EXHIBIT 10.1
LOAN AND INVESTMENT AGREEMENT
The parties to this Loan and Investment Agreement (the "Agreement") are:
LENDER
Hospitality Partners, LLC,
a Delaware limited liability company
0 Xxxxx Xxxxx
Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
BORROWER
Hospitality Marketing Consultants, LLC,
a California limited liability company
00000 Xxxxxxxxx Xxxxxxxxx
Xxxxx 0000
Xxxxxx, XX 00000
MEMBERS
Mokhtar Ramadan
Xxxx Xxxxxxx
Xxxxxx Xxxxxxx
Xxxxxx Xxxx
The Members join in this Agreement solely for purposes of confirming their
agreement to Section 2.3(a).
RECITALS
A. The Members own all of the membership interests of Borrower.
B. Lender has agreed to loan to Borrower $3,000,000 (the "Loan"), which
shall be evidenced by a convertible subordinated promissory note in the form
attached hereto as Exhibit "A" (the "Note").
C. As provided in Section 2.3(b), the Note is convertible into a minimum
of 10% and up to a maximum of 30% of the equity interests of Borrower
immediately prior to the closing of an initial public offering of Borrower's
successor-in-interest as contemplated by this Agreement and as provided in the
Note.
D. Lender is willing to make the Loan to Borrower based on the
representations, warranties and covenants of Borrower contained in this
Agreement.
ARTICLE
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DEFINED TERMS/PRINCIPLES OF CONSTRUCTION
SECTION 1.1. DEFINITIONS
As used in this Agreement, the following terms will have the following
meanings:
AFFILIATE shall mean, with respect to any Person, any other Person (i)
directly or indirectly controlling (including, but not limited to, all
directors, officers, partners and members of such Person), controlled by, or
under direct or indirect common control with, such Person; (ii) that directly or
indirectly owns more than 5% of the voting securities of such Person; or (iii)
who is related to such person by blood, marriage or adoption (a "Family
Member"). A Person shall be deemed to control a corporation, partnership,
limited liability company or other legal entity if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such corporation, partnership, or other legal entity
whether through the ownership of voting securities, partnership interests,
membership interests, by contract or otherwise.
DISCLOSURE SCHEDULE is defined in Article 3.
EVENTS OF DEFAULT is defined in Article 7.
FINANCIAL STATEMENTS means the financial statements of Borrower, as may be
required by Lender from time to time, including operating statements, income
statements, balance sheets, cash flow statements, statements of changes in
financial condition and any other financial reports and information that Lender
may require.
FUNDING DATE is defined in Section 2.2.
LOAN is defined in Recital A.
LOAN MATURITY DATE means December 31, 2001.
LOAN PROCEEDS means funds disbursed by Lender pursuant to the Loan in
accordance with this Agreement.
NOTE is defined in Recital A.
PERMITTED LIENS is defined in Section 6.1.
PERSON shall mean any individual, partnership, joint venture, limited
liability company, firm, corporation, association, trust or
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other enterprise or any government or political subdivision or any agency,
department or instrumentality thereof.
SENIOR INDEBTEDNESS is defined in Section 10.1.
TRANSACTION DOCUMENTS means the Note and this Agreement.
ARTICLE 2
MAKING OF LOAN
SECTION 2.1. LOAN.
Lender agrees to lend to Borrower, and Borrower agrees to borrow from
Lender, $3,000,000 pursuant to the Loan, subject to the terms, conditions,
representations, warranties, and covenants in this Agreement.
SECTION 2.2. DISBURSEMENTS.
Lender agrees to disburse the Loan Proceeds to Borrower upon execution and
delivery of this Agreement (the "Funding Date"). Interest will accrue on
disbursed Loan Proceeds as described in the Note. All Loan Proceeds will be
evidenced by the Note.
SECTION 2.3. INVESTMENT CONSIDERATIONS
2.3.(a) REORGANIZATION. It is contemplated by Lender and Borrower
that Borrower will close an initial registered public offering (an "IPO") with
an underwriter selected by Borrower (the "Underwriter") prior to December 31,
1999. In order for Borrower to issue shares to the public in the IPO, Borrower
will be required to reorganize as a corporation ("Reorganized Borrower") taxable
under Subchapter C of the Internal Revenue Code of 1986, as amended (the
"Reorganization"). Attached to this Agreement as Exhibit "B" and incorporated
herein by this reference is an organizational chart (the "Organizational Chart")
depicting Borrower and its affiliated companies (the "Group").
Contemporaneously with the closing of the IPO, the Reorganization shall be
effected so that Borrower is reorganized as a corporation on a tax-free basis
and succeeds directly or indirectly to the ownership of the business of the
other members of the Group, other than Hospitality Marketing Consultants, a
general partnership, which shall be excluded from the Reorganization. Borrower
and Lender understand and acknowledge that the Reorganization is extremely
complicated and complex and involves extensive planning to ensure that it can be
accomplished on a tax-free basis to the Members and without Material Adverse
Effect on the Group's business. As part of the Reorganization, Reorganized
Borrower shall indemnify Borrower's Members from all then current and
preexisting liabilities, including tax liabilities. Borrower and Lender
acknowledge and agree that the precise structure and exact manner of the
Reorganization have not
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at present been determined, and that therefore the manner and form of the
Reorganization shall be subject to Lender's reasonable approval. Borrower
understands and agrees that in granting or withholding its approval, Lender
may take into account its own tax and securities requirements. The Members
agree to take all actions required, including without limitation,
contributing their equity interests in the other companies in the Group to
Borrower, as shall be necessary to accomplish the Reorganization as devised
by Borrower and approved by Lender as contemplated by this Section 2.3(a).
2.3.(b) CONVERSION OF NOTE. Pursuant to the Note, prior to December
31, 1999 (the "Cut-Off Date") and (i) from and after the execution and delivery
of a firm commitment underwriting/purchase agreement with the Underwriter (the
"Signing Date") and conditioned on the subsequent closing of the IPO in the case
of a public offering, and (ii) from and after the execution and delivery of an
agreement for the sale of all or substantially all of the business of the Group
or equity interests of the Group (a "Private Sale"), and conditioned on the
subsequent closing of the Private Sale in the case of a sale, Lender shall have
the right to convert the principal balance of the Note into membership interests
of Borrower or capital stock in the case of Reorganized Borrower (the "Shares")
in an amount equal to a minimum of 10% and a maximum of 30% of the total
capitalization of Borrower on a fully diluted basis (except for dilution
resulting from the adoption of a stock option plan not to exceed 10% of
Borrower's total capitalization) calculated prior to the dilution resulting from
the issuance of shares to the public in the IPO, all calculated in accordance
with the formula described below. In other words, Lender's equity interest
shall be diluted along with the other Members of Borrower by the sale of stock
to the public and by the Borrower's membership interests reserved for issuance
pursuant to the stock option plan. If the valuation ascribed to the Reorganized
Borrower for the IPO and on which the price per share to the public is
calculated or the sale price to be paid by the buyer for the Group in a Private
Sale (the "Valuation") is $50,000,000, Lender shall be entitled to convert the
Note into 10% of Borrower's membership interests or capital stock in the case of
Reorganized Borrower. The percentage of Borrower's membership interests or
capital stock in the case of Reorganized Borrower into which the Note shall be
converted shall increase thereafter by 1% for each $2,500,000 in Valuation up to
a maximum of 30% of Borrower's membership interests or capital stock in the case
of Reorganized Borrower at a Vauation of $100,000,000 or more. Lender shall
have the right by written notice to Borrower to surrender its conversion rights
by accelerating the Cut-Off Date to any month-end date from, after and including
December 31, 1998. If Borrower has an active Registration Statement on file with
the Securities and Exchange Commission on the Cut-Off Date, the Cut-Off Date
shall be automatically extended for a period of time expiring one hundred eighty
(180) days after the Registration Statement is
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declared effective or the Registration Statement is withdrawn by Borrower,
whichever is earlier.
