NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
August 22, 2001
$7,500,000
UNIVERSAL DISPLAY CORPORATION
CONVERTIBLE PROMISSORY NOTE
DUE AUGUST 22, 2004
FOR VALUE RECEIVED, Universal Display Corporation, a Pennsylvania
corporation having its principal place of business at 375 Phillips Boulevard,
Ewing, New Jersey, 08618 (the "Company") promises to pay to the order of Pine
Ridge Financial, Inc., or its registered assigns (the "Holder"), the principal
sum of Seven Million Five Hundred Thousand Dollars ($7,500,000) on the Maturity
Date (as defined in Section 3) and to pay interest thereon at a rate equal to
the rate of interest paid from time to time on money market accounts held at
First Union Bank, payable in arrears on each March 31, June 30, September 30 and
December 31 of each year during which this Convertible Promissory Note (this
"Note") remains outstanding (for purposes of payment of interest, each such date
being an "Interest Payment Date"), in cash. Interest shall be calculated on the
basis of a 360-day year of twelve thirty-day months and shall accrue daily (but
compound annually) commencing on the "Original Issue Date" (as defined in
Section 8) until payment (whether through conversion of all outstanding
principal amount hereunder or otherwise) in full of the principal sum, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the Holder. Upon
the occurrence and during the continuance of an "Event of Default" (as defined
in Section 4) (except for a default occurring on account of Section 4(a)(viii)
all amounts due hereunder, whether by acceleration or otherwise, shall bear
interest at the rate of 18% per annum (or such lower maximum amount of interest
permitted to be charged under applicable law) to accrue daily, from the third
"Business Day" (as defined in Section 8) following the date on which such
payment is due hereunder through and including the date of payment), payable in
cash. All cash payments to be made under this Note shall be made in such coin or
currency as shall constitute legal tender for the payment of private or private
debts in the United States and all cash payments and deliveries required under
this Note shall be made to the Holder at c/o Icaza, Gonzalez-Ruiz & Aleman (BVI)
Ltd., Vanterpool Plaza, 2nd Floor, Wickhams Cay I Road Town, Tortola, British
Virgin Islands.
This Note is subject to the following additional provisions:
Section 1. This Note is exchangeable for an equal aggregate principal
amount of Notes of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
Section 2. This Note is one of a series of duly authorized and issued
notes of the Company, designated as its Convertible Promissory Notes, due August
22, 2004, in the aggregate original principal amount of Fifteen Million Dollars
($15,000,000) (the "Notes"). This Note has been issued pursuant to the "Purchase
Agreement" (as defined in Section 8), is subject to certain investment
representations of the original Holder set forth in the Purchase Agreement and
may be transferred or exchanged to another "Person" (as defined in Section 8)
only in compliance with the Purchase Agreement.
Section 3. Maturity Date. Except as otherwise provided in Section 4,
the entire unpaid principal balance of this Note and all accrued but unpaid
interest thereon and any other amounts otherwise payable under this Note shall
be due and payable on August 22, 2004. The date on which the entire unpaid
principal balance of this Note and all other amounts owing under this Note is
due and payable, whether by acceleration or otherwise, is herein referred to as
the "Maturity Date".
Section 4. Events of Default.
(a) Event of Default, wherever used herein, means any one of
the following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) except as otherwise provided in clause (xiii) below, any
default in the payment of the principal of, interest on
or any other amount in the aggregate in excess of $4,900
due in respect of, this Note or any of the other Notes
or any of the other "Transaction Documents" (as defined
in Section 8), free of any claim of subordination, by
the fifth Business Day following the date the same shall
become due and payable (whether on an Interest Payment
Date or the Maturity Date, by acceleration or
otherwise);
(ii) the Company shall fail to observe or perform in all
material respects any other covenant, agreement or
warranty contained in, or otherwise commit any material
breach of, any provision of this Note or any of the
Transaction Documents, other than those matters that are
the specific subject of another Event of Default under
this Section, and such failure or breach shall continue
for a period of twenty Business Days after the date on
which notice of such failure or breach shall have been
given;
2
(iii) the Company or any of its subsidiaries shall commence,
or there shall be commenced against the Company or any
of its subsidiaries, a case under any applicable
bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company or any
of its subsidiaries commences any other proceeding
under any reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether
now or hereafter in effect relating to the Company or
any of its subsidiaries or there is commenced against
the Company or any of its subsidiaries any such
bankruptcy, insolvency or other proceeding which
remains undismissed for a period of sixty days; or the
Company or any of its subsidiaries is adjudicated
insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is
entered; or the Company or any of its subsidiaries
suffers any appointment of any custodian or the like
for it or any substantial part of its property which
continues undischarged or unstayed for a period of
sixty days; or the Company or any of its subsidiaries
makes a general assignment for the benefit of
creditors; or the Company or any of its subsidiaries
shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as
they become due; or the Company or any of its
subsidiaries shall by any act or failure to act
expressly indicate its consent to, approval of or
acquiescence in any of the foregoing; or any corporate
or other action is taken by the Company or any of its
subsidiaries for the purpose of effecting any of the
foregoing;
(iv) the Company shall default in any of its payment
obligations under any other promissory note, debenture
or other evidence of indebtedness, or any mortgage,
credit agreement or other facility, indenture
agreement, factoring agreement or other instrument
under which there may be issued, or by which there may
be secured or evidenced any indebtedness for borrowed
money or money due under any long term leasing or
factoring arrangement of the Company in an amount
exceeding five hundred thousand dollars ($500,000),
whether such indebtedness now exists or shall
hereafter be created and such default shall result in
such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise
become due and payable without such indebtedness
having been discharged in full or any acceleration of
such indebtedness having been rescinded or annulled in
full within the applicable grace period;
(v) the Company for any reason shall fail to deliver
certificates to the Holder on or prior to the
"Delivery Date" (as defined in Section 8) or the
Company shall provide notice to the Holder, including
by way of public announcement, at any time, of its
intention not to comply with requests for conversions
of this Note in accordance with the terms hereof; or
3
(vi) the Common Stock shall not be quoted for trading on
the Nasdaq National Market ("NASDAQ") or, if the
Common Stock shall hereafter become listed or quoted
for trading on the Nasdaq SmallCap Market, the New
York Stock Exchange, or American Stock Exchange (each,
a "Subsequent Market"), it shall fail to be quoted or
listed for trading on such Subsequent Market, for an
aggregate of five "Trading Days" (as defined in
Section 8);
(vii) the Company shall be a party to any "Change of Control
Transaction" (as defined in Section 8), shall agree to
sell or dispose of all or substantially all of its
assets in one or more transactions (whether or not
such sale would constitute a Change of Control
Transaction), or shall redeem or repurchase shares of
Common Stock or other equity securities of the
Company;
(viii) a "Note Shares Registration Statement" (as defined in
the Registration Rights Agreement) shall not have been
declared effective by the "Commission" (as defined in
Section 8) on or prior to January 9, 2002;
(ix) if, during the "Effectiveness Period" (as defined in
the Registration Rights Agreement), the effectiveness
of the Registration Statement (as defined in the
Registration Rights Agreement) lapses for any reason
or the Holder shall not be permitted to resell
"Registrable Securities" (as defined in the
Registration Rights Agreement) under a Registration
Statement, in either case, for an aggregate of more of
than twenty Trading Days (which need not be
consecutive Trading Days) in any twelve month period;
(x) a "Note Event" (as defined in the Registration Rights
Agreement) shall not have been cured to the reasonable
satisfaction of the Holder within ten Business Days of
the occurrence of such Note Event;
(xi) the Company shall fail for any reason to deliver the
payment in cash pursuant to a "Buy-In" (as defined in
Section 5(f)(iii)) within five Business Days after
written notice demanding payment for such Buy-In is
provided;
(xii) the Letter of Credit (as defined in Section 12) (A)
shall be revoked, withdrawn or disaffirmed by the Bank
(as defined in Section 12) or (B) shall not be renewed
on or prior to the 15th day prior to its date of
termination; or
(xiii) the failure of the Company to timely make any payment
required under Section 6(a).
