EXHIBIT 10.18
THIS SUBORDINATED NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO INTEREST IN THIS
SUBORDINATED NOTE MAY BE OFFERED OR SOLD TO A U.S. PERSON OR WITHIN THE
UNITED STATES EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 OR
REGULATION S UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT), OR (iii) AN
EXEMPTION FROM REGISTRATION UNDER THE ACT WHERE THE HOLDER HAS FURNISHED TO
THE COMPANY A WRITTEN OPINION OF COUNSEL, WHICH OPINION, IN FORM AND CONTENT,
AND COUNSEL ARE REASONABLY ACCEPTABLE TO COUNSEL FOR EPI TECHNOLOGIES, INC.,
STATING THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
EPI TECHNOLOGIES, INC.
NON-NEGOTIABLE 10% COGNOVIT SUBORDINATED
PROMISSORY NOTE
$250,000.00 August 28, 1997
County of ▇▇▇▇▇, Toledo, Ohio
FOR VALUE RECEIVED, the undersigned, EPI Technologies, Inc., a Delaware
corporation ("Payor"), having its executive office and principal place of
business at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, hereby promises to pay to
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ("Payee"), having an address at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇, at ▇▇▇▇▇'s said address (or at such other place as Payee may
from time to time hereafter direct by notice in writing to Payor), the
principal sum of Two Hundred Fifty Thousand Dollars ($250,000.00), in such
coin or currency of the United States of America as at the time shall be
legal tender for the payment of public and private debts, on the first to
occur of the following dates: (i) the earlier date to occur (the "Maturity
Date") of: (a) August 28, 1998, and (b) the closing date of an initial
public offering, if any, by Payor of its common stock, par value $.01 per
share ("Common Stock"), pursuant to a firmly underwritten public offering and
registration statement which is declared effective by the Securities and
Exchange Commission (the "IPO"); (ii) the date on which the outstanding
principal amount of this Subordinated Note is prepaid in full as permitted
pursuant to this Subordinated Note (the "Prepayment Date"); and (iii) any
date on which any principal amount of, or accrued unpaid interest on, any
Bridge Note (as hereinafter defined) is declared to be, or becomes, due and
payable pursuant to the terms of such Bridge Note prior to the Maturity Date
(the "Acceleration Date").
This Subordinated Note is part of a unit or units (the "Units") and one
of a series of subordinated notes (the "Bridge Notes") being issued pursuant
to Payor's Confidential Private Offering Memorandum dated August 28, 1997
(the "Memorandum") relating to Payor's offering to accredited investors of
Five (5) Units (the "Bridge Financing"), each Unit consisting of (i) a Bridge
Note in the original principal amount of $50,000, and (ii) warrants to
purchase an aggregate of 100,000 shares of Common Stock. This Subordinated
Note shall rank PARI PASSU with all other Bridge Notes.
Reference to the Memorandum shall in no way impair the absolute and
unconditional obligation of Payor to pay both principal and interest herein
as provided herein.
1. PAYMENT OF PRINCIPAL AND INTEREST.
1.1. The principal amount of this Subordinated Note outstanding from
time to time shall bear simple interest at the annual rate (the "Subordinated
Note Rate") of ten percent (10%) from the date hereof through the earliest to
occur of (i) the Maturity Date, (ii) the Prepayment Date, and (iii) the
Acceleration Date.
1.2. Interest accrued on this Subordinated Note shall be payable in
full, together with the then principal amount of this Subordinated Note, on
the earliest to occur of (i) the Maturity Date, (ii) the Prepayment Date, and
(iii) the Acceleration Date.
1.3. All payments made by the Payor on this Subordinated Note shall
be applied first to the payment of accrued unpaid interest and then to the
reduction of the unpaid principal balance.
