$1,000,000
LOAN AGREEMENT
by and between
URBAN COOL NETWORK, INC.,
as Borrower,
and
THE ELITE FUNDING GROUP, INC.,
as Lender
Dated as of November 23, 1999
TABLE OF CONTENTS
Page
SECTION 1. AMOUNT AND TERMS OF THE CREDIT............................1
1.1 Recitals; Commitment......................................1
1.2 Procedure for Borrowing...................................1
1.3 Notes.....................................................1
1.4 Interest..................................................2
1.5 Warrants..................................................2
1.6 Maturity Date.............................................2
1.7 Prepayments...............................................2
1.8 Security..................................................3
1.9 Default Rate Of Interest..................................3
1.10 Form and Terms of Payment.................................3
SECTION 2. REPRESENTATIONS AND WARRANTIES............................4
2.1 Organization, Standing, etc. of the Borrower..............4
2.2 Subsidiaries..............................................4
2.3 Qualification.............................................4
2.4 Financial Information; Disclosure; Projections etc........4
2.5 Licenses; Permits; Franchises, etc........................5
2.6 Material Agreements.......................................5
2.7 Tax Returns and Payments..................................5
2.8 Indebtedness; Liens and Investments; etc..................6
2.9 Real Estate Owned and Leased; Title to
Properties; Liens.......................................6
2.10 Litigation; etc...........................................6
2.11 Authorization; Enforceability Compliance with
Other Instruments.......................................6
2.12 Governmental and Other Third Party Consents...............7
2.13 Employee Retirement Income Security Act of 1974...........7
2.14 Ownership of Borrower; Outstanding Options or Warrants....7
2.15 Environmental Matters.....................................7
2.16 Intellectual Property.....................................8
2.17 Chief Executive Offices Principal Place of
Business; Real Property Owned or Leased.................8
2.18 Trade and Other Names.....................................9
2.19 Securities Laws...........................................9
2.20 Security Agreement........................................9
2.21 Depository and Other Accounts.............................9
2.22 Insurance Policies........................................9
2.23 Employment and Labor Agreements...........................9
2.24 Year 2000 Issues..........................................9
2.25 Initial Public Offering..................................10
(i)
Page
SECTION 3. CONDITIONS OF CLOSING/LENDING............................11
3.1 Conditions Precedent to Closing and to the
Initial Advance. ......................................11
3.2 Conditions Precedent to Making Additional Advances.......12
3.3 No Default; Representations and Warranties, etc..........12
SECTION 4. AFFIRMATIVE COVENANTS....................................12
4.1 Financial Statements; Field Audits etc...................13
4.2 Legal Existence; Licenses; Compliance with Laws..........15
4.3 Insurance................................................16
4.4 Payment of Taxes.........................................17
4.5 Payment of Other Indebtedness, etc.......................17
4.6 Further Assurances.......................................17
4.7 Communication with Accountants...........................17
4.8 Management...............................................17
4.9 Real Estate..............................................18
4.10 Compliance with ERISA....................................18
4.11 Filing of the Registration Statement.....................18
SECTION 5. NEGATIVE COVENANTS.......................................18
5.1 Indebtedness.............................................18
5.2 Liens, etc...............................................19
5.3 Loans, Guarantees and Investments........................19
5.4 Collection Policies and Procedures.......................19
5.5 Restricted Payments......................................19
5.6 Capital Expenditures.....................................20
5.7 Subsidiaries, Mergers and Consolidations;
Changes in Business 20
5.8 Sale of Assets...........................................20
5.9 Leases...................................................20
5.10 Compliance with ERISA....................................21
5.11 Transactions with Affiliates.............................21
5.12 Observance of Subordination Provisions, etc..............21
5.13 Environmental Liabilities................................21
5.14 Fiscal Year..............................................21
