UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 9, 1999
POWERSOFT TECHNOLOGIES INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-7619 93-0636333
---------------------------- ------------------- ------------------
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
1281 Alberni Street, Vancouver, British Columbia Canada V6E 4R4
---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(604) 685-8318
--------------------------------------------------
(Registrant's telephone number, including area code)
1
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 18, 1999, the Company entered into an agreement with SAR Trading
Limited ("SAR") wherein SAR agreed to buy and the Company agreed to sell all of
its interests in the majority of its subsidiaries for approximately $4,838,000
in the form of the assumption of certain liabilities. In consideration of the
assumption of liabilities, the Company agreed to issue two notes payable to SAR
in the amounts of $1,000,000 and $3,838,000. At such time as the Company has a
sufficient number of shares of common stock authorized, the $1,000,000 note will
be convertible into 20,000,000 common shares of the Company and the $3,838,000
note will be convertible into shares of common stock of the Company, in minimum
increments of $250,000 each, at the average 15 day trading price at the option
of the Company by giving seven trading days notice in writing to SAR. SAR is
owned 100% by Fai H. Chan. On June 18, 1999, the Company agreed to offset
$1,365,278 due from related parties against the $3,838,000 note. This
transaction essentially liquidates the operations of the Company and transfers
control of the Company to SAR. The agreements with SAR were subject to
shareholder approval, which was obtained on November 10, 1999. The closing of
the transaction and the issuance of the notes were completed on December 9,
1999.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired: Not applicable
(b) Pro forma financial information.
The following unaudited pro forma condensed consolidated financial statements
are filed with this report:
o Pro Forma Condensed Consolidated Balance Sheet as of September 30,
1999.
o Pro Forma Condensed Consolidated Statement of Operations for the Nine
Months ended September 30, 1999
o Pro Forma Condensed Consolidated Statement of Operations for the Year
ended December 31, 1998
The Pro Forma Condensed Consolidated Balance Sheet of Powersoft as of September
30, 1999 reflects the financial position of the Company after giving effect to
the disposition of the assets discussed Item 2 and assumes the disposition took
place on September 30, 1999. The Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1998 and the nine months ended
September 30, 1999 assume that the disposition occurred on January 1, 1998 and
are based on the operations of the Company for the year ended December 31, 1998
and the nine months ended September 30, 1999.
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<PAGE>
The unaudited pro forma condensed consolidated financial statements have been
prepared by the Company based upon assumptions deemed proper. The unaudited pro
forma condensed consolidated financial statements presented herein are shown for
illustrative purposes only and are not necessarily indicative of the future
financial position or future results of operations of the Company or of the
financial position or results of operations of the Company that would have
actually occurred had the transaction been in effect as of the date or for the
periods presented. In addition, it should be noted that the Company's financial
statements will reflect the disposition only from the closing date of the
disposition.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the historical financial statements and related notes
of the Company.
(c) Exhibits.
Exhibit Description
- ------- -----------
10.1 Agreement between the Company and SAR Trading Limited, dated
January 18, 1999, incorporated by reference to Exhibit No. 10.4
to the Company's Annual Report on 10-K/A for the year ended
December 31, 1998.
10.2 Assignment Agreement between the Company, SAR Trading Limited and
Mr. Fai H. Chan, dated June 18, 1999, incorporated by reference
to Exhibit No. 10.6 to the Company's Annual Report on 10-K/A for
the year ended December 31, 1998.
10.3 Agreement to Cancel Management Contract between the Company and
Heng Fung Management, Inc., dated June 18, 1999, incorporated by
reference to Exhibit No. 10.7 to the Company's Annual Report on
10-K/A for the year ended December 31, 1998.
10.4 Amendment to Asset Sale Agreement between the Company and SAR
Trading Limited, dated June 18, 1999, incorporated by reference
to Exhibit No. 10.8 to the Company's Annual Report on 10-K/A for
the year ended December 31, 1998.
10.5 $1,000,000 Convertible Promissory Note dated December 9, 1999.
10.6 $2,472,722 Convertible Promissory Note dated December 9, 1999.
