LOAN AGREEMENT
This
LOAN
AGREEMENT
(this
“Agreement”)
is
entered into and
made
effective this 11h
day of
September 2006, by and between XXXX, Inc., a Delaware corporation (the
“Company”)
and
CSI Business Finance, Inc., a Florida corporation (“Lender”).
RECITALS:
WHEREAS,
Lender
has agreed the lend to the Company, and the Company has agreed to borrow from
Lender (the “Loan”)
the
sum of Six Hundred Fifty-Five Thousand Dollars ($655,000) (the “Loan
Amount”)
subject to the terms and conditions set forth herein below;
WHEREAS,
as a
material inducement for Lender to enter into this Agreement and to fund the
Loan
Amount, the Company has agreed to issue to Lender two (2) promissory notes
on
the terms and subject to the conditions set forth herein (together, the
“Notes”
and
each, a “Note”),
in
the form attached hereto as Exhibit
A
and
evidencing the terms and conditions of each Note;
WHEREAS,
contemporaneously with the execution and delivery of this Agreement, the Company
and Lender are executing and delivering a Security Agreement (the “Security
Agreement”)
pursuant to which the Company is agreeing to provide to Lender a security
interest in the Pledged Collateral (as this term is defined in the Security
Agreement) to secure the Company’s obligations under this Agreement, the other
Transaction Documents (as defined herein below) or any other obligations of
the
Company to Lender;
WHEREAS,
contemporaneously with the execution and delivery of this Agreement, Global
SportsEDGE, Inc., a wholly-owned subsidiary of the Company (“GSE”)
and
Lender are executing and delivering a Security Agreement (the “Subsidiary
Security Agreement”)
pursuant to which GSE is agreeing to provide to Lender a security interest
in
Pledged Collateral (as this term is defined in the Security Agreement) to secure
the Company’s obligations under this Agreement, the other Transaction Documents,
or any other obligations of the Company to Lender;
WHEREAS,
contemporaneously with the execution and delivery of this Agreement, the parties
hereto are executing and delivering a Pledge and Escrow Agreement (the
“Pledge
and Escrow Agreement”)
pursuant to which the Company has agreed to provide to Lender a security
interest in the Pledged Shares (as this term is defined in the Pledge and Escrow
Agreement) to secure the Company’s obligations under this Agreement, the other
Transaction Documents or any other obligations of the Company to Lender;
WHEREAS,
contemporaneously with the execution and delivery of this Agreement, Xxxxx
Xxxxx
Root and the parties hereto are executing and delivering an Insider Pledge
and
Escrow Agreement (the “Insider
Pledge Agreement”)
pursuant to which Mr. Root has agreed to provide to
Lender
a
security interest in the Pledged Shares (as this term is defined in the Insider
Pledge Agreement) to secure the Company’s obligations under this Agreement, the
other Transaction Documents or any other obligations of the Company to
Lender;
and
NOW
THEREFORE,
and in
consideration of the foregoing, the mutual covenants, promises and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the
Company and
Lender
agree as follows:
SECTION
1. THE
LOAN
1.1. Acknowledgment.
The
Company acknowledges that each and every term and condition of this Agreement,
the Notes, the Security Agreement, the Subsidiary Security Agreement, the Pledge
and Escrow Agreement and the Insider Pledge Agreement (collectively, the
“Transaction
Documents”)
are
incorporated herein by reference and shall continue in full force and effect,
enforceable in accordance with their terms, except to the extent modified,
changed or amended by the terms of this Agreement.
1.2. The
Loan.
Pursuant to the terms and subject to the conditions set forth in this Agreement,
Lender hereby agrees to issue to the Company the Loan in the Loan Amount of
Six
Hundred Fifty-Five Thousand Dollars ($655,000), of which (a) Three Hundred
Fifty-Five Thousand Dollars ($355,000) shall be funded to the Company on the
date hereof (the “First
Closing”)
and
Three Hundred Thousand Dollars ($300,000) shall be funded to the Company upon
the Company effectuating the Share Increase in accordance with Section 5.8
herein (the “Second
Closing”
and
together with the First Closing, the “Closings”
and
each, a “Closing”).
1.3. The
Closings.
Each
Closing shall take place at 12:00 a.m. Eastern Standard Time at the offices
of
the Company, 0000 Xxxxx Xxxxx Xxxxxxxxx, Xxxxx 000, Xxx Xxxxx, Xxxxxx 00000,
subject to notification of satisfaction of the conditions to each Closing set
forth in Section 4 herein (or such later dates as is mutually agreed to by
the
Company and Lender). The date of the First Closing shall hereinafter be referred
to as the “First
Closing Date”
and
the
date of the Second Closing shall hereinafter be referred to as the “Second
Closing Date”.
1.4. The
Notes.
The
total
indebtedness due to Lender shall be Six Hundred Fifty-Five Thousand Dollars
($655,000), which such amount shall be evidenced by
(a) a
Note, dated the date hereof, issued to Lender by the Company in the principal
amount of Three Hundred Fifty-Five Thousand Dollars ($355,000) and (b) a Note,
dated as of the Second Closing Date, in the principal amount of Three Hundred
Thousand Dollars ($300,000). The entire principal balance of the Loan together
with any accrued but unpaid interest and such other amounts payable by the
Company to Lender under the Notes shall be due and payable on or before June
30,
2007 and shall otherwise be payable in accordance with the terms and subject
to
the conditions set forth in the Notes.
1.5. Forms
of Payment.
