EXHIBIT 10.59
BRIDGE LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
VIRTUAL MORTGAGE NETWORK, INC.,
a Nevada corporation AND
▇▇▇ CAPITAL GROUP
This BRIDGE LOAN AND SECURITY AGREEMENT (the "Agreement") is made this 19th day
of December, 1997, by and between ▇▇▇ Capital Group (the "Investor" or "Secured
Party") and Virtual Mortgage Network, Inc., a Nevada corporation ("Company",
"Debtor", "Borrower" or "VMN"). The Investor and VMN are referred to
collectively herein as the "Parties."
In consideration of the mutual covenants, agreements, representations,
and warranties contained in this agreement, the Parties agree as follows:
1. Loan Amount.
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The Investor agrees to loan, on December 19, 1997, to the Company the
aggregate principal amount of $1,300,000 (the "Loan"). The Loan will be made for
the purpose of paying normal and reasonable operating expenses and obtaining and
paying for professional services in connection with the offering of securities
of VMN.
2. Promissory Note.
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In consideration thereof, VMN will issue, cause to be executed and
delivered to the Investor, upon the execution hereof, a promissory note in the
principal amount equal to the amount of the Loan, upon the terms and conditions
specified herein, and in the form set forth in Exhibit A, hereto (the "Note").
The Note is one of several notes of the Company sold to investors (collectively,
the "Investors") that collectively aggregate $5,500,000 (the "Notes") and are
equally secured by the security interest (i) granted by Section 8.1 of this
Agreement and Section 8.1 of the Company's other Bridge Loan and Security
Agreements, pursuant to which the Notes were issued or are to be issued and,
(ii) granted to American Growth Fund I, L.P. ("AGF") to secure up to $500,000 in
notes of the Company payable to AGF.
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3. Warrants of the Company.
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VMN agrees to issue, convey and transfer, and cause to be issued,
conveyed and transferred to the Investor, Common Stock Purchase Warrants to
purchase shares of Company Common Stock. The number of whole shares of Company
Common Stock subject to the Warrants accompanying an Investor's Note will be
determined by using conventional rounding and by dividing the principal amount
of the Note by (i) if the IPO occurs prior to March 6, 1997, the IPO price or
(ii) if the IPO does not occur prior to March 6, 1997, $4.00 per share. The
exercise price of the Warrants is $0.001 per share of Common Stock, except that
this price is adjustable in certain circumstances as set forth in the Warrant
Agreement. A registration right is also included in the Warrant Agreement
(Exhibit B hereto).
4. Periodic Finance Charges.
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The unpaid principal under the Note shall bear interest at a rate of
twelve percent (12%) per annum simple interest. Upon the Company's failure to
pay amounts due on the Maturity Date (as such term is defined in the Note), the
interest rate on the Note shall increase to fifteen percent (15%) per annum, as
set forth in the Note.
5. Payments.
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5.1 VMN shall make payments of principal and accrued interest on the
Note to Investor upon the closing of a public offering of securities by VMN, as
set forth in the Note.
5.2 Except as otherwise set forth in the Note, the unpaid principal
under the Note plus all accrued but unpaid interest thereon shall be payable
upon the Maturity Date. If the Company has not repaid the principal amount
together with interest by the Maturity Date, the Company then agrees to repay
the principal amount together with accrued interest under the Note in equal
monthly payments of principal and interest at fifteen percent (15%) per annum
over a twelve (12) month period. The first installment of such payments of
principal and interest shall be due on April 6, 1997.
VMN may, from time to time, in it sole discretion, make one or more
periodic payments to the Investor. Such payments shall be credited to VMN's
account on the date that such payment is placed in the United States mail, first
class postage prepaid, by VMN. Such payments shall be applied first to accrued
and unpaid interest, and then to the principal amount then outstanding.
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6. Default Provisions.
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The occurrence and continuance of one or more of the following events
shall constitute an event of default of this entire Agreement:
6.1 The nonpayment of any principal or interest by VMN on this loan
within five business days of when the same shall have become due and payable.
