CONVERTIBLE PROMISSORY NOTE
$250,000.00 Date: December 29, 2000
FOR VALUE RECEIVED, Meltronix, Inc., a California corporation
("Meltronix"), promises to pay to La Jolla Cove Investors, Inc. ("LJCI"),
the principal sum of Two Hundred Fifty Thousand Dollars ($250,000.00),
with interest thereon, in accordance with the terms and conditions of
this convertible promissory note ("Note"). This Note is entered into
in connection with the Loan Agreement and Stock Issuance Agreement
entered into between Meltronix and LJCI ("Agreement") effective as of
December 29, 2000 ("Effective Date").
1. The unpaid portion of the principal balance of this
Note shall bear simple interest until paid in full, at an annual rate
of ten percent (10%), accrued from the date of January 4, 2001.
Accrued interest shall be payable from January 4, 2001, monthly in
arrears. In no event shall any accrued interest outstanding at any
time be included as part of the Conversion Election (as hereafter
defined).
2. The entire outstanding balance of this Note,
including all principal, and any previously unpaid accrued interest
that may be outstanding at that time, shall be due and payable in
full in one lump sum upon the earliest to occur of the following:
2.1 December 28, 2002.
2.2 In the event (and only in the event) LJCI has
not made any Conversion Election (as hereafter defined) as of or prior
to December 29, 2001, then not later than five (5) days after such date
("First Acceleration Period"), LJCI shall be entitled to give Meltronix
a written notice declaring the entire outstanding balance of this Note,
including all principal, and any previously unpaid accrued interest,
due and payable in full in one lump sum ("First Acceleration Notice"),
in which case this Note shall be due and payable in full as of the date
LJCI gives the First Acceleration Notice to Meltronix. In the event
LJCI does not give Meltronix the First Acceleration Notice during the
First Acceleration Period, then LJCI shall no longer be entitled to give
Meltronix the First Acceleration Notice, and the provisions of this
Section 2.2 shall be deemed automatically and irrevocably canceled.
2.3 In the event (and only in the event) LJCI has not
made any Conversion Election (as hereafter defined) as of or prior to
June 29, 2001, then not later than five (5) days after such date
("Second Acceleration Period"), LJCI shall be entitled to give
Meltronix a written notice declaring the entire outstanding balance
of this Note, including all principal, and any previously unpaid
accrued interest, due and payable in full in one lump sum ("Second
Acceleration Notice"), in which case this Note shall be due and payable
in full as of the date LJCI gives the Second Acceleration Notice to
Meltronix. In the event LJCI does not give Meltronix the Second
Acceleration Notice during the Second Acceleration Period, then LJCI
shall no longer be entitled to give Meltronix the Second Acceleration
Notice, and the provisions of this Section 2.3 shall be deemed
automatically and irrevocably canceled.
2.4 In addition to the foregoing, portions of the
principal balance of this Note shall also be subject to pre-payment
pursuant to the provisions of Sections 9.8 and 9.9 hereof.
3. All payments made pursuant under this Note shall be
applied (i) first, to pay any costs and expenses incurred by LJCI in
the event LJCI is required to enforce this Note against Meltronix;
(ii) second, to pay any accrued interest; and (iii) third, to pay the
principal balance of this Note.
4. Upon the occurrence of any Event of Default (as that
term is hereafter defined), LJCI may, at any time thereafter, without
demand, presentment, protest, notice of protest, notice of maturity or
non-payment, notice of dishonor, or any other notices or demands
whatsoever in connection with the delivery, acceptance, performance,
default, endorsement, or guaranty of this Note, accelerate the unpaid
balance of all amounts owing under this Note, and declare such unpaid
balance immediately due and payable. For purposes of this Note, the
occurrence of any one of the following events shall constitute an
"Event of Default":
(a) Meltronix shall default in the payment of
principal of or interest on this Note as and when the same shall be
due and payable and, in the case of an interest payment default, such
default shall continue for three (3) business days after the date such
interest payment was due, or Meltronix shall fail to perform or observe
in any other covenant, agreement, term, provision, undertaking or
commitment under this Note and/or the Agreement and/or the Registration
Rights Agreement, and such default shall continue for a period of ten
(10) business days after the delivery to Meltronix of written notice
that Meltronix is in default hereunder or thereunder;
(b) Any of the representations or warranties made
by Meltronix herein or in the Agreement or in the Registration Rights
Agreement shall be false or misleading in any material respect as of
the Effective Date;
(c) Under the laws of any jurisdiction not otherwise
covered by clauses (d) and (e) below, Meltronix (i) makes a general
assignment for the benefit of creditors; or (ii) institutes or has
instituted against it any proceeding seeking (x) to adjudicate it a
bankrupt or insolvent, (y) liquidation, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or
its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors including any plan of compromise or
arrangement or other corporate proceeding involving or affecting its
creditors, or (z) the entry of an order for relief or the appointment
of a receiver, trustee or other similar or it or for any substantial
part of its properties and assets, and in the case of any such official
proceeding instituted against it (but not instituted by it), either
the proceeding remains undismissed or unstayed for a period of sixty
(60) calendar days, or any of the actions sought in such proceeding
(including the entry of an order for relief against it or the
appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its properties and assets) occurs.
