Exhibit 10.04
PROMISSORY NOTE
$25,500,000.00 May 9, 2002
FOR VALUE RECEIVED, the undersigned, Mid-Power Service Corporation, a
Nevada corporation, and Mid-Power Resource Corporation, a Nevada corporation and
wholly-owned subsidiary of Mid-Power Service Corporation (together, "Makers"),
with their principal executive offices located at 3800 Howard Hughes Parkway,
Suite 860, Las Vegas, Nevada 89109, jointly and severally, promise to pay to the
order of SCRS Investors, LLC, a Delaware limited liability company ("Holder"),
the principal sum of TWENTY-FIVE MILLION, FIVE HUNDRED THOUSAND DOLLARS
($25,500,000.00), or such lesser amount as has been advanced by Holder to Makers
pursuant to the Loan Agreement of even date herewith (the "Loan Agreement") by
and between Makers and Holder, together with interest on funds on the amount
actually advanced from and after the date of such respective advances at 10% per
annum.
1. Loan Agreement. This Note is being issued pursuant to, and is
entitled to the benefits of, the Loan Agreement. All of the terms and conditions
of the Loan Agreement are hereby incorporated by reference, including, without
limitation, provisions with respect to prepayments, acceleration, defaults and
remedies.
2. Security for Payment. In accordance with the Loan Agreement, Makers
have provided certain security for payment of the Note and the obligation
evidenced thereby. Reference is made to the security agreements executed by
Makers for a description of the nature and extent of the liens, encumbrances and
security interests provided thereby and the rights of Holder in respect thereto.
3. Payment. All amounts advanced by Maker to Holder under the Loan
Agreement shall be repayable, with interest at 10% per annum on the amount
actually advanced from and after the date of such respective advances, in 20
consecutive equal quarterly payments of principal and interest, commencing on
the last day of December 2007 and continuing on the last day of each calendar
quarter thereafter, until December 31, 2012, at which time all unpaid principal
and accrued but unpaid interest shall be paid in full.
4. Time and Place of Payment. Payments of principal and interest due
and payable hereunder shall be made to Holder at its offices at 3800 Howard
Hughes Parkway, Suite 860, Las Vegas, Nevada 89109, or at such other place as
Holder shall have designated to Makers in writing.
5. Prepayment. This Note may be prepaid, in whole or in part, at any
time by Makers without premium or penalty. Simultaneously with any repayment in
full of this Note, Holder shall deliver to Makers a receipt for such payment,
together with the original executed copy of this Note, which shall be marked
cancelled.
6. Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default" hereunder: (a) Makers
shall fail to pay, as and when due, any principal of or accrued interest under
this Note within five days after the date on which such payment is due; (b)
Makers shall fail to comply with any material provision of the Loan Agreement,
this Note or any of the other security agreements executed in connection with
the Loan Agreement, which failure shall remain uncured for a period of 30 days
or more after Makers have received notice thereof; (c) any representation or
warranty made by Makers in the Loan Agreement, this Note or any of the other
security agreements executed in connection with the Loan Agreement shall fail to
be true and correct in all material respects; (d) Makers shall make an
assignment for the benefit of creditors; (e) an order, judgment or decree shall
be entered adjudicating Makers, or either of them, bankrupt or insolvent; or (f)
Makers, or either of them, shall commence proceedings under any bankruptcy or
insolvency laws, or a third party shall commence such proceedings against
Makers, or either of them, and such proceedings shall not be dismissed within 90
days after commencement.