6.2 The entry of a decree or order by a court having appropriate
jurisdiction adjudging VMN bankrupt or insolvent, or approving as properly filed
a petition seeking reorganization, arrangement, adjustment or composition of or
in respect of VMN under the federal Bankruptcy Act or any other applicable
federal or state law, or appointing a receiver, liquidator, assignee or trustee
of VMN, or any substantial part of its property, or of the Collateral, as
defined in Section 8, or ordering the winding up or liquidation of its affairs,
and the continuance of any such decree or order unstayed and in effect for a
period of sixty (60) consecutive days.
6.3 The institution by VMN of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under the federal Bankruptcy Act or
any other applicable federal or state law, or the consent by it to the filing of
any such petition or to the appointment of a receiver, liquidator, assignee or
trustee of the Company, or of any substantial part of its property, or if the
Collateral, as defined in Section 8, shall become subject to the jurisdiction of
a federal bankruptcy court or similar state court, or if VMN shall make an
assignment for the benefit of its creditors, or if there is a receivership,
execution or other material judicial seizure, or if VMN shall fail to pay its
debts generally as they become due, or the taking of corporate action by VMN in
furtherance of any such action.
6.4 Default in the obligation of VMN for borrowed money, other than
this Loan, which shall continue for a period of sixty (60) days, or any event
that results in acceleration of the maturity of any material indebtedness of VMN
under any note, indenture, contract, or agreement.
6.5 VMN's failure to comply with any material term, obligation,
covenant or condition contained in this Agreement, the Note or the Warrant
Agreement after the expiration of all applicable cure periods.
6.6 Any warranty, covenant, or representation made to the Investor by
VMN under this Agreement, the Note or the Warrant
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Agreement proves to have been false in any material respect when made or
furnished.
6.7 Any material levy, seizure, attachment, lien, or encumbrance of
or on the Collateral, other than those existing as of the date hereof, which is
not discharged by VMN within 30 days.
6.8 Any sale, transfer, or disposition of any material interest in
the Collateral, other than in the ordinary course of business, without the
written consent of the Investor.
6.9 Any default that results in acceleration of the maturity of any
indebtedness of VMN in the outstanding principal amount of $50,000 or more,
under any note, indenture, contract or agreement.
7. Acceleration.
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At the option of the Investor, and without demand or notice, all
principal and any unpaid interest shall become immediately due and payable upon
a default as set forth in Section 6 above. Any reasonable attorneys' fees and
other expenses incurred by the Investor in connection with VMN's bankruptcy or
any of the other events described in Section 6 shall be additional indebtedness
of VMN secured by this Agreement.
8. Security Agreement.
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8.1 Grant of Security Interest.
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VMN, in consideration of the indebtedness described in this
Agreement, hereby grants, conveys, and assigns to the Investors, collectively,
for security, all of VMN's existing and future right, title and interest in the
property listed in Section 8.2 of this Agreement. This security interest is
granted to the Investors, collectively, to secure (a) the payment of the
indebtedness evidenced by the Notes, including all renewals, extensions, and
modification thereof; (b) the payment, performance and observance of all
warranties, obligations, covenants and agreements to be paid, performed or
observed under this Agreement; and the payment of all other sums, with interest
thereon, advanced under the terms of this Agreement.
8.2 Property.
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The property subject to the security interest (the "Collateral")
is as follows:
8.2.1 Equipment.
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All equipment of VMN, other than the equipment and related
software licenses and other tangible and intangible property leased by VMN from
Data General Corporation or its assignee.
8.2.2 Accounts Receivable.
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All of VMN's accounts, chattel paper, contract rights,
commissions, warehouse receipts, bills of lading, delivery orders, drafts,
acceptances, notes, securities and other instruments; documents; and all other
forms of receivables, and all guaranties and securities therefor.
8.2.3 Inventory and Other Tangible Personal Property.
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All of VMN's inventory, including all goods, merchandise,
materials, raw materials, work in progress, finished goods, now owned or
hereinafter acquired and held for sale or lease or furnished or to be furnished
under contracts or service agreements or to be used or consumed in VMN's
business and all other tangible personal property of VMN, except as excluded in
8.2.1.