4
(b) If any Event of Default occurs (i) the full principal
amount of this Note (and, at the Holder's option, all other Notes then held by
such Holder), plus (ii) all accrued but unpaid interest thereon, plus (iii) all
other costs and expenses due under this Note and any of the other Transaction
Documents, plus (iv) in the case of an Event of Default described in Section
4(a)(v), 4(a)(x) or 4(a)(xi)), the "Liquidated Damages Amount" (as defined in
Section 8) and in the case of the Event of Default described in Section
4(a)(vii) 60% of the Liquidated Damages Amount shall become, at the Holder's
election immediately due and payable in cash.
Section 5. Conversion.
(a) Conversion at Option of Holder.
(i) This Note may be converted, in whole or in part, at
any time at the option of the Holder into shares of Common Stock at a price per
share equal to the "Conversion Price" (as defined in Section 5(c)) then in
effect. The Holder shall effect conversions hereunder by delivering to the
Company and the Transfer Agent (as defined in Section 8) by facsimile a
completed conversion notice in the form attached as Exhibit A (a "Holder
Conversion Notice") and delivery to the Company within three Trading Days
thereafter of this Note. Each Holder Conversion Notice shall specify the date on
which such conversion is to be effected, which date may not be prior to the date
such Holder Conversion Notice is deemed to have been delivered hereunder (a
"Holder Conversion Date"). If no Holder Conversion Date is specified in a Holder
Conversion Notice, the Holder Conversion Date shall be the date that such Holder
Conversion Notice is deemed delivered hereunder. Subject to Section 5(f), each
Holder Conversion Notice, once given, shall be irrevocable. If the Holder is
converting less than all of the principal amount represented by this Note, or if
a conversion hereunder cannot be effected in full for any reason, the Company
shall honor such conversion to the extent permissible hereunder and shall
promptly deliver to the Holder (in the manner and within the time set forth in
Section 5(f)) a new note for such principal amount as has not been converted.
(ii) If on the last day of any calendar month (1) the
conditions set forth in Section 5(b)(ii)(A (except that for purposes of this
Section 5(a)(ii) only, the term "Company Conversion Date" shall refer to "Holder
Conversion Date"), Section 5(b)(ii)(C), Section 5(b)(ii)(E) and Section
5(b)(ii)(F) have occurred or have been satisfied and (2) a Note Shares
Registration Statement has been declared effective and the prospectus thereunder
is available to the Holder for resale of the Underlying Shares issuable upon
such conversion during the entire month or the Underlying Shares could have been
sold by the Holder subject to such conversion without volume limitation under
Rule 144(k) promulgated under the Securities Act (as defined in Section 8)
during the entire month (all of the conditions set forth in clauses (1) and (2)
being hereinafter called the "Required Conversion Conditions"), and (3) the
Common Stock has been listed or quoted for trading on the NASDAQ or a Subsequent
Market during such entire calendar month, and (4) the average Per Share Market
Value for all of the Trading Days in such month exceeds 110% of the Conversion
Price and is less than 125% of the Conversion Price (the "PSMV Price
Condition"), then and in such event on such day the Holder shall be deemed to
have given a Holder Conversion Notice to convert on the fourth Trading Day
following such day at the applicable Conversion Price a principal amount of this
Note which shall be equal to (a) $1,500,000 minus (b) the amount of all
conversions of this Note, if any, made during such month, whether pursuant to a
Holder Conversion Notice, a Company Conversion Notice or otherwise; it being
understood that if such amount is a negative number no such conversion shall
occur.
5
(iii) If for any twenty consecutive Trading Days (the
"Measuring Period") (1) the conditions set forth in Section 5(b)(ii)(A) (except
that for purposes of this Section 5(a)(iii) only the term "Company Conversion
Date" shall refer to "Holder Conversion Date"), Section 5(b)(ii)(C), Section
5(b)(ii)(E) and Section 5(b)(ii)(F) and (2) a Note Shares Registration Statement
has been effective and the prospectus thereunder is available to the Holder for
resale of the Underlying Shares issuable upon such conversion during the entire
Measuring Period or the Underlying Shares could have been sold by the Holder
subject to such conversion without volume limitation under Rule 144(k)
promulgated under the Securities Act during the entire Measuring Period, (3) the
Common Stock has been listed or quoted for trading on the NASDAQ or a Subsequent
Market during each of such 20 Trading Days, and (4) the average Per Share Market
Value for all of the Trading Days in such Measuring Period exceeds 125% of the
Conversion Price in effect from time to time then and in such event on such day
the Holder shall be deemed to have given a Holder Conversion Notice to convert
on the fourth Trading Day following such day the entire principal amount of this
Note then outstanding.
(b) Conversion at Option of the Company.
(i) In the event all of the conditions set forth in
Section 5(b)(ii) are satisfied, and subject to the provisions of Section
5(b)(iii) and (iv), the Company may require the conversion of all or a portion
of the outstanding principal balance of this Note. The Company shall exercise
its right to require conversions under this Section 5(b)(i) by delivering to the
Holder a completed conversion notice in the form attached as Exhibit B (a
"Company Conversion Notice"). Except as otherwise provided in Section 5(b)(iv),
each Company Conversion Notice shall specify the principal amount of the Note to
be converted and the date on which such conversion is to be effected. The date
on which such conversion is to be effected shall be the date that is thirty days
from the date of such Company Conversion Notice (a "Company Conversion Date").
On or before the Company Conversion Date, the Holder shall deliver this Note to
the Company against receipt of the Underlying Shares. If the Company is
requiring conversion of less than the full principal amount represented by this
Note, or if a conversion hereunder cannot be effected in full for any reason,
the Company shall honor such conversion to the extent permissible hereunder and
shall promptly deliver to such Holder (in the manner and within the time set
forth in Section 5(f)) a new Note for such principal amount as has not been
converted.
