EXHIBIT 4.1
[FORM OF AMENDED AND RESTATED SENIOR SECURED CONVERTIBLE NOTE]
INKSURE TECHNOLOGIES INC.
AMENDED AND RESTATED SENIOR SECURED CONVERTIBLE NOTE
Issuance Date: September 30, 2005 Original Principal Amount: U.S. $[______]
FOR VALUE RECEIVED, InkSure Technologies Inc., a Delaware corporation (the
"COMPANY"), hereby promises to pay to [SMITHFIELD FIDUCIARY LLC][OTHER BUYERS]
or registered assigns ("HOLDER") the amount set out above as the Original
Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the "PRINCIPAL") when due, whether upon the
Maturity Date (as defined below), acceleration, redemption or otherwise (in each
case in accordance with the terms hereof) and to pay interest ("INTEREST") on
any outstanding Principal at a rate equal to six percent (6.0%) per annum (the
"INTEREST RATE"), from the date set out above as the Issuance Date (the
"ISSUANCE DATE") until the same becomes due and payable, whether upon an
Interest Date (as defined below), the Maturity Date, acceleration, conversion,
redemption or otherwise (in each case in accordance with the terms hereof). This
Amended and Restated Senior Secured Convertible Note amends, supplements,
modifies and completely restates and supersedes the Senior Secured Convertible
Note, dated as of the Issuance Date (the "EXISTING NOTE"), issued by the Company
to the Holder with an Original Principal Amount of $[_______], but shall not,
except as specifically amended hereby or as set forth in the Holder's Amendment,
Exchange and Purchase Agreement (as defined below), constitute a release,
satisfaction or novation of any of the obligations under the Existing Note or
any other Transaction Document (as defined in the Securities Purchase
Agreement). This Amended and Restated Senior Secured Convertible Note (including
all Convertible Notes issued in exchange, transfer or replacement hereof, this
"NOTE") is one of an issue of Amended and Restated Senior Secured Convertible
Notes (collectively, the "NOTES" and such other Amended and Restated Senior
Secured Convertible Notes, the "OTHER NOTES") amending and restating the terms
of the Existing Note pursuant to Section 1 of those certain Amendment, Exchange
and Purchase Agreements, dated as of April 8, 2008 (the "EXCHANGE DATE"), by
and between each of the Buyers (as defined in the Securities Purchase Agreement)
and the Company (individually, with respect to any Buyer, the "AMENDMENT,
EXCHANGE AND PURCHASE AGREEMENT" and collectively, with respect to all Buyers,
the "AMENDMENT, EXCHANGE AND PURCHASE AGREEMENTS"). Certain capitalized terms
are defined in Section 30.
(1) MATURITY. On the Maturity Date, the Holder shall surrender this Note to
the Company and the Company shall pay to the Holder an amount in cash
representing all outstanding Principal, accrued and unpaid Interest and accrued
and unpaid Late Charges, if any. The "MATURITY DATE" shall be September 30,
2010, as may be extended at the option of the Holder (i) in the event that, and
for so long as, an Event of Default (as defined in Section 4(a)) shall have
occurred and be continuing or any event shall have occurred and be continuing
which with the passage of time and the failure to cure would result in an Event
of Default and (ii) through the date that is ten (10) Business Days after the
consummation of a Change of Control in the event that a Change of Control is
publicly announced or a Change of Control Notice (as defined in Section 5) is
delivered prior to the Maturity Date.
(2) INTEREST; INTEREST RATE. Interest on this Note shall commence accruing
on the Exchange Date and shall be computed on the basis of a 365-day year and
actual days elapsed and shall be payable in arrears on the last day of each
Calendar Quarter during the period beginning on the Exchange Date and ending on,
and including, the Maturity Date (each, an "INTEREST DATE") with the first
Interest Date being June 30, 2008. Interest shall be payable on each Interest
Date in cash. Prior to the payment of Interest on an Interest Date, Interest on
this Note shall accrue at the Interest Rate and be payable by way of inclusion
of the Interest in the Conversion Amount in accordance with Section 3(b)(i).
From and after the occurrence of an Event of Default, the Interest Rate shall be
increased to twelve percent (12.0%). In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding sentence shall
cease to be effective as of the date of such cure; provided that the Interest as
calculated at such increased rate during the continuance of such Event of
Default shall continue to apply to the extent relating to the days after the
occurrence of such Event of Default through and including the date of cure of
such Event of Default.
(3) CONVERSION OF NOTES. This Note shall be convertible into shares of
common stock of the Company, par value $0.01 per share (the "COMMON STOCK"), on
the terms and conditions set forth in this Section 3.
(a) CONVERSION RIGHT. Subject to the provisions of Section 3(d), at
any time or times on or after the Issuance Date, the Holder shall be
entitled to convert any portion of the outstanding and unpaid Conversion
Amount (as defined below) into fully paid and nonassessable shares of
Common Stock in accordance with Section 3(c), at the Conversion Rate (as
defined below); provided, however, that the Holder may not convert more
than twenty percent (20%) of the Original Principal Amount of this Note in
any ten (10) Trading Day period. The Company shall not issue any fraction
of a share of Common Stock upon any conversion. If the issuance would
result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all taxes that may be
payable with respect to the issuance and delivery of Common Stock upon
conversion of any Conversion Amount.
(b) CONVERSION RATE. The number of shares of Common Stock issuable
upon conversion of any Conversion Amount pursuant to Section 3(a) shall be
determined by dividing (x) such Conversion Amount by (y) the Conversion
Price (the "CONVERSION RATE").
(i) "CONVERSION AMOUNT" means the sum of (A) the portion of the
Principal to be converted, redeemed or otherwise with respect to which
this determination is being made, (B) accrued and unpaid Interest with
respect to such Principal and (C) accrued and unpaid Late Charges with
respect to such Principal and Interest.
(ii) "CONVERSION PRICE" means, as of any Conversion Date (as
defined below) or other date of determination, $0.60, subject to
adjustment as provided herein.
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(c) MECHANICS OF CONVERSION.
(i) OPTIONAL CONVERSION. To convert (an "OPTIONAL CONVERSION")
any Conversion Amount into shares of Common Stock on any date (a
"CONVERSION DATE"), the Holder shall (A) transmit by facsimile (or
otherwise deliver), for receipt on or prior to 11:59 p.m., New York
Time, on such date, a copy of an executed notice of conversion in the
form attached hereto as EXHIBIT I (the "CONVERSION NOTICE") to the
Company and (B) if required by Section 3(c)(iii), surrender this Note
to a common carrier for delivery to the Company as soon as practicable
on or following such date (or an indemnification undertaking with
respect to this Note in the case of its loss, theft or destruction).
On or before the first (1st) Business Day following the date of
receipt of a Conversion Notice, the Company shall transmit by
facsimile a confirmation of receipt of such Conversion Notice to the
Holder and the Company's transfer agent (the "TRANSFER AGENT"). On or
before the second (2nd) Business Day following the date of receipt of
a Conversion Notice (the "SHARE DELIVERY DATE"), the Company shall (A)
(X) provided the Transfer Agent is participating in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer Program and
the shares of Common Stock issuable upon conversion are registered for
resale or are exempt from registration, credit such aggregate number
of shares of Common Stock to which the Holder shall be entitled to the
Holder's or its designee's balance account with DTC through its
Deposit Withdrawal Agent Commission system or (Y) if the Transfer
Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver to the address as specified in the
Conversion Notice, a certificate, registered in the name of the Holder
or its designee, for the number of shares of Common Stock to which the
Holder shall be entitled and (B) pay to the Holder in cash an amount
equal to the applicable Pro Rata Amount for the Holder that is
released from the Cash Collateral Account in connection with such
conversion. If this Note is physically surrendered for conversion as
required by Section 3(c)(iii) and the outstanding Principal of this
Note is greater than the Principal portion of the Conversion Amount
being converted, then the Company shall as soon as practicable and in
no event later than three (3) Business Days after receipt of this Note
and at its own expense, issue and deliver to the holder a new Note (in
accordance with Section 20(d)) representing the outstanding Principal
not converted. The Person or Persons entitled to receive the shares of
Common Stock issuable upon a conversion of this Note shall be treated
for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.
