EXHIBIT 10.6
NOTE PURCHASE AGREEMENT
This Agreement, dated as of May 24, 1996, is entered into by and between
QUIETPOWER SYSTEMS, INC., a Delaware corporation ("QPS"), and___________________
_______________________ , a___________________ ("Purchaser").
FACTUAL BACKGROUND
Purchaser wishes to purchase from QPS, and QPS wishes to sell to
Purchaser, a promissory note (a "Bridge Loan Note") and warrants to purchase
shares of QPS's Common Stock. Purchaser and QPS desire to provide for the
foregoing purchase and sale and to establish various rights and obligations in
connection therewith. DayStar Partners, L.P. ("DayStar") has purchased a similar
Bridge Loan Note, and others are expected to do so. A complete list of all the
Purchasers (which term includes Purchaser and Daystar) will be attached hereto
as Schedule 1.
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. SALE OF PROMISSORY NOTE AND WARRANT.
Subject to the terms and conditions of this Agreement, at the
Closing (as defined below), QPS will sell and issue to Purchaser, and Purchaser
will purchase, a secured promissory note in the original principal amount of
$___________ substantially in the form of Exhibit A hereto (the "Note") and QPS
will issue to Purchaser a Common Stock Purchase Warrant (the "Warrant")
substantially in the form of Exhibit B hereto. The shares of Common Stock
issuable upon exercise of the Warrant are referred to as the "Warrant Shares."
The Warrant Shares shall be subject to a Registration Rights Agreement (the
"Registration Rights Agreement"), substantially in the form of Exhibit D hereto.
The Note shall be secured by all assets of QPS pursuant to a Security Agreement,
substantially in the form of Exhibit C hereto.
2. THE CLOSING. The closing ("Closing") of this transaction shall take
place at the offices of Coblentz, Cahen, XxXxxx & Breyer, LLP, 000 Xxxxxx
Xxxxxx, 0xx Xxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000 at such time and date as are
mutually agreeable to QPS and Purchaser. Neither the parties hereto nor their
counsel need attend the Closing in person. At the Closing, QPS shall execute and
deliver to Purchaser the Note and the Warrant, in each case registered in the
name of Purchaser, and all collateral documents relating thereto (including
without limitation, the Security Agreement, the UCC-1 Financing Statement, the
Registration Rights Agreement, and any ancillary documents thereto
(collectively, the "Collateral Documents"), against payment to QPS by wire
transfer or cashier's check of the $___________ purchase price therefor.
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3. REPRESENTATIONS OF QPS. QPS hereby represents and warrants to Purchaser
as follows:
3.1 ORGANIZATION AND STANDING. QPS is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to conduct its business as presently
conducted and as proposed to be conducted by it and to enter into and perform
this Agreement and to carry out the transactions contemplated by this Agreement.
QPS is duly qualified to do business as a foreign corporation and is in good
standing in all states and jurisdictions in which the nature of the business
conducted or property owned by QPS make such qualification necessary. QPS has
offered to furnish to Purchaser copies of QPS's Certificate of Incorporation and
Bylaws.
3.2 DUE AUTHORIZATION. QPS has all right, power and authority to
enter into this Agreement and the Note, the Warrant, and the Collateral
Documents, and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement, the Note, the Warrant and each of
the Collateral Documents, the issuance and sale of the Note and the Warrant
Shares by QPS, and the consummation by QPS of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on behalf of QPS. This Agreement, the Note, the Warrant and each of the
Collateral Documents have been (or, when executed and delivered, will have been)
duly executed and delivered by QPS and constitute (or, in the case of the
Warrant Shares, when executed and delivered, will constitute) valid and binding
agreements of QPS, enforceable in accordance with their respective terms.
3.3 CAPITALIZATION. The authorized capital stock of QPS consists of
10,000,000 shares of Common Stock, of which 684,856 shares are outstanding, and
10,000 shares of Preferred Stock $0.01 par value per share, of which no shares
are issued or outstanding. All of the issued and outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable. Except as disclosed on Schedule 3.3 attached hereto, QPS does not
have outstanding securities convertible into or exchangeable for any shares of
QPS's capital stock.
3.4 ISSUANCE OF SHARES. The issuance, sale and delivery of the Note,
Warrant and Warrant Shares in accordance with this Agreement have been duly
authorized by all necessary corporate action on the part of QPS, and all the
Warrant Shares have been duly reserved for issuance. The Warrant Shares, when
issued and delivered against payment therefor in accordance with the provisions
of the Warrant will be duly and validly issued, fully paid and non-assessable.
The Warrant Shares are not subject to any preemptive rights or any right of
first refusal right nor will the issuance of the Warrant Shares give rise to any
such rights.
3.5 SUBSIDIARIES. QPS has no subsidiaries and does not own, directly
or indirectly, shares of stock or other interests in any other corporation,
association, joint venture, or business organization.
