THIRD AGREEMENT REGARDING AMENDMENT OF PROMISSORY NOTE
Exhibit
10.12
THIRD
AGREEMENT REGARDING AMENDMENT
OF
PROMISSORY NOTE
This
Third Agreement Regarding Amendment of Promissory Note (this "Agreement") is
entered into effective June 27, 2008 (the "Effective Date")
between MICROHELIX, INC., an Oregon corporation ("Maker"), ▇▇▇▇▇
ELECTRONICS, INC., an Oregon corporation ("Co-Maker"), and MH
FINANCIAL ASSOCIATES, LLC, an Oregon limited liability company ("Holder").
RECITALS
A. Maker
made and delivered its Promissory Note dated April 8, 2005 in the face amount of
$1,250,000 to ▇▇▇▇▇ ▇. ▇▇▇▇▇ (the "Original
Note"). The Original Note was subsequently amended by Maker
and ▇▇▇▇▇ ▇. ▇▇▇▇▇ effective July 29, 2005, August 5, 2005,
November 18, 2005, January 3, 2006, May 18, 2006 and
August 8, 2006.
B. Contemporaneously
with the execution and delivery of the Original Note, ▇▇▇▇▇ ▇. ▇▇▇▇▇, Maker
and Co-Maker executed and delivered a Security Agreement dated April 8,
2005 (the "Security Agreement"), under which, among other things, Maker and
Co-Maker granted to ▇▇▇▇▇ ▇. ▇▇▇▇▇ a security interest in the collateral
described in the Security Agreement.
▇. ▇▇▇▇▇▇
acquired from ▇▇▇▇▇ ▇. ▇▇▇▇▇ all right, title and interest in the Original Note
and in the Security Agreement.
D. On
or about October 19, 2006, Maker and Holder entered into an Agreement Regarding
Amendment of Promissory Note (the "First Amended
Agreement") and an Amended and Restated Promissory Note (the "First Restated Note")
in the principal amount of $1,028,982, together with warrants to purchase shares
of Maker's Common Stock.
E. On
or about March 12, 2007, Maker, Co-Maker and Holder entered into a Second
Agreement Regarding Amendment of Promissory Note (the "Second Amended
Agreement") and a Second Amended and Restated Promissory Note in the
principal amount of $1,721,428.78 (the "Second Restated
Note"), which superseded each of the First Amended Agreement and the
First Restated Note in their entirety. As of the date hereof, the
Second Restated Note has an outstanding balance of $477,742.96.
F. Maker
has requested that Holder loan up to an additional $500,000, and Holder has
agreed to make such loans on the terms and conditions set forth
herein.
NOW,
THEREFORE, for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties to this Agreement agree as
follows:
2. Definitions. Capitalized
terms used in this Agreement that are not defined herein have the meanings
assigned to those terms in the Third Restated Note (defined below).
3. Third Restated
Note. Simultaneously with the execution of this Agreement,
Maker and Co-Maker will execute and deliver to Holder a Third Amended and
Restated Promissory Note in the principal amount of $977,742.96 (the "Third Restated
Note"). Maker and Co-Maker agree that the granting, renewing,
extending or making of any advance of any loan by Holder under this Agreement
and the Third Restated Note at all times will be based upon the cash budgets of
Maker and Co-Maker as accepted by Holder in Holder's sole judgment and
discretion. The Third Restated Note will be in substantially the form
attached hereto as Exhibit A and
will replace and supersede the Original Note, the First Restated Note and the
Second Restated Note in their entirety. Holder will deliver the
original Second Restated Note to Maker for cancellation. The term
"Third Restated
Note" includes all amendments, modifications, replacements and
addenda thereto.
