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EXHIBIT
10.12
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.
8% CONVERTIBLE
NOTE
FOR VALUE RECEIVED, Interlink
Electronics, Inc., a Delaware corporation (the “
Company ”), hereby unconditionally promises to pay to
the order of
(the “ Holder ”), having an address at
, 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 eight percent (8%) (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 8% Convertible Note (this
“ 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
semiannually on each January 15 and July 15 (each, an
“ Interest Payment Date ”), commencing on
January 15, 2008, to the Holder of record on the immediately
preceding January 1 or July 1, as applicable (each, an
“ Interest Record Date ”). 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 July 19, 2010 (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.
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.
“ Change of
Control ” shall be deemed to have occurred if, at any
time (i) any Person or any Persons acting together that would
constitute a “group” for purposes of Section 13(d)
under the Exchange Act, or any successor provision thereto, shall
acquire beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act, or any successor provision thereto) in a
single transaction or a series of related transactions, of more
than 50% of the aggregate voting power of the Company;
(ii) the Company merges into or consolidates with any other
Person, or any Person merges into or consolidates with the Company
and, after giving effect to such transaction, the stockholders of
the Company immediately prior to such transaction own less than 50%
of the aggregate voting power of the Company or the successor
entity of such transaction; (iii) the Company sells or
transfers its assets, as an entirety or substantially as an
entirety, to another Person, or (iv) the Persons who were
directors of the Company as of the Closing Date (together with any
new directors whose election or appointment was approved by the
directors then in office who were either directors as of the
Closing Date or whose election or appointment was previously
approved) ceasing to constitute a majority of the Company’s
board of directors or the board of directors of the surviving or
resulting entity (or its parent).
“ Closing Date
” has the meaning set forth in the Purchase
Agreement.
“ Common Stock
” shall mean the Common Stock, par value $0.00001 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 $1.26 per share, subject to
adjustment as provided in Section 4.
“ Conversion
Shares ” means the shares of Common Stock issuable upon
conversion of this Note.
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“ 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.
“ Forced Redemption
Date ” has the meaning set forth in Section 3(b)
hereof.
“ Forced Redemption
Notice ” has the meaning set forth in Section 3(b)
hereof.
“ Forced Redemption
Price ” has the meaning set forth in Section 3(b)
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 regulation, 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 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.
“ Interest Payment
Date ” has the meaning set forth in the first paragraph
hereof.
“ Interest Record
Date ” has the meaning set forth in the first paragraph
hereof.
“ 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 having a term not exceeding 90 days arising in
connection with the sale of inventory or supplies by such Person in
the ordinary course of
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business; (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: (a) if the Common Stock is
then listed on the Nasdaq Global Market or the Nasdaq Capital
Market (“ Nasdaq ”) or another national stock
exchange, the closing sale price of one share of Common Stock on
such exchange on the last Trading Day prior to the Valuation Date;
(b) if the Common Stock is then quoted on the National
Association of Securities Dealers, Inc. OTC Bulletin Board (the
“ Bulletin Board ”) or such similar quotation
system or association, the closing sale price of one share of
Common Stock on the Bulletin Board or such other quotation system
or association 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 asked price quoted thereon on the last trading
day prior to the Valuation Date; (c) if such security is then
included in the “pink sheets,” the closing sale price
of one share of Common Stock 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; or
(d) if the Common Stock is not then listed on a national stock
exchange or quoted on the Bulletin Board, the “pink
sheets” or such other quotation system or association, the
fair market value of one share of Common Stock as of the Valuation
Date, as determined in good faith by the Board of Directors of the
Company and the Holder. If the Common Stock is not then listed on a
national securities exchange or quoted on the Bulletin Board, the
“pink sheets” or other quotation system or association,
the Board of Directors of the Company shall respond promptly, in
writing, to an inquiry by the Holder as to the fair market value of
a share of Common Stock as determined by the Board of Directors of
the Company. In the event that the Board of Directors of the
Company and the Holder are unable to agree upon the fair market
value in respect of subpart (d) of this paragraph, the Company
and the Holder shall jointly select an appraiser, who is
experienced in such matters. The decision of such appraiser shall
be final and conclusive, and the cost of such appraiser shall be
borne equally by the Company and the Holder.
“ Note ”
has the meaning set forth in the first paragraph hereof.
“ 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
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greater than or equal to that of the
Indebtedness being refinanced or extended (ii) 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;
(b) Secured Indebtedness to a
bank or other institutional lender on terms and conditions
satisfactory to the Majority Holders; provided, however, that the
aggregate principal amount of Indebtedess permitted pursuant to
this clause (b) shall not exceed $5,000,000;
(c) Unsecured Indebtedness
which ranks pari passu with the Notes as to payment or upon
liquidation with the Notes; provided, however, that the aggregate
principal amount of Indebtedess permitted pursuant to this clause
(c) and clause (d) below shall not exceed
$1,000,000;
(d) Indebtedness representing
the deferred purchase price of property and capital lease
obligations ; provided, however, that the aggregate principal
amount of Indebtedess permitted pursuant to this clause
(d) and clause (c) above shall not exceed
$1,000,000;
(e) Guaranties by any
Subsidiary of any “Permitted Indebtedness” of the
Company or another Subsidiary; 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;
(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 90 days from the date of acquisition
thereof; 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 (b) or clause (c) of
the definition of “Permitted Indebtedness;” provided,
however, that in the case of clause (c) only, 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
July 18, 2007, by and among the Company and the Investors as
that agreement may be amended from time to time in accordance with
its terms.
