EXHIBIT 4.2
IWC SERVICES, INC.
12% SENIOR SUBORDINATED NOTE DUE DECEMBER 31, 2000
DATED: MARCH 19, 1997
IWC Services, Inc., a Texas corporation (hereinafter called the "Company,"
which term includes any successor corporation) for value received, hereby
promises to pay to , or registered assigns (the "Holder"), the
principal sum of Dollars ($ ) ("Principal
Amount"), on, or before, December 31, 2000 (the "Maturity Date"). Interest on
the Principal Amount shall accrue at the rate of 12% per annum and shall be
payable semi-annually on June 30 and December 31 of each year until the Maturity
Date. On the Maturity Date, the Principal Amount and all accrued and unpaid
interest thereon, shall be payable. The Maturity Date may be extended at the
option of the Company as provided herein for up to two periods of six months
each (the "Extended Maturity Period"). Interest on the Principal Amount shall
accrue at the rate of 14% per annum during any Extended Maturity Period. If the
Maturity Date of this Note is extended, the entire Principal Amount plus all
accrued but unpaid interest thereon shall be due and payable in full on the last
day of such Extended Maturity Period ("Extended Maturity Date").
Reference is made to the further provisions of this Note on the following 10
pages attached hereto and sequentially numbered, which are incorporated herein
for all purposes, and shall have the same effect as if set forth at this place.
This Note is one of a series of 12% Senior Subordinated Notes being offered and
sold by the Company.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
under its corporate seal.
Attest: [Seal] IWC Services, Inc.
_________________________________ ___________________________________
Secretary By: Its:
Senior Subordinated Note
Page 1
IWC SERVICES, INC.
12% SENIOR SUBORDINATED NOTE DUE DECEMBER 31, 2000
THESE SECURITIES (THE "SECURITIES") HAVE BEEN (I) ACQUIRED FOR INVESTMENT; (II)
ISSUED AND SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES LAWS OF VARIOUS STATES; AND (III) ISSUED AND SOLD IN RELIANCE UPON
THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
PROVIDED BY SECTION 4(2) OF THE ACT. THE SECURITIES CANNOT BE OFFERED FOR SALE,
SOLD OR TRANSFERRED OTHER THAN PURSUANT TO (A) AN EFFECTIVE REGISTRATION UNDER
THE ACT OR ANY TRANSACTION WHICH IS OTHERWISE IN COMPLIANCE WITH THE ACT; AND
(B) EVIDENCE SATISFACTORY TO THE ISSUER OF COMPLIANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY OTHER JURISDICTION. THE ISSUER SHALL BE ENTITLED TO RELY
UPON AN OPINION OF COUNSEL SATISFACTORY TO IT WITH RESPECT TO COMPLIANCE WITH
THE ABOVE LAWS.
1. INTEREST.
IWC Services, Inc. a Texas corporation (the "Company"),promises to pay
interest on the Principal Amount of this Note at the rate of 12% per annum until
the Principal Amount hereof is paid in full. To the extent it is lawful, the
Company promises to pay interest on any interest payment due but unpaid on such
Principal Amount at a rate of 12% per annum.
Interest on the Principal Xxxxxx shall accrue from the date of issuance
of this Note, and all accrued but unpaid interest on the Principal Amount shall
be payable by the Company on December 31, 2000 (the "Maturity Date"). Interest
on the Principal Amount shall be payable by the Company on June 30 and December
31 of each year until the Maturity Date. If the Maturity Date of this Note is
extended as provided in Section 2 hereof, interest on the Principal Amount shall
accrue from the first day of the Extended Maturity Period, as defined in
Section 2 hereof, at the rate of 14% per annum and shall be paid on the last day
of the Ex-tended Maturity Period (the "Extended Maturity Date"). interest will
be computed on the basis of a 360-day year of twelve 30-day months.
