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NEITHER THIS NOTE NOR ANY SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
NONE OF SUCH SECURITIES MAY BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO SUCH SECURITIES UNDER SUCH ACT UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OF SUCH ACT.
HOWTEK, INC.
CONVERTIBLE PROMISSORY NOTE
$1,000,000 Hudson, New Hampshire
April 4, 1996
Howtek, Inc., a Delaware corporation (the "Company"), the principal
office of which is located at 21 Park Avenue, Hudson, New Hampshire, for value
received, hereby promises to pay to the order of Dr. Lawrence Howard the
principal sum of One Million Dollars ($l,000,000), or such lesser amount as then
equals the outstanding principal amount hereof, together with any unpaid accrued
interest hereon, as set forth below, on January 4, 1998. Payment of all amounts
due hereunder shall be made in lawful currency of the United States of America,
at Dr. Lawrence Howard's address at 660 Madison Avenue, New York, New York
10022, or at such other address as the Holder specifies.
The following is a statement of certain rights of the Holder of this
Note, to which the Holder hereof, by the acceptance of this Note, agrees:
1. Definitions. As used in this Note, the following terms,
unless the context otherwise requires, have the following meanings:
(i) "Company" includes the Company and any other
corporation or entity that succeeds to or assumes the obligations of the Company
under this Note.
(ii) "Holder" means any person who shall at the time be
the holder of this Note.
2. Interest.
2.1 Accrual. This Note shall bear, and the Company shall
pay, interest on the principal amount hereof outstanding from time to time at a
variable rate per annum equal to (a) the rate publicly announced from time to
time by Citibank, N.A. at its principal office in New York, New York, as its
"base" rate (the "Base Rate"), plus two percent (2%), or (b) if less, the
maximum rate permitted by law. Each change in the interest rate hereunder shall
take effect simultaneously with the corresponding change in the Base Rate.
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2.2 Payment. Accrued and unpaid interest shall be due and
payable (a) monthly on the third day of the month, (b) at any time that the
outstanding principal hereof is due and payable, (c) upon any conversion of the
outstanding principal hereof pursuant to Section 5 (to the extent such interest
is not converted pursuant to such Section 5) and (d) to the extent provided in
Section 3 hereof, upon any prepayment pursuant to said Section 3.
2.3 Security. The principal amount of and all interest
accrued under this Note shall be secured pursuant to a security agreement (the
"Security Agreement") dated the date hereof between the Company and the Holder.
3. Prepayment. Upon twenty (20) days' prior written notice to
the Holder, the Company may at any time prepay, in whole or in part (but, if in
part only, then not less than $25,000 in principal amount or an integral
multiple thereof), the principal amount of this Note, without penalty or
premium. Each notice of prepayment under this Section 3 shall specify the date
fixed for such prepayment, the principal amount hereof to be prepaid on such
date, the amount of unpaid interest that will have accrued to such date on such
principal amount and the then effective Conversion Price (as defined in Section
5) and shall state that the Holder may, in lieu of accepting such payment,
convert all or any part of such principal amount and accrued interest pursuant
to Section 5 hereof at any time prior to the date so fixed for such prepayment.
On the date so fixed for such prepayment, the principal amount specified in such
notice of prepayment, together with all unpaid interest on such principal amount
accrued to such date, shall become due and payable.
4. Events of Default. If any Event of Default, as defined in
Section 4.1, occurs and is continuing, the entire principal amount of and unpaid
accrued interest on this Note may be declared immediately due and payable.
4.1 The occurrence of any one of the following shall
constitute an Event of Default under this Note:
(a) Failure to pay any amount of principal or interest
under this Note when due.
(b) The Company makes an assignment for the benefit of
creditors, becomes insolvent, dissolves, or commences or becomes subject to any
proceeding under the United States Bankruptcy Code or any other insolvency,
receivership, reorganization, or debtors relief law.
(c) The Company shall enter into any merger or
consolidation, or liquidate, wind-up or dissolve, or convey, sell, lease or
otherwise transfer all or substantially all of its assets.
(d) The Company shall breach any provision of this Note
or of the Security Agreement.
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4.2 The Company shall pay all costs and expenses,
including reasonable attorneys' fees, paid or incurred by Holder to enforce this
Note whether upon maturity or acceleration.
