EXHIBIT 4(a)
NATIONAL TRANSACTION NETWORK, INC.
Convertible Subordinated Note Purchase Agreement
Dated as of August 18, 1997
NATIONAL TRANSACTION NETWORK, INC.
000 Xxxxxxxx Xxxx
Xxxxxxxxxxx, Xxxxxxxxxxxxx 00000
As of August 18, 1997
International Verifact Inc.
00 Xxxxxxxxx Xxxx
Xxxxxxx, Xxxxxxx
Xxxxxx X0X 0X0
Re: Convertible Subordinated Notes
Gentlemen:
National Transaction Network, Inc., a Delaware corporation (the
"Company"), hereby agrees with International Verifact Inc., a corporation
organized under the laws of Canada (the "Purchaser") as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF NOTES
1.01. The Notes. The Company has authorized the issuance and sale to
the Purchaser of the Company's Convertible Subordinated Notes, in the aggregate
principal amount of $1,000,000. The Convertible Subordinated Notes shall be
substantially in the form set forth in Exhibit I hereto and are herein referred
to individually as a "Note" and collectively as the "Notes", which terms shall
also include any notes delivered in exchange or replacement therefor.
1.02. Purchase and Sale of Notes. The Company agrees to issue and sell
to the Purchaser from time to time, and, subject to and in reliance upon the
representations, warranties, terms and conditions of this Agreement, the
Purchaser agrees to purchase the Notes for an aggregate purchase price of
$1,000,000. Such purchases and sales shall take place at such time as may be
mutually agreed upon (each a "Closing"). At each Closing the Company will issue
one Note, payable to the order of the Purchaser, in the principal amount
indicated in such Note against delivery of the principal amount indicated in
such Note by wire transfer to an account specified by the Company, in payment of
the full purchase price for the Notes.
1.03. Payments and Endorsements. Payments of principal and interest on
the Notes, shall be made directly by check duly mailed or delivered to the
Purchaser at its address referred to in Section 9.03 hereof, without any
presentment or notation of payment, except that prior to
any transfer of any Note, the holder of record shall endorse on such Note a
record of the date to which interest has been paid and all payments made on
account of principal of such Note.
1.04. Redemptions.
(a) Required Redemptions. On the Due Date (as defined in each
Note) or the accelerated maturity of the Notes, the Company will pay the
principal amount of the Notes then outstanding together with all accrued and
unpaid interest then due thereon.
(b) No Optional Redemptions. The Company may not, at any time,
redeem the Notes except as otherwise specifically provided for herein or in the
Notes.
1.05. Payment on Non-Business Days. Whenever any payment to be made
shall be due on a Saturday, Sunday or a public holiday under the laws of the
Commonwealth of Massachusetts, such payment may be made on the next succeeding
business day, and such extension of time shall in such case be included in the
computation of payment of interest due.
1.06. Registration, etc. The Company shall maintain at its principal
office a register of the Notes and shall record therein the names and addresses
of the registered holders of the Notes, the address to which notices are to be
sent and the address to which payments are to be made as designated by the
registered holder if other than the address of the holder, and the particulars
of all transfers, exchanges and replacements of Notes. No transfer of a Note
shall be valid unless made on such register for the registered holder or his
executors or administrators or his or their duly appointed attorney, upon
surrender therefor for exchange as hereinafter provided, accompanied by an
instrument in writing, in form and execution reasonably satisfactory to the
Company. Each Note issued hereunder, whether originally or upon transfer,
exchange or replacement of a Note or Notes, shall be registered on the date of
execution thereof by the Company and shall be dated the date to which interest
has been paid on such Notes or Note. The registered holder of a Note shall be
that person in whose name the Note has been so registered by the Company. A
registered holder shall be deemed the owner of a Note for all purposes of this
Agreement and, subject to the provisions hereof, shall be entitled to the
principal and interest evidenced by such Note free from all equities or rights
of setoff or counterclaim between the Company and the transferor of such
registered holder or any previous registered holder of such Note.
1.07. Transfer and Exchange of Notes. Subject to compliance with United
States federal and applicable state securities laws, the registered holder of
any Note or Notes may, prior to maturity or prepayment thereof, surrender such
Note or Notes at the principal office of the Company for transfer or exchange.
Within a reasonable time after notice to the Company from a registered holder of
its intention to make such exchange and without expense (other than transfer
taxes, if any) to such registered holder, the Company shall issue in exchange
therefor another Note or Notes, in such denominations as requested by the
registered holder, for the same aggregate principal amount as the unpaid
principal amount of the Note or Notes so surrendered and having the same
maturity and rate of interest, containing the same provisions and subject to the
same terms and conditions as the Note or Notes so surrendered.
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1.08. Replacement of Notes. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of any Note and, if
requested in the case of any such loss, theft or destruction, upon delivery of
an indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of such Note, the Company will issue a new Note, of like tenor and amount and
dated the date to which interest has been paid, in lieu of such lost, stolen,
destroyed or mutilated Note.
1.09. Subordination. The Company, for itself, its successors and
assigns, covenants and agrees, and the Purchaser and each successor holder of
the Notes by his or its acceptance thereof, likewise covenants and agrees, that
notwithstanding any other provision of this Agreement or the Notes, the payment
of the principal of and interest on each and all of the Notes shall be
subordinated in right of payment, to the extent and in the manner hereinafter
set forth, to the prior payment in full of all Senior Debt (as hereinafter
defined) at any time outstanding. The provisions of this Section 1.09 shall
constitute a continuing representation to all persons who, in reliance upon such
provisions, become the holders of or continue to hold Senior Debt, and such
provisions are made for the benefit of the holders of Senior Debt, and such
holders are hereby made obligees hereunder the same as if their names were
written herein as such, and they or any of them may proceed to enforce such
provisions against the Company or against the holder of any Note without the
necessity of joining the Company as a party.
