EXHIBIT 10.19
REDLINE PERFORMANCE PRODUCTS, INC.
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INTERIM LOAN AND INVESTMENT AGREEMENT
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INSTRUCTIONS
To purchase an 8% Secured Subordinated Promissory Note from Redline
Performance Products, Inc. please: (i) review the Interim Loan and Investment
Agreement; (ii) complete Section 11 of the Interim Loan and Investment Agreement
regarding accredited investor status; (iii) complete Section 19 of the Interim
Loan and Investment Agreement regarding relationships to brokerage firms; (iv)
complete, sign and date the appropriate signature page (individual subscribers
should complete, sign and date the individual signature page; entity subscribers
should complete, sign and date the entity signature page) and (v) send your
check payable to "Redline Performance Products, Inc." together with the
completed Interim Loan and Investment Agreement and the Security Agreement
signature page to ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ATTN: ▇▇. ▇▇▇▇
▇▇▇▇▇.
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REDLINE PERFORMANCE PRODUCTS, INC.
INTERIM LOAN AND INVESTMENT AGREEMENT
This Interim Loan and Investment Agreement (the "AGREEMENT"), submitted
as of the date set forth on the Signature Page, is between Redline Performance
Products, Inc., a Minnesota corporation (the "COMPANY"), and the undersigned
investor (the "INVESTOR").
RECITALS
The Company needs capital to fund its operations. The Investor desires
to lend funds to the Company on the terms and conditions set forth in this
Agreement (the "INTERIM FINANCING").
AGREEMENT
In consideration of the foregoing, the mutual promises set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Investment. The Investor hereby tenders the Investor's check payable to
"Redline Performance Products, Inc." in the aggregate dollar amount set
forth on the Signature Page to purchase:
a. An 8% Secured Subordinated Promissory Note (the "INTERIM NOTE"), in
substantially the form of EXHIBIT A attached to and incorporated herein
by reference in the principal dollar amount set forth on the Signature
Page, and
b. A warrant (the "INTERIM WARRANT") in substantially the form of EXHIBIT
B attached to and incorporated herein by reference, to purchase Two
Thousand Five Hundred (2,500) shares of the Company's $0.01 par value
per share common stock (the "COMMON STOCK") for every $25,000 in
principal amount of the Interim Note (the "WARRANT SHARES").
c. Repayment of the Interim Note is secured by certain collateral of the
Company pursuant to a security agreement (the "SECURITY AGREEMENT"), in
substantially the form of EXHIBIT C attached to and incorporated herein
by reference.
d. In addition, ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (collectively, the
"FOUNDERS'") will collectively issue to each Investor 2,500 shares of
the Company's Common Stock currently held by the Founders' (the
"FOUNDERS' SHARES"), for every $25,000 in principal dollar amount of
the Bridge Notes.
e. The information contained in this Agreement is only a summary of the
terms and provisions of the Interim Notes, the Interim Warrants and the
Security Agreement, and is qualified by more detailed information
included in the form of Interim Note, the form of Interim Warrant and
the form of Security Agreement. If the terms of this Agreement conflict
with the terms of the Interim Note, the Interim Warrant or the Security
Agreement, the terms of the Interim Note, the Interim Warrant and
Security Agreement shall control. By execution of this Agreement, the
Investor acknowledges that the Company is relying upon the accuracy and
completeness of the representations contained in this Agreement in
complying with its obligations under applicable securities laws. The
Interim Note, the Interim Warrant, the Warrant Shares and the Founders'
Shares are collectively referred to in this Agreement as the
"SECURITIES."
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2. Loan/Promissory Note. The Investor agrees, on the terms and subject to
the conditions hereinafter set forth, to purchase an Interim Note in
the principal amount set forth on the Signature Page. The Company
agrees to issue in the name of the Investor, a Interim Note.
3. Payment of Principal and Interest. All outstanding principal and
accrued interest on the Interim Notes shall be due and payable by the
Company on the earlier of (a) the date ninety (90) days from the date
of the Interim Note or (b) the date the Company closes on the sale of
the minimum number of units ($1,250,000) in the Company's Bridge
Placement pursuant to a Confidential Private Placement Memorandum dated
August 1, 2002 (the "MATURITY DATE" or "MATURITY".) The Interim Note
shall accrue interest at the rate of eight percent (8%) per annum,
compounded monthly. Interest shall be paid at maturity.
4. Subordination. The payment of principal and interest under the Interim
Notes is subordinated to the payment by the Company of any amounts due
to any bank or other commercial lender pursuant to any existing or
future loan. The Investor's rights in any collateral shall also be
subordinate to any security interest requested by a bank or other
commercial lender providing a loan to the Company in the future.
Payment of principal or interest may not be made on the Interim Note if
the Company is in default, or if the making of any payment would result
in a default, with respect to the payment of amounts of any bank or
commercial lender debt.
5. Default. The Company shall be in default under this Agreement and under
the Interim Note upon the happening after the date of this Agreement of
any nonpayment, when due, of any amount payable to the holder under the
Interim Note. In the event of a default: (a) the holders of Interim
Notes shall have the right, at their option and not subject to demand
or notice, to declare all or any part of the Interim Notes immediately
due and payable, and (b) the holders of Interim Notes may exercise, in
addition to the rights and remedies granted in this Agreement, all of
the rights and remedies of a holder under the Interim Note and under
applicable law. In addition, upon default, the interest rate of the
Interim Note shall be 12% per annum, which rate shall apply from the
date of default.
6. Collateral. The Company will grant the Investors a security interest in
the Company's existing and future inventory, pursuant to a Security
Agreement. All Investors and will have a security interest in the
collateral which is subordinated to any security interest requested by
a bank or other commercial lender providing a loan to the Company in
the future.
7. Interim Warrant. In conjunction with the purchase of a Interim Note by
the Investor, the Company will issue to the Investor an Interim
Warrant. The Interim Warrant will entitle the Investor to purchase Two
Thousand Five Hundred (2,500) shares of Common Stock for every $25,000
in principal amount of the Interim Notes. The Interim Warrant will have
an exercise price of $3.75 per share and will expire five (5) years
from the date of issuance.
8. Reservation of Shares of Common Stock. The Company shall, during the
time that the Interim Note or the Interim Warrant remain outstanding,
reserve and keep available from its authorized but unissued shares of
capital stock, a sufficient number of shares to issue the shares of
capital stock issuable upon exercise of the Interim Warrants.
9. Representations and Warranties of the Company. The Company represents
and warrants to the Investor the following:
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a. The Company is duly organized, validly existing and in good standing
under the laws of the State of Minnesota.
b. This Agreement has been duly authorized by all necessary corporate
action on behalf of the Company, has been duly executed and delivered
by an authorized officer of the Company, and is a valid and binding
agreement on the part of the Company. All corporate action necessary to
the authorization, issuance, and delivery of the Securities will be
taken prior to issuance of the Securities.
10. Representations and Warranties of Investor. The Investor hereby
represents and warrants to the Company and its officers, directors,
shareholders, employees and agents as follows:
a. Information About the Company. The Investor has received and reviewed
all information about the Company as the Investor believes relevant to
the decision to purchase the Securities. The Investor has also had the
opportunity to ask questions of, and receive answers from, the Company
or an agent or a representative of the Company concerning the terms and
conditions of the investment and the business and affairs of the
Company and to obtain any additional information necessary to verify
such information, and the Investor has received such information
concerning the Company as the Investor considers necessary or advisable
in order to form a decision concerning an investment in the Company.
b. Forward-Looking Information. The Investor acknowledges and understands
that any information provided about the Company's future plans and
prospects is uncertain and subject to all of the uncertainties inherent
in predictions.
c. No Review by Federal or State Regulators. The Investor understands that
this transaction has not been reviewed or approved by the United States
Securities and Exchange Commission (the "COMMISSION") or by any state
securities or other authority and, because of the small number of
persons solicited to invest in the Securities and the private nature of
the placement, that all documents, records, and books pertaining to
this investment have been made available to the Investor and the
Investor's representatives, such as attorneys, accountants and/or
purchaser representatives.
d. High Degree of Risk. The Investor realizes that this investment
involves a high degree of risk, including the risk of loss of all
investment in the Company.
e. Ability to Bear the Risk. The Investor is able to bear the economic
risk of the investment, including the total loss of such investment.
f. Appropriate Investment. The Investor believes, in light of the
information provided pursuant to Subsection 10(a) above, that investing
funds pursuant to the terms of this Agreement is an appropriate and
suitable investment for the Investor.
g. Financial Condition. The Investor's current financial condition is such
that (and the Investor expects the Investor's financial condition to be
such that in the near future) the Investor does not have any present or
contemplated need to dispose of any portion of the Securities to
satisfy any existing or contemplated undertaking, need or indebtedness.
h. Business Sophistication. The Investor is experienced and knowledgeable
in financial and business matters to the extent that the Investor is
capable of evaluating the merits and risks of the prospective
investment in the Securities. The Investor has obtained, to the extent
the Investor deems necessary,
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personal and professional advice with respect to the risks inherent in
the investment in the Securities in light of the Investor's financial
condition and investment needs. The Investor has been given access to
full and complete information regarding the Company and has utilized
such access to its satisfaction for the purpose of obtaining
information and, particularly, the Investor has obtained, and has had
the opportunity to obtain, information from the Company as set forth in
Subsection 10(a) above.
i. Residency; Ownership. The Investor is a resident of the state and
country set forth on the Signature Page. The Securities are being
purchased by the Investor in the Investor's name solely for the
Investor's own beneficial interest and not as nominee for, on behalf
of, for the beneficial interest of, or with the intention to transfer
to, any other person, trust, or organization.