Page 1 – THIRD AGREEMENT
REGARDING AMENDMENT OF PROMISSORY NOTE
4. Stock
Warrant. As additional consideration to Holder for extending
additional credit to Maker and Co-Maker, for each $100,000 (or part thereof)
advanced to Maker and Co-Maker under the Third Restated Note, whether prior to,
on or after the date hereof, Maker will issue and deliver to Holder a warrant or
warrants in the form attached hereto as Exhibit B to purchase
1,066,667 common shares of Maker, with an exercise price of $0.001 per share
(the "New
Warrants"), up to a maximum of 10,666,670 shares if the entire
$977,742.96 is advanced under this Agreement. The New Warrants will
have an exercise period of five years from the date of issuance. The
New Warrants will be assignable by Holder and will permit a cashless exercise by
Holder. Maker's Board of Directors will have approved its agreement
to issue the New Warrants as a condition of this Agreement.
5. Registration
Rights. Simultaneously with the execution of this Agreement,
Maker and Holder will enter into a registration rights agreement, satisfactory
to Holder and its counsel, which provides for demand and "piggy back"
registration rights with respect to common shares which may be issued pursuant
to the exercise of the New Warrants.
6. Right of First Refusal;
Participation Rights. Holder will have the right to
participate in any future financings, whether debt or equity, prior to and on
any merger of Maker with an operating company at the same price and under the
same terms as are detailed in any term sheet, offering memorandum or other
document evidencing the terms of the transaction. Maker will notify
Holder within five business days of receiving any such term sheet or offering
memorandum. The participation rights granted in this Section 5 will expire upon the occurrence of the earlier
to occur of (a) when the Third Restated Note is paid in full, or
(b) a Qualified Liquidity Event; provided however, that if the Third Restated
Note is not paid in full at such time, then the participation rights granted in
this Section 5 will continue until the Third Restated Note is paid in
full. For purposes of this Agreement, a "Qualified Liquidity Event"
means the first to occur of a Sale Transaction or a Public
Offering. A "Sale Transaction" means (i) the sale (in one or a
series of related transactions) of all or substantially all of Maker's assets to
a Person (defined below) or a group of Persons acting in concert, (ii) the
sale or transfer (in one or a series of related transactions) of a majority of
the outstanding capital stock of Maker, to one Person or a group of Persons
acting in concert, or (iii) the merger or consolidation of Maker with or
into another Person that is not an affiliate of Maker, in each case in clauses
(ii) and (iii) above under circumstances in which the holders of a majority in
voting power of the outstanding capital stock of Maker immediately prior to such
transaction (excluding any Person or group of Persons acting in concert who are
acquiring Maker) own less than a majority in voting power of the outstanding
capital stock of Maker, or voting equity securities of the surviving or
resulting corporation or acquirer, as the case may be, immediately following
such transaction. A sale (or multiple related sales) of assets
including, without limitation, one or more subsidiaries (whether by way of
merger, consolidation, reorganization or sale of all or substantially all assets
or securities) which constitutes all or substantially all of the assets of Maker
shall bee deemed a Sale Transaction. "Person" shall be
construed in the broadest sense and means and includes, without limitation, a
natural person, a partnership, a corporation, an association, a joint stock
company, a limited liability company, a trust, a joint venture, an
unincorporated organization and any other entity. "Public Offering"
means an offering of at least $5,000,000 of equity securities of Maker or any
subsidiary (or any successor-in-interest of the foregoing) listed on a
nationally recognized exchange or quoted on the Nasdaq Stock Market that is made
pursuant to an effective registration statement under the Securities Act of
1933, as amended.
Page 2 – THIRD AGREEMENT
REGARDING AMENDMENT OF PROMISSORY NOTE
7. Fees and
Expenses. Simultaneously with execution of this Agreement,
Maker will pay Holder (a) a fully earned, nonrefundable loan fee in an
amount equal to 3.5% of the principal amount of the Third Restated Note amount,
and (b) Holder's reasonable out-of-pocket costs and expenses related to
this transaction, including reasonable attorney fees and expenses for the
documentation and negotiation of this Agreement, the Third Restated Note,
Warrant and related documents. In the event Maker does not have
sufficient funds to pay the loan fee and Holder’s costs and expenses at the time
of execution of this Agreement, then the loan fee and costs and expenses shall
be deducted from the next advance under the Third Restated Note.