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(ii) COMPANY'S FAILURE TO TIMELY CONVERT. If the Company shall
fail to issue a certificate to the Holder or credit the Holder's
balance account with DTC for the number of shares of Common Stock to
which the Holder is entitled upon conversion of any Conversion Amount
on or prior to the date which is five (5) Business Days after the
Conversion Date (a "CONVERSION FAILURE"), then (A) the Company shall
pay damages to the Holder for each date of such Conversion Failure in
an amount equal to 1.0% (the "INITIAL PENALTY") of the product of (I)
the sum of the number of shares of Common Stock not issued to the
Holder on or prior to the Share Delivery Date and to which the Holder
is entitled, and (II) the Closing Sale Price of the Common Stock on
the Share Delivery Date and (B) the Holder, upon written notice to the
Company, may void its Conversion Notice with respect to, and retain or
have returned, as the case may be, any portion of this Note that has
not been converted pursuant to such Conversion Notice; PROVIDED that
the voiding of a Conversion Notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date
of such notice pursuant to this Section 3(c)(ii) or otherwise. In
addition to the foregoing, if within three (3) Trading Days after the
Company's receipt of the facsimile copy of a Conversion Notice the
Company shall fail to issue and deliver a certificate to the Holder or
credit the Holder's balance account with DTC for the number of shares
of Common Stock to which the Holder is entitled upon such holder's
conversion of any Conversion Amount, and if on or after such Trading
Day the Holder purchases (in an open market transaction or otherwise)
Common Stock to deliver in satisfaction of a sale by the Holder of
Common Stock issuable upon such conversion that the Holder anticipated
receiving from the Company (a "BUY-IN"), then the Company shall,
within three (3) Business Days (or ten (10) Business Days if the
failure to deliver Common Stock is due to a Force Majeure Event) after
the Holder's request and in the Holder's discretion, either (i) pay
cash to the Holder in an amount equal to the Holder's total purchase
price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the "BUY-IN PRICE"), at which point the
Company's obligation to deliver such certificate (and to issue such
Common Stock) shall terminate, or (ii) promptly honor its obligation
to deliver to the Holder a certificate or certificates representing
such Common Stock and pay cash to the Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such
number of shares of Common Stock, times (B) the Closing Bid Price on
the Conversion Date. Notwithstanding the foregoing, the Company shall
not be required to pay the Initial Penalty in the event that a
Conversion Failure is caused, directly or indirectly, by acts of God,
acts of the public enemy, acts of any governmental body in its
sovereign or contractual capacity, fires, floods, epidemics, strikes,
labor disputes, inability to obtain labor, material, equipment or
transportation, freight embargoes, sabotage, civil disturbances, any
outbreak, attack or escalation of hostilities or declaration of war,
national emergency, act of terrorism or other national or
international calamity or crisis or change in economic, financial or
political conditions, including changes on the financial markets of
the United States or Israel (any of the foregoing, a "FORCE MAJEURE
EVENT").
(iii) REGISTRATION; BOOK-ENTRY. The Company shall maintain a
register (the "Register") for the recordation of the names and
addresses of the holders of each Note and the principal amount of the
Notes held by such holders (the "Registered Notes"). The entries in
the Register shall be conclusive and binding for all purposes absent
manifest error. The Company and the holders of the Notes shall treat
each Person whose name is recorded in the Register as the owner of a
Note for all purposes, including, without limitation, the right to
receive payments of principal and interest hereunder, notwithstanding
notice to the contrary. A Registered Note may be assigned or sold in
whole or in part only by registration of such assignment or sale on
the Register. Upon its receipt of a request to assign or sell all or
part of any Registered Note by a Holder, the Company shall record the
information contained therein in the Register and issue one or more
new Registered Notes in the same aggregate principal amount as the
principal amount of the surrendered Registered Note to the designated
assignee or transferee pursuant to Section 20. Notwithstanding
anything to the contrary set forth herein, upon conversion of any
portion of this Note in accordance with the terms hereof, the Holder
shall not be required to physically surrender this Note to the Company
unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior
written notice (which notice may be included in a Conversion Notice)
requesting physical surrender and reissue of this Note. The Holder and
the Company shall maintain records showing the Principal, Interest and
Late Charges converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Note upon
conversion.
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(iv) PRO RATA CONVERSION; DISPUTES. In the event that the Company
receives a Conversion Notice from more than one holder of Notes for
the same Conversion Date and the Company can convert some, but not
all, of such portions of the Notes submitted for conversion, the
Company, subject to Section 3(d), shall convert from each holder of
Notes electing to have Notes converted on such date a pro rata amount
of such holder's portion of its Notes submitted for conversion based
on the principal amount of Notes submitted for conversion on such date
by such holder relative to the aggregate principal amount of all Notes
submitted for conversion on such date. In the event of a dispute as to
the number of shares of Common Stock issuable to the Holder in
connection with a conversion of this Note, the Company shall issue to
the Holder the number of shares of Common Stock not in dispute and
resolve such dispute in accordance with Section 25.
(d) LIMITATIONS ON CONVERSIONS. The Company shall not effect any
conversion of this Note, and the Holder of this Note shall not have the
right to convert any portion of this Note pursuant to Section 3(a), to the
extent that after giving effect to such conversion, the Holder (together
with the Holder's affiliates) would beneficially own in excess of 4.99%
(the "MAXIMUM PERCENTAGE") of the number of shares of Common Stock
outstanding immediately after giving effect to such conversion. For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall include the
number of shares of Common Stock issuable upon conversion of this Note with
respect to which the determination of such sentence is being made, but
shall exclude the number of shares of Common Stock which would be issuable
upon (A) conversion of the remaining, nonconverted portion of this Note
beneficially owned by the Holder or any of its affiliates and (B) exercise
or conversion of the unexercised or nonconverted portion of any other
securities of the Company beneficially owned by the Holder or any of its
affiliates (including, without limitation, any Other Notes or warrants)
subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence,
for purposes of this Section 3(d)(i), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act
of 1934, as amended. For purposes of this Section 3(d)(i), in determining
the number of outstanding shares of Common Stock, the Holder may rely on
the number of outstanding shares of Common Stock as reflected in (x) the
Company's most recent Form 10-KSB, Form 10-K, Form 10-QSB, Form 10-Q or
Form 8-K, as the case may be (y) a more recent public announcement by the
Company or (z) any other notice by the Company or the Transfer Agent
setting forth the number of shares of Common Stock outstanding. For any
reason at any time, upon the written or oral request of the Holder, the
Company shall within three (3) Business Days confirm orally and in writing
to the Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the
Company, including this Note, by the Holder or its affiliates since the
date as of which such number of outstanding shares of Common Stock was
reported. By written notice to the Company, the Holder may increase or
decrease the Maximum Percentage to any other percentage not in excess of
9.99% specified in such notice; provided that (i) any such increase will
not be effective until the sixty-first (61st) day after such notice is
delivered to the Company, and (ii) any such increase or decrease will apply
only to the Holder and not to any other holder of Notes.
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(4) RIGHTS UPON EVENT OF DEFAULT.
(a) EVENT OF DEFAULT. Each of the following events shall constitute an
"EVENT OF DEFAULT":
(i) the suspension from trading or failure of the Common Stock to
be listed on the Principal Market or on an Eligible Market for a
period of five (5) consecutive days or for more than an aggregate of
ten (10) days in any 365-day period;
(ii) the Company's (A) failure to cure a Conversion Failure by
delivery of the required number of shares of Common Stock within ten
(10) Business Days after the applicable Conversion Date or (B) notice,
written or oral, to any holder of the Notes, including by way of
public announcement or through any of its agents, at any time, of its
intention not to comply with a request for conversion of any Notes
into shares of Common Stock that is tendered in accordance with the
provisions of the Notes;
(iii) at any time following the tenth (10th) consecutive Business
Day that the Holder's Authorized Share Allocation is less than the
number of shares of Common Stock that the Holder would be entitled to
receive upon a conversion of the full Conversion Amount of this Note
(without regard to any limitations on conversion set forth in Section
3(d) or otherwise);
(iv) the Company's failure to pay to the Holder any amount of
Principal, Interest, Late Charges or other amounts when and as due
under this Note or any other Transaction Document (as defined in the
Securities Purchase Agreement), except, in the case of a failure to
pay Interest and Late Charges when and as due, in which case only if
such failure continues for a period of (A) at least three (3) Business
Days with respect to Interest and (B) at least ten (10) Business Days
with respect to Late Charges;
(v) (A) any payment default under any Indebtedness (as defined in
Section 3(s) of the Securities Purchase Agreement) of the Company or
any of its Subsidiaries (as defined in Section 3(a) of the Securities
Purchase Agreement) having an aggregate principal amount equal to or
greater than $500,000, (B) any default (other than a payment default)
occurs under any Indebtedness of the Company or any of its
Subsidiaries having an aggregate principal amount equal to or greater
than $500,000 that results in the redemption of or acceleration prior
to maturity of such Indebtedness, in each case other than with respect
to any Other Notes;
(vi) the Company or any of its Subsidiaries, pursuant to or
within the meaning of Title 11, U.S. Code, or any similar Federal,
foreign or state law for the relief of debtors (collectively,
"BANKRUPTCY LAW"), (A) commences a voluntary case, (B) consents to the
entry of an order for relief against it in an involuntary case, (C)
consents to the appointment of a receiver, trustee, assignee,
liquidator or similar official (a "CUSTODIAN"), (D) makes a general
assignment for the benefit of its creditors or (E) admits in writing
that it is generally unable to pay its debts as they become due;
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(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (A) is for relief against the Company or
any of its Subsidiaries in an involuntary case, (B) appoints a
Custodian of the Company or any of its Subsidiaries or (C) orders the
liquidation of the Company or any of its Subsidiaries;
(viii) a final judgment or judgments for the payment of money
aggregating in excess of $500,000 are rendered against the Company or
any of its Subsidiaries and which judgments are not, within ninety
(90) days after the entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within ninety (90) days after
the expiration of such stay; provided, however, that any judgment
which is covered by insurance or an indemnity from a credit worthy
party shall not be included in calculating the $500,000 amount set
forth above so long as the Company provides the Holder a written
statement from such insurer or indemnity provider (which written
statement shall be reasonably satisfactory to the Holder) to the
effect that such judgment is covered by insurance or an indemnity and
the Company will receive the proceeds of such insurance or indemnity
within thirty (30) days of the issuance of such judgment;
(ix) the Company breaches, in any material respect, any
representation, warranty, covenant or other term or condition of any
Transaction Document, except, in the case of a breach of a covenant
which is curable, only if such breach continues for a period of at
least twenty (20) consecutive Business Days;
(x) (A) any breach or failure in any respect to comply with
Section 16 of this Note, (B) the failure to deliver the Cash
Collateral Release Notice in accordance with Section 4(g)(ii)(1), (3),
(4), (5) or (6) of the Amendment, Exchange and Purchase Agreements or
(C) a Public Information Failure (as defined in the Amendment and
Exchange Agreements); or
(xi) any Event of Default (as defined in the Other Notes) occurs
with respect to any Other Notes.