(a) Payment of Senior Debt. In the event of any insolvency or
bankruptcy proceedings, or any receivership, liquidation, reorganization or
other similar proceedings in connection therewith, relative to the Company or to
its property, or, in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Company or distribution or marshaling of
its assets or any composition with creditors of the Company, whether or not
involving insolvency or bankruptcy, then and in any such event all Senior Debt
shall be paid in full before any payment or distribution of any character,
whether in cash, securities or other property, shall be made on account of the
Notes; and any such payment or distribution, except securities which are
subordinated and junior in right of payment to the payment of all Senior Debt
then outstanding in terms of substantially the same tenor as this Section 1.09,
which would, but for the provisions hereof, be payable or deliverable in respect
of the Notes shall be paid or delivered directly to the holders of Senior Debt
(or their duly authorized representatives), in the proportions in which they
hold the same, until all Senior Debt shall have been paid in full, and every
holder of the Notes by becoming a holder thereof shall have designated and
appointed the holder or holders of Senior Debt (and their duly authorized
representatives) as his or its agents and attorneys-in-fact to demand, xxx for,
collect and receive such Senior Debt holder's ratable share of all such payments
and distributions and to file any necessary proof of claim therefor and to take
all such other action (including the right to vote such Senior Debt holder's
ratable share of the Notes), in the name of the holders of the Notes or
otherwise, as such Senior Debt holders (or their authorized representatives) may
determine to be necessary or appropriate for the enforcement of this Section
1.09. The Purchaser and each successor holder of the Notes by its or his
acceptance thereof agrees to execute, at the request of the Company, a separate
agreement with any holder of Senior Debt on the terms set forth in this
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Section 1.09, and to take all such other action as such holder or such holder's
representative may request in order to enable such holder to enforce all claims
upon or in respect of such holder's ratable share of the Notes.
(b) No Payment on Notes Under Certain Conditions. In the event
that any default occurs in the payment of the principal of or interest on any
Senior Debt (whether as a result of the acceleration thereof by the holders of
such Senior Debt or otherwise) and during the continuance of such default for a
period up to one hundred eighty (180) days and thereafter if judicial
proceedings shall have been instituted with respect to such defaulted payment,
or (if a shorter period) until such payment has been made or such default has
been cured or waived in writing by such holder of Senior Debt then and during
the continuance of such event no payment of principal or interest on the Notes
shall be made by the Company or accepted by any holder of the Notes who has
received notice from the Company or from a holder of Senior Debt of such events.
(c) Payments Held in Trust. In case any payment or
distribution shall be paid or delivered to any holder of the Notes before all
Senior Debt shall have been paid in full, despite or in violation or
contravention of the terms of this subordination, such payment or distribution
shall be held in trust for and paid and delivered ratably to the holders of
Senior Debt (or their duly authorized representatives), until all Senior Debt
shall have been paid in full.
(d) Subrogation. Subject to the payment in full of all Senior
Debt and until the Notes shall be paid in full, the holders of the Notes shall
be subrogated to the rights of the holders of Senior Debt (to the extent of
payments or distributions previously made to such holders of Senior Debt
pursuant to the provisions of subsections (a) and (c) of this Section 1.09) to
receive payments or distributions of assets of the Company applicable to the
Senior Debt. No such payments or distributions applicable to the Senior Debt
shall, as between the Company and its creditors, other than the holders of
Senior Debt and the holders of the Notes, be deemed to be a payment by the
Company to or on account of the Notes; and for the purposes of such subrogation,
no payments or distributions to the holders of Senior Debt to which the holders
of the Notes would be entitled except for the provisions of this Section 1.09
shall, as between the Company and its creditors, other than the holders of
Senior Debt and the holders of the Notes, be deemed to be a payment by the
Company to or on account of the Senior Debt.
(e) Scope of Section. The provisions of this Section 1.09 are
intended solely for the purpose of defining the relative rights of the holders
of the Notes, on the one hand, and the holders of the Senior Debt, on the other
hand. Nothing contained in this Section 1.09 or elsewhere in this Agreement or
the Notes is intended to or shall impair, as between the Company, its creditors
other than the holders of Senior Debt, and the holders of the Notes, the
obligation of the Company, which is unconditional and absolute, to pay to the
holders of the Notes the principal of and interest on the Notes as and when the
same shall become due and payable in accordance with the terms thereof, or to
affect the relative rights of the holders of the Notes and creditors of the
Company other than the holders of the Senior Debt, nor shall anything herein or
therein prevent the holder of any Note from accepting any payment with respect
to such Note or exercising all remedies otherwise permitted by applicable law
upon default under such Note,
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subject to the rights, if any, under this Section 1.09 of the holders of Senior
Debt in respect of cash, property or securities of the Company received by the
holders of the Notes.
(f) Survival of Rights. The right of any present or future
holder of Senior Debt to enforce subordination of the Notes pursuant to the
provisions of this Section 1.09 shall not at any time be prejudiced or impaired
by any act or failure to act on the part of the Company or any such holder of
Senior Debt, including, without limitation, any forbearance, waiver, consent,
compromise, amendment, extension, renewal, or taking or release of security of
or in respect of any Senior Debt or by noncompliance by the Company with the
terms of such subordination regardless of any knowledge thereof such holder may
have or otherwise be charged with.
(g) Amendment or Waiver. The provisions of this Section 1.09
may not be amended or waived in any manner which is detrimental to any Senior
Debt without the consent of the holders of all then existing Senior Debt.
(h) Senior Debt Defined. The term "Senior Debt" shall mean (i)
all indebtedness of the Company for money borrowed from banks, including any
extension or renewals thereof, whether outstanding on the date hereof or
thereafter created or incurred, which is not by its terms subordinate and junior
to or on a parity with the Notes and which is permitted hereby at the time it is
created or incurred, and (ii) all guaranties by the Company which are not by
their terms subordinate and junior to or on a parity with the Notes and which
are permitted hereby at the time they are made, of indebtedness of any
subsidiary of the Company if such indebtedness would have been Senior Debt
pursuant to the provisions of clause (i) of this sentence had it been
indebtedness of the Company.
ARTICLE II
CONDITIONS TO PURCHASER'S OBLIGATION
The obligation of the Purchaser to purchase and pay for the Note being
purchased by it at each Closing is subject to the satisfaction of the following
conditions:
2.01. Representations and Warranties to be True and Correct. The
representations and warranties contained in Article IV shall be true, complete
and correct on and as of the date of this Convertible Subordinated Note Purchase
Agreement and the President of the Company shall have certified to such effect
to the Purchasers in writing.
2.02. Documentation at Closing. The Purchaser shall have received prior
to or at the Closing a Security Agreement, in the form attached as Exhibit II
(the "Security Agreement"), and all related financing statements and other
similar instruments and documents, shall have been executed and delivered to the
Purchaser by a duly authorized officer of the Company.