8. Representations and
Warranties. Maker and Co-Maker represent and warrant to
Holder, as of the date of this Agreement, and at all times the Third Restated
Note is outstanding:
8.1. Organization. Maker
and Co-Maker are, and at all times will be, duly organized and validly existing
under the laws of the state of Oregon. Maker and Co-Maker are, and
all times will be, duly qualified to do business in all states in which the
failure to so qualify would have a material adverse effect on its business or
financial condition. Maker and Co-Maker have the full power and
authority to own their properties and to transact the business in which they are
presently engaged or presently propose to engage. Maker and Co-Maker
maintain their principal office at c/o Aequitas Capital Management, Inc.,
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇. Unless Maker
and Co-Maker have designated otherwise in writing, the principal office is the
office at which Maker and Co-Maker keep their books and records including its
records concerning the Collateral for the Third Restated Note. Maker
and Co-Maker will notify Holder at least 30 days prior to any change in the
location of Maker's or Co-Maker's state of organization or any change in Maker's
or Co-Maker's name. Maker and Co-Maker will use their commercially
reasonable best efforts do all things necessary to preserve and to keep in full
force and effect their existence, rights and privileges, and will comply with
all regulations, rules, ordinances, statutes, orders and decrees of any
governmental or quasi-governmental authority or court applicable to Maker,
Co-Maker and their business activities.
8.2. Authorization. Maker's
and Co-Maker's execution, delivery and performance of this Agreement and
all of their respective agreements referred to herein, including without
limitation, the Third Restated Note and New Warrants, have been duly authorized
by all necessary action by Maker and Co-Maker and does not conflict with, result
in a violation of, or constitute a default under (1) any provision of
Maker's or Co-Maker's articles of incorporation, other organizational documents
or agreements or instruments binding upon Maker or Co-Maker or (2) any law,
governmental regulation, court decree or order applicable to Maker, Co-Maker or
their properties.
Page 3 – THIRD
AGREEMENT REGARDING AMENDMENT OF PROMISSORY NOTE
8.3. Financial
Information. Each of Maker's and Co-Maker's financial
statements supplied to Holder truly and completely disclosed in all
material respects Maker's and Co-Maker's financial condition as of the date of
the statement, and there has been no material adverse change in Maker's or
Co-Maker's financial condition subsequent to the date of the most recent
financial statement supplied to Holder. Maker and Co-Maker have no
material contingent obligations except as disclosed in such financial
statements.
8.4. Legal
Effect. This Agreement constitutes, and any instrument or
agreement Maker and/or Co-Maker are required to give under this Agreement
when delivered will constitute, legal, valid and binding obligations of Maker
and/or Co-Maker, as applicable, enforceable against Maker and Co-Maker in
accordance with their respective terms, subject only to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
other similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto, and the award by courts of money damages
rather than specific performance of contractual provisions involving matters
other than the payment of money.
8.5. Capitalization. The
shares of Common Stock to be issued by Maker upon exercise of the New Warrants
will be, when issued in accordance therewith, duly authorized, validly issued,
fully paid and nonassessable.
8.6. Properties. Except
as contemplated by this Agreement or as previously disclosed in Maker's or
Co-Maker's financial statements or in writing to Holder and as accepted by
Holder, and except for property tax liens for taxes not presently due and
payable, Maker and Co-Maker own and have good title to all of their properties
free and clear of all security interests, and have not executed any security
documents or financing statements relating to such properties. All of
Maker's and Co-Maker's properties are titled in their respective legal name, and
Maker and Co-Maker have not used or filed a financing statement under any other
name for at least the last five years.
8.7. Litigation and
Claims. Except as previously disclosed by Maker or Co-Maker to
Holder (including specifically claims made by and litigation with Maker's and
Co-Maker's unsecured creditors), no litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid taxes)
against Maker or Co-Maker are pending or, to the best of Maker's or Co-Maker's
knowledge, threatened.
