LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "AGREEMENT") is made and entered
into as of February 14, 2002, by and between VitalStream, Inc., a Delaware
corporation ("DEBTOR"), and Sensar Corporation, a Nevada corporation ("SECURED
PARTY").
RECITALS
A. Debtor has entered into an Agreement and Plan of Merger dated
February 13, 2002, among Secured Party, VitalStream Operating Corporation
("MERGER SUB") and Debtor (the "MERGER AGREEMENT").
B. In anticipation of the Merger, the Secured Party has agreed,
subject to the terms and conditions of this Agreement, to loan Debtor up to
$500,000 (the "COMMITMENT CAP") in increments as set forth herein upon the
occurrence of certain events of progress under the Merger Agreement.
AGREEMENT
NOW, THEREFORE, for valuable consideration including the agreements set
forth herein, the parties agree as follows:
1. INCORPORATION OF RECITALS AND DEFINITIONS. All of the terms and
representations set forth in the above recitals are incorporated herein by this
reference. Capitalized terms used by not defined herein shall have the meaning
set forth in the Merger Agreement.
2. LOAN COMMITMENT.
(a) COMMITMENT. Subject to the terms and conditions of this
Agreement, Secured Party hereby agrees to loan to Debtor an amount up to the
Commitment Cap. Each borrowing pursuant to the terms of this Agreement shall be
referred as an "ADVANCE"; the aggregate principal amount of all Advances shall
be referred to as the "PRINCIPAL AMOUNT"; and the Principal Amount, accrued but
unpaid interest, and any other amounts owing on any date under this Agreement
and the note issued hereunder, whether or not due, shall be referred to as the
"OUTSTANDING INDEBTEDNESS." The Outstanding Indebtedness amount shall be
evidenced by a Promissory Note (the "NOTE") in the form attached hereto as
EXHIBIT A. Notwithstanding anything in this Agreement to the contrary, Secured
Party's obligation to make any Advance shall terminate upon the earliest to
occur of (a) June 30, 2002, (b) the date the Principal Amount equals or exceeds
the Commitment Cap, and (c) the date an Event of Default (as defined below)
first occurs. At no time shall Secured Party be obligated to make any Advance if
the Principal Amount exceeds the Commitment Cap.
(b) OBLIGATION TO MAKE ADVANCES. Subject to Section 7, Secured
Party shall make Advances to Debtor as follows:
(i) Secured Party shall make an Advance to
Debtor of $200,000 on the Agreement Date.
(ii) Secured Party shall make an Advance to
Debtor of an additional $100,000 (for an aggregate of $300,000) on the date that
Secured Party receives from Debtor a written certification stating that the
Memorandum, Proxies and Shareholder Questionnaire and Subscription Agreements
required by Section 4.2 of the Merger Agreement have been mailed to all the
Shareholders as of the record date for such meeting.
(iii) Secured Party shall make an Advance to
Debtor of an additional $100,000 (for an aggregate of $400,000) on the date that
Secured Party has received from Debtor a certification (accompanied by copies)
that duly executed Proxies have been received by Debtor approving the Merger and
the Merger Agreement from the holders (including Akkad) of a majority of the
outstanding VitalStream Common Shares as of the record date for the Meeting .
(iv) Secured Party shall make an Advance to
Debtor of an additional $100,000 (for an aggregate of $500,000) on the date that
Secured Party has received from Debtor a certification (accompanied by copies)
that duly executed Proxies have been received by Debtor approving the Merger and
Merger Agreement from the holders (including Akkad) of 90% of the outstanding
VitalStream Common Shares as of the record date for the Meeting.
(c) PROCEDURE FOR BORROWING. All Advances shall be paid by
wire transfer into City National Bank, 000 Xxxxxxxx, Xxxxx 000, Xxxxxx,
Xxxxxxxxxx 00000, Routing # 000000000, Beneficiary Account Name: Vitalstream,
Inc., Beneficiary Account Number 240007371, unless Debtor gives notice to
Secured Party no less than three days prior to any date an Advance is due (each,
an "Advance Date") specifying a different account into which the Advance should
be wired. If an Advance Date is on a date that banks in the State of Utah are
not open for business, or the circumstances giving rise to the Advance occur
after 1:00 p.m., Mountain Standard Time, on the Advance Date, the Advance will
be wired by Secured Party to Debtor on the next day on which banks in the State
of Utah are open for business. As a condition precedent to Secured Party's
obligation to make the first Advance hereunder, Debtor shall execute and deliver
to Secured Party the Note and such financing statements as Secured Party may
request.
