LOAN AND SECURITY AGREEMENT
THIS
LOAN AND SECURITY AGREEMENT
(the
"Agreement") made as of the 15th day of July, 2006 by and among PETALS
DECOARTIVE ACCENTS, INC., a Delaware corporation, with its principal office
and
place of business at 00 Xxxxx Xxxxxx, Xxxxxxxxxx, XX 00000 (the "Borrower"),
Southridge Partners LP, a Delaware limited partnership and Southshore Capital
Fund Ltd., a Cayman Island corporation (the "Lenders"). The Borrower and the
Lenders are sometimes referred to in this Agreement as (the
"parties”).
W
I T N E S S E T H:
WHEREAS,
pursuant
to this Agreement, Lenders, in their sole discretion, may advance cash to the
Borrower under this Agreement pursuant to the Revolving Credit
Facility;
NOW,
THEREFORE,
in
consideration of the premises and other good and valuable consideration
exchanged between the parties, the receipt and sufficiency of which is hereby
acknowledged, it is hereby agreed as follows:
ARTICLE
I
DEFINITIONS
AND ACCOUNTING TERMS
SECTION
1.1. Defined Terms.
As used
in this Agreement, the following terms shall have the following meanings (terms
defined in the singular to have the same meaning when used in the plural and
vice versa):
"Advance"
or "Advances" means any advance of cash from a Lender to the Borrower made
pursuant to the Revolving Credit Facility. An Advance made also by referred
to
as a Loan.
"Affiliate"
of any Person shall mean (a) any Person which, directly or indirectly, is in
control of, is controlled by, or is under common control with such Person,
or
(b) any Person who is a director or officer (i) of such Person, or (ii) of
any
Person described in clause (a) above. For purposes of this definition, control
of a Person shall mean the power, direct or indirect, (x) to vote 10% or more
of
the securities having ordinary voting power for the election of directors of
such Person, or (y) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Business
Day" means any day other than a Saturday, Sunday, or other legal or bank
holiday.
"Collateral
Security" or "Collateral" means all of the Collateral described in Article
III
hereof securing the re-payment of the Advances and all other obligations and
indebtedness.
"Equipment"
has the meaning defined in the Uniform Commercial Code as in effect in the
State
of Connecticut.
"Event
of
Default" means any of the events specified in Section 7.1 of this
Agreement.
"Fiscal
Year" means the fiscal year the Borrower uses for filing tax returns, which
Fiscal Year, as of the date hereof, ends annually on June 30.
"GAAP"
means generally accepted accounting principles consistently applied and
maintained throughout the period involved. All computations required hereunder
shall be made and interpreted pursuant to GAAP.
“Lenders”
mean Southshore Capital Fund Ltd. and Southridge Partners LP (each a
“Lender”).
"Lien"
means any mortgage, deed of trust, pledge, security interest, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other), or
preference, priority, or other security agreement or preferential arrangement,
charge, or encumbrance of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the UCC or comparable
law of any jurisdiction to evidence any of the foregoing),
"Loan"
or
"Loans" means any extension of credit under the Revolving Credit
Facility.
"Loan
Documents" means this Agreement, and all other written agreements, documents,
financing statements and/or certificates at any time given to or held by the
Lenders in connection with the Revolving Credit Facility and the Revolving
Credit Notes.
"Obligations"
means all of the obligations of the Borrower under this Agreement, the Revolving
Credit Notes, including the obligation to reimburse Lenders for its reasonable
costs and expenses (including, without limitation, reasonable attorney's fees)
incurred in connection with the enforcement of its rights hereunder and
thereunder.
"Person"
means any individual, partnership, corporation, limited liability company,
business trust, joint stock company, trust, unincorporated association joint
venture, governmental authority or other entity of whatever nature.
"Revolving
Credit Facility" means the revolving line of credit established for the Borrower
by the Lenders pursuant to the provisions of Article II of this
Agreement.
"Revolving
Credit Note(s)" means the promissory notes referred to in Section 2.4 hereof
evidencing the Advances,
substantially in the form set forth in Exhibit A.
"Subsidiary"
means a corporation or other entity of whose shares of stock or other ownership
interests having ordinary voting power (other than stock or other ownership
interests having such power only by reason of the happening of a contingency)
to
elect a majority of the directors of such corporation, or other Persons
performing similar functions for such entity, are owned, directly or indirectly,
by such Person.
"UCC"
means the Uniform Commercial Code as adopted in the State of
Connecticut.