(b) REDEMPTION RIGHT. Promptly after the occurrence of an Event of
Default with respect to this Note or any Other Note, the Company shall
deliver written notice thereof via facsimile and overnight courier (an
"EVENT OF DEFAULT NOTICE") to the Holder. At any time during the period
commencing after the earlier of the Holder's receipt of an Event of Default
Notice and the Holder becoming aware of an Event of Default and ending
forty-five (45) days after such applicable Event of Default, the Holder may
require the Company to redeem all or any portion of this Note by delivering
written notice thereof (the "EVENT OF DEFAULT REDEMPTION NOTICE") to the
Company, which Event of Default Redemption Notice shall indicate the
portion of this Note the Holder is electing to redeem. Each portion of this
Note subject to redemption by the Company pursuant to this Section 4(b)
shall be redeemed by the Company at a price equal to the product of (i) the
Conversion Amount to be redeemed and (ii) the Redemption Premium (the
"EVENT OF DEFAULT REDEMPTION PRICE"). Redemptions required by this Section
4(b) shall be made in accordance with the provisions of Section 13. To the
extent redemptions required by this Section 4(b) are deemed or determined
by a court of competent jurisdiction to be prepayments of the Note by the
Company, such redemptions shall be deemed to be voluntary prepayments. The
parties hereto agree that in the event of the Company's redemption of any
portion of the Note under this Section 4(b), the Holder's damages would be
uncertain and difficult to estimate because of the parties' inability to
predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder. Accordingly, any
Redemption Premium due under this Section 4(b) is intended by the parties
to be, and shall be deemed, a reasonable estimate of the Holder's actual
loss of its investment opportunity and not as a penalty.
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(5) RIGHTS UPON FUNDAMENTAL TRANSACTION, CHANGE OF CONTROL AND INK BUSINESS
SALE.
(a) ASSUMPTION. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing
all of the obligations of the Company under this Note and the other
Transaction Documents in accordance with the provisions of this Section
5(a) pursuant to written agreements in form and substance reasonably
satisfactory to the Required Holders and approved by the Required Holders
prior to such Fundamental Transaction, including agreements to deliver to
each holder of Notes in exchange for such Notes a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest
rates of the Notes held by such holder and having similar ranking to the
Notes, and satisfactory to the Required Holders and (ii) other than in
connection with a Cash Transaction, the Successor Entity (including its
Parent Entity) is a publicly traded corporation whose common stock is
quoted on or listed for trading on an Eligible Market (a "PUBLIC SUCCESSOR
ENTITY"). Upon the occurrence of any Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the
date of such Fundamental Transaction, the provisions of this Note referring
to the "Company" shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Note with the same effect as if such
Successor Entity had been named as the Company herein. Upon consummation of
the Fundamental Transaction, the Successor Entity shall deliver to the
Holder confirmation that there shall be issued upon conversion or
redemption of this Note at any time after the consummation of the
Fundamental Transaction, in lieu of the shares of the Company's Common
Stock (or other securities, cash, assets or other property) purchasable
upon the conversion or redemption of the Notes prior to such Fundamental
Transaction, such shares of the publicly traded common stock (or its
equivalent) of the Successor Entity (including its Parent Entity), as
adjusted in accordance with the provisions of this Note. The provisions of
this Section shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations on the
conversion or redemption of this Note.
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(b) REDEMPTION RIGHT. No sooner than fifteen (15) days nor later than
ten (10) days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company
shall deliver written notice thereof via facsimile and overnight courier to
the Holder (a "CHANGE OF CONTROL NOTICE"). At any time during the period
beginning after the Holder's receipt of a Change of Control Notice and
ending on the date of the consummation of such Change of Control (or, in
the event a Change of Control Notice is not delivered at least ten (10)
days prior to a Change of Control, at any time on or after the date which
is ten (10) days prior to a Change of Control and ending ten (10) days
after the consummation of such Change of Control), the Holder may require
the Company to redeem all or any portion of this Note by delivering written
notice thereof ("CHANGE OF CONTROL REDEMPTION NOTICE") to the Company,
which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to redeem. The portion of this Note subject
to redemption pursuant to this Section 5 shall be redeemed by the Company
at a price equal to 125% of the Conversion Amount being redeemed (the
"CHANGE OF CONTROL REDEMPTION PRICE"). Notwithstanding anything to the
contrary in this Section 5(b), but subject to Section 3(d), until the
Change of Control Redemption Price is paid in full, the Conversion Amount
submitted for redemption under this Section 5(b) may be converted, in whole
or in part, by the Holder into Common Stock pursuant to Section 3.
Redemptions required by this Section 5 shall be made in accordance with the
provisions of Section 13 and shall have priority to payments to
shareholders in connection with a Change of Control. To the extent
redemptions required by this Section 5(b) are deemed or determined by a
court of competent jurisdiction to be prepayments of the Note by the
Company, such redemptions shall be deemed to be voluntary prepayments. The
parties hereto agree that in the event of the Company's redemption of any
portion of the Note under this Section 5(b), the Holder's damages would be
uncertain and difficult to estimate because of the parties' inability to
predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder. Accordingly, any
Change of Control redemption premium due under this Section 5(b) is
intended by the parties to be, and shall be deemed, a reasonable estimate
of the Holder's actual loss of its investment opportunity and not as a
penalty.
(c) REDEMPTION AT THE COMPANY'S ELECTION UPON CASH TRANSACTION. In
connection with a pending, proposed or intended Cash Transaction, the
Company shall have the right, in its sole discretion, to require that all,
but not less than all, of the outstanding Notes be redeemed (a "CASH
TRANSACTION REDEMPTION ELECTION") at a price equal to the sum of (i) the
Change of Control Redemption Price, (ii) an amount equal to the applicable
Pro Rata Amount that is released from the Cash Collateral Account for the
Holder in connection with such redemption, (iii) to the extent in excess of
such Pro Rata Amount, the amount of any accrued but unpaid Interest on such
Principal amount being redeemed through the Cash Transaction Election
Redemption Date plus (iv) accrued and unpaid Late Charges, if any, with
respect to such Principal amount and Interest through the Cash Transaction
Election Redemption Date (such price in connection with a Cash Transaction
Redemption Election, the "CASH TRANSACTION REDEMPTION PRICE"). The Company
shall exercise its right to make a Cash Transaction Redemption Election by
providing each holder of Notes written notice (the "CASH TRANSACTION
REDEMPTION NOTICE") by facsimile and overnight courier, concurrently with
the public disclosure of a proposed, pending or intended Cash Transaction
and at least ten (10) Trading Days prior to the date of consummation of the
Cash Transaction (the "CASH TRANSACTION ELECTION REDEMPTION DATE"), which
Cash Transaction Election Redemption Date shall be the date of the
consummation of the Cash Transaction. The Cash Transaction Redemption
Notice shall indicate the anticipated Cash Transaction Election Redemption
Date and such notice shall be irrevocable. If the Company has exercised its
right of Cash Transaction Redemption Election then all Notes outstanding at
the time of the consummation of the Cash Transaction shall be redeemed on
the Cash Transaction Election Redemption Date by payment by or on behalf of
the Company to each holder of Notes of the Cash Transaction Redemption
Price for such Notes concurrent with the closing of the Cash Transaction.
Notwithstanding anything to the contrary in this Section 5(c), but subject
to Section 3(d), until the Cash Transaction Redemption Price is paid in
full, the Conversion Amount subject to redemption hereunder may be
converted, in whole or in part, by the Holder into Common Stock pursuant to
Section 3. Redemptions required by this Section 5(c) shall be made in
accordance with the provisions of Section 13 and shall have priority to
payments to stockholders in connection with a Cash Transaction.
- 9 -
(d) INK BUSINESS SALE REDEMPTION RIGHT. Contemporaneously with the
public announcement of an Ink Business Sale, the Company shall deliver
written notice thereof via facsimile and overnight courier to the Holder (a
"INK BUSINESS SALE NOTICE") stating (i) the effective date, or proposed
effective date, as applicable, of such Ink Business Sale and (ii) the Net
Cash Proceeds received or to be received, as applicable, from such Ink
Business Sale. At any time during the period beginning after the Holder's
receipt of a Ink Business Sale Notice and ending on the date that is [ten
(10)] Business Days after the receipt of such notice, the Holder may
require the Company to redeem all or any portion of this Note up to an
amount equal to the Holder's Pro Rata Amount of the Net Cash Proceeds of
such Ink Business Sale by delivering written notice thereof ("INK BUSINESS
SALE REDEMPTION NOTICE") to the Company, which Ink Business Sale Redemption
Notice shall indicate the Conversion Amount the Holder is electing to
redeem (the "INK BUSINESS SALE REDEMPTION AMOUNT"). The portion of this
Note subject to redemption pursuant to this Section 5 shall be redeemed by
the Company at a price equal to the product of (i) the Ink Business Sale
Redemption Amount and (ii) the applicable Company Redemption Premium (the
"INK BUSINESS SALE REDEMPTION PRICE"). Notwithstanding anything to the
contrary in this Section 5(d), but subject to Section 3(d), until the Ink
Business Sale Redemption Price is paid in full, the Ink Business Sale
Redemption Amount may be converted, in whole or in part, by the Holder into
Common Stock pursuant to Section 3. Redemptions required by this Section
5(d) shall be made in accordance with the provisions of Section 13 and
shall have priority to any payments to shareholders in connection with an
Ink Business Sale. In the event that following any Ink Business Sale
Redemption Date, the Company or any Subsidiary receives additional Net Cash
Proceeds (such as deferred compensation) relating to an Ink Business Sale,
the Company shall provide an Ink Business Sale Notice to the Holder in
accordance with this Section 5(d) describing the nature and amount of such
additional Net Cash Proceeds and the Holder shall have the right to require
the Company to redeem all or any portion of this Note pursuant to this
Section 5(d).
