AMENDMENT NO. 2
TO
LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 2 to Loan and Security Agreement dated and effective as of
the 12th day of November 1998 (the "Amendment No. 2") by and between Compu-XXXX,
Inc., a Delaware Corporation ("Lender") and LocalNet Communications, Inc., a
Florida corporation ("Borrower").
RECITALS
WHEREAS, Lender and Borrower entered into a Loan and Security Agreement
dated October 6, 1998 (the "Loan and Security Agreement") pursuant to which
Lender agreed to loan up to $500,000 to Borrower.
WHEREAS, Lender and Borrower entered into Amendment No. 1 to the Loan and
Security Agreement dated October 23, 1998 ("Amendment No. 1") pursuant to which,
among other things, Lender agreed to loan Borrower up to a further $500,000 for
an aggregate loan of up to $1,000,000.
WHEREAS, Borrower desires to borrow from Lender and Lender desires to loan
to Borrower an additional amount of up to $800,000, or an aggregate loan of up
to $1,800,000 in principal, of which $1,000,000 of such aggregate amount may be
convertible into securities of the Borrower upon terms and conditions set forth
herein.
WHEREAS, Lender and Borrower desire to amend the Loan and Security
Agreement as amended by Amendment No. 1 upon the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the respective representations,
warranties, agreements and covenants in this Amendment, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and subject to the conditions contained in this Amendment, the
parties intending to be legally bound, hereby agree as follows:
SECTION 1
DEFINITIONS
1. Capitalized terms used but not defined herein, shall have been meaning
ascribed to them in the Loan and Security Agreement. The term "Security and Loan
Agreement" herein shall include Amendment No. 1, unless the context requires
otherwise.
1
SECTION 2
SECTION AMENDMENTS
2.1 Section 1.1(o) of the Loan and Security Agreement is amended in its
entirety to read as follows: " "Notes" shall mean (A) The $500,000 Secured
Promissory Note dated October 6, 1998 executed by Borrower pursuant to the terms
of the Loan and Security Agreement, (B) the $500,000 Secured Promissory Note
dated October 23, 1998 (the "Second Note") executed by Borrower pursuant to the
terms of the Loan and Security Agreement as amended by Amendment No. 1, and (C)
the $800,000 Secured Promissory Note of even date (the "Third Note") executed by
Borrower pursuant to the terms of the Loan and Security Agreement as amended
hereby, collectively and singly.
2.2 The amount provided for in Section 2.1 of the Loan and Security
Agreement is amended to read One Million Eight Hundred Thousand Dollars
($1,800,000) and the defined term "Amount" shall mean such $1,800,000.
SECTION 3
ADDITIONAL CONDITIONS TO ADVANCES
3.1 In addition to the conditions set forth in Sections 2.6 and 2.7 of the
Loan and Security Agreement and Section 3 of Amendment No. 1, Lender's
obligation to make each Advance on or after the date hereof is conditioned upon,
and is subject to, the fulfillment of each of the following conditions. Lender
shall have received each of the following, in form and substance satisfactory to
Lender:
(a) The duly executed copy of the Third Note.
(b) An amendment to the Boca Research, Inc. ("Boca") Subordination
Agreement pursuant to which Boca agrees to subordinate any security
interest it may have in the Collateral to Compu-DAWN's security interest in
such Collateral to the extent of the principal amount of at least
$1,800,000 (plus any amount which Lender is required to pay to Boca
pursuant to a guaranty under a Tripartite Agreement between Lender,
Borrower and Boca dated October 28, 1998) plus interest accrued thereon
plus any costs incurred by the Lender in the collection of such amounts.
(c) Certified copy of all corporate (including stockholder, if
required), action taken by Borrower to authorize (a) this Amendment No. 2
(b) the Borrowings pursuant to this Amendment No. 2 and (c) the execution,
delivery and performance by Borrower in accordance with the respective
terms of this Amendment No. 2 and any other document executed in connection
with this Amendment No. 2.