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3.6 MATERIAL CONTRACTS AND OBLIGATIONS. Schedule 3.6 hereto sets
forth a list of all agreements or commitments to which QPS is a party or by
which it is bound, involving (a) the provision of goods or services to QPS where
there is no reasonably available second source, or (b) more than 25% of QPS's
current or anticipated revenues. QPS has delivered to Purchaser or its counsel
copies of the foregoing and of all other agreements QPS deems material to its
business, including those involving the licensing of patents or technology. All
of such material agreements are valid, binding, enforceable and in full force
and effect. No party is in default in any material respect under any of such
agreements.
3.7 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. QPS is
not in violation of any term of its Certificate of Incorporation or Bylaws, or
in any material respect of any mortgage, indenture, contract, agreement,
instrument, or, to QPS's best knowledge, any judgment, decree, order, statute,
rule, or regulation applicable to it. The execution, delivery, and performance
by QPS of this Agreement and the Note, the Warrant and the Collateral Documents,
and the issuance and sale of the Note, Warrant and Warrant Shares pursuant
hereto, will not result in any such violation or be in conflict with or
constitute a default under any such term, or cause the acceleration of maturity
of any loan or material obligation to which QPS is a party or by which it is
bound or with respect to which it is an obligor or guarantor, or result in the
creation or imposition of any material lien, claim, charge, restriction, equity
or encumbrance of any kind whatsoever upon, or, to QPS's best knowledge give to
any other person any interest or right (including any right of termination or
cancellation) in or with respect to any of the material properties, assets,
business or agreements of QPS. To QPS's best knowledge, no such term or
condition materially adversely affects the business, property, prospects,
condition, affairs, or operations of QPS.
3.8 FINANCIAL STATEMENTS. QPS has furnished to Purchaser a complete
and correct copy of the unaudited balance sheets of QPS (the "Balance Sheets")
as of December 31, 1995 and March 31, 1996 and the related statements of income
for the 12 months and 3 months preceding such dates, all as compiled by QPS
(collectively, the "Financial Statements"). The term "Balance Sheet Date" means
March 31, 1996. The Financial Statements are complete and correct, are in
accordance with the books and records of QPS and present fairly the financial
condition and results of operations of QPS, as at the dates and for the periods
indicated, and have been prepared in accordance with generally accepted
accounting principles consistently applied, except that the Financial Statements
have been prepared for the internal use of management and may not be in
accordance with generally accepted accounting principles because of the absence
of footnotes normally contained therein and are subject to normal year-end audit
adjustments which in the aggregate will not be material.
3.9 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of QPS in
connection with the execution and delivery of this Agreement or the offer,
issuance, sale and delivery of the Note and Warrant. Based in part on the
representations made by Purchaser in Section 4 hereof, the offer and sale of the
Note, the Warrant
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and the Warrant Shares to Purchaser will be in compliance with applicable
Federal and state securities laws.
3.10 LITIGATION. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the best of QPS's
knowledge, any basis therefor or threat thereof, against QPS or its properties
which questions the validity of this Agreement or the Note, the Warrant and the
Collateral Documents, the issuance of the Note, Warrant or the Warrant Shares or
which might result, either individually or in the aggregate, in any material
adverse change in the business, prospects, assets or condition, financial or
otherwise, of QPS.
3.11 REGISTRATION RIGHTS. Except as set forth on Schedule 3.11 or as
required by the provisions hereof, QPS is not under any obligation to register
any of its presently outstanding securities or any of its securities which may
hereafter be issued.
3.12 COMPLIANCE. QPS has complied, in all material respects, with
all laws, regulations and orders applicable to its present and proposed business
and has all material, franchises, certificates, permits, licenses and other
authorizations required thereby.
3.13 EMPLOYEES.
(a) None of the employees of QPS is represented by any labor
union, and there is no labor strike or other labor trouble pending with respect
to QPS (including, without limitation, any organizational drive) or, to the best
of QPS's knowledge, threatened. Other than as set forth on Schedule 3.13, no
employee has any agreement or contract regarding his or her employment.
(b) No accumulated funding deficiency (as defined in Section
302 of Employee Retirement Income Security Act of 1974, as amended ("ERISA") or
Section 412 of the Internal Revenue Code (the "Code")), whether or not waived,
exists with respect to any pension plan of QPS. No liability to the PBGC has
been, or is reasonably likely to be incurred with respect to any such pension
plan by QPS, or any ERISA affiliate. QPS is not a "party in interest" (as
defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in
Section 4975(e)(2) of the Code) with respect to Purchaser. To the best knowledge
of QPS, no fiduciary of or "party in interest" or "disqualified person" with
respect to any employee benefit plan (as defined in Section 3(3) of ERISA)
maintained or contributed to by QPS or any of its subsidiaries, for the benefit
of their respective employees (each an "Employee Plan") has engaged in or caused
any Employee Plan to engage in any "prohibited transaction" (within the meaning
of Section 4975 of the Code and Sections 406 or 407 of ERISA) that has resulted
in the imposition of any tax or penalty imposed under Section 4975 of the Code
or Section 502 of ERISA that has not been satisfied. Each Employee Plan has been
maintained and administered in compliance with all applicable law including
ERISA and the Code. Each Employee Plan which is intended to qualify under
Section 401(a) of the Code has been so qualified during the period from its
adoption to date. There are no pending IRS audits or controversies with respect
to any pension plan. QPS
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has no trade or business, whether or not incorporated, which, together with QPS,
is under common control, as described in Section 414(b) or (c) of the Code.