j. Subscription. The Investor understands that the payment made to the
Company will become funds of and may be used by the Company
immediately. The Company is free to reject any subscription in whole or
in part. The Investor understands that if the Company determines to
reject this subscription, any funds returned to the Investor will be
without deduction therefrom or interest thereon.
k. No General Solicitation. The Investor's purchase of the Securities is
not the result of any general solicitation or general advertising,
including, but not limited to (i) any advertisement, article, notice or
other communication published in any newspaper, magazine or similar
media or broadcast over television or radio; and (ii) any seminar or
meeting whose attendees have been invited by any general solicitation
or general advertising.
l. Legal Age. The Investor, if an individual, is of legal age.
m. Not Subject to Backup Withholding. The Investor certifies, under
penalty of perjury, that the Investor is not subject to the backup
withholding provisions of the Internal Revenue Code of 1986, as
amended. (Note: The Investor is subject to backup withholding if: (i)
the Investor fails to furnish its Social Security Number or Taxpayer
Identification Number herein; (ii) the Internal Revenue Service
notifies the Company that the Investor furnished an incorrect Social
Security Number or Taxpayer Identification Number; (iii) the Investor
is notified that it is subject to backup withholding; or (iv) the
Investor fails to certify that it is not subject to backup withholding
or the Investor fails to certify the Investor's Social Security Number
or Taxpayer Identification Number.)
n. Legal Representation. The Investor understands that: (i) the Company
has engaged legal counsel to represent the Company in connection with
the offer and sale of securities contemplated herein; (ii) legal
counsel engaged by the Company does not represent the Investor or the
Investor's interests; and (iii) the Investor is not relying on legal
counsel engaged by the Company. The Investor has had the opportunity to
engage, and obtain advice from, the Investor's own legal counsel with
respect to the investment contemplated herein.
THE INFORMATION REQUESTED IN PARAGRAPH 11 IS REQUIRED IN CONNECTION WITH THE
EXEMPTIONS FROM THE SECURITIES ACT OF 1933 AND STATE LAWS BEING RELIED ON BY THE
COMPANY WITH RESPECT TO THE OFFER AND SALE OF THE SECURITIES. ALL OF SUCH
INFORMATION WILL BE KEPT CONFIDENTIAL, AND WILL BE REVIEWED ONLY BY, THE
COMPANY, THE AGENT AND THEIR RESPECTIVE COUNSEL. The Investor agrees to furnish
any additional information which the Company and its counsel deems necessary in
order to verify the response set forth below.
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11. Accredited Status. The Investor represents and warrants as follows
(please INITIAL all applicable items):
a. INDIVIDUALS:
(i) The Investor is an individual with a net worth,
--- or a joint net worth together with his or her spouse,
in excess of $1,000,000. (In calculating net worth,
you may include equity in personal property and real
estate, including your principal residence, cash,
short-term investments, stock and securities. Equity
in personal property and real estate should be based
on the fair market value of such property less any
debt secured by such property.)
(ii) The Investor is an individual that had an
--- individual income in excess of $200,000 in each of
the prior two years and reasonably expects an income
in excess of $200,000 in the current year.
(iii) The Investor is an individual that had with his
--- or her spouse joint income in excess of $300,000 in
each of the prior two years and reasonably expects
joint income in excess of $300,000 in the current
year.
(iv) The Investor is a director or executive officer
--- of the Company.
b. ENTITIES (PLEASE PROVIDE A COPY OF THE ENTITY'S CHARTER DOCUMENTS):
X (i) The Investor is a (initial one):
---
(A) General Partnership
---
(B) Limited Liability Partnership
---
(C) Limited Partnership
---
(D) Limited Liability Company
---
X (E) Corporation
---
(F) Business Trust
---
(G) Other Entity (please specify):
--- ----------
(ii) The Investor is an entity, and is an "ACCREDITED
--- INVESTOR" as defined in Rule 501(a) of Regulation D
under the Securities Act of 1933, as amended (the
"ACT"). This representation is based on the following
(initial one or more, as applicable):
(A) The Investor (or, in the case of a
--- trust, the Investor trustee) is a bank or
savings and loan association as defined in
Sections 3(a)(2) and 3(a)(5)(A),
respectively, of the Act acting either in
its individual or fiduciary capacity.
(B) The Investor is a broker/dealer
--- registered pursuant to the Securities
Exchange Act of 1934.
(C) The Investor is an insurance company as
--- defined in Section 2(13) of the Act.
(D) The Investor is an investment company
--- registered under the Investment Company Act
of 1940 or a business development company as
defined in Section 2(a)(48) of that Act.
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(E) The Investor is a Small Business
--- Investment Company licensed by the U.S.
Small Business Administration under Section
301(c) or (d) of the Small Business
Investment Act of 1958.
(F) The Investor is an employee benefit plan
--- within the meaning of Title I of the
Employee Retirement Income Security Act of
1974 and either (initial one or more, as
applicable):
(1) The investment decision is made by
--- a plan fiduciary, as defined in Section
3(21) of such Act, which is either a
bank, savings and loan association,
insurance company, or registered
investment adviser.
(2) The employee benefit plan has total
--- assets in excess of $5,000,000.
(3) The plan is a self-directed plan
--- with investment decisions made solely
by persons who are "Accredited
Investors" as defined under the Act.
(G) The Investor is a private business
--- development company as defined in Section
202(a)(22) of the Investment Advisers Act of
1940.
X (H) The Investor has total assets in excess
--- of $5,000,000, was not formed for the
specific purpose of acquiring shares of the
Company and is one or more of the following
(initial one or more, as appropriate):
(1) An organization described in
--- Section 501(c)(3) of the Internal
Revenue Code.
(2) A corporation.
---
(3) A Massachusetts or similar business
--- trust.
(4) A partnership.
---
(5) A limited liability company.
---
(I) The Investor is an entity, all of whose
--- equity owners are accredited investors.
(PLEASE PROVIDE WRITTEN REPRESENTATION OF
ACCREDITED INVESTOR STATUS FROM EACH EQUITY
OWNER.)
(J) The Investor is a trust with total
--- assets exceeding $5,000,000, which was not
formed for the specific purpose of investing
in the Company and whose purchase is
directed by a person described in Rule
506(b)(2)(ii) under the Act. (IF ONLY THIS
ITEM (J) IS CHECKED, PLEASE CONTACT THE
COMPANY TO RECEIVE AND COMPLETE AN
INFORMATION STATEMENT BEFORE THIS
SUBSCRIPTION CAN BE CONSIDERED BY THE
COMPANY).
IF YOU HAVE NOT INITIALED ANY OF THE FOREGOING, YOU ARE NOT AN ACCREDITED
INVESTOR AND CANNOT PURCHASE ANY SECURITIES.
IF YOU HAVE INITIALED ANY OF THE FOREGOING, PLEASE PROCEED.
X (iii) Entities. A REPRESENTATIVE OF AN ENTITY
--- INVESTOR MUST INITIAL HERE If the Investor is an
entity, the individual(s) signing on behalf of the
Investor and the Investor, jointly and severally,
agree and certify that this Agreement has been duly
authorized by all necessary action on the part of the
Investor, has been duly
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executed by an authorized representative of the
Investor, and is a legal, valid, and binding
obligation of the Investor enforceable in accordance
with its terms.
12. Investment Purpose in Acquiring the Securities. The Investor and the
Company acknowledge that the Securities have not been registered under
the Act or applicable state securities laws and that the Securities
will be issued to the Investor in reliance on exemptions from the
registration requirements of the Act and applicable state securities
laws and in reliance on the Investor's and the Company's
representations and agreements contained herein. The Investor is
acquiring the Securities for the account of the Investor for investment
purposes only and not with a view to their resale or distribution. The
Investor has no present intention to divide his, her or its
participation with others or to resell or otherwise dispose of all or
any part of the Securities. In making these representations, the
Investor understands that, in the view of the Commission, exemption of
the Securities from the registration requirements of the Act would not
be available if, notwithstanding the representations of the Investor,
the Investor has in mind merely acquiring the Securities for resale
upon the occurrence or non-occurrence of some predetermined event.
13. Compliance with Securities Act. The Investor agrees that if the
Securities or any part thereof are sold or distributed in the future,
the Investor shall sell or distribute them pursuant to the requirements
of the Act and applicable state securities laws. The Investor agrees
that the Investor will not transfer any part of the Securities without:
(a) obtaining a "no action" letter from the Commission and applicable
state securities commissions; (b) obtaining an opinion of counsel
satisfactory in form and substance to the Company to the effect that
such transfer is exempt from the registration requirements under the
Act and applicable state securities laws; or (c) registration.
14. Restriction on Transfer After a Public Offering. The Investor
understands that the Company at a future date may file a registration
or offering statement (the "REGISTRATION STATEMENT") with the
Commission to facilitate a public offering of its securities. The
Investor agrees, for the benefit of the Company, that should such an
initial public offering be made and should the managing underwriter of
such offering require, the Investor will not, without the prior written
consent of the Company and such underwriter, during the "Lockup Period"
as defined herein: (a) sell, transfer or otherwise dispose of, or agree
to sell, transfer or otherwise dispose of any of the Securities
beneficially owned by the Investor during the Lockup Period; (b) sell,
transfer or otherwise dispose of, or agree to sell, transfer or
otherwise dispose of any options, rights or warrants to purchase any of
the Securities beneficially owned by the Investor during the Lockup
Period; or (c) sell or grant, or agree to sell or grant, options,
rights or warrants with respect to any of the Securities. The foregoing
does not prohibit gifts to donees or transfers by will or the laws of
descent to heirs or beneficiaries provided that such donees, heirs and
beneficiaries shall be bound by the restrictions set forth herein. The
term "LOCKUP PERIOD" shall mean the lesser of (x) 18 months and (y) the
period during which Company officers and directors are restricted by
the managing underwriter from effecting any sales or transfers of the
Company's common stock. The Lockup Period shall commence on the
effective date of the Registration Statement.
