Exhibit 4.5
Execution
Copy
10% SENIOR SUBORDINATED
CONVERTIBLE NOTE
NEITHER THE
ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT. NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY THE SECURITIES. THE OBLIGATIONS OF THE COMPANY UNDER
THIS NOTE ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE
SUBORDINATION AGREEMENT REFERRED TO IN SECTION 21 OF THIS
NOTE.
DEI SERVICES
CORPORATION
10%
Senior Subordinated Convertible Note
Issuance
Date: August 14, 2008
|
Original Principal Amount:
U.S.$2,500,000
|
FOR VALUE RECEIVED, DEI SERVICES CORPORATION, a Florida corporation
with its principal place of business located at 7213 Sandscove
Court, Suite One, Winter Park, Florida 32792 (the “
Company ”), hereby promises to pay to AROTECH
CORPORATION, a Delaware corporation with its principal place of
business located at 1229 Oak Valley Drive, Ann Arbor, Michigan
48108, or its registered assigns (“ Holder ”),
TWO MILLION FIVE HUNDRED THOUSAND U.S. DOLLARS (U.S.$2,500,000)
(the “ Original Principal Amount ”, as reduced
pursuant to the terms hereof pursuant to redemption or otherwise,
the “ Principal ”) when due, whether upon the
Maturity Date (as defined below), acceleration or otherwise (in
each case in accordance with the terms hereof) and to pay interest
(“ Interest ”) on any outstanding Principal at
the rate of ten percent (10%) per annum (the “ Interest
Rate ”), from the date set out above as the Issuance Date
(the “ Issuance Date ”) until the same
becomes due and payable, whether upon an Interest Date (as defined
below) or the Maturity Date, acceleration, conversion, redemption
or otherwise (in each case in accordance with the terms hereof), in
lawful money of the United States. This 10% Senior
Subordinated Convertible Note (including all Senior Subordinated
Convertible Notes issued in exchange, transfer or replacement
hereof, this “ Note ”) has been issued to the
Holder concurrently with the execution and delivery of the
Guarantees (as defined below). Certain capitalized terms
used herein are defined in Section 22.
1.
PAYMENTS OF PRINCIPAL . On the Maturity
Date, the Company shall pay to the Holder an amount in cash
representing all outstanding Principal, accrued and unpaid
Interest, and accrued and unpaid Late Charges, if any, on such
Principal and Interest. The “ Maturity
Date ” shall be December 31, 2009, as may be extended
at the option of the Holder. Other than as specifically
permitted by this Note, the Company may not prepay any portion of
the outstanding Principal, accrued and unpaid Interest or accrued
and unpaid Late Charges, if any, on Principal and
Interest.
2.
INTEREST; DEFAULT RATE . Interest on
the outstanding Principal amount of this Note shall commence
accruing on the Issuance Date and shall be computed on the basis of
a 360-day year comprised of twelve (12) thirty (30) day months and
shall accrue and be payable quarterly, in arrears, on November 15,
February 15, May 15 and August 15 of each year (each, an “
Interest Date ”), with the first Interest Date being
November 15, 2008. Interest shall be payable on each
Interest Date to the record holder of this Note on November 1,
February 1, May 1 and August 1 immediately preceding the applicable
Interest Date, in cash. Prior to the payment of Interest
on an Interest Date, Interest on this Note shall accrue at the
Interest Rate. From and after the occurrence and during
the continuance of an Event of Default (as defined below), the
Interest Rate shall be increased to the lower of (i) fifteen
percent (15%) per annum or (ii) the highest interest rate permitted
by applicable law (the “ Default Rate
”). In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding
sentence shall cease to be effective as of the date of such cure;
provided that the Interest as calculated and unpaid at such
increased rate during the continuance of such Event of Default
shall continue to apply to the extent relating to the days after
the occurrence of such Event of Default through but not including
the date of cure of such Event of Default.
3.
CONVERSION OF NOTES . This
Note shall be convertible into such number of shares of the
Company’s common stock, no par value per share (the “
Common Stock ”), as shall be equal at the time of
conversion to twelve percent (12%) of the Company’s
outstanding Common Stock, on a fully diluted basis and after giving
effect to such conversion, upon the terms and conditions set forth
in this Section 3.
(a)
Conversion Right . On the Maturity Date, the
Holder shall be entitled to convert all but not less than all of
the outstanding and unpaid Principal of this Note into fully paid
and nonassessable shares of Common Stock in accordance with Section
3(c) at the Conversion Rate (as defined below); provided, however,
that the Holder shall be entitled to covert this Note prior to the
Maturity Date during the continuance of an Event of Default;
provided, further, however, that with respect to a Curable Event of
Default (as defined below), the Holder shall not have
the right to convert until the expiration of any Applicable Cure
Period (as defined below) relating to such Curable Event of
Default. The Company shall not issue any fraction of a
share of Common Stock upon any conversion. If the
issuance would result in the issuance of a fraction of a share of
Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company
shall pay any and all taxes that may be payable with respect to the
issuance and delivery of Common Stock upon conversion of any
Conversion Amount; provided that the Company shall not be required
to pay any tax that may be payable in respect of any issuance of
Common Stock to any Person other than the converting Holder or with
respect to any income tax due by the Holder with respect to such
Common Stock.