5.15 Agreed Upon Accounting Procedures........................21
5.16 Permitted Acquisitions; Conditions Precedent.............21
SECTION 6. DEFAULTS; REMEDIES.......................................22
6.1 Events of Default; Acceleration..........................22
6.2 Remedies on Default, etc.................................24
(ii)
Page
SECTION 7. DEFINITIONS; CERTAIN RULES OF CONSTRUCTION................25
SECTION 8. SETOFFS...................................................29
SECTION 9. EXPENSES; INDEMNIFICATION.................................29
SECTION 10. AMENDMENTS AND WAIVERS, ETC...............................30
SECTION 11. ASSIGNMENT AND PARTICIPATION..............................31
11.1 Counterparts, etc.........................................31
11.2 New Notes.................................................31
11.3 Participation.............................................31
11.4 Miscellaneous Assignment Provisions.......................31
SECTION 12. JURISDICTION; WAIVER OF JURY TRIAL........................32
SECTION 13. MISCELLANEOUS.............................................32
13.1 Notices, etc..............................................32
13.2 Calculations, etc.........................................33
13.3 Governmental Approval.....................................33
13.4 Survival of Agreements, etc...............................33
13.5 Counterparts, etc.........................................34
13.6 Entire Agreement, etc.....................................34
13.7 Governing Law, etc.; Construction.........................34
SCHEDULES AND EXHIBITS
Exhibit A - Form of Notice
Exhibit B - Compliance Certificate
Exhibit C - Note
Exhibit D - Opinion of ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
Schedule 1.2 - Additional Advances
Schedule 2.2 - Subsidiaries
Schedule 2.4 - Financial Statements; Disclosure, etc.
Schedule 2.5 - Licenses; Permits; Franchises; etc.
Schedule 2.6 - Material Agreements
(iii)
Schedule 2.8 - Indebtedness; Liens and Investments; etc.
Schedule 2.9 - Real Estate Owned and Leased
Schedule 2.10 - Litigation; etc.
Schedule 2.13 - ERISA
Schedule 2.14 - Ownership of the Borrower; Outstanding Options or Warrants
Schedule 2.15 - Environmental Matters
Schedule 2.16 - Patents, Trademarks; Intellectual Property
Schedule 2.18 - Trade and Other Names
Schedule 2.21 - Depository and Other Accounts
Schedule 2.25 - Registration Statement
Schedule 3.23 - Insurance Policies
Schedule 3.24 - Employment and Labor Agreements
Schedule 4.10 - Management
Schedule 6.1 - Use of Proceeds
(iv)
THIS AGREEMENT dated as of November 23, 1999 by and between URBAN COOL
NETWORK, INC., a Delaware corporation (the "Borrower") and THE ELITE FUNDING
GROUP, INC., a Florida corporation (the "Lender"). Certain other terms used
herein are defined in Section 7.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Borrower and the Lender hereby agree as
follows:
SECTION 1. AMOUNT AND TERMS OF THE CREDIT
1.1 Recitals; Commitment. Subject to the terms and conditions hereof,
and in reliance upon the representations and warranties contained herein, Lender
is willing to make the loan advances described in Section 1.2 (collectively, the
"Advances"), in the maximum aggregate principal amount not to exceed ONE MILLION
DOLLARS AND NO/100 ($1,000,000.00) (the "Commitment").
1.2 Procedure for Borrowing.
(a) Initial Advance. Simultaneously with the execution of this
Agreement, Lender shall make an initial Advance to the Borrower in the aggregate
principal amount of Three Hundred and Fifty Thousand Dollars ($350,000.00) (the
"Initial Advance").
(b) Additional Advances. Lender may make an additional Advance
to the Borrower on the dates (each date, an "Advance Date") and in the aggregate
principal amounts as shown on Schedule 1.2 (each such advance, an "Additional
Advance"); provided, however, if any Advance Date is not a Business Day, then
the Additional Advance shall be made on the next succeeding Business Day;
provided, further, that Borrower shall four Business Days prior to each Advance
Date give to Lender an irrevocable notice in the form of Exhibit A of its
request of Lender to make an Additional Advance on the applicable Advance Date
(which must be received by Lender by 12:00 Noon, eastern standard time).
(c) Mechanics of Advances. On each Advance Date, the Borrower
shall provide Lender with a certificate in the form of Exhibit B ("Compliance
Certificate"). Each Advance shall be made either by wire transfer of immediately
available funds to an account designated by the Borrower in writing to Lender or
a check drawn on an account with a United States bank or other United States
financial institution payable to Borrower as determined by the Lender in its
sole discretion.
