Exhibit 4.3
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATES SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO HESPERIA HOLDING, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE MINIMUM BORROWING NOTE
FOR VALUE RECEIVED, HESPERIA HOLDING, INC., a Nevada corporation ("HSPR"),
HESPERIA TRUSS, INC., a California corporation ("Hesperia Truss"), and PAHRUMP
VALLEY TRUSS, INC. ("Pahrump Valley" and together with HSPR and Hesperia Truss,
each a "Borrower" and collectively, the "Borrowers") jointly and severally
promises to pay to LAURUS MASTER FUND, LTD., c/o Ironshore Corporate Services
Ltd., P.O. Box 1234 G.T., Queensgate House, South Church Street, Grand Cayman,
Cayman Islands, Fax: 000-000-0000 (the "Holder") or its registered assigns, on
order, the sum of Five Hundred Thousand Dollars ($500,000), of, if different,
the aggregate principal amount of all "Loans" (as such term is defined in the
Security Agreement referred to below), together with any accrued and unpaid
interest hereon, on October 8, 2007 (the "Maturity Date").
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Security Agreement among Borrowers and the Holder
dated as of October 8, 2004 (as amended, modified and supplemented from time to
time, the "Security Agreement").
The following terms shall apply to this Minimum Borrowing Note (the "Note"):
ARTICLE I
INTEREST
1.1. Contract Rate. Subject to Sections 4.11, 5.1 and 6.7 hereof, interest
payable on this Note shall accrue at a rate per annum equal to the "prime rate"
published in The Wall Street Journal from time to time, plus three percent (3%)
(the "Contract Rate"). The Prime Rate shall be increased or decreased as the
case may be for each increase or decrease in the Prime Rate in an amount equal
to such increase or decrease in the Prime Rate; each change to be effective as
of the day of the change in such rate in accordance with the terms of the
Security Agreement. Subject to Section 1.2, the Contract Rate shall not be less
than seven percent (7%).
1.2. Contract Rate Adjustments and Payments. The Contract Rate shall be
calculated on the last business day of each month hereafter until the Maturity
Date (each a "Determination Date") and shall be subject to adjustment as set
forth herein. If (i) HSPR shall have registered the shares of HSPR's common
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stock underlying each of the conversion of the Minimum Borrowing Notes and that
certain Common Stock Purchase Warrant issued to Holder on a registration
statement declared effective by the Securities and Exchange Commission (the
"SEC"), and (ii) the market price (the "Market Price") of the Common Stock as
reported by Bloomberg, L.P. on the Principal Market (as defined below) for the
five (5) trading days immediately preceding a Determination Date exceeds the
then applicable Fixed Conversion Price by at least twenty five percent (25%),
the Contract Rate for the succeeding calendar month shall automatically be
reduced by 200 basis points (200 b.p.) (2.0.%) for each incremental twenty five
percent (25%) increase in the Market Price of the Common Stock above the then
applicable Fixed Conversion Price. If (i) HSPR shall not have registered the
shares of the HSPR's common stock underlying the conversion of the Minimum
Borrowing Notes and that certain warrant issued to Holder on a registration
statement declared effective by the SEC and which remains effective, and (ii)
the Market Price of the Common Stock as reported by Bloomberg, L.P. on the
principal market for the five (5) trading days immediately preceding a
Determination Date exceeds the then applicable Fixed Conversion Price by at
least twenty five percent (25%), the Contract Rate for the succeeding calendar
month shall automatically be decreased by 100 basis points (100 b.p.) (1.0.%)
for each incremental twenty five percent (25%) increase in the Market Price of
the Common Stock above the then applicable Fixed Conversion Price.
Notwithstanding the foregoing (and anything to the contrary contained in
herein), in no event shall the Contract Rate be less than zero percent (0%).