(6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
(a) PURCHASE RIGHTS. If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of
any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which the Holder could have acquired if the
Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without taking into account any
limitations or restrictions on the convertibility of this Note) immediately
before the date on which a record is taken for the grant, issuance or sale
of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
- 10 -
(b) OTHER CORPORATE EVENTS. In addition to and not in substitution for
any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are
entitled to receive securities or other assets with respect to or in
exchange for shares of Common Stock (a "CORPORATE EVENT"), the Company
shall make appropriate provision to insure that the Holder will thereafter
have the right to receive upon a conversion of this Note, (i) in addition
to the shares of Common Stock receivable upon such conversion, such
securities or other assets to which the Holder would have been entitled
with respect to such shares of Common Stock had such shares of Common Stock
been held by the Holder upon the consummation of such Corporate Event
(without taking into account any limitations or restrictions on the
convertibility of this Note) or (ii) in lieu of the shares of Common Stock
otherwise receivable upon such conversion, such securities or other assets
received by the holders of shares of Common Stock in connection with the
consummation of such Corporate Event in such amounts as the Holder would
have been entitled to receive had this Note initially been issued with
conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a conversion rate for such consideration commensurate
with the Conversion Rate. Provision made pursuant to the preceding sentence
shall be in a form and substance satisfactory to the Required Holders. The
provisions of this Section shall apply similarly and equally to successive
Corporate Events and shall be applied without regard to any limitations on
the conversion or redemption of this Note.
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
(a) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON STOCK. If
and whenever on or after the Subscription Date until this Note is fully
converted or paid in full, the Company issues or sells, or in accordance
with this Section 7(a) is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding shares of
Common Stock deemed to have been issued or sold by the Company in
connection with any Excluded Security and excluding a deemed issuance or
sale in a transaction for which appropriate adjustments are made under
Sections 6(a) or 7(b)) for a consideration per share (the "NEW ISSUANCE
PRICE") less than a price (the "APPLICABLE PRICE") equal to the Conversion
Price in effect immediately prior to such issue or sale (the foregoing a
"DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance, the
Conversion Price then in effect shall be reduced to an amount equal to the
New Issuance Price. For purposes of determining the adjusted Conversion
Price under this Section 7(a), the following shall be applicable:
(i) ISSUANCE OF OPTIONS. If the Company in any manner grants or
sells any Options and the lowest price per share for which one share
of Common Stock is issuable upon the exercise of any such Option or
upon conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option is less than the Applicable
Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share.
For purposes of this Section 7(a)(i), the "lowest price per share for
which one share of Common Stock is issuable upon the exercise of any
such Option or upon conversion or exchange or exercise of any
Convertible Securities issuable upon exercise of such Option" shall be
equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share of
Common Stock upon granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange or exercise of any Convertible
Security issuable upon exercise of such Option. No further adjustment
of the Conversion Price shall be made upon the actual issuance of such
share of Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Common
Stock upon conversion or exchange or exercise of such Convertible
Securities.
- 11 -
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells any Convertible Securities and the lowest price
per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise thereof is less than the Applicable
Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the
time of the issuance of sale of such Convertible Securities for such
price per share. For the purposes of this Section 7(a)(ii), the "price
per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise" shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the
issuance or sale of the Convertible Security and upon the conversion
or exchange or exercise of such Convertible Security. No further
adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock upon conversion or exchange or
exercise of such Convertible Securities, and if any such issue or sale
of such Convertible Securities is made upon exercise of any Options
for which adjustment of the Conversion Price had been or are to be
made pursuant to other provisions of this Section 7(a), no further
adjustment of the Conversion Price shall be made by reason of such
issue or sale.
(iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exchange or
exercise of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable or
exercisable for Common Stock changes at any time, the Conversion Price
in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such
Options or Convertible Securities provided for such changed purchase
price, additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold. For
purposes of this Section 7(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the Initial Closing
Date are changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof
shall be deemed to have been issued as of the date of such change. No
adjustment shall be made if such adjustment would result in an
increase of the Conversion Price then in effect.
- 12 -
(iv) CALCULATION OF CONSIDERATION RECEIVED. In case any Option is
issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a
consideration of $.01. If any Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the
gross amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Company will be the fair value of such
consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will
be the Closing Sale Price of such securities on the date of receipt or
the date the agreement for such sale was executed, whichever is
greater. If any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as
is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration
other than cash or securities will be determined jointly by the
Company and the Required Holders. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event
requiring valuation (the "VALUATION EVENT"), the fair value of such
consideration will be determined within five (5) Business Days after
the tenth day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Required
Holders. The determination of such appraiser shall be deemed binding
upon all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.
(v) RECORD DATE. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
(vi) VOLUNTARY ADJUSTMENT BY COMPANY. The Company may at any time
during the term of this Note reduce the then current Conversion Price
to any amount and for any period of time deemed appropriate by the
Board of Directors of the Company.
(b) ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION OR COMBINATION OF
COMMON STOCK. If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock
into a greater number of shares, the Conversion Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company
at any time on or after the Subscription Date combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding
shares of Common Stock into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination will be
proportionately increased.
(c) OTHER EVENTS. If any event occurs of the type contemplated by the
provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the
Holder under this Note; provided that no such adjustment will increase the
Conversion Price as otherwise determined pursuant to this Section 7.
- 13 -
(8) COMPANY'S RIGHT OF COMPANY OPTIONAL REDEMPTION.
(a) GENERAL. At any time and from time to time hereunder, the Company
shall have the right to redeem all or any portion of the Principal amount
then remaining under this Note (the "COMPANY OPTIONAL REDEMPTION AMOUNT")
as designated in the Company Optional Redemption Notice as of the Company
Optional Redemption Date (each as defined below) (a "COMPANY OPTIONAL
REDEMPTION"). The portion of this Note subject to redemption pursuant to
this Section 8(a) shall be redeemed by the Company in cash at a price equal
to the sum of (i) the product of (A) the Principal amount being redeemed
and (B) the applicable Company Redemption Premium, (ii) an amount equal to
the applicable Pro Rata Amount that is released from the Cash Collateral
Account for the Holder in connection with such redemption, (iii) to the
extent in excess of such Pro Rata Amount, the amount of any accrued but
unpaid Interest on such Principal amount being redeemed through the Company
Optional Redemption Date plus (iv) accrued and unpaid Late Charges, if any,
with respect to such Principal amount and Interest through the Company
Optional Redemption Date (the "COMPANY OPTIONAL REDEMPTION PRICE"). The
Company may exercise its right to require redemption under this Section 8
by delivering a written notice thereof by facsimile and overnight courier
to all, but not less than all, of the holders of Notes (the "COMPANY
OPTIONAL REDEMPTION NOTICE" and the date all of the holders received such
notice is referred to as the "COMPANY OPTIONAL REDEMPTION NOTICE DATE").
Each Company Optional Redemption Notice shall be irrevocable. The Company
Optional Redemption Notice shall state (1) the date on which the Company
Optional Redemption shall occur (the "COMPANY OPTIONAL REDEMPTION DATE")
which date shall be not less than five (5) Business Days following the
Company Optional Redemption Notice Date, (2) the aggregate Principal amount
of the Notes which the Company has elected to be subject to Company
Optional Redemption from all of the holders of the Notes pursuant to this
Section 8(a) (and analogous provisions under the Other Notes) on the
Company Optional Redemption Date and (3) the number of shares of Common
Stock into which the Series B Warrants shall become exercisable on the
Company Optional Redemption Date and the Exercise Price thereof.
Notwithstanding anything to the contrary in this Section 8, until the
Company Optional Redemption Price is paid, in full, the Company Optional
Redemption Amount may be converted, in whole or in part, by the Holders
into shares of Common Stock pursuant to Section 3. All Conversion Amounts
converted by the Holder after the Company Optional Redemption Notice Date
shall reduce the Company Optional Redemption Amount of this Note required
to be redeemed on the Company Optional Redemption Date. Redemptions made
pursuant to this Section 8 shall be made in accordance with Section 13.
(b) PRO RATA REDEMPTION REQUIREMENT. If the Company elects to cause a
Company Optional Redemption pursuant to Section 8(a), then it must
simultaneously take the same action in the same proportion with respect to
the Other Notes. If the Company elects to cause a Company Optional
Redemption pursuant to Section 8(a) (or similar provisions under the Other
Notes) with respect to less than all of the Principal amounts of the Notes
then outstanding, then the Company shall require redemption of a Principal
amount from each of the holders of the Notes equal to the product of (i)
the aggregate Principal amount of Notes which the Company has elected to
cause to be redeemed pursuant to Section 8(a), multiplied by (ii) the
fraction, the numerator of which is the sum of the aggregate Original
Principal Amount of the Notes purchased by such holder of outstanding Notes
and the denominator of which is the sum of the aggregate Original Principal
Amount of the Notes purchased by all holders holding outstanding Notes
(such fraction with respect to each holder is referred to as its
"REDEMPTION ALLOCATION PERCENTAGE", and such amount with respect to each
holder is referred to as its "PRO RATA REDEMPTION AMOUNT"); provided,
however that in the event that any holder's Pro Rata Redemption Amount
exceeds the outstanding Principal amount of such holder's Note, then such
excess Pro Rata Redemption Amount shall be allocated amongst the remaining
holders of Notes in accordance with the foregoing formula. In the event
that the initial holder of any Notes shall sell or otherwise transfer any
of such holder's Notes, the transferee shall be allocated a pro rata
portion of such holder's Redemption Allocation Percentage and Pro Rata
Redemption Amount.
