EXHIBIT 10.27
REDLINE PERFORMANCE PRODUCTS, INC.
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BRIDGE LOAN AND INVESTMENT AGREEMENT
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INSTRUCTIONS
To purchase a 10% Secured Convertible Subordinated Promissory Note from
Redline Performance Products, Inc. please: (i) review the Bridge Loan and
Investment Agreement; (ii) complete Section 14 of the Bridge Loan and Investment
Agreement regarding accredited investor status; (iii) complete Section 22 of the
Bridge 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 Bridge Loan and Investment Agreement and Security Agreement
signature page to Redline Performance Products, Inc., ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. Information regarding the Bridge Placement may be obtained by
contacting ▇▇▇▇ ▇▇▇▇▇, President at (▇▇▇) ▇▇▇-▇▇▇▇.
REDLINE PERFORMANCE PRODUCTS, INC.
BRIDGE LOAN AND INVESTMENT AGREEMENT
This Bridge 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. Investors may lend up to $500,000 in principal amount to the Company
on terms and conditions equivalent to those set forth in this Agreement (the
"BRIDGE PLACEMENT").
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. a 10% Secured Convertible Subordinated Promissory Note (the "BRIDGE
NOTE"), in substantially the form of EXHIBIT A attached to and
incorporated into this Agreement, which is convertible into securities
of the Company as may be offered to the Investor, or to other potential
investors, from time to time (the "CONVERSION SECURITIES"), in the
principal dollar amount set forth on the Signature Page and
b. a warrant (the "BRIDGE WARRANT") in substantially the form of
EXHIBIT B attached to and incorporated into this Agreement, to purchase
Fifty Thousand (50,000) shares of the Company's $0.01 par value per
share common stock (the "COMMON STOCK") for every $100,000 in principal
amount of the Bridge Note (the "WARRANT SHARES").
c. In addition, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
(collectively, the "FOUNDERS'") will collectively sell to each Investor
25,000 shares of the Company's Common Stock currently held by the
Founders' (the "FOUNDERS' SHARES"), at a price of $0.01 per share, for
every $100,000 in principal dollar amount of the Bridge Notes. One half
(50%) of the Founders' Shares will be issued upon closing of this
Bridge Placement. The balance of the Founders' Shares will be issued
upon conversion of the principal amount of the Bridge Notes into equity
securities of the Company. If there is no conversion of the Bridge Note
into equity securities of the Company, the right to purchase the
remaining one half (50%) of the Founders' Shares will be forfeited.
d. The Bridge 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 into
this Agreement.
e. The information contained in this Agreement is only a summary of the
terms and provisions of the Bridge Notes, the Bridge Warrants and the
Security Agreement, and is qualified by more detailed
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information included in the form of Bridge Note, the form of Bridge
Warrant and the form of Security Agreement. If the terms of this
Agreement conflict with the terms of the Bridge Note, the Bridge
Warrant or the Security Agreement, the terms of the Bridge Note, the
Bridge 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 Bridge Note, the Bridge Warrant, the Founders'
Shares, the Conversion Securities and the Warrant Shares are
collectively referred to in this Agreement as the "SECURITIES."
f. If the Investor purchases a Bridge Note in an amount which is not
divisible by $100,000, the Investor shall receive a pro rata number of
Founders' Shares and Warrant Shares under the Bridge Note based on the
amount of the Bridge Note.
2. Loan/Promissory Note. The Investor agrees, on the terms and subject to the
conditions hereinafter set forth, to purchase a Bridge Note in the principal
amount set forth on the Signature Page. The Company agrees to issue in the name
of the Investor, a Bridge Note.
3. Payment of Principal and Interest. All outstanding principal and accrued
interest on the Bridge Notes shall be due and payable by the Company on the date
One Hundred Twenty (120) days from the date of original issuance of the Bridge
Note (the "MATURITY DATE" or "MATURITY".) The Bridge Note shall accrue interest
at the rate of ten percent (10%) per annum, compounded monthly.
4. Subordination. The payment of principal and interest under the Bridge Note 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 Bridge
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. Conversion. All of the principal and the accrued interest payable pursuant to
each Bridge Note are convertible, at the option of the Investor, into the
Conversion Securities at any time during the term of the Bridge Note.
6. Default. The Company shall be in default under this Agreement and under the
Bridge Note upon the happening after the date of this Agreement of any
nonpayment, when due, of any amount payable to the holder under the Bridge Note.
In the event of a default: (a) the holders of Bridge Notes shall have the right,
at their option and not subject to demand or notice, to declare all or any part
of the Bridge Notes immediately due and payable, and (b) the holders of Bridge
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 Bridge Note and
under applicable law. In addition, upon default, the interest rate of the Bridge
Note shall be 15% per annum, which rate shall apply from the date of the
original issuance of the Bridge Note.
7. Collateral. The Company will grant the Investors a security interest in the
Company's existing and future intellectual property and its tooling, pursuant to
a Security Agreement. This security interest in the collateral will also be used
to secure up to an additional Six Million Dollars ($6,000,000) in convertible
debt which the Company anticipates it will receive on or before November 1, 2001
(the "FUTURE DEBT"). All Investors and Future Debt holders will have a security
interest in the collateral on a pari passu basis in proportion to the dollar
amount of Future Debt or Bridge Notes held.
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8. Bridge Warrant. In conjunction with the purchase of a Bridge Note by the
Investor, the Company will issue to the Investor a Bridge Warrant in
substantially the form attached to this Agreement as Exhibit B. The Bridge
Warrant will entitle the Investor to purchase Fifty Thousand (50,000) shares of
Common Stock for every $100,000 in principal amount of the Bridge Notes. If the
Investor purchases a Bridge Note in an amount which is not divisible by
$100,000, the Investor shall receive a pro rata number of Warrant Shares under
the Bridge Note based on the amount of the Bridge Note. The Bridge Warrant will
have an exercise price of $1.25 per share and will expire seven (7) years from
the date of issuance.
