PROMISSORY NOTE AND SECURITY AGREEMENT
PHOENIX, ARIZONA
$2,500,000 DECEMBER 23, 1999
1. FUNDAMENTAL PROVISIONS.
The following terms will be used as defined terms in this Promissory Note
and Security Agreement (as it may be amended, modified, extended and
renewed from time to time, the "Note"):
LENDER: Xxxxxxxx X. Xxxxxx
BORROWER: Training Devices International, Inc., a Colorado corporation
PRINCIPAL AMOUNT: Two Million Five Hundred Thousand Dollars
($2,500,000)
INTEREST RATE: Twelve percent (12%) per annum, fixed for the
Term
LOAN FEE: Two Hundred Fifty Thousand Dollars ($250,000)
payable to Lender on February 1, 2001
REVENUE PARTICIPATION PREMIUM: Seven Hundred Fifty Thousand Dollars ($750,000) payable to Lender,
commencing on February 1, 2001 in sixty (60) equal monthly
installments of $12,500
PRINCIPAL MATURITY DATE: February 1, 2001
COLLATERAL: Beech 1900D Level C Full Flight Simulator, having the Serial No. of
NEX-TDI-002, including all parts, accessories, sub-assemblies, visual
and motion systems and the right to use all related general
intangibles as are necessary to operate or sell the Simulator,
whether now owned or hereafter acquired, including but not limited
to, applications
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for patents, copyrights, trademarks, trade secrets, trade names, permits
and franchises, (the "Simulator"), a non-exclusive license of Simulator
System Software defined in Section 8 of this Note and all of Borrower's
general accounts receivable (as specified in an Intercreditor
Agreement between Lender and 1st Choice Bank).
PERMITTED EXCEPTIONS: (a) A security interest in Borrower's accounts receivable and the
software and the general intangibles with respect to the flight
simulator 1900D Level C Serial No. NEX-TDI-001 in favor of 1st Choice
Bank; (b) a first priority security interest in any visual and motion
system granted to the vendor of such system; or (c) a first priority
security interest in any subsequent simulators and the accounts
receivable arising from the sale or lease of a simulator or a
fractional ownership interest in a simulator (other than the
Simulator constituting the Collateral) granted to any party that
provides a loan for all or part of the cost to develop and
manufacture that particular simulator. It is understood by the
parties that Lender's security interest in the visual and motion
systems and such simulators and accounts receivable may in these
instances be subordinate to the first priority security interests,
and Lender will execute such documents as may be reasonably necessary
to subordinate Lender's security interest to those first priority
security interests.
BUSINESS DAY: Any day other than a Saturday, Sunday or legal holiday on which banks
in the State of Arizona are closed for business.
2. PROMISE TO PAY.
For value received, Borrower promises to pay to the order of Lender, at
its address at 0000 X. Xxxx Xx., Xxxxxxxx, Xxxxxxx 00000, or at such other
place as the Lender hereof may from time to time designate in writing, the
Principal Amount, or so much thereof as is actually disbursed pursuant
hereto, together with accrued interest from the date of disbursement on
the unpaid principal balance at the Interest Rate.
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3. LAWFUL MONEY.
Principal and interest are payable in lawful money of the United States of
America.
4. DISBURSAL AND LOAN PURPOSE
The Loan shall be disbursed according to Exhibit "A" on or about the dates
provided therein to Borrower for the purpose of building the Simulator.
These funds can be used for no other purpose.
5. PAYMENTS
Commencing on the first day of the month following the date of funding by
Lender and continuing on the same day each month thereafter, Borrower
shall make monthly installments of interest in the amounts as defined in
Exhibit "A", and herein incorporated as part of this Note. Said
installments shall not be subject to or limited to any source of funds of
Borrower.
On the Maturity Date, Borrower shall make a payment of the outstanding
principal balance, all accrued interest and the Loan Fee. In addition,
commencing on the Maturity Date and on the first day of each month
thereafter, Borrower shall make sixty (60) equal monthly payments of the
Revenue Participation Premium with the final payment of such Revenue
Participation Premium due and payable on January 1, 2006.
If any payment due hereunder is not received by Lender within five (5)
days after its due date, then, in addition to the other rights and
remedies of Lender, a per day late charge of Five Hundred Dollars
($500.00) will be charged to Borrower without notice. Such charge shall be
immediately due and payable.
