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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from _____________ to _______________
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Commission File Number 001-14439
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SOLPOWER CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 87-0384678
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
7309 East Stetson Drive, Suite 102
Scottsdale, Arizona 85251
(Address of Principal Executive Offices)
(480) 947-6366
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
equity was 23,646,560 shares of common stock, par value $.01, as of December 31,
1999.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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<PAGE>
SOLPOWER CORPORATION
INDEX TO FORM 10-QSB FILING
FOR THE QUARTER ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements............................................... 2
Balance Sheet
December 31, 1999 (unaudited) and March 31, 1999................. 2
Statements of Operations
Three and Nine Months Ended December 31, 1999
(unaudited) and 1998 (unaudited)................................. 4
Statement of Cash Flows
Nine Months Ended December 31, 1999
(unaudited) and 1998 (unaudited)................................. 5
Statement of Stockholders' Equity
Nine Months Ended December 31, 1999
(unaudited) and Year Ended March 31, 1999........................ 6
Notes to the Financial Statements.................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 8
PART II
OTHER INFORMATION
Item 2. Changes in Securities.............................................. 9
Item 5. Other Information.................................................. 10
Item 6. Exhibits and Reports on Form 8-K................................... 10
SIGNATURES
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOLPOWER CORPORATION
BALANCE SHEET
DECEMBER 31, 1999 (UNAUDITED) AND MARCH 31, 1999
ASSETS
Dec. 31,1999 March 31, 1999
------------ --------------
(unaudited) (audited)
CURRENT ASSETS
Cash and Cash Equivalents $ 3,558 $ 2,228
Accounts Receivables 63,752 50,145
Inventory 54,684 92,178
---------- ----------
Total Current Assets 121,994 144,551
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Property & Equipment, net 370,695 399,262
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OTHER ASSETS
Marketing Rights 2,583,333 2,658,333
Security Deposits 13,922 13,922
License Fee Receivable -- 2,400,000
---------- ----------
Total Other Assets 2,597,255 5,072,255
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Total Assets $3,089,944 $5,616,068
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
2
<PAGE>
SOLPOWER CORPORATION
BALANCE SHEET
DECEMBER 31, 1999 (UNAUDITED) AND MARCH 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
Dec. 31,1999 March 31, 1999
------------ --------------
(unaudited) (audited)
CURRENT LIABILITIES
Lease Payable - Current $ -- $ 4,060
Loans Payable - Related Parties 50,469 13,500
Accounts Payable 554,661 429,409
Accrued Expenses 225,558 213,792
Convertible Notes Payable 1,500,000 --
----------- -----------
Total Current Liabilities 2,330,688 660,761
----------- -----------
LONG TERM LIABILITIES
Loans Payable - Related Parties -- 407,219
Accrued Expenses Noncurrent 42,965 70,000
Convertible Notes Payable 200,000 --
Deferred Revenue -- 2,400,000
----------- -----------
Total Long Term Liabilities 242,965 2,877,219
----------- -----------
Total Liabilities 2,573,653 3,537,980
----------- -----------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Preferred Stock; $0.001 Par Value, 5,000,000
Shares Authorized; Issued and Outstanding, None -- --
Common Stock; $0.01 Par Value, 30,000,000 Shares
Authorized; Issued and Outstanding 23,646,560
Shares at December 31, 1999 and 23,456,560
Shares at March 31, 1999 236,466 234,566
Additional Paid in Capital 6,952,740 6,736,525
Accumulated Deficit (6,672,915) (4,893,003)
----------- -----------
Total Stockholders' Equity 516,291 2,078,088
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,089,944 $ 5,616,068
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
3
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SOLPOWER CORPORATION
STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED
DECEMBER 31, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
December 31, December 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUE
Sales - Product $ 166,784 $ 53,054 $ 93,527 $ 7,747
License Fees -- -- -- --
------------ ------------ ------------ ------------
Total Revenues 166,784 53,054 93,527 7,747
Cost of Sales 280,872 22,673 71,238 22,673
------------ ------------ ------------ ------------
Gross Profit (Loss) (114,088) 30,381 (22,289) (14,926)
EXPENSES
General and Administrative 1,665,684 1,603,554 574,069 548,669
------------ ------------ ------------ ------------
Operating Income (Loss) (1,779,772) (1,573,163) (551,780) (563,595)
------------ ------------ ------------ ------------
Other Income (Expense)
Interest Income -- 2,249 -- 60
Interest Expense (140) (1,215) -- (290)
------------ ------------ ------------ ------------
Total Other Income (Expense) (140) 1,034 -- (230)
------------ ------------ ------------ ------------
Net Loss Before Provision for
Income Taxes (1,779,912) (1,572,129) (551,780) (563,825)
Provision for Income Taxes -- -- -- --
------------ ------------ ------------ ------------
Net Loss $ (1,779,912) $ (1,572,129) $ (551,780) $ (563,825)
============ ============ ============ ============
Basic (Loss) Per Share $ (0.08) $ (0.08) $ (0.02) $ (0.03)
============ ============ ============ ============
Weighted Average Number of
Shares Outstanding 23,646,560 20,891,560 23,646,560 20,891,560
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
<PAGE>
SOLPOWER CORPORATION
STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED
DECEMBER 31, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
Nine Months Ended
December 31,
-----------------------------
1999 1998
----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,779,912) $(1,572,129)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 150,280 388,739
Non-cash Transactions 862,865 --
Changes in operating assets and liabilities:
Accounts receivable (13,607) --
Inventory 37,494 (6,334)
License fee receivable (2,400,000) (2,438,748)
Prepaid expense -- 2,917
Security deposits -- (35,000)
Checks issued in excess of cash -- 4,846
Accounts payable (125,252) 463,942
Accrued expenses (15,269) --
Deferred revenue 2,400,000 2,400,000
----------- -----------
Total Adjustments 947,015 780,362
----------- -----------
Net cash used by operating activities (832,897) (791,767)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (46,713) (332,711)
----------- -----------
Net cash used by Investing Activities: (46,713) (332,711)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Issuance of Common Stock -- 720,000
Capital Lease Obligations (4,060) (3,346)
Convertible Notes Payable 885,000 --
Other advances -- 11,000
Loans and Advances from related parties -- 212,982
----------- -----------
Neash provided by financing activities 880,940 940,636
----------- -----------
Increase (Decrease) in Cash and
Cash Equivalents $ 1,330 $ (183,842)
Cash and Cash Equivalents, Beginning of Period 2,228 183,842
----------- -----------
Cash and Cash Equivalents, End of Period $ 3,558 $ --
----------- -----------
SUPPLEMENTAL INFORMATION
CASH PAID FOR:
Interest $ 0 $ 1,215
=========== ===========
Income Taxes $ 0 $ 0
NON-CASH:
Related party notes payable converted to
convertible debtor $ 815,000 $ 0
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Related party payments for company expenses $ 444,750 $ 0
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Issuance of common stock for payment
of company expenses $ 218,115 $ 0
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
<PAGE>
SOLPOWER CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED
DECEMBER 30, 1999 AND YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid In Subscription Accumulated
Shares Amount Capital Receivable Deficit Total
------ ------ ------- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1998 17,391,560 $173,916 $4,220,904 $(400,000) $(2,653,357) $ 1,341,463
Issuance of Common Shares
for SP34E Marketing Rights 6,000,000 60,000 2,340,000 -- -- 2,400,000
Issuance of Common Stock
for Stock Services Agreement 50,000 500 149,500 -- -- 150,000
Receipt of Stock Subscription
Receivable funds -- -- -- 400,000 -- 400,000
Issuance of Common Stock for
Marketing Expense Liability 15,000 150 26,121 -- -- 26,271
Loss, Year Ended March 31, 1999 -- -- -- -- (2,239,646) (2,239,646)
----------- -------- ---------- --------- ----------- -----------
Balance, March 31, 1999 23,456,560 $234,566 $6,736,525 $ -- $(4,893,003) $ 2,078,000
=========== ======== ========== ========= =========== ===========
Issuance of Common Shares for
Early Lease Termination 15,000 150 11,100 -- -- 11,250
Issuance of Common Shares for
License Terminations 65,000 650 83,715 -- -- 84,365
Issuance of Common Shares for
Lease Cancellation 20,000 200 32,300 -- -- 32,500
Issuance of Common Shares for
Investor Relations Services 90,000 900 89,100 -- -- 90,000
Loss, Nine Months Ended
December 31, 1999 -- -- -- -- (1,779,912) (1,779,912)
----------- -------- ---------- --------- ----------- -----------
Balance, December 31, 1999 23,646,560 $236,466 $6,952,740 $ -- $(6,672,915) $ 516,291
=========== ======== ========== ========= =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
6
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDING DECEMBER 31, 1999
NOTE 1 - BASIS OF PREPARATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. These statements do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended December 31,
1999 are not necessarily indicative of the results that may be expected for
the year ended March 31, 2000. The unaudited condensed financial statements
should be read in conjunction with the financial statements and footnotes
thereto for the year ended March 31, 1999 included in the Company's report on
form 10-KSB.
NOTE 2 - REAL ESTATE LEASE
On September 1, 1999, the Company terminated its commercial lease with D.I.
South, Inc. for commercial premises located in Elkhart, Indiana in exchange
for 20,000 shares of common stock.
On January 18, 2000, the Company announced a preliminary understanding with
the City of Syracuse, New York and the Syracuse Industrial Development
Authority (SIDA) for a facility construction project financed with up to $9
million in private funded tax exempt bonds. The new 35,000 square foot
facility is intended to be configured for Soltron and SP34E production.
NOTE 3 - CONVERTIBLE NOTES
The company has issued a $200,000 6% Convertible Note Payable. The note
matures on December 31, 2000, and is convertible into common shares of the
Company at the issue price of $0.40 per share for each $0.40 of principal
owed. The note automatically converts in the event the Company's shares trade
at $1.75 or higher for ten consecutive days.
NOTE 4 - RELATED PARTY TRANSACTIONS
The company renewed an agreement with a related entity for investor relations
services. The agreement required monthly payments of $30,000 per month for 6
months, payable in cash of $90,000 cash and common stock in the amount of
$90,000 for services through December 31, 1999. In addition, the agreement
provides for payments of $15,000 per month for January 2000 through June
2000, payable in cash of $60,000 and common stock of $30,000.
7
<PAGE>
NOTE 5 - COMMITMENTS
The Company entered into an agreement for merchant banking services expiring
in May, 2000. The contract provides for an initial payment of $45,000 and
twelve monthly payments of $8,750. The contract was terminated during
December, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998
Revenues from the sales of Soltron for the nine months ended December 31,
1999 were $166,784 as compared to revenues of $53,054 for the nine months ended
December 31, 1998. The increase in revenues resulted primarily from improved
sales in expanding regional markets during the nine month period ended December
31, 1998.
General and administrative costs were $1,665,684 for the nine month period
ended December 31, 1999 compared to $1,603,544 for the nine month period ended
December 31, 1998. The slight increase (4%) in costs was due to additional
expenses incurred in relation to the territory license repurchase agreements and
Phoenix plant expansion costs.
Cash flows of $885,000 were provided by convertible notes payable for the
nine months ended December 31, 1999 as compared with $943,982 received from
related party advances and sales of common stock for the nine months ended
December 31,1998.
The Company experienced a net loss of $1,779,912 for the nine months ended
December 31, 1999 as compared with a loss of $1,572,129 for the nine months
ended December 31, 1998 due in part to expenses incurred for the repurchase of
all outstanding territory licenses, debt restructuring costs, Phoenix plant
expansion costs and other liabilities.
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1998
Revenues from the sales of Soltron for the three months ended December 31,
1999 were $93,527 as compared to revenues of $7,747 for the three months ended
December 31, 1998. The increase in revenues resulted primarily from improved
sales in expanding regional markets during the three months ended December 31,
1999 compared to the three month period ended December 31, 1998.
General and administrative costs were $574,069 for the three months ended
December 31, 1999 compared to $548,669 for the three months ended December
31,1998. This 5% increase in costs was due to increases in regional sales and
marketing efforts, debt restructuring charges and Phoenix plant expansion
activities.
8
<PAGE>
The Company experienced a net loss of $551,780 for the three months ended
December 31, 1999 as compared with $563,825 for the three months ended December
31, 1998. Increased sales for the quarter offset the costs related to the
repurchase of all outstanding territory licenses and Phoenix plant expansion
activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates future liquidity needs will continue to be met
through equity and debt financings primarily from its major shareholder,
Dominion Capital Pty Ltd., until such time as cash flow from operations are
sufficient to meet the Company's capital requirements for product production and
operations.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The Company has outstanding a total of $1,500,000 of its 6% Convertible
Notes Payable (the "SEPTEMBER NOTES") to Dominion Capital Pty Ltd, the Company's
largest shareholder ("DOMINION"), and other persons and entities affiliated with
the Company and with Dominion. As originally issued, the September Notes were
convertible into 1,500,000 shares of the Company's common stock at a rate of 1
share for each $1.00 of principal owed under the Notes. Effective December 31,
1999, the Company and the holders of the September Notes entered into an
agreement changing the conversion rate to one (1) share of the Company's common
stock for each $0.50 of principal owed under the September Notes. Accordingly,
the number of common shares into which the Notes are convertible was increased
to 3,000,000. The September Notes were unchanged in all other respects.
Effective December 31, 1999, the Company issued a $200,000 6% Convertible
Note (the "DECEMBER NOTE"). No placement agent was used and no commission was
paid with respect to the issuance of the December Note. The December Note was
issued to Dominion. The December Note matures on December 31, 2000 and is
convertible into shares of the Company's common stock at the rate of 1 share for
each $0.40 of principal owed under the December Note. The December Note will
automatically convert in the event the Company's common stock trades at $1.75 or
higher for ten consecutive trading days. The December Note was issued in
reliance on Section 4(2) of the Securities Act. The Company used the proceeds
from the issuance of the December Note for general corporate and development
purposes.
On September 1, 1999, the Company issued 20,000 shares of its common stock
to D.I. South, Inc. in exchange for termination of a lease of commercial
premises in Elkhart, Indiana. The stock was issued in reliance on Section 4(2)
of the Securities Act and no placement agent was used and no commission was
paid.
9
<PAGE>
During the quarter ended December 31, 1999, the Company issued 90,000
shares of its common stock to Dominion Securities, Inc. as consideration for
public relations and marketing services pursuant to the Client Service Agreement
dated July 1, 1998 between Dominion Securities, Inc. and the Company (see
Exhibit 10.16 to the Company's registration statement on Form 10-SB, filed with
the Commission on August 21, 1998). These shares were issued in reliance on
Section 4(2) of the Securities Act and no placement agent was used and no
commissions were paid.
ITEM 5. OTHER INFORMATION
During the quarter ended December 31, 1999, the Company received
preliminary approval from the Syracuse Industrial Development Authority ("SIDA")
in Syracuse, New York for a facility construction project to be financed with up
to $9,000,000 in private tax exempt bonds. Final approval of this financing is
contingent upon approval by SIDA of the final documentation and confirmed
availability of federal allocations of federal tax exemptions among the states.
If finally approved and completed, the Company will use the proceeds of this
financing to construct a new 35,000 square foot manufacturing facility, which
will be configured for the Company's products, SOLTRON and SP34E. In connection
with this transaction, City of Syracuse has agreed in principle to provide the
Company with tax abatements, interest subsidies and other incentives. The
Company has agreed upon a preliminary expression of intent with Greenwich
Partners, LLC to act as underwriters for the bond financing if and when it is
finally approved. To date, neither the Company, SIDA nor Greenwich Partners, LLC
has entered into any legally binding agreement with respect to this bond
financing or the facility construction.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
10.20 Note Agreement for the Issuance of up to $1,500,000 of 6%
Convertible Notes, dated September 24, 1999.
10.21 Amendment to the $1,500,000 6% Convertible Note Agreement,
effective December 31, 1999.
10.22 Note Agreement for the Issuance of $200,000 of 6%
Convertible Notes, effective December 31, 1999.
(b) REPORTS ON FORM 8-K.
None.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
SOLPOWER CORPORATION
(Registrant)
Dated: March 31, 2000 By /s/ James H. Hirst
-----------------------------
James H. Hirst
Chief Executive Officer
11
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SOLPOWER CORPORATION
NOTE AGREEMENT
FOR THE ISSUANCE OF UP TO
$1,500,000 6% CONVERTIBLE NOTES
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<PAGE>
TABLE OF CONTENTS
SECTION PAGE
[TO BE ADDED]
i
<PAGE>
NOTE AGREEMENT
THIS NOTE AGREEMENT (this "AGREEMENT") is made effective as of the ____ day
of September, 1999, among SOLPOWER CORPORATION, a Nevada corporation (the
"COMPANY"), and the Persons who shall execute a counterpart acknowledgment to
this Agreement and become parties hereto.
RECITALS:
A. Pursuant to a Confidential Private Placement Memorandum dated as of
September ___, 1999 (the "MEMORANDUM"), the Company has offered up to $1,500,000
of its 6% Convertible Notes (the "OFFERING").
B. The Company desires to provide for the form and provisions of the Notes,
the terms upon which the Notes shall be issued and exercised, and the respective
rights, limitation of rights and immunities of the Company and the registered
holders of the Notes.
C. All acts and things necessary to make the Notes, when executed on behalf
of the Company, the valid, binding and legal obligations of the Company, and to
authorize the execution and delivery of this Agreement, have been done and
performed.
AGREEMENT:
NOW, THEREFORE, it is hereby agreed as follows:
<PAGE>
SECTION 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS. In addition to the terms otherwise defined herein, the
following terms shall mean:
AFFILIATE: any Person (other than a Subsidiary) (i) that directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, the Company, (ii) which beneficially owns or holds
10% or more of any class of the voting stock of the Company or (iii) 10% or more
of the voting stock (or in the case of a Person which is not a corporation, five
percent or more of the equity interest) of which is beneficially owned or held
by the Company or a Subsidiary. The term "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
stock, by contract or otherwise.
BUSINESS DAY: any day other than (i) a Saturday or Sunday, or (ii) a day on
which banking institutions in Arizona are authorized or obligated by law or
executive order to be closed.
CLOSING DATE: September 30, 1999 unless extended by the Company, in its
sole discretion, to October 15, 1999.
COMMISSION: the Securities and Exchange Commission, or any other federal
agency at the time administering the Securities Act or the Trust Indenture Act
of 1939, as amended, as the case may be.
COMMON STOCK: any class of capital stock of the Company now or hereafter
authorized, the right of which to share in distributions either of earnings or
assets of the Company is without limit as to any amount or percentage; PROVIDED,
HOWEVER, that the shares of Common Stock deliverable upon conversion of the
Notes shall include only the Common Stock of the Company authorized at the date
hereof and any class of Common Stock issued in substitution therefor.
COMPANY: Solpower Corporation, a Nevada corporation.
CONVERSION NOTICE: the notice set forth on the reverse side of the Notes
given by Holders to convert the Notes to shares of Common Stock as provided in
Section 6.1 hereof.
CONVERSION PRICE: $1.00 or such other amount as adjusted pursuant to
Section 6.4 hereof.
CONVERSION SHARES: the shares of Common Stock of the Company issued upon
the conversion of any of the Notes.
1
<PAGE>
DEFAULT: any event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, constitute an Event of Default
as defined in Section 4.1.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as they may be in effect at the time.
GAAP: generally accepted accounting principles at the time in the United
States.
HOLDER: any Person that is, at the time of reference, the registered Holder
of any Note or any Conversion Shares.
INTEREST PAYMENT DATE: March 31, 2000 and the Maturity Date.
MATURITY DATE: September 30, 2000.
NOTE: any 6% Convertible Note issued pursuant to the terms of this
Agreement which is evidenced by a promissory note in the form attached hereto as
Exhibit A.
NOTE AGENT: any Person appointed by the Holders to act as Note Agent upon
the occurrence of an event of Default as defined in Section 4.1.
NOTE REGISTER: the register of the Holders of Notes issued pursuant to this
Agreement.
OFFERING: the offering for private placement by the Placement Agent on
behalf of the Company of up to $1,500,000 of the Notes.
PERSON: an individual, partnership, corporation, trust or unincorporated
organization, and a government or agency or political subdivision thereof.
RECORD DATE: March 15, 2000 and September 15, 2000.
REGISTRATION EXPENSES: All registration and filing fees, all fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of one firm of counsel for the holders and any
underwriters in connection with blue sky qualifications of the Conversion
Shares), printing expenses, messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of the officers and
employees of the Company performing legal or accounting duties), and reasonable
fees and disbursement of counsel for the Company and its independent certified
public accountants (including the reasonable expenses of any special audit or
comfort letters required by or incident to such performance), securities acts
liability insurance (if the Company elects to obtain such insurance), the
reasonable fees and expenses of any special experts retained by the Company in
connection with such registration, reasonable fees and expenses of any other
2
<PAGE>
persons retained by the Company and the fees and expenses associated with any
required filing with the National Association of Securities Dealers, Inc.
SECURITIES ACT: the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
1.2 ACCOUNTING PRINCIPLES. Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
accounting computation is required to be made for the purposes of this
Agreement, the same shall be done in accordance with GAAP, to the extent
applicable, except where such principles are inconsistent with the requirements
of this Agreement.
1.3 DIRECTLY OR INDIRECTLY. Where any provision of this Agreement refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether the action in question is
taken directly or indirectly by such Person or any Subsidiary or agent of such
Person or otherwise at the request, direction or for the benefit of such Person.
3
<PAGE>
SECTION 2
THE NOTES
2.1 ISSUANCE OF DEFINITIVE NOTES. On the Closing Date, the Company will
issue Notes to all qualified Persons whose subscriptions are accepted by the
Company in the Offering. Notes shall be issued in minimum principal amounts of
$250,000 and integral multiples of $25,000 in excess thereof. The Company shall
have the option in its sole discretion to issue Notes in principal amounts less
than $250,000. The Notes shall be numbered, lettered or otherwise distinguished
in such manner or in accordance with such plan as the Company may determine. The
Notes shall be dated as of the date of the Closing Date, except that any Note
issued upon the transfer, exchange or substitution of another Note shall be
dated the date of its original authentication.