3.14 ABSENCE OF CHANGES. Since the Balance Sheet Date, there has
been no material adverse change in the business, prospects, financial condition
or results of operations of QPS, except for losses incurred in the ordinary
course of business.
3.15 ABSENCE OF LIABILITIES. QPS did not have, at the Balance Sheet
Date, any liabilities of any type which in the aggregate exceeded $50,000,
whether absolute or contingent, which were not fully reflected in the Financial
Statements for such date, and, since such date, QPS has not incurred or
otherwise become subject to any such liabilities or obligations except in the
ordinary course of business.
3.16 TAXES. The March 31, 1996 Balance Sheet provision for taxes is
sufficient for payment of all accrued and unpaid Federal, state, county, local
and foreign taxes for the period then ended and all prior periods. QPS has filed
or has obtained presently effective extensions with respect to all Federal,
state, county, local and foreign tax returns which are required to be filed by
it, such returns are true and correct and all taxes shown thereon to be due have
been timely paid with exceptions not material to QPS. QPS has not been the
subject of an audit by any governmental entity with respect to any tax return
filed by QPS.
3.17 TITLE TO AND CONDITION OF PROPERTIES. QPS has good and
marketable title to all its tangible and intangible property and assets,
including those reflected in the Financial Statements (except such property or
assets as have since the Balance Sheet Date been sold or otherwise disposed of
in the ordinary course of business), and such property and assets are subject to
no mortgage or security interest, conditional sales contract, charge, lien or
encumbrance (except for the lien of current taxes not yet due and payable and
such imperfections of title, easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not materially detract from
the value of, or interfere with the present use of the properties subject
thereto or affected thereby, or otherwise materially impair QPS's business
operations), and subsequent to the Balance Sheet Date, QPS has not sold or
disposed of any of its property and assets or obligated itself to do so except
in the ordinary course of business. Except for such minor defects as are not
substantial in character and which do not have a materially adverse effect upon
the validity thereof, all material real and personal property leases to which
QPS is a party are valid and effective, and there is not under any such lease
any existing material default or event which with notice or lapse of time or
both would constitute a material default.
3.18 PATENTS, TRADEMARKS, ETC. All of QPS's patents and patent
applications are identified and described on Schedule 3.18. QPS will not assign
or transfer any such patent to any person or entity besides Purchaser until the
Note has been fully paid. QPS agrees to promptly amend Schedule 3.18 to add any
patents that is applies for or obtains after the date hereof. Except as set
forth on Schedule 3.18, QPS owns and possesses or licenses all patents, patent
applications, licenses, trademarks, service marks, trade names, brand names,
inventions, trade secrets, processes, formulae, copyrights, hardware and
software necessary for the operation
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of its business as now conducted and as proposed to be conducted (the
"Intellectual Property"). Schedule 3.18 also includes a complete list and
summary description of all license agreements and contracts of QPS which affect
its rights to own or use any and all of the Intellectual Property. QPS has not
received any notice or claim of infringement of any rights, trademarks, trade
names, trade secrets, copyrights or other intellectual property or proprietary
rights of others with respect to QPS's operation of its business. To the
knowledge of QPS, except as set forth on Schedule 3.18, the Intellectual
Property does not infringe upon or violate any rights, trademarks, trade names,
trade secrets, copyrights or other intellectual property or proprietary rights
of any person or entity.
3.19 COMPLIANCE WITH LEGISLATION REGULATING ENVIRONMENTAL QUALITY.
Except where non-compliance is not reasonably likely to have a material adverse
effect on QPS, the facilities which currently are owned, operated or leased by
QPS are, and, to the knowledge of QPS, at all times have been, maintained and
operated in compliance with all applicable federal, state and local
environmental protection, occupational, health and safety or similar laws,
ordinances, restrictions, orders, regulations and licenses (collectively
"Environmental Laws") including but not limited to the Federal Water Pollution
Control Act (33 U.S.C. ss. 1251 et seq.), Resource Conservation & Recovery Act
(42 U.S.C. ss. 6901 et seq.), Safe Drinking Water Act (21 U.S.C. ss.349, 42
U.S.C. xx.xx. 201, 300f), Toxic Substances Control Act (15 U.S.C. ss. 2601 et
seq.), Clean Air Act (42 U.S.C. ss. 7401 et seq.), Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. ss. 9601 et seq.),
California Health & Safety Code (ss. 25100 et seq., ss. 39000 et seq.), and
California Water Code (ss. 13000 et seq.). To the knowledge of QPS, no
materials, substances, or products have been at any time placed, held, located,
disposed of or released on, under, at, within, or about the facilities which may
reasonably be expected to result in a regulatory agency or other governmental
entity requiring clean up, removal or other remedial action by QPS under
Environmental Laws with such exceptions as would not in the aggregate have a
material adverse effect on QPS. To the knowledge of QPS, no hazardous or toxic
substance, waste or material (collectively "Hazardous Materials") has at any
time been used, stored, treated, transported or handled by QPS or any of its
consultants, contractors or agents on, under, at, within, or about the
facilities except Hazardous Materials that are used, stored, treated,
transported or handled on, under, at, within or about the Facilities in material
compliance with Environmental Laws. No litigation, administrative enforcement
actions, proceedings or notices of potential liability have (x) received, served
or, to the best knowledge of QPS, filed or threatened against QPS or (y) to the
actual knowledge of QPS, received, served, filed or threatened against any
predecessor business or landowner or with respect to any facility owned or
leased by QPS, in each case, relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Materials or arising
out of the use, generation, storage, treatment, release, discharge,
transportation, handling or disposal of Hazardous Materials or resulting from a
violation or alleged violation of Environmental Laws.