(b)
Conversion Rate . The number of shares of Common
Stock issuable upon conversion of this Note pursuant to Section
3(a) shall be equal to the product of (x) the difference of (A) the
quotient of (I) the number of shares of Common Stock then
outstanding on a fully diluted basis (not including the number of
shares of Common Stock issuable upon conversion of this Note) (the
“ Diluted Share Amount ”) divided by (II)
0.88, minus (B) the Diluted Share Amount, multiplied
by (y) the quotient of (A) the amount of Principal then outstanding
under this Note divided by (B) the Original Principal Amount
of this Note (the “ Conversion Rate
”).
(c)
Mechanics of Conversion . To convert this Note
into shares of Common Stock on any date (the “ Conversion
Date ”), the Holder shall transmit by facsimile (or
otherwise deliver), for receipt on or prior to 3:00 p.m., New York
time, on such date, a copy of an executed notice of conversion in
the form attached hereto as Annex I (the “
Conversion Notice ”) to the Company setting forth (i)
the Principal amount of this Note, (ii) the effective date of such
conversion, and (iii) the name and address of each Person in whose
name certificates representing shares of Common Stock shall be
issued (and if more than one certificate is requested, then the
denominations for each such certificate expressed as a percentage
of the Principal amount being so converted). On or
before the third (3 rd )
Business Day following the date of receipt of the Conversion
Notice, the Company shall execute and deliver certificate(s)
representing the shares of Common Stock issued upon conversion of
the Principal amount indicated in the Conversion
Notice. The Person or Persons entitled to receive the
shares of Common Stock issuable upon conversion of this Note shall
be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion
Date. Notwithstanding anything to the contrary set forth
herein, the Holder shall not be required to physically surrender
this Note to the Company until all accrued and unpaid Interest and
Late Charges, if any, and any other amounts due hereunder have been
indefeasibly paid in full. For the avoidance of doubt,
the Holder shall not be required to physically surrender this Note
prior to, or as condition precedent to, the Company’s
obligation to deliver shares of Common Stock and pay all accrued
and unpaid Interest and Late Charges, if any, and any other amounts
due hereunder to the Holder or its designees as provided in this
Section 3(c).
4.
RIGHTS UPON EVENT OF DEFAULT .
(a)
Event of Default . Each of the following events
shall constitute an “ Event of Default
”:
(i)
the Company’s (A) failure to deliver
the required number of shares of Common Stock within ten (10)
Business Days after the Conversion Date or (B) notice, written or
oral, to the Holder, including by way of public announcement or
through any of its agents, at any time, of its intention not to
comply with a request for conversion of all or any portion of the
Principal of this Note into shares of Common Stock in accordance
with the terms of this Note;
(ii) the
Company’s failure to pay to the Holder any amount of
Principal (including, without limitation, any redemption payments),
Interest, Late Charges or other amounts when and as due under this
Note, except, in the case of a failure to pay Interest and Late
Charges when and as due, in which case only if such failure
continues for a period of at least five (5) Business
Days;
(iii) the
Company or the Guarantor shall either (i) fail to pay, when due, or
within any applicable grace period, any payment with respect to any
Indebtedness in excess of $50,000, individually or in the
aggregate, due to any third party, other than, with respect to
unsecured Indebtedness only, payments contested by the Company in
good faith by proper proceedings and with respect to which adequate
reserves have been set aside for the payment thereof in accordance
with GAAP, or otherwise be in breach or violation of any agreement
for monies owed or owing in an amount in excess of $50,000,
individually or in the aggregate, which breach or violation permits
the other party thereto to declare a default or otherwise
accelerate amounts due thereunder, or (ii) suffer to exist any
other circumstance or event that would, with or without the passage
of time or the giving of notice, result in a default or event of
default under any agreement binding the Company which default or
event of default would or is likely to have a Material Adverse
Effect;
(iv) the
Company or any of its Subsidiaries, pursuant to or within the
meaning of Title 11, U.S. Code, or any similar Federal, foreign or
state law for the relief of debtors (collectively, “
Bankruptcy Law ”), (A) commences a voluntary case, (B)
consents to the entry of an order for relief against it in an
involuntary case, (C) consents to the appointment of a receiver,
trustee, assignee, liquidator or similar official (a “
Custodian ”), (D) makes a general assignment for the
benefit of its creditors or (E) admits in writing that it is
generally unable to pay its debts as they become due;
(v) a
court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that (A) is for relief against the Company or any of
its Subsidiaries in an involuntary case, (B) appoints a
Custodian of the Company or any of its Subsidiaries or (C) orders
the liquidation of the Company or any of its
Subsidiaries;
(vi) a
final judgment or judgments for the payment of money aggregating in
excess of $50,000 are rendered against the Company or any of its
Subsidiaries and which judgments are not, within sixty (60) days
after the entry thereof, bonded, discharged or stayed pending
appeal, or are not discharged within sixty (60) days after the
expiration of such stay; provided, however, that any judgment which
is covered by insurance or an indemnity from a credit worthy party
shall not be included in calculating the $50,000 amount set forth
above;
(vii) the
occurrence of a Change of Control;
(viii) the
Company or any Guarantor breaches any material covenant or
agreement or any material representation or warranty under this
Note or such Guarantor’s Guaranty, except, in the case of a
breach of a covenant or agreement which is curable, only if such
breach continues for a period of at least ten (10) consecutive
Business Days, including, without limitation, the failure of the
Company to cure an Authorized Share Failure (as defined
below);
(ix) the
Holder shall not have the right to designate two members to the
board of directors of the Company, which members shall have the
same rights, powers and privileges provided to the other members of
the Company’s board of directors;
(x)
any Guaranty shall fail to be in full force or
effect;
(xi) any
Person other than a Guarantor, a Permitted Transferee of a
Guarantor or the Holder shall hold any shares of capital stock of
any class or series of the Company, or securities convertible into
or exchangeable or exercisable for any shares of such capital
stock, or any options, warrants or other rights of any kind to
acquire any shares of such capital stock;
(xii)
the Company shall fail at any time to wholly own all of
its Subsidiaries; or
(xiii) the
Company or any Guarantor breaches any covenant or agreement under
the Letter Agreement.