15. Restrictive Legend. The Investor agrees that the Company may place one
or more restrictive legends on any certificates evidencing the
Securities, including the Warrant Shares and the Founders' Shares,
containing substantially the following language:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, have not been registered
under any state securities law, and are subject to a subscription and
investment representation agreement. They may not be sold, offered for
sale, transferred, assigned,
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pledged or otherwise distributed for value unless there is an effective
registration under the Securities Act of 1933, as amended, and under
the applicable state securities laws, or the Company receives an
opinion of counsel acceptable to the Company stating that such
transaction is exempt from registration and prospectus delivery
requirements of the Securities Act of 1933, as amended, and under the
applicable state securities laws.
Sale or other transfer of these securities is further restricted for up
to 18 months following an initial public offering of securities of the
Company by the terms of a Subscription Agreement, a copy of which is
available for inspection at the offices of the Company.
16. Stop Transfer Order. The Investor agrees that the Company may place a
stop transfer order with its registrar and transfer agent (if any)
covering all Securities.
17. Knowledge of Restrictions upon Transfer of the Securities. The Investor
understands that the Securities are not freely transferable and may in
fact be prohibited from sale for an extended period of time and that,
as a consequence thereof, the Investor must bear the economic risk of
an investment in the Securities for an indefinite period of time and
may have extremely limited opportunities to dispose of the Securities.
The Investor realizes that there will likely be no market for the
Securities, and that there are significant restrictions on the
transferability thereof.
18. Lack of Availability of Rule 144 Under the Act. The Investor
understands and acknowledges that the Company has no obligation to
undertake or complete a public offering of its securities, that even if
a public offering is undertaken and successfully completed, the
Securities subscribed for hereby will remain subject to the
restrictions on transferability described herein, and that even if a
public offering is undertaken and completed, the Investor may never be
able to sell its Securities pursuant to Rule 144 under the Act. The
Investor further understands and acknowledges that the Company
currently does not file periodic reports with the Commission pursuant
to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, and may not be obligated to file such reports at any time
in the future. The Investor also understands that the Company has not
agreed to supply such other information as would be required to enable
routine sales of the Securities to be made under the provisions of
certain rules respecting "restricted securities," including Rule 144
promulgated under the Act by the Commission. Thus, the Investor has
been informed that the Company is not obligated to make publicly
available or to provide the Investor with the information required by
Rule 144.
19. Relationship to Brokerage Firms. (Please answer the following questions
by initialing the appropriate response):
a. [ ] YES [X] NO: Are you a director, officer, partner, branch manager,
registered representative, employee, shareholder of, or similarly
related to or employed by, a brokerage firm?
b. [ ] YES [X] NO: Is your spouse, father, mother, father-in-law,
mother-in-law, or any of your brothers, sisters, brothers-in-laws,
sisters-in-law or children, or any relative which you support, a
director, officer, partner, branch manager, registered representative,
employee, shareholder of, or similarly related to or engaged by, a
brokerage firm?
c. [ ] YES [X] NO: Do you own 5% or more of the voting securities of any
brokerage firm?
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d. [ ] YES [X] NO: If the Investor is an entity, is any director, officer,
partner or 5% owner of the Investor also a director, officer, partner,
branch manager, registered representative, employee, shareholder of, or
similarly related to or employed by a brokerage firm?
(If you answered YES to any of the foregoing questions, please attach a
written explanation or contact the Company to provide additional
information before the Investor's subscription can be considered.)
20. Delivery of Interim Note, Interim Warrant and Founders' Shares. Upon
acceptance of this Agreement by the Company, the Interim Note, the
Interim Warrant and the Founders' Shares will be registered in the name
of the Investor and will be delivered via certified mail or overnight
delivery to the address of the Investor set forth on the Signature
Page.
21. Binding Effect. Neither this Agreement nor any interest herein shall be
assignable by the Investor without the prior written consent of the
Company. The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective heirs,
legal representatives, successors and assigns.
22. Representations to Survive Delivery. The representations, warranties
and agreements of the Company and of the Investor contained in this
Agreement will remain operative and in full force and effect and will
survive the receipt of funds by the Company, and the issuance to the
Investor of the Interim Notes, Interim Warrants or Founders' Shares.
23. Indemnification. The Investor agrees to indemnify the Company, and each
current and future officer, director, employee, agent and shareholder
of the Company, against and to hold them harmless from any damage,
loss, liability, claim or expense including, without limitation,
reasonable attorneys' fees resulting from or arising out of the
inaccuracy or alleged inaccuracy of any of the representations,
warranties or statements of the Investor contained in this Agreement,
including without limitation any violation or alleged violation of the
registration requirements of the Act or applicable state law in
connection with any subsequent sale of the Securities or any portion
thereof by Investor.
24. Additional Information. If at any time prior to the Company's execution
of this Agreement, an adverse change occurs with respect to the
Investor such that the information, representations and warranties of
the Investor set forth in this Agreement are no longer accurate, the
Investor shall immediately notify the Company of the inaccuracy in
writing and shall deliver the updated, accurate information to the
Company.
25. Miscellaneous Provisions.
a. Arbitration. Any dispute regarding this Agreement or the Investor's
investment in the Company (including without limitation claims pursuant
to federal or state securities laws), including any claim which is made
against any placement agent or broker-dealer involved in the offer or
sale of the Securities, shall be resolved by arbitration which shall be
the sole forum for resolution of any such disputes. Unless otherwise
agreed by the parties, any such proceedings shall be brought in
Minneapolis, Minnesota U.S.A. pursuant to the Rules and Code of
Arbitration of the American Arbitration Association, except that if a
bona fide claim is made against the Company, and a placement agent or
broker-dealer is named in connection with such claim, then such claim
shall be brought pursuant to the Rules and Code of Arbitration of the
National Association of Securities Dealers, Inc.
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b. Governing Law; Venue. This Agreement shall be governed by, and
construed in accordance with, the substantive laws of the State of
Minnesota without reference to Minnesota conflict of laws provisions.
Actions or proceedings litigated in connection with this Agreement, if
any, shall be venued exclusively in the state and federal courts
located in the County of Hennepin, State of Minnesota.
c. Successors and Assigns. The representations and warranties made by the
Investor in this Agreement are binding on the Investor's successors and
assigns and are made for the benefit of the Company and any other
person who may become liable for violations of applicable securities
laws as a result of the inaccuracy or falsity of any of the Investor's
representations or warranties.
d. Notice. All notices or other communications required or permitted
hereunder shall be in writing. A written notice or other communication
shall be deemed to have been delivered hereunder: (i) if delivered by
hand, when such notice is received from the notifying party; (ii) if
transmitted by facsimile or timely delivered to an overnight courier,
on the next business day following the day so transmitted or delivered;
or (iii) if delivered by mail, on the third business day following the
date such notice or other communication is deposited in the U.S. Mail
for delivery by certified or registered mail addressed to the other
party, or when actually received, whichever occurs earlier.
e. Counterparts. This Agreement may be executed by the Company and by the
Investor in separate counterparts, each of which shall be deemed an
original.
f. Acceptance. This Agreement is not binding on the Company until accepted
in writing by an authorized officer of the Company.
(signature page follows)
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ENTITY SIGNATURE PAGE
All entity Investors must complete and sign this page. Total payment to
be made now is the amount on line 6.
1. Entity Name (please print): Industricorp & Co., Inc. TC Carpenters
------------------------------------------
2. Employer Identification Number:
--------------------------------------
(Also include Social Security Numbers if a Trust or Partnership)
3. Business (Residence) Address: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇ ▇▇▇▇▇
----------------------------------------
4. Mailing Address (if different from above):
----------------------------
5. Business: Tel. No. (▇▇▇) ▇▇▇-▇▇▇▇ ; Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
--- --------- ---- ------------
6. Principal Amount of Bridge Note: $50,000
-------------------------------------
SIGNATURE OF INVESTOR: /s/ ▇▇▇▇ ▇. ▇▇▇ /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
--------------------------------------------------------
By (print name):▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Its: Officer Officer
-------------------------------------------
Date: 8/1/02 8/1/02
-------------------------------------------
ACCEPTANCE:
REDLINE PERFORMANCE PRODUCTS, INC. hereby executes this Agreement as of the date
set forth below.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇▇▇▇▇, President
Dated: 8/1/2002
------------------------------------
PLEASE RETURN THIS INTERIM LOAN AND INVESTMENT AGREEMENT, THE SECURITY AGREEMENT
SIGNATURE PAGE AND PAYMENT TO
Redline Performance Products, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
ATTN: ▇▇. ▇▇▇▇ ▇▇▇▇▇
12
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND ANY SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF MAY BE
MADE ONLY (i) IN A REGISTRATION OR QUALIFICATION OR (II) IF AN EXEMPTION FROM
REGISTRATION OR QUALIFICATION IS AVAILABLE AND THE BORROWER HAS RECEIVED AN
OPINION OF COUNSEL TO THAT EFFECT REASONABLY SATISFACTORY TO THE BORROWER.
SALE OR OTHER TRANSFER OF THIS PROMISSORY NOTE IS FURTHER RESTRICTED FOR UP TO
18 MONTHS FOLLOWING AN INITIAL PUBLIC OFFERING OF SECURITIES OF THE BORROWER BY
THE TERMS OF A INTERIM LOAN AND INVESTMENT AGREEMENT, A COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE OFFICES OF THE BORROWER.