8.8. Taxes. To
the best of Maker's and Co-Maker's knowledge, all of Maker's and Co-Maker's tax
returns and reports that are or were required to be filed, have been filed, and
all taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Maker or Co-Maker in good
faith in the ordinary course of business and for which adequate reserves have
been provided.
8.9. Lien
Priority. Unless otherwise previously disclosed to Holder in
writing (including specifically prior liens granted to Hewlett Packard Financial
Services Company), Maker and Co-Maker have not entered into or granted any
security agreements, or permitted the filing or attachment of any security
interests on or affecting any of the collateral securing repayment of the Third
Restated Note (the "Collateral"), that
would be prior or that may in any way be superior to Holder's security interests
and rights in and to such Collateral.
Page 4 – THIRD
AGREEMENT REGARDING AMENDMENT OF PROMISSORY NOTE
9. Affirmative
Covenants. Maker and Co-Maker covenant and agree with Holder
that, so long as the Third Restated Note remains outstanding and unpaid, Maker
and Co-Maker will:
9.1. Notices of Claims and
Litigation. Promptly inform Holder in writing of (a) all
material adverse changes in Maker's or Co-Maker's financial condition, and
(b) all existing and all threatened litigation, claims, investigations,
administrative proceedings or similar actions affecting Maker or Co-Maker which
could materially affect the financial condition of Maker or
Co-Maker.
9.2. Financial Records. Maintain
its books and records in accordance with United States generally accepted
accounting principles ("GAAP"), applied on a
consistent basis, and permit Holder to examine and audit Maker's and Co-Maker's
books and records at all reasonable times, subject to any applicable
confidentiality agreements entered into by Holder.
9.3. Financial
Statements. Furnish Holder with quarterly internally prepared
financial statements within 30 days after the close of each quarter and with
such additional information regarding Maker's and Co-Maker's financial condition
and business operations as may be reasonably requested by Holder.
9.4. GAAP. Cause
all financial reports required to be provided under this Agreement to be
prepared according to GAAP, applied on a consistent basis, and certified by
Maker as being true and correct in all material respects.
9.5. Board Observation
Rights. ▇▇▇▇▇ ▇▇▇▇▇▇ board observation rights, including the
right to attend and be notified of board meetings, and provide Holder with
copies of all financial statements, correspondence and any other materials
provided to any Board Member, including any oral information.
9.6. Additional
Information. Furnish such additional information and
statements as Holder may reasonably request from time to time.
9.7. Insurance. Maintain
fire and other risk insurance, public liability insurance, directors and
officers insurance and such other insurance as is reasonable and customary for
businesses similar to Maker and Co-Maker.
9.8. Taxes, Charges and
Liens. Except those presently being or to be contested by
Maker or Co-Maker in good faith in the ordinary course of business and for which
adequate reserves have been provided, pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature, imposed
upon Maker, Co-Maker or their properties, income or profits, prior to the date
on which penalties would attach, and all lawful claims that, if unpaid, might
become a lien or charge upon any of Maker's or Co-Maker's properties, income or
profits.
9.9. Performance. Perform
and comply in a timely manner with all terms, conditions and provisions set
forth in this Agreement, in the Third Restated Note, and in all other
instruments and agreements between Maker and/or Co-Maker and Holder (the "Related
Documents"). Maker and Co-Maker will notify Holder
immediately in writing of any default in connection with this Agreement, the
Third Restated Note or any Related Documents.
Page 5 – THIRD
AGREEMENT REGARDING AMENDMENT OF PROMISSORY NOTE
9.10. Operations. Maintain
executive and management personnel with substantially the same
qualifications and experience as the present executive and management personnel;
provide written notice to Holder of any change in executive and management
personnel and conduct its business affairs in a reasonable and prudent
manner.
9.11. Compliance with Governmental
Requirements. Comply in all material respects with all laws,
ordinances and regulations, now or hereafter in effect, of all governmental
authorities, applicable to the conduct of Maker's and Co-Maker's properties,
businesses and operations. Maker and Co-Maker may contest in good
faith any such law, ordinance or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as Maker or Co-Maker have
notified Holder in writing prior to doing so and so long as, in Holder's sole
opinion, Holder's interests in the Collateral are not
jeopardized. Holder may require Maker or Co-Maker to post adequate
security or surety bond, reasonably satisfactory to Holder, to protect Holder's
interest.