3.20 INSURANCE. QPS has adequate insurance, with (to its knowledge)
financially sound and reputable insurers, with respect to its properties and
business which are of a character customarily insured by corporations of
established reputation engaged in the same or a similar business and similarly
situated, against loss or damage of the kinds customarily insured against
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by such corporations, which insurance is of such types (including public
liability and workmen's compensation insurance) as are customarily carried under
similar circumstances by such other corporations.
3.21 USE OF PROCEEDS. The net proceeds from the sale of the Note
shall be used (i) to finance the expenses of the anticipated initial public
offering of QPS's securities, (ii) to pay amounts due to NCT, (iii) to pay
certain short-term notes and other current liabilities, and (iv) for working
capital to finance the operations of QPS substantially as set forth in the
budgets and business plans delivered by QPS to Purchaser in connection herewith.
QPS shall not directly or indirectly use such proceeds for any other purposes.
3.22 OFFERING OF SECURITIES. Neither QPS nor any person acting on
its behalf has offered the Warrant or the Warrant Shares or any similar
securities of QPS from or otherwise approached or negotiated with respect to QPS
with any person other than Purchaser and other "Accredited Investors" (as
defined in Rule 501(a) under the Securities Act of 1933, as amended). Neither
QPS nor any person acting on its behalf has taken or will take any action
(including, without limitation, any offering of any securities of QPS under
circumstances which would require the integration of such offering with the
offering of the Warrant or the Warrant Shares under the Securities Act and the
rules and regulations of the Commission thereunder) which could reasonably be
expected to subject the offering, issuance or sale of the Warrant or of the
Warrant Shares to the registration requirements of Section 5 of the Securities
Act.
3.23 IPO. QPS has received a letter of intent dated November 29,
1995 from Gaines, Berland, Inc., a full, true and correct copy of which is
attached hereto as Schedule 3.23, and such letter has not been amended or
modified orally or in writing. At the date hereof, QPS reasonably believes that
the IPO registration statement will be filed in September or October, 1996.
3.24 DISCLOSURE. Neither this Agreement, the Schedules and the
Exhibits hereto, the Note, the Warrant and the Collateral Documents, the
Financial Statements, nor any other document delivered to Purchaser or its
counsel or agents in connection herewith contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading. To the best of QPS's
knowledge, there is no fact (or facts) which (individually or in the aggregate)
materially adversely affects the business, prospects, condition, affairs, or
operations of QPS or its properties or assets which has (or have) not been set
forth in this Agreement, such Schedules and Exhibits, the Note, the Warrant and
the Collateral Documents or such Financial Statements.
4. REPRESENTATIONS OF PURCHASER. Purchaser hereby represents and warrants
to QPS as follows:
4.1 INVESTMENT. Purchaser is acquiring the Note and Warrant for its
own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the same.
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4.2 AUTHORITY. Purchaser has full power and authority to enter into
and to perform this Agreement in accordance with its terms.
4.3 EXPERIENCE. Purchaser has sufficient knowledge and experience in
investing in companies similar to QPS so as to be able to evaluate the risks and
merits of its investment in QPS.
4.4 LEGEND. Purchaser understands that the stock certificate
representing the Warrant Shares shall bear a legend substantially to the
following effect:
THE SHARES REPRESENTED BY THE CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO QPS IS OBTAINED TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.5 ACCREDITED INVESTOR. Purchaser is an "accredited investor"
within the meaning of Regulation D promulgated under the Securities Act.
5. COVENANTS OF QPS. QPS hereby covenants and agrees as follows, with the
covenants set forth in 5.1, 5.2, 5.3, 5.5, 5.6, 5.7, 5.8, 5.9, 5.10 and 5.11
terminating upon the effectiveness of an IPO with net proceeds to QPS of not
less than $3,000,000:
5.1 INVESTIGATION BY PURCHASER. QPS shall allow Purchaser during
regular business hours and upon reasonable notice through Purchaser's employees,
agents and representatives to make such investigation of the business,
properties, books and records of QPS, and to conduct such examination of the
condition of QPS, as Purchaser deems reasonably necessary or advisable to
familiarize itself with such business, properties, books, records, condition and
other matters, and to verify the representations and warranties of QPS
hereunder.
5.2 CONSENTS AND BEST EFFORTS. Subject to the terms and conditions
provided herein, QPS covenants and agrees to use its commercially reasonable
best efforts to take, or cause to be taken, all action or do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby and to cause the fulfillment of its obligations hereunder.
