LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is dated and effective
as of the 6 day of October, 1998 by and between Compu-XXXX, Inc., a Delaware
corporation ("Lender"), and LocalNet Communications, Inc., a Florida corporation
("Borrower").
R E C I T A L S
WHEREAS, Lender for adequate and bargained for consideration agrees to
advance monies to Borrower under the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the respective representations,
warranties, agreements and covenants in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and subject to the conditions contained in this Agreement, the
parties, intending to be legally bound, hereby agree as follows:
SECTION 1
DEFINITIONS
1.1 Specific Definitions. The following definitions shall apply:
(a) "Account Debtors" shall mean Borrower's customers and all other
persons who are obligated or indebted to Borrower in any manner, whether
directly or indirectly, primarily or secondarily, contingently or otherwise,
with respect to Accounts.
(b) "Accounts" shall mean all accounts, accounts receivable, monies and
debt obligations in any form owing to Borrower (whether arising in connection
with contracts, contract rights, instruments, general intangibles or chattel
paper) arising out of the rendition of services by Borrower whether or not
earned by performance; all deposit accounts, credit insurance, guaranties,
letters of credit, advices of credit and other security for any of the above;
Borrower's Books relating to any of the foregoing, and without limiting the
foregoing, the "Accounts" shall mean "Accounts" under the Uniform Commercial
Code.
(c) "Advance" shall mean an advance of loan proceeds constituting all
or a part of the Loan.
(d) "Borrower's Books" shall mean Borrower's books and records
including, but not limited to: minute books; ledgers; records indicating,
summarizing or evidencing Borrower's assets, liabilities and the Accounts; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs and other
computer-prepared information and the equipment containing such information.
(e) "Closing Date" shall mean the date hereof.
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(f) "Collateral" shall mean and include any and all tangible and
intangible assets, including without limitation all of Borrower's right, title
and interest in local and long distance revenues earned, and received by, or due
to, Borrower from Unidial Incorporated as well as all of Borrower's right, title
and interest in Internet service revenues earned, and received by, the Borrower
from Earthlink Network, Inc. in which Borrower has or shall have an interest now
or hereafter existing or acquired, and wherever located, together with all
additions and accessions thereto and replacements and substitutions thereof and
all Proceeds and products of the foregoing.
(g) "Distribution" shall mean, with respect to any shares of capital
stock or any Warrant or right to acquire shares of capital stock or any other
security: (i) the retirement, redemption, purchase or other acquisition,
directly or indirectly, for value by the issuer of any such security, except to
the extent that the consideration therefor consists of shares of stock; (ii) the
declaration or (without duplication) payment of any dividend in cash, directly
or indirectly, on or with respect to any such security; (iii) any investment in
the holder of five percent (5%) or more of any such security if a purpose of
such investment is to avoid characterization of the transaction as a
Distribution; and (iv) any other cash payment constituting a distribution under
applicable laws with respect to such security.
(h) "Event of Default" shall have the meaning specified in Section 11
hereof.
(i) "GAAP" means generally accepted accounting principles set forth in
the opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and/or in statements of the Financial Accounting
Standards Board, consistently applied.
(j) Indebtedness means, (i) indebtedness for borrowed money of for the
deferred purchase price of property or services in respect of which Borrower is
liable, contingently or otherwise, as obligor or otherwise or any commitment by
which Borrower assures a creditor against loss, including contingent
reimbursement obligations with respect to letters of credit, (ii) indebtedness
guaranteed in any manner by Borrower including guarantees in the form of an
agreement to repurchase or reimburse, (iii) obligations under leases which shall
have been or should be, in accordance with GAAP, recorded as capital in respect
of which obligations Borrower is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which obligations assures a creditor
against loss, and (iv) any unfunded obligation of Borrower to any benefit plan
or multi-employer plan.
(k) "Lender Expenses" shall mean: (i) all costs or expenses (including,
without limitation, taxes and insurance premiums) required to be paid by
Borrower under this Agreement or under any of the other Loan Documents that are
paid or advanced by Lender; (ii) filing, recording, publication and search fees
paid or incurred by Lender in connection with Lender's transactions with
Borrower; (iii) costs and expenses incurred by Lender to correct any Event of
Default or enforce any provision of the Loan Documents or in gaining possession
of, maintaining, handling, preserving, storing, shipping, selling, and preparing
for sale or advertising to sell the Collateral, whether or not a sale is
consummated, in any such case only after the occurrence of an Event of Default;
(iv) costs and expenses of suit incurred by Lender in enforcing or defending the
Loan Documents or any portion
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thereof; (v) costs and expenses incurred by Lender to convert any data submitted
to Lender by Borrower to an acceptable form; and (vi) Lender's reasonable
attorney fees and expenses incurred (before or after execution of this
Agreement) in advising Lender with respect to, or in structuring, drafting,
reviewing, negotiating, amending, terminating, enforcing, defending or otherwise
concerning, the Loan Documents or any portion thereof, irrespective of whether
suit is brought.
(l) "Lien" shall mean any security interest, mortgage, pledge,
assignment, lien or other encumbrance of any kind, including any interest of a
vendor under a conditional sale contract or consignment and any interest of a
lessor under a capital lease.
(m) "Loan" shall mean each loan or any other loan or loans made by
Lender to Borrower pursuant to this Agreement.
(n) "Loan Documents" shall mean: (i) this Agreement; (ii) the Secured
Promissory Note; (iii) the Pledge Agreement; (iv) and any other agreements or
documents hereafter delivered to secure repayment of the Loan; (iv) any other
certificates, documents, instruments, or financing statements delivered by
Borrower to Lender pursuant to the terms of this Agreement.
(o) "Note" shall mean the Secured Promissory Note executed by Borrower
pursuant to the terms of this Agreement.
(p) "Obligations" shall mean any and all indebtedness, obligations,
liabilities, and guarantees of any kind of Borrower to Lender, now existing or
hereafter arising, and whether direct or indirect, acquired outright,
conditionally, absolute or contingent, joint or several, secured or unsecured,
due or not due, contractual or tortuous, liquidated or unliquidated, arising by
operation of law or otherwise, whether or not of a nature presently contemplated
by the parties or subsequently agreed to by them.
(q) "Permitted Liens" shall mean: (i) Liens for property taxes and
assessments or governmental charges or levies and Liens securing claims or
demands of mechanics and materialmen, provided that payment thereof is not yet
due or is being contested as permitted in this Agreement; (ii) Liens of or
resulting from any judgment or award, the time for the appeal or petition for
rehearing of which has not expired, or in respect of which Borrower is in good
faith prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review has been secured;
(iii) Liens and priority claims incidental to the conduct of business or the
ownership of properties and assets (including warehouse's and attorney's Liens
and statutory landlord's Liens); deposits, pledges or Liens to secure the
performance of bids, tenders, or trade contracts, or to secure statutory
obligations; and surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided that in each case the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate actions
or proceedings; and further provided that any such warehouse's or statutory
landlord's Liens have been subordinated to the Liens of Lender in a manner
satisfactory to Lender; and (iv) Liens existing on the date of this Agreement
that secure Indebtedness of Borrower outstanding on such date and that have been
disclosed to Lender;
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(r) "Proceeds" shall mean all proceeds of the Collateral and documents
covering Collateral; all property received wholly or partly in trade or exchange
for Collateral; and all revenues, profits and proceeds arising from the sale,
encumbrance, collection or any other temporary or permanent disposition of the
Collateral or any interest therein.
(s) "Subordinate Obligations" shall mean all Indebtedness of Borrower
subordinated to the Obligations pursuant to subordination and/or intercreditor
agreements (the "Subordination Agreements") in form satisfactory to Lender,
including, without limitation the Indebtedness set forth on Schedule 1.1(s)
attached hereto.
(t) All other terms used herein which are not otherwise defined herein
and are defined in the Uniform Commercial Code of the State of New York ("UCC")
shall have the meanings therein stated.
1.2 Generally Accepted Accounting Principles and Uniform Commercial
Code. All financial terms used in this Agreement, other than those defined in
this Section 1, have the meanings accorded to them under GAAP. All other terms
used in this Agreement, other than those defined in this Section 1, have the
meanings accorded to them in the New York Uniform Commercial Code.