2.3.(c) INVESTMENT REPRESENTATIONS. Lender is acquiring the Note
and any Shares into which the Note is converted for its own account and not with
a view to, or for sale in connection with, any distribution thereof in violation
of the Securities Act of 1933, as amended (the "Securities Act"). Lender
understands that neither the Note nor the Shares will be registered under the
Securities Act or qualified with any state securities agency for the reason that
the sale provided for in this Agreement is exempt pursuant to Section 4 of the
Securities Act and similar provisions of applicable state law, and that the
reliance of Borrower on such exemptions is predicated in part on Lender's
representations set forth herein. Lender further represents that (i) it and
each of its members except for one person is an "Accredited Investor" in the
meaning of Rules 501-506 under the Securities Act and is an "Excluded Purchaser"
within the meaning of Regulation 260.102.13 under the California General
Corporation Law, or (ii) by reason of its financial experience or the financial
experience of those persons that Lender has retained to advise it (none of whom
are Affiliated with or compensated by Borrower), Lender and each of its members
except for one person, together with such advisors has such knowledge,
sophistication and experience in business and financial matters that it and they
are capable of evaluating the merits and risks of an investment in the Shares,
that it and they are able to bear the economic risk of such investment, and that
it and they are able to afford a complete loss of such investment.
SECTION 2.4. DELIVERY OF NOTE AND CERTIFICATE.
Concurrently with execution and delivery of this Agreement, Borrower shall
take the following actions:
2.4.(a) EXECUTION OF NOTE. Borrower shall execute and deliver the
Note to Lender in the form attached hereto.
2.4.(b) ORGANIZATIONAL DOCUMENTS. Borrower shall deliver to Lender
a Certificate, dated the Funding Date, signed by the Manager of Borrower,
authorizing the issuance of the Note and the execution and delivery of the
Transaction Documents, together with copies of the Operating Agreement, as
amended, and Articles of Organization (Form LLC-1) as filed, of Borrower.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BORROWER
Except as disclosed on the schedule annexed hereto as Exhibit "C" and
incorporated herein by this reference (the "Disclosure
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Schedule"), as a material inducement to Lender to enter into this Agreement,
to make the Loan to Borrower, Borrower unconditionally represents and
warrants to Lender as of the Funding Date as follows:
SECTION 3.1. FORMATION.
Borrower is duly organized, validly existing and in good standing as a
limited liability company, and has not taken any action to dissolve, under the
laws of California, is duly qualified to do business in California and in each
other jurisdiction (and is in good standing in each such jurisdiction) where it
is required to be qualified to transact business as a foreign entity, in which
the failure to be so qualified would have a material adverse effect on the
business, operations, property, assets or condition (financial or otherwise) (a
"Material Adverse Effect") on Borrower, and has full power and authority to
consummate the transactions contemplated by this Agreement. The other members
of the Group are duly organized, validly existing and in good standing under the
laws of their respective jurisdiction of organization and are qualified to
transact business in each other jurisdiction where they are required to be
qualified to transact business as a foreign entity, in which the failure to be
so qualified would have a Material Adverse Effect on the Group as a whole.
SECTION 3.2. CAPITALIZATION.
Borrower does not have outstanding any securities convertible into or
exchangeable for its membership interests or outstanding any rights to subscribe
for or to purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, its membership interests.
SECTION 3.3. OWNERSHIP.
The Members are the owners, beneficially and of record, of all membership
interests of Borrower in the respective amounts set forth in the Disclosure
Schedule, free and clear of all liens, encumbrances, security agreements,
equities, options, claims and charges. The ownership of the other companies in
the Group is as set forth in the Organizational Chart.
SECTION 3.4. NO SUBSIDIARIES.
Except as shown in the Organizational Chart or disclosed in the Financial
Statements, the Group does not own, directly or indirectly, any interest or
investment (whether equity or debt) in any corporation, partnership, limited
liability company, business, trust or other entity.
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SECTION 3.5. BORROWER'S POWERS.
Borrower has full authority to execute this Agreement and the Note, to
undertake and consummate the contemplated transactions, and to pay, perform, and
observe all of the conditions, covenants, agreements, and obligations contained
in the Transaction Documents, and has taken all necessary actions pursuant to
its Operating Agreement to authorize the foregoing.
SECTION 3.6. BINDING OBLIGATION.
This Agreement and the Note have been duly executed and delivered by
Borrower and the Members [solely with respect to Section 2.3(a)] and constitute
a legal and binding obligation of, and are valid and enforceable against
Borrower and the Members [solely with respect to Section 2.3(a)] in accordance
with the terms of each.
SECTION 3.7. LITIGATION.
There are no actions, suits, or proceedings pending or, to the best
knowledge of Borrower, threatened against or affecting the Group in which the
amount in controversy exceeds $500,000 or involving the validity or
enforceability of the Transaction Documents, at law or in equity, or before or
by any governmental authority. The Group is in material compliance with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, all governmental bodies, domestic or foreign, in respect of the
conduct of its business and the ownership of its property (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls), except for such noncompliance as would not, in the
aggregate, have a Material Adverse Effect on the Group taken as a whole.
Neither Borrower nor any other member of the Group is in default with respect to
any order, writ, injunction, decree, or demand of any court or other
Governmental Authority.
SECTION 3.8. NO VIOLATION.
The consummation of the transactions covered by this Agreement and the
payment and performance of all of the obligations in the Transaction Documents,
will not (i) contravene any provision of any law, statute, rule, regulation or
order, writ, injunction or decree of any court or governmental instrumentality,
except for such of the foregoing as would not have a Material Adverse Effect on
the Group as a whole, (ii) result in any breach of, or constitute a default
under, any material mortgage, deed of trust, lease, contract, loan or credit
agreement, corporate charter, bylaws, partnership agreement, operating
agreement, trust agreement, or other instrument to which the members of the
Group are parties or by which they may be bound or affected except for such of
the
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foregoing as would not have a Material Adverse Effect on the Group as a
whole, or (iii) violate Borrower's Articles of Organization or Operating
Agreement.
SECTION 3.9. NO DEFAULT.
There is no Event of Default on the part of Borrower under this Agreement
or the other Transaction Documents, and no event has occurred and is continuing
which with notice or the passage of time or both would constitute a default or
an Event of Default thereunder.
SECTION 3.10. GOVERNMENTAL APPROVALS.
No material order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (except as have been
obtained or made), or exemption by, any governmental or public body or
authority, or any subdivision thereof, is required to authorize, or is required
in connection with, (i) the execution, delivery and performance of any
Transaction Document or (ii) the legality, validity, binding effect or
enforceability of any such Transaction Document.
