PROMISSORY NOTE
$1,500,000 August 20, 1999
FOR VALUE RECEIVED, the undersigned, LABTEC INC., a
Massachusetts corporation having offices at 1499 S.E. Tech Center Place, Suite
350, Vancouver, Washington 98683 (the "Company"), hereby promises to pay to CARL
W. GROMADA (or the then current endorsee and holder of this promissory note, the
"Collection Agent"), at 38390 Redwood Terrace, Fremont, California 94536 or at
such other place as may be designated from time to time in writing by the
Collection Agent, the sum of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000), together with all accrued but unpaid interest, all as provided in
this promissory note (as the same may be supplemented, modified, amended or
restated from time to time in the manner provided herein, the "Note").
1. The Company shall repay the principal amount outstanding
under this Note (the "Loan") in full on February 20, 2007.
2. The Loan shall bear interest (computed on the basis of a
year of 360 days for the actual number of days elapsed) on the unpaid principal
balance thereof outstanding from time to time, from and including the date
hereof until such principal balance is repaid in full, at an annual rate equal
to (a) six percent (6%) per annum through June 30, 2001 and (b) nine percent
(9%) per annum thereafter. Interest shall be payable by the Company in arrears
on March 1st, June 1st, September 1st and December 1st of each year, commencing
December 1, 1999, at maturity (whether by acceleration or otherwise) and upon
the making of any prepay ment, as hereinafter provided. The Company shall pay
interest on any installment of interest overdue until paid, if not paid within
ten (10) days after being due, from and after such due date, at a rate equal to
twelve percent (12%) per annum.
3. All payments under or pursuant to this Note shall be made
in United States Dollars, by check in immediately available funds, to the
Collection Agent at its office set forth in the first paragraph of this Note or
to such other person and/or address as the Collection Agent shall designate in
writing. Notwithstanding the foregoing, in the event that the payment of
interest by the Company is at any time prohibited from being made in cash
pursuant to Section 8 hereof, to the extent then required pursuant to the terms
of any Institutional Indebtedness (as defined below), the payment of interest by
the Company shall be made through the issuance to the Collection Agent of an
additional promissory note containing substantially the same terms and
conditions of this Note in a principal amount equal to the amount of interest
then required to be so paid. All payments made pursuant to this Note may be
recorded by the Collection Agent on its books and records, and such recordation
shall constitute prima facie evidence of the accuracy of the information so
recorded; provided, however, that the failure to so record any such information
shall not affect the obligations of the Company in respect of this
Note. Payments hereunder shall be applied to the Company's obligations hereunder
in such order and manner as the Collection Agent shall from time to time
determine.
4. This Note may be prepaid in full at any time, or in part
from time to time, without prepayment premium or penalty. In addition, upon the
occurrence of any Prepayment Event (as defined below), the Collection Agent
shall have the right to require the Company to prepay this Note in full. Any
prepayment of this Note shall be accompanied by payment in full of all accrued
but unpaid interest on the amount prepaid to the date of prepayment. The
occurrence of any of the following events shall constitute a "Prepayment Event:"
(a) the sale of all or substantially all of the assets of the Company; (b) the
merger, consolidation or reorganization of the Company following which the
stockholders of the Company immediately prior to such event do not continue to
hold more than 50% of the outstanding capital stock of the Company or the
surviving entity; (c) the acquisition by any person or group of persons acting
in concert of more than 50% of the outstanding capital stock of the Company; or
(d) the consummation by the Company of a public or private offering of shares of
its capital stock pursuant to which the Company receives gross proceeds in
excess of $15,000,000. In the event of any prepayment of this Note prior to June
30, 2001, the amount prepaid shall be delivered at that time to an escrow agent
mutually acceptable to the Company and the Collection Agent (it being agreed by
the Company and the Collection Agent that Higham, McConnell & Dunning LLP is
acceptable as such escrow agent in the event that the parties are unable to
agree upon an alternative escrow agent), to hold, in escrow, through June 30,
2001, as a source of funds to satisfy any amounts due to CRU Acquisition Corp.
pursuant to the Agreement (as defined in Section 7 hereof). Any interest earned
on such funds while held in escrow shall be distributed to the Collection Agent.