2.2 PREPAYMENT. The Notes are subject to prepayment at the option of the
Company at any time on or prior to October 31, 1999. If less than all
outstanding Notes are prepaid by the Company, the selection of Notes for
prepayment may be made on a pro rata or random lot basis as determined by the
Company.
2.3 NO SINKING FUND. The Company shall not be required to set aside or
earmark funds to make required payments with respect to the Notes.
2.4 PERSONS ENTITLED TO NOTE INTEREST PAYMENTS. The person in whose name a
Note is registered at the close of business on any Record Date shall be entitled
to receive any interest payable with respect to such Note on the Interest
Payment Date next following such Record Date, notwithstanding the cancellation
of such Note upon any registration of transfer or exchange thereof subsequent to
such Record Date and prior to such Interest Payment Date. The Holder of any Note
issued upon the transfer, exchange or substitution of another Note shall only be
entitled to receive interest payable with respect to that Note from and after
the Interest Payment Date next following the first Record Date occurring after
the issuance of such Note.
2.5 PAYMENT OF PRINCIPAL AND INTEREST. Interest shall be payable on the
Interest Payment Dates; and principal shall be payable on the Maturity Date. The
Company shall pay the interest on the unpaid principal balance of the Notes as
provided herein. The entire remaining principal amount of the Notes shall become
due and payable on the Maturity Date.
2.6 APPLICATION OF PAYMENT. All payments received shall be applied to the
payment of the Notes in the following order of priority: (a) first, to the
payment of accrued interest, (b) second, to the payment of principal then due,
and (c) third, to the payment of premium, if any.
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SECTION 3
COMPANY COVENANTS
3.1 CORPORATE EXISTENCE. Except as otherwise permitted herein, the Company
will at all times preserve and keep in full force and effect its corporate
existence, rights and franchises.
3.2 PAYMENT OF TAXES AND CLAIMS. The Company will pay (a) all taxes,
assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its franchises, business, income or
profits, (b) all trade accounts payable in accordance with usual and customary
business terms, and (c) all claims (including, without limitation, claims for
labor, services, inventory, materials and supplies) for sums which have become
due and payable and which by law have or might become a lien or charge upon any
of its properties or assets; PROVIDED, that no such tax, assessment, charge,
account payable or claim need be paid if being contested in good faith by
appropriate proceedings promptly initiated and diligently conducted and if such
reserve or other appropriate provisions, if any, as shall be required by GAAP
shall have been made therefor.
3.3 MAINTENANCE OF PROPERTIES; BUSINESS INSURANCE. The Company will
maintain or cause to be maintained in good repair, working order and condition
all properties (whether owned in fee or a leasehold interest) used or useful in
the business of the Company and, from time to time, will make or cause to be
made all appropriate repairs, renewals and replacements thereof. The Company
will maintain or cause to be maintained, with financially sound and reputable
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by corporations of established
reputation engaged in the same or similar business and similarly situated, of
such types and in such amounts as are customarily carried under similar
circumstances by such other corporations.
SECTION 4
EVENTS OF DEFAULT & REMEDIES THEREFOR
4.1 EVENTS OF DEFAULT. Any one or more of the following shall constitute an
"EVENT OF DEFAULT" as the term is used herein:
(a) Default in the payment of the principal of any Note or premium
thereon, if any, at the expressed or any accelerated maturity date;
(b) Default in the payment of interest on any Note when due and such
default shall continue for more than 15 days;
(c) Default in the observance or performance of any other covenant or
provision of this Agreement or the Note that is not remedied within 30 days
after written notice to the Company from the holders of at least 25% in
aggregate principal amount of the Notes then outstanding;
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(d) A judgement or order is obtained for the payment of money in an
aggregate amount in excess of $1,000,000 (net of applicable insurance
coverage that is acknowledged in writing by the insurer) having been
rendered against the Company and such judgement or order shall continue
unsatisfied and unstayed for a period of 60 days;
(e) The Company becomes insolvent or bankrupt, is generally not paying
its debts as they become due or makes an assignment for the benefit of
creditors, or the Company causes or suffers an order for relief to be
entered with respect to it under applicable federal bankruptcy law or
applies for or consents to the appointment of a custodian, trustee or
receiver for the Company or for the major part of the property of the
Company;
(f) A custodian, liquidator, trustee or receiver is appointed for the
Company or any Subsidiary or for the major part of the property of the
Company and is not discharged within 30 days after such appointment;
(g) Bankruptcy, reorganization, arrangement or insolvency proceedings,
or other proceedings for relief under any bankruptcy or similar law or laws
for the relief of debtors, are instituted by or against the Company and, if
instituted against the Company are consented to or are not dismissed within
60 days after such institution; or
(h) Any representation or warranty made by the Company herein, or made
by the Company in any written statement or certificate furnished by the
Company in connection with the consummation of the issuance and delivery of
the Notes on the Offering or furnished by the Company pursuant hereto, is
untrue in any material respect as of the date of the issuance or making
thereof.
4.2 NOTICE TO HOLDERS. When any Event of Default described in Section 4.1
has occurred, the Company shall give notice thereof within three business days
thereafter of such event to the Holders. Upon receipt of such notice of the
occurrence of an Event of Default, the Holders of a majority of the principal
amount of the Notes then outstanding shall appoint a Note Agent which shall act
on behalf of the Holders as provided herein and shall, within 20 days after the
receipt of such notice, mail to all Holders, as the names and addresses of such
Holders appear upon the registration books of the Company, notice of all
Defaults known to the Note Agent, unless such Defaults shall have been cured
before the giving of such notice; PROVIDED, HOWEVER, that, except in the case of
Default in the payment of the principal of or interest on any of the Notes, the
Note Agent shall be protected in withholding such notice if Note Agent
determines in good faith that the withholding of such notice is in the interests
of the Holders.
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4.3 ACCELERATION; RESCISSION AND ANNULMENT.
(a) If an Event of Default occurs and is continuing, then and in every
such case the Note Agent or the Holders of Notes representing not less than 25%
of the aggregate principal amount of the outstanding Notes may declare the
unpaid principal, premium, if any, and accrued and unpaid interest of all the
Notes to be due and payable immediately, by a notice in writing to the Company
(and to the Note Agent if given by Holders), and upon any such declaration such
principal, premium, if any, and accrued and unpaid interest shall become
immediately due and payable, notwithstanding anything contained in this
Agreement or the Notes to the contrary. If an Event of Default specified in
Section 4.1(e), (f) or (g) above occurs, all unpaid principal of, and accrued
interest on, the Notes then outstanding will become due and payable, without any
declaration or other act on the part of the Note Agent or any Holder.
(b) At any time after such a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been obtained
by the Note Agent as hereinafter provided, the Holders of Notes representing a
majority of the aggregate in principal amount of the outstanding Notes, by
written notice to the Company and the Note Agent, may rescind and annul such
declaration and its consequences if
(i) the Company has paid or deposited with the Note Agent a sum
sufficient to pay;
(A) all overdue installments of interest on all Notes,
(B) the principal of (and premium, if any, on) any Notes
which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes,
and
(C) all sums paid or advanced by the Note Agent hereunder
and the reasonable compensation, expenses, disbursements and
advances of the Note Agent, its agents and counsel; and
(ii) all Events of Default, other than the nonpayment of the
principal of Notes which have become due solely by such acceleration, have been
cured or waived as provided herein.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
4.4 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY NOTE AGENT.
(a) The Company covenants that if:
(i) Default is made in the payment of any installment of interest
on any Notes when such interest becomes due and payable and such Default
continues for a period of 15 days, or
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(ii) Default is made on the payment of the principal of (or
premium, if any, on) any Notes at the Maturity Date thereof,
the Company will, upon demand of the Note Agent, pay to it, for the benefit of
the Holders of such Notes, the whole amount then due and payable on such Notes
for principal (and premium, if any) and interest, with interest upon the overdue
principal (and premium, if any) and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Note Agent,
its agents and counsel.
(b) If the Company fails to pay such amounts forthwith upon such
demand, the Note Agent, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, and may prosecute such proceeding to judgment or final decree, and may
enforce the same against the Company or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Notes,
wherever situated.
(c) If an Event of Default occurs and is continuing, the Note Agent
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Note Agent shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Agreement or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
4.5 NOTE AGENT MAY FILE PROOFS OF CLAIM.
(a) In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Note or the property of the Company or of such other obligor or their creditors,
the Note Agent (irrespective of whether the principal of the Notes shall then be
due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Note Agent shall have made any demand on the Company
for the payment of overdue principal or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise;
(i) to file and prove a claim for the amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Notes and
to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Note Agent (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Note
Agent, its agents and counsel) and of the Holders allowed in such judicial
proceeding; and
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(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by each Holder to
make such payments to the Note Agent, and in the event that the Note Agent shall
consent to the making of such payments directly to the Holders, to pay to the
Note Agent any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Note Agent, its agents and counsel, and any
other amounts due the Note Agent under this Agreement.
(b) The Note Agent shall not be required to join the Holders as
necessary parties to any such judicial proceeding, provided, however, that
nothing herein contained shall be deemed to authorize the Note Agent to
authorize and consent to or accept, or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Note Agent to vote in
respect of the claim of any Holder in any such proceeding.
4.6 NOTE AGENT MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES. All rights
of action and claims under this Agreement or the Notes may be prosecuted and
enforced by the Note Agent without the possession of any of the Notes or the
production thereof in any proceeding relating thereto, and any such proceeding
instituted by the Note Agent shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Note Agent, its agents and counsel, be for the ratable benefit of the
Holders of the Notes in respect of which such judgment has been recovered.
4.7 APPLICATION OF MONEY COLLECTED. Any money collected by the Note Agent
pursuant to this Section 4 shall be applied in the following order, at the date
or dates filed by the Note Agent and, in case of the distribution of such money
on account of principal (or premium, if any) or interest, upon presentation of
the Notes and the notation thereon of the payment if partially paid and upon
surrender thereof if fully paid;
FIRST: To the payment of all amounts due the Note Agent under this
Agreement;
SECOND: To the payment of the amounts then due and unpaid upon the
Notes for principal and interest, in respect of which or for the benefit of
which such money has been collected, ratably, without preference or priority of
any kind, according to the amounts due and payable on such Notes, for principal
and interest; and
THIRD: To the Company.
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4.8 LIMITATION ON SUITS. Except as provided in Section 4.9, no Holder of
any Note shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Agreement, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
(a) such Holder has previously given written notice to the Note Agent
of a continuing Event of Default;
(b) the Holders of not less than 25% of the aggregate principal amount
of the outstanding Note shall have made written request to the Note Agent to
institute proceedings in respect of such Event of Default in its own name as
Note Agent hereunder;
(c) such Holder or Holders have offered to the Note Agent reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Note Agent for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given
to the Note Agent during such 60-day period by the Holders of a majority of the
aggregate principal amount of the outstanding Notes;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Agreement to affect, disturb or prejudice the rights of any Holders of
Notes, or to obtain or to seek to obtain priority or preference over any other
Holders or to enforce any right under this Agreement, except in the manner
herein provided and for the equal and ratable benefit of all the Holders of
Notes.
4.9 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, AND INTEREST.
Notwithstanding any other provision in this Agreement, the Holder of any Note
shall have the right which is absolute and unconditional to receive payment of
the principal of and interest on such Note on the Maturity Date and to institute
suit for the enforcement of any such payment, and such right shall not be
impaired without the consent of such Holder.
4.10 RESTORATION OF RIGHTS AND REMEDIES. If the Note Agent or any Holder
has instituted any proceeding to enforce any right or remedy under this
Agreement and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Note Agent or to such Holder, then and
in every such case the Company, the Note Agent and the Holders shall, subject to
any determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Note Agent and the Holders shall continue as though no such proceeding had been
instituted.
4.11 RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred
upon or reserved to the Note Agent or to the Holders is intended to be exclusive
of any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
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given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder or otherwise shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
4.12 DELAY OR OMISSION NOT WAIVER. No delay or omission of the Note Agent
or of any Holder to exercise any right or remedy occurring upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given by
this Agreement or by law to the Note Agent or to Holders may be exercised from
time to time and as often as may be deemed expedient by the Note Agent or by the
Holders, as the case may be.
4.13 CONTROL BY HOLDERS. The Holders of a majority of the aggregate
principal amount of the outstanding Notes shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Note Agent or exercising any trust or power conferred on the Note Agent,
provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Agreement; and
(b) the Note Agent may take any other action deemed proper by the Note
Agent which is not inconsistent with such direction.
4.14 WAIVER OF PAST DEFAULTS. The Holders of a majority of the aggregate
principal amount of the outstanding Notes may on behalf of the Holders of all
the Notes waive any past Default hereunder and its consequences, except a
default:
(a) in the payment of the principal of (or premium, if any) or
interest on any Note, or
(b) in respect of a covenant or provision hereof which under this
Agreement cannot be modified or amended without the consent of the Holder of
each outstanding Note affected.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Agreement; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
4.15 UNDERTAKING FOR COSTS. All parties to this Agreement agree, and each
Holder of any Note by his acceptance thereof shall be deemed to have agreed,
that any court may in its discretion require, in any suit for the enforcement of
any right or remedy under this Agreement, or in any suit against the Note Agent
for any action taken or omitted by it as Note Agent, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant.
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4.16 WAIVER OF STAY OR EXTENSION LAWS. The Company covenants (to the extent
that it may lawfully do so) that it will not at any time insist upon, or plead,
or in any manner whatsoever claim or take the benefit or advantage of, any stay
or extension law wherever enacted, now or at any time hereafter in force, which
may affect the covenants or the performance of this Agreement; and the Company
(to the extent that it may lawfully do so) hereby expressly waives all benefit
or advantage of any such law, and covenants that it or they will not hinder,
delay or impede the execution of any power herein granted to the Note Agent, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 5
AMENDMENTS, WAIVERS & CONSENTS
5.1 CONSENT REQUIRED.
(a) Except as otherwise provided in this Section 5.1, any term,
covenant, agreement or condition of this Agreement may be amended by the
Company, without consent of the Holders in order to: (either generally or in a
particular instance and either retroactively or prospectively) (i) cure any
ambiguity, omission, defect or inconsistency of this Agreement, (ii) provide for
the assumption of the obligations of the Company under this Agreement upon the
merger, consolidation or sale or other disposition of all or substantially all
of the assets of the Company, or (iii) make any change that would provide
additional rights or benefits to the holders of Notes or that does not adversely
affect the rights of any holder of Notes in any material respect.
(b) Notwithstanding anything herein to the contrary, the written
consent of all of the Holders of Notes shall be required to (i) extend the time
of payment of the principal of or the interest, including default interest on
any Note or reduce the principal amount thereof or change the rate of interest
thereon, (ii) change any of the provisions of Section 6 or Section 8 hereof,
(iii) change the percentage of Holders required to consent to any such waiver,
amendment, alteration or modification of any of the provisions of Section 3 or
Section 4 hereof, (iv) make any Note payable in money other than that stated
herein, (v) impair the right to institute suit for the enforcement of any
payment of principal of, or premium, if any, or interest on, any Note, (vi) make
any change in the percentage of principal amount of Notes necessary to waive
compliance with any provision of this Agreement, or (vii) waive a continuing
Default or Event of Default in the payment of principal of, premium, if any, or
interest on the Notes.
5.2 EFFECT OF AMENDMENT OR WAIVER. Any such amendment or waiver shall apply
equally to all of the Holders and shall be binding upon them, upon each future
Holder and upon the Company, whether or not any Note shall have been marked to
indicate such amendment or waiver. No such amendment or waiver shall extend to
or affect any obligation not expressly amended or waived or impair any right
consequent thereon.
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5.3 SOLICITATION OF HOLDERS. The Company will not solicit, request or
negotiate for or with respect to any proposed waiver or amendment of any of the
provisions of this Agreement or the Notes unless each Holder (irrespective of
the amount of Notes then owned by it) shall be concurrently informed thereof by
the Company and shall be afforded the opportunity of considering the same and
shall be supplied by the Company with sufficient information to enable it to
make an informed decision with respect thereto. Executed or true and correct
copies of any waiver or consent effected pursuant to the provisions of this
Section 5 shall be delivered by the Company to each Holder forthwith following
the date on which the same shall have been executed and delivered by the Holder
or Holders of the requisite percentage of outstanding Notes. The Company will
not, directly or indirectly, pay or cause to be paid any fee (whether
denominated as servicing fee or otherwise) or other remuneration, including
supplemental or additional interest, expenses or other amount, to any Holder as
consideration for or as an inducement to the consideration or review of or
entering into by such Holder of any waiver or amendment of any of the terms and
provisions of this Agreement (or any proposed waiver or amendment hereof) unless
such remuneration is concurrently paid, on the same terms, ratably to all
Holders.
SECTION 6
CONVERSION OF NOTES
6.1 CONVERSION RIGHTS AND MANNER OF EXERCISE. Upon compliance with the
provisions hereof, any Holder shall have the right, after October 31, 1999, to
convert all or a portion of the Notes held by such Holder into one share of
Common Stock of the Company for each $1.00 (subject to Section 6.5) of unpaid
principal amount of the Note or, in case an adjustment of such price has taken
place pursuant to the following provisions hereof, then at the price as last
adjusted and in effect at the date such Note or portion thereof is surrendered
for conversion. To exercise such conversion privilege, the Holder thereof shall
surrender such Note to the Company at its principal office accompanied by a
completed Conversion Notice designating the unpaid principal amount of such Note
to be converted and stating the name and address of the Person in whose name
certificates for shares of Common Stock are to be registered.
6.2 AUTOMATIC CONVERSION. Upon the closing bid price of the Company's
Common Stock (as quoted on the OTC BB or other recognized market quotation
system or exchange) being at or above $1.75 per share for 10 consecutive trading
days, the outstanding Notes shall automatically convert into one share of Common
Stock for each $1.00 (subject and Section 6.5) of unpaid principal amount of the
Notes or, in case an adjustment of such price has taken place pursuant to the
following provisions hereof, then at the price as last adjusted and in the
effect at the date such Note or portion thereof is surrendered for conversion.
Upon such automatic conversion, the Company shall promptly notify the Holders
and the Holders shall surrender their Notes to the Company at its principal
office.
6.3 ISSUANCE OF COMMON STOCK CERTIFICATES. As promptly as practicable (but
in any event within 10 business days) after the receipt of a Conversion Notice
or an automatic conversion described in Section 6.2 and surrender of the Notes
as provided in Sections 6.1 and 6.2, the Company shall issue and deliver to such
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Holder, issued in the name of such Holder or such other Person or Persons as
such Holder may reasonably request, a certificate or certificates for the number
of full shares of Common Stock issuable upon the conversion of such Notes (or
specified portion thereof). 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 Conversion Notice shall have been received by
the Company (or as of the close of business on the tenth consecutive trading day
in which the Company's Common Stock trades at or above $1.75 per share in the
case of an automatic conversion pursuant to Section 6.2) and at such time the
rights of the Holder (or specified portion thereof) as such Holder shall cease,
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 of Common
Stock represented thereby.
6.4 CASH ADJUSTMENTS ON CONVERSION. No payment or adjustment shall be made
upon any conversion on account of any cash dividends declared for payment as of
a record date prior to the date of conversion on the shares of Common Stock
issued upon conversion of a Note. In the case of any Note that is converted in
part only, the Company shall, upon such conversion, execute and deliver to the
Holder thereof, at the expense of the Company, a new Note in principal amount
equal to the unconverted portion of the Note surrendered and otherwise of like
tenor therewith. No fractional share of Common Stock shall be issued upon
conversion of any Note, but if the conversion results in a fraction, an amount
equal to such fraction multiplied by the applicable Conversion Price shall be
paid in cash to the Holder of the Note being converted.
6.5 ANTIDILUTION ADJUSTMENTS.
(a) In the event the Company at any time or from time to time after
the issuance of any Notes shall declare or pay any dividend on its capital stock
payable in Common Stock, or effect a subdivision or combination of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), then and in any such event, the
Conversion Price shall be adjusted by multiplying the Conversion Price prior to
the adjustment by the number of shares of Common Stock outstanding immediately
prior to the effective time of such event and dividing the result by the number
of shares of Common Stock outstanding immediately after the effective time of
such event, effective in the case of such dividend, immediately after the close
of business on the record date for the determination of holders of capital stock
entitled to receive such dividend, or in the case of a subdivision or
combination, at the close of business immediately prior to the date upon which
such corporate action becomes effective.
(b) In the event the Company at any time or from time to time makes,
or fixes a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in capital stock of the
Company other than shares of Common Stock, then and in each such event provision
shall be made so that the Holders receive upon conversion thereof, in addition
to the number of shares of Common Stock receivable thereupon, the amount of
securities which such Holders would have received had the Notes been converted
prior to such effective record date.
(c) Whenever the Conversion Price shall be adjusted pursuant to this
Section 6.5, the Company shall promptly deliver a certificate signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Company, setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board of Directors of the Company made any
determination hereunder), by first class mail postage prepaid to each Holder.
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6.6 MERGERS, CONSOLIDATIONS, SALES. In the case of any consolidation or
merger of the Company with another entity, or the sale of all or substantially
all of its assets to another entity, or any reorganization or reclassification
of the Common Stock or other equity securities of the Company (except a
subdivision or combination provision for which is made in Section 6.5(a)
hereof), then, as a condition of such consolidation, merger, sale,
reorganization or reclassification, lawful and adequate provision shall be made
whereby the Holders shall thereafter have the right to receive upon the basis
and upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore receivable upon conversion of their Notes,
such shares of stock, securities, assets or cash as may (by virtue of such
consolidation, merger, sale, reorganization or reclassification) be issued or
payable with respect to or in exchange for a number of outstanding shares of
Common Stock equal to the number of shares of Common Stock immediately
theretofore so receivable hereunder had such consolidation, merger, sale,
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holders to the end that the provisions of this Section 6 (including, without
limitation, provisions for adjustment of the per share Conversion Price) shall
thereafter be applicable as nearly as may be, in relation to any shares of
stock, securities, assets or cash thereafter deliverable upon conversion of such
Notes. The Company shall not effect any such consolidation, merger or sale,
unless prior to or simultaneously with the consummation thereof, the successor
entity (if other than the Company) resulting from such consolidation or merger
or the entity purchasing such assets shall assume by written instrument executed
and mailed or delivered to each Holder, the obligation to deliver to such Holder
such shares of stock, securities, assets or cash as, in accordance with the
foregoing provisions, such Holder may be entitled to receive.
