SECURED CONVERTIBLE PROMISSORY NOTE
$250,000.00 Date: January 18, 2001
FOR VALUE RECEIVED, Meltronix, Inc., a California
corporation ("Meltronix"), promises to pay to The Xxxxxx X. Xxxx XXX
("Lizt"), the principal sum of Two Hundred Fifty Thousand Dollars
($250,000.00), with interest thereon, in accordance with the terms
and conditions of this secured convertible promissory note ("Note").
This Note is entered into in connection with the Loan Agreement and
Stock Issuance Agreement ("Loan Agreement"), the Security Agreement
("Security Agreement"), the Agreement for Equal Priority of Security
Interests ("Priority Agreement"), the Registration Rights Agreement
("Registration Rights Agreement"), and the Conversion Waiver
Agreement ("Waiver Agreement"), all entered into between Meltronix
and Lizt and the other parties thereto (collectively the Transaction
Documents") effective as of January 18, 2001 ("Effective Date").
1. The unpaid portion of the principal balance of this
Note shall bear simple interest until paid in full, at an annual rate
of ten percent (10%), accrued from the date of January 18, 2001.
Accrued interest shall be payable from January 18, 2001, monthly in
arrears. In no event shall any accrued interest outstanding at any
time be included as part of the Conversion Election (as hereafter
defined).
2. The entire outstanding balance of this Note,
including all principal, and any previously unpaid accrued interest
that may be outstanding at that time, shall be due and payable in
full in one lump sum upon the earliest to occur of the following:
2.1 January 18, 2003.
2.2 In the event (and only in the event) Lizt has
not made any Conversion Election (as hereafter defined) as of or prior
to January 18, 2002, then not later than five (5) days after such date
("First Acceleration Period"), Lizt shall be entitled to give Xxxxxxxxx
a written notice declaring the entire outstanding balance of this Note,
including all principal, and any previously unpaid accrued interest,
due and payable in full in one lump sum ("First Acceleration Notice"),
in which case this Note shall be due and payable in full as of the date
Lizt gives the First Acceleration Notice to Meltronix. In the event
Lizt does not give Xxxxxxxxx the First Acceleration Notice during the
First Acceleration Period, then Lizt shall no longer be entitled to
give Meltronix the First Acceleration Notice, and the provisions of
this Section 2.2 shall be deemed automatically and irrevocably canceled.
2.3 In the event (and only in the event) Lizt has
not made any Conversion Election (as hereafter defined) as of or prior
to July 18, 2002, then not later than five (5) days after such date
("Second Acceleration Period"), Lizt shall be entitled to give
Xxxxxxxxx a written notice declaring the entire outstanding balance of
this Note, including all principal, and any previously unpaid accrued
interest, due and payable in full in one lump sum ("Second Acceleration
Notice"), in which case this Note shall be due and payable in full as
of the date Lizt gives the Second Acceleration Notice to Meltronix.
In the event Lizt does not give Xxxxxxxxx the Second Acceleration
Notice during the Second Acceleration Period, then Lizt shall no longer
be entitled to give Meltronix the Second Acceleration Notice, and the
provisions of this Section 2.3 shall be deemed automatically and
irrevocably canceled.
2.4 In addition to the foregoing, portions of the
principal balance of this Note shall also be subject to pre-payment
pursuant to the provisions of Sections 9.8 and 9.9 hereof.
3. All payments made pursuant under this Note shall be
applied (i) first, to pay any costs and expenses incurred by Lizt in
the event Lizt is required to enforce this Note against Meltronix; (ii)
second, to pay any accrued interest; and (iii) third, to pay the
principal balance of this Note.