SECTION
1.2. Accounting Terms.
All
accounting terms used in this Agreement not specifically defined herein shall
be
construed in accordance with GAAP, consistent with those applied in the
preparation of the financial statements referred to in Section 6.3 of this
Agreement and all financial data pursuant to this Agreement shall be prepared
in
accordance with such principles.
ARTICLE
II
AMOUNT
AND TERMS OF CREDIT FACILITIES
SECTION
2.1. Revolving Credit Facility.
The
Lenders may, in their sole discretion, and subject to the terms and conditions
hereinafter set forth, make Advances to the Borrower from time to time, in
an
aggregate principal amount outstanding at any time, up to but not to exceed
$5,000,000. Any advance made by a Lender pursuant to this Agreement is payable
by the Borrower upon demand to such Lender.
Anything
contained herein to the contrary notwithstanding, the obligation of each Lender
to make Advances shall be at such Lender’s sole discretion.
Within
the limits of the Revolving Credit Facility, the Borrower may borrow, repay
and
re-borrow under the Revolving Credit Facility. All outstanding Advances shall
be
payable upon demand by the Lenders.
The
Advances shall be evidenced by the Revolving Credit Notes referred to in Section
2.4 hereof.
Each
Lender enters into this Agreement of its own accord, and any liability for
an
obligation created on the part of each Lender shall be several and not joint.
Each Lender may exercise its rights created hereunder independently one from
the
other, without creating any liability whatsoever between each Lender as the
result of such exercise.
This
Agreement shall terminate on December 31, 2008. At such time, and to the extent
not earlier repaid pursuant the terms of this Agreement, all outstanding
principal and interest under the Revolving Credit Notes shall become due and
payable by the Borrower to the Lenders.
SECTION
2.2. Interest.
Notwithstanding anything in this Agreement or the Loan Documents to the
contrary, the principal amount of Advances made under this Agreement shall
bear
interest at the rate equal to five (5%) percent per year, on the basis of a
360-day year and actual number of days elapsed (but in no event in excess of
the
maximum rate permitted by applicable law).
SECTION
2.3. The Revolving Credit Notes.
The
Loans shall be evidenced by promissory notes made and delivered by the Borrower
in substantially the form of the Revolving Credit Notes, and made a part hereof,
duly completed, dated the date of this Agreement and payable to a Lender at
the
office of the Lender set forth at the beginning of this Agreement or such other
office as the Lender shall notify the Borrower of from time to time in writing.
The Revolving Credit Notes shall evidence the obligation of the Borrower to
repay the Advances to the Lenders as provided herein. The Lenders are hereby
authorized, but not obligated, by the Borrower to endorse on the schedule
attached to the Revolving Credit Note the amount of each Advance made, and
each
renewal, and payment of principal or interest thereon. Such endorsement shall,
in the absence of error, be conclusive as to the outstanding balance due under
the Revolving Credit Facility; provided, however, that the Lenders' failure
to
make such notation with respect to any Advance, or any renewal thereof, or
payment thereon shall not limit or otherwise affect the obligations of the
Borrower under this Agreement or the Revolving Credit Note. In lieu of using
the
schedule attached to the Revolving Credit Note, a Lender may record all
advances, payments and renewals with respect to the Revolving Credit Facility
in
such other reasonable manner as it may elect. Such record, absent manifest
error, shall be conclusive as to the principal balance due on the Revolving
Credit Facility.
SECTION
2.4. [Reserved]
SECTION
2.5. Prepayments.
The
Borrower may, at any time without penalty or premium, prepay the Loans in whole
or in part, plus accrued interest in increments of not less than $50,000.
SECTION
2.6. [Reserved]
SECTION
2.7. Method of Payment.
The
Borrower shall make each payment due under this Agreement and under the
Revolving Credit Notes (whether it be principal, interest or any other charge)
in lawful money of the United States and in immediately available funds upon
demand, to the accounts of the Lenders designated for that purpose. Whenever
any
payment to be made under this Agreement shall be stated to be due on a Saturday,
Sunday or a public or bank holiday, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of the payment of interest.
ARTICLE
III
SECURITY
INTEREST
SECTION
3.1. Grant of Security.
In order
to secure the due and punctual repayment of the Obligations, Borrower hereby
assigns, pledges and grants to the Lenders a continuing security interest in
all
of Borrower's right, title, and interest in and to all of the Borrower's
accounts receivable, instruments, investment securities, chattel paper, notes,
drafts, acceptances, contract rights, credits, claims; and all proceeds thereof
(including, without limitation, claims of Borrower against third parties for
breach of contract, and loss or damage to or destruction of the personal
property), all of the inventory, equipment, trade marks, trade names, customer
lists, designs, intellectual property, books and records, goodwill, and all
substitutions and replacements thereof, wherever located, whether now owned
or
hereafter acquired and all proceeds therefrom. All the foregoing collectively
referred to as (the "Collateral").