1.3 Construction.
(a) Unless the context of this Agreement clearly requires otherwise,
the plural includes the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting, and "or" has the inclusive
meaning of the phrase "and/or." The words "hereof," "hereby," "hereunder" and
other similar terms in this Agreement refer to this Agreement as a whole and not
exclusively to any particular provision of this Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Lender or Borrower, whether under any
rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by each of the parties and its counsel and shall be construed and
interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
SECTION 2
LOAN
2.1 The Loan.
(a) Subject to the terms and conditions and relying on the
representations and warranties set forth herein and further subject to the
provisions of Section 2.1(b) hereof, Lender agrees to make Advances as a Loan to
Borrower from time to time during the period commencing on the Closing Date and
terminating twelve months from the Closing Date in the aggregate amount of up to
Five Hundred Thousand Dollars ($500,000) (the "Amount").
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(b) Notwithstanding the provisions of Section 2.1(a), Lender shall only
be required to Advance to Borrower from time to time an aggregate amount equal
to an aggregate of other loans, advances or investments (collectively the "Other
Financing Proceeds") received by the Borrower or its escrow agent from other
persons on terms and conditions acceptable to the Lender, provided the Lender
has received evidence acceptable to it that the Borrower or its escrow agent has
received such Other Financing Proceeds, it being agreed that a letter from [Name
of Firm], stating that it has received and is holding [amount] of Other
Financing Proceeds on behalf of the Borrower and that there are no conditions to
[Name of Firm] releasing the Other Financing Proceeds to the Borrower other than
the delivery of the Advances by the Lender to the Borrower in accordance with
the terms of this Agreement, shall be deemed to be acceptable evidence for the
purposes hereof.
2.2 Note. The Loan made by the Lender under this Agreement shall be
evidenced by, and repaid with interest in accordance with, the terms of the Note
in substantially the form attached as Schedule "2.2" duly completed, in the
original principal amount equal to the Amount, dated the Closing Date, payable
to the Lender and maturing as to principal on September __, 1999. The principal
amount of Advances received by the Borrower shall be recorded in its books and
records of original entry, which recordations shall be conclusive as to the
outstanding balance of and other information related to the Loan.
2.3 Use of Proceeds. The proceeds of the Loan shall be used by Borrower
for the business purpose(s) set forth in Schedule "2.3."
2.4 Term of Agreement; Prepayment. The term of this Agreement is twelve
(12) months from the Closing Date.
2.5 Interest on the Loan. The Loan shall bear simple interest at the
rate of twelve percent (12%) . Interest shall be calculated on the basis of a
year of three hundred sixty (360) days, but for the actual number of days
elapsed. Interest shall be accrued and paid together with the principal amount
when such principal is due, whether on the Due Date (as that term is defined in
the Note) or as a result of acceleration.
2.6 Conditions to the Closing. Lender's obligation to make the initial
Advance (the "Initial Advance") of the Loan proceeds hereunder is subject to
Lender's determination that Borrower, as of the Closing Date, has substantially
satisfied the following conditions precedent:
(a) The representations and warranties set forth in this Agreement and
in the other Loan Documents shall be true and correct on and as of the Closing
Date, and Borrower shall have performed all obligations which were to have been
performed by it hereunder.
(b) Lender shall have received each of the following, in form and
substance satisfactory to Lender:
(i) certified copies of all corporate (including stockholder,
if required) action taken by Borrower to authorize (A) the borrowings hereunder
and (B) the execution, delivery and
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performance in accordance with their respective terms of this Agreement, the
Loan Documents and any other documents executed in connection with this
Agreement;
(ii) a certificate of incumbency with respect to the officers
of Borrower authorized to execute and deliver this Agreement and the Loan
Documents;
(iii) copies of the Certificate of Incorporation and By-Laws
of Borrower, as restated or amended to the date of the making of the Initial
Advance, certified, with respect to the Certificate of Incorporation, by the
appropriate authority in the jurisdiction of incorporation, and, with respect to
the By-Laws, by an appropriate officer of Borrower;
(iv) certificates of good standing for Borrower from the
appropriate authority in the jurisdiction of incorporation, and in each other
jurisdiction in which the Borrower is qualified to do business;
(v) duly executed copies of the Note and the other Loan
Documents;
(vi) a signed copy of the opinion of Xxxxxx X. Xxxxxx, P.C.,
counsel for Borrower, dated the date of the Initial Advance, in the form
attached hereto as Exhibit 2.6(b)(vi)
(vii) acknowledgment copies of the filing of all UCC and
similar state financing statements filed in connection with the perfection of
Lender's security interest in the Collateral;
(viii) a UCC search report and similar state reports
confirming that there are no liens on the Collateral other than those granted
hereby any Permitted Loans; and
(ix) certificates of insurance and loss payable clauses
covering the Collateral and meeting the requirements of paragraph 10.16.
(x) Subordination Agreements from the persons set forth on
Schedule 1.1(s) attached hereto.
(c) The intended uses of the Advance shall be in strict conformity with
a budget to be agreed upon between Lender and Borrower (the "Budget").
2.7 Conditions to Advances. Lender's obligation to make each Advance
(including the Initial Advance) is subject to the fulfillment of each of the
following conditions immediately prior to or contemporaneously with such
Advance:
(a) All of the representations and warranties of Borrower made under
this Agreement and each other Loan Document shall be true and correct in all
material respects at the time of the disbursement of such Advance as if made as
of such date, Borrower shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement and each
other Loan Document to be performed or complied with by Borrower, and Lender
shall have
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received a certificate, dated the date of the Advance, signed by the President
of Borrower as to the satisfaction of the foregoing conditions. Lender may, in
its sole discretion, without waiving this condition, consider it fulfilled, and
a representation by Borrower to such effect made, if no written notice to the
contrary is received from Borrower prior to the making of such Advance.
(b) The corporate actions of Borrower referred to in Section 2.6(b)(i)
hereof shall remain in full force and effect, the incumbency of officers shall
be as stated in the certificates of incumbency delivered pursuant to Section
2.6(b)(ii) hereof or as subsequently modified and reflected in a certificate of
incumbency delivered to Lender, the respective Certificates of Incorporation and
ByLaws delivered pursuant to Section 2.6(b)(iii) hereof shall remain unmodified,
Borrower shall remain in good standing in each jurisdiction of incorporation and
in each other jurisdiction in which the entity is qualified to do business and
Lender shall have received a certificate, dated the date of the Advance, signed
by the President of Borrower as to the satisfaction of the foregoing conditions.
Lender may, in its sole discretion, without waiving this condition, consider it
fulfilled, and a representation by Lender to such effect made, if no written
notice to the contrary is received from Borrower prior to the making of such
Advance.
(c) No Event of Default (as hereinafter defined) shall have occurred
and be continuing and Lender shall have received a certificate, dated the date
of the Advance, signed by the President of Borrower as to the satisfaction of
the foregoing conditions.
(d) There shall not be any litigation, investigation or proceeding of
or before any court, arbitrator or authority pending or threatened against
Lender or Borrower seeking, nor any injunction, writ, temporary restraining
order or any order or judgment of any nature issued by any court, arbitrator or
authority directing, that the transactions provided for herein not be
consummated as herein provided.
(e) Borrower shall have delivered to Lender a purchase order, executed
on behalf of Borrower, with respect to the intended use of the Advance (the
"Purchase Order").
(f) Borrower shall not have suffered a material adverse change in its
business, operations or financial condition from that reflected in the Financial
Statements of Borrower delivered to Lender or otherwise.
(g) Lender shall have received such additional supporting documents,
certificates and assurances as Lender shall reasonable require which shall be
satisfactory to Lender in form and substance.
(h) That the repayment of certain indebtedness to the Borrower, and the
rights of the creditors relating to certain indebtedness by Borrower in the
aggregate amount of $290,000 as of August 31, 1998, as represented in the
Borrower's draft balance sheet of that date furnished by the Borrower to the
Lender prior to the date hereof, and more particularly described on Schedule
2.7(h) attached hereto, shall have been subordinated in all respects to the
rights of the Lender hereunder and under the other Loan Documents upon terms and
conditions reasonably satisfactory to the Lender
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and the Lender shall have received Subordination Agreements from such creditors
pursuant to Section 2.6(b)(x).
(i) Lender shall have received evidence reasonably acceptable to it (as
described in Section 2.1(b) hereof) that Borrower and/or its escrow agent has
received Other Financing Proceeds in the aggregate amount at least equal to the
aggregate amount to the Advances made and to be made.
2.8 Disbursement of Advances. Lender is authorized to make any and all
Advances directly to the vendor indicated on the Purchase Order and all such
payments shall be considered Advances hereunder.
2.9 One Loan. All Advances shall constitute one Loan and all
Obligations shall constitute one general obligation secured by Lender's security
interest in all of the Collateral and by all other liens heretofore, now, or at
any time or times hereafter granted by Borrower to Lender in connection with
this Agreement. Borrower agrees that all of the rights of Lender set forth in
this Agreement or the Note shall apply to any modification of or supplement to
this Agreement.