Subject
to the satisfaction of the terms and conditions of this Agreement, at each
Closing: (a) Lender shall deliver to the Company such amounts evidenced in
the
Note to be delivered at such Closing in accordance with the terms and subject
to
the conditions set forth herein and in such Note, minus those fees to be paid
directly from the proceeds of each Closing as set forth in this Agreement and
those certain Disbursement Instructions attached hereto as Exhibit
B
and (b)
the Company shall deliver to Lender the Note to be delivered in accordance
with
Section 1.4 herein, duly executed by the Company.
2
SECTION
2. LENDER’S
REPRESENTATIONS AND WARRANTIES
Lender
represents and warrants to the Company as of the date hereof that:
2.1. Information.
Lender
and its advisors (and its counsel) have been furnished with all materials
relating to the business, finances and operations of the Company and information
it deemed material to making an informed decision regarding its issuance of
the
Loan to the Company, which have been requested by Lender. Lender and its
advisors have been afforded the opportunity to ask questions of the Company
and
its management. Neither such inquiries nor any other due diligence
investigations conducted by Lender, or its advisors, or its representatives
shall modify, amend or affect Lender’s right to rely on the Company’s
representations and warranties contained in Section 3 below. Lender understands
that the Loan involves a high degree of risk. Lender is in a position regarding
the Company, which, based upon employment, family relationship or economic
bargaining power, enabled and Lender to obtain information from the Company
in
order to evaluate the merits and risks of this transaction. Lender has sought
such accounting, legal and tax advice, as it has considered necessary to make
an
informed decision with respect to the Loan.
2.2. Authorization,
Enforcement.
This
Agreement has been duly and validly authorized, executed and delivered on behalf
of Lender and is a valid and binding agreement of Lender enforceable in
accordance with its terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to,
or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.
2.3. Receipt
of Documents.
Lender
and its counsel have received and read in their entirety: (a) this Agreement
and
each representation, warranty and covenant set forth herein and the other
Transaction Documents; (b) all due diligence and other information necessary
to
verify the accuracy and completeness of such representations, warranties and
covenants; (c) the Company’s Annual Report on Form 10-KSB for the fiscal year
ended July 31, 2005; (d) the Company’s Quarterly Report on Form 10-QSB for the
fiscal quarter ended April 30, 2006 and (e) answers to all questions Lender
submitted to the Company regarding the Loan to the Company; and Lender has
relied on the information contained therein and has not been furnished any
other
documents, literature, memorandum or prospectus.
2.4. Organization
and Qualification.
Lender
is a corporation duly organized and validly existing in good standing under
the
laws of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Lender is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature
of
the business conducted by it makes such qualification necessary, except to
the
extent that the failure to be so qualified or be in good standing would not
have
a material adverse effect on the Company and its subsidiaries taken as a
whole.
2.5. No
Legal Advice From the Company.
Lender
acknowledges that it had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with its own legal counsel and
investment and tax advisors. Lender is relying solely on such counsel and
advisors and not on any statements or representations of the Company or any
of
its representatives or agents for legal, tax or investment advice with respect
to the Loan, the transactions contemplated by this Agreement or the laws of
any
jurisdiction.
3
SECTION
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants as of the date hereof to Lender that, except
as
set forth in the SEC Documents (as defined herein) or in the Disclosure Schedule
attached hereto (the “Disclosure
Schedule”):
3.1. Organization
and Qualification.
The
Company and its subsidiaries are corporations duly organized and validly
existing in good standing under the laws of the jurisdiction in which they
are
incorporated, and have the requisite corporate power to own their properties
and
to carry on their business as now being conducted. Each of the Company and
its
subsidiaries is duly qualified as a foreign corporation to do business and
is in
good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries taken as a
whole.
3.2. Authorization,
Enforcement, Compliance with Other Instruments.
The
Company has the requisite corporate power and authority to enter into and
perform this Agreement and the other Transaction Documents and to issue the
Notes in accordance with the terms hereof and thereof, (ii) the execution and
delivery of the Transaction Documents by the Company and the consummation by
it
of the transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Notes have been duly authorized by the Company’s
Board of Directors (the “Board”)
and no
further consent or authorization is required by the Company, the Board or the
Company’s stockholders, (iii) the Transaction Documents have been duly executed
and delivered by the Company, (iv) the Transaction Documents constitute the
valid and binding obligations of the Company enforceable against the Company
in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors’ rights and remedies. The
authorized officer of the Company executing the Transaction Documents knows
of
no reason why the Company cannot perform any of the Company’s other obligations
under such documents.
3.3. Capitalization.
The
authorized capital stock of the Company consists of One Hundred Fifty Million
(150,000,000) shares of common stock, par value $0.0001 per share (“Common
Stock”),
of
which 108,383,180 shares are issued and outstanding and 5,000,000 shares of
preferred stock, par value $0.0001 (“Preferred
Stock”),
of
which 462,222 shares of convertible Series A Preferred are issued and
outstanding. The Company will have Seven Hundred Fifty Millon (750,000,000)
authorized shares of Common Stock after it effectuates the Share Increase as
required by Section 5.8 herein. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. Except those shares pledged by
the
Company pursuant to the Transaction Documents, no shares of Common Stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company. Except as disclosed in Item
3.3 of the Disclosure Schedule, (i) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any
of
their securities under the Securities Act of 1933, as amended and (iv) there
are
no outstanding registration statements and there are no outstanding comment
letters from the U.S. Securities and Exchange Commission (the “SEC”)
or any
other regulatory agency. The Company has furnished to Lender true and correct
copies of the Company’s Certificate of Incorporation (as amended) and as in
effect on the date hereof (the “Certificate
of Incorporation”),
and
the Company’s By-laws, as in effect on the date hereof (the “By-laws”),
and
the terms of all securities convertible into or exercisable for Common Stock
and
the material rights of the holders thereof in respect thereto other than stock
options issued to employees and consultants.