(b)
Remedies upon an Event of Default . Upon the
occurrence of an Event of Default of the type specified in Section
4(a)(iv) or 4(a)(v) above (each, a “ Bankruptcy Event of
Default ”), this Note shall immediately become due and
payable without notice, and the Company shall as promptly as
practicable, but in any event within one (1) Business Day after the
Company has written notice or actual knowledge of the occurrence of
such Event of Default, deliver written notice thereof via facsimile
or e-mail and overnight courier (an “ Event of Default
Notice ”) to the Holder. In connection with a
Bankruptcy Event of Default, the Company shall pay to the Holder in
cash the sum of (i) all outstanding Principal of this Note,
plus (ii) accrued and unpaid interest thereon, plus
(iii) accrued and unpaid Late Charges, if any. Upon the
occurrence of an Event of Default of the type specified in Section
4(a)(vii) above (each, a “ Change of Control Event of
Default ”), this Note shall immediately become due and
payable without notice, and the Company shall as promptly as
practicable, but in any event within one (1) Business Day after the
Company has written notice or actual knowledge of the occurrence of
such Event of Default, deliver an Event of Default Notice via
facsimile or e-mail and overnight courier to the
Holder. In connection with a Change of Control Event of
Default, the Company shall pay to the Holder in cash the sum of (i)
the product of all outstanding Principal multiplied by the
lower of (A) 115% or (B) the sum of 100% plus the highest
interest rate permitted by applicable law (the “ Default
Premium ”), plus (ii) accrued and unpaid interest
thereon, plus (iii) accrued and unpaid Late Charges, if
any. Upon the occurrence of any Event of Default other
than a Bankruptcy Event of Default or a Change of Control Event of
Default, the Company shall within two (2) Business Days deliver an
Event of Default Notice via facsimile or e-mail and overnight
courier to the Holder. At any time after the earlier of
the Holder’s receipt of an Event of Default Notice and the
Holder gives written notice to the Company of an Event of Default,
the Holder, in its sole discretion, may by written notice to the
Company declare this Note to be immediately due and payable (the
“ Acceleration Notice ”), subject to the
Company’s right to cure Events of Default of the type
specified in clause (i), (ii) (other than with respect to the
payment of Principal), (iii), (viii), (ix) or (xiii) of Section
4(a) (each a “ Curable Event of Default ”)
within ten (10) days the receipt by the Company of an Acceleration
Notice (such cure period with respect to the foregoing clauses of
Section 4(a), the “ Applicable Cure Periods ”)
to cure all Curable Events of Default which gave rise to such
Acceleration Notice. Immediately following receipt an
Acceleration Notice, after giving effect to any Applicable Cure
Periods, to the extent any Event of Default to which an
Acceleration Notice relates is then continuing, the Company shall
pay to the Holder in cash the sum of (i) the product of all
outstanding Principal multiplied by the lower of (A) 115% or
(B) the sum of 100% plus the Default Premium, plus
(ii) accrued and unpaid interest thereon, plus (iii) accrued
and unpaid Late Charges, if any. The parties hereto
agree that in the event of the Company’s acceleration of the
Principal of this Note under this Section 4(b), the Holder’s
damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the
uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any Default
Premium due under this Section 4(b) is intended by the parties to
be, and shall be deemed, a reasonable estimate of the
Holder’s actual loss of its investment opportunity and not as
a penalty. From and after January 1, 2009, a Change of
Control Event of Default cannot be waived by the Holder without the
written consent of the Company.
5.
NONCIRCUMVENTION . The Company hereby
covenants and agrees that the Company will not, by amendment of its
Organizational Documents or through any reorganization, transfer of
assets, consolidation, merger, scheme of arrangement, dissolution,
issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all of
the provisions of this Note and take all action as may be required
to protect the rights of the Holder of this Note.
6.
RESERVATION OF AUTHORIZED SHARES
.
(a)
Reservation . The Company shall initially reserve
out of its authorized and unissued Common Stock a number of shares
of Common Stock equal to the Conversion Rate with respect to the
Original Principal Amount of this Note. So long as this
Note is outstanding, the Company shall take all action necessary to
reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of
this Note and any other Notes then outstanding, such number of
shares of Common Stock as shall from time to time be necessary to
effect the conversion of all of the Notes then outstanding (the
“ Required Reserve Amount ”).
(b)
Insufficient Authorized Shares . If at any time
the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon conversion of this Notes at least a
number of shares of Common Stock equal to the Required Reserve
Amount (an “ Authorized Share Failure ”), then
the Company shall immediately take all action necessary to increase
the Company’s authorized shares of Common Stock to an amount
sufficient to allow the Company to reserve the Required Reserve
Amount for the Notes then outstanding.