8.2.4 General Intangibles.
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All "general intangibles" (as defined in the Uniform
Commercial Code in effect in the State of California), including, without
limitation, (i) all right, title and interest of VMN in and to all agreements,
leases and contracts to which VMN is or may become a party, (ii) all obligations
or indebtedness owing to VMN from whatever source arising, (iii) all tax
refunds, (iv) all intellectual property, including, without limitation, all
copyrights, copyright applications, copyright licenses, patents, patent
applications, patent licenses, trademarks, trademark applications and trademark
licenses, (v) all computer software, source code, object code, manuals and
instructions, together with all diskettes, tape and any other physical
representation or eminent thereof and (vi) all trade secrets and other
confidential information relating to the business of VMN.
8.2.5 After-Acquired Property.
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All property of the types described in Sections 8.2.1 -
8.2.4, or similar thereto, that at any time hereafter may be acquired by VMN or
any subsidiary of VMN, including, but not limited to, all accessions, parts,
additions, and replacements.
8.2.6 Proceeds.
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All proceeds of the sale or other disposition of any of the
Collateral described or referred to in Sections 8.2.1 - 8.2.5. Sale or
disposition of Collateral is prohibited except as provided herein.
8.3 Covenants of VMN.
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VMN agrees and covenants as follows:
8.3.1 Payment of Principal and Interest.
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VMN shall promptly pay when due the principal of and
interest on the indebtedness evidenced by the Notes, any prepayment and late
charges provided in the Notes, and all other sums secured by this Agreement and
the Notes.
8.3.2 Corporate Existence.
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VMN is a corporation duly organized and existing under the
laws of the State of Nevada and is duly qualified in every other state in which
it is doing business, except where the failure to be so qualified would not have
a material adverse effect on VMN.
8.3.3 Corporate Authority.
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The execution, delivery, and performance of this
Agreement, and the execution and payment of the Notes are within VMN's corporate
powers, have been duly authorized, and are not in contravention of law or the
terms of VMN's articles of incorporation and bylaws, or of any indenture,
agreement, or undertaking to which VMN is a party or by which it is bound.
8.3.4 Ownership of Collateral.
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Except for the security interests in the Collateral
referred to in Section 2 and this Section 8, VMN (a) has good, legal and
marketable title to, or a valid leasehold interest in, all of the Collateral and
(b) such Collateral is not subject to any liens or encumbrances, and VMN will
defend the Collateral against the claims and demands of all other persons at any
time claiming the same or any interest therein.
8.3.5 Issuance of Shares.
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That the shares of common stock contemplated to be issued
hereby (upon exercise of the Warrants) will be, when issued in accordance with
the terms of the Warrants, duly authorized, fully paid and non-assessable.
8.4 Removal of Collateral Prohibited.
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VMN shall not remove the Collateral from its premises, other than
in the ordinary course of business, without the written consent of the Investor.
8.5 Taxes and Assessments.
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VMN will pay or cause to be paid promptly when due all taxes and
assessments on the Collateral. VMN may, however, withhold payment of any tax
assessment or claim if a good faith dispute exists as to the obligation to pay.
8.6 Insurance.
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VMN shall have and maintain, or cause to be maintained, insurance
at all times with respect to all Collateral except accounts receivable, against
such risks, and in such form, for such periods, and written by such companies as
may be satisfactory to the Investor. All policies of insurance shall have
endorsed a loss payable clause acceptable to the Investor or such other
endorsements as the Investor may from time to time request, and VMN will
promptly provide the Investor upon request with the original policies or
certificates of such insurance. VMN shall promptly notify the Investor of any
loss or damage that may occur to the Collateral. The Investor is hereby
authorized to make proof of loss if it is not made promptly by VMN. All proceeds
of any insurance on the Collateral shall be held by the Investor as a part of
the Collateral. Such proceeds shall be paid out from time to time upon order of
VMN for the purpose of paying the reasonable cost of repairing or restoring the
property damaged. Any proceeds that have not been so paid out within 120 days
following their receipt by the Investor shall be applied to the prepayment of
principal on the Notes according to the terms hereof. In the event of failure to
provide insurance as herein provided, Investor may, at its option, provide such
insurance at VMN's expense.