4
3.4. No
Conflicts.
Except
as disclosed in Item 3.4 of the Disclosure Schedule, the execution, delivery
and
performance of the Transaction Documents by the Company and the consummation
by
the Company of the transactions contemplated hereby will not (i) result in
a
violation of the Certificate of Incorporation, any certificate of designations
of any outstanding series of preferred stock of the Company or the By-laws
or
(ii) conflict with or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree applicable to the Company or any of its subsidiaries
or by which any property or asset of the Company or any of its subsidiaries
is
bound or affected. Except as disclosed in Item 3.4 of the Disclosure Schedule,
neither the Company nor its subsidiaries is in violation of any term of or
in
default under its Certificate of Incorporation or By-laws or their
organizational charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree
or
order or any statute, rule or regulation applicable to the Company or its
subsidiaries. The business of the Company and its subsidiaries is not being
conducted, and shall not be conducted in violation of any material law,
ordinance, or regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the Securities Act and
any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any
court or governmental agency in order for it to execute, deliver or perform
any
of its obligations under or contemplated by this Agreement in accordance with
the terms hereof or thereof. All consents, authorizations, orders, filings
and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its subsidiaries are unaware of any facts or circumstance, which
might give rise to any of the foregoing.
5
3.5. SEC
Documents: Financial Statements.
Since
January 1, 2003, the Company has filed, and will timely file and maintain all
Nasdaq OTC Bulletin Board listing requirements and all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)
(all
of the foregoing filed prior to the date hereof or amended after the date hereof
and all exhibits included therein and financial statements and schedules thereto
and documents incorporated by reference therein, being hereinafter referred
to
as the “SEC
Documents”).
The
Company has delivered to Lender or its representatives, or made available
through the SEC’s website at xxxx://xxx.xxx.xxx., true and complete copies of
the SEC Documents. As of their respective dates, the financial statements of
the
Company disclosed in the SEC Documents (the “Financial
Statements”)
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such Financial
Statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and, fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case
of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to Lender which is not
included in the SEC Documents, including, without limitation, information
referred to in this Agreement, contains any untrue statement of a material
fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
3.6. Off
Balance Sheet Arrangements.
There
is no transaction, arrangement, or other relationship between the Company and
an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed
or
that otherwise would be reasonably likely to have a material adverse effect
on
the business, properties, assets, operations, results of operations, condition
(financial or otherwise) or prospects of the Company and its subsidiaries,
taken
as a whole, or on the transactions contemplated hereby and by the other
Transaction Documents or by the agreements and instruments to be entered into
in
connection herewith or therewith, or on the authority or ability of the Company
to perform its obligations under the Transaction Documents.
3.7. 10(b)-5.
Neither
the Transaction Documents nor the SEC Documents include any untrue statements
of
material fact, nor do they omit to state any material fact required to be stated
therein necessary to make the statements made, in light of the circumstances
under which they were made, not misleading.
3.8. Absence
of Litigation.
There
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
against or affecting the Company, the Common Stock or any of the Company’s
subsidiaries, wherein an unfavorable decision, ruling or finding would (i)
have
a material adverse effect on the transactions contemplated hereby (ii) adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, this Agreement or any of the documents
contemplated herein, or (iii) have a material adverse effect on the business,
operations, properties, financial condition or results of operations of the
Company and its subsidiaries taken as a whole.
6
3.9. Employee
Relations.
Neither
the Company nor any of its subsidiaries is involved in any labor dispute nor,
to
the knowledge of the Company or any of its subsidiaries, is any such dispute
threatened. None of the Company’s or its subsidiaries’ employees is a member of
a union and the Company and its subsidiaries believe that their relations with
their employees are good.
3.10. Intellectual
Property Rights.
The
Company and its subsidiaries own or possess adequate rights or licenses to
use
all trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct
their
respective businesses as now conducted. The Company and its subsidiaries do
not
have any knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service xxxx registrations, trade secret
or other similar rights of others, and, to the knowledge of the Company there
is
no claim, action or proceeding being made or brought against, or to the
Company’s knowledge, being threatened against, the Company or its subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service xxxx registrations, trade secret
or other infringement; and the Company and its subsidiaries are unaware of
any
facts or circumstances which might give rise to any of the foregoing.
3.11. Environmental
Laws.
The
Company and its subsidiaries are (i) in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (“Environmental
Laws”),
(ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license
or
approval.
3.12. Title.
Any
real property and facilities held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use
made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.
3.13. Insurance.
The
Company and each of its subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its subsidiaries are engaged. Neither the Company
nor
any such subsidiary has been refused any insurance coverage sought or applied
for and neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as
may
be necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.
3.14. Regulatory
Permits.
The
Company and its subsidiaries possess all material certificates, authorizations
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, and neither the
Company nor any such subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
7
3.15. Internal
Accounting Controls.
The
Company and each of its subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to
maintain asset accountability, and (iii) the recorded amounts for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
3.16. No
Material Adverse Breaches, etc.
Neither
the Company nor any of its subsidiaries is subject to any charter, corporate
or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company’s officers has or is expected in the future
to have a material adverse effect on the business, properties, operations,
financial condition, results of operations or prospects of the Company or its
subsidiaries. Neither the Company nor any of its subsidiaries is in breach of
any contract or agreement which breach, in the judgment of the Company’s
officers, has or is expected to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries.
