Exhibit 10.1
LOAN AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this 18th day
of September, 2002, by and between International Travel CD's, Inc., a Colorado
corporation (the "Borrower") and Gemini Growth Fund, LP, a Delaware limited
partnership (the "Lender").
W I T N E S S E T H :
WHEREAS, the Borrower has requested that Lender make a loan to Borrower
of up to $550,000 (the "Loan"); and
WHEREAS, Lender has agreed to make such a loan available to Borrower
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, it is agreed as follows:
SECTION 1. Definitions. All of the terms defined in this Agreement
shall have such defined meanings when used in the other Loan Documents (as
hereinafter defined) and any certificates, reports or other documents or
instruments issued under or delivered pursuant to this Agreement unless the
context shall require otherwise. For purposes of this Agreement, the following
terms shall have the following meanings:
1.1 "Affiliate" shall mean an entity that is a member of a "controlled
group of corporations" (within the meaning of Section 414(b) of the Internal
Revenue Code), an "affiliated service group" (within the meaning of Section
414(m) of the Internal Revenue Code), or a group of trades or business under
common control (within the meaning of Section 414(c) of the Internal Revenue
Code) that also includes the Borrower as a member.
1.2 "Agreement" shall include this Agreement as amended, modified or
supplemented from time to time.
1.3 "Authorized Officer" shall mean the Chief Executive Officer or the
President of the Borrower or such other person designated in writing to the
Lender, who is authorized to act on behalf of the Borrower hereunder.
1.4 "Business Day" means a day upon which banks are open for the
transaction of business of the nature required by this Agreement in Texas.
1.5 "Capital Expenditure": means any payment made directly or
indirectly for the purpose of acquiring or constructing fixed assets, real
property or equipment which in accordance with GAAP would be added as a debit to
the fixed asset account of the Person making such expenditure, including,
without limitation, amounts paid or payable under any conditional sale or other
title retention agreement or under any lease or other periodic payment
arrangement which is of such a nature that payment obligations of the lessee or
obligor
thereunder would be required by generally accepted accounting principles to be
capitalized and shown as liabilities on the balance sheet of such lessee or
obligor.
1.6 "Cash Flow" means an amount equal to (i) the Borrower' Consolidated
EBITDA, minus (ii) the Borrower's Consolidated non-financed Capital
Expenditures.
1.7 "Capital Lease" means any lease of property (real, personal or
mixed) which, in accordance with GAAP, should be capitalized on the lessee's
balance sheet or for which the amount of the asset and liability thereunder as
if so capitalized should be disclosed in a note to such balance sheet.
1.8 "Change of Control" means (a) a Change of Ownership; (b) during any
period of twelve consecutive calendar months, individuals who at the beginning
of such period constituted the board of directors of the Borrower (together with
any new directors whose election by the board of directors of the Borrower or
whose nomination for election by the shareholders of Borrower was approved by a
vote of at least two-thirds of the directors then still in office who either
were directors at the beginning of such period or whose elections or nomination
for election was previously so approved) cease for any reason other than death
or disability to constitute a majority of the directors then in office.
1.9 "Change of Ownership" means any person or group of persons (other
than the Lender and/or the shareholders of the Borrower on the Closing Date)
shall have acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended) of forty percent (40%) or more (computed on a
fully diluted basis) of the issued and outstanding shares of capital stock of
Borrower having the right to vote for the election of directors of Borrower
under ordinary circumstances.
1.10 "Closing Date" means the date first set forth above.
1.11 "Committed Amount" means the principal amount of $550,000 which
Lender has agreed to lend to Borrower as evidenced by the Convertible Note.
1.12 "Common Stock" shall have the meaning as defined in Section 3.3.
1.13 DELETED.
1.14 "Consolidated EBITDA" means, for any Person for any period:
(i) the consolidated net income of such Person and its
Consolidated Subsidiaries for such period (after Income Taxes), but excluding:
(a) any gain arising from the sale of capital assets,
(b) any gain arising from any write-up of assets,
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(c) earnings of any other Person, substantially all of the assets
of which have been acquired by such Person or its consolidated Subsidiaries in
any manner, to the extent that such earnings were realized by such other Person
prior to the date of such acquisition.
(d) earnings of any Person in which the Person or its Consolidated
Subsidiaries has an ownership interest (other than wholly owned Subsidiaries of
such Person), unless such earnings have actually been received by the Person or
its Consolidated subsidiaries in the form of cash distributions,
(e) earnings of any Person to which assets of the Person or its
Consolidated Subsidiaries shall have been sold, transferred or disposed of, or
into which the Person shall have merged, to the extent that such earnings arise
prior to the date of such transaction,
(f) any gain arising from the acquisition of any securities of
such Person or any of its Consolidated subsidiaries, and
(g) any extraordinary gain realized by such Person or any of its
Consolidated subsidiaries during such period.
(ii) plus the following, but only in each case to the extent incurred
by the Borrower and its Consolidated subsidiaries during such period and
deducted in the calculation above for such period,
(a) all income and franchise taxes,
(b) all Interest Expense,
(c) all depreciation expense, and
(d) all amortization expense.
1.15 "Consolidated Subsidiary" or "Consolidated Subsidiaries" means,
for any Person, any Subsidiary or other entity the accounts of which would be
consolidated with those of such Person in its consolidated financial statements
as of such date in accordance with GAAP.
1.16 "Current Assets" means, at any particular time, all amounts which,
in conformity with GAAP, would be included as current assets on a consolidated
balance sheet of the Borrower and its Subsidiaries; provided however, there
shall be excluded therefrom (a) all prepaid expenses of every type and nature,
(b) all amounts due from partners, officers, stockholders or other Affiliates,
and all loans due from employees, and (c) all deferred charges.
1.17 "Current Liabilities" means, at any particular time, all amounts
(including deferred taxes) which, in conformity with GAAP, would be included as
current liabilities on a consolidated balance sheet of the Borrower and its
Subsidiaries.
1.18 "Current Ratio" means the ratio of Current Assets to Current
Liabilities.
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1.19 "Debt" means, with respect to any Person on any date of
determination (without duplication), (i) all obligations for borrowed money,
(ii) all obligations evidenced by bonds, debentures, notes or similar
instruments, (iii) all obligations to pay the deferred purchase price of
property or services except trade accounts payable arising in the ordinary
course of business which are paid when due in accordance with ordinary-course
payment terms, (iv) all obligations arising under acceptance facilities or
facilities for the discount or sale of accounts receivable, (v) all direct or
contingent obligations in respect of letters of credit, (vi) lease obligations
(other than lease obligations with respect to operating leases) that have been
(or under GAAP should be) capitalized for financial reporting purposes, (vii)
liabilities secured (or for which the holder of any obligations or liabilities
has an existing right, contingent or otherwise, to be so secured) by any Lien
existing on property owned or acquired by that Person and (viii) all guaranties,
endorsements and other contingent obligations for liabilities or obligations or
the maintenance of financial condition of others, including obligations to
repurchase or purchase properties or to maintain or cause to maintain any
financial condition.
1.20 "Default" or "Event of Default" means the occurrence of all or any
of the events specified in Section 7 and/or set forth in the Convertible Note
(as defined below).