Interest shall be (i) calculated on the basis of a 360 day year, and (ii)
payable monthly, in arrears, commencing on November 1, 2004 and on the first
business day of each consecutive calendar month thereafter until the Maturity
Date (and on the Maturity Date), whether by acceleration or otherwise (each, a
"Contract Rate Payment Date").
ARTICLE II
ADVANCES, PAYMENTS UNDER NOTE
2.1. Mechanics of Advances. All Loans evidenced by this Note shall be made
in accordance with the terms and provisions of the Security Agreement.
2.2. Fixed Conversion Price. For purposes hereof, subject to Section 3.5
hereof, the initial "Fixed Conversion Price" means $0.71. No Effective
Registration. Notwithstanding anything to the contrary herein, the Holder shall
not be required accept shares of Common Stock as payment following a conversion
by the Holder if there fails to exist an effective current Registration
Statement (as defined in the Registration Rights Agreement) covering the shares
of Common Stock to be issued, or if an Event of Default hereunder exists and is
continuing, unless such requirement is otherwise waived in writing by the Holder
in whole or in part at the Holder's option.
2.3. Optional Redemption in Cash. The Borrowers will have the option of
prepaying this Note ("Optional Redemption") by paying to the Holder a sum of
money equal to one hundred thirty percent (130%) of the principal amount of this
Note together with accrued but unpaid interest thereon and any and all other
sums due, accrued or payable to the Holder arising under this Note, the Security
Agreement, or any Ancillary Agreement (as defined in the Security Agreement)
(the "Redemption Amount") on the day written notice of redemption (the "Notice
of Redemption") is given to the Holder. The Notice of Redemption shall specify
the date for such Optional Redemption (the "Redemption Payment Date") which date
shall be seven (7) days after the date of the Notice of Redemption (the
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"Redemption Period") . A Notice of Redemption shall not be effective with
respect to any portion of this Note for which the Holder has previously
delivered a Notice of Conversion (defined below) pursuant to Section
3.1, or for conversions elected to be made by the Holder pursuant to
Section 3.1 during the Redemption Period. The Redemption Amount shall be
determined as if such Xxxxxx's conversion elections had been completed
immediately prior to the date of the Notice of Redemption. On the Redemption
Payment Date, the Redemption Amount (plus any additional interest and fees
accruing on the Notes during the Redemption Period) must be irrevocably paid in
full in immediately available funds to the Holder. In the event the Borrowers
fail to pay the Redemption Amount on the Redemption Payment Date, then such
Redemption Notice will be null and void.
ARTICLE III
HOLDER'S CONVERSION RIGHTS
3.1. Optional Conversion. Subject to the terms of this Article III, the
Holder shall have the right, but not the obligation, at any time until the
Maturity Date, or thereafter during an Event of Default (as defined in Article
V), and, subject to the limitations set forth in Section 3.2 hereof, to convert
all or any portion of the outstanding Principal Amount and/or accrued interest
and fees due and payable into fully paid and nonassessable shares of the Common
Stock at the Fixed Conversion Price. The shares of Common Stock to be issued
upon such conversion are herein referred to as the "Conversion Shares."
3.2. Conversion Limitation. Notwithstanding anything contained herein to
the contrary, the Holder shall not be entitled to convert pursuant to the terms
of this Note an amount that would be convertible into that number of Conversion
Shares which would exceed the difference between the number of shares of Common
Stock beneficially owned by such Holder or issuable upon exercise of warrants
held by such Holder and 4.99% of the outstanding shares of Common Stock of HSPR.
For the purposes of the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Exchange Act and
Regulation 13d-3 thereunder. The Conversion Shares limitation described in this
Section 3.2 shall automatically become null and void without any notice to any
Borrower upon the occurrence and during the continuance beyond any applicable
grace period of an Event of Default, or upon 75 days prior notice to HSPR.
