COLLATERAL LOAN AGREEMENT
AND PROMISSORY NOTE
This Collateral Loan Agreement and Promissory Note [the "Agreement"] is entered
into, as of the date last entered below, between Mercatus & Partners Ltd., a
Cardiff, Wales corporation [the "Lender"], and AccuPoll Holding Corp., 00
Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxx, Xxxxxxxxxx, a Nevada corporation [the
"Borrower"] [collectively, the "Parties"].
In consideration of the mutual covenants herein contained, and intending to be
legally bound hereby, the Parties agree as follows:
1. LOAN
a. AMOUNT. Subject to the terms and conditions hereinafter set forth,
the Lender agrees to use its best efforts to provide the Borrower an aggregate
loan in the maximum amount of Three Million United States Dollars
[US$3,000,000.00] to be distributed across multiple tranches, as specified in
the Exhibit II series herein [or subsequently issued]. Lender will pay the
proceeds [loan tranche less payments and fees, as per paragraph 1.b. below] of
the Tranche Loan Amount to Borrower, based on the closing valuation, no earlier
than ten [10] days after Closing.
b. NET TRANCHE. The Lender or its designee shall wire the proceeds of
the Tranche directly to the Borrower based upon the Borrower's wiring
instructions set forth in Exhibit I after deducting the following expenses: (1)
two months' principal and interest pre-payment to the Lender as set forth in
Exhibit II, (2) a five percent [5%] engagement service fee [the "Engagement
Service Fee"] payable to the Lender as set forth in Exhibit II; and (3) a
Consultant's Fee , as set forth in Exhibit II.
c. BORROWER REMEDY. In the event the Lender does not wire to the
Borrower the Tranche Net subsequent to Borrower's delivery of its Collateral
Stock, the Borrower's sole and exclusive remedy shall be to demand, in hard copy
written form, an immediate return of the Collateral Stock and the
Borrower-executed Agreement. Lender shall comply with such demand as soon as is
practicable after receipt of such demand.
d. TERM. The term of the Loan shall be five [5] years from the date
last entered below [the "Term"].
e. INTEREST RATE. The fixed interest rate on the Loan will be five and
one-half percent [5.5%] per annum for the Term of the Loan.
f. PAYMENTS. Borrower promises to pay to Lender in accordance with
Exhibit I, or at such place as Lender may from time to time designate in
writing, the principal sum and interest as calculated in accordance with 1.e.
above, until this loan is paid in full. Said payments shall be made monthly by
wire transfer. During the first twelve months of the Term, the Borrower [at its
discretion] may make interest-only payments. During the remainder of the Term,
the Borrower must make amortized principal and interest payments. All payments
shall be made in lawful money of the United States and shall be free from set
off, deduction, or counterclaim of any kind. Borrower may prepay this Loan in
whole or in part without premium or penalty [other than the early termination
service charge]. Unless Lender shall elect otherwise, any partial pre-payment
shall be credited first to accrued interest and then to the Principal Amount
outstanding and shall not extend or postpone the due date of any subsequent
payment or change the amount of such payment.
g. LATE PAYMENTS. The Lender shall have the right to charge a fee on
late scheduled payments. Payments shall be deemed late if the payment is not
paid on the due date as stated in the payment schedule which shall be issued by
the Lender upon closing and every six months thereafter. The interest charge on
late payments will be calculated at a rate of eight percent [8%] per annum until
said late payment plus accrued late interest is paid. This charge shall be
invoiced separately. If the Borrower fails
to make a scheduled payment or separately invoiced late interest payment within
forty-five days of the due date, it will be deemed as a default under the
Agreement [see 1.i. below].
h. SECURITY. The Loan Tranche shall be secured by the Borrower's
delivery to Lender of the convertible preferred stock in the amount and manner
set forth in Exhibit III, attached hereto [the "Collateral Stock"]. The
Collateral Stock shall be held as collateral as long as there is any principal
or interest outstanding under the terms of this Agreement. Upon satisfaction of
all principal and interest under the terms of the Agreement, the Lender shall
cause the stock to be promptly returned to the Borrower. The Stock shall
constitute the entire collateral used to secure the Loan, and the Lender shall
be limited to liquidation of the Stock upon an Event of Default [as per 1.i.