4. Upon the occurrence of any Event of Default (as that
term is hereafter defined), Lizt may, at any time thereafter, without
demand, presentment, protest, notice of protest, notice of maturity or
non-payment, notice of dishonor, or any other notices or demands
whatsoever in connection with the delivery, acceptance, performance,
default, endorsement, or guaranty of this Note, accelerate the unpaid
balance of all amounts owing under this Note, and declare such unpaid
balance immediately due and payable. For purposes of this Note, the
occurrence of any one of the following events shall constitute an
"Event of Default":
(a) (i) Meltronix shall default in the payment of
principal or interest on this Note, or on any other obligation of
Meltronix to pay either principal or interest to any third party on
any other promissory note or loan agreement of any kind, as and when
the same shall be due and payable and, in the case of an interest
payment default, such default shall continue for three (3) business
days after the date such interest payment was due; or (ii) Meltronix
shall fail to perform or observe any other covenant, agreement, term,
provision, undertaking or commitment under this Note and/or any of the
Transaction Documents, and such default shall continue for a period of
ten (10) business days after the delivery to Meltronix of written notice
that Meltronix is in default hereunder or thereunder; or (iii) Meltronix
shall fail to perform or observe any material covenant, agreement, term,
provision, undertaking or commitment under any loan document relating to
any loan that is part of the Aggregate Loan Pool and/or has rights with
respect to the Collateral Loan Pool (as those terms as defined in the
Loan Agreement), and such default shall continue for a period of ten
(10) business days after the delivery to Meltronix of written notice
that Meltronix is in default thereunder; or (iv) Meltronix shall fail
to perform or observe any material covenant, agreement, term,
provision, undertaking or commitment under any other loan document
relating to any other loan that may have been made by Lizt to Meltronix,
and such default shall continue for a period of ten (10) business days
after the delivery to Meltronix of written notice that Meltronix is in
default thereunder; or (v) Meltronix shall fail to perform or observe
any material covenant, agreement, term, provision, undertaking or
commitment under any other loan document relating to any other loan
that may have been made by any third party to Meltronix, and such
default shall continue for a period of ten (10) business days after
the delivery to Meltronix of written notice that Meltronix is in
default thereunder;
(b) Any of the representations or warranties made
by Meltronix herein or in any of the Transaction Documents shall be
false or misleading in any material respect as of the Effective Date;
(c) Under the laws of any jurisdiction not otherwise
covered by clauses (d) and (e) below, Meltronix (i) makes a general
assignment for the benefit of creditors; or (ii) institutes or has
instituted against it any proceeding seeking (x) to adjudicate it a
bankrupt or insolvent, (y) liquidation, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or
its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors including any plan of compromise
or arrangement or other corporate proceeding involving or affecting
its creditors, or (z) the entry of an order for relief or the
appointment of a receiver, trustee or other similar or it or for any
substantial part of its properties and assets, and in the case of any
such official proceeding instituted against it (but not instituted by
it), either the proceeding remains undismissed or unstayed for a period
of sixty (60) calendar days, or any of the actions sought in such
proceeding (including the entry of an order for relief against it or
the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its properties and
assets) occurs.
(d) The entry of a decree or order by a court
having jurisdiction in the premises adjudging Meltronix a bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in
respect of Meltronix under the Bankruptcy Code (as hereafter defined)
or any other applicable federal or state law, or appointing a
receiver, liquidator, assignee, trustee or sequestrator (or other
similar official) of Meltronix or of any substantial part of its
property, or ordering the winding-up or liquidation of its affairs,
and any such decree or order continues and is unstayed and in effect
for a period of sixty (60) calendar days;
(e) The institution by Meltronix of proceedings
to be adjudicated a bankrupt or insolvent, or the consent by it to
the institution of bankruptcy or insolvency proceedings against it,
or the filing by it of a petition or answer or consent seeking
reorganization or relief under the Bankruptcy Code (as hereafter
defined) or any other applicable federal or state law, or the consent
by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee or sequestrator (or other
similar official) of Meltronix or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors;
(f) It becomes unlawful for Meltronix to perform
or comply with its obligations under this Note in any respect, or
any of the Transaction Documents in any material respect;
5. Xxxxxxxxx agrees and promises to pay all of Xxxx's
reasonable attorneys' fees and other costs and expenses incurred by
Xxxx with respect to collection, suit, or other proceedings to
enforce this Note.