5. Each of the following events shall constitute a default
under this Note (each an "Event of Default"): (a) any default (whether in whole
or in part) shall occur in the payment of any amount payable under this Note,
which default continues for a period of thirty (30) days following notice
thereof from the Collection Agent; (b) any proceedings are instituted in a court
of competent jurisdiction for the reorganization, liquidation or dissolution of
the Company or for its adjudication as a bankrupt or insolvent and, if
instituted by a third party, such proceedings are not dismissed, discharged or
stayed within sixty (60) days from the date such proceedings are instituted; (c)
the Company makes an assignment for the benefit of its creditors; (d) a
receiver, liquidator, assignee, trustee or custodian is appointed to administer
the affairs of the Company; or (e) the Company dissolves, liquidates or winds-up
its business and operations, other than in connection with its merger or
consolidation with, or its transfer of all or substantially all of its business
and operations to, any Affiliate (as defined in the Agreement (as defined
below)) of the Company that assumes all of the obligations of the Company
hereunder.
6. Upon the occurrence and at any time during the continuance
of any Event of Default, the Collection Agent shall be entitled to (a) declare
this Note, and any and all principal, interest and other amounts due under this
Note, to be immediately due and payable,
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and (b) exercise or otherwise enforce any one or more of the Collection Agent's
rights, powers, privileges, remedies and interests under this Note or applicable
law.
7. This Note is issued pursuant to the Stock Purchase
Agreement dated as of August 4, 1999 (as the same may be amended from time to
time, the "Agreement"), among the Company and each of the stockholders of
Connector Resources Unlimited, Inc., a California corporation (collectively, the
"Stockholders"), and is subject to the provisions thereof, including (without
limitation) the right of the Company to offset any amounts due to CRU
Acquisition Corp. thereunder against all amounts due and payable hereunder. The
Collection Agent hereby acknowledges that it is holding the Note on behalf, and
for the benefit, of each of the Stockholders. By its acceptance of this Note,
the Collection Agent agrees for itself and all future holders of this Note to
all of the terms and conditions of the subordination provided for in Section 8
hereof. The Collection Agent hereby further acknowledges that it shall be solely
responsible for distributing any payments received from the Company in respect
of this Note to the Stockholders on a pro rata basis as provided in the
Agreement and hereby agrees to make such distributions.
8. Notwithstanding anything to the contrary contained in this
Note, the Collection Agent agrees that the payment of principal, interest and
all other charges with respect to the Note is expressly subordinated, in the
manner hereinafter set forth, in right of payment to the prior payment and
satisfaction in full of the Institutional Indebtedness (as defined below) at any
time outstanding.
(a) In the event of any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Company or to its property,
or, in the event of any proceedings for voluntary liquidation, dissolution or
other winding up of the Company or distribution or marshaling of its assets or
any composition with creditors of the Company, whether or not involving
insolvency or bankruptcy, then and in any such event all Institutional
Indebtedness shall be paid in full in cash or cash equivalents before any
payment or distribution of any character, whether in cash, securities or other
property, shall be made on account of this Note; and any such payment or
distribution, except securities which are unsecured and subordinated and junior
in right of payment to the same extent as this Note to the payment of all
Institutional Indebtedness then outstanding, which would, but for the provisions
hereof, be payable or deliverable in respect of this Note shall be paid or
delivered directly to the holders of Institutional Indebtedness (or their duly
authorized representatives), in the proportions in which they hold the same,
until all Institutional Indebtedness shall have been paid in full, and every
holder of this Note by becoming a holder thereof shall have designated and
appointed the holder or holders of Institutional Indebtedness (and their duly
authorized representatives) as his or its agents and attorney-in-fact to demand,
sue for, collect and receive such Institutional Indebtedness holder's ratable
share of all such payments and distributions and to file any necessary proof of
claim therefor and to take all such other action (including the right to vote
such Institutional Indebtedness holder's ratable share of this Note), in the
name of the holder of this Note or otherwise, as such Institutional
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Indebtedness holders (or their authorized representatives) may determine to be
necessary or appropriate for the enforcement of this Section 8. The Collection
Agent, and each successor holder of this Note by its or his acceptance thereof,
agrees to execute, at the request of the Company, a separate agreement with any
holder of Institutional Indebtedness on the terms set forth in this Section 8,
and to take all such other action as such holder or such holder's representative
may request in order to enable such holder to enforce all claims upon or in
respect of such holder's ratable share of this Note.