below]. The Lender shall have no recourse to other assets of the Borrower [i.e.,
this Loan is "non-recourse" as to any other assets of the Borrower]. The Lender
hereby warrants that upon satisfaction of the terms of this Agreement, the Stock
will be returned to the Borrower without liens or encumbrances as soon as is
practicable.
i. DEFAULT. The Lender shall give written notice of any default on the
Loan to the Borrower in accordance herewith and Borrower may thereafter have
five business days [the "Cure Period"] to cure such default. In the event
Borrower fails to cure such default within the Cure Period, Lender may then
sell, assign, hypothecate, or otherwise dispose of the Stock as herein provided.
The Lender accepts no responsibility for the amount of proceeds obtained through
the disposition of the Stock under any lawful means. However, proceeds obtained
in excess of the total of the default amount plus reasonable attorney's fees, if
any, and costs of disposing of the Stock shall be returned to the Borrower.
2. DELIVERY OF COLLATERAL
a. To secure its obligations under the Loan, Borrower hereby shall
issue Collateral Stock in the name of the Lender as set forth in this Agreement.
The Collateral Stock will serve to collateralize the Loan and will contain
restrictions on sale and transfer. In connection with such restrictions, the
Collateral Stock will contain the following legend, and only the following
legend:
"The shares of stock represented by this certificate have not been registered
under the Securities Act of 1933 [the "Act"], as amended, and may not be sold or
otherwise transferred unless compliance with the registration provisions of such
Act has been made or unless availability of an exemption from such registration
provisions has been established, or unless sold pursuant to Rule 144 under the
Act."
b. The certificate must be embossed with the corporate seal. In
addition, the required certificate officers' signatures must be originals, and
the name and title of each officer must be typed below each signature. The
signature of the Transfer Agent [or the corporate attorney acting in lieu of the
Transfer Agent] must be an original and the name and telephone number must be
typed below the signature. Further, the Borrower shall include with the
certificate a signed representation page on company letterhead that states the
following: "The undersigned, [OFFICER NAME AND TITLE], has been duly authorized
by [NAME OF CORPORATION] to execute this instrument [stock certificate], and had
all requisite legal and corporate power to execute and deliver this instrument
in the name of [NAME OF CORPORATION]." The representation page must have a
medallion or notary guarantee of the signature.
c. Upon receipt of the Lender Notification to Proceed, the Borrower
shall deliver the Tranche's Collateral Stock to the Lender's Compliance Office
[for review and subsequent delivery to the specific European custodial account]
within seven banking days of the Notification to Proceed, and all other
documents required by this Agreement to the Lender's Compliance Office within
seven banking days of the Notification to Proceed, unless otherwise instructed
for a particular Tranche.
d. Upon Borrower's execution of this Agreement, Borrower shall utilize
its best efforts to cause there to be authorized, as promptly as practicable,
but no later than the date of Default, as per 1.i. above, sufficient shares of
its common stock to satisfy its Restricted Convertible Preferred Collateral
conversion obligations. Borrower shall issue the Restricted Convertible
Preferred Collateral Stock to Lender and
deliver the Stock in physical certificate form to the address as designated by
the Lender in Exhibit V of the Agreement. Borrower further understands and
agrees that the initial delivery is transitional only and that the final
custodial location is in the Exhibit I specified European account. The Stock
shall be free and clear from all liens and encumbrances at the time it is
issued, and shall not be subject to other restrictions or limitations, [i.e.,
shareholder rights, etc.] other than the restrictions related to its status as
restricted stock and any other restrictions imposed by this Agreement.
e. The Collateral Stock Schedule, as set forth in Exhibit III shall
specify the Collateral Stock to be used as collateral.