1.21 "Indebtedness" means with respect to any Person, all indebtedness
of such Person for borrowed money, all indebtedness of such Person for the
acquisition of property other than purchases of products and merchandise in the
ordinary course of business, indebtedness secured by a lien, pledge or other
encumbrance on the property of such Person whether or not such indebtedness is
assumed, all liability of such Person by way of endorsements (other than for
collection or deposit in the ordinary course of business); all guarantees of
Indebtedness of any other Person by such Person (including any agreement,
contingent or otherwise, to purchase any obligation representing such
Indebtedness or property constituting security therefor, or to advance or supply
funds for such purpose or to maintain working capital or other balance sheet or
income statement condition, or any other arrangement in substance effecting any
of the foregoing); all leases and other items which in accordance with Generally
Accepted Accounting Principles are classified as liabilities on a balance sheet.
1.22 "Interest Expense" means, with respect to any Person and for any
period (without duplication), all interest on that Person's Debt, whether paid
in cash or accrued as a liability and payable in cash during any subsequent
period (including, without limitation, the interest component of Capital
Leases), as determined by GAAP.
1.23 "Liabilities" mean all liabilities, obligations and indebtedness
of any and every kind and nature (including, without limitation, lease
obligations, accrued interest, charges, expenses, attorneys' fees and other
sums) chargeable to the Borrower and made to or for the benefit of the Borrower,
whether arising under this Agreement or arising under the Note or any of the
Loan Documents of the Borrower, whether heretofore, now or hereafter owing,
arising, due or payable from Borrower to the Lender and however evidenced,
credited, incurred, acquired or owing, whether primary, secondary, direct,
contingent, fixed, or otherwise, including obligation of performance.
1.24 "Liens" shall have the meaning set forth in Section 3.9.
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1.25 "Loan Amount" means the principal amount of up to $550,000which
Lender has agreed to lend Borrower at Lender's sole option.
1.26 "Loan Documents" means this Agreement, the Convertible Note, the
Pledge Agreement, the Warrant, the Security Agreement, and all documents,
instruments, certificates, reports and all other written matters whether
heretofore, now, or hereafter executed by or on behalf of the Borrower and/or
delivered to Lender in connection herewith.
1.27 "Convertible Note" or "Note" means one or more Senior Secured
Promissory Notes, to be executed by the Borrower in favor of the Lender,
substantially in the form of Exhibit 1 attached hereto.
1.28 "Material Adverse Effect" shall have the meaning set forth in
Section 3.1.
1.29 "Net Income" or "Net Loss" means, with respect to any Person for
any period, the net income or net loss of such Person determined in accordance
with GAAP, after payment of income Taxes but excluding any extraordinary or
non-recurring items.
1.30 "Obligation" shall mean the principal amount of the Loan, plus
fourteen percent (14%) interest per annum (subject to adjustment) together with
such costs and reimbursements as may be due under the Loan Agreement and the
Note.
1.31 "Pledge Agreement", if any, means the pledge agreement of
approximate even date herewith executed by pledgor in favor of the Lender.
1.32 "Registrable Securities" shall mean (i) the Common Stock issued
upon conversion of the Convertible Notes, or (ii) any Common Stock issued upon
the exercise of the Warrant, right or other security which is issued in
conjunction with this transaction (i) above by way of stock dividend; any other
distribution with respect to or in exchange for, or in replacement of Common
Stock; stock split; or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
1.33 "Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated organization, association,
joint venture or a government or agency or political subdivision thereof.
1.34 "Security Agreement" means that certain Security Agreement of
approximate even date herewith executed by the Borrower in favor of the Lender.
1.35 "Subsidiary" means any corporation or limited liability company of
which at least a 50% of the outstanding securities having ordinary voting powers
for the election of Board of Directors (or similar governing body) are at the
time owned by Borrower. As used herein, the term "Borrower" shall be deemed to
include all of Borrower's Subsidiaries, if any.
1.36 "Termination Date" means the earlier of: (a) September 30, 2003;
(b) the date of the occurrence and continuance of an Event of Default (as
hereinafter defined); (c) the date of repayment of the Loan Amount plus accrued
interest; (d) the date of the closing of a secondary
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public offering by the Borrower and/or its shareholders; or (e) the date of the
Change of Control of the Borrower.
1.37 "Warrant", if any means that certain warrant of approximate even
date herewith executed by the Borrower in favor of the Lender.
SECTION 2. Loan.
2.1 Committed Loan Amount. Subject to the terms and conditions of this
Agreement, the Lender agrees to loan to the Borrower $550,000 pursuant to the
terms of the Convertible Note and the other Loan Documents upon the execution of
this Agreement. The Lender shall provide such funds (via check or wire transfer)
to the Borrower within five (5) business days of receipt by the Lender of such
Loan Documents duly executed by Borrower, or within such shorter period as
Borrower and Lender mutually agree. Nothing set forth herein shall prohibit the
Borrower from making prepayments without penalty at any time and from time to
time (subject to prior conversion rights). All provisions of the Convertible
Note are incorporated herein by reference. Any conflicts between the Convertible
Note and this Loan Agreement shall be resolved by reference to the Convertible
Note. Upon execution of this Agreement, contemporaneous with the funding of the
Loan, Borrower shall promptly pay to the order of the Lender a commitment fee in
the amount of 1% and an origination fee of 4%. Such fees shall be applicable to
any further lending from Lender to Borrower. In addition, the Borrower shall
cause to be delivered to Lender 200,000 shares of freely traded shares of U.S.
Patriot Inc.'s common stock. If all principal, interest and fees due hereunder
are repaid in full by March 31, 2003, Lender hereby agrees to tender back
100,000 shares of U.S. Patriot Inc.'s common stock. Lender and Borrower agree
that that value of these shares is $1,000.
2.2 Payments of Interest and Principal. Interest on the Loan Amount
shall accrue at the rate of fourteen percent (14%) per annum from the date of
receipt of funds by Lender, and shall be payable via wire transfer in cash
unless the Lender provides advance written notice that Borrower pay the interest
in Common Stock at a value equal to the $2.50 per share subject to the
anti-dilution rights found in Section 4(a) of the Convertible Note. Unless
earlier repaid in accordance with payment provisions set forth in the Note,
Borrower shall pay to Lender on the Termination Date the entire principal amount
of the outstanding Convertible Notes, via wire transfer, together with accrued
interest thereon and any fees then owed.
2.3 Use of Proceeds. The proceeds of the Loan shall be used by the
Borrower in accordance with the provisions of Schedule 2.3 hereof.
2.4 Conversion. Terms found in the Convertible Note.
SECTION 3. Representations and Warranties. In order to induce the
Lender to enter into this Agreement and to make the Loan available, the Borrower
represents and warrants to the Lender as of the Closing Date (which
representations and warranties shall survive the delivery of the documents
mentioned herein, and the termination of this Agreement) as follows:
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3.1 Organization.
(a) The Borrower and each Subsidiary, if any, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its respective formation, has the power to own its respective
properties and to carry on its respective businesses as now being conducted and
is duly qualified to do business in every jurisdiction in the United States of
America for which the failure to so qualify would have a material impact on the
financial condition, operations, business or prospects of the Borrower
("Material Adverse Effect").
