EXHIBIT 10.2
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY
MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN
REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS
AMENDED, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K),
OR (III) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR QUALIFICATION
UNDER APPLICABLE STATE SECURITIES LAWS.
10% CONVERTIBLE
NOTE
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$_______________
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[Date of Issuance]
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FOR VALUE RECEIVED, Media Sciences
International, Inc., a Delaware corporation (the “
Company ”), hereby unconditionally promises to pay to
the order of ________________ (the “ Holder ”),
having an address at 529 Fifth Avenue, New York, New York 10017, at
such address or at such other place as may be designated in writing
by the Holder, or its assigns, the aggregate principal sum of
_____________ United States Dollars ($______________), together
with interest from the date set forth above on the unpaid principal
balance of this Note outstanding at a rate equal to ten percent
(10.0%) (computed on the basis of the actual number of days elapsed
in a 360-day year) per annum and continuing on the outstanding
principal until this 10% Convertible Note (the “ Note
”) is converted into Common Stock as provided herein or
indefeasibly and irrevocably paid in full by the Company. Interest
on this Note shall accrue and shall be payable quarterly on each
March 31, June 30, September 30, and December 31 for the preceding
quarter (each, an “ Interest Payment Date ”),
commencing on December 31, 2008. Subject to the other provisions of
this Note, the principal of this Note and all accrued and unpaid
interest hereon shall mature and become due and payable on
September 24, 2011 (the “ Stated Maturity Date
”). All payments of principal and interest by the Company
under this Note shall be made in United States dollars in
immediately available funds to an account specified by the
Holder.
In the event that any amount due
hereunder is not paid when due, such overdue amount shall bear
interest at an annual rate of fifteen percent (15%) until paid in
full. In no event shall any interest charged, collected or reserved
under this Note exceed the maximum rate then permitted by
applicable law and if any such payment is paid by the Company, then
such excess sum shall be credited by the Holder as a payment of
principal.
This Note is one of a series of
Notes (the “ Company Notes ”) of like tenor in
an aggregate principal amount of up to Two Million Five Hundred
Thousand United States Dollars ($2,500,000) issued, or that may be
issued, by the Company pursuant to the terms of the Purchase
Agreement (as defined below).
1.
Definitions. Capitalized terms used herein shall have the
respective meanings ascribed thereto in the Purchase Agreement
unless otherwise defined herein. Unless the context otherwise
requires, when used herein the following terms shall have the
meaning indicated:
“ Additional Rights
” has the meaning set forth in Section 4 hereof.
“ Affiliate ”
shall mean, with respect to any Person, any other Person which
directly or indirectly through one or more intermediaries Controls,
is controlled by, or is under common control with, such
Person.
“ Board ” shall
mean the Board of Directors of Company.
“ Business Day ”
other than a Saturday or Sunday, on which banks in New York City
are open for the general transaction of business.
“ Common Stock ”
shall mean the Common Stock, par value $0.001 per share, of the
Company or any securities into which shares of Common Stock may be
reclassified after the date hereof.
“ Company ” has
the meaning set forth in the first paragraph hereof.
“ Company Notes ”
has the meaning set forth in the third paragraph hereof.
“ Control ”
(including the terms “controlling”, “controlled
by” or “under common control with”) means the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or
otherwise.
“ Conversion Price
” shall mean initially $1.65 per share, subject to adjustment
as provided in Section 4.
“ Convertible
Securities ” has the meaning set forth in Section 4
hereof.
“ Event of Default
” has the meaning set forth in Section 6 hereof.
“ Exchange Act ”
shall mean the Securities Exchange Act of 1934, as
amended.
“ Excluded Issuances
” has the meaning set forth in Section 4(j)
hereof.
“ Hedging Agreement
” means any interest rate swap, collar, cap, floor or forward
rate agreement or other agreement regarding the hedging of interest
rate risk exposure executed in connection with hedging the interest
rate exposure of any Person and any confirming letter executed
pursuant to such agreement, all as amended, supplemented, restated
or otherwise modified from time to time.
“ Holder ” has
the meaning set forth in the first paragraph hereof.