(d) The entry of a decree or order by a court having
jurisdiction in the premises adjudging Meltronix a bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of Meltronix
under the Bankruptcy Code (as hereafter defined) or any other applicable
federal or state law, or appointing a receiver, liquidator, assignee,
trustee or sequestrator (or other similar official) of Meltronix or of
any substantial part of its property, or ordering the winding-up or
liquidation of its affairs, and any such decree or order continues and
is unstayed and in effect for a period of sixty (60) calendar days;
(e) The institution by Meltronix of proceedings
to be adjudicated a bankrupt or insolvent, or the consent by it to
the institution of bankruptcy or insolvency proceedings against it,
or the filing by it of a petition or answer or consent seeking
reorganization or relief under the Bankruptcy Code (as hereafter
defined) or any other applicable federal or state law, or the consent
by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee or sequestrator (or other
similar official) of Meltronix or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors;
(f) It becomes unlawful for Meltronix to perform
or comply with its obligations under this Note or the Agreement in
any respect;
5. Meltronix agrees and promises to pay all of LJCI's
reasonable attorneys' fees and other costs and expenses incurred by
LJCI with respect to collection, suit, or other proceedings to enforce
this Note.
6. No delay or omission on LJCI's part in exercising
any rights under, or failure to insist upon prompt compliance with
7. All of the covenants, stipulations, promises and
agreements by or on behalf of Meltronix relating to this Note shall
be deemed material and shall bind its successors and assigns, whether
so expressed or not.
8. Time is of the essence of each obligation of
Meltronix under this Note.
9. Conversion of Note into Common Stock.
9.1 Subject to the provisions of Sections 9.8 and
9.9 hereof, at any time after December 29, 2000, LJCI will have sole
discretion to elect to convert all or any portion of the outstanding
principal amount due under this Note (not including accrued interest),
in increments of not less than Ten Thousand Dollars ($10,000.00), into
shares of common stock of Meltronix ("Common Stock"). In the event
LJCI makes this election ("Conversion Election"), the terms and
conditions of LJCI's conversion of this Note into shares of Common
Stock will be as follows:
9.2 LJCI may make the Conversion Election by
sending a written notice of such election to Meltronix at any time
after December 29, 2000, stating the portion of the outstanding
principal balance of this Note (not including accrued interest)
("Conversion Amount") LJCI wishes to convert into Common Stock
("Conversion Notice"). Regardless of any other provision of this
Note, LJCI shall be deemed to have automatically made a Conversion
Election and given Meltronix a Conversion Notice with respect to the
entire outstanding principal balance of this Note, and the entire
outstanding principal balance of this Note shall be deemed to have
been automatically converted into shares of Common Stock in accordance
with the provisions hereof ("Automatic Conversion Election"),
immediately prior to the date of the closing of any Acquisition
Transaction (as hereafter defined), but only if as a result of the
Acquisition Transaction, in exchange for the Common Stock issued to
LJCI as a result of the Automatic Conversion Election, LJCI will
receive on the same basis as all other holders of the common stock of
Meltronix, either (a) cash; and/or (b) shares of the capital stock of
the acquirer in the Acquisition Transaction that are registered with
the United States Securities and Exchange Commission and traded on
either the Over-The-Counter Bulletin Board service of the National
Association of Securities Dealers, Inc. ("OTCBB"), NASDAQ or other
national market or national exchange in the United States. For
purposes hereof, the term "Acquisition Transaction" includes any
reorganization, consolidation, merger, sale, acquisition or other
similar transaction pursuant to which all or substantially all of
the capital stock and/or the assets of Meltronix are acquired by a
third party.
