursuant to Sections 5.1 and
5.2 hereof shall be determined by dividing (a) the aggregate principal amount of
the Note, together with all accrued interest to the date of conversion, by (b)
the purchase price of (i) for the capital stock sold in a New Financing if so
selected by Holder, the lowest price per share paid by any investors in the New
Financing, or (ii) for any conversion into Common Stock, the lesser of: (y) 125%
of the closing bid for the Company Common Stock as listed on the OTC Bulletin
Board on the initial Closing date, or (z) 100% of the lowest closing bid price
of the Common Stock as listed on the OTC Bulletin Board over the sixty (60)
trading days immediately prior to any such conversion (respectively, as
applicable for Company Common Stock or Capital Stock, the "CONVERSION PRICE").
5.4 Conversion Procedures. Holder may convert the Note below, in the
following manners:
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(a) Automatic Conversion Procedure for Term or Change of
Control. Within ten (10) business days prior to the date the Term is reached or
the Change of Control is scheduled to close, the Company shall send written
notice to the Holder of the Note, at the address last shown on the records of
the Company for the Holder or given by the Holder to the Company for the purpose
of notice or, if no such address appears or is given, at the place where the
principal executive office of the Company is located, notifying Holder that a
Change of Control will be occurring or that the Term is approaching, notifying
the Holder of the conversion effected, specifying the anticipated Conversion
Price, the principal amount of the Note and accrued interest that would be
converted, the date on which such conversion is anticipated to occur, and
calling upon such Holder to surrender the Note to the Company in the manner and
at the place designated.
(b) Automatic Conversion Procedure For New Financing. Within
five (5) business days prior to the consummation of the New Financing, the
Company shall send written notice to the Holder of this Note, at the address
last shown on the records of the Company for the Holder or given by the Holder
to the Company for the purpose of notice or, if no such address appears or is
given, at the place where the principal executive office of the Company is
located, notifying the Holder of the impending New Financing. Such notice shall
notify holder that a New Financing will be occurring, notify the Holder of the
form of Capital Stock into which the Note may be converted, specifying the
Conversion Price for such Capital Stock or Common Stock as selected by Holder,
the principal amount of the Note and accrued interest to be converted, the date
on which such conversion is anticipated to occur, and calling upon such Holder
to surrender the Note to the Company in the manner and at the place designated
and to make the election as to whether to convert the Note into Capital Stock
issued in such New Financing or into Common Stock.
5.5 Delivery of Stock Certificates. Upon the conversion of the Note,
the Company at its expense will issue and deliver to the Holder of the Note a
certificate or certificates for the number of whole shares of Capital Stock or
Common Stock, as applicable, issuable upon such conversion.
5.6 Legends. Unless subject to an effective registration statement
filed with the United States Securities and Exchange Commission, the stock
certificate or certificates issued or issuable upon conversion of the Note shall
be subject to a stop transfer order and the certificate or certificates
evidencing such securities shall bear the following legend:
(a) The following legend under the Act:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, OFFERED FOR
SALE, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL OR UPON EVIDENCE
REASONABLY SATISFACTORY TO 5G WIRELESS COMMUNICATIONS INC. THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF
SUCH ACT OR ANOTHER APPLICABLE EXEMPTION."
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(b) Such other legends as may be required under state or
federal securities laws as determined in the opinion of Company counsel.
5.7 No Fractional Shares. No fractional shares of Capital Stock or
Common Stock shall be issued upon conversion of the Note. In lieu of the Company
issuing any fractional shares to the Holder upon the conversion of the Note, the
Company shall pay to the Holder in cash the amount of outstanding principal
hereunder that is not so converted.
6. Reservation of Stock Issuable Upon Conversion. In the event of a New
Financing as to Capital Stock and at all other times as to its Common Stock, the
Company shall at all times keep available from its authorized and unissued
shares of Capital Stock and Common Stock (issuable upon conversion thereof),
solely for the purpose of effecting the conversion of the Note, such number of
its shares of Capital Stock and Common Stock, as applicable (and shares of
Common Stock issuable upon conversion thereof), as shall from time to time be
sufficient to effect the conversion of the Note; and if at any time following
any such New Financing the number of authorized but unissued shares of Capital
Stock or Common Stock, as applicable (and shares of Common Stock issuable upon
conversion thereof), shall not be sufficient to effect the conversion of the
entire outstanding principal amount of and accrued interest on this Note, in
addition to such other remedies as shall be available to the Holder of this
Note, the Company will promptly take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Capital Stock or Common Stock, as applicable (and shares of Common
Stock issuable upon conversion thereof), to such number of shares as shall be
sufficient for such purposes.
7. Assignment. Subject to the restrictions on transfer described in
Section 9 below, the rights and obligations of the Company and the Holder of the
Note shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties. Effective upon any such
assignment, the person or entity to which such rights, interests, and
obligations were assigned shall have and exercise all of the Holder's rights,
interests and obligations hereunder as if such person or entity were the
original Holder of the Note.
