THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND IS
BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD
OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.
[THIS NOTE WILL BE CONSIDERED TO HAVE BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT
("OID") FOR PURPOSES OF SECTIONS 1271 ET. SEQ. OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED. THE ISSUE DATE OF THIS NOTE IS AUGUST 21, 2002. FOR
INFORMATION REGARDING THE ISSUE PRICE, AMOUNT OF OID PER $1,000 OF PRINCIPAL
AMOUNT AND YIELD TO MATURITY OF THIS NOTE FOR PURPOSES OF THE OID RULES, PLEASE
CONTACT GARY JONES AT eMAGIN CORPORATION.
8% SERIES B CONVERTIBLE DEBENTURE
Due August 21, 2004
$121,739 August 21, 2002
EMAGIN CORPORATION, a Delaware corporation with principal executive
offices located at 2070 Route 52, Hopewell Junction, NY 12533, for value
received, hereby promises to pay to the Holder (as defined below), or such other
Person upon order of the Holder, on August 21, 2004 (the "Maturity Date"), the
principal sum of One Hundred Twenty-One Thousand Seven Hundred and Thirty-Nine
Dollars ($121,739) and to pay interest thereon from the date of original
issuance to, with respect to all or any portion of this Debenture, the earlier
of the date of maturity or prepayment of all or such portion of this Debenture
(each an "Interest Payment Due Date" and collectively, the "Interest Payment Due
Dates"), at the rate of 8% per annum (the "Debenture Interest Rate"), until all
of the principal of this Debenture has been paid in full or duly and irrevocably
provided for. The interest payable on any Interest Payment Due Date shall be
paid to the Holder at the close of business on the applicable Interest Payment
Due Date and all interest payable on the Principal Amount of this Debenture
shall be calculated on the basis of a 360-day year for the actual number of days
elapsed.
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ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. The terms defined in this Article whenever used in
this Debenture have the following respective meanings:
"Affiliate" has the meaning ascribed to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.
"Amex" means The American Stock Exchange, Inc.
"Bankruptcy Code" means the United States Bankruptcy Code of 1986, as
amended (11 U.S.C.ss.ss.101 et seq.).
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the state of New York are authorized or obligated to
close.
"Closing Date" means August 21, 2002.
"Common Shares" or "Common Stock" means shares of the common stock,
par value $.001 per share, of the Company.
"Common Stock Issued At Conversion" when used with reference to the
securities issuable upon conversion of this Debenture, means all Common Shares
now or hereafter Outstanding and securities of any other class or series into
which the Debenture hereafter shall have been changed or substituted, whether
now or hereafter created and however designated.
"Company" means eMagin Corporation, a Delaware corporation, and any
successor or resulting corporation by way of merger, consolidation, sale or
exchange of all or substantially all of the Company's assets, or otherwise.
"Conversion" or "conversion" means the repayment by the Company of the
Principal Amount of this Debenture (and to the extent the Holder elects as
permitted by Section 3.2 hereof, accrued and unpaid interest thereon) by the
delivery of Common Stock on the terms provided in Section 3.2 hereof, and
"convert," "converted," "convertible" and like words shall have a corresponding
meaning.
"Conversion Date" means any day on which all or any portion of the
Principal Amount of this Debenture is converted in accordance with the
provisions hereof.
"Conversion Notice" means a written notice of conversion substantially
in the form annexed hereto as Exhibit A.
"Conversion Price" means $0.18 (subject to adjustment for any
stock-split or stock combination to occur after the date hereof).
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"Current Market Price" means on any date of determination the closing
price of a Common Share in the regular day session on such day as reported on
Amex if quoted or listed or admitted to trading on Amex; provided, if such
security is not listed or admitted to trading on Amex, as reported on the
principal national security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system, the
closing price of such security on the over-the-counter market in the regular day
session on the day in question as reported by Bloomberg LP, or a similar
generally accepted reporting service, as the case may be. If such security has
no quotes or listing as defined in this definition, then the Current Market
Price shall be the price per Common Share on any date of determination as
determined by an independent third party appointed by mutual agreement of the
Company and the Holder.