6.7 DISSOLUTION OR LIQUIDATION. In the event of any proposed distribution
of the assets of the Company in dissolution or liquidation (except under
circumstances when Section 6.5 shall be applicable), the Company shall mail
notice thereof to the Holders and shall make no distribution to shareholders
until the expiration of 30 days from the date of mailing such notice and, in any
such case, the Holders may exercise the conversion rights with respect to their
Notes within 30 days from the date of mailing such notice and all rights herein
granted not so exercised within such 30 day period shall thereafter become null
and void.
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6.8 NOTICE OF EXTRAORDINARY DIVIDENDS. If the Board of Directors of the
Company shall declare any dividend or other distribution on its Common Stock
except out of retained earnings or by way of a stock dividend payable in shares
of its Common Stock on its Common Stock, the Company shall mail notice thereof
to the registered Holders not less than 15 days prior to the record date fixed
for determining shareholders entitled to participate in such dividend or other
distribution and the Holders shall not participate in such dividend or other
distribution or be entitled to any rights on account or as a result thereof
(except adjustments as provided in Section 6.5(b)) unless and to the extent that
such conversion rights are exercised prior to such record date. The provisions
of this Section 6.8 shall not apply to distributions covered by Section 6.4(a)
or made in connection with transactions covered by Section 6.6 hereof.
6.9 RESERVATION OF COMMON STOCK. The Company will at all times reserve and
keep available such number of authorized shares of its Common Stock, solely for
the purpose of issue upon the conversion of Notes as herein provided for, as
shall then be issuable upon the conversion of all outstanding Notes.
6.10 FULLY PAID STOCK; TAXES. The Company covenants and agrees that the
shares of stock represented by each and every certificate for its Common Stock
to be delivered on the exercise of the conversion rights herein provided for
shall, at the time of such delivery, be validly issued and outstanding and be
fully paid and nonassessable. The Company further covenants and agrees that it
will pay when due and payable any and all federal and state taxes (other than
income taxes) that may be payable in respect of the Notes or any Common Stock or
certificates therefor upon the exercise of the conversion rights herein provided
for pursuant to the provisions hereof. The Company shall not, however, be
required to pay any tax that may be payable in respect of any transfer involved
in the transfer and delivery of stock certificates in the name other than that
of the Holder of the Note converted, and any such tax shall be paid by such
Holder at the time of presentation.
SECTION 7
RESTRICTIONS ON TRANSFERABILITY
7.1 RESTRICTIONS ON TRANSFERABILITY. The Notes and the Conversion Shares
shall not be transferable except upon the conditions hereinafter specified,
which conditions are intended to ensure compliance with the provisions of the
Securities Act and any applicable state securities laws, in respect of the
transfer of any Notes or any such Conversion Shares.
7.2 RESTRICTIVE LEGENDS.
(a) Each Note initially issued under this Agreement and each Note
issued in exchange therefor shall bear on the face thereof a legend
substantially as follows:
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THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE OFFERED OR SOLD ONLY IF REGISTERED UNDER
APPLICABLE SECURITIES LAWS OR IF AN EXEMPTION THEREFROM IS AVAILABLE.
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF ARE TRANSFERABLE ONLY UPON THE CONDITIONS SPECIFIED IN THE NOTE
AGREEMENT REFERRED TO HEREIN. A COPY OF THE NOTE AGREEMENT WILL BE
PROVIDED TO THE REGISTERED HOLDER THEREOF UPON REQUEST TO THE COMPANY.
(b) Each certificate for shares of Common Stock initially issued upon
the conversion of any Note and each certificate for shares of Common Stock
issued to a subsequent transferee of such certificate shall, unless otherwise
permitted by the provisions of this Section 7 bear on the face thereof a legend
substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED
OR SOLD ONLY IF REGISTERED UNDER APPLICABLE SECURITIES LAW OR PURSUANT
TO AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY STATING THAT SUCH
REGISTRATION IS NOT REQUIRED. THE TRANSFER OF SUCH SHARES IS SUBJECT TO
CERTAIN CONDITIONS, THE PROVISIONS OF WHICH WILL BE PROVIDED TO THE
REGISTERED HOLDER HEREOF UPON REQUEST BY THE COMPANY, AND NO TRANSFER
OF SUCH SHARES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS SHALL
HAVE BEEN FULFILLED.
In the event that a registration statement covering any Conversion Shares shall
become effective under the Securities Act and under any applicable state
securities laws or in the event that the Company shall receive an opinion of its
counsel that, in the opinion of such counsel, such legend is not, or is no
longer, necessary or required with respect to such shares (including, without
limitation, because of the availability of the exemption afforded by Rule 144 of
the general rules and regulations of the Commission), the Company shall or shall
instruct its transfer agents and registrars to, remove such legend from the
certificates evidencing such Conversion Shares or issue new certificates without
such legend in lieu thereof. Upon the written request of any Holder or the
holder of any Conversion Shares, the Company covenants and agrees forthwith to
request its counsel to render an opinion with respect to the matters covered by
this paragraph and to bear all expenses in connection with such opinion of its
counsel.
7.3 NOTICE OF PROPOSED TRANSFER; REGISTRATION NOT REQUIRED. The Holder of
each Note or any Conversion Shares, by acceptance thereof, agrees to give prior
written notice to the Company of such Holder's intention to transfer such Note
or such Conversion Shares (or any portion thereof), describing briefly the
manner and circumstances of the proposed transfer, together with an opinion of
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counsel to the effect that the proposed transfer may be effected without
registration or qualification under any federal or state law. Unless the Company
shall have received an opinion from counsel to the Company (which opinion shall
be obtained by the Company not more than ten days after notice of a proposed
transfer) that the proposed transfer may not be effected without registration or
qualification under federal or state law, such Holder shall be entitled to
transfer such Note or such Conversion Shares, all in accordance with the terms
of the notice delivered by such holder to the Company. All fees and expenses of
counsel for the Company in connection with the rendition of the opinion provided
for in this Section 7.3 shall be paid by the Company.
7.4 TRANSFER OF NOTES. If in the opinion of either counsel referred to in
Section 7.3 a proposed transfer of a Note or Conversion Shares requested by the
Holder thereof may not be effected without registration or qualification under
applicable federal or state law, the Company shall promptly give written notice
to the Holder who proposes to transfer the Note or such Conversion Shares (or
any portion thereof) that the Holder shall not consummate the proposed transfer
and the reasons therefor. No Note or Conversion Shares (or any portion thereof)
for which a transfer has been proposed pursuant to Section 7.3 may be
transferred in the manner proposed if registration thereof under the Securities
Act would be required in the opinion of either counsel mentioned above.
SECTION 8
REGISTRATION OF CONVERSION SHARES
8.1 REGISTRATION. The Company shall use its reasonable best efforts to
cause to be filed with the Commission no later than three months after the final
closing of the Offering a shelf registration statement on an appropriate form
providing for the sale by the Holders of the Conversion Shares. The Company
shall use its reasonable best efforts to have such shelf registration statement
declared effective by the Commission as soon as practicable after such filing.
The Company agrees to use its best efforts to keep the registration statement
continuously effective (and to take any and all other actions reasonably
necessary in order to permit public resale of the Conversion Shares covered by
such registration statement in accordance with this Agreement) for a period of
two years after the registration statement is declared effective. The Company
further agrees, if necessary, to supplement or amend the registration statement,
if required by the rules, regulations or instructions applicable to the
registration form used by the Company for such shelf registration statement or
by the Securities Act or by any other rules and regulations thereunder for
registration, and the Company agrees to furnish notice thereof to the Holders of
the Conversion Shares.
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8.2 CONDITIONS RELATING TO SHELF REGISTRATION.
(a) Subject to paragraph (b) of this Section 8.2, the registration
rights of the Holders pursuant to this Agreement and the ability to offer and
sell Conversion Shares pursuant to the registration statement are subject to the
following conditions and limitations, and each Holder agrees with the Company
that:
(i) If the Company determines in its good faith judgment that the
filing of the registration statement under Section 8.1 hereof or the use of
any prospectus would require the disclosure of important information which
the Company has a bona fide business purpose for preserving as confidential
or the disclosure of which would impede the Company's ability to consummate
a significant transaction, upon written notice of such determination by the
Company, the rights of the Holders to offer, sell or distribute any
securities pursuant to the registration statement or to require the Company
to take action with respect to the registration or sale of any securities
pursuant to the registration statement (including any action contemplated
by Section 8.4 hereof) will for up to 60 days in any 12 month period be
suspended until the date upon which the Company notifies the Holders in
writing that suspension of such rights for the grounds set forth in this
Section 8.2(a)(i) is no longer necessary.
(ii) If all reports required to be filed by the Company pursuant
to the Exchange Act have not been filed by the required date without regard
to any extension, or if consummation of any business combination by the
Company has occurred or is probable for purposes of Rule 3-05 or Article 11
of Regulation S-X under the Securities Act, upon written notice thereof by
the Company to the Holders, the rights of the Holders to offer, sell or
distribute any securities pursuant to the registration statement or to
require the Company to take action with respect to the registration or sale
of any securities pursuant to the registration statement (including any
action contemplated by Section 8.4 hereof) will for up to 60 days in any 12
month period be suspended until the date upon which the Company has filed
such reports or obtained the financial information required by Rule 3-05 or
Article 11 of Regulation S-X to be included in the registration statement.
(iii) In the case of the registration of any underwritten primary
equity offering initiated by the Company (other than any registration by
the Company on Form S-8, or a successor or substantially similar form, of
(A) an employee stock option, stock purchase or compensation plan or of
securities issued or issuable pursuant to any such plan, or (B) a dividend
reinvestment plan), each Holder agrees, if requested in writing by the
managing underwriter or underwriters administering such offering, not to
effect any offer, sale or distribution of securities (or any option or
right to acquire securities) during the period commencing on the 10th day
prior to the effective date of the registration statement covering such
underwritten primary equity offering and ending on the date specified by
such managing underwriter in such written request to such Holder, which
period may be of a duration of 90 days or more.
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<PAGE>
(iv) In the event that the Company plans to repurchase or bid for
securities of the Company in the open market, on a private solicited basis
or otherwise, and the Company determines, in its reasonable good faith
judgment and based upon the advice of counsel to the Company (which counsel
shall be experienced in securities laws matters), that any such repurchase
or bid may not, under Rule 10b-6 under the Exchange Act, or any successor
or similar rule, be commenced or consummated due to the existence or the
possible commencement of a "DISTRIBUTION" (within the meaning of Rule
10b-6) as a result of any offers or sales by Holders of any Conversion
Shares, as the case may be, under any registration statement filed pursuant
to this Agreement, the Company shall be entitled, for a period of 90 days
or more, to request that Holders of Conversion Shares, to suspend or
postpone such distribution pursuant to such registration statement. The
Company shall, as promptly as practicable, give such Holder or Holders
written notice of such election, stating the basis for the Company's
determination. As promptly as practicable following the determination by
the Company that the Holders may commence or recommence their distribution
pursuant to the registration statement without causing the Company to be in
violation of Rule 10b-6, the Company shall give such Holder or Holders
written notice of such determination.
(b) Notwithstanding the provisions of Section 8.2(a) above, the
aggregate number of days (whether or not consecutive) during which the Company
may delay the effectiveness of the registration statement or prevent offerings,
sales or distribution by the Holders thereunder pursuant to Section 8.2(a) shall
in no event exceed 180 days during any 12-month period.
(c) The Company may require each selling Holder of Conversion Shares,
as a condition to the inclusion of the Conversion Shares of such selling Holder
in the shelf registration statement or in any offering thereunder, as the case
may be, to furnish to the Company such information regarding the Holder and the
distribution of such securities as the Company may from time to time reasonably
request (which request shall be confirmed in writing if requested by the
Company) in order to comply with applicable law and such other information as
may be legally required in connection with such registration or offering, and
the Holder shall promptly provide such information and a written consent to the
inclusion of such information in the registration statement or any prospectus or
supplement thereto; PROVIDED that the failure of any Holder to provide such
information to the Company shall not in any way affect the obligations of the
Company hereunder with respect to any other Holder.
8.3 REGISTRATION PROCEDURES. In connection with the obligations of the
Company with respect to a registration statement pursuant to Section 8.1 hereof
and subject to Section 8.2 hereof, the Company shall:
(a) (i) prepare and file with the Commission a registration statement
on the appropriate form under the Securities Act, (A) which form shall be
selected by the Company and shall be available for the sale of the Conversion
Shares in accordance with the intended method or methods of distribution by the
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<PAGE>
selling Holders thereof (PROVIDED that the Company shall not be required to use
any form other than Form S-1, S-2, S-3, SB-1 or SB-2 or any successor form and
shall not be required to file more than one registration statement with the
Commission) and (B) which registration statement shall comply as to form in all
material respects with the requirements of the applicable form and include or
incorporate by reference all financial statements required by the Commission to
be so included or incorporated by reference, FURTHER PROVIDED that subject to
the registration statement and prospectus being in compliance with the
requirements of the Securities Act and the Exchange Act (including all rules and
regulations of the Commission thereunder), the Company has the sole discretion
to determine the form, substance and presentation of any financial or other
information included in any registration statement or prospectus, and whether
such information should be included in such registration statement or
prospectus; and (ii) use its reasonable best efforts to cause such registration
statement to become effective and remain effective in accordance with Section
8.1 hereof;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the registration statement as may be necessary to
keep such registration statement effective for the applicable period; and cause
each prospectus to be supplemented by any required prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Securities Act;
(c) in the event that any federal law or regulation binding on the
Company and adopted after the date hereof so requires (and would also so require
if the Conversion Shares were being offered in a primary offering by the Company
rather than by the Holders), use its reasonable best efforts to cause such
Conversion Shares to be registered with or approved by such other federal
governmental agencies or authorities in the United States, if any, as may be
required by virtue of the business and operations of the Company to enable the
selling Holders to consummate the disposition of such Conversion Shares;
(d) furnish to each Holder of Conversion Shares and to each managing
underwriter of an underwritten offering of Conversion Shares pursuant to Section
4(1) of the Securities Act, if any, without charge, as many copies of each
prospectus, including each preliminary prospectus, and any amendment or
supplement thereto as such Holder or underwriter may reasonably request, in
order to facilitate the public sale or other disposition of the Conversion
Shares;
(e) use its reasonable best efforts to register or qualify the
Conversion Shares under all applicable state securities or "BLUE SKY" laws of
such jurisdictions as any Holder of Conversion Shares of such class covered by
the registration statement shall, on 20 days prior written notice, reasonably
request in writing. Such notice to be sent at any time prior to the applicable
registration statement being declared effective by the Commission. The Company
shall maintain such registration or qualification in effect during the
applicable period provided in Section 8.1 hereof; PROVIDED, HOWEVER, that the
Company shall not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
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Section 8.3; (ii) subject itself to taxation in any such jurisdiction; (iii)
make any change to its Articles or Incorporation or Bylaws; or (iv) become
subject to general service of process in any jurisdiction where it is not then
so subject;
(f) notify each Holder of Conversion Shares as promptly as practicable
after becoming aware thereof and (if requested by any such Holder) confirm such
notice in writing (i) when the registration statement has become effective and
when any post-effective amendments and supplements thereto become effective;
(ii) of any request by the Commission or any state securities authority for
amendments and supplements to the registration statement and any prospectus or
for additional information relating to the Conversion Shares or the registration
or qualification thereof after the registration statement has become effective;
(iii) of the issuance by the Commission or any state securities authority of any
stop order suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose; (iv) if the representations and
warranties of the Company contained in any underwriting agreement, securities
sales agreement or other similar agreement, if any, relating to the Conversion
Shares cease to be true and correct in any material respect prior to the closing
date specified in such agreement (PROVIDED such notice shall be given only to
Holders which are parties to the agreements pursuant to which such
representations and warranties are made), or if the Company receives any
notification with respect to the suspension of the qualification of the
Conversion Shares for sale in any jurisdiction or the initiation of any
proceeding for such purpose; and (v) of the happening of any event during the
period (other than any suspension period referred to in Section 8.2) during
which the registration statement is required hereunder to be effective as a
result of which the registration statement or any prospectus would contain an
untrue statement of material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading;
(g) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of the registration statement or the
qualification of the Conversion Shares for sale in any jurisdiction as promptly
as practicable;
(h) furnish to each Holder of Conversion Shares, without charge, at
least one conformed copy of the registration statement and any post-effective
amendment thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested in writing);
(i) cooperate with the Holders of Conversion Shares to facilitate the
timely preparation and delivery of certificates representing Conversion Shares
to be sold pursuant to the registration statement and not bearing any
restrictive legends; and enable such Conversion Shares to be in such
denominations and registered in such names as the selling Holders may reasonably
request (in each case, PROVIDED such certificates are requested in writing at
least three business days prior to any delivery thereof);
(j) upon the occurrence of any event contemplated by Section 8.3(f)(v)
hereof, use its reasonable best efforts as promptly as practicable to prepare
and file with the Commission a supplement or post-effective amendment to the
registration statement or the related prospectus or any document incorporated
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therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Conversion Shares, such prospectus will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(k) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security Holders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 under
the Securities Act;
(l) use its reasonable best efforts to (i) cause all Conversion Shares
to be listed or quoted on any securities exchange or quotation system on which
the Company's outstanding Common Stock is then listed or quoted; and
(m) obtain a CUSIP number for all Conversion Shares not later than the
effective date of the registration statement.
Each Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 8.3 hereof, such Holder
will forthwith discontinue disposition of Conversion Shares pursuant to the
registration statement covering such Conversion Shares until such Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 8.3(j) hereof, or until it is advised in writing by the Company that the
use of such prospectus may be resumed and, if so directed by the Company, such
Holder will deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such Holder's possession, of the prospectus
covering such Conversion Shares current at the time of receipt of such notice;
PROVIDED, HOWEVER, that the Company shall use its reasonable best efforts to
promptly prepare and provide to the Holders a supplemented or amended prospectus
contemplated by such Section 8.4(j) hereof. In the event the Company shall give
any such notice, the period during which such registration statement shall be
maintained effective shall be extended by the number of days during the period
from and including the date of the giving of such notice pursuant to Section
8.4(f)(v) hereof to including the date when each Holder of Conversion Shares
covered by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by Section 8.4(j) hereof.
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8.4 REGISTRATION EXPENSES.
(a) The Company will bear all reasonable Registration Expenses
incident to the performance of or compliance with its obligations under this
Agreement. Notwithstanding the foregoing, the Company is not required to pay any
fees or expenses of Holders, underwriters, the Holder's or any underwriter's
counsel (other than blue sky counsel) or accountant or any other advisers,
including any transfer taxes, underwriting, brokerage and other discounts and
commissions and finders' and similar fees payable in the respect of Conversion
Shares.
(b) Each Holder shall pay all costs and expenses incurred by such
Holder, including all transfer taxes, underwriting, brokerage and other
discounts and commissions and finders' and similar fees payable in respect of
Conversion Shares. To the extent that any Registration Expenses are incurred,
assumed or paid by any Holder or any placement or sales agent therefor or
underwriter thereof with the Company's prior written consent, the Company shall
reimburse such person for the full amount of the Registration Expenses so
incurred, assumed or paid within a reasonable time after receipt of a written
request therefor. Any Registration Expenses submitted by any Holder, placement
or sales agent or underwriter or on behalf of any such person for payment by the
Company shall be itemized in detail and contain clear and accurate receipts of
all expenditures made by such parties.
8.5 INDEMNIFICATION; CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Holder and
each "PERSON," if any, that controls such Holder within the meaning of Section
15 of the Securities Act for, from and against any and all loss, liability,
claim, damage and expense (including attorneys' fees) to the extent resulting
from any untrue statement or alleged untrue statement of a material fact
contained in any registration statement pursuant to which Conversion Shares were
registered under the Securities Act (or any amendment thereto), including all
documents incorporated therein by reference, or from the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statement therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
insofar as any such misstatement or omission or alleged misstatement or omission
is made therein in reliance upon and in conformity with information furnished to
the Company by such Holder in writing expressly for use in a registration
statement (or any amendment thereto) or any prospectus (or any amendment or
supplement thereto) relating to the Conversion Shares. As used in this Section
8.5(a), the term "HOLDER" shall include its officers, directors and agents.
(b) Each Holder agrees to indemnify and hold harmless the Company, its
directors and officers and each "PERSON," if any, who controls the Company
within the meaning of Section 15 of the Securities Act to the same extent as the
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foregoing indemnity from the Company to such Holder, but only with respect to
information furnished in writing by such Holder or on such Holder's behalf
expressly for use in any registration statement (or any amendment thereto) or
any prospectus (or any amendment or supplement thereto) relating to the
Conversion Shares, or any amendment or supplement thereto; PROVIDED that the
obligations or any Holder to indemnify the Company and the other persons
referred to above shall be limited to the proceeds received by such Holder from
the sale of such Conversion Shares pursuant to such registration statement.
(c) If any action or proceeding (including any governmental
investigation) shall be brought or asserted against any person entitled to
indemnification hereunder, the indemnified party shall give prompt written
notice to the indemnifying party, and the indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the indemnified party, and shall assume the payment of all expenses in
connection with such defense. The indemnified party or any controlling person of
such indemnified party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of the indemnified party or such
controlling person unless (i) the indemnifying party shall have agreed to pay
such fees and expenses; or (ii) the indemnifying party shall have failed to
assume the defense for such action or proceeding and to employ counsel
reasonably satisfactory to the indemnified party in any such action or
proceeding; or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both the indemnified party or such
controlling person and the indemnifying party, and such indemnified party or
such controlling person shall have been advised by counsel that counsel employed
by the indemnifying party would, under applicable professional standards, have a
conflict in representing both the indemnifying party and the indemnified party
or such controlling person, in which case, if such indemnified person or such
controlling person notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
or proceeding of separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, and shall not be liable for the reasonable fees and expenses
of more than one separate firm of attorneys (together with appropriate local
counsel) at any time for such indemnified party and such controlling persons,
which firm shall be designated, if the Holders (or their controlling persons)
are the indemnified parties, in writing by the Holders of a majority of the
outstanding Conversion Shares owned by Holders who are then entitled to such
indemnity in connection with such action or proceeding and if the Company is the
indemnified party, by the Company. No party shall be liable for any settlement
of any such action or proceeding effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent, or if there is a final judgment for the plaintiff in any such action or
proceeding, the indemnifying party agrees to indemnify and hold harmless such
indemnified party and such controlling person from and against any loss or
liability (to the extent stated above) by reason of such settlement or judgment.