9.3 As of the date Meltronix receives the
Conversion Notice ("Conversion Date") the Conversion Amount will
be deemed to be converted into shares of Common Stock to be issued
to LJCI as of the Conversion Date, and the outstanding principal
balance of the Loan shall be reduced by the Conversion Amount.
9.4 The entire amount of the Common Stock to be
issued to LJCI pursuant to the Conversion Election will be deemed to
9.5 In the event LJCI makes the Conversion Election,
the number of shares of Common Stock to be issued to LJCI will be equal
to (a) the Conversion Amount in question, divided by (b) the Conversion
Price (as hereafter defined), and rounded to the nearest whole number
of shares. For purposes hereof, the term "Conversion Price" means:
(i) at all times prior to December 28, 2001, the Conversion Price
shall be equal to the amount of Zero Point Two Zero Dollars ($0.20);
and (ii) at all times on and after December 28, 2001, the Conversion
Price shall be equal to the lesser of (x) the amount of Zero Point Two
Zero Dollars ($0.20), or (y) eighty percent (80%) of the lowest Market
Price during the forty-five (45) calendar days prior to the Conversion
Date. For purposes hereof, the term "Market Price" means the closing
bid price of the Common Stock as reported on OTCBB; provided that, if
such security is not listed or admitted to trading on OTCBB, as
reported on the principal national security exchange or quotation
system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the closing bid
price of the Common Stock on the over-the-counter market as reported
by Bloomberg LP or a similar generally accepted reporting service,
as the case may be.
9.6 As promptly as practicable after the receipt
of the Conversion Notice, but in any event not more than five (5)
business days after the receipt by Meltronix of the Conversion Notice,
Meltronix shall (a) issue the Common Stock with respect to the
Conversion Amount in question in accordance with the provisions hereof,
and (b) cause to be mailed for delivery by overnight courier to LJCI
(x) a certificate or certificate(s) representing the number of Common
Shares to which LJCI is entitled by virtue of the Conversion Amount in
question, whereupon LJCI shall be deemed to have become the holder of
record of such Common Stock, and all voting and other rights associated
with the beneficial ownership of such Common Stock shall at such time
vest with LJCI. The Conversion Notice shall constitute a contract
between LJCI and Meltronix, whereby LJCI shall be deemed to subscribe
for the number of shares of Common Stock LJCI will be entitled to
receive with respect thereto, and in payment and satisfaction of such
subscription, to reduce the principal balance of this Note by the
Conversion Amount in question.
9.7 LJCI shall be entitled to effect any Conversion
Election notwithstanding the commencement of any case under the
Bankruptcy Code (as hereafter defined). In the event Meltronix is a
debtor under the Bankruptcy Code (as hereafter defined), Meltronix
hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. 362 in respect of LJCI's conversion privilege.
Meltronix hereby waives to the fullest extent permitted any rights to
relief it may have under 11 U.S.C. 362 in respect of any Conversion
Election. Meltronix agrees, without cost or expense to LJCI, to take or
consent to any and all action necessary to effectuate relief under 11
U.S.C. 362.
9.8 Notwithstanding anything herein to the
contrary, if and to the extent that, on any date ("Section 16
Determination Date"), the holding by LJCI of this Note would result
in LJCI becoming subject to the provisions of Section 16(b) of the
34 Act by virtue of being deemed the "beneficial owner" of more than
ten percent (10%) of the then outstanding shares of Common Stock, then
LJCI shall not have the right to make, and Meltronix shall not have
the obligation to recognize, any Conversion Election with respect to
any portion of this Note ("Section 16 Prepayment Portion") as shall
cause LJCI to be deemed the beneficial owner of more than ten percent
(10%) of the then outstanding shares of Common Stock during the
period ending sixty (60) days after the Section 16 Determination Date.
If any court of competent jurisdiction shall determine that the
foregoing limitation is ineffective to prevent LJCI from being deemed
the beneficial owner of more than ten percent (10%) of the then
outstanding shares of Common Stock for the purposes of such Section
16(b), then Meltronix shall prepay the Section 16 Prepayment Portion.
Upon such determination by a court of competent jurisdiction, LJCI
shall have no interest in or rights under such Section 16 Prepayment
Portion. Any and all interest paid on or prior to the date of such
determination shall be deemed interest paid on the remaining portion
of this Note held by LJCI.
