THIS NOTE AND THE SECURITIES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
HYPERBARIC SYSTEMS
CONVERTIBLE PROMISSORY NOTE AND LOAN AGREEMENT
Note No. 2000A- 11 June 12, 2000
$500,000 Palo Alto, California
FOR VALUE RECEIVED, HYPERBARIC SYSTEMS, a California corporation (the
"Company"), promises to pay to Xxxx Xxxxxx, ("Holder"), or its registered
assigns, the principal sum of up to Five Hundred Thousand Dollars ($500,000),
or such lesser amount as shall then equal the amount of money borrowed by
the Company from the Holder. The Company shall have the right at any time
to draw down the loan by providing written notice to the Holder.
Additionally, commencing one (1) year from the date of each draw down of
the loan, the Company promises to pay interest at a rate of ten percent
(10%) per annum of the outstanding balance. Unless otherwise converted into
shares of Common Stock of the Company, all unpaid principal, together with
any then unpaid and accrued interest and other amounts payable hereunder,
shall be due and payable on the earlier of (i) four (4) years from the date
hereof (the "Maturity Date"), or (ii) when such amounts are made
automatically due and payable upon or after the occurrence of an Event of
Default (as defined below). The following is a statement of the rights of
Holder and the conditions to which this Note is subject, and to which the
Holder hereof, by the acceptance of this Note, agrees:
1. Definitions. As used in this Note, the following capitalized terms
have the following meanings:
(a) "Indebtedness" shall mean and include the aggregate amount of,
without duplication, (i) all obligations for borrowed money, (ii) all
obligations evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations to pay the deferred purchase price
of property or services (other than accounts payable incurred in the
ordinary course of business determined in accordance with generally
accepted accounting principles), (iv) all obligations with respect to
capital leases, (v) all guaranty obligations, (vi) all obligations created
or arising pursuant to any conditional sale or other title retention
agreement with respect to property acquired by such Person, and (vii) all
reimbursement and other payment obligations, contingent or otherwise, in
respect of letters of credit.
(b) "Company" includes the corporation
initially executing this Note and any Person that shall succeed to or assume
the obligations of the Company pursuant to this Note.
(c) "Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a governmental authority.
(d) "Senior Indebtedness" shall mean, unless expressly subordinated to
or made on a parity with the amounts due pursuant to this Note, the principal
of (and premium, if any), unpaid interest on and amounts reimbursable, fees,
expenses, costs of enforcement and other amounts due in connection with,
(i) indebtedness of the Company to banks, commercial finance lenders,
insurance companies, leasing or equipment financing institutions or other
lending institutions regularly engaged in the business of lending money
(excluding venture capital, investment banking or similar institutions which
sometimes engage in lending activities but which are primarily engaged in
investments in equity securities), which is for money borrowed, or purchase
or leasing of equipment in the case of lease or other equipment financing,
whether or not secured, and (ii) any such indebtedness or any debentures,
notes or other evidence of indebtedness issued in exchange for such Senior
Indebtedness, or any indebtedness arising from the satisfaction of such
Senior Indebtedness by a guarantor.
2. Interest. Accrued interest on this Note shall be payable at such
time as the outstanding principal amount hereof shall be paid in full.
3. Payment. Except as set forth in Section 4 below, payment shall be
made in lawful tender of the United States. The Company may prepay at any
time without penalty in whole or in part, the unpaid principal and interest
due on this Note, subject to the following conditions:
(a) Prepayment During First Year. During the one-year period commencing
on the date hereof, the Company may prepay, in whole or in part, the unpaid
principal and interest due on this Note without prior notice to Holder.
Upon delivery of the prepayment to Holder, Holder shall have no further right
to convert the portion of this Note represented by such prepayment.