(d) (i) If the indemnification provided for in this Section 8.5 is
unavailable to an indemnified party hereunder in respect of any losses, claims,
damages, liabilities or expenses, then each such indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
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liabilities and expenses in such proportion as is appropriate to reflect the
relative fault of the indemnified party and the indemnifying party in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the indemnified party and the indemnifying party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8.5(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, expenses, liabilities, or judgements referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8.5(d), no
Holder shall be required to contribute any amount in excess of the amount by
which the total price at which the Conversion Shares of such selling Holder were
offered to the public pursuant to such registration statement exceeds the amount
of any damages which such selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person found guilty by a court of competent jurisdiction of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
found guilty by a court of competent jurisdiction of such fraudulent
misrepresentation.
(e) Neither the Company nor the Holders shall have any obligation
under this Agreement (other than as set forth in this Section 8.5) to provide
the other with indemnification or contribution in respect of any losses, claims,
damages, liabilities or expenses referred to in this Section 8.5; PROVIDED,
HOWEVER, that the provisions of this Section 8.5 shall not relieve an
indemnifying party from liability which it may have to an indemnified party
other than with respect to the matters referred to in this Section 8.5.
8.6 COMMISSION FILINGS. The Company covenants that it will file the reports
required to be filed by it under the Exchange Act and the rules and regulations
adopted by the Commission thereunder in a timely manner as determined by
applicable rules and interpretations under the Exchange Act. Upon the written
request of any Holder of Conversion Shares, the Company will deliver to such
Holder a written statement as to whether it has complied with such requirements.
8.7 LOCK-UP AGREEMENT. Upon the registration statement related to the
Conversion Shares being declared effective, the Holders of Conversion Shares
shall not offer, sell, dispose of, transfer or otherwise reduce market risk with
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respect to such Registerable Securities, directly or indirectly, without the
prior consent of the Company and except for transfers occurring by operation of
law. The foregoing notwithstanding, the percentage of Conversion Shares shall be
released from the above restrictions at the time periods as follows:
Time Cumulative Percentage Transferable
---- ----------------------------------
Effective Date of Registration 25%
Three Months After Effective Date 50%
Six Months After Effective Date 75%
Nine Months After Effective Date 100%
The Company may accelerate the release of the Conversion Shares in its sole
discretion.
SECTION 9
NOTE AGENT
9.1 DUTIES AND LIABILITIES OF NOTE AGENT.
(a) The Note Agent upon appointment shall undertake to perform such
duties and only such duties as are specifically set forth in this Agreement. In
case an Event of Default has occurred (which has not been cured), the Note Agent
shall exercise such of the rights and powers vested in it by this Agreement and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) No provision of this Agreement shall be construed to relieve the
Note Agent from liability for its own gross negligence in acting or omitting to
act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default which may have
occurred:
(A) the duties and obligations of the Note Agent shall be
determined solely by the express provisions of this Agreement,
and the Note Agent shall not be liable except for the performance
of such duties and obligations as are specifically set forth in
this Agreement, and no implied covenants or obligations shall be
read into this Agreement against the Note Agent; and
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(B) in the absence of bad faith on the part of the Note
Agent, the Note Agent may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Note
Agent and conforming to the requirements of this Agreement; but
in the case of any such certificates or opinions that by any
provision hereof arc specifically required to bc furnished to the
Note Agent, the Note Agent shall be under a duty to examine the
same to determine whether or not they conform to the requirements
of this Agreement.
(ii) the Note Agent shall not be liable for any error of judgment
made in good faith, unless it shall be proved that the Note Agent was
grossly negligent in ascertaining the pertinent facts;
(iii) the Note Agent shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of a majority in aggregate principal
amount of the Notes then outstanding relating to the time, method and
place of conducting any proceeding for any remedy available to the
Holders, or exercising any power conferred upon the Note Agent, under
this Agreement; and
(iv) none of the provisions of this Agreement shall require the
Note Agent to expend or risk its own funds or otherwise incur any
personal financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(c) Whether or not herein expressly so provided, every provision of
this Agreement relating to the conduct or affecting the liability of or
affording protection to the Note Agent shall be subject to the provisions of
this Section 9.
9.2 RELIANCE ON DOCUMENTS, OPINIONS, ETC. Except as otherwise provided in
Section 9.1:
(a) the Note Agent may rely and shall be protected in acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, note, bond. note, or other paper or document reasonably
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) whenever in the administration of the provisions of this Agreement
the Note Agent shall deem it necessary or desirable that a matter be proved or
established prior to taking or omitting any action hereunder, such matter
(unless other evidence in respect thereof be herein specifically prescribed)
may, in the absence of gross negligence or bad faith on the part of the Note
Agent, be deemed to be conclusively proved and established by a certificate
signed by the Company and delivered to the Note Agent, and such certificate, in
the absence of gross negligence or bad faith on the part of the Note Agent,
shall be full warrant to Note Agent for any action taken or omitted by it under
the provisions of this Agreement upon the faith thereof;
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(c) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by a certificate of the Company (unless
other evidence in respect thereof be herein specifically prescribed);
(d) the Note Agent may consult with legal counsel and any opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken or omitted by it hereunder in good faith and in accordance with
such opinion of Counsel;
(e) the Note Agent shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement at the request, order or
direction of any of the Holders, pursuant to the provisions of this Agreement,
unless such Holders shall have offered to the Note Agent reasonable security or
indemnify against the costs, expenses and liabilities which may be incurred
therein or thereby; nothing herein contained shall, however, relieve the Note
Agent of the obligations, upon the occurrence of any Event of Default (which has
not been cured), to exercise such of the rights and powers vested in it by this
Agreement and to use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs;
(f) the Note Agent shall not be liable for any action taken or omitted
by it in good faith and reasonably believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Agreement;
(g) prior to the occurrence of an Event of Default hereunder and after
the curing of all Events of Default, the Note Agent shall not be bound to make
any investigation into the facts or matters stated in the resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, note, bond note, or other paper or document, unless requested in writing
so to do by the Holders of more than one half in aggregate principal amount of
the Notes then outstanding; provided that if the payment within a reasonable
time to the Note Agent of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is not, in the opinion of the
Note Agent, reasonably assured to the Note Agent by the security afforded to it
by the terms of this Agreement, the Note Agent may require reasonable indemnity
against such expense or liability as a condition to so proceeding, the
reasonable expense of every such examination shall be paid by the Company, or,
if paid by the Note Agent, shall be repaid by the Company upon demand; and
(h) the Note Agent may execute any of the rights or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys.
9.3 NO RESPONSIBILITY FOR RECITALS, ETC. The recitals contained herein and
in the Note shall be taken as the statements of the Company and the Note Agent
assumes no responsibility for the correctness of the same. The Note Agent makes
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no representations as to the validity or sufficiency of this Agreement or of the
Notes. The Note Agent shall not be accountable for the use or application by the
Company of any Notes or the proceeds of any Notes authenticated and delivered by
the Note Agent in conformity with the provisions of this Agreement.
9.4 MONEYS TO BE HELD IN TRUST. All moneys received by the Note Agent
shall, until used or applied as herein provided, be held in trust for the
purposes for which they are received.
9.5 EXPENSES OF NOTE AGENT. The Company shall pay or reimburse the Note
Agent upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Note Agent in connection with the performance of Note
Agent's obligations with respect to a Default by Company or by reason of the
occurrence of an Event of Default (including the reasonable compensation and
expenses and disbursements of its counsel and of all persons not regularly in
its employ) except any such expense, disbursement or advance as may arise from
its gross negligence, willful misconduct or bad faith. The Company also shall
indemnify the Note Agent for, and hold it harmless against, any loss, liability
or expense incurred without gross negligence or bad faith on the part of the
Note Agent and arising out of or in connection with the acceptance or
administration of this agency, including the reasonable costs and expenses of
defending itself against any claim of liability in the premises.
9.6 RESIGNATION OR REMOVAL OF NOTE AGENT.
(a) The Note Agent may at any time resign by giving written notice of
such resignation to the Company and by mailing notice thereof to the Holders at
their addresses as they shall appear on the registry books of the Company. Upon
receiving such notice of resignation, the Holders of a majority of the principal
amount of the Notes then outstanding may appoint a successor agent. If no
successor Note Agent shall have been so appointed and have accepted appointment
within 60 days after the publication of such notice of resignation, the
resigning Note Agent may petition any court of competent jurisdiction for the
appointment of a successor Note Agent, or any Holder who has been a bona fide
holder of a Note or Notes for at least six months may on behalf of himself and
all others similarly situated, petition any such court for the appointment of a
successor Note Agent. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor Note Agent. In the event the
Event of Default causing the appointment of the Note Agent is cured, a
substitute Note Agent need not be appointed until the subsequent occurrence of
an additional Event of Default.
(b) In case at any time the Note Agent shall become incapable of
acting; or in connection with the performance of its obligations hereunder shall
have acted in bad faith, shall have been grossly negligent or shall have
willfully breached this Agreement; or shall be adjudged a bankrupt or insolvent,
or a receiver of the Note Agent or of its property shall be appointed, or any
public officer shall take charge or control of the Note Agent or of its property
or affairs for the purpose of rehabilitation, conservation or liquidation, then
in any such case the Holders of a majority of the principal amount of the Notes
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then outstanding may remove the Note Agent and appoint a successor Note Agent,
or any Holder who has been a bona fide holder of a Note or Notes for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the removal of the Note Agent and the
appointment of a successor Note Agent. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, remove the Note Agent and
appoint a successor Note Agent.
(c) Any resignation or removal of the Note Agent and appointment of a
successor Note Agent pursuant to any of the provisions of this Section 9.6 shall
become effective upon acceptance of appointment by the successor Note Agent.
SECTION 10
MISCELLANEOUS
10.1 REGISTERED NOTES. The Company shall cause to be kept at its principal
office the Note Register and the Company will register or transfer or cause to
be registered or transferred as hereinafter provided any Note issued pursuant to
this Agreement. The Company will serve as its own registrar for the Notes.
Subject to the restrictions on transferability of the Notes pursuant to Section
7, upon surrender for registration of transfer of any Note at its principal
place of business, the Company shall execute and deliver, in the name of the
transferee or transferees, a new Note or Notes for a like aggregate principal
amount of authorized denominations. Notes to be exchanged shall be surrendered
at the principal place of business of the Company, which shall execute and shall
deliver in exchange therefor the Note or Notes that the Holder making the
exchange shall be entitled to receive, bearing serial numbers not then
outstanding. All Notes presented for registration of transfer, exchange or
payment shall, if so required by the Company, be duly endorsed by or be
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company, duly executed by the registered Holder or by the
Holder's duly authorized attorney. Any exchange or registration of transfer
shall be without charge, except that the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto.
10.2 EXCHANGE OF NOTES. At any time and from time to time, upon not less
than ten days' notice to that effect given by any Holder of any Note initially
delivered or of any Note substituted therefor pursuant to Section 10.1, this
Section 10.2 or Section 10.3 and upon surrender of any Note to the Company at
its office, the Company will deliver in exchange therefor, without expense to
such Holder, except as set forth below, Notes for the same aggregate principal
amount as the then unpaid principal amount of the Note so surrendered, in a
denomination equal to the Note so surrendered or in such other denomination
equal to or in excess of $5,000 as such Holder shall specify, dated as of the
date to which interest has been paid on the Note so surrendered or, if such
surrender is prior to the payment of any interest thereon, then dated as of the
date of issue, registered in the name of such Person or Persons as may be
designated by such Holder, and otherwise of the same form and tenor as the Note
so surrendered for exchange. The Company may require the payment of a sum
sufficient to cover any stamp tax or governmental charge imposed upon such
exchange or transfer.
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10.3 LOSS, THEFT, ETC. OF NOTES.
(a) If any Note shall become mutilated or be destroyed, lost or
stolen, the Company shall, upon the written request of the Holder thereof,
execute and deliver a new Note, bearing a serial number not then outstanding, in
exchange and substitution for the mutilated Note or in lieu of and substitution
for the Note destroyed, lost or stolen; PROVIDED, HOWEVER, that the Company
shall not be obligated to execute and deliver a new Note unless, (i) in every
case, the applicant requesting a substituted Note shall furnish to the Company
such security or indemnity as may be reasonably required by it to save it
harmless, and (ii) in every case of destruction, loss or theft, such applicant
shall also furnish to the Company evidence reasonably satisfactory to it of the
destruction, loss or theft of such Note and of the ownership thereof.
(b) Upon the issuance of any substituted Note, the Company may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses connected
therewith, including, without limitation, counsel fees of the Company and the
Note Agent. In case any Note that has matured or is about to mature shall have
become mutilated or be destroyed, lost or stolen, the Company may, with the
consent of the applicant, instead of issuing a substitute Note, pay or authorize
the payment of the same (without surrender thereof, except in the case of a
mutilated Note), if the applicant for such payment shall furnish the Company
with such security or indemnity as it may reasonably require to save it harmless
and, in case of destruction, loss or theft, evidence reasonably satisfactory to
the Company of the destruction, loss or theft of such Note and of the ownership
thereof. Every substituted Note issued pursuant to the provisions of this
Section by virtue of the fact that any Note is destroyed, lost or stolen, shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Note shall be found at any time, and shall be
entitled to all of the benefits of this Agreement equally and proportionately
with any and all other Notes duly issued hereunder. All Notes shall be held and
owned upon the express condition that the foregoing provisions are exclusive
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Notes 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 or payment of negotiable instruments or other
securities without their surrender.
10.4 CANCELLATION OF NOTES; ACQUISITION OF NOTES BY COMPANY. All Notes
surrendered for the purpose of payment, redemption, exchange or registration of
transfer shall be delivered to the Company for cancellation and the Company
shall cancel such Notes and all Notes that have been surrendered directly to the
Company for cancellation, and no Notes shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Agreement. The Company
shall indicate clearly on the face and on each and every page of such canceled
Notes the fact that such Notes are canceled. If the Company shall acquire any of
the Notes, such acquisition shall not operate as a redemption or satisfaction of
the indebtedness represented by such Notes, unless and until the same are
canceled, and the Company shall not be entitled to vote or participate in
directing the activities of the Note Agent pursuant to this Agreement with
respect to any such acquired Notes.
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10.5 TRANSFER OF NOTE. Any Holder to which this Section 10.5 applies agrees
that in the event it shall sell or transfer any Note it will, prior to the
delivery of such Note (unless it has already done so), make a notation thereon
of all principal, if any, prepaid on such Note and will also note thereon the
date to which interest has been paid on such Note, and it will promptly notify
the Company of the name and address of the transferee of any Note so
transferred. With respect to Notes to which this Section 10.5 applies, the
Company shall be entitled to presume conclusively that the original or such
subsequent Holder as shall have requested the provisions hereof to apply to its
Note remains the Holder of such Notes until the Company shall have received
notice in writing of the transfer of such Notes, and of the name and address of
the transferee, or such Notes shall have been presented to the Company as
evidence of the transfer.
10.6 EXPENSES; STAMP TAX INDEMNITY. The Company will pay the following
expenses in connection with this Agreement and the transactions contemplated
hereby: (a) duplicating and printing costs and charges for shipping the Notes,
adequately insured to each original Holder's home or office or at such other
place as such Holder may designate, and (b) all such expenses relating to any
amendment, waivers or consents (whether or not consummated) pursuant to the
provisions hereof, including, without limitation, any amendments, waivers, or
consents resulting from any work-out, renegotiation or restructuring relating to
the performance by the Company of its obligations under this Agreement and the
Notes. The Company will pay, and indemnify each Holder against any liability
for, brokerage fees and commissions payable or claimed to be payable to any
Person in connection with the transactions contemplated by this Agreement and
resulting from an agreement or alleged agreement between the Company and such
Person. As a condition to transferring the ownership of a Note on the Note
Register, the Company may require that the Holder of the Note first pay to the
Company the amount of any tax or governmental charge applicable to the transfer
of the Note.
10.7 ACTS OF HOLDERS; EVIDENCE OF OWNERSHIP OF NOTES.
(a) Any action to be taken by Holders may be evidenced by one or more
concurrent written instruments of similar tenor signed or executed by such
Holders in person or by an agent appointed in writing. The fact and date of the
execution by any person or any such instrument may be proved by acknowledgement
before a Notary Public or other officer empowered to take acknowledgements, or
by an affidavit of a witness to such execution.
(b) Prior to due presentment of any Note for registration of transfer,
the Company may deem the person in whose name the Note shall be registered upon
the books of the Company as the absolute owner of such Note (whether or not such
Notes shall be overdue and notwithstanding any notation of ownership or writing
thereon by anyone other than the Company), for the purpose of receiving payment
of or on account of the principal of, interest on, and premium, if any, on such
Note and for all other purposes, and the Company shall not be affected by any
notice to the contrary. Payment of or on account of the principal of, interest
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<PAGE>
on, and premium, if any, on such Note shall be made only to or upon the order in
writing of the registered owner thereof. All such payments shall be valid and,
to the extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any such Note.
(c) Any action taken by the holders of more than one half in aggregate
principal amount of the Notes specified in this Agreement in connection with
such action shall be conclusively binding upon the Company and the Holders. Any
action by any Holder shall bind all future Holders of the same Note in respect
of anything done or suffered by the Company in pursuance thereof.
10.8 HOLDERS' LIST. The Company covenants and agrees that it and every
obligor upon the Notes will furnish or cause to be furnished to the Note Agent,
within three days of appointment, a list in such form as the Note Agent may
reasonably require containing all information in the possession or control of
the Company as to the name and addresses of the Holders obtained (in the case of
each list other than the first list) since the date as of which the next
previous list was furnished. Any such list may be dated as of the date not more
than 15 days before the time any information is furnished or caused to be
furnished and need not include information received after such date. The Note
Agent shall preserve, in as current a form as is reasonably practicable, all
information as to the names and addresses of the Holders contained in the most
recent list furnished to it as provided in this Section 10.8 and received by it
hereunder. The Note Agent may destroy any list furnished to it as provided in
this Section upon receipt of a new list as provided herein.
10.9 POWERS AND RIGHTS NOT WAIVED; REMEDIES CUMULATIVE. No delay or failure
on the part of any Holder in the exercise of any power or right shall operate as
a waiver thereof; nor shall any single or partial exercise of the same preclude
any other or further exercise thereof, or the exercise of any other power or
right, and the rights and remedies of each Holder are cumulative to and are not
exclusive of any rights or remedies any such Holder would otherwise have, and no
waiver or consent, given or extended pursuant to the provisions of this
Agreement, shall extend to or affect any obligation or right not expressly
waived or consented to.
10.10 NOTICES. All communications provided for hereunder shall be in
writing and, if to a Holder or the Note Agent, delivered or mailed prepaid by
registered or certified mail or overnight air courier, or by facsimile
communication, in each case addressed to such Holder at the address of the
Holder on the registration books of the Company, or to the Note Agent at the
address as the Note Agent may designate, and if to the Company, delivered or
mailed by registered or certified mail or overnight courier, or by facsimile
communication, to the Company at the address of its corporate offices; PROVIDED,
HOWEVER, that a notice to a Holder by overnight air courier shall only be
effective if delivered to such Holder at a street address designated for such
purpose in accordance with this Section 10.10, and a notice to such Holder by
facsimile communication shall only be effective if made by confirmed
transmission to such Holder at a telephone number designated for such purpose in
accordance with this Section 10.10 and promptly followed by delivery of such
notice by registered or certified mail or overnight air courier, as set forth
above.
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10.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of each
Holder and its successors and assigns, including each successive Holder.
10.12 DISCHARGE AND TERMINATION. The Company may, at any time, terminate
its obligations hereunder and the Notes by irrevocably depositing in trust cash
or obligations of the United States government and its agencies for payment of
principal of, premium, if any, and interest on, the Notes to maturity. In such
event, this Note Agreement shall cease to have any effect except as to (a)
rights of registration of transfer, substitution and exchange of Notes, (b)
rights of holders to receive payments of principal or premium, of any, and
interest on the Notes, (c) the right to convert Notes into shares of Company
Common Stock, and (d) the rights, obligations and immunities of the Note
Agreement.
10.13 SURVIVAL OF COVENANTS AND REPRESENTATIONS. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with any
Closing Date, will survive the closing and the delivery of this Agreement and
the Notes.
10.14 SEVERABILITY. Should any part of this Agreement for any reason be
declared invalid or unenforceable, such decision will not affect the validity or
unenforceability of any remaining portion, which remaining portion will remain
in force and effect as if this Agreement had been executed with the invalid
portion thereof eliminated and it is hereby declared the intention of the
parties hereto that they would have executed the remaining portion of this
Agreement without including therein any such part or portion which may, for any
reason, be hereafter declared invalid or unenforceable.
10.15 GOVERNING LAW. This Agreement and the Notes issued and sold hereunder
shall be governed by and construed in accordance with the laws of the State of
Arizona.
10.16 CAPTIONS. The descriptive headings of the various Sections or parts
of this Agreement are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
10.17 BENEFITS OF PROVISIONS OF THIS AGREEMENT. Nothing in this Agreement
or in the Notes, expressed or implied, shall give or be construed to give any
person, firm or corporation, other than the parties thereto and the Holders, any
legal or equitable right, remedy or claim under or in respect of this Agreement,
or under any covenant, condition or provision herein contained, all the
covenants, conditions and provisions contained in this Agreement or in the Notes
being for the sole benefit of the parties hereto and the Holders.
10.18 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each executed counterpart constituting an original but all
together only one agreement.