1.4. If payment of the outstanding principal amount of any Bridge
Note, together with accrued unpaid interest thereon at the Subordinated Note
Rate, is not made on the earliest to occur of (i) the Maturity Date, (ii) the
Prepayment Date, and (iii) the Acceleration Date, then interest shall accrue
on the outstanding principal amount due under this Subordinated Note and on
any unpaid accrued interest due on this Subordinated Note from and after such
date of default to the date of the payment in full of such amounts (including
from and after the date of the entry of judgment in favor of Payee in an
action to collect this Subordinated Note) at an annual rate equal to the
lesser of eighteen percent (18%) or the maximum rate of interest permitted by
applicable law (the "Maximum Rate").
1.5. In no event shall Payee be entitled to receive interest,
however characterized and including other consideration received in
connection with this Subordinated Note, at an effective rate in excess of the
Maximum Rate. In the event that a court of competent jurisdiction determines
that such amounts paid or agreed to be paid by Payor in connection with this
Subordinated Note causes the effective interest rate on this Subordinated
Note to exceed the Maximum Rate, such interest or other consideration shall
automatically be reduced to a rate which results in an effective interest
rate under this Subordinated Note equal to the Maximum Rate over the term
hereof, and, in such event, any amounts received by Payee deemed to
constitute excessive interest shall be applied first to the payment of
accrued unpaid interest on this Subordinated Note and then to the reduction
of the unpaid principal balance of this Subordinated Note.
1.6. In the event that the date for the payment of any amount
payable under this Subordinated Note falls due on a Saturday, Sunday or
public holiday under the laws of the United States of America or the State of
Ohio, the time for payment of such amount shall be extended to the next
succeeding business day and interest at the Subordinated Note Rate shall
continue to accrue on any principal amount so effected until the payment
thereof on such extended due date.
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2. REPLACEMENT OF SUBORDINATED NOTE. In the event that this
Subordinated Note is mutilated, destroyed, lost or stolen, Payor shall, at
its sole expense, execute, register and deliver a new Subordinated Note, in
exchange and substitution for this Subordinated Note, if mutilated, or in
lieu of and substitution for this Subordinated Note, if destroyed, lost or
stolen. In the case of destruction, loss or theft, Payee shall furnish to
Payor indemnity reasonably satisfactory to Payor, and in any such case, and
in the case of mutilation, Payee shall also furnish to Payor evidence to its
reasonable satisfaction of the mutilation, destruction, loss or theft of this
Subordinated Note and of the ownership thereof. Any replacement Subordinated
Note so issued shall be in the same outstanding principal amount as this
Subordinated Note and dated the date to which interest shall have been paid
on this Subordinated Note or, if no interest shall have yet been paid, dated
the date of this Subordinated Note.
3. PREPAYMENT. At the option of Payor, the principal amount of this
Subordinated Note may be prepaid in whole at any time, or in part from time
to time, without penalty or premium, together with interest thereon accrued
through the Prepayment Date. Each partial prepayment of this Subordinated
Note shall first be applied to interest accrued through the Prepayment Date
and then to principal.
4. SUBORDINATION.
4.1. ▇▇▇▇▇ shall subordinate the indebtedness evidenced hereby to
the indebtedness of the Company (the "Senior Debt") to any bank, financial
institution, trust company, insurance company or other institutional lender
(collectively, the "Senior Lenders"). To the extent and in the manner
hereinafter set forth, anything in this Subordinated Note to the contrary
notwithstanding, Payee shall subordinate the indebtedness evidenced hereby to
the indebtedness of the Company to any bank, financial institution, trust
company, insurance company or other institutional lender that replaces any of
the Senior Lenders (a "Replacement Senior Lender"); PROVIDED, HOWEVER, that
the terms and conditions of any subordination to a Replacement Senior Lender
shall be on terms and subject to conditions that in all material respects are
no less favorable to Payee, in Payee's reasonable determination, than the
terms and conditions of the subordination provision hereof; provided that the
Company may, in its sole discretion, increase the amount of its Senior Debt
and the interest rate thereon and extend the term thereof.