- 14 -
(9) COMPANY'S RIGHT OF MANDATORY CONVERSION.
(a) MANDATORY CONVERSION. If at any time from and after the six (6)
month anniversary of the Exchange Date (the "MANDATORY CONVERSION
ELIGIBILITY DATE"), (i) the Weighted Average Price of the Common Stock
exceeds for each of any twenty (20) out of thirty (30) consecutive Trading
Days following the Mandatory Conversion Eligibility Date (the "MANDATORY
CONVERSION MEASURING PERIOD") $1.50 (as adjusted for any stock dividend,
stock split, stock combination or other similar transaction) and (ii) the
Equity Conditions shall have been satisfied or waived in writing by the
Holder as of both the Mandatory Conversion Notice Date and the Mandatory
Conversion Date (each, as defined below), the Company shall have the right
to require the Holder to convert all, or any portion, of the Conversion
Amount then remaining under this Note as designated in the Mandatory
Conversion Notice into fully paid, validly issued and nonassessable shares
of Common Stock in accordance with Section 3(c) hereof at the Conversion
Rate as of the Mandatory Conversion Date (as defined below) (a "MANDATORY
CONVERSION"). The Company may exercise its right to require conversion
under this Section 9(a) by delivering within not more than two (2) Trading
Days following the end of any such Mandatory Conversion Measuring Period a
written notice thereof by facsimile and overnight courier to all, but not
less than all, of the holders of Notes and the Transfer Agent (the
"MANDATORY CONVERSION NOTICE" and the date all of the holders received such
notice is referred to as the "MANDATORY CONVERSION NOTICE DATE"). The
Mandatory Conversion Notice shall be irrevocable. The Mandatory Conversion
Notice shall state (i) the Trading Day selected for the Mandatory
Conversion in accordance with Section 9(a), which Trading Day shall be at
least twenty (20) Business Days but not more than sixty (60) Business Days
following the Mandatory Conversion Notice Date (the "MANDATORY CONVERSION
DATE"), (ii) the aggregate Conversion Amount of the Notes subject to
mandatory conversion from all of the holders of the Notes pursuant to this
Section 9 (and analogous provisions under the Other Notes), (iii) the
number of shares of Common Stock to be issued to such Holder on the
Mandatory Conversion Date and (iv) an amount equal to the applicable Pro
Rata Amount that is released from the Cash Collateral Account for the
Holder in connection with such conversion. All Conversion Amounts converted
by the Holder after the Mandatory Conversion Notice Date shall reduce the
Conversion Amount of this Note required to be converted on the Mandatory
Conversion Date. The mechanics of conversion set forth in Section 3(c)
shall apply to any Mandatory Conversion as if the Company and the Transfer
Agent had received from the Holder on the Mandatory Conversion Date a
Conversion Notice with respect to the Conversion Amount being converted
pursuant to the Mandatory Conversion.
- 15 -
(b) PRO RATA CONVERSION REQUIREMENT. If the Company elects to cause a
conversion of any Conversion Amount of this Note pursuant to Section 9(a),
then it must simultaneously take the same action in the same proportion
with respect to the Other Notes. If the Company elects a Mandatory
Conversion of this Note pursuant to Section 9(a) (or similar provisions
under the Other Notes) with respect to less than all of the Conversion
Amounts of the Notes then outstanding, then the Company shall require
conversion of a Conversion Amount from each of the holders of the Notes
equal to the product of (I) the aggregate Conversion Amount of Notes which
the Company has elected to cause to be converted pursuant to Section 9(a),
multiplied by (II) the fraction, the numerator of which is the sum of the
aggregate Original Principal Amount of the Notes purchased by such holder
of outstanding Notes and the denominator of which is the sum of the
aggregate Original Principal Amount of the Notes purchased by all holders
holding outstanding Notes (such fraction with respect to each holder is
referred to as its "CONVERSION ALLOCATION PERCENTAGE," and such amount with
respect to each holder is referred to as its "PRO RATA CONVERSION AMOUNT");
provided, however, that in the event that any holder's Pro Rata Conversion
Amount exceeds the outstanding Principal amount of such holder's Note, then
such excess Pro Rata Conversion Amount shall be allocated amongst the
remaining holders of Notes in accordance with the foregoing formula. In the
event that the initial holder of any Notes shall sell or otherwise transfer
any of such holder's Notes, the transferee shall be allocated a pro rata
portion of such holder's Conversion Allocation Percentage and the Pro Rata
Conversion Amount.
(10) HOLDER'S RIGHT OF MANDATORY REDEMPTION. At any time from and after
September 30, 2009, the Holder shall have the right, in its sole discretion to
require that the Company redeem all or any portion of the Conversion Amount then
remaining under this Note (a "HOLDER MANDATORY REDEMPTION") by delivering
written notice thereof (a "HOLDER MANDATORY REDEMPTION NOTICE" and, collectively
with the Event of Default Redemption Notice, the Change of Control Redemption
Notice, the Cash Transaction Redemption Notice, the Ink Business Sale Redemption
Notice and the Company Optional Redemption Notice, the "REDEMPTION NOTICES" and
each a "REDEMPTION NOTICE") to the Company. The Holder Mandatory Redemption
Notice shall indicate the Conversion Amount the Holder is electing to have
redeemed (the "HOLDER MANDATORY REDEMPTION AMOUNT") on the Holder Mandatory
Redemption Date (as defined in Section 13). The portion of this Note subject to
redemption pursuant to this Section 10 shall be redeemed by the Company in cash
at a price equal to the Conversion Amount being redeemed (the "HOLDER MANDATORY
REDEMPTION PRICE" and, collectively with the Event of Default Redemption Price,
the Change of Control Redemption Price, the Cash Transaction Redemption Price,
the Ink Business Sale Redemption Price and the Company Optional Redemption
Price, the "REDEMPTION PRICES" and, each a "REDEMPTION PRICE"). Redemptions
required by this Section 10 shall be made in accordance with the provisions of
Section 13. Notwithstanding anything to the contrary in this Section 10, but
subject to Section 3(d), until the Holder receives the Holder Mandatory
Redemption Price the Holder Mandatory Redemption Amount may be converted, in
whole or in part, by the Holder into Common Stock pursuant to Section 3, and any
such conversion shall reduce the Holder Mandatory Redemption Amount in the
manner set forth by the Holder in the applicable Conversion Notice.
- 16 -
(11) NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, 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
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note.
(12) RESERVATION OF AUTHORIZED SHARES.
(a) RESERVATION. The Company initially shall reserve out of its
authorized and unissued Common Stock a number of shares of Common Stock for
each of the Notes equal to [130]% of the Conversion Rate with respect to
the Conversion Amount of each such Note as of the Issuance Date. So long as
any of the Notes are outstanding, the Company shall take all action
necessary to reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the
Notes, [130]% of the number of shares of Common Stock as shall from time to
time be necessary to effect the conversion of all of the Notes then
outstanding (without regard to any limitations on conversions) (the
"REQUIRED RESERVE AMOUNT"). The number of shares of Common Stock reserved
for conversions of the Notes shall be allocated pro rata among the
remaining holders of the Notes based on the principal amount of the Notes
held by each holder at the Closing (as defined in the Securities Purchase
Agreement) (the "AUTHORIZED SHARE ALLOCATION"). In the event that a holder
shall sell or otherwise transfer any of such holder's Notes, each
transferee shall be allocated a pro rata portion of such holder's
Authorized Share Allocation. Any shares of Common Stock reserved and
allocated to any Person which ceases to hold any Notes shall be allocated
to the remaining holders of Notes, pro rata based on the principal amount
of the Notes then held by such holders.
(b) INSUFFICIENT AUTHORIZED SHARES. If at any time while any of the
Notes remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its obligation
to reserve for issuance upon conversion of the Notes at least a number of
shares of Common Stock equal to the Required Reserve Amount (an "AUTHORIZED
SHARE FAILURE"), then the Company shall immediately take all action
necessary to increase the Company's authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve
Amount for the Notes then outstanding. Without limiting the generality of
the foregoing sentence, as soon as practicable after the date of the
occurrence of an Authorized Share Failure, but in no event later than
ninety (90) days after the occurrence of such Authorized Share Failure, the
Company shall hold a meeting of its shareholders for the approval of an
increase in the number of authorized shares of Common Stock. In connection
with such meeting, the Company shall provide each shareholder with a proxy
statement and shall use its best efforts to solicit its shareholders'
approval of such increase in authorized shares of Common Stock and to cause
its board of directors to recommend to the shareholders that they approve
such proposal.
- 17 -
(13) HOLDER'S REDEMPTIONS.
(a) MECHANICS. The Company shall deliver the applicable Event of
Default Redemption Price to the Holder within five (5) Business Days after
the Company's receipt of the Holder's Event of Default Redemption Notice.