6. No delay or omission on Xxxx's part in exercising
any rights under, or failure to insist upon prompt compliance with
the terms of this Note shall operate as a waiver of any of Xxxx's
rights hereunder.
7. All of the covenants, stipulations, promises and
agreements by or on behalf of Meltronix relating to this Note shall
be deemed material and shall bind its successors and assigns, whether
so expressed or not.
8. Time is of the essence of each obligation of
Meltronix under this Note.
9. Conversion of Note into Common Stock.
9.1 Subject to the provisions of Sections 9.8
and 9.9 hereof, at any time after January 18, 2001, Lizt will have
sole discretion to elect to convert all or any portion of the
outstanding principal amount due under this Note (not including accrued
interest), in increments of not less than Ten Thousand Dollars
($10,000.00), into shares of common stock of Meltronix ("Common Stock").
In the event Lizt makes this election ("Conversion Election"), the
terms and conditions of Xxxx's conversion of this Note into shares of
Common Stock will be as follows:
9.2 Lizt may make the Conversion Election by
sending a written notice of such election to Meltronix at any time
after January 18, 2001, stating the portion of the outstanding
principal balance of this Note (not including accrued interest)
("Conversion Amount") Xxxx wishes to convert into Common Stock
("Conversion Notice"). Regardless of any other provision of this
Note, Lizt shall be deemed to have automatically made a Conversion
Election and given Meltronix a Conversion Notice with respect to the
entire outstanding principal balance of this Note, and the entire
outstanding principal balance of this Note shall be deemed to have
been automatically converted into shares of Common Stock in accordance
with the provisions hereof ("Automatic Conversion Election"),
immediately prior to the date of the closing of any Acquisition
Transaction (as hereafter defined), but only if as a result of the
Acquisition Transaction, in exchange for the Common Stock issued to
Lizt as a result of the Automatic Conversion Election, Lizt will
receive on the same basis as all other holders of the common stock of
Meltronix, either (a) cash; and/or (b) shares of the capital stock of
the acquirer in the Acquisition Transaction that are registered with
the United States Securities and Exchange Commission and traded on
either the Over-The-Counter Bulletin Board service of the National
Association of Securities Dealers, Inc. ("OTCBB"), NASDAQ or other
national market or national exchange in the United States. For
purposes hereof, the term "Acquisition Transaction" includes any
reorganization, consolidation, merger, sale, acquisition or other
similar transaction pursuant to which all or substantially all of
the capital stock and/or the assets of Meltronix are acquired by a
third party.
9.3 As of the date Meltronix receives the
Conversion Notice ("Conversion Date") the Conversion Amount will
be deemed to be converted into shares of Common Stock to be issued
to Lizt as of the Conversion Date, and the outstanding principal
balance of the Loan shall be reduced by the Conversion Amount.
9.4 The entire amount of the Common Stock to be
issued to Lizt pursuant to the Conversion Election will be deemed to
be one hundred percent (100%) vested, and not subject to any further
vesting requirements.
9.5 In the event Lizt makes the Conversion
Election, the number of shares of Common Stock to be issued to Lizt
will be equal to (a) the Conversion Amount in question, divided by
(b) the Conversion Price (as hereafter defined), and rounded to the
nearest whole number of shares. For purposes hereof, the term
"Conversion Price" means: (i) at all times prior to January 18,
2002, the Conversion Price shall be equal to the amount of Zero Point
Two Zero Dollars ($0.20); and (ii) at all times on and after January
18, 2002, the Conversion Price shall be equal to the lesser of (x)
the amount of Zero Point Two Zero Dollars ($0.20), or (y) eighty
percent (80%) of the lowest Market Price during the forty-five (45)
calendar days prior to the Conversion Date. For purposes hereof,
the term "Market Price" means the closing bid price of the Common
Stock as reported on OTCBB; provided that, if such security is not
listed or admitted to trading on OTCBB, as reported on the principal
national security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or
quotation system, the closing bid price of the Common Stock on the
over-the-counter market as reported by Bloomberg LP or a similar
generally accepted reporting service, as the case may be.