4.2. In the event that any default occurs and is continuing under or
with respect to any Senior Debt, which default permits a Senior Lender to
accelerate the maturity thereof and such Senior Lender shall have given
written notice of acceleration of the Senior Debt to the Company, then the
Senior Lenders shall be entitled to receive payment in full of all principal
of and interest on all Senior Debt before Payee is entitled to receive any
further payment on account of principal of, or interest on, this Subordinated
Note, and to that end the Senior Lenders shall be entitled to receive for
application in payment thereof any payment or distribution of any kind or
character, whether in cash or property or securities, which may be payable or
deliverable in any proceedings in respect to this Subordinated Note.
4.3. In the event of any insolvency or bankruptcy proceedings, and
any receivership, liquidation, reorganization or other similar proceedings in
connection therewith, with
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respect to the Company or to its creditors, or to its property, and in the
event of any proceedings for voluntary liquidation, dissolution or other
winding up of the Company, whether or not involving insolvency or bankruptcy,
and in the event of any execution sale, then the Senior Lenders shall be
entitled to receive payment in full of all principal of and interest on all
Senior Debt (including any such interest which may accrue after the
commencement of any proceedings) before Payee is entitled to receive any
further payment on account of principal of, or interest on, this Subordinated
Note, and to that end the Senior Lenders shall be entitled to receive for
application in payment thereof any payment or distribution of any kind or
character, whether in cash or property or securities, which may be payable or
deliverable in any such proceedings in respect to this Subordinated Note.
Notwithstanding anything to the contrary in this Subordinated Note, ▇▇▇▇▇
shall only declare this Subordinated Note due and payable before its
expressed maturity by written notice to Payor, with a copy to each Senior
Lender.
4.4. In the event that this Subordinated Note is declared due and
payable before its expressed maturity by Payee upon written notice to Payor
and all Senior Lenders because of the occurrence of an Event of Default
hereunder (as defined in Section 6 below), and, within sixty (60) days after
such notice is provided to Payor and the Senior Lenders, the Senior Lenders
accelerate the indebtedness evidenced by such Senior Debt, the Senior Lenders
shall be entitled to receive payment in full of all principal and interest on
all such Senior Debt (including any such interest which may accrue after the
commencement of any proceedings referred to in Sections 4.2 and 4.3 above)
before Payee shall receive any further payment on account of the principal
of, or interest on, this Subordinated Note.
4.5. Should any mandatory, optional, or other prepayment, payment or
distribution be made to Payee which the Senior Lenders shall (at Payee's time
of receipt) be entitled to receive under the foregoing provisions, the same
shall be forthwith delivered to the Senior Lenders and, until so delivered,
shall be held in trust by Payee as property of the Senior Lenders.
4.6. No present or future Senior Lender shall be prejudiced in its
right to enforce subordination of this Subordinated Note by any act or
failure to act on the part of Payor. The subordination provisions of this
Subordinated Note are solely for the purpose of defining the relative rights
of the Senior Lender, on the one hand, and Payee, on the other hand, and
nothing herein shall impair, as between Payor and Payee, the obligation of
Payor, which is unconditional and absolute, to pay Payee the principal hereof
and interest hereon in accordance with the terms of this Subordinated Note,
nor shall anything herein prevent Payee from declaring this Subordinated Note
to be due and payable before the earlier of (i) the Maturity Date, and (ii)
the Prepayment Date because of an Event of Default hereunder or from
exercising all remedies otherwise permitted by applicable law or hereunder
upon an Event of Default hereunder, subject to the rights of Senior Lenders
to cash, securities or other property of Payor otherwise payable or
deliverable to Payee.
4.7. Notwithstanding anything to the contrary in this Section 4, in
the event that the IPO does not occur by August 28, 1998, the indebtedness of
Payor evidenced by this Subordinated Note shall not be subordinated to any
advances to Payor by Meridian National Corporation, a Delaware corporation.
