Exhibit 10.2
LINE OF CREDIT AGREEMENT
This Line of Credit Agreement (the "Agreement") is made and entered
into this 11th day of May, 2006, by and between Dos Lagos, LLC, a Utah limited
liability company ("Lender") and Speaking Roses International, Inc., a Utah
corporation ("Borrower").
In consideration of the promises contained herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Line of Credit. Lender hereby establishes for a period extending to
December 31, 2006 (the "Maturity Date") a line of credit (the "Credit Line") for
and on behalf of Borrower equal to two million dollars ($2,000,000.00) (the
"Credit Limit"). In connection herewith, Borrower shall execute and deliver to
Lender a Promissory Note in the amount of the Credit Limit, substantially in the
form attached hereto as Exhibit "A." All sums advanced on the Credit Line or
pursuant to the terms of this Agreement (each an "Advance") shall become part of
the principal of the Promissory Note. Lender and Borrower hereby acknowledge and
agree that as of the date hereof, Lender has Advanced one million two hundred
eighty seven thousand eight hundred thirty two dollars and forty six
($1,287,832.46) to Borrower pursuant to the terms and conditions hereof. Lender
and Borrower further acknowledge that the amount of unpaid accrued interest
pursuant to the Advances totals $19,380.41 as of the date hereof.
2. Advances. Any request for an Advance shall be made by Borrower in
writing, setting forth the amount of such requested Advance, signed by a duly
authorized officer of Borrower, and delivered to Lender, and may be made from
time to time as Borrower may choose, provided, however, that no request for an
Advance shall be for an amount less than $25,000 nor greater than $300,000
during any calendar month and provided further that any requested Advance will
not, when added to the outstanding principal balance of and interest accrued, if
any, on all previous Advances, exceed the Credit Limit. Lender shall deliver to
Borrower or a depository account designated by Borrower, within five business
days following receipt of a request for an Advance by Borrower, the amount
requested as an Advance set forth in such request in immediately available
funds. Lender may refuse to make any requested Advance if an event of default
has occurred and is continuing hereunder either at the time the request is given
or the date the Advance is to be made, or if an event has occurred or condition
exists which, with the giving of notice or passing of time or both, would
constitute an event of default hereunder as of such dates.
3. Interest; Default Interest. All sums advanced by Lender to Borrower
pursuant to this Agreement shall bear interest from the date each Advance is
made until paid in full at an interest rate of ten percent (10%) per annum (the
"Interest Rate"). Notwithstanding the foregoing, upon the occurrence of an event
of default hereunder by Borrower, the principal amounts outstanding hereunder
shall bear an interest rate of fifteen percent (15%) per annum and commencing
from the date a respective Advance was made, and shall continue at such rate
until the event of default is cured.
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4. Repayment. Borrower may elect, but shall not be required, to pay
accrued interest on the outstanding principal balance on a monthly basis
commencing on the first day of the month immediately following the month in
which the first Advance hereunder is effected and continuing on the first day of
each month thereafter. The aggregate unpaid principal amount of Advances made
hereunder, together with any accrued interest and other unpaid charges or fees
hereunder, shall be due and payable on the Maturity Date. All payments shall be
made to Lender at such place as Lender may, from time to time, designate in
lawful money of the United States of America. Any payment not received by Lender
within ten (10) days after its scheduled due date shall be subject to a late
charge equal to five percent (5%) of the amount of the delinquent payment. Any
payment falling due on a Saturday, Sunday, or other day on which banks in the
State of Utah are authorized to be closed for the general transaction of
business, shall be due on the next succeeding day; provided, however, for
purposes of determining late charges or whether an event of default has
occurred, such payment shall be considered to have been due on its
regularly-scheduled payment date. All payments received hereunder shall be
applied, first, to any late charge; second, any costs or expenses incurred by
Lender in collecting such payment or to any other unpaid charges or expenses due
hereunder; third, to accrued interest; and fourth, to principal; provided,
however, upon occurrence of an event of default, Lender may change the priority
of the application of payments as it deems appropriate. Borrower may prepay
principal at any time without penalty.
5. Conditions Precedent. Lender shall not be required to make any
advance hereunder unless and until:
(a) All of the documents required by Lender, including the
Promissory Note, have been duly executed and delivered to Lender and shall be in
full force and effect;
(b) The representations and warranties contained in this Agreement
and the Promissory Note are then true with the same effect as though the
representations and warranties had been made at such time. The request for an
Advance by Borrower shall constitute a reaffirmation to Lender that all
representations and warranties made herein remain true and correct in all
material respects to the same extent as though given the time such request is
made, and that all conditions precedent listed in this Section 5 have been, and
continue to be, satisfied in all respects as of the date such request is made;
and
(c) No event of default hereunder has occurred and is continuing,
and no condition exists or event has occurred which, with the passing of time or
the giving of notice or both, would constitute an event of default hereunder.