1.3 Notes. The Borrower agrees that upon the request of Lender,
Borrower will execute and deliver to Lender a promissory note of the Borrower
evidencing any amount owed under any Advance, substantially in the form of
Exhibit C ("Note"), with appropriate insertions as to date and amount.
1.4 Interest.
(a) Each Advance shall bear interest (computed on the basis of
the actual number of days elapsed over a 360-day year) on the unpaid principal
amount thereof until paid in full at the rate per annum equal to ten percent.
(b) Interest on any Advance shall be payable monthly in
arrears on the first day of each month, commencing on the first such date next
succeeding the date hereof. Notwithstanding anything contained herein or in any
other Loan Document to the contrary, in no event shall the amount paid or agreed
to be paid by the Borrower as interest on the Advances exceed the highest lawful
rate permissible under any law applicable thereto.
1.5 Warrants. As additional consideration, the Borrower shall issue,
and the Lender shall receive, simultaneously with the signing of this agreement
common stock purchase warrants ("the Warrants") covering 750,000 shares of
common stock of the Borrower, par value $.01 per share ("Common Stock"). All of
the warrants and the Common Stock purchasable upon the exercise of the Warrants,
shall be subject to the Subscription Agreement (as defined herein) between
Lender and Borrower.
1.6 Maturity Date. Subject to acceleration pursuant to Section 6, the
full outstanding balance of principal and accrued but unpaid interest on the
Advances shall be due on the earlier to occur of: (a) the consummation of an
initial public offering of securities of the Borrower, or (b) April 14, 2000
(the "Maturity Date").
1.7 Prepayments.
(a) Voluntary Prepayment. Subject to Section 1.10, on at least
two Business Days' prior written notice to Lender, the Borrower may, at its
option, prepay the amount of Advances then outstanding in whole or in part at
any time without a premium or penalty of any kind attributable to such
prepayment.
(b) Mandatory Prepayment of Advances Upon Certain Corporate
Events. Without limiting or impairing the provisions of subsections 5.1 or 5.8,
the Borrower shall, upon the occurrence of any of the following, prepay the
outstanding balance of the Advances directly from, and to the extent of (but not
to exceed the amounts owed), the proceeds from: (i) the sale of any of the
Borrower's assets other than those assets sold in the ordinary course of the
Borrower's businesses; (ii) the issuance of any Indebtedness by the Borrower;
and (iii) the issuance of any equity interests by the Borrower, including but
not limited to, any public offering of the securities of the Borrower.
(c) Order of prepayments. Any prepayment of sums owed
hereunder shall be made together with accrued interest on the amount prepaid to
the date of such prepayment and all other fees and expenses due the Lender under
the Loan Documents. Such prepayment shall be applied first to fees or other
expenses owing under the Loan Documents, then to accrued but unpaid interest,
and finally to any outstanding Advance.
2
1.8 Security. The Advances and all other obligations of the Borrower
hereunder and/or under the other Loan Documents shall be secured by and entitled
to the benefits of the Security Agreement dated as of the date hereof between
the Borrower and Lender (the "Security Agreement").
1.9 Default Rate Of Interest. Immediately in the event of a Payment
Default and twenty days after notification by the Lender of the occurrence of
any other Default or Event of Default, interest on the full outstanding balance
of principal and (to the extent permitted by applicable law) interest on the
Advances shall, during the continuance of such Event of Default or Default, be
payable at a rate per annum equal to the highest lawful rate permissible under
New York law.
1.10 Form and Terms of Payment.
(a) All payments by the Borrower pursuant to the Loan
Documents shall be made to the Lender by wire transfer in immediately available
funds to an account or accounts designated by Lender from time to time in
writing to the Borrower, free of any counterclaim, set-off or charge. If any
payment due to the Lender shall become due on a day which is not a Business Day,
such payment may be made on the next succeeding Business Day and such extension
shall be included in computing interest in connection with such payment.
(b) Subject to subsection 1.10(c), Borrower shall repay the
outstanding principal amount of all Advances together with accrued but unpaid
interest on such Advances and all other fees and expenses due the Lender under
the Loan Documents on the Maturity Date.