REDLINE PERFORMANCE PRODUCTS, INC.
8% SECURED SUBORDINATED PROMISSORY NOTE
$50,000.00 August 1, 2002
Note No.: ▇▇-▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
FOR VALUE RECEIVED, the undersigned, Redline Performance Products,
Inc., organized and existing under the laws of the State of Minnesota, whose
mailing address is ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and its
successors and assigns (the "BORROWER"), for value received, hereby
unconditionally promises to pay to the order of Industricorp & Co., Inc., FBO
Twin City Carpenters Pension Fund, a corporation of the State of Minnesota,
having a mailing address of Union Bank & Trust, Attn: Trust Department, Suite
508, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, and its successors
and assigns (the "LENDER"), at such place as may be designated from time to time
by the Lender, the principal sum of Fifty Thousand and 00/100 Dollars
($50,000.00), together with accrued interest thereon, at the rate of eight
percent (8%) per annum, compounded monthly, at or before 5:00 p.m. Vista,
California time on the earlier of (i) the date ninety (90) days from the date of
this note (the "INTERIM NOTE") or (ii) the date on which the Borrower closes on
the sale of the minimum number of units ($1,250,000) in the Borrower's bridge
financing being conducted in accordance with the terms of the Confidential
Private Placement Memorandum dated August 1, 2002 (each a "MATURITY DATE"). This
Interim Note and the Lender are entitled to all the benefits provided for in the
Interim Loan and Investment Agreement, pursuant to which this indebtedness was
incurred and is to be repaid. The provisions of the Interim Loan and Investment
Agreement are incorporated herein by reference with the same force and effect as
if fully set forth herein.
1. Payment. All outstanding principal and accrued interest on
this Interim Note shall be due and payable on the Maturity Date. All
payments under this Section shall be made by check mailed by the
Borrower to the address of the Lender set forth
above. Interest on the unpaid principal balance of this Interim Note
shall be calculated on the basis of a 360-day year comprised of twelve
30-day months. If the Borrower fails to pay all amounts outstanding
under this Interim Note on the Maturity Date, the rate of interest
under this Interim Note shall be increased to twelve percent (12%) per
annum and shall accrue from the Maturity Date of this Interim Note
until payment in full of all amounts due under this Interim Note.
2. Subordination; Security. The term "SENIOR INDEBTEDNESS"
shall mean all principal of (and premium of, if any) and unpaid
interest on all indebtedness of the Borrower, and with respect to which
the Borrower is a guarantor (but excluding indebtedness guaranteed
solely for the benefit of officers, directors, employees or consultants
of the Borrower), and except as provided to the contrary herein,
regardless of whether incurred on, before or after the date of this
Interim Note: (i) for money borrowed from any bank, insurance company,
or other lending institution regularly engaged in the business of
lending money, whether or not secured; and (ii) in connection with any
deferral, renewal or extension of any indebtedness described in (i) or
(ii) above or any debentures, notes, or other evidence of the
Borrower's indebtedness issued in exchange for indebtedness described
in (i) above. The Borrower covenants and agrees and the Lender, by
acceptance hereof, covenants, expressly for the benefit of the present
and future holders of Senior Indebtedness, that the payment of the
principal and the interest on this Interim Note is expressly
subordinated in right of payment to the payment in full of all
principal and interest of Senior Indebtedness of the Borrower.
Notwithstanding the foregoing, payment of principal or interest may be
made hereunder unless the Borrower is in default, or if the making of
any payment hereunder would result in a default, with respect to the
payment of amounts of any Senior Indebtedness. Borrower's repayment of
all amounts outstanding under this Interim Note shall be secured as
provided in that certain Security Agreement by and among Borrower and
Lender.
3. Compliance with Securities Laws and Other Transfer
Restrictions.
a. The Lender, by acceptance hereof, agrees, represents and warrants that
this Interim Note is being acquired for investment, that the Lender has
no present intention to resell or otherwise dispose of all or any part
of this Interim Note, and that the Lender will not offer, sell or
otherwise dispose of all or any part of this Interim Note except under
circumstances which will not result in a violation of the Securities
Act of 1933 or applicable state securities laws. The Borrower may
condition any transfer, sale, pledge, assignment or other disposition
on the receipt, from the party to whom this Interim Note is to be so
transferred, of any representations and agreements requested by the
Borrower in order to permit such issuance or transfer to be made
pursuant to exemptions from registration under federal and applicable
state securities laws. Upon transfer of this Interim Note, the
transferee shall, if requested by the Borrower, confirm in writing
transferee's investment purpose and acceptance of the restrictions on
transfer of the Interim Note, as well as any representations and
agreements requested by the Borrower in order to permit the transfer of
the Interim Note to be made pursuant to exemptions from registration
under federal and applicable state securities laws.
2
b. If the Borrower conducts an initial public offering of its Common
Stock, the Lender shall not, without the prior written consent of the
Borrower and the managing underwriter in such offering: (i) sell,
transfer or otherwise dispose of, or agree to sell, transfer or
otherwise dispose of the Interim Note; (ii) sell, transfer or otherwise
dispose of, or agree to sell, transfer or otherwise dispose of any
right to purchase the Interim Note; or (iii) sell or grant, or agree to
sell or grant, options, rights or warrants with respect to the Interim
Note. Such restrictions shall be effective for a period of time equal
to the period during which the managing underwriter imposes such
transfer restrictions on the Borrower's officers and directors;
provided, that in no event shall the restricted period applicable to a
Lender exceed eighteen (18) months after effectiveness of the
Borrower's registration statement filed under the Act with the
Securities and Exchange Commission with respect to such initial public
offering.
c. In the event the Lender desires to transfer this Interim Note, the
Lender shall provide the Borrower with a Form of Assignment, in the
form attached hereto describing the manner of such transfer, and an
opinion of counsel (reasonably acceptable to the Borrower) that the
proposed transfer may be effected without registration or qualification
under applicable securities laws, whereupon such Lender shall be
entitled to transfer this Interim Note in accordance with the notice
delivered by the Lender to the Borrower. If, in the opinion of the
counsel referred to in this Subsection, the proposed transfer or
disposition described in the written notice given may not be effected
without registration or qualification of this Interim Note, the
Borrower shall give written notice thereof to the Lender, and the
Lender will limit its activities in respect to such proposed transfer
or disposition as, in the opinion of such counsel, are permitted by
law.
d. The Borrower may place a "stop transfer" restriction in the Borrower's
books and records with respect to the Interim Note. The restrictions
set forth in this Interim Note shall be binding upon any Lender, donee,
assignee or transferee of the Interim Note.
4. No Rights as Shareholder. No right to vote or receive
dividends or any other rights as a shareholder of the Borrower shall
exist based on this Interim Note.
5. Miscellaneous Provisions.
a. No amendment hereunder shall be effective unless in writing signed by
the Borrower and the Lender and no waiver hereunder shall be effective
unless in writing, signed by the party to be charged. Neither the
failure on the part of the Lender in exercising any right or remedy,
nor any single or partial exercise of any other right or remedy, shall
operate as a waiver. The acceptance by the Lender of any payment
hereunder which is less than payment in full of all amounts due and
payable at the time of such payment shall not constitute a waiver of
the right to exercise any of the options hereunder at that time or at
any subsequent time.
b. The Borrower hereby waives diligence, presentment, demand for payment,
notice of dishonor, notice of non-payment, protest, notice of protest,
and any and all other demands
3
in connection with the delivery, acceptance, performance, default or
enforcement of this Interim Note.
c. The terms and provisions hereof shall inure to the benefit of, and be
binding upon, the respective successors and assigns of the Borrower and
Lender. This Interim Note shall be governed by and construed and
enforced in accordance with the laws of the State of Minnesota without
giving effect to such state's choice of law principles.
d. No recourse for the payment of the principal of or any interest on this
Interim Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or
agreement of the Borrower in any Interim Note, or because of the
creation of any indebtedness represented thereby, shall be had against
any incorporator, shareholder, officer or director as such, past,
present or future, of the Borrower or of any successor corporation
either directly or through the Borrower or any successor corporation,
whether by virtue of any constitution, statute or rule of law or by the
enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
e. Upon receipt by the Borrower of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Interim Note, and
in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon reimbursement to the Borrower
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of this Interim Note, if mutilated, the Borrower will make
and deliver a new Interim Note of like tenor and dates as of such
cancellation, in lieu of this Interim Note.
f. This Interim Note has been issued pursuant to and is subject to the
terms and provisions of that certain Interim Loan and Investment
Agreement of even date herewith between the Borrower and the Lender,
the terms and provisions of which are incorporated herein by reference
with the same force and effect as if fully set forth herein. To the
extent the terms of the Interim Note and the Interim Loan and
Investment Agreement are inconsistent, the terms of this Interim Note
shall control.
g. All notices and other communications shall be by certified mail, return
receipt requested, or by overnight delivery service to the address
furnished to the Borrower in writing by the last Lender of this Interim
Note who shall have furnished an address to the Borrower in writing.
Delivery shall be deemed to have occurred on the date three (3) days
after depositing the notice in the U.S. mail or one (1) day after
delivery of such notice to a reputable overnight delivery service.
4
IN WITNESS WHEREOF, the Borrower has caused this Interim Note to be
executed by its authorized representative, who certifies that he has all
necessary authority on behalf of the Borrower to execute this Interim Note and
bind the Borrower to the terms hereof.