3. INTEREST. Interest shall accrue pursuant to the terms of the Note.
4. REPAYMENT. The Outstanding Indebtedness shall be due and payable
pursuant to the terms of the Note.
5. COLLATERAL. The payment of all sums due hereunder shall be secured
by, and Debtor hereby grants to Secured Party a first priority security interest
in the Collateral (as defined below). The "COLLATERAL" shall be all of the
assets of Debtor, wherever located, now owned or after-acquired, including but
not limited to the following and all proceeds and all products of the following
(as defined by Chapter 9a of the Uniform Commercial Code for the state of Utah
in existence as of the execution of this Agreement): Inventory; Equipment;
General Intangibles
2
(including Payment intangibles and all intellectual property, software,
embedded code and other proprietary rights); Accounts; Chattel Paper;
Commercial Tort Claims; Deposit Accounts; Documents; Instruments; Investment
Property; Letter-of-Credit Rights; Letters of Credit; Goods; and Farm
Products. Debtor shall, if requested by Secured Party, execute or cause to be
executed such additional security agreements, deeds of trust, financing
statements, fixture filings, general pledge agreements, assignments, and
other documents to further identify and describe the Collateral and to effect
and perfect Secured Party's security interest therein. Without limiting the
generality of the foregoing, the parties acknowledge and agree that the
execution and filing of an assignment, security agreement or other document
with the United States Patent and Trademark Office (the "PTO") may be
necessary to perfect a security interest in certain intellectual property,
and Debtor agrees to execute and deliver to Secured Party for filing with the
United States Patent and Trademark Office any such assignment, security
agreement or other document Secured Party reasonably deems necessary or
appropriate to create, perfect, establish the priority of, or make valid the
security interests granted under this Agreement.
6. CONDITIONS PRECEDENT. Secured Party's obligation to make the initial
Advance shall be conditioned upon the prior satisfaction or, in Secured Party's
sole discretion, waiver of each of the following:
(a) All of the documents required to be delivered by Debtor,
including the Note, have been duly executed and delivered to Secured Party and
shall be in full force and effect.
The security interest of Secured Party in and to the
Collateral created hereunder is valid, perfected, in full force and effect and
constitutes a first lien position prior to all other liens, claims, and
encumbrances except for Permitted Liens; provided, however, that until such time
as Secured Party requests that a filing be made with the PTO, the parties
acknowledge that Secured Party may not have a perfected security interest in
certain intellectual property. "Permitted Liens" shall mean (i) statutory liens
for current taxes or assessments not yet due or delinquent or the validity of
which is being contested in good faith by appropriate proceedings; (ii)
mechanics', carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations as to which
there is no default on the part of Debtor; and (iii) those liens identified on
Part 3.17 of the VitalStream Disclosure Schedule attached to the Merger
Agreement.
Debtor is not in default in any term, covenant or condition
in this Agreement, the Note, the Merger Agreement or in any other document given
in connection herewith, and no conditions, events, or acts exist which, with the
passage of time or giving of notice or both, would constitute a default
thereunder.
7. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Secured Party as follows:
(a) All the representations and warranties in the Merger
Agreement are true and correct as of the Agreement Date;
3
(b) Debtor and any person required to execute and deliver any
document incident hereto on behalf of Debtor has the authority and power to do
so and to perform any condition or obligation imposed under the terms of such
documents;
Except as provided in Section 6(b) above, the security
interest of Secured Party in and to the Collateral created hereunder is valid,
perfected, in full force and effect and constitutes a first lien position prior
to all other liens, claims, and encumbrances except for Permitted Liens. Debtor
has not pledged any of the Collateral to any Person other than Secured Party to
secure any obligation of any Person, except pursuant to Permitted Liens.
(c) The execution, delivery and performance of this Agreement
and the Note and each document incident hereto will not violate any provision of
any applicable law, regulation, order, judgment, decree, article of
incorporation, bylaw, contract, agreement, or other undertaking to which Debtor
is a party, or which purports to be binding on Debtor or its assets, and will
not result in the creation or imposition of a lien on any of its assets.
