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 OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO TELEPAD
CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, TELEPAD CORPORATION, a Delaware corporation
(hereinafter called "Borrower"), hereby promises to pay to
_________________________________________, Fax No.: ____________ (the "Holder")
or order, without demand, the sum of $____________, with interest accruing at
the annual rate of 8% on May ____, 1999 (the "Maturity Date"), as such date may
be extended by agreement of the parties hereto.
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 16% 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 principal and interest are paid in full.
1.3 INTEREST RATE. At the earlier of each Conversion Date (as
hereinafter defined) or the Maturity Date, accelerated or otherwise, the
Borrower shall pay interest at the annual rate of 8% per annum. From and after
the occurence of an Acceleration Event, as defined hereinafter, the interest
rate shall be 16% per annum.
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.
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 on or prior to the Maturity Date, as it may be
extended by agreement of the parties hereto, and until this Note is fully paid,
to convert any outstanding and unpaid principal portion of this Note of $25,000
or greater amount, or any lesser amount representing the full remaining
outstanding and unpaid principal portion and at the Holder's election, the
accrued interest on the Note (the date of telecopying 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 the delivery of this Note to the escrow agent ("Escrow Agent")
identified in Section 9 of the subscription agreement entered into between the
Company and Holder (the "Subscription Agreement") and in the escrow agreement
("Escrow Agreement") referred to therein, or to the Company, accompanied,
preceded or followed by notice from the Holder to the Company or Escrow Agent of
the Holder's written request for conversion, subject further to the terms of the
Escrow Agreement, Borrower shall issue and deliver to the Holder within ten
business days from the Conversion Date that number of shares of Common Stock for
the portion of the Note and/or interest converted in accordance with the
foregoing and a new Note in the form hereof for the balance of the principal
amount hereof, and/or interest if any. 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 and/or interest on the Note to be converted, by the
Conversion Price.
(b) The Conversion Price per share shall be $.98. From and after
120 days after the date of this Note and provided the average closing bid price
for the Common Stock on the NASDAQ SmallCap Market, or on any securities
exchange or other securities market on which the Common Stock is then being
traded for any five (5) consecutive trading days is less than $1.31, then the
Conversion Price shall be the lesser of (i) seventy-five (75%) of the average
closing bid price for the Common Stock on the NASDAQ SmallCap Market, or on any
securities
2
exchange or other securities market on which the Common Stock is then being
traded, for the five (5) trading days immediately preceding the Conversion Date,
or (ii) $0.98.
(c) The Conversion Price 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 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 such number 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 (including all securities being
issued in connection with the Subscription Agreement and the transactions
contemplated therein), or 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); [(i) and (ii) above, are
hereinafter referred
3
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 after the date of this Note, 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.
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 be issued by the Borrower to the Holder
for the principal balance of this Note and interest which shall not have been
converted.
ARTICLE III
ACCELERATION EVENT
The occurrence of any of the following acceleration events
("Acceleration Event") 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:
4
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 written notice to the Borrower
from the Holder.
3.2 BREACH OF COVENANT. The Borrower is in material breach of any
covenant or other term or condition of this Note, the Subscription Agreement, or
in any agreement delivered in connection herewith, and such breach 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 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 to the foregoing
or in connection herewith shall be materially false or misleading.
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 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 for the relief of debtors shall be instituted by or against the
Borrower.
3.7 DELISTING. Delisting of the Common Stock from the NASDAQ
SmallCap Market or such other principal exchange on which the Common Stock is
listed for trading.
3.8 CONCESSION. A concession by the Company of a default under any
one or more obligations in an aggregate monetary amount in excess of $50,000.
3.9 STOP TRADE. An SEC stop trade order or NASDAQ trading
suspension, if either applies for a period of ten days or longer.
3.10 FAILURE TO DELIVER COMMON STOCK. Xxxxxxxx's failure to timely
deliver Common Stock to the Holder pursuant to this Note or Section 9 of the
Subscription Agreement, or failure to timely deliver a replacement Note
representing any unconverted portion of this Note.
3.11 NON-REGISTRATION EVENT. The occurrence of a Non-Registration
Event as described in Section 10.2(j) of the Subscription Agreement.
5
ARTICLE IV
MISCELLANEOUS
4.1 FAILURE OR INDULGENCY 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 or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being telecopied (provided that a copy is
delivered by overnight courier) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give to
the other by notice duly made under this Section: (i)f if to the Company, (i)
TelePad Corporation, 000 Xxxxxxx Xxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000,
telecopier number: (000) 000-0000, with a copy via telecopier to: Xxxxxx,
Chapin, Flattau & Xxxxxx, Attn: Xxxxx Xxxxxxx, Esq., (000) 000-0000. Each date
on which a Notice of Conversion is telecopied to the Company or Escrow Agent in
accordance with the provisions hereof shall be deemed a Conversion Date.
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 costs of collection, including
reasonable attorneys' fees.
4.6 GOVERNING LAW. This Note shall be deemed to have been executed
in and shall be governed by the internal laws of the State of New York, without
regard to the principles of conflict of laws.
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.
6
4.8 SECURITY INTEREST. This Note is secured by a security interest
granted to Holder pursuant to a Security Agreement delivered by Borrower to
Holder.
IN WITNESS WHEREOF, Xxxxxxxx has caused this Note to be signed in
its name by its Chief Executive Officer on this _____ day of May, 1998.
TELEPAD CORPORATION
By:_________________________
7