6. PREPAYMENT.
Borrower may, at any time within the Note term, prepay this Note
(including the Loan Fee and the Revenue Participation Premium) in full or
in part without incurring any premium or penalty. This Note is not
considered paid in full until all principal, accrued interest, the Loan
Fee, the Revenue Participation Premium, and any other amounts due
hereunder have been paid in full. Borrower may prepay all or part of the
Revenue Participation Premium by paying to Lender an amount equal to the
present value of the Revenue Participation Premium at the time of
prepayment; in calculating the present value, Borrower shall use a
discount rate of seven percent (7%).
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7. SECURITY AGREEMENT.
As security for the payment and performance of this Note, the Loan and all
other present and future debts, obligations and liabilities of any nature
whatsoever of any one or more of Borrower to Lender, and all
modifications, renewals, replacements and extensions thereof (collectively
the "Obligations"), Borrower hereby assigns to Lender and grants to Lender
a first priority security interest in all of the Collateral subject only
to the Permitted Exceptions. Borrower will execute any security
agreements, collateral assignments, financing statements for filing and/or
recording and any other lien writings required by Lender to evidence,
create and perfect the liens and security interest of Lender. A carbon,
photographic or other reproduced copy of this Note and/or any financing
statement relating hereto shall be sufficient for filing and/or recording
as a financing statement.
Unless an Event of Default has occurred and is continuing, Lender's
security interest in the Collateral will be released in full, except for
its interest in Simulator accounts receivable, upon the Borrower's payment
of (1) $2,500,000 plus interest at 12% per annum accrued but unpaid to
Maturity Date and (2) the $250,000 Loan Fee. In addition, before or
concurrent with a third party's purchase of any fractional ownership
interest in the Simulator, Lender shall grant a release of such interest
from the Collateral upon Borrower's repayment of a percentage of the
Principal Amount and Loan fee that is equal to the percentage sold of the
Simulator. For example, Borrower would repay 1/7th of the Principal Amount
and Loan Fee if 1/7th fractional ownership interest in the Simulator was
sold. Lender shall continue to maintain a first priority security interest
in the accounts receivable generated by the sale of the fractional
ownership interest in the Simulator until the Revenue Participation
Premium is fully repaid.
Borrower agrees that any and all funds received from its Initial Public
Offering (the "IPO"), herein specified as the effective date of the IPO,
shall be used to remove any senior liens on the motion and visual systems.
Lender shall have no duty or obligation to protect, insure, collect or
realize upon the Collateral or preserve rights in it against prior
parties. Borrower releases Lender from, and shall indemnify Lender against
any liability for any act or omission relating to the Collateral, except
for any liability directly resulting from Lender's negligence or willful
misconduct, as determined in a final non-appealable judgment.
Borrower agrees as follows:
(a) Borrower (1) shall keep the Collateral free from all liens
other than the Permitted Exceptions, (2) shall defend the
Collateral against all claims and legal proceedings by persons
other than Lender, (3) shall pay and discharge when due all
taxes, levies and other charges upon the Collateral; (4) shall
not permit the Collateral to be used in violation of any policy
of insurance.
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(b) Borrower shall pay all expenses and, upon Lender's request,
execute all writings and take all other actions reasonably
deemed advisable by Lender to preserve the Collateral or to
establish and determine priority of perfection, continued
perfection or enforce Lender's interest in the Collateral.
(c) Lender may examine and conduct audits of the Collateral and
Borrower's records concerning it, wherever located, and make
copies of such records, at any time during normal business
hours with two days advance notice, and Borrower shall assist
Lender in so doing. Borrower shall keep accurate complete and
current records respecting the Collateral.
For so long as the Note is secured by the Collateral, Borrower hereby makes,
constitutes and appoints Lender the true and lawful attorney-in-fact of
Borrower, in the name, place and stead of Borrower, other otherwise upon the
occurrence of any Event of Default until the default is cured as defined in
Section 16.
(a) To take all actions and to execute, acknowledge, obtain and
deliver any and all writings necessary or deemed advisable by
Lender in order to exercise any rights of Borrower with respect to
the Collateral or to receive and enforce any payment or
performance due to Borrower with respect to the Collateral;
(b) To give any notices, instructions or other communications to any
Person or entity in connection with the Collateral;
(c) To demand and receive all performances due under or with respect
to the Collateral and to take all lawful steps to enforce such
performances and to compromise and settle any claim or cause of
action of Borrower arising from or related to the Collateral and
give acquittances and other discharges relating thereto; and
(d) To file any claim or proceeding or to take any other action, in
the name of Lender, Borrower or otherwise, to enforce performances
due under or related to the Collateral or to protect and preserve
the right, title and interest of Lender thereunder.