3.17. Tax
Status.
The
Company and each of its subsidiaries has made and filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that
the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has
paid
all taxes and other governmental assessments and charges that are material
in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
3.18. Certain
Transactions.
Except
for arm’s length transactions pursuant to which the Company makes payments in
the ordinary course of business upon terms no less favorable than the Company
could obtain from third parties and other than the grant of stock options
disclosed in the SEC Documents, none of the officers, directors, or employees
of
the Company is presently a party to any transaction with the Company (other
than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to
or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to
the
knowledge of the Company, any corporation, partnership, trust or other entity
in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner.
3.19. Reliance.
The
Company acknowledges that Lender is relying on the representations and
warranties made by the Company hereunder and that such representations and
warranties are a material inducement for Lender to fund the Loan Amount and
to
enter into the transactions contemplated by the Transaction Documents. The
Company further acknowledges that without such representations and warranties
of
the Company made hereunder, Lender would not enter into this
Agreement.
8
3.20. Non-Public
Information.
The
Company confirms that neither it nor any person acting on its behalf has
provided Lender with any information that the Company believes constitutes
material, non-public information.
3.21. Xxxxxxxx-Xxxxx.
The
Company is in compliance with the applicable requirements of the Xxxxxxxx-Xxxxx
Act of 2002, as amended, and the rules and regulations thereunder, and is
actively taking steps to ensure that it will be in compliance with other
applicable provisions of such Act not currently in effect at all times after
the
effectiveness of such provisions except where such noncompliance would not
have
or reasonably be expected to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries.
SECTION
4. CONDITIONS
TO
LENDER’S OBLIGATIONS
4.1. First
Closing Conditions.
The
obligation of Lender to issue to the Company the Note at the First Closing
is
subject to the satisfaction, at or before the First Closing Date, of each of
the
following conditions:
(a) The
Company shall have executed the Transaction Documents and delivered the same
to
Lender.
(b) The
representations and warranties of the Company shall be true and correct in
all
material respects (except to the extent that any of such representations and
warranties is already qualified as to materiality in Section 3 above, in which
case, such representations and warranties shall be true and correct without
further qualification) as of the date when made and as of the First Closing
Date
as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied
and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the First Closing Date.
(c) The
Company shall have executed and delivered to Lender the Note, dated as of the
date hereof, in the principal amount of Three Hundred Fifty-Five Thousand
Dollars ($355,000);
(d) The
Company shall have provided to Lender a certificate of good standing from the
secretary of state from the state in which the Company
is
incorporated.
(e) The
Company shall have satisfied all obligations with respect to obtaining a waiver
of any and all rights of first refusal as to, and any other rights of
participation in, the transactions contemplated by the Transaction
Documents.
9
(f) Lender
shall have received an opinion of counsel from Xxxxxxxxxxx & Xxxxxxxx
Xxxxxxxxx Xxxxxx, LLP in a form satisfactory to Lender.
4.2. Second
Closing Conditions.
The
obligation of Lender to issue to the Company the Note at the Second Closing
is
subject to the satisfaction, at or before the Second Closing Date, of each
of
the following conditions:
(a) The
representations and warranties of the Company shall be true and correct in
all
material respects (except to the extent that any of such representations and
warranties is already qualified as to materiality in Section 3 above, in which
case, such representations and warranties shall be true and correct without
further qualification) as of the date when made and as of the Second Closing
Date as though made at that time (except for representations and warranties
that
speak as of a specific date) and the Company shall have performed, satisfied
and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Second Closing Date.
(b) The
Company shall have executed and delivered to Lender the Note, dated as of the
Second Closing Date, in the principal amount of Three Hundred Thousand Dollars
($300,000);
(c) The
Company shall have delivered to the Escrow Agent the Pledged Shares and the
Transfer Documents (as such terms are defined in the Insider Pledge and Escrow
Agreement), including, without limitation, executed medallion guaranteed stock
powers as required pursuant to the Insider Pledge Agreement.
(d) The
Company shall have certified, in a certificate executed by two
(2)
officers
of the Company and dated as of the Second Closing Date, that all conditions
to
the Second Closing have been satisfied.
SECTION
5. AFFIRMATIVE
COVENANTS
As
long
as there remains any amount outstanding under the Notes, the
Company
shall, unless waived in writing by
Lender,
comply with the Affirmative Covenants set forth herein:
5.1. Best
Efforts.
The
Company shall use its best efforts to timely satisfy each of the conditions
to
be satisfied by it as provided in Section 4 of this Agreement.
5.2. Use
of Proceeds.
The
Company will use the proceeds from the Loan for general corporate and working
capital purposes.
5.3. Placement
Fee.
At the
First Closing, the Company shall pay to Corporate Strategies, Inc.
(“CSI”)
a
placement fee equal to ten percent (10%) of the gross funding amount ($65,500),
which such gross funding amount shall be equal to the aggregate principal amount
of the Notes to be delivered at the Closings, directly from the proceeds of
the
First Closing.
10
5.4. Documentation
Fee.
The
Company shall pay to Lender, and Lender shall retain from the proceeds of the
First Closing, a non-refundable documentation fee equal to Five Thousand Dollars
($5,000) on the First Closing Date.
5.5. Legal
Fees.
The
Company shall pay to Xxxxxxxxxxx & Xxxxxxxx Xxxxxxxxx Xxxxxx LLP Sixteen
Thousand Eight Hundred Dollars ($16,500) directly from the proceeds of the
First
Closing on the First Closing Date for legal services rendered to the
Company.