(b) Prepayment During Remainder of Period. Commencing on the one-year
anniversary of the date hereof and ending on the Maturity Date, the Company
may prepay, in whole or in part, the unpaid principal and interest due on
this Note by delivering to Holder a written notice of the Company's intent
to prepay. The Company shall make the prepayment to Holder within ten
(10) calendar days of the prepayment date set forth on the notice of
prepayment, or else the prepayment notice shall be void. The Holder shall
have the right to convert this Note as set forth in Section 4 until the
business day prior to the date set for prepayment; provided, however, that
(i) during the period commencing on the one-year anniversary of the date
hereof and ending on the two-year anniversary of the date hereof, Holder may
only convert up to 25% of the then-unpaid principal and interest due on the
Note; (ii) during the period commencing on the two-year anniversary of the
date hereof and ending on the three-year anniversary of the date hereof,
Holder may only convert up to 50% of the then-unpaid principal and interest
due on the Note; and (iii) during the period commencing on the three-year
anniversary of the date hereof and ending on the Maturity Date, Holder may
only convert up to 75% of the then-unpaid principal and interest on the
Note.
4. Conversion. For a period of four (4) years from the date hereof,
Holder shall have the right to convert any unpaid principal and interest
into Common Stock of the Company at the Conversion Price (as defined below).
(a) Mandatory Conversion upon Public Offering. Upon the closing (or
first in a series of closings) of the public offering of shares of Common
Stock or other equity securities of the Company for an aggregate
consideration of at least $1,000,000 (not including the aggregate principal
and accrued interest due on this Note and all other Notes) (the "Equity
Financing"), the principal and accrued interest due on this Note shall be
automatically converted into shares of Common Stock as set forth in Section
4(c) below, unless the Company first delivers a notice of its intent to
prepay the Note in accordance with Section 3 hereof. The conversion shall
be deemed to have occurred as of the date of such closing or the date of the
first closing in a series of closings (the "Financing Closing Date"). The
Company shall give the Holder ten (10) days' prior written notice of such
terms and conditions and of the proposed Financing Closing Date. As a
condition precedent (which may be waived by the Company) to conversion of
this Note as provided for in this Section 4, the holder of this Note will
be required to execute the definitive Common Stock Purchase Agreement and
such other agreements prepared in connection therewith.
(b) Conversion at Option of the Holder. The Holder is entitled, at its
option, to convert at any time commencing after the date hereof, the
principal amount of this Note or any portion thereof, and at the Holder's
election, any accrued but unpaid interest, into shares of Common Stock at
the Conversion Price (as defined in Section 4(c) hereof). Conversion
shall be effectuated by surrendering this Note to the Company together with
the form of conversion notice attached hereto as Exhibit A (the "Conversion
Notice"), executed by the Holder and evidencing the Holder's intention to
convert this Note or a specified portion (as provided above) hereof.
Interest accrued or accruing from the date of issuance to the date of
conversion shall, at the option of the Holder, be paid in cash. No fractional
shares will be issued on conversion of this Note. If Holder would otherwise
be entitled to a fractional share, Holder shall receive a cash payment
equal to the Conversion Price multiplied by the fractional share Holder
would otherwise be entitled to receive. The date on which the Conversion
Notice is given (the "Conversion Date") shall be deemed to be the date on
which Holder faxes the Conversion Notice duly executed to the Company.
(c) Conversion Price. Upon conversion, this Note shall be converted
into that number of fully paid and nonassessable shares of Common Stock
determined by dividing all of the unpaid principal and interest due on this
Note as of the Financing Closing Date by $.75 (as adjusted for stock
dividends, stock splits, or recapitalizations occurring after the date
hereof) (the "Conversion Price").
(d) Issuance of Securities on Conversion. As soon as practicable after
conversion of this Note, the Company, at its expense, will cause to be
issued in the name of and delivered to the Holder of this Note, a
certificate or certificates representing the number of fully paid and
nonassessable shares of Common Stock to which Holder shall be entitled on
such conversion
(e) Termination of Rights. All rights with respect to this Note shall
terminate upon the issuance of shares of Common Stock upon conversion of
this Note, whether or not this Note has been surrendered. Notwithstanding
the foregoing, the Holder agrees to surrender this Note to the Company for
cancellation as soon as is practicable following conversion of this Note.
5. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" hereunder:
(b) Failure to Pay. The Company shall fail to pay (i) any principal
payment on the due date hereunder or (ii) any interest or other payment
required pursuant to the terms hereof. on the date due and such payment
shall not have been made within fifteen (15) days of Company's receipt
of Holder's written notice to the Company of such failure to pay; or
(c) Breaches of Covenants. The Company shall fail to observe or perform
any covenant, obligation, condition or agreement contained herein (other
than those covenants specified in Section 6(a) of this Note) and (i) such
failure shall continue for thirty (30) days, or (ii) if such failure is
not curable within such thirty (30) day period, but is reasonably capable
of cure within sixty (60) days, either (A) such failure shall continue for
sixty (60) days or (B) Company shall not have commenced a cure in a manner
reasonably satisfactory to Holder within the initial thirty (30) day period;
or
(d) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall
(i) apply for or consent to the appointment of a receiver, trustee, liquidator
or custodian of itself or of all or a substantial part of its property, (ii)
be unable, or admit in writing its inability, to pay its debts generally as
they mature, (iii) make a general assignment for the benefit of its or any of
its creditors, (iv) be dissolved or liquidated in full or in part, (v) become
insolvent (as such term may be defined or interpreted pursuant to any
applicable statute), (vi) commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or
its debts pursuant to any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of or
taking possession of its property by any official in an involuntary case or
other proceeding commenced against it, or (vii) take any action for the purpose
of effecting any of the foregoing.
6. Rights of Holder upon Default. Upon the occurrence or existence of
any Event of Default and at any time thereafter during the continuance of such
Event of Default, Holder may, by written notice to the Company, declare all
outstanding obligations payable by the Company hereunder to be immediately
due and payable without presentment, demand, protest or any other notice of
any kind, all of which are hereby expressly waived, anything contained in the
Transaction Documents to the contrary notwithstanding. In addition to the
foregoing remedies, upon the occurrence or existence of any Event of Default,
Holder may exercise any other right, power or remedy granted to it hereunder
or pursuant to applicable law.
7. Representations and Warranties of Holder. Holder hereby represents
and warrants to the Company as follows:
(a) Binding Obligation. The Holder has full legal capacity, power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. The Note issued to the Holder is a valid and binding
obligation of the Holder, enforceable in accordance with its terms, except
as limited by bankruptcy, insolvency or other laws of general application
relating to or affecting the enforcement of creditors' rights generally and
general principles of equity.
(b) Investment; Accredited Holder. The Holder understands that the Note
and the underlying shares of capital stock (collectively referred to as the
"Securities") are a speculative investment, and represents that Holder is
aware of the business affairs and financial condition of the Company, and
has acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities, and that Holder is
purchasing the Securities for investment for Holder's own account only and
not with a view to, or for resale in connection with, any "distribution"
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act") or applicable state securities laws. Holder further represents that
it understands that the Securities have not been registered under the
Securities Act or applicable state securities laws by reason of specific
exemptions therefrom, which exemptions depend upon, among other things, the
bona fide nature of the Holder's investment intent as expressed herein.
The Holder acknowledges and understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act and
qualified under applicable state securities laws or unless exemptions from
such registration and qualification requirements are available, and that the
Company is under no obligation to register or qualify the Securities. The
Holder is an accredited Holder as such term is defined in Rule 501 of
Regulation D promulgated pursuant to the Securities Act.
(c) Access to Data. The Holder acknowledges that Holder has received
and reviewed this Agreement and Exhibits hereto. The Holder has had an
opportunity to discuss the Company's business, management and financial
affairs with its officers and directors. The Holder understands that such
discussions as well as any written information issued by the Company were
intended to describe the aspects of the Company's business and prospects
which it believes to be material but were not necessarily a thorough or
exhaustive description.
(d) Finder's Fees. The Holder represents and
warrants to the Company that no person is entitled, directly or indirectly,
to compensation from such Holder by reason of any contract or understanding
or contact with the Holder, as a finder or broker in connection with the sale
and purchase of the Restricted Securities contemplated by this Agreement.