3.3. Mechanics of Xxxxxx's Conversion. In the event that the Holder elects
to convert this Note into Common Stock, the Holder shall give notice of such
election by delivering an executed and completed notice of conversion ("Notice
of Conversion") to HSPR and such Notice of Conversion shall provide a breakdown
in reasonable detail of the Principal Amount, accrued interest and fees that are
being converted. On each Conversion Date (as hereinafter defined) and in
accordance with its Notice of Conversion, the Holder shall make the appropriate
reduction to the Principal Amount, accrued interest and fees as entered in its
records and shall provide written notice thereof to HSPR within two (2) business
days after the Conversion Date. Each date on which a Notice of Conversion is
delivered or telecopied to HSPR in accordance with the provisions hereof shall
be deemed a Conversion Date (the "Conversion Date"). A form of Notice of
Conversion to be employed by the Holder is annexed hereto as Exhibit A. Pursuant
to the terms of the Notice of Conversion, HSPR will issue instructions to the
transfer agent accompanied by an opinion of counsel within one (1) business day
of the date of the delivery to HSPR of the Notice of Conversion and shall cause
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the transfer agent to transmit the certificates representing the Conversion
Shares to the Holder by crediting the account of the Holder's designated broker
with the Depository Trust Corporation ("DTC") through its Deposit Withdrawal
Agent Commission ("DWAC") system within three (3) business days after receipt by
HSPR of the Notice of Conversion (the "Delivery Date"). In the case of the
exercise of the conversion rights set forth herein the conversion privilege
shall be deemed to have been exercised and the Conversion Shares issuable upon
such conversion shall be deemed to have been issued upon the date of receipt by
HSPR of the Notice of Conversion. The Holder shall be treated for all purposes
as the record holder of such Common Stock, unless the Holder provides HSPR
written instructions to the contrary.
3.4. Late Payments. Each Borrower understands that a delay in the delivery
of the shares of Common Stock in the form required pursuant to this Article
beyond the Delivery Date could result in economic loss to the Holder. As
compensation to the Holder for such loss, each Borrower agrees to jointly and
severally pay late payments the Holder for late issuance of such shares in the
form required pursuant to this Article III upon conversion of the Note, in the
amount equal to $500 per business day after the Delivery Date. Each Borrower
shall pay any payments incurred under this Section in immediately available
funds upon demand.
3.5. Adjustment Provisions. The Fixed Conversion Price and number and kind
of shares or other securities to be issued upon conversion determined pursuant
to Section 2.2 shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding, as
follows:
A. Reclassification, etc. If HSPR at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed
to evidence the right to purchase an adjusted number of such securities and kind
of securities as would have been issuable as the result of such change with
respect to the Common Stock (i) immediately prior to or (ii) immediately after
such reclassification or other change at the sole election of the Holder.
B. Stock Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a greater or smaller number of shares of
Common Stock, or if a dividend is paid on the Common Stock or any preferred
stock issued by HSPR in shares of Common Stock, the Fixed Conversion Price shall
be proportionately reduced in case of subdivision of shares or stock dividend or
proportionately increased in the case of combination of shares, in each such
case by the ratio which the total number of shares of Common Stock outstanding
immediately after such event bears to the total number of shares of Common Stock
outstanding immediately prior to such event.
C. Share Issuances. Subject to the provisions of this Section 3.5, if
HSPR shall at any time prior to the conversion or repayment in full of the
Principal Amount issue any shares of Common Stock or securities convertible into
Common Stock to a person other than the Holder (except (i) pursuant to
Subsections A or B above; (ii) pursuant to options, warrants, or other
obligations to issue shares outstanding on the date hereof as disclosed to
Holder in writing; or (iii) pursuant to options that may be issued under any
employee incentive stock option and/or any qualified stock option plan adopted
by HSPR) for a consideration per share (the "Offer Price") less than the Fixed
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Conversion Price in effect at the time of such issuance, then the Fixed
Conversion Price shall be immediately reset to such lower Offer Price. For
purposes hereof, the issuance of any security of HSPR convertible into or
exercisable or exchangeable for Common Stock shall result in an adjustment to
the Fixed Conversion Price upon the issuance of such securities.
