EXHIBIT 10.11
CONVERTIBLE SECURED PROMISSORY NOTE
ISSUE AMOUNT U.S. $10,000
FACE AMOUNT U.S. $12,000
INTEREST RATE 20% per year
ISSUANCE DATE December 10, 2010
FOR VALUE RECEIVED, Vital Products, Inc., a Delaware corporation (the
"Company"), hereby promises to pay The Cellular Connection Ltd., an Ontario
corporation, (the "Holder") the Face Amount, subject to further adjustment as
described below, in such amounts, at such times and on such terms and
conditions as are specified herein (this "Note").
Article 1. Advancement and Fees
The Holder agrees to pay ten thousand dollars ($10,000) to the Company upon
the issuance of this Note as an inducement fee.
Article 2. Maturity
The Face Amount of this Note is payable December 9, 2011 (the "Maturity
Date").
Notwithstanding any provision to the contrary in this Note, the Company may
pay in full to the Holder the Face Amount, or any balance remaining thereof,
in readily available funds at any time and from time to time without penalty
("Prepayment").
Article 3. Interest
The outstanding Face Amount of the Note shall increase by 20% on
December 9, 2011. The outstanding Face Amount of the Note shall increase by
another 20% on December 9, 2012 and again on each one year anniversary of
December 9, 2012 until the Note has been paid in full.
Article 4. Collateral
The Holder may elect to secure a portion of the Company's assets not to
exceed 200% of the Face Amount of the Note, including, but not limited to,
accounts receivable, cash, marketable securities, equipment, building, land
or inventory (the "Collateral").
Article 5. Defaults and Remedies
Article 5.1. Events of Default
An "Event of Default" or "Default" occurs if the Company does not pay the
Face Amount of this Note within five (5) business days after the Maturity
Date.
Upon the occurrence of an Event of Default, the Holder may:
* Transfer any or all of the Collateral into its name, or into the name of
its nominee or nominees;
* Exercise all corporate rights with respect to the Collateral, including,
without limitation, all rights of conversion, exchange, subscription or any
other rights, privileges or options pertaining to any shares of the Collateral
as if it were the absolute owner thereof, including, but without limitation,
the right to exchange, at its discretion, any or all of the Collateral upon
the merger, consolidation, amalgamation, reorganization, recapitalization or
other readjustment of the Company thereof, or upon the exercise by the Company
of any right, privilege or option pertaining to any of the Collateral, and, in
connection therewith, to deposit and deliver any and all of the Collateral
with any committee, depository, transfer agent, registrar or other designated
agent upon such terms and conditions as it may determine, all without liability
except to account for property actually received by it; and
* Subject to any requirement of applicable law including, for greater
certainty, the Personal Property Security Act (Ontario), sell, assign and
deliver the whole or, from time to time, any part of the Collateral at the
time held by the Holder, at any private sale or at public auction, with or
without demand, advertisement or notice of the time or place of sale or
adjournment thereof or otherwise (all of which are hereby waived, except such
notice as is required by applicable law and cannot be waived), for cash or
credit or for other property for immediate or future delivery, and for such
price or prices and on such terms as the Pledgee in its sole discretion may
determine, or as may be required by applicable law.
Article 5.2 Conversion Privilege
(a) The Holder shall have the right to convert the Note into shares of the
Company's common stock (the "Common Stock") at any time prior to the
Maturity Date. The number of shares of Common Stock issuable upon the
conversion of the Note shall be determined pursuant to Article 5.3. Any
fractional shares that occur as a result of conversion shall be rounded up
or down, as the case may be, to the nearest whole share.
(b) In the event all or any portion of the Note remains outstanding on the
Maturity Date (the "Residual Amount"), the unconverted portion of such Note
will automatically be converted into shares of Common Stock on such date in
the manner set forth in Article 5.3.
Article 5.3 Conversion Procedure.
(a) The Residual Amount may be converted, in whole or in part, any time and
from time to time, prior to the Maturity Date. Such conversion shall be
effectuated by surrendering to the Company, or its attorney, the Note to
be converted together with a facsimile or original of the signed notice
of conversion (the "Notice of Conversion"). The date on which the Notice
of Conversion is effective ("Conversion Date") shall be deemed to be the
date on which the Holder has delivered to the Company a facsimile or
original of the signed Notice of Conversion, as long as the original Note
to be converted is received by the Company within five (5) business days
thereafter. At such time that the original Note has been received by the
Company, the Holder can elect whether a reissuance of the Note is
warranted, or whether the Company can retain the Note as a continual
conversion by the Holder. Notwithstanding the above, any Notice of
Conversion received on or after 4:00 P.M. EST shall be deemed to have been
received the following business day (receipt being via a confirmation of
the time such facsimile to the Company is received).
