EXHIBIT 10(AU)
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THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE REASONABLY
ACCEPTABLE TO THE MAKER ) IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO THE MAKER THAT THIS NOTE MAY BE SOLD, TRANSFERRED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH STATE SECURITIES LAWS.
IMAGING TECHNOLOGIES CORPORATION
Convertible Promissory Note
due September 21, 2004
No. CN-1 $300,000.00
Dated: September 21, 2001
For value received, IMAGING TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Maker"), hereby promises to pay to the order of XXXXXXXXXXX LIMITED
PARTNERSHIP (together with its successors, representatives, and permitted
assigns, the "Holder"), in accordance with the terms hereinafter provided, the
principal amount of Three Hundred Thousand Dollars ($300,000.00), together with
interest thereon.
All payments under or pursuant to this Note shall be made in United States
Dollars in immediately available funds to the Holder at the address of the
Holder first set forth above or at such other place as the Holder may designate
from time to time in writing to the Maker or by wire transfer of funds to the
Holder's account, instructions for which are attached hereto as Exhibit A. The
outstanding principal balance of this Note shall be due and payable on September
21, 2004 (the "Maturity Date") or at such earlier time as provided herein. This
Note may not be prepaid by the Maker.
ARTICLE I
Section 1.1 Purchase Agreement. This Note has been executed and delivered
pursuant to the Convertible Note Purchase Agreement, dated as of September 21,
2001 (the "Purchase Agreement"), by and among the Maker and the Holder.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth for such terms in the Purchase Agreement.
Section 1.2 Interest. Beginning on the date hereof, the outstanding
principal balance of this Note shall bear interest, in arrears, at a rate per
annum equal to eight percent (8%), payable quarterly unless earlier converted or
prepaid as provided herein. Interest shall be computed on the basis of a 360-day
year of twelve (12) 30-day months and shall accrue commencing on the issuance
date of this Note (the "Issuance Date"). The interest shall be payable, at the
option of the Holder, in cash or shares of the Maker's common stock, par value
$.005 per share (the "Common Stock"); provided, that if the Holder elects to
receive any interest in Common Stock, the Maker shall issue to the Holder
registered and freely tradable shares of Common Stock. The number of shares of
Common Stock to be issued as payment of accrued and unpaid interest shall be
determined by dividing (a) the total amount of accrued and unpaid interest to be
converted into Common Stock by the lesser of (i) $.0266 and (ii) an amount equal
to 70% of the average Per Share Market Value (as defined in Section 3.2(b)
hereof) for the three (3) Trading Days (as defined in Section 4.13 hereof)
having the lowest Per Share Market Value during the thirty (30) Trading Days
prior to the date the interest payment is due. Furthermore, upon the occurrence
of an Event of Default (as defined in Section 2.1 hereof), then to the extent
permitted by law, the Maker will pay interest to the Holder, payable on demand,
on the outstanding principal balance of the Note from the date of the Event of
Default until payment in full at the rate of fifteen percent (15%) per annum.
Section 1.3 Payment on Non-Business Days. Whenever any payment to be made
shall be due on a Saturday, Sunday or a public holiday under the laws of the
State of New York, such payment may be due on the next succeeding business day
and such next succeeding day shall be included in the calculation of the amount
of accrued interest payable on such date.
Section 1.4 Transfer. This Note may be transferred or sold, subject to the
provisions of Section 4.5 of this Note, or pledged, hypothecated or otherwise
granted as security by the Holder.
Section 1.5 Replacement. Upon receipt of a duly executed, notarized and
unsecured written statement from the Holder with respect to the loss, theft or
destruction of this Note (or any replacement hereof), and without requiring an
indemnity bond or other security, or, in the case of a mutilation of this Note,
upon surrender and cancellation of such Note, the Maker shall issue a new Note,
of like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated
Note.
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ARTICLE II
EVENTS OF DEFAULT; REMEDIES
Section 2.1 Events of Default. The occurrence of any of the following
events shall be an "Event of Default" under this Note:
(a) the Maker shall fail to make the payment of any amount of
principal outstanding on the date such payment is due hereunder; or
(b) the Maker shall fail to make any payment of interest for a period
of five (5) days after the date such interest is due; or
(c) the failure of the Registration Statement to be declared effective
by the Securities and Exchange Commission ("SEC") on or prior to the date which
is one hundred twenty (120) days after the Filing Date (as defined in the
Registration Rights Agreement); or
(d) the suspension from listing or the failure of the Common Stock to
be listed on the OTC Bulletin Board for a period of five (5) consecutive Trading
Days; or
(e) the Maker's notice to the Holder, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.8(a) hereof) or its intention not to comply with
proper requests for conversion of this Note into shares of Common Stock; or
(f) the Maker shall fail to (i) timely delivery the shares of Common
Stock upon conversion of the Note or any interest accrued and unpaid, (ii)
timely file the Registration Statement (as defined in the Registration Rights
Agreement) or (iii) make the payment of any fees and/or liquidated damages under
this Note, the Purchase Agreement or the Registration Rights Agreement, which
failure in the case of items (i) and (iii) of this Section 2.1(f) is not
remedied within seven (7) business days after the incurrence thereof; or
(g) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of ten (10)
consecutive Trading Days, provided that the cause of such lapse or
unavailability is not due to factors solely within the control of Holder; or
(h) default shall be made in the performance or observance of (i) any
covenant, condition or agreement contained in this Note (other than as set forth
in clause (f) of this Section 2.1) and such default is not fully cured within
three (3) business days after the occurrence thereof or (ii) any material
covenant, condition or agreement contained in the Purchase Agreement or the
Registration Rights Agreement which is not covered by any other provisions of
this Section 2.1 and such default is not fully cured within seven (7) business
days after the occurrence thereof; or
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(i) any material representation or warranty made by the Maker herein
or in the Purchase Agreement or the Registration Rights Agreement shall prove to
have been false or incorrect or breached in a material respect on the date as of
which made; or
(j) the Maker shall issue any debt securities which are not
subordinate to this Note on such terms as are acceptable to the Holders of a
majority of the outstanding principal amount of this Note and the other Notes
purchased under the Purchase Agreement; or
(k) the consummation of any of the following transactions: (i) the
consolidation, merger or other business combination of the Maker with or into a
person or entity (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Maker or
(B) a consolidation, merger or other business combination in which holders of
the Maker's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities), except if in the case of a consolidation merger or other business
combination of the Maker, the Maker shall have given the Holder not less than
fifteen (15) business days prior written notice thereof (the "Transaction
Notice") and shall have furnished the Holder with such information regarding the
consolidation, merger or other business combination (including, without
limitation, the counterparties thereto) as the Holder may reasonably request in
order for the Holder to determine if it will exercise its conversion rights
hereunder prior to the consummation of such consolidation, merger or other
business combination; (ii) the sale or transfer of all or substantially all of
the Maker's assets; or (iii) the consummation of a purchase, tender or exchange
offer made to the holders of more than 30% of the outstanding shares of Common
Stock.