“ Registration
Rights Agreement ” shall mean the Registration Rights
Agreement, dated as of July 19, 2007, 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.
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“ Trading Day
” means (i) if the relevant stock or security is listed
or admitted for trading on The New York Stock Exchange, Inc.,
Nasdaq or any other 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 any 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 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 8% Convertible Notes of the
Company issued pursuant to the Purchase Agreement (the “
Company Notes ”). This Note is subject to the terms
and conditions of, and entitled to the benefit of, the provisions
of the Purchase Agreement. Defined terms used herein have the
respective meanings ascribed thereto in the Purchase Agreement
unless otherwise defined herein. 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. Prepayment; Forced
Conversion; Forced Redemption . Except as provided in this
Section 3, this Note shall not be prepayable or redeemable by
the Company prior to the Stated Maturity Date.
(a) Subject to the provisions
of this clause (a), in the event that the closing bid price of a
share of Common Stock as traded on Nasdaq (or such other exchange
or stock market on which the Common Stock may then be listed or
quoted) equals or exceeds $2.52 (appropriately adjusted for any
stock split, reverse stock split, stock dividend or other
reclassification or combination of the Common Stock occurring after
the date hereof) for twenty (20) consecutive trading days
commencing on or after the 18-month anniversary of the Closing
Date, the Company, upon prior written notice given to Holder within
one Business Day following the end of such twenty (20) trading
day period, may automatically and without any action on the part of
the Holder convert all or any portion of the principal amount of
this Note, together with all accrued and unpaid interest on the
portion of this Note being converted, at the Conversion Price then
in effect; provided that (i) such conversion applies to all of
the Company Notes then outstanding on the same terms, (ii) all
of the shares of Common Stock issuable hereunder upon such
conversion either (A) are registered pursuant to an effective
Registration Statement (as defined in the Registration Rights
Agreement) which has not been suspended and for which no stop order
is in effect, and pursuant to which the Holder is able to sell such
shares of Common Stock immediately following such conversion or
(B) no longer constitute Registrable Securities (as defined in
the Registration Rights Agreement).
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(b) From and after the
occurrence of Change of Control, the Majority Holders shall have
the right to require the Company to redeem all, but not less than
all, of the Company Notes at a redemption price equal 108% of the
principal amount of the Company Notes, plus any accrued and unpaid
interest (the “ Forced Redemption Price ”);
provided that such redemption applies to all of the Company Notes
then outstanding on the same terms. In the event that the Majority
Holders elect to require the Company to redeem the Company Notes
pursuant to this Section 3(b), the Majority Holders shall
deliver written notice thereof to the Company and the other holders
of the Company Notes (the “ Forced Redemption Notice
”) specifying the date on which such redemption shall occur
(the “ Forced Redemption Date ”) which date
shall not be less than ten (10) days after the date of such
Forced Redemption Notice. On the Forced Redemption Date, the
Company shall pay the Forced Redemption Price to the Holder in
immediately available funds to an account previously specified in
writing by the Holder unless the Holder has converted the principal
and accrued and unpaid interest on this Note on or prior to the
Forced Redemption Date. Notwithstanding the giving of any Forced
Redemption Notice, the Holder shall have the right to convert the
principal and accrued and unpaid interest on this Note pursuant to
Section 4 at any time on or prior to 5:00 p.m., New York time,
on the Forced Redemption Date. The Holder shall not be required to
surrender this Note prior to payment of the Forced Redemption
Price. Unless the principal and interest on this Note are converted
pursuant to Section 4 prior to the Forced Redemption Date,
upon the indefeasible payment in full of the Forced Redemption
Price to the Holder as provided in this Section 3, this Note
shall be deemed to have been paid in full and shall no longer be
outstanding for any purpose.
4. Conversion
.
(a) 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: (i) adding (A) the principal amount of this Note to
be converted and (B) the amount of any accrued but unpaid
interest with respect to such portion of this Note to be converted;
and (ii) dividing the result obtained pursuant to clause
(i) above 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.
(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 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. 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
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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 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 while this Note is outstanding, 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 (i) the Conversion Price in
effect immediately prior to the date on which such change shall
become effective shall be adjusted by multiplying such Conversion
Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such change
and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after giving effect to such
change and (ii) the number of Conversion Shares issuable upon
conversion of this Note shall be adjusted by multiplying the number
of Conversion Shares issuable upon conversion of this Note
immediately prior to the date on which such change shall become
effective by a fraction, the numerator of which is shall be the
Conversion Price in effect immediately prior to the date on which
such change shall become effective and the denominator of which
shall be the Conversion Price in effect immediately after giving
effect to such change, calculated in accordance with clause
(i) above. 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 Person shall be e
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