1
EXHIBIT 10.37
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE OFFERED, SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE NOTE UNDER SUCH ACT AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS, OR AN EXEMPTION FROM SUCH LAWS PURSUANT TO WHICH SUCH
REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER.
12% CONVERTIBLE NOTE
DUE SEPTEMBER 30, 1999
$798,822.65 MARCH 31, 1999
FOR VALUE RECEIVED, THE TESSERACT GROUP, INC., a Minnesota
corporation ("Company"), promises to pay to PIONEER VENTURE FUND, L.L.C., a
Delaware limited liability company ("Holder"), the principal sum of Seven
Hundred Ninety Eight Thousand Eight Hundred Twenty Two Dollars and Sixty Five
Cents ($798,822.65), (the "Principal Amount"), together with interest thereon as
hereinafter set forth.
This Note ("Note") is issued pursuant to that certain
Securities Purchase Agreement dated as of March 31, 1999, by and among Company
and Holder (as amended, modified or supplemented from time to time in accordance
with the terms thereof, the "Purchase Agreement") and is one of a possible
series of Notes of like tenor, bearing different dates of issue, which in the
aggregate total not more than $5,000,000 in principal amount. All of the
aforesaid Notes are sometimes collectively referred to as the "Convertible
Notes" or the "Notes." All capitalized terms not specifically defined herein
shall have the meanings set forth in the Purchase Agreement. This Note is
subject to, and entitled to, all provisions and benefits of the Purchase
Agreement, to which reference is hereby made for a more complete statement of
the terms and conditions under which the purchase, sale and conversion of the
Convertible Notes are to be made.
This Note is given in substitution for and replacement of the
12% Note Due April 2, 1999 issued by Company in favor of Xxxxxx (the "Prior
Note"), it being acknowledged and agreed that (after giving effect to payment by
Company of the fee described in Section 2.3(b)(v) of the Purchase Agreement) the
Indebtedness evidenced by this Note constitutes the same Indebtedness evidenced
by the Prior Note.
1. INTEREST. Interest on the outstanding Principal Xxxxxx shall accrue
at the rate of twelve percent (12%) per annum from the date hereof until the
Principal Amount is paid in full or the Holder's Conversion, whichever first
occurs; provided that the rate of interest shall increase
2
to eighteen (18%) per annum on the Approval Deadline under the circumstances
described in Section 6.5 of the Purchase Agreement. Interest shall be paid in
one installment at the maturity of this Note, as such maturity may be extended
pursuant to Section 2 or accelerated pursuant to the Purchase Agreement or
Section 4 hereof. Interest shall be computed on the basis of actual days elapsed
based on a 365-day year.
Notwithstanding the foregoing, in no event shall interest
exceed the maximum rate permitted under any applicable law or regulation, and if
any provision of this Note is in contravention of any such law or regulation,
such provision shall be deemed amended to provide for interest at said maximum
rate and any excess amount shall either be applied, at Holder's option, to the
outstanding Principal Amount of this Note as Holder shall determine, or be
refunded by Holder to Company.
2. PAYMENT OF PRINCIPAL.
2.1 The outstanding Principal Xxxxxx, together with accrued
and unpaid interest thereon, shall initially be due and payable on
September 30, 1999 (the "Maturity Date").
2.2 If the Principal Amount is not repaid on or prior to the
Maturity Date, the date for repayment of the Principal Amount, together
with accrued and unpaid interest thereon, shall be automatically
extended to March 31, 2000 (the "Extended Maturity Date") upon receipt
by Holder of additional warrants to purchase Common Stock of Company,
as more fully set forth in the Purchase Agreement.
2.3 Such payment is subject to acceleration and/or mandatory
prepayments as provided in the Purchase Agreement. Upon the occurrence
of an Event of Default (as defined and set forth in Section 4 hereof)
the whole sum of principal and interest then due and owing hereunder
may be declared by the Holder to be immediately due and payable. All
payments received hereunder shall be applied first to the payment or
reimbursement to Holder of its costs and expenses as provided herein,
second to accrued interest, and third to the repayment of the
outstanding Principal Xxxxxx.
2.4 Payments of principal and interest shall be made to Holder
at its offices at 0000 Xxxxxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000,
or at such other address as Holder may give Company in writing.
