Exhibit 10.21
REDLINE PERFORMANCE PRODUCTS, INC.
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BRIDGE LOAN AND INVESTMENT AGREEMENT
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INSTRUCTIONS
To purchase an 8% Secured Subordinated Promissory Note from Redline
Performance Products, Inc. please: (i) review the Bridge Loan and Investment
Agreement; (ii) complete Section 13 of the Bridge Loan and Investment Agreement
regarding accredited investor status; (iii) complete Section 21 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. Escrow Account" together
with the completed Bridge Loan and Investment Agreement and the Security
Agreement signature page to GunnAllen Financial, Inc., ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ATTN: Ms. ▇▇▇ ▇▇▇▇▇, Corporate
Finance.
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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 a minimum of $1,250,000 and a maximum of up to
$2,000,000 in principal amount to the Company (the "BRIDGE PLACEMENT") on terms
and conditions equivalent to those set forth in this Agreement and the
Confidential Private Placement Memorandum dated August 1, 2002 (the
"MEMORANDUM"). GunnAllen Financial, Inc. (the "AGENT") is acting as the
Company's agent in 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. Escrow Account" in the aggregate dollar
amount set forth on the Signature Page to purchase:
a. An 8% Secured Subordinated Promissory Note (the "BRIDGE NOTE"), in
substantially the form of EXHIBIT C attached to the Memorandum and
incorporated herein by reference in the principal dollar amount set forth
on the Signature Page, and
b. A warrant (the "BRIDGE WARRANT") in substantially the form of EXHIBIT D
attached to the Memorandum and incorporated herein by reference, to
purchase Two Thousand Five Hundred (2,500) shares of the Company's $0.01
par value per share common stock (the "COMMON STOCK") for every $25,000 in
principal amount of the Bridge Note (the "WARRANT SHARES").
c. 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 E attached to the Memorandum and
incorporated herein by reference.
d. 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 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 and the Warrant Shares are collectively referred to in this
Agreement as the "SECURITIES."
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2. Loan/Promissory Note. The Investor agrees, on the terms and subject to the
conditions hereinafter set forth, to purchase 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 December
31, 2003 or upon completion of an initial public offering of the Company's
common stock (the "MATURITY DATE" or "MATURITY".) The Bridge Note shall accrue
interest at the rate of eight percent (8%) 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 and to any
amounts due to holders of certain short-term promissory notes in principal
amount of $565,000 which are secured by certain intellectual property and
tooling equipment. 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. 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 12% per annum, which rate shall apply from the date of default.
6. Collateral. The Company will grant the Investors a security interest in the
Company's existing and future intellectual property and its tooling, pursuant to
a Security Agreement. All Investors and will have a security interest in the
collateral which is subordinated to that of the holders of short-term secured
debt in principal amount of $565,000 and subordinate to any security interest
requested by a bank or other commercial lender providing a loan to the Company
in the future.
7. 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 the Memorandum as Exhibit D. The Bridge
Warrant will entitle the Investor to purchase Two Thousand Five Hundred (2,500)
shares of Common Stock for every $25,000 in principal amount of the Bridge
Notes. The Bridge Warrant will have an exercise price of $3.75 per share and
will expire five (5) years from the date of issuance.
8. Reservation of Shares of Common Stock. The Company shall, during the time
that the Bridge Note 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 exercise of
the Bridge Warrants.
9. Transfer Restrictions. The Securities shall be subject to certain
restrictions on transfer as identified in this Agreement, the Bridge Note and
the Bridge Warrant.
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10. 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.
11. 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 August 1,
2002, 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.
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 11(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.
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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 11(a) above.
i. Residency; Ownership. The Investor is a resident of the state and
country set forth on the Signature Page. The Securities are being
purchased by the Investor in the Investor's name solely for the Investor's
own beneficial interest and not as nominee for, on behalf of, for the
beneficial interest of, or with the intention to transfer to, any other
person, trust, or organization.
j. Subscription. The Investor understands that the payment made to the
Company will become funds of and may be used by the Company once the
minimum amount has been raised in the Bridge Placement. The Company is
free to reject any subscription in whole or in part. The Investor
understands that if the Company determines to reject this subscription,
any funds returned to the Investor will be without deduction therefrom or
interest thereon.
k. No General Solicitation. The Investor's purchase of the Securities is
not the result of any general solicitation or general advertising,
including, but not limited to (i) any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media
or broadcast over television or radio; and (ii) any seminar or meeting
whose attendees have been invited by any general solicitation or general
advertising.
l. Legal Age. The Investor, if an individual, is of legal age.
m. Not Subject to Backup Withholding. The Investor certifies, under
penalty of perjury, that the Investor is not subject to the backup
withholding provisions of the Internal Revenue Code of 1986, as amended.
