UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
June 12, 2014
DRINKS AMERICAS HOLDINGS, LTD.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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000-19086
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87-0438825
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State of
Incorporation
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Commission
File Number
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IRS Employer
I.D. Number
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25 West Easy Street, #306, Simi Valley, CA 93065
Address of principal executive offices
Registrant's telephone number: (805) 530-2574
4101 Whiteside Street, Los Angeles, CA 90063
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240-13e-4(c))
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Item 1.01
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Entry into a Material Definitive Agreement
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On June 12, 2014, On June 12, 2014, Drinks Americas Holdings, Ltd. (the “Company”) entered into a Judgment Purchase Agreement (the "JPA") with IBC Funds LLC (the "Seller"), pursuant to which the Company bought from the Seller all right, title, and interest in and to the judgments against the Company and J. Patrick Kenny, held by the Seller.
Background
On June 18, 2009, St. George Investments, LLC, an Illinois limited liability company (“St. George”), entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the Company, pursuant to which the Company issued to St. George a debenture with a face amount of $4,000,000 (the “Debenture”), together with a personal guaranty by J. Patrick Kenny (the “Guaranty”) for a portion of the face amount of the Debenture.
On August 1, 2013, the United States District Court, Northern District of Illinois, Eastern Division (the “Court”), Civil No. 1:13-cv-01867, awarded a default judgment to St. George against the Company (the “DKAM Judgment”) and against J. Patrick Kenny (the “Kenny Judgment,” and together with the DKAM Judgment, the “Judgments”), in connection with DKAM’s default on the Debenture and J. Patrick Kenny’s default on the Guaranty.
Pursuant to a Judgment Purchase Agreement dated November 22, 2013, the Seller bought from St. George all right, title, and interest in and to the Judgments pursuant to the terms of an Assignment of Default Judgment. On June 12, 2014, Seller sold and assigned to the Company all of the Seller's right, title, and interest in and to the Judgments.
The Judgment Purchase Agreement
The executed JPA provides that Seller sold and assigned to the Company all of the Seller's right, title, and interest in and to the Judgments in consideration for the Company's promise to pay the Seller the aggregate sum of $320,000.00 in accordance with a payment schedule included in the JPA.
The foregoing information is a summary of the JPA. As such, it is not complete, and is qualified in its entirety by reference to the full text of the JPA, which is attached as an exhibit to this Current Report on Form 8-K. Readers should review the JPA for a complete understanding of the terms and conditions associated with this transaction.
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Creation of a Direct Financial Obligation
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Unregistered Sales of Equity Securities
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On June 12, 2014, the Company issued a convertible unsecured promissory note (the "Note") to an accredited investor (the “Investor”) in the aggregate principal amount of $50,000. The Note accrues interest at 8% per annum. The Note matures December 12, 2014.
The Note is convertible, at the option of the holder, into shares of the Company’s common stock, par value $0.001 per share (“Common Stock”) at a conversion price equal to the greater of (i) the par value of Common Stock or (ii) 35% of the lowest trading price of Common Stock for the 24 months preceding their original issuance dates, which correspond to the dates on which the respective portion of the Aggregate Purchase Price was received by the Company. However, in the event of a default under the Note, the Note will be convertible at a 75% discount to the average of the three lowest trading prices of the ten trading days prior to such conversion. In no event may the Note be converted at a conversion price below the par value of Common Stock.
The Note was offered and sold to an accredited investor in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933.
The foregoing information is a summary of the Note. As such, it is not complete, and is qualified in its entirety by reference to the full text of the Note, which is attached as an exhibit to this Current Report on Form 8-K. Readers should review the Note for a complete understanding of the terms and conditions associated with this transaction.
Issued and Outstanding Stock
As of June 18, 2014, the Company had 409,610,992 shares of Common Stock issued and outstanding.
Address and Phone Number
The Company's address has changed to 25 West Easy Street, #306, Simi Valley, CA 93065. The Company's phone number has changed to (805) 530-2574.