SECTION 3.11. LABOR RELATIONS.
3.11.(a) The Group is not a party to any employment contract not
entered into in the ordinary course of business or unusual in duration,
collective bargaining agreement, or pension, bonus, profit sharing, stock option
or other agreement providing for employee remuneration or benefits.
3.11.(b) The Group is not engaged in any unfair labor practice that
could have a Material Adverse Effect on the Group as a whole. There is (i) no
significant unfair labor practice complaint pending against the Group or, to
Borrower's best knowledge, threatened against the Group before the National
Labor Relations Board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against the Group or, to Borrower's best knowledge, threatened against
the Group (ii) no significant strike, labor dispute, slowdown or stoppage is
pending against the Group or, to Borrower's best knowledge, threatened against
the Group, and (iii) to Borrower's best knowledge, there is no union
representation question existing with respect to the employees of the Group and,
to Borrower's best knowledge, no union organizing activities are taking place.
SECTION 3.12. TRADEMARKS, LICENSES AND FRANCHISES.
The Group owns or has the right to use all of the material trademarks,
permits, service marks, trade names, copyrights,
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licenses, franchises, or rights with respect to the foregoing, utilized in
the operation of its business, without any known conflict with the rights of
others which, or the failure to obtain which, as the case may be, would
result in a Material Adverse Effect on the Group as a whole.
SECTION 3.13. NO USURY.
The Loan is not usurious under California or Federal law.
SECTION 3.14. TAXES.
The Group has filed all required Federal, State, County, and City tax
returns and has paid all taxes due and required to be paid. Borrower knows of
no reasonable basis for additional assessments with respect to any material
taxes. The Group has paid, or has provided adequate reserves (in the good faith
judgment of the management of Borrower) for the payment of, all federal and
state income taxes applicable for all prior fiscal years and for the current
fiscal year to the date hereof.
SECTION 3.15. FINANCIAL STATEMENTS.
The Financial Statements of the Group at August 30, 1997 (the "Financial
Statement Date") including the balance sheet and the related statements of
income and retained earnings for the eight (8)-month period ended on such date
and heretofore furnished to Lender are unaudited, internally prepared
compilations, based on the Group's historical accounting practices consistently
applied, which present fairly the financial condition of the Group at the date
of such Financial Statements and the results of the operations of Borrower for
such eight (8)-month period.
SECTION 3.16. ABSENCE OF SPECIFIED CHANGES.
Since the Financial Statement Date, there has not been any:
3.16.(a) Transaction by the Group, other than this transaction,
except in the ordinary course of business as conducted on that date;
3.16.(b) Material adverse change in the Group's financial condition,
finances, income, debts, liabilities or assets;
3.16.(c) Destruction, damage to, or loss of any asset of the Group
(whether or not covered by insurance) that materially and adversely affects the
financial condition of the Group as a whole;
3.16.(d) Change in accounting methods or practices of the Group;
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3.16.(e) Re-evaluation by the Group of any of its material assets;
3.16.(f) Sale or transfer, including without limitation, any
mortgage, pledge or other encumbrance, of any of the Group's material assets,
except in the ordinary course of business;
3.16.(g) Waiver or release of any material right or a claim of the
Group in connection with its business, except in the ordinary course of
business;
3.16.(h) Amendment or termination of any material contract, agreement
or license, except in the ordinary course of business that materially and
adversely affects the financial condition of the Group as a whole;
3.16.(i) Other events or condition of any character, that is or might
reasonably have a Material Adverse Effect on the financial condition or assets
of the Group as a whole; or
3.16.(j) Agreement by the Group to do any of the things described in
this Section 3.16.
SECTION 3.17. BUSINESS USE OF LOAN PROCEEDS.
Borrower shall use the Loan Proceeds solely for the ongoing and legitimate
business needs of the Group in its ordinary course of business. No portion of
the Loan Proceeds will be disbursed to the Members or the Affiliates of Borrower
or the Members (other than companies in the Group), directly or indirectly, or
loaned to the Members or to any Affiliates of Borrower or the Members (other
than companies in the Group). Borrower shall not use the Loan Proceeds to pay
or fund distributions to the members of Borrower, or to redeem or repurchase
membership interests of Borrower. Borrower shall not use the Loan Proceeds to
repay loans to the Members, or pay salaries to the Members or Affiliates of
Borrower or Members, unless Lender expressly consents to the contrary.
Notwithstanding anything herein to the contrary, the foregoing shall not
prohibit Borrower from repaying personal loans secured by certain Members' homes
in the aggregate principal amount of $600,000 which loans were used to fund
Group operations or from making distributions (other than of the Loan Proceeds)
to Members pursuant to Borrower's Operating Agreement.
SECTION 3.18. OTHER CONTRACTS.
The Disclosure Schedule contains a true and complete list of all agreements
to which the Group is a party which are material to the Group or its business,
having a value or cost in excess of $500,000, copies of which have been
furnished to or made available to Lender. To Borrower's knowledge, there is no
default or event
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that, with notice or lapse of time or both, would constitute a default by any
party to any of these agreements. Borrower has not received notice, and
Borrower does not have any knowledge, that any party to any of these
agreements intends to cancel or terminate any of these agreements or to
exercise or not exercise any options under any of these agreements. The
Group is not a party to, nor is its property bound by, any agreement not
entered into in the ordinary course of business, any agreement that is
unusual in nature, duration, or amount, or any agreement that is materially
adverse to the business, properties or financial condition of the Group taken
as a whole.
SECTION 3.19. NATURE OF REPRESENTATIONS
AND WARRANTIES.
Borrower certifies to Lender that as of the Funding Date, all
representations and warranties made in this Agreement and all other Transaction
Documents are true and correct in all material respects and do not contain any
untrue statement of a material fact or omit any material fact necessary to make
the representations and warranties not misleading. The representations and
warranties will survive so long as the Loan or any part of it remains
outstanding. Each representation and warranty made in this Agreement and in any
other Transaction Document, and in any other document delivered to Lender by
Borrower, will be deemed to have been relied on by Lender, regardless of any
investigation, inspection, or inquiry made by Lender. The representations and
warranties that are made to the best knowledge of Borrower have been made after
diligent inquiry calculated to ascertain the truth and accuracy of the subject
matter of each representation and warranty.
SECTION 3.20. RELATED-PARTY TRANSACTIONS.
Except as disclosed in the Financial Statements and except for intercompany
transactions among the companies in the Group, no employee, officer or Member of
the Borrower or members of his or her immediate family is materially indebted to
the Borrower or the other companies in the Group, nor is the Borrower indebted
(or committed to make loans or extend or guarantee credit) to any of them, other
than (a) for payment of salary for services rendered or distributions to Members
in accordance with Borrower's Operating Agreement, (b) reimbursement for
reasonable expenses incurred on behalf of the Borrower, and (c) for other
standard employee benefits made generally available to all employees. To the
best of the Borrower's knowledge, none of such persons have any direct or
indirect ownership interest in any firm or corporation that competes with the
Borrower. To the best of the Borrower's knowledge, no officer, director or
Member or any member of their immediate families is, directly or indirectly,
interested in any material contract with the Borrower. "Material" for purposes
of
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this Section 3.20 means having a value or cost in excess of $500,000.
