DISTINCTIVE DEVICES, INC.
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UNSECURED PROMISSORY NOTE
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$4,000,000. April 20, 2004
FOR VALUE RECEIVED, the undersigned, DISTINCTIVE DEVICES, INC., a
Delaware corporation (the "Company"), for value received, hereby promises to pay
to the order of TWINKLE INTERNATIONAL FZE, an entity formed under the laws of
the United Arab Emirates (the "Holder"), in lawful money of the United States of
America, the principal sum of FOUR MILLION DOLLARS ($4,000,000), together with
interest at the rate of eight (8%) percent per annum thereon. The principal on
this Note, together with accrued interest thereon, shall be paid at the address
of the Company listed above, or at such other place as may be specified by the
Holder in its notice.
This Note is being issued pursuant to a Note Purchase Agreement,
dated as of the date hereof, between the Holder and the Company (the "Purchase
Agreement"). As additional consideration for this Note, the Company is issuing
to the initial Holder warrants (the "Warrants") evidencing the right initially
to purchase up to 800,000 shares of Common Stock, $.001 par value, of the
Company, at an initial exercise price of One Dollar ($1.00) per share, and
exercisable for five years, pursuant to a Warrant Purchase Agreement (the
"Warrant Agreement").
1. Payment.
1.1 Principal. The outstanding principal amount on this Note
shall be due and payable in full on October 18, 2004 (the "Maturity Date"),
subject to prepayment as set forth in Section 2.
1.2 Interest. Interest shall accrue on the outstanding principal
amount and be paid in full on the Maturity Date.
2. Prepayment. The Company may prepay the then outstanding
principal amount, in whole or in part, together with accrued interest on the
principal amount being prepaid, at any time, without premium or penalty. If less
than the entire principal amount of this Note at the time outstanding shall be
called for optional prepayment, the Company shall cancel this Note and issue a
new Note for the remaining principal amount, and dated the last day through
which interest was paid hereon.
3. Covenants of the Company. The Company agrees and covenants
that until such time as this Note has been paid in full, the Company will comply
with the following covenants:
3.1 Payment of Principal and Interest. The Company will duly and
punctually pay the principal of and interest on this Note in accordance with the
terms of this Note.
3.2 Use of Proceeds. The Company will use the proceeds received
by it from the sale of this Note as follows: (a) $1,000,000 of the proceeds will
be used for general working capital and corporate purposes and (b) $3,000,000 of
the proceeds will be used to support the issuance of 30 to 60 day bank letters
of credit, which shall be used by the Company and its subsidiaries to purchase
additional inventory.
3.3 Maintenance of Office or Agency. The Company will maintain an
office in the State of New Jersey where this Note may be presented or
surrendered for payment, where this Note may be surrendered for transfer or
exchange and where notices and demands to or upon the Company in respect of this
Note may be served. The Company will give prompt written notice to the Holder of
the location, and of any change in the location, of such office.
3.4 Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or upon its income, profits or property, and (ii) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien upon its property; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
3.5 Maintenance of Properties. The Company will cause all the
properties used or useful in the conduct of the business of the Company and its
subsidiaries to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements and improvements thereof, all as in
the judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section shall prevent the Company from
discontinuing the operation and maintenance of any of its or its subsidiaries'
properties if such discontinuance is, in the judgment of the Company, desirable
in the conduct of its business and not disadvantageous in any material respect
to the Holder.
3.6 Corporate Existence. The Company will do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchise and that of its
subsidiaries; provided, however, that the Company shall not be required to
preserve any right or franchise if the Board of Directors shall determine that
the preservation thereof is no longer desirable in the conduct of the business
of the Company and that the loss thereof is not disadvantageous in any material
respect to the Holder.
3.7 Financial Statements and Information. The Company will mail
or deliver to the Holder copies of all such financial statements, reports and
proxy statements as the Company shall send to or make available to its
stockholders.
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4. Remedies.
4.1 Events of Default. "Event of Default", wherever used herein
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any principal or interest upon
this Note for a period of five (5) days after it becomes due and
payable, whether on the Maturity Date or upon prepayment; or
(2) default in the performance, or breach, of any covenant
of the Company in the Warrant Agreement or this Note (other than
a covenant or warranty a default in whose performance or whose
breach is elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of ten (10)
business days after written notice has been given to the Company
specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder;
or
(3) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in
respect of the Company under the Federal Bankruptcy Code or any
other applicable Federal or State law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its
property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed
and in effect for a period of sixty (60) consecutive days; or
(4) the institution by the Company of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it,
or the filing by it of a petition or answer or consent seeking
reorganization or relief under the Federal Bankruptcy Code or any
other applicable Federal or State law, or the consent by it to
the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of
its property, or the making by it of an assignment for the
benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due, or the
taking of corporate action by the Company in furtherance of any
such action; or
(5) the Company shall be in default in the payment of in
excess of $500,000 of money borrowed in any one transaction or
pursuant to any one agreement or series of related agreements or
transactions, the lender thereof shall have exercised its rights
to declare said sum due and payable and such default shall not
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have been cured or contested in good faith for a period of sixty
(60) days after such declaration; or
(6) the Company shall have entered against it a final
judgment by a court having jurisdiction which, if satisfied,
would have a material adverse effect on the financial condition
of the Company and its subsidiaries as a whole, and the same
shall remain undischarged for a period of thirty (30) days during
which execution shall not be effectively stayed or bonded;
then and in each and every case, the Holder may by notice in writing to the
Company declare the unpaid balance of the Note to be forthwith due and payable,
and thereupon such balance, including accrued interest hereon, shall become so
due and payable without presentation, protest or further demand or notice of any
kind, all of which are hereby expressly waived.
