EXHIBIT 10.20
LOAN AGREEMENT
INTERNET FINANCIAL SERVICES INC. ("IFSI"), a Delaware corporation
authorized to do business in the State of New York and X.X. XXXXXX, INC.
("A.B."), a New York corporation, having their offices at 00 Xxxx 00xx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000 (hereinafter collectively referred to as "Borrowers")
and NEW YORK COMMUNITY INVESTMENT COMPANY L.L.C., a Delaware limited liability
company, having an office at 000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (hereinafter
referred to as "Lender") hereby enter into a Loan Agreement ("Agreement")
pertaining to the $400,000. loan (the "Loan") to be made by Lender to Borrowers.
1. LOAN.
Lender has agreed to loan Borrowers the sum of FOUR HUNDRED THOUSAND
DOLLARS ($400,000.) to be funded on February 1, 1999 subject to the terms and
conditions set forth in this Agreement. The Loan is to be evidenced by one (1)
promissory note (hereinafter referred to as the "Note") to be dated the day of
disbursement. Interest and principal shall be payable under the terms set forth
in the Note, which Note matures on February 1, 2004.
2. USE OF PROCEEDS.
Borrowers will use the proceeds of the Loan as working capital and to
further its corporate purposes. Borrowers shall not use any Loan proceeds for
any purpose contrary to the purposes contemplated herein, such prohibited uses
include repayment of any of Borrowers' indebtedness for borrowed money and the
redemption of any outstanding equity interest.
3. DOCUMENTS TO BE EXECUTED AT CLOSING.
Borrowers will deliver or cause to be delivered to Lender each of the
following documents, all of which have been executed by Borrowers. They are:
A. The Note in the amount of $400,000.;
B. Directors Resolutions of Borrowers authorizing the making of the
Loan; C. UCC-1 Financing Statements and Security Agreements whereby
Borrowers shall grant Lender a
security interest in its accounts receivable, tangible assets including their
machinery, equipment, inventory, and fixtures, subordinate to New York Small
Business Venture Fund LLC, G.E. Capital Corp. and Borrowers' clearing agents,
Xxxxxx Financial Services, Inc. and Xxxxx, Xxxx & Xxxxx, L.L.C.;
D. Warrant to purchase 80,000 shares of common stock of IFSI; and
E. Negative Pledge by Borrowers re: general intangibles, proprietary
software and other related technology (the "Intangibles"). 4. Also to be
delivered to Lender at the time of the Closing of the Loan are:
A. Certificate of Insurance or insurance policy for all risk and
contents insurance on the business assets of Borrowers naming Lender as loss
payee;
B. Opinion Letter of Borrowers' Counsel; and
C. Collateral Assignment of Life Insurance on the lives of Xxxxxx
Xxxxx, Xxxxxx Xxxxx and Xxxxx Xxxxxxx in a total amount of not less than
$400,000.
5. COLLATERAL.
The Loan shall be secured by the collateral listed below:
A. A security interest in Borrowers' accounts receivable, tangible
assets including its machinery, equipment, inventory, and fixtures subordinate
to New York Small Business Venture Fund LLC, G.E. Capital Corp. and Borrowers'
clearing agents, Xxxxxx Financial Services, Inc. and Xxxxx, Xxxx & Xxxxx, L.L.C.
B. Negative pledge on Borrowers' Intangibles.
C. Collateral Assignment of Life Insurance as described in Paragraph
4(C), provided, however, that in the event IFSI consummates an initial public
offering ("IPO") or private placement of equity which nets IFSI $5 million or
more (any such private placement of equity or IPO shall be referred to as a
"Qualified Financing"), Lender shall release the Collateral Assignment of Life
Insurance.
6. REPRESENTATIONS AND WARRANTIES.
A. To induce Lender to make the above mentioned Loan,
Borrowersrepresent and warrant, as it pertains to the Borrowers individually
and not collectively, that: (1) Borrower, IFSI, validly exists and is
in good standing under the laws of the State of Delaware and
is authorized to do business in the State of New York and Borrower, A.B.,
validly exists and is in good standing under the laws of the State of New York .
(2) Borrowers have the power to enter into this Agreement, to borrow
money as contemplated hereby, to issue the Note described herein, and to execute
and deliver each of those documents described within this Agreement.
(3) All representations made by Borrowers in any instrument described
in this Agreement to Lender are true and correct as of this date, including any
financial statements delivered to Lender by Borrowers.
(4) Borrowers, to the best of their knowledge, have not been made a
party to or threatened by any suits, actions, claims, or investigations by any
governmental body or legal, administrative or arbitration proceeding where an
adverse determination would have a material adverse effect on Borrowers.