2.03. All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents
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incident thereto shall be satisfactory in form and substance to the Purchaser,
and the Purchaser shall have received all such counterpart originals or
certified or other copies of such documents as the Purchaser reasonably may
request.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser understands and acknowledges that the Notes are being
offered and sold under one or more of the exemptions from registration provided
for in Section 4(2) of the Securities Act of 1933, as amended, (the "Securities
Act") including Regulation D promulgated thereunder, and any applicable state
securities laws; that he or it is purchasing the Notes without being offered or
furnished any offering literature or prospectus other than publicly available
reports filed with the U.S. Securities and Exchange Commission ("SEC"); that
these transactions have not been reviewed or approved by the SEC or by any
regulatory authority charged with the administration of the securities laws of
any state; that all documents, records and books pertaining to these investments
have been made available to the Purchaser and his or its respective
representatives, including attorneys, tax advisors, financial advisors,
accountants and/or purchaser representatives, if any. The Purchaser hereby
further represents and warrants as follows:
3.01. Residence. The Purchaser is a bona fide resident and domiciliary
(not a temporary or transient resident) of the jurisdiction set forth under his
or its name on the first page of this Agreement and has no present intention of
becoming a resident of any other state, province or jurisdiction.
3.02. Suitability. The Purchaser confirms that he or it understands and
has fully considered for purposes of this investment, the risks of this
investment and understands that (i) this investment is suitable only for an
investor who is able to bear the economic consequences of losing his entire
investment, (ii) the purchase of the Notes is a speculative investment which
involves a high degree of risk of loss by the Purchaser of his or its entire
investment, and (iii) there are substantial restrictions on the transferability
of the Notes and any shares of Common Stock of the Company which may be issued
upon conversion of the Notes and accordingly, it may not be possible for him or
it to liquidate his or its investment in such securities in case of emergency.
3.03. Lack of Liquidity. The Purchaser confirms that he or it is able
(i) to bear the economic risk of this investment, (ii) to hold the Notes and any
shares of Common Stock of the Company issued upon conversion of the Notes for an
indefinite period of time, and (iii) presently to afford a complete loss of his
or its investment; and represents that he or it has sufficient liquid assets so
that the illiquidity associated with this investment will not cause any undue
financial difficulties or affect the Purchaser's ability to provide for his or
its current needs and possible financial contingencies, and that his or its
commitment to all speculative investments is reasonable in relation to his or
its net worth and annual income.
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3.04. Knowledge and Experience. The Purchaser either (1) has a
pre-existing personal or business relationship with the Company or its
principals or (2) by reason of the Purchaser's business or financial experience
is capable of evaluating the merits and risks of an investment in the Company
and the Notes and of making an informed investment decision, and of protecting
his or its own interests in connection with this investment.
3.05. Access to Management. The Purchaser confirms that, in making his
or its decision to purchase the Notes, he or it has relied solely upon
independent investigations made by him or it and that he or it has been given
the opportunity to ask questions of, and to receive answers from, management and
other persons acting on behalf of the Company concerning the Company and the
terms and conditions of this investment.
3.06. Investment Intent. The Notes are being acquired, and the shares
of Common Stock of the Company issued upon conversion of the Notes will be
acquired, by the Purchaser solely for his or its own account, for investment
purposes only, and not with a view to, or in connection with, any resale or
distribution thereof; the Purchaser has no contract, undertaking, understanding,
agreement or arrangement, formal or informal, with any person to sell, transfer
or pledge to any person such securities or any part thereof, any interest
therein or any rights thereto; the Purchaser has no present plans to enter into
any such contract, undertaking, agreement or arrangement; and the Purchaser
understands the legal consequences of the foregoing representations and
warranties to mean that he or it must bear the economic risk of this investment
for an indefinite period of time because such securities have not been
registered under the Securities Act or any applicable state securities laws and,
therefore, cannot be sold unless they are subsequently registered under the
Securities Act and applicable state securities laws (which the Company is not
obligated, and has no intention, to do) or unless an exemption from such
registration is available.
3.07. Restrictive Legend. The Purchaser consents to the placement of a
restrictive legend on the Notes and any shares of Common Stock of the Company
issued upon conversion of the Notes as required by applicable securities laws.
3.08. No Brokers or Advertisement. The Purchaser has not engaged any
broker, dealer, finder, commission agent or other similar person in connection
with the offer, offer for sale, or sale of the Notes and is not under any
obligation to pay any broker's fee, or commission in connection with his or its
investment and has not been offered or sold Notes through publication of any
advertisement.
3.09. Knowledge, Experience and Suitability. The Purchaser currently
has such knowledge and experience in financial and business matters as to be
able to evaluate the merits and risks of an investment in the Company. The
Purchaser has read carefully and understands this Convertible Subordinated Note
Purchase Agreement and has consulted its own attorney, accountant or investment
adviser with respect to the investment contemplated hereby and its suitability
for the Purchaser.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser that:
4.01. Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and is
duly licensed or qualified to transact business as a foreign corporation and is
in good standing in the Commonwealth of Massachusetts and in each other
jurisdiction in which the failure to be so licensed or qualified would have a
material adverse effect on the business or financial condition of the Company.
The Company has the corporate power and authority to own and hold its properties
and to carry on its business as now conducted and as proposed to be conducted,
and to execute, deliver and perform this Agreement and the Notes.
(b) The Company has no subsidiaries. The Company does not (i)
own of record or beneficially, directly or indirectly, (A) any shares of capital
stock or securities convertible into capital stock of any other corporation or
(B) any participating interest in any partnership, joint venture or other
non-corporate business enterprise or (ii) control, directly or indirectly, any
other entity.
4.02. Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this
Agreement and the Notes and the performance by the Company of its obligations
hereunder and thereunder have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation of the Company, as
amended (the "Charter") or the By-laws of the Company, as amended.
(b) Sufficient shares of authorized but unissued Common Stock
of the Company shall be reserved by appropriate corporate action prior to the
Company's issuance of each Note in connection with the prospective conversion of
each of the Notes.
4.03. Validity. This Agreement and the Notes have each been duly
executed and delivered by the Company and each constitutes the legal, valid and
binding obligation of the Company, enforceable in accordance with its terms.
4.04. Authorized Capital Stock. The authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock, $.15 par value per share,
(the "Common Stock") and 5,000,000 shares of Preferred Stock, $.10 par value per
share ("Preferred Stock").
