Exhibit 4.2(A)
THIS NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION AND QUALIFICATION IS NOT REQUIRED.
SUBORDINATED PROMISSORY NOTE
$ ,
------------ ------------- -----
Chico, California
FOR VALUE RECEIVED, FAFCO, Inc., a California corporation (the "Company")
promises to pay to _________________ ("Lender"), or its registered assigns, the
principal sum of ___________________ __________ Dollars ($___________), or such
lesser amount as shall equal the outstanding principal amount hereof, together
with interest from the date of this Note on the unpaid principal balance at a
rate equal to the Interest Rate, as defined below, computed on the basis of the
actual number of days elapsed and a year of 365 days. All unpaid principal,
together with any then unpaid and accrued interest and other amounts payable
hereunder, shall be due and payable on the third anniversary of the date hereof
(the "Payment Date"). Accrued interest shall be payable on January 1, April 1,
July 1 and October 1 of each year, commencing April 1, 2002, the last payment of
any accrued and unpaid interest to be made together with payment of the
principal on the Payment Date [Check with Alex: may want to accrue and pay at
maturity]. This Note may be prepaid only in accordance with Section 4 below.
This Note is issued pursuant to a Subordinated Note and Warrant Purchase
Agreement dated as of December __, 2001 (the "Purchase Agreement") between the
Company and the purchasers listed on the Schedule of Purchasers to such Purchase
Agreement, and is subject to the terms and provisions of the Purchase Agreement,
a copy of which may be obtained from the Company at its principal executive
offices.
The following is a statement of the rights of Lender and the conditions to
which this Note is subject, and to which Lender, by the acceptance of this Note,
agrees:
1. DEFINITIONS. As used in this Note, the following capitalized terms
have the following meanings:
(a) "Articles" shall mean the Articles of Incorporation of
Company, as amended and/or restated from time to time.
(b) "Company" includes the corporation initially executing
this Note and any Person that shall succeed to or assume the obligations of
Company under this Note.
(c) "Event of Default" has the meaning given in Section 2
hereof.
(d) "Interest Rate" shall initially mean a rate of ten
percent (10.0%) per annum, and for all periods after the first anniversary of
date of this Note, a rate of twelve percent (12.0%) per annum.
(e) "Lender" shall mean the Person specified in the
introductory paragraph of this Note or any Person who shall at the time be the
registered holder of this Note.
(f) "Person" shall mean and include an individual, a
partnership, a corporation (including a business trust), a joint stock company,
a limited liability company, an unincorporated association, a joint venture or
other entity or a governmental authority.
2. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Note.
(a) Failure to Pay. The Company shall fail to pay any principal,
interest or other payment due hereunder within ten (10) days of Company's
receipt of Lender's written demand; or
(b) Voluntary Bankruptcy or Insolvency Proceedings. The Company
shall (i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of its or any of its
creditors, (iii) be dissolved or liquidated in full or in part, (iv) commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or consent to any such relief or to
the appointment of or taking possession of its property by any official in an
involuntary case or other proceeding commenced against it or (v) take any action
for the purpose of effecting any of the foregoing; or
(c) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of Company
or of all or a substantial part of the property thereof, or an involuntary case
or other proceedings seeking liquidation, reorganization or other relief with
respect to Company or the debts thereof under any bankruptcy, insolvency or
other similar law now or hereafter in effect shall be commenced and an order for
relief entered or such proceeding shall not be dismissed or discharged within
ninety (90) days of commencement.
3. RIGHTS OF LENDER UPON DEFAULT. Upon the occurrence or existence of
an Event of Default described in Paragraph 2(a) and at any time thereafter
during the continuance of such Event of Default, Lender may, by written notice
to Company, declare all outstanding amounts payable by Company hereunder to be
immediately due and payable without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, anything contained
herein to the contrary notwithstanding. Upon the occurrence or existence of any
Event of Default described in Paragraphs 2(b) and 2(c), immediately and without
notice, all outstanding amounts payable by Company hereunder shall automatically
become immediately due and payable, without presentment,
-2-
demand, protest or any other notice of any kind, all of which are hereby
expressly waived, anything contained herein to the contrary notwithstanding. In
addition to the foregoing remedies, upon the occurrence or existence of any
Event of Default, Lender may exercise any other right, power or remedy permitted
to it by law, either by suit in equity or by action at law, or both.