5.6. Reimbursement
Fee.
At the
First Closing, the Company shall pay to CSI an amount equal to Twenty-Five
Thousand Dollars ($25,000) payable as a reimbursement fee to Xxxx Xxxx and
Princeton Research directly from the proceeds of the First Closing.
5.7. Investor
Relations Fee.
The
Company shall pay to Clearvision International, Inc. and amount equal to One
Hundred Ten Thousand Dollars ($110,000) for investor relations services rendered
to the Company, of which (a) Fifty Thousand Dollars ($50,000) shall be paid
directly from the proceeds of the First Closing and (b) Sixty Thousand Dollars
($60,000) shall be paid directly from the proceeds of the Second Closing.
5.8. Amendment
to Certificate of Incorporation.
The
Company shall file an amendment to its Certificate of Incorporation to increase
the number of authorized shares of Common Stock to at least Seven Hundred Fifty
Million (750,000,000) shares (the “Share
Increase”).
The
failure of the Company to effect the Share Increase before September 20,
2006 shall be deemed an immediate Event of Default without regard to any cure
periods thereunder.
5.9. Financial
Statements and Reports.
Furnish
to
Lender,
at the times set forth below, the following financial statements and
reports:
(a) As
soon
as available, but in any event within ninety (90) days after its fiscal year
end, an audited financial statement of
the
Company consisting of a balance sheet, profit and loss statement certified
by
Company’s independent certified public accountant and reasonably satisfactory
to
Lender
to have been prepared in accordance with GAAP, consistently
applied.
(b) As
soon
as available, but in any event within twenty (20) days after the last day of
each quarter, a balance sheet and profit and loss statement dated as of the
last
business day of such month in form and detail as reasonably required
by
Lender
certified by the chief financial officer of the
Company to have been prepared from the records of the
Company
on the basis of accounting principles consistently applied by the
Company.
(c) Such
other information concerning the business, operations and condition (financial
or otherwise) of the
Company
as
Lender
may reasonably request.
(d) As
soon
as available, but no later than fifteen (15) days after filing, a complete
copy
of the
Company’s tax return filed with the Internal Revenue Service (the “IRS”)
and
copies of any and all extension requests of the
Company filed with the IRS within seven (7) days of filing same.
11
5.10. Maintenance
of Corporate Existence.
Maintain
and preserve its corporate existence.
5.11. Taxes,
Assessments and Liens.
The
Company will pay or cause to be paid when due all taxes, assessments and liens
upon any and all collateral pledged in the Transaction Documents (collectively,
the “Collateral”)
or its
use or operation, upon this Agreement evidencing the Loan Amount, or upon any
of
the other Transaction Documents. The Company may withhold any such payment
or
may elect to contest any lien if the Company is
in
good faith conducting an appropriate proceeding to contest the obligation to
pay
and so long as Lender’s interest in the Collateral is not
jeopardized,
in
Lender’s sole opinion. If the Collateral is subjected to a lien which is not
discharged within fifteen (15) days, the Company shall deposit with Lender
cash,
a sufficient corporate surety bond or other security satisfactory to Lender
in
an amount adequate to provide for the discharge of the lien plus any interest,
costs, attorneys’ fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest the Company shall defend
themselves and Lender and shall satisfy any final adverse judgment before
enforcement against the Collateral. The Company shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
5.12. Notices.
Immediately give notice to
Lender
of:
(a) The
commencement of any litigation relating to the
Company involving claimed damages in excess of Ten Thousand Dollars ($10,000)
or
relating to the transactions contemplated by this Agreement;
(b) The
commencement of any material arbitration or governmental proceeding or
investigation not previously disclosed to Lender
which has been instituted or, to the knowledge of the
Company, is threatened against the
Company or its property which, if determined adversely to the
Company, would have a material adverse effect on the business, operations or
condition (financial or otherwise) of the Company;
and
(c) Any
Event
of Default under this Agreement or the Transaction Documents.
5.13. Compliance
with Laws.
Carry on
their
business
activities in substantial compliance with all applicable federal or state laws
and all applicable rules, regulations and orders of all governmental bodies
and
offices having power to regulate or supervise
their
business
activities. The
Company
shall maintain all material rights, liens, franchises, permits, certificates
of
compliance or grants of authority required in the conduct their
businesses.
5.14. Books
and Records.
Keep
books and records reflecting all of their
business
affairs and transactions in accordance with generally accepted accounting
principles consistently applied and permit Lender,
and its representatives, at reasonable times and intervals, to visit all of
their
offices,
discuss their
financial matters with officers of the
Company and its
independent public accountants (and by this provision the
Company
authorizes
its
independent public accountants to participate in such discussions) and examine
any of their
books
and other corporate records.
12
5.15. Maintain
Property.
Maintain
and keep their
assets,
property and equipment in good repair, working order and condition, reasonable
wear and tear excepted, other than with respect to assets disposed of in the
ordinary course of business and from time to time make or cause to be made
all
needed renewals, replacements and repairs, including but not limited to,
renewals,
registrations of all licenses, trademarks and patents and other intangible
rights.
5.16. Conduct
of Business.
Continue
to engage primarily in the business being conducted as of the effective date
of
this Agreement.
5.17. Maintenance
of Insurance.
During
the term of this Agreement, the Company shall keep and maintain such insurance
coverage with financially reputable insurers providing for such coverage not
less, and deductibles not greater, than currently maintained by the Company,
other than
medical
malpractice insurance which may be obtained or not obtained by the Company,
as
they determine,
in their sole discretion.