(Note: The Investor is subject to backup withholding if: (i) the Investor
fails to furnish its Social Security Number or Taxpayer Identification
Number herein; (ii) the Internal Revenue Service notifies the Company that
the Investor furnished an incorrect Social Security Number or Taxpayer
Identification Number; (iii) the Investor is notified that it is subject
to backup withholding; or (iv) the Investor fails to certify that it is
not subject to backup withholding or the Investor fails to certify the
Investor's Social Security Number or Taxpayer Identification Number.)
n. Legal Representation. The Investor understands that: (i) the Company
has engaged legal counsel to represent the Company in connection with the
offer and sale of securities contemplated herein; (ii) legal counsel
engaged by the Company does not represent the Investor or the Investor's
interests; and (iii) the Investor is not relying on legal counsel engaged
by the Company. The Investor has had the opportunity to engage, and obtain
advice from, the Investor's own legal counsel with respect to the
investment contemplated herein.
THE INFORMATION REQUESTED IN PARAGRAPH 12 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
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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.
12. Accredited Status. The Investor represents and warrants as follows (please
INITIAL all applicable items):
a. INDIVIDUALS:
___ (i) The Investor is an individual with a net worth, or a joint
net worth together with his or her spouse, in excess of
$1,000,000. (In calculating net worth, you may include equity
in personal property and real estate, including your principal
residence, cash, short-term investments, stock and securities.
Equity in personal property and real estate should be based on
the fair market value of such property less any debt secured
by such property.)
___ (ii) The Investor is an individual that had an individual
income in excess of $200,000 in each of the prior two years
and reasonably expects an income in excess of $200,000 in the
current year.
___ (iii) The Investor is an individual that had with his or her
spouse joint income in excess of $300,000 in each of the prior
two years and reasonably expects joint income in excess of
$300,000 in the current year.
___ (iv) The Investor is a director or executive officer of the
Company.
b. ENTITIES (PLEASE PROVIDE A COPY OF THE ENTITY'S CHARTER DOCUMENTS):
[X] (i) The Investor is a (initial one):
___ (A) General Partnership
___ (B) Limited Liability Partnership
___ (C) Limited Partnership
___ (D) Limited Liability Company
[X] (E) Corporation
___ (F) Business Trust
___ (G) Other Entity (please
specify):________________________
___ (ii) The Investor is an entity, and is an "ACCREDITED
INVESTOR" as defined in Rule 501(a) of Regulation D under the
Securities Act of 1933, as amended (the "ACT"). This
representation is based on the following (initial one or more,
as applicable):
___ (A) The Investor (or, in the case of a trust, the
Investor trustee) is a bank or savings and loan
association as defined in Sections 3(a)(2) and
3(a)(5)(A), respectively, of the Act acting either in
its individual or fiduciary capacity.
___ (B) The Investor is a broker/dealer registered pursuant
to the Securities Exchange Act of 1934.
___ (C) The Investor is an insurance company as defined in
Section 2(13) of the Act.
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___ (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.
[X] (H) The Investor has total assets in excess of
$5,000,000, was not formed for the specific purpose of
acquiring shares of the Company and is one or more of
the following (initial one or more, as appropriate):
___ (1) An organization described in Section 501(c)(3)
of the Internal Revenue Code.
___ (2) A corporation.
___ (3) A Massachusetts or similar business trust.
___ (4) A partnership.
___ (5) A limited liability company.
___ (I) The Investor is an entity, all of whose equity
owners are accredited investors. (PLEASE PROVIDE WRITTEN
REPRESENTATION OF ACCREDITED INVESTOR STATUS FROM EACH
EQUITY OWNER.)
___ (J) The Investor is a trust with total assets exceeding
$5,000,000, which was not formed for the specific
purpose of investing in the Company and whose purchase
is directed by a person described in Rule 506(b)(2)(ii)
under the Act. (IF ONLY THIS ITEM (J) IS CHECKED, PLEASE
CONTACT THE COMPANY TO RECEIVE AND COMPLETE AN
INFORMATION STATEMENT BEFORE THIS SUBSCRIPTION CAN BE
CONSIDERED BY THE COMPANY).
