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 SCIENCE DYNAMICS
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
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FOR VALUE RECEIVED, SCIENCE DYNAMICS CORPORATION, a Delaware
corporation (hereinafter called "Borrower"), hereby promises to pay to THE
KESHET FUND L.P., 000 Xxxx 00xx Xxxxxx, Xxxxx 0000, Xxx Xxxx, XX 00000,
Fax: 000-000-0000 (the "Holder") or order, without demand, the sum of One
Hundred Thousand Dollars ($100,000.00), with simple interest accruing at
the annual rate of 8%, on May ___, 2003 (the "Maturity Date").
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 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 twenty percent (20%)
per annum shall apply to the amounts owed hereunder.
1.2 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.
1.3 Interest Rate. Subject to the Holder's right to
convert, interest payable on this Note shall accrue at the annual rate of
eight percent (8%) and be payable in arrears commencing September 30, 2001
and quarterly thereafter, and on the Maturity Date, accelerated or
otherwise, when the principal and remaining accrued but unpaid interest
shall be due and payable, or sooner as described below.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount
and interest due under this Note into Shares of the Borrower's Common Stock
as set forth below.
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2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after 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/or at the Holder's election with the Company's consent, the interest
accrued on the Note, (the date of giving of such notice of conversion being
a "Conversion Date") into fully paid and nonassessable shares of common
stock of Borrower as such stock exists on the date of issuance of this
Note, or any shares of capital stock of Borrower into which such stock
shall hereafter be changed or reclassified (the "Common Stock") at the
conversion price as defined in Section 2.1(b) hereof (the "Conversion
Price"), determined as provided herein. Upon delivery to the Company of a
Notice of Conversion as described in Section 9 of the subscription
agreement entered into between the Company and Holder relating to this Note
(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 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 Company will deliver accrued
but unpaid interest on the Note 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 to be converted and interest, if any, by the
Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c)
hereof, the Conversion Price per share shall be the lower of (i) eighty-
five percent (85%) of the average of the three lowest closing prices for
the Common Stock on the NASD OTC Bulletin Board, NASDAQ SmallCap Market,
NASDAQ National Market System, American Stock Exchange, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock, the "Principal Market"), or if not
then trading on a Principal Market, such other principal market or exchange
where the Common Stock is listed or traded for the thirty (30) trading days
prior to but not including the Closing Date (as defined in the
Subscription Agreement) in connection with which this Note is issued
("Maximum Base Price"); or (ii) eighty-five percent (85%) percent of the
average of the three lowest closing prices for the Common Stock on the
Principal Market, or on any securities exchange or other securities market
on which the Common Stock is then being listed or traded, for the thirty
(30) trading days prior to but not including the Conversion Date.
(c) The Maximum Base Price described in Section 2.1(b)(i)
above and number and kind of shares or other securities to be issued upon
conversion determined pursuant to Section 2.1(a) and 2.1(b), shall be
subject to adjustment from time to time upon the happening of certain
events while this conversion right remains outstanding, as follows:
X. Xxxxxx, 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
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purchase right immediately prior to such consolidation, merger, sale or
conveyance. The foregoing provision shall similarly apply to successive
transactions of a 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.
B. 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.
C. 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.
D. Share Issuance. Subject to the provisions of this
Section, if the Borrower at any time shall issue any shares of Common Stock
prior to the conversion of the entire principal amount of the Note
(otherwise than as: (i) provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or
this subparagraph D; (ii) pursuant to options, warrants, or other
obligations to issue shares, outstanding on the date hereof as described in
the Reports and Other Written Information, as such terms are defined in the
Subscription Agreement (which agreement is incorporated herein by this
reference); or (iii) Excepted Issuances, as defined in Section 12 of the
Subscription Agreement; [(i), (ii) and (iii) above, are hereinafter
referred to as the "Existing Option Obligations"] for a consideration less
than the Conversion Price that would be in effect 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. Except for the Existing Option
Obligations, 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.
(d) 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.
Xxxxxxxx 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.
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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.
ARTICLE III
EVENT OF DEFAULT
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 and interest then remaining unpaid hereon and all other
amounts payable hereunder immediately due and payable, all without demand,
presentment or notice, 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 or interest hereon 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 this Note in any material respect
and such breach, if subject to cure, continues for a period of seven (7)
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 entered into by the Holder and Borrower in connection with this
Note, 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.
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 $100,000, 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 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.
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3.7 Delisting. Delisting of the Common Stock from the
NASDAQ SmallCap Market (unless a listing is obtained on the OTC Bulletin
Board within three trading days of such delisting) or delisting from such
other principal exchange on which the Common Stock is listed for trading;
Borrower's failure to comply with the requirements of the Principal Market
for continued listing for a period of three consecutive trading days; or
notification from the Principal Market that the Borrower is not in
compliance with the conditions for such continued listing.
3.8 Concession. A concession by the Borrower, after
applicable notice and cure periods, under any one or more obligations in an
aggregate monetary amount in excess of $100,000.
3.9 Stop Trade. An SEC stop trade order or Principal
Market trading suspension that lasts for five or more trading days.
3.10 Failure to Deliver Common Stock or Replacement Note.
Xxxxxxxx's failure to timely deliver Common Stock to the Holder pursuant to
and in the form required by this Note and Section 9 of the Subscription
Agreement, or if required a replacement Note.
3.11 Approval Default. The occurrence of an Approval Default
as described in Section 7(h) of the Subscription Agreement.
3.12 Registration Default. The occurrence of a Non-
Registration Event as described in Section 10.4 of the Subscription
Agreement except that with respect to a Non-Registration Event in
connection with the required declared effectiveness of the Registration
Statement (as defined in the Subscription Agreement) on or before the
Effective Date (as defined in the Subscription Agreement) such Non-
Registration Event must be continuing on or occur after a date which is
one-hundred and twenty (120) days after the Closing Date (as defined in the
Subscription Agreement).
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. Any notice herein required or permitted to be
given shall be in writing and may be personally served or sent by fax
transmission (with copy sent by regular, certified or registered mail or by
overnight courier). For the purposes hereof, the address and fax number of
the Holder is as set forth on the first page hereof. The address and fax
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number of the Borrower shall be Science Dynamics Corporation, 0000
Xxxxxxxxxx Xxxx, Xxxxxx Xxxx, XX 00000, telecopier number: (000) 000-0000.
Both Xxxxxx and Borrower may change the address and fax number for service
by service of notice to the other as herein provided. Notice of Conversion
shall be deemed given when made to the Company pursuant to the Subscription
Agreement.
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, and may be assigned by the
Holder.
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 Prepayment. This Note may not be paid prior to the
Maturity Date or after the occurrence of an Event of Default without the
consent of the Holder except as set forth in Section 9.7 of the
Subscription Agreement.
4.9 Security Interest. The holder of this Note has been
granted a security interest in common stock of the Company more fully
described in a Security Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Xxxxxxxx has caused this Note to be signed in its
name by its Chief Executive Officer on this ____ day of May, 2001.
SCIENCE DYNAMICS CORPORATION
By:_________________________
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 SCIENCE DYNAMICS
CORPORATION on May ____, 2001 into Shares of Common Stock of SCIENCE
DYNAMICS CORPORATION (the "Company") 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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