SECTION 3
SECURITY INTEREST
3.1 Grant of Security Interest. In order to secure prompt payment and
performance of all Obligations, Borrower hereby grants to Lender a valid,
binding and continuing first-priority pledge and security interest in all of the
Collateral whether now owned or existing or hereafter acquired or arising and
regardless of where located, subject only to Permitted Liens. This security
interest in the Collateral shall attach to all Collateral without further action
on the part of Lender or Borrower. The Collateral shall be subject only to
Permitted Liens together with such third-party consents, lien waivers and
estoppel certificates as Lender shall reasonably require.
3.2 Pledge of Securities. As additional security to insure prompt
payment and performance of all Obligations, Xxxx X. Theale, Jr., the Chief
Executive Officer of the Borrower, has agreed to pledge his equity interest in
the Borrower as more particularly set forth under the terms and conditions of
the "Pledge Agreement."
SECTION 4
SPECIFIC REPRESENTATIONS
4.1 Name of Borrower. The exact name of the Borrower is LocalNet
Communications, Inc.
4.2 Mergers and Consolidations. No entity has merged into any of
Borrower or been consolidated with Borrower.
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4.3 Purchase of Assets. The Borrower has not sold any of its assets
except in the ordinary course of business.
4.4 Change of Name or Identity. Borrower shall not change its name,
business structure or identity or use a new trade name without prior
notification to Lender or merge into or consolidate with any other entity.
SECTION 5
PROVISIONS CONCERNING ACCOUNTS
5.1 Office and Records of Borrower. Borrower's chief executive offices
are located at: 00000 Xxxx Xxx Xxxxxxx Xxxx, Xxxxxxxx 000, Xxxxxxxxxxxx, Xxxxxxx
00000. Borrower has not at any time within the past month maintained their chief
executive office or their records with respect to the Accounts at any other
location (other than at 0000 Xxxxxxxx Xxxxxxxxx, Xxxxxxxxxxxx, Xxxxxxx 32211),
and shall not do so hereafter except with thirty (30) days prior written notice
to Lender.
5.2 Representations. Borrower represents and warrants that the Accounts
securing this Loan at the time of Closing: (a) will be owned solely by Borrower;
(b) will be for a liquidated amount maturing as stated in Borrower's books; (c)
will be a bona fide existing obligation created by the rendition of services to
those customers set forth in Schedule "3.1;" and (d) will not be subject to any
known deduction, offset, counterclaim, return privilege, or other condition,
except as reflected on Borrower's Books. Borrower shall neither redate any
invoices or reissue new invoices in full or partial satisfaction of old
invoices. Allowances, if any, as between Borrower and the customers set forth in
Schedule "3.1" will be on the same basis and in accordance with the usual
customary practices of Borrower as they exist on the date of this Agreement.
5.3 Lender's Rights. Any officer, employee or agent of Lender shall
have the right, at any reasonable time or times hereafter, in the name of Lender
or its nominee (including Borrower), to verify the validity, amount or any other
matter relating to any Accounts by mail, telephone or otherwise; and all
reasonable costs thereof shall be payable by Borrower to Lender. Lender, or its
designee may at any time after default by Borrower hereunder notify the
customers set forth in Schedule "3.1" has been assigned to Lender or of Lender's
security interest therein and after an Event of Default by Borrower hereunder
collect the same directly and charge all reasonable collection costs and
expenses to Borrower's account.
5.4 Disclaimer of Liability. Lender shall not be liable to Borrower or
any third person for the correctness, validity or genuineness of any checks,
instruments, or similar documents released or endorsed to Borrower by Lender
(which shall automatically be deemed to be without recourse to Lender in any
event) or for the existence, character, quantity, quality, condition, value or
delivery of any goods purporting to be represented by any such documents; and
Lender, by accepting a Lien on the Collateral or by releasing any Collateral to
Borrower, shall not be deemed to have assumed any obligation or liability to any
supplier or creditor of Borrower or to any other third party. Borrower agrees to
indemnify and defend Lender and hold it harmless in respect to any claim or
proceeding arising out of any matter referred to in this Section 5.4.
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5.5 Post-Default Rights. If an Event of Default has occurred and is
continuing hereunder, no discount, credit or allowance shall be granted or
permitted by Borrower to any Account Debtor; provided, however, that,
notwithstanding the existence of an Event of Default: (i) Borrower may continue
to invoice and xxxx the customers set forth in Schedule "3.1" under discount,
credit and allowance arrangements that Borrower maintained in the ordinary
course of business prior to such Event of Default occurring; and (ii) Account
Debtors may, during the continuance of an Event of Default, utilize discount,
credit and allowance arrangements that Borrower extended to them in the ordinary
course of business. Lender may, after an Event of Default, settle or adjust
disputes and claims directly with Account Debtors for amounts and upon terms
that Lender considers advisable, and in such cases, Lender will credit
Borrower's account with only the net amounts received by Lender in payment of
such disputed Accounts, after deducting all Lender Expenses incurred in
connection therewith.
5.6 Year 2000. The Borrower will not incur any Year 2000 liability (as
that term is hereafter defined) which will result in a material adverse affect
on the Borrower, its business, financial condition or its prospects. "Year 2000
Liability" means any cost, expense, liability or obligation (actual, potential,
contingent or otherwise) of the Borrower arising out of the failure or inability
of any software, hardware, or systems (whether owned or used by the Borrower and
its any of its vendors, customers or other third parties) to correctly (i)
process, provide and receive date data within and between the years 1999 and
2000 and (ii) account for all required leap year calculations for the year 2000.
SECTION 6
PROVISIONS CONCERNING CONTRACTS
6.1 Contracts.
(a) Schedule "6.1(a)" is a true and complete list of all material
contracts and agreements to which Borrower is a party with respect to the
Collateral or Account Debtors.
(b) Borrower shall not amend, modify or supplement any contract or
agreement included in the Collateral or waive any provision thereof other than
in accordance with Borrower's standard business practice, nor shall such
standard business practice be materially changed without Lender's consent, which
shall not be unreasonably withheld.
(c) Borrower shall remain liable to perform all of its duties and
obligations under any contracts and agreements included in the Collateral to the
same extent as if this Agreement had not been executed; and Lender shall not
have any obligation or liability under such contracts and agreements by reason
of this Agreement or otherwise.
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(d) Borrower need not pay any amount due under any contract or
agreement nor otherwise perform any action required under the terms of any such
contract or agreement, if such payment or performance is being contested in good
faith by appropriate proceedings promptly initiated and diligently conducted, if
Lender is notified in advance of such contest, and if Borrower establishes any
reserve or other appropriate provision required by GAAP and deposits with Lender
cash or an acceptable bond reasonably requested by Lender.
SECTION 7
OTHER PROVISIONS CONCERNING COLLATERAL
7.1 Further Assurances. Borrower shall execute and deliver to Lender,
concurrent with Borrower's execution of this Agreement and at any time or times
hereafter at the request of Lender, all financing statements, continuation
financing statements, security agreements, chattel mortgages, assignments,
endorsements of certificates of title, applications for titles, affidavits,
reports, notices, schedules of Accounts, letters of authority and all other
documents Lender may reasonably request, in form satisfactory to Lender, to
perfect and maintain perfected Lender's Liens in the Collateral and in order to
consummate fully all of the transactions contemplated under the Loan Documents.
Borrower hereby irrevocably makes, constitutes and appoints Lender (and any of
Lender's officers, employees or agents designated by Lender) as Borrower's true
and lawful attorney with power to sign the name of Borrower on any of the
above-described documents or on any other similar documents that need to be
executed, recorded or filed in order to perfect or continue to be perfected
Lender's Liens in the Collateral. Lender shall provide Borrower with written
notice prior to signing the Borrower's name on the documents referred to in this
Section.
7.2 Lender's Duty of Care. Lender shall have no duty of care with
respect to the Collateral except that Lender shall exercise reasonable care with
respect to the Collateral in Lender's custody. Lender shall be deemed to have
exercised reasonable care if such property is accorded treatment substantially
equal to that which Lender accords its own property or if Lender takes such
action with respect to the Collateral as Borrower shall request to or agree in
writing; provided, however, that neither failure to comply with any such request
nor any omission to do any such act requested by Borrower shall be deemed a
failure to exercise reasonable are. Lender's failure to take steps to preserve
rights against any parties or property shall not be deemed to be failure to
exercise reasonable care with respect to the Collateral in Lender's custody.