8.7 Protection of the Investor's Security.
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If VMN fails to perform the covenants and agreements contained or
incorporated in this Agreement, or if any action or proceeding is commenced
which affects the Collateral or title thereto or the interest of the Investor
therein, including, but not limited to eminent domain, insolvency, code
enforcement, or arrangements or proceedings involving a bankrupt or decedent,
then the Investor may make such appearance, disburse such sums, and take such
action as the Investor deems necessary, in its sole discretion, to protect the
Investor's interest, including but not limited to (i) disbursement of reasonable
attorney's fees, (ii) entry upon VMN's property to make repairs to the
Collateral, and (iii) procurement of satisfactory insurance. Any amounts
disbursed by the Investor pursuant to this Section, with interest thereon, shall
become additional indebtedness of VMN secured by
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this Agreement. Unless VMN and the Investor agree to other terms of payment,
such amounts shall be immediately due and payable and shall bear interest from
the date of disbursement at the default rate stated in the Note unless
collection from VMN of interest at such rate would be contrary to applicable
law, in which event such amounts shall bear interest at the highest rate which
may be collected from VMN under applicable law. Nothing contained in this
Section shall require the Investor to incur any expense or take any action.
8.8 Inspection.
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The Investor may make or cause to be made reasonable entries upon
and inspections of VMN's premises to inspect the Collateral.
8.9 VMN and Lien Not Released.
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From time to time, the Investor may, at the Investor's option,
without giving notice to or obtaining the consent of VMN or its successors or
assigns or of any other lienholder or guarantors, without liability on the
Investor's part, and notwithstanding VMN's breach of any covenant or agreement
of VMN in this Agreement, extend the time for payment of said indebtedness or
any part thereof, reduce the payments thereon, release anyone liable on any of
said indebtedness, accept a renewal note or notes therefor, modify the terms and
the time of payment of said indebtedness, release from the lien of this
Agreement any part of the Collateral, take or release other or additional
security, reconvey any part of the Collateral, consent to any plan of the
Collateral, join in any extension or subordination agreement, and agree in
writing with VMN to modify the rate of interest or period of amortization of the
Note or change the amount of any installments payable thereunder. Any actions
taken by the Investor pursuant to the terms of this Section shall not affect the
obligation of VMN or VMN successors or assigns to pay the sums secured by this
Agreement and to observe the covenants of VMN contained herein, shall not affect
the guaranty of any person, corporation, partnership, or other entity for
payment of the indebtedness secured hereby, and shall not affect the lien or
priority of lien hereof on the Collateral. VMN shall pay the Investor a
reasonable service charge, together with such reasonable attorneys' fees as may
be incurred at the Investor's option for any such action if taken at VMN's
request.
8.10 Forbearance by the Investor Not a Waiver.
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Any forbearance by the Investor in exercising any right or remedy
hereunder, or otherwise afforded by applicable law, shall not be a waiver of or
preclude the exercise of any right or remedy. The acceptance by the Investor of
payment of any sum secured by this Agreement after the due date of such
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payment shall not be a waiver of the Investor's right to either require prompt
payment when due of all other sums so secured or to declare a default for
failure to make prompt payment. The procurement of insurance or the payment of
taxes, rents or other liens or charges by the Investor shall not be a waiver of
the Investor's right to accelerate the maturity of the indebtedness secured by
this Agreement, nor shall the Investor's receipt of any awards, proceeds or
damages as provided in this Agreement operate to cure or waive VMN default in
payment of sums secured by this Agreement.