(d) No information or report furnished by Debtor to Secured
Party in connection with the negotiation of this Agreement, the Note and the
Merger Agreement contains any material misstatement of fact or omitted to state
a material fact or any fact necessary to make the statements contained therein
not misleading.
(e) Debtor is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (as defined in Regulation
U issued by the Board of Governors of the Federal Reserve System) and no
proceeds under this Agreement will be used to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock, in violation of Regulation U.
8. AFFIRMATIVE COVENANTS. Debtor covenants and agrees to do the
following unless such requirement has been waived by Secured Party in writing:
(a) Debtor shall furnish Secured Party with such financial
statements, balance sheets and profit and loss statements as Secured Party
reasonably may require. Such financial statements shall set forth assets,
liabilities, and operating statements prepared in accordance with generally
accepted accounting principles and practices. Debtor shall furnish such
additional information regarding its business affairs and financial conditions
as Secured Party may from time to time reasonably request.
(b) Debtor shall notify Secured Party of any default under the
terms hereof or of any litigation, proceeding, or development which may have a
material adverse effect on the Collateral or Debtor's ability to perform under
the terms of this Agreement.
(c) Debtor shall duly observe and conform to all valid
requirements of any government authority relative to the conduct of its
business, its properties, or its assets and maintain and keep in full force and
effect its existence and all licenses and permits necessary to the proper
conduct of its business.
4
(d) Debtor shall keep proper books of records and accounts in
which full, true, and correct entries will be made of all dealings or
transactions relating to its business and activities.
(e) Debtor shall permit any person designated in writing by
Secured Party to visit its business premises, inspect any of its books and
financial records, and to discuss its affairs and finances with its principal
officers or employees, all at such reasonable times and as often as Secured
Party may reasonably request, subject to any reasonable conditions imposed by
Debtor.
(f) Debtor shall (1) file all applicable federal, state, and
local tax returns or other statements required to be filed in connection with
its business, including those for income taxes, sales taxes, property taxes,
payroll taxes, payroll withholding amounts, FICA contributions, and similar
items; (2) maintain appropriate reserves for the accrual of the same; and (3)
pay when due all such taxes, sums or assessments made in connection therewith.
Provided, however, that (until foreclosure, sale, or similar proceedings have
been commenced) nothing herein shall require Debtor to pay any tax sum or
assessment the validity of which is being contested in good faith by proceedings
diligently pursued and as to which adequate reserves have been made.
(g) Debtor shall not take any actions designed to, or that
would reasonably be expected to have the effect of, significantly decreasing the
value of Debtor as a going concern.
9. EVENTS OF DEFAULT. An "Event of Default" shall occur if any of the
following events shall occur:
(a) Debtor fails to make any payment due under this Agreement
or the Note when due.
(b) Debtor breaches any representation, warranty, covenant or
other provision in this Agreement, the Note or the Merger Agreement, which
breach (together with other breaches of any such agreement) would likely have a
Material Adverse Effect on Secured Party.
(c) [intentionally deleted].
(d) Any of the documents executed and delivered in connection
herewith shall for any reason cease to be valid or in full force and effect.
(e) Debtor defaults in the payment of principal or interest on
any other obligation for borrowed money other than hereunder.
(f) Debtor files a voluntary petition in bankruptcy or seeks
reorganization, adjustment, readjustments of debts, or any other relief under
the Bankruptcy Code, as amended, or any insolvency act or law, state or federal,
now or hereafter occurs.
5
(g) Anyone files an involuntary petition against Debtor in
bankruptcy or seeking reorganization, arrangement, readjustment of debts, or any
other relief under the Bankruptcy Code, as amended, or under any other
insolvency act or law, state or federal, now or hereafter existing, and the
continuance thereof for 60 days undismissed, unbonded, or undischarged.
(h) All or any substantial part of the property of Debtor is
condemned, seized, or otherwise appropriated or custody or control of such
property is assumed by any governmental agency or any court of competent
jurisdiction and is retained for a period of 30 days.
(i) Any charges are filed against Debtor or any person owning
any Collateral, under any federal or state law, for which forfeiture of property
or rights is a potential penalty.
(j) Debtor or any other party (other than Secured Party)
breaches any term, condition or covenant in any other document or instrument
made and given in connection herewith.