SECTION 3.21. LIMITATIONS.
3.21.(a) No representation or warranty is made by Borrower except as
expressly set forth herein.
3.21.(b) The maximum amount of Borrower's liability for breach of the
representations and warranties set forth in this Agreement will not exceed the
unpaid amounts due pursuant to the Note. In no event will Borrower have any
liability in excess of actual damages incurred and resulting from any such
breach. Lender hereby waives all claims for consequential, special, expectancy
or similar loss or damages.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF LENDER
Lender hereby represents and warrants to Borrower as follows:
SECTION 4.1. FORMATION
Lender is duly organized, validly existing and in good standing under the
laws of Delaware, is duly qualified to do business in Delaware which is the only
jurisdiction in which such qualification is required, and has full power and
authority to consummate the transactions contemplated by this Agreement.
SECTION 4.2. LENDER'S POWERS
Lender has full authority to execute this Agreement, to undertake and
consummate the contemplated transactions and to pay, perform and observe all the
conditions, covenants, agreements and obligations applicable to it contained in
the Transaction Documents, and has taken all necessary action to authorize the
foregoing.
SECTION 4.3. BINDING OBLIGATION
This Agreement and the other documents to which Lender is a party have been
duly executed and delivered by Lender and constitute legal and binding
obligations of, and are valid and enforceable against, Lender in accordance with
the terms of each such document.
SECTION 4.4. LITIGATION
There are no actions, suits or proceedings pending, or to the best
knowledge of Lender threatened, against or affecting Lender
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which involve the validity or enforceability of the Transaction Documents, at
law or in equity, or for or by any governmental authority. Lender is in
material compliance with all applicable statutes, regulations and orders of,
and all applicable restrictions imposed by all governmental bodies, domestic
or foreign, in respect of the conduct of its business and the ownership of
its property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls), except for
such noncompliance that would not have a Material Adverse Effect. Lender is
not in default with respect to any order, writ, injunction, decree or demand
of any court or other governmental authority.
SECTION 4.5. CONTROL OF LENDER
Lender hereby represents that Xxxx Xxxxxxx is the sole manager of Lender.
ARTICLE 5
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that:
SECTION 5.1. INFORMATION COVENANTS
Borrower will furnish to Lender:
5.1.(a) MONTHLY OPERATING STATEMENTS. Within 45 days after the end
of each month, a monthly written report of the operating results and material
events occurring in such month which report shall also contain such other
information as is reasonably requested by Lender and shall be in a form
reasonably satisfactory to Lender.
5.1.(b) QUARTERLY FINANCIAL STATEMENTS. Within 45 days (or 90 days
in the case of the fourth fiscal quarter) after the close of each quarterly
accounting period in each fiscal year, the balance sheet of Borrower as at the
end of such quarterly period and the related statements of income and retained
earnings and cash flow statement for such quarterly period, and for the elapsed
portion of the fiscal year ended with the last day of such quarterly period all
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, in each case setting forth comparative figures for the
related periods in the prior fiscal year, all of which shall be certified by
Borrower's chief financial officer, subject to normal year-end audit
adjustments.
5.1.(c) ANNUAL FINANCIAL STATEMENTS. Within 90 days after the close
of each fiscal year, the balance sheet of Borrower
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as at the end of such fiscal year and the related statements of income and
retained earnings and cash flow statement for such fiscal year all prepared
in accordance with generally accepted accounting principles applied on a
consistent basis, in each case setting forth comparative figures for the
preceding fiscal year and certified by independent certified public
accountants of recognized national standing satisfactory to Lender, in each
case together with a report of such accounting firm stating that in the
course of its regular audit of Borrower's financial statements, which audit
was conducted in accordance with generally accepted auditing standards,
except as noted in such report, such accounting firm obtained no knowledge of
any litigation, breach or default of Borrower to third Persons or Event of
Default which has occurred and is continuing or, if in the opinion of such
accounting firm such has occurred and is continuing, a statement as to the
nature thereof.
5.1.(d) MANAGEMENT LETTERS. Promptly after Borrower's receipt
thereof, a copy of any "management letter" received by Borrower from its
certified public accountants.
5.1.(e) BUDGETS. Within 60 days after the first day of each fiscal
year of Borrower, a budget in form reasonably satisfactory to the Lender
(including budgeted statements of income and sources and uses of cash and a
balance sheet) prepared by Borrower for each of the four fiscal quarters
immediately following the last day of such fiscal year accompanied by the
statement of the chief financial officer of Borrower to the effect that, to the
best of his or her knowledge, the budget is as of the date of its preparation, a
reasonable estimate for the period covered thereby.
5.1.(f) OFFICER'S CERTIFICATES. At the time of the delivery of the
monthly operating report and Financial Statements provided for in Sections
5.1(a), (b) and (c), a certificate of the chief financial officer of Borrower to
the effect that, to the best of his or her knowledge, no default or breach of
any material agreement with a third Person or Event of Default has occurred and
is continuing or, if such has occurred and is continuing, specifying the nature
and extent thereof.
5.1.(g) NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event
within 3 business days after an officer of Borrower obtains knowledge thereof,
notice of (i) the occurrence of any event which constitutes a default or breach
of any material agreement with a third Person or Event of Default, (ii) any
litigation or governmental proceeding pending (x) against Borrower which could
materially and adversely affect the business, operations, property, assets, or
condition (financial or otherwise) of Borrower or (y) with respect to any
Transaction Document and (iii) any other event which is likely to materially and
adversely affect the business, operations, property, assets, or condition
(financial or otherwise) of Borrower.
14
5.1.(h) OTHER INFORMATION. From time to time, such other information
or documents (financial or otherwise) as Lender may reasonably request.
5.1.(i) TERMINATION OF REPORTING OBLIGATION. The provisions of
Sections 5.1.(a) through (h) shall terminate upon the consummation of an initial
public offering by Borrower or its successor-in-interest, and thereafter, to the
extent all or any portion of the Loan remains outstanding Lender shall receive
copies of all documents filed by Borrower or its successor-in-interest with the
Securities and Exchange Commission.
SECTION 5.2. BOOKS, RECORDS AND INSPECTIONS.
Borrower will keep proper books of record and account in which full, true
and correct entries in conformity with generally accepted accounting principles
and all requirements of law shall be made of all dealings and transactions in
relation to its business and activities. Borrower will permit designated
representatives of Lender subject to reasonable confidentiality arrangements to
visit and inspect, under guidance of officers of Borrower, any of the properties
of Borrower, and to examine the books of account of Borrower and discuss the
affairs, finances and accounts of Borrower with, and be advised as to the same
by, its officers, all at such reasonable times and intervals and to such
reasonable extent as Lender may request.
SECTION 5.3. MAINTENANCE OF PROPERTY, INSURANCE.
Borrower shall, in accordance with prudent industry practices, (i) keep all
property useful and necessary in its business in good working order and
condition, (ii) maintain with financially sound and reputable insurance
companies insurance which is reasonable and customary in nature and amounts for
businesses such as Borrower's, and (iii) furnish to Lender, upon written
request, full information as to the insurance carried.
SECTION 5.4. CORPORATE FRANCHISES.
Borrower will, in accordance with prudent industry practices, do, or cause
to be done, all things reasonably necessary to preserve and keep in full force
and effect its existence and its material rights, franchises, licenses and
leases.
