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EXHIBIT 10.6
May 24, 2000
Citadel Capital Management Corporation
000 Xx. Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx
Re: Letter Loan Agreement
Gentlemen:
The purpose of this letter is to set forth the arrangements we have
made regarding certain financial arrangements between you (hereinafter referred
to as "Citadel") and Solutions America, Inc., a California corporation
("Solutions America").
1. Loan Disbursements. Citadel has agreed to loan Solutions America up
to $510,000 as needed for operating capital, provided all preconditions set
forth in this Letter Loan Agreement have been fulfilled. Concurrently with the
execution of this Letter Loan Agreement and all other documents (the "Loan
Documents") to be executed at the Closing (as defined in Paragraph 2 below),
Citadel shall fund to Solutions America the sum of $185,000 (of which $10,000
shall be retained by Citadel as reimbursement for its costs in investigating
Solutions America and in making the Loan). Additional disbursements shall be
made pursuant to Section 5. The amounts described above disbursed by Citadel and
all interest accrued thereon shall constitute the "Loan." Interest shall accrue
on the Loan and the Loan shall be repaid pursuant to the terms of the
promissory note to be executed at Closing.
2. Closing. The parties to this agreement shall meet at the offices of
Citadel to conduct the Closing by executing and delivering the following
documents:
(a) Solutions America shall execute the promissory note
evidencing the Loan in the form of Exhibit A attached hereto and made a part
hereof (the "Promissory Note").
(b) Solutions America shall execute and deliver to Citadel the
warrants in the form of Exhibits X-0, X-0 and B-3 and C-1, C-2 and C-3 attached
hereto and made a part hereof (the "Warrants").
(c) Solutions America shall execute a security agreement and
UCC-1 Financing Statement in the form of Exhibit D attached hereto and made a
part hereof.
(d) Solutions America shall provide evidence satisfactory to
Citadel that Solutions America is in good standing in the State of California,
that this transaction has been authorized by all required corporate action, and
the persons listed on Exhibit E are the sole shareholders of Solutions America,
owning only the shares of stock shown on Exhibit F.
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Citadel Capital Management Corporation
May 24, 2000
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(e) Each lender identified on Exhibit F attached hereto and
made a part hereof shall execute and deliver a Loan Subordination in the form of
Exhibit G attached hereto and made a part hereof.
3. Covenants, Representations and Warranties. Solutions America, Xxxx
Xxxxxxxx ("Xxxxxxxx"), and Xxxxx Xxxxxxx ("Xxxxxxx") jointly and severally make
the covenants, representations and warranties set forth below, which shall
survive the Closing and the making of the Loan and shall terminate on repayment
of the Loan in full:
(a) The liabilities described on Exhibit F attached hereto
represent all of the material liabilities of Solutions America as of the date
hereof. Except for transactions in the ordinary course of business, Solutions
America shall not incur any liability in excess of $10,000 (except as shown on
Exhibit F) without the prior written approval of Citadel (not to be unreasonably
withheld or delayed), nor shall Solutions America sell all or substantially all
of its assets or grant any security interest in such assets without the prior
written consent of Citadel.
(b) Solutions America shall provide Citadel with monthly
operating reports certified by the president of Solutions America on the tenth
day of each calendar month for the preceding calendar month, fully and
accurately completed in form reasonably acceptable to Citadel.
(c) Except for completing the contemplated merger with Avenue
Entertainment Group, Inc. as described in the draft Letter of Intent dated May
__, 2000 which is subject to finalization (the "Anticipated Merger"), the $30
Million Private Equity Line to be provided by Xxxxxx Private Equity, LLC, and
the contemplated $2,000,000 private placement placed through Xxxxxx
Institutional Finance (the "Anticipated Private Placement"), Solutions America
shall not make any material changes in its business plan attached as Exhibit H
or take any material action not consistent with its business plan without
Citadel's prior written consent.
(d) The shares and classes of stock of Solutions America shown
on Exhibit F are all of the shares of Solutions America stock outstanding, there
are no other classes of stock of Solutions America issued and outstanding, and
except as disclosed on Exhibit F, there are no warrants or rights to purchase
stock outstanding other than the Warrants.
(e) Loan funds shall only be used for the purposes shown on
Exhibit I.
(f) No payments on any of the loans to Lenders identified on
Exhibit F shall be made until the Loan is repaid in full; provided, however,
that this shall not preclude such Lenders from converting their loans into
equity.
4. Insurance and Indemnification. Solutions America shall carry
commercial general liability insurance with an aggregate limit of $2,000,000,
workers compensation insurance in the
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Citadel Capital Management Corporation
May 24, 2000
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amount required by applicable law, and other insurance required by law or good
business practices. At Citadel's request, Solutions America shall provide
Citadel with a certificate of insurance evidencing such insurance coverage.