9.6 As promptly as practicable after the receipt
of the Conversion Notice, but in any event not more than five (5)
business days after the receipt by Meltronix of the Conversion Notice,
Meltronix shall (a) issue the Common Stock with respect to the
Conversion Amount in question in accordance with the provisions hereof,
and (b) cause to be mailed for delivery by overnight courier to Lizt
(x) a certificate or certificate(s) representing the number of Common
Shares to which Lizt is entitled by virtue of the Conversion Amount in
question, whereupon Lizt shall be deemed to have become the holder of
record of such Common Stock, and all voting and other rights associated
with the beneficial ownership of such Common Stock shall at such time
vest with Lizt. The Conversion Notice shall constitute a contract
between Lizt and Meltronix, whereby Lizt shall be deemed to subscribe
for the number of shares of Common Stock Lizt will be entitled to
receive with respect thereto, and in payment and satisfaction of such
subscription, to reduce the principal balance of this Note by the
Conversion Amount in question.
9.7 Lizt shall be entitled to effect any Conversion
Election notwithstanding the commencement of any case under the
Bankruptcy Code (as hereafter defined). In the event Meltronix is a
debtor under the Bankruptcy Code (as hereafter defined), Meltronix
hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. 362 in respect of Xxxx's conversion privilege.
Meltronix hereby waives to the fullest extent permitted any rights to
relief it may have under 11 U.S.C. 362 in respect of any Conversion
Election. Xxxxxxxxx agrees, without cost or expense to Lizt, to take
or consent to any and all action necessary to effectuate relief under
11 U.S.C. 362.
9.8 Notwithstanding anything herein to the
contrary, if and to the extent that, on any date ("Section 16
Determination Date"), the holding by Lizt of this Note would result
in Lizt becoming subject to the provisions of Section 16(b) of the
34 Act by virtue of being deemed the "beneficial owner" of more than
ten percent (10%) of the then outstanding shares of Common Stock, then
Lizt shall not have the right to make, and Meltronix shall not have
the obligation to recognize, any Conversion Election with respect to
any portion of this Note ("Section 16 Prepayment Portion") as shall
cause Lizt to be deemed the beneficial owner of more than ten percent
(10%) of the then outstanding shares of Common Stock during the period
ending sixty (60) days after the Section 16 Determination Date. If
any court of competent jurisdiction shall determine that the foregoing
limitation is ineffective to prevent Lizt from being deemed the
beneficial owner of more than ten percent (10%) of the then outstanding
shares of Common Stock for the purposes of such Section 16(b), then
Meltronix shall prepay the Section 16 Prepayment Portion. Upon such
determination by a court of competent jurisdiction, Lizt shall have
no interest in or rights under such Section 16 Prepayment Portion.
Any and all interest paid on or prior to the date of such determination
shall be deemed interest paid on the remaining portion of this Note
held by Xxxx.
10. Adjustments. The number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
a. Merger, Sale of Assets, etc. If at any time,
while this Note, or any portion thereof, is outstanding and unexpired
there shall be (i) a reorganization (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided
for herein), (ii) a merger (other than a mere reincorporation merger
where the subsidiary or affiliate of Meltronix used to effectuate the
reincorporation merger assumes all of Meltronix's obligations under this
Note) or consolidation of Meltronix with or into another corporation in
which Meltronix is not the surviving entity, or a merger in which
Meltronix is the surviving entity but the shares of Meltronix's capital
stock outstanding immediately prior to the merger are converted by
virtue of the merger into other property, whether in the form of
securities, cash, or otherwise, or (iii) a sale or transfer of
Meltronix's properties and assets as, or substantially as, an entirety
to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that
the holder of this Note shall thereafter be entitled to receive upon
exercise of the Conversion Election as specified herein and upon payment
of the related purchase price, the number of shares of stock or other
securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer which a holder
of the shares deliverable upon such exercise of the Conversion Election
would have been entitled to receive in such reorganization, consolidation,
merger, sale or transfer, if the Conversion Election had been exercised
immediately before the consummation of such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as
provided in this Section 10. The foregoing provisions of this Section
10.a shall similarly apply to successive reorganizations, consolidations,
mergers, sales and transfers and to the stock or securities of any other
corporation which are at the time receivable upon the exercise of the
Conversion Election. If the per share consideration payable to holder
hereof for shares in connection with any such transaction is in a form
other than cash or marketable securities, then the value of such
consideration shall be determined in good faith by Xxxxxxxxx's Board of
Directors. In all events, appropriate adjustment (as determined in
good faith by Xxxxxxxxx's Board of Directors) shall be made in the
application of the provisions of this Note with respect to the rights
and interests of the holder hereof after the transaction, to the end
that the provisions of this Note shall be applicable after that event,
as near as reasonably may be, in relation to any shares or other
property deliverable after that event upon exercise of the Conversion
Election.