2
SECTION 4
CONVERSION OF NOTES
4.1 Conversion at the Option of the Holder. The Borrower or holder of the
Note(s) (for the purposes of Sections 4,5 and 6 hereof each the "Holder") may,
at any time and from time to time on or after the date hereof, convert (a
"Conversion") up to $1,000,000 of the principal amount of the Note(s) to the
extent unpaid at the time of conversion (the "Conversion Principal Amount") into
a number of fully paid and nonassessable shares of Common Stock equal to forty
percent (40%) of the Borrower's capital stock on a fully diluted basis if the
entire Conversion Principal Amount is converted, or a pro rata amount of such
number of shares of Common Stock if less than the entire Conversion Principal
Amount is converted, and the Conversion Price shall be fixed accordingly to
effectuate the foregoing.
4.2 Mechanics of Conversion. In order to effect Conversion, the Holder
shall: (x) fax (or otherwise deliver) a copy of a fully executed notice of
conversion in, or substantially in, the form attached hereto as Exhibit 4.2 (the
"Notice of Conversion") to the Borrower and (y) surrender to the Borrower
therewith or as soon as practicable thereafter the Note(s) or a notice that the
Note(s) has been lost, stolen or destroyed. The Borrower shall not be obligated
to issue shares of Common Stock upon a conversion unless either the Note(s) is
delivered to Borrower as provided above, or the Holder notifies the Borrower
that such Note(s) has been lost, stolen or destroyed.
4.3 Delivery of Common Stock Upon Conversion. Upon the surrender of the
Note(s) accompanying or following the delivery of a Notice of Conversion and
provided that the Holder has complied with the provisions of Section 4.2(x)
hereof, the Borrower shall, issue and deliver to the Holder (x) stock
certificates representing that number of shares of Common Stock issuable upon
conversion of the Conversion Principal Amount being converted and (y) a new Note
representing the portion of the Conversion Principal Amount not being converted,
if any.
4.4 Taxes. The Borrower shall pay any and all taxes which may be imposed
upon it with respect to the issuance and delivery of the shares of Common Stock
upon the conversion of the Conversion Principal Amount.
4.5 No Fractional Shares. If any conversion of Conversion Principal Amount
would result in the issuance of a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon conversion of the Conversion Principal Amount shall be the next
higher whole number of shares if such fractional share is one-half of a share or
more and the next lower whole number of shares if such fractional share is less
than one-half of a share.
3
SECTION 5
RESERVATION OF SHARES OF COMMON STOCK
5.1 The Borrower shall reserve the number of shares of the authorized but
unissued shares of Common Stock for issuance upon conversion of the entire
Conversion Principal Amount and thereafter the number of authorized but unissued
shares of Common Stock so reserved (the "Reserved Amount") shall not be
decreased, except upon issuances of Common Stock pursuant to conversions
hereunder, and shall at all times be sufficient to provide for the conversion of
the Conversion Principal Amount at the then current Conversion Price.
SECTION 6
ADJUSTMENTS TO THE CONVERSION PRICE.
6.1 The Conversion Price shall be subject to adjustment from time to time
as follows:
(a) Stock Splits, Stock Dividends, Etc. If at any time on or after the
date hereof, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, combination,
reclassification or other similar event, the Conversion Price shall be
proportionately reduced, or if the number of outstanding shares of
Common Stock is decreased by a reverse stock split, combination or
reclassification of shares, or other similar event, the Conversion
Price shall be proportionately increased.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the date hereof, there shall be (i) any reclassification or change of
the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), (ii) any
consolidation or merger of the Borrower with any other entity (other
than a merger in which the Borrower is the surviving or continuing
entity and its capital stock is unchanged), (iii) any sale or transfer
of all or substantially all of the assets of the Borrower, or (iv) any
share exchange pursuant to which all of the outstanding shares of
Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "Corporate Change"), then the Holder shall
thereafter have the right to receive upon conversion, in lieu of the
shares of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable
in such Corporate Change with respect to or in exchange for the number
of shares of Common Stock which would have been issuable upon
conversion had such Corporate Change not taken place, and in any such
case, appropriate provisions shall be made with respect to the rights
and interests of the Holder to the end that the provisions hereof
shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock or securities thereafter
4
deliverable upon the conversion of the Note(s).
