EXHIBIT 10.2

 

FORM OF NOTE

 

 

 

 

 

EXHIBIT A

 

THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO RIVER CAPITAL GROUP, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.

 

CONVERTIBLE NOTE

U.S. $___,000.00

 

FOR VALUE RECEIVED, RIVER CAPITAL GROUP, INC., a Delaware corporation
(hereinafter called "Borrower"), hereby promises to pay to _______________
___________________, 1325 Howard Avenue #422, Burlingame, CA 94010, Fax: (650)
343-2506 (the "Holder"), or order, without demand, the sum of ________Thousand
Dollars ($__00,000.00) (“Principal”), upon the Maturity Date (as defined below),
with simple interest accruing at the Annual Rate (as defined below). “Maturity
Date” means the earlier of (i) May 31, 2006 and (ii) the date on which a Change
of Control (as defined in Section 1.6 hereof) shall have occurred with respect
to the Borrower.

This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Subscribers signatory thereto (including
the Holder), dated of even date herewith (the “Subscription Agreement”), and
shall be governed by and entitled to all of the rights and benefits provided
under the terms of such Subscription Agreement. In addition, this Note shall
have the benefit of all of the terms and provisions of that certain Security
Agreement dated the date hereof between the Borrower (as the “Company”
thereunder) and the Subscribers (as the “Secured Parties” thereunder). Unless
otherwise separately defined herein, all capitalized terms used in this Note
shall have the same meaning as is set forth in the Subscription Agreement. The
following terms shall apply to this Note:

ARTICLE I

GENERAL PROVISIONS

 

1.1     Annual Rate. The “Annual Rate” shall mean simple interest which shall
accrue at the annual rate equal to the greater of (i) four percent (4%) above
the prime rate announced from time to time in The Wall Street Journal and (ii)
eight percent (8%).

 

 

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1.2  Quarterly Payments. Payments of interest will be due and payable in
installments on August 1, 2005, November 1, 2005, February 1, 2006 and on the
Maturity Date, with each payment of interest to include the entire amount of
interest accrued but unpaid as of the day of the payment. In the event the
Company’s $.001 par value common stock (“Common Stock”) has closing prices of
higher than $0.20 as reported by the “pink sheets” published by the Pink Sheets
LLC (formerly the National Quotation Bureau Incorporated), or a similar
organization or agency succeeding to its functions of reporting prices (the
“Pink Sheets”), for the five (5) trading days preceding a monthly payment due
date (“Lookback Period”), then the quarterly payment first due after the
Lookback Period shall be deferred at the Company’s option, until the Maturity
Date. Additional interest shall not accrue on the amount of interest so
deferred.

1.3  Prepayment. Subject to the proviso below, upon thirty (30) days written
notice to the Holder, the Borrower shall have the right to prepay the principal
amount of this note by paying to the Holder 120% of the amount of principal to
be prepaid, together with interest accrued but unpaid on such principal, either
in cash or in shares of the Borrower's common stock, par value $.001 per share
(the "Common Stock"); provided, however, that this prepayment right shall only
be available to the Borrower after (i) a Barbados insurance license shall have
been granted to River Reinsurance Limited and (ii) River Reinsurance Limited
shall have become a subsidiary of the Borrower, through merger, stock purchase,
consolidation, share exchange, asset purchase or otherwise. For this purpose,
shares of the Common Stock shall be valued at its Fair Market Value (as defined
below) on the date of payment.

1.4  Conversion Privileges. The Conversion Privileges set forth in Article II
shall remain in full force and effect immediately from the date hereof and until
the Note is paid in full regardless of the occurrence of an Event of Default.
The Note shall be payable in full on the Maturity Date, unless previously
converted into Common Stock in accordance with Article II hereof; provided, that
if an Event of Default has occurred (whether or not such Event of Default is
continuing), the Borrower may not pay this Note on or after the Maturity Date,
without the consent of the Holder.

1.5  Payment Grace Period. The Borrower shall have a ten (10) day grace period
to pay any monetary amounts due under this Note, after which grace period a
default interest rate of fifteen percent (15%) per annum shall apply to the
amounts owed hereunder.