"Debenture" or "Debentures" means this 8% Series B Convertible
Debenture due August 21, 2004 of the Company or such other convertible
subordinated debentures or Debentures exchanged therefore as provided in Section
2.1.
"Debenture Interest Rate" has the meaning set forth in the opening
paragraph hereof.
"Default Interest Rate" shall be equal to the Debenture Interest Rate
plus an additional 2% per annum.
"Event of Default" has the meaning set forth in Section 6.1.
"Holder" means Mid-Century Insurance Company, any successor thereto,
or any Person to whom this Debenture is subsequently transferred in accordance
with the provisions hereof.
"Interest Payment Due Date" has the meaning set forth in the opening
paragraph hereof.
"liability" of any Person means (in each case, whether with full or
limited recourse) any indebtedness, liability, obligation, covenant or duty
binding upon, or any term or condition to be observed by or binding upon, such
Person or any of its assets of any kind, nature or description, direct or
indirect, absolute or contingent, due or not due, contractual or tortious,
liquidated or unliquidated, whether arising under contract, applicable law or
otherwise, whether now existing or hereafter arising, and whether for the
payment of money or the performance or non-performance of any act.
"Maturity Date" has the meaning set forth in the opening paragraph
hereof.
"Maximum Rate" has the meaning set forth in Section 6.3.
"Optional Prepayment Price" means, with respect to any prepayment of
this Debenture by the Company pursuant to Section 3.5 prior to the Maturity
Date, an amount equal to one hundred percent (105%) of the Principal Amount of
this Debenture being prepaid.
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"Outstanding" when used with reference to Common Shares (collectively,
"Shares") means, on any date of determination, all issued and outstanding
Shares, and includes all such Shares issuable in respect of outstanding scrip or
any certificates representing fractional interests in such Shares; provided,
however, that any such Shares directly or indirectly owned or held by or for the
account of the Company or any Subsidiary of the Company shall not be deemed
"Outstanding" for purposes hereof.
"Person" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
"Principal Amount" means, for any date of calculation, the principal
sum set forth in the first paragraph of this Debenture (but only such principal
amount as to which the Holder has not theretofore either (x) furnished a
Conversion Notice in compliance with Section 3.2 or (y) surrendered in payment
of product orders placed pursuant to the Foundry Agreement pursuant to Section
3.7).
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Company.
All references to "cash" or "$" herein mean currency of the United
States of America.
ARTICLE 2
EXCHANGES AND TRANSFER
Section 2.1 Exchange and Registration of Transfer of Debentures. The Holder
may, at its option, surrender this Debenture at the principal executive offices
of the Company and receive in exchange therefore a Debenture or Debentures, each
in integral multiple of $100,000 in excess thereof, dated as of the date of this
Debenture, and, subject to Section 4.2, payable to such Person or order as may
be designated by such Holder. The aggregate Principal Amount of the Debenture or
Debentures exchanged in accordance with this Section 2.1 shall equal the
aggregate unpaid Principal Amount of this Debenture as of the date of such
surrender; provided, however, that upon any exchange pursuant to this Section
2.1 there shall be filed with the Company the name and address for all purposes
hereof of the Holder or Holders of the Debenture or Debentures delivered in such
exchange. The debenture exchanged in accordance with this Section 2.1 shall be
in substantially the same form as this Debenture. This Debenture, when presented
for registration of transfer or for exchange or conversion, shall (if so
required by the Company) be duly endorsed, or be accompanied by a written
instrument of transfer in form reasonably
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satisfactory to the Company duly executed, by the Holder duly authorized in
writing. Notwithstanding the above, the Holder shall not transfer this Debenture
or any rights hereunder to any person or entity which is engaged in a business
that in the reasonable judgment of the Company is in competition with the
Company.
Section 2.2 Loss, Theft, Destruction of Debenture. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Debenture and, in the case of any such loss, theft or destruction, upon
receipt of indemnity or security reasonably satisfactory to the Company, or, in
the case of any such mutilation, upon surrender and cancellation of the entirety
of this Debenture, the Company shall make, issue and deliver, in lieu of such
lost, stolen, destroyed or mutilated Debenture, a new Debenture of like tenor
and unpaid Principal Amount dated as of the date hereof (which shall accrue
interest from the most recent Interest Payment Due Date on which an interest
payment was made in full). This Debenture shall be held and owned upon the
express condition that the provisions of this Section 2.2 are exclusive with
respect to the replacement of a mutilated, destroyed, lost or stolen Debenture
and shall preclude any and all other rights and remedies notwithstanding any law
or statute existing or hereafter enacted to the contrary with respect to the
replacement of negotiable instruments or other securities without the surrender
thereof.