5. Conversion.
5.1 Voluntary Conversion. The Holder of this Note has the
right, at the Holder's option, at any time prior to payment in full of the
principal balance of this Note, to convert this Note, in accordance with the
provisions of Section 5.3 hereof, in whole or in part, into fully paid and
non-assessable shares of Common Stock, $0.01 per share par value, of the Company
(the "Common Stock"). The number of shares of Common Stock into which this Note
may be converted ("Conversion Shares") shall be determined by dividing the
aggregate principal amount together with all accrued interest to the date of
conversion by the Conversion Price (as defined below) in effect at the time of
such conversion. The price at which shares of Common Stock shall be delivered
upon conversion shall be $3.00 per share of Common Stock, which price represents
a 20% discount off the closing bid price of the Company's Common Stock as quoted
on the NASDAQ National Market as of the close of business on the date next
preceding the date of this Note.
5.2 Optional Conversion Upon Consummation of Offering. At
the option of the Holder, (a) the entire principal amount of this Note and, at
the option of the Holder, all interest accrued under this Note shall be
converted into shares of Common Stock at the Conversion Price at the time in
effect immediately prior to the closing of a firmly underwritten public offering
(an "Offering") pursuant to a registration statement filed by the Company under
the Securities Act of 1933, as amended (the "Act"), with aggregate net proceeds
to the Company of at least $2,000,000 and at a price of not less than $5.00 per
share of Common Stock (as presently constituted, subject to proportionate
adjustment in the event of any stock split, stock dividend, reverse stock split,
combination, consolidation, reclassification or similar event), or (b) the
entire principal amount of this Note and all interest accrued under this Note
shall be paid to the Holder upon the closing of an Offering, or (c) the Note
shall remain outstanding after the closing of an Offering.
5.3 Conversion Procedure.
5.3.1 Notice of Conversion Pursuant to Section 5.1.
To exercise its conversion right pursuant to Section 5.1, the Holder shall
surrender this Note to the office of the Company and shall give written notice
by mail, postage prepaid, to the Company at its principal corporate office, of
the election to convert the same pursuant to Section 5.1, which notice shall
specify the principal amount of the Note to be converted, the amount of accrued
interest to be converted, and the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Company shall, as
soon as practicable thereafter, issue and deliver at such office to the Holder
of this Note a certificate or certificates for the number of shares of Common
Stock issuable upon such conversion. Such conversion shall be deemed to have
been made
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immediately prior to the close of business on the date of such surrender of this
Note or on such subsequent date as the holder specifies in the notice of
conversion as the date upon which such conversion is to be effected, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date.
5.3.2 Notice of Conversion Pursuant to Section 5.2.
If an Offering described in Section 5.2 is to be consummated, not less than ten
days' prior written notice shall be delivered to the Holder of this Note at the
address last shown on the records of the Company for the Holder or given by the
Holder to the Company for the purpose of notice or, if no such address appears
or is given, at the place where the principal executive office of the Company is
located, notifying the Holder of the Offering to be consummated and the Holder's
options pursuant to Section 5.2, specifying the Conversion Price, the date on
which such conversion would occur if the Holder chooses to convert and
instructing such Holder as to where to surrender this Note to the Company, in
the manner and at the place designated if the Holder chooses to convert pursuant
to Section 5.2(a) or (b).
5.4 Delivery of Stock Certificates. As promptly as
practicable after the conversion of this Note, the Company at its expense will
issue and deliver to the Holder of this Note a certificate or certificates for
the number of full shares of Common Stock issuable upon such conversion.
5.5 Mechanics and Effect of Conversion. No fractional
shares of Common Stock shall be issued upon conversion of this Note. In lieu of
the Company issuing any fractional shares to the Holder upon the conversion of
this Note, the Company shall pay to the holder, the amount of outstanding
principal that is not so converted such payment to be in the form as provided
below. Upon the conversion of this Note pursuant to Section 5.1 above, the
Holder shall surrender this Note, duly endorsed, at the principal office of the
Company. At its expense, the Company shall, as soon as practicable thereafter,
issue and deliver to such Holder at such principal office a certificate or
certificates for the number of shares of such Common Stock which the Holder
shall be entitled to upon such conversion (bearing such legends as are required
by applicable state and federal securities laws in the opinion of counsel to the
Company), together with any other securities and property to which the Holder is
entitled upon such conversion under the terms of this Note, including a check
payable to the Holder for any cash amounts payable as described above. In the
event of any conversion of this Note pursuant to Section 5.2 above, such
conversion shall be deemed to have been made immediately prior to the closing of
the public offering referred to therein and on such date the Holder of this Note
shall be treated for all purposes as the record Holder of the shares of Common
Stock issuable upon such conversion. The Company shall pay the Holder, upon the
date of such conversion, any interest accrued and unpaid or unconverted to and
including the date of such conversion.