(ii) Notwithstanding any other provision of this Section
5(b) to the contrary, no conversion under this Section 5(b) shall take place and
no Company Conversion Notice shall be effective without the consent of the
Holder unless and until all of the following conditions are satisfied: (A) the
product of the daily VWAP and the trading volume of the Common Stock for each of
the ten consecutive Trading Days ending on the last Trading Day before a Company
Conversion Date exceeds $726,691.00; (B) the Note Shares Registration Statement
shall be effective and the prospectus thereunder available to the Holders for
the resale of all Underlying Shares issuable upon such conversion during the
entire period beginning on the date of the Company Conversion Notice and ending
on the Company Conversion Date or the Underlying Shares may be sold by the
Holder subject to such conversion without volume limitation under Rule 144(k)
promulgated under the Securities Act on the Company Conversion Date; (C) the
6
Company has available sufficient unreserved and available shares of Common Stock
to fulfill its share delivery requirements upon such conversion; (D) the Common
Stock is listed or quoted for trading on the NASDAQ or a Subsequent Market
during the entire period beginning on the date of the Company Conversion Notice
and ending on the Company Conversion Date; (E) no Event of Default shall have
occurred and be continuing; and (F) the Company at all times while this Note has
been outstanding shall not have failed to comply with Section 5(f) twice in any
consecutive 180 day period. In addition, no conversion pursuant to Section
5(b)(i) shall take place and no Company Conversion Notice shall be effective to
the extent that the result obtained by dividing (A) the aggregate number of
shares of Common Stock owned by the Holder plus the number of any shares of
Common Stock issuable to the Holder upon (x) exercise of any warrants, options
or other rights to acquire shares of the Company's capital stock and (y)
conversion of any convertible securities then held by the Holder by (B) the
aggregate of the total number of shares of Common Stock issued and outstanding
plus the number of any shares of Common Stock issuable to the Holder upon (x)
exercise of any warrants, options or other rights to acquire shares of the
Company's capital stock and (y) conversion of any convertible securities then
held by the Holder exceeds 0.09999. In order to effectuate the foregoing, no
later than 5:00 p.m. New York City time on the day immediately preceding Company
Conversion Date, the Company shall certify in writing to the Holder the number
of shares of the Company's capital stock actually issued and outstanding as of
the such date and no later than 9:00 a.m. New York City time on the Company
Conversion Date and the Holder shall notify the Company in writing as to whether
the limitation described in the preceding sentence is applicable.
(iii) Notwithstanding anything contained to the contrary
in this Section 5(b), the Company may not exercise its rights under this Section
5(b): (x) before February 8, 2002, (y) at any time there is outstanding a
Company Conversion Notice or (z) within thirty days of any other Company
Conversion Date or within thirty days of any required conversion under Section
5(a)(ii).
(iv) The maximum principal amount of this Note that may be
converted on any Company Conversion Date shall be $1,500,000.
(c) Conversion Price.
(i) The conversion price of this Note (the "Conversion
Price") shall initially equal $13.97 (the "Initial Conversion Price") but shall
be adjusted from time to time throughout the term of this Note as provided in
this Section 5(c).
7
(ii) In the event the Company exercises its rights
pursuant to Section 5(b), the Conversion Price shall be the lesser of (a) the
Conversion Price then in effect or (b) an amount equal to 87% of the average Per
Share Market Value for the twelve consecutive Trading Days ending on the last
Trading Day immediately preceding the Company Conversion Date; provided,
however, if the Conversion Price as so calculated is less than an amount equal
to (A) 90% of the Per Share Market Value on the date of the Company Conversion
Notice multiplied by (B) .87 (the result being called the "Minimum Price"),
neither the Company nor the Holder shall be required to convert any portion of
this Note pursuant to such Company Conversion Notice; provided, however, that
the Holder, at its sole option, may require the Company to convert all or any
portion of the amount to be converted as set forth in such Company Conversion
Notice at the Minimum Price.
(iii) The Conversion Price, as in effect from time to
time, shall be adjusted as follows:
(A) Stock Dividends and Splits. If the Company, at
any time while this Note is outstanding (1) pays a stock dividend on its Common
Stock or otherwise makes a distribution on any class of capital stock that is
payable in shares of Common Stock (other than regular dividends on the Preferred
Stock), (2) subdivides outstanding shares of Common Stock into a larger number
of shares, (3) combines outstanding shares of Common Stock into a smaller number
of shares, or (4) issues by reclassification of shares of the Common Stock any
other shares of capital stock, then in each such case the Conversion Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock (excluding treasury shares, if any) outstanding immediately
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event. Any adjustment made
pursuant to this Section 5(c)(iii)(A)(1) shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and any adjustment pursuant to clauses (2), (3) or
(4) above shall become effective immediately after the effective date of such
subdivision, combination or re-classification. If any event requiring an
adjustment under this Section 5(c)(iii)(A) occurs during the Period that a
Conversion Price is calculated hereunder, then the calculation of such
Conversion Price shall be adjusted appropriately to reflect such event.
(B) Pro Rata Distributions. If the Company, at any
time while this Note is outstanding, distributes to all holders of Common Stock
(1) evidences of its indebtedness, (2) any security (other than a distribution
of Common Stock covered by the preceding paragraph), (3) rights or warrants to
subscribe for or purchase any security, or (4) any other asset (in each case,
"Distributed Property"), then, at the request of the Holder delivered before the
90th day after the record date fixed for determination of stockholders entitled
to receive such distribution, the Company will deliver to the Holder, within
five Trading Days after such request (or, if later, on the effective date of
such distribution), the Distributed Property that the Holder would have been
entitled to receive in respect of the Underlying Shares. If such Distributed
Property is not delivered to the Holder pursuant to the preceding sentence, then
upon any conversion of this Note that occurs after such record date, such Holder
shall be entitled to receive, in addition to the Underlying Shares otherwise
issuable upon such conversion, the Distributed Property that the Holder would
have been entitled to receive in respect of such number of Underlying Shares had
the Holder been the record holder of such Underlying Shares immediately prior to
such record date.
8
(C) Fundamental Transactions. If, at any time while
this Note is outstanding, (1) the Company effects any merger or consolidation of
the Company with or into another Person, (2) the Company effects any sale of all
or substantially all of its assets in one or a series of related transactions,
(3) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (4)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then upon any subsequent conversion of this Note,
the Holder shall have the right to receive, for each Underlying Share that would
have been issuable upon such conversion absent such Fundamental Transaction, the
same kind and amount of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if it
had been, immediately prior to such Fundamental Transaction, the holder of one
share of Common Stock (the "Alternate Consideration"). For purposes of any such
conversion, the determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in such
Fundamental Transaction, and the Company shall apportion the Conversion Price
among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of this
Note following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or surviving
entity in such Fundamental Transaction shall issue to the Holder a new note
identical in all respects to this Note and consistent with the foregoing
provisions and evidencing the Holders' right to convert such note into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this Section 5(c)(iii)(C) and
insuring that this Note (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
(D) Subsequent Equity Sales.