(c) Adjustment Due to Distribution. If, at any time after the date hereof,
the Borrower shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise
(including any dividend or distribution to the Borrower's stockholders
in cash or shares (or rights to acquire shares) of capital stock of a
subsidiary (i.e. a spin-off)) (a "Distribution"), then the Holder
shall be entitled, upon any conversion of the Conversion Principal
Amount after the date of record for determining stockholders entitled
to such Distribution, to receive the amount of such assets which would
have been payable to the Holder with respect to the shares of Common
Stock issuable upon such conversion had such Holder been the Holder of
such shares of Common Stock on the record date for the determination
of stockholders entitled to such Distribution.
(d) Purchase Rights. If, at any time after the date hereof, the Borrower
issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro
rata to the record holders of any class of Common Stock, then the
Holder will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could
have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete conversion of the Conversion Principal
Amount immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are
to be determined for the grant, issue or sale of such Purchase Rights.
(e) Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 6, the
Borrower, at the Borrower's expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to the Holder a
certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is
based. The Borrower shall, upon the written request at any time of the
Holder, furnish to the Holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time
in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time
would be received upon conversion of the Conversion Principal Amount.
5
SECTION 7
RIGHT TO MAINTAIN PERCENTAGE INTEREST
7.1 Subject to the terms and conditions specified in this Section 7.1, the
Borrower hereby grants to the Holder a right to maintain the Holder's percentage
ownership interest in the Borrower with respect to future sales by the Borrower
of its New Securities (as hereinafter defined).
Each time the Borrower proposes to offer any New Securities (subject to the
terms and provisions of the Loan and Security Agreement), the Borrower shall
concurrently make an offering of additional shares of such New Securities to the
Holder in accordance with the following provisions:
(a) The Borrower shall deliver a notice ("Notice") to the Holder stating
(i) its bona fide intention to offer or issue such New Securities,
(ii) the number of such New Securities to be offered, (iii) the price,
if any, for which it proposes to offer such New Securities, (iv) if
known, the names and addresses of the proposed offerees, (v) the
additional number of such New Securities that are concurrently being
offered to the Holder, which shall be the number of such New
Securities required for the Holder to maintain its fully-diluted
percentage equity interest in the Borrower (the "Offered Securities"),
and (vi) the date (not less than 10 days from the date of the Notice)
by which the Borrower requests that the Holder acknowledges the Notice
or notify the Borrower that the Notice fails to comply with the
requirements of this Section 7.1(the "Notice Acknowledgment Date").
(b) Within 20 calendar days after the Holder acknowledges to the Borrower
in writing that the Notice complies with the requirements of this
Section 7.1, the Holder may elect to purchase or obtain, at the price
and on the terms specified in the Notice, up to that portion of the
Offered Securities which equals the proportion that the number of
shares of Common Stock Deemed Outstanding (as hereinafter defined)
then held by the Holder bears to the total number of shares of Common
Stock Deemed Outstanding. On or before the Notice Acknowledgment Date,
the Holder shall either deliver such acknowledgment to the Borrower or
notify the Borrower that the Notice fails to comply with the
requirements of this Section 7.1.
(c) For purposes hereof, the term "New Securities" shall mean any shares
of capital stock of the Borrower, or securities (including, without
limitation, options or warrants) convertible into or exchangeable or
exercisable for, any class or series of the Borrower's capital stock.