8.11 Uniform Commercial Code Security Agreement.
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This Agreement is intended to be a security agreement pursuant to
the Uniform Commercial Code for any of the items specified above as part of the
Collateral which, under applicable law, may be subject to a security interest
pursuant to the Uniform Commercial Code, and VMN hereby grants the Investors,
collectively, a security interest in said items. VMN agrees to execute and file
financing statements, as well as extensions, renewals and amendments thereof,
and reproductions of this Agreement, and do whatever may be necessary under the
applicable Uniform Commercial Code in the state where the Collateral is located,
to perfect and continue the Investors' interest in the Collateral, all at VMN's
expense. The parties agree that such financing statements, extensions and
renewals may be filed in the name of the Investor and all other holders of the
Notes and AGF, collectively. VMN also agrees that the Investor may file on
behalf of the Investors any appropriate document in the appropriate index as a
financing statement for any of the items specified above as part of the
Collateral. VMN shall pay all costs of filing such financing statements and any
extensions, renewals, amendments, and releases thereof, and shall pay all
reasonable costs and expenses of any record searches for financing statements
the Investor may reasonably require. Without the prior written consent of the
Investor, VMN shall not create or allow to be created, pursuant to the Uniform
Commercial Code, any other security interest in the Collateral (other than AGF),
including replacements and additions thereto. Upon the occurrence of an event of
default, Investor shall have the remedies of a secured party under the Uniform
Commercial Code and, at the Investor's option, may also invoke the other
remedies provided in this Agreement as to such items. In exercising any of said
remedies, the Investor may proceed against the items of real property and any
items of personal property specified above as part of the Collateral separately
or together and in any order whatsoever, without in any way affecting the
availability of the Investor's remedies under the Uniform Commercial Code or of
the other remedies provided in this Agreement.
8.12 Rights of the Investor.
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8.12.1 Upon the occurrence and continuance of an event of
default the Investor may require VMN to assemble the Collateral and make it
available to the Investor at the place to be designated by the Investor which is
reasonably convenient to both parties. The Investor may sell all or any part of
the Collateral as reasonably necessary to satisfy VMN's obligations hereunder to
Investor, as a whole or in parcels wither by public auction, private sale, or
any other reasonable method of disposition. Nothing in this Section 8.12.1 shall
be construed to limit any other of Investor's rights in connection with any and
all of the Collateral as provided herein. The Investor may bid at any public
sale on all or any portion of the Collateral. Unless the Collateral is
perishable or threatens to rapidly decline in value or is of the type
customarily sold on a recognized market, the Investor shall give VMN reasonable
notice of the time and place of any public sale, or of the time after which any
private sale or other disposition of the Collateral is to be made, and notice
given at least 10 days before the time of the sale or other disposition shall be
conclusively presumed to be reasonable. A public sale in the following fashion
shall be conclusively presumed to be reasonable:
8.12.2 Notice shall be given at least 10 days before the date of sale
by mail to VMN and publication once in a newspaper of general circulation
published in the county in which the sale is to be held;
8.12.3 The sale shall be held in a county in which the Collateral or
any part is located or in a county in which VMN has a place of business;
8.12.4 Payment shall be in cash or by certified check immediately
following the close of the sale;
8.12.5 The sale shall be by auction, but it need not be by a
professional auctioneer; and
8.12.6 The Collateral may be sold as is and without any preparation
for sale.
8.13 Obligation to Sell Collateral.
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Notwithstanding any provision of this Agreement, Investor shall be
under no obligation to offer to sell the Collateral. In the event any Investor
offers to sell the Collateral, there will be no obligation to consummate a sale
of the Collateral if, in Investor's reasonable business judgment, none of the
offers received by it reasonably approximates the fair value of the Collateral.
In the event the Investor elects not to sell the Collateral, Investor may elect
to follow the procedures set forth in the Uniform Commercial Code for retaining
the Collateral in satisfaction of VMN's obligation, subject to
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VMN's rights under such procedures.
8.14 Receiver.
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In addition to the rights under this Agreement, upon the occurrence
and continuance of an event of default by VMN, the Investor shall be entitled to
the appointment of a receiver for the Collateral as a matter of right whether or
not the apparent value of the Collateral exceeds the outstanding principal
amount of the Note.