Borrowers do not know of any basis or grounds for any other suit or proceeding,
and there are no outstanding orders, judgments, writs, injunctions or decrees of
any court, governmental agency, or arbitrational tribunal against or affecting
them or their respective properties, assets and business.
(5) Borrowers are not parties to or bound by any contract or instrument
which would be in breach as a result of this Loan.
(6) Borrowers are not in breach of, in default under or in violation of
any applicable law, decree, order, rule or regulation which may materially and
adversely affect them, or any material indenture, contract, agreement, deed,
lease, loan agreement, commitment, bond, note, deed of trust, restrictive
covenant, license or any instrument or obligation to which they are a party or
by which they are bound, or to which any of their assets are subject. The
execution, delivery and performance of this Agreement and the issuance and
delivery of the Note, and the other documents contemplated herein will not
constitute any such breach, default or violation, or require consent or approval
of any court, governmental agency, or body, except as contemplated herein.
(7) Borrowers have complied and\or will comply with all laws,
ordinances, regulations, federal, state and local, applicable to them and to
their business, including without limitation, all material federal and state
securities laws and ordinances.
(8) Borrowers have and will maintain fire and extended coverage
insurance on the business assets of Borrowers in amounts satisfactory to Lender.
7. AFFIRMATIVE COVENANTS.
While the Note is outstanding, Borrowers will:
A. Promptly make all payments of the principal and interest on the Note
when due.
B. Comply with the terms and conditions of this Agreement, including
those incorporated herein by reference.
C. Keep accurate and complete books and records and maintain the same
at its offices.
D. Forward, during the term of the Loan, annual audited and semi-annual
review or compiled financial statements prepared by Borrowers' independent
certified public accountant or a firm acceptable to Lender. In addition,
quarterly statements prepared by Borrowers' Chief Financial Officer shall be
provided to Lender. Each statement shall be accompanied by a certification
letter from the President or Chief Financial Officer of Borrowers, stating that,
to the best of his knowledge and belief, said statements accurately and fairly
represent the financial condition of the Company. Borrowers shall also provide
monthly reports regarding sales and other relevant data as reasonably requested
by Lender. In the event of an IPO, Lender agrees to accept Borrowers' Form 10K
or 10KSB and Form 10Q or 10QSB in lieu of the above, provided same is forwarded
within five (5) days of filing with the Securities and Exchange Commission.
E. Permit and facilitate such independent outside audits of Borrowers'
books and records as may be reasonably requested by Lender, not more than two
(2) times per year, in addition to those in Item D above, provided Lender pays
the cost of same. In the event, however, of a Qualified Financing, Lender shall
thereafter waive the terms of the within Paragraph 7(E).
F. Permit any authorized representative of Lender and its attorneys and
accountants to inspect, examine and make copies and abstracts of the books of
account and records of Borrowers at reasonable times during normal business
hours, and to inspect the collateral given as security for the Loan provided,
however, that in the event of a Qualified Financing, Lender shall thereafter
waive the terms of the within Paragraph 7(F).
G. Notify Lender of (1) litigation involving amounts of $25,000. or
more to which Borrowers are parties by mailing to Lender by certified mail
within ten (10) days of receipt thereof a copy of the complaint, motion for
judgment, or other such pleadings served on or by Borrowers and (2) to the
extent Borrowers are aware of same, litigation to which Borrowers are not
parties but which could substantially adversely affect the operation of
Borrowers' business or the collateral pledged for this Loan by mailing to Lender
by certified mail a copy of all pleadings obtained by Borrowers regarding such
litigation, or if no pleadings are obtained, a letter setting out the facts
known about the litigation within ten (10) business days of receipt thereof.
Mailings under this paragraph shall be addressed as follows:
New York Community Investment Company L.L.C.
000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000,
provided, however, that in the event of a Qualified Financing, Borrowers shall
thereafter notify Lender of litigation involving amounts of $250,000. or more.
H. Continue its business and maintain, preserve and keep all its
property, buildings, equipment and fixtures necessary for the operation of its
business in working order, make all needful and proper repairs and replacements
thereof, and promptly pay and discharge or cause to be paid and discharged when
due any and all income taxes, federal or otherwise, lawfully assessed and
imposed upon it, and any and all lawful taxes, rates, levies and assessments
whatsoever upon its property and every part thereof provided however that
nothing contained herein shall be construed as prohibiting Borrowers from
contesting in good faith the validity of any such income taxes, federal or
otherwise or such other taxes, rates, levies or assessments.