9. Founders' Stock. The Founders' will collectively sell to each Investor 25,000
Founders' Shares for every $100,000 in principal dollar amount of the Bridge
Notes. One half (50%) of the Founders' Shares will be issued upon issuance of
the Bridge Note. The balance will be issued upon conversion of the principal
amount of the Bridge Notes into debt or equity securities of the Company. If
there is no conversion of the Bridge Note into debt or equity securities of the
Company, the right to purchase the remaining one half (50%) of the Founders'
Shares will be forfeited. If the Investor purchases a Bridge Note in an amount
which is not divisible by $100,000, the Investor shall receive a pro rata number
of Founders' Shares based on the amount of the Bridge Note.
10. Reservation of Shares of Common Stock. The Company shall, during the time
that the Bridge Note, the Conversion Securities or the Bridge 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 conversion of the Bridge Notes or exercise of the Bridge
Warrants.
11. Transfer Restrictions. The Securities shall be subject to certain
restrictions on transfer as identified in this Agreement, the Bridge Note and
the Bridge Warrant.
12. Representations and Warranties of the Company. The Company represents and
warrants to the Investor the following:
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.
13. 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 the Company's Confidential Private Placement Memorandum dated
March 20, 2001 and Supplement No. 1 thereto dated August 17, 2001, and
has obtained 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.
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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 13(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, 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 paragraph 13(a)
above.
i. Residency. 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 immediately become funds of and may be used by the Company
once accepted. The Company is free to reject any subscription in whole
or in part not later than the date fifteen (15) days from the date the
Investor executes this Agreement. 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
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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 14 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.
14. Accredited Status. The Investor represents and warrants as follows (please
INITIAL all applicable items):
a. INDIVIDUALS: [investor confirmed accredited status]
___ (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.
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b. ENTITIES (PLEASE PROVIDE A COPY OF THE ENTITY'S CHARTER DOCUMENTS):
___ (i) The Investor is a (initial one):
___ (A) General Partnership
___ (B) Limited Liability Partnership
___ (C) Limited Partnership
___ (D) Limited Liability Company
___ (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.
___ (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.
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___ (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.
___ (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 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.
15. 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.
16. 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
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without: (i) obtaining a "no action" letter from the Commission and applicable
state securities commissions; (ii) 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 (iii) registration.
17. 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: (i) 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; (ii) 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 (iii) 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) 180 days 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.
18. Restrictive Legend. The Investor agrees that the Company may place one or
more restrictive legends on any certificates evidencing the Securities,
including the Conversion 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, 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 180 days 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.
19. 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.
20. 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.
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21. Lack of Availability of Rule 144 Under the Act.
a. 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.
b. The Company shall deliver to each Investor who holds a Bridge Note
or Bridge Warrant, as soon as practicable, but in any event within one
hundred twenty (120) days after the end of each fiscal year of the
Company, an income statement for such fiscal year and a balance sheet
of the Company as of the end of such year, such year-end financial
reports to be in reasonable detail, prepared in accordance with
generally accepted accounting principles, and audited and certified by
independent public accountants selected by the Company. The Company
shall also deliver to each Investor who holds a Bridge Note or Bridge
Warrant within sixty (60) days after the end of each quarter, an
unaudited income statement and balance sheet for and as of the end of
such quarter. The covenants set forth in this paragraph shall terminate
as to each holder of Bridge Notes and Bridge Warrants and be of no
further force or effect immediately upon the Company becoming a
reporting company under the Securities Exchange Act of 1934. Each
recipient of information under this paragraph agrees that any
information obtained pursuant to this paragraph will not be disclosed
without the prior written consent of the Company.
22. Relationship to Brokerage Firms. (Please answer the following questions by
initialing the appropriate response):
a. X YES ___ 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?
d. ___ YES ___ 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.)
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23. Delivery of Bridge Note, Bridge Warrant and Founders' Stock. Upon acceptance
of this Agreement by the Company, the Bridge Note, the Bridge Warrant and a
portion of 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.
24. 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.
25. 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 Bridge Notes and
Bridge Warrants.
26. 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.
27. 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.
28. 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.
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
11
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)
12
INDIVIDUAL SIGNATURE PAGE
All individual Investors must complete and sign this page. If the
individual is investing through an Individual Retirement Account, then both the
individual investor and the ▇▇▇ Custodian must sign this page. Total payment to
be made now is the amount on line 7. Where the Bridge Notes and Bridge Warrants
are to be held in joint tenancy or tenancy in common, BOTH PARTIES MUST SIGN AND
BOTH SOCIAL SECURITY NUMBERS SHOULD BE INDICATED.
1. Investor Name(s) (please print): ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
2. Social Security Number(s):
------------------------------------------------
3. Form of Ownership (e.g., individual, joint, tenants in common,
community property):
▇.▇.▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
4. Residence Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇. N.
5. Mailing Address: ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
6. Home: Tel. No. (▇▇▇) ▇▇▇-▇▇▇▇; Facsimile No. ( ) N/A
--- ----------------
Business: Tel. No. (▇▇▇) ▇▇▇-▇▇▇▇; Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
7. Principal Amount of Bridge Note: $150,000
INVESTOR SIGNATURE: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ SECOND SIGNATURE:
----------------
Date of Signature: 9/21/01 Date of Signature:
---------------------
▇▇▇ CUSTODIAN SIGNATURE (If applicable)
----------------------------------------
By (print name):
--------------------------
▇▇▇ Custodian
Date:
------------------------------------
ACCEPTANCE:
REDLINE PERFORMANCE PRODUCTS, INC. hereby executes this Agreement as of the date
set forth below.
By: /s/ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, President
Dated: 9/25/01
PLEASE RETURN THIS BRIDGE LOAN AND INVESTMENT AGREEMENT AND PAYMENT TO:
Redline Performance Products, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
13
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 OR THE SHARES OF CAPITAL STOCK
ISSUABLE UPON CONVERSION OF THE OUTSTANDING PRINCIPAL AMOUNT OF THIS PROMISSORY
NOTE IS FURTHER RESTRICTED FOR UP TO 180 DAYS FOLLOWING AN INITIAL PUBLIC
OFFERING OF SECURITIES OF THE BORROWER BY THE TERMS OF A LOAN AND INVESTMENT
AGREEMENT, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICES OF THE
BORROWER.