It is the intention of the parties hereto to comply with all applicable
usury laws, if any; accordingly, it is agreed that notwithstanding any provision
to the contrary in this Note, no such provision shall require the payment or
permit the collection of interest in excess of the maximum permitted by law. If
any excess interest in such respect is provided for, or shall be adjudicated to
be so provided for in this Note or in any of the documents securing payment
hereof or otherwise relating hereto, then in such event:
(a) The provisions of this paragraph shall govern and control;
(b) Neither the Company nor its legal representatives, successors or assigns, or
any other party liable for the payment hereof, shall be obligated to pay the
amount of such interest to the extent that it is in excess of the maximum
amount permitted by law:
(c) Any such excess which may have been collected shall be, at the Holder's
option, either applied as a credit against the then unpaid principal amount
hereof or refunded to the Company; and
(d) The effective rate of interest shall be automatically subject to reduction
to the maximum lawful contract rate allowed under the applicable usury laws
as now or hereafter construed by the courts having jurisdiction.
In the event of default in the making of any payment herein provided,
either of principal or interest, or in the event the entirety of this Note is
declared due, interest shall accrue at the rate of eighteen percent (18%) or the
maximum amount allowable under applicable law, whichever is less. In the event
of default hereunder and this Note is placed in the hands of
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an attorney for collection (whether or not suit is filed), or if this Note is
collected by suit or legal proceedings or through the probate court or
bankruptcy proceedings, the Company agrees to pay reasonable attorney's fees
along with all expenses of collection.
2. MATURITY.
The Principal Amount of this Note, together with all accrued but unpaid
interest thereon shall be due and payable in full to the Holder hereof at the
Holder's address as set forth on the books of the Company on the Maturity Date.
The Company may at its option extend the Maturity Date for up to two periods of
six months each (the "Extended Maturity Period") by delivering written notice of
such extension to the Holder hereof at least 30 days prior to the Maturity Date
or the Extended Maturity Date, whichever is applicable. If the Maturity Date of
this Note is extended, the entire Principal Amount plus all accrued but unpaid
interest thereon shall be due and payable in full on the Extended Maturity Date.
3. METHOD OF PAYMENT.
The Company shall pay the Principal Amount of and all accrued but unpaid
interest on this Note to the person who is the registered Holder at the close of
business on the Maturity Date or the Extended Maturity Date, whichever is
applicable. The Holder must surrender this Note to the Company to collect the
Principal Amount and interest thereon. Except as provided below, the Company
shall pay the Principal Amount of and interest on the Note in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for payment of public and private debts ('U.S. Legal Tender").
However, the Company may pay the Principal Amount of and interest on the Note by
wire transfer of federal funds or by its check payable in such U.S. Legal
Tender. The Company shall deliver any Principal Amount and interest payment to
the person in whose name this Note (or one or more predecessor Notes) is
registered on the Maturity Date or an Extended Maturity Date, whichever is
applicable.
4. UNSECURED OBLIGATION.
This Note and the other Notes which are part of this series are unsecured
general obligations of the Company.
5. SUBORDINATION.
Upon liquidation or reorganization of the Company, the Notes will be senior
in right of payment to payments with respect to Common Stock of the Company and
payments with respect to any preferred stock or other class of capital stock
that the Company may authorize and issue.
The Notes will be subordinated and junior in right of payment to all Senior
Indebtedness of the Company. Senior indebtedness is defined to include all bank
indebtedness of the Company, whether outstanding currently or hereafter created,
unless by the terms of the instrument creating or evidencing such indebtedness,
it is provided that such indebtedness is not senior in right of payment to the
Notes. In the event of any dissolution, winding-up, liquidation or
reorganization of the Company, whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise, the
holders of Senior indebtedness then outstanding will be entitled to receive
payment in full of all such Senior Indebtedness before the holders of the Notes
are entitled to receive any payment on account of the Principal Amount or
interest on the Notes. Such subordination will not prevent the occurrence of an
Event of Default.
As of December 31, 1996, the Company had no Senior indebtedness
outstanding.
6. PERSONS DEEMED OWNERS.
The Company and any agent of the Company may treat the registered Holder of
this Note as the owner of the Note for all purposes. Ownership of the Note is
conditioned upon the owner or prospective owner thereof having
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provided to the Company definitive written information concerning such
ownership.