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5. COVENANTS OF PAYOR. Payor covenants and agrees that, so long as
this Subordinated Note remains outstanding and unpaid, in whole or in part:
5.1. Payor will not, and will not permit any of its majority owned
subsidiaries ("Subsidiaries") to, sell, transfer or in any other manner
alienate or dispose of a material part of its assets; provided, however, that
Payor or any of its Subsidiaries may effect such a transaction if (i) the
transaction is a bona fide transaction in which fair market value is
received, and (ii) no Event of Default (defined below) or any condition or
event which, with the giving of notice or the lapse of time or both, would
become an Event of Default has occurred or would occur after giving effect to
such transaction;
5.2. Payor will not, and will not permit any of its Subsidiaries to,
make any material loan to any person who is or becomes a stockholder of
Payor, other than for (i) reasonable advances for expenses in the ordinary
course of business, and (ii) reasonable advances for expenses relating to
employee relocations;
5.3. Payor will, and will cause each of its Subsidiaries to,
promptly pay and discharge all lawful taxes, assessments and governmental
charges or levies imposed upon it, its income and profits, or any of its
property, before the same shall become in default, as well as all lawful
claims for labor, materials and supplies which, if unpaid, might become a
lien or charge upon such properties or any part thereof; provided, however,
that Payor or any of its Subsidiaries shall not be required to pay and
discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof shall be contested in good faith by appropriate proceedings
and Payor or such Subsidiary, as the case may be, shall set aside on its
books adequate reserves with respect to any such tax, assessment, charge,
levy or claim so contested;
5.4. Payor will, and will cause each of its Subsidiaries to, do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises and comply with all
laws applicable to Payor as its counsel may advise;
5.5. Payor will, and will cause each of its Subsidiaries to, at all
times maintain, preserve, protect and keep its property used or useful in the
conduct of its business in good repair, working order and condition (except
for the effects of reasonable wear and tear in the ordinary course of
business) and will, from time to time, make all necessary and proper repairs,
renewals, replacements, betterments and improvements thereto;
5.6. Payor will, and will cause each of its Subsidiaries to, keep
adequately insured, by financially sound reputable insurers, all property of
a character usually insured by similar corporations and carry such other
insurance as is usually carried by similar corporations;
5.7. Payor will, promptly following the occurrence of an Event of
Default or of any condition or event which, with the giving of notice or the
lapse of time or both, would constitute an Event of Default, furnish a
statement of ▇▇▇▇▇'s President or Chief Financial Officer to Payee setting
forth the details of such Event of Default or condition or event and the
action which Payor intends to take with respect thereto;
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5.8. Payor will, and will cause each of its Subsidiaries to, at all
times maintain books of account in which all of its financial transactions
are duly recorded in conformance with generally accepted accounting
principles;
5.9. Payor will not, and will not permit any of its Subsidiaries to,
purchase or otherwise redeem any Common Stock except for cashless exercises
of outstanding stock options or warrants; and
5.10. Payor will not declare any dividends on any outstanding shares
of its Capital Stock.