If the Holder has timely submitted a Change of Control Redemption Notice in
accordance with Section 5(b), the Company shall deliver the applicable
Change of Control Redemption Price to the Holder concurrently with the
consummation of such Change of Control if such notice is received prior to
the consummation of such Change of Control and within ten (10) Business
Days after the Company's receipt of such notice otherwise. The Company
shall deliver the applicable Cash Transaction Redemption Price on the
applicable Cash Transaction Election Redemption Date. If the Holder submits
an Ink Business Sale Redemption Notice the Company shall deliver the
applicable Ink Business Sale Redemption Price to the Holder concurrently
with the consummation of such Ink Business Sale if such notice is received
prior to the consummation of such Ink Business Sale and within ten (10)
Business Days after the Company's receipt of such notice otherwise. The
Company shall deliver the applicable Company Optional Redemption Price on
the applicable Company Optional Redemption Date. The Company shall deliver
the applicable Holder Mandatory Redemption Price to the Holder within ten
(10) Business Days (the "HOLDER MANDATORY REDEMPTION DATE") after the
Company's receipt of the applicable Holder Mandatory Redemption Notice. In
the event of a redemption of less than all of the Conversion Amount of this
Note, the Company shall promptly cause to be issued and delivered to the
Holder a new Note (in accordance with Section 20(d)) representing the
outstanding Principal which has not been redeemed. In the event that the
Company does not pay the Redemption Price to the Holder within the time
period required, at any time thereafter and until the Company pays such
unpaid Redemption Price in full, the Holder shall have the option, in lieu
of redemption, to require the Company to promptly return to the Holder all
or any portion of this Note representing the Conversion Amount that was
submitted for redemption and for which the applicable Redemption Price
(together with any Late Charges thereon) has not been paid. Upon the
Company's receipt of such notice, (x) the Redemption Notice shall be null
and void with respect to such Conversion Amount, (y) the Company shall
immediately return this Note, or issue a new Note (in accordance with
Section 20(d)) to the Holder representing such Conversion Amount and (z)
the Conversion Price of this Note or such new Notes shall be adjusted to
the Conversion Price as in effect on the date on which the Redemption
Notice is voided. The Holder's delivery of a notice voiding a Redemption
Notice and exercise of its rights following such notice shall not affect
the Company's obligations to make any payments of Late Charges which have
accrued prior to the date of such notice with respect to the Conversion
Amount subject to such notice.
(b) REDEMPTION BY OTHER HOLDERS. Upon the Company's receipt of notice
from any of the holders of the Other Notes for redemption or repayment as a
result of an event or occurrence substantially similar to the events or
occurrences described in Section 4(b), Section 5(b), Section 5(d) or
Section 10 (each, an "OTHER REDEMPTION NOTICE"), the Company shall
immediately forward to the Holder by facsimile a copy of such notice. If
the Company receives a Redemption Notice and one or more Other Redemption
Notices, during the period beginning on and including the date which is
three (3) Business Days prior to the Company's receipt of the Holder's
Redemption Notice and ending on and including the date which is three (3)
Business Days after the Company's receipt of the Holder's Redemption Notice
and the Company is unable to redeem all principal, interest and other
amounts designated in such Redemption Notice and such Other Redemption
Notices received during such seven (7) Business Day period, then the
Company shall redeem a pro rata amount from each holder of the Notes
(including the Holder) based on the principal amount of the Notes submitted
for redemption pursuant to such Redemption Notice and such Other Redemption
Notices received by the Company during such seven (7) Business Day period.
- 18 -
(14) SECURITY. This Note and the Other Notes are secured to the extent and
in the manner set forth in the Security Documents (as defined in the Securities
Purchase Agreement).
(15) VOTING RIGHTS. The Holder shall have no voting rights as the holder of
this Note, except as required by law, including but not limited to the General
Corporate Law of the State of Delaware, and as expressly provided in this Note.
(16) COVENANTS.
(a) RANK. All payments due under this Note shall rank PARI PASSU with
all Other Notes and the April 2008 Notes and no other Indebtedness of the
Company or its Subsidiaries shall be senior to any such payments due under
this Note.
(b) INCURRENCE OF INDEBTEDNESS. So long as this Note is outstanding,
the Company shall not, and the Company shall not permit any of its
Subsidiaries to, directly or indirectly, incur or guarantee, assume or
suffer to exist any Indebtedness, other than (i) the Indebtedness evidenced
by this Note and the Other Notes and (ii) other Permitted Indebtedness.
(c) EXISTENCE OF LIENS. So long as this Note is outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries
to, directly or indirectly, allow or suffer to exist any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by the
Company or any of its Subsidiaries (collectively, "LIENS") other than
Permitted Liens.
(d) RESTRICTED PAYMENTS. The Company shall not, and the Company shall
not permit any of its Subsidiaries to, directly or indirectly, redeem,
defease, repurchase, repay or make any payments in respect of, by the
payment of cash or cash equivalents (in whole or in part, whether by way of
open market purchases, tender offers, private transactions or otherwise),
all or any portion of any Permitted Indebtedness (other than the Notes),
whether by way of payment in respect of principal of (or premium, if any)
or interest on, such Indebtedness if at the time such payment is due or is
otherwise made or, after giving effect to such payment, an event
constituting, or that with the passage of time and without being cured
would constitute, an Event of Default has occurred and is continuing.
(e) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until all of the
Notes have been converted, redeemed or otherwise satisfied in accordance
with their terms, the Company shall not, directly or indirectly, redeem,
repurchase or declare or pay any cash dividend or distribution (for these
purposes, cashless exercise of an option or warrant shall not be deemed a
redemption) on its capital stock without the prior express written consent
of the Required Holders.
- 19 -
(17) PARTICIPATION. The Holder, as the holder of this Note, shall be
entitled to such dividends paid and distributions made to the holders of Common
Stock to the same extent as if the Holder had converted this Note into Common
Stock (without regard to any limitations on conversion herein or elsewhere) and
had held such shares of Common Stock on the record date for such dividends and
distributions. Payments under the preceding sentence shall be made concurrently
with the dividend or distribution to the holders of Common Stock.
(18) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at
a meeting duly called for such purpose or the written consent without a meeting
of the Required Holders shall be required for any change or amendment to this
Note or the Other Notes.
(19) TRANSFER. This Note may be offered, sold, assigned or transferred by
the Holder without the consent of the Company, subject only to the provisions of
Section 2(f) of the Securities Purchase Agreement.
(20) REISSUANCE OF THIS NOTE.
(a) TRANSFER. If this Note is to be transferred, the Holder shall
surrender this Note to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Note (in accordance
with Section 20(d)), registered as the Holder may request, representing the
outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Note (in
accordance with Section 20(d)) to the Holder representing the outstanding
Principal not being transferred. The Holder and any assignee, by acceptance
of this Note, acknowledge and agree that, by reason of the provisions of
Section 3(c)(iii) and this Section 20(a), following conversion or
redemption of any portion of this Note, the outstanding Principal
represented by this Note may be less than the Principal stated on the face
of this Note.
(b) LOST, STOLEN OR MUTILATED NOTE. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the
Company in customary form and, in the case of mutilation, upon surrender
and cancellation of this Note, the Company shall execute and deliver to the
Holder a new Note (in accordance with Section 20(d)) representing the
outstanding Principal.
(c) NOTE EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal
office of the Company, for a new Note or Notes (in accordance with Section
20(d) and in principal amounts of at least $100,000) representing in the
aggregate the outstanding Principal of this Note, and each such new Note
will represent such portion of such outstanding Principal as is designated
by the Holder at the time of such surrender.
(d) ISSUANCE OF NEW NOTES. Whenever the Company is required to issue a
new Note pursuant to the terms of this Note, such new Note (i) shall be of
like tenor with this Note, (ii) shall represent, as indicated on the face
of such new Note, the Principal remaining outstanding (or in the case of a
new Note being issued pursuant to Section 20(a) or Section 20(c), the
Principal designated by the Holder which, when added to the principal
represented by the other new Notes issued in connection with such issuance,
does not exceed the Principal remaining outstanding under this Note
immediately prior to such issuance of new Notes), (iii) shall have an
issuance date, as indicated on the face of such new Note, which is the same
as the Issuance Date of this Note, (iv) shall have the same rights and
conditions as this Note, and (v) shall represent accrued Interest and Late
Charges on the Principal and Interest of this Note, from the Issuance Date.
- 20 -
(21) 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 and the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by the
Company 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 Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
(22) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
but not limited to, attorneys' fees and disbursements.
(23) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and all the Purchasers (as defined in the Securities
Purchase Agreement) and shall not be construed against any person as the drafter
hereof. The headings of this Note are for convenience of reference and shall not
form part of, or affect the interpretation of, this Note.
(24) 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.
- 21 -
(25) DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the applicable Conversion Rate or a Redemption
Price, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within five (5) Business Days of receipt of the
Conversion Notice or Redemption Notice or other event giving rise to such
dispute, as the case may be, to the Holder. If the Holder and the Company are
unable to agree upon such determination or calculation within three (3) Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within one (1) Business Day submit via
facsimile (a) the disputed determination of the Closing Bid Price, the Closing
Sale Price or the Weighted Average Price to an independent, reputable investment
bank selected by the Company and approved by the Holder or (b) the disputed
arithmetic calculation of the Conversion Rate or such Redemption Price to the
Company's independent, outside accountant. The Company, at the Company's
expense, shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
Holder of the results no later than five (5) Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
(26) NOTICES; PAYMENTS.
(a) NOTICES. Whenever notice is required to be given under this Note,
unless otherwise provided herein, such notice shall be given in accordance
with Section 9(f) of the Securities Purchase Agreement. The Company shall
provide the Holder with prompt written notice of all actions taken pursuant
to this Note, including in reasonable detail a description of such action
and the reason therefore. Without limiting the generality of the foregoing,
the Company will give written notice to the Holder (i) immediately upon any
adjustment of the Conversion Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least fifteen
(15) days prior to the date on which the Company closes its books or takes
a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation, provided in each case
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.
