FORM OF
CONVERTIBLE PROMISSORY NOTE
$________________ Minneapolis, Minnesota
October 1, 1992
FOR VALUE RECEIVED, the undersigned LARGE STORAGE CONFIGURATIONS,
INCORPORATED (the "Company") promises to pay to the order of ______________ and
any person or entity to whom this Note is subsequently transferred and who
becomes a registered holder of this Note (the "Lender") the principal sum of
____________________________ ($_______), in lawful money of the United States,
or so much thereof as may then be outstanding, on December 31, 1993, and
thereafter on demand, together with interest from the date hereof on the unpaid
principal balance outstanding from time to time at the rate of 12% per year
(calculated on the basis of the actual number of days elapsed and a 360-day
year), unless converted into units of the Company's securities as provided in
Section 3.
1. LOAN AGREEMENT AND SECURITY AGREEMENT. This Note has been issued
pursuant to and is subject to the terms and provisions of, the Convertible
Bridge Loan Agreement, dated September 11, 1992, among the Company and certain
investors, including the Lender (the "Loan Agreement"). This Note is secured by
a security interest in substantially all of the Company's assets pursuant to a
security agreement dated September 11, 1992, among the Company and certain
investors including the Lender (the "Security Agreement"). This Note and the
holder hereof are entitled to all the benefits provided for in the Loan
Agreement and the Security Agreement, or which are referred to therein, to which
the reference is made for a statement of the terms and conditions under which
this indebtedness was incurred and is to be repaid. The provisions of the Loan
Agreement and the Security Agreement are incorporated herein by reference with
the same force and effect as if fully set forth herein.
2. PREPAYMENT. This Note may not be prepaid in whole or in part at any
time without the consent of the Lender, although the Company may pay any amounts
due under this Note after December 31, 1993 without the consent of the holder.
Any such prepayments shall be applied first to the payment of any costs of
collection that may be due hereunder, then to the payment of accrued interest,
and the balance shall be applied to principal.
3. CONVERSION. If the Company completes a public or private equity
financing, raising gross proceeds of at least 2,000,000 (a "Financing") by
December 31, 1993, all outstanding principal and accrued interest on this Note
shall be automatically converted contemporaneously with the closing of the
Financing, without any action on the part of the Company or the Lender, into
units of the securities issued in the Financing at a conversion price equal to
one-half the per unit price of the securities issued in the Financing (such
price as adjusted below being referred to as the "Conversion Price"). If this
Note is outstanding on December 31, 1993, the Lender shall have the right, until
December 31, 1994, at its option to convert all or any part of the outstanding
principal and accrued interest under this Note into a number of shares of the
Company's Common Stock equal to the product of the following: (a) a fraction,
the numerator of which shall be the amount being converted under this Note and
the denominator of which shall be the original principal amount of all of the
Notes issued under the
Loan Agreement; and (b) fifty percent (50%) of the number of voting securities
of the Company that would be outstanding following conversion if all of the
Notes issued under the Loan Agreement had been converted into shares of Common
Stock pursuant to this sentence. Upon conversion, the holder of this Note shall
surrender this Note to the Company at its principal office during normal
business hours. The securities issued upon conversion of this Note are referred
to as the "Conversion Stock." Certificates for the shares of Conversion Stock
shall be delivered to the Lender within 15 days after this Note shall have been
surrendered. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificates for shares of Conversion Stock, except in
accordance with the provisions and subject to the limitations of Paragraph 4
below.
The Company covenants and agrees that all shares of Conversion Stock,
upon issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that it will at all times have authorized,
and reserved for the purpose of issuance upon conversion of this Note, a
sufficient number of shares of Conversion Stock to provide for the conversion of
this Note.
The foregoing provisions are, however, subject to the following:
(a) The Conversion Price shall be subject to adjustment from
time to time as hereinafter provided. Upon each adjustment of the
Conversion Price, the number of shares of Conversion Stock issuable
hereunder shall be adjusted into a number calculated by dividing the
then unpaid principal and accrued interest hereunder by the per share
Conversion Price in effect immediately following such adjustment.
(b) In case the Company shall at any time subdivide the
outstanding Common Stock into a greater number of shares or declare a
dividend payable in Common Stock, the Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced,
and conversely, in case the outstanding Common Stock shall be combined
into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately
increased.
