SENIOR SUBORDINATED SECURED PROMISSORY NOTE
THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), OR ANY STATE SECURITIES LAWS. THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED EXCEPT
AS PROVIDED HEREIN AND (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT
TO
SUCH NOTE WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
RELATING TO THE DISPOSITION OF SECURITIES, PROVIDED THAT AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO ITEX CORPORATION
TO
SUCH EFFECT IS PROVIDED TO ITEX
CORPORATION IN
CONNECTION THEREWITH.
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$_______________
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Bellevue,
Washington
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August
1, 2007
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This
Senior Subordinated Secured Promissory Note (this “Note”)
is
being delivered pursuant to that certain Asset Purchase Agreement (the
"Purchase
Agreement"), dated
as
of July 25, 2007, by and between ITEX Corporation, a Nevada corporation
(“Maker”)
and
The Intagio Group, Inc., a Delaware corporation (“Intagio”).
This
Note is being issued as a non-negotiable senior subordinated secured obligation
of Maker and ranks senior to all of Maker’s other obligations, whether now
existing or hereinafter incurred or created, except that this Note is
subordinated to the Bank Debt (as defined in Section 2 hereof) as set forth
herein. The payment of all amounts due under this Note, including interest
accrued thereon, is secured pursuant to the terms of that certain Security
Agreement, dated as of the date hereof, by and between Maker and Intagio (the
“Security
Agreement”).
Capitalized terms not otherwise defined herein shall have the meaning given
such
terms in the Purchase Agreement.
1. Principal
and Interest.
Maker
hereby promises to pay to Intagio, together with its successors and authorized
assigns (“Payee”),
in
immediately available funds, the principal sum of _____________, together with
interest accrued on the unpaid principal of this Note at the rate of 8.0% per
annum, commencing on the date hereof. Interest shall be computed based on the
basis of a 365 day year for the actual number of days elapsed. Principal and
interest on this Note shall be payable in 24 equal monthly installments of
$52,500 (or such lesser amount as is then outstanding under this Note), payable
on the last day of each calendar month commencing on August 31, 2007 (each
such
date is herein referred to as a “Payment
Date”).
Any
remaining unpaid amount of principal or interest shall be due and payable in
full on August 31, 2010. All or any portion of the principal amount outstanding
under this Note may be prepaid by Maker at any time without premium or penalty.
Each such principal prepayment shall be accompanied by the interest accrued
and
outstanding with respect to such principal amount. Each such principal
prepayment shall be applied to installments of principal payments in the inverse
order of their maturity. As of and during the continuance of an Event of Default
(as defined in section 6), interest on any principal or interest then
outstanding shall accrue at a rate per annum equal to 14%.
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2. Subordination.
(a) Agreement
to Subordinate.
Maker,
for itself and its successors, and Xxxxx, by its acceptance of this Note, agrees
that the payment of the principal of and interest on, and any other amounts
due
in respect of, this Note is subordinated in right of payment, to the extent
and
in the manner stated in this Section 2, to the prior payment in full of the
Bank
Debt. “Bank
Debt”
means
all amounts due and owing by Maker to U.S. Bank National Association (the
“Bank”),
pursuant to that certain Term Note (the “Term
Note”)
and
Term Loan Agreement dated as of June 27, 2005 between Maker and the Bank (the
“Term
Loan Agreement”).
(b) No
Payment on Note if Bank Debt is in Default.
Notwithstanding anything in this Note to the contrary, no payment on account
of
principal of, interest on or other amounts due in respect of this Note, shall
be
made by or on behalf of Maker if, at the time of such payment, or immediately
after giving effect thereto, there shall exist under the Bank Debt any default
in the payment of all or any portion of principal of or interest thereon, which
default shall have resulted in the full amount of the Bank Debt being declared
due and payable and which default shall not have been cured or waived. The
Maker
shall notify Payee in writing promptly following the occurrence of the
foregoing. In the event that, notwithstanding the provisions of this Section
2(b), payments are made by or on behalf of Maker in contravention of the
provisions of this Section 2(b), such payments shall be held by Payee in trust
for the benefit of, and shall be paid over to and delivered to, the Bank, for
application to the payment of the Bank Debt remaining unpaid to the extent
necessary to pay the Bank Debt in full in accordance with the terms of the
Bank
Debt, after giving effect to any concurrent payment or distribution to the
Bank.
(c) Reliance
by the Bank on Subordination Provisions.
Payee,
by its acceptance hereof, acknowledges and agrees that the foregoing
subordination provisions are, and are intended to be, an inducement and a
consideration for the Bank to continue to hold the Bank Debt, and the Bank
shall
be deemed conclusively to have relied on such subordination provisions in
continuing to hold the Bank Debt. In furtherance hereof, it is expressly
understood by all parties to this Note that the Bank is a third-party
beneficiary to Section 2 of this Note and shall be fully entitled to enforce
its
provisions.