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Financial Statements and Exhibits
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: June 18, 2014
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DRINKS AMERICAS HOLDINGS, LTD.
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/s/ Timothy Owens
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Timothy Owens, Chief Executive Officer
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Exhibit 99.1
JUDGMENT PURCHASE AGREEMENT
This Judgment Purchase Agreement (this “Agreement”) is made June 12, 2014, by and between Drinks Americas Holdings, Ltd., a Delaware corporation (“Purchaser”, “DKAM”, or the “Company”), and IBC Funds LLC, a Nevada limited liability company (“Seller”), collectively the “Parties,” or individually a “Party.”
A. On June 18, 2009, St George Investments, LLC, an Illinois limited liability company (“St. George”), entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Drinks Americas Holdings, Ltd, a Delaware corporation, pursuant to which DKAM issued to St. George a debenture with a face amount of $4,000,000 (the “Debenture”), together with a personal guaranty by J. Patrick Kenny (the “Guaranty”) for a portion of the face amount of the Debenture.
B. On August 1, 2013, the United States District Court, Northern District of Illinois, Eastern Division (the “Court”), Civil No. 1:13-cv-01867, awarded a default judgment to St. George against DKAM (the “DKAM Judgment”) and against J. Patrick Kenny (the “Kenny Judgment,” and together with the DKAM Judgment, the “Judgments”), in connection with DKAM’s default on the Debenture and J. Patrick Kenny’s default on the Guaranty.
C. The DKAM Judgment is for damages in the amount of $2,099,180.66, plus interest accruing at the rate of 12% per annum beginning on July 10, 2013, and the Kenny Judgment is for damages in the amount of $375,000.00, plus interest accruing pursuant to 28 U.S.C. § 1961.
D. Pursuant to a Judgment Purchase Agreement dated November 22, 2013, the Seller bought from St. George all right, title, and interest in and to the Judgments pursuant to the terms of an Assignment of Default Judgment attached hereto as Exhibit A.
E. Seller desires to sell and assign to Purchaser, and Purchaser desires to purchase and receive from Seller, all of Seller’s right, title, and interest in and to the DKAM Judgment and the Kenny Judgment.
NOW THEREFORE, intending to be legally bound, and in consideration of the recitals set forth above, the mutual promises and obligations set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:
1. Purchase and Sale of Judgments and Related Agreements and Forbearance. In consideration for Purchaser’s payment of the amount set forth in Section 2, Seller hereby sells, assigns, sets over, transfers and conveys to Purchaser all right, title, and interest in and to the Judgments pursuant to the terms of an Assignment of Default Judgment, in substantially the form attached hereto as Exhibit B (the “Assignment”), and Purchaser hereby accepts the same.
2. Consideration. The Purchaser shall pay to Seller the sum aggregate sum of $320,000.00 (the “Purchase Price”) in accordance with the payment schedule set forth in Section 2.1 below (the “Payment Schedule”) by wiring such amounts to the account specified on Exhibit C. For the avoidance of doubt, the Assignment shall not become effective until Seller receives the full Purchase Price in immediately available funds, and all of Seller’s obligations under this Agreement shall be void ab initio if Seller does not receive the Purchase Price by the dates specified in the Payment Schedule, subject to a three (3) business day cure period or as otherwise waived by the Seller, except that any payments actually received by the Seller shall reduce the amounts owed under the Judgments. Upon receipt of the Purchase Price, Seller shall promptly file the Assignment with the Court and cooperate with the Purchaser to file any and all documents necessary to file with the Court ‘Satisfactions of Judgment’ or equivalent filing(s) indicating the full payment and satisfaction of the Judgments.
2.1. Payment Schedule. Purchaser hereby agrees to make the following payments towards the Purchase Price on or prior to the dates set forth as follows:
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Payment Amount
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Payment Date*
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$25,000.00
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Upon Execution of this Agreement
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$25,000.00
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July 14, 2014
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$50,000.00
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August 14, 2014
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$50,000.00
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September 15, 2014
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$50,000.00
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October 14, 2014
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$50,000.00
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November 14, 2014
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$50,000.00
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December 15, 2014
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$20,000.00
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January 14, 2015
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* For the avoidance of doubt, the Purchaser may pre-pay any payment prior to its respective payment date without penalty and without prejudice to any other payment date.