Section 2.3 Who Deemed Absolute Owner. The Company may deem the Person in
whose name this Debenture shall be registered upon the registry books of the
Company to be, and may treat it as, the absolute owner of this Debenture
(whether or not this Debenture shall be overdue) for the purpose of receiving
payment of or on account of the Principal Amount of this Debenture or the
interest thereon, for the conversion or maturity of this Debenture and for all
other purposes, and the Company shall not be affected by any notice to the
contrary. All such payments and such conversions shall be valid and effectual to
satisfy and discharge the liability upon this Debenture to the extent of the sum
or sums so paid or the conversion or conversions so made.
Section 2.4 Repayment at Maturity. At the Maturity Date, the Company shall
repay the outstanding Principal Amount of this Debenture in whole at one hundred
percent (100%) of the outstanding Principal Amount thereof, together with all
accrued and unpaid interest thereon, to the Maturity Date.
ARTICLE 3
CONVERSION OF DEBENTURE
Section 3.1 Conversion. At the option of the Holder, this Debenture may be
converted, either in whole or in part, up to the full Principal Amount hereof
(in increments of $100,000 in Principal Amount or any integral multiple of
$100,000 in excess thereof) into Common Shares (calculated as to each such
conversion to the nearest 1/100th of a share), at any time and from time to time
on any Business Day after the Closing Date (the "Initial Conversion Date"),
subject to the limitations in the next sentence and compliance with Section 3.2.
The number of Common Shares into which this Debenture may be converted is equal
to (x) the Principal Amount of the Debenture being converted at the Conversion
Date (plus any accrued and unpaid interest on the Debenture being converted
through the Conversion Date) divided by
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(y) the Conversion Price. At the Company's option, the amount of accrued and
unpaid interest as of the Conversion Date shall not be subject to conversion but
instead may be paid in cash as of the Conversion Date; if the Company elects to
convert the amount of accrued and unpaid interest at the Conversion Date into
Common Stock, the Common Stock issued to the Holder shall be valued at the
Conversion Price.
Section 3.1 Automatic Conversion. At the option of the Company, this
Debenture including any accrued interest may be converted, either in whole or in
part, on any Business Day at the Conversion price to Common Stock if the average
closing price of the shares traded exceeds $0.49 per share for 10 consecutive
trading days.
Section 3.2 Exercise of Conversion Privilege. Conversion of this Debenture,
as the case may be, may be exercised, in whole or in part, on any Business Day
by the Holder by delivering an executed and completed Conversion Notice to the
Company along with the Debenture or Debentures to be so converted. The
Conversion Notice shall specify the aggregate principal amount of Debentures to
be converted. Each date on which a Conversion Notice is delivered to the Company
in accordance with the provisions of this Section 3.2 shall constitute a
Conversion Date. The Company shall convert the Debenture and issue the Common
Stock Issued At Conversion in the manner provided below in this Section 3.2, and
all voting and other rights associated with the beneficial ownership of the
Common Stock Issued At Conversion shall vest with the Holder, effective as of
the Conversion Date at the time specified in the applicable Conversion Notice.