(a)
Rank . This Note is
an unsubordinated obligation of the Company and all payments due
under this Note (A) shall rank junior to all indebtedness and other
obligations under the Senior Credit Facility and all unsubordinated
indebtedness permitted to be incurred under the Senior Credit
Facility (collectively, “ Permitted Senior Debt
”), (B) shall rank senior to all Subordinated Obligations of
the Company, and (C) shall not be subordinated to any Indebtedness
of the Company other than Permitted Senior Debt.
(b)
Liens . The Company shall not, and the Company
shall not permit any of its Subsidiaries to, directly or
indirectly, allow or suffer to exist any Liens other than Permitted
Liens.
(c)
Use of Proceeds . All of the net proceeds
received by the Company from the original issuance of this Note on
the Issuance Date shall be used (i) to repay principal and accrued
and unpaid interest on its outstanding loans under the Senior
Credit Facility or (ii) for working capital purposes.
(d)
Ordinary Course Operations . Except as
contemplated by this Note or to the extent that the Holder
otherwise consents in writing, which consent will not be
unreasonably conditioned, delayed or withheld, the Company will
conduct its operations in its ordinary course of business,
consistent with historical practice (including with respect to
quantity and frequency), and the Company will use commercially
reasonable efforts to preserve intact in all material respects its
business organizations, to maintain in all material respects its
present business and to maintain in all material respects
satisfactory relationships with customers, suppliers and others
having business relationships with it. Without limiting the
generality of the foregoing, and except as otherwise expressly
provided in, permitted by or contemplated by this Note or the
Letter Agreement, the Company will not, without the prior written
consent of the Holder, which consent will not be unreasonably
conditioned, delayed or withheld:
(i)
amend or otherwise change its Organizational
Documents;
(ii)
sell, transfer, license or dispose of, or
authorize the sale, transfer or disposition of, (x) any equipment
or other capital assets or (y) any other assets of the Company,
except for sales under this clause (ii) in the Company’s
ordinary course of business consistent with historical practice
(including with respect to quantity and frequency);
(iii) acquire
(including without limitation by merger, consolidation or
acquisition of stock or assets) any corporation, partnership,
limited liability company, other business organization or any
division thereof, or all or a material portion of the assets of any
corporation, partnership, limited liability company, other business
organization or any division thereof;
(iv) increase
(except in the ordinary course of business consistent with
historical practice (including with respect to quantity and
frequency) in respect of officers or employees who are not
stockholders of the Company) the compensation payable or to become
payable to its officers or employees or grant (except in the
ordinary course of business consistent with historical practice
(including with respect to quantity and frequency) in respect of
officers or employees who are not stockholders of the Company) any
bonus, severance or termination pay to, or enter into any
employment or severance agreement with any director, officer or
other employee of the Company, or establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit
of any director, officer or employee;
(v)
make any change with respect to the Company’s
accounting policies, principles, methods or procedures, including,
without limitation, revenue recognition policies;
(vi) make
any loan to any officer, director, employee, consultant, agent or
shareholder of the Company other than advances to such Persons in
the ordinary course of business consistent with historical practice
(including with respect to quantity and frequency in connection
with bona fide business expenses in respect of officers or
employees who are not stockholders of the Company);
(vii) pay,
discharge or satisfy any claims, liabilities or obligations in
excess of $25,000 (whether absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction of claims, liabilities or obligations in
the ordinary course of business consistent with historical practice
(including with respect to quantity and frequency);
(viii) issue,
deliver, sell, pledge, dispose of, grant or transfer, or authorize
the issuance, delivery, sale, pledge, disposition, grant or
transfer of, any shares of capital stock of any class or series of
the Company, or securities convertible into or exchangeable or
exercisable for any shares of such capital stock, or any options,
warrants or other rights of any kind to acquire any shares of such
capital stock;
(ix) make
any capital expenditures other than those which are made in the
ordinary course of business consistent with historical practice
(including with respect to quantity and frequency) or are necessary
to maintain existing assets in good repair;
(x)
create, amend or terminate or give notice of a
proposed renewal, amendment or termination of, any contract
disclosed in Schedule 7(d) attached to this Note, other than
actions in the Company’s ordinary course of business
consistent with historical practice (including with respect to
quantity and frequency);
(xi) solicit
any offers for, respond to any unsolicited offers for, or enter
into or conduct any negotiations in respect of any of the
foregoing;
(xii) in
any way assist or encourage any person in connection with any
proposed acquisition of any Company Common Stock or any assets of
the Company (other than sales of its products in the ordinary
course of business), or authorize, or enter into any formal or
informal agreement or otherwise make any commitment to do, any of
the foregoing; or
(xiii) take
any action which would make any of the representations or
warranties of the Company contained in this Note untrue, incomplete
or incorrect, other than any such action which would not have a
Material Adverse Effect;
provided,
however, that in the event that the Company would be prohibited
from taking any action by reason of this Section 7(c) without the
prior written consent of the Holder, such action may nevertheless
be taken without such consent if the Company is required to do so
by applicable law and the Company prior to taking such action
informs the Holder in writing of such requirement.