The Holder agrees to indemnify and hold the Company harmless against and in
respect of any claim for brokerage or other commissions or similar fees
relative to this Agreement or the transactions contemplated hereby which
arises as a result of a contract or understanding made by such Holder with
any such broker or finder in connection with the sale and purchase of the
Restricted Securities contemplated by this Agreement.
8. Subordination. The indebtedness evidenced by this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full of all of the
Company's Senior Indebtedness.
(a) Insolvency Proceedings. If there shall occur any receivership,
insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization, or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of
the assets, dissolution, liquidation, or any other marshalling of the assets
and liabilities of the Company, (i) no amount shall be paid by the Company
in respect of the principal of, interest on or other amounts due with respect
to this Note at the time outstanding, unless and until the principal of and
interest on the Senior Indebtedness then outstanding shall be paid in full,
and (ii) no claim or proof of claim shall be filed with the Company by or on
behalf of the Holder of this Note which shall assert any right to receive any
payments in respect of the principal of and interest on this Note except
subject to the payment in full of the principal of and interest on all of the
Senior Indebtedness then outstanding.
(b) Default on Senior Indebtedness. If there shall occur an event of
default which has been declared in writing with respect to any Senior
Indebtedness, as defined therein, or in the instrument pursuant to which it
is outstanding, permitting the holder to accelerate the maturity thereof and
Holder shall have received written notice thereof from the holder of such
Senior Indebtedness, then, unless and until such event of default shall have
been cured or waived or shall have ceased to exist, or all Senior
Indebtedness shall have been paid in full, no payment shall be made in
respect of the principal of or interest on this Note, unless within one
hundred eighty (180) days after the happening of such event of default, the
maturity of such Senior Indebtedness shall not have been accelerated. Not
more than one notice may be given to the Holder pursuant to the terms of this
Section during any 360-day period.
(c) Further Assurances. By acceptance of
this Note, the Holder agrees to execute and deliver customary forms of
subordination agreement requested from time to time by holders of Senior
Indebtedness, and as a condition to the Holder's rights hereunder, the Company
may require that Holder execute such forms of subordination agreement; provided
that such forms shall not impose on Holder terms less favorable than those
provided herein.
(d) Other Indebtedness. Indebtedness that does not constitute Senior
Indebtedness shall not be senior in any respect to the Indebtedness represented
by this Note unless consented to in writing by the Holder.
(e) Subrogation. Subject to the payment in full of all Senior
Indebtedness, the Holder of this Note shall be subrogated to the rights of
the holder(s) of such Senior Indebtedness (to the extent of the payments or
distributions made to the holder(s) of such Senior Indebtedness pursuant to
the provisions of this Section) to receive payments and distributions of
assets of the Company applicable to the Senior Indebtedness. No such payments
or distributions applicable to the Senior Indebtedness shall, as between the
Company and its creditors, other than the holders of Senior Indebtedness and
the Holder, be deemed to be a payment by the Company to or on account of this
Note; and for purposes of such subrogation, no payments or distributions to
the holders of Senior Indebtedness to which the Holder would be entitled
except for the provisions of this Section shall, as between the Company and
its creditors, other than the holders of Senior Indebtedness and the Holder,
be deemed to be a payment by the Company to or on account of the Senior
Indebtedness.
(f) No Impairment. Subject to the rights, if any, of the holders of
Senior Indebtedness pursuant to this Section to receive cash, securities or
other properties otherwise payable or deliverable to the Holder of this Note,
nothing contained in this Section shall impair, as between the Company and
Holder, the obligation of the Company, subject to the terms and conditions
hereof, to pay tothe Holder the principal hereof and interest hereon as and
when the same become due and payable, or shall prevent the Holder of this
Note, upon default hereunder, from exercising all rights, powers and remedies
otherwise provided herein or by applicable law.
(g) Reliance of Holders of Senior Indebtedness. Holder, by its
acceptance hereof, shall be deemed to acknowledge and agree that the
foregoing subordination provisions are, and are intended to be, an inducement
to and a consideration of each holder of Senior Indebtedness, whether such
Senior Indebtedness was created or acquired before or after the creation of
the indebtedness evidenced by this Note, and each such holder of Senior
Indebtedness shall be deemed conclusively to have relied on such
subordination provisions in acquiring and holding, or in continuing to hold,
such Senior Indebtedness.
