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EXHIBIT 10.07
THIS NOTE IS SUBJECT TO THE PROVISIONS OF A SUBORDINATION AGREEMENT
DATED AS OF OCTOBER 30, 1996 BY AND BETWEEN THE HOLDER AND COMERICA
BANK-CALIFORNIA.
The securities represented by this Promissory Note has not been registered under
the Securities Act of 1933, as amended (the "Act"). These securities have been
acquired for investment and not with a view to distribution, and may not be
sold, transferred or hypothecated in the absence of an effective registration
statement for such securities under the Act, as amended, or an opinion of
counsel delivered to Buyer that registration is not required under the Act. IT
IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
JUNIOR SUBORDINATED PROMISSORY NOTE
$2,894,649 Irvine, California
June 1, 1997
FOR VALUE RECEIVED, O.S.I. Corporation, a California corporation (the
"Company"), hereby unconditionally promises to pay to the order of Xxxx X. Xxxxx
(the "Holder") the principal sum of $2,894,649.
The Company further promises to pay interest, at the times and in the
manner herein provided, on the principal balance outstanding from time to time
at a rate per annum equal from time to time to the Prime Rate plus 3.00%. The
"Prime Rate" shall be the variable rate of interest most recently published in
The Wall Street Journal as the "prime rate." The rate of interest hereon shall
be adjusted on each day on which the Prime Rate changes.
This Junior Subordinated Promissory Note is issued in exchange for, and
in cancellation of, the Junior Subordinated Promissory Note dated November 1,
1996 of the Company previously issued to Holder, a copy of which is attached
hereto as Exhibit A (the "Old Note"). By his acceptance of this Junior
Subordinated Promissory Note, Holder acknowledges that the Old Note is hereby
deemed canceled and that he will deliver any original of the Old Note that he
may possess to the Company for notation of such cancellation.
The unpaid principal amount and all accrued and unpaid interest on this
Junior Subordinated Promissory Note (the "Note") shall be due and payable on the
earlier of (a) November 1, 1997 and (b) the consummation by the Company of a
public offering of its Common Stock in which the Company shall receive net
proceeds of at least $37,000,000.
Notwithstanding the foregoing, the Company shall, at the option of Xx.
Xxxx X. Xxxxx (which option shall be exercised in writing), so long as Xx. Xxxxx
is the Holder of this Note, credit to the principal amount hereof at any time
outstanding an amount equal to the option exercise price of stock options held
and exercised by Xx. Xxxxx in payment of such option exercise price, and the
principal amount hereof thereby shall be reduced by such amount.
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Interest accrued on the principal amount hereof outstanding from time
to time and then unpaid shall be paid in cash quarterly in arrears on February
1, May 1, August 1 and November 1 in each year (each, an "Interest Payment
Date"), commencing August 1, 1997, or, if any such date is not a business day,
on the next succeeding business day; provided, however, that interest shall not
be paid in cash on any Interest Payment Date (i) at a rate in excess of 12.50%
per annum, and (ii) if any Event of Default (as defined in such agreement) under
the Credit Agreement (as defined below) has occurred and is continuing (or would
have existed on the last day of the fiscal quarter last ended prior to such
Interest Payment Date, giving pro forma effect to such payment of interest as
though it had been made on such day). Interest accrued but not paid in cash on
any Interest Payment Date shall not itself bear interest (unless the Holder
exercised its option to include such interest in the principal amount hereof, as
provided below) and shall be paid in cash on the next subsequent Interest
Payment Date on which the conditions specified in clauses (i) and (ii) of the
preceding sentence are satisfied; provided that, at the option of the Holder
exercised at any time by written notice to the Company and Comerica
Bank-California, such deferred interest shall be included in the unpaid
principal amount hereof, shall bear interest in accordance with the terms
applicable to the principal hereof and shall be paid at the time and in the
manner that the principal amount hereof is required to be paid.
This Note is subject to the following terms and conditions:
1. Payments. Principal and interest shall be payable to the Holder at
the offices of the Company in lawful money of the United States of America in
immediately available funds. The Company shall record in its internal records
the amount of principal and interest due and payable from time to time
hereunder, including the amount of interest accrued and not paid in cash and
included in the principal amount hereof pursuant to the terms hereof, each
payment thereof and the resulting unpaid balance.
2. No Prepayment. This Note shall not be prepaid, in whole or in part,
prior to the stated maturity date hereof.
3. Subordination.
(a) Notes Subordinated to Senior Debt. The indebtedness
represented by this Note is hereby expressly made subordinate and subject in
right of payment to the prior payment in full of all Senior Debt; but the Note,
the indebtedness represented hereby and the payment of the principal of,
premium, if any, on and interest on the Notes in all respects shall rank equally
with, or prior to, all existing and future unsecured Indebtedness of the Company
that is not Senior Debt.
(b) Payment Over of Proceeds Upon Dissolution, etc. In the
event of (i) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Company or to its creditors, as such, or
to its assets, or (ii) any liquidation, dissolution or other winding up of the
Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors
or any other marshaling of assets and liabilities of the Company, then and in
any such event the holders of Senior Debt shall be
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entitled to receive payment in full in cash of all amounts due or to become due
on or in respect of all Senior Debt, including, without limitation, interest
accrued after, or that would have accrued but for, the commencement of any
bankruptcy case or proceeding with respect to the Company, before the Holder is
entitled to receive any payment on account of principal of, premium, if any, or
interest on this Note, and to that end the holders of Senior Debt shall be
entitled to receive, for application to the payment thereof, any payment or
distribution of any kind or character, whether in cash, property or securities,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other indebtedness of the Company being
subordinated to the payment of this Note, which may be payable or deliverable in
respect of this Note in any such case, proceeding, dissolution, liquidation or
other winding up or event. As used herein, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment which are subordinated
in right of payment to all Senior Debt which may at the time be outstanding to
substantially the same extent as, or to a great extent than, this Note.