3. Forbearance. In reliance upon the representations, warranties and covenants of the Company contained in this Agreement, and subject to the terms and conditions of this Agreement and any documents or instruments executed in connection herewith, the Seller hereby agrees to forbear from exercising, or causing the exercise of, its rights and remedies under the Judgments or under applicable law solely in respect of or arising out of the Judgments for the period (the “Forbearance Period”) commencing on the date of this Agreement and ending on the earliest to occur of (i) 6:00 p.m. (New York, New York time) on January 19, 2015; and (ii) the failure of the Company to make any payment as set forth in Section 2, subject to the cure period set forth therein.
4. Representations and Warranties of Seller. Seller hereby makes the following representations and warranties to Purchaser:
4.1. Incorporation and Corporate Power. Seller is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Illinois and has all requisite power and authority to sell and assign the Judgments.
4.2. Execution, Delivery; Valid and Binding Agreement. The execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby have been duly and validly authorized by Seller, and no other proceedings on the part of Seller are necessary to authorize the execution, delivery and performance of this Agreement. This Agreement has been duly executed and delivered by Seller and, assuming that this Agreement is the valid and binding agreement of Purchaser, constitutes the valid and binding obligation of Seller, enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights or by general principles of equity.
4.3. Absence of Conflicting Agreements. Neither the execution nor delivery of this Agreement, nor the performance by Seller of the transactions contemplated hereby, conflicts with, or constitutes a breach of or a default under (i) the organizational documents of Seller; (ii) any applicable law, rule, judgment, order, writ, injunction, or decree of any court, currently in effect; (iii) any applicable rule or regulation of any administrative agency or other governmental authority currently in effect; or (iv) any agreement, indenture, contract or instrument to which Seller is a party or by which any of Seller’s assets are bound.
4.4. Title to Acquired Assets. Seller has good, valid and marketable title to the Judgments. The Judgments are free and clear of all encumbrances, liens, claims, charges, options, security interests, mortgages, deeds of trust, pledges or hypothecations. The Judgments have not been sold, assigned or otherwise transferred (directly or indirectly) to any person or entity whatsoever, and Seller has the full right and power to execute and deliver this Agreement.
5. Representations and Warranties of Purchaser. Purchaser hereby makes the following representations and warranties to Purchaser:
5.1. Incorporation and Corporate Power. Purchaser is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Nevada and has all requisite power and authority to enter into this Agreement.
5.2. Execution, Delivery; Valid and Binding Agreement. The execution, delivery and performance of this Agreement by Purchaser and the consummation of the transactions contemplated hereby have been duly and validly authorized by Purchaser, and no other proceedings on the part of Purchaser are necessary to authorize the execution, delivery and performance of this Agreement. This Agreement has been duly executed and delivered by Purchaser and, assuming that this Agreement is the valid and binding agreement of Seller, constitutes the valid and binding obligation of Purchaser, enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights or by general principles of equity.
5.3. Absence of Conflicting Agreements. Neither the execution nor delivery of this Agreement, nor the performance by Purchaser of the transactions contemplated hereby, conflicts with, or constitutes a breach of or a default under (i) the organizational documents of Purchaser; (ii) any applicable law, rule, judgment, order, writ, injunction, or decree of any court, currently in effect; (iii) any applicable rule or regulation of any administrative agency or other governmental authority currently in effect; or (iv) any agreement, indenture, contract or instrument to which Purchaser is a party.
5.4. Sophisticated Investor. Purchaser is a sophisticated investor and has substantial experience in evaluating various investment opportunities and acknowledges that it can protect its own interests. Purchaser has such knowledge and experience in financial and business matters so that Purchaser is capable of evaluating the merits and risks of its investment in the Judgments.