9.12. Inspection. Permit
employees or agents of Holder at any reasonable time and upon reasonable notice
to inspect any and all Collateral for the Third Restated Note and Maker's and
Co-Maker's other properties and to examine or audit Maker's and Co-Maker's
books, accounts and records and to make copies and memoranda of Maker's and
Co-Maker's books, accounts and records, subject to any applicable
confidentiality agreements entered into by Holder. If Maker or
Co-Maker now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party, Maker and
Co-Maker, upon request of Holder, will notify such party to permit Holder free
access to such records at all reasonable times and to provide Holder with copies
of any records it may request, all at Maker's and Co-Maker's expense, subject to
any applicable confidentiality agreements entered into by Holder.
9.13. Compliance
Certificates. Unless waived in writing by Holder, provide
Holder with a certificate executed by Maker's chief financial officer, or other
officer or person acceptable to Holder, certifying that the representations and
warranties set forth in this Agreement are true and correct in all material
respects as of the date of the certificate and further certifying that, as of
the date of the certificate, no Event of Default has occurred and no event has
occurred which, with the passage of time or otherwise, would constitute an Event
of Default. Such certificate will be provided simultaneously with the
provision of quarterly financial statements pursuant to Section 8.3
hereof.
9.14. Disclosure of
Information. Subject to the provisions of confidentiality
agreements reasonably satisfactory to Maker and Co-Maker to be entered into by
Holder and its assigns and affiliates, Maker and Co-Maker release Holder to
disclose any financial information regarding Maker and Co-Maker, including
pro-forma financial statements, to its members, assigns, participants,
investors, officers, directors, employees and consultants ("Assigns and Agents").
Maker and Co-Maker agree to meet with any such Assigns and Agents at Holder's
request.
Page 6 – THIRD
AGREEMENT REGARDING AMENDMENT OF PROMISSORY NOTE
9.15. Additional
Assurances. Make, execute and deliver to Holder such
promissory notes, mortgages, deeds of trust, security agreements, assignments,
financing statements, landlord waivers, instruments, documents and other
agreements as Holder or its counsel may reasonably request to evidence and
secure the Third Restated Note and to perfect all related security
interests.
10. Holder's
Expenditures. If any action or proceeding is commenced that
would materially affect Holder's interest in the Collateral or if Maker or
Co-Maker fails to comply with any provision of this Agreement or the Third
Restated Note or the Related Documents, including but not limited to Maker's or
Co-Maker's failure to discharge or pay when due any amounts Maker or Co-Maker is
required to discharge or pay under the Third Restated Note or any Related
Documents. Holder, on Maker's or Co-Maker's behalf, may (but will not be
obligated to) take any action that Holder deems appropriate, including but not
limited to discharging or paying all taxes, liens, security interests,
encumbrances and other claims, at any time levied or placed on any Collateral
and paying all costs for insuring, maintaining and preserving any
Collateral. All such expenditures incurred or paid by Holder for such
purposes will then bear interest at the rate charged under the Third Restated
Note from the date incurred or paid by Holder to the day of repayment by Maker
or Co-Maker. All such expenses will become a part of the Third
Restated Note balance and, at Holder's option, will (a) be payable on
demand; (b) be added to the balance of the Third Restated Note and be
apportioned among and be payable with any installment payments to become due
during the remaining term of the Third Restated Note; or (c) be treated as
a balloon payment which will be due and payable at the Third Restated Note's
Maturity.