(1) If, at any time while this Note is
outstanding, the Company issues additional shares of Common Stock or rights,
warrants, options or other securities or debt convertible, exercisable or
exchangeable for shares of Common Stock or otherwise entitling any Person to
acquire shares of Common Stock (collectively, "Common Stock Equivalents" and
together with Common Stock sometimes hereinafter called "CS Securities") at an
effective price per share of Common Stock (the "Effective Price") less than the
Conversion Price (as adjusted hereunder to such date), then the Conversion Price
shall be reduced to equal the Effective Price. For purposes of the foregoing
adjustment, in connection with any issuance of any Common Stock Equivalents, (x)
the maximum number of shares of Common Stock potentially issuable at any time
upon conversion, exercise or exchange of such Common Stock Equivalents (the
"Deemed Number") shall be deemed to be outstanding upon issuance of such Common
Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall
equal the minimum dollar value of consideration payable to the Company to
purchase such Common Stock Equivalents and to convert, exercise or exchange them
into Common Stock, divided by the Deemed Number, and (z) no further adjustment
shall be made to the Conversion Price upon the actual issuance of Common Stock
upon conversion, exercise or exchange of such Common Stock Equivalents.
9
(2) If, at any time while this Note is
outstanding, the Company or any of its subsidiaries has outstanding any Common
Stock Equivalents with an Effective Price that floats or resets or otherwise
varies or is subject to adjustment based on market prices of the Common Stock (a
"Floating Price Security"), then for purposes of applying the preceding
paragraph in connection with any subsequent conversion, the Effective Price will
be determined separately on each Holder Conversion Date or Company Conversion
Date, as the case may be, and will be deemed to equal the lowest Effective Price
at which any holder of such Floating Price Security is entitled to acquire
shares of Common Stock on such Conversion Date (regardless of whether any such
holder actually acquires any shares on such date).
(3) Notwithstanding the foregoing, no adjustment
will be made under this Section 5(c)(iii)(D) in respect of (a) any grant of
options to employees, officers, directors or consultants of the Company pursuant
to any stock option plan duly adopted by the Company's board of directors
(provided, that the number of shares of Common Stock which are the subject of
any such plan may not exceed 2,800,000, subject to annual increases of up to 40%
of the shares authorized under such plans during the immediately preceding
year), (b) in respect of the issuance of CS Securities upon exercise of any such
options, (c) the issuance of CS Securities under the PPG Agreement (as defined
in the Purchase Agreement) or the Motorola Agreement (as defined in the Purchase
Agreement) (d) up to 1,000,000 CS Securities issued in connection with any
contractual strategic alliances approved by the Company's Board of Directors;
(e) the issuance of any CS Securities representing or convertible into up to
50,000 shares of Common Stock in any single transaction; provided that this
subsection (e) shall only apply to the first 50,000 shares in the aggregate
issued in any consecutive 12 month period and 150,000 in the aggregate; (f) CS
Securities issued or issuable pursuant to the Notes, Preferred Stock, Warrants
or any other Transaction Document or pursuant to the anti-dilution provisions
thereof; (g) any CS Securities issuable upon the exercise of, or pursuant to the
anti-dilution provisions contained within, any options, restricted stock awards,
preferred stock or warrants outstanding on the date hereof (but not to the
extent amended hereafter) all of which are set forth on Schedule 1 hereto; or
(g) any Common Stock issued upon the conversion of exercise of any Common Stock
Equivalents outstanding as of the date hereof (but not to the extent amended
hereafter) all of which are set forth on Schedule 2 hereto.
(iv) All calculations under Section 5(c)(iii) shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
No adjustments in the Conversion Price shall be required if such adjustment is
less than $0.01, provided, however, that any adjustments which by reason of this
Section 5(c)(iv) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
10
(v) Whenever the Conversion Price is adjusted pursuant to
Section 5(c)(iii), the Company shall promptly mail to the Holder a notice
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
(vi) If (A) the Company shall declare a dividend (or any
other distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall provide notice to the Holder, on
the earlier of the day on which the Company (a) publicly announces such proposed
action, or (b) notifies its shareholders of such proposed action, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder may convert this Note during the period commencing
the date of such notice to the effective date of the event triggering such
notice.
(vii) In case of any (1) merger or consolidation of the
Company with or into another Person, or (2) sale by the Company of all or
substantially all the assets of the Company in one or a series of related
transactions, in lieu of any rights the Holder may have to accelerate the
Maturity Date of this Note pursuant to Section 4, the Holder shall have the
right to (A) convert the aggregate principal amount of this Note then
outstanding into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and such Holder shall be entitled upon such event
or series of related events to receive such amount of securities, cash and
property as the shares of Common Stock into which such aggregate principal
amount of this Note could have been converted immediately prior to such merger,
consolidation or sales would have been entitled, or (B) require the surviving
entity to issue convertible notes with such aggregate stated value or in such
face amount, as the case may be, equal to the aggregate principal amount of this
Note, plus all accrued and unpaid interest and other amounts owing thereon,
which newly issued notes shall have terms identical (including with respect to
conversion) to the terms of this Note and shall be entitled to all of the rights
and privileges of a Holder of this Note set forth herein and the other
Transaction Documents (including, without limitation, as such rights relate to
the acquisition, transferability, registration and listing of such shares of
stock other securities issuable upon conversion thereof), and simultaneously
11
with the issuance of such convertible notes, shall have the right to convert
such notes only into shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger or consolidation. In the case of clause (B), the conversion price
applicable for the newly issued convertible notes shall be based upon the amount
of securities, cash and property that each share of Common Stock would receive
in such transaction and the Conversion Price in effect immediately prior to the
effectiveness or closing date for such transaction. The terms of any such
merger, sale or consolidation shall include such terms so as to continue to give
the Holders the right to receive the securities, cash and property set forth in
this Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events. Nothing in this
Section 5(c)(vii) shall prevent the Company from exercising its conversion
rights pursuant to and in accordance with Section 5(b).
(d) Number of Underlying Shares Issuable Upon Conversion.
(i) The number of shares of Common Stock issuable upon a
conversion of this Note shall be the quotient obtained by dividing (x) the
principal amount of this Note to be converted and (y) the Conversion Price.