6. EVENTS OF DEFAULT. If any of the following events (each an "Event
of Default") occurs:
6.1. The dissolution of Payor or any vote in favor thereof by the
Board of Directors and stockholders of Payor; or
6.2. Payor or any of its Subsidiaries becomes insolvent, however
evidenced, or makes an assignment for the benefit of creditors, or files with
a court of competent jurisdiction an application for appointment of a
receiver or similar official with respect to it or any substantial part of
its assets, or Payor files a petition seeking relief under any provision of
the Federal Bankruptcy Code or any other federal or state statute now or
hereafter in effect affording relief to debtors, or any such application or
petition is filed against Payor, which application or petition is not
dismissed or withdrawn within sixty (60) days from the date of its filing; or
6.3. Payor fails to pay the principal of, or interest on, or any
other amount payable under, this Subordinated Note or any of the other Bridge
Notes, as and when the same becomes due and payable; or
6.4. Payor or any of its Subsidiaries admits in writing its
inability to pay its debts as they mature; or
6.5. Payor sells all or substantially all of its assets (other than
in compliance with Section 5.1 above) or merges or is consolidated with or
into another corporation in which Payor does not survive such merger or
consolidation; or
6.6. A proceeding is commenced (and not dismissed within 60 days
from the date of commencement) to foreclose a security interest or lien in
any property or assets of Payor or of any Subsidiary of Payor as a result of
a default in the payment or performance of any debt (in excess of $50,000 and
secured by such property or assets) of Payor or of any Subsidiary of Payor; or
6.7. Payor defaults in the due observance or performance of any
covenant, condition or agreement on the part of Payor to be observed or
performed pursuant to the terms of this Subordinated Note (other than the
default specified in Section 6.3 above) and such default continues uncured
for a period of thirty (30) days; or
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6.8. Payor defaults in the payment when due of the principal of,
interest on, any Senior Debt or a default occurs in the performance or
observance by Payor of any covenant or condition (other than for the payment
of money) contained in any Subordinated Note or agreement evidencing or
pertaining to any Senior Debt which causes the maturity of such indebtedness
to be accelerated;
then, upon the occurrence of any such Event of Default and at any time
thereafter, the holder of this Subordinated Note shall have the right (at
such holder's option) to declare the principal of, accrued unpaid interest
on, and all other amounts payable under this Subordinated Note to be
forthwith due and payable, whereupon all such amounts shall be immediately
due and payable to the holder of this Subordinated Note, without presentment,
demand, protest or other notice of any kind, all of which are hereby
expressly waived; provided, however, that in case of the occurrence of an
Event of Default under any of Sections 6.1, 6.2 or 6.4 above, such amounts
shall become immediately due and payable without any such declaration by the
holder of this Subordinated Note.
7. SUITS FOR ENFORCEMENT AND REMEDIES. Subject to the terms and
conditions of this Subordinated Note, if any one or more Events of Default
shall occur and be continuing, Payee may proceed to (i) protect and enforce
Payee's rights either by suit in equity or by action at law, or both, whether
for the specific performance of any covenant, condition or agreement
contained in this Subordinated Note or in any agreement or document referred
to herein or in aid of the exercise of any power granted in this Subordinated
Note or in any agreement or document referred to herein, (ii) enforce the
payment of this Subordinated Note, or (iii) enforce any other legal or
equitable right of the holder of this Subordinated Note. No right or remedy
herein or in any other agreement or instrument conferred upon the holder of
this Subordinated Note is intended to be exclusive of any other right or
remedy, and each and every such right or remedy shall be cumulative and shall
be in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or by statute or otherwise.
8. UNCONDITIONAL OBLIGATION; FEES, WAIVERS, OTHER.
8.1. The obligations to make the payments provided for in this
Subordinated Note are absolute and unconditional and not subject to any
defense, set-off, counterclaim, rescission, recoupment or adjustment
whatsoever.
8.2. No forbearance, indulgence, delay or failure to exercise any
right or remedy with respect to this Subordinated Note shall operate as a
waiver or as an acquiescence in any default, nor shall any single or partial
exercise of any right or remedy preclude any other or further exercise
thereof or the exercise of any other right or remedy.
8.3. This Subordinated Note may not be modified or discharged (other
than by payment) except by a writing duly executed by ▇▇▇▇▇ and ▇▇▇▇▇.
9. RESTRICTION ON TRANSFER. This Subordinated Note has been acquired
for investment and has not been registered under the securities laws of the
United States of America or any state thereof. Accordingly, no interest in
this Subordinated Note may be offered for sale, sold or
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transferred in the absence of registration and qualification of this
Subordinated Note under applicable federal and state securities laws or a
written opinion of counsel of Payee, which opinion, in form and content, and
Counsel are reasonably satisfactory to counsel for Payor, stating that such
registration and qualification are not required.