SECTION
3.2. Collateral Owned Free and Clear.
Except
for any existing lien on Borrower’s assets held by Ridgefield Bank, the Borrower
shall not encumber or grant a security interest in any of the Collateral
described in Section 3.1 above to anyone other than the Lenders, or permit
any
of the foregoing, without the prior written consent of the Lenders. In the
event
that any Collateral, including proceeds, is evidenced by or consists of
negotiable instruments, Borrower shall, upon the Lenders' request, immediately
endorse, assign and deliver physical possession of such to the
Lenders.
SECTION
3.3. Remedies.
If any
Event of Default shall have occurred under this Agreement and/or the Revolving
Credit Notes between the Borrower and the Lenders and, except for a default
in
the payment or repayment of principal required thereunder, the same shall have
not been cured within fifteen (15) days of written notice thereof by Lenders
to
Borrower, the Lenders may:
(a) sell
the
Collateral or any interest therein, and negotiate, endorse, assign, transfer
and
deliver unto the purchaser or purchasers thereof the Collateral at public or
private sale, for cash, upon credit or for other property, for immediate or
future delivery and for such price or prices and on such terms as the Lenders
in
their discretion and in good faith shall deem appropriate.
(b) Upon
consummation of any such sale, the Lenders shall have the right to assign,
transfer and deliver to the purchaser or purchasers thereof the Collateral
or
any interest therein so sold. Each such purchaser at any such sale shall hold
the property sold absolutely free from any claim or right on the part of the
Borrower, and the Borrower hereby waives (to the extent permitted by law) all
rights of redemption, stay and appraisal which the Borrower now has or may
at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Lenders shall give the Borrower ten (10) business days
prior written notice (which the Borrower agrees is reasonable notification
within the meaning of the UCC), of the Lenders' intention to make any such
public or private sale. Such notice shall state the time, place, manner and
terms of the proposed sale. Any such public sale shall be held at such time
or
times, within ordinary business hours and at such place or places as the Lenders
may fix and so state in the notice or publication (if any) of such sale, At
any
such sale, the Collateral or any interest therein to be sold may be sold as
a
whole or by means of such lots as the Lenders may (in their sole
and
absolute discretion) determine. The Lenders shall not be obligated to make
any
sale of the Collateral if it shall determine not to do so, regardless of the
fact that notice of sale of the Collateral may have been given. The Lenders
may,
without notice or publication, adjourn any public or private sale or cause
the
same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. In the event that the sale of
the
Collateral or any interest therein is made on credit or for future delivery,
the
Collateral may be retained by the Lenders until the sale price is paid by the
purchaser or purchasers thereof, but the Lenders shall not incur any liability
in case any such purchaser or purchasers shall fail to take up and pay for
the
Collateral or such interest so sold and, in case of any such failure, the
Collateral or any interest therein may be sold again upon like notice. At any
public sale made pursuant to this Section, the Lenders may bid for or purchase,
free (to the extent permitted by law) from any right of redemption, stay or
appraisal on the part of the Borrower (all said rights being also hereby waived
and released to the extent permitted by law), the Collateral or any interest
therein offered for sale and may make payment on account thereof by using any
claim then due and payable to the Lenders from the Borrower as a credit against
the purchase price, and the Lenders may, upon compliance with the terms of
the
sale, hold, retain and dispose of such property without further accountability
to the Borrower therefore except for a final accounting. For purposes hereof,
a
written agreement to purchase the Collateral or any interest therein shall
be
treated as a sale thereof. The Lenders shall be free to carry out such sale
pursuant to such agreement and the Borrower shall not be entitled to the return
of the Collateral or any interest therein subject thereto, notwithstanding
the
fact that after the Lenders shall have entered into such agreement, all defaults
under this Agreement may have been remedied and the Obligations may have been
paid in full. As an alternative to exercising the power of sale herein conferred
upon it, the Lenders may proceed by suit or suits at law or in equity to
foreclose its security interest and sell the Collateral or any portion thereof
pursuant to judgment or decree of a court or courts having competent
jurisdiction. The Lenders agree to pay to the order of the Borrower any proceeds
from the sale of the Collateral in excess of the Obligations, subject to the
rights of any junior lien holder known to the Lenders.
