EXHIBIT 10(C)
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 IMAGING TECHNOLOGIES CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, IMAGING TECHNOLOGIES CORPORATION, a Delaware corporation
(hereinafter called "Borrower"), hereby promises to pay to GAMMA OPPORTUNITY
CAPITAL PARTNERS, LP, British Colonial Centre of Commerce, Xxx Xxx Xxxxxx, Xxxxx
000, Xxxxxx (NP), The Bahamas, Fax: (000) 000-0000 (the "Holder") or order,
without demand, the sum of Two Hundred and Twenty-Five Thousand Dollars
($225,000.00), with simple interest accruing at the annual rate of eight percent
(8%), on December ___, 2006 (the "Maturity Date").
This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. 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 Payment Grace Period. The Borrower shall have a ten (10) day grace
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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.
1.2 Conversion Privileges. The Conversion Privileges set forth in Article
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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.
1.3 Interest Rate. Simple interest payable on this Note shall accrue at
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the annual rate of eight percent (8%) and be payable upon each Conversion, June
30, 2004 and semi-annually 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. Provided an Event /Default have
not occurred, Borrower may elect to pay interest which is due on this Note by
delivering registered Common Stock in lieu of cash. Such Common Stock will be
valued at the Conversion Price in effect on the due date of the interest
payment.
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, $.005 par value per share ("Common
Stock") as set forth below.
2.1. Conversion into the Borrower's Common Stock.
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(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 1.3 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 the lower of (i) $.02 ("Maximum Base Price")
or (ii) seventy percent (70%) of the average of the three lowest closing bid
prices for the sixty (60) trading days prior to but not including the Conversion
Date for the Common Stock on the OTC Pink Sheets, NASD OTC Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange,
or New York Stock Exchange, as applicable, or if not then trading on any of the
foregoing, such other principal market or exchange where the Common Stock is
listed or traded (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock, the "Principal Market").
Closing bid price shall mean the last closing bid price as reported by Bloomberg
L.P.
(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:
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 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. So long as this Note is outstanding, if the Borrower
shall issue any shares of Common Stock except for the employee stock options, or
in connection with the exercise of Warrants, options or upon the conversion of
convertible instruments outstanding on the issue date of this Note and as
described in the Borrower's Reports (as defined in the Subscription Agreement)
for a consideration less than the Fair Market Value (as defined in Section
2(c)(E) 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.
E. For purposes of Section 2.1(c)(D) 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.
(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. 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.
(f) The terms of this Note are modifiable by the Holder pursuant to but not
limited to Section 12(c) of the Subscription Agreement.
2.2 Method of Conversion. This Note may be converted by the Holder in whole
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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
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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 9.99% 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
9.99% and aggregate conversion by the Holder may exceed 9.99%. 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 of
the Borrower deemed beneficially owned by the Holder shall be included in the
9.99% amount described above and which shall be allocated to the excess above
9.99%.
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, 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
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installment of principal, interest 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
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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
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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
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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
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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
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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 OTC Bulletin Board
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("OTCBB") 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 OTCBB for a period of three consecutive trading days; or notification from
the OTC Bulletin Board or any Principal Market that the Borrower is not in
compliance with the conditions for such continued listing on the OTCBB or other
Principal Market.
3.8 Stop Trade. An SEC stop trade order or Principal Market trading
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suspension that lasts for five or more consecutive trading days.
3.9 Failure to Deliver Common Stock or Replacement Note. Borrower's failure
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to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Sections 7 and 11 of the Subscription Agreement, or,
if required, a replacement Note.
3.10 Non-Registration Event. The occurrence of a Non-Registration Event as
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described in Section 10.4 of the Subscription Agreement.
3.11 Reverse Splits. The Borrower effectuates a reverse split of its common
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stock without the prior written consent of the Holder.
3.12 Security Agreement. An "Event of Default" as defined in the Security
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Agreement dated at or about the date of this Note delivered by Borrower to
Holder (the "Security Agreement").
3.13 Cross Default. A default by the Borrower of a material term, covenant,
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warranty or undertaking of any other agreement to which the Borrower and Holder
are parties, or the occurrence 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 - SECURITY INTEREST
4.1 Security Interest/Waiver of Automatic Stay. This Note is secured by a
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security interest granted to the Collateral Agent for the benefit of the Holder
pursuant to the Security Agreement, as delivered by Borrower to Holder. The
Borrower acknowledges and agrees that should a proceeding under any bankruptcy
or insolvency law be commenced by or against the Borrower, or if any of the
Collateral (as defined in the Security Agreement) should become the subject of
any bankruptcy or insolvency proceeding, then the Holder should be entitled to,
among other relief to which the Holder may be entitled under the Note, Security
Agreement, Subscription Agreement and any other agreement to which the Borrower
and Holder are parties (collectively, "Loan Documents") and/or applicable law,
an order from the court granting immediate relief from the automatic stay
pursuant to 11 U.S.C. Section 362 to permit the Holder to exercise all of its
rights and remedies pursuant to the Loan Documents and/or applicable law. THE
BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C.
SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT
NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR
OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105)
SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF
THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS
AND/OR APPLICABLE LAW. The Borrower hereby consents to any motion for relief
from stay that may be filed by the Holder in any bankruptcy or insolvency
proceeding initiated by or against the Borrower and, further, agrees not to file
any opposition to any motion for relief from stay filed by the Holder. The
Borrower represents, acknowledges and agrees that this provision is a specific
and material aspect of the Loan Documents, and that the Holder would not agree
to the terms of the Loan Documents if this waiver were not a part of this Note.
The Borrower further represents, acknowledges and agrees that this waiver is
knowingly, intelligently and voluntarily made, that neither the Holder nor any
person acting on behalf of the Holder has made any representations to induce
this waiver, that the Borrower has been represented (or has had the opportunity
to he represented) in the signing of this Note and the Loan Documents and in the
making of this waiver by independent legal counsel selected by the Borrower and
that the Borrower has discussed this waiver with counsel.
ARTICLE V - MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part of
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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.
5.2 Notices. All notices, demands, requests, consents, approvals, and other
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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: Imaging Technologies
Corporation, 00000 Xxx Xxx Xxxxx, Xxx Xxxxx, Xxxxxxxxxx 00000, telecopier: (858)
613-1311, with a copy by telecopier only to: Xxxxxxxxx & Associates, 00000
Xxxxxxxxx, Xxxxx 000, Xxxxxx, XX 00000, Attn: Xxxx Xxxxxxxxx, Esq., telecopier:
(000) 000-0000, 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 by telecopier only
to Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx
00000, telecopier number: (000) 000-0000.
5.3 Amendment Provision. The term "Note" and all reference thereto, as used
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throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and its
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successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns.
5.5 Cost of Collection. If default is made in the payment of this Note,
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Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
5.6 Governing Law. This Note shall be governed by and construed in
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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.
5.7 Maximum Payments. Nothing contained herein shall be deemed to establish
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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.
5.8 Redemption. This Note may not be redeemed or paid before or after the
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Maturity Date without the consent of the Holder.
5.9 Shareholder Status. The Holder shall not have rights as a shareholder
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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.
IN WITNESS WHEREOF, Xxxxxxxx has caused this Note to be signed in its name by an
authorized officer on this ____ day of December, 2003.
IMAGING TECHNOLOGIES CORPORATION
By:________________________________
Name:
Title:
WITNESS:
______________________________________
