Exhibit 10.18
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Execution Copy
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS (COLLECTIVELY, THE
"ACTS"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER ALL APPLICABLE ACTS OR UNLESS AN
OPINION OF COUNSEL IS DELIVERED TO THE ISSUER IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
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U.S. $250,000 February 1, 2006
FOR VALUE RECEIVED, RemoteMDX, Inc., a Utah corporation (the
"Company"), hereby promises to pay to the order of Clydesdale Partners, LLC (the
"Lender"), or its successors or assigns, subject to this Note's conversion
pursuant to Section 1, on the earlier to occur of (a) February 28, 2006, (b) the
initial closing of the Company's contemplated sale (a "Contemplated Sale") of a
class of stock to be designated as Series C Convertible Preferred Stock, $.0001
par value per share ("Series C Preferred"), or (c) an Event of Acceleration (as
hereinafter defined) (the "Maturity Date"), the principal amount of U.S.
$250,000 (the "Principal Amount"), together with any accrued and unpaid interest
on the Principal Amount under this convertible promissory note (this "Note") at
the per annum rate of 8% (calculated on the basis of a 365 day year), compounded
weekly, for the period beginning on the date hereof and continuing until the
Principal Amount shall have become due and payable or this Note having been
converted in full.
Except as otherwise expressly provided in Section 3 hereof, all
payments of principal and interest on this Note shall be in cash, in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for payment of public and private debts. Payments of principal and
interest are to be made by wire transfer to the account designated in writing by
the Lender and provided to the Company not less than three business days prior
to the date payment is due or at such other place as the Lender shall have
notified the Company in writing at least three business days before such payment
is due. All payments under this Note shall be paid by the Company without
withholding or deduction of any tax or other charge. For purposes of this Note,
a business day shall be any day other than a Saturday, Sunday or any day in
which the banking and commercial lending institutions are generally closed to
the public. Interest on this Note shall be paid within 5 days of the end of each
calendar month until the Maturity Date.
1. Conversion.
1.1 Optional Conversion.
(a) The outstanding Principal Amount under this Note, plus
any accrued but unpaid interest thereon shall be convertible in whole or in
part, at Lender's sole option, into shares of Series C Preferred Stock in the
Contemplated Sale, at a conversion price equal to the price per share of Series
C Preferred Stock sold in the Contemplated Sale (the "Conversion Price"),
subject to adjustment in accordance with Section 4 hereof.
(b) The Company covenants and agrees that so long as this
Note is outstanding and the Contemplated Sale has occurred, the Company shall
have authorized and reserved a sufficient number of shares of Series C Preferred
Stock to enable the Lender to convert this Note into Series C Preferred Stock.
The Company agrees that its issuance of this Note shall constitute full
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authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares upon the
conversion of this Note.
1.2 Procedure. Subject to the terms hereof, the Lender may effect
the conversion of this Note, in whole or in part, at any time, or from time to
time, by the surrender of this Note, together with an executed notice of
conversion (the "Notice of Conversion") in the form attached hereto as Exhibit
A, to the Company at it usual address. The person in whose name any certificate
representing shares or securities shall be issuable upon conversion of this Note
shall be deemed to have become the holder of record of, and shall be treated for
all purposes as the record holder of, the shares or securities issuable
hereunder (and such shares or securities shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which such
surrender is made. In the event only a portion of this Note is converted, the
Company shall at its sole expense and as promptly as practicable, issue a
replacement Note in identical form but in a Principal Amount equal to the
portion of the Principal Amount not so converted and deliver such replacement
Note as directed by the Lender. As used in this Note, the term "person" means
any individual or any corporation, partnership, trust, limited liability company
or other entity or organization of any kind.
2. Optional Prepayment. The Company shall have the right to prepay the
Principal Amount and any accrued interest thereon in whole without penalty or
premium at any time. Upon any notice of prepayment, Lender shall have the option
to convert all but not less than all of the Principal Amount then outstanding
under this Note, plus any accrued but unpaid interest thereon, pursuant to
Section 1. Any prepayment amount shall be applied first to any accrued but
unpaid interest on the outstanding Principal Amount and then to the Principal
Amount.