(ii) Notwithstanding anything to the contrary contained
herein, if on any Holder Conversion Date or any Company Conversion Date: (1) the
number of shares of Common Stock at the time authorized, unissued and unreserved
for all purposes, or held as treasury stock, is insufficient to permit issuance
of the shares upon conversion; (2) after the effective date of the Note Shares
Registration Statement such shares of Common Stock (x) are not registered for
resale pursuant to an effective Registration Statement and (y) may not be sold
without volume restrictions pursuant to Rule 144(k) promulgated under the
Securities Act, as determined by counsel to the Company pursuant to a written
opinion letter, addressed to the Company's transfer agent in the form and
substance reasonably acceptable to the Holder and such transfer agent; (3) the
Common Stock is not listed or quoted for trading on the NASDAQ or on a
Subsequent Market or the Company has received a Listing Deficiency Notice; or
(4) the issuance of such shares of Common Stock would result in a violation of
Section 5(e)(ii); then, at the option of the Holder, the Company, in lieu of
delivering shares of Common Stock pursuant to Section 5(f), shall deliver, on
the relevant Holder Conversion Date or Company Conversion Date, as the case may
be, an amount in cash equal to the sum of (a) the outstanding principal amount
of this Note to be converted on such Date plus (b) all accrued but unpaid
interest thereon plus (c) all other reasonable costs and expenses incurred by
the Holder in connection with the related Holder Conversion Notice or Company
Conversion Notice, as the case may be, plus (d) any other amounts due under this
Note or any of the other Transaction Documents with respect to the amount
referred to in clause (a).
12
(e) Certain Conversion Restrictions.
(i) The Holder may not convert this Note to the extent
such conversion would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules promulgated thereunder) in excess of 4.999% of the
then issued and outstanding shares of Common Stock, including shares issuable
upon conversion of this Note after application of this Section. Since the Holder
will not be obligated to report to the Company the number of shares of Common
Stock it may hold at the time of a conversion hereunder, unless the conversion
at issue would result in the issuance of shares of Common Stock in excess of
4.999% of the then outstanding shares of Common Stock without regard to any
other shares which may be beneficially owned by the Holder or an affiliate
thereof, the Holder shall have the authority and obligation to determine whether
the restriction contained in this Section 5(e)(i) will limit any particular
conversion hereunder and to the extent that the Holder determines that the
limitation contained in this Section 5(e)(i) applies, the determination of the
extent to which the principal amount of this Note is convertible shall be the
responsibility and obligation of the Holder. If the Holder has delivered a
Holder Conversion Notice with respect to this Note that, without regard to any
other shares that the Holder or its affiliates may beneficially own, would
result in the issuance in excess of the permitted amount hereunder, the Company
shall notify the Holder of this fact and shall honor the conversion for the
maximum principal amount permitted to be converted on such Holder Conversion
Date and, at the option of the Holder, either retain any principal amount
tendered for conversion in excess of the permitted amount hereunder for future
conversions or return such excess principal amount to the Holder. The Holder may
waive the provisions of this Section 5(e)(i) upon not less than sixty-one days
prior notice to the Company.
(ii) Notwithstanding anything to the contrary that may be
contained herein or any of the other Transaction Documents, this Note may not be
converted to the extent such conversion would result in the Holder, together
with any affiliate thereof, beneficially owning (as determined in accordance
with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in
excess of 9.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of this Note after application of this
Section. Since the Holder will not be obligated to report to the Company the
number of shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 9.999% of the then outstanding shares of Common
Stock without regard to any other shares which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section
5(e)(ii) will limit any particular conversion hereunder and to the extent that
the Holder determines that the limitation contained in this Section 5(e)(ii)
applies, the determination of the extent to which a portion of the principal
amount of this Note is convertible shall be the responsibility and obligation of
the Holder. If a Holder Conversion Notice or a Company Conversion Notice, as the
case may be, for a principal amount of this Note that, without regard to any
other shares that the Holder or its affiliates may beneficially own, would
result in the issuance in excess of the permitted amount hereunder, the Company
shall notify the Holder of this fact and shall honor the conversion for the
maximum principal amount permitted to be converted on such Holder Conversion
Date or Company Conversion Date, as the case may be.
13
(f) Delivery of Certificates.
(i) On or before the Delivery Date, the Company will
deliver to the Holder (A) a certificate or certificates, which shall be free of
restrictive legends and trading restrictions (other than those required by
Section 4.1 of the Purchase Agreement or in the event that the Holder does not
execute and deliver to the Company by fax the undertaking set forth in the
Conversion Notice within three Trading Days after a Company Conversion Date on
Holder Conversion Date, as the case may be (provided that in such event, the
Company shall cause any legend to be removed immediately upon receipt of such
undertaking)), representing the number of shares of Common Stock being acquired
upon the conversion of this Note, (B) a note (identical in every respect to this
Note) in a principal amount equal to the principal amount of this Note not
converted, and (C) a bank check in the amount of any and all payments due in
connection with such Holder Conversion Date; provided, however, that the Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion of the principal amount of this Note until this
Note is delivered for conversion to the Company, or the Holder notifies the
Company that this Note has been lost, stolen or destroyed and provides the
Company with an affidavit and indemnity, reasonably satisfactory to the Company,
to indemnify the Company from any loss incurred by it in connection therewith.
The Company shall, upon request of the Holder, if available, use its best
efforts to deliver any certificate or certificates required to be delivered by
the Company under this Section 5(f) electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions. If, in the case of any Holder Conversion Notice or any Company
Conversion Notice, the certificates, notes or payments described in this Section
5(f) are not delivered to or as directed by the Holder by the applicable
Delivery Date, the Holder shall be entitled by written notice to the Company at
any time on or before its receipt of such certificates, notes or payments
thereafter, to rescind such Holder Conversion Notice or Company Conversion
Notice, as the case may be, in which event the Company shall immediately return
this Note as tendered by the Holder.
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to this Section 5(f) by the Delivery Date,
the Company shall pay to the Holder, in cash, as liquidated damages and not as a
penalty, $5,000 for each Trading Day after the Delivery Date until such
certificates are delivered. Nothing herein shall limit the Holder's right to
pursue actual damages or declare an Event of Default pursuant to Section 4 for
the Company's failure to deliver certificates representing shares of Common
Stock issuable upon conversion within the period specified herein and the Holder
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit the Holder
from seeking to enforce damages pursuant to any other provision hereof or under
applicable law. Further, if the Company shall not have delivered any cash due in
respect of the conversion of this Note or as payment of interest thereon by the
Delivery Date, the Holder may, by notice to the Company, require the Company to
issue shares of Common Stock pursuant to Section 5(d), except that for such
purpose the Conversion Price applicable thereto shall be the lesser of the
Conversion Price on the applicable Conversion Date and the Conversion Price on
the date of such demand. Any such shares will be subject to the provision of
this Section 5.
