Exhibit 10.18
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
IWT TESORO CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
THIS NOTE IS SUBJECT TO THE TERMS OF THE SENIOR
SUBORDINATION AGREEMENT BETWEEN LAURUS MASTER FUND, LTD. AND FLEET
CAPITAL CORPORATION TO WHICH REFERENCE IS MADE FOR THE TERMS OF
SUBORDINATION AND FOR LIMITATIONS OF ENFORCEMENT OF THE PROVISIONS
HEREOF.
SECURED REVOLVING
NOTE
FOR VALUE RECEIVED, each of IWT
TESORO CORPORATION, a Nevada corporation (the “ Parent
”), and the other companies listed on Exhibit A
attached hereto (such other companies together with the Parent,
each a “ Company ” and collectively, the “
Companies ”), jointly and severally, promises to pay
to LAURUS MASTER FUND, LTD., c/o M&C Corporate Services
Limited, P.O. Box 309 GT, Ugland House, South Church Street,
George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the
“ Holder ”) or its registered assigns or
successors in interest, the sum of Five Million Dollars
($5,000,000), without duplication of any amounts owing by the
Companies to the Holder under the Minimum Borrowing Notes (as
defined in the Security Agreement referred to below), or, if
different, the aggregate principal amount of all Loans (as defined
in the Security Agreement referred to below), together with any
accrued and unpaid interest hereon, on August 25, 2008 (the
“ Maturity Date ”) if not sooner indefeasibly
paid in full.
Capitalized terms used herein
without definition shall have the meanings ascribed to such terms
in the Security Agreement among the Companies and the Holder dated
as of the date hereof (as amended, modified and/or supplemented
from time to time, the “ Security Agreement
”).
The following terms shall apply to
this Secured Revolving Note (this “ Note
”):
ARTICLE I
CONTRACT RATE AND MINIMUM BORROWING NOTE
1.1
Contract
Rate . Subject to Sections
3.2 and 4.10, interest payable on the outstanding principal amount
of this Note (the “ Principal Amount ”) shall accrue at a
rate per annum equal to the “prime rate” published in
The Wall Street Journal from time to time (the
“ Prime Rate
”), plus
one and one-half percent (1.5%) (the “ Contract Rate ”). The Contract
Rate shall be increased or decreased as the case may be for each
increase or decrease in the Prime
Rate in an amount equal to
such increase or decrease in the Prime Rate; each change to be
effective as of the day of the change in the Prime Rate.
Subject to Section 1.2, the Contract Rate shall not at any
time be less than six percent (6.0%). Interest shall be
(i) calculated on the basis of a 360 day year, and
(ii) payable monthly, in arrears, commencing on
October 1, 2005 on the first business day of each consecutive
calendar month thereafter through and including the Maturity Date,
and on the Maturity Date, whether by acceleration or
otherwise.
1.2
Contract Rate
Adjustments and Payments . The Contract Rate
shall be calculated on the last business day of each calendar month
hereafter (other than for increases or decreases in the Prime Rate
which shall be calculated and become effective in accordance with
the terms of Section 1.1) until the Maturity Date (each a
“ Determination
Date ”) and shall be
subject to adjustment as set forth herein. If (i) the
Parent shall have registered the shares of the Common Stock
underlying the conversion of each Minimum Borrowing Note and each
Warrant on a registration statement declared effective by the
Securities and Exchange Commission (the “ SEC ”), and (ii) the
market price (the “ Market Price ”) of the Common Stock
as reported by Bloomberg, L.P. on the Principal Market for the five
(5) trading days immediately preceding a Determination Date
exceeds the then applicable Fixed Conversion Price by at least
twenty-five percent (25%), the Contract Rate for the succeeding
calendar month shall automatically be reduced by 200 basis points
(200 b.p.) (2%) for each incremental twenty-five percent (25%)
increase in the Market Price of the Common Stock above the then
applicable Fixed Conversion Price. Notwithstanding the
foregoing (and anything to the contrary contained herein), in no
event shall the Contract Rate at any time be less than zero percent
(0%).
1.3
Allocation of
Principal to Minimum Borrowing Note . Notwithstanding
anything herein to the contrary, whenever during the Term the
outstanding balance on the Minimum Borrowing Note shall be less
than the Minimum Borrowing Amount (such amount being referred to
herein as the “ Transferable Amount ”) to the extent that
the outstanding balance on the Revolving Note should equal or
exceed $2,000,000, that portion of the balance of the Revolving
Note that exceeds $2,000,000, but does not exceed the Transferable
Amount, shall be segregated from the outstanding balance under the
Revolving Note and allocated to and aggregated with the then
existing balance of the next unissued serialized Minimum Borrowing
Note (the “ Next
Unissued Serialized Note ”); provided that such
segregated balance shall remain subject to the terms and conditions
of such Revolving Note until a new serialized Minimum Borrowing
Note is issued as set forth below. The Next Unissued
Serialized Note shall remain in book entry form until the balance
thereunder shall equal the Minimum Borrowing Amount, at which time
a new serialized Minimum Borrowing Note in the face amount equal to
the Minimum Borrowing Amount will be issued and registered as set
forth in the Registration Rights Agreement (and the outstanding
balance under the Revolving Note shall at such time be
correspondingly reduced in the amount equal to the Minimum
Borrowing Amount as a result of the issuance of such new serialized
Minimum Borrowing Note).