(b) Schedule 3.1 sets forth true and complete copies of the
Articles of Incorporation and Bylaws, as in effect on the date hereof, of the
Borrower and all other corporate formation and governing documents of each of
the Subsidiaries. Except as set forth in Schedule 3.1(b), the Borrower does not
own or control, directly or indirectly, any equity interest in any corporation,
company, limited liability company, association, partnership, limited
partnership, joint venture or other entity.
3.2 Power and Authority. The Borrower is duly authorized under all
applicable provisions of law, its Articles of Incorporation, and its Bylaws to
execute, deliver and perform this Agreement, the Convertible Note and the other
Loan Documents to which it is a party, and all other action on the part of the
Borrower required for the lawful execution, delivery and performance thereof
have been duly taken. This Agreement and the other Loan Documents, if any, upon
the due execution and delivery thereof, are valid and enforceable instruments,
obligations or agreements of the parties, in accordance with their respective
terms, except as to enforcement of creditors rights generally. Neither the
execution of this Agreement and the Loan Documents, nor the fulfillment of or
compliance with their provisions and terms, conflicts with, or has or will
result in a breach of the terms, conditions or provisions of, or constitute a
violation of or default under: (a) any applicable law, regulation, order, writ
or decree; or (b) any agreement or instrument to which the Borrower is a party,
or create any lien, charge or encumbrance upon any of the property or assets of
any of them pursuant to the terms of any agreement or instrument to which any of
them is a party or by which any of them are bound except those in favor of the
Lender expressly created hereunder.
3.3 Capitalization. As of the date hereof, the total number of
authorized shares of common stock of the Borrower (the "Common Stock") is
_____________ of which ____________ shares are issued and outstanding and the
total number of authorized shares of preferred stock of the Borrower (the
"Preferred Stock") is __________ shares,_______ of which are issued and
outstanding. Borrower does not have any authorized shares of preferred stock.
The outstanding capitalization of the Borrower as of the date hereof is set
forth in Schedule 3.3 annexed hereto. Except as otherwise disclosed in Schedule
3.3, there are no warrants, options or preemptive rights authorized or
outstanding with respect to any of the Borrower's capital stock. The Borrower
shall not issue any derivative securities without the express written consent of
the Lender.
3.4 Stock Ownership. The stockholders, which are reflected on Schedule
3.3, are holders of all of the issued and outstanding Common Stock and, except
as contemplated by the
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Loan Documents and Schedule 3.3, there are no commitments, agreements or
undertakings with respect to the issuance of any equity or debt securities of
the Borrower.
3.5 Material Liabilities. The sole outstanding material liabilities of
the Borrower are set forth on Schedule 3.5 annexed hereof.
3.6 Proceeds of Convertible Note. The Borrower shall use the proceeds
of the Convertible Note solely for those purposes set forth on Schedule 2.3
hereof.
3.7 Registration Rights. Except as set forth in Schedule 3.7, there are
no registration rights agreements with respect to any of the Borrower's capital
stock.
3.8 Material Agreements. Except for those agreements set forth on
Schedule 3.8 hereof, there are no other material agreements to which the
Borrower is a party.
3.9 Title to Assets. The Borrower has good and marketable title to all
of its properties and assets, all of which are free and clear of any and all
liens, mortgages, pledges, encumbrances or charges of any kind or nature
whatsoever (collectively, "Liens").
3.10 Litigation. There are no pending or threatened actions or
proceedings before any court, any state, provincial or federal regulatory body,
or any self-regulatory organization arbitrator or governmental or administrative
body or agency which would have a Material Adverse Effect or in any way
materially affect or call into question the power and authority of the Borrower
to enter into or perform this Agreement and the Loan Documents.
3.11 Taxes. The Borrower has filed all income tax returns (if any)
required to be filed by it and all taxes due thereon have been paid, and no
controversy in respect of additional income taxes, municipal, state or federal,
of the Borrower is pending or threatened.
3.12 Agreements or Restrictions Affecting the Borrower. The Borrower is
not a party to or otherwise bound by any contract or agreement or subject to any
restrictions which would have Material Adverse Effect or restricts the
Borrower's ability to enter into this Agreement or any of the other of the Loan
Documents or the Borrower's ability to effect the transactions contemplated
therein and herein.
3.13 Governmental Approval. No approval of any federal, state,
municipal or other local governmental authorities is necessary to carry out the
terms of this Agreement and the Loan Documents, and no consents or approvals are
required in the making or performance of this Agreement and the Loan Documents.
3.14 Board of Directors. The Board of Directors of the Borrower
consists of ___________________--
3.15 No Untrue Statements. None of this Agreement or the Loan Documents
nor any other agreements, reports, schedules, certificates or instruments
heretofore or simultaneously with the execution of this Agreement delivered to
Lender, contains any misrepresentation or untrue statement of fact or omits to
state any fact necessary to make any of such agreements, reports, schedules,
certificates or instruments not misleading.
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3.16 Employee Benefit Plans.
(a) Borrower has disclosed to Lender in writing prior to the execution
of the Agreement and has listed on Schedule 3.16 all Borrower Benefit Plans.
Attached to Schedule 3.16 are correct and complete copies, in each case of all
Borrower Benefit Plans. For purposes of this Agreement, "Borrower Benefit Plans"
means all pension, retirement, profit-sharing, deferred compensation, stock
option, employee stock ownership, severance pay, vacation, bonus, or other
incentive plan, all other written employee agreements or programs, all medical,
vision, dental, or other health plans, all life insurance plans, and all other
employee benefit plans or fringe benefit plans, including, without limitation,
"employee benefit plans" as that term is defined in Section 3(3) of ERISA
maintained by, sponsored in whole or in part by, or contributed to by, the
Borrower or any of its Affiliates for the benefit of managers, members,
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries and under which managers, members, employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
are eligible to participate. Any of the Borrower Benefit Plans which is an
"employee welfare benefit plan," as that term is defined in Section 3(l) of
ERISA, or an "employee pension benefit plan," as that term is defined in Section
3(2) of ERISA, is referred to herein as a "Borrower ERISA Plan." Any Borrower
ERISA Plan which is also a "defined benefit plan" (as defined in Section 414(j)
of the Internal Revenue Code or Section 3(35) of ERISA) is referred to herein as
a "Borrower Pension Plan." Neither Borrower nor any Affiliate has an "obligation
to contribute" (as defined in ERISA Section 4212) to a "multiemployer plan" (as
defined in ERISA Sections 4001(a)(3) and 3(37)(A)). Each "employee pension
benefit plan," as defined in Section 3(2) of ERISA, ever maintained by the
Borrower or any Affiliate that was intended to qualify under Section 401(a) of
the Internal Revenue Code and with respect to which any Affiliate has any
liability, is disclosed as such in Schedule 3.16.