I. Defend at all times any claim involving amounts of $50,000. or more
by a third party relating to the possession of or interest in the assets of
Borrowers.
J. Make all payments to creditors as shall be necessary to preserve
Lender's rights and Lender's security interests in the collateral set out at
Paragraph 5 above.
K. Execute, either before or after disbursement of the Loan, all
documents necessary to perfect Lender's security interests in the collateral
listed at Paragraph 5.
M. Maintain a minimum tangible net worth of $4 million during the term
of the Loan.
N. Maintain debt service coverage (net income plus depreciation and
amortization to the current portion of all long term debt) of 1.2 during the
term of the Loan.
Borrowers' compliance with covenants M and N shall be required on a
semi-annual basis beginning with September 30, 1999.
O. Maintain employment agreements during the term of the Loan with
Xxxxxx Xxxxx, Xxxxxx Xxxxx, Xxxxxxx Xxxxxx, Xxxx Xxxxxxxxx and Xxxxx Xxxxxxx on
an individual basis (each referred to individually as the "Employee"), which
contain standard covenants not to compete and confidentiality clauses, provided
each Employee does not breach his or her employment agreement and each Employee
agrees to such employment by the Borrowers.
P. Submit a semi-annual certification by the President or Chief
Financial Officer of Borrowers that to the best of his knowledge and belief,
Borrowers are in compliance with all the terms and provisions, conditions and
covenants set forth in this Agreement.
Q. Maintain a legally constituted Board of Directors or equivalent
oversight committee.
8. NEGATIVE COVENANTS.
Except with the prior written consent of Lender, Borrowers will not:
A. Make any material change in organization or management or the manner
in which Borrowers' businesses are conducted, except an IPO.
B. Become party to any merger or consolidation where the Borrowers are
not the surviving entities with any corporation, company or entity of any kind
whatsoever or where more than fifty (50%) percent of the Borrowers' ownership is
transferred, or sell substantially all of its assets, liquidate or dispose of
its business.
C. Become a guarantor of obligations of any other person, firm,
corporation or entity, except (i) in connection with depositing checks and other
instruments for the payment of money acquired in the normal course of its
business; and (ii) IFSI and its present and future subsidiaries may guarantee
obligations of one or more of such companies.
D. Transfer, sell, lease or in any other manner convey any equitable,
beneficial or legal interest in any of the collateral set out herein to any
person, except for purchase money security interests granted in the ordinary
course of business and leases for equipment needed for Borrowers' current
businesses.
E. Knowingly permit any judgment obtained against Borrowers in an
amount exceeding fifty thousand ($50,000.) dollars to remain unpaid for a period
of thirty (30) days following the entry thereof, without obtaining a stay of
execution or bonding or causing such judgment to be bonded. In the event,
however, of a Qualified Financing, the amount shall be increased to two hundred
thousand ($200,000.) dollars.
F. Permit the payment of any salary to the Employees in the event same
will prevent Borrowers from fulfilling any of their obligations to Lender
hereunder.
G. Pay any dividends, make any distributions or sell any assets which
will prevent Borrowers from fulfilling their obligations to Lender hereunder.
9. SUBORDINATION
Lender shall subordinate its lien against Borrower's assets in favor of
a financial institution providing senior debt in an amount not greater than
$600,000. to Borrower on terms reasonable and customary for such financing,
provided Borrower is in full compliance with the terms, covenants and conditions
of this Loan. Such subordination shall not include releasing possession of the
Note or the assignment of any rights thereunder to the senior lender.
Subordination in an amount in excess of $600,000. shall require the consent of
Lender, which consent shall not be unreasonably withheld, provided, however,
that in the event of a Qualified Financing, Lender shall subordinate its lien as
described hereinabove to an amount not greater than $2 million.
10. REFERRAL FEES.
Borrowers agree to hold Lender harmless with respect to any claims for
referral fees made by any broker in connection with this Loan resulting from the
actions of Borrowers or Lender.
11. LOAN EXPENSES
Borrowers agree to pay all expenses arising out of the Loan, which are
the Lender's commitment fee of $8,000. and Lender's legal fees of $10,000. plus
disbursements.
12. EXHIBITS.
Attached hereto and made a part hereof are various exhibits which are
listed under Addendum to Loan Agreement, and the terms and conditions of each
are incorporated herein by reference.
13. PARTIES AFFECTED.
This Agreement shall be binding upon and shall inure to the benefit of
Borrowers and Lender and their successors and assigns.