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<TABLE>
<CAPTION>
POWERSOFT TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(United States Dollars)
September 30, (A)
ASSETS 1999 Pro forma
(Unaudited) Adjustments Pro forma
------------ ----------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 22,602 -- 22,602
Available for sale securities ................................... 1,751,950 (1,751,950) --
Accounts receivable, trade ...................................... 31,171 (31,171) --
Prepaid and other current assets ................................ 23,237 -- 23,237
Amounts receivable from related parties ......................... 21,024 (21,024) --
----------- ----------- -----------
Total current assets ................................... 1,849,984 (1,804,145) 45,839
Net property, furniture and equipment ........................... 668,846 668,846 --
----------- ----------- -----------
Total assets ........................................... $ 2,518,830 (1,135,299) 45,839
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
CURRENT LIABILITIES
Convertible loans ............................................... 0 3,472,722 3,472,722
Mortgage loan payable, current portion .......................... 115,936 (115,936) --
Accounts payable and accrued expenses ........................... 129,852 (129,852) --
Amounts payable to related party ................................ 2,679,588 (2,679,588) --
Margin loan payable ............................................. 3,060,771 (3,060,771) --
----------- ----------- -----------
Total current liabilities .............................. 5,986,147 (2,513,425) 3,472,722
----------- ----------- -----------
Mortgage loans payable, net of current portion .................. 718,287 (718,287) --
----------- ----------- -----------
Total liabilities ...................................... 6,704,434 (3,231,712) 3,472,722
----------- ----------- -----------
Total stockholders' deficit ............................ (4,185,604) 758,721 (3,426,883)
----------- ----------- -----------
Total liabilities and stockholders' deficit ............ $ 2,518,830 (2,472,991) 45,839
=========== =========== ===========
</TABLE>
(A) Represents elimination of the subsidiary assets and liabilities sold to SAR
Trading Ltd.
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<TABLE>
<CAPTION>
POWERSOFT TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(United States Dollars)
Nine months
ended (A)
September 30, Pro forma
1999 Adjustments Pro forma
------------ ----------- ---------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Rental income ............................................ $ 250,136 (25,136) --
Investment income (expense) .............................. 772 -- 772
Other Income ............................................. 4,894 (4,894) --
------------ ------------ ------------
Total revenue ......................................... 255,802 (255,030) 772
Expenses:
Depreciation ............................................. 29,391 (29,391) --
Legal and professional fees .............................. 55,560 -- 55,560
Consulting fees paid to a related company ................ 375,000 (375,000) --
Interest expense ......................................... 324,579 (324,579) --
Land lease ............................................... 56,314 (56,314) --
Rental estate management fees ............................ 15,973 (15,973) --
Utilities ................................................ 9,510 (9,510) --
Other operating and administrative expenses .............. 106,468 (102,419) 4,049
------------ ------------ ------------
Total expenses ........................................ 972,795 (913,186) 59,609
------------ ------------ ------------
Net income (loss) ............................................ (716,993) 658,156 (58,837)
Other comprehensive income (loss), net of tax:
Foreign exchange gain (loss) ............................ (3,063) 3,063 --
Unrealized gain (loss) on available for sale
securities ........................................ 1,312,660 (1,312,660) --
------------ ------------ ------------
Comprehensive income (loss) .................................. $ 592,604 (651,441) (58,837)
============ ============ ============
Earnings (loss) per share, basic and diluted ................. $ (0.05) 0.042 (0.004)
============ ============ ============
Weighted average number of shares outstanding ................ 15,559,542 15,559,542 15,559,542
============ ============ ============
</TABLE>
(A) Represents the elimination of the results of operations for the
subsidiaries sold for the nine months ended September 30, 1999.