7. Conversion.
(a) Conversion of Note. At any time, Holder shall have the
right, at Holder's option, to convert the principal and accrued
interest on this Note, in whole or in part, into common stock, par
value $0.001, of Mid-Power Service Corporation ("Conversion Stock"), at
a price of $1.50 per share, subject to adjustment as provided below
("Note Conversion Price"). Conversion under this section shall occur
only upon surrender of this Note for conversion at the principal
offices of Mid-Power Service Corporation, accompanied by a written
notice of election to convert, provided, however, that pursuant to the
limitations set forth in that certain promissory note in the aggregate
principal amount of $10,000,000 dated as of June 13, 2002, made and
delivered by Makers, as makers, to Edward Mike Davis ("Davis"), as
payee (the "Davis Note"), as part of the merger consideration under
that certain "Acquisition Agreement and Plan of Merger" dated as of
June 14, 2002, by and between Makers, Red Star, Inc., a Nevada
corporation, and for the limited purposes set forth therein, Davis, a
copy of which has been delivered to Payee and to which this Note is
subject, Holder shall not have any right to convert any principal of or
interest accrued under the Note if, upon such conversion:
(i) at any time before the Davis Note is paid in full,
Holder would have the right to receive any more than
3,666,667 shares of Conversion Stock hereunder;
(ii) at any time after the Davis Note is paid in full and
before June 13, 2003, the issuance of such Conversion
Stock would cause the ownership of Davis to become
less than fifty-one percent (51%) of the ownership,
beneficial or legal, of Mid-Power Service
Corporation; or
(ii) at any time after June 13, 2003, and before the close
of business on June 13, 2007, the issuance of such
Conversion Stock would cause the ownership of Davis
to become less than thirty-six percent (36%) of the
ownership, beneficial or legal, of Mid-Power Service
Corporation; save and except, in each case, such
conversion has been consented to in writing by Davis,
in his sole and absolute discretion.
(b) Conversion in the Event of Prepayment or Payment of Note.
At such time that Makers have funds immediately available and elect to
pay the entire principal balance and accrued interest (whether as a
prepayment or payment at or after maturity of this Note), Holder shall
have the option to convert the Note into Conversion Stock at the Note
Conversion Price on or before 15 days from the receipt of notice of
Makers' election to pay off the Note. Holder shall have no obligation
to accept any payment less than the entire principal balance, plus
accrued interest.
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(c) Certain Transactions. Makers shall give written notice to
Holder of any "Change of Control Transaction" at least 20 business days
prior to the date on which such Change of Control Transaction shall
take place. Prior to the closing of such Change of Control Transaction,
Makers shall, at Holder's election, either repay all unpaid principal
and interest under this Note or convert this Note into Conversion Stock
at the Note Conversion Price, subject to the limitations set forth
herein.
(d) Issuance of Conversion Stock. As soon as practicable after
conversion of this Note, Mid-Power Service Corporation, at its expense,
will cause to be issued in the name of and delivered to Holder of this
Note, a certificate or certificates for the number of shares of
Conversion Stock to which Holder shall be entitled upon such conversion
(bearing such legends as may be required by applicable state and
federal securities laws in the opinion of legal counsel of Mid-Power
Service Corporation), together with any other securities and property
to which Holder is entitled upon such conversion under the terms of
this Note. Such conversion shall be deemed to have been made under this
section 6 and immediately prior to the close of business on the date
that the Note shall have been surrendered for conversion, accompanied
by written notice of election to convert. No fractional shares will be
issued upon conversion of this Note. If, upon any conversion of this
Note, a fraction of a share would otherwise result, then, in lieu of
such fractional share, Mid-Power Service Corporation will pay the cash
value of that fractional share, calculated on the basis of the
applicable Note Conversion Price.
(e) Adjustment of Number of Shares. The number and character
of shares of Conversion Stock issuable upon conversion of this Note (or
any shares of stock or other securities or property at the time
receivable or issuable upon conversion of this Note) are subject to
adjustment upon the occurrence of any of the following events:
(i) Adjustment for Stock Splits, Stock
Dividends, Recapitalization, etc. In the
event that Mid-Power Service Corporation
shall fix a record date for the
determination of holders of securities
affected by any stock split, stock dividend,
reclassification, recapitalization or other
similar event that will, in the future,
affect the number of outstanding shares of
Mid-Power Service Corporation's capital
stock, then, and in each such case, Holder,
upon conversion of this Note at any time
after Mid-Power Service Corporation shall
fix the record date for such event, shall
receive, in addition to the shares of
Conversion Stock issuable upon conversion on
the Conversion Date, the right to receive
the securities of Mid-Power Service
Corporation to which Holder would have been
entitled if Holder had converted this Note
immediately prior to such record date (all
subject to further adjustment as provided in
this Note).
(ii) Adjustment for Dividends and Distributions.