5.5. Information; Due Diligence. Purchaser has been furnished with, and has had access to, such information as it considers necessary or appropriate for deciding whether to enter into this Agreement and purchase the Judgments, and Purchaser has had an opportunity to ask questions and receive answers from the Seller regarding the Judgments. Furthermore, Purchaser acknowledges that it has had a reasonable opportunity to perform, and has in fact performed, an investigation to its satisfaction with respect to the validity, collectability, or with respect to any other fact or circumstance affecting the Judgments.
5.6. No Reliance. Purchaser hereby acknowledges that it has not relied on any representation or statement of Seller, other than those set forth in this Agreement, in making its investment decision to purchase the Judgments.
6. Miscellaneous.
6.1. Expenses. Except as otherwise expressly provided for herein, Seller and Buyer will pay all of their own expenses (including attorneys’ and accountants’ fees in connection with the negotiation of this Agreement, the performance of their respective obligations hereunder and the consummation of the transactions contemplated by this Agreement (whether consummated or not).
6.2. Further Assurances. Seller agrees that, on and after the Closing, it shall take all appropriate action (without incurring any out-of-pocket expenses) and execute any documents, instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out any of the provisions hereof, including, without limitation, putting Buyer in possession and operating control of the Assets.
6.3. Amendment and Waiver. This Agreement may not be amended or waived except in a writing executed by the Party against which such amendment or waiver is sought to be enforced. No course of dealing between or among any persons having any interest in this Agreement will be deemed effective to modify or amend any part of this Agreement or any rights or obligations of any person under or by reason of this Agreement.
6.4. Assignment. This Agreement and all of the provisions hereof will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, except that neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by either Party without the prior written consent of the other Party.
6.5. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
6.6. Complete Agreement. This Agreement and the Exhibits hereto, and the other documents referred to herein contain the complete agreement between the Parties and supersede any prior understandings, agreements or representations by or between the Parties, written or oral, which may have related to the subject matter hereof in any way.
6.7. Counterparts. This Agreement may be executed in one or more counterparts, any one of which need not contain the signatures of more than one Party, but all such counterparts taken together will constitute one and the same instrument.
6.8. Governing Law. The internal law, without regard to conflicts of laws principles, of the State of New York will govern all questions concerning the construction, validity, and interpretation of this Agreement and the performance of the obligations imposed by this Agreement.
6.9. Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of any this Agreement or the Assignment, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
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IN WITNESS WHEREOF, this Judgment Purchase Agreement is hereby executed by the Parties as of the date first written above.
Exhibits:
Exhibit A – Assignment between St. George Investments, LLC and IBC Funds LLC
Exhibit B – Form of Assignment
Exhibit C – Wiring Instructions
SELLER:
IBC FUNDS LLC
By:
Bryan Collins, Managing Member
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PURCHASER:
DRINKS AMERICAS HOLDINGS, LTD
By:
Timothy Owens, Chief Executive Officer
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[Signature page to Judgment Purchase Agreement]
EXHIBIT A
Assignment between St. George Investments, LLC and IBC Funds LLC
EXHIBIT B
Form of Assignment
EXHIBIT C
WIRING INSTRUCTIONS
Bank:
Routing Number:
Account Number:
Name:
Exhibit 99.2
THIS SECURITY HAS 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: June 12, 2014
$50,000
8% CONVERTIBLE UNSECURED PROMISSORY NOTE
DUE December 12, 2014
THIS 8% CONVERTIBLE UNSECURED PROMISSORY NOTE is one of a series of duly authorized and validly issued 8% Convertible Unsecured Promissory Notes of Drinks Americas Holdings, Ltd., a Delaware corporation (the “Company”), designated as its 8% Promissory Notes due December 12, 2014 (this note, the “Note” and, collectively with the other notes of such series, the “Notes”).