D. Computation of Consideration. For purposes of any computation
respecting consideration received pursuant to Subsection C above, the following
shall apply:
(a) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other expenses
incurred by HSPR for any underwriting of the issue or otherwise in connection
therewith;
(b) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors of HSPR (irrespective of the accounting
treatment thereof); and
(c) Upon any such exercise, the aggregate consideration received for
such securities shall be deemed to be the consideration received by HSPR for the
issuance of such securities plus the additional minimum consideration, if any,
to be received by HSPR upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided in
clauses (a) and (b) of this Subsection (D)).
3.6. Reservation of Shares. During the period the conversion right exists,
HSPR will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of Common Stock upon the full
conversion of this Note. HSPR represents that upon issuance, such shares will be
duly and validly issued, fully paid and non-assessable. HSPR agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
3.7. Registration Rights. The Holder has been granted registration rights
with respect to the shares of Common Stock issuable upon conversion of this Note
as more fully set forth in a Registration Rights Agreement dated as of the date
hereof between HSPR and the Holder.
ARTICLE IV
EVENTS OF DEFAULT
The occurrence of any of the events set forth in Sections 4.1 through 4.10,
inclusive, shall be an Event of Default ("Event of Default"):
4.1. Failure to Pay Principal, Interest or other Fees. Any Borrower fails
to pay when due any installment of principal, interest or other fees hereon or
on any other promissory note issued pursuant to the Security Agreement, or any
Borrower fails to pay when due any amount due under any other promissory note
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issued by any Borrower, when due in accordance with the terms of such note, and
in any such case, such failure shall continue for a period of three (3) days
following the date upon which any such payment was due.
4.2. Breach of Covenant. Any Borrower breaches any covenant or other term
or condition of this Note in any material respect and such breach, if subject to
cure, continues for a period of fifteen (15) days after the occurrence thereof.
4.3. Breach of Representations and Warranties. Any representation or
warranty of any Borrower or any of its Subsidiaries made herein, or the Security
Agreement, or in any Ancillary Agreement shall be false or misleading in any
material respect.
4.4. Stop Trade. An SEC stop trade order or Principal Market trading
suspension of the Common Stock shall be in effect for 5 consecutive days or 5
days during a period of 10 consecutive days, excluding in all cases a suspension
of all trading on a Principal Market, provided that HSPR shall not have been
able to cure such trading suspension within 30 days of the notice thereof or
list the Common Stock on another Principal Market within 60 days of such notice.
The "Principal Market" for the Common Stock shall include the NASD OTC Bulletin
Board, NASDAQ SmallCap Market, NASDAQ National Market System, American Stock
Exchange, or New York Stock Exchange (whichever of the foregoing is at the time
the principal trading exchange or market for the Common Stock), or any
securities exchange or other securities market on which the Common Stock is then
being listed or traded.
4.5. Receiver or Trustee. Any Borrower or any of its Subsidiaries shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed.
4.6. Judgments. Any money judgment, writ or similar final process shall be
entered or filed against any Borrower or any of its Subsidiaries or any of their
respective property or other assets for more than $50,000, and shall remain
unvacated, unbonded or unstayed for a period of thirty (30) days.
4.7. Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against any Borrower or any
of its Subsidiaries.
4.8. Default Under Other Agreements. The occurrence of an Event of Default
under and as defined in the Security Agreement or any Ancillary Agreement or any
event of default (or similar term) under any other indebtedness.
4.9. Failure to Deliver Common Stock or Replacement Note. HSPR's failure to
timely deliver Common Stock to the Holder pursuant to and in the form required
by this Note and the Security Agreement, if such failure to timely deliver
Common Stock shall not be cured within two (2) days. If any Borrower is required
to issue a replacement Note to Holder and such Borrower shall fail to deliver
such replacement Note within seven (7) Business Days.