SECTION 5.5. COMPLIANCE WITH STATUTES, ETC.
Borrower will, in accordance with prudent industry practices, comply with
all applicable statutes, regulations and orders of, and all applicable
restrictions imposed by, all governmental bodies, domestic or foreign, in
respect of the conduct of its
15
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls), except such noncompliance as could not, in the aggregate, have a
Material Adverse Effect.
SECTION 5.6. PERFORMANCE OF OBLIGATIONS.
Borrower will perform all of its obligations under the terms of each
mortgage, indenture, security agreement and other debt instrument by which it is
bound, except such non-performances as could not in the, aggregate, have a
Material Adverse Effect.
SECTION 5.7. FINANCIAL STATEMENTS.
Borrower shall have prepared audited Financial Statements for the fiscal
years of Borrower ended December 31, 1995, December 31, 1996, and December 31,
1997, by a date mutually agreed by Borrower and Lender.
SECTION 5.8. LENDER'S REPRESENTATION.
Lender acknowledges that Borrower does not have a formal Board of
Directors, but rather that the Members operate collectively by consensus.
Nonetheless, Lender shall be entitled to have a representative attend all
meetings of the Members (whether held telephonically or in person) and to
participate therein to the same extent as if the representative were an outside
director. Once Reorganized Borrower has been formed, Lender shall be entitled
to designate one member of Reorganized Borrower's Board of Directors.
ARTICLE 6
NEGATIVE COVENANTS
Except to the extent the Lender otherwise consents in writing, which
consent, so long as no Event of Default exists and is continuing, will not be
unreasonably withheld, Borrower covenants and agrees that:
SECTION 6.1. LIENS.
Borrower will not create, incur, assume or suffer to exist any lien or
security interest upon or with respect to any property or assets (real or
personal, tangible or intangible) of Borrower, whether now owned or hereafter
acquired, or sell any such property or assets subject to an understanding or
agreement, contingent or otherwise, to repurchase such property or assets
(including sales of accounts receivable with recourse to Borrower, or assign any
right to receive income or permit the filing of any financing statement under
the UCC or any other similar notice of lien or security under any similar
recording or notice statute; provided that the provisions of this Section 6.1
shall not prevent the
16
creation, incurrence, assumption or existence of the following (collectively,
the "Permitted Liens"):
6.1.(a) liens for taxes, governmental assessments or claims not yet
due or delinquent, or that are being contested in good faith and by appropriate
proceedings for which adequate reserves have been established;
6.1.(b) liens in respect of property or assets of Borrower imposed by
law, which were incurred in the ordinary course of business, such as carriers',
warehousemen's and mechanics' liens and other similar liens arising in the
ordinary course of business, and (x) which do not in the aggregate materially
detract from the value of such property or assets or materially impair the use
thereof in the operation of the business of Borrower or (y) which are being
contested in good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the property or assets subject to
any such lien;
6.1.(c) liens which are listed, and the property subject thereto
described in the Disclosure Schedule;
6.1.(d) utility deposits and pledges or deposits in connection with
worker's compensation, unemployment insurance and other social security
legislation.
6.1.(e) liens in respect of Permitted Indebtedness or any extension,
renewal, refunding or refinancing of any Permitted Indebtedness;
6.1.(f) liens to secure the performance of statutory obligations,
surety or appeal bonds in the ordinary course of business;
6.1.(g) liens on property of a Person existing at the time such
Person is merged into, acquired or consolidated with Borrower; and
6.1.(h) liens incurred in the ordinary course of business with
respect to obligations that do not exceed $1,000,000 at any time outstanding,
excluding liens to secure Permitted Indebtedness.
SECTION 6.2. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Except as contemplated by this Agreement with respect to the
Reorganization, an IPO or a Private Sale, and except for inter-company
transactions among the companies within the Group, Borrower will not (a) wind
up, liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, (b) convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or any material part of its
property or
17
assets, or (c) purchase or otherwise acquire (in one or a series of related
transactions) any part of the property or assets (other than purchases or
other acquisitions of inventory, materials and equipment in the ordinary
course of business) of any Person, except that (i) Borrower may sell and
lease inventory, materials and equipment in the ordinary course of business,
(ii) investments may be acquired to the extent expressly permitted by Section
6.5 and (iii) capital expenditures shall be permitted to the extent not in
violation of Section 6.7. Notwithstanding the foregoing to the contrary,
Borrower may enter into a transaction of merger or consolidation in which it
is the surviving corporation and consummate purchase transactions as
described in clause (c), provided that Borrower's financial condition will
not be impaired as reasonably determined by Lender and provided, further,
that the total consideration for such transactions in cash, stock value, and
debt assumed does not exceed One Million Dollars ($1,000,000) in the
aggregate in any fiscal year.
SECTION 6.3. LEASES.
Borrower will not permit the aggregate payments (including, without
limitation, any property taxes paid as additional rent or lease payments) by
Borrower under agreements to rent or lease any real or personal property
(excluding capitalized lease obligations and office base rent) to exceed
$500,000, in any fiscal year.
SECTION 6.4. INDEBTEDNESS.
Borrower will not contract, create, incur, assume or suffer to exist any
indebtedness, except (i) indebtedness incurred under this Agreement, (ii)
indebtedness listed on the Disclosure Schedule, including any renewal or
refinancing thereof ("Existing Indebtedness"), (iii) accrued expenses and trade
accounts payable incurred and satisfied in the ordinary course of business, and
obligations under trade letters of credit incurred by Borrower in the ordinary
course of business, which are to be repaid in full not more than 18 months after
the date on which such indebtedness is originally incurred to finance the
purchase of goods by Borrower, (iv) obligations under letters of credit incurred
by Borrower in the ordinary course of business in support of amounts owing to
utilities from time to time and/or obligations incurred in connection with
worker's compensation, unemployment insurance and other social security
legislation, (v) indebtedness to any Person (other than Affiliates) providing
credit to Borrower pursuant to the terms of a credit facility, including any
guarantee thereof, (vi) indebtedness to finance purchases of equipment or to
make capital expenditures not in excess of Five Hundred Thousand Dollars
($500,000) at any time outstanding, and (vii) indebtedness not otherwise
permitted hereunder not in excess of One Million Dollars ($1,000,000) at any
time outstanding (collectively, "Permitted Indebtedness").
18
SECTION 6.5. ADVANCES, INVESTMENTS AND LOANS.
Except for intercompany transactions among the companies in the Group and
the Members to the extent disclosed in the Disclosure Schedule, Borrower will
not lend money or credit or make advances to any Person (excluding loans to
employees not in excess of $50,000), or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any other Person, except that the following shall be permitted:
6.5.(a) Borrower may acquire and hold receivables owing to it, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms;
6.5.(b) Borrower may acquire and hold cash equivalents; and
6.5.(c) Borrower may make such purchases and acquisitions as are
permitted by Section 6.2.
SECTION 6.6. TRANSACTIONS WITH AFFILIATES.
Other than the Reorganization as described in Section 2.3.(a), Borrower
will not enter into any transaction or series of related transactions, whether
or not in the ordinary course of business, with any Affiliate of Borrower or the
Members other than intercompany transactions within the Group, other than on
terms and conditions substantially as favorable to Borrower as would be
obtainable by Borrower at the time in a comparable arm's length transaction with
a Person other than an Affiliate.
