Convertible Note Agreement

Convertible Promissory Note - Common Stock

THE RIGHTS OF THE HOLDER OF THIS CONVERTIBLE PROMISSORY NOTE, COMMON STOCK WITH RESPECT TO THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR OTHER ENCUMBRANCE OR DISPOSITION OF THIS CONVERTIBLE PROMISSORY NOTE OR OF THE COMMON STOCK OF THE COMPANY ISSUABLE UPON CONVERSION HEREOF ARE SUBJECT TO THE RESTRICTIONS SET FORTH IN SECTION 5 OF THIS CONVERTIBLE PROMISSORY NOTE.

Convertible Promissory Note - Common Stock
$ St. Louis, Missouri

FOR VALUE RECEIVED, subject to the terms and conditions hereinafter set forth, the undersigned, , a Delaware corporation (the "Company"), and , a California corporation ("Everest & Jennings, Inc.," and together with the Company, the "Borrowers"), hereby jointly and severally promise to pay to the order of , a Hong Kong corporation (the "Holder"), at its office at , or such other address as the Holder shall specify in writing to the Borrowers, in lawful money of the United States and in immediately available funds, the principal amount of Fifty-Five Million Dollars ($55,000,000.00) or the aggregate unpaid principal balance of all amounts from time to time outstanding hereunder as set forth in the Schedule to Convertible Promissory Note attached hereto as Exhibit A and by this reference incorporated herein, whichever is less, in accordance with the provisions of Sections 2.1 and 3.1 of that certain Debt Conversion Agreement, dated as of , among the Holder, the Borrowers and The Jennings Investment Co. (as at any time amended, supplemented or modified, the "Debt Conversion Agreement"). This Convertible Promissory Note-Common Stock (this "Convertible Promissory Note") is the "Convertible Promissory Note-Common Stock" referred to in the Debt Conversion Agreement, the terms and conditions of which are hereby incorporated herein by reference. Capitalized terms not otherwise defined in this Convertible Promissory Note shall have the meanings specified in the Debt Conversion Agreement.

SECTION 1. PAYMENT OBLIGATION.

If not sooner converted into "Common Stock" (as defined in Section 2.1 below) of the Company in accordance with Section below, the principal amount of this Convertible Promissory Note shall be due and payable on (the "Maturity Date"); provided however, that if the Holder has not paid the outstanding balance due from the Borrowers, or either of them, to The Hong Kong and Shanghai Banking Corporation Limited, up to and including (the "HBSB Obligation"), by March 31, 1994, and such amount has not been added to the principal balance of this Convertible Promissory Note, all in accordance with Sections 2.1 and 3.1 of the Debt Conversion Agreement, the Maturity Date shall be extended to the date on which such payment and addition have occurred. No interest shall accrue under this Convertible Promissory Note through and including the Maturity Date; provided, however, that if the principal amount of this Convertible Promissory Note has not been converted into Common Stock of the Company in accordance with Section 2 below or paid in full on or before the Maturity Date, the outstanding principal balance hereunder shall begin to bear interest from and after the Maturity Date until paid in full at the rate of Eight Percent (8%) per annum.

SECTION 2. CONVERSION.

2.1 Automatic Conversion. Subject to and upon compliance with the provisions of this Section 2.1, and the limitation set forth in Section 2.11 below, on the date (the "Conversion Date") on which the Holder receives the "Certificate of Satisfaction" (as defined in Section 2.2 below) this Convertible Promissory Note shall, without any action required on the part of either the Borrowers or the Holder, automatically convert into, and the Holder shall be entitled to receive in lieu of payment of the indebtedness evidenced hereby, a number of shares of "Common Stock" (as defined below) equal to the quotient of (i) a sum equal to the entire outstanding principal amount of this Convertible Promissory Note, divided by (ii) the "Conversion Price" (as defined in Section 2.7 below) in effect at the Conversion Date.

2.2 Conversion Conditions. The Board of Directors of the Company has duly adopted resolutions approving the Debt Conversion Documents, the Debt Conversion Transactions, and the Proposed Amendments. The automatic conversion hereof is expressly conditioned upon and shall not occur unless and until each of the following conditions (the "Conversion Conditions") shall have been satisfied:

(a) the Company shall have obtained the approval of the stockholders of the Company with respect to the terms of the Debt Conversion Documents and the Debt Conversion Transactions, including this Convertible Promissory Note;

(b) the stockholders of the Company shall have adopted the Proposed Amendments;

(c) a certificate amending the Certificate of Incorporation of the Company in conformity with the Proposed Amendments shall have been prepared, executed, acknowledged, filed and recorded, and shall have become effective, in accordance with Sections 242(b)(1) and 103 of the Delaware General Corporation Law;

(d) the Board of Directors of the Company shall have adopted a Certificate of Designations in substantially the form attached hereto as Exhibit and by this reference incorporated herein, designating a new Series C Convertible Preferred Stock;

(e) the Board of Directors of the Company shall have reserved a sufficient number of shares of Common Stock of the Company for issuance upon conversion of this Convertible Promissory Note and upon conversion of the Series C Convertible Preferred Stock; and

(f) the Reserved Common Stock shall have been approved for Listing on the American Stock Exchange upon official notice of issuance, if the Company's Common Stock is traded on the American Stock Exchange.