3. Events of Acceleration.
The entire unpaid Principal Amount and accrued interest thereon shall
become immediately due and payable upon the occurrence of one or more of the
following events (each an "Event of Acceleration"):
(a) the failure of the Company to pay when due any
Principal Amount or interest accrued thereon within five days of the date such
payment is due;
(b) the Company materially breaches any representation or
warranty contained in this Note, or fails to comply in any material respect,
with any of the terms or covenants of the Note or any other agreements entered
into by the Company in connection with the Note;
(c) the Company (i) fails to make any payment when due
under the terms of any bond, debenture, note or other evidence of indebtedness
or (ii) defaults in the observance or performance of any other agreement, term
or condition contained in any such bond, debenture, note or other evidence of
indebtedness or other material agreement of the Company; provided, however, that
the fact that the Company has not yet filed one or more registration statements
with the SEC pursuant to its commitments to certain investors under the terms of
registration rights agreements disclosed or made reference to in the Company's
Current Reports on Forms 8-K filed with the SEC on November 2 and November 23,
2005, shall not constitute an Event of Acceleration hereunder.
(d) the beginning of involuntary proceedings against the
Company under federal bankruptcy law or under any applicable federal or state
bankruptcy, insolvency, or similar law, or the beginning of proceedings seeking
the appointment of a receiver, liquidator, assignee, custodian, trustee,
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sequestrator (or similar official) of the Company or for any substantial part of
the Company's property, or the beginning of proceedings seeking an order winding
up or liquidating the affairs of the Company and the continuance of such
proceedings for a period of thirty (30) days;
(e) the beginning by the Company of a voluntary case under
federal bankruptcy law, or any other applicable federal or state bankruptcy,
insolvency, or other similar law, or the consent by the Company to the
appointment of, or taking possession by, a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of the Company or
for any substantial part of the Company's property, or the Company making any
assignment for the benefit of creditors, or the failure of the Company generally
to pay the Company's debts as they become due, or the taking of formal action by
the Company in furtherance of any of the foregoing;
(f) if any judgment against the Company or any garnishment,
attachment or other levy against the property of the Company for an amount in
excess of Fifty Thousand Dollars ($50,000) in the aggregate remains unpaid,
unstayed on appeal, undischarged, unbonded, or undismissed for a period of
thirty (30) days, unless covered by insurance;
The Company shall give the Lender written notice of the occurrence of
any of the events set forth above in Sections 3(a) through 3(h) promptly (but in
no event more than one business day) after the occurrence of any of such events.
Upon the occurrence of any Event of Acceleration, interest shall begin
to accrue on any unpaid Principal Amount and accrued interest at the rate of 15%
per annum (or such lesser amount as may not be prohibited by applicable law),
compounded daily.
4. Certain Adjustments. The Conversion Price and the number and type of
shares into which this Note may be converted under Section 1.1(a) shall be
subject to adjustment in accordance with the following provisions:
4.1 Adjustments for Split, Subdivision or Combination of Shares.
In the event the outstanding shares of Series C Preferred Stock or Common Stock,
$.0001 par value per share ("Common Stock") shall be subdivided (by stock
dividend, stock split, or otherwise), into a greater number of shares of Series
C Preferred Stock or Common Stock, the Conversion Price then in effect shall,
concurrently with the effectiveness of such subdivision, be proportionately
decreased. In the event the outstanding shares of Series C Preferred Stock or
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Series C Preferred Stock or Common
Stock, the Conversion Price then in effect shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
increased.
4.2 Adjustments for Distributions. In the event the Company at any
time or from time to time makes, or fixes a record date for the determination of
holders of Series C Preferred Stock or Common Stock entitled to receive, any
distribution, provision shall be made so that the Lender shall receive upon
conversion of the Note under Section 1, in addition to the number of shares of
Series C Preferred Stock receivable thereupon, the amount of securities or
assets of the Company which the Lender would have received had the Note been
converted into Series C Preferred Stock on the date of such event under Sections
1, and had the Lender thereafter, during the period from the date of such event
to and including the date of conversion, retained such securities or assets
receivable by it as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 4 with respect to
the rights of the Lender.
4.3 Adjustments for Reclassification, Exchange and Substitution.
If the Series C Preferred Stock issuable upon conversion of the Note under
Sections 1 shall be changed into the same or a different number of shares of any
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other class or classes of stock or other securities or property of the Company,
whether by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for in Section 4.1), then and in
each such event provision shall be made so that the Lender shall thereafter be
entitled to receive, upon conversion of the Note under Sections 1, the number of
shares of stock or other securities or property of the Company or otherwise,
receivable upon such reorganization, reclassification or other transaction by a
holder of the number of shares of Series C Preferred Stock into which this Note
could have been converted under Sections 1, immediately prior to such
reorganization, reclassification or other transaction. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the Lender after the
reorganization, reclassification or other transaction to the end that the
provisions of this Section 4 (including adjustments of the Conversion Price then
in effect and the number of shares purchasable upon conversion of the Note under
Sections 1) shall be applicable after that event as nearly equivalent as may be
practicable.