SECTION 6.7. CAPITAL EXPENDITURES.
Borrower will not make any expenditure for fixed or capital assets
(including, without limitation, expenditures for maintenance and repairs which
should be capitalized in accordance with generally accepted accounting
principles and including capitalized lease obligations) during any fiscal year
(taken as one accounting period) which exceeds $500,000.
SECTION 6.8. MODIFICATIONS OF ORGANIZATIONAL DOCUMENTS
Borrower will not amend or modify, or permit the amendment or modification
of, its Articles of Organization or Operating Agreement, without Lender's
consent.
SECTION 6.9. LIMITATION ON ISSUANCES OF EQUITY INTERESTS.
19
Borrower shall not issue any membership interests or any options or
warrants to purchase, or securities convertible into, membership interests or
other equity interests in Borrower.
SECTION 6.10. RETENTION OF PROFESSIONALS.
Lender shall have the right to approve any investment banker or underwriter
engaged by Borrower to represent Borrower in an initial public offering, merger,
acquisition or other significant corporate transaction and any accountant
engaged by Borrower.
ARTICLE 7
EVENTS OF DEFAULT
At the option of Lender, the occurrence and continuation of any of the
following events will unless and until cured within any applicable cure period
or waived, constitute a default (each an "Event of Default"):
(a) PAYMENTS. Borrower shall default in the payment when due of any
principal or interest on the Loan which default is not cured within ninety (90)
days after written notice from Lender to Borrower; or
(b) REPRESENTATIONS, ETC. Any representation or warranty made by
Borrower in Article 3 of this Agreement or in any other Transaction Document or
in any certificate delivered pursuant hereto or thereto shall prove to be untrue
in any material respect on the date as of which made and such representation or
warranty shall remain untrue from and after a period of 90 days after written
notice from Lender to Borrower; provided, no Event of Default shall be deemed to
have occurred if such breach is susceptible of being cured, during such period
Borrower diligently and in good faith commences curing any such breach, such
breach is cured within said ninety (90)-day period and during such cure period
the financial condition of Borrower is not materially impaired thereby; or
(c) COVENANTS. Borrower shall default in the due performance or
observance by it of any term, covenant or agreement contained in this Agreement
(other than those referenced to in Sections 7(a) and (b), and such default shall
continue unremedied for a period of ninety (90) days after written notice to the
Borrower by Lender; provided, however, no Event of Default shall be deemed to
have occurred if such breach is susceptible of being cured, during such period
Borrower diligently and in good faith commences curing any such default, such
default is cured within said ninety (90)-day period, and during such cure period
the financial condition of Borrower is not materially impaired thereby; or
20
(d) DEFAULT UNDER OTHER AGREEMENTS. Borrower shall (i) default in
any payment of any indebtedness for borrowed money in excess of $1,000,000
(other than the Note) beyond the period of grace if any, provided in the
instrument or agreement under which such indebtedness for borrowed money in
excess of $1,000,000 was created, (ii) default in the observance or
performance of any agreement or condition relating to any indebtedness for
borrowed money in excess of $1,000,000 (other than the Note) or contained in
any instrument or agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or holders of
such indebtedness for borrowed money in excess of $1,000,000 (or a trustee or
agent on behalf of such holder or holders) to cause (determined without
regard to whether any notice is required), any such indebtedness for borrowed
money in excess of $1,000,000 to become due prior to its stated maturity or
(iii) any indebtedness for borrowed money in excess of $1,000,000 of Borrower
shall be declared to be due and payable, or required to be prepaid other than
by a regularly scheduled required prepayment, prior to the stated maturity
thereof; or
(e) BANKRUPTCY, ETC. Borrower shall commence a voluntary case
concerning itself under Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect, or any successor thereto (the
"Bankruptcy Code"); or an involuntary case is commenced against Borrower, and
the petition is not controverted within 30 days, or is not dismissed within
90 days, after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially
all of the property of Borrower, or Borrower commences any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to Borrower, or there is
commenced against Borrower any such proceeding which remains undismissed for
a period of 90 days, or Borrower is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding is
entered; or Borrower suffers any appointment of any custodian or the like for
it or any substantial part of its property to continue undischarged or
unstayed for a period of 90 days; or Borrower makes a general assignment for
the benefit of creditors; or any corporate action is taken by Borrower for
the purpose of effecting any of the foregoing; or
(f) JUDGMENTS. One or more judgments or decrees shall be entered
against Borrower involving in the aggregate a liability (not paid and to the
extent not covered by insurance) of $1,000,000 or more, and all such
judgments or decrees shall not have been vacated, discharged or stayed or
bonded pending appeal within ninety (90) days from the entry thereof; or
21
(g) CROSS-DEFAULT. Any Event of Default under any Transaction
Document shall constitute an Event of Default under all Transaction Documents.
ARTICLE 8
REMEDIES
SECTION 8.1. OPTION TO ACT.
On the occurrence of any Event of Default, in addition to its other
rights in this Agreement or in any of the other Transaction Documents, at
law, or in equity, Lender may, without prior demand, exercise any one or more
of the following rights and remedies:
8.1.(a) ACCELERATION. Declare the Note and all other sums owing to
Lender with respect to the other Transaction Documents immediately due and
payable without presentment, demand, protest or other notice, any and all of
which are hereby waived by Borrower.
8.1.(b) LEGAL AND EQUITABLE REMEDIES. Proceed as authorized at
law or in equity with respect to the Event of Default, and in connection
therewith, remain entitled to exercise all other rights and remedies
described in this Agreement or the other Transaction Documents.
SECTION 8.2. RIGHTS CUMULATIVE, NO WAIVER.
All of Lender's rights and remedies provided in this Agreement or in any
of the other Transaction Documents are cumulative and may be exercised by
Lender at any time and in any order. Lender's exercise of any right or
remedy will not constitute a cure of any Event of Default unless all sums
then due to Lender under the Transaction Documents are repaid and Borrower
has cured all other Events of Default. No waiver will be implied from
Lender's failure to take, or delay in taking, any action concerning any Event
of Default or from any previous waiver of any similar or unrelated Event of
Default. Any waiver under any of the Transaction Documents must be in
writing and will be limited to its specific terms.
SECTION 8.3. DISCLAIMER.
Whether Lender elects to employ any of the remedies available to it in
connection with an Event of Default, Lender will not be liable for the
performance or nonperformance of any other obligation of Borrower.
ARTICLE 9
MISCELLANEOUS
22
SECTION 9.1. NO WAIVER.
No failure or delay on the part of Lender in exercising any right or
remedy under the Transaction Documents will operate as a waiver nor will
Lender be estopped to exercise any right or remedy at any future time because
of any failure or delay. No express waiver will affect any matter other than
the matter expressly waived and that waiver will be operative only for the
time and to the extent stated. Waivers of any covenant, term, or condition
in this Agreement will not be construed to waive any subsequent breach of the
same covenant, term, or condition.
SECTION 9.2. NO THIRD PARTIES BENEFITED.
This Agreement is made and entered into for the sole protection and
benefit of the parties and their permitted successors and assigns.
SECTION 9.3. NOTICES.