Upon fulfillment of the Conversion Conditions the Company shall promptly deliver to the Holder a certificate (the "Certificate of Satisfaction") to that effect executed by an authorized officer of the Company.

2.3 Issuance of Certificates. As promptly after the Conversion Date as reasonably practicable, the Company shall instruct its transfer agent to issue and deliver to the Holder at the address of the Holder set forth on the Company's records, without any charge to the Holder, a certificate or certificates for the number of full shares of Common Stock of the Company issuable upon the conversion of this Convertible Promissory Note.

2.4 Status on Conversion. Upon conversion of this Convertible Promissory Note, the Holder shall be deemed to have become the stockholder of record of the shares of Common Stock into which this Convertible Promissory Note is converted on the Conversion Date.

2.5 Taxes Upon Conversion. The Company shall pay any and all taxes payable in respect of the issuance or delivery of any shares of Common Stock on conversion of this Convertible Promissory Note.

2.6 Elimination of Fractional Interests. No fractional shares of Common Stock shall be issued upon conversion of this Convertible Promissory Note, nor shall the Company be required to pay cash in lieu of fractional interests.

2.7 Conversion Price. The initial Conversion Price of this Convertible Promissory Note shall be One Dollar ($1.00) per share.

(a) If the Company shall at any time after the date hereof issue any shares of Common Stock or Common Stock Equivalents by way of dividend or other distribution, or subdivide or combine its outstanding shares, the Conversion Price shall be adjusted accordingly.

(b) If the Company shall sell or issue Common Stock or Common Stock Equivalents, or rights, options, warrants or convertible securities, without consideration or for less than Market Value, the Conversion Price shall be adjusted accordingly.

(c) If the Company shall fix a record date for making a distribution to holders of Common Stock of assets or evidences of indebtedness, or subscription rights, options or warrants, the Conversion Price shall be adjusted accordingly.

2.8 Effect of Reclassification, Consolidation, Merger, etc. In case of reclassification, consolidation, merger, or sale of all or substantially all assets of the Company, this Convertible Promissory Note shall be converted into the kind and number of shares or other securities receivable upon such transaction.

2.9 Certificate Concerning Adjusted Conversion Price. Whenever the Conversion Price is adjusted, the Company shall place on file an officer's certificate showing the facts requiring such adjustment and mail notice to the Holder.

2.10 Reservation and Listing of Shares for Issuance. The Company shall at all times reserve and keep available sufficient authorized and unissued shares of Common Stock for conversion of this Convertible Promissory Note.

2.11 Limitation. Notwithstanding any other provision of this Convertible Promissory Note to the contrary, at the option of the Borrowers in their sole and absolute discretion, the Company shall not be required to deliver the Certificate of Satisfaction to the Holder, and the conversion provided by Section 2.1 above shall not occur, until the Holder has paid the HESB Obligation and the amount thereof has been added to the principal balance of this Convertible Promissory Note.

SECTION 3. SECURITY. This Convertible Promissory Note is secured by a Security Agreement of even date herewith among the Borrowers and the Holder.

SECTION 4. TRANSFER, EXCHANGE AND REPLACEMENT OF NOTE. This Convertible Promissory Note shall be transferable only on the note register of the Company maintained at the office of the Company's transfer agent or at the principal executive office of the Company, upon delivery thereof duly endorsed by the Holder, accompanied by any necessary transfer tax imposed upon transfer or evidence thereof. In addition, prior to such transfer the Holder and, if applicable, the proposed transferee shall comply with the terms of Section 6.

SECTION 5. PREPAYMENT. The principal amount of this Convertible Promissory Note may not be prepaid, in whole or in part, without the written consent of the Holder.

SECTION 6. ACQUISITION FOR INVESTMENT AND RESTRICTIONS ON TRANSFER.

6.1 Investment Intent.

(a) The Holder, by acceptance of this Convertible Promissory Note, represents that this Convertible Promissory Note and any shares of Common Stock issuable upon conversion are being and will be acquired for the Holder's own account for investment and not with a view to, or for resale in connection with, the distribution thereof in violation of applicable securities laws.

(b) The Holder further represents that it has not offered or sold this Convertible Promissory Note, or any shares of Common Stock into which this Convertible Promissory Note is convertible, directly or indirectly to any other Person, and that the Holder is not acquiring this Convertible Promissory Note or any such Common Stock for the account of any other Person.