REDLINE PERFORMANCE
PRODUCTS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------
Its: President
5
FORM OF ASSIGNMENT
REDLINE PERFORMANCE PRODUCTS, INC.
FOR VALUE RECEIVED, the undersigned registered owner of this 8% Secured
Subordinated Promissory Note (the "INTERIM NOTE") hereby sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
under the within Interim Note as set forth below:
NAME OF ASSIGNEE ADDRESS PRINCIPAL AMOUNT OF NOTE
---------------- ------- ------------------------
and does hereby irrevocably constitute and appoint ______________________
Attorney to make such transfer on the books of REDLINE PERFORMANCE PRODUCTS,
INC. maintained for the purpose, with full power of substitution in the
premises. The undersigned understands that compliance with the provisions of the
Interim Note is necessary to effect any assignment or transfer.
Dated: , Dated: ,
------------- --- ----- -------------- ----- -------
----------------------------------- ------------------------------------
Signature Second Signature (if necessary)
----------------------------------- ------------------------------------
Print Name Print Name
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND ANY SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF MAY BE
MADE ONLY (i) IN A REGISTRATION OR QUALIFICATION OR (II) IF AN EXEMPTION FROM
REGISTRATION OR QUALIFICATION IS AVAILABLE AND THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL TO THAT EFFECT REASONABLY SATISFACTORY TO THE COMPANY.
SALE OR OTHER TRANSFER OF THIS WARRANT OR THE SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE HEREOF IS FURTHER RESTRICTED FOR UP TO 18 MONTHS FOLLOWING AN
INITIAL PUBLIC OFFERING OF SECURITIES OF THE BORROWER BY THE TERMS OF A INTERIM
LOAN AND INVESTMENT AGREEMENT, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT
THE OFFICES OF THE COMPANY.
Void After 5:00 p.m. Vista, California time on August 1, 2007
REDLINE PERFORMANCE PRODUCTS, INC.
COMMON STOCK PURCHASE WARRANT
Interim Warrant No. IW-1 Shares: 5,000
THIS CERTIFIES that, subject to the terms and conditions herein set
forth, INDUSTRICORP & CO., INC. FBO TWIN CITIES CARPENTERS PENSION FUND or its
registered assigns (the "HOLDER") is entitled to purchase from REDLINE
PERFORMANCE PRODUCTS, INC., a
Minnesota corporation (the "COMPANY"), at any time
or from time to time prior to the time and date set forth above, Five Thousand
(5,000) fully paid and non-assessable shares of common stock of the Company (the
"COMMON STOCK"). Such shares of Common Stock which may be acquired upon exercise
of this Interim Warrant are referred to as the "SHARES").
This Interim Warrant (the "INTERIM WARRANT") is subject to the
following terms and conditions:
1. Purchase Price. Subject to adjustment as hereinafter provided, the
purchase price of one Share shall be Three and 75/100 Dollars ($3.75).
The purchase price of one Share is referred to herein as the "INTERIM
WARRANT PRICE."
2. Adjustment of Interim Warrant Price and Number of Shares. The number
and kind of securities issuable upon the exercise of this Interim
Warrant shall be subject to adjustment from time to time upon the
happening of certain events as follows:
a. Adjustment for Stock Dividends, Splits and Consolidations. In
case the Company shall at any time subdivide the outstanding
Common Stock into a greater number of shares or declare a
dividend payable in Common Stock, the Interim Warrant Price in
effect immediately prior to such subdivision shall
proportionately reduced, and conversely, in case the
outstanding Common Stock shall be combined into a smaller
number of shares, the Interim Warrant price in effect
immediately prior to such combination shall be proportionately
increased.
b. Adjustment for Reorganizations or Consolidations. If any
capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the
Company with another corporation, or the sale of all or
substantially all of its assets to another corporation shall
be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets
("SUBSTITUTED PROPERTY") with respect to or in exchange for
such Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or
sale, the Holder shall have the right to purchase and receive
upon the basis and upon the terms and conditions specified in
this Interim Warrant and in lieu of the Common Stock of the
Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, such
substituted property as would have been issued or delivered to
the Holder if it had exercised this Interim Warrant and had
received upon exercise of this Interim Warrant the Shares
prior to such reorganization, reclassification, consolidation,
merger or sale, less the amount of the Interim Warrant Price.
3. No Fractional Shares. No fractional Shares of Common Stock will be
issued in connection with any exercise of this Interim Warrant. In lieu
of any fractional Shares which would otherwise be issuable, the Company
shall pay cash equal to the product of such fraction multiplied by the
fair market value of one share of Common Stock on the date of exercise
as determined in good faith by the Company.
4. No Stockholder Rights. This Interim Warrant shall not entitle its
Holder to any of the rights of a stockholder of the Company prior to
exercise of this Interim Warrant.
5. Covenants of the Company. The Company covenants that during the period
this Interim Warrant is exercisable, the Company will reserve from its
authorized and unissued Common Stock a sufficient number of shares of
Common Stock to provide for the issuance of Shares upon the exercise of
this Interim Warrant. The Company further covenants that all Shares
that may be issued upon the exercise of this Interim Warrant will, upon
payment and issuance, be duly authorized and issued, fully paid and
nonassessable shares of Common Stock.
6. Exercise of Interim Warrant. This Interim Warrant may be exercised by
the registered Holder, in whole or in part, by the surrender of this
Interim Warrant at the principal office of the Company, together with
the form of exercise hereof duly executed, accompanied by payment in
full of the amount of the Interim Warrant Price in: (a) cash; (b)
cashier's check; or (c) bank draft. Upon partial exercise hereof, a new
Interim Warrant or Interim Warrants containing the same date and
provisions as this Interim Warrant shall be issued by the Company to
the registered Holder for the number of Shares of Common Stock
2
with respect to which this Interim Warrant shall not have been
exercised. Upon each exercise of this Interim Warrant the Holder shall
exercise this Interim Warrant and purchase the lesser of 100 Shares and
the balance of Shares available for issuance under the Interim Warrant.
A Interim Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date the Company is in receipt of
this Interim Warrant, written notice of exercise, and payment for the
number of Shares being acquired upon exercise of this Interim Warrant.
The person entitled to receive the Shares issuable upon such exercise
shall be treated for all purposes as the Holder of such Shares of
record as of the close of business on such date. As promptly as
practicable on or after such date, the Company shall issue and deliver
to the person or persons entitled to receive the same a certificate or
certificates for the number of full Shares of Common Stock issuable
upon such exercise, together with cash in lieu of any fraction of a
Share, as provided above.
7. Additional Right to Convert Interim Warrant.
a. The holder of this Interim Warrant shall have the right to
require the Company to convert this Interim Warrant (the
"CONVERSION RIGHT") at any time prior to its expiration into
shares of Common Stock as provided for in this Section 7. Upon
exercise of the Conversion Right, the Company shall deliver to
the holder (without payment by the holder of any Interim
Warrant Price) the number of shares of Common Stock ("N")
determined based on the formula set forth below.
N = A - B
-----
C
For purposes of the Conversion Right, "A" is the aggregate
Fair Market Value for the Shares immediately prior to the
exercise of the Conversion Right, "B" is the aggregate
Exercise Price for the Shares in effect immediately prior to
the exercise of the Conversion Right, and "C" is the Fair
Market Value of one share of Common Stock immediately prior to
the exercise of the Conversion Right.
b. The Conversion Right may be exercised by the Holder, at any
time or from time to time, prior to its expiration, on any
business day by delivering a written notice in the form
attached hereto (the "CONVERSION NOTICE") to the Company at
the offices of the Company exercising the Conversion Right and
specifying (i) the total number of Shares the Holder will
purchase pursuant to such conversion and (ii) the name,
address and tax identification number of the entity or
individual in whose name the Shares are to be issued.
c. Upon exercise of the Conversion Right, (i) the Holder will
surrender the Interim Warrant, (ii) the Company will deliver
to the Holder a certificate or certificates for the number of
Shares issuable upon such conversion, together with cash, in
lieu of any fraction of a share, and (iii) the Company will
deliver to the Holder a new Interim Warrant representing the
number of shares, if any, with respect to which the Interim
Warrant shall not have been exercised.
3
d. "FAIR MARKET VALUE" means, with respect to the Company's
Common Stock, as of any date: (i) if the Common Stock is
listed or admitted to unlisted trading privileges on any
national securities exchange or is not so listed or admitted
but transactions in the Common Stock are reported on the
Nasdaq National Market, the reported closing price of the
Common Stock on such exchange or by the Nasdaq National Market
as of such date (or, if no shares were traded on such day, as
of the next preceding day on which there was such a trade); or
(ii) if the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the Nasdaq National
Market, and bid and asked prices therefor in the
over-the-counter market are reported by the Nasdaq system or
National Quotation Bureau, Inc. (or any comparable reporting
system), the mean of the closing bid and asked prices as of
such date, as so reported by the Nasdaq system, or, if not so
reported thereon, as reported by National Quotation Bureau,
Inc. (or such comparable reporting service); or (iii) if the
Common Stock is not so listed or admitted to unlisted trading
privileges, or reported on the Nasdaq National Market, and
such bid and asked prices are not so reported by the Nasdaq
system or National Quotation Bureau, Inc. (or any comparable
reporting service), such price as the Company's Board of
Directors determines in good faith in the exercise of its
reasonable discretion.