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SOLPOWER CORPORATION DOMINION CAPITAL PTY LTD.
/s/ James H. Hirst /s/ Peter Voss
- ---------------------------------- -------------------------------------
By: James H. Hirst By: Peter Voss
A1 FINANCIAL PLANNERS PTY LTD. INTAVEST PTY. LTD.
/s/ Peter Voss /s/ Peter Voss
- ---------------------------------- -------------------------------------
By: Peter Voss By: Peter Voss
MARINO INVESTMENTS SERVICES BELL CAPITAL CORPORATION
LIMITED
/s/ Michael Macey /s/ Michael Macey
- ---------------------------------- -------------------------------------
By: Michael Macey By: Michael Macey
RAYMOND STEWART and MARGARET STEWART JT TEN WROS
/s/ Raymond Stewart /s/ Margaret Stewart
- ---------------------------------- -------------------------------------
By: Raymond Stewart By: Margaret Stewart
GREG STEWART TRACY STEWART
/s/ Gregg Stewart /s/ Tracy Stewart
- ---------------------------------- -------------------------------------
By: Greg Stewart By: Tracy Stewart
36
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EXHIBIT A
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
BE OFFERED OR SOLD ONLY IF REGISTERED UNDER APPLICABLE SECURITIES LAWS OR IF AN
EXEMPTION THEREFROM IS AVAILABLE. THIS NOTES AND THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION HEREOF ARE TRANSFERABLE ONLY UPON THE CONDITIONS
SPECIFIED IN THE NOTES AGREEMENT REFERRED TO HEREIN. A COPY OF THE NOTE
AGREEMENT WILL BE PROVIDED TO THE REGISTERED HOLDER HEREOF UPON REQUEST TO THE
COMPANY.
SOLPOWER CORPORATION
Convertible Note
No. R-*[insert Note number] *[insert issue date]
$*[insert principal amount]
Solpower Corporation., a Nevada corporation (the "COMPANY"), for value
received, hereby promises to pay to [insert name(s) of Note holder(s)] or
registered assigns on the Maturity Date, the principal amount of *[insert
principal amount of Note written out] DOLLARS ($[insert principal amount of Note
in numbers]) and to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) on the principal amount from time to time remaining unpaid
heron at an annual rate of six percent (6%) on March 31, 2000, and on the
Maturity Date. The "MATURITY DATE" shall mean September 30, 1999. Interest
payments shall be paid to the person listed as the registered holder of this
Note on the books of the Company as of the close of business on the 15th day of
the month in which the interest payment date occurs. Both the principal hereof
and interest hereon are payable at the principal office of the Company, in coin
or currency of the United States of America, which at the time of payment shall
be legal tender for the payment of public and private debts. The Company shall
have the option to pay interest payments in the form of a check mailed to the
registered address of the person entitled thereto.
This Note is one of the Notes of the Company in the aggregate principal
amount of up to $1,500,000 issued or to be issued under and pursuant to the
terms and provisions of the Note Agreement, dated as of September 30, 1999,
entered into by the Company and the Note holders and this Note and the holder
hereof are entitled equally and ratably with the holders of all other Notes
outstanding under the Note Agreement to all the benefits provided for thereby or
referred to therein, to which Note Agreement reference is hereby made for the
statement thereof.
This Note and the other Notes outstanding under the Note Agreement may be
declared due before their expressed maturity dates and certain prepayments are
required to be made thereon, all in the events, on the terms and in the manner
and amounts as provided in the Note Agreement.
A-1
<PAGE>
Subject to and upon compliance with the provisions of the Note Agreement,
the holder hereof shall have the right and option at any time prior to October
31, 1999 to convert the principal hereof or any portion hereof into fully paid
and nonassessable shares of Common Stock of the Company at a conversion price
per share of $1.00. Such conversion price is subject to adjustment in certain
events as more fully set forth in the Note Agreement.
The Notes are subject to prepayment at the option of the Company on or
before October 31, 1999.
This Note is registered on the books of the Company and is transferable
only by surrender thereof at the principal office of the Company duly endorsed
or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
Payment of or on account of principal, premium, if any, and interest on this
Note shall be made only to or upon the order in writing of the registered
holder.
SOLPOWER CORPORATION
By
-------------------------------------
Name
-----------------------------------
Title
----------------------------------
A-2
<PAGE>
FORM OF REVERSE SIDE OF CERTIFICATE
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to: (Insert Assignee's Social Security or
Tax Identification No.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ______________________________ as agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
Date: Your Signature:
------------------------ --------------------------------
(Sign exactly as your name appears on the other side of this Note Certificate)
Signature Guarantee:
------------------------------------------------------------
By
--------------------------------
The signature should be guaranteed by an eligible guarantor institution (a bank,
stockbroker, savings and loan association or credit union with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15 of the
Securities Exchange Act of 1934.
A-3
<PAGE>
CONVERSION NOTICE
(To be completed and signed only upon conversion
of the Notes in whole or in part)
TO: SOLPOWER CORPORATION
The undersigned, Holder of the attached Note, hereby irrevocably elects
to convert $_______ principal amount of the Note for shares of Common Stock (as
such terms are defined in the Note Agreement dated September ____, 1999), from
Solpower Corporation. (or other securities or property). The undersigned hereby
requests that the Certificate(s) for such securities be issued in the name(s)
and delivered to the address(es) as follows:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Deliver to:
---------------------------------------------------------------------
Address:
------------------------------------------------------------------------
If the foregoing Conversion Notice evidences a conversion of less than
the total principal amount of this Note, please issue a new Note, of like tenor,
for the remaining principal balance (or other securities or property) in the
name(s), and deliver the same to the address(es), as follows:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Dated: , 19__.
----------------------
---------------------------------------------
(Name of Holder)
---------------------------------------------
(Signature of Holder or Authorized Signatory)
---------------------------------------------
(Social Security or Taxpayer Identification
Number of Holder)
A-4
AMENDMENT AGREEMENT
TO THE $1,500,000 6%CONVERTIBLE NOTE AGREEMENT
DATED SEPTEMBER 24, 1999.
Pursuant to a Convertible Note Agreement (the "Agreement") dated September 24,
1999, between Solpower Corporation (the "Company") and Dominion Capital Pty
Ltd.; A1 Financial Planners Pty Ltd.; Intavest Pty Ltd.; Marino Investments
Services Limited; Bell Capital Corporation; Raymond and Margaret Stewart; Greg
Stewart and Tracy Stewart (the "Holders") the Holders subscribed for $1,500,000,
6% convertible notes in the Company.
Effective December 31, 1999, the Company and the Holders have unanimously agreed
to a amend the Agreement as follows:
SECTION 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS. In addition to the terms otherwise defined herein, the
following terms shall mean:
CONVERSION PRICE: $0.50 or such other amount as adjusted pursuant to
Section 6.4 hereof.
SECTION 6
CONVERSION OF NOTES
6.1 CONVERSION RIGHTS AND MANNER OF EXERCISE. Upon compliance with the
provisions hereof, any Holder shall have the right, after October 31, 1999, to
convert all or a portion of the Notes held by such Holder into one share of
Common Stock of the Company for each $0.50 (subject to Section 6.5) of unpaid
principal amount of the Note or, in case an adjustment of such price has taken
place pursuant to the following provisions hereof, then at the price as last
adjusted and in effect at the date such Note or portion thereof is surrendered
for conversion. To exercise such conversion privilege, the Holder thereof shall
surrender such Note to the Company at its principal office accompanied by a
completed Conversion Notice designating the unpaid principal amount of such Note
to be converted and stating the name and address of the Person in whose name
certificates for shares of Common Stock are to be registered.
6.2 AUTOMATIC CONVERSION. Upon the closing bid price of the Company's
Common Stock (as quoted on the OTC BB or other recognized market quotation
system or exchange) being at or above $1.75 per share for 10 consecutive trading
days, the outstanding Notes shall automatically convert into one share of Common
Stock for each $0.50 (subject and Section 6.5) of unpaid principal amount of the
Notes or, in case an adjustment of such price has taken place pursuant to the
following provisions hereof, then at the price as last adjusted and in the
effect at the date such Note or portion thereof is surrendered for conversion.
Upon such automatic conversion, the Company shall promptly notify the Holders
and the Holders shall surrender their Notes to the Company at its principal
office.
<PAGE>
The Company and the Holders have executed this Amendment Agreement as of the
effective date set forth above.
SOLPOWER CORPORATION DOMINION CAPITAL PTY LTD.
/s/ James H. Hirst /s/ Peter Voss
- ----------------------------------- ----------------------------------------
By: James H. Hirst By: Peter Voss
A1 FINANCIAL PLANNERS PTY LTD. INTAVEST PTY. LTD.
- ----------------------------------- ----------------------------------------
/s/ Peter Voss /s/ Peter Voss
By: Peter Voss By: Peter Voss
MARINO INVESTMENTS SERVICES BELL CAPITAL CORPORATION
LIMITED
/s/ Michael
- ----------------------------------- ----------------------------------------
By: A.S.O. By: A.S.O.
RAYMOND STEWART AND MARGARET STEWART JT TEN WROS
/s/ Raymond Stewart /s/ Margaret Stewart
- ----------------------------------- ----------------------------------------
By: Raymond Stewart By: Margaret Stewart
GREG STEWART TRACY STEWART
/s/ Gregg Stewart /s/ Tracy Stewart
- ----------------------------------- ----------------------------------------
By: Greg Stewart By: Tracy Stewart
2
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SOLPOWER CORPORATION
NOTE AGREEMENT
FOR THE ISSUANCE OF
$200,000 6% CONVERTIBLE NOTE
================================================================================
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TABLE OF CONTENTS
SECTION PAGE
[TO BE ADDED]
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NOTE AGREEMENT
THIS NOTE AGREEMENT (this "AGREEMENT") is made effective as of the 31st day
of December, 1999, between SOLPOWER CORPORATION, a Nevada corporation (the
"COMPANY"), and the Person who shall execute a counterpart acknowledgment to
this Agreement and become a party hereto.
RECITALS:
A. Pursuant to a Confidential Private Placement Memorandum dated as of
December 31, 1999 (the "MEMORANDUM"), the Company has offered a $200,000 6%
Convertible Note (the "OFFERING").
B. The Company desires to provide for the form and provisions of the Note,
the terms upon which the Note shall be issued and exercised, and the respective
rights, limitation of rights and immunities of the Company and the registered
holder of the Note.
C. All acts and things necessary to make the Note, when executed on behalf
of the Company, the valid, binding and legal obligations of the Company, and to
authorize the execution and delivery of this Agreement, have been done and
performed.
AGREEMENT:
NOW, THEREFORE, it is hereby agreed as follows:
<PAGE>
SECTION 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS. In addition to the terms otherwise defined herein, the
following terms shall mean:
AFFILIATE: any Person (other than a Subsidiary) (i) that directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, the Company, (ii) which beneficially owns or holds
10% or more of any class of the voting stock of the Company or (iii) 10% or more
of the voting stock (or in the case of a Person which is not a corporation, five
percent or more of the equity interest) of which is beneficially owned or held
by the Company or a Subsidiary. The term "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
stock, by contract or otherwise.
BUSINESS DAY: any day other than (i) a Saturday or Sunday, or (ii) a day on
which banking institutions in Arizona are authorized or obligated by law or
executive order to be closed.
CLOSING DATE: December 31, 1999 unless extended by the Company, in its sole
discretion, to January 15, 2000.
COMMISSION: the Securities and Exchange Commission, or any other federal
agency at the time administering the Securities Act or the Trust Indenture Act
of 1939, as amended, as the case may be.
COMMON STOCK: any class of capital stock of the Company now or hereafter
authorized, the right of which to share in distributions either of earnings or
assets of the Company is without limit as to any amount or percentage; PROVIDED,
HOWEVER, that the shares of Common Stock deliverable upon conversion of the Note
shall include only the Common Stock of the Company authorized at the date hereof
and any class of Common Stock issued in substitution therefor.
COMPANY: Solpower Corporation, a Nevada corporation.
CONVERSION NOTICE: the notice set forth on the reverse side of the Note
given by Holder to convert the Note to shares of Common Stock as provided in
Section 6.1 hereof.
CONVERSION PRICE: $0.40 or such other amount as adjusted pursuant to
Section 6.4 hereof.
CONVERSION SHARES: the shares of Common Stock of the Company issued upon
the conversion of any of the Note.
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DEFAULT: any event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, constitute an Event of Default
as defined in Section 4.1.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as they may be in effect at the time.
GAAP: generally accepted accounting principles at the time in the United
States.
HOLDER: any Person that is, at the time of reference, the registered Holder
of the Note or any Conversion Shares.
INTEREST PAYMENT DATE: March 31, 2000 and the Maturity Date.
MATURITY DATE: December 31, 2000.
NOTE: any 6% Convertible Note issued pursuant to the terms of this
Agreement which is evidenced by a promissory note in the form attached hereto as
Exhibit A.
NOTE AGENT: any Person appointed by the Holder to act as Note Agent upon
the occurrence of an event of Default as defined in Section 4.1.
NOTE REGISTER: the register of the Holder of the Note issued pursuant to
this Agreement.
OFFERING: the offering for private placement by the Placement Agent on
behalf of the Company of up to $200,000 of the Note.
PERSON: an individual, partnership, corporation, trust or unincorporated
organization, and a government or agency or political subdivision thereof.
RECORD DATE: March 15, 2000 and September 15, 2000.
REGISTRATION EXPENSES: All registration and filing fees, all fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of one firm of counsel for the Holder and any
underwriters in connection with blue sky qualifications of the Conversion
Shares), printing expenses, messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of the officers and
employees of the Company performing legal or accounting duties), and reasonable
fees and disbursement of counsel for the Company and its independent certified
public accountants (including the reasonable expenses of any special audit or
comfort letters required by or incident to such performance), securities acts
liability insurance (if the Company elects to obtain such insurance), the
reasonable fees and expenses of any special experts retained by the Company in
connection with such registration, reasonable fees and expenses of any other
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persons retained by the Company and the fees and expenses associated with any
required filing with the National Association of Securities Dealers, Inc.
SECURITIES ACT: the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
1.2 ACCOUNTING PRINCIPLES. Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
accounting computation is required to be made for the purposes of this
Agreement, the same shall be done in accordance with GAAP, to the extent
applicable, except where such principles are inconsistent with the requirements
of this Agreement.
1.3 DIRECTLY OR INDIRECTLY. Where any provision of this Agreement refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether the action in question is
taken directly or indirectly by such Person or any Subsidiary or agent of such
Person or otherwise at the request, direction or for the benefit of such Person.
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SECTION 2
THE NOTE
2.1 ISSUANCE OF DEFINITIVE NOTE. On the Closing Date, the Company will
issue the Note to only qualified Persons whose subscriptions are accepted by the
Company in the Offering. Note shall be issued in the minimum principal amount of
$200,000. The Company shall have the option in its sole discretion to issue the
Note in a principal amount less than $200,000. The Note shall be numbered,
lettered or otherwise distinguished in such manner or in accordance with such
plan as the Company may determine. The Note shall be dated as of the date of the
Closing Date, except that the Note issued upon the transfer, exchange or
substitution of another Note shall be dated the date of its original
authentication.
2.2 PREPAYMENT. The Note are subject to prepayment at the option of the
Company at any time on or prior to March 31, 2000. If less than the outstanding
Note is prepaid by the Company, the selection of the Note for prepayment may be
made on a pro rata or random lot basis as determined by the Company.
2.3 NO SINKING FUND. The Company shall not be required to set aside or
earmark funds to make required payments with respect to the Note.
2.4 PERSONS ENTITLED TO NOTE INTEREST PAYMENTS. The person in whose name a
Note is registered at the close of business on any Record Date shall be entitled
to receive any interest payable with respect to the Note on the Interest Payment
Date next following such Record Date, notwithstanding the cancellation of the
Note upon any registration of transfer or exchange thereof subsequent to such
Record Date and prior to such Interest Payment Date. The Holder of the Note
issued upon the transfer, exchange or substitution of another Note shall only be
entitled to receive interest payable with respect to that Note from and after
the Interest Payment Date next following the first Record Date occurring after
the issuance of the Note.
2.5 PAYMENT OF PRINCIPAL AND INTEREST. Interest shall be payable on the
Interest Payment Dates; and principal shall be payable on the Maturity Date. The
Company shall pay the interest on the unpaid principal balance of the Note as
provided herein. The entire remaining principal amount of the Note shall become
due and payable on the Maturity Date.
2.6 APPLICATION OF PAYMENT. All payments received shall be applied to the
payment of the Note in the following order of priority: (a) first, to the
payment of accrued interest, (b) second, to the payment of principal then due,
and (c) third, to the payment of premium, if any.
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SECTION 3
COMPANY COVENANTS
3.1 CORPORATE EXISTENCE. Except as otherwise permitted herein, the Company
will at all times preserve and keep in full force and effect its corporate
existence, rights and franchises.
3.2 PAYMENT OF TAXES AND CLAIMS. The Company will pay (a) all taxes,
assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its franchises, business, income or
profits, (b) all trade accounts payable in accordance with usual and customary
business terms, and (c) all claims (including, without limitation, claims for
labor, services, inventory, materials and supplies) for sums which have become
due and payable and which by law have or might become a lien or charge upon any
of its properties or assets; PROVIDED, that no such tax, assessment, charge,
account payable or claim need be paid if being contested in good faith by
appropriate proceedings promptly initiated and diligently conducted and if such
reserve or other appropriate provisions, if any, as shall be required by GAAP
shall have been made therefor.
3.3 MAINTENANCE OF PROPERTIES; BUSINESS INSURANCE. The Company will
maintain or cause to be maintained in good repair, working order and condition
all properties (whether owned in fee or a leasehold interest) used or useful in
the business of the Company and, from time to time, will make or cause to be
made all appropriate repairs, renewals and replacements thereof. The Company
will maintain or cause to be maintained, with financially sound and reputable
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by corporations of established
reputation engaged in the same or similar business and similarly situated, of
such types and in such amounts as are customarily carried under similar
circumstances by such other corporations.
SECTION 4
EVENTS OF DEFAULT & REMEDIES THEREFOR
4.1 EVENTS OF DEFAULT. Any one or more of the following shall constitute an
"EVENT OF DEFAULT" as the term is used herein:
(a) Default in the payment of the principal of the Note or premium
thereon, if any, at the expressed or any accelerated maturity date;
(b) Default in the payment of interest on the Note when due and such
default shall continue for more than 15 days;
(c) Default in the observance or performance of any other covenant or
provision of this Agreement or the Note that is not remedied within 30 days
after written notice to the Company from the Holder of at least 25% in aggregate
principal amount of the Note then outstanding;
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(d) A judgement or order is obtained for the payment of money in an
aggregate amount in excess of $1,000,000 (net of applicable insurance coverage
that is acknowledged in writing by the insurer) having been rendered against the
Company and such judgement or order shall continue unsatisfied and unstayed for
a period of 60 days;
(e) The Company becomes insolvent or bankrupt, is generally not paying
its debts as they become due or makes an assignment for the benefit of
creditors, or the Company causes or suffers an order for relief to be entered
with respect to it under applicable federal bankruptcy law or applies for or
consents to the appointment of a custodian, trustee or receiver for the Company
or for the major part of the property of the Company;
(f) A custodian, liquidator, trustee or receiver is appointed for the
Company or any Subsidiary or for the major part of the property of the Company
and is not discharged within 30 days after such appointment;
(g) Bankruptcy, reorganization, arrangement or insolvency proceedings,
or other proceedings for relief under any bankruptcy or similar law or laws for
the relief of debtors, are instituted by or against the Company and, if
instituted against the Company are consented to or are not dismissed within 60
days after such institution; or
(h) Any representation or warranty made by the Company herein, or made
by the Company in any written statement or certificate furnished by the Company
in connection with the consummation of the issuance and delivery of the Note on
the Offering or furnished by the Company pursuant hereto, is untrue in any
material respect as of the date of the issuance or making thereof.
4.2 NOTICE TO HOLDER. When any Event of Default described in Section 4.1
has occurred, the Company shall give notice thereof within three business days
thereafter of such event to the Holder. Upon receipt of such notice of the
occurrence of an Event of Default, the Holder of a majority of the principal
amount of the Note then outstanding shall appoint a Note Agent which shall act
on behalf of the Holder as provided herein and shall, within 20 days after the
receipt of such notice, mail to all Holder, as the name and address of the
Holder appears upon the registration books of the Company, notice of all
Defaults known to the Note Agent, unless such Defaults shall have been cured
before the giving of such notice; PROVIDED, HOWEVER, that, except in the case of
Default in the payment of the principal of or interest on the Note, the Note
Agent shall be protected in withholding such notice if Note Agent determines in
good faith that the withholding of such notice is in the interests of the
Holder.
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4.3 ACCELERATION; RESCISSION AND ANNULMENT.
(a) If an Event of Default occurs and is continuing, then and in every
such case the Note Agent or the Holder of the Note representing not less than
25% of the aggregate principal amount of the outstanding Note may declare the
unpaid principal, premium, if any, and accrued and unpaid interest of all the
Note to be due and payable immediately, by a notice in writing to the Company
(and to the Note Agent if given by Holder), and upon any such declaration such
principal, premium, if any, and accrued and unpaid interest shall become
immediately due and payable, notwithstanding anything contained in this
Agreement or the Note to the contrary. If an Event of Default specified in
Section 4.1(e), (f) or (g) above occurs, all unpaid principal of, and accrued
interest on, the Note then outstanding will become due and payable, without any
declaration or other act on the part of the Note Agent or the Holder.
(b) At any time after such a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been obtained
by the Note Agent as hereinafter provided, the Holder of the Note representing a
majority of the aggregate in principal amount of the outstanding Note, by
written notice to the Company and the Note Agent, may rescind and annul such
declaration and its consequences if
(i) the Company has paid or deposited with the Note Agent a sum
sufficient to pay;
(A) all overdue installments of interest on the Note,
(B) the principal of (and premium, if any, on) the Note
which has become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Note, and
(C) all sums paid or advanced by the Note Agent hereunder
and the reasonable compensation, expenses, disbursements and advances of the
Note Agent, its agents and counsel; and
(ii) all Events of Default, other than the nonpayment of the
principal of the Note which have become due solely by such acceleration, have
been cured or waived as provided herein.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
4.4 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY NOTE AGENT.