Such
insurance policies
shall
contain a clause requiring the insurer to give Lender
thirty (30) days’ prior written notice in the event of any anticipated
cancellation of the policy for any reason. Cancellation without replacement
shall be a default under this Agreement. The Company will deliver evidence
of
such paid up insurance and the policies of insurance or copies thereof
to
Lender
upon request.
5.18. Segregation
of Accounts.
The
Company shall, at all times during the term of this Agreement and while any
indebtedness remains outstanding to Lender, maintain the accounts pledged to
Lender,
segregated on their
books,
and the
proceeds thereof received by the Company shall be promptly
deposited
and
maintained by Company at all such
times
thereafter
in
segregated accounts
so as to
allow such proceeds to be readily identifiable
and
such
proceeds
shall
not be maintained
in or deposited into accounts where they are commingled
with other proceeds of the
Company,
upon
which Lender has not been granted a security interest pursuant to the terms
of
the Transaction Documents.
SECTION
6. NEGATIVE
COVENANTS
As
long
as there remains any amount outstanding under the Notes, the
Company
shall not, unless waived in writing by
Lender:
6.1. Consolidation;
Merger; Sale of Assets; Acquisitions.
Consolidate with or merge into or with any other entity; or sell (other than
sales of inventory in the ordinary course of business), transfer, lease or
otherwise dispose of all or a substantial part of their
assets;
or acquire a substantial interest in another entity either through the purchase
of all or substantially all of the assets of that person or the purchase of
a
controlling equity interest in that person.
6.2. Liens.
Create,
incur, assume or suffer to exist any lien on any of their
property, real or personal, except (a) liens in favor of
Lender;
(b) liens for current taxes and assessments which are not yet due and payable;
and (c) liens relating to purchase money security interests and equipment
leases.
6.3. Additional
Indebtedness.
Create,
incur, assume or suffer to exist any indebtedness except: (a) indebtedness
in
favor of Lender
and (b) current liabilities incurred in the ordinary course of business
including purchase money obligations and leases.
13
6.4. Guaranties.
Assume,
guarantee, endorse or otherwise become liable in connection with the
indebtedness of any other person or entity except endorsements of negotiable
instruments for deposit or collection in the ordinary course of
business.
6.5. Dividends.
Declare
or pay any dividends, purchase, redeem, retire or otherwise acquire for value
any of their
capital
stock or
membership interests, as applicable,
now
or
hereafter outstanding, return any capital to their
stockholders or
members, as
applicable,
or make
any distribution of assets to their
stockholders
or
members.
6.6. Change
in Ownership.
Permit a
material change in the ownership of the
Company as in effect on the date of this Agreement.
6.7. Change
in Company.
Permit,
cause or allow a change in the management of Company
without
the
written
consent of Lender.
6.8. Transfers.
The
Company shall not sell or transfer all or a portion of the Collateral without
the prior written consent of Lender
except transfers in the ordinary course of business.
SECTION
7. EVENTS
OF DEFAULT AND REMEDIES
7.1. Events
of Default.
The term
“Event of Default” shall mean any of the following events:
(a) The
Company
shall
fail to make any
payment to
Lender
when
due;
The
Company shall
have a fifteen (15) day grace period for payment of monthly installments of
interest under this paragraph; or
(b) The
Company shall fail to effect the Share Increase in accordance with Section
5.8
herein.
(c) The
Company
shall default (other than a default in payment under subsection (a) or (b)
above) in the due performance and observance of any of the covenants contained
in this Agreement or any of the Transaction Documents and such default shall
continue unremedied for a period of thirty (30) days after notice and
opportunity to cure from Lender
to
the
Company thereof; or
(d) The
Company
shall become insolvent or generally fail to pay or admit in writing its
inability to pay its debts as they become due; or the
Company
shall
apply for, consent to, or acquiesce in the appointment of a trustee, receiver
or
other custodian for itself or any of its property, or make a general assignment
for the benefit of its creditors; or trustee, receiver or other custodian shall
otherwise be appointed for the
Company or any of its assets and not be discharged within thirty (30) days;
or
any bankruptcy, reorganization, debt arrangement, or other case or proceeding
under any bankruptcy or insolvency law, or any dissolution or liquidation
proceeding shall be commenced by or against the
Company
and be
consented to or acquiesced in by the
Company,
or
remain undismissed for thirty (30) days; or the
Company shall take any corporate action to authorize, or in furtherance of,
any
of the foregoing; or
14
(e) The
Company
fails to comply with any obligation, covenant or agreement contained in any
of
the Transaction Documents; or
(f) Any
representation or warranty set forth in this Agreement or any of the Transaction
Documents shall be untrue in any material respect on the date as of which the
facts set forth are stated or certified or become untrue in any material respect
anytime thereafter,
provided that the Company shall be given an opportunity to cure such default
for
a period of thirty (30) days after its occurrence;
or
(g) Any
judgments, writs, warrants of attachment, executions or similar process (not
undisputedly covered by insurance) in an aggregate amount in excess of One
Hundred Thousand Dollars ($100,000) shall be issued or levied against the
Company or any of its assets and shall not be released, vacated or fully bonded
prior to any sale and in any event within thirty (30) days after its issue
or
levy.