(e)
Disclosure of Operating Results . Commencing with
the Fiscal Quarter ending June 30, 2008, the Company shall use
furnish to the Holder its operating results (the “
Operating Results ”) (x) for each of the first three
Fiscal Quarters of each fiscal year no later than the forty-fifth
(45 th
) day after the end of such Fiscal
Quarter and (y) for the fourth Fiscal Quarter of each fiscal year,
no later than the ninetieth (90 th )
day after the end of such Fiscal Quarter.
(f)
Exclusivity . From the Issuance Date until the
earlier of (i) the Maturity Date, provided that all obligations
under this Note have been indefeasibly paid and satisfied in full,
and (ii) January 1, 2009, neither the Company nor any of its
directors, officers, employees or agents will solicit, or
participate in negotiations or discussions with respect to, any
other investment in, or acquisition of, the Company, other than
with FAAC Incorporated or its Affiliates (or any or their
respective successors and assigns).
8.
REPRESENTATIONS AND WARRANTIES
. Each of the representations and warranties set forth
in this Section 8 is true and correct as of the date of the
Issuance Date, except for such representations and warranties which
refer to an earlier specified date, which representations and
warranties are true and correct as of such specified date. The
Company hereby represents and warrants to the Holder
that:
(a)
Organization . The Company is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Florida and has all requisite corporate power and
authority to own and lease its properties, to carry on its business
as presently conducted and to carry out the transactions
contemplated hereby. The Company is not, by the manner in which it
conducts its business or owns or leases its property, required to
be qualified to do business in any jurisdictions other than the
State of Florida. Schedule 8(a) contains a true, complete
and accurate copy of each of the Organizational Documents of the
Company, and a good standing certificate of a recent date issued by
the Secretary of State of the State of Florida certifying that the
Company is in good standing.
(b)
Organizational Documents; Corporate Records . The Company
has heretofore made available to the initial Holder a complete and
correct copy of its Organizational Documents, each as amended to
date. Such Organizational Documents are in full force and effect.
The Company is not in violation of any provision of its
Organizational Documents. The minute books of the Company, which
have heretofore been made available in their entirety to the
initial Holder, contain in all material respects true and correct
records of all meetings held or true and complete records of all
other corporate actions taken at any time by written consent or
otherwise by its stockholders or Board of Directors or by any
committee of the Board of Directors.
(c)
Authorization; Enforcement; Validity . The
Company has the requisite corporate power and authority to enter
into, deliver and perform its obligations under this
Note. The execution and delivery of this Note and the
consummation by the Company of the transactions contemplated
hereby, have been duly authorized by the Company’s board of
directors, and no further filing, consent, or authorization is
required by the Company, its board of directors or its
stockholders. This Note has been duly executed and
delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company
in accordance with its terms, except (i) as may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally, the enforcement of applicable
creditors’ rights generally, (ii) as limited by laws relating
to specific performance, injunctive relief of other equitable
remedies, and (iii) to the extent the indemnification
provisions contained in this Note may be limited by applicable
laws. On the Issuance Date, the Company delivered to the
initial Holder of this Note, a certificate of its Secretary
attaching certified true, accurate and complete copies of the
Organizational Documents of the Company, containing an incumbency
certificate with respect to its officer who executed and delivered
this Note, and attaching a certified copy of the resolution adopted
by the board of directors of the Company authorizing the execution,
delivery and performance of this Note and the transactions
contemplated hereby, which resolutions have not been amended,
rescinded or otherwise modified and remain in full force and effect
as of the Issuance Date.
(d)
No Conflicts . Except as set forth on Schedule
8(d) , the execution, delivery and performance of this Note and
the consummation by the Company of the transactions contemplated
hereby will not (i) result in a violation of any Organizational
Document of the Company or any of its Subsidiaries, or any capital
stock of the Company or any of its Subsidiaries or (ii) conflict
with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) in any respect under,
or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation,
order, judgment or decree (including foreign, federal and state
securities laws and regulations) applicable to the Company or any
of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected, except in
the case of clauses (ii) and (iii) above, to the extent that such
violation conflict, default or right would not reasonably be
expected to have a material adverse effect on the business (as
presently conducted or as proposed to be conducted by the Company
or any of its Subsidiaries as of the Issuance Date), assets,
financial condition, liabilities, operations or prospects of the
Company and its Subsidiaries, taken as a whole.
(i)
The authorized capital stock of the Company
consists of twenty thousand (20,000) shares of Common Stock, no par
value per share, all of which are issued and outstanding to the
Guarantors in the amounts indicated after such Guarantor’s
name in Schedule 8(e)(i) , and are duly authorized, validly
issued in compliance with all applicable laws, and are fully paid
and nonassessable and free of preemptive or similar rights created
by statute, the Organizational Documents of the Company, or any
other agreement to which the Company or any Guarantor is a party or
by which it or he is bound.
(ii)
Except as set forth on Schedule
8(e)(ii) , pursuant to this Note, the Guarantees or the Letter
Agreement, (x) there are no outstanding subscriptions, options,
warrants, calls, preemptive or other rights, agreements,
arrangements or commitments of any character relating to the issued
or unissued capital stock of the Company or obligating the Company
to issue or sell any shares of capital stock of, or other equity
interests in, the Company, (y) there are no outstanding contractual
obligations of the Company to repurchase, redeem or otherwise
acquire any shares of capital stock of, or other equity interests
in, the Company or to provide funds to, or make any investment (in
the form of a loan, capital contribution or otherwise) in, any
other entity, and (z) there are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the
capital stock or the direction of the business operation or conduct
of the Company.