(c) [INTENTIONALLY OMITTED]
3
SECTION 2. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender to enter into this Agreement and to make
the Advances provided for hereunder, the Borrower makes the following
representations and warranties which shall survive the execution and delivery
hereof, and which shall be deemed re-made by the Borrower each time the Borrower
submits a borrowing request to the Lender.
2.1 Organization, Standing, etc. of the Borrower. Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own and operate its properties, to carry on its business as now conducted and
proposed to be conducted, to enter into this Agreement, the Security Agreement
and all other Loan Documents to be executed by it in connection with the
transactions contemplated hereby, to grant the Lender a security interest in the
Collateral (as defined in the Security Agreement), to issue any Note, and to
carry out the terms hereof and thereof.
2.2 Subsidiaries. Schedule 3.2 attached hereto correctly sets forth as
to each Subsidiary, its name, the jurisdiction of its incorporation, the number
of shares of its capital stock of each class outstanding. Each such Subsidiary
is a corporation duly organized, validly existing and, in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to own and operate its properties, to carry on its
business as now conducted and now proposed to be conducted. All of the
outstanding capital stock of each Subsidiary is validly issued, fully-paid and
nonassessable, and is owned by the Borrower as specified in Schedule 3.2, in
each case free of any mortgage, pledge, lien, security interest, charge, option
or other encumbrance.
2.3 Qualification. The Borrower and its Subsidiaries are duly qualified
or licensed and in good standing as foreign corporations duly authorized to do
business in each jurisdiction in which the character of the properties owned or
the nature of the activities conducted makes such qualification or licensing
necessary.
2.4 Financial Information; Disclosure; Projections etc.
(a) Borrower has furnished the Lender with the financial
statements and other reports, including but not limited to a list of all
off-balance sheet items, listed in Schedule 3.4 hereto. Such financial
statements have been prepared in accordance with GAAP applied on a consistent
basis and fairly present the financial position and results of operations of the
Borrower and the other Persons, if any, to which they relate as of the dates and
for the periods indicated. Since December 31, 1998, there has not occurred any
event, circumstance or condition has had or could have a Material Adverse Effect
on the business, operations, properties or financial position of either of the
Borrower or of the other Persons to which such financial statements purport to
relate.
4
(b) Neither this Agreement nor any financial statements,
reports or other documents or certificates furnished to the Lender by the
Borrower contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements herein or therein contained not
misleading, in light of the circumstances under which they are made, except to
the extent that such financial statements, reports or other documents or
certificates expressly relate to an earlier date or are affected by the
consummation of the transactions contemplated by this Agreement.
(c) None of the Advances will render the Borrower unable to
pay its debts as they become due. Borrower is not contemplating either the
filing of a petition by it under any state or federal bankruptcy or insolvency
laws or the liquidation of all or a major portion of its property and Borrower
has no knowledge of any person contemplating the filing of any such petition
against it. Borrower (both before and after the making of the Advances and the
granting of security interests in favor of the Lender) is solvent (within the
meanings of all applicable fraudulent transfer or fraudulent conveyance statutes
and acts, the federal bankruptcy code and all other applicable laws) and has
assets having a fair value in excess of the amount required to pay its probable
liabilities on its existing debts (including the Advances and contingent debts)
as they become absolute and matured, and has, and will have, access to adequate
capital for the conduct of its business and the ability to pay its debts from
time to time incurred therewith as such debts mature.
(d) The Borrower has, or will have within 10 days of the date
hereof, furnished to the Lender certain financial projections of the Borrower
and its Subsidiaries (collectively, the "Projections"). The Projections present
fairly the expected financial condition and expected results of operations of
the Borrower for the dates or periods indicated thereon. To the Borrower's
knowledge, the Projections contain no information which, or omits any
information the omission of which, makes such Projections materially misleading.
2.5 Licenses; Permits; Franchises, etc.. Except as set forth in
Schedule 2.5, Borrower has obtained all material authorizations, licenses,
permits, approvals and franchises of any public or governmental regulatory body
("Licenses") necessary to conduct its business as currently conducted.