8.15 Waiver of Marshaling.
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Notwithstanding the existence of any other security interest in the
Collateral held by the Investor or by any other party, the Investor shall have
the right to determine the order in which any or all of the Collateral shall be
subjected to the remedies provided by this Agreement. The Investor shall have
the right to determine the order in which any or all portions of the
indebtedness secured by this Agreement are satisfied from the proceeds realized
upon the exercise of the remedies provided in this Agreement. VMN, any party
who consents to this Agreement, and any party who now or hereafter acquires a
security interest in the Collateral and who has actual or constructive notice of
this Agreement, hereby waive any and all rights to require the marshaling of
assets in connection with the exercise of any of the remedies permitted by
applicable law or by this Agreement.
9. Remedies Cumulative.
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Each remedy provided in this Agreement is distinct and cumulative to
all other rights or remedies under this Agreement or afforded by law or equity,
and may be exercised concurrently, independently, or successively, in any order.
10. Waiver of Statute of Limitations.
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VMN hereby waives the right to assert any statute of limitations as a
bar to the enforcement of this Agreement or to any action brought to enforce the
Note or any other obligation secured by this Agreement.
11. Notices and Delivery.
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Any notices permitted or required under this Agreement shall be deemed
given upon the date of personal delivery or 72 hours after deposit in the United
States mail, postage fully prepaid, return receipt requested, addressed as
follows:
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VMN:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
With a copy to:
O'Melveny & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
The Investor:
_________________________________
_________________________________
_________________________________
_________________________________
Attention: _____________________
or at any other address as any party may, from time to time, designate by notice
given in compliance with this Section. Any deliveries required under this
Agreement must be made by personal delivery at the applicable address listed
above.
12. Indemnification.
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12.1 General.
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Each party at fault hereto agrees to indemnify, reimburse, and hold
harmless the other party, (the "indemnitee") from and against all claims,
damages, losses, liabilities, demands, suits, judgments, causes of action, civil
and criminal proceedings, penalties, fines, and other sanctions, and any
reasonable attorney fees and other reasonable costs and expenses, arising or
imposed on such other party (collectively "claims"), relating to or arising in
any manner out of:
12.1.1 this Agreement, the Note or the Warrant Agreement, or
the breach of any representation, warranty, or covenant made by the party at
fault under this Agreement, the Note or the Warrant Agreement; or
12.1.2 any issuance, offering, or sale of securities of VMN; or
12.1.3 any transaction, approval, or document contemplated by
the Agreement.
The parties hereto intend that this Agreement shall
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provide for indemnification in excess of that expressly provided for by statute,
including but not limited to, any indemnification provided by VMN's articles of
incorporation, its bylaws, a vote of its shareholders or disinterested
directors, or applicable law.
12.2 Definitions.
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12.2.1 Expenses. For purposes of Section 12, the term
"expenses" shall mean (i) any expense, liability, or loss, including reasonable
attorney fees, judgments, fines, ERISA excise taxes and penalties, and amounts
paid or to be paid in settlement; (ii) any interest, assessments, or other
charges imposed on any of the items in part (i) of this subsection; and (iii)
any federal, state, local, or foreign taxes imposed as a result of the actual or
deemed receipt of any payments under this Agreement paid or incurred in
connection with investigating, defending, being a witness in, participating in
(including on appeal), or preparing for any of the foregoing in any proceeding
relating to any indemnifiable event.
12.3 Mandatory Indemnification. Notwithstanding any other provision
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of this Agreement, to the extent that the indemnitee has been successful on the
merits in defense of any proceeding relating in whole or in part to an
indemnifiable event or in defense of any issue or matter in such proceeding, the
indemnitee shall be indemnified against all reasonable expenses incurred in
connection with such whole or part, as the case may be.
12.4 Partial Indemnification. If the indemnitee is entitled under any
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provision of this Agreement to indemnification by a party for a portion of
expenses, but not for the total amount of expenses, that party shall indemnify
the indemnitee for the portion to which the indemnitee is entitled.
12.5 Indemnification Payment. The indemnitee shall receive
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indemnification of expenses in accordance with this Agreement as soon as
practicable after the indemnitee has made written demand for indemnification.