Payments shall be made in United States dollars in immediately
available funds.
2.5 All payments to Holder shall be made free and clear of any
restrictions or conditions and free and clear of and without deduction
for any taxes or withholdings of any nature, present or future. If any
deduction for tax is required by law, then Company shall pay such
additional amounts, in such manner and at such time as will result in
receipt by Holder of such payment as if no deduction of tax had been
required.
- 2 -
3
2.6 If any payment date is not a Business Day, payment shall
be made not later than the next succeeding Business Day. However, if
the next succeeding Business Day falls in the next calendar month,
Payment shall be made on the last preceding Business Day. Business Day
means days that banks in New York City are required to be open for the
transaction of business.
2.7 This Note may be prepaid by Company, in whole or in part,
at any time prior to the Maturity Date or (if applicable), the Extended
Maturity Date without premium or penalty.
3. CONVERSION. From and after the fifteenth (15th) day after the date
on which the Principal Amount of this Note has become due and payable in full
(whether such maturity is pursuant to any provision of this Note or the Purchase
Agreement or is the result of acceleration, by operation of law or otherwise),
and for so long as any portion of this Note shall remain unpaid, Holder shall
have the right at any time, and from time to time, to convert all or any portion
of the outstanding Principal Amount of the Note and accrued interest into shares
of Common Stock at the Conversion Price in effect at the time of Conversion in
accordance with the terms of the Purchase Agreement; provided that until any
shareholder approval required by Section 6.5 of the Purchase Agreement is
obtained, no more than an aggregate of 1,500,000 shares of Common Stock may be
issued upon conversion of Convertible Notes. If less than the entire Principal
Amount is converted at any time, Company shall cancel the Convertible Note so
tendered, and shall reissue, as of the original date of issue, a Note of like
tenor with the Note tendered, in the name of tendering Holder, and having a
Principal Amount equal to the remaining Principal Amount of the Note. Company
shall issue a certificate within fifteen (15) days of receipt of Xxxxxx's
request for Conversion evidencing the shares of Common Stock acquired by Holder
as a result of the exercise of this Conversion right. Such shares, when issued,
will be fully paid and non-assessable and shall be deemed issued for all
purposes as of the effective date of Conversion. Company shall pay any and all
stock issuance or transfer taxes due as a consequence of the issuance of the
shares of Common Stock.
4. EVENTS OF DEFAULT. If the outstanding Principal Xxxxxx, together
with accrued and unpaid interest thereon, is not repaid on or prior to the
Maturity Date, then the maturity of this Note will be extended as set forth in
Section 2.2 hereof, upon receipt by Holder of warrants to purchase Common Stock
of Company, as more fully set forth in the Purchase Agreement. If the
outstanding Principal Xxxxxx, together with accrued and unpaid interest thereon,
is not repaid (1) on or prior to the Extended Maturity Date or (2) upon the
occurrence and during the continuance of any Event of Default (as determined in
the Purchase Agreement), then Holder shall have the right, in its sole
discretion, to declare the Principal Amount to be immediately due and payable.
5. GOVERNING LAW. This Note shall be governed by the laws of the State
of California. To the full extent provided by law, Company and Xxxxxx waive
right to trial by jury in any action between the parties.
- 3 -
4
6. COLLECTION COSTS Company promises to pay all costs and expenses,
including reasonable attorneys fees and disbursements incurred by Xxxxxx in the
collection and enforcement of this Note.
7. WAIVERS OF NOTICE. Company hereby consents to renewals and
extensions of time at or after the Maturity Date, and hereby waives diligence,
presentment, protest, demand and notice of every kind and, to the full extent
permitted by law, the right to plead any statute of limitations as a defense to
any demand hereunder.
8. ASSIGNABILITY. This Note may be assigned by Holder in accordance
with applicable law, including federal and state securities laws.
9. SEVERABILITY. In the event that any of the provisions of this Note
shall be held void or unenforceable, such provision shall be deemed severable
and the other terms and conditions of this Note not found void or unenforceable
shall remain in full force and effect.
10. BINDING EFFECT. This Note shall be binding upon and inure to the
benefit of the successors and permitted assigns of the parties hereto.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
the day and year first above written.
THE TESSERACT GROUP, INC.
By:
Xxxx X. Xxxxx
Chief Executive Officer
- 4 -