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<PAGE>
<TABLE>
<CAPTION>
POWERSOFT TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(United States Dollars)
Year ended (A)
December 31, Pro forma
1998 adjustments Pro forma
----------- ----------- ---------
<S> <C> <C> <C>
Revenues
Rental income ............................................. $ 307,327 (307,327) --
Investment income (expense) ............................... 1,011 (775) 236
Other Income .............................................. 12,292 (4,792) 7,500
------------ ------------ ------------
Total revenue .......................................... 320,630 (319,619) 7,736
Expenses:
Depreciation .............................................. 35,186 (35,186) --
Legal and professional fees ............................... 31,620 -- 31,620
Consulting fees ........................................... 62,500 -- 62,500
Consulting fees paid to a related company ................. 500,000 (500,000) --
Interest expense .......................................... 492,804 (492,804) --
Land lease ................................................ 71,115 (71,115) --
Rental estate management fees ............................. 21,625 (7,375) 14,250
Utilities ................................................. 47,806 (47,806) --
Other operating and administrative expenses ............... 135,107 (103,061) 32,046
------------ ------------ ------------
Total expenses ......................................... 1,397,763 (1,257,347) 140,416
------------ ------------ ------------
Net income (loss) ............................................. (1,077,133) 937,728 (132,680)
Other comprehensive income (loss), net of tax:
Foreign exchange gain (loss) ............................. 16,901 (16,901) --
Unrealized gain (loss) on available for sale
securities ......................................... (1,048,813) 1,048,813 --
------------ ------------ ------------
Comprehensive income (loss) ................................... $ (2,109,045) 1,969,640 (132,680)
============ ============ ============
Earnings (loss) per share, basic and diluted .................. $ (0.07) 0.060 (0.009)
============ ============ ============
Weighted average number of shares outstanding ................. 15,559,542 15,559,542 15,559,542
============ ============ ============
</TABLE>
(A) Represents the elimination of the results of operations for the
subsidiaries sold for the year ended December 31, 1998.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
POWERSOFT TECHNOLOGIES INC.
Dated: December 9, 1999 By: /s/ Robert H. Trapp
--------------------------------
Robert H. Trapp
Secretary and Treasurer
7
Exhibit 10.5 $1,000,000 Convertible Promissory Note dated December 9, 1999.
$1,000,000 DECEMBER 9,1999
DENVER, COLORADO
POWERSOFT TECHNOLOGIES INC., a Delaware corporation (the "Corporation"), is
indebted and, for value received, promises to pay to the order of SAR TRADING
LIMITED, a British Virgin Island corporation, its successors and assigns
("Holder") on the fifth business day (the "Due Date") following the date of
Demand (unless this Promissory Note shall have been sooner paid or converted, as
herein provided), upon presentation of this Promissory Note, ONE MILLION UNITED
STATES DOLLARS (U.S. $1,000,000) (the "Principal Amount"). The Principal Amount
and interest thereon, if any, shall be payable at the offices of the Holder, SAR
Trading Limited, 10th Floor, Lippo Protective Tower, 231-235 Gloucester Road,
Wanchai, Hong Kong, or at such other place as may be designated by the Holder.
The Corporation covenants, promises and agrees as follows:
1. No Interest. No interest shall accrue on the Principal Amount.
2. Prepayment. This Promissory Note is subject to prepayment at the option
of the Corporation, in whole or in part prior to the Due Date, at any time and
from time to time without penalty or premium. The Corporation may exercise its
right to such prepayment by giving notice (the "Prepayment Notice") thereof to
the Holder, which notice shall specify the principal amount of the Promissory
Note to be prepaid (the "Prepayment Amount") and such prepayment shall not be
less than 30 days nor more than 45 days after the date of the Prepayment Notice.
3. Conversion.
3.1. On or before the Due Date, the Holder of this Promissory Note
shall have the right to convert all, but not less than all, of this Promissory
Note into such number of fully paid and nonassessable shares of the
Corporation's $0.01 par value Common Stock (the "Common Stock") under and
pursuant to the following terms and conditions:
(a) The Holder of this Promissory Note shall exercise the
conversion right provided in this Section 3 by giving written notice (the
"Conversion Notice") to the Corporation of the exercise of such right and
stating the name or names in which the stock certificate or stock certificates
for the shares of Common Stock are to be issued and the address to which such
certificates shall be delivered. The Conversion Notice shall be accompanied by
an appropriate representation letter regarding the investment intent of the
persons in whose names the Common Stock is to be issued and the restricted
nature of the Common Stock under the Act, and shall be accompanied by this
Promissory Note. The number of shares of Common Stock that shall be issuable
upon conversion of this Promissory Note shall be one (1) share of Common Stock
for each $0.05 of Principal Amount of this Promissory Note (the "Conversion
Ratio"), for a total of 20,000,000 shares of Common Stock.