6. Representations of Borrower. In order to induce Lender to enter into
this Agreement and to make the advances provided for herein, Borrower represents
and warrants to Lender as follows:
(a) Borrower is a corporation duly organized and validly existing
under the laws of the State of Utah with the power to own its assets and to
transact business in Utah, and in such other states where its business is
conducted;
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(b) Borrower has the authority and power to execute and deliver
any document required hereunder and to perform any condition or obligation
imposed under the terms of such documents;
(c) The execution, delivery and performance of this Agreement and
each document incident hereto will not violate any provision of any applicable
law, regulation, order, judgment, decree, articles of incorporation, by-law,
indenture, contract, agreement, or other undertaking to which Borrower is a
party, or which purports to be binding on Borrower or its assets; and
(d) There is no action, suit, investigation, or proceeding pending
or, to the knowledge of Borrower, threatened, against or affecting Borrower or
any of its assets which, if adversely determined, would have a material adverse
affect on the financial condition of Borrower or the operation of its business.
7. Affirmative Covenants. So long as any sum remains unpaid hereunder,
in whole or in part, Borrower covenants and agrees that except with the prior
written consent of Lender, which consent will not be unreasonably withheld,
conditioned or delayed, Borrower shall do the following:
(a) Borrower shall furnish to Lender such financial statements as
Lender may from time to time require, including but not limited to, annual and
quarterly financial statements. Such financial statements will be made available
to Lender as soon as possible after the end of the appropriate periods. Borrower
shall furnish such additional information regarding its business affairs and
financial condition as Lender may from time to time in good faith request;
(b) Borrower shall notify Lender of any default under the terms
hereof or of any litigation, proceeding, or development which may have a
material adverse effect on Borrower's ability to perform under the terms of this
Agreement;
(c) Borrower shall duly observe and conform to all valid
requirements of any governmental authority relative to the conduct of its
business, properties, or assets and will maintain and keep in full force and
effect its corporate existence and all licenses and permits necessary to the
proper conduct of its business; and
(d) Borrower shall (i) file all applicable federal, state, and
local tax returns or other statements required to be filed in connection with
its business, including those for income taxes, sales taxes, property taxes,
payroll taxes, payroll withholding amounts, FICA contributions, and similar
items; (ii) maintain appropriate reserves for the accrual of the same; and (iii)
pay when due all such taxes, or sums or assessments made in connection
therewith; provided, however, that (until foreclosure, sale, or similar
proceedings have been commenced) nothing herein will require Borrower to pay any
sum or assessment, the validity of which is being contested in good faith by
proceedings diligently pursued and as to which adequate reserves have been made.
8. Negative Covenants. So long as any amounts due hereunder remain
unpaid in whole or in part, Borrower covenants that except with the prior
written consent of Lender, which consent will not be unreasonably withheld,
conditioned or delayed, it will not enter into any transaction of merger or
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consolidation, or acquire the assets or business of a person or other entity, or
make any loans or advances to any person or other entity other than in the
normal and ordinary course of business now conducted; make any investment in
securities of any person or other entity; or guarantee or otherwise become
liable upon the obligations of any person or other entity, except by endorsement
of negotiable instruments for deposit or collection in the normal and ordinary
course of business.
9. Events of Default. An event of default will occur if any of the
following events occurs:
(a) Failure to pay any principal or interest hereunder within ten
(10) days following the Maturity Date;
(b) Any representation or warranty made by Borrower in Section 6
of this Agreement or in connection with any borrowing or request for an Advance
hereunder, or in any certificate, financial statement, or other statement
furnished by Borrower to Lender is untrue in any material respect at the time
when made;
(c) Default by Borrower in the observance or performance of any
other covenant or agreement contained in this Agreement, other than a default
constituting a separate and distinct event of default under this Section 9;
(d) Default by Borrower in the observance or performance of any
other covenant or agreement contained in any other document or agreement made
and given in connection with this Agreement, other than a default constituting a
separate and distinct event of default under this Section 9, and the continuance
of the same unremedied for a period of thirty (30) days after notice thereof is
given to Borrower;
(e) Any of the documents executed and delivered in connection
herewith for any reason ceases to be valid or in full force and effect or the
validity or enforceability of which is challenged or disputed by any signer
thereof, other than Lender;
(f) Borrower shall default in the payment of principal or interest
on any other obligation for borrowed money other than hereunder, including under
the Promissory Note, or defaults in the performance or observance of any
obligation or in any agreement relating thereto, if the effect of such default
is to cause or permit the holder or holders of such obligation to cause such
obligation to become due prior to the stated maturity;
(g) Filing by Borrower or any guarantor of a voluntary petition in
bankruptcy seeking reorganization, arrangement or readjustment of debts, or any
other relief under the Bankruptcy Code as amended or under any other insolvency
act or law, state or federal, now or hereafter existing;
(h) Filing of an involuntary petition against Borrower or any
guarantor in bankruptcy seeking reorganization, arrangement or readjustment of
debts, or any other relief under the Bankruptcy Code as amended, or under any
other insolvency act or law, state or federal, now or hereafter existing, and
the continuance thereof for sixty (60) days undismissed, unbonded, or
undischarged; or
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(i) All or any substantial part of the property of Borrower shall
be condemned, seized, or otherwise appropriated, or custody or control of such
property is assumed by any governmental agency or any court of competent
jurisdiction, and is retained for a period of thirty (30) days.