7.3 Lender Expenses. If Borrower fails, as required by the terms
hereof, (i) to pay any monies (whether taxes, assessments, insurance premiums or
otherwise) due the third persons or entities, (ii) to make any deposits or
furnish any required proof of payment or deposit, or (iii) to discharge any Lien
not permitted hereby, then Lender may, to the extent that it determines that
such failure by Borrower could have a material adverse effect on Lender's
interests in the Collateral, in its discretion and without prior notice to
Borrower, make payment of the same or any part thereof. Any amounts paid or
deposited by Lender shall constitute Lender Expenses, shall become part of the
Obligations, shall bear interest at a fluctuating rate equal to the Prime Rate
plus one percent (1%), and shall be secured by the Collateral. Any payments made
by Lender shall not constitute (a) an agreement by Lender to make similar
payments in the future, or (b) a waiver by Lender of any
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Event of Default under this Agreement. Lender need not inquire as to, or contest
the validity of, any such expense, tax, security interest, encumbrance or Lien
and the receipt of the usual official notice for the payment of moneys to a
governmental entity shall be conclusive evidence that the same was validly due
and owing.
7.4 Inspection of Records. During usual business hours, upon at least
twenty-four (24) hours advance notice via fax and telephone, Lender shall have
the right to inspect Borrower's books and records in order to verify the amount
or condition of, or any other matter relating to, the Collateral and Borrower's
financial condition and to copy and make extracts therefrom; subject always to a
confidentiality undertaking by the Lender.
7.5 Waivers. Except as specifically provided for herein, Borrower
waives demand, protest, notice of protest, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, documents, instruments, chattel paper and guaranties at any
time held by Lender on which Borrower may in any way be liable.
SECTION 8
REPRESENTATIONS AND WARRANTIES OF BORROWER
As of the date hereof Borrower hereby warrants and represents to Lender
the following:
8.1 Corporate Status. Borrower is a corporation validly existing and in
good standing under the laws of the State of Florida. It is qualified and
licensed to do business and is in good standing in any state in which the
conduct of its business or its ownership of property requires that it be so
qualified or licensed, and has the power and authority (corporate or otherwise)
to execute and carry out the terms of the Loan Documents to which it is a party,
to own its assets and to carry on its business as currently conducted.
8.2 Authorization. The execution, delivery, and performance by Borrower
of this Agreement and each other Loan Document(s) have been duly authorized by
all necessary corporate action. Borrower has duly executed and delivered this
Agreement and each other Loan Document(s) to which it is a party, and each of
them constitutes a valid and binding obligation of Borrower, as applicable,
enforceable according to its terms except as such enforceability may be limited
by equitable principles and by bankruptcy, insolvency or similar laws affecting
the rights of creditors generally.
8.3 No Breach. The execution, delivery and performance by Borrower of
this Agreement and the Loan Document(s) to which it is a party (a) will not
contravene any law or any governmental rule or order binding on the Collateral;
(b) will not violate any provision of the Articles of Incorporation or Bylaws,
as applicable, of Borrower; (c) will not violate any agreement or instrument by
which Borrower is bound; (d) do not require any notice to consent by any
governmental authority; and (e) will not result in the creation of a Lien on any
assets of Borrower except the Lien to Lender granted herein.
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8.4 Taxes. All assessments and taxes, whether real, personal or
otherwise, due or payable by or imposed, levied or assessed against Borrower or
any of its property have been paid in full before delinquency or before the
expiration of any extension period; and Borrower has made due and timely payment
or deposit of all federal, state and local taxes, assessments or contributions
required of it by law, except only for items that Borrower is currently
contesting diligently and in good faith and that have been fully disclosed in
writing to Lender or that Borrower has reserved against its financial
statements.
8.5 Litigation and Proceedings. Except as set forth in Schedule "8.5"
attached hereto there are no outstanding judgments against Borrower or any of
its assets and there are no actions or proceedings pending by or against
Borrower before any Court or administrative agency. Borrower has no knowledge or
belief of any pending, threatened, or imminent litigation, governmental
investigations, or claims, complaints, actions, or prosecutions involving
Borrower.
8.6 Business. All of Borrower's franchises, authorizations, patents,
trademarks, copyrights and other rights used to conduct its business are all in
full force and effect and are not in known conflict with the rights of others.
Borrower is not a party to or subject to any agreement or restriction that is so
unusual or burdensome that it might have a material adverse effect on Borrower's
business, properties or prospects.
8.7 Laws and Agreements. Borrower is in compliance with all material
agreements applicable to it, including obligations to contribute to any employee
benefit plan or pension regulated by ERISA. Borrower is in material compliance
with all laws applicable to it.
8.8 Ownership of Collateral. Prior to the Lender making any Loan as set
forth herein, the Borrower will be the sole owner of, and have good and
marketable title to the Collateral pledged as security for such Loan.
8.9 No Conflict. The granting of a security interest in the Collateral
to the Lender will not violate the terms or provisions of any loan document or
any other agreement to which the Borrower then is a party or by which it is
bound.
8.10 Security Interest. After giving effect to the Loan contemplated by
this Agreement, the Lender will be the holder of a valid perfected first
priority security interest in the Collateral, subject to the provisions of an
Intercreditor Agreement among the Lender, [Beacon] and the Borrower of even date
herewith. The Collateral pledged to the Lender will be free and clear of all
Liens, except Permitted Liens and the Accounts pledged to the Lender in
connection with the Loan as part of the Collateral will be free and clear of all
Liens.
8.11 Origination of Accounts. Each Account will have been originated by
the Borrower in the ordinary course of its business in accordance with the
Borrower's regular credit approval process and does not contravene any laws,
rules or regulations applicable thereto. No pledged Account will have been
selected on any basis which would have any adverse effect on the Lender.
13
8.12 Legality. The Collateral and the shares of Common Stock pledged in
the companion "Pledge Agreement" are not subject to the laws of, any
jurisdiction whose laws would make the terms hereof or any transaction
contemplated hereby unlawful.
8.13 Consents. No consent or approval is required for the pledging of
the Collateral to the Lender pursuant to the terms of this Agreement, except for
such consents or approvals as have been obtained.
8.14 Financial Condition. All financial statements and information
relating to Borrower that have been or may hereafter be delivered by Borrower to
Lender are, to Borrower's best knowledge and belief, accurate and complete, they
present the Borrower's financial condition fairly and they have been prepared in
accordance with GAAP. Borrower has no material obligations or liabilities of any
kind not disclosed in that financial information, and there has been no material
adverse change in the financial condition of Borrower since the date of the most
recent financial statements submitted to Lender.
8.15 Solvency. After giving effect to the transactions contemplated
hereby and by the other Loan Documents Borrower now has sufficient capital to
carry on the business in which it is now engaged, is solvent and is able to pay
its debts as they mature.
SECTION 9
REPRESENTATIONS AND WARRANTIES OF LENDER
9.1 Organization, Power and Authority. Lender is duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the requisite corporate power and authority to carry on its business as
it is not being conducted.
9.2 Due Authorization; Binding Obligation. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action. This Agreement is a valid and binding obligation of Lender
enforceable in accordance with its terms. Neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated by this
Agreement will not conflict with or violate any provisions of the Securities Act
of 1933 and/or the Securities Exchange Act of 1934, and/or any related
Securities and Exchange Commission Rules, and/or Rules of the National
Association of Securities Dealers, and/or the Articles of Incorporation or
By-Laws of Lender, or of any law, ordinance or regulation or any decree or order
of any Court or administrative or other governmental body which is either
applicable to, binding upon or enforceable against it; result in any breach of
or default under a material mortgage, contract, agreement, indenture, will,
trust or other instrument which is either binding upon or enforceable against
Lender or its assets; violate any legally protected right of any individual or
entity or give to any individual or entity a right or claim; or impair or in any
way limit any governmental or official license, approval, permit or
authorization.
SECTION 10
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COVENANTS
10.1 Encumbrance of Collateral. Borrower shall not create, incur,
assume or permit to exist any Lien on the Collateral now owned or hereafter
acquired by Borrower, except for Liens to Lender and Permitted Liens under the
terms of this Agreement.
10.2 Assignability. Borrower shall not sell, assign, or transfer the
Collateral now owned or hereafter acquired by Borrower during the term of this
Agreement.
10.3 Business. Borrower shall engage primarily in business of the same
general character as that now conducted by Borrower.
10.4 Condition and Repair. Borrower shall maintain in good repair and
working order all properties used in their business and form time to time shall
make all appropriate repairs and replacements thereof.