2.6 Material Agreements. Schedule 2.6 attached hereto accurately and
completely lists each material agreement and instrument including but not
limited to (a) leases; (b) employment agreements or other agreements with
management of either of the Borrower or any Subsidiary; (c) stockholder
agreements; and (d) all other material agreements which, as of the date hereof,
will be in effect in connection with the conduct of the businesses of the
Borrower and its Subsidiaries. Each of the Borrower and its Subsidiaries and, to
the best of the Borrower's knowledge, all third parties to such material
agreements, are in substantial compliance with the terms thereof, and no default
or event of default by the Borrower or, to the Borrower's knowledge, any other
party thereto, exists thereunder.
2.7 Tax Returns and Payments. Each of the Borrower and its Subsidiaries
have filed all tax returns required by law to be filed and have paid all taxes,
assessments and other governmental charges levied upon any of their respective
properties, assets, income or franchises,
5
other than those not yet delinquent and those, not substantial in aggregate
amount, being or about to be contested as provided in subsection 4.4. The
charges, accruals and reserves on the books of the Borrower and its Subsidiaries
in respect of their respective taxes are adequate, and Borrower knows of no
unpaid assessment for additional taxes or of any basis therefor.
2.8 Indebtedness; Liens and Investments; etc. Schedule 2.8 attached
hereto correctly describes, as of the date or dates indicated therein, (a) all
outstanding Indebtedness of either of the Borrower or its Subsidiaries in
respect of borrowed money, Capital Leases and the deferred purchase price of
property; (b) all existing mortgages, liens and security interests in respect of
any property or assets of either of the Borrower or its Subsidiaries; (c) all
outstanding investments, loans and advances of the Borrower and its
Subsidiaries; and (d) all existing guarantees by either of the Borrower or its
Subsidiaries.
2.9 Real Estate Owned and Leased; Title to Properties; Liens. Each of
the Borrower and its Subsidiaries have good and marketable title to all of their
respective properties and assets, and none of such properties or assets is
subject to any mortgage, pledge, lien, security interest, charge or encumbrance
except the existing mortgages and security interests, if any, referred to in
Schedule 2.8 attached hereto. The real property owned by the Borrower and/or its
Subsidiaries and the real property leased by the Borrower and/or its
Subsidiaries (collectively, the "Real Estate Leases") are listed on Schedule 2.9
hereto. True, correct and complete copies of the Real Estate Leases, together
with all amendments and supplements thereto, have been furnished to the Lender.
Each of the Borrower and its Subsidiaries enjoy quiet possession under all Real
Estate Leases to which they are parties as lessees, and all of such Real Estate
Leases are valid, subsisting and in full force and effect. None of such Real
Estate Leases contains any provision restricting the incurrence of indebtedness
by the lessee or any unusual or burdensome provision materially adversely
affecting the current and proposed operations of the Borrower and its
Subsidiaries.
2.10 Litigation; etc. Except as may be set forth on Schedule 2.10,
there is no action, proceeding or investigation pending or threatened (or any
basis therefor known to the Borrower) which questions the validity of this
Agreement, the Security Agreement, or the other Loan Documents executed in
connection herewith, or any action taken or to be taken pursuant hereto or
thereto, or which could have, either in any case or in the aggregate, a Material
Adverse Effect on the business operations, affairs or condition of either of the
Borrower or any Subsidiary or any of their respective properties or in any
material liability on the part of either of the Borrower or any Subsidiary.
2.11 Authorization; Enforceability Compliance with Other Instruments.
The execution, delivery and performance of this Agreement, the Security
Agreement and the other Loan Documents executed in connection herewith have been
duly authorized by all necessary corporate action on the part of the Borrower,
will not result in any violation of or be in conflict with or constitute a
default under any term of the charter or by-laws of the Borrower or any
Subsidiary, or of any material agreement, or any instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to the Borrower or
any Subsidiary or to which the Borrower or any Subsidiary is a party, as the
case may be, or result in the creation of any mortgage, lien, charge or
encumbrance upon any of the properties or assets of the Borrower or
6
any Subsidiary pursuant to any such term (except pursuant to the Security
Agreement). Each of the Loan Documents to which either of the Borrower or any
Subsidiary is a party has been duly executed and delivered by a duly authorized
officer of such party, and each such Loan Document constitutes the legal, valid
and binding obligation of such party, enforceable in accordance with the terms
thereof. No consent of stockholders of either of the Borrower or the
Subsidiaries is necessary in order to authorize the execution, delivery or
performance of this Agreement or the Security Agreement, or the issuance of any
Note. Neither the Borrower nor any Subsidiary is in violation of any term of its
charter or by-laws, or of any material term of any agreement or instrument to
which it is a party, or, of any judgment, decree, order, statute, rule or
governmental regulation applicable to it.