The Conversion Notice also shall state the name or names (with addresses) of the
Persons who are to become the holders of the Common Stock Issued At Conversion,
if any, in connection with such conversion. Upon surrender for conversion, this
Debenture shall be accompanied by a proper assignment hereof to the Company or
be endorsed in blank. As promptly as practicable after the receipt of the
Conversion Notice as aforesaid, but in any event not more than five (5) Business
Days after the Company's receipt of the applicable Conversion Notice and all
associated Debentures, the Company shall (i) issue the Common Stock Issued At
Conversion in accordance with the provisions of this Article 3, and (ii) cause
to be mailed for delivery by overnight courier or transmit to the Holder (x) a
certificate or certificate(s) representing the number of whole Common Shares, if
any, to which the Holder is entitled by virtue of such Conversion, (y) cash, as
provided in Section 3.3, in respect of any fraction of a Common Share issuable
upon such Conversion and (z) if, upon any Conversion, the Company chooses to pay
accrued and unpaid interest in cash, cash in the amount of accrued and unpaid
interest on the Debenture being converted as of the Conversion Date. Such
conversion shall be deemed to have been effected at the time at which the
Conversion Notice indicates so long as this Debenture shall have been
surrendered as aforesaid at such time, and at such time the rights of the Holder
of this Debenture, as such (except if and to the extent that any Principal
Amount thereof remains unconverted), shall cease and the Person or Persons in
whose name or names the Common Stock, if any, Issued at Conversion shall be
issuable shall be deemed to have become the holder or holders of record of the
Common Shares represented thereby, and all voting and other rights associated
with the beneficial ownership of such Common Shares shall at such time vest with
such Person or Persons. The Conversion Notice shall constitute a contract
between the Holder and the Company, whereby the Holder shall be deemed to
subscribe for the number of Common Shares which it will be entitled to receive
upon such conversion and, in payment and satisfaction of such subscription (and
for any cash adjustment to which it is entitled pursuant to
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Section 3.4), to surrender this Debenture and to release the Company from all
liability thereon (except if and to the extent that any Principal Amount thereof
remains unconverted). No cash payment aggregating less than $1.00 shall be
required to be given.
Section 3.3 Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be delivered upon conversion of this
Debenture. Instead of any fractional Common Shares which otherwise would be
delivered upon conversion of this Debenture, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
multiplied by the Current Market Price on the Conversion Date. No cash payment
of less than $1.00 shall be required to be given.
Section 3.4 Adjustments.
(a) In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another Person (where the
Company is not the survivor or where there is a change in or distribution with
respect to the Common Stock of the Company), sell, convey, transfer or otherwise
dispose of all or substantially all its property, assets or business to another
Person, or effectuate a transaction or series of related transactions in which
more than 50% of the voting power of the Company is disposed of (each, a
"Fundamental Corporate Change") and, pursuant to the terms of such Fundamental
Corporate Change, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of any
nature whatsoever (including warrants or other subscription or purchase rights)
in addition to or in lieu of common stock of the successor or acquiring
corporation ("Other Property"), are to be received by or distributed to the
holders of Common Stock of the Company, then the Holder of this Debenture Stock
shall have the right thereafter, at its sole option, either (x) to receive the
number of shares of common stock of the successor or acquiring corporation or of
the Company, if it is the surviving corporation, and Other Property as is
receivable upon or as a result of such Fundamental Corporate Change by a holder
of the number of shares of Common Stock into which such the outstanding portion
of the Debenture may be converted at the Conversion Price applicable immediately
prior to such Fundamental Corporate Change or (y) require the Company, or such
successor, resulting or purchasing corporation, as the case may be, to, without
benefit of any additional consideration therefore, to execute and deliver to the
Holder a debenture with substantial identical rights, privileges, powers,
restrictions and other terms as this Debenture in an amount equal to the amount
this Debenture which is outstanding immediately prior to such Fundamental
Corporate Change. For purposes of this Section 3.4(b), "common stock of the
successor or acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to prepayment and shall
also include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 3.4(a) shall similarly
apply to successive Fundamental Corporate Changes.
(b) If the Company shall hereafter pay a dividend or make a
distribution to Holders of the Outstanding shares of Common Stock in shares of
Common Stock, the
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Conversion Price in effect at the opening of business on the date following the
date fixed for the determination of shareholders entitled to receive such
dividend or other distribution shall be reduced by multiplying such Conversion
Price by a fraction of which the numerator shall be the number of shares of
Common Stock Outstanding at the close of business on the record date fixed for
such determination and the denominator shall be the sum of such number of shares
and the total number of shares constituting such dividend or other distribution,
such reduction to become effective immediately after the opening of business on
the day following such record date. If any dividend or distribution of the type
described in this Section 3.4(b) is declared but not so paid or made, the
Conversion Price shall again be adjusted to the Conversion Price which would
then be in effect if such dividend or distribution had not been declared;
(c) If the Outstanding shares of Common Stock shall be subdivided or
reclassified into a greater number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day following the day upon
which such subdivision becomes effective shall be proportionately reduced, and,
conversely, if the Outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision or
combination becomes effective
Section 3.5 Optional Prepayment. At any time after the Effective Date and
prior to the Maturity Date, the Company, upon notice delivered to the Holder as
provided in Section 3.6, may prepay this Debenture in whole or in part at the
Optional Prepayment Price, together with all accrued and unpaid interest thereon
to the date of prepayment.