7. AMENDMENT: SUPPLEMENT: WAIVER.
Subject to certain exceptions, the Notes may be amended or supplemented
with the written consent of the Holders of at least a majority in aggregate
principal amount of the Notes then outstanding, and any existing Event of
Default or compliance with any provision may be waived with the consent of the
Holders of a majority in aggregate principal amount of the Notes then
outstanding. Without the consent of any Holder, the Company may amend or
supplement the Notes to, among other things, cure any ambiguity, defect or
inconsistency (provided such amendment or supplement does not adversely affect
the rights of any Holder of a Note), and notice of such amendment or supplement
shall be given to each Holder.
8. COVENANTS.
So long as any Principal Amount of this Note is outstanding, the Company
shall perform where required, or refrain from performing where prohibited, each
of the actions listed below:
CORPORATE EXISTENCE. The Company shall do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and the corporate or other existence of each of its subsidiaries in accordance
with the respective organizational documents of each of them; provided ' ed,
however, that the Company shall not be required to preserve any such existence
if (a) the Board of Directors of the Company shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and (b) the loss thereof is not disadvantageous in any material
respect to the Holders of the Notes. The Company will not engage in any
business if, as a result thereof, the general nature of the business that would
then be engaged in by the Company would be substantially changed from the
general nature of the business currently engaged m by the Company.
COMPLIANCE WITH LAWS. The Company shall comply in all material respects
with all applicable laws, statutes and governmental regulations and with all
applicable orders, rules, rulings, certificates, licenses, regulations and
decrees (collectively "Laws") and shall pay all taxes, assessments, governmental
charges, claims for labor, supplies, rent and any other obligations which, if
unpaid, might become a lien, charge or encumbrance against any of its
properties, except Laws contested in good faith and liabilities being contested
in good faith and against which adequate reserves have been established.
MAINTENANCE OF PROPERTY AND INSURANCE. The Company shall maintain or shall
insure in commercially reasonable amounts in favor of the Company its tangible
properties and assets in good repair, working order and condition, ordinary wear
and tear excepted, so far as is necessary or advantageous to the proper carrying
on of its business and operations and shall make or shall cause to be made all
needed repairs, replacements and renewals as are necessary to conduct its
business in accordance with customary business practices.
PROHIBITION OF FUNDAMENTAL CHANGES. The Company shall not liquidate, wind
up or dissolve itself (or suffer any liquidation or dissolution), consolidate
with, or merge with or into, or convey, sell, lease or transfer or otherwise
dispose of, in one transaction or a series of related transactions, all or
substantially all of its business, property or tangible or intangible assets,
whether now owned or hereafter acquired, to another corporation unless (a) the
successor corporation is a corporation organized and existing under the laws of
the United States or any state thereof or the District of Columbia, (b) the
successor corporation (if other than the Company) assumes all of the obligations
of the Company under the Notes, and (c) immediately after giving effect to such
transaction (I) no Event of Default shall have occurred and be continuing and
(ii) the net worth of the successor corporation is not less than that of the
Company immediately prior to such merger consolidation or transfer.
LIMITATION ON DIVIDENDS AND RESTRICTED PAYMENTS. The Company shall not
declare or pay any dividends on or make any payment on account of or set apart
assets for a sinking or other analogous fund for the purchase redemption
retirement or other acquisition of shares of any class of capital stock of the
Company whether now or hereafter outstanding or make any other distribution in
respect thereof either directly or indirectly whether in cash or property or in
obligations of the Company or any of its subsidiaries.
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LIMITATION ON COMPENSATION. The Company shall not increase the compensation
payable to any employee unless such compensation is reasonable and consistent
with the Company s past practices and existing policies or is pursuant to an
existing agreement with such employee.