If the indemnitee has not received full indemnification within 30 days after
making a demand in accordance with the terms hereof, the indemnitee shall have
the right to enforce its indemnification rights under this Agreement by
commencing arbitration per the terms of this Agreement seeking an initial
determination. The parties hereby consent to service of process and to appear
in any such proceeding. The remedy provided for in this Section shall be in
addition to any other remedies available to the indemnitee in law or equity.
12.6 Consent. A party shall not settle any proceeding in any manner
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that would impose any penalty or limitation on the
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indemnitee without the indemnitee's written consent. Neither party will
unreasonably withhold their consent to any proposed settlement. A party at fault
shall not be liable to indemnify the indemnitee under this Agreement with regard
to any judicial award if the party at fault was not given a reasonable and
timely opportunity, at its expense, to participate in the defense of such
action; however, the party's liability under this Agreement shall not be excused
if participation in the proceeding by the party was barred by this Agreement.
12.7 Defense. In the event of any controversy or claim arising out of
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this Agreement or the breach of the Agreement for which indemnification is
available, the indemnitee may tender a defense to the party at fault, who hereby
agrees to promptly evaluate such defense. If the party at fault agrees to
defend against such controversy or claim, the indemnitee shall notify the party
at fault within thirty (30) days of the indemnitee's receipt of any written
instrument or pleading relating to any such controversy or claim arising out of
this Agreement or the breach of this Agreement. If timely acceptance of tender
is not forthcoming, the indemnitee may, at the expense of the party at fault,
retain its own counsel and the party at fault is not released of its obligations
to otherwise indemnify the indemnitee.
13. Investor's Representations and Warranties.
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13.1 Accredited Investor. The Investor represents and warrants that
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he or she is an Accredited Investor as that term is defined in Rule 501(a) of
Regulation D as promulgated by the Securities and Exchange Commission under the
Securities Act of 1933 (the "1933 Act") and is willing and able to bear the
economic risk of an investment herein. The Investor has adequate means of
providing for current needs and current contingencies, has no need for liquidity
in the investment, and is able to bear the economic risk of an investment in the
Company of the size contemplated.
13.2 Acquired for Investment. The Investor represents and warrants
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that the Notes and Warrants are being acquired by the Investor in good faith for
investment and not with a view to or for sale in connection with any
distribution. The Investor understands and agrees that he/she must hold the
Notes and Warrants (or shares if the Warrants are exercised) indefinitely unless
they are subsequently registered under the 1933 Act or an exemption from
registration is available.
14. Entire Agreement.
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This Agreement, the Note, and the Warrant, and all exhibits and
attachments thereto, contains the entire understanding between and among the
Parties and supersedes any
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prior understandings and agreements among them respecting the subject matter of
this Agreement.
15. Survival of Specific Obligations.
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The rights and obligations created by Section 12 with respect to the
duties to indemnify shall survive termination of this Agreement and will
continue into perpetuity.
16. Agreement Binding.
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This Agreement shall be binding upon the heirs, executors,
administrators, successors and assigns of the Parties hereto.
17. Amendment and Modification.
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Subject to applicable law, this Agreement may be amended, modified, or
supplemented only by a written agreement signed by the Parties, including an
extension of the maturity date for the Note.
18. Attorney Fees.
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In the event arbitration is brought by any party under this Agreement
to enforce any of its terms, it is agreed that the prevailing party shall be
entitled to reasonable attorney fees to be fixed by the arbiter(s).
19. Arbitration.
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If at any time during the term of this Agreement any dispute,
difference, or disagreement shall arise upon or in respect of the Agreement, and
the meaning and construction hereof, every such dispute, difference, and
disagreement shall be referred to a single arbiter agreed upon by the Parties,
or if no single arbiter can be agreed upon, an arbiter or arbiters shall be
selected in accordance with the rules of the American Arbitration Association
and such dispute, difference, or disagreement shall be settled by binding
arbitration ion accordance with the then prevailing commercial rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbiter may be entered in any court having jurisdiction thereof. The parties
hereto each jointly and severally waive any and all rights to appeal the
judgement or award of such arbiter(s).
20. Law Governing.
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This Agreement shall be governed by and construed in accordance with
the laws of the State of California, except to the extent of Nevada statutory
law related to the set-up and
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