(b) In the event that any default occurs in the
payment of the principal of or interest on any Institutional Indebtedness
(whether as a result of acceleration thereof by the holders of such
Institutional Indebtedness or otherwise) and during the continuance of such
default until such default has been cured or waived in writing by such holder of
Institutional Indebtedness, no payment of principal or interest on this Note
shall be made by the Company or accepted by any holder of this Note who has
received notice from the Company or from a holder of Institutional Indebtedness
of such event. In the event that any other default occurs under any
Institutional Indebtedness (whether as a result of acceleration thereof by the
holders of such Institutional Indebtedness or otherwise) for a period of 180
days thereafter (or for such shorter period until such default has been cured or
waived in writing by such holders of Institutional Indebtedness), no payment of
principal or interest on this Note shall be made by the Company or accepted by
any holder of this Note who has received notice from the Company or from a
holder of Institutional Indebtedness of such default; provided, however, that
the restrictions on payment set forth in this sentence may only be imposed once
during any 12-month period.
(c) In case any payment or distribution shall be paid
or delivered to the Collection Agent before all Institutional Indebtedness shall
have been paid in full in violation or contravention of the terms of this
subordination, such payment or distribution shall be held in trust for and paid
and delivered ratably to the holders of Institutional Indebtedness (or their
duly authorized representatives), until all Institutional Indebtedness shall
have been paid in full.
(d) Subject to the payment in full of all
Institutional Indebtedness and until this Note shall be paid in full, the
Collection Agent shall be subrogated to the rights of the holders of
Institutional Indebtedness (to the extent of payments or distributions
previously made to such holders of Institutional Indebtedness pursuant to the
provisions of subsections (a) and (c) of this Section 8) to receive payments or
distributions of assets of the Company applicable to the Institutional
Indebtedness. No such payments or distributions applicable to the Institutional
Indebtedness shall, as between the Company and its creditors, other than the
holders of Institutional Indebtedness and the Collection Agent, be deemed to be
a payment by the Company to or on account of this Note; and for the purposes of
such subrogation, no payments or distributions to the holders of Institutional
Indebtedness to which the holder of this Note would be entitled except for the
provisions of this Section 8 shall, as between the Company and its creditors,
other than the holders of Institutional Indebtedness and the Collection Agent,
be deemed to be a payment by the Company to or on account of the Institutional
Indebtedness.
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(e) The provisions of this Section 8 are intended
solely for the purpose of defining the relative rights of the Collection Agent,
on the one hand, and the holders of the Institutional Indebtedness, on the other
hand. Nothing contained in this Section 8 or elsewhere in this Note is intended
to or shall impair, as between the Company, its creditors other than the holders
of Institutional Indebtedness, and the Collection Agent, the obligation of the
Company, which is unconditional and absolute, to pay to the Collection Agent the
principal of and interest on the Note as and when the same shall become due and
payable in accordance with the terms thereof, or to affect the relative rights
of the holder of this Note and creditors of the Company other than the holders
of the Institutional Indebtedness, or to benefit any other creditors of the
Company other than the holders of the Institutional Indebtedness, nor shall
anything herein or therein prevent the Collection Agent from accepting any
payment with respect to this Note or exercising all remedies otherwise permitted
by applicable law upon default under this Note, subject to the rights, if any,
under this Section 8 of the holders of Institutional Indebtedness in respect of
cash, property or securities of the Company received by the holder of this Note.
(f) The right of any present or future holder of
Institutional Indebtedness to enforce subordination of this Note pursuant to the
provisions of this Section 8 shall not at any time be prejudiced or impaired by
any act or failure to act on the part of the Company or any such holder of
Institutional Indebtedness, including, without limitation, any forbearance,
waiver, consent, compromise, amendment, extension, renewal, or taking or release
of security of or in respect of any Institutional Indebtedness or by
noncompliance by the Company with the terms of such subordination regardless of
any knowledge thereof the holder may have or otherwise be charged with.