Section 3.6 Notice of Prepayment. Notice of optional prepayment pursuant to
Section 3.5 ("Notice of Optional Prepayment") shall be provided by the Company
to the Holder in writing at the Holder's last address appearing in the Company's
security registry not less than thirty (30) Business Days prior to the
prepayment date and no more than forty five (45) Business Days prior to the
prepayment date, which notice shall be in substantially the form of Exhibit B
hereto, specify the prepayment date and refer to Section 3.5 and this Section
3.6. Notwithstanding any sending of a Notice of Optional Prepayment, the Holder
shall have the right to convert all or any portion of the Debentures pursuant to
Section 3.2 until the applicable prepayment date.
Section 3.8 Surrender of Debentures. Upon any prepayment of this Debenture
pursuant to Section 3.5, or upon maturity pursuant to Section 2.4, or upon the
Company' demand pursuant to Section 3.7, the Holder shall either deliver this
Debenture by hand to the Company at its principal executive offices or surrender
the same to the Company at such address by nationally recognized overnight
courier. Payment of the prepayment price pursuant to Sections 3.5, or the amount
due on maturity specified in Section 2.4, shall be made by the Company to the
Holder against receipt of this Debenture (as provided in this Section 3.8) by
wire transfer of immediately available funds to such account(s) as the Holder
shall specify by written notice to the Company. If payment of such prepayment
price is not made in full by the prepayment date, or the amount
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due on maturity is not paid in full by the Maturity Date, the Holder shall again
have the right to convert this Debenture as provided in Article 3 hereof or to
declare an Event of Default.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
Section 4.1 Status of Debenture. This Debenture is an unsecured obligation
of the Company, and constitutes a legal, valid and binding obligation of the
Company, enforceable in accordance with its terms subject, as to enforceability,
to general principles of equity and to principles of bankruptcy, insolvency,
reorganization and other similar laws of general applicability relating to or
affecting creditors' rights and remedies generally.
Section 4.2 Restrictions on Transfer. This Debenture, and any Common Shares
deliverable upon the conversion hereof, have not been registered under the
Securities Act. The Holder by accepting this Debenture agrees that the Debenture
and the shares of Common Stock to be acquired as interest on and upon conversion
of this Debenture may not be assigned or otherwise transferred unless and until
(i) the Company has received the opinion of counsel for the Holder that the
Debenture or such shares may be sold pursuant to an exemption from registration
under the Securities Act or (ii) a registration statement relating to the
Debenture or such shares has been filed by the Company and declared effective by
the SEC.
Each certificate for shares of Common Stock deliverable hereunder
shall bear a legend as follows unless and until such securities have been sold
pursuant to an effective registration statement under the Securities Act:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933 (the
"Act"). The securities may not be offered for sale, sold or
otherwise transferred except (i) pursuant to an effective
registration statement under the Act or (ii) pursuant to an
exemption from registration under the Act in respect of
which the issuer of this certificate has received an opinion
of counsel satisfactory to the issuer of this certificate to
such effect. Copies of the agreement covering both the
purchase of the securities and restricting their transfer
may be obtained at no cost by written request made by the
holder of record of this certificate to the Secretary of the
issuer of this certificate at the principal executive
offices of the issuer of this certificate."
This note will be considered to have been issued with
Original Issue Discount ("OID") for purposes of sections
1271 et. seq. of the Internal Revenue Code of 1986, as
amended. The issue date of this note is August 21, 2002. For
information regarding the issue price, amount of OID per
$1,000 of principal amount and yield to maturity of this
note for purposes of the OID rules, please contact Gary
Jones at eMagin Corporation.