(l) the Maker shall (i) default in any payment of any amount or
amounts (x) of principal of or interest on any Indebtedness (other than the
Indebtedness hereunder) the aggregate principal amount of which Indebtedness is
in excess of $75,000 or (ii) default in the observance or performance of any
other agreement or condition relating to any Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders or beneficiary or
beneficiaries of such Indebtedness to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity; or
(m) the Maker shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property or assets, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect) or
under the comparable laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors'
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
or (vi) take any action under the laws of any jurisdiction (foreign or domestic)
analogous to any of the foregoing; or
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(n) a proceeding or case shall be commenced in respect of the Maker,
without its application or consent, in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, moratorium, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets in connection with the liquidation or dissolution
of the Company or (iii) similar relief in respect of it under any law providing
for the relief of debtors, and such proceeding or case described in clause (i),
(ii) or (iii) shall continue undismissed, or unstayed and in effect, for a
period of sixty (60) days or any order for relief shall be entered in an
involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic)
against the Maker or action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing shall be taken with respect to the
Maker and shall continue undismissed, or unstayed and in effect for a period of
sixty (60) days.
Section 2.2 Remedies Upon An Event of Default. If an Event of Default shall
have occurred and shall be continuing, the Holder of this Note may at any time
at its option (a) declare the entire unpaid principal balance of this Note,
together with all interest accrued hereon, due and payable, and thereupon, the
same shall be accelerated and so due and payable, without presentment, demand,
protest, or notice, all of which are hereby expressly unconditionally and
irrevocably waived by the Maker; provided, however, that upon the occurrence of
an Event of Default described in (i) Sections 2.1 (l), (m) or (n), the
outstanding principal balance and accrued interest hereunder shall be
automatically due and payable and (ii) Sections 2.1 (c)-(k), demand the
prepayment of this Note pursuant to Section 3.7 hereof, (b) demand that the
principal amount of this Note then outstanding and all accrued and unpaid
interest thereon shall be converted into shares of Common Stock at a conversion
price per share calculated pursuant to Section 3.1 hereof assuming that the date
that the Event of Default occurs is the Conversion Date (as defined in Section
3.1 hereof), or (c) exercise or otherwise enforce any one or more of the
Holder's rights, powers, privileges, remedies and interests under this Note, the
Purchase Agreement, the Registration Rights Agreement or applicable law. No
course of delay on the part of the Holder shall operate as a waiver thereof or
otherwise prejudice the right of the Holder. No remedy conferred hereby shall be
exclusive of any other remedy referred to herein or now or hereafter available
at law, in equity, by statute or otherwise.
ARTICLE III
CONVERSION; ANTIDILUTION; PREPAYMENT
Section 3.1 Conversion Option. At any time on or after October 9, 2001,
this Note shall be convertible (in whole or in part), at the option of the
Holder (the "Conversion Option"), into such number of fully paid and
non-assessable shares of Common Stock (the "Conversion Rate") as is determined
by dividing (x) that portion of the outstanding principal balance plus accrued
and unpaid interest under the Note as of such date that the Holder elects to
convert by (y) the Conversion Price (as hereinafter defined) then in effect on
the date on which the Holder faxes a notice of conversion (the "Conversion
Notice"), duly executed, to the Maker (facsimile number (000) 000-0000, Attn.:
General Counsel) (the "Conversion Date"), provided, however, that the Conversion
Price shall be subject to adjustment as described in Section 3.6 below.
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Section 3.2 Conversion Price.
(a) The term "Conversion Price" shall mean the lesser of (A) $.0266
(the "Fixed Conversion Price") and (B) an amount equal to seventy percent (70%)
of the average Per Share Market Value for the three (3) Trading Days having the
lowest Per Share Market Value during the thirty (30) Trading Days prior to the
Conversion Date, except that if during any period (a "Black-out Period"), a
Holder is unable to trade any Common Stock issued or issuable upon conversion of
the Notes immediately due to the postponement of filing or delay or suspension
of effectiveness of a registration statement or because the Maker has otherwise
informed such Holder that an existing prospectus cannot be used at that time in
the sale or transfer of such Common Stock, such Holder shall have the option but
not the obligation on any Conversion Date within ten (10) Trading Days following
the expiration of the Black-out Period of using the Conversion Price applicable
on such Conversion Date or any Conversion Price selected by such Holder that
would have been applicable had such Conversion Date been at any earlier time
during the Black-out Period or within the ten (10) Trading Days thereafter.
(b) The term "Per Share Market Value" means on any particular date (a)
the closing bid price of the Common Stock on such date on the OTC Bulletin
Board, The Nasdaq Small-Cap Market, the Nasdaq National Market or other
registered national stock exchange on which the Common Stock is then listed or
if there is no such price on such date, then the closing bid price on such
exchange or quotation system on the date nearest preceding such date, or (b) if
the Common Stock is not listed then on The Nasdaq Small-Cap Market, the Nasdaq
National Market or any registered national stock exchange, the closing bid price
for a share of Common Stock in the over-the-counter market, as reported by
NASDAQ or in the National Quotation Bureau Incorporated or similar organization
or agency succeeding to its functions of reporting prices) at the close of
business on such date, then the average of the three (3) lowest closing bid or
closing prices, if applicable, of the "Pink Sheet" quotes for the relevant
thirty (30) day trading conversion period, as determined in good faith by the
Holder, or (d) if the Common Stock is not then publicly traded the fair market
value of a share of Common Stock as determined by an Independent Appraiser (as
defined in Section 4.13 hereof) selected in good faith by the Holders of a
majority in interest of the Notes; provided, however, that the Maker, after
receipt of the determination by such Independent Appraiser, shall have the right
to select an additional Independent Appraiser, in which case, the fair market
value shall be equal to the average of the determinations by each such
Independent Appraiser; and provided, further that all determinations of the Per
Share Market Value shall be appropriately adjusted for any stock dividends,
stock splits or other similar transactions during such period. The determination
of fair market value by an Independent Appraiser shall be based upon the fair
market value of the Issuer determined on a going concern basis as between a
willing buyer and a willing seller and taking into account all relevant factors
determinative of value, and shall be final and binding on all parties. In
determining the fair market value of any shares of Common Stock, no
consideration shall be given to any restrictions on transfer of the Common Stock
imposed by agreement or by federal or state securities laws, or to the existence
or absence of, or any limitations on, voting rights.