REDLINE PERFORMANCE PRODUCTS, INC.
10% SECURED CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$150,000.00 September 26, 2001
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 ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Joint
Tenants, residents of the State of Minnesota, having a mailing address of ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and their successors and
assigns (the "LENDER"), at such place as may be designated from time to time by
the Lender, the principal sum of One Hundred Fifty Thousand and 00/100 Dollars
($150,000.00), together with accrued interest thereon, at the rate of ten
percent (10%) per annum, compounded monthly, at or before 5:00 p.m. Vista,
California time on the date one hundred twenty (120) days after the date of this
Note ("MATURITY DATE"). This promissory note (the "BRIDGE Note") is being issued
in connection with a placement of Bridge Notes and warrants to purchase shares
of the Borrower's common stock (the "BRIDGE WARRANT") being conducted by the
Borrower to raise up to $500,000 pursuant to the terms of a Bridge Loan and
Investment Agreement. This Bridge Note and the Lender are entitled to all the
benefits provided for in the Bridge Loan and Investment Agreement, pursuant to
which this indebtedness was incurred and is to be repaid. The provisions of the
Bridge 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 Bridge Note
shall be due and payable on or before 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 Bridge
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
Bridge Note on the Maturity Date, the rate of interest under this Bridge Note
shall be increased to fifteen percent (15%) per annum and shall accrue from the
date of this Bridge Note until payment in full of all amounts due under this
Bridge 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 Bridge 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) 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 Bridge 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 Bridge Note shall be secured as
provided in that certain Security Agreement by and among Borrower and Lender.
3. Conversion. At the election of the Lender, all of the principal and accrued
interest payable pursuant to this Bridge Note may be converted into debt or
equity securities of the Borrower as may be offered to the Lender, or to other
potential lenders or investors of the Borrower, after the date of this Bridge
Note (the "CONVERSION SECURITIES"). The conversion price shall be the price at
which the Borrower is selling debt or equity securities to lenders or investors
or, if no such sales are taking place, the conversion price shall be the most
recent fair market price at which the Borrower has sold shares of common stock
or granted rights to purchase shares of common stock. Upon conversion the Lender
shall surrender this Bridge Note at the principal office of the Borrower. The
conversion shall be deemed to have been made at the close of business on the
date the Lender surrenders the Bridge Note at the principal office of the
Borrower. No fractional shares will be issued in connection with any conversion
of this Bridge Note. In lieu of any fractional share which would otherwise be
issuable, the Borrower shall pay cash. The conversion price shall be
appropriately adjusted in the event of any stock split, recapitalization or
similar transaction.
2
4. Compliance with Securities Laws and Other Transfer Restrictions.
a. The Lender, by acceptance hereof, agrees, represents and warrants
that this Bridge Note and the Conversion Securities which may be issued
upon exercise hereof are being acquired for investment, that the Lender
has no present intention to resell or otherwise dispose of all or any
part of this Bridge Note or any Conversion Securities, and that the
Lender will not offer, sell or otherwise dispose of all or any part of
this Bridge Note or any Conversion Securities 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 Bridge Note is to be so
transferred or to whom Conversion Securities are to be issued or 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 conversion of this Bridge Note, the Lender
shall, if requested by the Borrower, confirm in writing Lender's
investment purpose and acceptance of the restrictions on transfer of
the Conversion Securities, as well as any representations and
agreements requested by the Borrower in order to permit the issuance of
Conversion Securities to be made pursuant to exemptions from
registration under federal and applicable state securities laws.
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 Bridge Note or Conversion Securities; (ii)
sell, transfer or otherwise dispose of, or agree to sell, transfer or
otherwise dispose of any right to purchase the Bridge Note or
Conversion Securities; or (iii) sell or grant, or agree to sell or
grant, options, rights or warrants with respect to the Bridge Note or
Conversion Securities. 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 one hundred eighty (180) days
after effectiveness of the Borrower's registration statement filed
under the Act with the Securities and Exchange Commission with respect
to such offering.
c. In the event the Lender desires to transfer this Bridge 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 Bridge 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 Bridge 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 one or more restrictive legends on the
certificates representing the Conversion Securities which set forth the
restrictions contained herein, and may further place a "stop transfer"
restriction in the Borrower's books and records with respect to the
Bridge Note and any Conversion Securities. The restrictions set forth
in this Bridge Note shall be binding upon any Lender, donee, assignee
or transferee of the Bridge Note or the Conversion Securities.
3
5. Rights as Shareholder. Until one or more stock certificates representing the
Conversion Securities issuable upon conversion of this Bridge Note are issued
(as evidenced by the appropriate entry on the books of the Borrower or of a duly
authorized transfer agent of the Borrower), no right to vote or receive
dividends or any other rights as a shareholder of the Borrower shall exist,
notwithstanding conversion of the Bridge Note. No such stock certificates will
be issued until the Bridge Note and all other documents and information
requested by the Borrower are delivered to the Borrower.
6. 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 in connection with the delivery,
acceptance, performance, default or enforcement of this Bridge 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 Bridge 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 Bridge 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 Bridge 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. The Borrower covenants that all Conversion Securities that may be
issued upon the conversion of this Bridge Note, if equity, will, upon
payment and issuance, be duly authorized and issued, fully paid and
nonassessable shares of the Borrower's capital stock.
f. Upon receipt by the Borrower of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Bridge 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 Bridge
4
Note, if mutilated, the Borrower will make and deliver a new Bridge
Note of like tenor and dates as of such cancellation, in lieu of this
Bridge Note.
g. This Bridge Note has been issued pursuant to and is subject to the
terms and provisions of that certain Bridge 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 Bridge Note and the Bridge Loan and Investment
Agreement are inconsistent, the terms of this Bridge Note shall
control.
h. 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
Bridge 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.