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Notwithstanding the above, the Holder shall not transfer this Debenture or
any Common Shares issueable or any rights hereunder to any person or entity
which is engaged in a business that in the reasonable judgment of the Company is
in competition with the Company.
ARTICLE 5
COVENANTS
Section 5.1 Notice of Default. If any one or more events occur which
constitute or which, with notice, lapse of time, or both, would constitute an
Event of Default, or if the Holder shall demand the delivery of Common Shares or
take any other action permitted upon the occurrence of any such Event of
Default, the Company shall forthwith give notice to the Holder, specifying the
nature and status of the Event of Default or other event or of such demand or
action, as the case may be.
Section 5.2 Payment of Obligations. So long as this Debenture shall be
outstanding, the Company shall pay, extend, or discharge at or before maturity,
all its respective material obligations and liabilities, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings.
Section 5.3 Compliance with Laws. So long as this Debenture shall be
outstanding, the Company shall comply with all applicable laws, ordinances,
rules, regulations, and requirements of governmental authorities, except for
such noncompliance which would not have a material adverse effect on the
business, properties, prospects, condition (financial or otherwise) or results
of operations of the Company.
Section 5.4 Inspection of Property, Books and Records. So long as this
Debenture shall be outstanding, the Company shall keep proper books of record
and account in which full, true and correct entries shall be made of all
material dealings and transactions in relation to its business and activities
and shall permit representatives of the Holder at the Holder's expense to visit
and inspect any of its respective properties, to examine and make abstracts from
any of its respective books and records, not reasonably deemed confidential by
the Company, and to discuss its respective affairs, finances and accounts with
its respective officers and independent public accountants, all at such
reasonable times and as often as may reasonably be desired.
ARTICLE 6
REMEDIES
Section 6.1 Events of Default. "Event of Default" wherever used herein
means any one of the following events:
(a) the Company shall default in the payment of principal of or
interest on this Debenture as and when the same shall be due and payable and, in
the case of an interest payment default, such default shall continue for five
(5) Business Days after the date such interest payment was due, or the Company
shall fail to perform or observe in any material respect any other covenant,
agreement, term, provision, undertaking or commitment under this Debenture
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and such default shall continue for a period of twenty (20) Business Days after
the delivery to the Company of written notice that the Company is in default
hereunder; or
(b) any of the representations or warranties made by the Company
herein or in the Securities Purchase Agreement shall be false in any material
respect on the Closing Date; or
(c) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company under the Bankruptcy
Code or any other applicable Federal or state law, or appointing a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Company or of any substantial part of its property, or ordering the winding-up
or liquidation of its affairs, and any such decree or order continues and is
unstayed and in effect for a period of 60 calendar days; or
(d) the institution by the Company or any Subsidiary of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the
Bankruptcy Code or any other applicable federal or state law, or the consent by
it to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Company of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as and when they become due, or the
taking of corporate action by the Company in furtherance of any such action; or
(e) a final judgment or final judgments for the payment of money shall
have been entered by any court or courts of competent jurisdiction against the
Company and remains undischarged for a period (during which execution shall be
effectively stayed) of thirty (30) days, provided that the aggregate amount of
all such judgments at any time outstanding (to the extent not paid or to be
paid, as evidenced by a written communication to that effect from the applicable
insurer, by insurance) exceeds $1,000,000; or
(f) it becomes unlawful for the Company to perform or comply with its
obligations under this Debenture in any material respect; or
(g) the Company shall default (giving effect to any applicable grace
period) in the payment of principal or interest as and when the same shall
become due and payable, under any indebtedness, individually of more than
$1,000,000.
Section 6.2 Acceleration of Maturity; Rescission and Annulment. If an Event
of Default occurs and is continuing, then and in every such case any Holder may
rescind any outstanding Conversion Notice and obtain payment for the entire
outstanding Principal Amount of the Debenture which remains unconverted, by a
notice in writing to the Company, and upon any such declaration the entire
Principal Amount of this Debenture, plus accrued but unpaid interest, shall
become immediately due and payable by virtue of such rescission; provided,
however, in the case of any Event of Default described in paragraphs (c) or (d)
above, the entire
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then outstanding Principal Amount of this Debenture, together with all accrued
and unpaid interest thereon, automatically shall become immediately due and
payable without the necessity of any notice or declaration as aforesaid.