(b) Conversion shall be deemed to have been effected on the date
the Conversion Notice is given (the "Conversion Date"). Within ten (10) business
days after receipt of the Conversion Notice, the Corporation shall issue and
deliver by hand against a signed receipt therefor or by United States registered
mail, return receipt requested, to the address designated by the Holder in the
<PAGE>
Conversion Notice, a stock certificate or stock certificates of the Corporation
representing the number of shares of Common Stock to which such Holder is
entitled.
(c) Notwithstanding any of the provisions of this Section 3 to
the contrary, the conversion right provided in this Section 3 is hereby
expressly made subject to the Corporation having available sufficient authorized
and unissued shares of Common Stock under and pursuant to its Certificate of
Incorporation. The Corporation shall take such commercially reasonable efforts
as are necessary to increase the Corporation's authorized and unissued shares of
Common Stock to accommodate the conversion right contained set forth in this
Section 3.
3.2. In case issued and outstanding shares of Common Stock shall be
subdivided or split up into a greater number of shares of the Common Stock, the
Conversion Ratio in effect at the opening of business on the business day
immediately preceding the date fixed for the determination of the stockholders
whose shares of Common Stock shall be subdivided or split up (the "Split Record
Date") shall be proportionately increased, and in case issued and outstanding
shares of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Conversion Ratio in effect at the opening of business on the
business day immediately preceding the date fixed for the determination of the
stockholders whose shares of Common Stock shall be combined (the "Combination
Record Date") shall be proportionately decreased; such increase or decrease, as
the case may be, becoming effective immediately after the opening of business on
the business day immediately after the Split Record Date or the Combination
Record Date, as the case may be.
3.3. In case of any capital reorganization, any reclassification of
the stock of the Corporation (other than as a result of a stock dividend or
subdivision, split up or combination of shares), or the merger of the
Corporation with or into another person or entity (other than a merger in which
the Corporation is the continuing corporation and which does not result in any
change in the Common Stock), this Promissory Note shall (effective on the
opening of business on the date after the effective date of such reorganization,
reclassification or merger or share exchange) be convertible into the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from surviving such merger or which was the
corporation whose securities were exchanged for those of the Corporation to
which the holder of the number of shares of Common Stock deliverable (at the
close of business on the date immediately preceding the effective date of such
reorganization, reclassification, merger or share exchange) upon conversion of
this Promissory Note would have been entitled upon such reorganization,
reclassification, merger or share exchange. The provisions of this Section 3.3
shall similarly apply to successive reorganizations, reclassifications, mergers,
sales, exchanges, leases, transfers or other dispositions or other share
exchanges.
4. Default.
4.1. Time is of the essence hereof and all obligations hereunder shall
be timely performed in accordance with the provisions hereof. The entire unpaid
balance of the Principal Amount shall, at the election of the Holder, be and
become immediately due and payable upon the occurrence of any of the following
events (a "Default Event"):
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<PAGE>
(a) The non-payment by the Corporation when due of principal or
of any other payment as provided in this Promissory Note or with respect to any
other Promissory Note issued by the Corporation.
(b) If the Corporation (i) applies for or consents to the
appointment of, or if there shall be a taking of possession by, a receiver,
custodian, trustee or liquidator for the Corporation or any of its property;
(ii) becomes generally unable to pay its debts as they become due; (iii) makes a
general assignment for the benefit of creditors or becomes insolvent; (iv) files
or is served with any petition for relief under the Bankruptcy Code or any
similar federal or state statute; (v) has any judgment entered against it in
excess of $1,000,000 in any one instance or in the aggregate during any
consecutive 12 month period or has any attachment or levy made to or against any
of its property or assets; (vi) defaults with respect to any evidence of
indebtedness or liability for borrowed money, or any such indebtedness shall not
be paid as and when due and payable; or (vii) has assessed or imposed against
it, or if there shall exist, any general or specific lien for any federal, state
or local taxes or charges against any of its property or assets.
(c) Any failure by the Corporation to issue and deliver shares of
Common Stock as provided herein upon conversion of this Promissory Note.