10. Adjustments. The number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
a. Merger, Sale of Assets, etc. If at any
time, while this Note, or any portion thereof, is outstanding and
unexpired there shall be (i) a reorganization (other than a
combination, reclassification, exchange or subdivision of shares
otherwise provided for herein), (ii) a merger (other than a mere
reincorporation merger where the subsidiary or affiliate of
Meltronix used to effectuate the reincorporation merger assumes
all of Meltronix's obligations under this Note) or consolidation
of Meltronix with or into another corporation in which Meltronix
is not the surviving entity, or a merger in which Meltronix is the
surviving entity but the shares of Meltronix's capital stock
outstanding immediately prior to the merger are converted by virtue
of the merger into other property, whether in the form of securities,
cash, or otherwise, or (iii) a sale or transfer of Meltronix's
properties and assets as, or substantially as, an entirety to any
other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so
that the holder of this Note shall thereafter be entitled to
receive upon exercise of the Conversion Election as specified
herein and upon payment of the related purchase price, the number
of shares of stock or other securities or property of the successor
corporation resulting from such reorganization, merger,
consolidation, sale or transfer which a holder of the shares
deliverable upon such exercise of the Conversion Election would
have been entitled to receive in such reorganization, consolidation,
merger, sale or transfer, if the Conversion Election had been
exercised immediately before the consummation of such reorganization,
merger, consolidation, sale or transfer, all subject to further
adjustment as provided in this Section 10. The foregoing provisions
of this Section 10.a shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and
to the stock or securities of any other corporation which are at the
time receivable upon the exercise of the Conversion Election. If
the per share consideration payable to holder hereof for shares in
connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be
determined in good faith by Meltronix's Board of Directors. In all
events, appropriate adjustment (as determined in good faith by
Meltronix's Board of Directors) shall be made in the application of
the provisions of this Note with respect to the rights and interests
of the holder hereof after the transaction, to the end that the
provisions of this Note shall be applicable after that event, as
near as reasonably may be, in relation to any shares or other
property deliverable after that event upon exercise of the Conversion
Election.
b. Reclassification, etc. If Meltronix at any
time while the rights of LJCI to convert this Note into Common Stock
remain outstanding and unexpired shall, by reclassification of
securities or otherwise, change any of the securities as to which
conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, the conversion
rights under this Note shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the
result of such change with respect to the securities which were subject
to the conversion rights under this Note immediately prior to such
reclassification or other change, and the purchase price therefor shall
be appropriately adjusted, all subject to further adjustment as provided
in this Section 10.
c. Split, Subdivision or Combination of Shares.
If Meltronix at any time while the rights of LJCI to convert this Note
into Common Stock remain outstanding and unexpired shall split,
subdivide or combine the securities as to which conversion rights under
this Note exist, into a different number of securities of the same class,
this Note shall thereafter represent the right to acquire such number of
securities as would have been issuable as the result of such change with
respect to the securities which were subject to the conversion rights
under this Note immediately prior to such change, and the purchase price
for such securities shall be proportionately decreased in the case of a
split or subdivision or proportionately increased in the case of a
combination.
d. Adjustments for Dividends in Stock or Other
Securities or Property. If while the rights of LJCI to convert this
Note into Common Stock remain outstanding and unexpired the holders
of the securities as to which conversion rights under this Note exist
at the time shall have received, or, on or after the record date fixed
for the determination of eligible shareholders, shall have become
entitled to receive, without payment therefor, other or additional
stock or other securities or property of Meltronix by way of dividend,
then and in each case, this Note shall represent the right to acquire,
in addition to the number of shares of the security receivable upon
exercise of the Conversion Election, and without payment of any
additional consideration therefor, the amount of such other or
additional stock or other securities or property of Meltronix which
such holder would hold on the date of such exercise had it been the
holder of record of the security receivable upon exercise of the
Conversion Election on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise,
retained such shares and/or all other additional stock available by it
as aforesaid during such period, giving effect to all adjustments called
for during such period by the provisions of this Section 6.
e. Prior Notice of Certain Events. Meltronix will
provide LJCI with notice of any merger, asset sale or dividend not less
than ten (10) business days prior to the record date for such event.
11. Usury. To the greatest extent permitted under
applicable law, Meltronix hereby waives and agrees not to allege or
claim that any provisions of this Note could give rise to or result
in any actual or potential violations of any applicable usury laws.