IN WITNESS WHEREOF, the Borrower has caused this Bridge Note to be
executed by its authorized representative, who certifies that he has all
necessary authority on behalf of the Borrower to execute this Bridge 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 10%
Secured Convertible Promissory Note (the "BRIDGE NOTE") hereby sells, assigns
and transfers unto the Assignee named below all of the rights of the undersigned
under the within Bridge 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
Bridge 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 CAPITAL STOCK ISSUABLE
UPON EXERCISE HEREOF IS FURTHER RESTRICTED FOR UP TO 180 DAYS FOLLOWING AN
INITIAL PUBLIC OFFERING OF SECURITIES OF THE BORROWER BY THE TERMS OF A 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 September 26, 2008
REDLINE PERFORMANCE PRODUCTS, INC.
COMMON STOCK PURCHASE WARRANT
Bridge Warrant No. RB-1 Shares: 75,000
THIS CERTIFIES that, subject to the terms and conditions herein set
forth, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Joint Tenants, or their
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, Seventy-Five
Thousand (75,000) 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 Bridge Warrant are referred to as the "SHARES").
This Bridge 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 One and 25/100 Dollars ($1.25).
The purchase price of one Share is referred to herein as the "BRIDGE
WARRANT PRICE."
2. Adjustment of Bridge Warrant Price and Number of Shares. The number and
kind of securities issuable upon the exercise of this Bridge 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 Bridge
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
Bridge Warrant exercise 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 Bridge 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 Bridge Warrant and had received
upon exercise of this Bridge Warrant the Shares prior to such
reorganization, reclassification, consolidation, merger or sale,
less the amount of the Bridge Warrant Price.
3. No Fractional Shares. No fractional Shares of Common Stock will be
issued in connection with any exercise of this Bridge 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 Bridge Warrant shall not entitle its Holder
to any of the rights of a stockholder of the Company prior to exercise
of this Bridge Warrant.
5. Covenants of the Company. The Company covenants that during the period
this Bridge 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 Bridge Warrant. The Company further covenants that all Shares that
may be issued upon the exercise of this Bridge Warrant will, upon
payment and issuance, be duly authorized and issued, fully paid and
nonassessable shares of Common Stock.
6. Exercise of Bridge Warrant. This Bridge Warrant may be exercised by the
registered Holder, in whole or in part, by the surrender of this Bridge
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 aggregate Bridge Warrant Price in: (a) cash; (b)
cashier's check; or (c) bank draft. Upon partial exercise hereof, a new
Bridge Warrant or Bridge Warrants containing the same date and
provisions as this Bridge Warrant shall be issued by the Company to the
registered Holder for the number of Shares of Common Stock with respect
to which this Bridge Warrant shall not have been exercised. Upon each
exercise of this Bridge Warrant the Holder shall exercise this Bridge
Warrant and
2
purchase the lesser of 100 Shares and the balance of Shares available
for issuance under the Bridge Warrant. A Bridge 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 Bridge Warrant, written
notice of exercise, and payment for the number of Shares being acquired
upon exercise of this Bridge 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 Bridge Warrant.
a. The holder of this Bridge Warrant shall have the right to
require the Company to convert this Bridge 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 Bridge
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 Bridge 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 Bridge Warrant representing the
number of shares, if any, with respect to which the Bridge
Warrant shall not have been exercised.
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
3
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 Bridge Warrant, by acceptance hereof, agrees, represents
and Bridge Warrants that this Bridge 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 Bridge Warrant or any Shares, and that the
Holder will not offer, sell or otherwise dispose of all or any part of
this Bridge 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 Bridge 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 Bridge 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 Bridge Warrant. At the request of the Holder of this
Bridge Warrant in connection with a transfer or exercise of a portion
of the Bridge Warrant, upon surrender of such Bridge Warrant for such
purpose to the Company, the Company at its expense (except for any
transfer tax payable) will issue and exchange therefor Bridge 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.
10. Loss, Theft, Destruction or Mutilation of Bridge Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Bridge 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
4
expenses incidental thereto, and upon surrender and cancellation of
this Bridge Warrant, if mutilated, the Company will make and deliver a
new Bridge Warrant of like tenor and dates as of such cancellation, in
lieu of this Bridge Warrant.
11. No Limitation on Corporate Action. No provisions of the Bridge 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. Miscellaneous. This Bridge 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 Bridge Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a
part hereof. Neither this Bridge 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 Bridge Warrant shall be by 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 Bridge
Warrant who shall have furnished an address to the Company in writing.
ISSUED this 26th day of September, 2001
REDLINE PERFORMANCE PRODUCTS, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, President
5
FORM OF ASSIGNMENT
REDLINE PERFORMANCE PRODUCTS, INC.
FOR VALUE RECEIVED, the undersigned registered owner of this Bridge
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under the within Bridge 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 Bridge Warrant)
The undersigned registered owner of this Bridge Warrant irrevocably
exercises this Bridge Warrant for and purchases _____________________________ of
the number of Shares of Common Stock of __________________ purchasable with this
Bridge Warrant, and herewith makes payment therefor, all at the price and on the
terms and conditions specified in this Bridge Warrant.
Dated: , 20
------------------ --- ---
---------------------------------------
Signature of Registered Owner
---------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇, ▇▇▇▇▇, Zip Code
---------------------------------------
IRS Identification Number
CONVERSION NOTICE
REDLINE PERFORMANCE PRODUCTS, INC.
(To be signed only upon exercise of conversion right)
The undersigned, the holder of the within Bridge Warrant, hereby
irrevocably elects to exercise the Conversion Right set forth in such Bridge
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 Bridge Warrant)
---------------------------------------------------
(Address)
---------------------------------------------------
(City, State, Zip Code)
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 CAPITAL STOCK ISSUABLE
UPON EXERCISE HEREOF IS FURTHER RESTRICTED FOR UP TO 180 DAYS FOLLOWING AN
INITIAL PUBLIC OFFERING OF SECURITIES OF THE BORROWER BY THE TERMS OF A 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 September 26, 2008
REDLINE PERFORMANCE PRODUCTS, INC.