NOTICE REGARDING ABSENCE OF DEFAULTS. When requested the Company shall
furnish to the Holder hereof a written statement that there does not exist any
default hereunder. Promptly (but in any event within five business days) after
the discovery or receipt of notice of any default under this Note any default
under any material agreement to which the Company is a party or any other
material adverse event or circumstance affecting the Company (including the
filing of any material litigation against the Company or the existence of any
dispute with any person or entity which involves a reasonable likelihood of such
litigation being commenced) the Company shall furnish to the Holder hereof an
officer's certificate specifying the nature and period of existence thereof and
what actions the Company has taken and proposes to take with respect thereto.
FINANCIAL INFORMATION. The Company shall provide the Holder of this Note
with (a) unaudited quarterly financial statements of the Company and its
subsidiaries within forty-five (45) days after the end of each fiscal quarter;
(b) fiscal year financial statements of the Company audited by a national
accounting firm within ninety (90) days after the end of each fiscal year; and
(c) such other financial information of the Company and its subsidiaries as the
Holder reasonably requests provided such financial information is prepared by
the Company in the ordinary course.
LIMITATION ON AFFILIATE TRANSACTIONS. Neither the Company nor any of its
subsidiaries shall enter into an Affiliate Transaction (as defined below) unless
the Board of Directors m good faith determines that me terms of such Affiliate
Transaction are fair to the Company or such subsidiary. For purposes of this
paragraph the term "Affiliate Transaction" means a transaction between the
Company or its subsidiary and one of its officers or directors or any
shareholder of the Company who holds five percent or more of the issued and
outstanding shares of the Company s Common Stock.
9. SUCCESSORS.
When a successor assumes all the obligations of its predecessor under the
Notes, the predecessor will be released from those obligations.
10. DEFAULTS AND REMEDIES.
"Event of Default." wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) the failure by the Company to pay interest upon the Note as and when the
same becomes due and payable, and the continuance of such failure for 30
days;
(b) the failure by the Company to pay all or any part of the Principal Amount of
the Note when and as the same becomes due and payable on the Maturity Date,
on the Extended Maturity Date, if applicable, upon acceleration, or
otherwise;
(c) a material breach by the Company of any covenant or agreement of the Company
contained in this Note if such failure continues for a period of 30 days
after the earlier to occur of (i) written notice of such failure has been
delivered to the Company, or (ii) the day on which the Company first obtains
knowledge of such default;
(d) a material breach by the Company of any representation or warranty made by
the Company in this Note if such breach continues for a period of 30 days
after written notice of such breach has been delivered to the Company;
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(e) a default or defaults under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company, or under any mortgage,
indenture or instrument under which there may be issued or by which there
may be secured or evidenced any indebtedness for money borrowed, whether
such indebtedness now exists or shall hereafter be created, which shall have
resulted m indebtedness in the outstanding principal amount of at least
$100,000 becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such
indebtedness having been discharged, or such acceleration having been
rescinded or annulled.
(f) the entry by a court or courts of competent jurisdiction of a final judgment
or final judgments for the payment of money against the Company which remain
undischarged for a period (during which execution shall not be effectively
stayed, the posting of any required bond not being deemed an execution for
purposes hereof) of 30 days after all rights to appeal have been exhausted,
provided that the aggregate amount of all such judgments exceeds $100,000;
(g) the entry by a court having jurisdiction in the premises of (I) a decree or
order for relief in respect of the Company in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law, or (ii) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly fled a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under any applicable federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any substantial
part of their respective property, or ordering the winding up or liquidation
of affairs, and the continuance of any such decree or order for relief or
any such other decree or order current and in effect for a period of 90
consecutive days; or
(h) the commencement by the Company of a voluntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt
or insolvent, or the consent to the entry of a decree or order for relief in
respect of the Company m an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the fling of a petition or answer or consent
seeking reorganization or relief under any applicable federal or state law,
or the consent to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee trustee,
sequestrator or other similar official of the Company or of any substantial
part of its property, or the making of an assignment for the benefit of
creditors, or the admission in writing of inability to pay debts generally
as they become due, or the taking of corporate action by the Company m
furtherance of any such action.
A Default under clause (g) above is not an Event of Default until the
Holders of at least 25% in aggregate principal amount of the Notes then
outstanding notify the Company of the Event of Default, and the Company does not
cure the Event of Default within 60 days after receipt of the notice. The notice
must specify the Event of Default, demand that it be remedied and state that the
notice is a "Notice of Default."