Section 3.3 Mechanics of Conversion.
(a) Not later than three (3) Trading Days after any Conversion Date,
the Maker will deliver to the applicable Holder by express courier (A) a
certificate or certificates
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which shall be free of restrictive legends and trading restrictions (other than
those required by Section 5.1 of the Purchase Agreement) representing the number
of shares of Common Stock being acquired upon the conversion of the Notes and
(B) one or more certificates representing the amount of Notes not converted. If
in the case of any Conversion Notice such certificate or certificates are not
delivered to or as directed by the applicable Holder by the third Trading Day
after the Conversion Date (the "Delivery Date"), the Holder shall be entitled by
written notice to the Maker at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion, in which
event the Maker shall immediately return the certificates representing the Notes
tendered for conversion, whereupon the Maker and the Holder shall each be
restored to their respective positions immediately prior to the delivery of such
notice of revocation, except that any amounts described in Sections 3.3(b) and
(c) shall be payable through the date notice of rescission is given to the
Maker.
(b) The Maker understands that a delay in the delivery of the shares
of Common Stock upon conversion of the Notes and failure to deliver certificates
representing the unconverted shares of the Notes beyond the Delivery Date could
result in economic loss to the Holder. If the Maker fails to deliver to the
Holder such certificate or certificates pursuant to this Section hereunder by
the Delivery Date, the Maker shall pay to such Holder, in cash, an amount per
Trading Day for each Trading Day until such certificates are delivered, together
with interest on such amount at a rate of 10% per annum, accruing until such
amount and any accrued interest thereon is paid in full, equal to (i) 1% of the
aggregate principal amount of the Notes requested to be converted for the first
five (5) Trading Days after the Delivery Date and (ii) 2% of the aggregate
principal amount of the Notes requested to be converted for each Trading Day
thereafter (which amounts shall be paid as liquidated damages and not as a
penalty). Nothing herein shall limit a Holder's right to pursue actual damages
for the Maker's failure to deliver certificates representing shares of Common
Stock upon conversion within the period specified herein (including, without
limitation, damages relating to any purchase of shares of Common Stock by such
Holder to make delivery on a sale effected in anticipation of receiving
certificates representing shares of Common Stock upon conversion, such damages
to be in an amount equal to (A) the aggregate amount paid by such Holder for the
shares of Common Stock so purchased minus (B) the aggregate amount of net
proceeds, if any, received by such Holder from the sale of the shares of Common
Stock issued by the Maker pursuant to such conversion), and such Holder shall
have the right to pursue all remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief). Notwithstanding anything to the contrary contained herein,
the Holder shall be entitled to withdraw a Conversion Notice, and upon such
withdrawal the Maker shall only be obligated to pay the liquidated damages
accrued in accordance with this Section 3.3(b) through the date the Conversion
Notice is withdrawn.
(c) In addition to any other rights available to the Holder, if the
Maker fails to deliver to the Holder such certificate or certificates pursuant
to Section 3.3(a) by the Delivery Date and if after the Delivery Date the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Holder of the Conversion Shares which
the Holder anticipated receiving upon such conversion (a "Buy-In"), then the
Maker shall pay in cash to the Holder (in addition to any remedies available to
or elected by the Holder) the amount by which (A) the Holder's total purchase
price (including brokerage commissions, if any) for the shares of Common Stock
so purchased exceeds (B) the aggregate
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principal amount of the Notes for which such conversion was not timely honored,
together with interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). For example, if the Holder
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of $10,000 aggregate
principal amount of the Notes, the Maker shall be required to pay the Holder
$1,000, plus interest. The Holder shall provide the Maker written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Section 3.4 Ownership Cap. Notwithstanding anything to the contrary set
forth in Section 3 of this Note, at no time may a holder of this Note convert
this Note if the number of shares of Common Stock to be issued pursuant to such
conversion would exceed, when aggregated with all other shares of Common Stock
owned by such holder at such time, the number of shares of Common Stock which
would result in such holder owning more than 9.99% of all of the Common Stock
outstanding at such time; provided, however, that upon a holder of this Note
providing the Company with 75 days notice (pursuant to Section 4.1 hereof) (the
"Waiver Notice") that such holder would like to waive this Section 3.4 with
regard to any or all shares of Common Stock issuable upon conversion of this
Note, this Section 3.4 will be of no force or effect with regard to all or a
portion of the Note referenced in the Waiver Notice.
Section 3.5 Intentionally Omitted.
Section 3.6 Adjustment of Conversion Price.
(a) The Fixed Conversion Price shall be subject to adjustment from
time to time as follows:
(i) Adjustments for Stock Splits and Combinations. If the Maker shall
at any time or from time to time after the Issuance Date, effect a stock
split of the outstanding Common Stock, the applicable Fixed Conversion
Price in effect immediately prior to the stock split shall be
proportionately decreased. If the Maker shall at any time or from time to
time after the Issuance Date, combine the outstanding shares of Common
Stock, the applicable Fixed Conversion Price in effect immediately prior to
the combination shall be proportionately increased. Any adjustments under
this Section 3.6(a)(i) shall be effective at the close of business on the
date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If the Maker
shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in shares of
Common Stock, then, and in each event, the applicable Fixed Conversion
Price in effect immediately prior to such event shall be decreased as of
the time of such issuance or, in the event such record date shall have been
fixed, as of the close of business on such record date, by multiplying, as
applicable, the applicable Fixed Conversion Price then in effect by a
fraction:
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(1) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date; and
(2) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution.