(f)
Ownership of Capital Stock . Each Guarantor owns,
beneficially and of record, the shares of Common Stock set forth
opposite such Guarantor’s name on Schedule 8(f) , free
and clear of all Liens of any nature whatsoever other than pursuant
to such Guarantor’s Guaranty or as set forth on Schedule
8(f) . No Person other than a Guarantor holds any
Common Stock or shares of any other class or series of capital
stock of the Company or any securities convertible into or
exchangeable or exercisable for any shares of such capital stock,
or any options, warrants or other rights of any kind to acquire any
shares of such capital stock.
(g)
Consents and Approvals . Except as set forth on
Schedule 8(g) , the execution, delivery and performance of
this Note by the Company does not require any consent, approval,
authorization or permit of, or filing with or notification to, any
Governmental Authority or with any third party.
(h)
Absence of Certain Payments . Neither the Company, nor any
director, officer, or, to the Knowledge of the Company, agent,
employee or other person acting on behalf of the Company, has used
any funds of the Company for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political
activity, or made any direct or indirect unlawful payments to
government officials or employees from corporate funds, or
established or maintained any unlawful or unrecorded funds, or
violated any provisions of the Foreign Corrupt Practices Act of
1977 or any rules or regulations promulgated thereunder.
(i)
Compliance . The Company has secured and
maintained for at least the past seven years all material licenses,
franchises, permits or authorizations for the lawful conduct of its
business. Schedule 8(i) sets forth all such
licenses, franchises, permits or authorizations issued or granted
to the Company. All such licenses, franchises, permits and
authorizations are validly held by the Company, and the Company has
complied in all respects with all terms and conditions thereof.
Except as set forth in Schedule 8(i) , the Company has for
the past seven years complied in all respects with, and is not in
conflict with, or in default or violation of, (i) any Law
applicable to the Company or by which any property or asset of the
Company is bound or affected or (ii) any note, bond, mortgage,
indenture, deed of trust, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the
Company is a party or by which the Company or any property or asset
of the Company is bound or affected, except for such failures as
would not individually or in the aggregate have a Material Adverse
Effect.
(j)
Taxes and Tax Matters .
(i)
The Company has filed all Tax Returns that it has
been required to file under applicable tax laws and regulations.
All such Tax Returns were correct and complete in all respects. All
such Tax Returns were filed on the basis that the Company was an
electing corporation under Subchapter S of the Code. All Taxes owed
by the Company (whether or not shown on any Tax Return) have been
paid. Except for Taxes payable with respect to the Company’s
operations in 2007 and 2008 that are not yet due and payable, all
Taxes owed by the Guarantors, in their capacities as the sole
stockholders of the Company, with respect to the income of the
Company (whether or not shown on any Tax Return) have been paid.
Other than the extension filed with the IRS on March 15, 2008 with
respect to the filing of the Company’s tax return for the
fiscal year ended December 31, 2007, the Company is not currently
the beneficiary of any extension of time within which to file any
Tax Return. The Company is not required to file Tax Returns in any
jurisdiction where the Company does not file Tax Returns. No claim
has ever been made by a Governmental Authority in a jurisdiction
where the Company does not file Tax Returns that the Company is or
may be subject to taxation by that jurisdiction. There are no Liens
on any of the assets of the Company that arose in connection with
any failure (or alleged failure) to pay any Tax.
(ii)
The Company has withheld and paid all Taxes
required to be withheld or paid by the Company in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
(iii) There
is no dispute or claim concerning any Tax liability of the Company
(i) claimed or raised by any Governmental Authority in writing or
(ii) as to which any of the Company and the directors and officers
(and employees responsible for Tax matters) of the Company has
Knowledge based upon personal contact with any agent of such
authority. Except as provided in Schedule 8(j)(iii) , no
foreign, federal, state or local Tax audits or administrative or
judicial Tax proceedings are pending or being conducted with
respect to the Company. The Company has delivered to the initial
Holder correct and complete copies of all federal, state and local
income Tax Returns filed by the Company since January 1, 2000, none
of which has been the subject of any examination reports, or
statements of deficiencies.
(iv) The
Company has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v)
The Company (and any predecessor) has been a
validly electing “S corporation” within the meaning of
Sections 1361 and 1362 of the Code at all times during its
existence. The Company shall not be liable for any Tax
under Section 1374 of the Code in connection with the deemed sale
of assets caused by an election under Section 338(h)(10) of the
Code. The Company has not, in the past ten years,
acquired assets from another corporation in a transaction in which
the Company’s basis for the acquired assets was determined,
in whole or in part, by reference to the Tax basis of the acquired
assets in the hands of the transferor.
(vi) The
Company is not a party to any agreement, contract, arrangement, or
plan that has resulted or could result, separately or in the
aggregate, in the payment of (i) any “excess parachute
payment” within the meaning of Section 280G of the Code (or
any corresponding provision of state, local, or foreign Tax law)
and (ii) any amount that will not be fully deductible as a result
of Section 162(m) of the Code (or any corresponding provision of
state, local, or foreign Tax law). The Company has not been a
United States real property holding corporation within the meaning
of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code. The Company is
not a party to or bound by any Tax allocation or sharing agreement.