8. Compliance with Securities Laws and Other Transfer Restrictions. The
Holder of this Interim Warrant, by acceptance hereof, agrees,
represents and Interim Warrants that this Interim Warrant and the
Shares which may be issued upon exercise hereof are being acquired for
investment, that the Holder has no present intention to resell or
otherwise dispose of all or any part of this Interim Warrant or any
Shares, and that the Holder will not offer, sell or otherwise dispose
of all or any part of this Interim Warrant or any Shares except under
circumstances which will not result in a violation of the Securities
Act of 1933, as amended (the "ACT") or applicable state securities
laws. The Company may condition any transfer, sale, pledge, assignment
or other disposition on the receipt from the party to whom this Interim
Warrant is to be so transferred or to whom Shares are to be issued or
so transferred, on any representations and agreements requested by the
Company in order to permit such issuance or transfer to be made
pursuant to exemptions from registration under federal and applicable
state securities laws. Upon exercise of this Interim Warrant, the
Holder hereof shall, if requested by the Company, confirm in writing
its investment purpose and acceptance of the restrictions on transfer
of the Shares.
9. Subdivision of Interim Warrant. At the request of the Holder of this
Interim Warrant in connection with a transfer or exercise of a portion
of the Interim Warrant, upon surrender of such Interim Warrant for such
purpose to the Company, the Company at its expense (except for any
transfer tax payable) will issue and exchange therefor Interim Warrants
of like tenor and date representing in the aggregate the right to
purchase such number of Shares of such Common Stock as shall be
designated by such Holder at the time of such surrender; provided,
however, that the Company's obligations to subdivide securities under
this Paragraph shall be subject to and conditioned upon the compliance
of any such subdivision with applicable state securities laws and with
the Act.
4
10. Loss, Theft, Destruction or Mutilation of Interim Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Interim Warrant, and in case
of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and
cancellation of this Interim Warrant, if mutilated, the Company will
make and deliver a new Interim Warrant of like tenor and dates as of
such cancellation, in lieu of this Interim Warrant.
11. No Limitation on Corporate Action. No provisions of the Interim Warrant
and no right or option granted or conferred hereunder shall in any way
limit, affect, or abridge the exercise by the Company of any of its
corporate rights or powers to recapitalize, amend its Articles of
Organization, reorganize or merge with or into another corporation, or
to transfer all or any part of its property or assets, or the exercise
of any other of its corporate rights and powers.
12. Registration Rights. If, after the date one (1) year after the
completion of the Company's initial public offering of common stock,
the Company proposes to register under the Securities Act of 1933
(except by a claim of exemption or registration statement on a form
that does not permit the inclusion of shares by its security holders),
other than (i) a registration relating solely to employee benefit plans
or (ii) a registration relating solely to a Rule 145 Transaction, the
Company will give written notice to all registered holders of Interim
Warrants, and all registered holders of Shares, of its intention to do
so and, on the written request of any such registered holders given
within twenty (20) days after receipt of any such notice, the Company
will use its best efforts to cause all such Shares, the registered
holders of which shall have requested the registration or qualification
thereof, to be included in such notification or registration statement
proposed to be filed by the Company; provided, however, that nothing
herein shall prevent the Company from, at any time, abandoning or
delaying any such registration initiated by it. If any such
registration shall be underwritten in whole or in part, the Company may
require that the shares requested for inclusion pursuant to this
Section be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the
underwriters. In the event that, in the good faith judgment of the
managing underwriter of such public offering, the inclusion of all of
the shares originally covered by a request for registration would
reduce the number of shares to be offered by the Company or interfere
with the successful marketing of the shares of stock offered by the
Company, the number of shares otherwise to be included pursuant to this
Section in the underwritten public offering may be reduced; provided,
however, that any such required reduction shall be made among all
persons other than the Company. Those shares which are thus excluded
from the underwritten public offering shall be withheld from the market
for a period, not to exceed 90 days, which the managing underwriter
reasonably determines is necessary in order to effect the underwritten
public offering. All expenses of such offering, except the fees of
special counsel to such holders and brokers' commissions or
underwriting discounts payable by such holders, shall be borne by the
Company.
a. If and whenever the Company is required by the provisions of
Section 12 hereof to effect the registration of Shares under
the Securities Act, the Company will:
5
(1) Prepare and file with the Securities and Exchange
Commission (the "COMMISSION") a registration
statement with respect to such securities, and use
its reasonable best efforts to cause such
registration statement to become and remain effective
for such period as may be reasonably necessary to
effect the sale of such securities;
(2) prepare and file with the Commission such amendments
to such registration statement and supplements to the
prospectus contained therein as may be necessary to
keep such registration statement effective for such
period as may be reasonably necessary to effect the
sale of such securities;
(3) furnish to the security holders participating in such
registration and to the underwriters of the
securities being registered such reasonable number of
copies of the registration statement, preliminary
prospectus, final prospectus and such other documents
as such underwriters may reasonably request in order
to facilitate the public offering of such securities;
(4) use its reasonable best efforts to register or
qualify the securities covered by such registration
statement under such state securities or blue sky
laws of such jurisdictions as such participating
holders may reasonably request in writing within 30
days following the original filing of such
registration statement, except that the Company shall
not for any purpose be required to execute a general
consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction
wherein it is not so qualified;
(5) notify the security holders participating in such
registration, promptly after it shall receive notice
thereof, of the time when such registration statement
has become effective or a supplement to any
prospectus forming a part of such registration
statement has been filed;
(6) notify such holders promptly of any request by the
Commission for the amending or supplementing of such
registration statement or prospectus or for
additional information;
(7) prepare and file with the Commission, promptly upon
the request of any such holders, any amendments or
supplements to such registration statement or
prospectus which, in the opinion of counsel for such
holders (and concurred in by counsel for the
Company), is required under the Securities Act or the
rules and regulations thereunder in connection with
the distribution of the Shares by such holder;
(8) prepare and promptly file with the Commission and
promptly notify such holders of the filing of such
amendment or supplement to such registration
statement or prospectus as may be necessary to
correct any statements or omissions if, at the time
when a prospectus relating to such securities is
required to be delivered under the Securities Act,
any event shall have occurred as the result of which
any such prospectus or any other
6
prospectus as then in effect would include an untrue
statement of a material fact or omit to state any
material fact necessary to make the statements
therein, in the light of the circumstances in which
they were made, not misleading;
(9) advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance
of any stop order by the Commission suspending the
effectiveness of such registration statement or the
initiation or threatening of any proceeding for that
purpose and promptly use its best efforts to prevent
the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(10) not file any amendment or supplement to such
registration statement or prospectus to which a
majority in interest of such holders shall have
reasonably objected on the grounds that such
amendment or supplement does not comply in all
material respects with the requirements of the
Securities Act or the rules and regulations
thereunder, after having been furnished with a copy
thereof at least five business days prior to the
filing thereof, unless in the opinion of counsel for
the Company the filing of such amendment or
supplement is reasonably necessary to protect the
Company from any liabilities under any applicable
federal or state law and such filing will not violate
applicable law; and
(11) at the request of any such holder, furnish on the
effective date of the registration statement and, if
such registration includes an underwritten public
offering, at the closing provided for in the
underwriting agreement: (i) opinions, dated such
respective dates, of the counsel representing the
Company for the purposes of such registration,
addressed to the underwriters, if any, and to the
holder or holders making such request, covering such
matters as such underwriters and holder or holders
may reasonably request; and (ii) letters, dated such
respective dates, from the independent certified
public accountants of the Company, addressed to the
underwriters, if any, and to the holder or holders
making such request, covering such matters as such
underwriters and holder or holders may reasonably
request, in which letter such accountants shall state
(without limiting the generality of the foregoing)
that they are independent certified public
accountants within the meaning of the Securities Act
and that in the opinion of such accountants the
financial statements and other financial data of the
Company included in the registration statement or the
prospectus or any amendment or supplement thereto
comply in all material respects with the applicable
accounting requirements of the Securities Act.
b. The rights set forth in this Section 12 shall terminate upon
the earlier of the date three (3) years from the date of
original issuance of this Warrant, and, with respect to such
shares, the date on which the holder of any common stock
issued hereunder may sell such shares pursuant to Rule 144(k)
or within a three (3) month period pursuant to Rule 144.
7
c. The Company hereby indemnifies the holder of this Interim
Warrant and of any Shares, its officers and directors, and any
person who controls such Interim Warrant holder or such holder
of Shares within the meaning of Section 15 of the Securities
Act of 1933, against all losses, claims, damages and
liabilities caused by any untrue statement of a material fact
contained in any registration statement, prospectus,
notification or offering circular (and as amended or
supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary
prospectus or caused by any omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading except insofar as
such losses, claims, damages or liabilities are caused by any
untrue statement or omission contained in information
furnished in writing to the Company by such Interim Warrant
holder or such holder of common stock expressly for use
therein, and each such holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the
Company and each of its officers who signs such registration
statement and each of its directors and each person, if any,
who controls the Company within the meaning of Section 15 of
the Securities Act of 1933 with respect to losses, claims,
damages or liabilities which are caused by any untrue
statement or omission contained in information furnished in
writing to the Company by such holder expressly for use
therein.
13. Restriction on Transfer After a Public Offering. The Holder understands
that the Company at a future date may file a registration or offering
statement (the "REGISTRATION STATEMENT") with the Commission to
facilitate a public offering of its securities. The Holder agrees, for
the benefit of the Company, that should such an initial public offering
be made and should the managing underwriter of such offering require,
the undersigned will not, without the prior written consent of the
Company and such underwriter, during the "Lockup Period" as defined
herein: (a) sell, transfer or otherwise dispose of, or agree to sell,
transfer or otherwise dispose of the Interim Warrant or any Shares
beneficially owned by the undersigned during the Lockup Period; (b)
sell, transfer or otherwise dispose of, or agree to sell, transfer or
otherwise dispose of any options, rights or warrants to purchase the
Interim Warrant or any Shares beneficially owned by the undersigned
during the Lockup Period; or (c) sell or grant, or agree to sell or
grant, options, rights or warrants with respect to the Interim Warrant
or any of the Shares. The foregoing does not prohibit gifts to donees
or transfers by will or the laws of descent to heirs or beneficiaries
provided that such donees, heirs and beneficiaries shall be bound by
the restrictions set forth herein. The term "LOCKUP PERIOD" shall mean
the lesser of (x) 18 months and (y) the period during which Company
officers and directors are restricted by the managing underwriter from
effecting any sales or transfers of the Company's Common Stock. The
Lockup Period shall commence on the effective date of the Registration
Statement.