In the event that Mid-Power Service
Corporation shall make or issue, or shall
fix a record date for the determination of
eligible holders of securities entitled to
receive, a dividend or other distribution
payable with respect to the Conversion Stock
(or any shares of stock or other securities
at the time issuable upon conversion of this
Note) that is payable in securities of
Mid-Power Service Corporation, other than
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capital stock, or any other assets, then,
and in each such case, Holder, upon
conversion of this Note at any time after
the consummation, effective date or record
date of such event, shall receive, in
addition to the shares of Conversion Stock
(or such other stock or securities) issuable
upon such conversion prior to such date, the
securities or such other assets of Mid-Power
Service Corporation to which Holder would
have been entitled upon such date if Holder
had converted this Note immediately prior
thereto (all subject to further adjustment
as provided in this Note).
(iii) Adjustment for Reorganization,
Consolidation, Merger. In the event of any
reorganization not considered a Change of
Control Transaction of Mid-Power Service
Corporation (or any other corporation the
stock or other securities of which are at
the time receivable upon the conversion of
this Note) after the date of this Note, or
in the event, after such date, Mid-Power
Service Corporation (or any such
corporation) shall consolidate with or merge
into another corporation or convey all or
substantially all of its assets to another
corporation and such transaction is not
considered a Change of Control Transaction,
then, and in each such case, Holder, upon
the conversion of this Note (as provided in
this section 6) at any time after the
consummation of such reorganization,
consolidation, merger or conveyance, shall
be entitled to receive, in lieu of the stock
or other securities and property receivable
upon the conversion of this Note prior to
such consummation, the stock or other
securities or property to which Holder would
have been entitled upon the consummation of
such reorganization, consolidation, merger
or conveyance if Holder had converted this
Note immediately prior thereto, all subject
to further adjustment as provided in this
section 6, and the successor or purchasing
corporation in such reorganization,
consolidation, merger or conveyance (if
other than Mid-Power Service Corporation)
shall duly execute and deliver to Holder a
supplement hereto acknowledging such
corporation's obligations under this Note.
In each such case, the terms of the Note
shall be applicable to the shares of stock
or other securities or property receivable
upon the conversion of this Note after the
consummation of such reorganization,
consolidation, merger or conveyance.
(iv) Conversion of Stock. In the event that all
of the authorized Conversion Stock of
Mid-Power Service Corporation is converted,
pursuant to its articles of incorporation,
into other capital stock or securities or
property, or the Conversion Stock otherwise
ceases to exist, then Holder, upon
conversion of this Note at any time after
the date on which the Conversion Stock is so
converted or ceases to exist (the
"Termination Date"), shall receive, in lieu
of the number of shares of Conversion Stock
that would have been issuable upon such
conversion immediately prior to the
Termination Date (the "Former Number of
Shares of Conversion Stock"), the stock and
other securities and property to which
Holder would have been entitled to receive
upon the Termination Date if Holder had
converted this Note with respect to the
Former Number of Shares of Conversion Stock
immediately prior to the Termination Date
(all subject to further adjustment as
provided in this Note).
(v) Notice of Adjustments. Mid-Power Service
Corporation shall promptly give written
notice of each adjustment or readjustment of
the number of shares of Conversion Stock or
other securities issuable upon conversion of
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this Note, by first class mail, postage
prepaid, to Holder of this Note at Holder's
address as shown on Mid-Power Service
Corporation's books. The notice shall
describe the adjustment or readjustment and
show in reasonable detail the facts on which
the adjustment or readjustment is based.
(vi) No Change Necessary. The form of this Note
need not be changed because of any
adjustment in the number of shares of
Conversion Stock issuable upon its
conversion.
(vii) Reservation of Stock. Mid-Power Service
Corporation has taken all necessary
corporate action and obtained all necessary
government consents and approvals to
authorize the issuance of this Note and,
prior to the conversion hereof, the shares
of Conversion Stock issuable upon conversion
of this Note. If at any time the number of
authorized but unissued common stock or
other securities shall not be sufficient to
effect the conversion of this Note, then
Mid-Power Service Corporation will take such
corporate action as may, in the opinion of
its legal counsel, be necessary to increase
its authorized but unissued common stock or
other securities as shall be sufficient for
such purpose.