4.10. Change in Control. The occurrence of a change in the controlling
ownership of any Borrower.
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DEFAULT RELATED PROVISIONS
4.11. Default Interest Rate. Following the occurrence and during the
continuance of an Event of Default, interest on this Note shall automatically be
increased by two percent (2%) per month, and all outstanding Obligations,
including unpaid interest, shall continue to accrue interest from the date of
such Event of Default at such interest rate applicable to such Obligations until
such Event of Default is cured or waived.
4.12. Conversion Privileges. The conversion privileges set forth in Article
III shall remain in full force and effect immediately from the date hereof and
until this Note is paid in full.
4.13. Cumulative Remedies. The remedies under this Note shall be
cumulative.
ARTICLE V
DEFAULT PAYMENTS
5.1. Default Payment. If an Event of Default occurs and is continuing
beyond any applicable grace period, the Holder, at its option, may elect, in
addition to all rights and remedies of Holder under the Security Agreement and
the Ancillary Agreements and all obligations of each Borrower under the Security
Agreement and the Ancillary Agreements, to require the Borrowers to make a
Default Payment ("Default Payment"). The Default Payment shall be 130% of the
outstanding principal amount of the Note, plus accrued but unpaid interest, all
other fees then remaining unpaid, and all other amounts payable hereunder. The
Default Payment shall be applied first to any fees due and payable to Holder
pursuant to the Notes or the Ancillary Agreements, then to accrued and unpaid
interest due on the Notes and then to outstanding principal balance of the
Notes.
5.2. Default Payment Date. The Default Payment shall be due and payable
immediately on the date that the Holder has exercised its rights pursuant to
Section 5.1 ("Default Payment Date").
ARTICLE VI
MISCELLANEOUS
6.1. Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
6.2. Notices. Any notice herein required or permitted to be given shall be
in writing and provided in accordance with the terms of the Security Agreement.
6.3. Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
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supplemented, and any successor instrument as it may be amended or supplemented.
6.4. Assignability. This Note shall be binding upon each Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Security Agreement.
6.5. Cost of Collection. If default is made in the payment of this Note,
each Borrower shall jointly and severally pay the Holder hereof reasonable costs
of collection, including reasonable attorneys' fees.
6.6. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York. Each party hereto and the individual signing this Note on behalf of
each Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against any Borrower in any
other jurisdiction to collect on such Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court order in favor of Xxxxxx.
6.7. Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrowers to the Holder and thus refunded to the
Borrowers.
6.8. Security Interest. The Holder has been granted a security interest (i)
in certain assets of the Borrowers as more fully described in the Security
Agreement and (ii) pursuant to the Stock Pledge Agreement dated as of the date
hereof.
6.9. Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
[Balance of page intentionally left blank; signature page follows.]
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IN WITNESS WHEREOF, each Borrower has caused this Secured Convertible
Minimum Borrowing Note to be signed in its name effective as of this 8th day of
October, 2004.
HESPERIA HOLDING, INC.
WITNESS: /s/ XXXXXX XXXXXXX By: /s/ XXXXXX X. XXXXX
----------------- -------------------
XXXXXX XXXXXXX Name: Xxxxxx X. Xxxxx
Title: Chief Executive Officer
HESPERIA TRUSS, INC.
WITNESS: /s/ XXXXXX XXXXXXX By: /s/ XXXXXX X. XXXXX
----------------- -------------------
XXXXXX XXXXXXX Name: Xxxxxx X. Xxxxx
Title: Chief Executive Officer
PAHRUMP VALLEY TRUSS, INC.
WITNESS: /s/ XXXXXX XXXXXXX By: /s/ XXXXXX X. XXXXX
---------------- -------------------
XXXXXX XXXXXXX Name: Xxxxxx X. Xxxxx
Title: Chief Executive Officer
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