(d) Subordination
Rights Not Impaired by Acts or Omissions of Maker or the Bank.
No
right of the Bank to enforce subordination as provided herein shall at any
time
in any way be prejudiced or impaired by any act or failure to act on the part
of
Maker or by any act or failure to act, in good faith, by the Bank, or by any
noncompliance by Maker with the terms of this Note, regardless of any knowledge
thereof which the Bank may have or be otherwise charged with.
(e) Obligation
of Maker Unconditional.
Nothing
contained in this Section 2 or elsewhere in this Note is intended to or shall
impair, as between Maker and Payee, the obligation of Maker, which is absolute
and unconditional, to pay to Payee the principal of and interest on this Note
as
and when the same shall become due and payable in accordance with its terms,
or
is intended to or shall affect the relative rights of Payee and creditors of
Maker other than the Bank, nor shall anything herein prevent Payee from
exercising all remedies otherwise permitted by applicable law upon an Event
of
Default, subject to the rights, if any, under this Section 2, of the Bank in
respect of cash received upon the exercise of any such remedy.
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3. Right
of Offset.
Maker
shall have the right to withhold and set-off against any amount due or payable
hereunder the amount of any claim for indemnification or payment of Losses
to
which Maker may be entitled under Section 6.2 of the Purchase Agreement, as
provided in Section 6.3 thereof. The
withholding of all or any portion of the principal or interest due or payable
under this Note pursuant to the terms of Article 6 of the Purchase Agreement
shall not be deemed an Event of Default under this Note and shall not be the
basis for any claim of acceleration hereunder.
4. Conduct
of Business of Maker.
Except
as contemplated by the Merger Agreement, during the period from the date hereof
to the date on which all amounts due under this Note have been satisfied in
full, Maker agrees as follows:
(a) Maker
will (i) preserve its existence, rights and franchises; (ii) not make any
material change in the nature or manner of its business activities; (iii) not
liquidate, dissolve, acquire another entity or merge or consolidate with or
into
another entity or change its form of organization; (iv) not amend its
organizational documents in any manner that may conflict with any terms or
condition of this Note, the Security Agreement or the Purchase Agreement; and
(iv) not sell, lease transfer or otherwise dispose of all or substantially
all
of its assets.
(b) Maker
will not create, incur, assume or have outstanding any indebtedness for borrowed
money (including capitalized leases) except (i) any indebtedness owing to the
Bank and its affiliates, (ii) any indebtedness owing to Payee, and (iii) any
other indebtedness outstanding on the date hereof, and shown on the Maker’s
financial statements delivered to Payee prior to the date hereof, provided
that
such other indebtedness will not be increased.
(c) Maker
will not create, incur, assume or permit to exist any mortgage, pledge,
encumbrance or other lien or levy upon or security interest in any of the
Maker’s property now owned or hereafter acquired, except (i) taxes and
assessments which are either not delinquent or which are being contested in
good
faith with adequate reserves provided, (ii) easements, restrictions and minor
title irregularities which do not, as a practical matter, have an adverse effect
upon the ownership and use of the affected property, (iii) liens in favor of
the
Bank and its affiliates, (iv) liens in favor of Xxxxx; and (v) other liens
disclosed in writing to the Payee prior to the date hereof.
(d) Maker
will not guarantee or become a surety or otherwise contingently liable for
any
obligations of others, except pursuant to the deposit and collection of checks
and similar matters in the ordinary course of business.
(e) Maker
will maintain insurance to such extent, covering such risks and with such
insurers as is usual and customary for businesses operating similar properties,
including without limitation, insurance for fire and other risks insured against
by extended coverage, public liability insurance and workers’ compensation
insurance.
(f) Maker
will pay and discharge, when due, all of its taxes, assessments and other
liabilities, except when the payment thereof is being contested in good faith
by
appropriate procedures which will avoid foreclosure of liens securing such
items, and with adequate reserves provided therefor.
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(g) Maker
will maintain at all times a (i) Fixed Charge Coverage Ratio, as that term
is
defined in the Addendum to the Term Loan Agreement and Term Note dated as of
June 27, 2005 (the “Addendum”),
as of
the end of each fiscal quarter for the four (4) fiscal quarters then ended
of at
least 1.25 to 1, and (ii) a Debt to Tangible Net Worth Ratio, as that term
is
defined in the Addendum, as of the end of each fiscal quarter of not more than
2.0 to 1.
(h) Maker
will not declare, set aside or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of its capital
stock, make any other actual, constructive or deemed distribution in respect
of
its capital stock or otherwise make any payments to any shareholders in their
capacities as such, or redeem or otherwise acquire any of its outstanding
securities.