(b) PAYMENTS. Whenever any payment of cash is to be made by the
Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the
account of the Company and sent via overnight courier service to such
Person at such address as previously provided to the Company in writing
(which address, in the case of each of the Purchasers, shall initially be
as set forth on the Schedule of Buyers attached to the Securities Purchase
Agreement); provided that the Holder may elect to receive a payment of cash
via wire transfer of immediately available funds by providing the Company
with prior written notice setting out such request and the Holder's wire
transfer instructions. Whenever any amount expressed to be due by the terms
of this Note is due on any day which is not a Business Day, the same shall
instead be due on the next succeeding day which is a Business Day and, in
the case of any Interest Date which is not the date on which this Note is
paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of Interest due on such
date. Any amount of Principal or other amounts due under the Transaction
Documents, other than Interest, which is not paid when due shall result in
a late charge being incurred and payable by the Company in an amount equal
to interest on such amount at the rate of fifteen percent (15%) per annum
from the date such amount was due until the same is paid in full ("LATE
CHARGE").
- 22 -
(27) CANCELLATION. After all Principal, accrued Interest and other amounts
at any time owed on this Note has been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
(28) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreement.
(29) GOVERNING LAW. This Note shall be construed and enforced in accordance
with, and all questions concerning the construction, validity, interpretation
and performance of this Note shall be governed by, the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.
(30) CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:
(a) "APRIL 2008 NOTES" means those certain Senior Secured Convertible
Notes issued pursuant to the Amendment, Exchange and Purchase Agreements.
(b) "APPROVED STOCK PLAN" means any employee benefit plan which has
been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer, director
or consultant for services provided to the Company.
(c) "BLOOMBERG" means Bloomberg Financial Markets.
(d) "BUSINESS DAY" means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York or Israel are
authorized or required by law to remain closed.
(e) "CALENDAR QUARTER" means each of: the period beginning on and
including January 1 and ending on and including March 31; the period
beginning on and including April 1 and ending on and including June 30; the
period beginning on and including July 1 and ending on and including
September 30; and the period beginning on and including October 1 and
ending on and including December 31.
(f) "CAPITAL STOCK" means any and all shares, interests,
participations or other equivalents (however designated) of capital stock
of a corporation, any and all equivalent ownership interests in a Person
(other than a corporation), including partnership interests and membership
interests, and any and all warrants, rights or options to purchase or other
arrangements or rights to acquire any of the foregoing.
(g) "CASH COLLATERAL ACCOUNT" shall have the meaning set forth in the
Amendment, Exchange and Purchase Agreement.
- 23 -
(h) "CASH COLLATERAL RELEASE NOTICE" shall have the meaning set forth
in the Amendment, Exchange and Purchase Agreement.
(i) "CASH TRANSACTION" means any Change of Control with a Successor
Entity that is (i) unaffiliated with the Company at the time of the
proposed Change of Control and (ii) not a Public Successor Entity, which
Cash Transaction is consummated on an arm's length basis at a time that the
Equity Conditions are satisfied and pursuant to which the holders of the
Common Stock are to receive consideration consisting solely of cash.
(j) "CHANGE OF CONTROL" means any Fundamental Transaction other than
(i) any reorganization, recapitalization or reclassification of the Common
Shares in which holders of the Company's voting power immediately prior to
such reorganization, recapitalization or reclassification continue after
such reorganization, recapitalization or reclassification to hold publicly
traded securities and, 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, (ii) pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of the
Company, or (iii) an Ink Business Sale.
(k) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported
by Bloomberg, or, if the Principal Market begins to operate on an extended
hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or last trade
price, respectively, of such security prior to 4:00:00 p.m., New York Time,
as reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing
bid price or last trade price, respectively, of such security on the
principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade price, respectively, of
such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively,
of any market makers for such security as reported in the "pink sheets" by
Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing
Bid Price or the Closing Sale Price, as the case may be, of such security
on such date shall be the fair market value as mutually determined by the
Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 25. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock
combination or other similar transaction during the applicable calculation
period.
- 24 -
(l) "COMPANY REDEMPTION PREMIUM" means (i) for a Company Optional
Redemption or an Ink Business Sale, as applicable, consummated prior to the
three (3) month anniversary of the Exchange Date, 105%, (ii) for a Company
Optional Redemption or an Ink Business Sale, as applicable, consummated at
or following the three (3) month anniversary of the Exchange Date and prior
to the six (6) month anniversary of the Exchange Date, 110%, (iii) for a
Company Optional Redemption or an Ink Business Sale, as applicable,
consummated at or following the six (6) month anniversary of the Exchange
Date and prior to the nine (9) month anniversary of the Exchange Date,
115%, (iv) for a Company Optional Redemption or an Ink Business Sale, as
applicable, consummated at or following the nine (9) month anniversary of
the Exchange Date and prior to the one (1) year anniversary of the Exchange
Date, 120% and (v) for a Company Optional Redemption or an Ink Business
Sale, as applicable, consummated at the one (1) year anniversary of the
Exchange Date or any time thereafter, 125%.
(m) "CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.
(n) "ELIGIBLE MARKET" means The New York Stock Exchange, Inc., the
American Stock Exchange, the Nasdaq National Market or The Nasdaq SmallCap
Market.
(o) "EQUITY CONDITIONS" means: (i) on each day during the Mandatory
Conversion Measuring Period or the period thirty (30) Trading Days prior to
a Cash Transaction Election Redemption Date, as the case may be, (as
applicable, the "EQUITY CONDITIONS MEASURING PERIOD"), all shares of Common
Stock issuable upon conversion of the Notes shall be eligible for sale
pursuant to Rule 144 without restriction or limitation, including without
the requirement to be subject to Rule 144(c)(1), and without the need for
registration under any applicable federal or state securities laws; (ii) on
each day during the Equity Conditions Measuring Period, the Common Stock is
designated for quotation on the Principal Market or an Eligible Market and
shall not have been suspended from trading on such exchange or market
(other than suspensions of not more than two (2) days and occurring prior
to the applicable date of determination due to business announcements by
the Company) nor shall delisting or suspension by such exchange or market
been threatened or pending either (A) in writing by such exchange or market
or (B) by falling below the minimum listing maintenance requirements of
such exchange or market; (iii) during, the Equity Conditions Measuring
Period the Company shall have delivered Conversion Shares upon conversion
of the Notes to the holders on a timely basis as set forth in Section
3(c)(ii) hereof (and analogous provisions under the Other Notes); (iv) any
applicable shares of Common Stock to be issued in connection with the event
requiring determination may be issued in full without violating Section
3(d) hereof and the rules or regulations of the Principal Market or any
applicable Eligible Market; (v) during the Equity Conditions Measuring
Period, the Company shall not have failed to timely make any payments
within five (5) Business Days of when such payment is due pursuant to any
Transaction Document; (vi) during the Equity Conditions Measuring Period,
there shall not have occurred either (A) the public announcement of a
pending, proposed or intended Fundamental Transaction which has not been
abandoned, terminated or consummated or (B) an Event of Default or an event
that with the passage of time or giving of notice would constitute an Event
of Default; (vii) the Company shall have no knowledge of any fact that
would cause any shares of Common Stock issuable upon conversion of the
Notes not to be eligible for sale pursuant to Rule 144 without restriction
or limitation, including without the requirement to be subject to Rule
144(c)(1), and without the need for registration under any applicable
federal or state securities laws; and (viii) the Company otherwise shall
have been in material compliance with and shall not have materially
breached any provision, covenant, representation or warranty of any
Transaction Document.
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(p) "EXCLUDED SECURITIES" means any Common Stock issued or issuable:
(i) in connection with any Approved Stock Plan; (ii) upon conversion of the
Notes or the April 2008 Notes and upon exercise of the Warrants issued
pursuant to the Amendment, Exchange and Purchase Agreement; (iii) in
connection with strategic alliances, acquisitions and as equity kickers in
lease and financing transactions, the primary purpose of which is not to
raise equity capital and in an amount not to exceed 750,000; (iv) pursuant
to a bona fide firm commitment underwritten public offering with a
nationally recognized underwriter which generates gross proceeds to the
Company in excess of $17,500,000 (other than an "at-the-market offering" as
defined in Rule 415(a)(4) under the 1933 Act and "equity lines"); (v) upon
conversion of any Options or Convertible Securities which are outstanding
on the day immediately preceding the Subscription Date, provided that the
terms of such Options or Convertible Securities are not amended, modified
or changed on or after the Subscription Date; and (vi) in an amount not to
exceed 250,000 shares (as adjusted for stock splits, stock dividends and
similar events) in connection with issuances covered by (i) through (v)
above.
(q) "FUNDAMENTAL TRANSACTION" means that (A) the Company shall,
directly or indirectly, in one or more related transactions, (i)
consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person or Persons, or (ii) sell, assign,
transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company to another Person, or (iii) allow
another Person to make a purchase, tender or exchange offer that is
accepted by the holders of more than 50% of the outstanding shares of
Voting Stock (not including any shares of Voting Stock held by the Person
or Persons making or party to, or associated or affiliated with the Persons
making or party to, such purchase, tender or exchange offer), or (iv)
consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other
Person acquires more than 50% of the outstanding shares of Voting Stock
(not including any shares of Voting Stock held by the other Person or other
Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock purchase agreement or other business
combination), or (v) reorganize, recapitalize or reclassify its Common
Stock or (B) any "person" or "group" (as these terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% of the aggregate Voting Stock of the
Company.