The foregoing power of attorney is a power coupled with an interest and shall be
irrevocable and unaffected by the disability of the principal so long as the
Note is secured by the Collateral. Lender shall have no obligation to exercise
any of the foregoing rights and powers in any event.
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8. SIMULATOR SYSTEM SOFTWARE AND INTELLECTUAL PROPERTIES.
Borrower hereby grants and conveys to Lender, a non-exclusive,
irrevocable, worldwide license to use Borrower's proprietary system
software that Borrower has developed to run and operate the Simulator (the
"System Software"), subject to the following:
(a) Except in an Event of Default, Lender may not convey
this license or otherwise transfer its interest in,
or grant to any third parties any interest in or
right to use the System Software.
Borrower shall indemnify and hold Lender, his successors and assigns,
harmless from and against any claims of third parties, which assert that
any of the System Software infringes a proprietary right of another party.
This license agreement shall be governed by, interpreted and construed
under, and enforceable in accordance with the laws of the State of
Colorado.
Borrower shall deposit with Lender two (2) full sets of all System Software
and documentation and instructions thereto, to be held by Lender as
Collateral and in accordance with the terms and conditions set forth in
Section 7 and herein this Section 8.
9. SIMULATOR AND SOFTWARE WARRANTIES.
This Note and Agreement shall not alter, modify, restrict or encroach upon
any warranties provided by Borrower.
10. INDEMNIFICATION.
Borrower hereby agrees to indemnify, hold harmless and to defend Lender,
his successors and assigns for any and all claims, actions, causes of
action arising out of or related to the Collateral herein, except that
Borrower shall have no indemnification obligations for claims, actions or
causes of action arising out of Lender's negligence or willful misconduct.
The amount payable under this indemnification provision shall be reduced
by the proceeds of applicable insurance coverage, if any, actually
received by Lender. Borrower shall not be liable for any settlement amount
in regard to such claims, actions or causes of action unless Borrower has
consented to the settlement, which consent shall not be unreasonably
withheld.
11. WAIVERS.
This Note and Agreement shall not alter, modify restrict or encroach upon
the obligations, responsibilities and requirements of the Borrower to
Lender.
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12. COMPROMISE OF CLAIMS.
No liability, fault or wrongdoing of any kind is hereby admitted by any
party hereto as a result of negotiating or executing this Note and
Agreement, including any and all statements and communications by the
parties, their attorneys or representatives.
13. SEVERABILITY.
Should any of the terms of this Note and Agreement or its application to
any person or circumstances become invalid or unenforceable to any extent,
the remainder of this Note and Agreement shall not be affected thereby,
and each term and provision hereof shall be valid and enforceable to the
fullest extent permitted by law.
14. BUSINESS RISK.
Borrower and Lender (by its acceptance of this Note) hereby affirm, agree
and acknowledge that because of the inherent business risk to Lender in
the financing involved in this transaction, the Interest Rate, the Loan
Fee and the Revenue Participation Premium provided in this Note constitute
a fair and reasonable return to Lender in light of such business risk.
15. INTEREST RATE LIMITATION.
Borrower hereby agrees to pay an effective rate of interest that is the
sum of the Interest Rate provided for herein, together with any additional
rate of interest resulting from any other charges of interest or in the
nature of interest paid or to be paid in connection with the Loan,
including, without limitation, the Loan Fee, the Revenue Participation
Premium and any other fees to be paid by Borrower pursuant to the
provisions of the Note. Lender and Borrower agree that none of the terms
and provisions contained herein shall be construed to create a contract
for the use, forbearance or detention of money requiring payment of
interest at a rate in excess of the maximum interest rate permitted to be
charged by the laws of the State of Arizona. In such event, if any holder
of this Note shall collect monies which are deemed to constitute interest
that would otherwise increase the effective interest rate on this Note to
a rate in excess of the maximum rate permitted to be charged by the laws
of the State of Arizona, all such sums deemed to constitute interest in
excess of the such maximum rate shall, at the option of the holder, be
credited to the payment of other amounts payable under this Note or
returned to Borrower.
