EXHIBIT
10.3
LOAN NOTE
INSTRUMENT
DATED JUNE 16,
2006
Dated 16 June
2006
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LOAN NOTE
INSTRUMENT
relating to the issue of
£2,000,000 Secured Convertible
Loan
Notes
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Osborne
Clarke
One London Wall
London
EC2Y 5EB
Telephone
+44
(0) 20 7105 7000
Fax
+44
(0) 20 7105 7005
401997-v1\SYDDMS\FC2
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1
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DEFINITIONS AND
INTERPRETATION
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1
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2
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AMOUNT AND STATUS OF LOAN
NOTES
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5
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3
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5
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4
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5
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5
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6
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6
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6
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CONVERSION INTO ORDINARY
SHARES
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7
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ISSUE OF WARRANTS ON
CONVERSION
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8
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9
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9
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9
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REGISTER OF THE LOAN
NOTES
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10
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WARRANTIES AND
UNDERTAKINGS
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10
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12
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13
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FURTHER LOAN, SHARE CAPITAL OR
DEBT ISSUES
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13
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13
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13
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13
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14
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GOVERNING LAW AND
JURISDICTION
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SCHEDULES
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Schedule 1
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Loan Note Certificate
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15
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Schedule 2
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Provisions as to Registration, Transfer and
Other Matters
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17
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Schedule 3
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Provisions for Meetings of the
Noteholder
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19
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THIS
INSTRUMENT is made by way
of Deed Poll on 16 June 2006
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BY:
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METAL
SANDS LIMITED a company
registered in England and Wales under company number 5589527 whose
registered office is at Minerva House, 5 Montague Close, London SE1
9BB (the “Company”
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The Company has pursuant to its Articles of
Association and by resolution of the board of Directors passed at a
duly constituted meeting on the date of execution of this
Instrument resolved to create up to £2,000,000 convertible
loan notes (the “ Loan Notes” ) of the
Company and has determined to constitute and issue the same on the
terms set out below.
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DEFINITIONS AND
INTERPRETATION
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The following words have these meanings in this
Instrument unless a contrary intention appears:
“ Admission ”
means the admission to trading of all Ordinary Shares on the AIM
Market of the London Stock Exchange plc (“
AIM ”) or any other Recognised Investment
Exchange approved by the Noteholders accompanied by a Placing
becoming effective no later than the Exit Date and “
Admitted ” shall be construed
accordingly;
“ Aggregate Nominal
Amount ” means, in respect of the Loan Notes in
issue at any time, the aggregate principal amount of the Loan Notes
outstanding at that time;
“ Business Day ”
means a day other than a Saturday or a Sunday on which banks are
open for business in London;
“ Business Plan ”
means the agreed form business plan;
“ Certificate ”
means a certificate evidencing title of the Loan Notes, in the
form, or substantially the form, set out in Schedule
1;
“ Change of Control
Event ” means a person or group of persons acting in
concert (the “ Bidder ”) making an
offer for 50% or more of the issued ordinary shares of the Company
and such offer being declared unconditional or the Bidder otherwise
acquiring more than or controlling the voting rights attached to
50% or above of the issued Ordinary Shares of the
Company;
“ Commencement Date
” means the date of this Instrument;
“ Conversion Notice
” means a notice in the form, or substantially the form, set
out in Schedule 1;
“ Conversion Period
” means the period beginning on the Commencement Date and
ending on the date upon which an Exit Event
occurs;
“ Conversion Price
” has the meaning given to that term in clause
7.2;
“ Debenture ”
means the debenture granted by the Company to the Noteholder on the
date of this Instrument in relation to securing the principal
amounts of the Loan Notes;
“ Default Event ”
has the meaning given to that term in clause 6.1;
“ Default Interest Rate
” means the aggregate of one per cent and the Interest Rate
applying from time to time;
“ Directors ”
means the board of directors of the Company from time to time,
including any duly appointed committee thereof;
“ Exit Date ”
means 31 December 2006 unless extended by the mutual agreement of
the Company and the Noteholders;
“ Exit Event ”
means prior to the Exit Date either:
“ Extraordinary
Resolution ” has the meaning given to that term in
paragraph 16 of Schedule 3;
“ Group Company ”
means the Company, any parent company of the Company, and any
subsidiary or subsidiary undertakings of the Company or any such
parent company, each of its parent undertakings and each of its and
their respective subsidiary undertakings;
“ Instrument ”
means this loan note instrument;
“ Interest Rate ”
means ten per cent (10%) per annum up to the Exit Date, and two per
cent (2%) per month thereafter;
“ Investment Agreement
” means the investment agreement in
the agreed form between the Company, the Noteholders and the