(a) The Company covenants that if:
(i) Default is made in the payment of any installment of interest
on the Note when such interest becomes due and payable and such Default
continues for a period of 15 days, or
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(ii) Default is made on the payment of the principal of (or
premium, if any, on) the Note at the Maturity Date thereof, the Company will,
upon demand of the Note Agent, pay to it, for the benefit of the Holder of the
Note, the whole amount then due and payable on the Note for principal (and
premium, if any) and interest, with interest upon the overdue principal (and
premium, if any) and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Note Agent,
its agents and counsel.
(b) If the Company fails to pay such amounts forthwith upon such
demand, the Note Agent, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, and may prosecute such proceeding to judgment or final decree, and may
enforce the same against the Company or any other obligor upon the Note and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Note,
wherever situated.
(c) If an Event of Default occurs and is continuing, the Note Agent
may in its discretion proceed to protect and enforce its rights and the rights
of the Holder by such appropriate judicial proceedings as the Note Agent shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Agreement or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
4.5 NOTE AGENT MAY FILE PROOFS OF CLAIM.
(a) In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Note or the property of the Company or of such other obligor or their creditors,
the Note Agent (irrespective of whether the principal of the Note shall then be
due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Note Agent shall have made any demand on the Company
for the payment of overdue principal or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise;
(i) to file and prove a claim for the amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Note and to
file such other papers or documents as may be necessary or advisable in order to
have the claims of the Note Agent (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Note Agent, its agents
and counsel) and of the Holder allowed in such judicial proceeding; and
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(ii) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by each Holder to
make such payments to the Note Agent, and in the event that the Note Agent shall
consent to the making of such payments directly to the Holder, to pay to the
Note Agent any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Note Agent, its agents and counsel, and any
other amounts due the Note Agent under this Agreement.
(b) The Note Agent shall not be required to join the Holder as
necessary parties to any such judicial proceeding, provided, however, that
nothing herein contained shall be deemed to authorize the Note Agent to
authorize and consent to or accept, or adopt on behalf of the Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Note or the
rights of the Holder thereof, or to authorize the Note Agent to vote in respect
of the claim of the Holder in any such proceeding.
4.6 NOTE AGENT MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTE. All rights of
action and claims under this Agreement or the Note may be prosecuted and
enforced by the Note Agent without the possession of any of the Note or the
production thereof in any proceeding relating thereto, and any such proceeding
instituted by the Note Agent shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Note Agent, its agents and counsel, be for the ratable benefit of the Holder
of the Note in respect of which such judgment has been recovered.
4.7 APPLICATION OF MONEY COLLECTED. Any money collected by the Note Agent
pursuant to this Section 4 shall be applied in the following order, at the date
or dates filed by the Note Agent and, in case of the distribution of such money
on account of principal (or premium, if any) or interest, upon presentation of
the Note and the notation thereon of the payment if partially paid and upon
surrender thereof if fully paid;
FIRST: To the payment of all amounts due the Note Agent under this
Agreement;
SECOND: To the payment of the amounts then due and unpaid upon the
Note for principal and interest, in respect of which or for the benefit of which
such money has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Note, for principal and
interest; and
THIRD: To the Company.
4.8 LIMITATION ON SUITS. Except as provided in Section 4.9, no Holder of
the Note shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Agreement, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
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(a) the Holder has previously given written notice to the Note Agent
of a continuing Event of Default;
(b) the Holder of not less than 25% of the aggregate principal amount
of the outstanding Note shall have made written request to the Note Agent to
institute proceedings in respect of such Event of Default in its own name as
Note Agent hereunder;
(c) the Holder has offered to the Note Agent reasonable indemnity
against the costs, expenses and liabilities to be incurred in compliance with
such request;
(d) the Note Agent for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given
to the Note Agent during such 60-day period by the Holder of a majority of the
aggregate principal amount of the outstanding Note; it being understood and
intended that the Holder of the Note shall not have any right in any manner
whatever by virtue of, or by availing of, any provision of this Agreement to
affect, disturb or prejudice the rights of the Holder of the Note, or to obtain
or to seek to obtain priority or preference or enforce any right under this
Agreement, except in the manner herein provided and for the equal and ratable
benefit of the Holder of the Note.
4.9 UNCONDITIONAL RIGHT OF HOLDER TO RECEIVE PRINCIPAL, AND INTEREST.
Notwithstanding any other provision in this Agreement, the Holder of the Note
shall have the right which is absolute and unconditional to receive payment of
the principal of and interest on the Note on the Maturity Date and to institute
suit for the enforcement of any such payment, and such right shall not be
impaired without the consent of the Holder.
4.10 RESTORATION OF RIGHTS AND REMEDIES. If the Note Agent or the Holder
has instituted any proceeding to enforce any right or remedy under this
Agreement and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Note Agent or to the Holder, then and in
every such case the Company, the Note Agent and the Holder shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Note Agent and the Holder shall continue as though no such proceeding had been
instituted.
4.11 RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred
upon or reserved to the Note Agent or to the Holder is intended to be exclusive
of any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
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given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder or otherwise shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
4.12 DELAY OR OMISSION NOT WAIVER. No delay or omission of the Note Agent
or of the Holder to exercise any right or remedy occurring upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given by
this Agreement or by law to the Note Agent or to the Holder may be exercised
from time to time and as often as may be deemed expedient by the Note Agent or
by the Holder, as the case may be.
4.13 CONTROL BY HOLDER. The Holder of a majority of the aggregate principal
amount of the outstanding Note shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Note
Agent or exercising any trust or power conferred on the Note Agent, provided
that:
(a) such direction shall not be in conflict with any rule of law or
with this Agreement; and
(b) the Note Agent may take any other action deemed proper by the Note
Agent which is not inconsistent with such direction.
4.14 WAIVER OF PAST DEFAULTS. The Holder of a majority of the aggregate
principal amount of the outstanding Note may waive any past Default hereunder
and its consequences, except a default:
(a) in the payment of the principal of (or premium, if any) or
interest on the Note, or
(b) in respect of a covenant or provision hereof which under this
Agreement cannot be modified or amended without the consent of the Holder of the
outstanding Note affected.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Agreement; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
4.15 UNDERTAKING FOR COSTS. All parties to this Agreement agree, and each
Holder of the Note by his acceptance thereof shall be deemed to have agreed,
that any court may in its discretion require, in any suit for the enforcement of
any right or remedy under this Agreement, or in any suit against the Note Agent
for any action taken or omitted by it as Note Agent, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant.
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4.16 WAIVER OF STAY OR EXTENSION LAWS. The Company covenants (to the extent
that it may lawfully do so) that it will not at any time insist upon, or plead,
or in any manner whatsoever claim or take the benefit or advantage of, any stay
or extension law wherever enacted, now or at any time hereafter in force, which
may affect the covenants or the performance of this Agreement; and the Company
(to the extent that it may lawfully do so) hereby expressly waives all benefit
or advantage of any such law, and covenants that it or they will not hinder,
delay or impede the execution of any power herein granted to the Note Agent, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 5
AMENDMENTS, WAIVERS & CONSENTS
5.1 CONSENT REQUIRED.
(a) Except as otherwise provided in this Section 5.1, any term,
covenant, agreement or condition of this Agreement may be amended by the
Company, without consent of the Holder in order to: (either generally or in a
particular instance and either retroactively or prospectively) (i) cure any
ambiguity, omission, defect or inconsistency of this Agreement, (ii) provide for
the assumption of the obligations of the Company under this Agreement upon the
merger, consolidation or sale or other disposition of all or substantially all
of the assets of the Company, or (iii) make any change that would provide
additional rights or benefits to the Holder of the Note or that does not
adversely affect the rights of the Holder of the Note in any material respect.
(b) Notwithstanding anything herein to the contrary, the written
consent of all of the Holder of the Note shall be required to (i) extend the
time of payment of the principal of or the interest, including default interest
on the Note or reduce the principal amount thereof or change the rate of
interest thereon, (ii) change any of the provisions of Section 6 or Section 8
hereof, (iii) change the percentage of the Holder required to consent to any
such waiver, amendment, alteration or modification of any of the provisions of
Section 3 or Section 4 hereof, (iv) make the Note payable in money other than
that stated herein, (v) impair the right to institute suit for the enforcement
of any payment of principal of, or premium, if any, or interest on, the Note,
(vi) make any change in the percentage of principal amount of the Note necessary
to waive compliance with any provision of this Agreement, or (vii) waive a
continuing Default or Event of Default in the payment of principal of, premium,
if any, or interest on the Note.
5.2 EFFECT OF AMENDMENT OR WAIVER. Any such amendment or waiver shall apply
equally to the Holder and shall be binding upon him, upon each future Holder and
upon the Company, whether or not the Note shall have been marked to indicate
such amendment or waiver. No such amendment or waiver shall extend to or affect
any obligation not expressly amended or waived or impair any right consequent
thereon.
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5.3 SOLICITATION OF HOLDER. The Company will not solicit, request or
negotiate for or with respect to any proposed waiver or amendment of any of the
provisions of this Agreement or the Note unless the Holder (irrespective of the
amount of the Note then owned by it) shall be concurrently informed thereof by
the Company and shall be afforded the opportunity of considering the same and
shall be supplied by the Company with sufficient information to enable it to
make an informed decision with respect thereto. Executed or true and correct
copies of any waiver or consent effected pursuant to the provisions of this
Section 5 shall be delivered by the Company to the Holder forthwith following
the date on which the same shall have been executed and delivered by the Holder
of the requisite percentage of the outstanding Note. The Company will not,
directly or indirectly, pay or cause to be paid any fee (whether denominated as
servicing fee or otherwise) or other remuneration, including supplemental or
additional interest, expenses or other amount, to the Holder as consideration
for or as an inducement to the consideration or review of or entering into by
the Holder of any waiver or amendment of any of the terms and provisions of this
Agreement (or any proposed waiver or amendment hereof) unless such remuneration
is concurrently paid, on the same terms, ratably to the Holder.
SECTION 6
CONVERSION OF NOTE
6.1 CONVERSION RIGHTS AND MANNER OF EXERCISE. Upon compliance with the
provisions hereof, the Holder shall have the right, after March 31, 2000, to
convert all or a portion of the Note held by the Holder into one share of Common
Stock of the Company for each $0.40 (subject to Section 6.5) of unpaid principal
amount of the Note or, in case an adjustment of such price has taken place
pursuant to the following provisions hereof, then at the price as last adjusted
and in effect at the date the Note or portion thereof is surrendered for
conversion. To exercise such conversion privilege, the Holder thereof shall
surrender the Note to the Company at its principal office accompanied by a
completed Conversion Notice designating the unpaid principal amount of the Note
to be converted and stating the name and address of the Person in whose name
certificates for shares of Common Stock are to be registered.
6.2 AUTOMATIC CONVERSION. Upon the closing bid price of the Company's
Common Stock (as quoted on the OTC BB or other recognized market quotation
system or exchange) being at or above $1.75 per share for 10 consecutive trading
days, the outstanding Note shall automatically convert into one share of Common
Stock for each $0.40 (subject and Section 6.5) of unpaid principal amount of the
Note or, in case an adjustment of such price has taken place pursuant to the
following provisions hereof, then at the price as last adjusted and in the
effect at the date the Note or portion thereof is surrendered for conversion.
Upon such automatic conversion, the Company shall promptly notify the Holder and
the Holder shall surrender the Note to the Company at its principal office.
6.3 ISSUANCE OF COMMON STOCK CERTIFICATES. As promptly as practicable (but
in any event within 10 business days) after the receipt of a Conversion Notice
or an automatic conversion described in Section 6.2 and surrender of the Note as
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provided in Sections 6.1 and 6.2, the Company shall issue and deliver to the
Holder, issued in the name of the Holder or such other Person or Persons as the
Holder may reasonably request, a certificate or certificates for the number of
full shares of Common Stock issuable upon the conversion of the Note (or
specified portion thereof). 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 Conversion Notice shall have been received by
the Company (or as of the close of business on the tenth consecutive trading day
in which the Company's Common Stock trades at or above $1.75 per share in the
case of an automatic conversion pursuant to Section 6.2) and at such time the
rights of the Holder (or specified portion thereof) as the Holder shall cease,
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 Holder of record of the shares of Common
Stock represented thereby.
6.4 CASH ADJUSTMENTS ON CONVERSION. No payment or adjustment shall be made
upon any conversion on account of any cash dividends declared for payment as of
a record date prior to the date of conversion on the shares of Common Stock
issued upon conversion of the Note. In the case of the Note that is converted in
part only, the Company shall, upon such conversion, execute and deliver to the
Holder thereof, at the expense of the Company, a new Note in principal amount
equal to the unconverted portion of the Note surrendered and otherwise of like
tenor therewith. No fractional share of Common Stock shall be issued upon
conversion of the Note, but if the conversion results in a fraction, an amount
equal to such fraction multiplied by the applicable Conversion Price shall be
paid in cash to the Holder of the Note being converted.
6.5 ANTIDILUTION ADJUSTMENTS.
(a) In the event the Company at any time or from time to time after
the issuance of the Note shall declare or pay any dividend on its capital stock
payable in Common Stock, or effect a subdivision or combination of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), then and in any such event, the
Conversion Price shall be adjusted by multiplying the Conversion Price prior to
the adjustment by the number of shares of Common Stock outstanding immediately
prior to the effective time of such event and dividing the result by the number
of shares of Common Stock outstanding immediately after the effective time of
such event, effective in the case of such dividend, immediately after the close
of business on the record date for the determination of Holders of capital stock
entitled to receive such dividend, or in the case of a subdivision or
combination, at the close of business immediately prior to the date upon which
such corporate action becomes effective.
(b) In the event the Company at any time or from time to time makes,
or fixes a record date for the determination of Holder of Common Stock entitled
to receive a dividend or other distribution payable in capital stock of the
Company other than shares of Common Stock, then and in each such event provision
shall be made so that the Holder receive upon conversion thereof, in addition to
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the number of shares of Common Stock receivable thereupon, the amount of
securities which the Holder would have received had the Note been converted
prior to such effective record date.
(c) Whenever the Conversion Price shall be adjusted pursuant to this
Section 6.5, the Company shall promptly deliver a certificate signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Company, setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board of Directors of the Company made any
determination hereunder), by first class mail postage prepaid to the Holder.
6.6 MERGERS, CONSOLIDATIONS, SALES. In the case of any consolidation or
merger of the Company with another entity, or the sale of all or substantially
all of its assets to another entity, or any reorganization or reclassification
of the Common Stock or other equity securities of the Company (except a
subdivision or combination provision for which is made in Section 6.5(a)
hereof), then, as a condition of such consolidation, merger, sale,
reorganization or reclassification, lawful and adequate provision shall be made
whereby the Holder shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore receivable upon conversion of the Note,
such shares of stock, securities, assets or cash as may (by virtue of such
consolidation, merger, sale, reorganization or reclassification) be issued or
payable with respect to or in exchange for a number of outstanding shares of
Common Stock equal to the number of shares of Common Stock immediately
theretofore so receivable hereunder had such consolidation, merger, sale,
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holder to the end that the provisions of this Section 6 (including, without
limitation, provisions for adjustment of the per share Conversion Price) shall
thereafter be applicable as nearly as may be, in relation to any shares of
stock, securities, assets or cash thereafter deliverable upon conversion of the
Note. The Company shall not effect any such consolidation, merger or sale,
unless prior to or simultaneously with the consummation thereof, the successor
entity (if other than the Company) resulting from such consolidation or merger
or the entity purchasing such assets shall assume by written instrument executed
and mailed or delivered to each Holder, the obligation to deliver to the Holder
such shares of stock, securities, assets or cash as, in accordance with the
foregoing provisions, the Holder may be entitled to receive.
6.7 DISSOLUTION OR LIQUIDATION. In the event of any proposed distribution
of the assets of the Company in dissolution or liquidation (except under
circumstances when Section 6.5 shall be applicable), the Company shall mail
notice thereof to the Holder and shall make no distribution to shareholders
until the expiration of 30 days from the date of mailing such notice and, in any
such case, the Holder may exercise the conversion rights with respect to their
Note within 30 days from the date of mailing such notice and all rights herein
granted not so exercised within such 30 day period shall thereafter become null
and void.
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6.8 NOTICE OF EXTRAORDINARY DIVIDENDS. If the Board of Directors of the
Company shall declare any dividend or other distribution on its Common Stock
except out of retained earnings or by way of a stock dividend payable in shares
of its Common Stock on its Common Stock, the Company shall mail notice thereof
to the registered Holder not less than 15 days prior to the record date fixed
for determining shareholders entitled to participate in such dividend or other
distribution and the Holder shall not participate in such dividend or other
distribution or be entitled to any rights on account or as a result thereof
(except adjustments as provided in Section 6.5(b)) unless and to the extent that
such conversion rights are exercised prior to such record date. The provisions
of this Section 6.8 shall not apply to distributions covered by Section 6.4(a)
or made in connection with transactions covered by Section 6.6 hereof.
6.9 RESERVATION OF COMMON STOCK. The Company will at all times reserve and
keep available such number of authorized shares of its Common Stock, solely for
the purpose of issue upon the conversion of the Note as herein provided for, as
shall then be issuable upon the conversion of the outstanding Note.
6.10 FULLY PAID STOCK; TAXES. The Company covenants and agrees that the
shares of stock represented by each and every certificate for its Common Stock
to be delivered on the exercise of the conversion rights herein provided for
shall, at the time of such delivery, be validly issued and outstanding and be
fully paid and nonassessable. The Company further covenants and agrees that it
will pay when due and payable any and all federal and state taxes (other than
income taxes) that may be payable in respect of the Note or any Common Stock or
certificates therefor upon the exercise of the conversion rights herein provided
for pursuant to the provisions hereof. The Company shall not, however, be
required to pay any tax that may be payable in respect of any transfer involved
in the transfer and delivery of stock certificates in the name other than that
of the Holder of the Note converted, and any such tax shall be paid by the
Holder at the time of presentation.
SECTION 7
RESTRICTIONS ON TRANSFERABILITY
7.1 RESTRICTIONS ON TRANSFERABILITY. The Note and the Conversion Shares
shall not be transferable except upon the conditions hereinafter specified,
which conditions are intended to ensure compliance with the provisions of the
Securities Act and any applicable state securities laws, in respect of the
transfer of the Note or any such Conversion Shares.
7.2 RESTRICTIVE LEGENDS.
(a) Each Note initially issued under this Agreement and each Note
issued in exchange therefor shall bear on the face thereof a legend
substantially as follows:
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THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF
HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY BE OFFERED OR SOLD ONLY IF REGISTERED UNDER APPLICABLE
SECURITIES LAWS OR IF AN EXEMPTION THEREFROM IS AVAILABLE. THIS NOTE AND
THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF ARE TRANSFERABLE
ONLY UPON THE CONDITIONS SPECIFIED IN THE NOTE AGREEMENT REFERRED TO
HEREIN. A COPY OF THE NOTE AGREEMENT WILL BE PROVIDED TO THE REGISTERED
HOLDER THEREOF UPON REQUEST TO THE COMPANY.
(b) Each certificate for shares of Common Stock initially issued upon
the conversion of the Note and each certificate for shares of Common Stock
issued to a subsequent transferee of such certificate shall, unless otherwise
permitted by the provisions of this Section 7 bear on the face thereof a legend
substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED OR
SOLD ONLY IF REGISTERED UNDER APPLICABLE SECURITIES LAW OR PURSUANT TO AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY STATING THAT SUCH
REGISTRATION IS NOT REQUIRED. THE TRANSFER OF SUCH SHARES IS SUBJECT TO
CERTAIN CONDITIONS, THE PROVISIONS OF WHICH WILL BE PROVIDED TO THE
REGISTERED HOLDER HEREOF UPON REQUEST BY THE COMPANY, AND NO TRANSFER OF
SUCH SHARES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS SHALL HAVE
BEEN FULFILLED.
In the event that a registration statement covering any Conversion Shares shall
become effective under the Securities Act and under any applicable state
securities laws or in the event that the Company shall receive an opinion of its
counsel that, in the opinion of such counsel, such legend is not, or is no
longer, necessary or required with respect to such shares (including, without
limitation, because of the availability of the exemption afforded by Rule 144 of
the general rules and regulations of the Commission), the Company shall or shall
instruct its transfer agents and registrars to, remove such legend from the
certificates evidencing such Conversion Shares or issue new certificates without
such legend in lieu thereof. Upon the written request of the Holder or the
holder of any Conversion Shares, the Company covenants and agrees forthwith to
request its counsel to render an opinion with respect to the matters covered by
this paragraph and to bear all expenses in connection with such opinion of its
counsel.
7.3 NOTICE OF PROPOSED TRANSFER; REGISTRATION NOT REQUIRED. The Holder of
each Note or any Conversion Shares, by acceptance thereof, agrees to give prior
written notice to the Company of the Holder's intention to transfer the Note or
such Conversion Shares (or any portion thereof), describing briefly the manner
and circumstances of the proposed transfer, together with an opinion of counsel
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to the effect that the proposed transfer may be effected without registration or
qualification under any federal or state law. Unless the Company shall have
received an opinion from counsel to the Company (which opinion shall be obtained
by the Company not more than ten days after notice of a proposed transfer) that
the proposed transfer may not be effected without registration or qualification
under federal or state law, the Holder shall be entitled to transfer the Note or
such Conversion Shares, all in accordance with the terms of the notice delivered
by the Holder to the Company. All fees and expenses of counsel for the Company
in connection with the rendition of the opinion provided for in this Section 7.3
shall be paid by the Company.
7.4 TRANSFER OF NOTE. If in the opinion of either counsel referred to in
Section 7.3 a proposed transfer of the Note or Conversion Shares requested by
the Holder thereof may not be effected without registration or qualification
under applicable federal or state law, the Company shall promptly give written
notice to the Holder who proposes to transfer the Note or such Conversion Shares
(or any portion thereof) that the Holder shall not consummate the proposed
transfer and the reasons therefor. No Note or Conversion Shares (or any portion
thereof) for which a transfer has been proposed pursuant to Section 7.3 may be
transferred in the manner proposed if registration thereof under the Securities
Act would be required in the opinion of either counsel mentioned above.