COMMON STOCK PURCHASE WARRANT
Bridge Warrant No. RB-13 Shares: 75,000
THIS CERTIFIES that, subject to the terms and conditions herein set
forth, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Joint Tenants, or 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, Seventy-Five Thousand
(75,000) 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 Bridge Warrant are referred to as the "SHARES").
This Bridge 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 One and 25/100 Dollars ($1.25).
The purchase price of one Share is referred to herein as the "BRIDGE
WARRANT PRICE."
2. Adjustment of Bridge Warrant Price and Number of Shares. The number and
kind of securities issuable upon the exercise of this Bridge 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 Bridge 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 Bridge
Warrant exercise 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 Bridge 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 Bridge Warrant and had received upon exercise of this
Bridge Warrant the Shares prior to such reorganization,
reclassification, consolidation, merger or sale, less the
amount of the Bridge Warrant Price.
3. No Fractional Shares. No fractional Shares of Common Stock will be
issued in connection with any exercise of this Bridge 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 Bridge Warrant shall not entitle its Holder
to any of the rights of a stockholder of the Company prior to exercise
of this Bridge Warrant.
5. Covenants of the Company. The Company covenants that during the period
this Bridge 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 Bridge Warrant. The Company further covenants that all Shares that
may be issued upon the exercise of this Bridge Warrant will, upon
payment and issuance, be duly authorized and issued, fully paid and
nonassessable shares of Common Stock.
6. Exercise of Bridge Warrant. This Bridge Warrant may be exercised by the
registered Holder, in whole or in part, by the surrender of this Bridge
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 aggregate Bridge Warrant Price in: (a) cash; (b)
cashier's check; or (c) bank draft. Upon partial exercise hereof, a new
Bridge Warrant or Bridge Warrants containing the same date and
provisions as this Bridge Warrant shall be issued by the Company to the
registered Holder for the number of Shares of Common Stock with respect
to which this Bridge Warrant shall not have been exercised. Upon each
exercise of this Bridge Warrant the Holder shall exercise this Bridge
Warrant and
2
purchase the lesser of 100 Shares and the balance of Shares available
for issuance under the Bridge Warrant. A Bridge 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 Bridge Warrant, written
notice of exercise, and payment for the number of Shares being acquired
upon exercise of this Bridge 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 Bridge Warrant.
a. The holder of this Bridge Warrant shall have the right to
require the Company to convert this Bridge 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 Bridge
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 Bridge 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 Bridge Warrant representing the
number of shares, if any, with respect to which the Bridge
Warrant shall not have been exercised.
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
3
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 Bridge Warrant, by acceptance hereof, agrees, represents
and Bridge Warrants that this Bridge 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 Bridge Warrant or any Shares, and that the
Holder will not offer, sell or otherwise dispose of all or any part of
this Bridge 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 Bridge 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 Bridge 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 Bridge Warrant. At the request of the Holder of this
Bridge Warrant in connection with a transfer or exercise of a portion
of the Bridge Warrant, upon surrender of such Bridge Warrant for such
purpose to the Company, the Company at its expense (except for any
transfer tax payable) will issue and exchange therefor Bridge 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.
10. Loss, Theft, Destruction or Mutilation of Bridge Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Bridge 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
4
expenses incidental thereto, and upon surrender and cancellation of
this Bridge Warrant, if mutilated, the Company will make and deliver a
new Bridge Warrant of like tenor and dates as of such cancellation, in
lieu of this Bridge Warrant.
11. No Limitation on Corporate Action. No provisions of the Bridge 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. Miscellaneous. This Bridge 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 Bridge Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a
part hereof. Neither this Bridge 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 Bridge Warrant shall be by 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 Bridge
Warrant who shall have furnished an address to the Company in writing.
ISSUED this 2nd day of April, 2002
REDLINE PERFORMANCE PRODUCTS, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, President
5
FORM OF ASSIGNMENT
REDLINE PERFORMANCE PRODUCTS, INC.
FOR VALUE RECEIVED, the undersigned registered owner of this Bridge
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under the within Bridge 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 Bridge Warrant)
The undersigned registered owner of this Bridge Warrant irrevocably
exercises this Bridge Warrant for and purchases _____________________________ of
the number of Shares of Common Stock of __________________ purchasable with this
Bridge Warrant, and herewith makes payment therefor, all at the price and on the
terms and conditions specified in this Bridge Warrant.
Dated: , 20
------------------ --- ---
---------------------------------------
Signature of Registered Owner
---------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇, ▇▇▇▇▇, Zip Code
---------------------------------------
IRS Identification Number
CONVERSION NOTICE
REDLINE PERFORMANCE PRODUCTS, INC.
(To be signed only upon exercise of conversion right)
The undersigned, the holder of the within Bridge Warrant, hereby
irrevocably elects to exercise the Conversion Right set forth in such Bridge
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 Bridge Warrant)
---------------------------------------------------
(Address)
---------------------------------------------------
(City, State, Zip Code)
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 CAPITAL STOCK ISSUABLE
UPON EXERCISE HEREOF IS FURTHER RESTRICTED FOR UP TO 180 DAYS FOLLOWING AN
INITIAL PUBLIC OFFERING OF SECURITIES OF THE BORROWER BY THE TERMS OF A 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 December 18, 2009
REDLINE PERFORMANCE PRODUCTS, INC.
COMMON STOCK PURCHASE WARRANT
Bridge Warrant No. RB-24 Shares: 30,000
THIS CERTIFIES that, subject to the terms and conditions herein set
forth, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Joint Tenants, or 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, Thirty Thousand
(30,000) 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 Bridge Warrant are referred to as the "SHARES").
This Bridge 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 "BRIDGE
WARRANT PRICE."