(iii) Adjustment for Other Dividends and Distributions. If the Maker
shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in other than
shares of Common Stock, then, and in each event, an appropriate revision to
the applicable Fixed Conversion Price shall be made and provision shall be
made (by adjustments of the Conversion Price or otherwise) so that the
holders of the Notes shall receive upon conversions thereof, in addition to
the number of shares of Common Stock receivable thereon, the number of
securities of the Maker which they would have received had their Notes been
converted into Common Stock on the date of such event and had thereafter,
during the period from the date of such event to and including the
Conversion Date, retained such securities (together with any distributions
payable thereon during such period), giving application to all adjustments
called for during such period under this Section 3.6(a)(iii) with respect
to the rights of the holders of the Notes.
(iv) Adjustments for Reclassification, Exchange or Substitution. If
the Common Stock issuable upon conversion of the Notes at any time or from
time to time after the Issuance Date shall be changed to the same or
different number of shares of any class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than by way of
a stock split or combination of shares or stock dividends provided for in
Sections 3.6(a)(i), (ii) and (iii), or a reorganization, merger,
consolidation, or sale of assets provided for in Section 3.6(a)(v)), then,
and in each event, an appropriate revision to the Fixed Conversion Price
shall be made and provisions shall be made (by adjustments of the
Conversion Price or otherwise) so that the holder of each of the Notes
shall have the right thereafter to convert such Note into the kind and
amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which such Note might have been
converted immediately prior to such reclassification, exchange,
substitution or other change, all subject to further adjustment as provided
herein.
(v) Adjustments for Reorganization, Merger, Consolidation or Sales of
Assets. If at any time or from time to time after the Issuance Date there
shall be a capital reorganization of the Maker (other than by way of a
stock split or combination of shares or stock dividends or distributions
provided for in Section
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3.6(a)(i), (ii) and (iii), or a reclassification, exchange or substitution
of shares provided for in Section 3.6(a)(iv)), or a merger or consolidation
of the Maker with or into another corporation, or the sale of all or
substantially all of the Maker's properties or assets to any other person
(an "Organic Change"), then as a part of such Organic Change an appropriate
revision to the Conversion Price shall be made and provision shall be made
(by adjustments of the Conversion Price or otherwise) so that the holder of
each Note shall have the right thereafter to convert such Note into the
kind and amount of shares of stock and other securities or property of the
Maker or any successor corporation resulting from Organic Change. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 3.6(a)(v) with respect to the rights of the
holders of the Notes after the Organic Change to the end that the
provisions of this Section 3.6(a)(v) (including any adjustment in the
applicable Conversion Price then in effect and the number of shares of
stock or other securities deliverable upon conversion of the Notes) shall
be applied after that event in as nearly an equivalent manner as may be
practicable.
(vi) Adjustments for Issuance of Additional Shares of Common Stock. If
the Maker, at any time after the Issuance Date, shall issue any additional
shares of Common Stock (otherwise than as provided in the foregoing
subsections (i) through (v) of this Section 3.6) (the "Additional Shares of
Common Stock"), at a price per share less than the applicable Fixed
Conversion Price then in effect or without consideration, then the
applicable Fixed Conversion Price upon each such issuance shall be adjusted
to that price (rounded to the nearest cent) determined by multiplying the
applicable Fixed Conversion Price then in effect by a fraction:
(1) the numerator of which shall be equal to the sum of (A) the
number of shares of Common Stock outstanding immediately prior to the
issuance of such Additional Shares of Common Stock plus (B) the number
of shares of Common Stock (rounded to the nearest whole share) which
the aggregate consideration for the total number of such Additional
Shares of Common Stock so issued would purchase at a price per share
equal to the applicable Fixed Conversion Price then in effect, and
(2) the denominator of which shall be equal to the number of
shares of Common Stock outstanding immediately after the issuance of
such Additional Shares of Common Stock.
The provisions of this subsection (vi) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (i), (ii),
(iii), (iv) or (v) of this Section 3.6(a). No adjustment of the applicable Fixed
Conversion Price shall be made under this subsection (a)(iv) upon the issuance
of any Additional Shares of Common Stock which are issued pursuant to any Common
Stock Equivalent (as defined below) if upon the issuance of such Common Stock
Equivalent (x) any adjustment shall have been made pursuant to subsection (vii)
of this Section 3.6(a) or (y) no adjustment was required pursuant to subsection
(vii) of this Section 3.6(a). No adjustment of the applicable Fixed Conversion
Price shall be made under this subsection (vi) in an amount less than $.005 per
share, but any such lesser adjustment shall be carried forward and
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shall be made at the time and together with the next subsequent adjustment, if
any, which together with any adjustments so carried forward shall amount to
$.005 per share or more; provided that upon any adjustment of the applicable
Fixed Conversion Price as a result of any dividend or distribution payable in
Common Stock or Convertible Securities (as defined below) or the
reclassification, subdivision or combination of Common Stock into a greater or
smaller number of shares, the foregoing figure of $.005 per share (or such
figure as last adjusted) shall be adjusted (to the nearest one-half cent) in
proportion to the adjustment in the applicable Fixed Conversion Price.
(vii) Issuance of Common Stock Equivalents. If the Maker, at any time
after the Issuance Date, shall issue any securities convertible into or
exchangeable for, directly or indirectly, Common Stock ("Convertible
Securities"), other than this Note, or any rights or warrants or options to
purchase any such Common Stock or Convertible Securities, shall be issued
or sold (collectively, the "Common Stock Equivalents") and the price per
share for which Additional Shares of Common Stock may be issuable
thereafter pursuant to such Common Stock Equivalent shall be less than the
applicable Fixed Conversion Price then in effect, or if, after any such
issuance of Common Stock Equivalents, the price per share for which
Additional Shares of Common Stock may be issuable thereafter is amended or
adjusted, and such price as so amended shall be less than the applicable
Fixed Conversion Price in effect at the time of such amendment, then the
applicable Fixed Conversion Price upon each such issuance or amendment
shall be adjusted as provided in the first sentence of subsection (vi) of
this Section 3.6(a) on the basis that (1) the maximum number of Additional
Shares of Common Stock issuable pursuant to all such Common Stock
Equivalents shall be deemed to have been issued (whether or not such Common
Stock Equivalents are actually then exercisable, convertible or
exchangeable in whole or in part) as of the earlier of (A) the date on
which the Maker shall enter into a firm contract for the issuance of such
Common Stock Equivalent, or (B) the date of actual issuance of such Common
Stock Equivalent, and (2) the aggregate consideration for such maximum
number of Additional Shares of Common Stock shall be deemed to be the
minimum consideration received or receivable by the Maker for the issuance
of such Additional Shares of Common Stock pursuant to such Common Stock
Equivalent. No adjustment of the applicable Fixed Conversion Price shall be
made under this subsection (vii) upon the issuance of any Convertible
Security which is issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any adjustment shall
previously have been made to the exercise price of such warrants then in
effect upon the issuance of such warrants or other rights pursuant to this
subsection (vii). If no adjustment is required under this subsection (vii)
upon issuance of any Common Stock Equivalent or once an adjustment is made
under this subsection (vii) based upon the Per Share Market Value in effect
on the date of such adjustment, no further adjustment shall be made under
this subsection (vii) based solely upon a change in the Per Share Market
Value after such date.