3. CLOSING
Borrower understands that Lender has similar Collateral Loan and Promissory Note
Agreements with other borrowers [the "Other Borrowers"]. Borrower further
understands that Lender will use its best efforts to obtain the Tranche loan by
negotiating credit facilities with selected banks [including the European
Custodial Bank set forth in Exhibit I] with whom lender has or will have a
relationship. Such banks may aggregate Borrower's and the Other Borrowers'
Collateral into a single portfolio [the "Portfolio Collateral"], and
accordingly, the amount [if any] of any Tranche to Borrower may depend upon the
delivery to, and valuation of, the Portfolio Collateral by that bank. The
closing shall take place two banking days after delivery of the Collateral Stock
of all portfolio collateral--from all Borrowers allocated to the specific
Custodial Bank's portfolio--to the Lender's European Custodial Bank. If all
portfolio collateral is not received within ten [10] banking days of the receipt
of the Borrower's Collateral Stock, the Borrower's Collateral Stock will be
returned to it as soon as is practicable.
The Borrower's Collateral Stock valuation at closing will be divided by the Bank
Divisor specified in Exhibit II in order to determine the principal amount of
the loan to be granted to the Borrower. Lender will pay the proceeds of the
Tranche Loan Amount to Borrower, based on that closing valuation, less payments
and fees [as per paragraph 1.b. above]. At that time, the Lender will issue a
payment schedule in accordance with paragraph 1.f. above.
4. SECURITY OF COLLATERAL
The Lender accepts responsibility for the control, handling and return of Stock
to the Borrower. Accordingly: (i) the Stock will not be hypothecated, assigned,
transferred, or otherwise encumbered [other than as specified in this
Agreement]; (ii) the Stock will not be used to short sell the Stock while the
Stock is on deposit with the Lender; (iii) the Stock shall remain in Lender's
control for the Term of the Loan, unless earlier delivered back to the Borrower
pursuant to this Agreement.
5. USE OF THE STOCK
The Lender shall use the Collateral Stock to arrange for a Credit Facility
pursuant to paragraph 3 above [the "Credit Facility"] In establishing the Credit
Facility, the Lender will use the Collateral Stock as collateral but will not
cause the removal of the Collateral Stock from the European Custodial Account
specified in Exhibit I. Lender shall not change the composition of the
Collateral Stock absent an Event of Default by Borrower.
6. REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce the Lender to provide the Loan, Borrower makes the following
representations and warranties to the Lender. Such representations and
warranties shall be unaffected by any separate inquiries, credit and/or security
investigation made by the Lender prior to or after execution of this Agreement
and shall survive the closing of the transactions contemplated hereby. Any
material misrepresentation shall be grounds for immediate termination at the
sole discretion of the Lender:
a. The Borrower has duly authorized the undersigned, and granted all
requisite legal and corporate power to execute and deliver in the name of the
Company this Agreement, and to execute and deliver
any and all documents related to the Agreement, and to do and perform any and
all such further acts and things as may be deemed necessary or advisable or have
been instructed to do to carry out the intent and accomplish the purposes of the
Agreement.
b. The Borrower is a corporation duly organized and existing under and
by virtue of the laws of the State of Nevada, and is in good standing under the
laws of such state.
c. The execution, delivery, performance and compliance with the terms
of the Agreement do not violate any provision of any applicable federal, state
or local law, rule or regulation, or of any judgment, writ, decree, or order
binding upon the Borrower or any provision of the Borrower's Articles of
Incorporation or By-Laws [as amended] and do not conflict with or constitute a
default under the provision of any agreement to which the Company is a party or
by which it is bound.
d. All consents, approvals, orders or authorizations of, and all
qualifications, registrations, designations, declarations, or filings with, any
federal or state governmental authority or self-regulatory organization on the
part of the Company required in connection with the consummation of the
transactions contemplated by the Agreement have been obtained and shall remain
effective, and the undersigned is not aware of any proceedings or threat
thereof, which question the validity thereof.
e. Borrower warrants and represents that it is not now insolvent,
bankrupt, or contemplating bankruptcy, that there are no legal claims filed or
to its knowledge threatened against Borrower, whether judged with or without
merit by the Borrower, and that there are no other impediments to the sale or
transfer of the Stock.