2. Adjustment of Bridge Warrant Price and Number of Shares. The number and
kind of securities issuable upon the exercise of this Bridge 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
Bridge 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 Bridge Warrant exercise 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 Bridge 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 Bridge Warrant and had
received upon exercise of this Bridge Warrant the Shares prior
to such reorganization, reclassification, consolidation,
merger or sale, less the amount of the Bridge Warrant Price.
3. No Fractional Shares. No fractional Shares of Common Stock will be
issued in connection with any exercise of this Bridge 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 Bridge Warrant shall not entitle its Holder
to any of the rights of a stockholder of the Company prior to exercise
of this Bridge Warrant.
5. Covenants of the Company. The Company covenants that during the period
this Bridge 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 Bridge Warrant. The Company further covenants that all Shares that
may be issued upon the exercise of this Bridge Warrant will, upon
payment and issuance, be duly authorized and issued, fully paid and
nonassessable shares of Common Stock.
6. Exercise of Bridge Warrant. This Bridge Warrant may be exercised by the
registered Holder, in whole or in part, by the surrender of this Bridge
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 aggregate Bridge Warrant Price in: (a) cash; (b)
cashier's check; or (c) bank draft. Upon partial exercise hereof, a new
Bridge Warrant or Bridge Warrants containing the same date and
provisions as this Bridge Warrant shall be issued by the Company to the
registered Holder for the number of Shares of Common Stock with respect
to which this Bridge Warrant shall not have been exercised. Upon each
exercise of this Bridge Warrant the Holder shall exercise this Bridge
Warrant and
2
purchase the lesser of 100 Shares and the balance of Shares available
for issuance under the Bridge Warrant. A Bridge 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 Bridge Warrant, written
notice of exercise, and payment for the number of Shares being acquired
upon exercise of this Bridge 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 Bridge Warrant.
a. The holder of this Bridge Warrant shall have the right to
require the Company to convert this Bridge 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 Bridge
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 Bridge 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 Bridge Warrant representing the
number of shares, if any, with respect to which the Bridge
Warrant shall not have been exercised.
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
3
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 Bridge Warrant, by acceptance hereof, agrees, represents
and Bridge Warrants that this Bridge 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 Bridge Warrant or any Shares, and that the
Holder will not offer, sell or otherwise dispose of all or any part of
this Bridge 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 Bridge 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 Bridge 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 Bridge Warrant. At the request of the Holder of this
Bridge Warrant in connection with a transfer or exercise of a portion
of the Bridge Warrant, upon surrender of such Bridge Warrant for such
purpose to the Company, the Company at its expense (except for any
transfer tax payable) will issue and exchange therefor Bridge 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.
10. Loss, Theft, Destruction or Mutilation of Bridge Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Bridge 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
4
expenses incidental thereto, and upon surrender and cancellation of
this Bridge Warrant, if mutilated, the Company will make and deliver a
new Bridge Warrant of like tenor and dates as of such cancellation, in
lieu of this Bridge Warrant.
11. No Limitation on Corporate Action. No provisions of the Bridge 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. Miscellaneous. This Bridge 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 Bridge Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a
part hereof. Neither this Bridge 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 Bridge Warrant shall be by 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 Bridge
Warrant who shall have furnished an address to the Company in writing.
ISSUED this 18th day of December, 2002
REDLINE PERFORMANCE PRODUCTS, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, President
5
FORM OF ASSIGNMENT
REDLINE PERFORMANCE PRODUCTS, INC.
FOR VALUE RECEIVED, the undersigned registered owner of this Bridge
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under the within Bridge 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 Bridge Warrant)
The undersigned registered owner of this Bridge Warrant irrevocably
exercises this Bridge Warrant for and purchases _____________________________ of
the number of Shares of Common Stock of __________________ purchasable with this
Bridge Warrant, and herewith makes payment therefor, all at the price and on the
terms and conditions specified in this Bridge Warrant.
Dated: , 20
------------------ --- ---
---------------------------------------
Signature of Registered Owner
---------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇, ▇▇▇▇▇, Zip Code
---------------------------------------
IRS Identification Number
CONVERSION NOTICE
REDLINE PERFORMANCE PRODUCTS, INC.
(To be signed only upon exercise of conversion right)
The undersigned, the holder of the within Bridge Warrant, hereby
irrevocably elects to exercise the Conversion Right set forth in such Bridge
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 Bridge Warrant)
---------------------------------------------------
(Address)
---------------------------------------------------
(City, State, Zip Code)
AGREEMENT TO DEFER PAYMENTS
UNDER PROMISSORY NOTE ISSUED BY
REDLINE PERFORMANCE PRODUCTS, INC.
DECEMBER 18, 2002
Redline Performance Products, Inc. (the "Borrower") previously issued a
Secured Convertible Subordinated Promissory Note (the "Note") dated September
26, 2001 to the undersigned lender(s) (the "Lender"), in the principal sum of
$150,000.00, together with interest on the unpaid principal balance outstanding
from time to time at the rate of fifteen percent (15%) per annum. Pursuant to
that Note, the Borrower promised to pay the Lender all of the outstanding
principal and accrued interest on the Note on or before December 31, 2002.
For value received, the Lender hereby defers any and all payments of
principal and interest due pursuant to the Note until the earlier of (i) the
date five (5) business days after the Borrower closes an IPO, as defined below,
and (ii) the close of business on June 30, 2003 (each a "Deferral Date").