2.12 Governmental and Other Third Party Consents. Except for such
filings and notices as have already been made, none of the Borrower or its
Affiliates which is a party to any of the Loan Documents is required to obtain
any order, consent, approval or authorization of (collectively, the "Consents"),
or required to make any declaration or filing with, any governmental unit or
other regulatory agency or authority in connection with the execution and
delivery of Loan Documents, except for the Consents required with respect to the
Warrants, if any.
2.13 Employee Retirement Income Security Act of 1974. Neither the
Borrower or its Affiliated Companies have any pension, profit sharing or similar
plans providing for a program of deferred compensation to any employee subject
to the provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). The terms used in this subsection and in other provisions of
this Agreement shall have the meanings assigned thereto in the applicable
provisions of ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"), and the term "Affiliated Company" shall mean the Borrower and all
corporations, partnerships, trades or businesses (whether or not incorporated)
which constitute a controlled group of corporations with the Borrower, a group
of affiliated service group or other affiliated group, within the meaning of
Section 414(b), Section 414(c), Section 414(m) or Section 414(o), respectively,
of the Code, or Section 4001 of ERISA.
2.14 Ownership of Borrower; Outstanding Options or Warrants. Schedule
2.14 attached hereto correctly sets forth the number of shares authorized and
outstanding of each class of stock for the Borrower and the Subsidiaries. All of
said outstanding shares are validly issued, fully paid and nonassessable. There
are no outstanding rights, options, warrants or agreements for the purchase
from, or sale or issuance by, the Borrower or any Subsidiary of any of its
capital stock or any securities convertible into or exchangeable for such stock
and neither the Borrower nor any Subsidiary is obligated in any manner to issue
any additional shares of capital stock, except as may be set forth on Schedule
2.14 hereto. All of the Borrower's and each Subsidiaries' capital stock was
issued in compliance with all applicable securities laws.
2.15 Environmental Matters. To the knowledge of the Borrower, no facts
or circumstances exist which could give rise to liabilities with respect to the
violation (whether by the Borrower or any other Person) of any Environmental Law
and/or Hazardous Materials, which could have any Material Adverse Effect.
7
2.16 Intellectual Property.
(a) Schedule 2.16 contains a true, correct and complete list
of all Intellectual Property. Except as set forth in the Schedule 2.16, (i) the
Borrower is the owner of, or otherwise has the free and unrestricted right to
use, each of the Intellectual Property, free and clear of all Liens, (ii) the
Borrower's use of the Intellectual Property has not and will not conflict with,
infringe upon or violate any proprietary right of any other Person, (iii) the
Borrower has no knowledge of any third party infringement upon the Intellectual
Property, (iv) all Intellectual Property purported to be owned by Borrower held
by any employee, officer or consultant is owned by Borrower by operation of law
or has been validly assigned to Borrower, and (v) the Borrower has taken all
reasonable and customary steps to maintain its interest in the Intellectual
Property and to protect its interests in the Intellectual Property from
infringement by third parties. No claims or demands have been asserted against
the Borrower with respect to any items of Intellectual Property (whether or not
scheduled) and no action, suit or other proceeding have been instituted, are
pending or, to the knowledge of the Borrower, have been threatened which
challenge the rights of the Borrower with respect to any items of Intellectual
Property. There are no facts known to the Borrower which might reasonably serve
as the basis of any claim that the any part of the Business infringes on the
rights of any other Person, or of any claim that the Borrower has not performed
its obligations required to be performed by it, or of any claim that the
Borrower is in default with respect to any of such items of Intellectual
Property. The Intellectual Property and the rights thereunder are sufficient to
carry on the business of the Borrower and its Subsidiaries as conducted as of
the date hereof.