(b) Borrower has attached to Schedule 3.16 correct and complete copies
of the following documents: (i) all trust agreements or other funding
arrangements for such Borrower Benefit Plans (including insurance contracts),
and all amendments thereto; (ii) with respect to any such Borrower Benefit Plans
or amendments, all determination letters, rulings, opinion letters, information
letters, or material advisory opinions issued by the Internal Revenue Service,
the United States Department of Labor, or the Pension Benefit Guaranty
Corporation after December 31, 1994; (iii) annual reports or returns, audited or
unaudited financial statements, actuarial valuations and reports, and summary
annual reports prepared for any Borrower Benefit Plan with respect to the most
recent plan year; and (iv) the most recent summary plan descriptions and any
material modifications thereto.
(c) All Borrower Benefit Plans are in material compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other applicable
laws, the breach or violation of which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on the Borrower.
Each Borrower ERISA Plan currently maintained by Borrower which is intended to
be qualified under Section 401(a) of the Internal Revenue Code has received a
favorable determination letter from the Internal Revenue Service, and Borrower
is not aware of any circumstances which will or could reasonably result in
revocation of any such favorable determination letter. Each trust created under
any Borrower ERISA Plan, which is an "employee pension benefit plan" as defined
in Section 3(2) of ERISA, has been determined to be exempt from tax under
Section 501(a) of the Internal Revenue Code and Borrower is not aware of any
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circumstance which will or could reasonably result in revocation of such
exemption. With respect to each Borrower Benefit Plan to the best knowledge of
Borrower, no event has occurred which will or could reasonably give rise to a
loss of any intended tax consequences under the Internal Revenue Code or to any
tax under Section 511 of the Internal Revenue Code that is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Borrower.
There is no material pending or, to the best knowledge of the Borrower,
threatened litigation relating to any Borrower ERISA Plan.
(d) No Affiliate has engaged in a transaction with respect to any
Borrower Benefit Plan that, assuming the taxable period of such transaction
expired as of the date of this Agreement, would subject any Affiliate to a
material tax or penalty imposed by either Section 4975 of the Internal Revenue
Code or Section 502(i) of ERISA in amounts which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Borrower. Neither
Borrower nor, to the best of Borrower's knowledge, any administrator or
fiduciary of any Borrower Benefit Plan (or any agent of any of the foregoing)
has engaged in any transaction, or acted or failed to act in any manner which
could subject Borrower to any direct or indirect liability (by indemnity or
otherwise) for breach of any fiduciary, co-fiduciary, or other duty under ERISA,
where such liability, individually or in the aggregate, is reasonably likely to
have a Material Adverse Effect on the Borrower. To its best knowledge, no oral
or written representation or communication with respect to any aspect of the
Borrower Benefit Plans has been made to employees of the Borrower or any
Affiliate which is not in accordance with the written or otherwise preexisting
terms and provisions of such plans, where any liability with respect to such
representation or disclosure is reasonably likely to have a Material Adverse
Effect on Borrower.
(e) Since the date of the most recent actuarial valuation, there has
been (i) no material change in the financial position or funded status of any
Borrower Pension Plan, (ii) no change in the actuarial assumptions with respect
to any Borrower Pension Plan, and (iii) no increase in benefits under any
Borrower Pension Plan as a result of plan amendments or changes in applicable
Law, any of which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Borrower. No Borrower Pension Plan has
an "accumulated funding deficiency" within the meaning of Section 412 of the
Internal Revenue Code or Section 302 of ERISA. All contributions with respect to
a Borrower Pension Plan have or will be timely made and there is no lien or
expected to be a lien under Internal Revenue Code Section 412(n) or ERISA
Section 302(f) or tax under Internal Revenue Code Section 4971. Neither the
Borrower nor any Affiliate has provided, or is required to provide, security to
a Borrower Pension Plan pursuant to Section 401(a)(29) of the Internal Revenue
Code. All premiums required to be paid under ERISA Section 4006 have been timely
paid by Borrower, except to the extent any failure would not have a Material
Adverse Effect on Borrower.
(f) No liability under Title IV of ERISA has been or is expected to be
incurred by the Borrower or any Affiliate with respect to any defined benefit
plan currently or formerly maintained by any of them that has not been satisfied
in full (other than liability for Pension Benefit Guaranty Corporation premiums,
which have been paid when due), except to the extent any failure would not have
a Material Adverse Effect on Borrower.
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(g) The Borrower and any Affiliate have no obligations for retiree
health and retiree life benefits under any of the Borrower Benefit Plans other
than with respect to benefit coverage mandated by applicable Law.
(h) Except as disclosed in Schedule 3.16(h), neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will, by themselves, (1) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any manager, director or any employee of the Borrower
or Affiliate under any Borrower Benefit Plan or otherwise, (2) increase any
benefits otherwise payable under any Borrower Benefit Plan, or (3) result in any
acceleration of the time of payment or vesting of any such benefit.
(i) Except as set forth in the Schedule 3.16(i), Borrower does not
maintain or otherwise pay for life insurance policies (other than group term
life policies on employees) with respect to any manager, director, officer or
employee. Schedule 3.16(i) lists each such insurance policy and includes a copy
of each agreement with a party other than the insurer with respect to the
payment, funding or assignment of such policy. To the best of Borrower's
knowledge, neither Borrower nor any Borrower Pension Plan or Borrower Benefit
Plan owns any individual or group insurance policies issued by an insurer which
has been found to be insolvent or is in rehabilitation pursuant to a state
proceeding.
SECTION 4. Conditions Precedent to Making Loan.
The Lender shall not be obligated to make the Loan until all of the
following conditions have been satisfied by proper evidence, execution and/or
delivery to the Lender of the following items, all in form, and substance
reasonably satisfactory to the Lender:
(a) The Convertible Note;
(b) This Agreement;
(c) Pledge Agreement Pledging 300,000 shares of Continental
Southern Resources.
(d) Guaranty by 1025 Investments
(e) A Security Agreement and UCC-1 for the Borrower and any
Subsidiary;
(f) Unanimous consent of the Board of Directors of the Borrower
and all Subsidiaries, certified by the Secretary of the
Borrower as of the Closing Date, approving or otherwise
ratifying the transactions contemplated by this Agreement, and
approving the form of this Agreement and the Loan Documents,
and authorizing execution, delivery, and performance thereof;
(g) Specimen signatures of the officer of the Borrower and
Subsidiary executing this Agreement and the Loan Documents,
and the officer authorized to borrow under the Loan Documents,
certified by the Secretary of the Borrower or Subsidiary;
11
(h) A copy of the Articles of Incorporation, certified by an
official of the Borrower's jurisdiction of formation or
incorporation and further certified by the Secretary of
Borrower not to have been altered or amended since
certification by such official; and a copy of the Bylaws of
the Borrower, certified as true and correct by the Secretary
of the Borrower;
(i) Such other instruments, documents or items as the Lender may
reasonably request;
(j) No Event of Default shall have occurred and be continuing
under this Agreement, the Convertible Note or any other Loan
Document, nor shall the Borrower be in default under any other
document or agreement to which it is a party or by which it or
any of its properties or assets are bound; and
(k) Payment of the origination and commitment fees referenced in
Section 2.1 hereof.
