Contract
THIS
NOTE
HAS NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”),
OR
ANY APPLICABLE STATE LAW, AND MAY NOT BE SOLD, OFFERED FOR SALE, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE, OR FOREIGN
SECURITIES LAWS COVERING ANY SUCH TRANSACTION OR (B) SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION.
SECURED
PROMISSORY NOTE
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$[_____]
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January
[__], 2008
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Rochester,
New York
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FOR
VALUE
RECEIVED, DOCUMENT SECURITY SYSTEMS, INC. (the “Borrower”), promises to pay to
FAGENSON & CO., INC. (the “Agent”) on behalf of the Lenders (as defined in
that certain Credit Agreement, dated January 4, 2008, between the Agent and
the
Borrower), or to its order, the principal sum of ____________ U.S. DOLLARS
($______________) (the “Principal Amount”), together with interest in arrears on
the unpaid principal balance from time to time outstanding from the date hereof
until the entire principal amount due hereunder is paid in full at the rate(s)
provided below.
This
Secured Promissory Note (this “Note”) is one of a series of Secured Promissory
Notes in the aggregate principal of up to $3,000,000 containing substantially
identical terms and conditions (the “Notes”) issued by the Borrower to the Agent
on behalf of the Lenders. The Notes are pari
passu
such
that all Notes are ranked equally, and no payments shall be made by the Borrower
under any of the Notes unless a pro rata payment is simultaneously made under
all other Notes. Terms not defined herein shall have the meaning ascribed to
them in that certain Credit Agreement, dated January 4, 2008, between the Agent
and the Borrower.
Subject
to applicable law, the Notes will be senior in all respects (including the
right
of payment) to all other indebtedness of the Borrower now existing or hereafter
incurred.
1. Maturity.
The
aggregate Principal Xxxxxx, together with all accrued interest thereon and
expenses incurred by the Agent in connection herewith (cumulatively, the
“Outstanding
Amount”),
shall
be due and payable in full on the earliest to occur of (the earliest of such
events, the “Maturity
Date”):
(i)
January 4, 2010 (the “Scheduled Maturity Date”) and (ii) the acceleration of
this Note upon the occurrence of an Event of Default. Unless payment is made
following a demand therefor by the Agent, the Borrower shall provide the Agent
with not less than five (5) business days’ prior written notice of its intent to
repay the amounts outstanding hereunder.
2. Interest.
This
Note shall bear interest at
a rate
of two percent (2%) in excess of the then in effect one-year LIBOR rate per
annum. Interest shall be calculated on the basis of a year of 360 days for
the
actual number of days elapsed.
All
accrued interest on this Note shall be due and payable on
the
first day of each calendar quarter commencing with the first calendar quarter
following the disbursement of any Revolving Credit Loan.
From
and after the occurrence of an Event of Default, the unpaid principal balance
of
this Note and, to the extent permitted by law, overdue interest shall bear
interest at a rate per annum equal to four
(4%)
percent over the then applicable interest rate due under each Loan (the “Default
Rate”).
3. Payment;
Usury.
All
payments by the Borrower under this Note shall be made in United States Dollars
without deduction, set-off or counterclaim and shall be free and clear and
without any deduction or withholding for any taxes or fees of any nature
whatever, unless the obligation to make such deduction or withholding is
required by law. Payment shall be credited first to the accrued interest then
due and payable and the remainder applied to principal. Unless otherwise
expressly provided in this Note, the Borrower, to the extent permitted by
applicable law, waives presentment for payment, protest, and demand, and notice
of protest, demand, and/or dishonor and nonpayment of this Note, notice of
any
Event of Default under this Note, and all other notices or demands otherwise
required by law that the Borrower may lawfully waive. All agreements between
the
Borrower and the Agent are hereby expressly limited so that in no contingency
or
event whatsoever, whether by reason of acceleration of maturity of the
indebtedness evidenced hereby or otherwise, shall the amount paid or agreed
to
be paid to the Agent for the use, forbearance, or detention of the indebtedness
evidenced hereby exceed the maximum permissible amount under applicable law.
If,
from any circumstance whatsoever, fulfillment of any provision hereof at the
time performance of such provision shall be due shall involve transcending
the
limit of validity prescribed by law, the obligation to be fulfilled shall
automatically be reduced to the limit of such validity, and if from any
circumstances the Agent should ever receive as interest an amount which would
exceed the highest lawful rate, such amount which would be excessive interest
shall be applied to the reduction of the principal balance evidenced hereby
and
not to the payment of interest, and, if the principal amount of this Note has
been paid in full, shall be refunded to the Borrower.
Immediately
upon full repayment or conversion of the Outstanding Amount in accordance with
the terms hereof, the Borrower shall be released from the repayment obligation
or the conversion obligation set forth in this Note, the pledge and security
interest shall be terminated, and the Agent shall execute releases of financing
statements.
4. Security
Interest and Collateral.
This
Note is secured by a first priority security interest on the Collateral pursuant
to the terms of the Security Agreement, of even date hereof, made by the
Borrower in favor of the Agent (the “Security Agreement”).
5. Replacement
of Note.