(b) Borrower has taken all reasonable measures to protect and
preserve the security and confidentiality of its trade secrets and other
confidential information. All employees and consultants of Borrower involved in
the design, review, evaluation or development of the business of the Borrower,
or other products for or on behalf of Borrower, or Intellectual Property have
executed nondisclosure and assignment of inventions agreements sufficient to
protect the confidentiality of Borrower's trade secrets and other confidential
information and to vest in Borrower exclusive ownership of such Intellectual
Property. To the knowledge of Borrower, all trade secrets and other confidential
information of Borrower are not part of the public domain or knowledge, nor, to
the knowledge of Borrower, have they been misappropriated by any person having
an obligation to maintain such trade secrets or other confidential information
in confidence for Borrower. To the knowledge of Borrower, no employee or
consultant of Borrower has used any trade secrets or other confidential
information of any other Person in the course of their work for Borrower without
the written consent of such other person.
2.17 Chief Executive Offices Principal Place of Business; Real Property
Owned or Leased. As of date hereof, the chief executive offices and principal
place of business of the Borrower is located at ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇. At all times prior to the date hereof, the chief executive offices and
principal place of business of the Borrower was located at ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇. The Borrower shall not make any change in the locations of
their chief executive offices or principal place of business or any of the
Collateral without giving the Lender at least 15 days' prior written notice
thereof.
8
2.18 Trade and Other Names. The exact legal name of the Borrower when
initially formed was Urban Cool Network, Inc. Except as set forth on Schedule
2.18 attached hereto, during the last five years ending on the date hereof, the
Borrower have not conducted any business under any other names (including any
d/b/a, trade or assumed name) other than as set forth on Schedule 2.18.
2.19 Securities Laws. Borrower is not a "holding company" or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940.
2.20 Security Agreement. The representations and warranties of the
Borrower and its Subsidiaries contained in the Security Agreement, are true and
correct in all material respects, and the Borrower is in compliance in all
material respects with the terms of the Security Documents.
2.21 Depository and Other Accounts. Schedule 2.21 attached hereto lists
all banks and other financial institutions and depositories at which the
Borrower maintains (or has caused to be maintained) or will maintain deposit
accounts, operating accounts, trust accounts, tax or trust receivable accounts
or other accounts of any kind or nature into which funds of the Borrower
(including funds in which the Borrower maintains a contingent or residual
interest) are from time to time deposited, and such Schedule 2.21 correctly
identifies the name and address of each depository, the name in which each
account is held, the purpose of the account and the complete account number. The
Borrower will notify the Lender and thereby supplement such Schedule 2.21, as
new accounts are established. The Borrower hereby authorize the Lender to attach
such supplements to Schedule 2.21 from time to time delivered by the Borrower.
2.22 Insurance Policies. Schedule 2.22 lists all insurance policies of
any kind or nature maintained by or on behalf of the Borrower or the
Subsidiaries, as well as a summary of the principal terms of such insurance. All
such insurance policies are in full force and effect and provide coverage of
such risks and in such amounts as is customarily maintained for businesses of
the scope and size of the Borrower and the Subsidiaries.
2.23 Employment and Labor Agreements. Schedule 2.23 accurately and
completely describes each employment agreement, agreement for the payment of
deferred compensation, severance or so-called change in control agreement
covering officers, managers or other Affiliates of the Borrower, as well as all
collective bargaining agreements or other labor agreements covering any
employees of the Borrower. A true and correct copy of each such agreement has
been furnished to the Lender.
2.24 Year 2000 Issues.
(a) All software programs or applications (in both source and
object code form) currently being manufactured, published or marketed by the
Borrower or currently under development for possible future manufacturing,
publication, marketing or other use by the
9
Borrower will be "Year 2000 Compliant" which shall mean that they (i) correctly
accomplish date data century recognition and calculations that accommodate same
century and multi-century formulas and date values, including leap years; and
(ii) shall not end abnormally or provide invalid or incorrect results of date
data, specifically including date data that represents or references different
centuries or more than one century; provided, however, that the Borrower makes
no representation regarding the functionality of its products when combined with
third party software, hardware or peripheral items on the event that such third
party software, hardware or peripheral items are not Year 2000 Compliant.