(c) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of
its assets to another corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities
or assets ("Substituted Property") with respect to or in exchange for
such Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, the Lender shall have
the right to receive upon the basis and upon the terms and conditions
specified in this Note and in lieu of the Conversion Stock of the
Company immediately theretofore receivable upon the exercise of the
conversion rights represented hereby, such Substituted Property as
would have been issued or delivered to the Lender if it had exercised
its conversion rights under this Note and had received upon such
exercise the Conversion Stock prior to such reorganization,
reclassification, consolidation, merger or sale. The Company shall not
effect any such consolidation, merger or sale, unless prior to the
consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets
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shall assume by written instrument executed and mailed to the Lender at
the last address of the Lender appearing on the books of the Company,
the obligation to deliver to the Lender such shares of stock,
securities or assets as, in accordance with the foregoing provisions,
the Lender may be entitled to purchase.
(d) If the Company takes any other action, or if any other
event occurs which does not come within the scope of the provisions of
Paragraphs 3(b) or 3(c), but which should result in an adjustment in
the Conversion Price and/or the number of shares issuable upon
conversion of this Note in order to fairly protect the conversion
rights of the Lender, an appropriate adjustment in such conversion
rights shall be made by the Company.
(e) Upon any adjustment of the Conversion Price, the Company
shall give written notice thereof, by first-class mail, postage
prepaid, addressed to the Lender at the address of the Lender as shown
on the books of the Company, which notice shall state the Conversion
Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares issuable upon conversion of this Note,
setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
4. INVESTMENT INTENT. Other than pursuant to registration under federal
and state securities laws or an exemption from such registration, the
availability of which the Company shall determine in its sole discretion, (a)
the Company will not accept the conversion of this Note or issue certificates
for shares of Conversion Stock upon such conversion and (b) neither this Note
nor any shares of Conversion Stock, may be pledged, assigned or otherwise
disposed of (whether voluntarily or involuntarily). The foregoing restriction
shall not, however, prohibit a transfer of this Note by will or the laws of
descent and distribution provided that such transfer is made pursuant to
registration or an exemption under applicable federal and state securities laws
and in compliance with this Section 4. The Company may condition such
conversion, issuance or sale, pledge, assignment or other disposition on the
receipt from the party to whom this Note is to be so transferred or to whom
Conversion Stock is to be issued or so transferred of any representations and
agreements requested by the Company in order to permit such issuance or transfer
to be made pursuant to exemptions from registration under federal and applicable
state securities laws. Each certificate representing any shares of Conversion
Stock shall be stamped with an appropriate legend setting forth these
restrictions on transferability. The Lender, by acceptance hereof, agrees to
give written notice to the Company before exercising or transferring this Note
or transferring any shares of Conversion Stock issued upon conversion of this
Note of the Lender's intention to do so, describing briefly the manner of any
proposed conversion or transfer. Within thirty (30) days after receiving such
written notice, the Company shall notify the Lender as to whether such exercise
or transfer may be effected.
5. REGISTRATION RIGHTS.
(a) If at any time during the period ending on the date 5
years from the date of this Note the Company proposes to register any
of its securities under the Securities Act of 1933, the Company shall
give to all registered holders of this Note or the Conversion Stock
written notice of its intention in that regard and use its best efforts
to effect the registration under such Act, if such registration is
permissible, of such Conversion Stock
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as may be specified by written notice from any of such holders
delivered to the Company within 20 days after such notice is given
(which notice shall be deemed to have been give upon the deposit
thereof in first-class or express U.S. mail, postage pre-paid,
addressed to each such holder at the address of such holder as shown in
the books of the Company); provided, however, that (i) the Company
shall not be required to give such notice with respect to, or to
include such Conversion Stock in, any such registration if the record
holder or holders of an aggregate of the majority of all shares of
Conversion Stock which have been or could be issued upon conversion of
this Note and all other notes of like tenor issued pursuant to the Loan
Agreement that have not then been the subject of any registration
pursuant hereto agree in writing to waive their rights under this
Paragraph 5(a) before or after the filing of a registration statement;
(ii) the Company shall not be required to include any such Conversion
Stock in any such registration for any such holder who is able to sell
during a period of six months or less all Conversion Stock owned by
such holder (or issuable to such holder upon conversion of this Note)
pursuant to Rule 144 under the Securities Act of 1933 (or any similar
rule or regulation); (iii) the Company shall not be required to include
this Note in any such registration; (iv) the Company shall not be
required to give such notice with respect to, or to include such
Conversion Stock in, any such registration which is primarily (A) a
registration of a stock option plan or other employee benefit plan or
of securities issued or issuable pursuant to any such plan, or (B) a
registration of securities proposed to be issued in exchange for
securities or assets of, or in connection with a merger or
consolidation with, another corporation; (v) the Company shall not be
required to give such notice with respect to, or to include such
Conversion Stock in, any such registration which is at the request or
demand of any holder or holders of its securities having contractual