14. Stop Transfer Order and Restrictive Legend. The Holder agrees that the
Company may place a stop transfer order with its registrar and transfer
agent (if any) covering all Shares. The Holder agrees that the Company
may place one or more restrictive legends on any certificates
evidencing the Shares containing substantially the following language:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, have
not been registered under any state
8
securities law, and are subject to a subscription and
investment representation agreement. They may not be sold,
offered for sale, or transferred in the absence of either an
effective registration under the Securities Act of 1933, as
amended, and under the applicable state securities laws, or an
opinion of counsel for the Company that such transaction is
exempt from registration under the Securities Act of 1933, as
amended, and under the applicable state securities laws.
Sale or other transfer of these securities is further
restricted for up to 18 months following an initial public
offering of securities of the Company.
15. Redemption Provision; Automatic Cancellation of Interim Warrant. If
there is an effective registration statement covering the resale of the
Shares and if the last sale price of the Company's common stock as
reported by the principal securities exchange on which the common stock
is listed or admitted to trading has averaged at least $5.00 per share
for the 20 consecutive trading days ending at least five days prior to
the date on which notice is given, the Company shall automatically have
the right to redeem the Interim Warrant, by paying $0.01 per Share for
the Interim Warrant, and shall deliver written notice to the Holder
("REDEMPTION NOTICE") of the Company's intention to redeem the Interim
Warrant. The Holder shall have thirty (30) days from the date of the
Redemption Notice ("REDEMPTION PERIOD") during which the Holder may
exercise the Interim Warrant. If the Interim Warrant is not exercised
during the Redemption Period, the Holder shall deliver the Interim
Warrant to the Company for cancellation. Cancellation of the Interim
Warrant shall be effective on the Company's books and records
notwithstanding the Holder's failure to deliver the Interim Warrant to
the Company for cancellation. The rights of the Company hereunder shall
continue notwithstanding the Company's failure to complete any
redemption for which a Redemption Notice has been provided.
16. Postponement of Exercise. Notwithstanding anything herein to the
contrary, the Company shall have the right to delay any exercise for a
period of up to one hundred eighty (180) days for the purpose of: (a)
ensuring the availability of an exemption under applicable securities
laws for the issuance of the Shares to the Holder in light of the
transactions by the Company in its securities; and/or (b) facilitating
a distribution of the Company's securities. In either case, if the
Company elects to delay any such exercise, the Company shall inform the
Holder, in writing, of such delay and the terms of such delay. Any such
delay shall not lead to any change in the Interim Warrant Price or the
terms of the Interim Warrant and shall not extend the term of any
Interim Warrant unless such delay would extend past the expiration date
of such Interim Warrant. In such case, the expiration date shall be
extended to thirty (30) days after the end of such delay.
17. Miscellaneous. This Interim Warrant shall be governed by the laws of
the State of Minnesota without regard to such state's conflict of laws
provisions. The headings in this Interim Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a
part hereof. Neither this Interim Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the Company and the registered Holder
hereof. All notices and other communications from the Company to the
Holder of this Interim Warrant shall be by
9
certified mail, return receipt requested, or by overnight delivery
service to the address furnished to the Company in writing by the last
Holder of this Interim Warrant who shall have furnished an address to
the Company in writing.
ISSUED this 1st day of August, 2002
REDLINE PERFORMANCE PRODUCTS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------
Its: President
10
FORM OF ASSIGNMENT
REDLINE PERFORMANCE PRODUCTS, INC.
FOR VALUE RECEIVED, the undersigned registered owner of this Interim
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under the within Interim Warrant, with respect to
the number of Shares of Common Stock set forth below.
NAME OF ASSIGNEE ADDRESS NUMBER OF SHARES
---------------- ------- ----------------
and does hereby irrevocably constitute and appoint ______________________
Attorney to make such transfer on the books of __________________ maintained for
the purpose, with full power of substitution in the premises.
Dated: , 20
------------- --- ---
-----------------------------------
Signature
-----------------------------------
Print Name
EXERCISE FORM
REDLINE PERFORMANCE PRODUCTS, INC.
(To be executed only upon exercise of Interim Warrant)
The undersigned registered owner of this Interim Warrant irrevocably
exercises this Interim Warrant for and purchases _____________________________
of the number of Shares of Common Stock of __________________ purchasable with
this Interim Warrant, and herewith makes payment therefor, all at the price and
on the terms and conditions specified in this Interim Warrant.
Dated: , 20
------------------ --- ---
---------------------------------------
Signature of Registered Owner
---------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇, ▇▇▇▇▇, Zip Code
---------------------------------------
IRS Identification Number
2.
CONVERSION NOTICE
REDLINE PERFORMANCE PRODUCTS, INC.
(To be signed only upon exercise of conversion right)
The undersigned, the holder of the within Interim Warrant, hereby
irrevocably elects to exercise the Conversion Right set forth in such Interim
Warrant and to purchase ____________ shares of the Common Stock, of Redline
Performance Products. The closing of this conversion shall take place at the
offices of the undersigned on ______________________. Certificates for the
shares to be delivered at the closing shall be issued in the name of
___________________________________________ whose address is
______________________________.
Dated: , 20 .
----------------------------- --
----------------------------------------------------------
(Signature must conform in all respects to the name
of holder as specified on the face of the Interim Warrant)
----------------------------------------------------------
(Address)
----------------------------------------------------------
(City, State, Zip Code)
3.
SECURITY AGREEMENT
This SECURITY AGREEMENT (the "AGREEMENT") is entered into as of August
1, 2002 by and among REDLINE PERFORMANCE PRODUCTS, INC., a Minnesota corporation
("DEBTOR") and each of the undersigned lenders and guarantors listed on the
Schedule of Lenders attached hereto (individually referred to herein as a
"LENDER" and collectively referred to herein as the "LENDERS").
RECITALS
Debtor has borrowed funds from Lenders pursuant to certain Secured
Subordinated Promissory Notes in aggregate principal dollar amount of $50,000
(the "INTERIM NOTES") in accordance with the terms of an Interim Loan and
Investment Agreement and other Lenders have provided or will provide a guaranty
(the "GUARANTY") of Debtor's Bank Debt, as defined herein, in the amount of up
to $50,000. Debtor is the owner of certain assets identified below, in which
Debtor is granting a security interest to the Lenders.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth and for other
good and valuable consideration, the parties hereto mutually agree as follows:
1. Definitions. The following terms, as used in this Agreement, have
the following meanings:
a. "Agent" means ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇.
b. "Bank Debt" means certain indebtedness anticipated to be incurred by
the Debtor in August 2002 to Venture Bank Shares, Inc. based in
Bloomington, Minnesota in an amount not to exceed $50,000, the
repayment of which is guaranteed by certain Lenders in the amounts set
forth in the Schedule of Lenders attached hereto and incorporated
herein by reference.
c. "Code" means the Minnesota Uniform Commercial Code, as amended and
supplemented from time to time, and any successor statute.
d. "Collateral" means the collateral described on EXHIBIT A attached
hereto.
e. "Obligations" means the Debtor's obligations to make payment of all
amounts outstanding under the Interim Notes and the Bank Debt.
f. "Pro-Rata Share" means with respect to any Lender at any time, a
fraction (expressed as a percentage), the numerator of which is the
amount of such Lender's Principal Exposure at such time, and the
denominator of which is the aggregate amount of the Principal Exposure
of all of the Lenders at such time.
C-4
g. "Principal Exposure" means with respect to any Lender at the time of
an Event of Default, the amount of outstanding principal and accrued
interest under such Lender's Interim Note or the amount of the Lender's
Guaranty of Bank Debt which has not been extinguished.
2. Grant of Security Interest. Debtor hereby grants to Lenders, a
security interest in all of Debtor's right, title, and interest in and to the
Collateral to secure the Obligations.
3. Representations, Warranties and Covenants. Debtor hereby represents,
warrants, and covenants that:
a. Debtor shall not, except in the ordinary course of business,
transfer, sell, assign, license, or otherwise convey any portion of the
Collateral, nor pledge, hypothecate, encumber, or grant a security
interest therein, without Secured Party's prior written consent.
b. The risk of injury to or loss of the Collateral shall rest solely
upon Debtor, and such loss, injury or destruction shall not release
Debtor from any of the Obligations.
4. Events Of Default. Any of the following events shall be an Event of
Default:
a. Debtor's failure to pay all amounts outstanding under the Interim
Notes on or before the Maturity Date (as defined in the Interim Notes).
b. Debtor's failure to pay all amounts outstanding as Bank Debt on or
before the Maturity Date (as defined in the agreements documenting the
Bank Debt).
c. Debtor fails to observe or perform any covenant, condition, or
agreement to be observed or performed pursuant to the terms hereof
which materially and adversely affects any Lender.