(viii) Consideration for Stock. In case any shares of Common Stock or
any Common Stock Equivalents shall be issued or sold:
11
(1) in connection with any merger or consolidation in which the
Maker is the surviving corporation (other than any consolidation or
merger in which the previously outstanding shares of Common Stock of
the Maker shall be changed to or exchanged for the stock or other
securities of another corporation), the amount of consideration
therefore shall be, deemed to be the fair value, as determined
reasonably and in good faith by the Board of Directors of the Maker,
of such portion of the assets and business of the nonsurviving
corporation as such Board may determine to be attributable to such
shares of Common Stock, Convertible Securities, rights or warrants or
options, as the case may be; or
(2) in the event of any consolidation or merger of the Maker in
which the Maker is not the surviving corporation or in which the
previously outstanding shares of Common Stock of the Maker shall be
changed into or exchanged for the stock or other securities of another
corporation, or in the event of any sale of all or substantially all
of the assets of the Maker for stock or other securities of any
corporation, the Maker shall be deemed to have issued a number of
shares of its Common Stock for stock or securities or other property
of the other corporation computed on the basis of the actual exchange
ratio on which the transaction was predicated, and for a consideration
equal to the fair market value on the date of such transaction of all
such stock or securities or other property of the other corporation.
If any such calculation results in adjustment of the applicable Fixed
Conversion Price, or the number of shares of Common Stock issuable
upon conversion of the Notes, the determination of the applicable
Fixed Conversion Price or the number of shares of Common Stock
issuable upon conversion of the Notes immediately prior to such
merger, consolidation or sale, shall be made after giving effect to
such adjustment of the number of shares of Common Stock issuable upon
conversion of the Notes.
(b) Record Date. In case the Maker shall take record of the holders of
its Common Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then the date of the issue or sale of
the shares of Common Stock shall be deemed to be such record date.
(c) Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Maker shall not be required to make any adjustment of the
number of shares of Common Stock issuable upon conversion of the Notes upon the
grant after the Issuance Date of, or the exercise after the Issuance Date of,
options or warrants or rights to purchase stock under the Maker's existing stock
option plan or options or warrants or rights to purchase stock issued to
officers and/or directors of the Company.
(d) No Impairment. The Maker shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the
12
Maker, but will at all times in good faith, assist in the carrying out of all
the provisions of this Section 3.6 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
Holder against impairment. In the event a Holder shall elect to convert any
Notes as provided herein, the Maker cannot refuse conversion based on any claim
that such Holder or any one associated or affiliated with such Holder has been
engaged in any violation of law, violation of an agreement to which such Holder
is a party or for any reason whatsoever, unless, an injunction from a court, on
notice, restraining and or adjoining conversion of all or of said Notes shall
have been issued and the Maker posts a surety bond for the benefit of such
Holder in an amount equal to 130% of the amount of the Notes the Holder has
elected to convert plus the amount of the Notes outstanding, which bond shall
remain in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Holder in the event it
obtains judgment.
(e) Certificates as to Adjustments. Upon occurrence of each adjustment
or readjustment of the Fixed Conversion Price or number of shares of Common
Stock issuable upon conversion of this Note pursuant to this Section 3.6, the
Maker at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a certificate setting
forth such adjustment and readjustment, showing in detail the facts upon which
such adjustment or readjustment is based. The Maker shall, upon written request
of the Holder, at any time, furnish or cause to be furnished to such holder a
like certificate setting forth such adjustments and readjustments, the
applicable Fixed Conversion Price in effect at the time, and the number of
shares of Common Stock and the amount, if any, of other securities or property
which at the time would be received upon the conversion of this Note.
Notwithstanding the foregoing, the Maker shall not be obligated to deliver a
certificate unless such certificate would reflect an increase or decrease of at
least one percent (1%) of such adjusted amount.
(f) Issue Taxes. The Maker shall pay any and all issue and other
taxes, excluding federal, state or local income taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of this
Note pursuant thereto; provided, however, that the Maker shall not be obligated
to pay any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
(g) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of this Note. In lieu of any fractional shares to which
the Holder would otherwise be entitled, the Maker shall pay cash equal to the
product of such fraction multiplied by the average of the Per Share Market
Values of the Common Stock for the five (5) consecutive Trading Days immediately
preceding the Conversion Date.
(h) Reservation of Common Stock. The Maker shall at all times when
this Note shall be outstanding, reserve and keep available out of its authorized
but unissued Common Stock, such number of share of Common Stock as shall from
time to time be sufficient to effect the conversion of this Note and all
interest accrued thereon; provided that the number of shares of Common Stock so
reserved shall at no time be less than 150% of the number of shares of Common
Stock for which this Note and all interest accrued thereon are at any time
convertible. The Maker shall, from time to time in accordance with the Delaware
General Corporation Law, as amended, increase the authorized number of shares of
Common Stock if at any time the
13
unissued number of authorized shares shall not be sufficient to satisfy the
Maker's obligations under this Section 3.6(h).
(i) Regulatory Compliance. If any shares of Common Stock to be
reserved for the purpose of conversion of this Note or any interest accrued
thereon require registration or listing with or approval of any governmental
authority, stock exchange or other regulatory body under any federal or state
law or regulation or otherwise before such shares may be validly issued or
delivered upon conversion, the Maker shall, at its sole cost and expense, in
good faith and as expeditiously as possible, endeavor to secure such
registration, listing or approval, as the case may be.
Section 3.7 Prepayment.