Founders (as defined therein) dated on or about the date of this
Instrument;
“ Investment Documents
” means this Instrument, the Investment Agreement, the
Warrant Instrument and the Security Documents;
“ Loan Notes ”
means, as the context requires:
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the secured convertible loan notes of the
Company constituted by this Instrument; or
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the amount of the secured convertible loan
notes of the Company constituted by this Instrument then issued and
outstanding and fully paid up; or
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a specific portion of the secured convertible
loan notes of the Company constituted by this Instrument or the
principal monies represented by the secured convertible loan notes
of the Company constituted by this Instrument;
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“ Noteholders ”
means RAB Special Situations (Master) Fund Limited or its
successors or transferees entered in the Register as the holders of
the Loan Notes;
“ Ordinary Shares
” means Ordinary Shares of £0.001 each in the capital of
the Company;
“ Permitted Security
” means:
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any security created by the Security Documents
or otherwise created in favour of (or for the benefit of) the
Noteholder in its capacity as a Noteholder;
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liens arising by operation of law and in the
ordinary course of trading;
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security arising out of title retention or
set-off provisions in a supplier’s standard conditions of
supply of goods where the goods in question are supplied on credit
and are acquired by the Company in the ordinary course of trading;
and
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any other security to which the Noteholder have
given their prior consent by Extraordinary
Resolution;
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“ Placing ” means
a placing of new Ordinary Shares with institutional investors or
public offering of not less than £5,000,000 in aggregate
through a prospectus or admission document and accompanying Placing
documents co-terminus with Admission;
“ Recognised Investment
Exchange ” has the meaning ascribed to that term in
section 285 of the Financial Services and Markets Act 2000 (and,
for the avoidance of doubt, shall not include
OFEX);
“ Redemption Date
” means the date which is 18 months from the date of this
Instrument;
“ Register ” means
the register of Noteholders maintained by the Company as provided
for in Clause 12;
“ Registered Office
” means the registered office of the Company from time to
time;
“ Sale ” means the
sale of the entire issued share capital of the Company on terms
approved by the Noteholder, except that the approval of the
Noteholder shall not be required where the consideration for such
sale is equal to or greater than £40,000,000 to be paid in
cash upon completion and where arrangements are established for the
distribution of such consideration to the Company’s
shareholders and, if not converted prior to such Sale, the
repayment of the Aggregate Nominal Amount and all accrued
interest;
“ Security Documents
” means the Debenture and any other document evidencing or
creating security over the Company in respect of the obligations of
the Company under this Instrument;
“ Shares ”
means new Ordinary
Shares;
“ VWAP ” means the
volume weighted average price of Shares following Admission for a
particular day determined by dividing the total aggregate value of
Shares traded in that particular day by the total aggregate number
of Shares traded in that day;
“ Warrant Instrument
” means the instrument in the agreed form executed by the
Company dated on or about the date of this Instrument in respect of
the Warrants; and
“ Warrants ” means
the warrants to be issued by the Company to the Noteholder in
accordance with Clause 8 each of which shall entitle the Noteholder
to acquire one Share in the Company on the conditions set out in
the Warrant Instrument.
In this Instrument, unless the contrary
intention appears:
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the singular includes the plural and vice versa
and any gender includes the other gender;
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‘person’ includes a firm, a
partnership, a body corporate, an unincorporated association or
body, a state or agency of state, trust or foundation (whether or
not having separate legal personality);
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in favour of two or more persons is for their
benefit jointly and severally; and
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on the part of two or more persons binds them
jointly and severally;
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a person includes that person’s heirs,
executors, administrators, successors, and
assigns;
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a document means that document as amended,
replaced or novated;
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a statute or other law means that statute or
other law as amended or replaced, whether before or after the date
of this deed and includes regulations and other instruments made
under it;
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a clause or schedule is a reference to a clause
or a schedule in this Instrument;
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a thing or an amount includes the whole and
each part of it;
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a month means a calendar month;
and
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a group of persons includes all of the
collectively, any two or more collectively and each of them
individually;
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where the word ‘including’ or
‘includes’ is used, it is to be taken to be followed by
the words: ‘but not limited to’ or ‘but is not
limited to’, as the case requires;
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where a period of time is expressed to be
calculated from or after a specified day, that day is included in
the period;
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“£” denotes the lawful
currency of the United Kingdom;
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a reference to “date of redemption”
means the date on which all the outstanding principal on all the
outstanding Loan Notes is finally paid; and
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any reference to a document being “in the
agreed form” means in a form agreed by the Company and by or
on behalf of the Noteholders and initialled for the purposes of
identification.
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If a payment is due, or an event should occur,
on a day which is not a Business Day, the date for payment or the
occurrence of the event is the next succeeding Business
Day.
Headings are inserted for convenience and do
not affect the interpretation of this Instrument.