4.4 No Impairment. The Company shall not, through any
reorganization, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company but shall at all times in
good faith assist in the carrying out of all the provisions of Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the Lender against impairment.
4.5 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to Section 4.1, the
Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Lender a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based.
5. Security. The Company hereby grants to the Lender to secure the
payment and performance of the indebtedness evidenced by this Note, a continuing
perfected first priority security interest in and lien on all of the Company's
property and assets, whether real, personal or mixed, or intangible or tangible,
wherever located, whether now owned or hereafter acquired or arising, all
proceeds and products thereof and all parts thereof and all accessions thereto
("Collateral").
6. Representations and Warranties of Company.
6.1 The Company is a corporation duly organized, validly
subsisting, and in good standing under the laws of the State of Utah and has all
requisite corporate power and authority to carry on its business as now
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties taken as a whole (a
"Material Adverse Effect").
6.2 The Company has full corporate power and authority to execute
and deliver this Note and each other document or instrument contemplated as
being executed and delivered by the Company in connection with the Note (the
"Transaction Documents") and to carry out and perform its obligations under the
terms of the Transaction Documents and the transactions contemplated hereby and
thereby and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by the Company of the Transaction Documents to be
executed by it in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, have been duly and validly authorized by all
necessary corporate action on the part of the Company. Each Transaction Document
to be executed by the Company in connection herewith has been duly executed and
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delivered by the Company, and, when duly executed and delivered by the other
parties hereto or thereto, shall constitute legal, valid and binding obligations
of the Company, enforceable against it in accordance with their terms subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
6.3 There is no action, suit or proceeding, or, to the Company's
knowledge, investigation pending or currently threatened against the Company or
any subsidiary of the Company.
6.4 The Company is not in violation or default of any provision of
its Articles of Incorporation or the Bylaws of the Company, or of any
instrument, judgment, order, writ, decree or contract to which it is a party or
by which it is bound, or, to its knowledge, of any provision of any federal or
state statute, rule or regulation applicable to the Company. The execution,
delivery and performance of the Transaction Documents and the consummation of
the transactions contemplated thereby will not result in any such violation or
be in conflict with or constitute, with or without the passage of time and
giving of notice, either a material default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any material lien, charge or encumbrance upon any assets of
the Company or the suspension, revocation, impairment, forfeiture, or
non-renewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations or any of its assets or
properties.
6.5 The Company is not a party to or bound by any agreement of
guaranty, indemnification, assumption or endorsement or any like commitment of
the obligations, liabilities (contingent or otherwise) or indebtedness of any
other person, corporation or other entity, except in the ordinary course of
business.
6.6 The Company is the owner of the Collateral and that, other
than liens for taxes not yet due and payable, no other person or entity has any
right, title, claim or interest (by way of lien or otherwise) in, against or to
the Collateral. This Note creates a valid security interest in the Collateral
securing the payment of the indebtedness evidenced by this Note. No
authorization, approval or other action by, and no notice to or filing with any
governmental authority or regulatory body is required for the grant by the
Company of the security interest granted hereby or for the execution, delivery
or performance of any of the Transaction Documents by the Company.
7. Representations and Warranties of Lender.
7.1 Lender has full corporate power and authority to execute and
deliver this Note and each other document or instrument contemplated as being
executed and delivered by Lender in connection with the Note (the "Transaction
Documents"), to make its representations and warranties herein, and to otherwise
enter into this Note and the documents and transactions contemplated hereby and
thereby . The execution and delivery by the Lender of the Transaction Documents
to be executed by it in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action on the part of the Lender. Each
Transaction Document to be executed by the Lender in connection herewith has
been duly executed and delivered by the Lender, and, when duly executed and
delivered by the other parties hereto or thereto, shall constitute legal, valid
and binding obligations of the Lender, enforceable against it in accordance with
their terms subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity).
7.2 Lender is an "Accredited Investor," as that term is defined in
Rule 501(a) of Regulation D promulgated under the Act, because it is one or more
of the following:
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(a) an organization described in Section 501(c)(3) of the
Internal Revenue Code, a corporation, a Massachusetts or similar business trust,
or a partnership not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000.
(b) any other person or entity described as an "Accredited
Investor" in Rule 501(a) of Regulation D promulgated under the Act.
7.3 Lender is acquiring the Shares for investment, with no present
intention of distributing, reselling or otherwise disposing of all or any
portion of the same.