5.3 NOTIFICATION OF CERTAIN MATTERS. QPS shall give prompt notice to
Purchaser, and Purchaser shall give prompt notice to QPS, of (i) the occurrence,
or failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect as of the Closing Date and (ii) any material
failure of QPS or Purchaser, as the case may be, to comply
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with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder, and each party shall use all reasonable efforts to
remedy same.
5.4 BASIC FINANCIAL INFORMATION. Following the Closing, QPS will
deliver to Purchaser (or to Daystar as Purchaser's Agent) as soon as practicable
after the end of each fiscal year of QPS, and in any event within 90 days
thereafter, consolidated and consolidating balance sheets of QPS and its
subsidiaries, if any, as at the end of such fiscal year, and consolidated and
consolidating statements of income and surplus and consolidated and
consolidating statements of changes in financial position of QPS and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles consistently applied and setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail, and, if QPS's shares are then publically traded, certified by
independent public accountants of recognized national standing selected by or
reasonably acceptable to QPS. Concurrently therewith, QPS shall also deliver
copies of any management letters provided by QPS's auditors in connection with
its annual audit.
5.5 ADDITIONAL FINANCIAL AND OTHER INFORMATION. Until the date on
which QPS is required to file a report with the Securities Exchange Commission
(the "SEC") pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), QPS will deliver the materials described below in
this Section 5.5 to all holders of the Bridge Loan Notes with principal balances
of $100,000 or more, the Warrant (or similar warrants) with an exercise price of
at least $100,000, or Warrant Shares the exercise price for which was at least
$100,000.
(A) MONTHLY REPORTS. As soon as practicable after the end of
each calendar month and in any event within thirty (30) days thereafter,
unaudited consolidated and consolidating balance sheets of QPS and its
subsidiaries, if any, as at the end of such month, and unaudited consolidated
and consolidating statements of income, of costs and expenses and of
shareholders equity, and cash flow statements for each month and for the current
fiscal year to date, all containing actual financial information prepared in
accordance with generally accepted accounting principles consistently applied,
except that such statements shall have been prepared for the internal use of
management and may not be in accordance with generally accepted accounting
principles because of the absence of footnotes normally contained therein and
are subject to normal year-end audit adjustments which in the aggregate will not
be material. Such monthly financial statements shall include comparisons to the
projected results previously given to Purchaser for the relevant fiscal period,
in reasonable detail, and shall be signed by the principal financial officer of
QPS.
(B) BUDGETS. Not later than one month prior to the beginning
of each fiscal year, the budget approved by QPS's Board of Directors, including
projected financial statements of QPS and each material subsidiary. Within ten
days after a material change is made in the projected financial results, as
compared to the projection previously delivered, such change shall be disclosed
to each Purchaser.
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(C) VISITATION. Any such holder who has signed an appropriate
confidentiality agreement may from time to time request the right to visit and
inspect any of the properties of QPS or any of its subsidiaries (including their
books and records), and to discuss it and their affairs, finances and accounts
with its and their officers, all at such reasonable times and as often as may be
reasonably requested.
(D) MINUTES. Copies of the minutes of proceedings of QPS's
Board of Directors and Shareholders to any holder who has signed an appropriate
confidentiality agreement.
(E) BOARD PACKAGES; SEC FILINGS. QPS will, promptly after such
material becomes available, furnish to Purchaser (or to DayStar as Purchaser's
Agent) a copy of any other documents provided to QPS's directors and of all of
QPS's filings with the SEC, provided that Purchaser shall have signed an
appropriate confidentiality agreement.
(F) COMPLIANCE CERTIFICATE. QPS will promptly furnish to
Purchaser (or to DayStar as Purchaser's Agent) copies of any compliance
certificates furnished to lenders in respect of indebtedness of QPS and such
other financial and other data of QPS as Purchaser may reasonably request.
5.6 BOARD VISITATION RIGHTS. QPS shall allow the Purchasers to have
one observer present at all meetings of the Board of Directors and committees of
the Board of Directors and such observer shall be entitled to participate in
discussions and consult with the Board of Directors and committees of the Board
of Directors, without voting, provided that any such observer shall have signed
an appropriate confidentiality agreement.
5.7 NONDISCLOSURE AGREEMENTS. QPS shall require all key management
persons now or hereafter employed by QPS who have access to confidential and
proprietary information of QPS to enter into nondisclosure agreements in a form
that is commercially reasonable.
5.8 PREEMPTIVE RIGHTS. In the event of a financing of QPS effected
by the sale by QPS of its Common Shares (or any other voting or other security
of QPS or security convertible into or exercisable for such Common Shares) in a
private offering prior to an IPO, the Purchasers shall be entitled to purchase
shares in such sale on a pro rata basis in respect of the Common Shares then
beneficially owned by them, on a fully diluted basis (assuming exercise of the
Warrant and all other outstanding warrants and options), so that following such
sale, each Purchaser will, if it has elected to purchase the securities to be
sold, beneficially own the same percentage of the equity ownership of QPS on a
fully diluted basis as it had before such sale (assuming in each case exercise
of the Warrant and all other outstanding warrants). QPS shall provide Purchaser
with a minimum of ten (10) business days notice of the anticipated pricing of
such offering, which notice shall indicate the anticipated size and range of
pricing of the offering, and based on such notice, Purchaser shall advise QPS
within five (5) business days as to whether it elects to exercise its rights
under this Section 5.8, and if it so elects, Purchaser shall tender
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payment for the same securities, at the same time, and in the same manner as the
other purchaser(s) in such offering.