16. EVENT OF DEFAULT.
Occurrence of one or more of the following shall constitute an Event of
Default under this Note:
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(a) Any failure of the Borrower to pay Lender any amounts due under
this Note within ten days of the due date without notification, or in
the case of amounts due on the Maturity Date, the failure of Borrower
to pay Lender those amounts on or before ninety (90) days after Federal
Aviation Administration (the "FAA") qualification of the Simulator; or
(b) Any failure or neglect of the Borrower to perform or observe any of
the terms, provisions, conditions or covenants of this Note within ten
(10) days of Borrower's receipt of written notice of each non-monetary
default; or
(c) If Borrower shall become insolvent; shall make an assignment for
the benefit of creditors; shall fail generally to pay its debts as they
become due; shall have a receiver, trustee, custodian or conservator
appointed with respect to all or part of its assets; or if a petition
for relief under any chapter of the federal Bankruptcy Code (or any
similar debtor relief laws to which the parties may be subject) is
filed by or against any Borrower and, if an involuntary petition, such
petition is not dismissed within sixty (60) days of filing; or
(d) If any tax lien or levy, attachment, garnishment, replevin,
execution, or other statutory or judicial lien is filed, levied or
claimed against all or any portion of or any interest in the Collateral
and such claim or lien is not discharged, satisfied or bonded over to
Lender's satisfaction before the earlier of: (1) forty-five (45) days
thereafter; and (2) not less than five (5) Business Days prior to any
sale of any portion of or interest in the collateral pursuant thereto;
or
(e) If Borrower shall fail to provide and maintain the insurance as
provided in Section 17 of this Note.
17. REMEDIES.
If any Event of Default occurs or if any Obligation matures by its terms
and is not then fully paid within any applicable grace period as specified
in Section 16, Lender may, without any further notice (except as may be
required by specific applicable laws such as those requiring notices of
intended dispositions of certain Collateral) do one or more of the
following in such order and manner as Lender, in its sole discretion, may
elect to:
(a) Cause the entire then unpaid amount of the Obligations or
any portion(s) thereof to be and become immediately due
and payable; or
(b) Exercise any or all of the remedies of a secured party
under the Arizona (and/or any other relevant state(s)
Uniform Commercial Code (the "UCC") with respect to the
Collateral. If Lender should proceed to dispose of or
otherwise realize upon any such Collateral in
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accordance with the provisions of the UCC, unless the
Collateral is perishable or threatens to decline
speedily in value, seven (7) days notice by Lender
to Borrower or any other "debtor" described in the
UCC shall be deemed to be commercially reasonable
notice under any provision of the UCC requiring notice;
or
(c) Avail itself of any other relief to which Lender may be
legally or equitably entitled.
18. INSURANCE.
For so long as the Collateral secures this Note, Borrower shall name
Lender as "Additionally Named Insured" on Borrower's general liability
insurance policy of not less than $3,000,000 and Borrower's umbrella
liability policy of not less than $5,000,000 and shall provide Lender with
a binder within ten (10) days of execution of this Note.
19. WAIVER.
Borrower, endorsers, guarantors, and sureties of this Note hereby waive
diligence, demand for payment, presentment for payment, protest, notice of
protest, and notice of dishonor, and all other notices or demands of any
kind (except notices specifically provided for herein).
20. CHANGE, DISCHARGE, TERMINATION, OR WAIVER.
No provision of this Note may be changed, discharged, terminated, or
waived except in a writing signed by the party against whom enforcement of
the change, discharge, termination or waiver is sought. No failure on the
part of the Lender to exercise and no delay by the Lender in exercising
any right or remedy under this Note or under the law shall operate as a
waiver thereof.
21. ATTORNEYS' FEES.
If this Note is not paid when due or if any Event of Default occurs,
Borrower promises to pay all costs of enforcement and collection and
preparation therefor, including but not limited to, reasonable attorneys'
fees, whether or not any action or proceeding is brought to enforce the
provisions hereof.
22. CHOICE OF LAW.
This note shall be governed by and construed in accordance with the laws
of the State of Arizona without giving effect to conflict of laws
principles.
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23. BORROWER WARRANTIES TO LENDER
Borrower warrants to Lender that his Note does not violate any Corporate
Bylaws of Borrower or Securities and Exchange Regulations of Disclosures,
and Borrower shall provide to Lender certified copies of Corporate
Resolutions attached hereto as Exhibit "B" and Borrower shall indemnify
and defend Lender of this Note against any and all encumbrances,
attachments and adversaries of Lender's positional rights of security
aforementioned herein.