(c) All
proceeds from the sale of the Collateral by the Lenders hereunder and all other
moneys received by the Lenders pursuant to the terms of this Article III shall
be applied as follows:
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First:
To the payment of all reasonable expenses incurred by the Lenders
in
connection with enforcing its rights hereunder including, without
limitation, such sale, including, but not limited to, the expenses
of
taking, advertising, processing, preparing and storing the Collateral
to
be sold, all court costs and the Lenders' reasonable legal fees in
connection therewith, and to the payment of all reasonable advances,
costs
and expenses paid or incurred by, or fees owed to, the Lenders in
connection with this Agreement or any other agreement or the exercise
of
any right or remedy hereunder or thereunder to the extent that such
advances, costs, expenses and fees shall not have been paid to the
Lenders
upon their demand to the Borrower therefor;
and
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Second:
To the payment of the unpaid principal amount due and owing on the
Revolving Credit Notes or any other instrument delivered by the Borrower
to the Lenders in accordance with the terms thereof, by acceleration
or
otherwise, together (in order of priority as determined by the Lenders
in
its sole discretion) with interest thereon to the date of payment,
and to
the payment of all other unpaid monetary obligations of the Borrower
to
the Lenders under this Agreement,
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Third.
Any surplus remaining to be paid over to the Borrower, its successor
or
permitted assigns, or as a court of competent jurisdiction may direct,
and
subject to the rights of any junior lien holder known to the
Lenders.
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SECTION
3.4. Further Assurances.
(a) The
Borrower shall from time to time, at its expense, promptly execute and deliver
all further instruments and documents, and take all further action, that may
be
necessary or desirable, or that the Lenders may reasonably request, in order
to
perfect any security interest granted hereby, or to enable the Lenders to
exercise and enforce its rights or remedies hereunder or under any of the Loan
Documents. Without limiting the generality of the foregoing, the Borrower will
execute and file such financing and continuation statements, or amendments
thereto, as may be necessary or desirable, or as the Lenders may request, in
order to perfect and preserve the security interests granted
hereby.
(b) The
Borrower shall furnish to the Lenders, from time to time, statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral, as the Lenders may reasonably request
in order to maintain its security interest in the Collateral, all in reasonable
detail,
SECTION
3.5. Place
of Business.
The
Borrower shall provide the Lenders with ten (10) days' prior written notice
of
the relocation of its chief executive offices and the offices where it keeps
any
Collateral. The Borrower will hold and preserve the Collateral and will permit
representatives of the Lenders at any time during normal business hours to
inspect the same after reasonable notice to the Borrower.
SECTION
3.6. Transfers and Other Liens.
The
Borrower shall not: (a) sell, assign (by operation or law or otherwise) or
otherwise dispose of any of the Collateral, except (i) Borrow may dispose of
a
item of Collateral that, in Borrower’s good faith opinion, has become
inadequate, obsolete, worn out, undesirable, unsuitable or unnecessary may
be
sold, traded in, exchanged or otherwise disposed of, provided that such removal
will not materially impair the efficient operation of the Borrower's business
or
materially impair the aggregate value of the Collateral pledged to the Lenders
hereunder, or (ii) upon the substitution of additional collateral of
substantially equivalent value as reasonably determined by the Lenders; or
(iii)
Borrower may sell or dispose of Collateral in the ordinary course of business,
or (b) create or suffer to exist any lien, security interest or other charge
or
encumbrance upon or with respect to any of the Collateral to secure the
indebtedness or obligations of any Person, other than (i) the security interest
created by this Article III, and (ii) security interests permitted by Section
6.2 of this Agreement.
SECTION
3.7. Continuing Security Interest; Transfer of the
Revolving Credit Notes.
This
Article III shall create continuing security interests in the Collateral and
shall (i) remain in full force and effect until payment in full of all of the
Obligations; (ii) be binding upon the Borrower and its successors and permitted
assigns (if any); and (iii) inure to the benefit of the Lenders and their
subsidiaries, successors transferees and assigns. Without limiting the
generality of the foregoing clause (iii), the Lenders may assign or otherwise
transfer the Revolving Credit Notes or any other instrument delivered by the
Borrower to the Lenders to any Person, and such Person shall thereupon become
vested with all the benefits (and obligations) in respect thereof granted to
the
Lenders under this Article III. Upon the payment in full of the Obligations,
the
Lenders agrees to terminate the security interests granted under this Article
III and, at the expense of the Borrower, execute and deliver to the Borrower
such documents as the Borrower shall reasonably request to evidence such
termination.