Solutions America shall indemnify Citadel, its agents and
representatives from and against any and all liability, cost, expense (including
court costs and reasonable attorneys' fees), claims, lawsuits or damages arising
out of any actions or omissions of any of such indemnifying party, or arising in
any way out of the business of Solutions America, or the actions or omissions of
any of the officers, directors, employees, agents or representatives of
Solutions America, except to the extent arising out of the gross negligence or
willful misconduct of Citadel or its employees.
5. Additional Disbursements. Provided Solutions America is not in
default of any provision of this Letter Loan Agreement or any other loan
document, Citadel shall make two additional disbursements in the amounts and on
the dates shown on Exhibit I provided Solutions America has submitted reasonably
detailed disbursement requests in form reasonably approved by Citadel (and
showing the use of previously disbursed Loan proceeds) at least three (3)
business days prior to the disbursement date.
6. Audit Rights. On at least three (3) days' prior written notice,
Citadel shall have the right to review and/or audit all books and records of
Solutions America at Citadel's cost and expense, provided Solutions America
shall pay the cost thereof in the event of any material inaccuracy or
discrepancy.
7. Conversion. By giving at least five (5) business days' prior written
notice, Citadel shall have the right, but not the obligation; to convert all or
any part of the Loan balance to shares of common stock of Solutions America,
Inc. at the same price per share as that offered to the investors in the
Anticipated Private Placement (or if such Anticipated Private Placement has not
closed by August 15, 2000 and Citadel elects to exercise its conversion right
before closing of the Anticipated Private Placement, at a price per share of
$l). Prior to any payoff of all or any portion of the Loan, Solutions America
shall give Citadel ten days' prior written notice and an opportunity to exercise
such conversion right. In the event of a merger of Solutions America (including
the Anticipated Merger) prior to exercise of such conversion right, Citadel
shall have the conversion right at the corresponding price per share of the
surviving company as the relationship of the price of Solutions America to the
surviving company as of the date of the merger. In other words, if the
conversion right would have been at $1 per share of Solutions America stock
before the merger, and for each share of Solutions America stock Solutions
America shareholders received 1 share of the surviving company stock, Citadel
shall receive 1 share of the surviving company's stock for each $1 of Loan
balance for which Citadel elects the conversion right.
8. Miscellaneous Provisions. Together with the other documents to be
executed at the Closing, this Letter Loan Agreement sets forth the entire
agreement of the parties and
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Citadel Capital Management Corporation
May 24, 2000
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supersedes all prior written and oral communications. This Letter Loan Agreement
and each of the other documents to be executed at Closing may be amended only in
writing. This Letter Loan Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the parties, and shall be interpreted
under the laws of the State of California. The venue of any action on this
Letter Loan Agreement and the other Loan Documents shall be in Los Angeles
County, California. In the event of any dispute regarding the terms or the
breach of this Letter Loan Agreement, the prevailing party shall be entitled to
attorneys' fees as determined by the court having jurisdiction. This Agreement
may be executed in counterparts.
Your signature below will indicate your agreement to the terms of this
binding Letter Loan Agreement.
Sincerely,
Notice Address: Solutions America, Inc.
000 Xxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx Xxxx, XX 00000
By:
-------------------------------------
/s/ XXXX XXXXXXXX
-----------------------------------------
Xxxx Xxxxxxxx
PRESIDENT
/s/ XXXXX XXXXXXX
-----------------------------------------
Xxxxx Xxxxxxx
Chairman
Agreed and Accepted:
Citadel Capital Management Corporation
By: /s/ XXXXXXXXX YEEP
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List of Exhibits
Exhibit A Form of Promissory Note ($510,000)
Exhibit B-1 Form of Warrant for 320,888 Shares of Common Stock
Exhibit B-2 Form of Warrant for 85,570 Shares of Common Stock
Exhibit B-3 Form of Warrant for 21,392 Shares of Common Stock
Exhibit C-1 Form of Warrant for 164,444 Shares of Common Stock
Exhibit C-2 Form of Warrant for 42,785 Shares of Common Stock
Exhibit C-3 Form of Warrant for 10,696 Shares of Common Stock
Exhibit D Form of Security Agreement and UCC-1
Exhibit E List of Shareholders and Classes of Stock
Exhibit F Current Solutions America Liabilities
Exhibit G Loan Subordination
Exhibit H Business Plan
Exhibit I Use of Loan Proceeds
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Exhibit E
Shareholders and Classes of Stock
Shareholder Names Class of Stock Shares Owned
Description of Shares of Stock
Class Shares Authorized Shares Outstanding
Common
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Exhibit G
Solutions America, Inc.
Loan Subordination
Lender Name:
Amount Loaned to Solutions America, Inc.:
Interest Rate:
The Lender described above hereby (i) subordinates its right to
repayment of all monies owed such Lender to the right of Citadel Capital
Management Corporation ("Citadel") to repayment of all amounts owed under that
certain Promissory Note dated May 24, 2000 (the "Loan") executed by Solutions
America, Inc., and (ii) agrees that Lender shall not be repaid any amounts
loaned or interest thereon until Citadel has been repaid in full. The
undersigned hereby acknowledges that Citadel would not make the Loan to
Solutions America, Inc. without execution of this Subordination by Lender.