SECTION 8
REGISTRATION OF CONVERSION SHARES
8.1 REGISTRATION. The Company shall use its reasonable best efforts to
cause to be filed with the Commission no later than three months after the final
closing of the Offering a shelf registration statement on an appropriate form
providing for the sale by the Holder of the Conversion Shares. The Company shall
use its reasonable best efforts to have such shelf registration statement
declared effective by the Commission as soon as practicable after such filing.
The Company agrees to use its best efforts to keep the registration statement
continuously effective (and to take any and all other actions reasonably
necessary in order to permit public resale of the Conversion Shares covered by
such registration statement in accordance with this Agreement) for a period of
two years after the registration statement is declared effective. The Company
further agrees, if necessary, to supplement or amend the registration statement,
if required by the rules, regulations or instructions applicable to the
registration form used by the Company for such shelf registration statement or
by the Securities Act or by any other rules and regulations thereunder for
registration, and the Company agrees to furnish notice thereof to the Holder of
the Conversion Shares.
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8.2 CONDITIONS RELATING TO SHELF REGISTRATION.
(a) Subject to paragraph (b) of this Section 8.2, the registration
rights of the Holder pursuant to this Agreement and the ability to offer and
sell Conversion Shares pursuant to the registration statement are subject to the
following conditions and limitations, and each Holder agrees with the Company
that:
(i) If the Company determines in its good faith judgment that the
filing of the registration statement under Section 8.1 hereof or the use of any
prospectus would require the disclosure of important information which the
Company has a bona fide business purpose for preserving as confidential or the
disclosure of which would impede the Company's ability to consummate a
significant transaction, upon written notice of such determination by the
Company, the rights of the Holder to offer, sell or distribute any securities
pursuant to the registration statement or to require the Company to take action
with respect to the registration or sale of any securities pursuant to the
registration statement (including any action contemplated by Section 8.4 hereof)
will for up to 60 days in any 12 month period be suspended until the date upon
which the Company notifies the Holder in writing that suspension of such rights
for the grounds set forth in this Section 8.2(a)(i) is no longer necessary.
(ii) If all reports required to be filed by the Company pursuant
to the Exchange Act have not been filed by the required date without regard to
any extension, or if consummation of any business combination by the Company has
occurred or is probable for purposes of Rule 3-05 or Article 11 of Regulation
S-X under the Securities Act, upon written notice thereof by the Company to the
Holder, the rights of the Holder to offer, sell or distribute any securities
pursuant to the registration statement or to require the Company to take action
with respect to the registration or sale of any securities pursuant to the
registration statement (including any action contemplated by Section 8.4 hereof)
will for up to 60 days in any 12 month period be suspended until the date upon
which the Company has filed such reports or obtained the financial information
required by Rule 3-05 or Article 11 of Regulation S-X to be included in the
registration statement.
(iii) In the case of the registration of any underwritten primary
equity offering initiated by the Company (other than any registration by the
Company on Form S-8, or a successor or substantially similar form, of (A) an
employee stock option, stock purchase or compensation plan or of securities
issued or issuable pursuant to any such plan, or (B) a dividend reinvestment
plan), the Holder agrees, if requested in writing by the managing underwriter or
underwriters administering such offering, not to effect any offer, sale or
distribution of securities (or any option or right to acquire securities) during
the period commencing on the 10th day prior to the effective date of the
registration statement covering such underwritten primary equity offering and
ending on the date specified by such managing underwriter in such written
request to the Holder, which period may be of a duration of 90 days or more.
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(iv) In the event that the Company plans to repurchase or bid for
securities of the Company in the open market, on a private solicited basis or
otherwise, and the Company determines, in its reasonable good faith judgment and
based upon the advice of counsel to the Company (which counsel shall be
experienced in securities laws matters), that any such repurchase or bid may
not, under Rule 10b-6 under the Exchange Act, or any successor or similar rule,
be commenced or consummated due to the existence or the possible commencement of
a "DISTRIBUTION" (within the meaning of Rule 10b-6) as a result of any offers or
sales by the Holder of any Conversion Shares, as the case may be, under any
registration statement filed pursuant to this Agreement, the Company shall be
entitled, for a period of 90 days or more, to request the Holder of Conversion
Shares, to suspend or postpone such distribution pursuant to such registration
statement. The Company shall, as promptly as practicable, give the Holder
written notice of such election, stating the basis for the Company's
determination. As promptly as practicable following the determination by the
Company that the Holder may commence or recommence distribution pursuant to the
registration statement without causing the Company to be in violation of Rule
10b-6, the Company shall give the Holder written notice of such determination.
(b) Notwithstanding the provisions of Section 8.2(a) above, the
aggregate number of days (whether or not consecutive) during which the Company
may delay the effectiveness of the registration statement or prevent offerings,
sales or distribution by the Holder thereunder pursuant to Section 8.2(a) shall
in no event exceed 180 days during any 12-month period.
(c) The Company may require the selling Holder of Conversion Shares,
as a condition to the inclusion of the Conversion Shares of the selling Holder
in the shelf registration statement or in any offering thereunder, as the case
may be, to furnish to the Company such information regarding the Holder and the
distribution of such securities as the Company may from time to time reasonably
request (which request shall be confirmed in writing if requested by the
Company) in order to comply with applicable law and such other information as
may be legally required in connection with such registration or offering, and
the Holder shall promptly provide such information and a written consent to the
inclusion of such information in the registration statement or any prospectus or
supplement thereto; PROVIDED that the failure of the Holder to provide such
information to the Company shall not in any way affect the obligations of the
Company hereunder with respect to any other Holder.
8.3 REGISTRATION PROCEDURES. In connection with the obligations of the
Company with respect to a registration statement pursuant to Section 8.1 hereof
and subject to Section 8.2 hereof, the Company shall:
(a) (i) prepare and file with the Commission a registration statement
on the appropriate form under the Securities Act, (A) which form shall be
selected by the Company and shall be available for the sale of the Conversion
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Shares in accordance with the intended method or methods of distribution by the
selling Holder thereof (PROVIDED that the Company shall not be required to use
any form other than Form S-1, S-2, S-3, SB-1 or SB-2 or any successor form and
shall not be required to file more than one registration statement with the
Commission) and (B) which registration statement shall comply as to form in all
material respects with the requirements of the applicable form and include or
incorporate by reference all financial statements required by the Commission to
be so included or incorporated by reference, FURTHER PROVIDED that subject to
the registration statement and prospectus being in compliance with the
requirements of the Securities Act and the Exchange Act (including all rules and
regulations of the Commission thereunder), the Company has the sole discretion
to determine the form, substance and presentation of any financial or other
information included in any registration statement or prospectus, and whether
such information should be included in such registration statement or
prospectus; and (ii) use its reasonable best efforts to cause such registration
statement to become effective and remain effective in accordance with Section
8.1 hereof;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the registration statement as may be necessary to
keep such registration statement effective for the applicable period; and cause
each prospectus to be supplemented by any required prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Securities Act;
(c) in the event that any federal law or regulation binding on the
Company and adopted after the date hereof so requires (and would also so require
if the Conversion Shares were being offered in a primary offering by the Company
rather than by the Holder), use its reasonable best efforts to cause such
Conversion Shares to be registered with or approved by such other federal
governmental agencies or authorities in the United States, if any, as may be
required by virtue of the business and operations of the Company to enable the
selling Holder to consummate the disposition of such Conversion Shares;
(d) furnish to the Holder of Conversion Shares and to each managing
underwriter of an underwritten offering of Conversion Shares pursuant to Section
4(1) of the Securities Act, if any, without charge, as many copies of each
prospectus, including each preliminary prospectus, and any amendment or
supplement thereto as the Holder or underwriter may reasonably request, in order
to facilitate the public sale or other disposition of the Conversion Shares;
(e) use its reasonable best efforts to register or qualify the
Conversion Shares under all applicable state securities or "BLUE SKY" laws of
such jurisdictions as the Holder of Conversion Shares of such class covered by
the registration statement shall, on 20 days prior written notice, reasonably
request in writing. Such notice to be sent at any time prior to the applicable
registration statement being declared effective by the Commission. The Company
shall maintain such registration or qualification in effect during the
applicable period provided in Section 8.1 hereof; PROVIDED, HOWEVER, that the
Company shall not be required to (i) qualify generally to do business in any
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jurisdiction where it would not otherwise be required to qualify but for this
Section 8.3; (ii) subject itself to taxation in any such jurisdiction; (iii)
make any change to its Articles or Incorporation or Bylaws; or (iv) become
subject to general service of process in any jurisdiction where it is not then
so subject;
(f) notify the Holder of Conversion Shares as promptly as practicable
after becoming aware thereof and (if requested by the Holder) confirm such
notice in writing (i) when the registration statement has become effective and
when any post-effective amendments and supplements thereto become effective;
(ii) of any request by the Commission or any state securities authority for
amendments and supplements to the registration statement and any prospectus or
for additional information relating to the Conversion Shares or the registration
or qualification thereof after the registration statement has become effective;
(iii) of the issuance by the Commission or any state securities authority of any
stop order suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose; (iv) if the representations and
warranties of the Company contained in any underwriting agreement, securities
sales agreement or other similar agreement, if any, relating to the Conversion
Shares cease to be true and correct in any material respect prior to the closing
date specified in such agreement (PROVIDED such notice shall be given only to
the Holder which is a party to the agreement pursuant to which such
representations and warranties are made), or if the Company receives any
notification with respect to the suspension of the qualification of the
Conversion Shares for sale in any jurisdiction or the initiation of any
proceeding for such purpose; and (v) of the happening of any event during the
period (other than any suspension period referred to in Section 8.2) during
which the registration statement is required hereunder to be effective as a
result of which the registration statement or any prospectus would contain an
untrue statement of material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading;
(g) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of the registration statement or the
qualification of the Conversion Shares for sale in any jurisdiction as promptly
as practicable;
(h) furnish to the Holder of Conversion Shares, without charge, at
least one conformed copy of the registration statement and any post-effective
amendment thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested in writing);
(i) cooperate with the Holder of Conversion Shares to facilitate the
timely preparation and delivery of certificates representing Conversion Shares
to be sold pursuant to the registration statement and not bearing any
restrictive legends; and enable such Conversion Shares to be in such
denominations and registered in such names as the selling Holder may reasonably
request (in each case, PROVIDED such certificates are requested in writing at
least three business days prior to any delivery thereof);
(j) upon the occurrence of any event contemplated by Section 8.3(f)(v)
hereof, use its reasonable best efforts as promptly as practicable to prepare
and file with the Commission a supplement or post-effective amendment to the
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registration statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Conversion Shares, such prospectus will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(k) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security Holder, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 under
the Securities Act;
(l) use its reasonable best efforts to (i) cause all Conversion Shares
to be listed or quoted on any securities exchange or quotation system on which
the Company's outstanding Common Stock is then listed or quoted; and
(m) obtain a CUSIP number for all Conversion Shares not later than the
effective date of the registration statement.
Each Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 8.3 hereof, the Holder
will forthwith discontinue disposition of Conversion Shares pursuant to the
registration statement covering such Conversion Shares until the Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 8.3(j) hereof, or until it is advised in writing by the Company that the
use of such prospectus may be resumed and, if so directed by the Company, the
Holder will deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in the Holder's possession, of the prospectus
covering such Conversion Shares current at the time of receipt of such notice;
PROVIDED, HOWEVER, that the Company shall use its reasonable best efforts to
promptly prepare and provide to the Holder a supplemented or amended prospectus
contemplated by such Section 8.4(j) hereof. In the event the Company shall give
any such notice, the period during which such registration statement shall be
maintained effective shall be extended by the number of days during the period
from and including the date of the giving of such notice pursuant to Section
8.4(f)(v) hereof to including the date when the Holder of Conversion Shares
covered by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by Section 8.4(j) hereof.
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8.4 REGISTRATION EXPENSES.
(a) The Company will bear all reasonable Registration Expenses
incident to the performance of or compliance with its obligations under this
Agreement. Notwithstanding the foregoing, the Company is not required to pay any
fees or expenses of the Holder, underwriters, the Holder's or any underwriter's
counsel (other than blue sky counsel) or accountant or any other advisers,
including any transfer taxes, underwriting, brokerage and other discounts and
commissions and finders' and similar fees payable in the respect of Conversion
Shares.
(b) Holder shall pay all costs and expenses incurred by the Holder,
including all transfer taxes, underwriting, brokerage and other discounts and
commissions and finders' and similar fees payable in respect of Conversion
Shares. To the extent that any Registration Expenses are incurred, assumed or
paid by the Holder or any placement or sales agent therefor or underwriter
thereof with the Company's prior written consent, the Company shall reimburse
such person for the full amount of the Registration Expenses so incurred,
assumed or paid within a reasonable time after receipt of a written request
therefor. Any Registration Expenses submitted by the Holder, placement or sales
agent or underwriter or on behalf of any such person for payment by the Company
shall be itemized in detail and contain clear and accurate receipts of all
expenditures made by such parties.
8.5 INDEMNIFICATION; CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless Holder and each
"PERSON," if any, that controls the Holder within the meaning of Section 15 of
the Securities Act for, from and against any and all loss, liability, claim,
damage and expense (including attorneys' fees) to the extent resulting from any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement pursuant to which Conversion Shares were registered under
the Securities Act (or any amendment thereto), including all documents
incorporated therein by reference, or from the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statement therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any prospectus (or any
amendment or supplement thereto), including all documents incorporated therein
by reference, or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except insofar as any
such misstatement or omission or alleged misstatement or omission is made
therein in reliance upon and in conformity with information furnished to the
Company by the Holder in writing expressly for use in a registration statement
(or any amendment thereto) or any prospectus (or any amendment or supplement
thereto) relating to the Conversion Shares. As used in this Section 8.5(a), the
term "HOLDER" shall include its officers, directors and agents.
(b) Holder agrees to indemnify and hold harmless the Company, its
directors and officers and each "PERSON," if any, who controls the Company
within the meaning of Section 15 of the Securities Act to the same extent as the
foregoing indemnity from the Company to the Holder, but only with respect to
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information furnished in writing by the Holder or on the Holder's behalf
expressly for use in any registration statement (or any amendment thereto) or
any prospectus (or any amendment or supplement thereto) relating to the
Conversion Shares, or any amendment or supplement thereto; PROVIDED that the
obligations or the Holder to indemnify the Company and the other persons
referred to above shall be limited to the proceeds received by the Holder from
the sale of such Conversion Shares pursuant to such registration statement.
(c) If any action or proceeding (including any governmental
investigation) shall be brought or asserted against any person entitled to
indemnification hereunder, the indemnified party shall give prompt written
notice to the indemnifying party, and the indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the indemnified party, and shall assume the payment of all expenses in
connection with such defense. The indemnified party or any controlling person of
such indemnified party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of the indemnified party or such
controlling person unless (i) the indemnifying party shall have agreed to pay
such fees and expenses; or (ii) the indemnifying party shall have failed to
assume the defense for such action or proceeding and to employ counsel
reasonably satisfactory to the indemnified party in any such action or
proceeding; or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both the indemnified party or such
controlling person and the indemnifying party, and such indemnified party or
such controlling person shall have been advised by counsel that counsel employed
by the indemnifying party would, under applicable professional standards, have a
conflict in representing both the indemnifying party and the indemnified party
or such controlling person, in which case, if such indemnified person or such
controlling person notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
or proceeding of separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, and shall not be liable for the reasonable fees and expenses
of more than one separate firm of attorneys (together with appropriate local
counsel) at any time for such indemnified party and such controlling persons,
which firm shall be designated, if the Holder (or their controlling persons) are
the indemnified parties, in writing by the Holder of a majority of the
outstanding Conversion Shares owned by Holder who are then entitled to such
indemnity in connection with such action or proceeding and if the Company is the
indemnified party, by the Company. No party shall be liable for any settlement
of any such action or proceeding effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent, or if there is a final judgment for the plaintiff in any such action or
proceeding, the indemnifying party agrees to indemnify and hold harmless such
indemnified party and such controlling person from and against any loss or
liability (to the extent stated above) by reason of such settlement or judgment.
(d) (i) If the indemnification provided for in this Section 8.5 is
unavailable to an indemnified party hereunder in respect of any losses, claims,
damages, liabilities or expenses, then each such indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
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payable by such indemnified party as a result of such losses, claims, damages,
liabilities and expenses in such proportion as is appropriate to reflect the
relative fault of the indemnified party and the indemnifying party in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the indemnified party and the indemnifying party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8.5(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, expenses, liabilities, or judgements referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8.5(d), Holder
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Conversion Shares of such selling Holder were
offered to the public pursuant to such registration statement exceeds the amount
of any damages which such selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person found guilty by a court of competent jurisdiction of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
found guilty by a court of competent jurisdiction of such fraudulent
misrepresentation.
(e) Neither the Company nor the Holder shall have any obligation under
this Agreement (other than as set forth in this Section 8.5) to provide the
other with indemnification or contribution in respect of any losses, claims,
damages, liabilities or expenses referred to in this Section 8.5; PROVIDED,
HOWEVER, that the provisions of this Section 8.5 shall not relieve an
indemnifying party from liability which it may have to an indemnified party
other than with respect to the matters referred to in this Section 8.5.
8.6 COMMISSION FILINGS. The Company covenants that it will file the reports
required to be filed by it under the Exchange Act and the rules and regulations
adopted by the Commission thereunder in a timely manner as determined by
applicable rules and interpretations under the Exchange Act. Upon the written
request of the Holder of Conversion Shares, the Company will deliver to the
Holder a written statement as to whether it has complied with such requirements.
8.7 LOCK-UP AGREEMENT. Upon the registration statement related to the
Conversion Shares being declared effective, the Holder of Conversion Shares
shall not offer, sell, dispose of, transfer or otherwise reduce market risk with
respect to such Registerable Securities, directly or indirectly, without the
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prior consent of the Company and except for transfers occurring by operation of
law. The foregoing notwithstanding, the percentage of Conversion Shares shall be
released from the above restrictions at the time periods as follows:
Time Cumulative Percentage Transferable
---- ----------------------------------
Effective Date of Registration 25%
Three Months After Effective Date 50%
Six Months After Effective Date 75%
Nine Months After Effective Date 100%
The Company may accelerate the release of the Conversion Shares in its sole
discretion.
SECTION 9
NOTE AGENT
9.1 DUTIES AND LIABILITIES OF NOTE AGENT.
(a) The Note Agent upon appointment shall undertake to perform such
duties and only such duties as are specifically set forth in this Agreement. In
case an Event of Default has occurred (which has not been cured), the Note Agent
shall exercise such of the rights and powers vested in it by this Agreement and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) No provision of this Agreement shall be construed to relieve the
Note Agent from liability for its own gross negligence in acting or omitting to
act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default which may have
occurred:
(A) the duties and obligations of the
Note Agent shall be determined solely by the express
provisions of this Agreement, and the Note Agent shall not
be liable except for the performance of such duties and
obligations as are specifically set forth in this
Agreement, and no implied covenants or obligations shall be
read into this Agreement against the Note Agent; and
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(B) in the absence of bad faith on the
part of the Note Agent, the Note Agent may conclusively
rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon any certificates or
opinions furnished to the Note Agent and conforming to the
requirements of this Agreement; but in the case of any such
certificates or opinions that by any provision hereof arc
specifically required to bc furnished to the Note Agent,
the Note Agent shall be under a duty to examine the same to
determine whether or not they conform to the requirements
of this Agreement.
(ii) the Note Agent shall not be liable for any error of judgment
made in good faith, unless it shall be proved that the Note Agent was grossly
negligent in ascertaining the pertinent facts;
(iii) the Note Agent shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Holder of a majority in aggregate principal amount of the Note
then outstanding relating to the time, method and place of conducting any
proceeding for any remedy available to the Holder, or exercising any power
conferred upon the Note Agent, under this Agreement; and
(iv) none of the provisions of this Agreement shall require the
Note Agent to expend or risk its own funds or otherwise incur any personal
financial liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
(c) Whether or not herein expressly so provided, every provision of
this Agreement relating to the conduct or affecting the liability of or
affording protection to the Note Agent shall be subject to the provisions of
this Section 9.
9.2 RELIANCE ON DOCUMENTS, OPINIONS, ETC. Except as otherwise provided in
Section 9.1:
(a) the Note Agent may rely and shall be protected in acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, note, bond. note, or other paper or document reasonably
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) whenever in the administration of the provisions of this Agreement
the Note Agent shall deem it necessary or desirable that a matter be proved or
established prior to taking or omitting any action hereunder, such matter
(unless other evidence in respect thereof be herein specifically prescribed)
may, in the absence of gross negligence or bad faith on the part of the Note
Agent, be deemed to be conclusively proved and established by a certificate
signed by the Company and delivered to the Note Agent, and such certificate, in
the absence of gross negligence or bad faith on the part of the Note Agent,
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shall be full warrant to Note Agent for any action taken or omitted by it under
the provisions of this Agreement upon the faith thereof;
(c) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by a certificate of the Company (unless
other evidence in respect thereof be herein specifically prescribed);
(d) the Note Agent may consult with legal counsel and any opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken or omitted by it hereunder in good faith and in accordance with
such opinion of Counsel;
(e) the Note Agent shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement at the request, order or
direction of any of the Holder, pursuant to the provisions of this Agreement,
unless the Holder shall have offered to the Note Agent reasonable security or
indemnify against the costs, expenses and liabilities which may be incurred
therein or thereby; nothing herein contained shall, however, relieve the Note
Agent of the obligations, upon the occurrence of any Event of Default (which has
not been cured), to exercise such of the rights and powers vested in it by this
Agreement and to use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs;
(f) the Note Agent shall not be liable for any action taken or omitted
by it in good faith and reasonably believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Agreement;
(g) prior to the occurrence of an Event of Default hereunder and after
the curing of all Events of Default, the Note Agent shall not be bound to make
any investigation into the facts or matters stated in the resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, note, bond note, or other paper or document, unless requested in writing
so to do by the Holder of more than one half in aggregate principal amount of
the Note then outstanding; provided that if the payment within a reasonable time
to the Note Agent of the costs, expenses or liabilities likely to be incurred by
it in the making of such investigation is not, in the opinion of the Note Agent,
reasonably assured to the Note Agent by the security afforded to it by the terms
of this Agreement, the Note Agent may require reasonable indemnity against such
expense or liability as a condition to so proceeding, the reasonable expense of
every such examination shall be paid by the Company, or, if paid by the Note
Agent, shall be repaid by the Company upon demand; and
(h) the Note Agent may execute any of the rights or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys.