8. Waiver and Amendment. Any provision of the Note may be amended, waived,
or modified upon the written consent of the Company and Holder: provided
however, that any term of all Notes may be amended, waived or modified
simultaneously by written consent of the Company and sixty percent (60%) of the
economic interest of all Holders of the Notes issued as part of this
transaction. Therefore, this Note may be amended even if the Holder of this Note
does not consent to such amendment.
9. Transfer of the Note or Securities Issuable Upon Conversion Hereof.
With respect to any offer, sale or other disposition of the Note or securities
into which such Note may be converted, the Holder will give written notice to
the Company prior thereto, describing briefly the manner thereof, together with
a written opinion of such Holder's counsel in a form reasonably satisfactory to
the Company's counsel, to the effect that such offer, sale or other distribution
may be effected without registration or qualification (under any federal or
state law then in effect). Promptly upon receiving such written notice and
reasonably satisfactory opinion, if so requested, the Company, as promptly as
practicable, shall notify such Holder that such Holder may sell or otherwise
dispose of the Note or such securities, all in accordance with the terms of the
notice delivered to the Company. If a determination has been made pursuant to
this Section 9 that the opinion of counsel for the Holder is not reasonably
satisfactory to the Company, the Company shall so notify the Holder promptly
after such determination has been made. Each Note thus transferred and each
certificate representing the securities thus transferred shall bear a legend as
to the applicable restrictions on transferability in order to ensure compliance
with the Securities Act of 1933, as amended (the "ACT"), unless in the opinion
of counsel for the Company such legend is not required in order to ensure
compliance with the Act. The Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions.
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10. No Shareholder Rights. Nothing contained in the 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 shareholder in respect of meetings of
shareholders for the election of directors of the Company or any other matters
or any rights whatsoever as a shareholder of the Company; and no dividends or
interest shall be payable or accrued in respect of the Note or the interest
represented hereby or the Capital Stock or Common Stock, as applicable (or
Common Stock issuable upon conversion thereof), obtainable hereunder until, and
only to the extent that, the Note shall have been converted into equity of the
Company.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.
12. Charges, Taxes and Expenses. Issuance of a certificate for shares of
Common Stock or Company Capital Stock upon the conversion of the Note shall be
made without charge to the Holder for any issue or other incidental expense in
respect of the issuance of such certificate, all of which expenses shall be paid
by the Company, and such certificate shall be issued in the name of the Holder.
13. Loss, Theft or Destruction of Note. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft or destruction of the
Note and of indemnity or security reasonably satisfactory to it, the Company
will make and deliver a new Note which shall carry the same rights to interest
(unpaid and to accrue) carried by the Note, stating that such Note is issued in
replacement of the Note, making reference to the original date of issuance of
the Note (and any successors hereto) and dated as of such cancellation, in lieu
of the Note.
14. Usury. The Note is hereby expressly limited so that in no event
whatsoever, whether by reason of acceleration of maturity of the loan evidenced
hereby or thereby, or otherwise, shall the amount paid or agreed to be paid to
the Holder hereunder for the loan, use, forbearance or detention of money exceed
that permissible under applicable law. If at any time the performance of any
provision hereof or of the Note or any other such agreement involves a payment
exceeding the limit of the price that may be validly charged for the loan, use,
forbearance or detention of money under applicable law, then automatically and
retroactively, ipso facto, the obligation to be performed shall be reduced to
such limit, it being the specific intent of the Company and the Holder that all
payments under the Note are to be credited first to interest as permitted by
law, but not in excess of (i) the agreed rate of interest set forth herein or
(ii) that permitted by law, whichever is the lesser, and the balance toward the
reduction of principal. The provisions of this Section 14 shall never be
superseded or waived and shall control every other provision of the Note and all
other agreements between the Company and the Holder.
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15. Issue Date. The provisions of the Note shall be construed and shall be
given effect in all respects as if the Note had been issued and delivered by the
Company on the earlier of the date hereof or the date of issuance of any Note
for which the Note is issued in replacement. The Note shall be binding upon any
successors or assigns of the Company.
16. Heading; References. All headings used herein are used for convenience
only and shall not be used to construe or interpret the Note. Except as
otherwise indicated, all references herein to Sections refer to Sections hereof.
17. Delays. No delay by the Holder in exercising any power or right
hereunder shall operate as a waiver of any power or right.
18. Severability. If one or more provisions of the Note are held to be
unenforceable under applicable law, such provision shall be excluded from the
Note and the balance of the Note shall be interpreted as if such provision were
so excluded and shall be enforceable in accordance with its terms.
19. No Impairment. The Company will not, by any 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, but will at all times in good faith
assist in the carrying out of all the provisions of the Note and in the taking
of all such action as may be necessary or appropriate in order to protect the
rights of the Holder of the Note against impairment.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the Company has caused this Note to be issued this ___
day of March, 2004
5G WIRELESS COMMUNICATIONS, INC.
By:
--------------------------------
Title:
-----------------------------
4136 Del Rey Ave
Marina Del Rey, CA 90292
Tel.: (310) 754-4004
Fax: (310) 754-3784
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