SECTION 5. Affirmative Covenants. The Borrower covenants that, so long
as any portion of the Liabilities remains unpaid and unless the Lender otherwise
consents in writing, it will:
5.1 Taxes and Liens. Promptly pay, or cause to be paid, all taxes,
assessments and other governmental charges which may lawfully be levied or
assessed upon the income or profits of the Borrower, or upon any property, real,
personal or mixed, belonging to the Borrower, or upon any part thereof, and also
any lawful claims for labor, material and supplies which if unpaid, might become
a lien or charge against any such property; provided, however, the Borrower
shall not be required to pay any such tax, assessment, charge, levy or claim so
long as the validity thereof shall be actively contested in good faith by proper
proceedings; but provided further that any such tax, assessment, charge, levy or
claim shall be paid or bonded in a manner satisfactory to the Lender forthwith
upon the commencement of proceedings to foreclose any lien securing the same.
5.2 Business and Existence. Do or cause to be done all things necessary
to preserve and to keep in full force and effect any licenses necessary to the
business of the Borrower, its corporate existence and rights of its franchises,
trade names, trademarks, and permits which are reasonably necessary for the
continuance of its business; and continue to engage principally in the business
currently operated by the Borrower.
5.3 Insurance and Properties. Keep its business and properties insured
at all times with responsible insurance companies and carry such types and
amounts of insurance as are required by all federal, state and local governments
in the areas which Borrower does business and as are usually carried by entities
engaged in the same or similar business similarly situated. In addition,
Borrower shall maintain in full force and effect policies of liability insurance
in amounts at least equal to that currently in effect.
5.4 Maintain Property. Maintain its property in good order and repair
and, from time to time, make all needed and proper repairs, renewals,
replacements, additions and improvements thereto, so that the business carried
on may be properly and advantageously conducted at all
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times in accordance with prudent business management, and maintain annually
adequate reserves for maintenance thereof.
5.5 True Books. Keep true books of record and account in which full,
true and correct entries will be made of all of its dealings and transactions,
and set aside on its books such reserves as may be required by Generally
Accepted Accounting Principles, consistently applied, with respect to all taxes,
assessments, charges, levies and claims referred to in Section 5.1 hereof, and
with respect to its business in general, and include such reserves in interim as
well as year-end financial statements.
5.6 Pay Indebtedness to Lender and Perform Other Covenants. (a) Make
full and timely payment of the principal of and interest on the Convertible Note
and all other indebtedness of the Borrower to the Lender, whether now existing
or hereafter arising, including the payment of fees; and (b) duly comply with
all terms and covenants contained in this Agreement, the Convertible Note, the
other Loan Documents and any other instruments and documents given to the Lender
pursuant to this Agreement.
5.7 Right of Inspection. Permit any person designated by the Lender, at
the Lender's expense, to visit and inspect any of the properties, books and
financial reports of the Borrower, all at such reasonable times upon forty-eight
(48) hours prior notice to Borrower, and as often as the Lender may reasonably
request, provided the Lender does not interfere with the daily operations of the
Borrower.
5.8 Observance of Laws. Conform to and duly observe all laws,
regulations and other valid requirements of any regulatory authority with
respect to the conduct of its business.
5.9 Borrower's Knowledge of Default. Upon an officer or director of the
Borrower obtaining knowledge of, or threat of, an Event of Default hereunder,
cause such officer to promptly, within no more than ten (10) business days,
deliver to the Lender notice thereof specifying the nature thereof, the period
of existence thereof, and what action the Borrower proposes to take with respect
thereto.
5.10 Notice of Proceedings. Upon an officer or director of the Borrower
obtaining knowledge of any material litigation, dispute or proceedings being
instituted or threatened against the Borrower, or any attachment, levy,
execution or other process being instituted against any assets of the Borrower,
cause such officer to promptly, within no more than ten (10) business days, give
the Lender written notice of such litigation, dispute, proceeding, levy,
execution or other process.
5.11 Payment of Lender's Expenses. If at any time or times hereafter,
Lender employs counsel in connection with the execution and consummation of the
transactions contemplated by this Agreement or to commence, defend or intervene,
file a petition, complaint, answer, motion or other pleading, or to take any
action in or with respect to any suit or proceeding (bankruptcy or otherwise)
relating to this Agreement or any other Loan Document, or any other agreement,
guaranty, Convertible Note, instrument or document heretofore, now or at any
time or times hereafter executed by Borrower and delivered to Lender, or to
enforce any rights of Lender hereunder whether before or after the occurrence of
any Event of Default, or to collect any of the
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Liabilities, then in any of such events, all of the reasonable attorneys' fees
arising from such services, and any expenses, costs and charges relating
thereto, shall be part of the Liabilities, payable on demand. In connection the
initial loan documentation, counsel fees shall fees shall not exceed $15,000.
5.12 Lender's Representative. Borrower hereby grants to a
representative of the Lender the right to attend and observe all Meetings of the
Borrower's Board of Directors held during the period commencing on the Closing
Date and for so long as any Liabilities are due and owing to Lender, provided
that said designee is reasonably acceptable to the Board of Directors of the
Borrower. The Borrower shall cause such designee to receive written notice of
all meetings of Borrower's Board of Directors as if such designee was a member
of Borrower's Board of Directors. Lender's designee shall be reimbursed for all
reasonable and customary out of pocket expenses relating to his service on the
Board and or any Committee thereof, and shall receive such compensation, if any,
all as shall be commensurate with reimbursements and payments received by other
non-employee directors. Borrower hereby agrees to provide Lender's designee with
a copy of all written consents of Borrower's Board of Directors within ten
business days after the date of any such consent. If this loan is still
outstanding six months from the date of funding, Lender shall have the right to
nominate two members to the Borrower's Board of Directors, and Borrower shall
take all action necessary to get such nominees elected immediately.
5.13 Financial Reporting. The Borrower shall provide to Lender audited
annual financial statements, audited by mutually agreed upon independent
certified public accounting firm. Said financial statements shall be prepared in
accordance with Generally Accepted Accounting Principles, consistently applied,
and shall be delivered to Lender within ninety (90) days after the close of the
Borrower's fiscal year. The report of the auditor that accompanies the financial
statements shall not contain any qualifications or limitations. The Borrower's
fiscal year ends on December 31, and shall not be changed without the prior
written consent of the Lender. The Borrower shall provide to Lender unaudited
monthly financial statements (including month to date and year to date actual to
prior periods) and a report in the form of Exhibit 2, both presented in
accordance with Generally Accepted Accounting Principles ("GAAP"), consistently
applied, and shall be delivered to Lender within twenty-five (25) days after the
close of the Borrower's month. Borrower shall also deliver any other reports
reasonably requested by Lender.
5.14 Financial Covenants. As of the date hereof and until the
Termination Date, the Borrower must maintain the following ratios:
(a) CASH INTEREST COVERAGE. Until the Termination Date, the Borrower
shall maintain a Consolidated EBITDA ratio, based on any of the Borrower's
quarterly financial statements (as determined on the last day of each fiscal
quarter for the immediately preceding quarter), of 2.0 or greater. The
Consolidated EBITDA ratio is defined as Consolidated EBITDA divided by Interest
Expense (Consolidated EBITDA / Interest Expense).