10.5 Taxes. Borrower shall file all tax and information returns and
reports required by all taxing authorities and pay all taxes, assessments and
other governmental charges imposed upon it or any of its assets or in respect of
any of its franchises, business, income or profits before any penalty or
interest accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited or materially impaired as a result thereof) no such charge or claim
need be paid if it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if Lender is notified in advance of
such contest, and if Borrower establishes any reserve or other appropriate
provision required by GAAP. Borrower shall make timely payment or deposit of all
FICA payments and withholding taxes required of it by applicable laws and will,
upon request, furnish Lender with proof satisfactory to Lender indicating that
Borrower has made such payments or deposits.
10.6 Accounting System. Borrower at all times hereafter shall maintain
a standard and modern system of accounting books and records in accordance with
GAAP, with ledger and account cards or computer tapes, disks, printouts and
records that contain information pertaining to the Collateral that may from time
to time be requested by Lender. Borrower will provide reasonable protection
against loss of or damage to books of record and account. Borrower shall not
modify or change its method of accounting or enter into any agreement hereafter
with any third-party accounting firm or service bureau for the preparation or
storage of Borrower's accounting records without said accounting firm's or
service bureau's agreeing to provide to Lender information regarding the
collateral and Borrower's financial condition.
10.7 Quarterly Financial Statements. Borrower shall furnish Lender as
soon as practicable but in no event later than forty-five (45) days after the
end of each of the first three (3) quarterly fiscal periods of each fiscal year
with unaudited quarterly financial statements in form and substance as required
by Lender, including a balance sheet, an income statement and a statement of
15
cash flows, prepared in accordance with GAAP together with a certificate
executed by the chief financial or accounting officer of Borrower stating that
the financial statements fairly represent the financial condition of Borrower as
of the date and for the periods covered and that as of the date of such
certificate there has not been any violation of any provision of this Agreement
or the happening of any Event of Default or unmatured default hereunder.
10.8 Annual Financial Statements. Borrower shall furnish Lender as soon
as practicable but in no event later than ninety (90) days after the close of
each fiscal year with audited annual financial statements, which financial
statements shall be prepared in accordance with GAAP and shall be certified
without qualification by an independent certified public accounting firm
satisfactory to Lender. With all financial statements, Borrower will also
deliver a certificate of its chief financial or accounting officer attesting
that no Event of Default or unmatured default under the Agreement has occurred
and is continuing.
10.9 Punctual Payment. Borrower will duly and punctually pay any and
all amounts payable under the Note and the other Loan Documents, all in
accordance with the terms thereof. Borrower will comply with all of the
covenants, agreements and other conditions contained in this Agreement, the Note
and the other Loan Documents.
10.10 Corporate Existence. Borrower will maintain its corporate
existence and the quali fication and good standing of Borrower in all
jurisdictions in which such qualification and good standing are necessary in
order for Borrower to conduct its businesses and own its properties.
10.11 Compliance with Laws and Regulations. Borrower will comply, in
all material respects with all laws, statutes, rules, regulations, ordinances,
judgments, writs, decrees, and orders of any governmental body applicable to
Borrower and Borrower will not fail to obtain (and will not allow to lapse) any
license, permit or other authorization which may be or become necessary in order
for Borrower to conduct its business, own its properties, and perform its
Obligations under this Agreement, the Note or the other Loan Documents.
10.12 Tax Obligations.
(a) Borrower shall file all tax and information returns and
reports required by all taxing authorities (all prepared in accordance with
applicable law), pay or cause to be paid all license fees, bonding premiums and
related taxes and charges, and pay or cause to be paid all income, employment,
real and personal property taxes and other governmental taxes and charges
assessed against Borrower, or payable by Borrower, at such times and in such
manner as to prevent any penalty or interest from accruing or any Lien or charge
from attaching to any assets or property of Borrower; provided that Borrower
shall have the right to contest any such fees, premiums, taxes and charges prior
to the payment thereof for so long as such contest is pursued diligently and in
good faith by appropriate proceedings.
(b) Borrower shall notify Lender promptly (and in no event
later than fifteen (15) days) after becoming aware of the intent of the Internal
Revenue Service or other taxing authority
16
(the "Taxing Authority") to assert a deficiency with respect to it, and shall
promptly (and in no event later than fifteen (15) days following receipt of any
notice of deficiency) inform Lender of such proposed deficiency and deliver to
Lender a copy of any notices of deficiency received from the Taxing Authority.
If Lender so requests and if there is a reasonable legal basis therefor,
Borrower shall, take all reasonable actions necessary to contest such claimed
deficiency and shall appoint outside tax counsel acceptable to Lender to contest
such claims of deficiency and shall direct such counsel to consult with and to
provide Lender with periodic status reports and assessments of the legal merits
of the contest. At Lender's request, such contest shall continue through the
appropriate administrative and court procedures including appeals therefrom
until such outside tax counsel informs Lender that further contest would be
inadvisable taking into account all factors (including any settlement or
compromise proposed by the Taxing Authority).
10.13 Litigation and Other Proceedings. Borrower will notify Lender
promptly after Borrower knows of (i) the institution or threat of any action,
suit, proceeding, governmental investigation or arbitration against or affecting
Borrower or any of the material assets or property of any of them, or (ii) any
material development in any such action, suit, proceeding, governmental
investigation or arbitration.
10.14 Labor Relations. Borrower will notify Lender promptly upon
learning of any labor dispute to which Borrower may be a party and which
involves any group of employees or independent sales representatives of
Borrower.
10.15 Insurance. Borrower will carry and maintain in full force and
effect at all times with financially sound and reputable insurers (or, as to
workers' compensation or similar insurance, in an insurance fund or by
self-insurance authorized by the jurisdiction in which its operations are
carried on):
(a) all worker's compensation or similar insurance as may be
required under the laws of any jurisdiction;
(b) public liability insurance against claims for personal
injury, death or property damage suffered upon, in or about any premises owned
or occupied by it or occurring as a result of the ownership, maintenance or
operation by it of any automobile, truck or other vehicle or as a result of any
services rendered by it;
(c) insurance against loss or damage by fire, theft,
pilferage, explosion, spoilage or other casualty, with a replacement value and
agreed amount endorsement; and
(d) insurance against such other risks as are usually insured
against by persons of established reputation engaged in the same or similar
businesses and similarly situated or as may be reasonably required by Lender.
The insurance specified in the foregoing clauses (b), (c) and (d) shall be
maintained with respect to Borrower and the Collateral in such form and in such
amounts as Lender may from time to time
17
require, including provisions (A) requiring that coverage evidenced thereby
shall not be terminated or materially modified without thirty (30) days' prior
written notice to Lender, and (B) requiring that no claims shall be paid
thereunder without ten (10) days' advance written notice to Lender.
Additionally, all such insurance shall be in the name of and with loss or damage
payable to Borrower and to Lender, as their interests may appear. Borrower shall
deliver to Lender the original or duplicate policies, or certificates or other
evidence satisfactory to Lender, of compliance with the foregoing insurance
provisions. Borrower assumes all responsibility and liability arising from the
use of the Collateral, either for negligence or otherwise, by whomsoever used,
employed or operated, and will defend, indemnify and hold Lender harmless from
and against any and all claim, loss or damage to persons or property caused by
the Collateral or by its use and operation, except any such claim, loss or
damage directly caused by the gross negligence or willful misconduct of Lender.
10.16 Use of Loan Proceeds. Except with written consent of Lender,
Borrower shall use the proceeds of the Loan, as drawn down from time to time,
strictly in accordance with the Budget.
10.17 Indemnification. Borrower shall indemnify, defend and hold
harmless Lender and each holder of the Note and in each case its officers,
directors, agents and employees from and against all losses, costs, fines,
liabilities, judgments, actions, penalties, damages, injuries, claims, demands,
disbursements and expenses, including reasonable attorneys' fees and costs,
arising out of (a) claims by or on behalf of any brokers, finders or investment
bankers made with respect to the transactions contemplated by this Agreement;
(b) the execution or consummation of this Agreement, the Note or the other Loan
Documents; (c) the operation or maintenance of any of the Collateral; or (d) any
aspect of, or any transaction contemplated by or referred to in, or any matter
related to, this Agreement, in each case whether or not Lender or such holder is
a party thereto, except to the extent such losses, cost, fines, liabilities,
judgments, actions, penalties, damages, injuries, claims, demands, disbursements
and expenses are directly caused by the gross negligence or willful misconduct
of Lender or such holder. Borrower shall assume the settlement and defense of
any suit or other legal proceeding brought to enforce any of the foregoing (with
counsel reasonably satisfactory to Lender), and shall pay all judgments entered
in any such suit or legal proceeding. Borrower shall not compromise or settle
any such suit or other legal proceeding without the prior written consent of
Lender, which consent shall not be unreasonably withheld. The indemnities and
assumptions of liabilities and obligations herein provided for shall continue in
full force and effect notwithstanding the termination of this Agreement.