4.2 Enforcement of Remedies. In case any one or more of the
Events of Default specified in Section 4.1 shall have occurred and be
continuing, the Holder may proceed to protect and enforce its rights either by
suit in equity or by action at law, or otherwise proceed to enforce payment of
such Note or to enforce any other legal or equitable right of the Holder of this
Note, including, but not limited to, its rights under a Pledge Agreement, dated
as of the date hereof, among the Company, ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, the
Holder and ▇▇▇▇▇▇ ▇▇▇▇ & Priest LLP, as agent.
4.3 Waiver by Company. To the extent permitted by applicable law,
the Company hereby agrees to waive, and does hereby absolutely and irrevocably
waive and relinquish the benefit and advantage of any valuation, stay,
appraisal, extension or redemption laws now existing or which may hereafter
exist, which, but for this provision might be applicable to any sale made under
the judgment, order or decree of any court or otherwise, based on the Note or
any claim for interest on the Note.
4.4 Amendments and Waivers. No course of dealing between the
Company and the Holder and no delay on the part of the Holder hereunder in
exercising any rights under this Note shall operate as a waiver of the rights of
the Holder hereunder. No covenant or other provision of this Note nor any
default or Event of Default in connection therewith may be waived otherwise than
by a written instrument signed by the Holder so waiving such covenant or other
provision or default or Event of Default.
4.5 Cost and Expense of Collection. The Company covenants and
agrees that if default be made in any payment or prepayment of principal of, or
interest on, the Note, it will, to the extent permitted under applicable law,
pay to the Holder such further amount as shall be sufficient to cover the cost
or expense of collection, including reasonable compensation to the attorneys of
the Holder for all services rendered in that connection.
5. Payment; Exchange and Transfer; Lost Notes.
5.1 Payments. Interest and principal to be paid in respect of
this Note shall be paid at the place provided herein, without any presentment or
notation of payment. The amount of principal so paid on this Note shall be
regarded as having been retired and cancelled at the time of payment. At the
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time of payment in full on this Note the Holder shall surrender the Note to the
Company for cancellation.
5.2 Exchange and Transfer. The Holder may, prior to maturity or
prepayment thereof, surrender the Note for exchange, at the office designated by
the Company pursuant to Section 6. Within a reasonable time thereafter and
without expense (other than transfer taxes, if any) to the Holder, the Company
shall issue in exchange thereof, or in exchange for the portion thereof not
surrendered in payment as aforesaid (as the case may be), in such denominations
and made payable to such person or persons, or order, as the Holder shall
designate, a Note or Notes for the same aggregate principal amount as the unpaid
principal amount of the Note or Notes so surrendered, having the same maturity
and rate of interest, containing the same provisions and subject to the same
terms and conditions as the Note or Notes as surrendered, provided, that should
a portion of the principal amount of this Note be assigned to a third party, as
a condition of such assignment the Company may request that the Holder and the
assignee enter into an agreement regarding their joint action for enforcement of
this Note.
5.3 Lost, etc., Notes. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this Note,
and (in case of loss, theft or destruction) of indemnity satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Note, if mutilated, the Company will
make and deliver a new Note of like tenor in lieu of such Note.
6. Notice. Any notice, presentation or demand to or upon the
Company or to the Holder in respect of this Note may be given or made in writing
to the addresses set forth below, and shall be deemed to be duly given if
personally delivered with receipt acknowledged, if mailed by registered or
certified mail, first class, postage prepaid, or if delivered by a nationally
recognized overnight courier service to such address, or, if any other address
shall at any time be designated for this purpose by the Company or the Holder in
writing to the other, to such other address.
(a) If to the Holder:
Twinkle International FZE
W-1-105 Dubai Airport Free Zone
P.O. Box 54404
Dubai, UAE
Attn: _____________________
(b) If to the Company:
Distinctive Devices, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇, President
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7. Governing Law. The provisions of this Note shall be construed
and interpreted, and all rights and obligations hereunder determined, in
accordance with the laws of the State of Delaware, without reference to the
conflict of laws principles thereof.
8. Successors. This Note shall be binding on the Company and its
successors and assigns, and inure to the benefit of ▇▇▇▇▇▇ and its successors
and assigns; provided that Company may not assign this Note without the written
consent of the Holder other than by operation of law or the sale of all or
substantially all of the assets of the Company to an entity which expressly
assumes in writing the obligations of the Company under this Note.
9. Amendment. This Note sets forth the entire agreement between
the Holder and the Company with respect to the matters herein; and may not be
amended, modified or terminated except by a writing executed by the Company and
the Holder.
IN WITNESS WHEREOF, the Company has duly executed this Note on
the day and year first above written.
DISTINCTIVE DEVICES, INC.
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By: ▇▇▇▇▇▇ ▇▇▇▇
Title: Chief Executive Officer, President
and Chief Financial Officer