(f) Fully Paid Shares. All shares of Conversion Stock issued
upon the conversion of this Note shall be validly issued, fully paid,
and nonassessable.
(g) No Rights or Liabilities as Stockholder. This Note does
not by itself entitle Holder to any voting rights or other rights as a
stockholder of Mid-Power Service Corporation. In the absence of
conversion of this Note, no provisions of this Note, and no enumeration
herein of the rights or privileges of Holder, shall cause Holder to be
a stockholder of Mid-Power Service Corporation for any purpose.
(h) Corporate Action; No Impairment. Makers will not, by
amendment of their articles of incorporation or bylaws, or through
reorganization, consolidation, merger, dissolution, issuance or sale of
securities, repurchase of securities, sale of assets or any other
action, avoid or seek to avoid the observance or performance of any of
the terms of this Note, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action
as may be necessary or appropriate, or as reasonably requested by
Holder, in order to protect the rights of Holder under this Note
against wrongful impairment.
8. Notice. Any notice, presentation or demand to or upon Makers in
respect of this Note shall be given in writing and shall be deemed to be duly
made (a) if personally delivered with receipt acknowledged, (b) if mailed by
registered or certified mail, first class postage prepaid, and return receipt
requested, (c) if delivered by a nationally recognized overnight courier
service, or (d) if transmitted by confirmed fax, in each case, to the address
set forth above or, if any other address shall be designated for this purpose by
Makers in writing to Holder, to such other address.
9. Organization. Holder recognizes and acknowledges that each Maker is
a corporation formed under the laws of the state of Nevada, and that no past,
present or future directors, officers, employees, agents or representatives of
Makers shall have any personal liability for any obligation whatsoever or
howsoever arising (including, without limitation, under contract or in tort or
equity) under or with respect to this Note or applicable law. Holder shall not
(a) assert or seek to assert any claim against, (b) name in any civil action or
proceeding or arbitration, or (c) seek or obtain any judgment, order or decree
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against any director, officer, employee, agent or representative of Makers,
their successors or assigns, or any of their respective properties or assets.
10. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the state of Nevada.
IN WITNESS WHEREOF, Makers have duly executed this Note on the day and
year first above written.
Mid-Power Service Corporation
By: /s/ James W. Scott
-----------------------------------
Name: James W. Scott
Title: President
Scrs.promissorynote.050902.2
6
STATE OF NEVADA )
: ss.
COUNTY OF CLARK )
I, a notary of said county and state, do certify that James W. Scott,
who signed the instrument above bearing the date of May 9, 2002, on behalf of
Mid-Power Service Corporation, a Nevada corporation, has this day in my said
county, before me, acknowledged the said instrument to be the act and deed of
said company.
IN WITNESS WHEREOF, I have hereunder set my hand and official seal in
the City of Las Vegas, County of Clark, State of Nevada, this 25th day of June,
2002.
/s/ Susana D. McGee
--------------------------------------------
Notary Public in and for the State of Nevada
Printed Name: Susana D. McGee
Address of Notary Public:
3800 Howard Hughes Pkway
Ste 860
Las Vegas, NV 89109
My Commission Expires: Nov. 15, 2005
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Mid-Power Resource Corporation
By: /s/ James W. Scott
---------------------------------
Name: James W. Scott
Title: President
STATE OF NEVADA )
: ss.
COUNTY OF CLARK )
I, a notary of said county and state, do certify that James W. Scott,
who signed the instrument above bearing the date of June 25, 2002, on behalf of
Mid-Power Resource Corporation, a Nevada corporation, has this day in my said
county, before me, acknowledged the said instrument to be the act and deed of
said company.
IN WITNESS WHEREOF, I have hereunder set my hand and official seal in
the City of Las Vegas, County of Clark, State of Nevada, this 25th day of June,
2002.
/s/ Susana D. McGee
--------------------------------------------
Notary Public in and for the State of Nevada
Printed Name: Susana D. McGee
Address of Notary Public:
3800 Howard Hughes Pkway
Ste 860
Las Vegas, NV 89109
My Commission Expires: Nov. 15, 2005
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