10.18 Notice of Default. Promptly after becoming aware of (a) the
existence of (i) any Event of Default hereunder on the part of Borrower, (ii)
any default by Borrower in the fulfillment of any of the terms, covenants,
provisions or conditions of this Agreement or any of the Loan Documents or (iii)
any default under any material note, indenture, loan agreement, mortgage, lease,
deed or similar agreement or material contract to which Borrower is a party or
by which it or its assets or property may be bound or affected; or (b) any
indebtedness of Borrower being declared due and payable before its express
maturity, or any holder of such indebtedness having the right to declare such
indebtedness due and payable before its express maturity, because of the
occurrence of any default (or any event which, with notice and/or lapse of time,
shall constitute any such default) under such indebtedness; or (c) any
litigation, suit or administrative proceeding affecting
18
Borrower whether or not the claim is considered by Borrower to be covered by
insurance, which litigation, suit or administrative proceeding has an amount in
controversy in excess of $25,000 in each instance or $175,000 in the aggregate,
then in each case a certificate of an authorized financial officer of Borrower
describing the nature and status of such matters and what action Borrower is
taking or proposes to take with respect thereto.
10.19 Notice of Material Adverse Change. Promptly after becoming aware
of any material adverse change in the business, assets, operations or
conditions, financial or otherwise, of Borrower, a certificate of the chief
financial officer of Borrower setting forth the details of such material adverse
change and stating what action Borrower has taken or proposes to take with
respect thereto.
10.20 Other Information. Borrower shall promptly furnish Lender such
other information respecting the condition or operations, financial or
otherwise, of Borrower, insurance coverage and other matters as Lender may from
time to time reasonably request; provided that from and after the occurrence of
an Event of Default, all reports required to be provided to Lender may, at
Lender's discretion, be required to be provided with more frequency and within
shorter time periods than otherwise provided.
10.21 Working Capital Ratio. Borrower shall, at all times during the
term of this Agreement and during the period that any amounts are outstanding
under the Note, maintain a minimum ratio of Current Assets (as that is defined
under GAAP) to Current Liabilities (as that term is defined under GAAP) of at
least 1 to 1.
10.22 Negative Covenants. From and after the date hereof and continuing
so long as any of the Obligations shall remain unpaid, unless Lender shall
otherwise consent in writing:
(a) Conduct of Business. Borrower will not cease to continuously
engage in its business as currently operated. Borrower will not
engage in, directly or indirectly, in any other line of business
without the prior written consent of Lender. Borrower shall not
change its name, identity or structure or operate its business
under any other name.
(b) Transaction with Affiliates; Fees. Except for the transactions
contemplated hereby and by the other Loan Documents, Borrower
will not enter into, directly or indirectly, any transaction with
any officer, director, employee, shareholder or affiliate of
Borrower, except transactions (including without limitation
payment of salaries to employees who are also shareholders) with
officers, directors or employees made in the ordinary course of
business and upon fair and reasonable terms which are fully
disclosed to Lender in advance; or pay, fees (including, without
limitation, management fees) to any officer, director, employee,
partner, shareholder or affiliate, other than in the ordinary
course of business.
(c) Liens. Borrower will not create or suffer to exist, any Lien upon
or with respect to their respective assets or properties, whether
now owned or hereafter acquired, or
19
assign any right to receive income, in each case to secure any
indebtedness of any person, except Liens in favor of Lender.
(d) Dividends and Stock Redemptions. Borrower will not declare or
pay, directly or indirectly, any dividends, or purchase or
otherwise acquire for value any of its capital stock now or
hereafter outstanding; or make any distribution of assets to its
stockholders.
(e) Compensation. Borrower will not pay any bonus, grant any option,
provide any perquisites to, or pay any other compensation to, any
officer, director, or employee or sales representative which is
not provided for in an employment or other agreement with such
person or is inconsistent with past practice. Additionally, the
Borrower will not amend any employment or other agreement with
any officer, director, employee or sales representative which
provides for extraordinary compensation in type or amount which
is inconsistent with past practice.
(f) Amendments. Borrower will not request, permit or consent to any
amendment to its Certificate of Incorporation, By-Laws or other
organizational documents, which amendment could have an adverse
effect on Lender in its capacity as lender or secured party under
this Agreement.
(g) Environmental Matters. Borrower shall not for itself, nor shall
it knowingly permit any other party to, discharge any toxic or
hazardous waste or material in or on the property used in any of
its business, other than in compliance with applicable
environmental laws and regulations, or otherwise violate or
permit a violation of any applicable law or regulation with
respect to environmental matters. If and to the extent required
by applicable environmental laws or regulations, Borrower shall
remove and otherwise mitigate the effects of any such waste,
material or violation and shall protect the value of the
Collateral. In the event Borrower fails to do so in accordance
with applicable environmental laws or regulations, upon not less
than thirty (30) days (or lesser period if determined reasonably
necessary by Lender) written notice to Borrower, Lender may
remove or mitigate the effects of such waste, material or
violation and any amounts paid by Lender to remove or mitigate
the effects of such waste material or violation shall be part of
the Obligations. Nothing contained in the immediately preceding
sentence shall be construed to imply that Lender has any
responsibility for any obligation to remove or otherwise mitigate
the effects of such waste, material or violations.
(h) Other Actions. Borrower will not, take any action outside the
usual and ordinary course of business and consistent with past
practice, except in strict conformity with the Budget. Without
limiting the generality of the foregoing, Borrower will not, make
any investments in or loans to, or otherwise acquire any of the
capital stock of, or any equity or proprietary interest in, any
other person or entity.
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SECTION 11
EVENTS OF DEFAULT
11.1 Event of Default. An Event of Default shall be deemed to exist if
any of the following events shall have occurred and be continuing:
(a) Borrower fails to make any payment of principal or interest or any
other payment on the Note on the Due Date, and such failure shall continue
uncured after written notice by Lender for seven (7) business days;
(b) Borrower fails to observe or perform any covenant, condition or
agreement to be observed or performed pursuant to the terms hereof, any other
Loan Document or any loan or lease agreement with respect to Indebtedness to
which it is a party and such failure is not cured as soon as reasonably
practicable and in any event within fifteen (15) days after written notice
thereof by Lender; provided, however, if such failure is susceptible or cure,
but to cure will take longer than fifteen (15) days and provided further that
Borrower is diligently working to cure the default, the cure period pay exceed
fifteen (15) days but in no event shall it exceed sixty (60) days;
(c) A Court enters a decree or order for relief in respect of Borrower
in an involuntary case under any applicable bankruptcy, insolvency, or other
similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal;
(d) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law then in effect, makes any general
assignment for the benefit of creditors, fails generally to pay, or admits in
writing its inability to pay, its debts as such debts become due, becomes
insolvent or takes corporate action in furtherance of any of the foregoing;
(e) Final judgment for the payment of money on any claim in excess of
Twenty Five Thousand Dollars ($25,000) is rendered against Borrower and remains
undischarged for thirty (30) days during which execution is not effectively
stayed;
(f) The Pledgor of the Loan revokes or attempts to revoke his pledge,
or becomes the subject of an insolvency proceeding of the type described in
clauses (c) or (d) above with respect to Borrower or fails to observe or perform
any covenant, condition or agreement to be performed under any Loan Document to
which it is a party;
(g) Borrower makes any payment on account of any Subordinate
Obligations, other than payments specifically permitted by the terms of such
subordination of this Agreement;
21
(h) Any person holding any Subordinate Obligations becomes the subject
of any proceeding resulting in a final adjudication that the subordination
arrangement is terminated, or terminates the subordination arrangement.
(i) The Collateral or any part thereof is sold, agreed to be sold,
conveyed or allocated by operation of law or otherwise;
(j) Borrower is enjoined, restrained or in any way prevented by Court
order from continuing to conduct all or any material part of its business
affairs;
(k) A judgment or other claim in excess of Twenty Five Thousand Dollars
($25,000) becomes a Lien upon any or all of Borrower's assets, other than a
Permitted Lien;
(l) A notice of Lien, levy or assessment in excess of Twenty Five
Thousand Dollars ($25,000) is filed of record with respect to any or all of
Borrower's assets by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal or other government
authority; or any tax or debt owing at any time hereafter to any one or more of
such entities becomes a Lien upon any or all of Borrower's assets and the same
is not paid on the payment date thereof, except to the extent such tax or debt
is being contested by Borrower as permitted in Section 8.4; or
(m) There is a material impairment of the value of the Collateral or
priority of Lender's Liens on the Collateral.