9.3 NO RESPONSIBILITY FOR RECITALS, ETC. The recitals contained herein and
in the Note shall be taken as the statements of the Company and the Note Agent
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assumes no responsibility for the correctness of the same. The Note Agent makes
no representations as to the validity or sufficiency of this Agreement or of the
Note. The Note Agent shall not be accountable for the use or application by the
Company of the Note or the proceeds of the Note authenticated and delivered by
the Note Agent in conformity with the provisions of this Agreement.
9.4 MONEYS TO BE HELD IN TRUST. All moneys received by the Note Agent
shall, until used or applied as herein provided, be held in trust for the
purposes for which they are received.
9.5 EXPENSES OF NOTE AGENT. The Company shall pay or reimburse the Note
Agent upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Note Agent in connection with the performance of Note
Agent's obligations with respect to a Default by Company or by reason of the
occurrence of an Event of Default (including the reasonable compensation and
expenses and disbursements of its counsel and of all persons not regularly in
its employ) except any such expense, disbursement or advance as may arise from
its gross negligence, willful misconduct or bad faith. The Company also shall
indemnify the Note Agent for, and hold it harmless against, any loss, liability
or expense incurred without gross negligence or bad faith on the part of the
Note Agent and arising out of or in connection with the acceptance or
administration of this agency, including the reasonable costs and expenses of
defending itself against any claim of liability in the premises.
9.6 RESIGNATION OR REMOVAL OF NOTE AGENT.
(a) The Note Agent may at any time resign by giving written notice of
such resignation to the Company and by mailing notice thereof to the Holder at
his address as it shall appear on the registry books of the Company. Upon
receiving such notice of resignation, the Holder of a majority of the principal
amount of the Note then outstanding may appoint a successor agent. If no
successor Note Agent shall have been so appointed and have accepted appointment
within 60 days after the publication of such notice of resignation, the
resigning Note Agent may petition any court of competent jurisdiction for the
appointment of a successor Note Agent, or the Holder who has been a bona fide
holder of a Note or Note for at least six months may on behalf of himself and
all others similarly situated, petition any such court for the appointment of a
successor Note Agent. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor Note Agent. In the event the
Event of Default causing the appointment of the Note Agent is cured, a
substitute Note Agent need not be appointed until the subsequent occurrence of
an additional Event of Default.
(b) In case at any time the Note Agent shall become incapable of
acting; or in connection with the performance of its obligations hereunder shall
have acted in bad faith, shall have been grossly negligent or shall have
willfully breached this Agreement; or shall be adjudged a bankrupt or insolvent,
or a receiver of the Note Agent or of its property shall be appointed, or any
public officer shall take charge or control of the Note Agent or of its property
or affairs for the purpose of rehabilitation, conservation or liquidation, then
in any such case the Holder of a majority of the principal amount of the Note
then outstanding may remove the Note Agent and appoint a successor Note Agent,
or the Holder who has been a bona fide holder of a Note or Note for at least six
months may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Note Agent and the
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appointment of a successor Note Agent. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, remove the Note Agent and
appoint a successor Note Agent.
(c) Any resignation or removal of the Note Agent and appointment of a
successor Note Agent pursuant to any of the provisions of this Section 9.6 shall
become effective upon acceptance of appointment by the successor Note Agent.
SECTION 10
MISCELLANEOUS
10.1 REGISTERED NOTE. The Company shall cause to be kept at its principal
office the Note Register and the Company will register or transfer or cause to
be registered or transferred as hereinafter provided the Note issued pursuant to
this Agreement. The Company will serve as its own registrar for the Note.
Subject to the restrictions on transferability of the Note pursuant to Section
7, upon surrender for registration of transfer of the Note at its principal
place of business, the Company shall execute and deliver, in the name of the
transferee or transferees, a new Note or Note for a like aggregate principal
amount of authorized denominations. Note to be exchanged shall be surrendered at
the principal place of business of the Company, which shall execute and shall
deliver in exchange therefor the Note or Note that the Holder making the
exchange shall be entitled to receive, bearing serial numbers not then
outstanding. A Note presented for registration of transfer, exchange or payment
shall, if so required by the Company, shall be duly endorsed by or be
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company, duly executed by the registered Holder or by the
Holder's duly authorized attorney. Any exchange or registration of transfer
shall be without charge, except that the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto.
10.2 EXCHANGE OF NOTE. At any time and from time to time, upon not less
than ten days' notice to that effect given by the Holder of the Note initially
delivered or of the Note substituted therefor pursuant to Section 10.1, this
Section 10.2 or Section 10.3 and upon surrender of the Note to the Company at
its office, the Company will deliver in exchange therefor, without expense to
the Holder, except as set forth below, a Note for the same aggregate principal
amount as the then unpaid principal amount of the Note so surrendered, in a
denomination equal to the Note so surrendered or in such other denomination
equal to or in excess of $5,000 as the Holder shall specify, dated as of the
date to which interest has been paid on the Note so surrendered or, if such
surrender is prior to the payment of any interest thereon, then dated as of the
date of issue, registered in the name of such Person or Persons as may be
designated by the Holder, and otherwise of the same form and tenor as the Note
so surrendered for exchange. The Company may require the payment of a sum
sufficient to cover any stamp tax or governmental charge imposed upon such
exchange or transfer.
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10.3 LOSS, THEFT, ETC. OF NOTE.
(a) If the Note shall become mutilated or be destroyed, lost or
stolen, the Company shall, upon the written request of the Holder thereof,
execute and deliver a new Note, bearing a serial number not then outstanding, in
exchange and substitution for the mutilated Note or in lieu of and substitution
for the Note destroyed, lost or stolen; PROVIDED, HOWEVER, that the Company
shall not be obligated to execute and deliver a new Note unless, (i) in every
case, the applicant requesting a substituted Note shall furnish to the Company
such security or indemnity as may be reasonably required by it to save it
harmless, and (ii) in every case of destruction, loss or theft, such applicant
shall also furnish to the Company evidence reasonably satisfactory to it of the
destruction, loss or theft of the Note and of the ownership thereof.
(b) Upon the issuance of any substituted Note, the Company may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses connected
therewith, including, without limitation, counsel fees of the Company and the
Note Agent. In case the Note that has matured or is about to mature shall have
become mutilated or be destroyed, lost or stolen, the Company may, with the
consent of the applicant, instead of issuing a substitute Note, pay or authorize
the payment of the same (without surrender thereof, except in the case of a
mutilated Note), if the applicant for such payment shall furnish the Company
with such security or indemnity as it may reasonably require to save it harmless
and, in case of destruction, loss or theft, evidence reasonably satisfactory to
the Company of the destruction, loss or theft of the Note and of the ownership
thereof. Every substituted Note issued pursuant to the provisions of this
Section by virtue of the fact that the Note is destroyed, lost or stolen, shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Note shall be found at any time, and shall be
entitled to all of the benefits of this Agreement equally and proportionately
with any and all other Note duly issued hereunder. All Note shall be held and
owned upon the express condition that the foregoing provisions are exclusive
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Note 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 or payment of negotiable instruments or other
securities without their surrender.
10.4 CANCELLATION OF NOTE; ACQUISITION OF NOTE BY COMPANY. Any Note
surrendered for the purpose of payment, redemption, exchange or registration of
transfer shall be delivered to the Company for cancellation and the Company
shall cancel the Note and any Note that has been surrendered directly to the
Company for cancellation, and no Note shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Agreement. The Company
shall indicate clearly on the face and on each and every page of such canceled
Note the fact that the Note is canceled. If the Company shall acquire any of the
Note, such acquisition shall not operate as a redemption or satisfaction of the
indebtedness represented by the Note, unless and until the same are canceled,
and the Company shall not be entitled to vote or participate in directing the
activities of the Note Agent pursuant to this Agreement with respect to any such
acquired Notes.
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10.5 TRANSFER OF NOTE. The Holder to which this Section 10.5 applies agrees
that in the event it shall sell or transfer the Note it will, prior to the
delivery of the Note (unless it has already done so), make a notation thereon of
all principal, if any, prepaid on the Note and will also note thereon the date
to which interest has been paid on the Note, and it will promptly notify the
Company of the name and address of the transferee of the Note so transferred.
With respect to Note to which this Section 10.5 applies, the Company shall be
entitled to presume conclusively that the original or such subsequent Holder as
shall have requested the provisions hereof to apply to its Note remains the
Holder of the Note until the Company shall have received notice in writing of
the transfer of the Note, and of the name and address of the transferee, or the
Note shall have been presented to the Company as evidence of the transfer.
10.6 EXPENSES; STAMP TAX INDEMNITY. The Company will pay the following
expenses in connection with this Agreement and the transactions contemplated
hereby: (a) duplicating and printing costs and charges for shipping the Note,
adequately insured to each original Holder's home or office or at such other
place as the Holder may designate, and (b) all such expenses relating to any
amendment, waivers or consents (whether or not consummated) pursuant to the
provisions hereof, including, without limitation, any amendments, waivers, or
consents resulting from any work-out, renegotiation or restructuring relating to
the performance by the Company of its obligations under this Agreement and the
Note. The Company will pay, and indemnify the Holder against any liability for,
brokerage fees and commissions payable or claimed to be payable to any Person in
connection with the transactions contemplated by this Agreement and resulting
from an agreement or alleged agreement between the Company and such Person. As a
condition to transferring the ownership of a Note on the Note Register, the
Company may require that the Holder of the Note first pay to the Company the
amount of any tax or governmental charge applicable to the transfer of the Note.
10.7 ACTS OF HOLDER; EVIDENCE OF OWNERSHIP OF NOTE.
(a) Any action to be taken by Holder may be evidenced by one or more
concurrent written instruments of similar tenor signed or executed by the Holder
in person or by an agent appointed in writing. The fact and date of the
execution by any person or any such instrument may be proved by acknowledgement
before a Notary Public or other officer empowered to take acknowledgements, or
by an affidavit of a witness to such execution.
(b) Prior to due presentment of the Note for registration of transfer,
the Company may deem the person in whose name the Note shall be registered upon
the books of the Company as the absolute owner of the Note (whether or not the
Note shall be overdue and notwithstanding any notation of ownership or writing
thereon by anyone other than the Company), for the purpose of receiving payment
of or on account of the principal of, interest on, and premium, if any, on the
Note and for all other purposes, and the Company shall not be affected by any
notice to the contrary. Payment of or on account of the principal of, interest
on, and premium, if any, on the Note shall be made only to or upon the order in
writing of the registered owner thereof. All such payments shall be valid and,
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to the extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any the Note.
(c) Any action taken by the Holder of more than one half in aggregate
principal amount of the Note specified in this Agreement in connection with such
action shall be conclusively binding upon the Company and the Holder. Any action
by the Holder shall bind any future Holder of the same Note in respect of
anything done or suffered by the Company in pursuance thereof.
10.8 HOLDER' LIST. The Company covenants and agrees that it and every
obligor upon the Note will furnish or cause to be furnished to the Note Agent,
within three days of appointment, a list in such form as the Note Agent may
reasonably require containing all information in the possession or control of
the Company as to the name and addresses of the Holder obtained (in the case of
each list other than the first list) since the date as of which the next
previous list was furnished. Any such list may be dated as of the date not more
than 15 days before the time any information is furnished or caused to be
furnished and need not include information received after such date. The Note
Agent shall preserve, in as current a form as is reasonably practicable, all
information as to the names and addresses of the Holder contained in the most
recent list furnished to it as provided in this Section 10.8 and received by it
hereunder. The Note Agent may destroy any list furnished to it as provided in
this Section upon receipt of a new list as provided herein.
10.9 POWERS AND RIGHTS NOT WAIVED; REMEDIES CUMULATIVE. No delay or failure
on the part of the Holder in the exercise of any power or right shall operate as
a waiver thereof; nor shall any single or partial exercise of the same preclude
any other or further exercise thereof, or the exercise of any other power or
right, and the rights and remedies of the Holder are cumulative to and are not
exclusive of any rights or remedies the Holder would otherwise have, and no
waiver or consent, given or extended pursuant to the provisions of this
Agreement, shall extend to or affect any obligation or right not expressly
waived or consented to.
10.10 NOTICES. All communications provided for hereunder shall be in
writing and, if to the Holder or the Note Agent, delivered or mailed prepaid by
registered or certified mail or overnight air courier, or by facsimile
communication, in each case addressed to the Holder at the address of the Holder
on the registration books of the Company, or to the Note Agent at the address as
the Note Agent may designate, and if to the Company, delivered or mailed by
registered or certified mail or overnight courier, or by facsimile
communication, to the Company at the address of its corporate offices; PROVIDED,
HOWEVER, that a notice to a Holder by overnight air courier shall only be
effective if delivered to the Holder at a street address designated for such
purpose in accordance with this Section 10.10, and a notice to the Holder by
facsimile communication shall only be effective if made by confirmed
transmission to the Holder at a telephone number designated for such purpose in
accordance with this Section 10.10 and promptly followed by delivery of such
notice by registered or certified mail or overnight air courier, as set forth
above.
34
<PAGE>
10.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of Holder
and its successors and assigns, including each successive Holder.
10.12 DISCHARGE AND TERMINATION. The Company may, at any time, terminate
its obligations hereunder and the Note by irrevocably depositing in trust cash
or obligations of the United States government and its agencies for payment of
principal of, premium, if any, and interest on, the Note to maturity. In such
event, this Note Agreement shall cease to have any effect except as to (a)
rights of registration of transfer, substitution and exchange of Note, (b)
rights of Holder to receive payments of principal or premium, of any, and
interest on the Note, (c) the right to convert Note into shares of Company
Common Stock, and (d) the rights, obligations and immunities of the Note
Agreement.
10.13 SURVIVAL OF COVENANTS AND REPRESENTATIONS. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with any
Closing Date, will survive the closing and the delivery of this Agreement and
the Note.
10.14 SEVERABILITY. Should any part of this Agreement for any reason be
declared invalid or unenforceable, such decision will not affect the validity or
unenforceability of any remaining portion, which remaining portion will remain
in force and effect as if this Agreement had been executed with the invalid
portion thereof eliminated and it is hereby declared the intention of the
parties hereto that they would have executed the remaining portion of this
Agreement without including therein any such part or portion which may, for any
reason, be hereafter declared invalid or unenforceable.
10.15 GOVERNING LAW. This Agreement and the Note issued and sold hereunder
shall be governed by and construed in accordance with the laws of the State of
Arizona.
10.16 CAPTIONS. The descriptive headings of the various Sections or parts
of this Agreement are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
10.17 BENEFITS OF PROVISIONS OF THIS AGREEMENT. Nothing in this Agreement
or in the Note, expressed or implied, shall give or be construed to give any
person, firm or corporation, other than the parties thereto and the Holder, any
legal or equitable right, remedy or claim under or in respect of this Agreement,
or under any covenant, condition or provision herein contained, all the
covenants, conditions and provisions contained in this Agreement or in the Note
being for the sole benefit of the parties hereto and the Holder.
10.18 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each executed counterpart constituting an original but all
together only one agreement.
35
<PAGE>
SOLPOWER CORPORATION DOMINION CAPITAL PTY LTD.
/s/ James H. Hirst /s/ Peter Voss
- ---------------------------------- ----------------------------------------
By: James H. Hirst By: Peter Voss
A1 FINANCIAL PLANNERS PTY LTD. INTAVEST PTY. LTD.
/s/ Peter Voss /s/ Peter Voss
- ---------------------------------- ----------------------------------------
By: Peter Voss By: Peter Voss
MARINO INVESTMENT SERVICES LIMITED BELL CAPITAL CORPORATION
/s/ Michael Macey /s/ Michael Macey
- ---------------------------------- ----------------------------------------
By: Michael Macey By: Michael Macey
RAYMOND STEWART AND MARGARET STEWART JT TEM WROS
/s/ Raymond Stewart /s/ Margaret Stewart
- ---------------------------------- ----------------------------------------
By: Raymond Stewart By: Margaret Stewart
GREG STEWART TRACY STEWART
/s/ Greg Stewart /s/ Tracy Stewart
- ---------------------------------- ----------------------------------------
By: Greg Stewart By: Tracy Stewart
36
<PAGE>
EXHIBIT A
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
BE OFFERED OR SOLD ONLY IF REGISTERED UNDER APPLICABLE SECURITIES LAWS OR IF AN
EXEMPTION THEREFROM IS AVAILABLE. THIS NOTE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION HEREOF ARE TRANSFERABLE ONLY UPON THE CONDITIONS
SPECIFIED IN THE NOTE AGREEMENT REFERRED TO HEREIN. A COPY OF THE NOTE AGREEMENT
WILL BE PROVIDED TO THE REGISTERED HOLDER HEREOF UPON REQUEST TO THE COMPANY.
SOLPOWER CORPORATION
Convertible Note
No. R-*[insert Note number] *[insert issue date]
$*[insert principal amount]
Solpower Corporation., a Nevada corporation (the "COMPANY"), for value
received, hereby promises to pay to [insert name(s) of Note holder(s)] or
registered assigns on the Maturity Date, the principal amount of *[insert
principal amount of Note written out] DOLLARS ($[insert principal amount of Note
in numbers]) and to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) on the principal amount from time to time remaining unpaid
heron at an annual rate of six percent (6%) on June 30, 2000, and on the
Maturity Date. The "MATURITY DATE" shall mean December 31, 2000. Interest
payments shall be paid to the person listed as the registered holder of this
Note on the books of the Company as of the close of business on the 15th day of
the month in which the interest payment date occurs. Both the principal hereof
and interest hereon are payable at the principal office of the Company, in coin
or currency of the United States of America, which at the time of payment shall
be legal tender for the payment of public and private debts. The Company shall
have the option to pay interest payments in the form of a check mailed to the
registered address of the person entitled thereto.
This Note is one of the Notes of the Company in the aggregate principal
amount of up to $200,000 issued or to be issued under and pursuant to the terms
and provisions of the Note Agreement, dated as of December 31, 1999, entered
into by the Company and the Note Holder and this Note and the holder hereof are
entitled equally and ratably with the Holder of all other Note outstanding under
the Note Agreement to all the benefits provided for thereby or referred to
therein, to which Note Agreement reference is hereby made for the statement
thereof.
This Note and the other Notes outstanding under the Note Agreement may be
declared due before their expressed maturity dates and certain prepayments are
required to be made thereon, all in the events, on the terms and in the manner
and amounts as provided in the Note Agreement.
A-1
<PAGE>
Subject to and upon compliance with the provisions of the Note Agreement,
the holder hereof shall have the right and option at any time prior to March 31,
2000 to convert the principal hereof or any portion hereof into fully paid and
nonassessable shares of Common Stock of the Company at a conversion price per
share of $0.40. Such conversion price is subject to adjustment in certain events
as more fully set forth in the Note Agreement.
The Note are subject to prepayment at the option of the Company on or
before March 31, 2000.
This Note is registered on the books of the Company and is transferable
only by surrender thereof at the principal office of the Company duly endorsed
or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
Payment of or on account of principal, premium, if any, and interest on this
Note shall be made only to or upon the order in writing of the registered
holder.
SOLPOWER CORPORATION
By
--------------------------------------
Name
------------------------------------
Title
-----------------------------------
A-2
<PAGE>
FORM OF REVERSE SIDE OF CERTIFICATE
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to: (Insert Assignee's Social Security or
Tax Identification No.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint _________________________________ as agent to transfer
this Note on the books of the Company. The agent may substitute another to act
for him.
Date: Your Signature:
------------------------ --------------------------------
(Sign exactly as your name
appears on the other side of
this Note Certificate)
Signature Guarantee:
------------------------------------------------------------
By
--------------------------------
The signature should be guaranteed by an eligible guarantor institution (a bank,
stockbroker, savings and loan association or credit union with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15 of the
Securities Exchange Act of 1934.
A-3
<PAGE>
CONVERSION NOTICE
(To be completed and signed only upon conversion
of the Note in whole or in part)
TO: SOLPOWER CORPORATION
The undersigned, Holder of the attached Note, hereby irrevocably elects to
convert $_______ principal amount of the Note for shares of Common Stock (as
such terms are defined in the Note Agreement dated December 31, 1999), from
Solpower Corporation. (or other securities or property). The undersigned hereby
requests that the Certificate(s) for such securities be issued in the name(s)
and delivered to the address(es) as follows:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Deliver to:
---------------------------------------------------------------------
Address:
------------------------------------------------------------------------
If the foregoing Conversion Notice evidences a conversion of less than the
total principal amount of this Note, please issue a new Note, of like tenor, for
the remaining principal balance (or other securities or property) in the
name(s), and deliver the same to the address(es), as follows:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Dated: , 19__.
----------------------
----------------------------------------
(Name of Holder)
----------------------------------------
(Signature of Holder or Authorized
Signatory)
----------------------------------------
(Social Security or Taxpayer
Identification Number of Holder)
A-38
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,558
<SECURITIES> 0
<RECEIVABLES> 63,752
<ALLOWANCES> 0
<INVENTORY> 54,684
<CURRENT-ASSETS> 121,994
<PP&E> 533,102
<DEPRECIATION> 162,407
<TOTAL-ASSETS> 3,089,944
<CURRENT-LIABILITIES> 2,330,688
<BONDS> 0
0
0
<COMMON> 234,466
<OTHER-SE> 279,825
<TOTAL-LIABILITY-AND-EQUITY> 3,089,944
<SALES> 166,784
<TOTAL-REVENUES> 166,784
<CGS> 280,872
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,665,684
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> (1,779,912)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,779,912)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,779,912)
<EPS-BASIC> (0.08)
<EPS-DILUTED> 0
</TABLE>