The Company (A) has not been a member of an “affiliated
group” within the meaning of Section 1504(a) of the Code
filing a consolidated federal income Tax Return or (B) does not
have any liability for the Taxes of any Person (other than the
Company) under Treas. Reg. Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or a
successor, by contract, or otherwise. The Company has not been a
party to any distribution in which the parties to such distribution
treated such distribution as one to which Section 355 of the Code
applied. The Company has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning
of Section 6662 of the Code. The Company has not participated in a
“reportable transaction” within the meaning of Treasury
Regulation Section 1.6011-4(b). The Company does not have a
“qualified subchapter S subsidiary” within the meaning
of Section 1361(b)(3)(B) of the Code.
(vii) The
Company will not be required to include any item of income in, or
exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Issuance Date as a
result of any: (A) change in accounting method; (B) “closing
agreement” as described in Section 7121 of the Code (or any
corresponding provision of state, local or foreign law) executed on
or prior to the Issuance Date; (C) installment sale or open
transaction disposition made on or prior to the Issuance Date; or
(D) prepaid amount received on or prior to the Issuance
Date.
(viii) The
Guarantors have paid all tax liabilities under Subchapter S of the
Code for the taxable income realized by the Company in respect of
all periods through and including the year ended December 31,
2007.
(k)
Assets . The Company has good and marketable
title to all of the assets it purports to own, and owns all of such
assets free and clear of any Liens, other than Permitted
Liens. The Company has good and marketable title to, or
in the case of leased assets valid leasehold interests in, all of
its tangible assets, real, personal and mixed, used or held for use
in its business, including all such assets reflected in the
Company’s balance sheet dated as of December 31, 2007, other
than those used, consumed or disposed of in the ordinary course of
business after such date, free of all Liens, other than Permitted
Liens. The assets that the Company owns are all of the
assets necessary for the continued conduct of the Company’s
business in the manner in which it has heretofore been
conducted. The Company does not have any leased property
(real or personal) except as disclosed in Schedule 8(k)
.
(l)
Condition of Assets
. All assets of the Company, including all assets leased
or licensed to the Company, are in good operating condition,
regularly and properly maintained, and fit for the operation in the
ordinary course of the Company’s business (subject to normal
wear and tear) with no material defects that could interfere with
the conduct of normal operations of the Company, and are suitable
for the purposes of which they are currently being used.
(m)
Equity Investments . Except as set forth in
Schedule 8(m) , the Company does not currently own any
capital stock or other proprietary interest, directly or
indirectly, in any corporation, limited liability company,
association, trust, partnership, joint venture or other
Person.
(n)
Financial Statements . The balance sheets and
related statements of operations and cash flows of the Company
prepared and audited by the Company’s Accountant as of and
for the fiscal years ended December 31, 2007 and 2006 (the “
Audited Financial Statements ”) that are included as
Schedule 8(n) fairly present in all material respects the
financial position of the Company as at such dates and the results
of its operations for the periods then ended in accordance with
GAAP. Since the date of the Audited Financial Statements
for the fiscal year ended December 31, 2007, there has been no
Material Adverse Change. The Company has made available
to the initial Holder certain financial forecasts with respect to
the Company’s business which forecasts were prepared based
upon the assumptions reflected therein. The Company
makes no representation or warranty regarding the accuracy of such
forecasts or as to whether such forecasts will be achieved or
otherwise, except that the Company represents and warrants that
such forecasts were prepared in good faith and are based on
assumptions believed by the Company to be reasonable and accurate
when made. Since December 31, 2007, the Company has made
no distributions to any of its stockholders, except for the amounts
reflected in Schedule 8(p)(ii) .
(o)
Absence of Undisclosed Liabilities . Except as
set forth in the balance sheets and related statements of
operations and cash flows of the Company for the quarter ended
March 31, 2008 (the “ Interim Financial Statements
”), the Company has no liabilities of any nature (matured or
unmatured, accrued, fixed or contingent, including, without
limitation, any liabilities for unpaid taxes), except as have
accrued in the ordinary course of business from the date of the
Interim Financial Statements to the Issuance Date.
(p)
Events Subsequent to Last Fiscal Year .
(i)
To the Knowledge of the Company, since
December 31, 2007, there has been no event or condition that has
had or reasonably could be expected to have a Material Adverse
Effect, and there has been no impairment, damage, destruction, loss
or claim, whether or not covered by insurance, or condemnation or
other taking adversely affecting in any respect any of the material
assets of the Company.