4.2. Each right, power or remedy of the Holder upon the occurrence of
any Default Event as provided for in this Promissory Note or now or hereafter
existing at law or in equity or by statute shall be cumulative and concurrent
and shall be in addition to every other right, power or remedy provided for in
this Promissory Note or now or hereafter existing at law or in equity or by
statute, and the exercise or beginning of the exercise by the Holder of any one
or more of such rights, powers or remedies shall not preclude the simultaneous
or later exercise by the Holder of any or all such other rights, powers or
remedies.
4.3 This Promissory Note is the joint and several obligation of the
Corporation, and any sureties, guarantors and endorsers without regard to
liability of any other party and is binding on them, their executors,
administrators, successors and assigns; and each of such persons or entities
liable or to become liable on this Promissory Note jointly and severally waive
delinquency in collection, presentment for payment, demand for payment, protest
and notice of protest, demand and dishonor and nonpayment of this Promissory
Note and all duty or obligation of Holder to effect, protect, perfect, retain or
enforce any security for payment of the Note; and consent to any and all
renewals and extensions in the time of payment hereof, and to any further and
additional advances of funds made hereunder by Holder in excess of the amount
set forth herein; and agree, further, that at anytime without notice the terms
of payment herein may be modified may be released in whole or in part or
increased, changed or exchanged by agreement; and that additional makers,
sureties, guarantors or endorsers may become liable hereon or existing makers,
sureties, guarantors or endorsers may be released, without in any way affecting
the liability of any party to this Promissory Note or any person or entity
liable or to become liable with respect to any indebtedness evidenced hereby.
5. Failure to Act and Waiver.
5.1 No failure or delay by the Holder hereof to insist upon the strict
performance of any term of this Promissory Note or to exercise any right, power
or remedy consequent upon a default hereunder shall constitute a waiver of any
such term or of any such breach, or preclude the Holder from exercising any such
right, power or remedy at any later time or times. By accepting payment after
the due date of any amount payable under this Promissory Note, the Holder shall
not be deemed to waive the right either to require payment when due of all other
amounts payable under this Promissory Note, or to declare a default for failure
to effect such payment of any such other amount.
3
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5.2 The failure of the Holder of this Promissory Note to give notice
of any failure or breach of the Corporation under this Promissory Note shall not
constitute a waiver of any right or remedy in respect of such continuing failure
or breach or any subsequent failure or breach.
6. Purpose. This Promissory Note is entered into for a business and
commercial purpose and the proceeds hereof will not be used primarily for
personal, family, agricultural or household purposes. The Corporation realizes
and acknowledges that the provisions of the Federal Regulation Z
("Truth-In-Lending") of the Federal Reserve Board do not apply to, nor govern
this transaction.
7. Consent to Jurisdiction. The Corporation hereby agrees and consents that
any action, suit or proceeding arising out of this Promissory Note may be
brought in any appropriate court in the State of Colorado, including the United
States District Court for the District of Colorado, or in any other court having
jurisdiction over the subject matter, all at the sole election of the Holder,
and by the issuance and execution of this Promissory Note the Corporation
irrevocably consents to the jurisdiction of each such court.
8. Attorneys' Fees. In the event it should become necessary for Holder to
employ counsel for advice regarding this Promissory Note, any default under this
Promissory Note, or to respond, intervene or otherwise become involved in any
suit or proceeding relating to this Promissory Note, or to collect payment on or
enforce the obligations of this Promissory Note, or to protect or foreclose on
any security given in connection herewith, the Corporation agrees to pay upon
demand reasonable attorneys' fees incurred by Holder for services of such
counsel, whether or not suit is brought, plus costs incurred in connection
therewith.
9. Notices. All notices and communications under this Promissory Note shall
be in writing and shall be either delivered in person or accompanied by a signed
receipt therefor or mailed first-class United States certified mail, return
receipt requested, postage prepaid, and addressed as follows:
If to the Corporation: Powersoft Technologies Inc.
1088-650 West Georgia Street
P. O. Box 11586
Vancouver, B. C. Canada V6B 4N8
Attn: Robert H. Trapp
If to the Holder: SAR Trading Limited
10th Floor, Lippo Protective Tower
231-235 Gloucester Road
Wanchai, Hong Kong
Attn: Fai H. Chan
Any notice of communication shall be deemed given and received as of the date of
such delivery or mailing.