SECTION
3.8. Rights Cumulative.
Subject
to the notice and cure provisions of Section 3.3, the rights and remedies
granted to Lenders hereunder are in addition to, and not in lieu of, any and
all
other rights and remedies which Lenders may have under applicable law,
including, without limitation, the rights and remedies of a secured creditor
under the UCC, all of which (except where such law provides for an election
of
remedies) shall be cumulative.
ARTICLE
IV
CONDITIONS
SECTION
4.1. Conditions Precedent to an
Advance.
Any
Advance by a Lender shall be subject to the fulfillment on or prior to the
Closing Date as well as on the date of any Advance of each of the following
conditions, in form and substance satisfactory to the Lenders and their
counsel;
(a) The
Borrower shall have executed and delivered to the Lenders this Agreement and
such other Loan Documents as the Lenders may reasonably require from time to
time;
(b) The
Borrower shall have executed and delivered to the Lenders, the Revolving Credit
Notes, each dated the Closing Date;
(c) The
Borrower shall have executed and delivered to the Lenders UCC financing
statements covering (to the satisfaction of the Lenders) the Collateral, in
form
for filing;
(d) No
Event
of Default shall have occurred and be continuing; and
(e) There
shall not have occurred any material adverse change in the Borrower's business
operations, properties or financial condition.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES
SECTION
5.1. Representations and Warranties of the Borrower.
In
order
to induce the Lenders to enter into this Agreement and to make an Advance
provided for herein, the Borrower makes the following representations and
warranties to, and agreements
with, the Lenders, all of which shall survive the execution and delivery of
this
Agreement, the issuance of the Revolving Credit Notes and the making of an
Advance.
(a) The
Borrower's latest financial statements provided to the Lenders are, to the
best
of Borrower’s knowledge, true, complete and accurate in all material respects
and fairly present the financial condition, assets and liabilities, whether
accrued, absolute, contingent or otherwise and the results of the Borrower's
operations for the period specified therein. To the best of Borrower’s
knowledge, the Borrower's financial statements have been prepared in accordance
with GAAP consistently applied from period to period subject in the case of
interim statements to normal year-end adjustments. Since the date of the latest
financial statements provided to the Lenders, to the best of Borrower’s
knowledge, the Borrower has not suffered any damage, destruction or loss which
has materially adversely affected its business, assets, operations, financial
condition or results of operations.
(b)
There
are no material actions, suits or proceedings pending or, to the knowledge
of
the Borrower, threatened against the Borrower which could result in a material
adverse change in its business, assets, operations, financial condition or
results of operations and there is no basis known to the Borrower or its
officers or directors for any such action, suit or proceedings.
(c) To
the
best of Borrower’s knowledge, the Borrower has filed all returns and reports
that are required to be filed by it in connection with any federal, state or
local tax, duty or charge levied, assessed or imposed upon the Borrower or
its
property, including unemployment, social security and similar taxes and all
of
such taxes have been either paid or adequate reserve or other provision has
been
made e.
(d) To
the
best of Borrower’s knowledge, the Borrower is duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the power
and authority to own and operate its assets and to conduct is business as now
or
proposed to be carried on, and is duly qualified, licensed and in good standing
to do business in all jurisdictions where its ownership of property or the
nature of its business requires such qualification or licensing.
(e) The
Borrower has full power and authority to enter into the transactions provided
for in this Agreement and the Loan Documents and has been duly authorized to
do
so by all necessary and appropriate action and when executed and delivered
by
the Borrower, this Agreement and the other Loan Documents executed and delivered
pursuant hereto will constitute the legal, valid and binding obligations of
the
Borrower enforceable in accordance with their terms.
(f) To
the
best of Borrower’s knowledge, there does not exist any default or violation by
the Borrower or under any of the terms, conditions or obligations of: (i) its
organizational documents; (ii) any indenture, mortgage, deed of trust,
franchise, permit, contract, agreement, or other instrument to which it is
a
party or by which it is bound; and (iii) any law, regulation, ruling, order,
injunction, decree, condition or other requirement applicable to or imposed
upon
the Borrower by any law or by any governmental authority, court or
agency.
(g) The
security interests granted by Borrower to Lenders pursuant to this Agreement
and
any other Loan Document constitute valid security interests in the Collateral
herein described under applicable law, and are prior (how does the current
Revolver with Ridgefield affect this?)to security interests in the Collateral,
if any, granted to any other Person, except as specifically provided
herein.
ARTICLE
VI
COVENANTS
SECTION
6.1. Affirmative Covenants of the Borrower Other Than Reporting
Requirements.
So long
as this Agreement shall remain in effect or the Revolving Credit Notes or any
fees and expenses due the Lenders hereunder shall be unpaid, the Borrower shall,
to the best of its ability, unless the Lenders shall otherwise consent in
writing:
(a) Promptly
submit to the Lenders such information relating to the Borrower's affairs
(including but not limited to annual financial statements and tax returns)
or
any security for any Advance as the Lenders may reasonably request, subject
to
SEC Rules and Regulations permitting such disclosure.
(b) Pay
and
discharge all taxes, assessments and governmental charges or levies imposed
upon
it or its income or profits, or upon any properties belonging to it prior to
the
date on which penalties attach thereto, and all lawful claims which, if unpaid,
might become a lien or charge against any of its properties, provided that
the
Borrower shall not be required to pay any such tax, assessment, charge, levy
or
claim, which is being contested in good faith and by proper proceedings, as
long
as appropriate reserves are set aside on its books and records.
(c) Preserve
and maintain its existence as a corporation in Delaware and qualify and remain
qualified as a foreign corporation in such jurisdiction where such qualification
is necessary or desirable in view of its business and operations or the
ownership of its properties.
(d) Keep
adequate records and books of account, in which complete entries will be made
in
accordance with GAAP consistently applied, reflecting all financial transactions
of the Borrower.
(e) Maintain
and preserve all of its properties (and/or leasehold interests in said
properties), necessary or useful in the proper conduct of its business, in
good
working order and condition, ordinary wear and tear excepted, except such
properties as may be disposed of in the ordinary course of
business.
(f) Make
full
and timely payment of the principal and interest and premium, if any, on the
Loans.
SECTION
6.2. Negative
Covenants of the Borrower.
So long
as this Agreement shall remain in effect or the Revolving Credit Notes or any
fees and expenses due the Lenders hereunder shall be unpaid, the Borrower shall
not, directly or indirectly, without the prior written consent of the Lenders,
which consent shall not be unreasonably withheld:
(a) Enter
into any merger, consolidation or other reorganization with or into any other
entity or acquire all or a substantial portion of the assets or stock of any
entity or permit any other entity to consolidate with or merge with
it.
(b)
Sell,
lease, transfer or otherwise dispose of any of its properties or assets, except
in the ordinary course of its business.
(c) Create
or
suffer to exist any Lien or transfer upon or against any of its property or
assets now owned or hereafter acquired.
(d) Become
liable upon the obligations of any third party by assumption, endorsement or
guaranty thereof or otherwise (other than to Lenders).
(e) Declare,
pay or make any cash dividend or cash distribution on any shares of the common
stock of Borrower or apply any of its funds, property or assets to the purchase,
redemption or other retirement of any common or preferred stock, or of any
options to purchase or acquire any such shares of common or preferred stock
of
Borrower.
(f) Substantially
change the nature of the business in which it is presently engaged, nor except
as specifically permitted hereby purchase or invest, directly or indirectly,
in
any assets or property other than in the ordinary course of business for assets
or property which are useful in, necessary for and are to be used in its
business as presently conducted.
(g) Directly
or indirectly, purchase, acquire or lease any property from, or sell, transfer
or lease any property to, or otherwise deal with, any Affiliate, except
transactions disclosed in the ordinary course of business, on an arm's length
basis on terms no less favorable than terms which would have been obtainable
from an entity other than an Affiliate.
(h) Enter
into any partnership, joint venture or similar arrangement that would have
a
material effect on Borrower's financial condition .
(i) Make
any
significant change (i) in accounting treatment and reporting practices except
as
required by GAAP or (ii) in tax reporting treatment except as required by
law.
ARTICLE
VII
DEFAULT
SECTION
7.1. Events of Default.
If any
of the following events ("Events of Default") shall occur and be
continuing:
(a) The
Borrower shall fail to pay any payment of principal or interest under any of
the
Revolving Credit Notes, or other Obligations upon demand by a Lender, subject
to
being cured within any applicable time frame allotted for herein.
(b) The
Borrower shall fail to perform or observe any applicable material term, covenant
or agreement contained in Sections 6.1 or 6.2 of this Agreement or the Borrower
shall fail to perform or observe any other material term, covenant or agreement
contained in this Agreement.
(c) This
Agreement, the Revolving Credit Notes, or any of the other Loan Documents which
are a part hereof (and any amendments or supplements thereto) shall, at any
time
after their respective execution and delivery and for any reason, cease to
be in
full force and effect or shall be declared to be null and void, or the validity
or enforceability thereof shall be contested by the Borrower or the Borrower
shall deny that it has any or further liability or obligation under this
Agreement.
(d) The
Borrower shall terminate or suspend the operation of its business, or the
Borrower shall be adjudicated a bankrupt or insolvent, or admit in writing
its
inability to pay its debts as they mature, or make an assignment for the benefit
of creditors; or the Borrower shall apply for or consent to the appointment
of a
receiver, trustee or similar officer for it or for all or any substantial part
of its property; or such receiver, trustee or similar officer shall be appointed
without the application or consent of the Borrower and such appointment shall
continue undischarged for a period of sixty (60) days; or the Borrower shall
institute (by petition, application, answer, consent or otherwise), any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it under the laws
of
any jurisdiction; or any such proceeding shall be instituted (by petition,
application or otherwise) against the Borrower.
(e) There
is
entered one or more judgments against the Borrower in an aggregate amount
exceeding $250,000.00 if such judgment(s) remains undischarged for thirty (30)
days, unless the judgment is subject to appeal and a bond, in form satisfactory
to the Lenders, has been posted or is otherwise covered by insurance and is
reasonably satisfactory to the Lenders; or
(f) This
Agreement (and any amendments or supplements thereof) shall, at any time after
its execution and delivery, for any reason (1) cease to create a valid and
perfected first priority security interest in and to any of the Collateral
Security or (2) cease to be in full force and effect or shall be declared null
and void, or the validity or enforceability thereof shall be contested by the
party thereto or the party thereto shall deny it has any further liability
or
obligation under Section 3.1 hereof, or
(g) Any
material change in Borrower's condition or affairs (financial or otherwise)
which in Lenders' commercially reasonably opinion impairs the Collateral and
the
ability of Borrower to perform its Obligations under this
Agreement;
then,
and
in any such Event of Default, a Lender may, by written notice to the Borrower,
declare the entire outstanding principal amount of the Revolving Credit
Facility, all interest accrued and payable thereon, and all other amounts
payable under this Agreement and the other Loan Documents to such Lender to
be,
due and payable in accordance with the provisions of Section 2.1, whereupon
the
repayment of all Advances, and all such accrued interest thereon, and all such
Obligations shall become and be due and payable in accordance with the
provisions of Section 2.1, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower.
Upon the occurrence of an Event of Default and the expiration of the time period
provided to cure such Event of Default, the Lender shall have available to
it
all remedies provided to it pursuant to this Agreement, and all other remedies
available to it of any nature whatsoever.
ARTICLE
VIII
ADDITIONAL
PROVISIONS
SECTION
8.1. No Waiver; Cumulative Remedies.
No
failure or delay on the part of a Lender, or any other holder of the Revolving
Credit Notes, in exercising any right, power, or remedy hereunder, under the
Revolving Credit Notes or under any other Loan Document 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, under the Revolving Credit Notes
or under any of the other Loan Documents. The remedies herein provided are
cumulative and not exclusive of any other remedies provided by law and/or
available in equity.
SECTION
8.2. Amendments.
Notwithstanding any course of dealing between the parties, no amendment,
modification, termination or waiver of any provision of this Agreement, the
Revolving Credit Notes or any other Loan Document, nor consent to any departure
by the Borrower, from the terms and provisions contained in the Loan Documents,
shall be effective unless the same shall be in writing and signed by the
Lenders, and the such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION
8.3. Lenders'
Right to Cure.
The
Lenders may, but shall not be obligated to, take such steps and incur such
expenses as it deems necessary to protect its interests, rights and remedies,
without waiving any rights or remedies upon the occurrence of any Events of
Default. Any sums the Lenders may so disburse shall constitute additional loans
to Borrower, payable on demand.
SECTION
8.4. Benefit of Agreement.
This
Agreement shall be binding upon Borrower, its successors and permitted assigns,
if any, and inure to the benefit of and be enforceable by Lenders, its
successors and assigns. No other person or entity shall be entitled to claim
any
right or benefit hereunder, as third-party beneficiary or otherwise. This
Agreement is not assignable by Borrower without the Lenders' prior written
consent in their sole discretion,
SECTION
8.5. Transaction Days.
Whenever
any payment is due, or obligation is to be performed hereunder on a Saturday,
Sunday or holiday or bank holiday on which the Lenders are authorized to close,
such payment may be made or obligation performed on the next succeeding
transaction day. Such extension of time shall, in such case, be included in
the
computation of any interest or fees.
SECTION
8.6. Complete Agreement.
This
Agreement, together with the other Loan Documents, constitutes the entire
agreement and understanding among the parties relating to the subject matter
hereof, and supersedes all prior proposals, negotiations, agreements and
understandings relating to such subject matter. In entering into this Agreement,
Borrower acknowledges that it is not relying on any statement, representation,
warranty, covenant or agreement of any kind made by the Lenders or any employee
or agent of the Lenders.