(a) Prepayment Upon an Event of Default. Notwithstanding anything to
the contrary contained herein, upon the occurrence of an Event of Default
described in Sections 2.1(c)-(k) hereof, the Holder shall have the right, at
such Holder's option, to require the Maker to prepay all or a portion of this
Note at a price equal to Prepayment Price (as defined in Section 3.7(c) below)
applicable at the time of such request. Nothing in this Section 3.7(a) shall
limit the Holder's rights under Section 2.2 hereof.
(b) Prepayment Option Upon Major Transaction. In addition to all other
rights of the holders of the Notes contained herein, simultaneous with the
occurrence of a Major Transaction (as defined below), each holder of the Notes
shall have the right, at such holder's option, to require the Maker to prepay
all or a portion of such holder's Notes at a price equal to the greater of (i)
115% of the aggregate principal amount of the Notes and (ii) the product of (A)
the Conversion Rate and (B) the Per Share Market Value of the Common Stock on
the Trading Day immediately preceding such Major Transaction ("Major Transaction
Prepayment Price").
(c) Prepayment Option Upon Triggering Event. In addition to all other
rights of the holders of the Notes contained herein, after a Triggering Event
(as defined below), each holder of the Notes shall have the right, at such
holder's option, to require the Maker to prepay all or a portion of such
holder's Notes at a price equal to the greater of (i) 130% of the aggregate
principal amount of the Notes and (ii) the product of (A) the Conversion Rate at
such time and (B) the Per Share Market Value of the Common Stock calculated as
of the date immediately preceding such Triggering Event on which the exchange or
market on which the Common Stock is traded is open ("Triggering Event Prepayment
Price" and, collectively with "Major Transaction Prepayment Price," the
"Prepayment Price").
(d) "Major Transaction." A "Major Transaction" shall be deemed to have
occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination of the
Maker with or into another Person (as defined in Section 4.13 hereof)
(other than (A) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Maker or (B) a
consolidation, merger or other business combination in which holders of the
Maker's voting power immediately prior to the transaction continue after
the transaction to hold, directly or indirectly,
14
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if
other than a corporation) of such entity or entities).
(ii) the sale or transfer of all or substantially all of the Maker's
assets; or
(iii) consummation of a purchase, tender or exchange offer made to the
holders of more than 30% of the outstanding shares of Common Stock.
(e) "Triggering Event." A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be declared effective
by the SEC on or prior to the date which is 270 days after the Closing
Date, provided that the Maker has failed to file the Registration Statement
on or before the Filing Date (as defined in the Registration Rights
Agreement) or respond to any and each of the SEC's comments within fifteen
(15) days of the Maker's receipt of each of the SEC's comments;
(ii) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is
unavailable to the holder of the Notes for sale of the Registrable
Securities (as defined in the Registration Rights Agreement) in accordance
with the terms of the Registration Rights Agreement, and such lapse or
unavailability continues for a period of ten (10) consecutive Trading Days,
provided -------- that the cause of such lapse or unavailability is due to
factors within the control of the Maker and not due to factors solely
within the control of such holder of the Notes;
(iii) the suspension from trading or the failure of the Common Stock
to be traded on the OTC Bulletin Board for a period of five (5) consecutive
days, provided, that such suspension from listing or failure to be listed
is due to factors within the control of the Maker, including, but not
limited to, failure to timely file all reports required to be filed with
the SEC or to meet the net tangible assets requirements for listing, if
any;
(iv) the Maker's notice to any holder of the Notes, including by way
of public announcement, at any time, of its inability to comply (including
for any of the reasons described in Section 3.8) or its intention not to
comply with proper requests for conversion of any of the Notes into shares
of Common Stock;
(v) the Maker's failure to comply with a Conversion Notice tendered
within ten (10) business days after the receipt by the Maker of the
Conversion Notice and the certificates representing the Notes; or
15
(vi) the Maker breaches any representation, warranty, covenant or
other term or condition of the Purchase Agreement, the Registration Rights
Agreement or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated thereby or
hereby.
(f) Mechanics of Prepayment at Option of Buyer Upon Major Transaction.
No sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major Transaction, the Maker shall deliver written notice thereof via
facsimile and overnight courier ("Notice of Major Transaction") to each holder
of the Notes. At any time after receipt of a Notice of Major Transaction (or, in
the event a Notice of Major Transaction is not delivered at least ten (10) days
prior to a Major Transaction, at any time within ten (10) days prior to a Major
Transaction), any holder of the Notes then outstanding may require the Maker to
prepay, effective immediately prior to the consummation of such Major
Transaction, all of the holder's Notes then outstanding by delivering written
notice thereof via facsimile and overnight courier ("Notice of Prepayment at
Option of Buyer Upon Major Transaction") to the Maker, which Notice of
Prepayment at Option of Buyer Upon Major Transaction shall indicate (i) the
number of Notes that such holder is electing to prepay and (ii) the applicable
Major Transaction Prepayment Price, as calculated pursuant to Section 3.7(b)
above.
(g) Mechanics of Prepayment at Option of Buyer Upon Triggering Event.
Within one (1) day after the occurrence of a Triggering Event, the Maker shall
deliver written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each holder of the Notes. At any time after the earlier of
a holder's receipt of a Notice of Triggering Event and such holder becoming
aware of a Triggering Event, any holder of the Notes then outstanding may
require the Maker to prepay all of the Notes by delivering written notice
thereof via facsimile and overnight courier ("Notice of Prepayment at Option of
Buyer Upon Triggering Event") to the Maker, which Notice of Prepayment at Option
of Buyer Upon Triggering Event shall indicate (i) the number of Notes that such
holder is electing to prepay and (ii) the applicable Triggering Event Prepayment
Price, as calculated pursuant to Section 3.7(c) above.