6. Conversion Price Adjustments.
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6.1 Adjustments for Stock Splits and Subdivisions. If the
Company at any time or from time to time after the date hereof fixes a record
date for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of this Note shall be appropriately decreased so that the
number of shares of Common Stock issuable upon conversion of this Note shall be
increased in proportion to such increase of outstanding shares.
6.2 Adjustments for Other Distributions. If the Company
declares a distribution payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends payable out of earned surplus at the same rate as that of the last
such cash dividend theretofore paid) or options or rights not referred to in
subsection 6.1, then, in each such case the Holder hereof shall be entitled,
upon conversion of all or part of this Note, to a proportionate share of any
such distribution as though such Holder was the holder of the number of shares
of Common Stock of the Company into which this Note is convertible as of the
record date fixed for the determination of the holders of Common Stock of the
Company entitled to receive such distribution.
6.3 Adjustments for Reverse Stock Splits. If the number
of shares of Common Stock outstanding at any time after the date hereof is
decreased by a combination of the outstanding shares of Common Stock, then,
following the record date of such combination, the Conversion Price for this
Note shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion hereof shall be decreased in proportion to such
decrease in outstanding shares.
6.4 Notices of Record Date, etc. In the event of:
(a) any taking by the Company of a record of the
holders of any class of securities of the Company for the purpose of determining
the holders thereof who are entitled to receive any dividend (other than a cash
dividend payable out of earned surplus at the same rate as that of the last such
cash dividend theretofore paid) or other distribution, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of
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all or substantially all of the assets of the Company to any other person or any
consolidation or merger involving the Company; or
(c) any voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
the Company will mail to the holder of this Note at least ten (10) days prior to
the earliest date specified therein, a notice specifying (i) the date on which
any such record is to be taken for the purpose of the dividend, distribution or
right, and the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding-up is expected to
become effective and the record date for determining stockholders entitled to
vote thereon.
6.5 Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of this Note such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of the Note; and if at any
time the number of authorized but unissued shares of Common Stock is not
sufficient to effect the conversion of the entire outstanding principal amount
of this Note, in addition to such other remedies as are available to the Holder
of this Note, the Company shall use its best efforts to take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares Common Stock to such number of shares as shall be
sufficient for such purposes.
7. Registration. The Company shall, promptly after request by
the Holder, file a registration statement on Form S-3 (or, if at the time, the
Company shall not be eligible for use of such form, such other form as the
Company shall then be eligible to use) with the Securities and Exchange
Commission and use its best efforts to cause such registration statement to
become effective as soon as practicable thereafter, covering the shares of
Common Stock issued and/or issuable upon conversion of this Note. The expenses
associated with the registration statement shall be borne by the Company. The
Company agrees to indemnify the Holder against losses arising from any
misstatements contained in the registration statement other than those based on
written information supplied to the Company by the Holder.
8. Waiver. Borrower waives presentment, demand, protest,
notice of protest, notice of dishonor, notice of nonpayment, and any and all
other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note, except only to the extent any
such notice or demand is expressly required by the terms hereof. No delay by the
Holder hereof in exercising any power or right hereunder shall operate as a
waiver of any power or right.
9. Application of Payments. All payments hereunder shall be
applied first, toward the payment or reimbursement of any fees, costs or
expenses payable or
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reimbursable by the Company hereunder; second, toward the payment of accrued and
unpaid interest hereunder; and third, toward the repayment of outstanding
principal.
10. Assignment. The rights and obligations of the Company and
the Holder of this Note shall be binding upon and benefit the successors,
assigns, heirs, administrators and transferees of the parties.
11. Amendment. Any provision of this Note may be amended,
waived or modified only by a writing signed by the Company and the Holder.
12. No Stockholder Rights. Nothing contained in this Note
shall be construed as conferring upon the Holder or any other person the right
to vote or to consent or to receive notice as a stockholder in respect of
meetings of stockholders for the election of directors of the Company or any
other matters or any rights whatsoever as a stockholder of the Company; and no
dividends or interest shall be payable or accrued in respect of this Note or the
interest represented hereby or the Conversion Shares obtainable hereunder until,
and only to the extent that, this Note has been converted.
13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of New Hampshire, excluding
that body of law relating to conflict of laws, except that the provisions of
Sections 5 and 6 shall be governed by and construed in accordance with the laws
of the State of Delaware.
14. Headings, References. All headings used herein are used
for convenience only and shall not be used to construe or interpret this Note.
Except where otherwise indicated, all references herein to Sections refer to
Sections hereof.
IN WITNESS WHEREOF, the Company has caused this Note to be issued as
of the date first above written.
HOWTEK, INC.
By: /s/ David Bothwell
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David Bothwell
President
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