5. No
Usury.
This
Note is hereby expressly limited so that in no event whatsoever, whether by
reason of deferment or advancement of loan proceeds, acceleration of maturity
of
the loan evidenced hereby, or otherwise, shall the amount paid or agreed to
be
paid to Payee hereunder for the loan, use, forbearance or detention of money
exceed the maximum interest rate permitted by the laws of the State of
Washington. If at any time the performance of any provision involves a payment
exceeding the limit of the price that may be validly charged for the loan,
use,
forbearance or detention of money under applicable law, then automatically
and
retroactively, ipso facto, the obligation to be performed shall be reduced
to
such limit, it being the specific intent of Maker and Payee that all payments
under this Note are to be credited first to interest as permitted by law, but
not in excess of (i) the agreed rate of interest hereunder, or
(ii) that permitted by law, whichever is the lesser, and the balance toward
the reduction of principal.
6. Events
of Default.
If an
Event of Default (as defined below) occurs (unless all Events of Default have
been cured or waived by Payee), Payee may, by notice to Maker, declare the
principal amount then outstanding of, and the accrued interest and all other
amounts payable on, this Note to be immediately due and payable. Maker will
give
Payee notice of the occurrence of an Event of Default promptly (setting forth
in
reasonable detail all facts related thereto) and in any event no later than
five
business days after Maker has knowledge of the occurrence of any such event.
The
then-outstanding principal balance of this Note, together with any interest
accrued thereon shall, at the option of Payee, become immediately due and
payable if any of the following events ("Events
of Default") shall
occur:
(a) Maker
shall fail to pay, when and as due, the principal or interest payable hereunder
on any Payment Date, and such failure shall continue for fifteen days;
provided,
however,
that
the exercise by Maker in good faith of its right of set-off pursuant to Section
3 above, whether or not ultimately determined to be justified, shall not
constitute an Event of Default; or
(b) Maker
shall default (as principal or guarantor or other surety) in the payment of
any
principal of or premium or interest on any debt which is outstanding in a
principal amount of at least Twenty-Five Thousand Dollars ($25,000) in the
aggregate, or if any event shall occur or condition shall exist in respect
of
any such debt or under any evidence of any such debt or of any mortgage,
indenture or other agreement relating thereto which would permit or shall have
caused the acceleration of the payment of such debt, and such default, event
or
condition shall continue for more than the period of grace, if any, specified
therein and shall not have been waived pursuant thereto; provided,
however,
that if
a default occurs under the Term Loan Agreement and Term Note and such default
is
waived by the Bank, Maker shall not be required to seek a like waiver from
Payee
and such default shall not constitute an Event of Default (and accordingly
Maker
shall not be required to have given Payee notice of the occurrence of such
breach); or
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(c) If
there
shall exist final judgments against Maker aggregating in excess of Twenty Five
Thousand Dollars ($25,000) and if any one of such judgments shall have been
outstanding for any period of forty-five (45) days or more from the date of
its
entry and shall not have been discharged in full or stayed pending appeal;
or
(d) Maker
shall have breached any material covenant in the Purchase Agreement, the
Security Agreement, or this Note (other than such as are referred to above
in
Section 6), and, with respect to breaches capable of being cured, such
breach shall not have been cured within fifteen (15) days following notice
of
such material breach to Maker by Payee; provided, however, that if (i) Maker
breaches any of the provisions of Section 4 hereof, (ii) Maker is in default
under the Term Loan Agreement and the Term Loan as a result of a breach of
a
substantially similar provision contained therein, and (iii) the Bank waives
the
default caused by such breach, then Maker shall not be required to seek a waiver
from Payee with respect to such breach of Section 4 hereof and such breach
shall
not constitute an Event of Default hereunder (and accordingly Maker shall not
be
required to have given Payee notice of the occurrence of such breach);
or
(e) Any
representation or warranty subject to a materiality qualification made by Maker
herein or in the Purchase Agreement, the Security Agreement or any other
document referred to herein or therein shall prove to have been incorrect in
any
respect, or any representation or warranty not subject to a materiality
qualification made by the Company herein or in any other such document shall
prove to have been incorrect in any material respect; or
(f) Maker
shall: (i) become insolvent or take any action which constitutes its admission
of inability to pay its debts as they mature; (ii) make an assignment for the
benefit of creditors, file a
petition in bankruptcy, petition or apply to any tribunal for the appointment
of
a custodian, receiver or a trustee for it or a substantial portion of its
assets; (iii) commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation or statute of
any
jurisdiction, whether now or hereafter in effect; (iv) have filed against it
any
such petition or application in which an order for relief is entered or which
remains undismissed for a period of ninety (90) days or more; (v) indicate
its
consent to, approval of or acquiescence in any such petition, application,
proceeding or order for relief or the appointment of a custodian, receiver
or
trustee for it or a substantial portion of its assets; or (vi) suffer any such
custodianship, receivership or trusteeship to continue undischarged for a period
of ninety (90) days or more; or
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(g) Maker
shall take any corporate or partnership action authorizing, or in furtherance
of, any of the foregoing.