-----------------------------------------
Name:
Title:
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EXHIBIT I
SOLUTIONS AMERICA
USE OF PROCEEDS
SHORT TERM FINANCING
May 24, 2000
Proceeds Carried Forward 0
DRAW OF FUNDS 175,000
FUNDS AVAILABLE 175,000
Use of Proceeds:
Payroll 5/1/-5/15/00 75,000
Payroll 5/16/00 - 5/31/00
Payroll 6/1/00 - 6/15/00
Additional Payroll-New Technician Hires
Payment of May Rent 26,000
Payment of June Rent
Audit Retainer fee
Purchase of Servers and Equipment
Payment of Franchise Taxes 28,000
Payment of Various Vendors and Expenses 24,000
Total Use of Funds 153,000
Net Balance After Use of Funds 22,000
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June 1, 2000 June 15, 2000
22,000 59,000
175,000 150,000
197,000 209,000
75,000
75,000
15,000
26,000
10,000
15,000 15,000
12,000 12,000
138,000 117,000
59,000 92,000
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SOLUTIONS AMERICA
USE OF PROCEEDS
SHORT TERM FINANCING
May 24, 2000 June 1, 2000 June 15, 2000
Proceeds Carried Forward -- 22,000 59,000
DRAW OF FUNDS 175,000 175,000 150,000
------- ------- -------
FUNDS AVAILABLE 175,000 197,000 209,000
------- ------- -------
Use of Proceeds:
Payroll 5/1/-5/15/00 75,000
Payroll 5/16/00 - 5/31/00 75,000
Payroll 6/1/00 - 6/15/00 75,000
Additional Payroll-New Technician Hires 15,000
Payment of May Rent 26,000
Payment of June Rent 26,000
Audit Retainer fee 10,000
Purchase of Servers and Equipment 15,000 15,000
Payment of Franchise Taxes 28,000
Payment of Various Vendors and Expenses 24,000 12,000 12,000
------- ------- -------
Total Use of Funds 153,000 138,000 117,000
------- ------- -------
Net Balance After Use of Funds 22,000 59,000 92,000
======= ======= =======
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PROMISSORY NOTE
Maker: Solutions America, Inc. Date: May 24, 2000
Holder: Citadel Capital Management Corporation Place of Payment:
Principal Amount: $510,000 0000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxxx, XX 00000
Interest Rate: 9% per annum
Maturity Date: October 31, 2001
1. Disbursements. Concurrently with the execution of this Note, Holder has
disbursed to Maker the sum of $185,000 (of which $10,000 has been retained by
Holder as reimbursement for its costs in making the Loan). Holder shall disburse
up to an additional $325,000 in cash upon satisfaction of all applicable
conditions precedent as described in the Letter Loan Agreement of even date
herewith executed by Maker and Holder (the "Letter Loan Agreement").
2. Payment of Principal and Interest. On or before the Maturity Date, Maker, for
valuable consideration, hereby agrees and promises to pay to the order of Holder
the outstanding principal balance and all accrued and unpaid interest. Amounts
not paid within five (5) days after when due shall be subject to a late charge
of 5% of the delinquent amount. Amounts not paid within ten (10) days after when
due shall accrue default interest at the rate of 12% per annum
3. Prepayments. Prepayments may be made in whole or in part at any time without
penalty on ten (10) business days' prior written notice.
4. Payments in U.S. Currency. Payments shall be made in lawful money of the
United States at the Place of Payment, which may be changed to another location
within the United States by written notice from Holder to Maker.
5. Waiver of Notice, Etc. Maker waives notices of all kind, presentment,
protest, dishonor and demand.
6. Acceleration; Collection Costs. In the event any required payment is not made
within ten (10) days after written notice of delinquency, or Maker defaults in
any material provision of the Letter Loan Agreement which default is not cured
within ten (10) days after written notice of default, Holder shall have the
option to accelerate all amounts due hereunder by giving written notice of
acceleration. Maker agrees to pay all of Holder's costs of collection, including
court costs and reasonable attorneys' fees.
7. Usury Savings. The interest payable hereunder shall not exceed the maximum
interest rate allowed by law.
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8. Business Purpose. The purpose of the loan evidenced by this Note is business
and not personal.
9. Governing Law. This Note shall be interpreted according to the laws of the
State of California, and venue for all actions shall be in Los Angeles County,
California.
10. Amendments in Writing. All amendment to this instrument must be in writing
signed by Maker and Holder.
11. Successors and Assigns. This instrument shall inure to the benefit of
Holder's successors and assigns and shall be binding upon Maker's successors and
assigns, provided Maker's obligations may not be assigned without Holder's prior
written consent.
Executed at Los Angeles, California as of the date written above.
Maker:
Solutions America, Inc.
By: /s/ XXXX XXXXXXXX
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PRESIDENT
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