5. Appointment of Agent. Upon an Event of Default, each of the Lenders
hereby designates and appoints the Agent, and each of the Lenders hereby
irrevocably authorizes the Agent to take such action on their behalf under the
provisions of this Agreement and to exercise such powers as are set forth herein
or therein, together with such other powers as are incidental thereto. The Agent
agrees to act as such on the express terms and conditions contained in this
Agreement. Notwithstanding the use of the defined term "Agent," it is expressly
understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Lender by reason of this Agreement and that the Agent is
merely acting as the representative of the Lenders with only those duties as are
expressly set forth in this Agreement. In its capacity as the Lenders'
contractual representative, the Agent: (i) does not assume any fiduciary duties
to any of the Lenders; and (ii) is acting as an independent contractor, the
rights and duties of which are limited to those expressly set forth in this
Agreement. Each of the Lenders agrees to assert no claim against the Agent on
any agency theory or any other theory of liability for breach of fiduciary duty,
all of which claims each Lender waives.
C-5
6. Specific Remedies. Upon the occurrence of any Event of Default,
Agent shall have, in addition to, other rights given by law or in this
Agreement, the Interim Notes and the documentation governing the Bank Debt, all
of the rights and remedies with respect to the Collateral of a secured party
under the Code.
7. Powers and Duties. The Agent shall have and may exercise such powers
under this Agreement as are specifically delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action hereunder, except any action specifically required by
this Agreement or by the written agreement of the remainder of the Lenders. The
Agent shall not take any action which is in conflict with any provisions of
applicable law or of this Agreement or any instructions signed by the remainder
of the Lenders and agreed to by the Agent.
8. Authorization to execute Documents. Upon notice from the remaining
Lenders, the Agent shall be authorized to and shall execute and deliver such
documents or agreements and shall deliver to the Debtor or shall accept delivery
from the Debtor of such documents or agreements as are reasonably necessary to
carry out the terms of this Agreement after an Event of Default.
9. Direction. The Agent shall take only such action with respect to the
Collateral directed in writing by the remaining Lenders and agreed to by the
Agent. Notwithstanding the foregoing, the Agent shall not be obligated to take
any such action: (i) which is in conflict with any provisions of applicable law
or of this Agreement; or (ii) with respect to which the Agent, in its opinion,
shall not have been provided adequate security and indemnity against the costs,
expenses and liabilities that may be incurred by it as a result of compliance
with such direction. Under no circumstances shall the Agent be liable for
following the written direction of the remainder of the Lenders.
10. The Collateral Account. Upon an Event of Default, the Agent shall
establish and maintain at its principal office an interest-bearing account that
shall be entitled the "Redline Collateral Account." All moneys received by the
Agent with respect to Collateral after an Event of Default shall be deposited in
the Account and thereafter shall be held, applied and/or disbursed by the Agent
in accordance with Section 11 hereof. In no event shall moneys other than
proceeds of Collateral (and interest thereon) be deposited in the Collateral
Account. The Collateral Account at all times shall be subject to the exclusive
dominion and control of the Agent.
11. Application of Moneys. All moneys held by the Agent in the
Collateral Account shall be distributed by the Agent at such times as are agreed
to by the remaining Lenders and the Agent as follows:
FIRST: To the Agent in an amount equal to the reasonable
expenses of the Agent in performing its duties hereunder and
that are unpaid as of such date, and to any Lender that has
theretofore advanced or paid any such expenses in
C-6
an amount equal to the amount thereof so advanced or paid by
such Lender prior to such date;
SECOND: To the Lenders and the Agent in an amount equal to the
total amount of the Obligations owed to each Lender and the
Agent. In the event the moneys are not equal to or more than
the amount of the Obligations owed to each Lender and the
Agent, then to the Lenders and the Agent in an amount equal to
the Agent's and each remaining Lender's Pro-Rata Share; and
THIRD: Any surplus remaining after payment in full in cash of
all the Agent's expenses and all of the Obligations shall be
paid to the Debtor, or to whomever may be lawfully entitled to
receive the same, or as a court of competent jurisdiction may
direct
Notwithstanding the foregoing, except for any surplus under clause THIRD above,
the Agent shall not be required (unless agreed to by the remaining Lenders and
the Agent) to make a distribution if the balance in the Collateral Account
available for distribution is less than $1,000. The Agent shall not be
responsible for any Lender's application (or order of application) of payments
received by such Lender from the Agent hereunder to the Obligations owing to
such Lender.
12. Information from Lenders. Each of the Lenders hereby agrees,
promptly upon request by the Agent, to provide to the Agent in writing such
information regarding the Obligations held by such Lender as may be reasonably
required by the Agent at any time to determine such Lender's Pro Rata Share or
to calculate distributions to such Lender from the Collateral Account. Each
Lender shall notify the Agent in writing promptly following the repayment in
full or termination of all Obligations owing to such Lender.
13. Limitation on Agent's Duties in Respect of Collateral. Other than
the Agent's duties set forth in this Agreement as to the custody of Collateral
and the proceeds thereof received by the Agent hereunder and thereunder and the
accounting to the Debtor and the Lenders therefore, the Agent shall have no duty
to the Debtor or the remaining Lenders with respect to any Collateral in its
possession or control or in the possession or control of its agent or nominee,
any income thereon, or the preservation of rights against prior parties or any
other rights pertaining thereto.
14. Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective Pro
Rata Shares as of the date of any demand by the Agent with respect thereto: (i)
for any reasonable expenses incurred by the Agent, on behalf of the remaining
Lenders, in connection with the preservation or protection of the Collateral or
the validity, perfection or priority of the enforcement of this Agreement
against the Debtor; and (ii) for any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of this Agreement.
C-7
15. Rights as a Lender. Notwithstanding that the Agent is acting as the
Agent hereunder, the Agent in its individual capacity shall have the same rights
and powers hereunder as any Lender and may exercise the same as though it were
not the Agent.
16. Successor Agent. The Agent may resign at any time by giving not
less than thirty days' prior written notice thereof to the remaining Lenders and
the Debtor and the Agent may be removed at any time with or without cause by
written notice received by the Agent from the remaining Lenders. Upon any such
resignation or removal, the remaining Lenders shall have the right to appoint,
on behalf of the Lenders, a successor Agent. If no successor Agent shall have
been so appointed by the Lenders and shall have accepted such appointment within
thirty days after the retiring Agent's giving notice of resignation, then the
retiring Agent may appoint, on behalf of the Lenders, a successor Agent. Upon
the acceptance of any appointment as the Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation hereunder as Agent, the provisions of this
Agreement shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as the Agent hereunder.
17. Choice of Law and Venue. The validity of this Agreement, its
construction, interpretation, and enforcement, and the rights of the parties
hereto with respect to all matters arising hereunder or related hereto shall be
determined under, governed by, and construed in accordance with the laws of the
state of Minnesota, without giving effect to its conflict of laws principles.
The parties agree that all actions or proceedings arising in connection with
this agreement shall be tried and litigated only in the state and federal courts
located in Hennepin County, Minnesota.
18. General Provisions.
a. Effectiveness. With respect to each Lender, this Agreement shall be
binding and deemed effective when executed by such Lender.
b. Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the
parties; provided, however, that neither Debtor nor any of the Lenders
may assign this Agreement or any rights or duties hereunder without the
other party's prior written consent and any prohibited assignment shall
be absolutely void.
c. Section Headings. Headings and numbers have been set forth herein
for convenience only. Unless the contrary is compelled by the context,
everything contained in each Section applies equally to this entire
Agreement.
d. Severability of Provisions. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the
purpose of determining the legal enforceability of any specific
provision.
C-8
e. Amendments in Writing. A writing signed by each Lender and Debtor
can only amend this Agreement.
f. Counterparts; Facsimile Execution. This Agreement may be executed in
any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be
deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed
counterpart of this Agreement by facsimile shall be equally as
effective as delivery of a manually executed counterpart of this
Agreement. Any party delivering an executed counterpart of this
Agreement by facsimile also shall deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually
executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
g. Notices. All notices, demands, and requests that either party is
required or elects to give to the other shall be in writing and shall
be delivered personally or sent by registered or certified mail, first
class postage prepaid, to the business address of the Lenders, as
indicated in the Debtor's records, or to the principal office of the
Debtor, whichever is applicable.
h. Termination. This Agreement shall terminate as to a Lender after
payment and performance of all Obligations owed to such Lender. At such
time such Lender shall execute documents necessary to terminate its
security interest granted hereunder. At such time, as the payment and
performance of all Obligations of the final Lender have been satisfied,
such Lender shall execute and deliver to Debtor a termination of all
remaining security interests granted by Debtor hereunder.
i. Integration. This Agreement reflects the entire understanding of the
parties with respect to the transactions contemplated hereby and shall
not be contradicted or qualified by any other agreement, oral or
written, before the date hereof. In the event of a conflict between the
terms of this Agreement and any other agreement or document, the terms
of this Agreement shall control.
C-9
IN WITNESS WHEREOF, the parties have executed this Security Agreement
on the date first written above.
Lenders: Debtor:
Industricorp & Co., Inc. FBO TC Carpenters Redline Performance Products, Inc.
By: /s/ ▇▇▇▇ ▇. ▇▇▇ /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ By: ▇▇▇▇ ▇. ▇▇▇▇▇
Its: Officer Officer Its: CEO
C-10
SCHEDULE OF LENDERS
NAME OF LENDER AMOUNT OF INTERIM NOTE AMOUNT OF GUARANTY
-------------- ---------------------- ------------------
Industricorp & Co., Inc FBO Twin City $50,000 N/A
Carpenters Pension Fund Account
EXHIBIT "A"
INVENTORY
All inventory of Debtor, including raw materials, work in process and finished
goods, whether now owned or hereafter acquired and wherever located with all
substitutions and replacements for and products of any of the foregoing.