7. Remedies
on Default.
In case
any one or more Events of Default shall occur and be continuing, Payee may
proceed to protect and enforce its rights by an action at law, suit in equity
or
other appropriate proceeding, whether for the specific performance of any
agreement contained herein or in the Purchase Agreement or the Security
Agreement or for an injunction against a violation of any of the terms hereof
or
thereof, or in aid of the exercise of any power granted hereby or thereby or
by
law or otherwise. In case of a default in the payment of any principal of or
premium, if any, or interest on this Note, Maker will pay to Payee such further
amount as shall be sufficient to cover the reasonable cost and expenses of
collection, including, without limitation, reasonable attorneys’ fees, expenses
and disbursements. No course of dealing and no delay on the part of Payee in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice Payee’s rights, powers or remedies. No right, power or
remedy conferred by this Note, the Security Agreement or the Purchase Agreement
upon Payee shall be exclusive of any other right, power or remedy referred
to
herein or therein or now or hereafter available at law, in equity, by statute
or
otherwise.
8. Amendments
and Waivers.
Any
term of this Note may be amended or waived only with the written consent of
Maker and Payee. Any amendment or waiver effected in accordance with this
Section 8 shall be binding upon Maker and Payee. No delay or omission on the
part of Payee in exercising any right herein given to Payee shall impair such
right or be considered as a waiver thereof or acquiescence in any default
hereunder.
9. Governing
Law.
This
Note shall be governed by and construed in accordance with the internal laws
of
the State of Washington. Each
party hereby irrevocably submits to the exclusive jurisdiction of the courts
located in San Francisco County, the State of California,
and the
federal courts sitting in San
Francisco County,
State
of
California,
over
any
action or proceeding arising out of or relating to this Note, and waives any
claim that such proceedings have been brought in an inconvenient
forum.
10. Attorneys’
Fees.
If any
suit or action is instituted to enforce or interpret this Note, the prevailing
party shall be entitled to recover all reasonable expenses, including, without
limitation, reasonable attorneys’ fees and expenses.
11. Parties
in Interest.
This
Note is non-negotiable and shall not be assigned or transferred by Payee without
the express prior written consent of Maker. The
rights and obligations of Maker and Payee shall be binding upon and shall inure
to the benefit of their successors and permitted assigns. The provisions of
this
Note may be amended, waived or modified only upon the written consent of Maker
and Payee.
12. Presentment.
Maker
waives presentment, demand, notice of dishonor, notice of default or
delinquency, notice of acceleration, notice of protest and nonpayment, notice
of
costs, expenses or losses and interest thereon and diligence in taking any
action to collect any sums owing under this Note or in proceeding against any
of
the rights or interests in or to properties securing payment of this Note.
13. Payment.
Principal and interest on this Note shall be payable in lawful money of the
United States and shall be made at the address of Payee set forth in the
Purchase Agreement), or at such other place as Payee shall have designated
to
Maker in writing for such purpose.
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14. Notice.
Except
as otherwise expressly provided herein, all notices, requests and demands to
or
upon the respective parties hereto to be effective shall be in made in
accordance with all of the provisions of Section 7.3 of the Purchase
Agreement.
15. Jury
Waiver.
MAKER
WAIVES ANY AND ALL RIGHTS THAT IT MAY NOW OR HEREAFTER HAVE UNDER THE LAWS
OF
THE UNITED STATES OF AMERICA OR ANY STATE, TO A TRIAL BY JURY OF ANY AND ALL
ISSUES ARISING EITHER DIRECTLY OR INDIRECTLY IN ANY ACTION OR PROCEEDING BETWEEN
MAKER AND PAYEE OR ITS SUCCESSORS AND ASSIGNS, OUT OF OR IN ANY WAY CONNECTED
WITH THIS NOTE. IT IS INTENDED THAT SAID WAIVER SHALL APPLY TO ANY AND ALL
DEFENSES,
RIGHTS, AND/OR COUNTERCLAIMS IN ANY ACTION OR PROCEEDINGS.
ORAL
AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM
ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
IN
WITNESS WHEREOF, the undersigned duly authorized officer of Maker has executed
this Senior Subordinated Secured Promissory Note as of the date first set forth
above.
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ITEX
CORPORATION,
a
Nevada corporation
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| By: | ||
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Name:
Xxxxxx Xxxxx
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Its:
Chief Executive Officer
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