IF YOU HAVE NOT INITIALED ANY OF THE FOREGOING, YOU ARE NOT AN ACCREDITED
INVESTOR AND CANNOT PURCHASE ANY SECURITIES.
IF YOU HAVE INITIALED ANY OF THE FOREGOING, PLEASE PROCEED.
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___ (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.
13. 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.
14. Compliance with Securities Act. The Investor agrees that if the Securities
or any part thereof are sold or distributed in the future, the Investor shall
sell or distribute them pursuant to the requirements of the Act and applicable
state securities laws. The Investor agrees that the Investor will not transfer
any part of the Securities without: (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.
15. 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) 18 months and (y) the period during which Company
officers and directors are restricted by the managing underwriter from effecting
any sales or transfers of the Company's common stock. The Lockup Period shall
commence on the effective date of the Registration Statement.
16. Restrictive Legend. The Investor agrees that the Company may place one or
more restrictive legends on any certificates evidencing the Securities,
including the Warrant Shares, containing substantially the following language:
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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
18 months following an initial public offering of securities of the
Company by the terms of a Subscription Agreement, a copy of which is
available for inspection at the offices of the Company.
17. 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.
18. 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.
19. 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
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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.
20. Relationship to Brokerage Firms. (Please answer the following questions by
initialing the appropriate response):
a. ___ YES X NO: Are you a director, officer, partner, branch manager,
registered representative, employee, shareholder of, or similarly
related to or employed by, a brokerage firm?
b. ___ YES X NO: Is your spouse, father, mother, father-in-law,
mother-in-law, or any of your brothers, sisters, brothers-in-laws,
sisters-in-law or children, or any relative which you support, a
director, officer, partner, branch manager, registered
representative, employee, shareholder of, or similarly related to or
engaged by, a brokerage firm?
c. ___ YES X NO: Do you own 5% or more of the voting securities of any
brokerage firm?
d. ___ YES X NO: If the Investor is an entity, is any director,
officer, partner or 5% owner of the Investor also a director,
officer, partner, branch manager, registered representative,
employee, shareholder of, or similarly related to or employed by a
brokerage firm?
(If you answered YES to any of the foregoing questions, please attach a
written explanation or contact the Company to provide additional
information before the Investor's subscription can be considered.)
21. Delivery of Bridge Note and Bridge Warrant. Upon acceptance of this
Agreement by the Company, the Bridge Note and the Bridge Warrant 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.
22. 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.
23. 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.
24. 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.
25. 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
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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.
26. 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 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)
11
ENTITY SIGNATURE PAGE
All entity Investors must complete and sign this page. Total payment to be
made now is the amount on line 6.
1. Entity Name (please print): Industricorp & Co. FBO T.C. Carpenters
2. Employer Identification Number:
(Also include Social Security Numbers if a Trust or Partnership)
3. Business (Residence) Address: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇ ▇▇▇▇▇
4. Mailing Address (if different from above):
5. Business: Tel. No. (▇▇▇) ▇▇▇-▇▇▇▇ ; Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
6. Principal Amount of Bridge Note: $50,000.00
SIGNATURE OF INVESTOR: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇ ▇. ▇▇▇
By (print name): ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇. ▇▇▇
Its: Officer Officer
Date: 10/16/02
ACCEPTANCE:
REDLINE PERFORMANCE PRODUCTS, INC. hereby executes this Agreement as of the date
set forth below.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇, President
Dated: October 18, 2002
--------------------------------
PLEASE RETURN THIS BRIDGE LOAN AND INVESTMENT AGREEMENT, THE SECURITY AGREEMENT
SIGNATURE PAGE AND PAYMENT TO
Redline Performance Products, Inc. Escrow Account
c/o GunnAllen Financial, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
ATTN: Ms. ▇▇▇ ▇▇▇▇▇, Corporate Finance
12
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND ANY SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF MAY BE
MADE ONLY (I) IN A REGISTRATION OR QUALIFICATION OR (II) IF AN EXEMPTION FROM
REGISTRATION OR QUALIFICATION IS AVAILABLE AND THE BORROWER HAS RECEIVED AN
OPINION OF COUNSEL TO THAT EFFECT REASONABLY SATISFACTORY TO THE BORROWER.
SALE OR OTHER TRANSFER OF THIS PROMISSORY NOTE IS FURTHER RESTRICTED FOR UP TO
18 MONTHS FOLLOWING AN INITIAL PUBLIC OFFERING OF SECURITIES OF THE BORROWER BY
THE TERMS OF A BRIDGE LOAN AND INVESTMENT AGREEMENT, A COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE OFFICES OF THE BORROWER.
REDLINE PERFORMANCE PRODUCTS, INC.
10% SECURED SUBORDINATED PROMISSORY NOTE
$50,000.00 October 16, 2002
Note No.: ▇▇-▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
FOR VALUE RECEIVED, the undersigned, Redline Performance Products, Inc.,
organized and existing under the laws of the State of Minnesota, whose mailing
address is ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and its successors and
assigns (the "BORROWER"), for value received, hereby unconditionally promises to
pay to the order of Industricorp & Co., Inc., FBO Twin City Carpenters Pension
Fund, a corporation of the State of Minnesota, having a mailing address of Union
Bank & Trust, Attn: Trust Department, Suite 508, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇,
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, and its successors and assigns (the "LENDER"), at
such place as may be designated from time to time by the Lender, the principal
sum of Fifty Thousand and 00/100 Dollars ($50,000.00), together with accrued
interest thereon, at the rate of ten percent (10%) per annum, compounded
monthly, at or before 5:00 p.m. Vista, California time on December 31, 2003;
provided that this note shall become due and payable upon completion by the
Borrower of an initial public offering of its common stock (each a "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 a minimum of $1,250,000 and a maximum of $2,000,000 pursuant to the
terms of a Bridge Loan and Investment Agreement and a Confidential Private
Placement Memorandum dated August 1, 2002 (the "MEMORANDUM"). 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 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 twelve percent (12%) per annum and shall accrue from the
Maturity 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; (ii) money borrowed by the Borrower in connection with
its private placement of short-term secured promissory notes in principal amount
of $565,000 secured by the Borrower's intellectual property and tooling assets;
and (iii) in connection with any deferral, renewal or extension of any
indebtedness described in (i) or (ii) above or any debentures, notes, or other
evidence of the Borrower's indebtedness issued in exchange for indebtedness
described in (i) above. The Borrower covenants and agrees and the Lender, by
acceptance hereof, covenants, expressly for the benefit of the present and
future holders of Senior Indebtedness, that the payment of the principal and the
interest on this 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.) Compliance with Securities Laws and Other Transfer Restrictions.
(a) The Lender, by acceptance hereof, agrees, represents and warrants that
this Bridge Note is being acquired for investment, that the Lender has no
present intention to resell or otherwise dispose of all or any part of
this Bridge Note, and that the Lender will not offer, sell or otherwise
dispose of all or any part of this Bridge Note except under circumstances
which will not result in a violation of the Securities Act of 1933 or
applicable state securities laws. The Borrower may condition any transfer,
sale, pledge, assignment or other disposition on the receipt, from the
party to whom this Bridge Note is to be so transferred, of any
representations and agreements requested by the Borrower in order to
permit such issuance or transfer to be made pursuant to exemptions from
registration under federal and applicable state securities laws. Upon
transfer of this Bridge Note, the transferee shall, if requested by the
Borrower, confirm in writing transferee's investment purpose and
acceptance of the restrictions on transfer of the Bridge Note, as well as
any representations and agreements requested by the Borrower in order to
permit the transfer
2
of the Bridge Note 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; (ii) sell, transfer or otherwise dispose of, or agree
to sell, transfer or otherwise dispose of any right to purchase the Bridge
Note; or (iii) sell or grant, or agree to sell or grant, options, rights
or warrants with respect to the Bridge Note. Such restrictions shall be
effective for a period of time equal to the period during which the
managing underwriter imposes such transfer restrictions on the Borrower's
officers and directors; provided, that in no event shall the restricted
period applicable to a Lender exceed eighteen (18) months after
effectiveness of the Borrower's registration statement filed under the Act
with the Securities and Exchange Commission with respect to such initial
public offering.
(c) In the event the Lender desires to transfer this 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 a "stop transfer" restriction in the Borrower's
books and records with respect to the Bridge Note. The restrictions set
forth in this Bridge Note shall be binding upon any Lender, donee,
assignee or transferee of the Bridge Note.
4.) No Rights as Shareholder. No right to vote or receive dividends or any
other rights as a shareholder of the Borrower shall exist based on this Bridge
Note..
5.) Miscellaneous Provisions.
(a) No amendment hereunder shall be effective unless in writing signed by
the Borrower and the Lender and no waiver hereunder shall be effective
unless in writing, signed by the party to be charged. Neither the failure
on the part of the Lender in exercising any right or remedy, nor any
single or partial exercise of any other right or remedy, shall operate as
a waiver. The acceptance by the Lender of any payment hereunder which is
less than payment in full of all amounts due and payable at the time of
such payment shall not constitute a waiver of the right to exercise any of
the options hereunder at that time or at any subsequent time.
3
(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) 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 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.
(f) 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.
(g) All notices and other communications shall be by certified mail,
return receipt requested, or by overnight delivery service to the address
furnished to the Borrower in writing by the last Lender of this 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.
4
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 and CFO
5
FORM OF ASSIGNMENT
REDLINE PERFORMANCE PRODUCTS, INC.
FOR VALUE RECEIVED, the undersigned registered owner of this 10% Secured
Subordinated 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 COMMON STOCK ISSUABLE
UPON EXERCISE HEREOF IS FURTHER RESTRICTED FOR UP TO 18 MONTHS FOLLOWING AN
INITIAL PUBLIC OFFERING OF SECURITIES OF THE BORROWER BY THE TERMS OF A BRIDGE
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 October 18, 2007
REDLINE PERFORMANCE PRODUCTS, INC.
COMMON STOCK PURCHASE WARRANT
Bridge Warrant No. BI-49 Shares: 10,000
THIS CERTIFIES that, subject to the terms and conditions herein set forth,
Industricorp & Co., Inc., FBO Twin City Carpenters Pension Fund, or its
registered assigns (the "HOLDER") is entitled to purchase from REDLINE
PERFORMANCE PRODUCTS, INC., a Minnesota corporation (the "COMPANY"), at any time
or from time to time prior to the time and date set forth above, ten thousand
(10,000) 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 (the "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 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 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
2
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 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.
3
d. "FAIR MARKET VALUE" means, with respect to the Company's Common
Stock, as of any date: (i) if the Common Stock is listed or admitted
to unlisted trading privileges on any national securities exchange
or is not so listed or admitted but transactions in the Common Stock
are reported on the Nasdaq National Market, the reported closing
price of the Common Stock on such exchange or by the Nasdaq National
Market as of such date (or, if no shares were traded on such day, as
of the next preceding day on which there was such a trade); or (ii)
if the Common Stock is not so listed or admitted to unlisted trading
privileges or reported on the Nasdaq National Market, and bid and
asked prices therefor in the over-the-counter market are reported by
the Nasdaq system or National Quotation Bureau, Inc. (or any
comparable reporting system), the mean of the closing bid and asked
prices as of such date, as so reported by the Nasdaq system, or, if
not so reported thereon, as reported by National Quotation Bureau,
Inc. (or such comparable reporting service); or (iii) if the Common
Stock is not so listed or admitted to unlisted trading privileges,
or reported on the Nasdaq National Market, and such bid and asked
prices are not so reported by the Nasdaq system or National
Quotation Bureau, Inc. (or any comparable reporting service), such
price as the Company's Board of Directors determines in good faith
in the exercise of its reasonable discretion.
8. Compliance with Securities Laws and Other Transfer Restrictions. The
Holder of this 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.
4
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 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. Registration Rights. If, after the date one (1) year after the completion
of the Company's initial public offering of common stock, the Company
proposes to register under the Securities Act of 1933 (except by a claim
of exemption or registration statement on a form that does not permit the
inclusion of shares by its security holders), other than (i) a
registration relating solely to employee benefit plans or (ii) a
registration relating solely to a Rule 145 Transaction, the Company will
give written notice to all registered holders of Bridge Warrants, and all
registered holders of Shares, of its intention to do so and, on the
written request of any such registered holders given within twenty (20)
days after receipt of any such notice, the Company will use its best
efforts to cause all such Shares, the registered holders of which shall
have requested the registration or qualification thereof, to be included
in such notification or registration statement proposed to be filed by the
Company; provided, however, that nothing herein shall prevent the Company
from, at any time, abandoning or delaying any such registration initiated
by it. If any such registration shall be underwritten in whole or in part,
the Company may require that the shares requested for inclusion pursuant
to this Section be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the
underwriters. In the event that, in the good faith judgment of the
managing underwriter of such public offering, the inclusion of all of the
shares originally covered by a request for registration would reduce the
number of shares to be offered by the Company or interfere with the
successful marketing of the shares of stock offered by the Company, the
number of shares otherwise to be included pursuant to this Section in the
underwritten public offering may be reduced; provided, however, that any
such required reduction shall be first made among all persons, other than
(i) the holders of Bridge Warrants or shares acquired on exercise thereof
who are participating in such offering and (ii) the Company; if further
reductions in the number of shares to be included are so required, such
reductions shall be pro rata among the Company, the holders of Bridge
Warrants and the holders of Shares. Those shares which are thus excluded
from the underwritten public offering shall be withheld from the market
for a period, not to exceed 90 days, which the managing underwriter
reasonably determines is necessary in order to effect the underwritten
public offering. All expenses of such offering, except the fees of special
counsel to such holders and brokers' commissions or underwriting discounts
payable by such holders, shall be borne by the Company.
5
a. If and whenever the Company is required by the provisions of Section
12 hereof to effect the registration of Shares under the Securities
Act, the Company will:
(1) Prepare and file with the Securities and Exchange Commission
(the "COMMISSION") a registration statement with respect to
such securities, and use its reasonable best efforts to cause
such registration statement to become and remain effective for
such period as may be reasonably necessary to effect the sale
of such securities;
(2) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus
contained therein as may be necessary to keep such
registration statement effective for such period as may be
reasonably necessary to effect the sale of such securities;
(3) furnish to the security holders participating in such
registration and to the underwriters of the securities being
registered such reasonable number of copies of the
registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering
of such securities;
(4) use its reasonable best efforts to register or qualify the
securities covered by such registration statement under such
state securities or blue sky laws of such jurisdictions as
such participating holders may reasonably request in writing
within 30 days following the original filing of such
registration statement, except that the Company shall not for
any purpose be required to execute a general consent to
service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so
qualified;
(5) notify the security holders participating in such
registration, promptly after it shall receive notice thereof,
of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of
such registration statement has been filed;
(6) notify such holders promptly of any request by the Commission
for the amending or supplementing of such registration
statement or prospectus or for additional information;
(7) prepare and file with the Commission, promptly upon the
request of any such holders, any amendments or supplements to
such registration statement or prospectus which, in the
opinion of counsel for such holders (and concurred in by
counsel for the Company), is required under the Securities Act
or the rules and regulations thereunder in connection with the
distribution of the Shares by such holder;
(8) prepare and promptly file with the Commission and promptly
notify such holders of the filing of such amendment or
supplement to such registration statement or prospectus as may
be necessary to correct any statements or
6
omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities
Act, any event shall have occurred as the result of which any
such prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements
therein, in the light of the circumstances in which they were
made, not misleading;
(9) advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any
proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(10) not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of
such holders shall have reasonably objected on the grounds
that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act
or the rules and regulations thereunder, after having been
furnished with a copy thereof at least five business days
prior to the filing thereof, unless in the opinion of counsel
for the Company the filing of such amendment or supplement is
reasonably necessary to protect the Company from any
liabilities under any applicable federal or state law and such
filing will not violate applicable law; and
(11) at the request of any such holder, furnish on the effective
date of the registration statement and, if such registration
includes an underwritten public offering, at the closing
provided for in the underwriting agreement: (i) opinions,
dated such respective dates, of the counsel representing the
Company for the purposes of such registration, addressed to
the underwriters, if any, and to the holder or holders making
such request, covering such matters as such underwriters and
holder or holders may reasonably request; and (ii) letters,
dated such respective dates, from the independent certified
public accountants of the Company, addressed to the
underwriters, if any, and to the holder or holders making such
request, covering such matters as such underwriters and holder
or holders may reasonably request, in which letter such
accountants shall state (without limiting the generality of
the foregoing) that they are independent certified public
accountants within the meaning of the Securities Act and that
in the opinion of such accountants the financial statements
and other financial data of the Company included in the
registration statement or the prospectus or any amendment or
supplement thereto comply in all material respects with the
applicable accounting requirements of the Securities Act.
b. The rights set forth in this Section 12 shall terminate upon the
earlier of the date three (3) years from the date of original
issuance of this Warrant, and, with respect
7
to such shares, the date on which the holder of any common stock
issued hereunder may sell such shares pursuant to Rule 144(k) or
within a three (3) month period pursuant to Rule 144.
c. The Company hereby indemnifies the holder of this Bridge Warrant and
of any Shares, its officers and directors, and any person who
controls such Bridge Warrant holder or such holder of Shares within
the meaning of Section 15 of the Securities Act of 1933, against all
losses, claims, damages and liabilities caused by any untrue
statement of a material fact contained in any registration
statement, prospectus, notification or offering circular (and as
amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary prospectus or
caused by any omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission contained
in information furnished in writing to the Company by such Bridge
Warrant holder or such holder of common stock expressly for use
therein, and each such holder by its acceptance hereof severally
agrees that it will indemnify and hold harmless the Company and each
of its officers who signs such registration statement and each of
its directors and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act of 1933 with
respect to losses, claims, damages or liabilities which are caused
by any untrue statement or omission contained in information
furnished in writing to the Company by such holder expressly for use
therein.
13. Restriction on Transfer After a Public Offering. The Holder understands
that the Company at a future date may file a registration or offering
statement (the "REGISTRATION STATEMENT") with the Commission to facilitate
a public offering of its securities. The Holder agrees, for the benefit of
the Company, that should such an initial public offering be made and
should the managing underwriter of such offering require, the undersigned
will not, without the prior written consent of the Company and such
underwriter, during the "Lockup Period" as defined herein: (a) sell,
transfer or otherwise dispose of, or agree to sell, transfer or otherwise
dispose of the Bridge Warrant or any Shares beneficially owned by the
undersigned during the Lockup Period; (b) sell, transfer or otherwise
dispose of, or agree to sell, transfer or otherwise dispose of any
options, rights or warrants to purchase the Bridge Warrant or any Shares
beneficially owned by the undersigned during the Lockup Period; or (c)
sell or grant, or agree to sell or grant, options, rights or warrants with
respect to the Bridge Warrant or any of the Shares. The foregoing does not
prohibit gifts to donees or transfers by will or the laws of descent to
heirs or beneficiaries provided that such donees, heirs and beneficiaries
shall be bound by the restrictions set forth herein. The term "LOCKUP
PERIOD" shall mean the lesser of (x) 18 months and (y) the period during
which Company officers and directors are restricted by the managing
underwriter from effecting any sales or transfers of the Company's Common
Stock. The Lockup Period shall commence on the effective date of the
Registration Statement.
14. Stop Transfer Order and Restrictive Legend. The Holder agrees that the
Company may place a stop transfer order with its registrar and transfer
agent (if any) covering all Shares.
8
The Holder agrees that the Company may place one or more restrictive
legends on any certificates evidencing the Shares containing substantially
the following language:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, have not
been registered under any state securities law, and are subject to a
subscription and investment representation agreement. They may not
be sold, offered for sale, or transferred in the absence of either
an effective registration under the Securities Act of 1933, as
amended, and under the applicable state securities laws, or an
opinion of counsel for the Company that such transaction is exempt
from registration under the Securities Act of 1933, as amended, and
under the applicable state securities laws.
Sale or other transfer of these securities is further restricted for
up to 18 months following an initial public offering of securities
of the Company.
15. Redemption Provision; Automatic Cancellation of Bridge Warrant. If there
is an effective registration statement covering the resale of the Shares
and if the last sale price of the Company's common stock as reported by
the principal securities exchange on which the common stock is listed or
admitted to trading has averaged at least $5.00 per share for the 20
consecutive trading days ending at least five days prior to the date on
which notice is given, the Company shall automatically have the right to
redeem the Bridge Warrant, by paying $0.01 per Share for the Bridge
Warrant, and shall deliver written notice to the Holder ("REDEMPTION
NOTICE") of the Company's intention to redeem the Bridge Warrant. The
Holder shall have thirty (30) days from the date of the Redemption Notice
("REDEMPTION PERIOD") during which the Holder may exercise the Bridge
Warrant. If the Bridge Warrant is not exercised during the Redemption
Period, the Holder shall deliver the Bridge Warrant to the Company for
cancellation. Cancellation of the Bridge Warrant shall be effective on the
Company's books and records notwithstanding the Holder's failure to
deliver the Bridge Warrant to the Company for cancellation. The rights of
the Company hereunder shall continue notwithstanding the Company's failure
to complete any redemption for which a Redemption Notice has been
provided.
16. Postponement of Exercise. Notwithstanding anything herein to the contrary,
the Company shall have the right to delay any exercise for a period of up
to one hundred eighty (180) days for the purpose of: (a) ensuring the
availability of an exemption under applicable securities laws for the
issuance of the Shares to the Holder in light of the transactions by the
Company in its securities; and/or (b) facilitating a distribution of the
Company's securities. In either case, if the Company elects to delay any
such exercise, the Company shall inform the Holder, in writing, of such
delay and the terms of such delay. Any such delay shall not lead to any
change in the Bridge Warrant Price or the terms of the Bridge Warrant and
shall not extend the term of any Bridge Warrant unless such delay would
extend past the expiration date of such Bridge Warrant. In such case, the
expiration date shall be extended to thirty (30) days after the end of
such delay.
17. 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
9
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 October, 2002
REDLINE PERFORMANCE PRODUCTS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇, President and CFO
10
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)
SECURITY AGREEMENT
This SECURITY AGREEMENT (the "AGREEMENT") is entered into as of
___________ ___, 2002 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 Subordinated Promissory Notes in aggregate principal dollar amount of
not less than $1,250,000 and up to $2,000,000 (the "BRIDGE NOTES") in accordance
wit the terms of a Bridge Loan and Investment Agreement and pursuant to the
Confidential Private Placement Memorandum dated August 1, 2002 (the
"MEMORANDUM"). Debtor is the owner of certain assets identified below, in which
Debtor is granting a security interest to the Lenders.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth and for other
good and valuable consideration, the parties hereto mutually agree as follows:
1. Definitions. The following terms, as used in this Agreement, have the
following meanings:
1.1 "AGENT" means GunnAllen Financial, Inc.
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;
4
(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.
5
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,
6
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
7
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)
8
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.
9
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.
10
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:__________________________
Title:_______________________
Lender:
_____________________________
By: _________________________
Print Name: _________________
Its: ________________________
Lender:
_____________________________
By: _________________________
Print Name: _________________
Its: ________________________
11
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
12
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.
13
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
14
Redline Performance Products, Inc.
CONSENT TO EXTEND TERM OF BRIDGE FINANCING
September 30, 2002
You have previously received a copy of the Redline Performance Products,
Inc. ("Redline") Confidential Private Placement Memorandum dated August 1, 2002
("Memorandum"), which describes the terms of the Redline Bridge Financing. For
your information, Redline has modified the terms of the Bridge Financing. First,
the annual rate of interest to be paid to purchasers of promissory notes has
been increased to 10% per annum (from 8%). Secondly, for each purchase of a Unit
for $25,000, you will receive a warrant to purchase 5,000 shares of common stock
(rather than 2,500 shares). Finally, the lock-up period (i.e., the period of
time after any Redline Initial Public Offering during which investors may not
sell or transfer their Redline securities) has been reduced to 12 months (from
18 months).
Additionally, ▇▇▇▇ ▇▇▇▇▇ has joined Redline as President and Chief
Financial Officer. Mark's experience includes serving as both CFO and President
of several publicly-held corporations and participating in a number of public
and private rounds of financing. ▇▇▇▇ will focus on financing and operations.
▇▇▇▇ ▇▇▇▇▇ will continue as Redline's CEO and will focus on Company strategy and
product development.
The Memorandum states that the minimum dollar amount ($1,250,000) must be
raised by September 30, 2002. As of September 30, 2002, Redline has received
nonbinding commitments for this minimum amount. Redline hereby requests your
consent to extend the term of the Bridge Financing for ten (10) days through and
including October 10, 2002 to facilitate the deposit of funds into the escrow
account.
The undersigned subscriber hereby consents to the extension of the term of
the Redline Bridge Financing described in the Memorandum, through and including
October 10, 2002. Please date and execute this page and return it to GunnAllen
Financial, Inc. via facsimile at (▇▇▇) ▇▇▇-▇▇▇▇, ATTN: ▇▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
and via U.S. mail to GunnAllen Financial, Inc., ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ATTN: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇. If you have questions
regarding this Consent form, please contact ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ at (▇▇▇) ▇▇▇-▇▇▇▇.
INDIVIDUAL INVESTORS SIGN BELOW:
Date:__________________ ___________________________________
Subscriber/Offeree
Date:__________________ ___________________________________
Second Named Subscriber/Offeree
ENTITY INVESTORS SIGN BELOW:
Date: 10/16/02 Entity: Industricorp & Co FBO T.C. Carpenters
By: /s/ ▇▇▇▇ ▇. ▇▇▇ /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Its: Officer Officer
THE COMPANY WILL NOT ACCEPT ANY OFFER TO SUBSCRIBE FOR COMPANY SECURITIES
RECEIVED FROM ANY OFFEREE/SUBSCRIBER UNLESS A FULLY-EXECUTED ORIGINAL CONSENT
HAS BEEN RETURNED TO GUNNALLEN FINANCIAL, INC.