(n) If any warranty, representation or statement of fact made herein or
furnished to Lender at any time by or on behalf of any of the Borrower or
Pledgor proves to have been false or misleading in any material respect when
made or furnished;
(o) If the Borrower shall execute or file a certificate or other
instrument evidencing the legal change of name without furnishing Lender at
least ten (10) days' prior written notice thereof;
(p) In the event the Borrower shall be dissolved;
(q) the Borrower shall fail to maintain its corporate existence in good
standing;
(r) If the Borrower shall make or send notice of an intended bulk
transfer, or fail, after demand, to furnish any financial information or permit
the inspection of books or records of account;
(s) If the Borrower shall voluntarily or otherwise suspend or interrupt
the transaction of its usual business for ten (10) business days other than by
reason of strikes.
11.2 Transfer of Collateral. Upon and during the continuation of an
Event of Default, at its discretion, Lender may, whether or not any of the
Obligations be due, in its name or in the name of Borrower or otherwise, notify
any account debtor or the obligor on any instrument to make
22
payment to Lender, demand, xxx for, collect or receive any money or property at
any time payable or receivable on account of or in exchange for, or make any
commercially reasonable compromise or settlement deemed desirable by Lender with
respect to, any of the Collateral, but shall be under no obligation to do so,
and/or Lender may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of the Collateral on commercially
reasonable terms, or release any of the Collateral, without thereby incurring
responsibility to, or discharging or otherwise affecting any liability of,
Borrower. At any time, Lender may assign, transfer and/or deliver to any
transferee of any of the Obligations any or all of the Collateral, and
thereafter Lender shall be fully discharged from all responsibility with respect
to the Collateral so assigned, transferred and/or delivered. Such transferee
shall be vested with all the powers and rights of Lender hereunder with respect
to such Collateral, but Lender shall retain all rights and powers hereby given
with respect to any of the Collateral not so assigned, transferred or delivered.
SECTION 12
REMEDIES
12.1 Specific Remedies. Upon the occurrence of any Event of Default or
at any time thereafter Lender may declare the Loan to be due and payable
immediately upon notice, whereupon they shall immediately become due and payable
without presentment, demand, or protest of any kind, all of which are hereby
expressly waived by Borrower and Lender shall have the following rights and
remedies in addition to all rights and remedies of a secured party under the
Uniform Commercial Code or other applicable statute or rule relating to Security
Interests in Accounts and otherwise, in any jurisdiction in which enforcement is
sought, all such rights and remedies being cumulative and not exclusive:
(a) Lender may set off against the Loan, the Collateral and/or the
shares of Common Stock pledged under the companion Pledge Agreement, and all
balances, credits, deposits, accounts, or moneys of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
(b) Lender may pay, purchase, contest or compromise any encumbrance,
charge or Lien that, in the opinion of Lender, appears to be prior or superior
to its Lien and pay all reasonable expenses incurred in connection therewith.
(c) Lender may: (i) notify the Account Debtors set forth in Schedule
"3.1" to make payment on Accounts directly to Lender; (ii) settle, adjust,
compromise, extend or renew Accounts in a commercially reasonable manner,
whether before or after legal proceedings to collect such Accounts have
commenced; (iii) prepare and file any bankruptcy proofs of claim or similar
documents against any Account Debtor; (iv) prepare and file any notice,
assignment, satisfaction, or release of Lien, UCC termination statement or any
similar document; (v) sell or assign Accounts, individually or in bulk, upon
such terms, for such amounts, and at such time or times in a commercially
reasonable manner; and (vi) complete the performance required of Borrower under
any contract or agreement to which Borrower is a party and out of which Accounts
arise or may arise.
23
(d) Lender may at any time and from time to time, with or (if and to
the extent permitted by applicable law) without process of law and with or (if
and to the extent permitted by applicable law) without the aid and assistance of
others, enter upon any premises in which the Collateral or any part thereof may
be located and, without resistance or interference by Borrower, take possession
of the Collateral; and/or dispose of all or any part of the Collateral located
on any premises of Borrower; and/or require Borrower to assemble and make
available to Lender all or any part of the Collateral at any place and time
designated by Lender; and/or remove all or any part of the Collateral from any
premises on which any part thereof may be located for the purpose of effecting
preservation or sale or other disposition thereof; and/or sell, resell, lease,
assign and deliver, or otherwise dispose of, the Collateral or any part thereof
in its existing condition on commercially reasonable terms or following any
commercially reasonable preparation or processing, at public or private
proceedings, in one or more parcels at the same or different times with or
without having the Collateral at the place of sale or other disposition, for
cash, upon credit or for future delivery, and in connection therewith Lender may
grant options, at such place or places and time or times and to such persons,
firms or corporations on commercially reasonable terms as Lender deems best, and
without demand for performance, and/or liquidate or dispose of the Collateral or
any part thereof in any other commercially reasonable manner. Provided notice
has been given in accordance herewith, failure of Borrower to contest on the
grounds of commercial reasonability shall be deemed a waiver of said defense.
(e) If any of the Collateral is sold by Lender upon credit or for
future delivery, Lender shall not be liable for the failure of the purchaser to
purchase or pay for the same and, in the event of any such failure, Lender may
resell such Collateral. Borrower hereby waives all equity and right of
redemption. Lender may buy any part or all of the Collateral at any public sale
and if any part of the Collateral is of a type which is the subject of widely
distributed standard price quotations, Lender may buy at a private sale, all
free from any equity or right of redemption which is hereby waived and released
by Borrower, and Lender may make payment therefor (by endorsement without
recourse) in notes of Borrower to the order of Lender in lieu of cash to the
amount then due thereon which Borrower hereby agrees to accept.
(f) Lender may apply the cash proceeds actually received from any sale
or other disposition to the expenses of selling, to all reasonable legal fees
and expenses, court costs, collection charges, travel and other expenses which
may be incurred by Lender in attempting to collect the Obligations or to enforce
this Agreement and realize upon the Collateral, or in the prosecution or defense
of any action or proceeding related to the subject matter of this Agreement; and
then to the Obligations in such order and as to principal and/or interest due
under the Note as Lender may in its sole discretion determine; and Borrower
shall at all times be and remain liable and, after crediting the net proceeds of
sale or other disposition as aforesaid, will pay Lender on demand any deficiency
remaining, including interest thereon and the balance of any expenses at any
time unpaid, with any surplus to be paid to Borrower, subject to any duty of
Lender to the holder of any subordinate security interest in the Collateral
known to Lender but only to the extent required by law.
24
12.2 Proceeds. Any of the proceeds of the Collateral received by
Borrower shall not be commingled with other property of Borrower, but shall be
segregated, held by Borrower in trust for Lender as the exclusive property of
Lender, and Borrower will immediately deliver to Lender the identical checks,
moneys or other proceeds of Collateral received, and Lender shall have the right
to endorse the name of Borrower on any and all checks, or other forms of
remittance received, where such endorsement is required to effect collection.
Borrower hereby designates, constitutes and appoints Lender and any designee or
agent of Lender as attorney-in-fact of Borrower, irrevocably and with power of
substitution, to endorse the name of Borrower on any notes, acceptances, checks,
drafts, money orders or other evidences of payment or proceeds of the Collateral
that may come into Lender's possession; to sign the name of Borrower on any
invoices, documents, drafts against account debtors of Borrower, assignments,
requests for verification of accounts and notices to debtors of Borrower; to
execute any endorsements, assignments, or other instruments of conveyance or
transfer; and to do all other acts and things necessary and advisable in the
sole discretion of Lender to carry out and enforce this Agreement. Said attorney
or designee shall not be liable for any acts or commission or omission nor for
any error of judgment or mistake of fact or law. This power of attorney is
coupled with an interest and irrevocable while any of the Obligations shall
remain unpaid.