The Note provides the Lender the right to convert amounts due pursuant
to the Note into other securities of the Borrower. The Lender understands that
the Borrower intends to file a registration statement with the Securities and
Exchange Commission in December 2002 or January 2003 to facilitate the
Borrower's initial public offering of common stock ("IPO"). Any such filing will
restrict the Borrower's ability to facilitate the conversion of amounts owed
under the Note until closing of an IPO. For value received, the Lender hereby
waives the Lender's right to convert amounts owed under the Note during the
period beginning on the date the Borrower files a registration statement with
the Securities and Exchange Commission in connection with an IPO and ending upon
closing of an IPO. Lender understands and agrees that Lender's right to convert
amounts due pursuant to the Note shall be limited to the following: (i) prior to
Borrower filing a registration statement in connection with an IPO (expected to
be on or about December 27, 2002) Lender may convert at a per share price equal
to $3.75 and (ii) after closing of the IPO and for a period of not less than
five business days thereafter, Lender may convert at a per share price equal to
the price of shares sold in the IPO. The Borrower may pay all amounts due under
the Note at any time other than the five-day period referenced herein and
intends to pay such amounts after closing of the IPO. This paragraph shall be of
no force and effect if the Borrower does not make a filing in connection with an
IPO.
In exchange for the deferral and modification to conversion rights set
forth herein, the Borrower will issue to the Lender an additional warrant to
purchase 10,000 shares of common stock for every $50,000 in principal amount of
the Note. The Lender hereby waives any prior default by Borrower under the Note.
Except as expressly set forth herein, all of the terms and conditions of the
Note shall remain unchanged and shall continue in full force and effect.
IN WITNESS WHEREOF, the Lender has executed this agreement to defer
payments under the Note effective as of the day and year first above written.
If An Individual: If an Entity:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Print Name -----------------------------------
Print Entity Name
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By:
Signature --------------------------------
Its:
-------------------------------
SECURITY AGREEMENT
This SECURITY AGREEMENT (the "AGREEMENT"), dated September 26, 2001, is
entered into by and among REDLINE PERFORMANCE PRODUCTS, INC., a Minnesota
corporation ("DEBTOR") and each of the undersigned (individually referred to
herein as a "LENDER" and collectively referred to herein as the "LENDERS").
RECITALS
Debtor has borrowed funds from each of the Lenders pursuant to certain
Secured Convertible Promissory Notes in aggregate principal dollar amount of not
less than $500,000 (the "BRIDGE NOTES")and/or other debt securities issued by
the Debt in an aggregate dollar amount not to exceed $6 million ("FUTURE DEBT
SECURITIES"). Debtor is the owner of certain intellectual property and tooling
equipment 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:
1.1 "AGENT" means the Lender who at the time of an Event of
Default has the largest dollar amount of Principal Exposure.
1.2 "CODE" means the Minnesota Uniform Commercial Code, as
amended and supplemented from time to time, and any successor statute.
1.3 "COLLATERAL" means:
(a) Each of the trademarks and rights and interest
which are capable of being protected as trademarks (including
trademarks, service marks, designs, logos, indicia, tradenames,
corporate names, company names, business names, fictitious business
names, trade styles, and other source or business identifiers, and
applications pertaining thereto), which are presently, or in the future
may be, owned, created, acquired, or used (whether pursuant to a
license or otherwise) by Debtor, in whole or in part, and all trademark
rights with respect thereto throughout the world, including all
proceeds thereof (including license royalties and proceeds of
infringement suits), and rights to renew and extend such trademarks and
trademark rights;
(b) Each of the patents and patent applications which
are presently, or in the future may be, owned, issued, acquired, or
used (whether pursuant to a license or otherwise) by Debtor, in whole
or in part, and all patent rights with respect thereto throughout the
world, including all proceeds thereof (including license royalties and
proceeds of infringement suits), foreign filing rights, and rights to
extend such patents and patent rights;
(c) All of Debtor's right, title and interest, in and
to the trademarks and trademark registrations listed on EXHIBIT A,
attached hereto and incorporated herein by reference, as the same may
be updated hereafter from time to time;
(d) All of Debtor's right, title, and interest, in
and to the patents and patent applications listed on EXHIBIT B,
attached hereto and incorporated herein by reference, as the same may
be updated hereafter from time to time;
(e) All of Debtor's right, title and interest to
register trademark claims under any state or federal trademark law or
regulation of any foreign country and to apply for, renew, and extend
the trademark registrations and trademark rights, the right (without
obligation) to ▇▇▇ or bring opposition or cancellation proceedings in
the name of Debtor or in the name of Agent for past, present, and
future infringements of the trademarks, registrations, or trademark
rights and all rights (but not obligations) corresponding thereto in
the United States and any foreign country, and the associated goodwill;
(f) All of Debtor's right, title, and interest in all
patentable inventions, and to file applications for patent under
federal patent law or regulation of any foreign country, and to request
reexamination and/or reissue of the patents, the right (without
obligation) to ▇▇▇ or bring interference proceedings in the name of
Debtor or in the name of Agent for past, present, and future
infringements of the patents, and all rights (but not obligations)
corresponding thereto in the United States and any foreign country;
(g) All of Debtor's right, title and interest in and
to any existing and future copyrights of Debtor;
(h) All general intangibles relating to the
foregoing;
(i) Debtor's tooling equipment listed on EXHIBIT C,
attached hereto and incorporated herein by reference: and
(j) All proceeds of any and all of the foregoing
(including, without limitation, license royalties and proceeds of
infringement suits) and, to the extent not otherwise included, all
payments under insurance, or any indemnity, warranty, or guaranty
payable by reason of loss or damage to or otherwise with respect to the
Collateral.
1.4 "OBLIGATIONS" means the Debtor's obligations to make
payment of all amounts outstanding under the Bridge Notes.
2
1.5 "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.
1.6 "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 Bridge Note at such time.