1.6  Change of Control. A “Change of Control” shall be deemed to have occurred
with respect to the Borrower if as a result of any transaction or series of
related transactions (a) the Borrower shall sell all or substantially all of its
assets; (b) the members of the Board of Directors of the Borrower immediately
prior to such transaction(s) shall cease to be a majority of the members of the
Board of Directors of the Borrower immediately after such transaction(s), or;
(c) the stockholders of the Borrower immediately prior to such transaction(s)
shall cease to own or control a majority of the voting shares of the Borrower
immediately after such transaction(s).

 

 

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ARTICLE II

CONVERSION RIGHTS

The Holder shall have the right to convert the principal due under this Note
into shares of the Borrower's Common Stock as set forth below.

2.1

Conversion into the Borrower's Common Stock.

(a)   The Holder shall have the right from and after the date of the issuance of
this Note and then at any time until this Note is fully paid, to convert any
outstanding and unpaid principal portion of this Note and accrued interest, at
the election of the Holder (the date of giving of such notice of conversion
being a "Conversion Date") into fully paid and nonassessable shares of Common
Stock as such stock exists on the date of issuance of this Note, or any shares
of capital stock of Borrower into which such Common Stock shall hereafter be
changed or reclassified, at the conversion price as defined in Section 2.1(b)
hereof (the "Conversion Price"), determined as provided herein. Upon delivery to
the Borrower of a Notice of Conversion as described in Section 7 of the
Subscription Agreement of the Holder's written request for conversion, Borrower
shall issue and deliver to the Holder within three business days from the
Conversion Date (“Delivery Date”) that number of shares of Common Stock for the
portion of the Note converted in accordance with the foregoing. At the election
of the Holder, the Borrower will deliver accrued but unpaid interest on the Note
in the manner provided in Section 1.2 hereof through the Conversion Date
directly to the Holder on or before the Delivery Date (as defined in the
Subscription Agreement). The number of shares of Common Stock to be issued upon
each conversion of this Note shall be determined by dividing that portion of the
principal of the Note and interest to be converted, by the Conversion Price.

(b)  Subject to adjustment as provided in Section 2.1(c) hereof, the Conversion
Price per share shall be $0.50 (“Maximum Base Price”).

(c)   The Maximum Base Price and number and kind of shares or other securities
to be issued upon conversion determined pursuant to Section 2.1(a), shall be
subject to adjustment from time to time upon the happening of certain events
while this conversion right remains outstanding, as follows:

(i)       Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence the
right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a

 

 

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similar nature by any such successor or purchaser. Without limiting the
generality of the foregoing, the anti-dilution provisions of this Section shall
apply to such securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance.

(ii)     Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the Common Stock immediately prior to such
reclassification or other change.

(iii)    Stock Splits, Combinations and Dividends. If the shares of Common Stock
are subdivided or combined into a greater or smaller number of shares of Common
Stock, or if a dividend is paid on the Common Stock in shares of Common Stock,
the Conversion Price shall be proportionately reduced in case of subdivision of
shares or stock dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.

(iv)    Share Issuance. So long as this Note is outstanding, if the Borrower
shall issue any shares of Common Stock except for Excepted Issuances (as defined
in the Subscription Agreement) for a consideration less than the Fair Market
Value (as defined in Section 2(c)(v) below) for such shares at the time of such
issue, then, and thereafter successively upon each such issue, the Conversion
Price shall be reduced as follows: (i) the number of shares of Common Stock
outstanding immediately prior to such issue shall be multiplied by the
Conversion Price in effect at the time of such issue and the product shall be
added to the aggregate consideration, if any, received by the Borrower upon such
issue of additional shares of Common Stock; and (ii) the sum so obtained shall
be divided by the number of shares of Common Stock outstanding immediately after
such issue. The resulting quotient shall be the adjusted Conversion Price. For
purposes of this adjustment, the issuance of any security of the Borrower
carrying the right to convert such security into shares of Common Stock or of
any warrant, right or option to purchase Common Stock shall result in an
adjustment to the Conversion Price upon the issuance of shares of Common Stock
upon exercise of such conversion or purchase rights. The adjustment pursuant to
this Section 2.1(c)(iv) shall only apply if the adjustment pursuant to Section
19(b) of the Subscription Agreement does not apply because the Holder consents
to the applicable issuance of securities pursuant to such Section 19(b).

