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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 U.S. BANK NATIONAL ASSOCIATION MAY REQUIRE.
GEOGRAPHICS, INC.
CONVERTIBLE SUBORDINATED NOTE
$50,000.00 James L. Dorman
Blaine, Washington
Dated April 29, 1999
Due and payable on or before September 30, 2001
GEOGRAPHICS, INC., a Wyoming corporation (the "Company"), for value
received, hereby promises to pay to James L. Dorman (the "Creditor"), or his
successors and assigns, on or before September 30, 2001, the principal sum of
$50,000 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 the prime
rate of U.S. Bank N.A. as announced from time to time plus 2% per annum, such
interest to be due, payable and adjusted as provided below.
1. Principal Payments.
(a) The unpaid principal balance under this Note shall be repaid on the
dates (in each case, a "Principal Payment Date") and in the amounts (in each
case, a "Principal Payment Amount") set forth on Schedule I attached hereto,
with a final payment of all outstanding and unpaid principal due on September
30, 2001. Notwithstanding the immediately preceding sentence, the Company
shall not make any payment of principal hereunder until the earliest to occur
of (a) the payment in full of all Senior Indebtedness (as hereinafter defined),
(b) the Company ceasing to be in default, or operating under a forbearance, in
respect of any Senior Indebtedness, or (c) the written consent of the holders
of Senior Indebtedness to such payment.
(b) On and after any Principal Payment Date on which any principal in
respect hereof is paid, the principal amount of this Note so paid shall not be
convertible as provided in Section 3; provided, however, that if any such
principal 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 1 shall be made to the holder of this Note in immediately available
funds on the applicable payment date.
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2. Interest Payments.
(a) Interest on this Note shall accrue and compound monthly on the last
day of each calendar month. All accrued, but unpaid, compound interest shall
be payable monthly on the last day of each calendar month (each, an "Interest
Payment Date"). The Company shall not make any payment of interest hereunder
until the earliest to occur of (a) the payment in full of all Senior
Indebtedness (as hereinafter defined), (b) the Company ceasing to be in
default, or operating under a forbearance, in respect of any Senior
Indebtedness, or (c) 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.
(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.
(i) Option of the Holder. 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 $20,000 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
9(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.
(ii) Option of the Company. The Company may convert this Note, in
whole or in part, into Shares at any time upon ninety (90) days prior
written notice to the holder of this Note; provided, however, that if
this Note is converted in part, it shall be converted in the minimum
amount of $20,000 and integral multiples of $5,000 in excess of such
amount; provided, further, that the Company shall not convert this Note
into Shares until (A) the Company shall have successfully raised, after
the date of this Note, not less than $3 million in the aggregate through
the sale of the Company's equity securities, or (B) the Company ceases to
be in default, or operating under a forbearance, in respect of any Senior
Indebtedness. On or before the date fixed for conversion set forth in
such notice of conversion, the holder shall surrender this Note at the
place designated in such notice,
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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 $0.3927.
(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 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
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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.
(e) Adjustment to Conversion Price Upon Certain Defaults. If the Company
fails to make any principal payment on this Note on the date and in the amounts
provided in Section 1 the Conversion Price shall be reduced at the end of each
ninety (90) day period to ninety percent (90%) of the Conversion Price in
effect prior to such further reduction.
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 of the Company now outstanding or hereinafter
incurred in favor of U.S. Bank N.A. The holder hereof shall upon the request
of the Company or U.S. Bank N.A. execute and deliver an agreement to
subordinate the right of payment and collection to U.S. Bank N.A. on terms
required by U.S. Bank N.A.
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. Any
permitted prepayment shall be applied to the unpaid principal repayment
installments in the inverse order of maturity. Each permitted prepayment of
principal shall include interest accrued to the date of such prepayment on the
principal amount being prepaid.
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
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(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
(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 $25,000 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 thirty (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 $25,000 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.
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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
in the principal amount of $50,000 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 Wyoming, 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.
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.
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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
(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
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(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.
(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
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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: James L. Dorman
Chairman and CEO
Almalga Composites, Inc.
10600 W. Mitchell St.
West Allis, WI 53214
(ii) If to the Company: Geographics, Inc.
Attn: Chairman
1555 Odell Road
P.O. Box 1755
Blaine, WA 98231
(f) Governing Law. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the
interest laws of the State of Washington.
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IN WITNESS WHEREOF, this Note has been executed and delivered in Blaine,
Washington, on the date first above written by the duly authorized
representative of the Company.
GEOGRAPHICS, INC.,
a Wyoming Corporation
By: /s/ William T. Graham
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William T. Graham
Executive Vice President
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