10. WARRANT OF ATTORNEY. Payor authorizes any attorney at law at any
time or times to appear in any state or federal court of record in the United
States of America after this Promissory Note or any part thereof shall have
become due and payable (whether the payments becomes due by lapse or time or
by acceleration of maturity or otherwise) and in each case to waive the
issuance and service of process, to admit the maturity of this Promissory
Note and the nonpayment thereof when due, to present each evidence of this
Promissory Note or any part thereof to the court and to certify the amount of
the debt then owing thereon, to confess judgment against Payor in favor of
▇▇▇▇▇ for the amount of the debt then appearing due, together with interest
thereon, and thereupon to release all errors and waive all rights of appeal
and stay of execution. The foregoing warrant of attorney shall survive any
judgment, and, should any judgment be vacated for any reason, ▇▇▇▇▇ may
nevertheless utilize the foregoing warrant of attorney in thereafter
obtaining an additional judgment or judgments against Payor. ▇▇▇▇▇ agrees
that ▇▇▇▇▇'s attorney may confess judgment pursuant to the foregoing warrant
of attorney.
11. PERMITTED PAYMENT. Notwithstanding the provisions of Section 4
hereof, so long as on the day of the receipt of any payment to be made
pursuant to this Subordinated Note, no event of default under a credit
agreement between Payor and a Senior Lender shall have occurred and be
continuing, then Payor shall pay to Payee, and Payee shall accept from Payor,
the regularly scheduled payment of principal and interest provided for
pursuant to Section 1 of this Subordinated Note (without giving effect to any
amendments or modifications hereof or to any event which would have the
effect of increasing or accelerating the amount of any such payment) and any
payment(s) constituting voluntary prepayment(s) of this Subordinated Note.
If the condition set forth in this Section 11 is not met, then until such
failure(s) shall have been cured to the appropriate Senior Lender's
satisfaction or shall have ceased to exist or shall have been waived in
writing by the appropriate Senior Lender, no such payments under this
Subordinated Note shall be paid to, or accepted by, Payee.
12. MISCELLANEOUS.
12.1. The headings of the various paragraphs of this Subordinated
Note are for convenience of reference only and shall in no way modify any of
the terms or provisions of this Subordinated Note.
12.2. All notices required or permitted to be given hereunder shall
be in writing and shall be deemed to have been duly given when personally
delivered or sent by registered or certified mail (return receipt requested,
postage prepaid), facsimile transmission or overnight courier to the address
of the intended recipient as set forth in the preamble to this Subordinated
Note or at such other address as the intended recipient shall have hereafter
given to the other party hereto pursuant to the provisions of this
Subordinated Note. All notices required by this Subordinated Note shall be
sufficiently given or made when received if delivered by messenger or
overnight delivery service, when confirmed if sent by facsimile transmission
(provided that the date of confirmation is not a Saturday, Sunday or legal
holiday in the State of Ohio, in which case the date of notice shall be the
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next succeeding business day) and three days after mailing if sent by
registered or certified mail (return receipt requested, postage prepaid).
12.3. This Subordinated Note and the obligations of Payor and the
rights of Payee shall be governed by and construed in accordance with the
substantive laws of the State of Ohio without giving effect to the choice of
laws rules thereof.
12.4. This Subordinated Note shall bind Payor and its successors and
assigns.
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"WARNING -- BY SIGNING THIS PAPER YOU GIVE UP THE RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT OR ANY OTHER CAUSE."
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EPI TECHNOLOGIES, INC.
By: /s/ Real ▇▇▇▇▇▇▇▇▇
Name: Real ▇▇▇▇▇▇▇▇▇
Title: Chief Financial Officer
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