4. PREPAYMENT. Upon ten (10) days prior written notice to Lender, the
Company may, without premium or penalty, at any time and from time to time,
prepay all or any portion of the outstanding principal balance due under this
Note, provided that each such prepayment is accompanied by the accrued interest
on the amount of principal prepaid calculated to the date of such prepayment.
5. REPRESENTATIONS AND WARRANTIES OF LENDER. In addition to the
representations and warranties contained in Section 4 of the Purchase Agreement,
by its acceptance hereof, the Lender represents and warrants to Company that:
(a) Securities Law Compliance. Lender has been advised that this
Note has not been registered under the Securities Act of 1933, as amended (the
"Act") and, therefore, cannot be resold unless it is registered under the Act
and qualified under applicable state securities laws or unless an exemption from
such registration and qualification requirements is available. Lender is aware
that Company is under no obligation to effect any such registration and
qualification with respect to this Note or to file for or comply with any
exemption from registration and qualification. Lender has not been formed solely
for the purpose of making this investment and is acquiring this Note for its own
account for investment, not as a nominee or agent, and not with a view to, or
for resale in connection with, the distribution thereof. Lender has such
knowledge and experience in financial and business matters that such Lender is
capable of evaluating the merits and risks of such investment, is able to incur
a complete loss of such investment and is able to bear the economic risk of such
investment for an indefinite period of time. Lender is an accredited investor as
such term is defined in Rule 501 of Regulation D under the Act.
(b) Access to Information. Lender acknowledges that Company has
given Lender access to all documents and other information required for Lender
to make an informed decision with respect to the purchase of this Note.
6. SUBORDINATION.
(a) "Senior Indebtedness" means the principal of and premium, if
any, and interest on indebtedness of the Company for money borrowed from
commercial banks, equipment lessors or other financial institutions under a
secured or unsecured line of credit, term loan, equipment lease or similar
facility.
(b) The Company agrees and the holder of this Note, by acceptance
hereof, agrees, expressly for the benefit of the present and future holders of
Senior Indebtedness, that, except as otherwise provided herein, upon (i) an
event of default under any Senior Indebtedness, or (ii) any dissolution, winding
up or liquidation of the Company, whether or not in bankruptcy, insolvency or
receivership proceedings, the Company shall not pay, and the holder of such Note
shall not be entitled to receive, any amount in respect of the principal and
interest of such
-3-
Note unless and until the Senior Indebtedness shall have been paid or otherwise
discharged. Upon (1) an event of default under any Senior Indebtedness, or (2)
any dissolution, winding up or liquidation of the Company, any payment or
distribution of assets of the Company, which the holder of this Note would be
entitled to receive but for the provisions hereof, shall be paid by the
liquidating trustee or agent or other person making such payment or distribution
directly to the holders of Senior Indebtedness ratably according to the
aggregate amounts remaining unpaid on Senior Indebtedness after giving effect to
any concurrent payment or distribution to the holders of Senior Indebtedness.
Subject to the payment in full of the Senior Indebtedness and until this Note is
paid in full, the holder of this Note shall be subrogated to the rights of the
holders of the Senior Indebtedness (to the extent of payments or distributions
previously made to the holders of Senior Indebtedness pursuant to this paragraph
6(b)) to receive payments or distributions of assets of the Company applicable
to the Senior Indebtedness.
(c) This Section 6 is not intended to impair, as between the
Company, its creditors (other than the holders of Senior Indebtedness) and the
holder of this Note, the unconditional and absolute obligation of the Company to
pay the principal of and interest on the Note or affect the relative rights of
the holder of this Note and the other creditors of the Company, other than the
holders of Senior Indebtedness. Nothing in this Note shall prevent the holder of
this Note from exercising all remedies otherwise permitted by applicable law
upon default under the Note, subject to the rights, if any, of the holders of
Senior Indebtedness in respect to cash, property or securities of the Company
received upon the exercise of any such remedy.
7. SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer
described in Sections 9 and 10 below, the rights and obligations of Company and
Lender shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties.
8. AMENDMENTS WITH CONSENT OF HOLDERS. With the written consent of the
Holders of not less than a majority in principal amount of outstanding Notes
issued pursuant to the Purchase Agreement, the Company may amend this or any
other Note by executing and delivering to the Lenders an amendment thereto for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Notes or of modifying in any manner the rights of
the Lenders; provided, however, that no such amendment shall, without the
consent of the Lender of this Note affected thereby, change the maturity of the
principal of, [or any installment of interest on,] [Check with Alex] the Note,
or reduce the principal amount thereof or the interest thereon or payable upon
the redemption thereof or impair the right to institute suit for the enforcement
of any such payment on or after the maturity thereof (or, in the case of
redemption, on or after the Redemption Date).