FOR VALUE RECEIVED, the Company promises to pay to Jose Manuel Toscana Gonzalez, or any registered assigns (the “Holder”), the principal sum of $50,000 on December 12, 2014 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate then outstanding principal amount of this Note in accordance with the provisions hereof. This Note is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, the following terms shall have the following meanings:
“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X), if any thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.
“Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of California are authorized or required by law or other governmental action to close.
“Common Stock” shall mean the Company’s common stock, par value $0.001 per share.
“Common Stock Equivalents” means any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Event of Default” shall have the meaning set forth in Section 6(a).
“Original Issue Date” means the date of the first issuance of the Note, regardless of any transfers of any Note and regardless of the number of instruments which may be issued to evidence such Note.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
Section 2. Interest.
a) Payment of Interest in Cash. Cash interest payable on this Note shall compound annually and accrue at the annual rate of eight percent (8%) from the Original Issue Date. Interest shall be payable on the Maturity Date, accelerated or otherwise, or sooner as described below.
b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest and other amounts which may become due hereunder, has been made.
c) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 17% per annum or the maximum rate permitted by applicable law which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.
d) Prepayment. Upon 30-days prior written notice to the Holder, during which period the Holder may convert the Note pursuant to Section 4 below, the Company may prepay any portion of the principal amount of this Note without the consent of the Holder, provided, however, upon such prepayment of the principal amount, the Holder shall receive a warrant to purchase the amount of shares of Common Stock equal to the amount of shares of Common Stock issuable upon conversion of the principal amount prepaid multiplied by 25% and such warrant shall be exercisable at a price equal to the Conversion Price, as defined below. Interest on any principal amount prepaid in accordance with this Section 2(d) will be due and payable on the date of such prepayment of principal.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.
b) Investment Representations. This Note has been issued subject the representation of the original Holder that the original Holder (i) is an “accredited investor” as defined in Rule 501 under the Securities Act; (ii) has a preexisting personal or business relationship with the Company or one or more of its directors, officers or control persons; (iii) is, by reason of Holder’s business or financial experience, capable of evaluating the risks and merits of this investment and of protecting Holder’s own interests in connection with an investment in this Note; (iv) has evaluated the merits and risks of such investment and is able to bear the economic risk of an investment in this Note and, at the present time, is able to afford a complete loss of such investment; (v) is not purchasing this Note as a result of any advertisement, article, notice or other communication regarding this Note published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement; and (vi) had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the business, properties and financial condition of the Company and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to it or to which it had access.
Section 4. Conversion.
a) Voluntary Conversion. At any time after the first anniversary of the Original Issue Date and until the Note is no longer outstanding, the Note shall be convertible, in whole or in part, into shares of Common Stock (the “Conversion Shares”) at the option of the Holder (subject to the conversion limitations set forth in Section 4(e) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Note to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted or paid. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within two (2) Business Days of delivery of such Notice of Conversion. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.
b) Conversion Price. The conversion price, subject to Section 6(b) of this Note, in effect on any Conversion Date shall be equal to the greater of (i) par value of Common Stock or (ii) 35% of the lowest Trading Price of Common Stock for the 24 months preceding the Original Issue Date (the “Conversion Price”).
c) Mandatory Conversion. The Principal shall be converted into Common Shares at a 50% discount to the Market Price (a "Mandatory Conversion") on the date (the "Mandatory Conversion Date") which the closing price for the Common Stock exceeds $2.00 for ten (10) consecutive trading days.
d) Mechanics of Conversion.
i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted by (y) the Conversion Price.
ii. Delivery of Certificate. Not later than twenty Business Days after each Conversion Date, the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares representing the number of Conversion Shares being acquired upon the conversion of this Note. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and non-assessable.
iii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.
iv. Transfer Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all transfer agent fees required for same-day processing of any Notice of Conversion.
e) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own shares of Common Stock in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Notes) beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 4(e) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section 4(e), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Securities and Exchange Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Business Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Note held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(e) shall continue to apply. Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of the Notes or in respect of the Additional Shares), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Reorganization, Reclassification, Consolidation, Merger, Sale; Company Not Survivor. If any capital reorganization, reclassification of the capital stock of the Company, combination, continuation, consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition (i.e. license, lease or contractual arrangement) of all or substantially all of the assets to another corporation shall be effected by the Company, then, as a condition of such reorganization, reclassification, combination, continuation, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion of the Note, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of shares of Common Stock equal to the number of shares of Common Stock immediately theretofore issuable upon conversion of the Note, had such reorganization, reclassification, combination, continuation, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of Holder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Conversion Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The provisions of this paragraph 5(b) shall similarly apply to successive reorganizations, reclassifications, combinations, continuations, consolidations, mergers, sales, transfers or other dispositions.
c) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.
d) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, or (D) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least twenty calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or (y) if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.
Section 6. Events of Default.
a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of any Note or (B) interest or other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on the Maturity Date or by acceleration or otherwise) which default is not cured within 7 days;
ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Notes which failure is not cured, if possible to cure, within 10 days after notice of such failure sent by the Holder or by any other Holder to the Company;
iii. the Company or any Significant Subsidiary shall be subject to a Bankruptcy Event.
b) Remedies Upon Event of Default.
i. If any Event of Default occurs, the outstanding principal amount of this Note, plus accrued but unpaid interest and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Note, the interest rate on this Note shall accrue at an interest rate equal to the lesser of 17% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the amount owed under this Section 6(b), the Holder shall promptly surrender this Note to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 6(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
ii. If any Event of Default occurs and is continuing beyond any applicable grade period, the Conversion Price shall be equal to the Variable Conversion Price (as defined herein)(subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean the lesser of (i) the Conversion Price or (ii) 25% multiplied by the Market Price (as defined herein) (representing a discount rate of 75%). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Market, or applicable trading market (the “OTCQB”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTCQB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded, provided, however, that at no time, notwithstanding the occurrence of an Event of Default, may the Conversion Price be less than par value of Common Stock.
Section 7. Other Rights of the Holder.
a) No Rights of Set-Off. The Company acknowledges and agrees that the principal sum and the other obligations hereunder shall be paid, satisfied and discharged to the Holder without regard to such dealings as may from time to time occur as between any one or more of the Holder, the Company and any other person and without regard to such equities or rights of set-off or counterclaim which may from time to time exist between any one or more of the Holder, the Company or any other person, and that the principal sum and other obligations hereof shall be paid without regard to any equities between the Company and the Holder hereof or any set-off or cross-claims and the receipt of the Holder for the payment of the principal sum will be a good discharge to the Company in respect thereof.
b) No Merger. Neither the taking of any judgment nor the exercise of any rights hereunder shall operate to extinguish the obligation of the Company to pay the monies under this Note and shall not operate as a merger of any covenant in this Note, and the acceptance of any payment shall not constitute or create a novation, and the taking of a judgment or judgments under a covenant herein contained shall not operate as a merger of those covenants and affect the Holder's right to interest under this Note.
Section 8. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries to be provided by the Company or the Holder shall be made in accordance with the Purchase Agreement.
b) Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company.
c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.
d) Jurisdiction. This Note and all issues arising out of this Note will be governed by and construed solely and exclusively under and pursuant to the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. Any action brought concerning the transactions contemplated by this Note shall be brought only in the civil or state courts of California or in the federal courts located in the State of California.
e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver by the Company or the Holder must be in writing.
f) Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.
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(Signature Page Follows)
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.
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DRINKS AMERICAS HOLDINGS, LTD.
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By: /s/Timothy Owens
Name: Timothy J. Owens
Title: CEO
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ASSIGNMENT FORM
FOR VALUE RECEIVED, Jose Manuel Toscana Gonzalez (the “Holder”) hereby assigns the Promissory Note (the “Note”) issued by Drinks Americas Holdings, Ltd. in the principal amount of $50,000 to:
____________________________
Whose address is
Dated: _____________, 20
Holder’s Signature:
Holder’s Address:
Drinks Americas (CE) (USOTC:DKAM)
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