5.9 COMPLIANCE. QPS shall maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; conduct its business in an orderly and regular manner;
and comply with the provisions of all documents pursuant to which QPS is
organized and/or which govern QPS's continued existence and with the
requirements of all laws, rules, regulations and orders of a governmental agency
applicable to QPS or its business, to the extent that the failure to maintain or
comply with any of the above would have a material adverse effect on the
business and properties of QPS taken as a whole.
5.10 TAXES AND OTHER LIABILITIES. QPS shall (i) pay and discharge
when due any and all material indebtedness, obligations, assessments and taxes,
both real or personal and including federal and state income taxes, except such
as QPS may in good faith contest or as to which a bona fide dispute may arise,
provided provision is made to the reasonable satisfaction of QPS for eventual
payment thereof in the event that it is found that the same is an obligation of
QPS, and (ii) promptly give notice in writing to Purchaser of any pending
assessment or adjustment by any taxing authority against QPS.
5.11 NEGATIVE COVENANTS. Without the consent of a two-thirds
majority in interest of the Purchasers, QPS shall not:
(A) NO MERGER. Unless the Note is prepaid concurrently
therewith, permit QPS to merge into or with or consolidate with any corporation
or other entity (unless the stockholders of QPS immediately prior thereto hold
more than 50% of the voting securities of the surviving entity), nor make any
substantial change in the nature of its business, nor sell, lease, transfer or
otherwise dispose of all or any substantial or material part of its assets other
than in the ordinary course of business.
(B) NO GUARANTEES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of QPS as security for, any
liabilities or obligations of any other person or entity (other than a
wholly-owned subsidiary of QPS).
(C) NO INDEBTEDNESS. Unless unsecured or, if secured,
satisfactorily subordinated to the Note, create, incur, assume or suffer to
exist, any indebtedness.
(D) NO DIVIDENDS. Declare or make, or agree to declare or
make, any payment of dividends (except stock splits effected in the form of a
stock dividend) or distributions of any assets of any kind whatsoever in respect
of its capital stock, or purchase, redeem or otherwise acquire, or agree to
purchase, redeem or otherwise acquire, any ownership interest, outstanding
capital stock or other securities of QPS.
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(E) REPAYMENT OF CERTAIN DEBT. Repay any indebtedness owed to
any officers or directors of QPS (including former officers and directors) or
debt guaranteed by QPS (other than in accordance with the terms of guaranty)
until the Note has been paid in full.
5.12 NONAVOIDANCE COVENANT. QPS will not, by amendment of its
Certificate of Incorporation or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, deed or omission,
avoid or seek to avoid the performance or observance of any of the covenants,
stipulations or conditions to be performed or observed by QPS as set forth
herein, or in the Note, the Warrant, or the Collateral Documents, but will at
all times in good faith assist, insofar as it is able, in the carrying out of
all provisions of this Agreement, the Note, the Warrant, and the Collateral
Documents and in the taking of all other action which may be reasonably
necessary in order to protect the rights of Purchaser.
All of the covenants in this Article 5 shall terminate upon the
indefeasible payment of all of the Bridge Loan Notes.
6. CLOSING CONDITIONS. The obligations of Purchaser hereunder are subject
to Purchaser's satisfaction in its sole discretion with the results of its due
diligence investigation and to the fulfillment or waiver on or before the
Closing of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES TRUE. All representations and
warranties of QPS made in Section 3 or otherwise under or pursuant to this
Agreement shall be true on the Closing Date and, if requested by Purchaser, QPS
shall have delivered to Purchaser a certificate of an authorized officer of QPS
dated the Closing Date, certifying to such effect.
6.2 INSTRUMENTS AND PROCEEDINGS TO BE SATISFACTORY. All instruments
and corporate proceedings relating to the sale of the Note and the Warrant
hereunder by QPS or otherwise relating to the transactions contemplated hereby
shall be satisfactory to Purchaser.
6.3 OTHER AGREEMENTS. All documents and instruments specified for
delivery at the Closing shall have been executed and delivered by QPS and
Purchaser, as appropriate.
6.4 CERTIFICATES AND DOCUMENTS. QPS shall have delivered to
Purchaser or counsel to Purchaser:
(a) The Certificate of Incorporation of QPS, as amended and in
effect as of the Closing Date, certified by the Secretary of State of the State
of Delaware;
(b) Certificates or the appropriate state officials, as of the
most recent practicable dates, as to the corporate good standing of QPS in
Delaware, Maryland, and New York;
(c) By-laws of QPS, certified by its Secretary or Assistant
Secretary as of the Closing Date;
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(d) Resolutions of the Board of Directors of QPS, authorizing
and approving all matters in connection with this Agreement and the transactions
contemplated hereby, certified by the Secretary or Assistant Secretary of QPS as
of the Closing Date; and
(e) All consents, approvals and waivers, in form and substance
reasonably satisfactory to Purchaser, from any person necessary to permit QPS to
consummate the transactions contemplated by this Agreement and each of the
collateral agreements hereto shall have been obtained.