SECTION
8.7. Notices.
Unless
otherwise provided herein, any notice or other communication herein required
or
permitted to be given shall be in writing and may be personally served,
telecopied, or sent by United States mail and shall be deemed to have been
given
when delivered in person, upon receipt of telecopy or four business days after
depositing it in the United States mail, registered or certified, with postage
prepaid and properly addressed as follows:
|
If
to the Lenders:
|
c/o
Southridge Capital Management LLC
|
00
Xxxxx
Xxxxxx, Xxxxx 000
Xxxxxxxxxx,
XX 00000
|
If
to the Borrower:
|
Petals
Decorative Accents LLC
|
00
Xxxxx
Xxxxxx, Xxxxx 000
Xxxxxxxxxx
XX 00000
SECTION
8.8. Limitation on Interest.
All
agreements between Borrower and Lenders are hereby expressly limited so that
in
no contingency or event whatsoever, whether by reason of acceleration of
maturity of any Indebtedness, shall the amount paid or agreed to be paid to
Lenders for the use or forbearance of indebtedness contemplated hereby exceed
the maximum permissible under applicable law. As used herein, the term
"applicable law" shall mean the law in effect as of the date hereof provided,
however that in the event there is a change in the law which results in a higher
permissible rate of interest, then the Loan Documents shall be governed by
such
new law as of its effective date. In this regard, it is expressly agreed that
it
is the intent of Borrower and Lenders in the execution, delivery and acceptance
of this Agreement to contract in strict compliance with the laws of the State
of
Connecticut from time to time in effect. If, under or from any circumstances
whatsoever, fulfillment of any provision hereof or of any of the Loan Documents
at the time of performance of such provision shall be due, shall involve
transcending the limit of such validity prescribed by applicable law, then
the
obligation to be fulfilled shall automatically be reduced to the limits of
such
validity, and if under or from circumstances whatsoever Lenders should ever
receive as interest an amount which would exceed the highest lawful rate, such
amount which would be excessive interest shall be applied to the reduction
of
the principal balance evidenced by the Loans and not to the payment of interest.
This provision shall control every other provision of the Loan Documents between
Borrower and Lenders.
SECTION
8.9. Jurisdiction; Venue. THIS
AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE
STATE OF CONNECTICUT APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY
WITHIN THE STATE OF CONNECTICUT. BORROWER HEREBY WAIVES THE RIGHT TO A JURY
TRIAL AND CONSENTS TO THE EXCLUSIVE JURISDICTION IN THE FEDERAL OR STATE COURTS
OF THE STATE OF CONNECTICUT WITH RESPECT TO THE ENFORCEMENT OF THE TERMS HEREOF
AND THE COLLECTION OF THE OBLIGATIONS HEREUNDER.
SECTION
8.10. Termination.
This
Agreement may be terminated (a) upon written notice from a Lender to the
Borrower, or (b) upon written notice from the Borrower to the Lenders at such
time as the Borrower has repaid all Advances made pursuant to this Agreement,
including all accrued interest thereon, and all other obligations of the
Borrower under the Loan Documents have been satisfied in full and the Borrower
has no remaining obligations to the Lenders of any kind under this
Agreement.
SECTION
8.11. Severability.
The
Agreement shall be governed by the laws of the State of Connecticut without
giving effect to any conflict of laws or choice of law rules. If any provisions
of this Agreement or any of the other Loan Documents shall be held invalid
or
unenforceable in whole or in part in any jurisdiction, such provision shall,
as
to such jurisdiction, be ineffective to the extent of such invalidity or
enforceability without in any manner affecting the validity or enforceability
of
such provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.
SECTION
8.12. Survival of Provisions.
All
warranties, representations, covenants and obligations of the Borrower contained
in this Agreement or any of the other Loan Documents shall survive the execution
and delivery of this Agreement and the Lenders' making of any of the Loans.
The
Loan Documents shall continue in full force and effect so long as any of the
Loans hereunder are outstanding and unpaid.
SECTION
8.13. Captions.
Any
captions or headings used in this Agreement are for convenience of reference
purposes only and are without substantive effect.
IN
WITNESS WHEREOF,
the
parties have executed and delivered this Loan and Security Agreement as of
the
date first above written by their duly authorized, respective
officers.
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By:__________________________
SOUTHRIDGE
PARTNERS LP
By:__________________________ SOUTHSHORE
CAPITAL FUND LTD.
By:__________________________
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