14. ADVANCES SECURED BY COLLATERAL.
In the event Borrowers are in default in accordance with Paragraph 15
hereunder and all applicable cure periods have expired and Lender then advances
any sums to pay any prior liens, taxes, insurance premiums or the like in
connection with any items of collateral owned by Borrowers, said sums shall be
added to the obligations due and owing from Borrowers to Lender at the time of
the making of the Loan and shall bear interest at the rate set forth in the
Note. Lender is hereby authorized to make any such advances it deems necessary
from time to time, which in the reasonable opinion of Lender are necessary or
desirable in order to protect Lender's interest in such collateral. 15. DEFAULT.
15. DEFAULT
If any of the following events occur while any portion of the Note
remains unpaid then a default may be declared at the option of the holder of the
Note, without presentment, demand, protest or further notice of any kind (all of
which are hereby expressly waived); and the holder shall be entitled to be paid
in full; and in such case, the balance of the unpaid principal sum, plus accrued
interest and any costs thereof, including reasonable attorneys' fees, shall then
be accelerated so that they are immediately due and payable:
A. The occurrence of any default under the Note or other documents
executed in connection with the Loan including the breach of any of Borrowers'
covenants set forth in said documents or the breach in the payment of money due
thereunder following the expiration of all applicable grace and cure periods, if
any.
B. Any representation made by Borrowers in this Agreement or its
exhibits shall be untrue. C. Borrowers shall fail to pay when due any insurance
policy premiums affecting the business assets of
C. Borrowers, or the premiums for any life insurance policies as
described in Paragraph 4C.
D. Borrowers shall fail to comply with this Agreement and such failure
shall continue for a period of ten (10) days after receipt of mailing (or other
personal delivery) of written notice from Lender or the holder of the Note in
the event of a non-monetary default only.
E. Borrowers shall commit an act of bankruptcy within the meaning of
the Federal Bankruptcy Code, or bankruptcy, receivership, insolvency,
reorganization, dissolution, liquidation, or other similar proceedings shall be
instituted by or against Borrowers and they shall consent thereto, or shall fail
to cause the same to be discharged within ninety (90) days.
F. Borrowers shall be in default on any debt for borrowed money or
obligation greater than $200,000. of the Borrowers, whether or not secured by
any of the collateral for this Loan.
G. Borrowers' current control group officers, each individually, shall
cease, for any reason, to be stockholders, officers or directors of Borrowers,
except in the event of death or disability and as set forth in Paragraph 7(O),
provided, however, that in the event of a Qualified Financing, Lender shall
thereafter waive the terms of the within Paragraph 15G.
16. CHOICE OF LAW.
The parties hereto stipulate and agree that the laws of the state of
New York shall govern this transaction and the Loan made hereunder.
17. ALL MODIFICATIONS IN WRITING.
This Agreement may not be modified except in writing, which writing
shall be signed by each of the parties hereto.
18. LENDER'S OBLIGATION TO TERMINATE LIENS
Upon payment in full by Borrowers of all sums due and owing in
accordance with the Note described in Paragraph 3A herein, Lender agrees to
deliver to Borrowers UCC-3 termination statements and the Note marked "Paid".
19. NOTICES
All notices, requests, demands and other communications provided for in
this Agreement shall be in writing, and, unless otherwise specifically provided
for herein, shall be deemed to be given at the time when mailed at any general
or branch United States post office in a certified postpaid envelope return
receipt requested or by recognized express mail delivery addressed to the
address of the party set forth above, or to such change of address as such party
may have fixed by notice, if notice is sent to Borrowers, a copy of same will
also be sent by first class mail to Xxxxxxx & Xxxxxx LLP, 000 Xxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000, Attn: Xxxxxx X. Xxxxxxxxx, Esq., and if notice is sent to
Lender, a copy of same will also be sent by first class mail to Xxxxxxx, Xxxxxx
& Xxxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention Xxxxx X.
Xxxxxx, Esq., provided, however, that any notice of change of address shall be
effective only upon receipt.
IN WITNESS WHEREOF, Borrowers and Lender have executed or caused to be
duly executed this Agreement and
affixed or caused to be duly affixed hereto their seals.
Dated: New York, New York
January 28, 1999
INTERNET FINANCIAL SERVICES INC.
By: /s/ Xxxxxx Xxxxx
Xxxxxx Xxxxx,
--------------------------------
Chief Executive Officer
X.X. XXXXXX, INC.
By: /s/ Xxxxxx Xxxxx
--------------------------------
Xxxxxx Xxxxx, President
NEW YORK COMMUNITY INVESTMENT
COMPANY L.L.C.
By: /s/ Xxxxxx Xxxxxx
--------------------------------
Xxxxxx Xxxxxx, President