(d) For the purposes hereof the term "Common Stock Deemed Outstanding"
shall mean the sum of the number of shares of Common Stock then
6
outstanding plus the number of shares of Common Stock then obtainable
pursuant to (i) any options or warrants or purchase rights to purchase
shares of Common Stock, (ii) rights to subscribe for shares of Common
Stock, (iii) securities by their terms convertible into or
exchangeable for shares of Common Stock, and (iv) options or warrants
to purchase or rights to subscribe for such convertible or
exchangeable securities;
SECTION 8
EXPENSES
The Borrower shall pay $10,000 to Lender to cover the Lender's, costs,
expenses and disbursements (including, without limitation, Lender's legal fees)
incurred in connection with this transaction. Such amount may be deducted by
Lender from the amounts to be loaned under this Amendment No. 2.
SECTION 9
FULL FORCE AND EFFECT
9.1 All the other terms and provisions of the Loan and Security Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, Borrower and Lender have executed this Amendment No. 2
by the duly authorized officers as of the date first above written.
LENDER:
ATTEST: Compu-XXXX, Inc.
_____________________________ By:/s/ Xxxx Xxxxxxxxxx
----------------------------------------
Xxxx Xxxxxxxxxx
Chief Executive Officer
BORROWER:
ATTEST: LocalNet Communications, Inc.
_____________________________ By:/s/ Xxxx X. Theale, Jr.
----------------------------------------
Xxxx X. Theale, Jr.
Chief Executive Officer
7
Exhibit 4.2
NOTE CONVERSION FORM
The undersigned hereby elects to convert $______________ of Conversion
Principal Amount of the LocalNet Communications, Inc. (the "Borrower") 12%
Secured Promissory Note to Compu-XXXX, Inc. dated _________________ into
________ shares of Common Stock of the Borrower (the "Shares"), at a Conversion
Price of $_____________ per share.
The undersigned represents and warrants that the Shares purchased by it are
being acquired for its own account, for investment purposes and not with a view
to any distribution within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"). The undersigned will not sell, assign, mortgage, pledge,
hypothecate, transfer or otherwise dispose of any of the Shares unless (i) a
registration statement under the Securities Act with respect thereto is in
effect and the prospectus included therein meets the requirements of Section 10
of the Securities Act, or (ii) the Borrower has received a written opinion of
his counsel that, after an investigation of the relevant facts, such counsel is
of the opinion that such proposed sale, assignment, mortgage, pledge,
hypothecation, transfer or disposition does not require registration under the
Securities Act or any state securities law.
The undersigned understands that the issuance of the Shares is not being
registered under the Securities Act and the Shares must be held indefinitely
unless they are subsequently registered thereunder or an exemption from such
registration is available.
The undersigned represents and warrants further that (i) it is either an
"accredited investor," as such term is defined in Rule 501(a) promulgated under
the Securities Act, or, either alone or with its purchaser representative, has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the acquisition of the Shares;
(ii) it is able to bear the economic risks of an investment in the Shares,
including, without limitation, the risk of the loss of part or all of its
investment and the inability to sell or transfer the Shares for an indefinite
period of time; (iii) it has adequate financial means of providing for current
needs and contingencies and has no need for liquidity in his investment in the
Shares; and (iv) it does not have an overall commitment to investments which are
not readily marketable that is excessive in proportion to net worth and an
investment in the Shares will not cause such overall commitment to become
excessive.
The undersigned acknowledges that the following restrictive legend will be
placed on any instrument, certificate or other document evidencing the Shares:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. These shares have
been acquired for investment and not for distribution. They may
not be sold, assigned, mortgaged, pledged, hypothecated,
transferred or otherwise disposed of without an effective
registration statement for such shares under the Securities Act
of 1933 or an opinion of counsel for the
8
Borrower that registration is not required under such Act."
Dated:________________
------------------------------
Name of Holder
------------------------------
Signature of authorized xxxxxx
------------------------------
Name of xxxxxx
-------------------------------
Title of xxxxxx
9