6.5 LEGAL FEES. QPS shall pay at the Closing or promptly upon demand
all of the fees and expenses of counsel to the Purchasers incurred by them in
connection with the preparation and negotiation of this Agreement and the Note,
the Warrant and the Collateral Documents, and the Closing of the transactions
contemplated hereby and thereby. In addition, QPS shall pay all fees and
expenses of counsel for the Purchasers in connection with any amendment of any
document contemplated hereby, any waiver under such document and any
consultation or action related to enforcement thereof.
6.6 LEGAL OPINION. Xxxxxxx & Xxxxxx as counsel to QPS, shall have
executed and delivered to Purchaser a legal opinion substantially in the form
attached hereto as Exhibit E satisfactory in form and substance to counsel for
Purchaser.
6.7 NO SUIT. No suit, action, investigation, inquiry or other
proceeding by any person shall have been instituted or threatened which
questions the validity or legality of, or seeks to enjoin or invalidate, the
transactions contemplated hereby and which is reasonably likely to succeed and
which, if successful, is reasonably likely to materially and adversely affect
the value of the Note, the Warrant or the Warrant Shares, Purchaser's
registration rights, or QPS.
6.8 OTHER MATTERS. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions (including the materials provided to
Purchaser and its special counsel) shall be reasonably satisfactory in substance
and form to Purchaser and its special counsel, and Purchaser and their special
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
6.9 COMMITMENT FROM CERTAIN SHAREHOLDERS. Xxxxxxxx Xxxxxx,
Environmental Research, Xxxx Xxxxxxxx, Xxxxxxx Xxxx, Xxxxxx Xxxxxxxx, and
Xxxxxxx Xxxxxxxxx shall have signed and delivered to Purchaser a Commitment
Letter substantially in the form of Exhibit G hereto.
7. CONDITION TO THE OBLIGATIONS OF QPS. The obligations of QPS hereunder
are subject to the fulfillment or waiver of the following conditions on or
before the Closing:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Purchaser contained in Section 4 shall be true on the Closing
Date.
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7.2 PURCHASE PRICE. Payment of the applicable purchase price to QPS
as set forth in Section 2 hereof.
7.3 NO SUIT. No suit, action, investigation, inquiry or other
proceeding by any person shall have been instituted or threatened which
questions the validity or legality of, or seeks to enjoin or invalidate, the
transactions contemplated hereby and which is reasonably likely to succeed and
which, if successful, is reasonably likely to materially and adversely effect
QPS.
8. GENERAL.
8.1 INDEMNITY.
(a) Each party agrees to indemnify and save harmless the other
party hereto and such other party's officers, directors, employees and agents,
and each person who controls such other party within the meaning of the
Securities Act or the Exchange Act, from and against any and all costs,
expenses, damages, claims, actions, diminution in value or other liabilities,
including costs of investigation and defense (collectively, "Damages") suffered
or incurred by the indemnified party as a result of any breach by the
indemnifying party of any of its agreements, representations, warranties or
covenants contained in this Agreement or the Note, the Warrant or the Collateral
Documents, other than Damages resulting, directly or indirectly from the breach
by the indemnified party of any of its agreements, representations, warranties
or covenants contained herein; provided, however, that if and to the extent that
such indemnification is unenforceable for any reason, the indemnifying party
shall make the maximum contribution to the payment and satisfaction of such
indemnified liability which shall be permissible under applicable law.
(b) The indemnified party under this Section 8.1 will,
promptly after the receipt of notice of the commencement of any action against
such indemnified party in respect of which indemnity may be sought from the
indemnifying party on account of an indemnity agreement contained in this
Section 8.1, notify the indemnifying party in writing of the commencement
thereof. The omission of any indemnified party to so notify the indemnifying
party of any such action shall not relieve the indemnifying party from any
liability which it may have to such indemnified party except to the extent the
indemnifying party shall have been materially prejudiced by the omission of such
indemnified party to so notify the indemnifying party, pursuant to this Section
8.1. In case any such action shall be brought against any indemnified party and
it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 8.1 for any legal or other expense subsequently incurred by
such indemnified party in connection with the defense thereof nor for any
settlement thereof entered into without the consent of the indemnifying party;
provided, however, that (i) if the indemnifying party shall elect not to assume
the defense of such claim or action or (ii) if the indemnified party reasonably
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determines (x) that there may be a conflict between the positions of the
indemnifying party and of the indemnified party in defending such claim or
action or (y) that there may be legal defenses available to such indemnified
party different from or in addition to those available to the indemnifying
party, then separate counsel for the indemnified party shall be entitled to
participate in and conduct the defense, in the case of (i) and (ii)(x), or such
different defenses, in the case of (ii)(y), and the indemnifying party shall be
liable for any reasonable legal or other expenses incurred by the indemnified
party in connection with such defense(s);
(c) All representations and warranties made by the parties
herein or in any instrument or document furnished in connection herewith shall
survive the Closing and any investigation at any time made by or on behalf of
the parties hereto. All such representations and warranties shall expire on the
second anniversary of the respective Closing Dates, except for claims, if any,
asserted in writing prior to such second anniversary, which shall survive until
finally resolved and satisfied in full. All claims and actions for indemnity
pursuant to this Section 8 for breach of any representation or warranty shall be
asserted or maintained in writing by a party hereto on or prior to the
expiration of such two-year period.