6.2 Restrictions on Transfer. The Holder agrees that the Holder will not sell, transfer, assign, pledge, hypothecate or otherwise dispose of this Convertible Promissory Note or any of the shares of Common Stock issuable upon conversion unless:

(i) a registration statement under the Securities Act of 1933 is in effect;

(ii) the Holder first provides the Company with an opinion of counsel reasonably acceptable to the Company stating the transfer will be exempt from registration and prospectus delivery requirements; or

(iii) such disposition is made to a corporation or other entity wholly-owned by the Holder or by which the Holder is wholly-owned.

6.3 Legends. Certificates evidencing shares of Common Stock issuable upon conversion of this Convertible Promissory Note shall bear the following legend:

SECTION 7. DEFAULTS AND REMEDIES.

7.1 Events of Default. The occurrence and continuance of any one or more of the following events shall constitute an Event of Default hereunder:

(a) the Borrowers fail to pay any amount due under this Convertible Promissory Note within two days of the date when due;

(b) the Borrowers fail to observe, perform or comply with any covenant, agreement or term contained in this Convertible Promissory Note and, if subject to remedy, the same is not remedied within 30 days after written notice from the Holder; or

(c) either Borrower makes a general assignment for the benefit of creditors or becomes subject to bankruptcy, insolvency, reorganization, or similar proceedings.

7.2 Remedies. Upon any Event of Default, the Holder may declare the entire amount of principal and accrued, unpaid interest immediately due and payable by written notice to the Borrowers.

7.3 Waivers. The Borrowers waive presentment, demand, notice of dishonor, notice of default or delinquency, notice of acceleration, notice of protest and nonpayment, and related notices.

SECTION 8. REGISTRATION RIGHTS. The Company and the Holder agree that the registration rights and limitations provided in the Registration Rights Agreement dated as of September 1993 shall apply to such Common Stock.

SECTION 9. MISCELLANEOUS.

9.1 Definitions. As used herein the following terms shall have the following meanings:

"Closing Price" on a given day shall mean the last sale price regular way or, in case no such reported sales take place on such day, the average of the last reported bid and ask price.

"Common Stock Equivalents" shall mean securities that are convertible into or exchangeable or exercisable for shares of Common Stock.

"Market Value" per share of Common Stock at any date shall mean the average of the daily Closing Price for the Common Stock for the 30 Trading Days before such date.

"Person" shall mean any individual or entity, including without limitation any corporation, partnership, joint venture or trust.

"Subsidiary" shall mean any corporation or association of which the Company or one or more of its Subsidiaries owns at least a majority of the outstanding voting stock or other equity interest.

"Trading Day" shall mean a day on which the principal national securities exchange on which shares of Common Stock are listed or admitted to trading is open for business.

9.2 Merger, Consolidation and Sale. Nothing contained in this Convertible Promissory Note shall prevent any consolidation or merger of a Borrower with or into any other corporation or corporations, or any sale or conveyance of all or any substantial portion of the assets of a Borrower to any other corporation.

9.3 Notices. Any and all notices, requests, demands, designations, consents, offers, acceptances or any other communications to be given by any party to any other party under the terms and conditions of this Convertible Promissory Note shall be in writing and personally delivered, or sent by mail, courier, facsimile, telecopy or telex, addressed as follows:

9.4 Successors. All the covenants, agreements, representations and warranties contained in this Convertible Promissory Note shall bind the parties hereto and their respective heirs, executors, administrators, distributees, successors and assigns.

9.5 Governing Law. This Convertible Promissory Note is delivered in the State of Missouri and shall be construed and enforced in accordance with the laws of the State of Missouri.

9.6 Headings. The Section headings in this Convertible Promissory Note are inserted for purposes of convenience only.

9.7 Attorneys' Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Convertible Promissory Note, the prevailing party will be entitled to all costs and expenses incurred, including reasonable attorneys' fees.

9.8 Time of the Essence. Time is of the essence with respect to every provision hereof.

9.9 Usury. All agreements among the Borrowers and the Holder are expressly limited so that the amount paid or agreed to be paid shall not exceed the highest lawful rate permissible under applicable usury laws.

9.10 Endorsement of Schedule. The Borrowers authorize the Holder to endorse on the Schedule all loans made to the Borrowers evidenced hereby in accordance with the Debt Conversion Agreement.

IN WITNESS WHEREOF, the parties have executed this Convertible Promissory Note as of the date first above written.

EXHIBIT A

EVEREST & JENNINGS INTERNATIONAL LTD.
EVEREST & JENNINGS, INC.
SCHEDULE TO CONVERTIBLE PROMISSORY NOTE

Sign Now