“ Indebtedness ”
means any liability or obligation (i) for borrowed money, other
than trade payables incurred in the ordinary course of business,
(ii) evidenced by bonds, debentures, notes, or other similar
instruments, (iii) in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto),
except letters of credit or other similar instruments issued to
secure payment of trade payables or obligations in respect of
workers’ compensation, unemployment insurance and other
social security laws or regulations, all arising in the ordinary
course of business consistent with past practices, (iv) to pay the
deferred purchase price of property or services, except trade
payables arising in the ordinary
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course of business consistent with past
practices, (v) as lessee under capitalized leases, (vi) secured by
a Lien on any asset of the Company or a Subsidiary, whether or not
such obligation is assumed by the Company or such
Subsidiary.
“ Investment ”
means, for any Person: (a) the acquisition (whether for cash,
property, services or securities or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests
or other securities of any other Person or any agreement to make
any such acquisition (including, without limitation, any
“short sale” or any sale of any securities at a time
when such securities are not owned by the Person entering into such
sale); (b) the making of any deposit with, or advance, loan or
other extension of credit to, any other Person (including the
purchase of property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such
property to such Person), but excluding any such advance, loan or
extension of credit and having a term not exceeding 180 days
arising in connection with the sale of inventory or supplies by
such Person in the ordinary course of business consistent with past
practices; (c) the entering into of any guarantee of, or other
contingent obligation with respect to, Indebtedness or other
liability of any other Person and (without duplication) any amount
committed to be advanced, lent or extended to such Person; or (d)
the entering into of any Hedging Agreement.
“ Investors ” has
the meaning set forth in the Purchase Agreement.
“ Lien ” means
any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale
or other title retention agreement, any lease in the nature thereof
and any agreement to give any of the foregoing).
“ Majority Holders
” has the meaning set forth in Section 8 hereof.
“ Market Price ”,
as of a particular date (the “ Valuation Date
”), shall mean the following with respect to any class of
securities: (A) if such security is then listed on a national stock
exchange, the Market Price shall be the closing sale price of one
share of such security on such exchange on the last Trading Day
prior to the Valuation Date, provided that if such security has not
traded in the prior ten (10) trading sessions, the Market Price
shall be the average closing bid price of such security in the most
recent ten (10) trading sessions during which such security has
traded; (B) if such security is then included in the
Over-the-Counter Bulletin Board, the Market Price shall be the
closing sale price of one share of such security on the
Over-the-Counter Bulletin Board on the last Trading Day prior to
the Valuation Date or, if no such closing sale price is available,
the average of the high bid and the low ask price quoted on the
Over-the-Counter Bulletin Board as of the end of the last Trading
Day prior to the Valuation Date, provided that if such stock has
not traded in the prior ten (10) trading sessions, the Market Price
shall be the average closing price of one share of such security in
the most recent ten (10) trading sessions during which such
security has traded; or (C) if such security is then included in
the “pink sheets,” the Market Price shall be the
closing sale price of one share of such security on the “pink
sheets” on the last Trading Day prior to the Valuation Date
or, if no such closing sale price is available, the average of the
high bid and the low ask price quoted on the “pink
sheets” as of the end of the last Trading Day prior to the
Valuation Date, provided that if such stock has not traded in the
prior ten (10) trading sessions, the Market Price shall be the
average closing price of one share of such security in the most
recent ten (10) trading sessions during which such security has
traded.
“ Note ” has the
meaning set forth in the first paragraph hereof.
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“ Options ” has
the meaning set forth in Section 4 hereof.
“ Permitted
Indebtedness ” means:
(a) Unsecured
Indebtedness existing on the Closing Date and refinancings,
renewals and extensions of any such Indebtedness if (i) the average
life to maturity thereof is greater than or equal to that of the
Indebtedness being refinanced or extended (ii) if the principal
amount thereof or interest payable thereon is not increased, and
(iii) the terms thereof are not less favorable to the Company or
the Subsidiary incurring such Indebtedness than the Indebtedness
being refinanced, renewed or extended;
(c) Guaranties
by any Subsidiary of any “Permitted Indebtedness” of
the Company or another Subsidiary;
(d) Indebtedness
representing the deferred purchase price of property and capital
lease obligations which collectively does not exceed $100,000 in
aggregate principal amount;
(e) Indebtedness
of a Subsidiary which is not secured by any assets of the Company
or another Subsidiary and as to which recourse is limited solely to
the assets of the Subsidiary incurring such Indebtedness;
and
(f) Indebtedness
of the Company to any wholly owned Subsidiary and Indebtedness of
any wholly owned Subsidiary to the Company or another wholly owned
Subsidiary which constitutes “Permitted
Indebtedness.”