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ARTICLE V
REGISTRATION RIGHTS
5.01. Registration Rights. If at any time the Company shall determine
to register under the Securities Act (including pursuant to a demand of any
stockholder of the Company exercising registration rights) any of its Common
Stock of the type which has been or may be issued upon the conversion of the
Notes (the "Registrable Shares"), other than on Form S-8 or its then equivalent,
it shall send to Purchaser written notice of such determination and, if within
thirty (30) days after receipt of such notice, Purchaser shall so request in
writing, the Company shall use its best efforts to include in such registration
statement all or any part of the Registrable Shares Purchaser requests to be
registered, except that if, in connection with any offering involving an
underwriting of Common Stock to be issued by the Company, the managing
underwriter shall impose a limitation on the number of shares of such Common
Stock which may be included in any such registration statement because, in its
judgment, such limitation is necessary to effect an orderly public distribution,
then the Company shall be obligated to include in such registration statement
only such limited portion of the Registrable Shares with respect to which
Purchaser has requested inclusion hereunder.
5.02. Effectiveness. The Company will use its best efforts to maintain
the effectiveness for up to two (2) months of any registration statement
pursuant to which any of the Registrable Shares are being offered, and from time
to time will amend or supplement such registration statement and the prospectus
contained therein as and to the extent necessary to comply with the Securities
Act and any applicable state securities statute or regulation. The Company will
also provide Purchaser with as many copies of the prospectus contained in any
such registration statement as it may reasonably request.
5.03. Indemnification of Holder of Registrable Shares. In the event
that the Company registers any of the Registrable Shares under the Securities
Act, the Company will indemnify and hold harmless Purchaser and each underwriter
of the Registrable Shares so registered (including any broker or dealer through
whom such shares may be sold) and each person, if any, who controls such holder
or any such underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages, expenses or liabilities,
joint or several, to which they or any of them become subject under the
Securities Act or under any other statute or at common law or otherwise, and,
except as hereinafter provided, will reimburse each such holder, each such
underwriter and each such controlling person, if any, for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the prospectus (or the
registration statement or prospectus as from time to time amended or
supplemented by the Company) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein not misleading or any
violation by the Company of any rule or regulation promulgated under the
Securities Act
9
applicable to the Company and relating to action or inaction required of the
Company in connection with such registration, unless such untrue statement or
omission was made in such registration statement, preliminary or amended,
preliminary prospectus or prospectus in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by such
holder of Registrable Shares, any such underwriter or any such controlling
person expressly for use therein. Promptly after receipt by Purchaser, any
underwriter or any controlling person, of notice of the commencement of any
action in respect of which indemnity may be sought against the Company,
Purchaser, or such underwriter or such controlling person, as the case may be,
will notify the Company in writing of the commencement thereof, and, subject to
the provisions hereinafter stated, the Company shall assume the defense of such
action (including the employment of counsel, who shall be counsel satisfactory
to Purchaser, such underwriter or such controlling person, as the case may be),
and the payment of expenses insofar as such action shall relate to any alleged
liability in respect of which indemnity may be sought against the Company.
Purchaser, any such underwriter or any such controlling person shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof but the fees and expenses of such counsel shall not be at the
expense of the Company unless the employment of such counsel has been
specifically authorized by the Company. The Company shall not be liable to
indemnify any person for any settlement of any such action effected without the
Company's consent. The Company shall not, except with the approval of each party
being indemnified under this Section 5.05, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation.
5.04. Indemnification of Company. In the event that the Company
registers any of the Registrable Shares under the Securities Act, Purchaser will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each underwriter of the
Registrable Shares so registered (including any broker or dealer through whom
such of the shares may be sold) and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act from and against
any and all losses, claims, damages, expenses or liabilities, joint or several,
to which they or any of them may become subject under the Securities Act or
under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse the Company and each such director,
officer, underwriter or controlling person for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions whether or not resulting in any liability, insofar as such
losses, claims, damages, expenses, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement, in any preliminary or amended
preliminary prospectus or in the prospectus (or the registration statement or
prospectus as from time to time amended or supplemented) or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, but only insofar as any such statement or omission was
made in reliance upon and in conformity with information furnished in writing to
the Company in connection therewith by Purchaser expressly for use therein;
provided, however, that Purchaser's obligations hereunder shall be limited to an
amount equal to the proceeds to such holder of the Registrable Shares sold
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in such registration. Promptly after receipt of notice of the commencement of
any action in respect of which indemnity may be sought against such holder of
Registrable Shares, the Company will notify Purchaser in writing of the
commencement thereof, and such holder of Registrable Shares shall, subject to
the provisions hereinafter stated, assume the defense of such action (including
the employment of counsel, who shall be counsel satisfactory to the Company) and
the payment of expenses insofar as such action shall relate to the alleged
liability in respect of which indemnity may be sought against Purchaser. The
Company and each such director, officer, underwriter or controlling person shall
have the right to employ separate counsel in any such action and to participate
in the defense thereof but the fees and expenses of such counsel shall not be at
the expense of Purchaser unless employment of such counsel has been specifically
authorized by Purchaser. Purchaser shall not be liable to indemnify any person
for any settlement of any such action effected without such holder's consent.
5.05. Expenses. In the case of a registration under Section 5.01, the
Company shall bear all costs and expenses of each such registration, including,
but not limited to, printing, legal and accounting expenses, Securities and
Exchange Commission filing fees and "blue sky" fees and expenses; provided,
however, that the Company shall have no obligation to pay or otherwise bear (i)
any portion of the fees or disbursements of more than one counsel for the
Purchaser in connection with the registration of their Registrable Shares, or
(ii) any portion of the underwriters' commissions or discounts attributable to
the Registrable Shares being offered and sold by the Purchaser.
ARTICLE VI
CONVERSION OF NOTES
6.01. Conversion Right. Subject to and in compliance with the
provisions of this Article VI, all or any part of the principal and interest
amount outstanding of any Note may, at the option of the holder thereof, be
converted at any time or from time to time into fully-paid and non-assessable
shares of Common Stock.
6.02. Applicable Conversion Value. The "Applicable Conversion Value"
shall be computed as follows:
(a) In the event that the Company has acquired another
corporation or legal entity for which shares of the Company's Common Stock were
used to pay for all or any part of such acquisition (the "Acquisition Shares"),
then the price at which any Note may be converted into Common Stock shall be the
value of such Acquisition Shares; or
(b) In the event that the Company has not acquired another
corporation or legal entity at the time that Purchaser converts any Note into
shares of Common Stock pursuant to Section 6.01, then the price at which any
Note may be converted into Common Stock shall be determined by mutual agreement
of the parties, provided, however, that in no event shall the Applicable
Conversion Value under this Section 6.02(b) be less than the average of the
closing
11
price of the Common Stock for the twenty business days preceding the date of
notice of conversion as provided by Purchaser pursuant to Section 6.05.