If an Event of Default shall occur and be continuing, the holders of a
minimum of 25 % in aggregate principal amount of the Notes then outstanding may
declare the Principal Amount of and all accrued but unpaid interest on all Notes
to be immediately due and payable in full.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding (exclusive of Notes held by the Company and its Affiliates) shall
have the right to determine the time, method and place of conducting any
proceeding for any remedy available to the Holders of the Notes, but the Holder
of any Note has the right to receive payment of the principal amount of and
interest on such Note on the Maturity Date or Extended Maturity Date, whichever
is applicable, and to institute suit for the enforcement of any such payment.
The holders of a majority in aggregate principal amount of the Notes then
outstanding (exclusive of Notes held by the Company and its Affiliates) may
waive any default and its consequences under the Notes, except a default in the
payment of the principal amount of, or interest on any Note; provided, however,
that Holders of at least 75 % of the aggregate principal amount of the Notes
then outstanding (exclusive of Notes held by the Company and its Affiliates) may
consent to the extension of any payment for up to two periods of six months each
after any Extended Maturity Period.
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If the Company does not close an initial public offering of its Common
Stock, or a business combination transaction involving the Company and a
publicly-held corporation whose shares are traded in the over-the-counter market
or on an established securities exchange, for any reason whatsoever prior to the
Maturity Date or the Extended Maturity Date, whichever is applicable, and the
Principal Amount of and accrued but unpaid interest on the Notes are not paid in
full on or before the Maturity Date or the Extended Maturity Date, whichever is
applicable, then a representative of the Holders of all outstanding Notes will
have the right to appoint one member to the Company's Board of Directors and to
maintain that directorship until the earlier of (i) the closing of an initial
public offering of Common Stock by the Company, (ii) a business combination
transaction involving the Company and a publicly-held corporation whose shares
are traded in the over-the-counter market or on an established securities
exchange, or (iii) payment of the entire Principal Amount of and accrued but
unpaid interest on the Notes.
11. NO RECOURSE AGAINST OTHERS.
No stockholder, director, officer, employee or incorporator, as such, past,
present or future, of the Company or any successor corporation shall have any
personal liability for any obligation of the Company under the Notes or for any
claim based on, m respect of or by reason of, such obligations or their
creation. Each Holder of a Note by accepting a Note waives and releases all such
personal liability. The waiver and release are part of the consideration for the
issuance of the Notes.
12. REPRESENTATIONS AND WARRANTIES OF COMPANY.
The Company hereby represents and warrants to the Holder of this Note that
the following statements are correct and complete as of the date hereof except
as set forth therein:
ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and has the corporate power and authority necessary to carry on its
business as it is now being conducted and is duly licensed as a foreign
corporation to do business in each jurisdiction in which the nature of its
business or its activities or the character or ownership of its properties makes
such licensing or qualification necessary. The Company is not in default under
or in violation of any provision of its charter or bylaws.
CAPITALIZATION. The capital stock that the Company is authorized to issue
consists of 30,000,000 shares, consisting of 25,000,000 shares of common stock,
$.0l par value per share (the "Common Stock") and 5,000,000 shares of such
preferred stock, $.Ol par value per share ("Preferred Stock") as the Board of
Directors may from time to time authorize and issue. As of December 12, 1996, a
total of 5,000,000 shares of Common Stock were issued and outstanding and no
shares of Preferred Stock were issued and outstanding. All of the issued and
outstanding shares of Common Stock have been duly authorized, are validly
issued, fully paid, and nonassessable. As of December 12, 1996, the Company had
granted its employees options to acquire an aggregate of 500,000 shares of
Common Stock.
AUTHORITY; NO BREACH. The Company has the requisite power and authority to
execute, deliver and perform this Note. The execution and delivery of this Note
does not violate any provisions of the constituent documents of the Company, nor
any provisions of, or result in the acceleration of, any obligation under any
indenture, mortgage, lien, lease, agreement, license, permit, rule, regulation,
statute or any other agreement or instrument, to which the Company is a party,
or by which it is bound. This Note has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms and conditions, subject
to bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application at the time in effect relating to or affecting the rights of
creditors generally.