2. Grant of Security Interest. Debtor hereby grants to Lenders, a
subordinated 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:
3.1 Trademarks; Service Marks; Patents.
(a) A true and complete schedule setting forth all
federal and state trademark and service ▇▇▇▇ registrations owned or
controlled by Debtor or licensed to Debtor, together with a summary
description and full information in respect of the filing or issuance
thereof and expiration dates is set forth on Exhibit A;
(b) A true and complete schedule setting forth all
patent and patent applications owned or controlled by Debtor or
licensed to Debtor, together with a summary description and full
information in respect of the filing or issuance thereof and expiration
dates is set forth on Exhibit B;
3.2 Validity; Enforceability. To the knowledge of Debtor, each
of the patents, service marks and trademarks is valid and enforceable, and
Debtor is not presently aware of any past, present, or prospective claim by any
third party that any of the patents, service marks or trademarks are invalid or
unenforceable, or that the use of any patents, service marks or trademarks
violates the rights of any third person, or of any basis for any such claims;
and
3.3 Title. Except to the extent similar service marks and
trademarks may be used by third parties in connection with goods and/or services
distinguishable from those provided by Debtor, Debtor is the sole and exclusive
owner of the entire and unencumbered right, title, and interest in and to each
of the patents, patent applications, service marks, service ▇▇▇▇ registrations,
trademarks, and trademark registrations, free and clear of any liens, charges,
and encumbrances, including pledges, assignments, licenses, shop rights, and
covenants by Debtor not to ▇▇▇ third persons. Debtor represents and warrants
that there are no existing security interests in the Debtor's patents, patent
applications, service marks, service ▇▇▇▇ registrations, trademarks, and
trademark registrations.
4. After-Acquired Patent, Copyrights, Service ▇▇▇▇ or Trademark Rights.
If Debtor shall obtain rights to any new copyrights, service marks, trademarks,
any new patentable inventions or become entitled to the benefit of any patent
application or patent for any reissue,
3
division, or continuation, of any patent, the provisions of this Agreement shall
automatically apply thereto. Debtor shall give prompt notice in writing to each
Lender with respect to any such new service marks, trademarks or patents, or
renewal or extension of any service ▇▇▇▇ or trademark registration. Debtor shall
bear any expenses incurred in connection with future patent applications or
service ▇▇▇▇ or trademark registrations.
5. Events Of Default. Any of the following events shall be an Event of
Default:
5.1 Bridge Notes. Debtor's failure to pay all amounts
outstanding under the Bridge Notes on or before the Maturity Date (as defined in
the Bridge Notes).
5.2 Breach. 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.
6. 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.
7. 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
or the Bridge Notes, all of the rights and remedies with respect to the
Collateral of a secured party under the Code.
8. 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.
9. 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
4
agreements as are reasonably necessary to carry out the terms of this Agreement
after an Event of Default.
10. 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.
11. 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 12 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.
12. 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 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)
5
of payments received by such Lender from the Agent hereunder to the Obligations
owing to such Lender.
13. 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 of all Obligations owing to such Lender.
14. 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.
15. 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.
16. 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.
17. 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.
6
18. 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.
19. General Provisions.
19.1 Effectiveness. With respect to each Lender, this
Agreement shall be binding and deemed effective when executed by such Lender.
19.2 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.
19.3 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.
19.4 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.
19.5 Amendments in Writing. A writing signed by each Lender
and Debtor can only amend this Agreement.
19.6 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.
19.7 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.
7
19.8 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.
19.9 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.
IN WITNESS WHEREOF, the parties have executed this Security
Agreement on the date first written above.
Debtor:
REDLINE PERFORMANCE PRODUCTS, INC.
a Minnesota corporation
By: /s/ ▇▇▇▇ ▇▇▇▇▇
Title: President
Lender:
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
By:
------------------------------------
Print Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Its:
------------------------------------
Lender:
By:
------------------------------------
Print Name:
Its:
------------------------------------
8
EXHIBIT "A"
REGISTERED TRADEMARKS
Trademark Registration Date Registration No.
--------- ----------------- ----------------
REDLINE SNOWMOBILES 8/15/2000 2,377,974
REBELLION 8/21/2001 2,480,729
PENDING TRADEMARKS
Trademark Filing Date Serial No.
--------- ----------- ----------
954 REVOLUTION 9/24/1999 75/808,530
CIS 12/13/2000 76/180,085
R and Design 11/2/2000 76/158,381
INDEPENDENCE 11/2/2000 76/158,407
PATRIOT 11/2/2000 76/158,380
REDLINE 11/7/2000 76/161,294
REVOLT 9/24/1999 75/807,847
T-15 12/13/2000 76/180,086
R and Design (Canada) 5/1/2001 1,101,415
REDLINE (Canada) 5/1/2001 1,101,416
REVOLT (Canada) 5/1/2001 1,101,417
PATRIOT (Canada) 5/1/2001 1,101,414
EXHIBIT "B"
PATENTS
Patent Description/Title Issue Date Patent No. Name of Inventor
------------------------ ---------- ---------- ----------------
SNOWMOBILE 7/24/2001 6,283,991 Savage, et al.
PATENT APPLICATIONS
Description Filing Date Serial No. Name of Inventor
----------- ----------- ---------- ----------------
SNOWMOBILE SUSPENSION 02/10/2000 09/502,280 Savage et al.
SNOWMOBILE (Canada) 03/14/2000 2,300,342 Savage et al.
SNOWMOBILE DRIVE TRAIN 03/13/2001 09/805,416 Savage et al.
SNOWMOBILE EXHAUST SYSTEM 04/30/2001 09/864,591 Savage et al.
EXHIBIT "C"
TOOLING EQUIPMENT
BODY TOOLING:
------------
Hood Panel
Hood Center Section
Seat Base and Foam
Side Pod Left/Right
Taillight
Instrument Panel
Windshield
Pod
Track Cover
CHASSIS:
-------
Main Frame Half Left
Main Frame Half Right
Main Frame Stand Up
All Stamping Tooling for each part needed on main frame
Frame Rail Check Fixtures
Subframe Half Left
Subframe Half Right
Subframe Standup
Floor Board Tube Fixture
All Stamping Tooling for each part needed on subframe
All tube notching tooling
Misc Jigs and setup equipment
Front Bumper
SUSPENSION TOOLING:
------------------
Upper A-Arm
Lower A-Arm
Upright
Steering Arm
Stamping Tooling for all Parts
Upper Trailing Arm Tooling
Lower Trailing Arm Tooling
OTHER:
-----
Gear Box Casting
WaterPump - Cover -- Impeller
3