“ Permitted Investments
” means:
(a) direct
obligations of the United States of America, or of any agency
thereof, or obligations guaranteed as to principal and interest by
the United States of America, or of any agency thereof, in either
case maturing not more than 90 days from the date of acquisition
thereof;
(b) certificates
of deposit issued by any bank or trust company organized under the
laws of the United States of America or any State thereof and
having capital, surplus and undivided profits of at least
$500,000,000, maturing not more than 90 days from the date of
acquisition thereof; and
(c) commercial
paper rated A-1 or better or P-1 by Standard & Poor’s
Ratings Services or Moody’s Investors Services, Inc.,
respectively, maturing not more than 180 days from the date of
acquisition thereof (90 days from the date of acquisition thereof
in the event of any acquisition occurring after the Closing Date);
in each case so long as the same (x) provide for the payment of
principal and interest (and not principal alone or interest alone)
and (y) are not subject to any contingency regarding the payment of
principal or interest.
“ Permitted Liens
” means:
(a) Liens
imposed by law for taxes that are not yet due or are being
contested in good faith and for which adequate reserves have been
established on the Company’s books and records in accordance
with U.S. generally accepted accounting principles, consistently
applied;
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(b) carriers’,
warehousemen’s, mechanics’, materialmen’s,
repairmen’s and other like Liens imposed by law, arising in
the ordinary course of business and securing obligations that are
not overdue by more than 30 days or that are being contested in
good faith and by appropriate proceedings;
(c) pledges
and deposits made in the ordinary course of business in compliance
with workers’ compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits
to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the
ordinary course of business;
(e) easements,
zoning restrictions, rights-of-way and similar encumbrances on real
property imposed by law or arising in the ordinary course of
business that do not secure any monetary obligations and do not
materially detract from the value of the affected property or
interfere with the ordinary conduct of business of the Company or
any of its Subsidiaries; and
(f) Liens
granted to secure the obligations of the Company or any Subsidiary
under any Indebtedness permitted under clause (c) of the definition
of “Permitted Indebtedness” provided the Lien is
limited to the property acquired or so financed (and any accessions
thereto and proceeds thereof).
“ Person ” means
an individual, corporation, partnership, limited liability company,
trust, business trust, association, joint stock company, joint
venture, sole proprietorship, unincorporated organization,
governmental authority or any other form of entity not specifically
listed herein.
“ Purchase Agreement
” means the Purchase Agreement, dated as of September 24,
2008, and as that agreement may be amended from time to time, by
and among the Company and the Investors.
“ Registration Rights
Agreement ” means the Registration Rights Agreement,
dated as of September 24, 2008, and as that agreement may be
amended from time to time, by and among the Company and the
Investors.
“ Restricted Payment
” has the meaning set forth in Section 5(b)(iv)
hereof.
“ Stated Maturity Date
” has the meaning set forth in the first paragraph
hereof.
“ Subsidiary ” of
any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned
directly or indirectly by such first Person.
“ Trading Day ”
means (i) if the relevant stock or security is listed or admitted
for trading on a national securities exchange, a day on which such
exchange is open for business; (ii) if the relevant stock or
security is quoted on a system of automated dissemination of
quotations of securities prices, a day on which trades may be
effected through such system; or (iii) if the relevant stock or
security is not listed or admitted for trading on any national
securities exchange or quoted on a system of automated
dissemination of quotation of securities prices, a day on which the
relevant stock or security is traded in a regular way in the
over-the-counter market and
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for which a closing bid and a closing asked
price for such stock or security are available, shall mean a day,
other than a Saturday or Sunday, on which The New York Stock
Exchange, Inc. is open for trading.