(h) Payment of Prepayment Price. Upon the Maker's receipt of a
Notice(s) of Prepayment at Option of Buyer Upon Triggering Event or a Notice(s)
of Prepayment at Option of Buyer Upon Major Transaction from any holder of the
Notes, the Maker shall immediately notify each holder of the Notes by facsimile
of the Maker's receipt of such Notice(s) of Prepayment at Option of Buyer Upon
Triggering Event or Notice(s) of Prepayment at Option of Buyer Upon Major
Transaction and each holder which has sent such a notice shall promptly submit
to the Maker such holder's certificates representing the Notes which such holder
has elected to have prepaid. The Maker shall deliver the applicable Triggering
Event Prepayment Price, in the case of a prepayment pursuant to Section 3.7(g),
to such holder within five (5) business days after the Maker's receipt of a
Notice of Prepayment at Option of Buyer Upon Triggering Event and, in the case
of a prepayment pursuant to Section 3.7(f), the Maker shall deliver the
applicable Major Transaction Prepayment Price immediately prior to the
consummation of the Major Transaction; provided that a holder's certificates
representing the Notes shall have been so delivered to the Maker; provided
further that if the Maker is unable to prepay all of the Notes to be prepaid,
the Maker shall prepay an amount from each holder of the Notes being prepaid
equal to such holder's pro-rata amount (based on the number of Notes held
16
by such holder relative to the number of Notes outstanding) of all Notes being
prepaid. If the Maker shall fail to prepay all of the Notes submitted for
prepayment (other than pursuant to a dispute as to the arithmetic calculation of
the Prepayment Price), in addition to any remedy such holder of the Notes may
have under this Note and the Purchase Agreement, the applicable Prepayment Price
payable in respect of such Notes not prepaid shall bear interest at the rate of
2.0% per month (prorated for partial months) until paid in full. Until the Maker
pays such unpaid applicable Prepayment Price in full to a holder of the Notes
submitted for prepayment, such holder shall have the option (the "Void Optional
Prepayment Option") to, in lieu of prepayment, require the Maker to promptly
return to such holder(s) all of the Notes that were submitted for prepayment by
such holder(s) under this Section 3.7 and for which the applicable Prepayment
Price has not been paid, by sending written notice thereof to the Maker via
facsimile (the "Void Optional Prepayment Notice"). Upon the Maker's receipt of
such Void Optional Prepayment Notice(s) and prior to payment of the full
applicable Prepayment Price to such holder, (i) the Notice(s) of Prepayment at
Option of Buyer Upon Triggering Event or the Notice(s) of Prepayment at Option
of Buyer Upon Major Transaction, as the case may be, shall be null and void with
respect to those Notes submitted for prepayment and for which the applicable
Prepayment Price has not been paid, (ii) the Maker shall immediately return any
Notes submitted to the Maker by each holder for prepayment under this Section
3.7(h) and for which the applicable Prepayment Price has not been paid and (iii)
the Conversion Price of such returned Notes shall be adjusted to the lesser of
(A) the Conversion Price as in effect on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker and (B) the lowest Per Share
Market Value during the period beginning on the date on which the Notice(s) of
Prepayment of Option of Buyer Upon Major Transaction or the Notice(s) of
Prepayment at Option of Buyer Upon Triggering event, as the case may be, is
delivered to the Maker and ending on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker; provided that no adjustment
shall be made if such adjustment would result in an increase of the Conversion
Price then in effect. A holder's delivery of a Void Optional Prepayment Notice
and exercise of its rights following such notice shall not effect the Maker's
obligations to make any payments which have accrued prior to the date of such
notice. Payments provided for in this Section 3.7 shall have priority to
payments to other stockholders in connection with a Major Transaction.
Section 3.8 Inability to Fully Convert.
(a) Holder's Option if Maker Cannot Fully Convert. If, upon the
Maker's receipt of a Conversion Notice, the Maker cannot issue shares of Common
Stock registered for resale under the Registration Statement for any reason,
including, without limitation, because the Maker (w) does not have a sufficient
number of shares of Common Stock authorized and available, (x) is otherwise
prohibited by applicable law or by the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Maker or any of its securities from issuing all of
the Common Stock which is to be issued to the Holder pursuant to a Conversion
Notice or (y) fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then the Maker shall
issue as many shares of Common Stock as it is able to issue in accordance with
the Holder's Conversion Notice and, with respect to the unconverted portion of
the Note, the Holder, solely at Holder's option, can elect to:
17
(i) require the Maker to prepay that portion of the Note for which the
Maker is unable to issue Common Stock in accordance with the Holder's
Conversion Notice (the "Mandatory Prepayment") at a price per share equal
to the Prepayment Price as of such Conversion Date (the "Mandatory
Prepayment Price");
(ii) if the Maker's inability to fully convert is pursuant to Section
3.8(a)(y) above, require the Maker to issue restricted shares of Common
Stock equal to one hundred twenty percent (120%) of the number of shares of
Common Stock the Maker is unable to deliver in accordance with such
holder's Conversion Notice;
(iii) void its Conversion Notice and retain or have returned, as the
case may be, the Note that was to be converted pursuant to the Conversion
Notice (provided that the Holder's voiding its Conversion Notice shall not
effect the Maker's obligations to make any payments which have accrued
prior to the date of such notice).
(b) Mechanics of Fulfilling Holder's Election. The Maker shall
immediately send via facsimile to the Holder, upon receipt of a facsimile copy
of a Conversion Notice from the Holder which cannot be fully satisfied as
described in Section 3.8(a) above, a notice of the Maker's inability to fully
satisfy the Conversion Notice (the "Inability to Fully Convert Notice"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Maker is
unable to fully satisfy such holder's Conversion Notice, (ii) the amount of the
Note which cannot be converted and (iii) the applicable Mandatory Prepayment
Price. The Holder shall notify the Maker of its election pursuant to Section
3.8(a) above by delivering written notice via facsimile to the Maker ("Notice in
Response to Inability to Convert").
(c) Payment of Prepayment Price. If the Holder shall elect to have its
shares prepaid pursuant to Section 3.8(a)(i) above, the Maker shall pay the
Mandatory Prepayment Price in cash to the Holder within five (5) days of the
Maker's receipt of the Holder's Notice in Response to Inability to Convert,
provided that prior to the Maker's receipt of the Holder's Notice in Response to
Inability to Convert the Maker has not delivered a notice to the Holder stating,
to the satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note. If the Maker shall fail to pay the applicable Mandatory Prepayment
Price to the Holder on a timely basis as described in this Section 3.8(c) (other
than pursuant to a dispute as to the determination of the arithmetic calculation
of the Prepayment Price), in addition to any remedy the Holder may have under
this Note and the Purchase Agreement, such unpaid amount shall bear interest at
the rate of 2.0% per month (prorated for partial months) until paid in full.