(ii)
Except as disclosed in Schedule
8(p)(ii) , since December 31, 2007, the Company has conducted
its business only in the ordinary course. Without
limiting the generality of the foregoing, since December 31, 2007,
and except as set forth in Schedule 8(p)(ii) , the Company
has not: (A) issued, delivered or agreed (conditionally
or unconditionally) to issue or deliver, or granted any option,
warrant or other right to purchase, any shares of common stock or
other equity interest or any security convertible into shares of
common stock or other equity interest; (B) other than in the
ordinary course of business, issued, delivered or agreed
(conditionally or unconditionally) to issue or deliver any bonds,
notes or other debt securities, or borrowed or agreed to borrow any
funds or entered into any lease the obligations of which, in
accordance with GAAP, would be capitalized; (C) paid any obligation
or liability (absolute or contingent) other than current
liabilities reflected in the Audited Financial Statements and
current liabilities incurred since December 31, 2007 in the
ordinary course of business; (D) declared or made, or agreed to
declare or make, any payment of dividends or distributions to its
stockholders or purchased or redeemed, or agreed to purchase or
redeem, any capital stock or any equity interest; (E) except in the
ordinary course of business, made or permitted any material
amendment or termination of any agreement to which the Company is a
party; (F) except in the ordinary course of business, undertaken or
committed to undertake capital expenditures exceeding $25,000 for
any single project or related series of projects; (G) sold, leased
(as lessor), transferred or otherwise disposed of, mortgaged or
pledged, or imposed or suffered to be imposed any Lien on, any of
the assets reflected on the Audited Financial Statements or any
assets acquired by the Company after December 31, 2007, except for
inventory and personal property sold or otherwise disposed of for
fair value in the ordinary course of business; (H) canceled any
debts owed to it or claims held by it (including the settlement of
any claims or litigation) other than in the ordinary course of
business; (I) accelerated or delayed collection of accounts
receivable in advance of or beyond their regular due dates or the
dates when the same would have been collected except in the
ordinary course of business; (J) delayed or accelerated payment of
any account payable or other liability beyond or in advance of its
due date or the date when such liability would have been paid
except in the ordinary course of business; (K) entered into or
become committed to enter into any other transaction requiring
payments in excess of $25,000 or having a term longer than one
year, except in the ordinary course of business; (L) allowed the
levels of supplies or other materials included in the inventory of
the Company to vary materially from the levels customarily
maintained in accordance with past practice; (M) except for
increases in the ordinary course of business, instituted any
increase in any compensation payable to any employee of the
Company, amended any pension, profit sharing, retirement, deferred
compensation, welfare, insurance, disability, bonus, vacation pay,
severance pay or other similar plans, programs or agreements, or
any personnel policy, whether reduced to writing or not, relating
to any persons employed by the Company, or modified any other
benefits made available to any such employees; or (N) made any
change in the accounting principles or made any material change in
the accounting practices used by the Company from those applied in
the preparation of the Audited Financial Statements.
(q)
No Bonuses or Other Payments to Employees or Stockholders
. There are no accrued and unpaid dividends or
distributions with respect to the Common Stock. Since December 31,
2007, except in the ordinary course of business or as set forth in
Schedule 8(q) , the Company has not (x) paid or agreed to
pay any bonus or any other increase in the compensation payable or
to become payable or (ii) granted or agreed to grant any bonus,
severance or termination pay, or entered into any contract or
arrangement to grant any bonus, severance or termination pay, to
any stockholder, officer, director or employee of the
Company.
(r)
Absence of Litigation . Except as set forth in
Schedule 8(r) , neither the Company nor any
of its Subsidiaries is a party to any, nor are there any
pending, or to the Knowledge of the Company, threatened, legal,
administrative, arbitral or other claims, actions, proceedings or
investigations of any nature, against the Company or any property
or asset of the Company, before any Governmental Authority and no
facts or circumstances have come to the Company’s attention
which have caused it to believe that a material claim, action,
proceeding or investigation against or affecting the Company could
reasonably be expected to occur. Neither the Company,
nor any property or asset of the Company, is subject to any order,
writ, judgment, injunction, decree, determination or award which
restricts its ability to conduct business in any area in which it
presently does business or has or could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse
Effect.
(i)
Except as disclosed on Schedule
8(s)(i) , (x) neither the Company nor any of its ERISA
Affiliates maintains or sponsors, or has any liability, contingent
or otherwise, with respect to, any Benefit Arrangement, (y) no
Benefit Arrangement provides or has ever provided post-retirement
medical or health benefits or severance benefits, except to the
extent required by Part 6 of Title I of ERISA or similar state
laws, and (z) no Benefit Arrangement is or has ever been a
“welfare benefit fund,” as defined in Section 419(e) of
the Code, or an organization described in Sections 501(c)(9) or
501(c)(20) of the Code. The Company has delivered to
initial Holder true and complete copies of: (A) each
written Benefit Arrangement document and a description of each
unwritten Benefit Arrangement, (B) the most recent summary plan
description relating to any Benefit Arrangement, (C) each trust,
insurance or other funding contract or agreement relating to any
Benefit Arrangement, (D) each administrative services contract or
agreement relating to any Benefit Arrangement, and (E) the most
recent IRS determination letter, opinion, notification or advisory
letter (as the case may be) for each Benefit Arrangement which is
intended to constitute a qualified plan under Section 401 of the
Code. Neither the Company nor any ERISA Affiliate has
any obligation or commitment to establish, maintain, operate or
administer any new Benefit Arrangement or to amend any Benefit
Arrangement so as to increase benefits thereunder or
otherwise.
(ii)
Neither the Company nor any ERISA Affiliate has or has
ever had any liability with respect to any Benefit Arrangement that
is subject to Title IV of ERISA, including a “multiemployer
plan,” as defined in Section 3(37) of ERISA or a
“single employer plan” within the meaning of Section
4001(a)(15) of ERISA. Neither the Company nor any ERISA Affiliate
has terminated a Benefit Arrangement with respect to which any
liability remains outstanding..
(iii) Each
Benefit Arrangement conforms to, and has been operated and
administered in material compliance with, its terms and all
applicable laws, including ERISA and the Code, and including, but
not limited to the requirements of ERISA Sections 601 et seq. and
701 et seq. and Sections 4980B, 9801 and 9802 of the
Code.
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