SECTION 13
MISCELLANEOUS
13.1 Liability Disclaimer. Except for reasonable care of Collateral in
its possession, under no circumstances whatsoever shall Lender be deemed to
assume any responsibility for, or obligation or duty with respect to, any part
or all of the Collateral, of any nature or kind whatsoever, or any matter or
proceeding arising out of or relating thereto. Lender shall not be required to
take any action of any kind to collect or protect any interest in the
Collateral, including, but not limited to, any action necessary to preserve its
or Borrower's rights against prior parties to any of the Collateral. Lender
shall not be liable or responsible in any way for the safekeeping, care or
custody of any of the Collateral (except for reasonable care of Collateral in
its possession), or for any loss or damage thereto, or for any diminution in the
value thereof, or for any act or default of any agent or bailee of Lender or
Borrower, or of any carrier, forwarding agency or other person whomsoever, or
for the collection of any proceeds, but the same shall be at Borrower's sole
risk at all times. Borrower hereby releases Lender from any claims, causes of
action and demands at any time arising out of or with respect to this Agreement
or the Obligations, and any actions taken or omitted to be taken by Lender with
respect thereto, except for such claims, causes of action, demands and/or
actions directly caused by Lender's gross negligence or willful misconduct, and
Borrower agrees to defend and hold Lender harmless from and with respect to any
and all such claims, causes of action and demands, except for such claims,
causes of action, demands and/or actions directly caused by Lender's gross
negligence or willful misconduct. Lender's prior recourse to any part or all of
the Collateral shall not constitute a condition of any demand for payment of the
Obligations or of any suit or other proceeding for the collection of the
Obligations.
13.2 Delay and Waiver. No delay or omission to exercise any right shall
impair any such right or be a waiver thereof, but any such right may be
exercised from time to time and as often as
25
may be deemed expedient and no single or partial waiver by Lender of any default
or other right or remedy which it may have shall operate as a waiver of any
other default, right or remedy or of the same default, right or remedy on a
future occasion. A waiver on one occasion shall be limited to that particular
occasion.
13.3 Waivers. Borrower hereby waives presentment, notice of dishonor
and protest of all instruments included in or evidencing any of the Obligations
or the Collateral and any and all other notices and demands whatsoever (except
as expressly provided herein) whether or not relating to such instruments. In
the event of any litigation at any time arising with respect to any matter
connected with this Agreement or the Obligations, Borrower hereby waives the
right to a trial by jury and Borrower hereby waives any and all rights of setoff
and rights to interpose counterclaims of any nature except for counterclaims
which are compulsory or which would be lost for failure to be raised.
13.4 Application of Payments. In addition to its other rights herein,
Lender shall have the continuing and exclusive right to apply or reverse and
reapply any and all payments to any portion of the Obligations. To the extent
that Borrower makes a payment or payments to Lender or Lender receives any
payment or proceeds of any security for such Obligations for Borrower's benefit,
which payment(s) or proceeds or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, state
or federal law, common law or equitable cause, then, to the extent of such
payment or proceeds received, the Obligations or part thereof intended to be
satisfied shall be revived and continue in full force and effect, as if such
payment or proceeds had not been received by Lender.
13.5 Consent to Jurisdiction. As a further inducement to Lender to
enter into this Agreement and to make the Advances and in consideration thereof,
Borrower covenants and agrees that (i) any state or federal court within the
State of New York shall have personal jurisdiction over Borrower, and (ii)
service of any summons and complaint or other process in any such action or
proceeding may be made by registered or certified mail directed to Borrower at
Borrower's address set forth below, and service so made shall be deemed to be
completed upon the earlier of actual receipt or three (3) days after the same
shall have been posted as aforesaid, Borrower hereby waiving personal service
thereof. Nothing in this paragraph shall affect the right of Lender to serve
legal process in any other manner permitted by law or affect the right of Lender
to bring any action or proceeding against Borrower or its property in the courts
of any other jurisdiction. Borrower and Lender agree that any claim or suit
between or among the parties hereto involving this Agreement, any of the other
Loan Documents or any transactions contemplated hereby or thereby shall be
brought in and decided by the state or federal courts located in Nassau County,
New York.
13.6 Complete Agreement. This Agreement, the Schedules and the
companion Loan Documents are the complete understanding of the parties hereto
and supersede all previous understandings relating to the subject matter hereof.
This Agreement may be amended only by an instrument in writing that explicitly
states that it amends this Agreement and is signed by the party against whom
enforcement of the amendment is sought. This Agreement may be executed in
counterparts, each of which will be an original and all of which will constitute
a single Agreement.
26
The representations, warranties, covenants and agreements set forth in
this Agreement and in the financial statements and schedules delivered pursuant
hereto constitute all the representations, warranties, covenants and agreements
of the parties and upon which the parties have relied, shall not be deemed
waived or otherwise affected by any investigation made by any party hereto and,
except as may be specifically provided herein, no change, modification,
amendment, addition or termination of this Agreement or any part thereof shall
be valid unless in writing and signed by or on behalf of the party to be charged
therewith.
13.7 Severability; Headings. If any part of this Agreement or the
application thereof to any Person or circumstance is held invalid, the remainder
of this Agreement shall not be affected thereby. The Section headings herein are
included for convenience only and shall not be deemed to be a part of this
Agreement.
13.8 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the respective legal representatives, successors and assigns of
the parties hereto; however, Borrower may not assign any of its rights or
delegate any of its Obligations hereunder. Lender (and any subsequent assignee)
may transfer and assign this Agreement and deliver the collateral to the
assignee, who shall thereupon have all of the rights of Lender; and Lender (or
such subsequent assignee who in turn assigns as aforesaid) shall then be
relieved and discharged of any responsibility or liability with respect to his
Agreement and said Collateral.
13.9 Notices. Any notices under or pursuant to this Agreement shall be
deemed duly sent when delivered in hand or when mailed by registered or
certified mail, return receipt requested, or when delivered by courier or when
transmitted by telex, telecopy, or similar electronic medium to the following
addresses:
If to Borrower: LocalNet Communications, Inc.
12735 Xxxx Xxx Xxxxxxx Xxxx, Xxxxxxxx 000
Xxxxxxxxxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Attention: Xxxx X. Theale, Jr., CEO
With a copy to:
Xxxxxx X. Xxxxxx, P.C.
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
27
Telecopier: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
If to Lender:
Compu-XXXX, Inc.
00 Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Attention: Xxxx Xxxxxxxxxx, CEO
With a copy to:
Certilman Balin Xxxxx & Xxxxx, LLP
00 Xxxxxxx Xxxxxx
Xxxx Xxxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Attention: Xxxx Xxxxxxx, Esq. and
Xxxxx X. Xxxxx, Esq.
Either party may change such address by sending notice of the change to
the other party; such change of address shall be effective only upon actual
receipt of the notice by the other party.
13.10 Governing Law. All acts and transactions hereunder and the rights
and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of New York, without giving
effect to conflicts of law principles.
13.11 No Third Party Beneficiaries. No person or entity not a party to
this Agreement shall be entitled to the benefits of, or may rely on, or enforce,
this Agreement or the other Loan Documents.
13.12 Publicity. Borrower will not issue any report, statement, release
or other public announcement (in the case of a verbal announcement Lender shall
approve the script of such
28
announcement) pertaining to the matters contemplated by this Agreement or
otherwise disclose the terms hereof without the prior written consent of Lender.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement by
their duly authorized officers as of the date first above written.
LENDER:
ATTEST: Compu-XXXX, Inc.
By: /s/ Xxxx Xxxxxxxxxx
-----------------------------------------
Xxxx Xxxxxxxxxx, Chief Executive Officer
BORROWER:
ATTEST: LocalNet Communications, Inc.
By: /s/ Xxxx X. Theale, Jr.
------------------------------------------
Xxxx X. Theale, Jr.,Chief Executive Officer
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SCHEDULE 1.1 (s)
SUBORDINATE OBLIGATIONS
1. Name Amount
---- ------
Xxxx X. Theale $140,000
Xxxxxx X. Xxxxxx XX 100,000
Xxxxxx X. Xxxxxx 50,000
2. Boca Research, Inc. shall subordinate its security interest in the
assets of the Borrower to the security interest of the Lender.
30
SCHEDULE 2.2
12% ONE (1) YEAR SECURED PROMISSORY NOTE
See attached.
31
SCHEDULE 2.3
USE OF PROCEEDS
Proceeds will be used for the purposes listed on the attached schedule.
32
SCHEDULE 2.6 (b)(iv)
FORM OF OPINION
See attached.
33
SCHEDULE 2.7 (h)
INDEBTEDNESS TO BE SUBORDINATED
See Schedule 1.1(s)(1).
34
SCHEDULE 6.1(a).
MATERIAL CONTRACTS AND AGREEMENTS
See attached.
35
SCHEDULE 8.5
OUTSTANDING CLAIMS/LITIGATION
None.
36