9. Governing Law.
This Promissory Note shall be governed by and construed and enforced in
accordance with the laws of the State of Colorado, or, where applicable, the
laws of the United States.
4
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IN WITNESS WHEREOF, the Corporation has caused this Promissory Note to be
duly executed under its corporate seal.
POWERSOFT TECHNOLOGIES INC.
By: /s/ Robert H. Trapp
--------------------------------
Robert H. Trapp
Secretary and Treasurer
5
Exhibit 10.6 $2,472,722 Convertible Promissory Note dated December 9, 1999.
THE SECURITIES REPRESENTED BY THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE SECURITIES LAWS
(THE "STATE ACTS"), AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR
OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER EXCEPT
UPON THE ISSUANCE TO THE CORPORATION OF A FAVORABLE OPINION OF ITS COUNSEL OR
SUBMISSION TO THE CORPORATION OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO
COUNSEL FOR THE CORPORATION, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE
IN VIOLATION OF THE ACT AND THE STATE ACTS.
CONVERTIBLE PROMISSORY NOTE
$2,472,722.00 DECEMBER 9, 1999
DENVER, COLORADO
POWERSOFT TECHNOLOGIES INC., a Delaware corporation (the "Corporation"), is
indebted and, for value received, promises to pay to the order of SAR TRADING
LIMITED, a British Virgin Island corporation, its successors and assigns
("Holder") on the fifth business day (the "Due Date") following the date of
Demand (unless this Promissory Note shall have been sooner paid or converted, as
herein provided), upon presentation of this Promissory Note, TWO MILLION FOUR
HUNDRED SEVENTY TWO THOUSAND SEVEN HUNDRED TWENTY TWO UNITED STATES DOLLARS
(U.S. $2,472,722.00) (the "Principal Amount"). The Principal Amount and interest
thereon, if any, shall be payable at the offices of the Holder, SAR Trading
Limited, 10th Floor, Lippo Protective Tower, 231-235 Gloucester Road, Wanchai,
Hong Kong, or at such other place as may be designated by the Holder.
The Corporation covenants, promises and agrees as follows:
1. No Interest. No interest shall accrue on the Principal Amount.
2. Prepayment. This Promissory Note is subject to prepayment at the option
of the Corporation, in whole or in part prior to the Due Date, at any time and
from time to time without penalty or premium. The Corporation may exercise its
right to such prepayment by giving notice (the "Prepayment Notice") thereof to
the Holder, which notice shall specify the principal amount of the Promissory
Note to be prepaid (the "Prepayment Amount") and such prepayment shall not be
less than 30 days nor more than 45 days after the date of the Prepayment Notice.
3. Conversion.
3.1. On or before the Due Date, and from time to time during that
period, the Holder of this Promissory Note shall have the right to convert all
or a portion of the Principal Amount of this Promissory Note, in minimum
increments of $250,000.00, into such number of fully paid and nonassessable
shares of the Corporation's $0.01 par value Common Stock (the "Common Stock"),
as determined below, under and pursuant to the following terms and conditions:
<PAGE>
(a) The Holder of this Promissory Note may exercise the
conversion right provided in this Section 3 by giving seven (7) Trading Days
prior written notice (the "Conversion Notice") to the Corporation of the
exercise of such right and stating the name or names in which the stock
certificate or stock certificates for the shares of Common Stock are to be
issued and the address to which such certificates shall be delivered. For the
purposes of this Section 3, a "Trading Day" is a day on which the Over the
Counter Bulletin Board or NASDAQ is accomplishing trades of listed stock, and
shall exclude weekends and national holidays.
(b) The Conversion Notice shall be accompanied by the original of
this Promissory Note and an appropriate representation letter regarding the
investment intent of the persons in whose names the Common Stock is issued and
the restricted nature of the Common Stock under the Act. The effect of each
conversion on the Principal Amount of this Promissory Note shall be noted
thereon. The number of shares of Common Stock that shall be issuable upon each
such conversion shall be determined by the average closing bid price for the
Corporation's Common Stock (the "Conversion Price") over the fifteen (15)
Trading Days prior to the Conversion Date. The number of shares of Common Stock
to be issued for each conversion shall be determined by dividing the amount of
Principal of this Promissory Note to be converted by the Conversion Price (the "
Conversion Ratio"). In the event the Conversion Ratio calls for the issuance of
a partial share of Common Stock, such partial share shall be rounded up to the
next whole share.