(g) The provisions of this Section 8 may not be
amended or waived in any manner which is detrimental to any Institutional
Indebtedness without the consent of the holders of a majority of the then
existing Institutional Indebtedness.
(h) The term "Institutional Indebtedness" shall mean
all indebtedness of the Company for money borrowed (including interest thereon
after commencement of any bankruptcy, insolvency or similar proceeding relating
to the Company, whether or not such interest would accrue in such proceeding)
from banks or other institutional lenders, including any extension or renewals
thereof, whether outstanding on the date hereof or thereafter created or
incurred, which is not by its terms expressly subordinate and junior to or on a
parity with this Note.
9. Any notice, request, demand or other communication
permitted or required to be given hereunder shall be in writing, shall be sent
by one of the following means to the addressee at the address set forth above
(or at such other address as shall be designated hereunder by notice to the
other parties and persons receiving copies, effective upon actual receipt) and
shall be deemed conclusively to have been given: (a) on the first Business Day
(as hereinafter defined) following the day timely deposited with Federal Express
(or other equivalent
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national overnight courier) or United States Express Mail, with the cost of
delivery prepaid; (b) on the fifth Business Day following the day duly sent by
certified or registered United States mail, postage prepaid and return receipt
requested; or (c) when otherwise actually delivered to the addressee. Copies may
be sent by regular first-class mail, postage prepaid, to such person(s) as a
party may direct from time to time by notice to the others, but failure or delay
in sending copies shall not affect the validity of any such notice, request,
demand or other communication so given to a party. For purposes hereof,
"Business Day" shall mean any day, other than any Saturday, Sunday or a day on
which commercial banks in New York, New York are authorized or required to
close.
10. This Note shall be governed by, and construed and enforced
in accordance with, the laws of the State of Florida without regard to
principles of conflicts or choice of law (or any other law that would make the
laws of any state other than the State of Florida applicable hereto).
11. This Note shall not be negotiable, transferable or
assignable by the Company or the Collection Agent, whether by operation of law
or otherwise; provided, however, this Note shall be negotiable, transferrable
and assignable by the Collection Agent with the Company's prior consent, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing, the
Company (including each subsequent assignee of the Company) shall have the right
to assign any or all of its rights and obligations hereunder to any other person
who acquires all or substantially all of the assets and business of the Company
(or a subsequent assignee of the Company); provided that the assignor shall not
be released from any of its obligations hereunder by reason of any such
assignment. Subject to the foregoing, whenever reference is made to any party,
such reference shall be deemed to include the successors, assigns and legal
representatives of such party.
12. Presentment for payment, notice of dishonor, protest and
notice of protest are hereby each waived by the Company. Any other waiver or
consent respecting this Note shall be effective only if in writing and signed by
the Collection Agent and then only in the specific instance and for the specific
purpose for which given. No such other waiver or consent shall be deemed,
regardless of frequency given, to be a further or continuing waiver or consent.
The failure or delay of the Collection Agent at any time or times to require
performance of, or to exercise its rights with respect to, any term or provision
of this Note in no manner shall affect its right at a later time to enforce any
such term or provision. No notice to or demand on the Company in any case shall
entitle such party to any other or further notice or demand. All rights, powers,
privileges, remedies and other interests of the Collection Agent under this Note
and applicable law are cumulative and not alternatives. The Company shall pay
all expenses (including, without limitation, reasonable attorneys' fees)
incurred by the Collection Agent in connection with any attempt to collect the
amounts due hereunder following an Event of Default.
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13. This Note contains the entire agreement of the parties and
supersedes all other representations, warranties, agreements and understandings,
oral or written, with respect to the matters contained herein.
IN WITNESS WHEREOF, the Company has executed and delivered
this Note on the date first written above.
LABTEC INC.
By: /s/ Marc J. Leder
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Name: Marc J. Leder
Title: Co-Chairman, Senior Vice
President, Finance, Chief
Financial Officer and
Treasurer
ACKNOWLEDGED:
/s/ Carl W. Gromada
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CARL W. GROMADA
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