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AMOUNT
AND STATUS OF LOAN NOTES
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The Noteholder will not be under any obligation
to subscribe for Loan Notes until the Company and the Noteholder
have entered into the Investment Agreement on or about the date of
this Instrument.
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The aggregate principal amount of the Loan
Notes is limited to £2,000,000.
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The Company will issue the Loan Notes for cash
at par (being £1.00 per Loan Note) in integral multiples of
£1.00.
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Subject to this Instrument and the Schedules
the whole of the Loan Notes as and when issued shall rank pari
passu equally and rateably without discrimination or
preference and as an obligation of the Company.
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No application has been or will be made to any
Recognised Investment Exchange for the listing of, or for
permission to deal in, the Loan Notes.
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The Company shall pay or reimburse any stamp
duty, stamp duty reserve tax or other duties or taxes payable in
the United Kingdom in connection with the execution of this
Instrument or the constitution, issue, redemption or conversion of
the Loan Notes.
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Interest on the principal amount of the Loan
Notes at the Interest Rate will accrue from day to day (on the
basis of a 365 day year), shall be calculated monthly and shall be
capitalised quarterly, unless the Noteholder directs that it wishes
to be paid accrued interest, in which case interest shall be
payable in arrears in accordance with Clause 3.2
below.
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Method
of payment of interest
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Any accrued interest shall be payable in cash
on the redemption of the Loan Notes or, upon the conversion of the
Loan Notes, either in cash or by the issue of securities (as
selected by the Noteholder) at the Conversion Price into which the
Loan Notes convert.
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On or after the Exit Date, all Loan Notes not
converted are redeemable and any accrued interest shall be paid by
the Company if the Noteholder serves a written notice on the
Company providing 10 days written notice of the
request.
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Subject to Clause 4.3, all Loan Notes not
converted or redeemed (in whole or in part) by the Redemption Date
and all Loan Notes not converted immediately prior to an Exit Event
may be redeemed by the Company and any accrued interest shall be
paid by the Company on or after that date, at par by 30 days prior
written notice to the Noteholder.
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In order to exercise its rights pursuant to
Clause 4.2, the Company must serve upon the Noteholder a notice of
the redemption pursuant to clause 4.2. This notice will be
irrevocable and be an enforceable undertaking in favour of the
Noteholder. The Noteholder may require written evidence that the
funds are available to effect payment. The Noteholder may within 28
days of service of such notice serve notice that instead of
redemption, it wishes to convert the Loan Notes and any accrued
interest.
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All Loan Notes redeemed or converted by the
Company pursuant to the terms of this Instrument will be cancelled
and will not be available for reissue.
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In the event that any income or other tax is
deducted from a payment, the Company will issue to the Noteholder
as soon as reasonably practicable a certificate of deduction of tax
in respect of the tax deducted or withheld.
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The Aggregate Nominal Amount and any accrued
interest shall, for so long as it remains unpaid and unconverted,
remain capable of being converted pursuant to Clause
7.
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The Company shall not be entitled to pre-pay
any or all of the principal without the prior approval of the
relevant Noteholders.
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The Company shall immediately notify the
Noteholders in writing of a Change of Control Event (the “
Notification ”) and shall promptly disclose
to the Noteholders all reasonably requested information in relation
thereto. Within 60 days of receipt of the Notification, the
Noteholders shall be entitled by giving notice in writing to the
Company to demand immediate repayment of the Aggregate Nominal
Amount and any accrued interest held by the Noteholders or the
immediate conversion of all outstanding Loan Notes and repayment of
any accrued interest.