If this
Note is mutilated, lost, stolen or destroyed, the Borrower shall issue or cause
to be issued in exchange and substitution for and upon cancellation hereof,
or
in lieu of and substitution for this Note, a new Note, but only upon receipt
of
evidence reasonably satisfactory to the Borrower of such loss, theft or
destruction and customary and reasonable bond or indemnity, if
requested.
6. Miscellaneous.
(a) Authority
and Enforceability; Etc.
The
Borrower hereby represents and warrants to the Agent that:
(i)
it
has full power and authority and has taken or shall take all required corporate
and other action necessary to permit it to execute, deliver, and perform all
of
its obligations contained in this Note, the Security Agreement, and any other
documents or instruments delivered in connection herewith, and to borrow
hereunder, and such actions to the best of its knowledge will not violate any
provision of law applicable to, or the organizational documents of, the
Borrower, or result in the breach of or constitute a default under any material
agreement or instrument to which the Borrower is a party or by which it is
bound, which default has not been waived in writing on or prior to the date
hereof;
(ii)
this
Note has been duly authorized and validly executed by and is the valid and
binding obligation of the Borrower enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or other laws affecting creditors’ rights and remedies
generally, and by general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law);
(iii)
neither the execution and delivery by the Borrower of this Note, nor the
performance by the Borrower of its obligations hereunder, requires the consent,
approval or authorization of any person or governmental authority, which
consent, approval, or authorization has not been obtained; and
(b) Notices.
All
notices to any party required or permitted hereunder shall be in writing and
shall be sent to the address or facsimile number set forth for such party as
follows:
(i) If
to the
Agent:
FAGENSON
& CO., INC.
00
Xxxxx
Xxxxxx
39TH
Floor
New
York,
NY 10004
Attention:
Xxxxxx Xxxxxxxx
(ii) If
to
Company:
DOCUMENT
SECURITY SYSTEMS, INC.
00
Xxxx
Xxxx Xxxxxx
Suite
1525
Rochester,
NY 14614
Attention: Chief
Executive Officer
Any
such
notice shall be deemed effectively given (i) upon personal delivery to the
party
to be notified; (ii) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business day; (iii)
three days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iv) one day after deposit with a
recognized national overnight courier, specifying next day delivery, or two
days
after deposit with a recognized international overnight courier, specifying
two
day delivery, in each case with written verification of receipt.
(c) Waiver.
No
failure to exercise, and no delay in exercising, on the part of the Agent,
any
right, power, or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power, or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege. The rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies provided by
law.
(d) Amendments.
Any
term, covenant, or condition of this Note may be amended or waived only by
written consent of the Borrower and the Agent.
(e) Expenses.
Any
reasonable expense incurred by the Agent (including, without limitation,
reasonable attorneys’ fees and disbursements) in connection with the
administration, or enforcement of this Note and any other document executed
by
the Borrower in connection with the obligations of Borrower hereunder or any
amendment hereto or thereto, or the exercise of any right or remedy upon the
occurrence of an Event of Default, including, without limitation, the recording
and filing fees to perfect the liens granted under the Security Agreement and
the costs of collection and reasonable attorneys’ fees and expenses, shall be
paid by the Borrower within 15 days of receiving written notice thereof from
the
Agent. Any such expense incurred by the Agent and not timely paid by the
Borrower shall be added to the other obligations hereunder and shall earn
interest at the same rate per annum as the principal hereunder.
(f) Governing
Law.
This
Note shall be governed by and construed in accordance with the laws of the
State
of New York without giving effect to any conflict or choice of laws
principles.
(g) Transfer;
Successors and Assigns.
The
terms and conditions of this Note shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties. This Note shall
not
be assignable by any Agent without the prior written consent of the Borrower,
provided that the Agent may assign or transfer any of its rights, privileges,
or
obligations set forth in, arising under, or created by this Agreement to any
entity controlled by, controlling or under common control with the Agent. The
Borrower may not assign this Note without prior written consent of the Agent,
provided that the Borrower may assign this Note to any successor of all or
substantially all of its assets or business, or any entity surviving the merger,
combination or consolidation with the Borrower.
(h) Entire
Agreement.
This
Note and any other agreement or instrument entered into in connection herewith
contains the entire agreement of the Borrower and the Agent with respect to
the
subject matter hereof.
(i) Confidentiality.
In
addition to separate confidentiality agreement, if any, each Agent will at
all
times keep confidential and not divulge, use or make accessible to anyone the
terms and conditions of this Agreement and the transactions described herein,
and any non-public material information concerning or relating to the business
or financial affairs of the Borrower to which such party has been or will become
privy relating to this Agreement, except to its employees and advisors in such
capacity, as required to perform its obligations hereunder, if required by
law
or rules of a stock exchange on which its or its parent’s securities are listed,
or with the prior written consent of the Borrower.
IN
WITNESS WHEREOF, the Borrower has caused this Note to be executed by its duly
authorized representative as of the day and year first above
written.
| DOCUMENT SECURITY SYSTEMS, INC. | ||
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| By: | ||
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Name:
Xxxxxxx Xxxxx
Title:
Chief Executive Officer
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