7.2. Remedies.
If an
Event of Default described in Sections 7.1(a) or (b) shall occur, the full
unpaid balance of the Notes (outstanding balance plus accrued interest) and
all
other obligations owed to Lender by the
Company,
whether
hereunder or pursuant to any other Agreement or instrument, shall automatically
be due and payable without declaration, notice, presentment, protest or demand
of any kind (all of which are hereby expressly waived). If any other Event
of
Default shall occur and be continuing, Lender
may declare the outstanding balance of the Notes and all other obligations
owed
to Lender by the
Company
pursuant to any other Agreement or instrument, to be due and payable without
further notice, presentment, protest or demand of any kind (all of which are
hereby expressly waived), whereupon the full unpaid amount of the Notes
and
all other obligations of the
Company to
Lender
shall become immediately due and payable. Upon any Event of Default hereunder,
Lender
shall be entitled to exercise any and all rights and remedies available at
law
or in equity for the collection of the amounts owed under the Notes and all
other obligations of the
Company
to
Lender.
SECTION
8. MISCELLANEOUS
8.1. Waivers,
Amendments.
The
provisions of the Transaction Documents may from time to time be amended,
modified, or waived, if such amendment, modification or waiver is in writing
and
signed by the parties hereto. No failure or delay on the part of Lender
or
the holder of the Notes in exercising any power or right under any Transaction
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power or right preclude any other or further exercise
thereof or the exercise of any other power or right. No notice to or demand
on
the
Company
in any case shall entitle it to any notice or demand in similar or other
circumstances.
8.2. Termination.
In the
event that the Company fails to satisfy the conditions set forth in Section
4
herein (and the non-breaching party’s failure to waive such unsatisfied
condition(s)), the non-breaching party shall have the option to terminate this
Agreement with respect to such breaching party at the close of business on
such
date; provided, however, that if this Agreement is terminated by Lender pursuant
to this Section 8.2, the Company shall remain obligated to pay any and all
amounts due under the Notes as of such date.
15
8.3. Brokerage.
The
Company represents that no broker, agent, finder or other party has been
retained by it in connection with the transactions contemplated hereby and
that
no other fee or commission has been agreed by the Company to be paid for or
on
account of the transactions contemplated hereby.
8.4. Notices.
Any
notices, consents, waivers, or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered (a) upon receipt, when delivered personally; (b) upon
confirmation of receipt, when sent by facsimile; (c) three (3) days after being
sent by U.S. certified mail, return receipt requested, or (d) one (1) day after
deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
|
If
to the Company, to:
|
XXXX,
Inc.
|
|
0000
Xxxxx Xxxxx Xxxxxxxxx
|
|
|
Xxxxx
000
|
|
|
Xxx
Xxxxx, Xxxxxx 00000
|
|
|
Attention:
Xxxxxxx
X. Xxxxxx
|
|
|
Telephone: (000)
000-0000
|
|
|
Facsimile: (000)
000-0000
|
|
|
With
a copy to:
|
Xxxxxxxxxxx
& Xxxxxxxx Xxxxxxxxx Xxxxxx LLP
|
|
000
Xxxxx Xxxxxxxx Xxxxxxxxx - Xxxxx 0000
|
|
|
Xxxxx,
Xxxxxxx
00000-0000
|
|
|
Attention: Xxxxxxx
X. Xxxxxx, Esq.
|
|
|
Telephone: (000)
000-0000
|
|
|
Facsimile: (000)
000-0000
|
|
|
If
to Lender, to:
|
CSI
Business Finance, Inc.
|
|
000
Xxxxx Xxxx Xxx Xxxx, Xxxxx 000
|
|
|
Xxxxxxx,
Xxxxx 00000
|
|
|
Attention: Xxxxxxx
X. Xxxxxxxx
|
|
|
Telephone: (000)
000-0000
|
|
|
Facsimile: (000)
000-0000
|
|
Each
party shall provide five (5) days’ prior written notice to the other party of
any change in address or facsimile number.
8.5. Costs
and Expenses. The
Company
agrees to pay all expenses for the preparation of this Agreement, including
exhibits, and any amendments to this Agreement as may from time to time
hereafter be required, and the reasonable attorneys’
fees and
legal expenses of counsel for Lender,
from time to time incurred in connection therewith and the
related Transaction Documents. The
Company agrees to reimburse Lender upon demand
for,
all
reasonable out-of-pocket expenses (including attorney’
fees and
legal expenses) in connection with Lender’s
enforcement of the obligations of the
Company hereunder or any other Transaction Documents, whether or not suit is
commenced
including, without limitation, attorneys’
fees
and
legal expenses in connection with any appeal of a lower court’s order or
judgment. The obligations of
the
Company under this Section 8.5 shall survive any termination of this
Agreement.
16
8.6. Severability.
Any
provision of this Agreement or any Transaction Document executed pursuant hereto
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such portion or unenforceability
without invalidating the remaining provisions of this Agreement or such
Transaction Document or affecting the validity or enforceability of such
provisions in any other jurisdiction.
8.7. Cross-References.
References in this Agreement or in any other Transaction Document executed
pursuant hereto to any Section are, unless otherwise specified, to such Section
of this Agreement or such Transaction Document, as the case may be.
8.8. Headings.
The
various headings of this Agreement and
of
any
other Transaction Document executed pursuant hereto are inserted for convenience
only and shall not affect the meaning or interpretation of this Agreement or
such Transaction Document or any provisions hereof or thereof.
8.9. Governing
Law; Venue.
The
interpretation and construction of this Agreement, and all matters relating
hereto, shall be governed by the laws of the State of Delaware without giving
effect to the principles of conflicts of laws thereof. Each of the parties
hereto consents to the jurisdiction of the federal and state courts of the
State
of Texas in any such action or proceeding and waives any objection to venue
laid
therein.
8.10. Successors
and Assigns.