Section 6.3 Default Interest Rate. If any portion of the principal of or
interest on the Debenture shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise) such principal of and interest on the
Debenture which is due and owing but not paid shall, without limiting the
Holder's rights under this Debenture, bear interest at the Default Interest Rate
until paid in full.
Notwithstanding anything herein to the contrary, if at any time the
applicable interest rate as provided for herein shall exceed the maximum lawful
rate which may be contracted for, charged, taken or received by the Lender in
accordance with applicable laws of the State of New York (the "Maximum Rate"),
the rate of interest applicable to the Debenture shall be limited to the Maximum
Rate.
Section 6.4 Remedies Not Waived. No course of dealing between the Company
and the Holder or any delay in exercising any rights hereunder shall operate as
a waiver by the Holder.
ARTICLE 7
MISCELLANEOUS
Section 7.1 Notice of Certain Events. In the case of the occurrence of any
event described in Section 3.4 of this Debenture, the Company shall cause to be
mailed to the Holder of this Debenture at its last address as it appears in the
Company's security registry, at least twenty (20) days prior to the applicable
record, effective or expiration date hereinafter specified (or, if such twenty
(20) days' notice is not possible, at the earliest possible date prior to any
such record, effective or expiration date), a notice thereof, including, if
applicable, a statement of (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, issuance or granting of rights, options
or warrants, or if a record is not to be taken, the date as of which the holders
of record of Common Stock to be entitled to such dividend, distribution,
issuance or granting of rights, options or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of record of Common Stock will be
entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up.
Section 7.2 Register. The Company shall keep at its principal office a
register in which the Company shall provide for the registration of this
Debenture. Upon any transfer of this Debenture in accordance with Articles 2 and
3 hereof, the Company shall register such transfer on the Debenture register.
Section 7.3 Withholding. To the extent required by applicable law, the
Company may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing
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authority in the United States having jurisdiction over the Company from any
payments made pursuant to this Debenture.
Section 7.4 Transmittal of Notices. Except as may be otherwise provided
herein, any notice or other communication or delivery required or permitted
hereunder shall be in writing and shall be delivered personally or transmitted
by telecopy or sent by certified mail, postage prepaid, or by a nationally
recognized overnight courier service, and shall be deemed given when so
delivered personally or by telecopy or by overnight courier service, or, if
mailed, four (4) days after the date of deposit in the United States mails, as
follows:
(l) if to the Company, to:
eMagin Corporation
2070 Route 52
Hopewell Junction, NY 12533
Attention: Gary Jones, CEO
Tel: (845) 892-1900
Fax: (845) 892-1901
with a copy to:
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attention: S. Ward Atterbury
Tel: (212) 819-8200
Fax: (212) 354-8113
(2) if to the Holder, to the address of such Holder as shown on the
books of the Company.
Mid-Century Insurance Company
4680 Wilshire Blvd.
Los Angeles, CA 90010
Attn: Laszlo Heredy
Vice President & Chief Investment Officer
Farmers Group, Inc.
(323) 932-7448
Each of the Holder or the Company may change the foregoing address by notice
given pursuant to this Section 7.4.
Section 7.5 Governing Law. THIS DEBENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING
EFFECT TO CONFLICTS OF LAWS PRINCIPLES). WITH RESPECT TO ANY SUIT, ACTION OR
PROCEEDINGS RELATING TO THIS
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DEBENTURE, THE COMPANY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF
THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED
IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK AND HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT ANY SUCH SUIT, ACTION
OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SUBJECT TO APPLICABLE
LAW, THE COMPANY AGREES THAT FINAL JUDGMENT AGAINST IT IN ANY LEGAL ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS DEBENTURE SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN ANY OTHER JURISDICTION WITHIN OR OUTSIDE THE UNITED STATES BY
SUIT ON THE JUDGMENT, A CERTIFIED COPY OF WHICH JUDGMENT SHALL BE CONCLUSIVE
EVIDENCE THEREOF AND THE AMOUNT OF ITS INDEBTEDNESS, OR BY SUCH OTHER MEANS
PROVIDED BY LAW.