Notice shall be given as follows:
IF TO LENDER:
Hospitality Partners, LLC
0 Xxxxx Xxxxx
Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
By fax to (000) 000-0000
IF TO BORROWER OR MEMBERS:
Hospitality Marketing Consultants, LLC
00000 Xxxxxxxxx Xxxxxxxxx
Xxxxx 0000
Xxxxxx, XX 00000
By fax to: (000) 000-0000
Service shall be effected either: (1) by fax when the fax transmission is
completed, provided a hard copy is deposited in the U.S. Mail within 24 hours
of fax notice; or (2) by personal service when a copy is personally delivered
to the person being served. If for any reason a party cannot readily serve
the other either by fax or by personal delivery, service shall be proper if
mailed to the party to be served at the address set forth above, certified
mail, return receipt requested, in which event, service shall be deemed
effective on the third business day after deposit in the mails. A party's
failure or refusal to sign a return receipt shall not
23
invalidate the notice. Any party may change his, her or its address by
notifying the other party in writing and supplying a new fax number.
SECTION 9.4. ASSIGNMENT.
The terms of this Agreement will be binding on and inure to the benefit
of the successors and assigns of the parties. Neither Borrower nor Lender
will assign this Agreement, any other Transaction Document or any interest
therein or rights thereunder without the prior written consent of the other
party; provided, however, that upon the occurrence and continuance of an
Event of Default, Lender may enter into such assignments without Borrower's
consent. Lender may at any time assign the Transaction Documents to any
Affiliate of Lender. In that case, the provisions of this Agreement will
continue to apply to the Loan, and the assignee will be substituted in the
place and stead of Lender, with all rights, obligations, and remedies of
Lender, including, without limitation, the right to further assign the
Transaction Documents and its interest in the Loan.
SECTION 9.5. TIME.
Time is of the essence.
SECTION 9.6. BORROWER'S RESPONSIBILITIES.
Borrower shall, at Borrower's expense, defend, indemnify, save, and hold
Lender harmless against all claims, demands, losses, expenses, liabilities,
damages (general, punitive, or otherwise), judgments, costs, reasonable
attorneys' fees and causes of action (whether legal or equitable)
("Liabilities") asserted by any Person which Lender may incur (a) as a direct
or indirect consequence of (i) the making of the Loan, (ii) Borrower's
failure to perform any obligations as and when required by this Agreement or
any of the other Transaction Documents, (iii) the failure at any time of any
of Borrower's representations or warranties to be true and correct; or (b)
which (i) are related to the Transaction Documents, (ii) arise out of the
transactions contemplated hereby, or (iii) arise out of the use of the Loan
Proceeds, except to the extent that any such Liabilities arise solely from or
relate solely to the negligence or willful misconduct of Lender. The
provisions of this Section 9.6 will survive the termination of this Agreement
and the repayment of the Loans.
SECTION 9.7. NONLIABILITY FOR NEGLIGENCE, LOSS, OR DAMAGE.
Borrower acknowledges, understands, and agrees that the relationship
between Borrower and Lender is, and will at all times remain, solely that of
borrower and lender, and there is no other
24
relationship between the parties except as is expressly set forth in a
written agreement signed by the party to be charged.
SECTION 9.8. CONTROLLING LAW; APPROVALS.
9.8.(a) The Transaction Documents will be governed by and construed in
accordance with California law, excluding the rules on conflicts of law.
9.8.(b) All consents and approvals by Lender required or permitted by
any provision of this Agreement must be in writing, Lender's consent to or
approval of any act by Borrower requiring further consent or approval will
not be deemed to waive or render unnecessary the consent or approval to or of
any subsequent similar act.
SECTION 9.9. SURVIVAL OF WARRANTIES AND COVENANTS.
The warranties, representations, conditions, covenants, and agreements
in this Agreement and in the other Transaction Documents will survive the
making of the Loan and the execution and delivery of the Note and will
continue in full force until the Loan has been paid in full or the Note has
been converted into Shares of Borrower. Nothing in this Section 9.9 is
intended to limit any other provision of the Transaction Documents that by
their stated terms survive the repayment of the Loans or the termination of
any Transaction Document.
SECTION 9.10. NO REPRESENTATIONS BY LENDER.
By accepting or approving anything required to be observed, performed,
or fulfilled, or to be given to Lender pursuant to this Agreement or pursuant
to the Transaction Documents, including, but not limited to, any officer's
certificate, Financial Statement, survey, appraisal, or insurance policy,
Lender will not be deemed to have warranted or represented the sufficiency,
legality, effectiveness, or legal effect of it or of any particular term,
provision, or condition of it, and any acceptance or approval will not be or
constitute any warranty or representation by Lender.
SECTION 9.11. AMENDMENT.
The Transaction Documents and the terms of each of them may not be
modified, waived, discharged, or terminated except by a written instrument
signed by the party against whom enforcement of the modification, waiver,
discharge, or termination is asserted.
SECTION 9.12. COUNTERPARTS.
The Transaction Documents may be executed in any number of counterparts
and by different parties in separate counterparts,
25
each of which when executed and delivered will be deemed an original and all
of which counterparts taken together will constitute one and the same
instrument. They may be executed by facsimile.
SECTION 9.13. SEVERABILITY.
If any terms, provision, covenant, or condition or any application is
held by a court of competent jurisdiction to be invalid, void, or
unenforceable, all terms, provisions, covenants, and conditions and all
applications not held invalid, void, or unenforceable will continue in full
force and will in no way be affected, impaired, or invalidated.
SECTION 9.14. CAPTIONS.
All Article and Section headings in this Agreement are inserted for
convenience of reference only and do not constitute a part of this Agreement
for any other purpose.
SECTION 9.15. COSTS
Each party shall bear its own costs and attorney fees related to the
preparation and filing of the documents for the Loans.
SECTION 9.16. FURTHER ASSURANCES.
At Lender's request and at Borrower's expense, Borrower will execute,
acknowledge, and deliver all other instruments and perform all other acts
necessary, desirable, or proper to carry out the purposes of the Transaction
Documents.
SECTION 9.17. INTEGRATION AND INTERPRETATION.
The Transaction Documents contain or expressly incorporate by reference
the entire agreement between Lender, on the hand, and Borrower and the
Members, on the other hand, with respect to the covered matters and supersede
all prior negotiations. Any reference to the Transaction Documents
themselves in any of the Transaction Documents will include all amendments,
renewals, or extensions approved by Lender. There are no oral agreements or
promises of any kind, and the only understandings of the parties are those
set forth in the written agreements signed by the parties. No modification
or obligation of any kind shall be binding or enforceable unless in writing
and signed by the party to be charged.
SECTION 9.18. NUMBER.
26
When the context and construction so require, all words used in the
singular will be deemed to have been used in the plural and vice versa.
ARTICLE 10
SUBORDINATION
The indebtedness evidenced by this Loan and Investment Agreement and the
Note is hereby expressly subordinated, to the extent and in the manner
hereinafter set forth, in right of payment to the prior payment in full of
all the Borrower's Senior Indebtedness, as hereinafter defined.
SECTION 10.1. SENIOR INDEBTEDNESS.