(c) Conversion shall be deemed to have been effected seven (7)
Trading Days after the Conversion Notice is given (the "Conversion Date").
Within fourteen (14) business days after receipt of the Conversion Notice, the
Corporation shall issue and deliver by hand against a signed receipt therefor or
by United States registered mail, return receipt requested, to the address
designated by the Holder in the Conversion Notice, a stock certificate or stock
certificates of the Corporation representing the number of shares of Common
Stock to which such Holder is entitled.
(d) Notwithstanding any of the provisions of this Section 3 to
the contrary, the conversion right provided in this Section 3 is hereby
expressly made subject to the Corporation having available sufficient authorized
and unissued shares of Common Stock under and pursuant to its Certificate of
Incorporation. The Corporation shall take such commercially reasonable efforts
as are necessary to increase the Corporation's authorized and unissued shares of
Common Stock to accommodate the conversion right contained set forth in this
Section 3.
3.2. In case of any capital reorganization, any reclassification of
the stock of the Corporation (other than as a result of a stock dividend or
subdivision, split up or combination of shares), or the merger of the
Corporation with or into another person or entity (other than a merger in which
the Corporation is the continuing corporation and which does not result in any
change in the Common Stock), this Promissory Note shall (effective on the
opening of business on the date after the effective date of such reorganization,
reclassification or merger or share exchange) be convertible into the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from surviving such merger or which was the
corporation whose securities were exchanged for those of the Corporation to
which the holder of the number of shares of Common Stock deliverable (at the
close of business on the date immediately preceding the effective date of such
reorganization, reclassification, merger or share exchange) upon conversion of
this Promissory Note would have been entitled upon such reorganization,
reclassification, merger or share exchange. The provisions of this Section 3.2
shall similarly apply to successive reorganizations, reclassifications, mergers,
sales, exchanges, leases, transfers or other dispositions or other share
exchanges.
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4. Default.
4.1. Time is of the essence hereof and all obligations hereunder shall
be timely performed in accordance with the provisions hereof. The entire unpaid
balance of the Principal Amount shall, at the election of the Holder, be and
become immediately due and payable upon the occurrence of any of the following
events (a "Default Event"):
(a) The non-payment by the Corporation when due of principal or
of any other payment as provided in this Promissory Note or with respect to any
other Promissory Note issued by the Corporation.
(b) If the Corporation (i) applies for or consents to the
appointment of, or if there shall be a taking of possession by, a receiver,
custodian, trustee or liquidator for the Corporation or any of its property;
(ii) becomes generally unable to pay its debts as they become due; (iii) makes a
general assignment for the benefit of creditors or becomes insolvent; (iv) files
or is served with any petition for relief under the Bankruptcy Code or any
similar federal or state statute; (v) has any judgment entered against it in
excess of $1,000,000 in any one instance or in the aggregate during any
consecutive 12 month period or has any attachment or levy made to or against any
of its property or assets; (vi) defaults with respect to any evidence of
indebtedness or liability for borrowed money, or any such indebtedness shall not
be paid as and when due and payable; or (vii) has assessed or imposed against
it, or if there shall exist, any general or specific lien for any federal, state
or local taxes or charges against any of its property or assets.
(c) Any failure by the Corporation to issue and deliver shares of
Common Stock as provided herein upon conversion of this Promissory Note.
4.2. Each right, power or remedy of the Holder upon the occurrence of
any Default Event as provided for in this Promissory Note or now or hereafter
existing at law or in equity or by statute shall be cumulative and concurrent
and shall be in addition to every other right, power or remedy provided for in
this Promissory Note or now or hereafter existing at law or in equity or by
statute, and the exercise or beginning of the exercise by the Holder of any one
or more of such rights, powers or remedies shall not preclude the simultaneous
or later exercise by the Holder of any or all such other rights, powers or
remedies.