10. Remedies. Upon the occurrence of an event of default as defined
above (other than an event of default set forth in Sections 9(g), 9(h) or 9(i),
Lender shall notify Borrower of such event of default and Borrower shall have a
period of ten (10) days to correct and cure such matter or provide Lender other
assurance satisfactory to Lender. If Borrower shall have failed to correct or
cure such matter within ten (10) days following notice thereof from Lender,
Lender may declare the entire unpaid principal balance, together with accrued
interest thereon, to be immediately due and payable without presentment, demand,
protest, or other notice of any kind. Lender may suspend or terminate any
obligation it may have hereunder to make additional Advances. To the extent
permitted by law, Borrower waives any rights to presentment, demand, protest, or
notice of any kind in connection with this Agreement. No failure or delay on the
part of Lender in exercising any right, power, or privilege hereunder will
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege. The rights and remedies provided herein are
cumulative and not exclusive of any other rights or remedies provided at law or
in equity. Borrower agrees to pay all costs of collection incurred by reason of
the default, including court costs and reasonable attorney's fees, whether or
not the attorney is a salaried employee of Lender, including such expenses
incurred before or after any legal action or bankruptcy proceeding involving
Borrower has commenced, during the pendency of such proceedings, and continuing
to all such expenses in connection with any appeal to higher courts arising out
of matters associated herewith.
11. Issuance of Common Shares. In further consideration of the Advances
to be made to Borrower pursuant to this Agreement by Lender, Borrower hereby
agrees to issue to Lender, and does hereby issue, transfer and convey to Lender,
one million (1,000,000) common shares of Borrower, free and clear of all liens.
12. Conversion.
(a) On the Maturity Date, the principal amount then outstanding
under the Promissory Note may, upon written notice of election by Lender
delivered to Borrower not less than ten days and not more than 30 days prior to
the Maturity Date, be converted into fully paid and non-assessable common shares
of Borrower. The conversion price (the "Conversion Price") shall be fifty cents
($0.50) per share. The Conversion Price will be ratably adjusted for share
splits, share combination or similar transactions effected by Borrower between
the date hereof and the date of any conversion hereunder. The number of common
shares of Borrower issuable upon conversion of the principal amount then
outstanding under the Promissory Note pursuant to this Section 12(a) shall equal
(i) all unpaid principal and interest then outstanding under the Promissory Note
divided by (ii) the Conversion Price. As a condition to the conversion of any
amounts represented by the Promissory Note, Lender will be required to execute a
definitive stock purchase agreement and such other documents as Borrower may
reasonably request in connection with such conversion, and Lender hereby agrees
to so execute such agreements.
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(b) As soon as practicable after conversion of the principal
amount then outstanding under the Promissory Note pursuant to Section 12(a)
above, Borrower, at its expense, will cause to be issued in the name of and
delivered to Lender, a certificate or certificates evidencing the number of
fully paid and nonassessable common shares of Borrower to which Lender shall be
entitled on such conversion (bearing such legends as may be required by
applicable state and federal securities laws in the opinion of legal counsel for
Borrower). No fractional shares will be issued on conversion of the principal
amount then outstanding under the Promissory Note. If, upon conversion of the
principal amount then outstanding under the Promissory Note, Borrower would
otherwise be required to issue a fraction of a share, Borrower will pay to
Lender the cash value of such fractional share, calculated on the basis of the
Conversion Price (pursuant to Section 12(a) above). Such conversion shall be
deemed to have been made upon the date set forth in the notice of Lender's
election contemplated by Section 12(a) above, regardless of whether the
Promissory Note has been surrendered on such date. Notwithstanding the
foregoing, Lender agrees to promptly surrender the Promissory Note prior to or
upon such conversion.
13. Representations of Lender. Lender hereby represents and warrants to
Borrower as follows:
(a) Lender understands that the investment in the Promissory Note
(and the securities issued hereunder and issuable on conversion of the
Promissory Note) is a speculative investment and represents that Lender is aware
of the business affairs and financial condition of Borrower and has acquired
sufficient information about Borrower to reach an informed and knowledgeable
decision to acquire the Promissory Note. Moreover Lender acknowledges that the
Promissory Note is being acquired for investment for Lender's own account, not
as a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that Lender has no present intention of selling, granting any
participation in, or otherwise distributing the same. Lender further understands
that the Promissory Note has not been registered under the Securities Act of
1933, as amended (the "Act"), or applicable state securities laws by reason of
specific exemptions therefrom, which exemptions depend on, among other things,
the bona fide nature of Lender's investment intent as expressed herein.
(b) Lender acknowledges that he has received and reviewed the
Promissory Note and all the information Lender considers necessary or
appropriate for deciding whether to make the investment contemplated herein and
accept the Promissory Note. Lender further represents that Lender has had an
opportunity to ask questions and receive answers from Borrower regarding the
business, properties, prospects and financial condition of Borrower.
(c) Lender is an investor in securities of companies in the
development stage and acknowledges that he can bear the economic risk of its
investment, and has such knowledge and experience in financial or business
matters that he is capable of evaluating the merits and risks of this
investment.
(d) Lender is an "accredited investor" within the meaning of U.S.
Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as
presently in effect.
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(e) Lender understands that the securities issuable on conversion
of the Promissory Note will be characterized as "restricted securities" under
the United States federal securities laws inasmuch as they would be acquired
from Borrower in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances. In this
connection, Lender represents that Lender is familiar with SEC Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act. Lender understands and acknowledges that Borrower has no obligation
to insure that Lender will be afforded the rights set forth in Rule 144, and
specifically acknowledges that Borrower will have no obligation to insure that
public information is available with respect to Borrower.
(f) It is understood that the certificates evidencing the
securities issuable hereunder and upon conversion of the Promissory Note may
bear , inter alia, the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER THE ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO
RULE 144 OF THE ACT."
14. General Provisions. All representations and warranties made in this
Agreement and the Promissory Note and in any certificate delivered pursuant
thereto shall survive the execution and delivery of this Agreement and the
making of any Advances hereunder. This Agreement will be binding upon and inure
to the benefit of Borrower and Lender, their respective successors and assigns,
except that neither party shall assign or transfer its respective rights or
delegate its respective duties hereunder without the prior written consent of
the other party; provided, however, that Lender may assign its respective rights
and duties hereunder to an entity controlled by or under common control with
Lender. This Agreement, the Promissory Note and all documents and instruments
associated herewith will be governed by and construed and interpreted in
accordance with the laws of the State of Utah. Time is of the essence hereof.
This Agreement will be deemed to express, embody, and supersede any previous
understanding, agreements, or commitments, whether written or oral, between the
parties with respect to the general subject matter hereof. This Agreement may
not be amended or modified except in writing signed by the parties.
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IN WITNESS WHEREOF, the parties have executed, or caused to be executed
by their duly authorized representatives, this Agreement as of the date first
above written.
Dos Lagos, LLC Speaking Roses International, Inc.
By: By:
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Xxxxxx X. Xxxxxx, Manager Xxxx Xxxxxxxxxxxx, President
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$2,000,000 May 11, 2006
PROMISSORY NOTE
FOR VALUE RECEIVED, Speaking Roses International, Inc., a Utah
corporation ("Borrower") unconditionally promises to pay to Dos Lagos, LLC
("Lender") or its order, at its address set forth in the books and records of
Borrower, in lawful money of the United States of America, the principal sum of
two million dollars ($2,000,000.00) or the aggregate unpaid principal amount of
all advances made by Lender to Borrower pursuant to the terms of a Line of
Credit Agreement (the "Credit Agreement") of even date herewith, whichever is
less, together with any interest thereon in accordance with the Credit
Agreement, until paid in full, both before and after judgment.
The entire unpaid principal balance, together with accrued interest
thereon, shall become due and payable on December 31, 2006, unless converted
into common shares of Borrower in accordance with the Credit Agreement. All
payments received shall be applied first to accrued interest and the balance, if
any, to the reduction of principal.
This Note is made in connection with and as part of the Credit
Agreement and is entitled to the benefits and subject to the terms and
conditions thereof. The terms and conditions of the Credit Agreement are hereby
incorporated herein in their entirety.
Speaking Roses International, Inc.
By:
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Xxxx Xxxxxxxxxxxx, President
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