All agreements between LJCI and Meltronix are expressly limited so
that in no contingency or event whatsoever (whether by reason of the
advancement of any proceeds under this Note, demand for payment,
acceleration of maturity of any unpaid balance or otherwise) shall the
amount paid or agreed to be paid to Meltronix for the use, forbearance,
or detention of any proceeds advanced or to be advanced hereunder
exceed the highest rate permissible under applicable law. If any
payments in the nature of interest, additional interest, and other
charges made hereunder are held to be in excess of the applicable
limits imposed by the usury laws of the State of California, it is
agreed that any such amount held to be in excess shall be considered
payment of principal hereunder, and the principal amount any
indebtedness evidenced hereby shall be reduced by such amount so that
the total liability for payments in the nature of interest, additional
interest and other charges shall not exceed the applicable limits
imposed by the usury laws of the State of California.
12. Miscellaneous Provisions.
12.1 Governing Law. This Note shall in all respects
be construed, interpreted and enforced in accordance with and governed
by the laws of the State of California, United States of America.
12.2 Attorneys' Fees. Subject to the provisions of
Section 5 hereof, in the event of any legal action between the parties
with respect to this Note or the subject matter hereof, the prevailing
party shall be entitled to recover reasonable attorneys' fees in
addition to court costs and litigation expenses incurred in said legal
action, regardless of whether such legal action is prosecuted to
judgment.
12.3 Notices. Any notice, demand or other
communication required or permitted under this Note shall be deemed
given and delivered when in writing and (a) personally served upon
the receiving party, or (b) upon the third (3rd) calendar day after
mailing to the receiving party by either (i) United States registered
or certified mail, postage prepaid, or (ii) FedEx or other comparable
overnight delivery service, delivery charges prepaid, and addressed as
follows:
To Meltronix: Meltronix, Inc.
9577 Chesapeake Drive
San Diego, CA 92123
Attn: Chief Executive Officer
To LJCI: c/o Travis Huff
La Jolla Cove Investors, Inc.
7817 Herschel Avenue, Suite 200
La Jolla, California 92037
Any party may change the address specified in this
section by giving the other party notice of such new address in the
manner set forth herein.
12.4 Severability. In the event that any provision
of this Note becomes or is declared by a court of competent jurisdiction
to be illegal, unenforceable or invalid, then this Note shall continue
in full force and effect without said provision. If this Note continues
in full force and effect as provided above, the parties shall replace
the invalid provision with a valid provision which corresponds as far as
possible to the spirit and purpose of the invalid provision.
12.5 Counterparts. This Note may be executed in any
number of counterparts, each of which may be executed by less than all
of the parties hereto, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together
shall constitute one document.
12.6 Entire Agreement. This Note, the Agreement,
and the documents and agreements contemplated herein and therein,
constitute the entire agreement between the parties with respect to
the subject matter hereof, and supersede all prior oral or written
agreements, representations or warranties between the parties other
than those set forth herein or herein provided for.
12.7 Successors and Assigns. The provisions hereof
shall inure to the benefit of, and be binding upon, the permitted
successors and assigns, heirs, executors, and administrators of the
parties hereto.
12.8 Amendment and Waiver. No modification or waiver
of any provision of this Note shall be binding upon the party against
whom it is sought to be enforced, unless specifically set forth in
writing signed by an authorized representative of that party. A waiver
by any party of any of the terms or conditions of this Note in any one
instance shall not be deemed or construed to be a waiver of such terms
or conditions for the future, or of any subsequent breach thereof. The
failure by any party hereto at any time to enforce any of the provisions
of this Note, or to require at any time performance of any of the
provisions hereof, shall in no way to be construed to be a waiver of
such provisions or to affect either the validity of this Note or the
right of any party to thereafter enforce each and every provision of
this Note.
12.9 Survivability. All of the representations,
warranties, agreements and obligations of the parties pursuant to this
Note shall survive the closing of any of the transactions contemplated
hereby.
12.10 Diligence and Good Faith. LJCI and Meltronix
specifically agree to act diligently, in the utmost good faith and in
a timely manner to perform their respective obligations pursuant
hereto, and to carry out the reasonable intent of the provisions of
this Note. Each party hereto shall execute such other and further
[The remainder of this page has been intentionally left blank.]
agreements, documents and things as reasonable requested by the other
parties hereto to effect the transactions contemplated by this Note.
IN WITNESS WHEREOF, LJCI and Meltronix have duly executed
this Note as of the date first above written.
MELTRONIX, INC. LA JOLLA COVE INVESTORS, INC.
a California corporation
By:_______________________________ By:___________________
Andrew Wrobel, Chief Executive Officer Print
Name:_________________
Print
Title:_________________