(b) Common Stock to be Issued - Upon any conversion of the Note, and upon
receipt by the Company or its attorney of a facsimile or original of the
Holder's signed Notice of Conversion, the Company shall instruct its
transfer agent to issue stock certificates without restrictive legends
or stop transfer instructions, if at that time the aforementioned
registration statement described in Article 5.1 has been declared
effective (or with proper restrictive legends if the registration
statement has not as yet been declared effective), in such denominations
to be specified at conversion representing the number of shares of Common
Stock issuable upon such conversion, as applicable. In the event that
the Note is aged one year and deemed sellable under Rule 144, the Company
shall, upon a Notice of Conversion, instruct the transfer agent to issue
free trading certificates without restrictive legends, subject to other
applicable securities laws. The Company is responsible for all costs
associated with the issuance of the shares, including, but not limited
to, fees associated with the opinion letter, FedEx of the certificates
and any other costs that arise. The Company shall act as registrar and
shall maintain an appropriate ledger containing the necessary information
with respect to the Note. The Company warrants that no instructions,
other than these instructions, have been given or will be given to the
transfer agent and that the Common Stock shall otherwise be freely resold,
except as may be set forth herein or subject to applicable law.
(c) Conversion Rate - The Holder is entitled to convert the Note, plus accrued
interest, anytime prior to the Maturity Date, at 75% of the average of the
lowest closing bid price during the fifteen (15) trading days immediately
preceding the Conversion Date. No fractional shares or script representing
fractions of shares will be issued upon conversion, but rather the number
of shares issuable shall be rounded up or down, as the case may be, to the
nearest whole share.
(d) Nothing contained in the Note shall be deemed to establish or require the
payment of interest to the Holder at a rate in excess of the maximum rate
permitted by governing law. In the event that the rate of interest
required to be paid exceeds the maximum rate permitted by governing law,
the rate of interest required to be paid thereunder shall be automatically
reduced to the maximum rate permitted under the governing law and such
excess shall be returned with reasonable promptness by the Holder to the
Company.
(e) It shall be the Company's responsibility to take all necessary actions
and to bear all such costs to issue the Common Stock as provided herein,
including the responsibility and cost for delivery of an opinion letter to
the transfer agent, if so required. The Holder shall be treated as a
shareholder of record on the date Common Stock is issued to the Holder. If
the Holder shall designate another person as the entity in the name of
which the stock certificates issuable upon conversion of the Note are to
be issued prior to the issuance of such certificates, the Holder shall
provide to the Company evidence that either no tax shall be due and payable
as a result of such transfer or that the applicable tax has been paid by
the Holder or such person. Upon surrender of any Notes that are to be
converted in part, the Company shall issue to the Holder a new Note equal
to the unconverted amount, if so requested in writing by the Holder.
(f) Within five (5) business days after receipt of the documentation referred
to above in Article 5.2, the Company shall deliver a certificate for the
number of shares of Common Stock issuable upon the conversion. In the
event the Company does not make delivery of the Common Stock as instructed
by the Holder within five (5) business days after the Conversion Date,
then in such event the Company shall pay to the Holder one percent (1%)
in cash of the dollar value of the amount remaining on the Note after
said conversion, compounded daily, per each day after the fifth (5th)
business day following the Conversion Date that the Common Stock is not
delivered to the Holder.
The Company acknowledges that its failure to deliver the Common Stock
within five (5) business days after the Conversion Date will cause the
Holder to suffer damages in an amount that will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate to include in this
Note a provision for liquidated damages. The parties acknowledge and
agree that the liquidated damages provision set forth in this section
represents the parties' good faith effort to quantify such damages, and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated
damages shall not relieve the Company from its obligations to deliver the
Common Stock pursuant to the terms of this Note.