b. Reclassification, etc. If Meltronix at any
time while the rights of Lizt to convert this Note into Common Stock
remain outstanding and unexpired shall, by reclassification of
securities or otherwise, change any of the securities as to which
conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, the conversion
rights under this Note shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the
result of such change with respect to the securities which were subject
to the conversion rights under this Note immediately prior to such
reclassification or other change, and the purchase price therefor shall
be appropriately adjusted, all subject to further adjustment as provided
in this Section 10.
c. Split, Subdivision or Combination of Shares.
If Meltronix at any time while the rights of Lizt to convert this Note
into Common Stock remain outstanding and unexpired shall split,
subdivide or combine the securities as to which conversion rights under
this Note exist, into a different number of securities of the same
class, this Note shall thereafter represent the right to acquire such
number of securities as would have been issuable as the result of such
change with respect to the securities which were subject to the
conversion rights under this Note immediately prior to such change, and
the purchase price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately
increased in the case of a combination.
d. Adjustments for Dividends in Stock or Other
Securities or Property. If while the rights of Lizt to convert this
Note into Common Stock remain outstanding and unexpired the holders
of the securities as to which conversion rights under this Note exist
at the time shall have received, or, on or after the record date fixed
for the determination of eligible shareholders, shall have become
entitled to receive, without payment therefor, other or additional
stock or other securities or property of Meltronix by way of dividend,
then and in each case, this Note shall represent the right to acquire,
in addition to the number of shares of the security receivable upon
exercise of the Conversion Election, and without payment of any
additional consideration therefor, the amount of such other or additional
stock or other securities or property of Meltronix which such holder
would hold on the date of such exercise had it been the holder of record
of the security receivable upon exercise of the Conversion Election on
the date hereof and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares
and/or all other additional stock available by it as aforesaid during
such period, giving effect to all adjustments called for during such
period by the provisions of this Section 6.
e. Prior Notice of Certain Events. Meltronix will
provide Lizt with notice of any merger, asset sale or dividend not less
than ten (10) business days prior to the record date for such event.
11. Usury. To the greatest extent permitted under
applicable law, Xxxxxxxxx hereby waives and agrees not to allege or
claim that any provisions of this Note could give rise to or result
in any actual or potential violations of any applicable usury laws.
All agreements between Lizt and Meltronix are expressly limited so
that in no contingency or event whatsoever (whether by reason of the
advancement of any proceeds under this Note, demand for payment,
acceleration of maturity of any unpaid balance or otherwise) shall
the amount paid or agreed to be paid to Meltronix for the use,
forbearance, or detention of any proceeds advanced or to be advanced
hereunder exceed the highest rate permissible under applicable law.
If any payments in the nature of interest, additional interest, and
other charges made hereunder are held to be in excess of the
applicable limits imposed by the usury laws of the State of California,
it is agreed that any such amount held to be in excess shall be
considered payment of principal hereunder, and the principal amount
any indebtedness evidenced hereby shall be reduced by such amount so
that the total liability for payments in the nature of interest,
additional interest and other charges shall not exceed the applicable
limits imposed by the usury laws of the State of California.
12. Miscellaneous Provisions.
12.1 Governing Law. This Note shall in all respects
be construed, interpreted and enforced in accordance with and governed
by the laws of the State of California, United States of America.