Section 7.6 Headings. The headings of the Articles and Sections of this
Debenture are inserted for convenience only and do not constitute a part of this
Debenture.
Section 7.7 Recovery. Each of the Holder and the Company hereby agrees that
to the extent that it recovers damages for a breach under this Debenture, such
party shall not be entitled to recover damages for the same breach under the
Securities Purchase Agreement.
Section 7.8 Payment Dates. Whenever any payment hereunder shall be due on a
day other than a Business Day, such payment shall be made on the next succeeding
Business Day.
Section 7.9 Binding Effect. Each Holder by accepting this Debenture agrees
to be bound by and comply with the terms and provisions of this Debenture.
Section 7.10 No Stockholder Rights. Except as otherwise provided herein,
this Debenture 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.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
by its duly authorized officer on the date of this Debenture.
EMAGIN CORPORATION
By:
------------------------------------------
Name: Gary Jones
Title: Chief Executive Officer
MID-CENTURY INSURANCE COMPANY
By:
------------------------------------------
Name: Laszlo Heredy
Title: Vice President
EXHIBIT A
[FORM OF CONVERSION NOTICE]
TO: eMagin Corporation
2070 Route 52
Hopewell Junction, NY 12533
Attn:
The undersigned owner of this 8% Convertible Debenture due August 21,
2004 (the "Debenture") issued by eMagin Corporation (the "Company") hereby
irrevocably exercises its option to convert $_________________ Principal Amount
of the Debenture and accrued and unpaid interest thereon to the date of this
Notice into shares of the common stock, par value $.001 per share ("Common
Stock"), of the Company in accordance with the terms of the Debenture. The
undersigned hereby instructs the Company to convert the portion of the Debenture
specified above into shares of Common Stock Issued At Conversion in accordance
with the provisions of Article 3 of the Debenture. The undersigned directs that
the Common Stock and certificates therefore deliverable upon conversion, the
Debenture recertificated in the Principal Amount not being surrendered for
conversion hereby, plus accrued and unpaid interest thereon to the date of this
Notice, together with any check in payment for fractional Common Stock, be
registered in the name of and delivered to the undersigned unless a different
name has been indicated below. All capitalized terms used and not defined herein
have the respective meanings assigned to them in the Debenture. The conversion
pursuant hereto shall be deemed to have been effected at the date and time
specified below, and at such time the rights of the undersigned as a Holder of
the Principal Amount of the Debenture set forth above shall cease and the Person
or Persons in whose name or names the Common Stock Delivered at Conversion shall
be registered subject to the Registration Rights Agreement shall be deemed to
have become the holder or holders of record of the Common Shares represented
thereby and all voting and other rights associated with the beneficial ownership
of such Common Shares shall at such time vest with such Person or Persons.
Date and time: _______________________
---------------------------------------------
Signature
Fill in for registration of Debenture:
Please print name and address
(including ZIP code number):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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A-1
EXHIBIT B
[FORM OF COMPANY PREPAYMENT NOTICE]
Dated:______________
TO: [Holder]
[Address]
eMagin Corporation (the "Company") hereby irrevocably exercises its
option to prepay $__________ Principal Amount of the 8% Convertible Debenture
due August 21, 2004 issued by the Company (the "Debenture"), at a prepayment
price of $_________ and of accrued and unpaid interest thereon, in accordance
with the terms of the Debenture. The undersigned hereby instructs the Holder to
surrender the portion of the Debenture specified above in accordance with the
provisions of Sections 3.5 and 3.6 of the Debenture. Upon receipt of such
surrendered Debenture, the Company shall deliver the Debenture recertificated in
the Principal Amount, if any, not being called for prepayment hereby, together
with the check in payment of the prepayment price and for fractional Common
Stock, such recertificated Debenture to be issued in your name and delivered to
you or issued in the name of such other Person as you may designate and
delivered to such other Person. All capitalized terms used and not defined
herein have the respective meanings assigned to them in the Debenture.
Very truly yours,
eMagin Corporation
By:
------------------------------------------
Name:
Title: