COLLATERAL LOAN AGREEMENT
AND PROMISSORY NOTE
This Collateral Loan Agreement and Promissory Note [the "Agreement"] is entered
into between Mercatus & Partners Ltd. [the "Lender"], a United Kingdom
corporation, and MicroSignal Corporation [the "Borrower"], a Nevada corporation
with a principal address at 000 Xxxxxxxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxxxxx, XX
00000, as of the date last entered below.
In consideration of the mutual covenants herein contained, and intending to be
legally bound hereby, the parties agree as follows:
1. Loan
a. Amount. Subject to the terms and conditions hereinafter set forth, the Lender
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agrees to provide to Borrower a loan in the amount of Xxx Xxxxxxx Xxxx Xxxxxxx
Xxxxxxxx Xxxxxx Xxxxxx Dollars [US$1,500,000.00]. Lender will pay the Loan
Amount to Borrower not sooner than five [5] days and not more than ten [10] days
after Borrower shall have delivered the Collateral Stock to the European
custodial account and all other documents required by this Agreement to Lender.
b. Proceeds. All Loan Amounts payable to Borrower shall be wired directly to
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Borrower based on wire instructions provided by Borrower, without deduction for
any charges, expenses or commissions, except for (1) two months' principal and
interest pre-payment to the Lender, (2) a three percent [3%] engagement service
fee [the "Engagement Service Fee"] payable to the Lender, and (3)
Borrower-designated consultant fee(s) [as per Exhibit III]. Net Loan proceeds
shall be available to the Borrower as per paragraph 1.a. above.
c. Borrower Remedy. In the event the Lender does not wire to the Borrower the
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Loan Amount, the Borrower's sole and exclusive remedy shall be to demand, in
hard copy written form, an immediate return of the Stock and the Promissory
Notes. Lender shall comply within five [5] business days of receipt of said
demand. In the event Lender does not comply in accordance with the time frame
set forth above, or any extended time frame granted by Borrower, this Section
1.c. will be deemed null and void and Borrower will be free to seek alternative
remedies.
d. Term. The Term of the Loan will be five [5] years.
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e. Interest Rate. The fixed interest rate on the Loan will be five and one-half
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percent [5.5%] per annum for the Term of the Loan.
f. Payments. Borrower promises to pay to Lender in accordance with Exhibit I, or
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at such place as Lender may from time to time designate in writing, the
principal sum of Xxx Xxxxxxx Xxxx Xxxxxxx Xxxxxxxx Xxxxxx Xxxxxx Dollars
[US$1,500,000.00] [the "Principal Amount"] and interest as calculated in
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accordance with 1.e. above, until this loan is paid in full. Said payments shall
be made monthly by wire transfer. During the first twelve months of the Term,
the Borrower [at their discretion] may make interest-only payments. During the
remainder of the Term, the Borrower must make amortized principal and interest
payments. All payments shall be made in lawful money of the United States and
shall be free from set off, deduction, or counterclaim of any kind. Borrower may
prepay this Loan in whole or in part without premium or penalty [other than the
early termination service charge]. Unless Lender shall elect otherwise, any
partial pre-payment shall be credited first to accrued interest and then to the
Principal Amount outstanding and shall not extend or postpone the due date of
any subsequent payment or change the amount of such payment.
g. Late Payments. The Lender shall have the right to charge a fee on late
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scheduled payments. Payments shall be deemed late if the payment is not paid on
the due date as stated in the payment schedule which shall be issued by the
Lender upon closing and every six months thereafter. The interest charge on late
payments will be calculated at a rate of eight percent [8%] per annum until said
late payment plus accrued late interest is paid. This charge shall be invoiced
separately. If the Borrower fails to make a scheduled payment or separately
invoiced late interest payment within forty-five days of the due date, it will
be deemed as a default under the Agreement [see 1.i. below].
h. Security. This Loan is secured by a security interest in Stock of Borrower or
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the issuance of Stock of Borrower in the name of the Lender and delivered to the
custodial locations specified in Exhibit I. The Stock pledged under this
Agreement shall be held as collateral as long as there is any principal or
interest outstanding under the terms of this Agreement. Upon satisfaction of all
principal and interest under the terms of the Agreement, the Lender shall cause
the stock to be promptly returned to the Borrower. The Stock shall constitute
the entire collateral used to secure the Loan, and the Lender shall be limited
to liquidation of the Stock upon an Event of Default [as per 1.i. below]. The
Lender shall have no recourse to other assets of the Borrower [i.e., this Loan
is "non-recourse" as to any other assets of the Borrower]. The Lender hereby
warrants that upon satisfaction of the terms of this Agreement, the Stock will
be expeditiously returned to the Borrower without liens or encumbrances.
i. Default. The Lender shall give written notice of any default on the Loan to
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the Borrower in accordance herewith and Borrower may thereafter have five
business days [the "Cure Period"] to cure such default. In the event Borrower
fails to cure such default within the Cure Period, Lender may then sell, assign,
hypothecate, or otherwise dispose of the Stock as herein provided. The Lender
accepts no responsibility for the amount of proceeds obtained through the
disposition of the Stock under any lawful means. However, proceeds obtained in
excess of the total of the default amount plus reasonable attorney's fees, if
any, and costs of disposing of the Stock shall be returned to the Borrower.
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2. Delivery of Collateral
a. To secure its obligations under the Loan, Borrower hereby grants Lender a
security interest in the Stock, or shall issue Stock in the name of the Lender.
The Stock will serve to collateralize the Loan and will contain restrictions on
assignment and transfer. In connection with such restrictions, newly issued
Stock will contain the following legend:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
transferred, pledged, hypothecated or otherwise disposed of in the absence
of (i) an effective registration statement for such securities under said
Act or (ii) an opinion of company counsel that such registration is not
required."
b. Upon Borrower's execution of this Agreement, Borrower shall assign the
Collateral Stock to Lender and deliver the Stock in physical certificate form to
the address as designated by the Lender in Exhibit I of the Agreement for
placement in the Lender's Custodial Account. Borrower further understands and
agrees that the initial custodial transfer is transitional only and that the
final custodial location is in the Exhibit I specified European account. The
Stock shall be free and clear from all liens and encumbrances at the time it is
assigned, and shall not be subject to other restrictions or limitations, [i.e.,
shareholder rights, etc.] other than the restrictions related to its possible
status as restricted stock and any other restrictions imposed by this Agreement.
c. The Stock Schedule sheet [Exhibit II] will specify the Stock to be used as
collateral against the issuance of the Loan, under applicable United States
securities law.
d. At the time of execution of this agreement, the Lender will execute a proxy
in the form annexed hereto as Exhibit IV.
3. Closing
The closing shall take place on the later of the delivery of the executed
Agreement or the Collateral Stock to the Lender.
4. Security of Collateral
The Lender accepts full responsibility for the control, handling and return of
Stock to the Borrower. Accordingly, the Lender hereby warrants the following:
(i) the Stock will not be hypothecated, assigned, transferred, or otherwise
encumbered (other than as specified in this Agreement); (ii) the Stock will not
be used to short sell the Stock while the Stock is on deposit with the Lender;
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(iii) the Stock shall remain on deposit with the Lender for the entire period of
the Loan; and (iv) the Stock will not be used in any manner that is not
prescribed, other than as provided for in this Agreement.
5. Use of the Stock
The Lender shall use the Stock to arrange for a credit facility. In establishing
this credit facility, the Lender will use the Stock as collateral but will not
remove the Stock from the European Custodial Account specified in Exhibit I, nor
will the Lender allow a change in control of the Stock.
6. Representations and Warranties of the Borrower
In order to induce the Lender to provide the Loan, Borrower makes the following
representations and warranties to the Lender. Such representations and
warranties shall be unaffected by any separate inquiries, credit and/or security
investigation made by the Lender prior to or after execution of this Agreement
and shall survive the closing of the transactions contemplated hereby. Any
material misrepresentation shall be grounds for immediate termination at the
sole discretion of the Lender:
a. Borrower has all requisite power and authority to enter into this Agreement
and to carry out the transactions contemplated hereby [Borrower Board of
Directors minutes explicitly authorizing the transactions and execution by the
signatory below is attached].
b. Borrower warrants and represents that it is not now insolvent, bankrupt, or
contemplating bankruptcy, that there are no legal claims filed or to its
knowledge threatened against Borrower, whether judged with or without merit by
the Borrower, and that there are no other impediments to the sale or transfer of
the Stock.
c. The execution and delivery of this Agreement and the Collateral to be
assigned and delivered by the Borrower are not subject to recall, restriction on
voting, use, or other limitations.
d. This Agreement, when executed and delivered, will constitute a valid binding
agreement, enforceable in accordance with the terms, except such as may be
limited by bankruptcy, insolvency, reorganization, or other laws affecting
creditors' rights generally.
e. Neither the execution and delivery of this Agreement to be executed and
delivered by Borrower pursuant hereto, nor the consummation by Borrower of the
transaction contemplated hereby, will require any authorization, consent,
approval, exemption or any other action by, or notice to, any governmental
entity.
f. Borrower does not have material tax deficiencies, federal, state, foreign,
county, local, or other, that would or could affect the solvency, final status
of, or otherwise compromise Borrower in its ability to assign the Collateral
Stock.
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g. To the best of Borrower's knowledge, the information supplied by Borrower to
Lender contains no untrue statement of material fact or omits or shall omit a
material fact, which would make such statements misleading. All statements and
information contained in any certificate, instrument, schedule or document
delivered by Borrower shall be deemed representations and warranties made by
borrower.
h. Except for such filings as may be imposed on Lender by Section 13(d) of the
Securities Exchange Act of 1934, Borrower shall bear the responsibility for
complying with all U.S. Securities and Exchange Commission ["SEC"] rules and
regulations and for making all appropriate disclosures to the SEC and other
regulatory bodies in the United States, related to the issuance of the
Collateral Stock [where applicable] and hereby warrants to the Lender that the
Borrower has done so and will continue to do so. Borrower indemnifies Lender
against any penalties, fees, fines, or lawsuits that may arise from Borrower's
failure to so comply and/or make proper regulatory disclosures.
i. In the event of an uncured default on the Loan, as described in Paragraph
1.i. of this Agreement, Lender will have the immediate right to sell the Shares.
Consequently, the Borrower expressly warrants that it shall, at the end of the
Cure Period [if the Cure is not effected], prepare and file, as soon as
practicable, a Registration Statement on the appropriate SEC form covering the
Stock and shall use its reasonably diligent efforts to effect the registration
of the Stock under the Securities Act of 1933, as amended. Should the Borrower
not comply, the Borrower shall pay all reasonable costs associated with any
collection actions or any other legal remedies taken by Lender to collect on the
amount due or any portion hereof due, said costs to include attorneys' fees.
j. Within 90 days of the closing date, the Borrower shall obtain Key Man life
insurance, naming the Lender as beneficiary, and shall cause the insurer to
notify Lender of same, with the amount(s) of the insurance matching the
principal balance of the loan [i.e., amount may decrease as principal balance
decreases]. If the proceeds of the policy are paid while any part of the
principal or interest on the Loan remains unpaid, a portion of the proceeds, up
to the whole thereof, will be used to repay the unpaid principal and interest
due on the Loan, unless otherwise agreed to in writing by the Lender.
k. Within 90 days of the closing date, and upon Lender's notification of intent,
the Borrower agrees, in good faith, to enter into negotiations with the Lender
in order for the Lender to establish a warrant or option position in the
Borrower's common stock.
7. Conditions Precedent to Lender's Obligations
The obligation of the Lender to consummate the transactions contemplated herein
is subject to the satisfaction of the following conditions [any one or more of
which may be waived by the Lender]:
a. Borrower will have performed all obligations and complied with all conditions
required to be performed or complied with by Borrower at or prior to the
Closing.
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b. The representation and warranties of Borrower made herein shall be true and
correct as of the Closing.
If any of the conditions contained in this paragraph have not been satisfied [or
waived], Lender may cancel and terminate this Agreement.
8. Amendment and Waiver
This Agreement may be amended, or the terms hereof waived, only in writing and
having been executed by all of the parties to this Agreement.
9. Notices
All notices and other communications hereunder shall be delivered in writing and
shall be deemed to have been given if delivered by hand [with receipt] or
facsimile transmission [with transmission confirmation report], or if deposited
with a recognized overnight delivery service [with receipt], addressed as
follows:
If to Borrower at: MicroSignal Corporation
000 Xxxxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
FAX: 000-000-0000
If to the Lender at: Mercatus & Partners Ltd.
20122 Milano
Xxx Xxx Xxxx, 00, Xxxxx
FAX: 000 00 00 00 00 0000
Or, at such other address as may hereafter be designated by either party by
written notice given hereunder. Notices sent by facsimile transmission must show
the sender's date and time of transmission information on such copy.
10. Termination
The Lender shall reserve the right to terminate at any time if the Borrower is
in violation of this Agreement. The Borrower shall have the right to terminate
this Agreement early, provided that the loan has been retired [i.e., payment of
the principal and all accrued interest]; however, the Borrower must pay a
service fee of one-half of one percent of the loan principal balance and must
provide 30 days written notice of such intent to terminate.
11. Governing Law and Sites for Litigation
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This Agreement shall be governed by the laws of the United Kingdom without
regard to any provisions or conflict of law. The parties agree that any
differences shall be filed and adjudicated in this Governing Country.
12. Binding Effect
This Agreement binds, and shall inure to the benefit of, the parties and their
respective successor and assigns.
13. Counterparts, Facsimile and Signatures.
This Agreement may be signed in any number of counterparts, and such shall be
deemed an original together as one and the same document. The parties agree that
facsimile signatures which copy shall show the sender's date and time of
transmission shall be deemed an original.
14. Entire Agreement
This base Agreement and the associated Exhibits constitute the entire agreement
of the parties with respect to the subject matter hereto and supersede any prior
or contemporaneous understandings or agreements.
15. Time of Essence
Time is specifically declared to be of the essence in the performance by
Borrower and the Lender of their respective duties and responsibilities under
this Agreement.
16. Confidentiality
Whereas the Lender has developed a number of important and sensitive business
contacts and affiliations, such contacts/affiliates are limited to the Lender
and/or its designees. Any contact by any party representing the Borrower with
the Lender contacts/affiliates, either directly or indirectly, without specific,
written, prior permission of the Lender shall be viewed as violation of this
Agreement and render this Agreement subject to immediate termination. In
addition, the nature of this transaction is designated as sensitive information
by the Lender. If the Borrower discloses the details of this transaction without
specific, written, prior permission of the Lender, said disclosure shall be
viewed as a violation of this Agreement and render this Agreement subject to
immediate termination by the Lender. Prior to declaring this Agreement
terminated pursuant to this Section 16, Lender must supply Borrower with written
notice thereof including a reasonable basis for the assertion being made. The
sole exception is the required Securities and Exchange Commission filing by
Borrower, after the Closing, of a Current Report on Form 8-K describing the
transaction and containing [if required] a copy of this Agreement.
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IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties have
executed this Agreement as of the day and year last below written.
ACCEPTED ON BEHALF OF THE LENDER:
By: /s/ Xxxx Xxxx
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Xxxx Xxxx
Title: Chief Executive Officer
Date:
ACCEPTED ON BEHALF OF BORROWER:
By: /s/ Xxxxxxx X. XxXxxxxxx
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Xxxxxxx X. XxXxxxxxx
Title: President & Chief Executive Officer
Date: January 23, 2003
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Borrower's Minimum Payment Schedule
Pre-payment: $75,677.08 Deducted from proceeds
Engagement Fee: $45,000.00 Deducted from proceeds
Consultant Fee: $75,000.00* Deducted from proceeds
Year One: $ 6,588.54 Monthly
Years Two through Five: $31,250.00 plus Interest Monthly
* Possible Maximum
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EXHIBIT II
Collateral Stock Schedule
Trading Class of Price Basis Number of
Symbol Stock Basis Date Shares Required
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MSGL Restricted Common $0.15 01/23/03 50,000,000
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EXHIBIT III
Fee Disclosure and Payment Authorization
The Borrower herein provides full disclosure of any written or verbal agreements
to pay any individual or firm [collectively termed "Consultant(s)"] any amount,
in any form, for any services rendered by the Consultant(s) in facilitating this
Loan. In combination, said Consultant(s) compensation may not exceed five
percent [5%] of the amount of the Loan. Agreements in excess of that percentage
must be re-negotiated to meet this constraint, as amounts above that constraint
are viewed as an unacceptable dilution of the Loan Proceeds application. We
warrant that only that/those Consultant(s) listed below are receiving or will
receive any such compensation.
Consultant(s) Name Tax Identification Number Compensation Percentage
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Xxxxx Xxxxxxx on file 5%
The Consultant(s) bank wire instructions are attached.
Payment Authorization: The Borrower hereby agrees to pay the Consultant(s)
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identified above a one-time fee ["Fee"] and expressly authorizes Mercatus &
Partners Ltd. to deduct said Fee from the Loan Amount at closing and to pay said
Fee directly to the Consultant(s).
ON BEHALF OF BORROWER:
By: /s/ Xxxxxxx X. XxXxxxxxx
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Xxxxxxx X. XxXxxxxxx
Title: President & Chief Executive Officer
Date: January 23, 2003
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EXHIBIT IV
IRREVOCABLE PROXY
The undersigned hereby constitutes and appoints Xxxxxxx X. XxXxxxxxx as
proxy, with full power of substitution, to vote all shares of capital stock of
MicroSignal Corporation, a Pennsylvania corporation [the "Company"], owned by
the undersigned as of the date hereof and any additional shares of capital stock
of the Company which the undersigned shall receive after the date hereof, at any
special or annual meeting of shareholders of the Company, and at any adjournment
thereof, and at any time permitted or required by law, rule or regulation, and
to execute any written consent in lieu thereof. This proxy is being issued
pursuant to that certain Collateral Loan Agreement and Promissory Note dated the
date hereof.
This proxy shall be deemed to be coupled with an interest and shall be
irrevocable by the undersigned. This proxy shall continue in full force and
effect until February 15, 2008 or the date of Borrower default, whichever is
earlier.
IN WITNESS WHEREOF, the undersigned has executed this Irrevocable Proxy
this 7th day of February, 2003
MERCATUS & PARTNERS LTD.
By: /s/ Xxxx Xxxx
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Name: Xxxx Xxxx
Title: Chief Executive Officer
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