(g) The Company shall at all times reserve (or make alternative written
arrangements for reservation or contribution of shares) and have available
all Common Stock necessary to meet conversion of the Note by the Holder
of the entire amount of the Note then outstanding. If, at any time the
Holder submits a Notice of Conversion and the Company does not have
sufficient authorized but unissued shares of Common Stock (or alternative
shares of Common Stock as may be contributed by stockholders of the
Company) available to effect, in full, a conversion of the Note
(a "Conversion Default," the date of such default being referred to
herein as the "Conversion Default Date"), the Company shall issue to
the Holder all of the shares of Common Stock which are available, and
the Notice of Conversion as to any Note requested to be converted but
not converted (the "Unconverted Note") may be deemed null and void upon
written notice sent by the Holder to the Company. The Company shall
provide notice of such Conversion Default ("Notice of Conversion
Default") to the Holder, by facsimile within three (3) business days
of such default (with the original delivered by overnight mail or two
day courier), and the Holder shall give notice to the Company by
facsimile within five (5) business days of receipt of the original
Notice of Conversion Default (with the original delivered by overnight
mail or two day courier) of its election to either nullify or confirm
the Notice of Conversion.
The Company acknowledges that its failure to maintain a sufficient
number of authorized but unissued shares of Common Stock to effect, in
full, a conversion of the Note will cause the Holder to suffer damages
in an amount that will be difficult to ascertain. Accordingly, the
parties agree that it is appropriate to include in this Note a provision
for liquidated damages.
(h) If, by the fifth (5th) business day after the Conversion Date of any
portion of the Note to be converted (the "Delivery Date"), the transfer
agent fails for any reason to deliver the Common Stock upon conversion by
the Holder and after such Delivery Date, the Holder purchases, in an open
market transaction or otherwise, shares of Common Stock (the "Covering
Shares") solely in order to make delivery in satisfaction of a sale of
Common Stock by the Holder (the "Sold Shares"), which delivery such Holder
anticipated to make using the Common Stock issuable upon conversion
(a "Buy-In"), the Company shall pay to the Holder, in addition to any
other amounts due to the Holder pursuant to this Note, and not in lieu
thereof, the Buy-In Adjustment Amount (as defined below). The "Buy In
Adjustment Amount" is the amount equal to the excess, if any, of (x) the
Holder's total purchase price (including brokerage commissions, if any)
for the Covering Shares over (y) the net proceeds (after brokerage
commissions, if any) received by the Holder from the sale of the Sold
Shares. The Company shall pay the Buy-In Adjustment Amount to the Holder
in immediately available funds within five (5) business days of written
demand by the Holder. By way of illustration and not in limitation of
the foregoing, if the Holder purchases shares of Common Stock having a
total purchase price (including brokerage commissions) of $11,000 to
cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which the Company
will be required to pay to the Holder will be $1,000.
(i) The Company shall defend, protect, indemnify and hold harmless the
Holder and all of its shareholders, officers, directors, employees,
counsel, and direct or indirect investors and any of the foregoing
person's agents or other representatives (including, without limitation,
those retained in connection with the transactions contemplated by this
Agreement, collectively, the "Article 5.3(i) Indemnitees") from and
against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Article 5.3(i)
Indemnitee is a party to the action for which indemnification hereunder
is sought), and including reasonable attorneys' fees and disbursements
(the "Article 5.3(i) Indemnified Liabilities"), incurred by any
Article 5.3(i) Indemnitee as a result of, or arising out of, or
relating to (i) any misrepresentation or breach of any representation
or warranty made by the Company in this Note or any other certificate,
instrument or document contemplated hereby or thereby, (ii) any breach
of any covenant, agreement or obligation of the Company contained in
this Note or any other certificate, instrument, or document contemplated
hereby or thereby, (iii) any cause of action, suit, or claim brought or
made against such Article 5.3(i) Indemnitee by a third party and arising
out of or resulting from the execution, delivery, performance, or
enforcement of the Note or any other certificate, instrument, or document
contemplated hereby or thereby, (iv) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds
of the issuance of the Common Stock underlying the Note, or (v) the
status of the Holder or holder of the Note as an investor in the Company,
except insofar as any such misrepresentation, breach or any untrue
statement, alleged untrue statement, omission, or alleged omission is
made in reliance upon and in conformity with written information
furnished to the Company by the Holder which is specifically intended
by the Holder to be relied upon by the Company, including for use in
the preparation of any such registration statement, preliminary
prospectus, or prospectus, or is based on illegal trading of the Common
Stock by the Holder. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities that is permissible under applicable law. The
indemnity provisions contained herein shall be in addition to any cause
of action or similar rights the Holder may have, and any liabilities the
Holder may be subject to.
Article 6. Mergers
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person
assumes in writing the obligations of the Company under this Note and
immediately after such transaction no Event of Default exists. Any
reference herein to the Company shall refer to such surviving or
transferee corporation and the obligations of the Company shall terminate
upon such written assumption. Failure to do so will constitute an Event
of Default under this Note and the Holder may immediately seek to take
actions as described under Article 5 of this Note.