(b) CASH FLOW COVERAGE RATIO. The ratio of (a) the Borrower's Cash Flow
to (b) the sum of (i) the Borrower's consolidated Interest Expense plus (ii) the
Borrower=s scheduled payments of principal (including the principal component of
Capital Leases) to be paid during
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the 12 months following any date of determination shall at all times exceed (1)
1.5 to 1.0. Compliance with the ratio will be tested as of the last day of each
month, with Cash Flow and Interest Expense being calculated for the twelve
months then ended.
(c) CURRENT RATIO. The Borrower will at all times maintain a Current
Ratio of not less than 1.5 to 1.0. The Current Ratio shall be calculated and
tested quarterly as of the last day of each fiscal quarter of the Borrower.
(d) ACTUAL VERSUS BUDGET. The Borrower shall on a quarterly basis
achieve 75 percent of its budgeted revenue and income. Budget numbers shall be
those delivered to Lender contemporaneously herewith and then on an annual
calendar basis.
5.15 Certificate of Covenant Compliance On the last day of each March,
June, September and December, the Borrow will issue a Certificate of Covenant
Compliance, executed by either the Chief Executive Officer or Chief Financial
Officer in the form of Schedule 5.16 attached hereto. If the Borrower is not in
compliance with the covenants specified in Sections 5 and 6 herein, the Borrower
will modify the Certificate of Covenant Compliance by stating the exception and
providing a detailed explanation of the non-compliance.
SECTION 6. Negative Covenants. The Borrower covenants and agrees that,
so long as any portion of the Liabilities remains unpaid and unless the Lender
otherwise gives its prior written consent, it will not, directly or indirectly:
6.1 Mortgages, Liens, Etc. Incur, create, assume or permit to exist,
any mortgage, pledge, security interest, encumbrance, lien or charge of any
kind, including liens arising under conditional sales or other title retention
agreements upon any of its assets or properties of any character other than in
the ordinary course of business, without the prior written consent of the
Lender. Lender shall subordinate its security position to a senior lender under
documentation and terms acceptable to Lender.
6.2 Capital Expenditures. Make or become committed to make, directly or
indirectly, any capital expenditures (including written limitation, capitalized
leases) amounting to in excess of $50,000 in the aggregate, without the prior
written consent of the Lender.
6.3 Loans and Investments. Lend or advance money, credit or property to
any Person, or invest in (by capital contribution or otherwise), or purchase or
repurchase the stock or indebtedness or assets or properties of any Person, or
agree to do any of the foregoing, other than in the ordinary course of business,
without the prior written consent of the Lender.
6.4 Guarantees. Assume, endorse or otherwise become or remain liable in
connection with the obligations (including accounts payable) of any other
Person, other than in the ordinary course of business.
6.5 Sale of Assets, Dissolution, Etc. Transfer, sell, assign, lease or
otherwise dispose of any of its properties or assets, or any assets or
properties necessary or desirable for the proper conduct of its business, or
transfer, sell, assign or otherwise dispose of any of its Convertible Note,
accounts, or contract rights to any Person, or change the nature of its
business, wind-up,
15
liquidate or dissolve, or agree to any of the foregoing, other than in the
ordinary course of business, without the prior written consent of the Lender.
6.6 Acquisition of Assets. Permit the purchase, acquisition or lease of
assets of any Person or Persons, other than in the ordinary course of business,
without the prior written consent of Lender.
6.7 Compensation. The Borrower must not increase the compensation of
any of its officers or consultants making more than $100,000 per year, hire any
relative of any officer, director or shareholder of the Borrower, or pay a bonus
to any such person.
6.8 Indebtedness. Incur, create, assume or permit to exist, any
indebtedness or obligation or enter into or extend or amend any material
agreement or lease in excess of $100,000, without the prior written consent of
Lender.
6.9 Subsidiaries. Establish or form a partially or wholly owned
subsidiary.
SECTION 7. Events of Default.
7.1 Defaults. Each of the following shall constitute an Event of
Default (an "Event of Default") hereunder: (a) the failure to pay when due any
principal or interest hereunder or under the Convertible Note and the
continuance of such failure for a period of ten (10) business days thereafter;
(b) any other violation by the Borrower of any recital, funding condition,
representation, warranty, covenant or agreement contained in this Agreement or
in any of the Loan Documents; or any violation by the Borrower of any recital,
funding condition, representation, warranty, covenant or agreement contained in
any other document or agreement to which the Borrower and the Lender are
parties; (c) any change in the majority of the Board of Directors or of the
management or in the control of the Borrower which is not contemplated in
Section 5.12 herein or previously approved by the advance written consent of the
Lender; (d) execution of any agreement, letter, memorandum of understanding or
similar document relating to the transfer, disposition or sale of all or
substantially all of the assets of the Borrower to anyone without the approval
of the Lender; (e) an assignment for the benefit of creditors by the Borrower;
(f) an application for the appointment of a receiver or liquidator for the
Borrower or any of its material assets; (g) an issuance of an attachment or the
entry of a judgment against the Borrower in excess of $50,000; (h) a default by
the Borrower with respect to any other indebtedness in excess of $50,000 due to
the Lender; (i) the making or sending of a notice of intended bulk sale by the
Borrower; (l) the issuance of a determination by a court of competent
jurisdiction that one or more Loan Documents or one or more material provisions
of any Loan Document is unenforceable, or the issuance of an injunction against
the enforcement of any such Loan Document or material provision; (m) upon the
reasonable determination by the Lender that there has been a Material Adverse
Effect; and (n) the occurrence of an Activity Event of Default (as defined in
Section 8.6 herein). Upon the occurrence of any of the foregoing Events of
Default, the Convertible Note and the Loan will be considered to be in default
and the entire unpaid principal sum hereof, together with accrued interest, will
at the option of the holder thereof become immediately due and payable in full.
Upon the occurrence of an Event of Default, the Borrower agrees to pay
reasonable collection costs and expenses, including reasonable attorneys' fees
and interest (cash only, not stock) at the lesser of: (i) 18% per annum
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(cash only, not stock) or (ii) the maximum rate allowed under applicable law,
from the date of the default at the maximum rate permitted by law computed on
the unpaid principal balance.
SECTION 8. SBIC Provisions. The Borrower acknowledges that the Lender
is a small business investment company licensed by the United States Small
Business Administration, and makes the following representations, warranties and
covenants to Lender:
8.1 Small Business Concern. The Borrower represents and warrants to the
Lender that the Borrower, taken together with its "affiliates" (as that term is
defined in 13 C.F.R. ss.121.103), is a "Small Business Concern" within the
meaning of 15 U.S.C. ss.662(5), that is Section 103(5) of the Small Business
Investment Act of 1958, as amended (the "Act"), and the regulations thereunder,
including 13 C.F.R. ss.107, and meets the applicable size eligibility criteria
set forth in 13 C.F.R. ss.121.301(c)(1) or the industry standard covering the
industry in which the Borrower is primarily engaged as set forth in 13 C.F.R.
ss.121.301(c)(2). Neither the Borrower nor any of its subsidiaries presently
engages in any activities for which a small business investment company is
prohibited from providing funds by the SBIC Act, including 13 C.F.R. ss.107.