10. REMEDIES. Upon the occurrence of an Event of Default and any time
thereafter, Secured Party may declare any or all of the Outstanding Indebtedness
to be immediately due and payable without presentment, demand, protest, or other
notice of any kind. Secured Party may proceed against Debtor, any Guarantor, or
any Collateral simultaneously or in any order it chooses. Secured Party may
release, settle, discharge, substitute or abandon its claim with respect to any
party obligated hereunder, directly or indirectly, or to any of the Collateral
without releasing, discharging or otherwise modifying its rights or remedies
with respect to any remaining parties or Collateral. To the extent permitted by
law, Debtor waives any right to presentment, demand, protest, or notice of any
kind in connection with this Agreement. After an Event of Default has occurred,
Secured Party may contact any party obligated on any Account and direct that all
payments thereon be made directly to Secured Party. After an Event of Default
has occurred,Secured Party may collect, cash, and deposit such payments,
providing Debtor's endorsement on any item as may be necessary. Secured Party
may settle, compromise, or discharge any claim, lien, encumbrance, or dispute
with respect to any Collateral, all on such terms and conditions as it, in good
faith, deems appropriate. Secured Party may, but is not obligated to, take such
action as it, in good faith, deems appropriate to preserve, protect, restore,
refurbish, or defend any of the Collateral or its interest therein and in the
process expend such funds as it deems appropriate. All reasonable costs incurred
by Secured Party in connection with an Event of Default, including court costs
and reasonable attorneys' fees (including such expenses incurred before legal
action, during the pendency of any legal or bankruptcy proceeding, and
continuing to all such expenses in connection with any appeal to higher courts)
shall bear interest at the rate set forth in this Agreement, shall be secured by
the Collateral, and shall be payable upon demand. No failure or delay on the
part of Secured Party in exercising any right, power, or privilege hereunder
shall constitute a waiver thereof or preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. The rights and
remedies provided herein are cumulative and not exclusive of any other rights or
remedies provided at law or in equity.
6
11. NOTICE. Any notice hereunder or with respect hereto shall be given
as provided in Section 8.1 of the Merger Agreement.
12. GOVERNING LAW; VENUE. This Note is delivered in the state of Nevada
and shall be governed by and construed in accordance with the laws of the state
of Nevada without reference to its choice of law rules. Each of the parties
submits to the jurisdiction of any state or federal court sitting in the State
of Nevada, County of Xxxxx in any action or proceeding arising out of or
relating to this Agreement and agrees that all claims in respect of the action
or proceeding may be heard and determined in any such court. Each of the parties
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety, or other security that might
be required of any other party with respect thereto.
13. SEVERABILITY. If for any reason one or more of the provisions of
this Agreement or their application to any person or circumstances shall be held
to be invalid, illegal or unenforceable in any respect or to any extent, such
provisions shall nevertheless remain valid, legal and enforceable in all such
other respects and to such extent as may be permissible. In addition, any such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Agreement, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained therein.
14. CONFLICT. In the event of a conflict between the terms of this
Agreement and the Merger Agreement, the terms of this Agreement shall prevail.
15. GENERAL PROVISIONS. All representations and warranties made in this
Agreement and in any document or certificate delivered pursuant hereto shall
survive the execution and delivery of this Agreement and the making of any loans
hereunder. This Agreement shall be binding upon and inure to the benefit of
Debtor and Secured Party, their respective successors and assigns, except that
Debtor may not assign or transfer its rights or delegate its duties hereunder
without the prior written consent of Secured Party. Time is of the essence
hereof. This Agreement and the Merger Agreement shall be deemed to express,
embody, and supersede any previous understanding, negotiations, agreements, or
commitments, whether written or oral, between the parties with respect to the
general subject matter hereof. This Agreement may not be contradicted by
evidence of any alleged oral agreement. This Agreement may not be amended or
modified except in writing signed by the parties.
(SIGNATURE PAGE FOLLOWS)
7
EXECUTED on the day and year first written above.
DEBTOR:
VITALSTREAM, INC.
By: /s/ Xxxx Xxxxxxx
---------------------------
Name: Xxxx Xxxxxxx
Title: President
SECURED PARTY:
SENSAR CORPORATION
By: /s/ Xxxxx Xxxxxxxx
---------------------------
Name: Xxxxx Xxxxxxxx
Title: President
8