Article 7. Notices
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
a confirmation of transmission is mechanically or electronically generated
and kept on file by the sending party), or (iii) one (1) day after deposit
with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same.
Article 8. Time
Where this Note authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a
holiday in which the United States Stock Markets ("US Markets") are
closed ("Holiday"), or authorizes or requires the payment of money or the
performance of a condition or obligation within, before or after a period
of time computed from a certain date, and such period of time ends on a
Saturday or a Sunday or a Holiday, such payment may be made or condition
or obligation performed on the next succeeding business day, and if the
period ends at a specified hour, such payment may be made or condition
performed, at or before the same hour of such next succeeding business
day, with the same force and effect as if made or performed in accordance
with the terms of this Note. A "business day" shall mean a day on which
the US Markets are open for a full day or half day of trading.
Article 9. No Assignment
This Note shall not be assigned.
Article 10. Rules of Construction
In this Note, unless the context otherwise requires, words in the singular
number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and
when the tense so indicates, words of the neuter gender may refer to any
gender. The numbers and titles of sections contained in this Note are
inserted for convenience of reference only, and they neither form a part
of this Note nor are they to be used in the construction or interpretation
hereof. Wherever, in this Note, a determination of the Company is required
or allowed, such determination shall be made by a majority of the Board of
Directors of the Company and, if it is made in good faith, it shall be
conclusive and binding upon the Company and the Holder.
Article 11. Governing Law
The validity, terms, performance and enforcement of this Note shall be
governed and construed by the provisions hereof and in accordance with the
laws of the State of Delaware applicable to agreements that are negotiated,
executed, delivered and performed solely in the State of Delaware.
Article 12. Waiver
The Holder's delay or failure at any time or times hereafter to require
strict performance by Company of any undertakings, agreements or covenants
shall not waiver, affect, or diminish any right of the Holder under this
Note to demand strict compliance and performance herewith. Any waiver by
the Holder of any Event of Default shall not waive or affect any other
Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type. None of the
undertakings, agreements and covenants of the Company contained in this
Note, and no Event of Default, shall be deemed to have been waived by the
Holder, nor may this Note be amended, changed or modified, unless such
waiver, amendment, change or modification is evidenced by an instrument
in writing specifying such waiver, amendment, change or modification and
signed by the Holder.
Article 13. Senior Obligation
The Company shall cause this Note and all other existing Notes with the
Holder ("Holder's Debt") to be senior in right of payment to all other
indebtedness of the Company.
Article 14. Miscellaneous
(a) All pronouns and any variations thereof used herein shall be deemed to
refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
(b) Neither this Note nor any provision hereof shall be waived, modified,
changed, discharged, terminated, revoked or canceled, except by an
instrument in writing signed by the party effecting the same against whom
any change, discharge or termination is sought.
(c) This Note may be executed in two or more counterparts, all of which taken
together shall constitute one instrument. Execution and delivery of this
Note by exchange of facsimile copies bearing the facsimile signature of a
party shall constitute a valid and binding execution and delivery of this
Note by such party. Such facsimile copies shall constitute enforceable
original documents.
(d) This Note represents the FINAL AGREEMENT between the Company and the
Holder and may not be contradicted by evidence of prior, contemporaneous,
or subsequent oral agreements of the parties, there are no unwritten oral
agreements among the parties.
(e) The execution, delivery and performance of this Note by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby will not (i) result in a violation of the Certificate of
Incorporation, any Certificate of Designations, Preferences and Rights of
any outstanding series of preferred stock of the Company or the By-laws,
or (ii) conflict with, or constitute a material default (or an event which
with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration
or cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries
is a party, or result in a violation of any law, rule, regulation, order,
judgment or decree, including United States federal and state securities
laws and regulations and the rules and regulations of the principal
securities exchange or trading market on which the Common Stock is traded
or listed (the "Principal Market"), applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected.
Any misrepresentations shall be considered a breach of contract and
Default under this Note and the Holder may seek to take actions as
described under Article 5 of this Note.
[signature page follows]
IN WITNESS WHEREOF, the Company has duly executed this Note as of the Issuance
Date first written above.
VITAL PRODUCTS, INC. The Cellular Connection Ltd.
By: /s/Michael Levine By: /s/Stuart Turk
--------------------- --------------------
Name: Michael Levine Name: Stuart Turk
Title: CEO Title: President