9. Successors and Assigns. Subject to the restrictions on transfer
described in Sections 12 and 13 below, the rights and obligations of the
Company and Holder shall be binding upon and benefit the successors, assigns,
heirs, administrators and transferees of the parties.
10. Waiver and Amendment. Any provision of this Note may be amended,
waived or modified upon the written consent of the Company and Holder.
11. Transfer of this Note or Securities Issuable on Conversion Hereof.
With respect to any offer, sale or other disposition of this Note or
securities into which such Note may be converted, Holder will give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of Holder's counsel, to the effect that such
offer, sale or other distribution may be effected without registration or
qualification (under any federal or state law then in effect). Promptly
upon receiving such written notice and reasonably satisfactory opinion, if
so requested, the Company, as promptly as practicable, shall notify Holder
that Holder may sell or otherwise dispose of this Note or such securities,
all in accordance with the terms of the notice delivered to the Company.
If a determination has been made pursuant to this Section that the opinion
of counsel for Holder is not reasonably satisfactory to the Company,
the Company shall so notify the Holder promptly after such determination
has been made. The Note thus transferred and each certificate representing
the securities thus transferred shall bear a legend as to the applicable
restrictions on transferability in order to ensure compliance with the Act,
unless in the opinion of counsel for the Company such legend is not required
in order to ensure compliance with the Act. The Company may issue stop
transfer instructions to its transfer agent in connection with such
restrictions. Subject to the foregoing, transfers of this Note shall be
registered upon registration books maintained for such purpose by or on
behalf of the Company as provided in the Note Purchase Agreement. Prior
to presentation of this Note for registration of transfer, the Company shall
treat the registered holder hereof as the owner and holder of this Note for
the purpose of receiving all payments of principal and interest hereon and
for all other purposes whatsoever, whether or not this Note shall be overdue,
and the Company shall not be affected by notice to the contrary.
12. Assignment by the Company. Neither this Note nor any of the rights,
interests or obligations hereunder may be assigned, by operation of law or
otherwise, in whole or in part, by the Company without the prior written
consent of Holder except in connection with an assignment in whole to a
successor corporation to the Company, provided that such successor
corporation acquires all or substantially all of the Company's property and
assets and Holder's rights hereunder are not impaired.
13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note
as debt and not equity for accounting purposes and with respect to any
returns filed with federal, state or local tax authorities.
14. Notices. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in
any event be deemed to be given upon receipt or, if earlier, (a) five (5)
days after deposit with the U.S. Postal Service or other applicable postal
service, if delivered by first class mail, postage prepaid, (b) upon
delivery, if delivered by hand, (c) one business day after the business day
of deposit with Federal Express or similar overnight courier, freight prepaid
or (d) one business day after the business day of a facsimile transmission,
if delivered by facsimile transmission with copy by first class mail, postage
prepaid, and shall be addressed (i) if to the Holder, at the Holder's address
as set forth in the Note Purchase Agreement or on the register maintained by
the Company, and (ii) if to the Company, at the address of its principal
corporate offices (Attn: President), or at such other address as a party
may designate by ten (10) days' advance written notice to the other party
pursuant to the provisions above.
15. Governing Law. This Note and all actions arising out of or in
connection with this Note shall be governed by and construed in accordance
with the laws of the State of California, without regard to the conflicts of
law provisions of the State of California or of any other state.
16. Entire Agreement. This Note, together with that certain Warrant
Agreement of even date herewith, contains the entire understanding of the
parties with respect to the matters covered hereby.
IN WITNESS WHEREOF, the Company has caused this Note to be issued as
of the date first written above.
HYPERBARIC SYSTEMS
a California corporation
0000 Xxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
By:_____________________
Title: ____________________
ACKNOWLEDGED AND ACCEPTED:
_____________________ _______________
Xxxx Xxxxxx Social Security #
000 Xxxx Xxxxxx
Xxxxx Xx, XX 00000