24. ENTIRE AGREEMENT.
This Note and Agreement constitutes the entire agreement between the
parties relating to the subject hereof, and any prior agreements
pertaining thereto, whether oral or written, have been merged with and
integrated into this Note.
25. NOTICES.
Any notices which a party desires or is required to give hereunder shall
be in writing and shall be deemed given when delivered personally to each
party, or three days after deposited in the United States mails, postage
prepaid, either registered or certified, return receipt requested, to the
parties at the following addresses:
Lender: XXXXXXXX X. XXXXXX
0000 Xxxx Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Borrower: TRAINING DEVICES INTERNATIONAL, INC.
Attention President
0000 Xxxxx Xxxxxx Xxxxxxx, Xxxxxxxx 0X
Xxxxxxxxx, XX 00000
BORROWER
TRAINING DEVICES INTERNATIONAL, INC.
By: /s/ Xxxxxx X. Xxxxxxxxx
----------------------------------
Xxxxxx X. Xxxxxxxxx, Chairman and
Chief Executive Officer
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ATTACHMENT A
---------------------------------------------------------------------------------
XXXXXX AGREEMENT
---------------------------------------------------------------------------------
CASH FLOW DATA
---------------------------------------------------------------------------------
EVENT START DATE AMOUNT NUMBER PERIOD END DATE
---------------------------------------------------------------------------------
1 Loan 01/01/2000 1,000,000.00 1
3 Payment 02/1/2000 10,000.00 2 Monthly 03/01/2000
4 Loan 03/1/2000 500,000.00 1
5 Payment 04/1/2000 15,000.00 3 Monthly 06/01/2000
6 Loan 06/1/2000 500,000.00 1
7 Payment 07/1/2000 20,000.00 3 Monthly 09/01/2000
8 Loan 09/1/2000 500,000.00 1
9 Payment 10/1/2000 25,000.00 5 Monthly 02/01/2001
10 Payment 02/01/2001 2,750,000.00 1
11 Payment 02/01/2001 12,500.00 60 Monthly 01/01/2006
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CONSENT CERTIFICATE
The undersigned hereby certify as follows:
1. They are all of the directors of Training Devices International, Inc., a
Colorado corporation (hereinafter called the "Company"), entitled to vote
with respect to the subject matter hereof.
2. The following resolutions are consented to by the undersigned as such
directors as and for their unanimous act and the act of the Company as
provided in and in accordance with the provisions of the Colorado Business
Corporation Act:
WHEREAS, the Company wishes to borrow Two Million Five Hundred
Thousand Dollars ($2,500,000.00) from Xxxxxxxx X. Xxxxxx and the
officers of the Company are negotiating agreements for this purpose;
now therefore be it
RESOLVED, that the President of the Company, the Chief Executive
Officer of the Company and any Vice President of the company, and
each of them, are hereby authorized to execute and deliver on behalf
of the Company the promissory note and security agreement (a draft
of which is attached to this Certificate) for a total indebtedness of
Two Million five Hundred Thousand Dollars ($2,500,000.00), plus
Interest, Loan Fee, and Revenue Participation Premium to Xxxxxxxx X.
Xxxxxx, with such terms and conditions and with such changes to the
draft documents as the officer executing the same shall approve
(whose execution shall conclusively evidence that approval);
RESOLVED, that the officers of the Company are hereby authorized and
directed to take such actions and execute such documents as may be
necessary (1) to effectuate the foregoing resolutions, (2) to
consummate the transactions contemplated by the above-described loan
documents, and (3) to perform and comply with the terms and
conditions of the final above-described loan documents.
3. This Certificate shall be deemed to be fully executed and delivered when
each of the undersigned has executed at least one counterpart, but not
necessarily the same counterpart, hereof.
4. The undersigned have executed this Certificate as of October 25, 1999.
/s/ Xxxxxx X. Xxxxxxxxx
-------------------------------
Xxxxxx X. Xxxxxxxxx, Director
/s/ Xxxxx X. Xxxxxxxxx
-------------------------------
Xxxxx X. Xxxxxxxxx, Director
/s/ Xxxxxx X. Xxxxxx, Xx.
-------------------------------
Xxxxxx X. Xxxxxx, Xx., Director
/s/ Xxxxxxx Xxxxxxx
------------------------------
Xxxxxxx Xxxxxxx, Director
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