8.2 NOTICES. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be delivered by hand, by
reputable overnight courier or mailed by first class certified or registered
mail, return receipt requested, postage prepaid:
If to QPS: QuietPower Systems, Inc.
0000 Xxxxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: President
With copy to: Xxxxxxx & Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxxxxx, Esq.
If to Purchaser: _______________________________
_______________________________
_______________________________
_______________________________
_______________________________
With copy to: Coblentz, Cahen, XxXxxx & Breyer, LLP
000 Xxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxx, Esq.
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Notices provided in accordance with this Section 8.2 shall be deemed
delivered upon personal delivery, one business day after deposit with a
reputable overnight delivery service, or two business days after deposit in the
mail. Any party may change its address for notice by notice similarly given.
8.3 FURTHER ASSURANCES. Upon the terms and subject to the conditions
contained herein, each of the parties hereto agrees, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement and the Note, the Warrant and the Collateral Documents, (ii) to
execute any documents, instruments or conveyances of any kind which may be
reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder or thereunder, and (iii) to cooperate with each other in
connection with the foregoing, including, without limitation, using their
respective best efforts (A) to obtain all consents, approvals and waivers from
any person necessary to permit the consummation of the transactions contemplated
by this Agreement and the Note, the Warrant and the Collateral Documents, and
(B) to fulfill all conditions to this Agreement.
8.4 SPECIFIC ENFORCEMENT. Purchaser, on the one hand, and QPS, on
the other, acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction to
prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction, this
being in addition to any other remedy to which they may be entitled at law or
equity.
8.5 ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
8.6 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of QPS and Purchaser. No waivers of or
exceptions to any term, condition or provision of this Agreement, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
8.7 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive the Closing of the transactions
contemplated hereby, notwithstanding any investigation made by Purchaser.
8.8 SUCCESSORS AND ASSIGNS. All covenants and agreements contained
herein shall bind and inure to the benefit of the parties hereto and their
respective successors and
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assigns, provided, however, that QPS may not assign any of its rights or
delegate its duties without the prior written consent of Purchaser.
8.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
8.10 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
8.11 GOVERNING LAW; JURISDICTION; VENUE. Because QPS is a Delaware
corporation, this Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware as applied to contracts executed and
entirely performed within Delaware. Any litigation or arbitration between the
parties which arises out of this Agreement shall be instituted and prosecuted
only in the appropriate California or Federal court or other tribunal, situated
in San Francisco, California. QPS specifically submits itself and its properties
to the exclusive jurisdiction of such courts for purposes of any such action and
the enforcement of any judgment or order arising therefrom. QPS waives any right
to a change of venue and any and all objections to the jurisdiction of the
California courts. Notwithstanding the foregoing, Purchaser may take such
actions in a foreign jurisdiction which Purchaser deems necessary and
appropriate to enforce or collect any court judgment in any dispute arising out
of this Agreement or to seek and obtain other relief as is necessary to enforce
the terms of this Agreement. Each party agrees that service upon such party in
any such action or proceeding may be made by first class mail, certified or
registered, return receipt requested as provided for the giving of notices in
Section 8.2.
Executed as of the date first written above.
QPS:
QUIETPOWER SYSTEMS, INC., a
Delaware corporation
By:
--------------------------------------
Title:
-----------------------------------
PURCHASER:
By:
--------------------------------------
Title:
-----------------------------------
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LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A - Note
Exhibit B - Warrant
Exhibit C - Security Agreement
Exhibit D - Registration Rights Agreement
Exhibit E - Opinion of Counsel to QPS
SCHEDULES
Schedule 1 - List of Purchasers of Bridge Loan Notes
Schedule 3.3 - Outstanding Convertible or Exchangeable Securities
Schedule 3.6 - Material Contracts
Schedule 3.11 - Registration Rights
Schedule 3.13 - Employee Matters
Schedule 3.18 - Patent & Technology Agreements
Schedule 3.23 - Investment Banking Firm's Letter of Intent
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SCHEDULE 1
PURCHASERS OF QPS BRIDGE LOAN NOTES
Amount
$250,000 DayStar Partners, L.P.
00000 X. XxXxxx Xxxx., Xxxxx 000
Xxxxxxxxx, XX 00000
$35,000 Xxxxxxx Xxx
0000 Xxxxxx Xxxx, #000
Xxxxxxxx, XX 00000
$25,000 The Xxxxx 1987 Family Trust
Xxxxxxx Xxxxxx Xxxxx and Xxxxxxxx Xxx Xxxxx,
Trustees
0000 Xxxxx Xxxxx
Xxxx Xxxx, XX 00000
$ ----------- -----------------------------------
-----------------------------------
-----------------------------------
$ ----------- -----------------------------------
-----------------------------------
-----------------------------------
Updated through _________, 1996
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