f. The execution and delivery of this Agreement and the Collateral to
be assigned and delivered by the Borrower are not subject to recall, restriction
on voting, use, or other limitations.
g. This Agreement, when executed and delivered, will constitute a valid
binding agreement, enforceable in accordance with the terms, except such as may
be limited by bankruptcy, insolvency, reorganization, or other laws affecting
creditors' rights generally.
h. Neither the execution and delivery of this Agreement to be executed
and delivered by Borrower pursuant hereto, nor the consummation by Borrower of
the transaction contemplated hereby, will require any authorization, consent,
approval, exemption or any other action by, or notice to, any governmental
entity except that, where required, a Schedule 14C Information Statement
describing the increase in the authorized common shares, consented to by the
majority of shareholders, must be filed with the SEC.
i. Borrower does not have material tax deficiencies, federal, state,
foreign, county, local, or other, that would or could affect the solvency, final
status of, or otherwise compromise Borrower in its ability to assign the
Collateral Stock.
j. To the best of Borrower's knowledge, the information supplied by
Borrower to Lender contains no untrue statement of material fact or omits or
shall omit a material fact, which would make such statements misleading. All
statements and information contained in any certificate, instrument, schedule or
document delivered by Borrower shall be deemed representations and warranties
made by borrower.
k. Except for such filings as may be imposed on Lender by Section 13(d)
of the Securities Exchange Act of 1934, Borrower shall bear the responsibility
for complying with all U.S. Securities and Exchange Commission ["SEC"] rules and
regulations and for making all appropriate disclosures to the SEC and other
regulatory bodies in the United States, related to the issuance of the
Collateral Stock [where applicable] and hereby warrants to the Lender that the
Borrower has done so and will continue to do so. Borrower indemnifies Lender
against any penalties, fees, fines, or lawsuits that may arise from Borrower's
failure to so comply and/or make proper regulatory disclosures.
l. In the event of an uncured default on the Loan, as described in
Paragraph 1.i. of this Agreement, Lender will have the immediate right to sell
the Shares or convert the Shares and sell the associated
Common Stock. Consequently, the Borrower expressly warrants that it shall, at
the end of the Cure Period [if the Cure is not effected], prepare and file, as
soon as practicable, a Registration Statement on the appropriate SEC form
covering the required Common Stock and shall use its reasonably diligent efforts
to effect the registration of the Common Stock under the Securities Act of 1933,
as amended. Should the Borrower not comply, the Borrower shall pay all
reasonable costs associated with any collection actions or any other legal
remedies taken by Lender to collect on the amount due or any portion hereof due,
said costs to include attorneys' fees.
m. Within 90 days of the closing date, the Borrower shall obtain Key
Man life insurance, naming the Lender as beneficiary and shall cause the insurer
to notify Lender of same, with the amount(s) of the insurance matching the
principal balance of the loan [i.e., amount may decrease as principal balance
decreases]. If the proceeds of the policy are paid while any part of the
principal or interest on the Loan remains unpaid, a portion of the proceeds, up
to the whole thereof, will be used to repay the unpaid principal and interest
due on the Loan, unless otherwise agreed to in writing by the Lender.
n. Within 90 days of the closing date, and only upon Lender's
notification of intent, the Borrower agrees, in good faith, to enter into
negotiations with the Lender in order for the Lender to establish a warrant or
option position in the Borrower's common stock.
o. The Borrower's Chief Executive Officer owns or controls [OR,
ALTERNATIVELY, LIST OF ADDITIONAL OFFICERS, AS NEEDED TO CONSTITUTE A MAJORITY
"...OWN OR CONTROL..."] the majority of the outstanding voting shares of THE
Borrower. Said officer has covenanted that he [OR, ALTERNATIVELY, "SAID OFFICERS
HAVE COVENANTED THAT THEY...][OR ANY APPROPRIATE LANGUAGE] shall consent to the
authorization of the shares required for the Borrower to satisfy the Collateral
obligations specified in this Agreement.