14
(iii) In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 5(f) by the Delivery Date, and if after such
Delivery Date the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of the
Underlying Shares which the Holder anticipated receiving upon such conversion (a
"Buy-In"), then the Company shall pay in cash to the Holder (in addition to any
remedies available to or elected by the Holder) the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for the
Common Stock so purchased exceeds (y) the product of (1) the lesser of (A) the
aggregate number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue or (B) the number of shares of Common
Stock so purchased, multiplied by (2) the Conversion Price of the Common Stock
on the applicable Conversion Date, in which event the number of shares of Common
Stock that would have been issued had the Company timely complied with its
delivery requirements under Section 5 shall not be so issued. For example, if
the Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In in connection with an attempted conversion of Notes with respect
to which the Conversion Price of the Underlying Shares on the applicable
Conversion Date multiplied by the number of Underlying Shares was equal to
$2,000 under clause (A) of the immediately preceding sentence, the Company shall
be required to pay the Holder $9,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Buy-In.
(g) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of this Note, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder, not less than such number of shares of
the Common Stock as shall (subject to any additional requirements of the Company
as to reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section
5(c)(iii)) upon the conversion of the outstanding principal amount of this Note.
The Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Registration Statement has been declared effective
under the Securities Act, registered for public sale in accordance with such
Registration Statement.
(h) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
15
(i) Except as otherwise provided in this Section 5(i), the
issuance of this Note and the certificates for shares of the Common Stock upon
conversion of this Note shall be made without charge to the Holder hereof for
any issue or transfer tax, withholding tax, transfer agent fee or other
incidental tax or expense in respect of the issuance of such certificates, all
of which taxes and expenses shall be paid by the Company; provided, however, the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
Section 6. Redemption; Prepayment. (a) At any time on or after (i) the
date that is 120 calendar days after the effective date of the Note Shares
Registration Statement (the "NRS Effective Date") if more than $3,750,000 of the
principal amount of this Note is outstanding, (ii) the date that is 240 calendar
days after the NRS Effective Date if more than $1,875,000 of the principal
amount of this Note is outstanding, or (iii) 360 days after the NRS Effective
Date, the Holder shall have the option to require the Company to prepay all or a
portion of this Note, and all accrued but unpaid interest thereon, by notifying
the Company in writing of its election to do so (a "Prepayment Notice"). Any
prepayment pursuant to a Prepayment Notice shall be due and payable on the next
Business Day following the date of the Prepayment Notice. The Company's failure
to timely comply with the Prepayment Notice shall constitute an Event of Default
under Section 4. The Holder's right to demand prepayment under this Section 6
shall not apply with respect to any portion of the principal amount of this Note
that is subject to a valid and effective Company Conversion Notice or Holder
Conversion Notice delivered prior to the date of the Prepayment Notice.
(b) Subject to the terms and conditions set forth herein, the
Company shall have the right at all time and any time after the Original Issue
Date, upon thirty Trading Days' prior written notice to the Holder (an "Optional
Prepayment Notice" and the date such notice is received by the Holder, the
"Optional Prepayment Notice Date"), to prepay all (but not less than all) of the
outstanding principal balance of this Note and all accrued but unpaid interest
thereon and the Prepayment Premium (collectively, the "Optional Prepayment
Price"). Once delivered, an Optional Prepayment Notice shall be irrevocable by
the Company. The Company may only deliver an Optional Prepayment Notice to the
Holder if, on the Notice Date: (i) either (x) there is an effective Registration
Statement pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the issued Underlying Shares as are issuable upon
conversion in full of the outstanding principal balance of this Note or (y) all
of such issued or issuable Underlying Shares may be sold without volume
restrictions pursuant to Rule 144 promulgated under the Securities Act, as
determined by counsel to the Company pursuant to a written opinion letter,
addressed and delivered prior to the Notice Date to the Company's transfer agent
in the form and substance acceptable to the Holder and such transfer agent and
(ii) the Underlying Shares are listed for trading on NASDAQ or on a Subsequent
Market and the Company has not received nor is it aware that it is about to
16
receive a Listing Deficiency Notice. If any of the foregoing conditions shall
cease to be in effect during the period between the Optional Prepayment Notice
Date and the date on which the Optional Prepayment Price is paid in full, then
the Holder may elect, by written notice to the Company given at any time after
any of the foregoing conditions shall cease to be in effect, to invalidate ab
initio such prepayment, notwithstanding anything herein contained to the
contrary. The Holder may convert any portion of the outstanding principal
balance of this Note subject to an Optional Prepayment Notice prior to the date
that the Optional Prepayment Price is due and paid in full.
(c) The Optional Prepayment Price with respect to the amount
outstanding on such thirtieth Trading Day is due on the thirtieth Trading Day
following the Optional Prepayment Notice Date (the "Due Date"). If the Optional
Prepayment Price shall not be paid by the Company on the Due Date, interest
shall accrue thereon at the rate of 18% per annum (or the maximum rate permitted
by applicable law, whichever is less) until the Optional Prepayment Price plus
all such interest is paid in full. In addition, to the extent the Optional
Prepayment Price remains unpaid after such date (the "Unpaid Prepayment
Amount"), the Holder may elect with respect to such unpaid portion by written
notice to the Company to either: (x) to treat the Optional Prepayment Notice as
a Company Conversion Notice to which the provisions of Section 5(b) apply or (y)
invalidate ab initio such optional prepayment, notwithstanding anything herein
contained to the contrary. If the Holder elects option (y) above, the
outstanding principal amount of this Note and all interest due hereunder shall
be increased by the Unpaid Prepayment Amount and the Company shall no longer
have any prepayment rights under this Note. If, upon an election under option
(x) above, the Company fails to deliver the shares of Common Stock issuable upon
conversion of the Unpaid Prepayment Amount within the time period set forth in
this Section, the Company shall pay to the Holder in cash, as liquidated damages
and not as a penalty, $5,000 per day until such shares are delivered to the
Holder.
(d) If the conditions set forth in Section 5(a)(iii) have been
met but the entire principal amount of this Note has not been converted on
account of the provisions of Section 5(e)(ii) hereof, then at all times
beginning on the 150th day after the day on which such conditions have been met
the Company shall, at any time thereafter, have the right upon five days prior
written notice to prepay the outstanding principal balance of this Note and all
accrued and unpaid interest thereon without penalty or premium; provided however
that if at any time during such 150 day period the Holder is not able to sell
all of the Underlying Shares either pursuant to the Note Shares Registration
Statement and or under Rule 144(k) then such 150 day period shall be extended by
such number of days that the Note Shares Registration Statement and/or Rule
144(k) were not available .
(e) If the Company shall issue CS Securities at an Effective
Price lower than $13.97 per share, then the Holder, at its option, may elect to
declare the entire unpaid principal amount of this Note plus the accrued but
unpaid interest thereon to be immediately due and payable by delivering written
notice of such election to the Company within 10 Business Days of the receipt of
the notice referred to in Section 5(c)(v). The repayment of the outstanding
principal balance of this Note and the accrued interest thereon pursuant to this
Section 6(e) shall be due and payable on the day following the Business Day on
which the Holder's notice is delivered to the Company; provided that the
foregoing shall not apply with respect to the issuance of any CS Securities that
are set forth in Sections 5(c)(iii)(A), 5(c)(iii)(B) and 5(c)(iii)(D)(3) hereof.