4.3 This Promissory Note is the joint and several obligation of the
Corporation, and any sureties, guarantors and endorsers without regard to
liability of any other party and is binding on them, their executors,
administrators, successors and assigns; and each of such persons or entities
liable or to become liable on this Promissory Note jointly and severally waive
delinquency in collection, presentment for payment, demand for payment, protest
and notice of protest, demand and dishonor and nonpayment of this Promissory
Note and all duty or obligation of Holder to effect, protect, perfect, retain or
enforce any security for payment of the Note; and consent to any and all
renewals and extensions in the time of payment hereof, and to any further and
additional advances of funds made hereunder by Holder in excess of the amount
set forth herein; and agree, further, that at anytime without notice the terms
of payment herein may be modified may be released in whole or in part or
increased, changed or exchanged by agreement; and that additional makers,
sureties, guarantors or endorsers may become liable hereon or existing makers,
sureties, guarantors or endorsers may be released, without in any way affecting
the liability of any party to this Promissory Note or any person or entity
liable or to become liable with respect to any indebtedness evidenced hereby.
5. Failure to Act and Waiver.
5.1 No failure or delay by the Holder hereof to insist upon the strict
performance of any term of this Promissory Note or to exercise any right, power
or remedy consequent upon a default hereunder shall constitute a waiver of any
such term or of any such breach, or preclude the Holder from exercising any such
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right, power or remedy at any later time or times. By accepting payment after
the due date of any amount payable under this Promissory Note, the Holder shall
not be deemed to waive the right either to require payment when due of all other
amounts payable under this Promissory Note, or to declare a default for failure
to effect such payment of any such other amount.
5.2 The failure of the Holder of this Promissory Note to give notice
of any failure or breach of the Corporation under this Promissory Note shall not
constitute a waiver of any right or remedy in respect of such continuing failure
or breach or any subsequent failure or breach.
6. Purpose. This Promissory Note is entered into for a business and
commercial purpose and the proceeds hereof will not be used primarily for
personal, family, agricultural or household purposes. The Corporation realizes
and acknowledges that the provisions of the Federal Regulation Z
("Truth-In-Lending") of the Federal Reserve Board do not apply to, nor govern
this transaction.
7. Consent to Jurisdiction. The Corporation hereby agrees and consents that
any action, suit or proceeding arising out of this Promissory Note may be
brought in any appropriate court in the State of Colorado, including the United
States District Court for the District of Colorado, or in any other court having
jurisdiction over the subject matter, all at the sole election of the Holder,
and by the issuance and execution of this Promissory Note the Corporation
irrevocably consents to the jurisdiction of each such court.
8. Attorneys' Fees. In the event it should become necessary for Holder to
employ counsel for advice regarding this Promissory Note, any default under this
Promissory Note, or to respond, intervene or otherwise become involved in any
suit or proceeding relating to this Promissory Note, or to collect payment on or
enforce the obligations of this Promissory Note, or to protect or foreclose on
any security given in connection herewith, the Corporation agrees to pay upon
demand reasonable attorneys' fees incurred by Holder for services of such
counsel, whether or not suit is brought, plus costs incurred in connection
therewith.
9. Notices. All notices and communications under this Promissory Note shall
be in writing and shall be either delivered in person or accompanied by a signed
receipt therefor or mailed first-class United States certified mail, return
receipt requested, postage prepaid, and addressed as follows:
If to the Corporation: Powersoft Technologies Inc.
1088-650 West Georgia Street
P. O. Box 11586
Vancouver, B. C. Canada V6B 4N8
Attn: Robert H. Trapp
If to the Holder: SAR Trading Limited
10th Floor, Lippo Protective Tower
231-235 Gloucester Road
Wanchai, Hong Kong
Attn: Fai H. Chan
Any notice of communication shall be deemed given and received as of the date of
such delivery or mailing.
9. Governing Law.
This Promissory Note shall be governed by and construed and enforced in
accordance with the laws of the State of Colorado, or, where applicable, the
laws of the United States.
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IN WITNESS WHEREOF, the Corporation has caused this Promissory Note to be
duly executed under its corporate seal.
POWERSOFT TECHNOLOGIES INC.
By: /s/ Robert H. Trapp
--------------------------------
Robert H. Trapp
Secretary and Treasurer
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