In the event that, notwithstanding the foregoing provisions of
this Section 3(b), the Holder shall have received in any such case or proceeding
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, including any such payment or
distribution which may be payable or deliverable by reason of the payment of any
other indebtedness of the Company being subordinated to the payment of this
Note, before all Senior Debt is paid in full in cash, then and in such event
such payment or distribution shall be paid over or delivered forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent
or other person making payment or distribution of assets of the Company for
application to the payment of all Senior Debt remaining unpaid, to the extent
necessary to pay all Senior Debt in full in cash, after giving effect to any
concurrent payment or distribution to the holders of Senior Debt.
(c) No Payment Under Certain Circumstances. In the event that
the Holder receives notice from the Company or from any holder of Senior Debt
that there has occurred and is continuing (i) any default in the payment of
principal of (or premium, if any) or interest on any Senior Debt or (ii) any
other default with respect to any Senior Debt, then no payment shall be made by
the Company, or received by the Holder, on account of principal of or interest
on this Note unless and until such event described in clause (i) or (ii) above
shall have been cured or waived or shall have ceased to exist. If the Holder of
this Note receives any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, including any such
payment or distribution which may be payable or deliverable by reason of the
payment of any other indebtedness of the Company being subordinated to the
payment of this Note, before all Senior Debt is paid in full in cash, other than
payments and distributions permitted under this Section 3, then and in such
event such payment or distribution shall be paid over or delivered forthwith to
the holders of Senior Debt, pro rata, for application to the payment of all
Senior Debt remaining unpaid, to the extent necessary to pay all Senior Debt in
full in cash.
(d) Subrogation to Rights of Holders of Senior Debt. Subject
to the payment in full in cash of all Senior Debt, the Holder shall be
subrogated (equally and ratably with the
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holders of all Indebtedness of the Company which by its express terms in
subordinated to the Senior Debt of the Company to the same extent this Note is
subordinated and is entitled to like rights of subrogation) to the rights of the
holders of such Senior Debt to receive payments and distributions of cash,
property and securities applicable to the Senior Debt until the principal of and
interest on this Note shall be paid in full. For purposes of such subrogation,
no payments or distributions to the holders of the Senior Debt of any cash,
property or securities to which the Holder would be entitled except for the
provisions of this Section 3, and no payments over pursuant to the provisions of
this Section 3 to the holders of Senior Debt by the Holder, shall, as among the
Company, its creditors other than holders of Senior Debt and the Holder, be
deemed to be a payment or distribution by the Company to or on account of the
Senior Debt.
(e) Provisions Solely to Define Relative Rights. The
provisions of this Section 3 are for, and are intended solely for, the purpose
of defining the relative rights of the Holder, on the one hand, and the holders
of Senior Debt, on the other hand. Nothing contained in this Section 3 is
intended to or shall (a) impair, as among the Company and its creditors other
than holders of Senior Debt and the Holder, the obligation of the Company, which
is absolute and unconditional, to pay to the Holder the principal of and
interest on this Note as and when the same shall become due and payable, all in
accordance with the terms hereof; or (b) affect the relative rights against the
Company of the Holder and creditors of the Company other than the holders of
Senior Debt; or (c) prevent the Holder from exercising all remedies otherwise
permitted by applicable law upon default under this Agreement, subject to the
rights, if any, under this Section 3 of the holders of Senior Debt (i) in any
case, proceeding, dissolution, liquidation or other winding up, assignment for
the benefit of creditors or other marshaling of assets and liabilities of the
Company referred to in Section 3(b), to receive, pursuant to and in accordance
with such Section, cash, property and securities otherwise payable or
deliverable to the Holder, or (ii) under the conditions specified in Section
3(c), to prevent any payment prohibiting by such Section.
(f) No Waiver of Subordination Provisions. No right of any
present or future holder of any Senior Debt to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants hereof, regardless of any knowledge thereof any
such holder may have or be otherwise charged with. The provisions of this
Section 3 are intended to be for the benefit of, and shall be enforceable
directly by, the holder or holders of any Senior Debt. Without in any way
limiting the generality of the foregoing paragraph, the holders of Senior Debt
may at any time and from time to time, without the consent of or notice to the
Holder, without incurring responsibility to the Holder and without impairing or
releasing the subordination provided in this Section 3 or the obligations
hereunder of the Holder to the holders of Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, Senior Debt, or otherwise amend or supplement
in any manner Senior Debt or any instrument evidencing the same or any agreement
under which Senior Debt is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Debt; (iii) release any person liable in any manner for the collection of Senior
Debt; and (iv) exercise or refrain from exercising any rights against the
Company and any other Person.
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(g) Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets of the Company referred to in
this Section 3, the Holder shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other person making such payment or distribution,
delivered to the Holder, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other fact pertinent
thereto or to this Section 3.
For purposes of this Note, "Senior Debt" means any and all obligations
of the Company under and pursuant to the Credit Agreement dated as of October
30, 1996 between the Company and Comerica Bank - California, as the same may be
amended or restated from time to time (the "Credit Agreement").
h. Other Agreements. Notwithstanding anything to the contrary
herein, the provisions of this Note shall not be construed to limit the rights
of any holder of Senior Debt as provided for under any agreement between such
holder and the Holder.
4. Governing Law. This Promissory Note shall be governed by and
construed in accordance with the laws of the State of New York.
Executed at Palo Alto, California, as of the 1st day of June, 1997.
O.S.I. CORPORATION
By: ____________________
Title:
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