Until the full Mandatory Prepayment Price is paid in full to the Holder, the
Holder may (i) void the Mandatory Prepayment with respect to that portion of the
Note for which the full Mandatory Prepayment Price has not been paid, (ii)
receive back such Note, and (iii) require that the Conversion Price of such
returned Note be adjusted to the lesser of (A) the Conversion Price as in effect
on the date on which the Holder voided the Mandatory Prepayment and (B) the
lowest Per Share Market Value during the period beginning on the Conversion Date
and ending on the date the Holder voided the Mandatory Prepayment.
18
Section 3.9 No Rights as Shareholder. Nothing contained in this Note shall
be construed as conferring upon the Holder, prior to the conversion of this
Note, the right to vote or to receive dividends or to consent or to receive
notice as a shareholder in respect of any meeting of shareholders for the
election of directors of the Maker or of any other matter, or any other rights
as a shareholder of the Maker. Upon the issuance of a Conversion Notice, the
Holder shall have all rights as a shareholder of the Maker.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated in the
Purchase Agreement (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 Maker will give written notice to the Holder at least twenty (20) days prior
to the date on which the Maker closes its books or takes a record (x) with
respect to any dividend or distribution upon the Common Stock, (y) with respect
to any pro rata subscription offer to holders of Common Stock or (z) for
determining rights to vote with respect to any Organic Change, dissolution,
liquidation or winding-up and in no event shall such notice be provided to such
holder prior to such information being made known to the public. The Maker will
also give written notice to the Holder at least twenty (20) days prior to the
date on which any Organic Change, dissolution, liquidation or winding-up will
take place and in no event shall such notice be provided to the Holder prior to
such information being made known to the public.
Section 4.2 Governing Law. This Note shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to the choice of law provisions. This Note shall not be interpreted or
construed with any presumption against the party causing this Note to be
drafted.
Section 4.3 Headings. Article and section headings in this Note are
included herein for purposes of convenience of reference only and shall not
constitute a part of this Note for any other purpose.
Section 4.4 Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note, at law or in equity
(including, without limitation, a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Maker to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the
19
holder thereof and shall not, except as expressly provided herein, be subject to
any other obligation of the Maker (or the performance thereof). The Maker
acknowledges that a breach by it of its obligations hereunder will cause
irreparable and material harm to the Holder and that the remedy at law for any
such breach may be inadequate. Therefore the Maker agrees that, in the event of
any such breach or threatened breach, the Holder shall be entitled, in addition
to all other available rights and remedies, at law or in equity, to seek and
obtain such equitable relief, including but not limited to an injunction
restraining any such breach or threatened breach, without the necessity of
showing economic loss and without any bond or other security being required.
Section 4.5 Enforcement Expenses. The Maker agrees to pay all costs and
expenses of enforcement of this Note, including, without limitation, reasonable
attorneys' fees and expenses.
Section 4.6 Binding Effect. The obligations of the Maker and the Holder set
forth herein shall be binding upon the successors and assigns of each such
party, whether or not such successors or assigns are permitted by the terms
hereof.
Section 4.7 Amendments. This Note may not be modified or amended in any
manner except in writing executed by the Maker and the Holder.
Section 4.8 Compliance with Securities Laws. The Holder of this Note
acknowledges that this Note is being acquired solely for the Holder's own
account and not as a nominee for any other party, and for investment, and that
the Holder shall not offer, sell or otherwise dispose of this Note. This Note
and any Note issued in substitution or replacement therefore shall be stamped or
imprinted with a legend in substantially the following form:
" THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN
OPINION OF COUNSEL (WHICH COUNSEL SHALL BE REASONABLY ACCEPTABLE
TO THE MAKER) IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO THE MAKER THAT THIS NOTE MAY BE SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE
SECURITIES LAWS."
Section 4.9 Consent to Jurisdiction. Each of the Maker and the Holder (i)
hereby irrevocably submits to the exclusive jurisdiction of the United States
District Court sitting in the Southern District of New York and the courts of
the State of New York located in New York county for the purposes of any suit,
action or proceeding arising out of or relating to this Note and (ii) hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Each of the Maker and the
Holder consents to process being served in any such suit,
21
action or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under the Purchase Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 4.9 shall affect or limit any right to serve
process in any other manner permitted by law.
Section 4.10 Parties in Interest. This Note shall be binding upon, inure to
the benefit of and be enforceable by the Maker, the Holder and their respective
successors and permitted assigns.
Section 4.11 Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder 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.
Section 4.12 Maker Waivers. Except as otherwise specifically provided
herein, the Maker and all others that may become liable for all or any part of
the obligations evidenced by this Note, hereby waive presentment, demand, notice
of nonpayment, protest and all other demands' and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, and do hereby
consent to any number of renewals of extensions of the time or payment hereof
and agree that any such renewals or extensions may be made without notice to any
such persons and without affecting their liability herein and do further consent
to the release of any person liable hereon, all without affecting the liability
of the other persons, firms or Maker liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY.
(a) No delay or omission on the part of the Holder in exercising its
rights under this Note, or course of conduct relating hereto, shall operate as a
waiver of such rights or any other right of the Holder, nor shall any waiver by
the Holder of any such right or rights on any one occasion be deemed a waiver of
the same right or rights on any future occasion.
(b) THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS
A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW,
HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT
REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.
Section 4.13 Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Independent Appraiser" means a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Issuer) that is regularly engaged in
the business of appraising the Capital Stock or assets of corporations or other
entities as going concerns, and which is not affiliated with either the Issuer
or the Holder of any Warrant.
22
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Trading Day" means (a) a day on which the Common Stock is traded on
The Nasdaq Small-Cap Market, the Nasdaq National Market or other registered
national stock exchange on which the Common Stock has been listed, or (b) if the
Common Stock is not listed on The Nasdaq Small-Cap Market, the Nasdaq National
Market or any registered national stock exchange, a day or which the Common
Stock is traded in the over-the-counter market, as reported by the OTC Bulletin
Board, or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day
on which the Common Stock is quoted in the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
IMAGING TECHNOLOGIES CORPORATION
By: /s/ Xxxxx Xxxxx
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Name: Xxxxx Xxxxx
Title: Chief Executive Officer
23
EXHIBIT A
WIRE INSTRUCTIONS.
Payee:
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Bank:
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Address:
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Bank No.:
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Account No.:
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Account Name:
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24
FORM OF
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of
IMAGING TECHNOLOGIES CORPORATION (the "Maker") according to the conditions
hereof, as of the date written below.
Date of Conversion*
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Applicable Conversion Price *
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Signature
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[Name]
Address:
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