9. TRANSFER OF THIS NOTE. Transfers of this Note may only be made in
compliance with the provisions of the Purchase Agreement, which are incorporated
herein by reference. With respect to any offer, sale or other disposition of
this Note, Lender will give written notice to Company prior thereto, describing
briefly the manner thereof, together with a written opinion of Lender's counsel,
to the effect that such offer, sale or other distribution may be effected
without registration or qualification (under any federal or state law then in
effect). Promptly upon receiving such written notice and reasonably satisfactory
opinion, if so requested, Company, as promptly as practicable, shall notify
Lender that Lender may sell or otherwise dispose of this Note, all in accordance
with the
-4-
terms of the notice delivered to Company. If a determination has been made
pursuant to this Section 9 that the opinion of counsel for Lender is not
reasonably satisfactory to Company, Company shall so notify Lender promptly
after such determination has been made. Each Note thus transferred and each
certificate representing the securities thus transferred shall bear a legend as
to the applicable restrictions on transferability in order to ensure compliance
with the Act, unless in the opinion of counsel for Company such legend is not
required in order to ensure compliance with the Act. Company may issue stop
transfer instructions to its transfer agent in connection with such
restrictions. Subject to the foregoing, transfers of this Note shall be
registered upon registration books maintained for such purpose by or on behalf
of the Company. Prior to presentation of this Note for registration of transfer,
Company shall treat the registered holder hereof as the owner and holder of this
Note for the purpose of receiving all payments of principal and interest hereon
and for all other purposes whatsoever, whether or not this Note shall be overdue
and Company shall not be affected by notice to the contrary.
10. ASSIGNMENT BY COMPANY. Neither this Note nor any of the rights,
interests or obligations hereunder may be assigned, other than by operation of
law (such as in a merger), in whole or in part, by Company without the prior
written consent of Lender.
11. NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered, sent by facsimile or mailed by registered or
certified mail, postage prepaid, or by recognized overnight courier or personal
delivery at the respective addresses or facsimile phone number of the parties as
set forth below. Any party hereto may by notice so given change its address for
future notice hereunder. Notice shall conclusively be deemed to have been given
when received.
If to Lender: At the address set forth in the Schedule of Purchasers to
the Purchase Agreement.
If to Company: FAFCO, Inc.
435 Otterson Drive
Chico, CA 95928
Attention: Alex N. Watt, Executive Vice President
With a copy to: Ann Yvonne Walker, Esq.
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304
Each of the above addressees may change its address for purposes of this
paragraph by giving to the other addressee notice of such new address in
conformance with this paragraph.
12. PAYMENT. Payment shall be made in lawful tender of the United
States.
13. DEFAULT RATE; USURY. In the event that any payment of principal or
interest provided for herein is not paid by Company when due (including the
entire unpaid balance of this Note in the event such amount is made immediately
due and payable pursuant to the terms hereof), then
-5-
Company shall pay interest on the such amounts not paid when due at a rate per
annum two percent (2%) higher than the rate otherwise applicable hereunder. In
the event any interest is paid on this Note which is deemed to be in excess of
the then legal maximum rate, then that portion of the interest payment
representing an amount in excess of the then legal maximum rate shall be deemed
a payment of principal and applied against the principal of this Note.
14. EXPENSES; WAIVERS. If action is instituted to collect this Note,
Company promises to pay all costs and expenses, including, without limitation,
reasonable attorneys' fees and costs, incurred in connection with such action.
Company hereby waives notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor and all other notices or demands
relative to this instrument. No delay on the part of Lender in exercising any
right hereunder shall operate as a waiver of such right or any other right.
15. GOVERNING LAW. This Note and all actions arising out of or in
connection with this Note shall be governed by and construed in accordance with
the laws of the State of California, without regard to the conflicts of law
provisions of the State of California or of any other state.
-6-
IN WITNESS WHEREOF, Company has caused this Note to be issued as of the
date first written above.
FAFCO, Inc.
a California corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ACKNOWLEDGED AND AGREED TO:
"LENDER"
------------------------------------
By:
---------------------------------
Title:
------------------------------
-7-