8.2 Small Business Administration Documentation. On or before the
Closing Date, Lender shall have received SBA Form 480 (Size Status Declaration)
and SBA Form 652 (Assurance of Compliance) which have been completed and
executed by the Borrower, and SBA Form 1031 (Portfolio Finance Report), Parts A
and B of which have been completed by the Borrower (the "SBA Documents").
8.3 Inspection. The Borrower will permit the Lender or its
representatives, at Borrower's expense, and examiners of the SBA to visit and
inspect the properties and assets of the Borrower, to examine its books of
account and records, and to discuss the Borrower's affairs, finances and
accounts with the Borrower's officers, senior management and accountants, all at
such reasonable times as may be requested by the Lender or SBA.
8.4 Informational Covenant. Within sixty (60) days after the end of the
fiscal year of the Borrower, the Borrower will furnish or cause to be furnished
to Lender information required by the SBA concerning the economic impact of the
Lender's investment, for (or as of the end of ) each fiscal year, including but
not limited to, board minutes, information concerning full-time equivalent
employees; Federal, state and local income taxes paid; gross revenue; source of
revenue growth; after-tax profit and loss; and Federal, state and local income
tax withholding. Such information shall be forwarded by Borrower on a form
provided by the Lender. The Borrower also will furnish or cause to be furnished
to the Lender such other information regarding the business, affairs and
condition of the Borrower as the Lender may from time to time reasonably
request.
8.5 Use of Proceeds. Subject to Section 2.3, the Borrower certifies
that it will use the proceeds from the Loan for the purposes and in the amounts
set forth on Schedule 2.3. The Borrower will deliver to the Lender from time to
time promptly following the Lender's request, a written report, certified as
correct by an officer, verifying the purposes and amounts for which proceeds
from the Loan have been disbursed. Subject to Section 2.3, the Borrower will
supply to the Lender such additional information and documents as the Lender
reasonably requests with
17
respect to its use of proceeds, and will permit the Lender to have access to any
and all Borrower records and information and personnel as the Lender deems
necessary to verify how such proceeds have been or are being used, and to assure
that the proceeds have been used for the purposes specified on Schedule 2.3.
8.6 Activities and Proceeds.
(a) Neither the Borrower nor any of its affiliates (as defined in
above) will engage in any activities or use directly or indirectly the proceeds
from the Loan for any purpose for which a small business investment company is
prohibited from providing funds by the SBIC Act, including 13 C.F.R. ss.107.
(b) Without obtaining the prior written approval of the Lender, the
Borrower will not change within one (1) year of the Closing Date the Borrower's
business activity from that described on Schedule 8.6 to a business activity
which a small business investment company is prohibited from providing funds by
the SBIC Act. The Borrower agrees that any such changes in its business activity
without such prior written consent of the Lender will constitute a material
breach of the obligations of the Borrower under this Agreement and the Loan
Documents (an "Activity Event of Default").
SECTION 9. Miscellaneous.
9.1 Registration Rights.
(a) Registrable Securities shall be fully registered and freely
tradeable within 180 days from the closing of the Loan. If the Borrower for any
reason fails to have the Registrable Securities fully registered within 180 days
from closing of the Loan, then, at the option of Lender, for each full calendar
month that the Registrable Securities are not fully registered, Borrower shall
issue 0.1 % of its common shares then outstanding computed on a fully diluted
basis per day until the shares are registered.
(b) If at any time after the date hereof, the Borrower shall file a
registration statement relating to any of its securities, it will notify the
Holder in writing and, upon the Holder's request, will include the offer and
sale of Registrable Securities in such registration statement. In the event that
the Borrower fails include Registrable Securities in a piggy back statement as
required herein, the Borrower shall give notice demanding a registration and 105
days after the notice the Borrower shall prepare and file a registration
statement with the SEC with respect to such Registrable Securities. If the
Borrower fails to file within said time period, then, at the option of Lender,
for each full calendar month that the Registrable Securities are not fully
registered, Borrower shall Borrower shall issue 0.1 % of its common shares then
outstanding computed on a fully diluted basis per day until the shares are
registered.
(c) Whenever required to include Registrable Securities in any
registration or to effect the registration of any Registrable Securities
pursuant to this Agreement, the Borrower shall, as expeditiously as reasonably
possible prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its absolute best lawful efforts to cause
such registration statement to become effective, and use its absolute best
efforts to keep such registration statement effective until all such Registrable
Securities have been distributed.
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In addition, the Borrower shall use its best lawful efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Borrower shall not be required in
connection therewith or as a condition thereto to qualify as a broker-dealer in
any states or jurisdictions or to do business or to file a general consent to
service of process in any such states or jurisdictions.
(d) All expenses, other than underwriting discounts and commissions
incurred in connection the registrations contemplated herein, including, without
limitation, all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Borrower, and the
reasonable fees and disbursements of one counsel for the selling Holders, shall
be borne by the Borrower.
(e) Subject to the terms and conditions of this Agreement and the
Convertible Notes, the right to cause the Borrower to register Registrable
Securities pursuant to this Agreement may be assigned by Holder to any
transferee or assignee of such securities; provided that said transferee or
assignee is a transferee or assignee of at least five percent (5%) of the
Registrable Securities.
9.2 Computation of Interest and Payment and Prepayment of Principal.
Interest on the Convertible Note shall be computed on the basis of a year of 365
days. If any principal amount under the Convertible Note becomes due and payable
on other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and interest on such principal shall be payable at the
then applicable rate during such extension period.
9.3 Waiver of Default. The Lender may, by written notice to the
Borrower, at any time and from time to time, waive any default in the
performance or observance of any condition, covenant or other term hereof or any
Event of Default which shall have occurred hereunder and its consequences. Any
such waiver shall be for such period and subject to such conditions as shall be
specified in any such notice. In the case of any such waiver, the Borrower and
the Lender shall be restored to their former position and rights hereunder and
under the other Loan Documents, and any Event of Default so waived shall be
deemed to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Event of Default, or impair any right consequent thereon.
9.4 Amendments and Waivers. The Lender and the Borrower may, subject to
the provisions of this section, from time to time, enter into written agreements
supplemental hereto for the purpose of adding any provisions to this Agreement
or the other Loan Documents or changing or waiving in any manner the rights or
requirements of the Lender or of the Borrower hereunder. Any such written
supplemental agreement or waiver shall be binding upon the Borrower and Lender.
9.5 Notices. Except in cases where it is expressly herein provided that
such notice, request or demand is not effective until received by the party to
whom it is addressed, all notices, requests and demands to or upon the
respective parties hereto under this Agreement and all other Loan Documents
shall be deemed to have been given or made when deposited in the mail,
19
postage prepaid by registered or certified mail, return receipt requested,
addressed as follows or to such other address as may be hereafter designated in
writing by the respective parties.
The Borrower: International Travel CD's, Inc.
Xxx Xxxxxxx Xxxxx, Xxxxx 000
Xxxx Xxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxxxxx
Phone: (000) 000-0000
Fax (000) 000-0000
The Lender: Gemini Growth Fund, LP
000 Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx St. Xxxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
9.6 No Waiver; Cumulative Remedies. No waiver of any provision hereof
shall be deemed to operate as a waiver of any other provision hereof. In the
event that the Borrower shall be deemed to have waived any provision hereof at
any time, such waiver shall not be deemed to have extended to any other
provision hereof at the time such waiver was deemed to have occurred or at any
other time. No failure to exercise and no delay in exercising, on the part of
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
and in the other Loan Documents provided are cumulative and not exclusive of any
rights or remedies provided by law.