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Without prejudice to Clauses 4 and 5 and
subject to Clause 6.2, all outstanding Loan Notes are immediately
repayable at par along with any accrued interest on the happening
of any of the following events (each a “ Default
Event ”):
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the Company fails to repay any principal on the
Loan Notes within 10 days of the due date for redemption or payment
thereof (including pursuant to a redemption notice issued by the
Company pursuant to Clause 4.2); or
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if an order is made or an effective resolution
passed for winding-up of any Group Company (otherwise than for the
purposes of or in the course of a solvent re-organisation,
reconstruction or amalgamation previously approved by the
Noteholder); or
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if an encumbrancer has taken possession of or
if a receiver, administrative receiver, liquidator, judicial factor
or other similar officer is appointed to take possession of the
whole or any material part of the property or undertaking of any
Group Company and in any such case is not discharged, withdrawn or
removed within 30 days of possession being taken or an appointment
being made (excluding any period during which the possession or
appointment is being contested in good faith); or
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any administration order or any administration
application has been made in respect of any Group Company;
or
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if any Group Company (otherwise than in the
course of a reorganisation, reconstruction or amalgamation with
another company in terms previously approved by the Noteholder)
ceases or threatens to cease to carry on its business or a
substantial part of its business; or
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any Group Company is deemed to be unable to pay
its debts as they fall due or is unable to pay its debts pursuant
to or for the purposes of any applicable law; or
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if a material default or breach is made by any
Group Company in the performance or observance of any covenant or
provisions (other than any covenant for the payment of the
principal amount of the Loan Notes) binding on it under the
Investment Documents which has a material adverse effect on the
Company (to be determined by the Noteholders acting reasonably)
and, in the case of any default or breach which is capable of
remedy, any Group Company fails to remedy the breach within the
period of 20 days after receipt of a written request by the
Noteholders; or
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if the security constituted by any mortgage,
charge or other security document of any Group Company becomes
enforceable as a result of an event of default (other than an event
of default arising out of a liability being contested in good
faith) and the security holder takes steps to enforce the security;
or
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if any warranty given by the Company pursuant
to the Investment Documents, proves to have been incorrect in any
material respect; or
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if in the reasonable assessment of the
Noteholders the Group Company has failed to achieve the agreed
financial projections, milestones and/or goals as set out in the
Business Plan; or
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if the Debenture becomes enforceable in
accordance with its terms.
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The Company will immediately give notice to the
Noteholders of the happening of any Default Event upon becoming
aware of the same. If any Noteholder shall waive in writing its
right to repayment of the Aggregate Nominal Amount and any accrued
interest due to it whereupon the Loan Notes held by such Noteholder
and any accrued interest due to them shall remain
outstanding.
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CONVERSION INTO ORDINARY
SHARES
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Subject to the following provisions of this
Clause 7, the Loan Notes (in whole or in multiples of 1,000) and
any accrued interest may be converted into Shares at any time
during the Conversion Period by a Noteholder serving on the Company
a duly completed Conversion Notice. The Conversion Notice shall
state the date on which the conversion is to take place which shall
not, without the prior agreement with the Company, be sooner than 7
days from the date of the Conversion Notice.
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The Loan Notes shall carry the right to be
converted into Shares at a conversion price per share which is the
lesser of:
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fifty per cent (50%) of the price per Share at
which the Placing takes place; or
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if no Placing occurs the average VWAP for a
Share for the first ten days after Admission; and
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the price per Share which would result in all
Noteholders if they converted all Loan Notes holding 29.9% of the
fully diluted share capital of the Company (excluding any Warrants
that would be or have been issued to or held by any Noteholders or
their nominees) after conversion.
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Shares issued by way of conversion shall be
credited as fully paid and shall rank pro rata for dividends or
other distributions declared paid or made on or at any time after
conversion and shall rank pari passu with any Shares then in
issue.
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As soon as reasonably practicable after
conversion pursuant to this Clause 7, and in any event not later
than 10 days after allotment (but subject to the Company receiving
the Certificate representing the Loan Notes so converted) the
Company will at the Noteholder’s option either (i) issue a
share certificate for the number of Shares to which the Noteholder
is entitled free of charge to the Noteholder who has surrendered
its Certificate to the Company or (ii) credit the
Noteholder’s CREST account at Admission.
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If the Company becomes aware that an Exit Event
will occur, it will notify each Noteholder in writing (setting out
details of the Exit Event) as soon as practicable and in any event
no later than 15 Business Days before the Exit Event
and:
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each Noteholder must notify the Company in
writing whether it intends to convert any or all of its Loan
Notes:
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in the case of Admission, at least 5 Business
Days before the date the Company notifies that it will issue an
Admission Document; and
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in the case of a Sale, at least 5 Business Days
before the date of completion of the Sale.
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If the Company does not receive a notification
in writing from a Noteholder within the period specified above,
that Noteholder will be deemed to have irrevocably elected not to
convert their Loan Notes.
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In respect of those Loan Notes that Noteholders
have confirmed they intend to convert, they shall be deemed to have
irrevocably given a Conversion Notice in respect of such Loan
Notes, conditional upon the Exit Event occurring, and such Loan
Notes shall automatically be converted into Shares immediately
before such Exit Event; and
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In respect of those Loan Notes that Noteholders
have confirmed they do not intend to convert, the conversion right
attaching to such Loan Notes shall cease, conditional upon an Exit
Event occurring within 15 Business Days of the date the Noteholder
is deemed to have irrevocably elected not to convert their Loan
Notes pursuant to clause 7.5(b) above..
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ISSUE
OF WARRANTS ON CONVERSION
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Upon the redemption or conversion of the Loan
Notes (“ Conversion ”) pursuant to
Clauses 4 and 7 respectively, the Company shall issue to the
Noteholder one Warrant for each Share issued to the Noteholder upon
Conversion (or if Conversion does not place, one
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