7.4 Lender is the sole and true party in interest, and is
acquiring the Shares for its own account. No other person has any direct or
indirect beneficial ownership in this Note.
7.5 Lender has experience in evaluating and making speculative
investments, and has the capacity to protect its interests in connection with
the acquisition of the Note and any shares issuable upon conversion of the Note.
Lender has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of this transaction.
7.6 This offer to acquire the Note and the shares issuable upon
conversion thereof was directly communicated to Lender in such a manner that
Lender was able to ask questions of and receive answers from the Company or a
person acting on its behalf concerning the terms and conditions of the
transaction. Lender was at no time presented with or solicited by or through any
leaflet, public promotional meeting, television advertisement, or any other form
of general advertising.
7.7 Lender has received and reviewed the following documents and
information from RemoteMDx: (a) RemoteMDx's Annual Report on Form 10-KSB for the
fiscal year ended September 30, 2004; (b) RemoteMDx's Quarterly Reports on Form
10-QSB for the quarterly periods ended since the date of the Annual Report; (c)
any Current Reports on Form 8-K filed by RemoteMDx since the date of the Annual
Report; and (d) RemoteMDx's Proxy Statement disseminated to its shareholders in
connection with RemoteMDx's Annual Meeting of Shareholders held on May 19, 2004.
Lender understands the various risks of an investment in RemoteMDx as proposed
herein and can afford to bear such risks, including, without limitation, the
risks of losing the entire investment.
8. General.
8.1 Collection. If any action is instituted to collect this Note,
the Company promises to pay to Lender all reasonable costs and expenses
(including reasonable attorneys' fees) incurred in connection with such action.
8.2 Amendments and Waivers. (a) The parties may, by mutual
agreement, amend this Note in any respect, and any party, as to such party, may
(i) extend the time for the performance of any of the obligations of the other
party and (ii) waive compliance by the other party with any of the agreements
contained herein and performance of any obligations by the other party. To be
effective, any such amendment or waiver must be in writing and be signed by the
party providing such waiver or extension, as the case may be. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies which any party may otherwise have at law or in equity. The waiver by
any party hereto of any breach of any provision of this Note shall not operate
or be construed as a waiver of any subsequent breach, whether or not similar.
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8.3 Conflicting Agreements. In the event of any inconsistencies
between the terms of this Note and the terms of any other document related to
the loan evidenced by this Note, the terms of this Note shall prevail.
8.4 Severability. The unenforceability or invalidity of any
provision or provisions of this Note as to any persons or circumstances shall
not render that provision or those provisions unenforceable or invalid as to any
other provisions or circumstances, and all provisions hereof, in all other
respects, shall remain valid and enforceable.
8.5 Governing Law. This Note shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts
applicable to agreements made and to be performed entirely within the
Commonwealth of Massachusetts, without regard to the conflicts of law principles
thereof. The Company and the Lender irrevocably consent to the jurisdiction of
the courts of the Commonwealth of Massachusetts or the federal courts located in
that state in connection with any lawsuit, action or proceeding arising out of
or relating to this Note.
8.6 Presentment, Etc. The Company hereby expressly waives
presentment, demand for payment, dishonor, notice of dishonor, protest, notice
of protest, and any other formality.
8.7 Waivers. The nonexercise by the Lender of any of its rights
hereunder in any particular instance shall not constitute a waiver thereof in
that or any subsequent instance.
8.8 Transferability. Neither the Lender nor the Company may assign
or otherwise transfer its rights or obligations under this Note without the
prior, written consent of the other party hereto, except that, subject to
compliance with applicable federal and state securities laws, the Lender may
transfer to an affiliate of Lender; provided such permitted transferee
acknowledges the securities law restrictions on transferability.
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IN WITNESS WHEREOF, the Company and Lender have caused their duly
authorized officers to execute this Note as of the date first written above.
CLYDESDALE PARTNERS, LLC
By:
Name:
Title:
REMOTEMDX, INC.
By:
Name:
Title:
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EXHIBIT A
NOTICE OF CONVERSION
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To: RemoteMDX, Inc.
Attention: Chief Executive Officer
The undersigned hereby elects to convert all or a portion of this Note
into ______________ shares of Series C Preferred Stock of RemoteMDX, Inc.
pursuant to the terms of this Note.
Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
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(Name)
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(Address)
The undersigned hereby represents and warrants that the aforesaid
shares are being acquired for the account of the undersigned for investment and
not with a view to, or for resale, in connection with the distribution thereof
in a manner that would violate the Securities Act.
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(Signature and Date)
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