This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns, except that the
Company
may
not
assign
or transfer its rights hereunder without the prior written consent of
Lender.
8.11. Recitals.
The
recitals to this Agreement are incorporated into and constitute an integral
part
of this Agreement.
8.12. Multiple
Counterparts.
This
Agreement may be executed in one (1) or more counterparts, each of which shall
be deemed to be an original and all of which shall constitute one and the same
instrument.
8.13. Prior
Agreement Superceded.
This
Agreement supercedes in its entirety any prior oral agreements
by and
between
the
Company and
Lender,
with
respect to the Loan and related Transaction Documents.
8.14. Inspection
of Collateral and Records.
Lender
may at its option upon reasonable notice inspect the
collateral
and
records of the
Company,
at its premises.
8.15. Waiver
of Jury Trial.
THE
COMPANY AND
LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY
MAY
HAVE TO TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, AND ANY AGREEMENT EXECUTED
IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF ANY PARTY. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR LENDER
AGREEING TO THE TERMS OF THIS AGREEMENT.
17
8.16. Time
of the Essence.
Time is
of the essence as to each requirement under the Agreement.
8.17. Opportunity
to Hire Counsel; Role of Xxxxxxxxxxx & Xxxxxxxx Xxxxxxxxx Xxxxxx
LLP.
Lender
acknowledges that they have been advised and have been given an opportunity
to
hire counsel with respect to this Agreement and the transactions contemplated
hereby. Lender further acknowledges that the law firm of Xxxxxxxxxxx &
Xxxxxxxx Xxxxxxxxx Xxxxxx LLP has solely represented the Company in connection
with this Agreement and the transactions contemplated hereby and no other
person.
[SIGNATURE
PAGE TO FOLLOW]
18
IN
WITNESS WHEREOF,
the
parties hereto have caused this Agreement to be executed by their respective
officers thereunto duly authorized as of the day and year first above
written.
| THE COMPANY: | ||
| XXXX, INC. | ||
| By: /s/ Xxxxx Xxxxx Root | ||
| Name: Xxxxx Xxxxx Root | ||
| Title: Chief Executive Officer | ||
| LENDER: | ||
| CSI BUSINESS FINANCE, INC. | ||
| By: /s/ Xxxxxxx X. Xxxxxxxx | ||
| Name: Xxxxxxx X. Xxxxxxxx | ||
| Title: Chief Executive Officer |
19
EXHIBIT
A
[FORM
OF NOTE]
20
EXHIBIT
B
[DISBURSEMENT
INSTRUCTIONS]
21
DISCLOSURE
SCHEDULE
Item
3.3:
On
December 1, 2004, the Company closed on a transaction with Laurus Master Fund
Ltd. (“Laurus”)
in
which the Company borrowed $600,000 from Laurus pursuant to a Convertible Term
Note (“Term
Note”)
for
$600,000 and the Company issued a seven (7) year warrant to purchase 2,666,667
shares of Common Stock at an exercise price of $0.09 per share. The Term Note
is
due in three (3) years, bears interest at thirteen percent (13%), with the
interest being payable monthly; and principal payments are amortized over the
term of the loan with the first payment due February 1, 2005; and the payments
of principal and interest may be paid using shares of Common Stock at a price
of
$0.073, subject to adjustment, if certain conditions are met.
The
Term
Note is secured by (a) a personal guaranty of Xxxxx Xxxxx Root; (b) a pledge
by
Mr. Root of all of his shares of the Company; (c) an assignment of all of the
funds which are released from certain credit card security accounts; and (d)
a
master security agreement covering all of the assets of the
Company.
The
loan
and sale of the warrant were made pursuant to a Securities Purchase Agreement
with Laurus. Laurus has no relationship with the Company or any of its
affiliates other than the fact that Laurus entered into a somewhat similar
transaction with the Company in 2002, and the Company still owed to Laurus
approximately $119,000 as of November 30, 2004 on the original loan transaction.
The Company paid to Laurus Capital Management, LLC, the manager of Laurus,
a fee
of $21,000 plus $10,000 for its expenses. The funds from this loan are being
used for general working capital purposes.
The
Securities Purchase Agreement required that the Company file a registration
statement with the SEC registering the shares to be issued as payments on the
Term Note and the shares issuable upon exercise of the warrant (collectively,
the “Securities”).
As of
March 25, 2005, the Company has an effective Registration Statement on Form
SB-2
which covers the Securities.
The
Company filed a Current Report on Form 8-K with the U.S. Securities and Exchange
Commission on December 2, 2004 disclosing this transaction and copies of the
Securities Purchase Agreement and the Term Note are attached as Exhibits 10.27
and 10.28 thereto.
Item
3.4:
In
September 2002 the Company entered into an unsecured short term facility (the
“New
Market Note”)
with
Newmarket plc (“Newmarket”),
a
company organized under the laws of the United Kingdom. Pursuant to the New
Market Note, Newmarket loaned to the Company $250,000. The Company has paid
to
Newmarket approximately $100,000 leaving a balance equal to $150,000 plus
approximately $18,000 in accrued interest as of the date of this Agreement.
The
New Market Note has matured. The Company never received any demand or notice
of
default from Newmarket, and the Company has, since the date of maturity on
the
New Market Note, made several attempts to contact Newmarket to resolve the
debt
to no avail. The Company has no evidence of the New Market Note other than
email
confirmations, which such confirmations are over two (2) years old. Furthermore,
the principals of Newmarket were, at the time of the New Market Note, Board
members of the Company and thus the New Market Note has been shown as a related
party debt.
22