11. Negative
Covenants. Maker and Co-Maker covenant and agree with Holder
that while the Third Restated Note is outstanding and unpaid, Maker and Co-Maker
will not, without the prior written consent of Holder, which consent will not be
unreasonably withheld:
11.1. Indebtedness and
Liens. (a) Except for trade debt incurred in the normal course
of business and indebtedness to Holder contemplated by this Agreement, create,
incur or assume indebtedness for borrowed money, including capital leases, or
(b) sell, transfer, mortgage, assign, pledge, lease, grant a security interest
in or encumber any of Maker’s or Co-Maker’s assets;
11.2. Loans, Acquisitions and
Guaranties. Other than in the ordinary course of business, (a)
Loan, invest in or advance money or assets; (b) purchase, create or acquire any
interest in any other enterprise or entity; or (c) incur any obligations as
surety or guarantor;
11.3. Distributions. Make
any distributions or pay dividends to the Maker's shareholders;
11.4. Capital
Expenditures. Make any capital expenditures outside of the
ordinary course of business in excess of $20,000 in the aggregate;
11.5. Stock
Redemption. Redeem or repurchase any outstanding shares of the
Maker's issued and outstanding common stock, preferred stock or warrants or
other convertible securities;
11.6. Equity. Issue
any additional equity;
Page 7 – THIRD
AGREEMENT REGARDING AMENDMENT OF PROMISSORY NOTE
11.7. Sale of
Assets. Sell, lease or transfer substantially all of Maker's
assets;
11.8. Merger. Merge
or otherwise combine the Maker with any other business entity;
11.9. Amendment of Articles of
Incorporation. Amend the Maker's Amended and Restated Articles
of Incorporation, as amended; or
11.10. Dissolution. Dissolve.
12. Additional
Documents. The parties will sign and deliver such additional
documents and take such further actions as may be reasonably necessary to
further effect and evidence this Agreement.
13. Attorney
Fees. If any party to this Agreement breaches any term of this
Agreement, the other party will be entitled to recover all costs and
expenses, including reasonable attorney fees, incurred to enforce the terms of
this Agreement, whether or not suit is filed, including such costs or fees as
may be awarded at trial, in arbitration, or in bankruptcy proceedings, and
in any appeal of such suit or action.
14. Successors and
Assigns. This Agreement will be binding on and inure to the
benefit of the parties hereto and their heirs, personal representatives,
successors and assigns.
15. Time of
Essence. Time is of the essence for each and every provision
of this Agreement.
16. Entire
Agreement. This Agreement sets forth the understanding of the
parties with respect to the subject matter of this Agreement and supersedes any
and all prior understandings and agreements, whether written or oral, between
the parties with respect to such subject matter.
17. Amendment. This
Agreement may be amended only by an instrument or writing executed by all of the
parties hereto.
18. Governing Law;
Venue. This Agreement will be governed by the laws of the
State of Oregon, without giving effect to any conflict-of-law principle that
would result in the laws of any other jurisdiction governing this
Agreement. Venue for any dispute or litigation arising out of this
Agreement will be in the courts of Multnomah County, Oregon regardless of any
change in the residence of a party hereafter.
19. Execution and
Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which when executed and delivered will be an
original, but all of which together will constitute one and the same
instrument. This Agreement will not be effective unless Maker,
Co-Maker and Holder execute this Agreement.
Page 8 – THIRD
AGREEMENT REGARDING AMENDMENT OF PROMISSORY NOTE
IN WITNESS WHEREOF, the duly authorized
representatives of the parties have executed this Agreement.
| MH FINANCIAL ASSOCIATES, LLC | |||
|
Date
|
By:
|
Aequitas Capital Management, | |
| Inc., its Manager | |||
| By | /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ | ||
| ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ | |||
| Executive Vice President | |||
| MICROHELIX, INC. | |||
| By | /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | ||
| ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | |||
| President and CFO | |||
| ▇▇▇▇▇ ELECTRONICS, INC. | |||
| By | /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | ||
| ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | |||
| President and CFO | |||
EXHIBIT
A
THIRD
AMENDED AND RESTATED NOTE
Page 9 – THIRD
AGREEMENT REGARDING AMENDMENT OF PROMISSORY NOTE
EXHIBIT
B
FORM OF
WARRANT
Page 10 – THIRD AGREEMENT
REGARDING AMENDMENT OF PROMISSORY NOTE