17
Section 7. Unconditional Obligation. Except as expressly provided
herein, no provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, interest
and liquidated damages (if any) on, this Note at the time, place, and rate, and
in the coin or currency, herein prescribed. This Note is a direct obligation of
the Company. As long as this Note is outstanding, the Company shall not and
shall cause it subsidiaries not to, without the consent of the Holder, (i) amend
its certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holders (creation of a class of preferred
stock that does not otherwise alter the relative rights, preferences or terms of
this Note or otherwise breach other provisions of the Transaction Documents will
not violate this clause) or (ii) enter into any agreement with respect to the
foregoing.
Section 8. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Blackout Period" means any period during which the Company
suspends offers and sales or delays the effectiveness of any Registration
Statement pursuant to Section 2(d) of the Registration Statement.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a federal legal holiday in the United States or a day on
which banking institutions in the State of New York are authorized or required
by law or other government action to close.
"Change of Control Transaction" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 50% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger of the Company with or into
another entity that is not wholly-owned by the Company, sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $.01 per
share, of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
18
"Delivery Date" means the date that is the fourth Trading Day
after any Holder Conversion Date or any Company Conversion Date, as the case may
be.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Final Release Date" means the day following a period of
twenty consecutive Trading Days during which the Per Share Market Value on each
of such Trading Days is at least 125% of the Initial Conversion Price.
"Liquidated Damages Amount" means an amount equal to 25% of
the principal amount to which such payment relates.
"Listing Deficiency Notice" a notice from any entity
responsible for the operation of NASDAQ or any Subsequent Market with respect to
the Company's compliance or non-compliance with the listing requirements of
NASDAQ or any Subsequent Market.
"Measurement Date" means the twentieth trading Day following
the 90th day following the Original Issue Date and each twentieth Trading Day
thereafter.
"Measurement Period" means the twenty consecutive Trading Days
ending on a Measurement Date.
"Original Issue Date" means the date of the first issuance of
this Note regardless of the number of transfers of this Note and regardless of
the number of instruments that may be issued to replace this Note.
"Original Principal Amount" means $7,500,000.
"Per Share Market Value" means on any particular date the VWAP
on such date, or if there is no such VWAP on such date, then the VWAP on the
date nearest preceding such date, all as reported by Bloomberg L.P. or any
successor to its function for reporting VWAP ("Bloomberg").
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Prepayment Premium" means an amount equal to 5% of the
principal amount of this Note that is being prepaid pursuant to Section 6.
"Preferred Stock" means collectively the Company's Series C
Convertible Preferred Stock, par value $.01 per share and the Company's Series D
Convertible Preferred Stock, par value $.01 per share.
"Purchase Agreement" means the Securities Purchase Agreement,
dated August 22, 2001, to which the Company and the original Holder are parties,
as amended, modified or supplemented from time to time in accordance with its
terms.
19
"Registration Rights Agreement" means the Registration Rights
Agreement, dated August 22, 2001, to which the Company and the original Holder
are parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
"Trading Day" means (a) a day on which the shares of Common
Stock are traded on NASDAQ, or (b) if the shares of Common Stock are not listed
on NASDAQ, a day on which the shares of Common Stock are traded on a Subsequent
Market, or (c) if the shares of Common Stock are not quoted on NASDAQ or any
Subsequent Market, a day on which the shares of Common Stock are quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided that in the event that the shares of Common Stock
are not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading
Day shall mean any Business Day; and provided further that a Trading Day shall
not include any day during a Blackout Period.
"Transfer Agent" means American Stock Transfer & Trust Company
or such other entity that the Company shall designate as its transfer agent from
time to time, provided that the Company has given notice to the Holder that it
has designated a new Transfer Agent.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of this Note.
"VWAP" means Volume Weighted Average Price of a share of
Common Stock as reported by Bloomberg L.P.
"Warrants" shall have the meaning set forth in the Purchase
Agreement.
Section 9. This Note shall not entitle the Holder to any of the rights
of a stockholder of the Company, including, without limitation, the right to
vote, to receive dividends and other distributions, or to receive any notice of,
or to attend, meetings of stockholders or any other proceedings of the Company,
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.
Section 10. If this Note shall be mutilated, lost, stolen or destroyed,
the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Note, or in lieu of or in substitution for a lost,
stolen or destroyed Note, a new Note for the principal amount of this Note so
mutilated, lost, stolen or destroyed but only upon receipt of evidence of such
loss, theft or destruction of such Note, and of the ownership hereof, and
indemnity, if requested, all reasonably satisfactory to the Company.
Section 11. In addition to the principal amount of this Note and all
accrued but unpaid interest thereon, the Company shall reimburse the Holder for
all costs and expenses, including reasonable attorneys fees, incurred by the
Holder in connection with the enforcement, administration and collection of this
Note.
20
Section 12. (a) This Note is the note referred to in an irrevocable
letter of credit issued by First Union National Bank (the "Bank") in favor of
Holder, a copy of which is annexed hereto (the "Letter of Credit") and is
entitled to all of the benefits thereof. The Company hereby acknowledges that
the Holder and any subsequent Holder shall be entitled to the benefits of the
Letter of Credit and covenants and agrees that it will not impair the Holder's
rights under the Letter of Credit and (except to the extent provided in this
Section 12) shall maintain the Letter of Credit in full force and effect.
(b) The Holder agrees that the face amount of the Letter of
Credit shall be reduced as follows:
(i) On the date of any prepayment pursuant to Section 6 to
the extent the Original Principal Amount is prepaid in
accordance with a Prepayment Notice issued by the Holder
or an Optional Prepayment Notice issued by the Company;
(ii) On the Holder Conversion Date to the extent any portion
of the Original Principal Amount is converted into
shares of Common Stock on such date pursuant to a Holder
Conversion Notice;
(iii) On a Company Conversion Date to the extent any portion
of the Original Principal Amount is converted into
shares of Common Stock on such date pursuant to an
effective and valid Company Conversion Notice;
(iv) The date on which the Company pays any principal on this
Note to the extent of such payment; and
(v) On the Final Release Date, the Letter of Credit shall be
cancelled.
The Holder shall deliver written notice to the Bank of the occurrence of any of
the foregoing events within four Trading Days thereof.
(c) Upon the failure of the Company to pay to the Holder any
amount which is then due and payable to the Holder under this Note, whether
pursuant to Section 4(b), Section 6 or otherwise, the Holder shall be entitled
to draw on the Letter of Credit to the extent of any payment so due to the
Holder.
(d) All amounts received by the Holder pursuant to a draw on
the Letter of Credit shall be applied against the obligations of the Company
under this Note.