FINANCIAL STATEMENTS. The financial statements of the Company are true and
correct in all material respects, fairly present the financial position of the
Company at the dates indicated therein and the results of operations for the
Company for the periods indicated therein, and were prepared in accordance with
generally accepted accounting principles consistently applied.
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TITLE TO ASSETS. The Company holds good title to all of its property, free
and clear of any liens, claims, charges, exceptions or encumbrances, except for
liabilities disclosed in the Company's financial statements or incurred in the
ordinary course of business. All inventories, supplies, equipment, furniture
and other assets currently used by or useful to the Company in the ordinary
course of business by the Company are in good operating condition, reasonable
wear and tear excepted, and perform the function for which they were intended.
LITIGATION OR CLAIMS. The Company is not a party to any litigation,
proceeding, governmental investigation or other proceeding pending or, to the
best of the Company's knowledge or its officers, threatened against or relating
to the Company or its properties or business, or the issuance of the Notes, and,
so far as is known to the Company or its officers, no basis for any such action
exists. Litigation or a proceeding or other matter will be deemed to have been
"threatened" if any demand or statement has been made orally or in writing to
the Company or any officer with respect thereto.
EMPLOYEES, LABOR CONTRACTS AND EMPLOYEE BENEFIT PLANS. To the best of the
Company's knowledge, no executive, key employee or group of employees has any
plans to terminate employment with the Company. The Company is not a party to
or bound by any collective bargaining agreement, nor has it experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Company has not committed any unfair labor practice.
The Company has no knowledge of any organizational effort presently being made
or threatened by or on behalf of any labor union with respect to employees of
the Company. AU of the Company's employees have entered into written Employment
Agreements that require such employees to devote substantially all of their
business time to the affairs of the Company, establish standards of conduct,
prohibit competition with the Company during their term, expressly affirm the
Company's rights respecting the ownership and disclosure of confidential
information, provide for acts and events that would give rise to termination of
such agreements and provide express remedies for a breach of the agreement by
the covered employee or the Company. The Company has not received any claims in
the nature of worker's compensation claims or employment discrimination in the
last two years. The Company is not a party to any written or oral contract with
any labor union.
SUBSEQUENT EVENTS TO MOST RECENT FINANCIAL STATEMENT. Except as disclosed
in the Company's Private Placement Memorandum dated December 12, 1996, since
September 30, 1996, the Company has not (a) incurred any material obligation or
liability (absolute, accrued, contingent or otherwise) related to its business;
(b) experienced any material adverse change in its business; (c) sold or
transferred any of its property used in connection with its business, or
canceled any debts or claims or waived any rights related to its business,
except in the ordinary course of business; (d) increased the compensation of any
officer employee, consultant or agent; (e) authorized any capital expenditures
in excess of $10,000 in the aggregate; (f) entered into any agreements regarding
the foregoing or any others material transaction in connection with the
business; or (g) experienced damage, destruction or loss (whether or not covered
by insurance) materially and adversely affecting any of the properties, assets
or business used in connection with the business, or experienced any other
material adverse change in the assets or business of the Company.
TAXES.
(a) The Company has fled all of the tax returns that it is required to file.
All such tax returns were correct and complete in all respects and all taxes
owed by the Company (whether or not shown on any tax return) have been paid.
The Company is currently under no extension of time within which to file any
tax return. No claim has ever been made by an authority in a jurisdiction
where the Company does not file tax returns that it is or may be subject to
taxation by that jurisdiction. There are no security interests or liens on
any of the assets that arose in connection with any failure (or alleged
failure) to pay any tax.
(b) The Company has withheld and paid all taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder, or other third party.
(c) Neither the Company nor any director or officer (or employee responsible for
tax matters) has any reason to believe that any authority proposes to assess
any additional taxes for any period for which tax returns have been fled.