7. CONDITIONS PRECEDENT TO LENDER'S OBLIGATIONS
The obligation of the Lender to consummate the transactions contemplated herein
is subject to the satisfaction of the following conditions [any one or more of
which may be waived by the Lender]:
a. Borrower will have performed all obligations and complied with all
conditions required to be performed or complied with by Borrower at or prior to
the Closing.
b. The representation and warranties of Borrower made herein shall be
true and correct as of the Closing.
If any of the conditions contained in this paragraph have not been satisfied [or
waived], Lender may cancel and terminate this Agreement.
8. AMENDMENT AND WAIVER
This Agreement may be amended, or the terms hereof waived, only in writing and
having been executed by all of the Parties to this Agreement. This Agreement
supersedes any and all prior written understandings or agreements between the
Parties.
9. NOTICES
All notices and other communications hereunder shall be delivered in writing and
shall be deemed to have been given if delivered by hand [with receipt] or
facsimile transmission [with transmission confirmation report], or if deposited
with a recognized overnight delivery service [with receipt], addressed as
follows:
If to Borrower at: AccuPoll
00 Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxx, XX 00000
FAX: 000-000-0000
If to the Lender at: Mercatus & Partners Ltd.
20122 Milano
Xxx Xxx Xxxx, 00, Xxxxx
FAX: 011 39 0f2 0000 0000
Or, at such other address as may hereafter be designated by either party by
written notice given hereunder. Notices sent by facsimile transmission must show
the sender's date and time of transmission information on such copy.
10. TERMINATION
The Lender shall reserve the right to terminate at any time if the Borrower is
in violation of this Agreement. The Borrower shall have the right to terminate
this Agreement early, provided that the loan has been retired [i.e., payment of
the principal and all accrued interest]; however, the Borrower must pay a
service fee of one-half of one percent of the loan principal balance and must
provide 30 days written notice of such intent to terminate.
11. GOVERNING LAW AND SITES FOR LITIGATION
This Agreement shall be governed by the laws of Cardiff, Wales without regard to
any provisions or conflict of law. The Parties agree that any differences shall
be filed and adjudicated in Cardiff, Wales.
12. BINDING EFFECT
This Agreement binds, and shall inure to the benefit of, the Parties and their
respective successor and assigns.
13. COUNTERPARTS, FACSIMILE AND SIGNATURES.
This Agreement may be signed in any number of counterparts, and such shall be
deemed an original together as one and the same document. The Parties agree that
signatures on a facsimile that shows the sender's date and time of transmission
shall be deemed an original.
14. ENTIRE AGREEMENT
This base Agreement and the associated Exhibits constitute the entire agreement
of the Parties with respect to the subject matter hereto and supersede any prior
or contemporaneous understandings or agreements.
15. OTHER DOCUMENTS.
Borrower agrees to execute any and all additional documents Lender requests to
effect this Agreement or the transactions contemplated hereunder.
16. CONFIDENTIALITY
Whereas the Lender has developed a number of important and sensitive business
contacts and affiliations [including, but not limited to European Custodial
Banks] such contacts/affiliates are limited to the Lender and/or its designees.
Any contact by any party representing the Borrower with the Lender
contacts/affiliates, either directly or indirectly, without specific, written,
prior permission of the Lender shall be viewed as violation of this Agreement
and render this Agreement subject to immediate termination. In addition, the
nature of this transaction is designated as sensitive information by the Lender.
If the Borrower discloses the details of this transaction without specific,
written, prior permission of the Lender, said disclosure shall be viewed as a
violation of this Agreement and render this Agreement subject to
immediate termination by the Lender. Prior to declaring this Agreement
terminated pursuant to this Section 16, Lender must supply Borrower with written
notice thereof including a reasonable basis for the assertion being made. The
only acceptable disclosure exceptions are (i) a public announcement by Borrower
that a loan financing has been arranged, provided that said announcement is made
upon or after closing and is limited to a statement of fact regarding the amount
of the loan, the non-recourse nature of the loan, and the term of the loan; and
(ii) the required Securities and Exchange Commission filing by Borrower of a
Current Report on Forms 8-K, 10-K, and/or 10-Q describing the transaction and
containing a copy of this Agreement.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the Parties have
executed this Agreement as of the day and year last below written.