21
Section 13. This Note shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to conflicts of
laws thereof. The Company and the Holder hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
Section 14. Any waiver by the Company or the Holder of a breach of any
provision of this Note shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other provision of
this Note. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Note. Any waiver must be
in writing.
Section 15. If any provision of this Note is invalid, illegal or
unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
Section 16. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
Section 17. The Holder need not provide and the Company hereby waives
any presentment, demand, protest or other notice of any kind, and the Holder may
immediately enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.
Section 18. THE COMPANY HEREBY ACKNOWLEDGES AND AGREES THAT ITS
OBLIGATIONS UNDER THIS NOTE, INCLUDING ITS OBLIGATIONS TO MAKE PAYMENTS
HEREUNDER, ARE ABSOLUTE AND UNCONDITIONAL AND THE COMPANY WAIVES THE RIGHT TO
ASSERT ANY DEFENSE, OR ANY RIGHT OF SETOFF, COUNTERCLAIM OR ANY SIMILAR RIGHT IN
ANY ACTION INVOLVING ANY PAYMENT REQUIRED TO BE MADE PURSUANT TO THIS NOTE OR
ANY ACTION INVOLVING THE PERFORMANCE OF ANY OTHER OBLIGATION UNDER THIS NOTE;
AND THE COMPANY HEREBY AGREES NOT TO ASSERT ANY DEFENSE, RIGHT OF SETOFF,
COUNTERCLAIM OR ANY SIMILAR RIGHT IN ANY ACTION BY THE HOLDER OF THIS NOTE
INVOLVING ANY PAYMENT OR THE PERFORMANCE OF ANY OTHER OBLIGATION UNDER THIS
NOTE.
22
Section 19. Waiver of Right to Jury Trial. In any action, suit or
proceeding in respect of or arising out of or under this Warrant, the Company
and the Holder each waive its right to trial by jury.
Section 20. Notices. Any and all notices or other communications or
deliveries hereunder (including without limitation any Conversion Notice) shall
be in writing and shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number specified in this Section prior to 6:30 p.m. (New York
City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m. (New York City time) on any Trading Day, or (iii) the
Trading Day following the date of mailing, if sent by nationally recognized
overnight courier service. The addresses for such communications shall be: (i)
if to the Company, to 375 Phillips Boulevard, Ewing, New Jersey 08618,
facsimile: (609) 671-0995, Attention Sidney Rosenblatt, or (ii) if to a Holder,
to the address or facsimile number appearing on the Company's stockholder
records or such other address or facsimile number as such Holder may provide to
the Company in accordance with this Section.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS]
23
IN WITNESS WHEREOF, the Company has caused this Convertible Promissory
Note to be duly executed by a duly authorized officer as of the date first above
indicated.
UNIVERSAL DISPLAY CORPORATION
By: /s/ Sidney D. Rosenblatt
---------------------------
Name: Sidney D. Rosenblatt
Title: Chief Financial Officer
24
EXHIBIT A
HOLDER CONVERSION NOTICE
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby elects to convert the attached Note into shares of the
Common Stock (the "Common Stock") of Universal Display Corporation (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
The undersigned hereby covenants and agrees that the undersigned (i) will not
sell or otherwise dispose of the shares of Common Stock to be delivered pursuant
to this Conversion Notice (the "Shares") except pursuant to an effective
registration statement (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Act"), (ii) will sell the Shares only in accordance
with the Plan of Distribution set forth in the prospectus forming a part of the
Registration Statement (the ("Prospectus"), (iii) will comply with the
requirements of the Act when selling or otherwise disposing of the Shares,
including, but not limited to, the prospectus delivery requirements of the Act,
(iv) will not sell or otherwise dispose of, and will return immediately to the
Company for the purpose of placing a restrictive legend thereon, the Shares (and
any certificates representing the Shares, if applicable) upon notice from the
Company that the Prospectus may not be used for the sale of the Shares, and (v)
will indemnify and hold harmless the Company, its directors, officers, agents
and employees, each person who controls the Company (within the meaning of
Section 15 of the Act and Section 20 of the Securities Exchange Act of 1934, as
amended), and the directors, officers, agents or employees of such controlling
persons, to the fullest extent permitted by applicable law, from and against all
Losses (as defined in the Registration Rights Agreement dated August 22, 2001 by
and between the Company and the investors signatory thereto) arising out of or
based upon any breach by the undersigned of any of the covenants contained
herein.
Conversion calculations: ---------------------------------------------
Date to Effect Conversion
---------------------------------------------
Principal Amount of Notes to be Converted
---------------------------------------------
Number of shares of Common Stock to be Issued
---------------------------------------------
Applicable Conversion Price
---------------------------------------------
Signature
---------------------------------------------
Name
---------------------------------------------
Address
EXHIBIT B
COMPANY CONVERSION NOTICE
(To be Executed by the Company to Require the Conversion of Notes)
The undersigned authorized officer of Universal Display Corporation (the
"Company") hereby requires the conversion of the principal amount of the
Company's Notes held by the registered holder addressee hereof of the Company's
Common Stock (the "Common Stock") pursuant to the conditions of the Debentures
as of the date written below. No fee will be charged to the holder for any
conversion, except for such transfer taxes, if any.
Conversion calculations:
---------------------------------------------
Date to Effect Conversion
---------------------------------------------
Principal Amount of Notes to be Converted
---------------------------------------------
Number of shares of Common Stock to be Issued
---------------------------------------------
Applicable Conversion Price
---------------------------------------------
Signature
---------------------------------------------
Name and Office
In order to induce the Company to issue shares without restrictive
legend, the undersigned hereby covenants and agrees that the undersigned (i)
will not sell or otherwise dispose of the shares of Common Stock to be delivered
pursuant to this Conversion Notice (the "Shares") except pursuant to an
effective registration statement (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), (ii) will sell the Shares only
in accordance with the Plan of Distribution set forth in the prospectus forming
a part of the Registration Statement (the "Prospectus"), (iii) will comply with
the requirements of the Act when selling or otherwise disposing of the Shares,
including, but not limited to, the prospectus delivery requirements of the Act,
(iv) will not sell or otherwise dispose of, and will return immediately to the
Company for the purpose of placing a restrictive legend thereon, the Shares (and
any certificates representing the Shares, if applicable) upon notice from the
Company that the Prospectus may not be used for the sale of the Shares, and (v)
will indemnify and hold harmless the Company, its directors, officers, agents
and employees, each person who controls the Company (within the meaning of
Section 15 of the Act and Section 20 of the Securities Exchange Act of 1934, as
amended), and the directors, officers, agents or employees of such controlling
persons, to the fullest extent permitted by applicable law, from and against all
Losses (as defined in the Registration Rights Agreement dated August 22, 2001 by
and between the Company and the investors signatory thereto) arising out of or
based upon any breach by the undersigned of any of the covenants contained
herein.
---------------------------------
Signature
---------------------------------
Name
2