registration rights; (vi) the Company shall not be required to include
in any such registration any securities previously duly registered
under the Securities Act of 1933; (vii) the Company may, in its sole
discretion, withdraw any such registration statement and abandon the
proposed offering in which any such holder had requested to
participate; (viii) if the offering to which the registration statement
relates is to be distributed by or through an underwriter, each such
holder shall agree, as a condition to the inclusion of such holder's
securities in such registration, to sell the securities held by such
holder through such underwriter on the same terms and conditions as the
underwriter agrees to sell securities on behalf of the Company and not
to sell, transfer, pledge, assign or otherwise dispose of any
securities of the Company not sold by such holder in such offering for
such period (up to 180 days after the effective date of the
registration statement) as may be required by the underwriter; and (ix)
if the offering to which the registration statement relates is to be
distributed by or through an underwriter and a greater number of
securities is offered for participation in the proposed underwriting
than in the opinion of the Company's underwriter can be accommodated
without significantly adversely affecting the proposed underwriting,
the amount of such securities otherwise to be included in the
underwritten offering on behalf of all persons other than the Company
may be reduced pro rata, in accordance with the securities proposed to
be sold by each such holder, or may be eliminated entirely from such
underwritten public offering. The costs and expenses of such offering,
including but not limited to legal fees, special audit fees, printing
expenses, filing fees, fees and expenses relating to qualifications
under state securities or blue sky laws and the premiums for insurance,
if any, incurred by the Company in connection with
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any registration made pursuant to this Paragraph 5(a) shall be borne
entirely by the Company; provided, however, that any holders
participating in such registration shall bear their own underwriting
discounts and commissions and the fees and expenses of their own
counsel or accountants in connection with any such registration.
(b) If at any time the Company is eligible to file a
registration statement covering the Conversion Stock on Form S-3 (or
any successor form having a similar scope), the Company shall receive a
written request therefor from the record holder or holders of an
aggregate of more than 25% of the aggregate of all shares of Conversion
Stock which have been or could be issued upon conversion of this Note
and all other notes of like tenor issued pursuant to the Loan Agreement
and have not then been the subject of any registration pursuant hereto
(the "Purchased Stock"), the Company shall prepare and file a
registration statement under the Securities Act of 1933 on Form S-3
covering the shares of Conversion Stock which are the subject of such
request and shall use its best efforts to cause such registration
statement to become effective. In addition, upon the receipt of such
request, the Company shall promptly give written notice to all other
record holders of shares of Purchased Stock that such registration is
to be effected. The Company shall include in such registration
statement such shares of Purchased Stock for which it has received
written requests to register by such other record holders within 30
days after the delivery of the Company's written notice to such other
record holders. The Company shall be entitled to delay filing any
registration statement requested pursuant to this Paragraph 5(b) in the
event that, in the reasonable judgment of the Company's Board of
Directors, such filing would interfere with any transaction then
contemplated by the Company; provided, however, that no such delay
shall exceed six months in duration.
(c) In the event of any registration of a security pursuant to
this Paragraph 5, the Company shall indemnify each such holder, its
officers and directors and each person, if any, who controls such
holder within the meaning of Section 15 of the Securities Act of 1933
against all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus (and as amended
or supplemented) relating to such registration, or caused by any
omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they are made,
unless such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company by such
holder expressly for use therein. The obligations of the Company to
register any of its securities in accordance with the foregoing shall
be subject to the condition that each holder shall agree in writing to
indemnify the Company, its officers and directors, and each person, if
any, who controls the Company within the meaning of Section 15 of the
Securities Act of 1933, and each underwriter of the Conversion Stock so
registered, and each person, if any, who controls such underwriter
within the meaning of Section 15 of the Securities Act of 1933, with
respect to losses, claims, damages and liabilities caused by any untrue
statement or omission made in reliance upon and in conformity with
information furnished in writing by such holder to the Company
expressly for use in such registration statement or prospectus,
provided that the obligation of each holder hereunder shall not
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exceed the amount of proceeds received by such holder from the sale of
any securities registered under this Paragraph 5.
(d) The Company shall, at its expense, also take reasonable
measures to qualify the Conversion Stock included in any registration
statement pursuant to Paragraphs 5(a) or 5(b) for sale under applicable
blue sky laws.
(e) Upon the exercise of registration rights pursuant to this
Paragraph 5, each holder agrees to supply the Company with such
information as may be required by the Company to register or qualify
the Conversion Stock.
IN WITNESS WHEREOF, the Company has caused this Note to be executed on
its behalf by its duly authorized officer on the day and year first above
written.
LARGE STORAGE CONFIGURATIONS,
INCORPORATED
By:
----------------------------
Xxxx X. Xxxxxx
Its: Chairman
----------------------------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS. THIS NOTE HAS
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE LAWS OR PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAWS, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
UNDERSIGNED.
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