6.03. Upon Extraordinary Common Stock Event. Upon the happening of an
Extraordinary Common Stock Event (as hereinafter defined), if the Applicable
Conversion Value has been determined in accordance with 6.02(a), then it shall
be adjusted by multiplying such effective Applicable Conversion Value by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such Extraordinary Common Stock Event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such Extraordinary Common Stock Event, and the product so
obtained shall thereafter be the Applicable Conversion Value. The Applicable
Conversion Value, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of the Common Stock as a dividend or other distribution on
outstanding Common Stock, (ii) a subdivision of outstanding shares of Common
Stock into a greater number of shares of the Common Stock, or (iii) a
combination of outstanding shares of the Common Stock into a smaller number of
shares of the Common Stock.
6.04. (a) Adjustment for Reorganization, Consolidation, Merger, etc. In
case at any time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person unless the
Company is the surviving entity, or (c) transfer all or substantially all of its
properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, each
holder of a Note, on the conversion thereof as provided in this Article VI at
any time after the consummation of such reorganization, consolidation or merger
or the effective date of such dissolution, as the case may be, shall receive, in
lieu of the Common Stock issuable on such exercise prior to such consummation or
such effective date, the stock and other securities and property (including
cash) to which such holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such holder had so
converted its Note, immediately prior thereto.
6.05. Exercise of Conversion Privilege. To exercise its conversion
privilege, a holder of a Note shall surrender such Note being converted to the
Company at its principal office, and shall give written notice to the Company at
that office that such holder elects to convert such Note, or a portion thereof.
Such notice shall also state the name or names (with address or addresses) in
which the certificate or certificates for shares of Common Stock issuable upon
such conversion shall be issued. The Note so surrendered for conversion shall be
accompanied by proper assignment thereof to the Company or in blank. The date
when such written notice is received by the Company, together with the Note
being converted, shall be the "Conversion Date." As promptly as practicable
after the Conversion Date, the Company shall issue and shall deliver to the
holder of the Note being converted, or on its written order, such certificate or
certificates as it may request for the number of whole shares of Common Stock
issuable upon the conversion of such Note in accordance with the provisions of
this Article VI, cash in the amount of all accrued
12
and unpaid interest on such Note up to and including the Conversion Date, and
cash, as provided in Section 6.06, in respect of any fraction of a share of
Common Stock issuable upon such conversion. Such conversion shall be deemed to
have been effected immediately prior to the close of business on the Conversion
Date, and at such time the rights of the holder as a holder of a Note shall
cease and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
6.06. Cash in Lieu of Fractional Shares. No fractional shares of Common
Stock or scrip representing fractional shares shall be issued upon the
conversion of a Note. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon conversion of a Note, the Company shall pay to
the holder of the Note which was converted a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the market price
per share of the Common Stock (as determined in a reasonable manner prescribed
by the Board of Directors) at the close of business on the Conversion Date. The
determination as to whether or not any fractional shares are issuable shall be
based upon the total principal amount of Notes being converted at any one time
by any holder thereof, not upon each Note being converted.
6.07. Partial Conversion. In the event some but not all of the
principal amount represented by a Note surrendered by a holder is converted, the
Company shall execute and deliver to or on the order of the holder, at the
expense of the Company, a new Note representing the principal amount which was
not converted.
6.08. Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the Notes, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding Notes and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding, the Company shall take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
ARTICLE VII
EVENTS OF DEFAULT
7.01. Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) The Company shall fail to pay any installment of principal
of any of the Notes, which is not cured within thirty (30) business days after
written notice of default from Purchaser; or
13
(b) The Company shall be involved in financial difficulties as
evidenced (i) by its admitting in writing its inability to pay its debts
generally as they become due; (ii) by its commencement of a voluntary case under
Title 11 of the United States Code as from time to time in effect, or by its
authorizing, by appropriate proceedings of its Board of Directors or other
governing body, the commencement of such a voluntary case; (iii) by its filing
an answer or other pleading admitting or failing to deny the material
allegations of a petition filed against it commencing an involuntary case under
said Title 11, or seeking, consenting to or acquiescing in the relief therein
provided, or by its failing to controvert timely the material allegations of any
such petition; (iv) by the entry of an order for relief in any involuntary case
commenced under said Title 11; (v) by its seeking relief as a debtor under any
applicable law, other than said Title 11, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or alteration of
the rights of creditors, or by its consenting to or acquiescing in such relief;
(vi) by the entry of an order by a court of competent jurisdiction (a) finding
it to be bankrupt or insolvent, (b) ordering or approving its liquidation,
reorganization or any modification or alteration of the rights of its creditors,
or (c) assuming custody of, or appointing a receiver or other custodian for, all
or a substantial part of its property; or (vii) by its making an assignment for
the benefit of, or entering into a composition with, its creditors, or
appointing or consenting to the appointment of a receiver or other custodian for
all or a substantial part of its property; or
(c) Any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a substantial part of the
property of the Company and such judgment, writ, or similar process shall not be
released, vacated or fully bonded within ninety (90) days after its issue or
levy;
then, and in any such event, the Purchaser or any other holder of the Notes may,
by notice to the Company, declare the entire unpaid principal amount of the
Notes, all interest accrued and unpaid thereon to be forthwith due and payable,
whereupon the Notes and all such accrued interest shall become and be forthwith
due and payable (unless there shall have occurred an Event of Default under
subsection 7.01(b) in which case all such amounts shall automatically become due
and payable), without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Company.
7.02. Annulment of Defaults. Section 7.01 is subject to the condition
that, if at any time after the principal of any of the Notes shall have become
due and payable, and before any judgment or decree for the payment of the moneys
so due, or any thereof, shall have been entered, all arrears of interest upon
all the Notes and all other sums payable under the Notes and under this
Agreement (except the principal of the Notes which by such declaration shall
have become payable) shall have been duly paid, and every other default and
Event of Default shall have been made good or cured, then and in every such case
the holders of fifty-one percent (51%) or more in principal amount of all Notes
then outstanding may, by written instrument filed with the Company, rescind and
annul such declaration and its consequences; but no such rescission or annulment
shall extend to or affect any subsequent default or Event of Default or impair
any right consequent thereon.
14
ARTICLE VIII
MISCELLANEOUS
8.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of the Purchaser, or any other holder of the Notes in exercising any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are not exclusive of any remedies
provided by law.