 

 

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(v)     For purposes of Section 2.1(c)(iv) above, Fair Market Value of a share
of Common Stock as of a particular date (the "Determination Date") shall mean
the Fair Market Value of a share of the Borrower's Common Stock. Fair Market
Value of a share of Common Stock as of a Determination Date shall mean:

(A)       If the Borrower's Common Stock is traded on an exchange or is quoted
on the National Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") National Market System, the NASDAQ SmallCap Market or the American
Stock Exchange, Inc., then the closing or last sale price, respectively,
reported for the last business day immediately preceding the Determination Date.

(B)        If the Borrower's Common Stock is not traded on an exchange or on the
NASDAQ National Market System, the NASDAQ SmallCap Market or the American Stock
Exchange, Inc., but is traded in the over-the-counter market, then the mean of
the closing bid and asked prices reported for the last business day immediately
preceding the Determination Date.

(C)        Except as provided in clause (D) below, if the Borrower's Common
Stock is not publicly traded, then as the Holder and the Borrower agree or in
the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass on
the matter to be decided.

(D)       If the Determination Date is the date of a liquidation, dissolution or
winding up, or any event deemed to be a liquidation, dissolution or winding up
pursuant to the Borrower's charter, then all amounts to be payable per share to
holders of the Common Stock pursuant to the charter in the event of such
liquidation, dissolution or winding up, plus all other amounts to be payable per
share in respect of the Common Stock in liquidation under the charter, assuming
for the purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of all of the Warrants are outstanding at the
Determination Date.

(d)  Whenever the Conversion Price is adjusted pursuant to Section 2.1(c) above,
the Borrower shall promptly mail to the Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.

 

 

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(e)   During the period the conversion right exists, Borrower will reserve from
its authorized and unissued Common Stock a sufficient number of shares to
provide for the issuance of Common Stock upon the full conversion of this Note.
Borrower represents that upon issuance, such shares will be duly and validly
issued, fully paid and non-assessable. Borrower agrees that its issuance of this
Note shall constitute full authority to its officers, agents, and transfer
agents who are charged with the duty of executing and issuing stock certificates
to execute and issue the necessary certificates for shares of Common Stock upon
the conversion of this Note.

(f)   The terms of this Note are modifiable by the Holder pursuant to but not
limited to Section 20(c) of the Subscription Agreement.

2.2  Method of Conversion. This Note may be converted by the Holder in whole or
in part as described in Section 2.1(a) hereof and the Subscription Agreement.
Upon partial conversion of this Note, a new Note containing the same date and
provisions of this Note shall, at the request of the Holder, be issued by the
Borrower to the Holder for the principal balance of this Note and interest which
shall not have been converted or paid.

2.3  Maximum Conversion. The Holder shall not be entitled to convert on a
Conversion Date that amount of the Note in connection with that number of shares
of Common Stock which would be in excess of the sum of (i) the number of shares
of Common Stock beneficially owned by the Holder and its affiliates on a
Conversion Date, (ii) any Common Stock issuable in connection with the
unconverted portion of the Note, and (iii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Borrower on such Conversion Date. For
the purposes of the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to
the foregoing, the Holder shall not be limited to aggregate conversions of only
4.99% and aggregate conversion by the Holder may exceed 4.99%. The Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section 2.3 will limit any conversion hereunder and to the extent that
the Holder determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder. The Holder may void the conversion
limitation described in this Section 2.3 upon and effective after 61 days prior
written notice to the Borrower. The Holder may allocate which of the equity
securities of the Borrower deemed beneficially owned by the Holder shall be
included in the 4.99% amount described above and which shall be allocated to the
excess above 4.99%.

ARTICLE III

EVENT OF DEFAULT

 

 

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The occurrence of any of the following events of default ("Event of Default")
shall, at the option of the Holder hereof, make all sums of Principal, interest
and Premium then remaining unpaid hereon and all other amounts payable hereunder
immediately due and payable, upon demand, without presentment, or grace period,
all of which hereby are expressly waived, except as set forth below:

3.1  Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of Principal, interest, Premium or other sum due under this Note
when due and such failure continues for a period of ten (10) days after the due
date. The ten (10) day period described in this Section 3.1 is the same ten (10)
day period described in Section 1.1 hereof.

3.2  Breach of Covenant. The Borrower breaches any material covenant or other
term or condition of the Subscription Agreement or this Note in any material
respect and such breach, if subject to cure, continues for a period of ten (10)
business days after written notice to the Borrower from the Holder.