12.2 Attorneys' Fees. Subject to the provisions of
Section 5 hereof, in the event of any legal action between the parties
with respect to this Note or the subject matter hereof, the prevailing
party shall be entitled to recover reasonable attorneys' fees in
addition to court costs and litigation expenses incurred in said legal
action, regardless of whether such legal action is prosecuted to
judgment.
12.3 Notices. Any notice, demand or other
communication required or permitted under this Note shall be deemed
given and delivered when in writing and (a) personally served upon
the receiving party, or (b) upon the third (3rd) calendar day after
mailing to the receiving party by either (i) United States
registered or certified mail, postage prepaid, or (ii) FedEx or
other comparable overnight delivery service, delivery charges
prepaid, and addressed as follows:
To Meltronix: Meltronix, Inc.
0000 Xxxxxxxxxx Xxxxx
Xxx Xxxxx, XX 00000
Attn: Chief Executive Officer
To Lizt: c/o Xxxxxx Xxxx
La Jolla Cove Investors, Inc.
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, Xxxxxxxxxx 00000
Any party may change the address specified in this
section by giving the other party notice of such new address in the
manner set forth herein.
12.4 Severability. In the event that any provision
of this Note becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or invalid, then this Note
shall continue in full force and effect without said provision. If
this Note continues in full force and effect as provided above, the
parties shall replace the invalid provision with a valid provision
which corresponds as far as possible to the spirit and purpose of the
invalid provision.
12.5 Counterparts. This Note may be executed in
any number of counterparts, each of which may be executed by less
than all of the parties hereto, each of which shall be enforceable
against the parties actually executing such counterparts, and all of
which together shall constitute one document.
12.6 Entire Agreement. This Note, the Loan
Agreement, and the documents and agreements contemplated herein and
therein, constitute the entire agreement between the parties with
respect to the subject matter hereof, and supersede all prior oral
or written agreements, representations or warranties between the
parties other than those set forth herein or herein provided for.
[The remainder of this page has been intentionally left blank.]
12.7 Successors and Assigns. The provisions
hereof shall inure to the benefit of, and be binding upon, the
permitted successors and assigns, heirs, executors, and
administrators of the parties hereto.
12.8 Amendment and Waiver. No modification or
waiver of any provision of this Note shall be binding upon the party
against whom it is sought to be enforced, unless specifically set
forth in writing signed by an authorized representative of that party.
A waiver by any party of any of the terms or conditions of this Note
in any one instance shall not be deemed or construed to be a waiver
of such terms or conditions for the future, or of any subsequent
breach thereof. The failure by any party hereto at any time to
enforce any of the provisions of this Note, or to require at any time
performance of any of the provisions hereof, shall in no way to be
construed to be a waiver of such provisions or to affect either the
validity of this Note or the right of any party to thereafter enforce
each and every provision of this Note.
12.9 Survivability. All of the representations,
warranties, agreements and obligations of the parties pursuant to this
Note shall survive the closing of any of the transactions contemplated
hereby.
12.10 Security. This Note shall be secured pursuant
to the terms and conditions of the Security Agreement and related UCC-1
Financing Statement, pursuant to which Xxxxxxxxx has pledged the
collateral described therein as security for the repayment of this Note.
12.11 Diligence and Good Faith. Xxxx and Xxxxxxxxx
specifically agree to act diligently, in the utmost good faith and in
a timely manner to perform their respective obligations pursuant hereto,
and to carry out the reasonable intent of the provisions of this Note.
Each party hereto shall execute such other and further agreements,
documents and things as reasonable requested by the other parties hereto
to effect the transactions contemplated by this Note.
IN WITNESS WHEREOF, Xxxx and Xxxxxxxxx have duly executed
this Note as of the date first above written.
MELTRONIX, INC. THE XXXXXX X. XXXX XXX
a California corporation
By:_______________________________ By:________________________
Xxxxxx Xxxxxx, Chief Executive Officer
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Name:______________________
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Title:____________________
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