“ Trigger Issuance
” has the meaning set forth in Section 4(i)
hereof.
2.
Purchase Agreement . This Note is one of the several 10%
Convertible Notes of the Company issued pursuant to the Purchase
Agreement. This Note is subject to the terms and conditions of, and
entitled to the benefit of, the provisions of the Purchase
Agreement. This Note is transferable and assignable to any Person
to whom such transfer is permissible under the Purchase Agreement
and applicable law. The Company agrees to issue from time to time a
replacement Note in the form hereof to facilitate such transfers
and assignments. In addition, after delivery of an indemnity in
form and substance reasonably satisfactory to the Company, the
Company also agrees to promptly issue a replacement Note if this
Note is lost, stolen, mutilated or destroyed.
3.
No Right of Prepayment or Redemption . This Note shall not
be prepayable or redeemable by the Company prior to the Stated
Maturity Date.
(a) Subject
to and upon compliance with the provisions of this Note, prior to
the Stated Maturity Date, the Holder shall have the right, at its
option at any time, to convert some or all of the Note into such
number of fully paid and nonassessable shares of Common Stock as is
obtained by: dividing the principal amount of this Note to be
converted by the Conversion Price then in effect. The rights of
conversion set forth in this Section 4 shall be exercised by the
Holder by giving written notice to the Company that the Holder
elects to convert a stated amount of this Note into Common Stock
and by surrender of this Note (or, in lieu thereof, by delivery of
an appropriate lost security affidavit in the event this Note shall
have been lost or destroyed) to the Company at its principal office
(or such other office or agency of the Company as the Company may
designate by notice in writing to the Holder) at any time on the
date set forth in such notice (which date shall not be earlier than
the Company’s receipt of such notice), together with a
statement of the name or names (with address) in which the
certificate or certificates for shares of Common Stock shall be
issued. Any conversion of less than all of the then outstanding
principal amount of this Note shall be in an amount no less than
$25,000.
(b) Promptly
after receipt of the written notice referred to in Section 4(a)
above and surrender of this Note (or, in lieu thereof, by delivery
of an appropriate lost security affidavit in the event this Note
shall have been lost or destroyed), but in no event more than three
(3) Business Days thereafter, the Company shall (i) issue and
deliver, or cause to be issued and delivered, to the Holder,
registered in such name or names as the Holder may direct in
writing, a certificate or certificates for the number of whole
shares of Common Stock issuable upon the conversion of such portion
of this Note and (ii) deliver to the Holder the accrued interest on
the principal amount of this Note converted through the date of
conversion. To the extent permitted by law, such conversion shall
be deemed to have been effected, and the Conversion Price shall be
determined, as of the close of business on the date on which such
written notice shall have been received by the Company and this
Note shall have been surrendered as aforesaid (or, in
lieu
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thereof, an appropriate lost security affidavit
has been delivered to the Company), and at such time, the rights of
the Holder shall cease with respect to the principal amount of the
Notes being converted, and the Person or Persons in whose name or
names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented
thereby.
(c) No
fractional shares shall be issued upon any conversion of this Note
into Common Stock. If any fractional share of Common Stock would,
except for the provisions of the first sentence of this Section
4(c), be delivered upon such conversion, the Company, in lieu of
delivering such fractional share, shall pay to the Holder an amount
in cash equal to the Market Price of such fractional share of
Common Stock. In case the principal amount of this Note exceeds the
principal amount being converted, the Company shall, upon such
conversion, execute and deliver to the Holder, at the expense of
the Company, a new Note for the principal amount of this Note
surrendered which is not to be converted.
(d) If the
Company shall, at any time or from time to time after the Closing
Date, pay a dividend or make a distribution on its Common Stock in
shares of Common Stock, subdivide its outstanding shares of Common
Stock into a greater number of shares or combine its outstanding
shares of Common Stock into a smaller number of shares or issue by
reclassification of its outstanding shares of Common Stock any
shares of its capital stock (including any such reclassification in
connection with a consolidation or merger in which the Company is
the continuing corporation), then the Conversion Price in effect
immediately prior to the date upon which such change shall become
effective, shall be adjusted by the Company so that the Holder
thereafter converting this Note shall be entitled to receive the
number of shares of Common Stock or other capital stock which the
Holder would have received if the Note had been converted
immediately prior to such event upon payment of a Conversion Price
that has been adjusted to reflect a fair allocation of the
economics of such event to the Holder, without regard to any
conversion limitation specified in this Section 4. Such adjustments
shall be made successively whenever any event listed above shall
occur.