There is w dispute or claim concerning any tax liability of the Company
either (a) claimed or raised by any authority in writing, or (b) proposed to
which the Company and the directors and officers (or employee
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responsible for tax matters) of the Company has knowledge based upon
personal contact with any agent of such authority. No tax returns fled by
the Company are currently the subject of an audit nor, to the best of the
Company's knowledge, are being proposed for an audit.
(d) The Company has not waived any statute of limitations in respect of taxes or
agreed to any extension of time with respect to any tax assessment or
deficiency. The Company has not made any payments, is not obligated to make
any payments, nor is a party to any agreement that under certain
circumstances could obligate it to make any payments that would not be
deductible under Section 280(G) of the Code. The Company is not and has
never been a United States real property holding corporation within the
meaning of Section 897(C)(2) of the Code. T he Company is not a party to
any tax allocation or tax sharing agreement, and the Company has no
liability for the taxes of any other person as a transferee or successor, by
contract or otherwise.
INSURANCE. The Company is now and in the past has been covered by insurance
in scope and amount customary and reasonable for its business. With respect to
each such insurance policy, (a) the policy is legal, valid, binding,
enforceable, and in full force and effect; (b) the policy will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms throughout the term of the Notes; (c) neither the Company nor any other
party to the policy is in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the lapse of time, would constitute such a breach or default, or
permit termination, modification, or acceleration, under the policy; and (d) no
party to the policy has repudiated any provision thereof.
COMPLIANCE WITH LAWS. The Company has complied with the applicable
provisions of all laws and no notice of any pending inspection or violation of
any law has been received by the Company.
COBRA. The Company is in compliance with the continuation of coverage
requirements of COBRA.
LICENSES AND APPROVALS. The Company has obtained all licenses, permits and
approvals necessary to operate its business, each of which is currently in full
force and effect, and the issuance of this Note and the Notes will not conflict
with or result in termination of such licenses and approvals.
CONSENTS. The Company has obtained all consents and approvals from third
parties necessary for the issuance of the Notes and no additional consents or
approvals are required.
INTELLECTUAL PROPERLY. The Company owns or possesses adequate licenses or
other rights to use all patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade names, copyrights,
manufacturing processes, formulae, trade secrets, customer lists and know how
(collectively, "Intellectual Property") necessary or desirable to the conduct of
its business as conducted and as proposed to be conducted, no claim is pending
or, to the best of the Company's knowledge, threatened to the effect that the
operations of the Company infringe upon or conflict with the asserted rights of
any other person under any Intellectual Property, and there is no basis for any
such claim (whether or not pending or threatened). No claim is pending or
threatened to the effect that any such Intellectual Property owned or licensed
by the Company, or which the Company otherwise has the right to use, is invalid
or unenforceable by the Company, and there is no basis for any such claim
(whether or not pending or threatened).
13. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of a Note or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN ( = joint tenants with right of survivorship and not as
tenants m common), CUST ( = Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act). Additional abbreviations may also be used though not in the above list.
Senior Subordinated Note
Page 9
14. ISSUANCE OF COMMON STOCK WARRANTS.
As additional consideration for the purchase of the Notes, the Company is
granting to each of the Holders of the Notes detachable Common Stock Warrants to
purchase that number of shares of the Company's Common Stock determined by
dividing the aggregate Principal Amount of Notes purchased by such Holder by the
exercise price for the shares of Common Stock subject to purchase under the
Warrants, which shall be either (I) one-half of the per share offering price for
Common Stock sold by the Company in an underwritten initial public offering, or
(ii) one-half of the average closing bid price of the Common Stock of the
Company during the 90-day period commencing 60 days after the closing of a
business combination transaction involving the Company and a publicly-held
corporation whose shares are traded in the over-the-counter market or on an
established securities exchange. In the event that the Maturity Date of the
Notes is extended by the Company as provided in Section 2 hereof, each of the
Holders will be granted additional Warrants to purchase that number of shares of
Common Stock equal to 50% of the number of shares of Common Stock purchasable
under the Warrants.
Senior Subordinated Note
Page 10