ACCEPTED ON BEHALF OF THE LENDER:
By:
Xxxx Xxxx
Title: Chief Executive Officer
Date:
ACCEPTED ON BEHALF OF BORROWER:
By: __________________________________
Xxxxxx Xxxxxx
Title: CEO
Date: May 21, 2003
EXHIBIT I-I
LENDER'S EUROPEAN CUSTODIAL BANK DEPOSITORY ACCOUNT
AND BORROWER'S BANK WIRE INSTRUCTIONS
LENDER CUSTODIAL BANK DEPOSITORY ACCOUNT
European Custodial Bank: Swiss First
Bank Address: FL 9490 Vaduz
Postfach Xxxxxxxxx 00
Liechtenstein
Account Name: Mercatus & Partners Ltd.
BORROWER'S BANK WIRE INSTRUCTIONS
Bank Name: Xxxxx Fargo Bank
Bank Location: Newport Beach, California, USA
Bank Routing Number: 000000000
S.W.I.F.T. Code:
Borrower Account Name: AccuPoll Inc.
Borrower Account Number: 2011890969
LENDER'S BANK WIRE INSTRUCTIONS
Bank Name:
Bank Location:
Bank Routing Number:
S.W.I.F.T. Code:
Account Name:
Account Number:
EXHIBIT II-I
BORROWER'S MINIMUM PAYMENT SCHEDULE *
Pre-payment: $100,902.78 Deducted from proceeds **
Engagement Fee: $100,000.00 Deducted from proceeds **
Consultant Fee: $ 60,000.00 *** Deducted from proceeds **
Year One: $ 8,784.72 Monthly
Years Two through Five: $ 41,666.67 plus Interest Monthly
* Examples only, based on an approximate tranche loan target amount of
$2,000,000.00, derived from a closing collateral valuation of
$10,000,000.00 divided by 5.0 [five point zero] [the Bank Divisor].
** Deducted pro rata
*** Possible Maximum
EXHIBIT III-I
COLLATERAL STOCK SCHEDULE
TRADING CLASS OF NUMBER OF
SYMBOL(1) STOCK SHARES REQUIRED(1)
--------- ----- -----------------------
None Convertible Preferred 9,803,922 (common stock)
(1) The Number of Shares Required is for the Common Stock--symbol ACUP [or any
temporary or permanent symbol change]. If the convertibility ratio is different
than one-to-one, the number of Convertible Preferred shares must convert to the
Number of Shares Required for that Common Stock.
EXHIBIT IV-I
FEE DISCLOSURE AND PAYMENT AUTHORIZATION
The Borrower herein provides full disclosure of any written or verbal agreements
to pay any individual or firm [collectively termed "Consultant(s)"] any amount,
in any form, for any services rendered by the Consultant(s) in facilitating this
Loan. In combination, said Consultant(s) compensation may not exceed $30,000.00.
Agreements in excess of that amount must be re-negotiated to meet this
constraint, as amounts above that constraint are viewed as an unacceptable
dilution of the Loan Proceeds application. We warrant that only that/those
Consultant(s) listed below are receiving or will receive any such compensation.
CONSULTANT(S) NAME TAX IDENTIFICATION NUMBER COMPENSATION AMOUNT
Financial Capital Corp. [on file with Lender] $30,000.00 estimated
The Consultant(s) bank wire instructions are as follows:
[on file with Lender]
PAYMENT AUTHORIZATION: The Borrower hereby agrees to pay the Consultant(s)
identified above a one-time fee ["Fee"] and expressly authorizes Mercatus &
Partners Ltd. to deduct said Fee from the Tranche Loan Amount at closing and to
pay said Fee directly to the Consultant(s).
ON BEHALF OF BORROWER:
By: _____________________________
Xxxxxx Xxxxxx
Title: CEO
Date: May 21, 2003
EXHIBIT V
CONVERTIBLE PREFERRED DOCUMENTATION SET
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