(r) "GAAP" means United States generally accepted accounting
principles, consistently applied.
(s) "HOLDER PRO RATA AMOUNT" means a fraction (i) the numerator of
which is the Principal amount of this Note on the Issuance Date and (ii)
the denominator of which is the aggregate principal amount of all Notes
issued to the initial purchasers pursuant to the Securities Purchase
Agreement on the Issuance Date.
(t) "INITIAL CLOSING DATE" shall have the meaning set forth in the
Securities Purchase Agreement, which date is the date the Company initially
issued Notes pursuant to the terms of the Securities Purchase Agreement.
- 26 -
(u) "INK BUSINESS" means the Company's product line consisting of
customizable security inks suitable for digital and impact printing on a
wide variety of surfaces or substrates, including, without limitation,
holograms for line-of-sight detection.
(v) "INK BUSINESS SALE" means any (i) assignment, conveyance, transfer
or other disposition to (including by way of any assignment, license or
granting of rights of such business, technologies and/or assets), or any
exchange of property with, any Person, in one or more transactions (whether
or not related) of any business, technologies and/or assets of the Company
or any Subsidiary relating to the Ink Business or (ii) any consolidation or
merger, or the sale or issuance of any Capital Stock, directly or
indirectly, of any Subsidiary or Subsidiaries of the Company engaged in the
Ink Business.
(w) "NET CASH PROCEEDS" means with respect to any Ink Business Sale,
the amount of cash received (directly or indirectly) from time to time
(whether as initial consideration or through the payment or disposition of
deferred consideration) by or on behalf of Company or any Subsidiary, in
connection therewith after deducting therefrom only (A) reasonable expenses
related thereto incurred by the Company or such Subsidiary in connection
therewith, (B) transfer taxes paid to any taxing authorities by such Person
or such Subsidiary in connection therewith, and (C) net income taxes to be
paid in connection with such Ink Business Sale (after taking into account
any tax credits or deductions and any tax sharing arrangements).
(x) "OPTIONS" means any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.
(y) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market, or,
if there is more than one such Person or Parent Entity, the Person or
Parent Entity with the largest public market capitalization as of the date
of consummation of the Fundamental Transaction.
(z) "PERMITTED INDEBTEDNESS" means (A) the Indebtedness evidenced by
this Note and the Other Notes, (B) the Indebtedness evidenced by the April
2008 Notes, (C) Indebtedness incurred by the Company that is made expressly
subordinate in right of payment to the Indebtedness evidenced by this Note,
as reflected in a written agreement acceptable to the Holder and approved
by the Holder in writing, and which Indebtedness does not provide at any
time for (1) the payment, prepayment, repayment, repurchase or defeasance,
directly or indirectly, of any principal or premium, if any, thereon until
ninety-one (91) days after the Maturity Date or later and (2) total
interest and fees at a rate in excess of six percent (6.0%), (D)
Indebtedness secured by Permitted Liens, (E) extensions, refinancings and
renewals of any items of Permitted Indebtedness set forth in subclause (D),
provided that the principal amount is not increased or the terms modified
to impose more burdensome terms upon the Company or its Subsidiary, as the
case may be.
- 27 -
(aa) "PERMITTED LIENS" means (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP, (ii)
any statutory Lien arising in the ordinary course of business by operation
of law with respect to a liability that is not yet due or delinquent, (iii)
any Lien created by operation of law, such as materialmen's liens,
mechanics' liens and other similar liens, arising in the ordinary course of
business with respect to a liability that is not yet due or delinquent or
that are being contested in good faith by appropriate proceedings, (iv)
Liens (A) upon or in any personal property or equipment acquired or held by
the Company or any of its Subsidiaries to secure the purchase price of such
personal property or equipment or indebtedness incurred solely for the
purpose of financing the acquisition or lease of such personal property or
equipment, or (B) existing on such personal property or equipment at the
time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
personal property or equipment, (v) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of
the type described in clauses (i) and (iv) above, provided that any
extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the
Indebtedness being extended, renewed or refinanced does not increase, (vi)
leases or subleases and licenses and sublicenses granted to others in the
ordinary course of the Company's business, not interfering in any material
respect with the business of the Company and its Subsidiaries taken as a
whole, (vii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payments of custom duties in connection with the
importation of goods, (viii) Liens arising from judgments, decrees or
attachments in circumstances not constituting an Event of Default under
Section 4(a)(ix), (ix) Liens of the Cash Collateral Bank on the Cash
Collateral Account, subject to the terms of the Account Control Agreement
and (x) Liens securing this Note, the Other Notes and the April 2008 Notes.
(bb) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(cc) "PRINCIPAL MARKET" means the OTC Bulletin Board.
(dd) "PRO RATA AMOUNT" shall have the meaning set forth in the
Amendment, Exchange and Purchase Agreement.
(ee) "REDEMPTION PREMIUM" means (i) in the case of the Events of
Default described in Section 4(a)(i) - (v) and (viii) - (xi), 125% or (ii)
in the case of the Events of Default described in Section 4(a)(vi) - (vii),
100%.
(ff) "REGISTRATION RIGHTS AGREEMENT" means that certain registration
rights agreement between the Company and the initial holders of the Notes
relating to, among other things, the registration of the resale of the
Common Stock issuable upon conversion of the Notes.
(gg) "REQUIRED HOLDERS" means the holders of Notes representing at
least a majority of the aggregate principal amount of the Notes then
outstanding.
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(hh) "SEC" means the United States Securities and Exchange Commission.
(ii) "SECURITIES PURCHASE AGREEMENT" means that certain securities
purchase agreement dated the Subscription Date by and among the Company and
the initial holders of the Notes pursuant to which the Company issued the
Notes, as may be amended from time to time in accordance with its terms,
including, without limitation pursuant to the Amendment, Exchange and
Purchase Agreements.
(jj) "SERIES B WARRANTS" has the meaning ascribed to such term in the
Securities Purchase Agreement, and shall include all successors thereto.
(kk) "SUBSCRIPTION DATE" means September 30, 2005.
(ll) "SUCCESSOR ENTITY" means the Person, which may be the Company,
formed by, resulting from or surviving any Fundamental Transaction or the
Person with which such Fundamental Transaction shall have been made,
provided that if such Person is not a publicly traded entity whose common
stock or equivalent equity security is quoted or listed for trading on an
Eligible Market, Successor Entity shall mean such Person's Parent Entity.
(mm) "TRADING DAY" means any day on which the Common Stock is traded
on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock is then traded;
provided that "Trading Day" shall not include any day on which the Common
Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or
market does not designate in advance the closing time of trading on such
exchange or market, then during the hour ending at 4:00:00 p.m., New York
Time).
(nn) "VOTING STOCK" of a Person means capital stock of such Person of
the class or classes pursuant to which the holders thereof have the general
voting power to elect, or the general power to appoint, at least a majority
of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
- 29 -
(oo) "WEIGHTED AVERAGE PRICE" means, for any security as of any date,
the dollar volume-weighted average price for such security on the Principal
Market during the period beginning at 9:30:01 a.m., New York Time (or such
other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other time
as the Principal Market publicly announces is the official close of
trading) as reported by Bloomberg through its "Volume at Price" functions,
or, if the foregoing does not apply, the dollar volume-weighted average
price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30:01
a.m., New York Time (or such other time as such market publicly announces
is the official open of trading), and ending at 4:00:00 p.m., New York Time
(or such other time as such market publicly announces is the official close
of trading) as reported by Bloomberg, or, if no dollar volume-weighted
average price is reported for such security by Bloomberg for such hours,
the average of the highest closing bid price and the lowest closing asked
price of any of the market makers for such security as reported in the
"pink sheets" by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.). If the Weighted Average Price cannot be calculated for a security on
a particular date on any of the foregoing bases, the Weighted Average Price
of such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 25. All such determinations
to be appropriately adjusted for any stock dividend, stock split, stock
combination or other similar transaction during the applicable calculation
period.
(31) DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries, the Company
shall within one (1) Business Day after any such receipt or delivery publicly
disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains
material, nonpublic information relating to the Company or its Subsidiaries, the
Company so shall indicate to such Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as
of the Issuance Date set out above.
INKSURE TECHNOLOGIES INC.
By: ___________________________
Name:
Title:
EXHIBIT I
INKSURE TECHNOLOGIES INC.
CONVERSION NOTICE
Reference is made to the Amended and Restated Senior Secured Convertible Note
(the "NOTE") issued to the undersigned by InkSure Technologies Inc. (the
"COMPANY"). In accordance with and pursuant to the Note, the undersigned hereby
elects to convert the Conversion Amount (as defined in the Note) of the Note
indicated below into shares of Common Stock, par value $0.01 per share (the
"COMMON STOCK"), as of the date specified below.
Date of Conversion: ___________________________________________________
Aggregate Conversion Amount to be converted: __________________________
Please confirm the following information:
Conversion Price: _____________________________________________________
Number of shares of Common Stock to be issued: ________________________
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to: _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Facsimile Number: _____________________________________________________
Authorization: ________________________________________________________
By: __________________________________________________________
Title: ___________________________________________________
Dated: _________________________________________________________________________
Account Number: _______________________________________________________
(if electronic book entry transfer)
Transaction Code Number: ______________________________________________
(if electronic book entry transfer)
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
Pacific Stock Transfer Co. to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated April
[__], 2008 from the Company and acknowledged and agreed to by Pacific Stock
Transfer Co.
INKSURE TECHNOLOGIES INC.
By: ___________________________
Name:
Title: