1
Exhibit 10.23
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE, LOCAL OR FOREIGN SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED UNLESS SO REGISTERED OR AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE, LOCAL OR FOREIGN
SECURITIES LAW, IS AVAILABLE. THIS NOTE AND THE RIGHTS, REMEDIES AND OBLIGATIONS
OF THE HOLDER OF THIS NOTE ARE SUBJECT TO THE RIGHT TO COMPEL THE HOLDER TO
EXECUTE AND DELIVER A SUBORDINATION AGREEMENT ON SUCH DATE AND CONDITIONS AS THE
SENIOR LENDER (AS DEFINED BELOW) MAY REQUIRE.
GEOGRAPHICS, INC.
10% CONVERTIBLE SECURED SUBORDINATED NOTE
$50,000.00
Milwaukee, Wisconsin
Dated April 27, 2001
Due and payable on or before April 27, 2003
GEOGRAPHICS, INC., a Delaware corporation (the "Company"), for value
received, hereby promises to pay to Xxxxx X. Xxxxx (the "Creditor"), or his
successors and assigns, on or before April 27, 2003 (the "Maturity Date"), the
principal sum of $50,000.00 payable pursuant to the terms and conditions set
forth herein, and to pay interest (computed on the basis of a 360-day year
consisting of twelve 30-day months, for actual days elapsed) from the date
hereof on the unpaid balance of such principal amount from time to time
outstanding at ten percent (10%) per annum.
1. Principal Payments. The unpaid principal balance under this Note shall
be repaid on the Maturity Date. Notwithstanding the immediately preceding
sentence, the Company shall not make any payment of principal hereunder unless
(a) all Senior Indebtedness (as hereinafter defined) has been paid in full, (b)
the Company is not in default, or operating under a forbearance, in respect of
any Senior Indebtedness, or (c) the Company obtains the written consent of the
holders of Senior Indebtedness to such payment. Payments pursuant to this
Section 1 shall be made to the holder of this Note in immediately available
funds on the applicable payment date.
2. Interest Payments. (a) Interest on this Note shall accrue and compound
monthly on the last day of each calendar quarter. All accrued, but unpaid,
compound interest shall be payable monthly on the last day of each calendar
quarter (each, an "Interest Payment Date"). The Company shall not make any
payment of interest hereunder unless (a) all Senior Indebtedness has been paid
in full, (b) the Company is not in default, or operating under a forbearance, in
respect of any Senior Indebtedness, or (c) the Company obtains the written
consent of the holders of Senior Indebtedness to such payment. Thereafter, the
Company shall pay interest on each subsequent Interest Payment Date in an amount
equal to twice the current interest amount owed until the accrued, but unpaid,
compound interest then owing is paid. Interest shall accrue on the principal
amount and, to the maximum extent permitted under applicable law, all accrued,
but unpaid, interest on this Note.
2
(b) On and after any Interest Payment Date on which any accrued, but
unpaid, compound interest in respect hereof is paid, the interest amount so paid
shall not be convertible as provided in Section 3; provided, however, that if
any such interest amount is not paid, this Note shall continue to be convertible
in respect of the amount not paid as provided in Section 3, with the adjustment
to the Conversion Price provided in Section 3(e). Payments pursuant to this
Section 2 shall be made to the holder of this Note in immediately available
funds on the applicable payment date.
3. Conversion.
(a) Conversion. The holder of this Note may convert this Note, in whole or
in part, into shares of the Company's common stock ("Shares") at any time upon
ten (10) days prior written notice to the Company; provided, however, that if
this Note is converted in part, it shall be converted in the minimum amount of
$10,000 and integral multiples of $5,000 in excess of such amount. On or before
the date fixed for conversion set forth in such notice of conversion, the holder
shall surrender this Note at the Company's address set forth in Section 8(e)(ii)
hereof, together with a statement of the holder's name (with address) in which
the Shares which shall be issuable on such conversion shall be issued.
(b) Conversion Price and Shares Issuable.
(i) Number of Shares. The number of Shares in the Company issued
pursuant to a conversion of this Note shall be determined by dividing (x)
the amount payable under this Note to be converted (including, without
limitation, principal and/or interest), by (y) the Conversion Price then in
effect.
(ii) Initial Conversion Price. The Conversion Price on the date of
original issue of this Note is $0.20.
(iii) Adjustments. If the number of Shares of the Company outstanding
at any time after the date hereof is increased by a distribution payable in
Shares or by a subdivision or split-up of Shares, then, on the date such
payment is made or such change is effective, the Conversion Price then in
effect shall be proportionately decreased and the number of Shares issuable
on conversion of this Note shall be proportionately increased. If the
number of Shares outstanding at any time after the date hereof is decreased
by a combination of the outstanding Shares then, on the effective date of
such combination, the Conversion Price shall be proportionately increased
and the number of Shares issuable on conversion of this Note shall be
proportionately decreased.
(iv) Minimal Adjustments. No adjustment to the Conversion Price need
be made if such adjustment would result in a change in a Conversion Price
of less than $0.00001. Any adjustment of less than $0.00001 which is not
made shall be carried forward and shall be made at the time of and together
with any subsequent adjustment which, on a cumulative basis, amounts to an
adjustment of $0.00001 or more in Conversion Price.
(v) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of a Conversion Price pursuant to this Section
3, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
the holder of this Note a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon written request at any time
of the holder of this Note, furnish or cause to be furnished to such holder
a like certificate setting forth (A) such adjustment and readjustments, (B)
the applicable Conversion Price at the time in effect, and (C) the number
of
3
Shares and the amount, if any, of other property which at the time would be
received upon conversion of this Note.
(c) Surrender of Note and Delivery of Evidence of Shares. When surrendered
for conversion this Note shall be duly endorsed by, or accompanied by
instruments of transfer in form satisfactory to the Company duly executed by,
the holder or the holder's duly authorized attorney. As promptly as practicable
after the surrender of this Note for conversion, the Company shall deliver or
cause to be delivered at its principal executive office to the holder, or on the
holder's written order, evidence of the Shares issuable upon the conversion of
this Note in accordance with the provisions hereof. Such conversion shall be
deemed to have been made at the time of the closing (the "Conversion Date"), and
the holder in whose name any Shares shall be issuable upon such conversion shall
be deemed to have become on the Conversion Date the holder of the Shares
represented thereby. All Shares of the Company issued upon conversion of this
Note shall be fully paid and non-assessable.
(d) Fractional Shares. No fractional Shares shall be issuable upon
conversion of this Note, but a payment in cash will be made in respect of any
fraction of a Share which would otherwise be issuable upon the surrender of this
Note, or portion hereof, for conversion. Such payment shall be based on the
price at which this Note is converted to Shares.
4. Subordination. The indebtedness evidenced by this Note, and the payment
of all amounts hereunder, are wholly subordinated, junior and subject in right
of payment, to the extent and in the manner hereinafter provided, to the prior
payment of certain senior indebtedness ("Senior Indebtedness") of the Company
now outstanding or hereinafter incurred in favor of U.S. Bank N.A. or the
Company's successor senior lender (the "Senior Lender"). The holder hereof shall
upon the request of the Company or the Senior Lender execute and deliver an
agreement to subordinate the right of payment and collection to the Senior
Lender on terms required by the Senior Lender.
5. Prepayment. The Company shall not be permitted to prepay this Note
without first obtaining the express written consent of the holder of this Note
and the Senior Lender. Each permitted prepayment of principal shall include
interest accrued to the date of such prepayment on the principal amount being
prepaid. Notwithstanding the forgoing, the Company shall not make any prepayment
of this Note unless (a) all Senior Indebtedness has been paid in full, (b) the
Company is not in default, or operating under a forbearance, in respect of any
Senior Indebtedness, or (c) the Company obtains the written consent of the
holders of Senior Indebtedness to such payment.
6. Default. Subject to the subordination provisions of Section 4, and
notwithstanding the provisions of Sections 1 and 2, the entire unpaid principal
of this Note and the interest then accrued on this Note shall, upon written
notice by the holder of this Note to the Company, become and be immediately due
and payable without any further notice or demand of any kind or any presentment
or protest, if any one of the following events shall occur:
(a) If default shall be made in the payment of any principal or interest
under this Note; or
(b) The Company shall fail to perform or observe any agreement, covenant or
obligation arising under any other provision under this Note for a period of ten
(10) days after written notice thereof to the Company by the holder of this
Note; or
(c) Any representation or warranty made by the Company herein or in any
statement or certificate furnished by the Company to the holder of this Note in
connection with the issuance and sale of this Note or any securities issuable
pursuant to the terms hereof proves untrue in any material respect as of the
date of the issuance or making thereof; or
4
(d) The Company shall default in the payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) of any amount
owing in respect of any indebtedness in the aggregate principal amount of
$100,000 or more, or shall default in the performance or observance of any
obligation or condition with respect to any such indebtedness or any other event
shall occur or condition exist, if the effect of such default, event or
condition is to accelerate the maturity of any such indebtedness or to permit
(without regard to any required notice or lapse of time) the holder or holders
thereof, or any trustee or agent for such holders, to accelerate the maturity of
any such indebtedness, or any such indebtedness shall become or be declared to
be due and payable prior to its stated maturity other than as a result of a
regularly scheduled payment (provided, however, that any such default existing
and continuing on the date of this Note in respect of the Senior Indebtedness
shall not constitute a default hereunder until and unless the Company shall
cease to have the benefit of a forbearance of the holders of the Senior
Indebtedness in respect of such default); or
(e) (i) The Company shall commence a voluntary case concerning itself under
the Bankruptcy Code; (ii) an involuntary case is commenced against the Company
and the petition is not controverted within ten (10) days, or is not dismissed
within 30 days, after commencement of the case; (iii) a custodian (as defined in
the Bankruptcy Code) is appointed for, or takes charge of, all or substantially
all of the property of the Company or the Company commences any other
proceedings under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or there
is commenced against the Company any such proceeding which remains undismissed
for a period of sixty (60) days; (iv) any order of relief or other order
approving any such case or proceeding is entered; (v) the Company is adjudicated
insolvent or bankrupt; (vi) the Company suffers any appointment of any custodian
or the like for it or any substantial part of its property to continue
undischarged or unstayed for a period of thirty (30) days; (vii) the Company
makes a general assignment for the benefit of creditors; (viii) the Company
shall fail to pay, or shall state that it is unable to pay, or shall be unable
to pay, its debts generally as they become due; (ix) the Company shall call a
meeting of its creditors with a view to arranging a composition or adjustment of
its debts; (x) the Company shall by any act or failure to act consent to,
approve of or acquiesce in any of the foregoing; (xi) any action is taken by the
Company for the purpose of effecting any of the foregoing; (xii) the Company
files Articles of Dissolution or the Company's Board of Directors or
shareholders approve any such filing; (xiii) the Company is dissolved or any
administration proceeding is commenced to dissolve the Company; or
(f) Any judgment, writ or warrant of attachment or of any similar
post-judgment process in an amount in excess of $100,000 shall be entered or
filed against the Company or against any of its properties or assets and remain
unpaid, unvacated, unbonded or unstayed for a period of sixty (60) days.
7. Representation Warranties and Covenants of the Company. To induce the
holder of this Note (or his, her or its predecessor in interest) to make a loan
which is evidenced by this Note, the Company represents and warrants to the
holder of this Note as follows:
(a) Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
full power and authority, corporate and otherwise, to execute, deliver and
issue, and to perform its obligations under, this Note.
(b) Authorization. The Company's execution, delivery and issuance of, and
the performance of its obligations under, this Note have been duly authorized by
all necessary corporate action on the part of the Company.
(c) Enforceability. This Note constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
5
8. Representations and Warranties of the Holder. To induce the Company to
execute and deliver this Note, the holder of this Note, by accepting this Note,
represents and warrants to the Company, and its officers and directors, as
follows:
(a) The holder of this Note has been furnished with all materials which
such holder considers relevant to an investment in the Company and has had a
full opportunity to ask questions of and receive answers from the Company or any
person or persons acting on its behalf concerning the terms and conditions of
this Note and, if converted, the Shares.
(b) The holder of this Note is acquiring this Note and, if converted, any
Shares for the holder's own account for investment, and not with a view of
distribution or resale, and agrees not to dispose of this Note any Shares unless
they have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and applicable state, local or foreign securities laws or, in
the opinion of counsel for the Company, an exemption from the registration
requirements of the Securities Act and state, local or foreign securities laws
(as applicable) is available. (c) The holder of this Note has adequate means of
providing for his, her or its current financial needs, including possible future
personal financial contingencies, and anticipate no need in the foreseeable
future to sell the Note or, if converted, the Shares. The holder is able to bear
the economic risks of this investment and, without limiting the generality of
the foregoing, is able to hold this Note and, if converted, the Shares for an
indefinite period of time and has sufficient net worth to sustain a loss of the
holder's entire investment in the Company. The holder does not anticipate any
changes in circumstances which would cause the holder to sell this Note or, if
converted, the Shares.
(d) If the holder of this Note is an individual, such holder is (i) over 21
years of age, (ii) a citizen of the United States, (iii) a resident of the State
of Wisconsin, and (iv) legally competent to accept this Note, to make the loan
evidenced hereby and to make the representations and warranties contained
herein.
(e) If the holder of this Note is an entity other than an individual, (i)
such holder is duly organized, validly existing and in good standing under the
laws of the United States of America or a state thereof, (ii) such holder has
the requisite power and authority to accept this Note and make the loan
evidenced hereby and the representations and warranties contained herein, (iii)
such holder has duly authorized the acceptance of this Note and the making of
the loan evidenced hereby and the representations and warranties contained
herein, (iv) such holder's acceptance of this Note, the making of the loan
evidenced hereby and the representations and warranties contained herein do not
violate the organizational documents of such holder or any applicable law.
(f) The holder of this Note, acting on his, her or its own behalf or in
conjunction with such holder's authorized legal, financial or other advisors,
has such knowledge and experience in financial and business matters that such
holder is capable of evaluating the merits and risks of this Note and, if
converted, the Shares.
(g) The holder of this Note qualifies as an "Accredited Investor" within
the meaning of Regulation D ("Regulation D") promulgated under the Securities
Act, as evidenced by meeting at least one of the standards set forth below:
(i) Such holder is a natural person and has an individual income
(exclusive of any income attributable to your spouse) of more than $200,000
in each of the two most recent years and reasonably expects to have an
individual income in excess of $200,000 for the current year; or
6
(ii) Such holder is a natural person and such holder and his or her
spouse have a combined income of more than $300,000 in each of the two most
recent years and such holder reasonably expects to have a combined income
in excess of $300,000 for the current year; or
(iii) Such holder is a natural person and has an individual net worth,
or such holder and his or her spouse have a combined net worth, in excess
of $1,000,000; or
(iv) Such holder is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of accepting and acquiring
this Note or, if converted, the Shares, and whose acceptance of this Note
or, if converted, the Shares is directed by a sophisticated person as
described in Rule 506(b)(2)(ii) promulgated under the Securities Act; or
(v) Such holder is a director or executive officer of the Company; or
(vi) Such holder is (A) an organization described in section 501(c)(3)
of the Internal Revenue Code, (B) a corporation, (C) a Massachusetts or
similar business trust, or (D) a partnership, not formed for the specific
purpose of accepting and acquiring this Note or, if converted, the Shares;
or
(vii) Such holder is a private business development company as defined
in section 202(a)(22) of the Investment Advisers Act of 1940, as amended;
or
(viii) Such holder is (A) a bank (as defined in section 3(a)(2) of the
Securities Act) or a savings and loan association or other institution (as
defined in section 3(a)(5)(A) of the Securities Act) whether acting in its
individual or fiduciary capacity; (B) a broker or dealer registered
pursuant to section 15 of the Securities Exchange Act of 1934, as amended;
(C) an insurance company as defined in section 2(13) of the Securities Act;
(D) an investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"), or a business development company as
defined in section 2(a)(48) of the 1940 Act; (E) 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, as
amended; (F) any plan (1) established and maintained by a state, its
political subdivisions, or an agency or instrumentality of a state or its
political subdivisions, for the benefits of its employees and (2) having
total assets in excess of $5,000,000; or (G) an employee benefit plan
within the meaning of the Employee Retirement Income Security Act of 1974,
as amended, where the investment decision is made by a plan fiduciary, as
defined in section 3(21) of the Securities Act, which is either a bank,
savings and loan association, insurance company, or registered investment
adviser, or if such employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are "accredited investors" within the meaning of
Regulation D.
For purposes of determining the individual income or the combined income of
the holder and his or her spouse under this Section 8(g), "income" means
any individual adjusted gross income for federal income tax purposes, plus
(x) any deductions for long term capital gains, plus (y) any deductions for
depletion, plus (z) any tax exempt interest.
9. General.
(a) Successors and Assigns. This Note, and the obligations and rights of
the Company and the holder hereof hereunder, shall be binding upon and inure to
the benefit of the Company, the holder of this Note, and their respective heirs,
personal representatives, successors and assigns.
7
(b) Recourse. Recourse under this Note shall be to the general unsecured
assets of the Company only and in no event to the shareholders, officers,
directors, employees, agents or representatives of the Company.
(c) Changes. Any change or amendment to this Note or any waiver hereunder
shall be effective only if in writing and signed by the party or parties against
whom such change, amendment or waiver is sought to be enforced.
(d) Currency. All payments shall be made in immediately available funds in
such coin or currency of the United States of America as at the time of payment
shall be legal tender therein for the payment of public and private debts.
(e) Notices. All notices, requests, consents and demands shall be made in
writing and shall be mailed postage prepaid, or delivered by hand, to the
Company or to the holder hereof at their respective addresses set forth below or
to such other addresses as may be furnished in writing to the other party
hereto:
(i) If to the holder: Xxxxx X. Xxxxx
0000 000xx Xxxxxx
Xxxxxxxx Xxxxxxx, XX 00000
SS####-##-####
(ii) If to the Company: Geographics, Inc.
Attn: Xxxxx X. Xxxxxx
0000 Xxxxx Xxxx
X.X. Xxx 0000
Xxxxxx, XX 00000
(f) Governing Law. This Note shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the internal laws of
the State of Wisconsin.
[The remainder of this page is intentionally blank.]
8
IN WITNESS WHEREOF, this Note has been executed and delivered on the date
first above written by the duly authorized representative of the Company.
GEOGRAPHICS, INC.
By: /s/ Xxxxx X. Xxxxxx
--------------------------------------
Xxxxx X. Xxxxxx
Its: President and Chief Executive Officer
--------------------------------------