8.02. Amendments, Waivers and Consents. Any provision in this Agreement
or the Notes to the contrary notwithstanding, changes in or additions to this
Agreement may be made, and compliance with any covenant or provision herein or
therein set forth may be omitted or waived, if the Company (i) shall obtain
consent thereto in writing from the holder or holders of at least fifty-one
percent (51%) in principal amount of all Notes then outstanding, and (ii) shall,
in each case, deliver copies of such consent in writing to any holders who did
not execute the same; provided that no such consent shall be effective to reduce
or to postpone the date fixed for the payment of the principal or interest
payable on any Note, without the consent of the holder thereof, or to reduce the
percentage of the Notes the consent of the holders of which is required under
this Section. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. Written
notice of any waiver or consent effected under this subsection shall promptly be
delivered by the Company to any holders who did not execute the same.
8.03. Addresses for Notices, etc. All notices, requests, demands and
other communications provided for hereunder shall be in writing (including
telegraphic communication) and mailed or telegraphed or delivered to: (i) the
Company or the Purchaser at its address show on the first page of this Agreement
and (ii) to any other holder of the Notes at such holder's address for notice as
set forth in the register maintained by the Company, and (iii) as to each of the
foregoing, at such other address as shall be designated by such person in a
written notice to the other party complying as to delivery with the terms of
this Section. All such notices, requests, demands and other communications
shall, when mailed or sent via facsimile, respectively, be effective when
deposited in the mails or delivered to the telegraph company, respectively,
addressed as aforesaid.
8.04. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the Company and the Purchaser and their respective
successors and assigns.
8.05. Survival of Representations and Warranties. All representations
and warranties made in this Agreement, the Notes, or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof and the making of the loans.
15
8.06. Prior Agreements. This Agreement constitutes the entire agreement
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
8.07. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
8.08. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Massachusetts.
8.09. Headings. Article, Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
8.10. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Agreement by signing
any such counterpart.
16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
NATIONAL TRANSACTION NETWORK, INC.
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------
INTERNATIONAL VERIFACT INC.
By: /s/ Xxxxx X. Xxxxx
--------------------------------
By: /s/ L. Xxxxx Xxxxxxx
--------------------------------
17
Exhibit I
NEITHER THIS NOTE NOR THE SECURITIES WHICH MAY BE ISSUED UPON CONVERSION OF THIS
NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS, BY REASON OF SPECIFIC EXEMPTIONS THEREUNDER
AND CANNOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF TO ANY PERSON OR ENTITY
UNLESS SUBSEQUENTLY REGISTERED THEREUNDER OR UNLESS APPLICABLE EXEMPTIONS
THEREFROM ARE AVAILABLE.
NATIONAL TRANSACTION NETWORK, INC.
CONVERTIBLE SUBORDINATED NOTE DUE 200_
$[Principal Amount] [Date]
For value received, National Transaction Network, Inc., a Delaware
corporation (the "Company"), hereby promises to pay to International Verifact
Inc. or registered assigns (hereinafter referred to as the "Payee"), on or
before ____ __, ____[five year term] (the "Due Date") the principal sum of
____________________ ($_______) or such part thereof as then remains unpaid and
to pay accrued and unpaid interest from the date hereof on the whole amount of
said principal sum remaining at the end of each quarter unpaid at a rate equal
to The First National Bank of Boston's best prime rate, as announced at the end
of each calendar quarter, plus (i) 2% or (ii) 5% during any period which the
Company is in default of its covenants in respect of its working capital line of
credit with Silicon Valley Bank, in each case calculated and compounded on the
last day of each quarter, such interest to be payable together with the payment
of the principal of this Note. Principal and interest shall be payable in lawful
money of the United States of America at the principal office of the Payee or at
such other place as the legal holder may designate from time to time in writing
to the Company. Interest shall be computed on the basis of a 360-day year and a
90-day calendar quarter.
This Note is issued pursuant to and is entitled to the benefits of a
certain Convertible Subordinated Note Purchase Agreement, dated as of August __,
1997, between the Company and International Verifact Inc. (as the same may be
amended from time to time, hereinafter referred to as the "Agreement"), and each
holder of this Note, by his acceptance hereof, agrees to be bound by the
provisions of the Agreement, including, without limitation, that: (i) the
principal of and interest on this Note is subordinated to Senior Debt, as
defined in the Agreement, (ii) in case of an Event of Default, as defined in the
Agreement, the principal of this Note may become or may be declared due and
payable in the manner and with the effect provided in the Agreement and (iii)
this Note is convertible at the option of the holder hereof into shares of
Common Stock of the Company in the manner set forth in this Agreement.
This Note is secured by and entitled to the benefits of a certain
Security Agreement (as that term is defined in the Agreement), dated
________________ __, 199_, from the Company to International Verifact Inc.
In case any payment herein provided for shall not be paid when due, the
Company promises to pay all cost of collection, including all reasonable
attorney's fees.
This Note shall be governed by, and construed in accordance with, the
laws of the Commonwealth of Massachusetts.
The Company and all endorsers and guarantors of this Note herein waive
presentment, demand, notice of nonpayment, protest and all other demands and
notices in connection with the delivery, acceptance, performance or enforcement
of this Note.
NATIONAL TRANSACTION NETWORK, INC.