9.7 Survival of Agreements. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement and the other Loan Documents and the making and renewal of loans
hereunder and the termination of this Agreement and the other Loan Documents.
9.8 Governing Law. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the laws of
the State of Texas without regard to its conflicts of law doctrine. Each of the
parties hereto irrevocably consents to the jurisdiction of the federal and state
courts located in Dallas County, the State of Texas.
9.9 Enforceability of Agreement. Should any one or more of the
provisions of this Agreement be determined to be illegal or unenforceable as to
one or more of the parties, all other provisions nevertheless shall remain
effective and binding on the parties hereto, up to the full amount permitted by
law.
9.10 Usury Savings Clause. Notwithstanding any other provision herein,
in the event that the aggregate interest rate charged under the Loan Documents,
including all charges or fees in connection therewith deemed in the nature of
interest, exceeds the maximum legal rate, then the Lender shall have the right
to make such adjustments as are necessary to reduce the aggregate
20
interest rate to the maximum legal rate. The Borrower waives any right to prior
notice of such adjustment and further agrees that such adjustment may be made by
the Lender subsequent to notification from the Borrower that the aggregate
interest charged exceeds the maximum legal rate. There are no unwritten oral
agreement between Borrower and Lender.
9.11 Execution of Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument.
9.12 Stamp or Other Taxes. The Borrower agrees to pay any and all documentary,
intangible stamp or excise taxes now or hereafter payable in respect to this
Agreement and the other Loan Documents or any modification thereof, and shall
hold the Lender harmless with respect thereto. The Borrower further agrees that
Lender may deduct from any account of the Borrower the amount of any such
documentary or intangible stamp or tax payable, the decision of the Lender as to
the amount thereof to be conclusive, absent manifest error.
9.13 Intentionally deleted
9.14 Fees and Expenses. The Borrower shall reimburse the Lender for all
past and future fees and expenses (including but not limited to the origination
and commitment fee, reasonable out-of-pocket costs, legal expenses (as detailed
above), offering fees, advisory and consulting fees, travel and communication
expenses, and reproduction costs) incurred in connection with the Loan Documents
("Fees and Expenses"). Fees and Expenses incurred through the Closing Date by
the Borrower will be netted against the initial proceeds received under this
Agreement. Fees and Expenses incurred after the Closing Date shall promptly be
paid by the Borrower upon receipt from Lender of an invoice itemizing such Fees
and Expenses. Fees and Expenses incurred hereof to an affiliate of the Lender
shall be included with the Borrower's Liabilities.
9.15 Assignability. This Agreement shall inure to the benefit and be
binding upon the parties hereto and their respective successors and permitted
assigns. This Agreement and the Convertible Note will not be assignable, in
whole or in part, by the Borrower, without the prior written consent of the
Lender. This Agreement may be assigned or transferred, in whole or in part, by
the Lender upon written notice to the Borrower. A change in control of either
party shall be deemed to be an assignment. Any purported assignment effected
without such consent shall be null and void.
9.16 Complete Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all agreements, representations,
warranties, statements, promises and understanding, whether oral or written,
with respect to the subject matter hereof.
[SIGNATURE PAGE FOLLOWS]
21
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
WITNESS: GEMINI GROWTH FUND, LP
By: GEMINI GROUP, LLC, its
GENERAL PARTNER
By:
-------------------------------- ------------------------------------
Name: Xxxxx Xxxx, Authorized Member
WITNESS: INTERNATIONAL TRAVEL CD'S INC.
By:
-------------------------------- ------------------------------------
Name: Xxxxxx Xxxxxxxxxx
President
22
ATTACHMENTS
-----------
Exhibit 1 Form of Convertible Note
Exhibit 2 Financial Summary
Schedule 2.3 Use of Proceeds
Schedule 3.1 Organization
Schedule 3.1(b) Subsidiaries
Schedule 3.3 Outstanding Equity Rights
Schedule 3.5 Material Liabilities
Schedule 3.8 Material Agreements
Schedule 3.16 Employee Benefit Plans
Schedule 5.15 Certificate of Covenant Compliance
Schedule 8.6 Business Activity
EXHIBIT 2
QTD
06/30/01 09/30/01 12/31/01 03/31/02
----------------------------------------------------
Revenue
Gross Margin
Operating Expense
----------------------------------------------------
EBITDA
Depreciation
Loan Fees
Interest
----------------------------------------------------
Net Income (Loss)
====================================================
MTD
2002 2001 Diff % Budget Actual Diff % Variance Explanation
------------------------------------------------------------------------------------------------
Revenue
Gross Margin
Operating Expense
------------------------------------------------------------------------------------------------
EBITDA
Depreciation
Loan Fees
Interest
------------------------------------------------------------------------------------------------
Net Income (Loss)
================================================================================================
YTD
---------------------------------------
2000 2001 2002
---------------------------------------
Revenue
Gross Margin
Operating Expense
---------------------------------------
EBITDA
Depreciation
Loan Fees
Interest
---------------------------------------
Net Income (Loss)
=======================================
YTD
-------------------------------------------------------------------------------------------------
2002 2001 Diff % Budget Actual Diff % Variance Explanation
-------------------------------------------------------------------------------------------------
Revenue
Gross Margin
Operating Expense
-------------------------------------------------------------------------------------------------
EBITDA
Depreciation
Loan Fees
Interest
-------------------------------------------------------------------------------------------------
Net Income (Loss)
=================================================================================================
As of As of As of
BALANCE SHEET 12/31/01 Diff Variance Explanation
-------------------------------------------- -------------- -----------------------
Cash & A/R
Other Current Assets
-------------- -------------- -----------------------
Current Assets:
Other Assets
-------------- -------------- -----------------------
TOTAL ASSETS:
============== ============== =======================
Total Current Liabilities
Debt
-------------- -------------- -----------------------
Total L/T Liabilities
-------------- -------------- -----------------------
TOTAL LIABILITIES:
EQUITY
-------------- -------------- -----------------------
TOTAL LIAB. & EQUITY:
============== ============== =======================
CASH INTEREST COVERAGE CURRENT RATIO:
----------------------
EBITDA Current Assets:
Less: Non-Financed Capital
Expenditures Current Liabilities:
-------------- ---------
Cash Flow RATIO:
=========
Interest Expense
Principal Payments
--------------
Debt Service
--------------
CASH FLOW COVERAGE RATIO:
==============
CASH FLOW COVERAGE
------------------
EBITDA
Interest Expense
--------------
CASH FLOW COVERAGE RATIO:
==============
25
Schedule 5.15
I, the undersigned hereby represent that International Travel CD's Inc.
is in compliance with all of its covenants specified in Sections 5 and 6 of the
LOAN AGREEMENT originally dated as of September __, 2002, executed by
International Travel CD's Inc, with its principal place of business at _, in
favor of Gemini Growth Fund, L.P., with its principal place of business at 000
Xxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000.
By:
------------------------------------