(e) If any
capital reorganization, reclassification of the capital stock of
the Company, consolidation or merger of the Company with another
corporation in which the Company is not the survivor, or sale,
transfer or other disposition of all or substantially all of the
Company’s assets to another corporation shall be effected
after the Closing Date, then, as a condition of such
reorganization, reclassification, consolidation, merger, sale,
transfer or other disposition, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to
purchase and receive upon the basis and upon the terms and
conditions herein specified and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion of this Note
such shares of stock, securities or assets as would have been
issuable or payable with respect to or in exchange for a number of
shares of Common Stock equal to the number of shares of Common
Stock immediately theretofore issuable upon conversion of this
Note, had such reorganization, reclassification, consolidation,
merger, sale, transfer or other disposition not taken place, and in
any such case appropriate provision shall be made with respect to
the rights and interests of the Holder to the end that the
provisions hereof (including, without limitation, provision for
adjustment of the Conversion Price) shall thereafter be applicable,
as nearly equivalent as may be practicable in relation to any
shares of stock, securities or assets thereafter deliverable upon
the conversion hereof. The Company shall not
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effect any such consolidation, merger, sale,
transfer or other disposition unless prior to or simultaneously
with the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger, or
the corporation purchasing or otherwise acquiring such assets or
other appropriate corporation or entity shall assume the obligation
to deliver to the Holder, at the last address of the Holder
appearing on the books of the Company, such shares of stock,
securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to purchase, without regard
to any conversion limitation specified in Section 4, and the other
obligations under this Note. The provisions of this paragraph (e)
shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales, transfers or
other dispositions.
(f) If, after
the Closing Date, the Company shall fix a payment date for the
making of a distribution to all holders of Common Stock (including
any such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) of
evidences of indebtedness or assets (other than cash dividends or
cash distributions payable out of consolidated earnings or earned
surplus or dividends or distributions referred to in Section 4(d)),
or subscription rights or notes, the Conversion Price to be in
effect after such payment date shall be determined by multiplying
the Conversion Price in effect immediately prior to such payment
date by a fraction, the numerator of which shall be the total
number of shares of Common Stock outstanding multiplied by the
Market Price of Common Stock immediately prior to such payment
date, less the fair market value (as determined by the Board in
good faith) of said assets or evidences of indebtedness so
distributed, or of such subscription rights or notes, and the
denominator of which shall be the total number of shares of Common
Stock outstanding multiplied by such Market Price immediately prior
to such payment date. Such adjustment shall be made successively
whenever such a payment date is fixed.
(g) An
adjustment to the Conversion Price shall become effective
immediately after the payment date in the case of each dividend or
distribution and immediately after the effective date of each other
event which requires an adjustment.
(h) In the
event that, as a result of an adjustment made pursuant to this
Section 4, the Holder shall become entitled to receive any shares
of capital stock of the Company other than shares of Common Stock,
the number of such other shares so receivable upon conversion of
this Note shall be subject thereafter to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable
to the provisions contained in this Note.
(i) From and
after the Closing Date, except as provided in Section 4(j) hereof,
if and whenever the Company shall issue or sell, or is, in
accordance with any of Sections 4(i)(i) through 4(i)(vii) hereof,
deemed to have issued or sold, any Additional Shares of Common
Stock for no consideration or for a consideration per share less
than the Conversion Price in effect immediately prior to the time
of such issue or sale, then and in each such case (a “
Trigger Issuance ”) the then-existing Conversion
Price, shall be reduced, as of the close of business on the
effective date of the Trigger Issuance, to the lowest price per
share at which any share of Common Stock was issued or sold or
deemed to be issued or sold; provided, however, that in no event
shall the Conversion Price after giving effect to such Trigger
Issuance be greater than the Conversion Price in effect prior to
such Trigger Issuance.
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