By:________________________________
[Name and Title]
Exhibit II
SECURITY AGREEMENT
The undersigned, National Transaction Network, Inc., a Delaware
corporation with a place of business and executive office located at 000
Xxxxxxxx Xxxx, Xxxxxxxxxxx, Xxxxxxxxxxxxx 00000 (hereinafter referred to as a
"Debtor") hereby grants to International Verifact Inc., a Canadian corporation
with a place of business and executive office located at 00 Xxxxxxxxx Xxxx,
Xxxxxxx, Xxxxxxx, XXXXXX X0X 0X0 (hereinafter called the "Secured Party"), a
security interest in and agrees and acknowledges that Secured Party has and will
continue to have a security interest in the following:
(A) All of Debtor's inventory of whatever name, nature, kind or
description, all Debtor's goods held for sale or lease or to be furnished under
contracts of service, finished goods, work in process, raw materials, materials
used or consumed by the Debtor, parts, supplies, all wrapping, packaging,
advertising, labeling, and shipping materials, devices, names and marks, all
contract rights and documents relating to any of the foregoing, whether any of
the foregoing be now existing or hereafter arising, wherever located, now owned
or hereafter acquired by the Debtor (all of which is sometimes hereinafter
referred to as "Inventory");
(B) All of the Debtor's presently owned and hereafter acquired equipment,
machinery, furniture, fixtures and all other tangible personal property of
whatsoever kind or nature, together with all proceeds thereof, additions and
accessions thereto or replacements thereof or substitutions therefor (all of
which is sometimes hereinafter referred to as "Equipment");
(C) All of the Debtor's accounts, accounts receivable, notes, bills,
drafts, acceptances, instruments, documents, chattel paper and all other debts,
obligations and liabilities in whatever form owing to the Debtor for goods sold
by it or for services rendered by it, or however otherwise established or
created, all guaranties and security therefor, all right, title and interest of
the Debtor in the goods or services which gave rise thereto, including rights of
an unpaid seller of goods or services; whether any of the foregoing be now
existing or hereafter arising, now or hereafter received by or owing or
belonging to the Debtor (all of which are sometimes hereinafter referred to as
"Accounts");
(D) All of the Debtor's general intangibles, including without limitation,
names, goodwill, trade secrets, copyrights, trademarks, trademark applications,
tradenames, patents, patent applications, licenses, other intellectual property,
permits, governmental approvals, deposit accounts, tax refunds, claims under
insurance policies (whether or not proceeds from Collateral), other rights to
payment, rights of setoff, choses in action, rights under judgments, computer
programs and software, contract rights, and all contracts and agreements to, or
of which it is a party or beneficiary, and all intangible personal property of
whatsoever kind or nature now owned by the Debtor as well as any and all thereof
that may be hereafter acquired and in and to all proceeds thereof;
(E) All of the Debtor's books and records, as they exist from time to
time, relating to (A) through (D) above, inclusive;
(F) All other assets of every nature and description, whether it be now
existing or hereafter arising and whether now or hereafter belonging to the
Debtor;
(all hereinafter sometimes collectively referred to as "Collateral"); to secure
the payment of all sums due or which may become due under certain Notes of the
Debtor which may be issued from time to time in up to an aggregate principal
amount of One Million Dollars ($1,000,000), such notes to be issued from time to
time pursuant to a certain Convertible Subordinated Note Purchase Agreement (the
"Purchase Agreement") by and between the Debtor and Secured Party as of August
__, 1997 (hereinafter sometimes collectively referred to as "Obligation" or
"Obligations").
I. WARRANTIES AND COVENANTS.
The Debtor hereby warrants and covenants that:
(A) The Equipment and Inventory are used primarily for business purposes.
(B) The Equipment and Inventory of the Debtor will be kept at the Debtor's
place of business. The Debtor will promptly notify the Secured Party of any
change in the location of the Collateral, and the Debtor will not remove the
Equipment from its place of business without the prior written consent of the
Secured Party. The Debtor will notify the Secured Party, at least twenty (20)
days prior to any such event, of any change in the Debtor's exact legal name,
any change in its place of business or location of Equipment or Inventory or its
establishment of any new place of business or location of Equipment or Inventory
or office where its records concerning Accounts and other assets are kept.
(C) The Debtor will have and maintain insurance at all times with respect
to all its Collateral against risks of fire (including so-called extended
coverage), theft, embezzlement and such other risks as Secured Party may
reasonably require containing such terms. If and when requested by the Secured
Party, the Debtor shall furnish Secured Party with certificates or other
evidence of compliance with the foregoing insurance provision and the Secured
Party may act either in its name or as attorney for the Debtor (for that purpose
by these presents duly authorized and appointed with full power of substitution
and revocation) in obtaining, adjusting, settling and canceling such insurance
and endorsing any drafts in payment of any loss.
(D) The Debtor will pay promptly when due all taxes and assessments upon
its Collateral or for its use or operation or upon this Agreement or upon any
note or notes secured hereby. In its sole discretion, the Secured Party may: (i)
discharge taxes and liens levied or placed on Collateral; (ii) pay for insurance
thereon or the maintenance and preservation thereof; or (iii) if the Debtor
shall fail to make required deposits in respect of F.I.C.A. or any withholding
taxes, make such deposits or pay such taxes, in whole or in part, or set up such
reserves as the Secured Party in its sole discretion deem necessary in respect
of the Debtor's liability therefor. Any
amount so paid, deposited or reserved for shall constitute a loan for all
purposes hereunder, and the Debtor promises to repay the Secured Party such
amounts upon the Secured Party's demand. Nothing herein shall be deemed to
obligate the Secured Party to do any of the foregoing and the making of any one
or more such payments; deposits or reserves shall not constitute an agreement by
the Secured Party to take any further or similar action or a waiver of any right
of the Secured Party hereunder.
(E) The Debtor will keep its Collateral at all times in good order and
repair, reasonable wear and tear excepted, and will make necessary renewals of
and replacements to the same with goods of equal value and serviceability, free
of all liens, security interests and encumbrances, which goods shall
automatically become subject to this Agreement.
II. ADDITIONAL RIGHTS AND ASSURANCES.
(A) Subject to Article VI of this Agreement, the Secured Party will at any
time following an occurrence of an Event of Default hereunder have the right to
take physical possession of the Collateral and to maintain such possession on
the Debtor's premises or to remove the Collateral or any part thereof to such
other places as the Secured Party may desire. If the Secured Party exercises
such right, the Debtor shall at its sole expense upon the Secured Party's
request assemble the same and make it available to the Secured Party at a place
reasonably convenient to the Secured Party. If any Inventory is in the
possession or control of any of the Debtor's agents or processors, the Debtor
shall, at the Secured Party's request, notify them of the Secured Party's
security interest therein and, at the Secured Party's request, instruct them to
hold the same for the Secured Party's account and subject to the Secured Party's
instructions.
(B) The Secured Party may at any time after an occurrence of an Event of
Default (i) in its own name or in the name of others communicate with account
debtors in order to verify with them to the Secured Party's satisfaction the
existence, amount and terms of any Accounts and the absence of any reductions,
discounts, defenses or offsets with respect thereto, or (ii) notify account
debtors that Collateral has been assigned to the Security Party and that
payments by such debtors shall be made directly to the Secured Party. At the
Secured Party's request, the Debtor will notify any or all such debtors of such
assignment, give instruction and/or indicate on xxxxxxxx to such debtors that
their Accounts shall be paid to the Secured Party and/or supply such debtors
with a copy of this Agreement.
(C) Subsequent to the occurrence of any Event of Default, the Secured
Party shall have full power, in its own name or that of the Debtor, to collect,
endorse, compromise, settle, sell or otherwise deal with any or all of the
Collateral or proceeds thereof. Subsequent to the occurrence of any Event of
Default, the Debtor agrees upon request of the Secured Party to appoint any
officer or agent of the Secured Party as true and lawful attorney-in-fact, with
power of substitution, to endorse the name of the Debtor or any of its officers,
trustees or agents upon any Accounts, notes, checks, drafts, money orders, or
other instruments of payment (including under any policy of insurance on
Collateral) or Collateral that may come into possession of the Secured Party in
full or part payment of any amounts owing to Secured Party; to sign and endorse
the name of the Debtor or any of its officers, trustees or agents upon any
invoice, freight or express
xxxx, xxxx of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with Accounts, and any
instruments or documents relating thereto or to the Debtor's rights therein; to
give written notice to such offices and officials of the United States Postal
Service to effect such change or changes of address so that all mail addressed
to the Debtor may be delivered directly to the Secured Party; to take any and
all other actions necessary or appropriate to collect, compromise, settle, sell
or otherwise deal with any or all of the Collateral or proceeds thereof; and to
obtain, adjust, settle and cancel any insurance; hereby granting to each said
attorney-in-fact or his substitute full power to do any and all things necessary
or appropriate to be done in and about the premises as fully and effectually as
the Debtor might or could do, and hereby ratifying all that any said
attorney-in-fact or his substitute shall lawfully do or cause to be done by
virtue hereof.
(D) The Debtor hereby assigns to the Secured Party all sums, including
without limitation return of premiums, which may become payable under any and
all of such Debtor's policies of insurance and directs each insurance company
issuing any such policy to make payment which would otherwise be due thereunder
to the Debtor directly to the Secured Party.
(E) In the event of the sale, exchange or disposition of any of the
Collateral (other than finished goods in the ordinary course of business) or any
interest therein (and no such sale, exchange or other disposition is hereby
authorized or consented to), the Secured Party's security interest shall
nevertheless continue in such Collateral (including without limitation all
proceeds, cash and non-cash) notwithstanding such sale, exchange or other
disposition; and the Secured Party's receipt of any such proceeds shall not be
deemed or construed to be an authorization of or consent to any such sale,
exchange or other disposition.
(F) Any and all instruments, documents, policies and certificates of
insurance, securities, goods, accounts, choses in action, general intangibles,
chattel paper, cash, property and the proceeds thereof (whether or not the same
are Collateral or proceeds thereof) owned by the Debtor or in which the Debtor
has an interest, which now or hereafter are at any time in possession or control
of the Secured Party or any affiliate of the Secured Party or in transit by mail
or carrier to or from the Secured Party or such affiliate or in the possession
of any third party acting in its behalf, without regard to whether the Secured
Party or such affiliate received the same in pledge, for safekeeping, as agent
for collection or transmission or otherwise or had conditionally released the
same, shall constitute security for Obligations and may be applied at any time
to Obligations which are then owing, whether due or not due.
(G) A carbon, photographic, or other reproduction of a security agreement
or a financing statement is sufficient as a financing statement to the extent
permitted under applicable law.
III. EVENTS OF DEFAULT.
The Debtor shall be in default under this Agreement upon the happening of
any of the following events or conditions (individually and collectively an
"Event of Default"):
(A) Failure by the Debtor to observe or perform any covenant or agreement
referred to herein and, if no other grace or cure period is applicable thereto,
the continuance of such failure for thirty (30) business days; or
(B) An Event of Default (as defined in the Purchase Agreement) shall have
occurred and is continuing and such Event of Default has not been annulled.
IV. REMEDIES.
(A) If an Event of Default occurs:
(1) The Secured Party may declare all obligations secured hereby
to be immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived.
(2) The Secured Party may exercise and shall have any and all
rights and remedies accorded it by the Massachusetts Uniform Commercial Code or
the Uniform Commercial Code as adopted in such state whose laws govern the
disposition of certain Collateral. The requirement of reasonable notice shall be
met, if notice containing such information as may be required under applicable
law is mailed, postage prepaid, to the Debtor or other person entitled thereto
at least ten (10) days (including non-business days) before the time of sale or
disposition of the Collateral.
(3) The Debtor designates and appoints the Secured Party its true
and lawful attorney with full power of substitution in its own name or in the
name of such Debtor to demand, collect, receive, receipt for, xxx for, compound
and give acquittance for, any and all amounts due and to become due on the
Accounts and to endorse the name of such Debtor on all commercial paper given in
payment or part-payment thereof and in its reasonable discretion to file any
claim or take any other action which the Secured Party may reasonably deem
necessary or appropriate to protect and preserve and realize upon the security
interest of the Secured Party in the Accounts or the proceeds thereof. The
Secured Party shall also have the right to (i) open all mail addressed to the
Debtor; (ii) change the Post Office box or mailing address of the Debtor; and
(iii) use the Debtor's stationery and billing forms or facsimiles thereof, for
the purpose of collecting Accounts and realizing upon the Collateral.
(B) No delay in accelerating the maturity of any obligation as aforesaid
or in taking any other action with respect to any Event of Default or in
exercising any rights with respect to the Collateral such affect the rights of
the Secured Party later to take such action with respect thereto, and no waiver
as to one Event of Default shall affect rights as to any other default.
V. MISCELLANEOUS.
(A) In case any one or more of the provisions contained herein should be
invalid, illegal or unenforceable in any respect, the validity, legality or
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
(B) All rights of the Secured Party hereunder shall inure to the benefit
of its successors and assigns; and all obligations of the Debtor shall bind the
successors or assigns of the Debtor. All the provisions of this Agreement shall
be construed by and administered in accordance with the local laws of the
Commonwealth of Massachusetts. This Agreement shall become effective when it is
signed by the Debtor. The Debtor acknowledges receipt of a copy of this
Agreement.
(C) In the absence of gross negligence or willful misconduct, neither the
Secured Party nor any attorney-in-fact appointed hereunder shall be liable to
the Debtor or any other person for any act or omission, any mistake of fact or
any error of judgment in exercising any right or remedy granted herein.
VI. FIRST RIGHTS OF BANK.
The Secured Party and the Debtor acknowledge that the Debtor has granted a
security interest to the Silicon Valley Bank ("Bank") to secure certain
obligations of the Debtor to the Bank. Both the Secured Party and the Debtor
hereby expressly acknowledge that the security interest in the Collateral
created hereby is subordinate and junior to the security interest of the Bank in
the Collateral.
Signed and delivered this __th day of ______ 199_.
NATIONAL TRANSACTION NETWORK, INC.
By:___________________________________
INTERNATIONAL VERIFACT INC.
By:___________________________________