3.3  Breach of Representations and Warranties. Any material representation or
warranty of the Borrower made herein, in the Subscription Agreement, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection therewith shall be false or misleading in any material respect as of
the date made and the Closing Date.

3.4  Receiver or Trustee. The Borrower shall make an assignment for the benefit
of creditors, or apply for or consent to the appointment of a receiver or
trustee for it or for a substantial part of its property or business; or such a
receiver or trustee shall otherwise be appointed.

3.5  Judgments. Any money judgment, writ or similar final process shall be
entered or filed against Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a period
of forty-five (45) days.

3.6  Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law,
or the issuance of any notice in relation to such event, for the relief of
debtors shall be instituted by or against the Borrower and if instituted against
Borrower are not dismissed within 45 days of initiation.

3.7  Delisting. Delisting of the Common Stock from the Pink Sheets or such other
principal exchange on which the Common Stock is listed for trading; failure to
comply with the requirements for continued listing on the Pink Sheets for a
period of three consecutive trading days; or notification from the Pink Sheets
or any Principal Market that the Borrower is not in compliance with the
conditions for such continued listing on the Pink Sheets or other Principal
Market.

 

 

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3.8  Stop Trade. An SEC or judicial stop trade order or Principal Market trading
suspension that lasts for five or more consecutive trading days.

3.9  Failure to Deliver Common Stock or Replacement Note. Borrower's failure to
timely deliver Common Stock to the Holder pursuant to and in the form required
by this Note and the Subscription Agreement, or, if required, a replacement
Note.

3.10               Non-Registration Event. The occurrence of a Non-Registration
Event as described in Section 17.4 of the Subscription Agreement.

3.11               Reverse Splits. The Borrower effectuates a reverse split of
its common stock without ten days prior written notice to the Holder.

3.12               Cross Default. A default by the Borrower first occurring
after the date of this Note of a material term, covenant, warranty or
undertaking of any other agreement to which the Borrower and Holder are parties,
or the initial occurrence after the date of this Note of a material event of
default under any such other agreement, in each case, which is not cured after
any required notice and/or cure period.

ARTICLE IV

MISCELLANEOUS

 

4.1  Failure or Indulgence Not Waiver. No failure or delay on the part of Holder
hereof in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege. All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies otherwise available.

4.2  Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Borrower to: River Capital

 

 

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Group, Inc., The Exchange Tower, 130 King Street West, Suite 3680, P.O. Box 99,
Toronto, Ontario, Canada M5X 1B1, Telecopier number: 416-366-8179; and (ii) if
to the Holder, to the name, address and telecopy number set forth on the front
page of this Note, with a copy to Troutman Sanders LLP, The Chrysler Building,
405 Lexington Avenue, New York, New York, 10174, Attention: Martin Eric
Weisberg, Telephone number 212-704-6050, Telecopier number 212-704-6228.

4.3  Amendment Provision. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented.

4.4  Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns.

4.5  Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.

4.6  Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of New York. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York. Both parties and the individual signing this
Agreement on behalf of the Borrower agree to submit to the jurisdiction of such
courts. The prevailing party shall be entitled to recover from the other party
its reasonable attorney's fees and costs.

4.7  Maximum Payments. Nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Borrower to the Holder and thus refunded to the Borrower.

4.8  Redemption. This Note may not be redeemed or paid before or after the
Maturity Date except as described in the Subscription Agreement or in Section
1.3 of this Note.

4.9  Shareholder Status. The Holder shall not have rights as a shareholder of
the Borrower with respect to unconverted portions of this Note. However, the
Holder will have the right of a shareholder of the Borrower with respect to the
Shares of Common Stock to be received after delivery by the Holder of a
Conversion Notice to the Borrower.

 

 

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[THIS SPACE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by an
authorized officer on this ____ day of May, 2005.

 

RIVER CAPITAL GROUP, INC.

 

 

By:________________________________

Name:

Title:

 

 

WITNESS:

 

 

______________________________________

 

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NOTICE OF CONVERSION

 

(To be executed by the Registered Holder in order to convert the Note)

The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by RIVER CAPITAL GROUP, INC.
on May ___, 2005 into Shares of Common Stock of RIVER CAPITAL GROUP, INC. (the
"Borrower") according to the conditions set forth in such Note, as of the date
written below.

 

Date of Conversion:       

 

Conversion Price:          

 

Shares To Be Delivered:              

 

Signature:             

 

Print Name:         

 

Address:               

 

 

 

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