As used in this Loan and Investment Agreement, the term "Senior
Indebtedness" shall mean the principal of and unpaid accrued interest on: (i)
all indebtedness of the Borrower to banks, insurance companies or other
financial institutions regularly engaged in the business of lending money,
which is for money borrowed by the Borrower (whether or not secured), (ii)
all indebtedness of the Borrower to unaffiliated lenders which is for money
borrowed by the Borrower and secured by the Borrower's accounts receivable,
and (iii) any such indebtedness or any debentures, notes or other evidence of
indebtedness issued in exchange for Senior Indebtedness.
SECTION 10.2. DEFAULT ON SENIOR INDEBTEDNESS.
Unless and until a bankruptcy proceeding is filed, if any Senior
Indebtedness shall be declared due and payable prior to its stated maturity
upon the occurrence of an event of default thereunder, then no amount shall
be paid by the Borrower in respect of the principal of or interest on the
Note at the time outstanding unless and until the principal of and interest
on the Senior Indebtedness then outstanding shall be paid in full or such
event of default shall have been cured or waived.
SECTION 10.3. EFFECT OF SUBORDINATION.
Subject to the rights, if any, of the holders of Senior Indebtedness
under this Article 10 to receive cash, securities or other properties
otherwise payable or deliverable to the Lender, nothing contained in this
Article 10 shall impair, as between the Borrower and the Lender, the
obligation of the Borrower, subject to the terms and conditions hereof, to
pay to the Lender the principal of and interest on the Note as and when the
same become due and payable, or shall prevent the Lender, upon default under
the Note, from exercising all rights, powers and remedies otherwise provided
herein, therein or by applicable law.
27
SECTION 10.4. SUBROGATION.
Subject to the payment in full of all Senior Indebtedness and until the
Note shall be paid in full, the Lender shall be subrogated to the rights of
the holders of Senior Indebtedness (to the extent of payments or
distributions previously made to such holders of Senior Indebtedness pursuant
to the provisions of Section 10.2 above) to receive payments or distributions
of assets of the Borrower applicable to the Senior Indebtedness; shall, as
between the Borrower and its creditors, other than the holders of Senior
Indebtedness and the Lender, be deemed to be a payment by the Borrower to or
on account of the Note; and for the purposes of such subrogation, no payments
or distributions to the holders of Senior Indebtedness to which the Lender
would be entitled except for the provisions of this Article 10 shall, as
between the Borrower and its creditors, other than the holders of Senior
Indebtedness and the Lender, be deemed to be a payment by the Borrower to or
on account of the Senior Indebtedness.
SECTION 10.5. UNDERTAKING.
By its acceptance of the Note, the Lender agrees to execute and deliver
such documents as may be reasonably requested from time to time by the
Borrower or the lender of any Senior Indebtedness in order to implement the
foregoing provisions of this Article 10.
LENDER
Hospitality Partners, LLC
Dated: November 7, 1997 By:_____________________________
Xxxx Xxxxxxx, Manager
BORROWER
Hospitality Marketing Consultants, LLC
Dated: November 7, 1997 By:_____________________________
Mokhtar Ramadan, President
[The Members join in this Agreement solely for the purpose of confirming
their agreement to the provisions of Section 2.3(a).]
MEMBERS
28
Dated: November 7, 1997 ______________________________
Mokhtar Ramadan
Dated: November 7, 1997 ______________________________
Xxxx Xxxxxxx
Dated: November 7, 1997 ______________________________
Xxxxxx Xxxxxxx
Dated: November 7, 1997 ______________________________
Xxxxxx Xxxx
29
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$3,000,000.00 Irvine, California November 7, 1997
FOR VALUE RECEIVED, the undersigned, Hospitality Marketing Consultants,
LLC, a California limited liability company ("Borrower"), hereby
unconditionally promises to pay to Hospitality Partners, LLC, a Delaware
limited liability company ("Lender"), or order, at 0 Xxxxx Xxxxx, Xxxxx 000,
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000, or at such other place as Lender may
designate in writing, the principal sum of Three Million Dollars
($3,000,000), in lawful money of the United States of America, together with
interest on the unpaid principal balance from time to time outstanding from
and after the Cut-Off Date (as defined in the "Loan Agreement" as hereinafter
defined) at a rate per annum equal to the Prime Rate established by Cedars
Bank, as adjusted from time to time. Interest only shall be due and payable
in arrears on the last day of each calendar month, commencing on the last day
of the month following the Cut-Off Date until and including that date which
is two years after the Cut-Off Date but in no event later than December 31,
2001 (the "Maturity Date") upon which date the entire unpaid principal
balance hereunder, together with any accrued but unpaid interest thereon,
shall be due and payable in full.
This Note has been executed and delivered pursuant to that certain Loan
and Investment Agreement between Borrower and Lender of even date herewith
(the "Loan Agreement"), and shall be subject to subordination as provided in
Article 10 thereof. Until such time as there occurs and is continuing an
Event of Default, this Note (and any interest therein) shall not be
transferred or assigned, except to an Affiliate of Lender.
Lender shall have the right to convert the principal balance of this
Note into membership interests or capital stock [in the case of Reorganized
Borrower (as defined in the Loan Agreement)] of Borrower as provided in
Section 2.3(b) of the Loan Agreement. This Note may be so converted by
written notice of Lender's election to so convert the Note and by surrender
of this Note to Borrower at Borrower's principal office. If Lender
exercises this conversion option, it shall have the Registration Rights set
forth in that certain Registration Rights Addendum attached hereto as
Exhibit "A" and incorporated herein by this reference.
Prior to the Cut-Off Date, Borrower shall not be permitted to prepay
principal on this Note, in whole or in part. Thereafter, Borrower may, at
any time or from time to time, from and after the Cut-Off Date prepay
principal on this Note, in whole or in part, without penalty or bonus. Each
payment shall be credited first to
late charges, fees or other sums to be paid by Borrower to Lender; second to
accrued and unpaid interest; and third, to principal. Interest shall cease on
principal so credited.
Upon the occurrence of an Event of Default as defined in the Loan
Agreement, Lender shall have the right, without further notice or demand, to
declare the entire balance of this Note, including interest, immediately due
and payable.
No waiver by Lender of any of its rights or remedies under this Note or
under any other document evidencing this Note or otherwise shall be a waiver
of any other right or remedy of Lender; no delay or omission in the exercise
or enforcement by Lender of any right or remedy shall be construed as a
waiver of any right or remedy of Lender; and no exercise or enforcement of
any such right or remedy shall be held to exhaust any right or remedy of
Lender.
Borrower waives presentment for payment, demand, notice of non-payment
and protest; and any endorsers, guarantors or sureties of this Note agree
that the time for payment may be extended without notice to or consent by
them.
This Note is being executed and delivered, and is intended to be
performed, in the State of California. Any controversy or claim arising out
of or relating to this Note, or the making, performance, breach or
interpretation of it, including tort claims, shall be adjudicated in the
courts located in Orange County, California, which shall be the exclusive
venue and jurisdiction for all claims arising out of or related to this Note.
If any suit or other proceeding is brought to enforce this Note, or to
collect all or any portion of it, including interest, or because of an
alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of this Note, or if the holder of this Note sues to
protect, preserve or enforce its rights or position, the prevailing party
shall recover reasonable attorneys' fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it may be
entitled.
"Borrower"
Hospitality Marketing Consultants, LLC, a
California limited liability company
By: _____________________________
Mokhtar Ramadan, President
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