ARTICLE II
CONVERSION RIGHTS AND FIXED CONVERSION PRICE
2.1
Optional
Conversion . Subject to the terms
of this Article II, the Holder shall have the right, but not
the obligation, at any time until the Maturity Date, or during an
Event of Default (as defined in Article III), and, subject to
the limitations set forth in Section 2.2
2
hereof, to convert all or
any portion of the outstanding Principal Amount and/or accrued
interest and fees due and payable into fully paid and nonassessable
restricted shares of the Common Stock at the Fixed Conversion Price
(defined below). For purposes hereof, subject to
Section 2.6 hereof, the initial “ Fixed Conversion Price ” means $ 2.74 subject
to adjustment as provided in Section 2.6 of this Note.
The shares of Common Stock to be issued upon such conversion are
herein referred to as the “ Conversion Shares. ”
2.2
Conversion
Limitation . Notwithstanding
anything contained herein to the contrary, the Holder shall not be
entitled to convert pursuant to the terms of this Note an amount
that would be convertible into that number of Conversion Shares
which would exceed the difference between (i) 4.99% of the
issued and outstanding shares of Common Stock and (ii) the
number of shares of Common Stock beneficially owned by the
Holder. For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3
thereunder. The Conversion Shares limitation described in
this Section 2.2 shall automatically become null and void
following notice to any Company upon the occurrence and during the
continuance of an Event of Default, or upon 120 days prior notice
to the Parent, except that at no time shall the number of shares of
Common Stock beneficially owned by the Holder exceed 19.99% of the
outstanding shares of Common Stock. Notwithstanding anything
contained herein to the contrary, the total number of shares of
Common Stock issuable by the Parent and acquirable by the Holder at
a price below $2.65 per share pursuant to the terms of this Note,
the Security Agreement or any other Ancillary Agreement, shall not
exceed an aggregate of 2,339,050 shares of Common Stock (subject to
appropriate adjustment for stock splits, stock dividends, or other
similar recapitalizations affecting the Common Stock) (the
“ Maximum Common Stock
Issuance ”), unless the issuance
of Common Stock hereunder in excess of the Maximum Common Stock
Issuance shall first be approved by the Parent’s shareholders
in accordance with applicable state and federal laws. If at
any point in time and from time to time the number of shares of
Common Stock issued pursuant to the terms of this Note, the
Security Agreement or any other Ancillary Agreement, together with
the number of shares of Common Stock that would then be issuable by
the Parent to the Holder in the event of a conversion or exercise
pursuant to the terms of this Note, the Security Agreement or any
other Ancillary Agreement, would exceed the Maximum Common Stock
Issuance but for this Section 2.2, the Parent shall promptly
call a shareholders meeting to solicit shareholder approval for the
issuance of the shares of Common Stock hereunder in excess of the
Maximum Common Stock Issuance. Notwithstanding anything
contained herein to the contrary, the provisions of this
Section 2.2 are irrevocable and may not be waived by the
Holder or any Company.
2.3
Mechanics of
Holder’s Conversion . In the event that
the Holder elects to convert this Note into Common Stock, the
Holder shall give notice of such election by delivering an executed
and completed notice of conversion in substantially the form of
Exhibit B hereto (appropriately completed) (“
Notice of Conversion
”) to the
Parent and such Notice of Conversion shall provide a breakdown in
reasonable detail of the Principal Amount, accrued interest and
fees that are being converted. On each Conversion Date (as
hereinafter defined) and in accordance with its Notice of
Conversion, the Holder shall make the appropriate reduction to the
Principal Amount, accrued interest and fees as entered in its
records and shall provide written notice thereof to the Parent
within five (5) Business Days after the Conversion Date.
Each date
3
on which a Notice of
Conversion is delivered or telecopied to the Parent in accordance
with the provisions hereof shall be deemed a Conversion Date (the
“ Conversion
Date ”). Pursuant to
the terms of the Notice of Conversion, the Parent will issue
instructions to the transfer agent accompanied by an opinion of
counsel within three (3) Business Days of the date of the
delivery to the Parent of the Notice of Conversion and shall cause
the transfer agent to transmit the certificates representing the
Conversion Shares to the Holder by crediting the account of the
Holder’s
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