(b) For purposes of this Section, "Internal MIS Systems" means
any computer software and systems (including hardware, firmware, operating
system software, utilities, and applications software) used in the ordinary
course of business by or on behalf of the Borrower, including the Borrower's
payroll, accounting, billing/receivables, inventory, asset tracking, customer
service, human resources, and e-mail systems. All the Internal MIS Systems and
its facilities are Year 2000 Compliant.
(c) To the knowledge of the Borrower, all material vendors of
products or services to the Borrower will continue to furnish their products or
services to the Borrower, without material interruption or delay, on and after
January 1, 2000.
(d) The design of the products, services and other item(s) at
issue to ensure compliance with the foregoing warranties and representations
includes proper date/time data century recognition and recognition of 1999 and
2000, calculations that accommodate single century and multi-century formulas
and date/time values before, or, after, and spanning January 1, 2000, and
date/time date interface values that reflect the centuries 1999 and 2000. In
particular, (i) no value for current date/time will cause any error,
interruption, or decreased performance in or for such product(s), service(s),
and other item(s), (ii) all manipulations of date and time related data
(including calculating, comparing, sequencing, processing and outputting) will
produce correct results for all valid dates and times when used independently or
in combination with other products, services, and/or items actually tested by
the Borrower, (iii) date/time elements in interfaces and data storage will
specify the century to eliminate date ambiguity without human intervention,
including leap year calculations, (iv) where any date/time element is
represented without a century, the correct century will be unambiguous for all
manipulations involving that element, (v) authorization codes, passwords and
zaps (purge functions) will function normally and in the same manner during,
prior to, on and after January 1, 2000, including the manner in which they
function with respect to expiration dates and CPU serial numbers, and (vi) the
Borrower's supply of the product(s), service(s), and other item(s) will not be
interrupted, delayed, decreased, or otherwise affected by the advent of the year
2000.
2.25 Initial Public Offering. The Borrower has entered into a
letter of intent with Security Capital Trading, Inc. ("Security Capital")which
confirms Security Capital's interest in underwriting the initial public offering
of the Common Stock (the "Letter of Intent"). The Letter of Intent is in full
force and effect and there exists no event or occurrence which with the passage
of time or the giving of notice or both would constitute a default or breach of
the Letter of Intent. The Borrower anticipates consummating the initial public
offering in or about January 2000. Attached hereto as Schedule 2.25 is a
preliminary draft of the registration statement on a Form S-1 ("Registration
Statement") which the Borrower intends to file with the SEC within 10 days of
the date hereof.
10
Form S-1 ("Registration Statement") which the Borrower intends to file with the
SEC within 10 days of the date hereof.
SECTION 3. CONDITIONS OF CLOSING/LENDING.
3.1 Conditions Precedent to Closing and to the Initial Advance. The
obligation of the Lender to execute this Agreement and to make the Initial
Advance hereunder is subject to the following conditions precedent:
(a) The Lender shall have received the Notes duly completed,
executed and delivered, as provided in Section 1;
(b) All related Schedules, the Security Agreement, and such
other Loan Documents, instruments, schedules, exhibits or certificates as shall
be designated by the Lender shall have been executed by the Borrower and the
other parties thereto and delivered to the Lender;
(c) The Lender shall have received the Borrower's and the
Subsidiaries' audited consolidated balance sheets, statements of income, surplus
and cash flows as of and for the fiscal years ended December 31, 1998 and as of
and for the nine months ended September 31, 1999, together with unqualified
opinions from the Borrower's independent public accountant relating to such
audits and related management letters;
(d) The Lender shall have received a pro forma balance sheet
and income statement for the Borrower dated as of a current date, giving effect
to the consummation of this Agreement (including the Initial Advance);
(e) The Lender shall have received (i) satisfactory evidence
of the filing of such financing statements and instruments securing the Lender's
first priority security interests in the Collateral; and (ii) satisfactory
evidence of the termination of such prior financing statements and other
encumbrances or agreements as the Lender shall designate;
(f) The Lender shall have received the favorable opinion of
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., general counsel for the Borrower, in the
form attached hereto as Exhibit D and dated as of the date hereof and such
opinions of local counsel as the Lender may require;
(g) The Lender shall have received a completed Compliance
Certificate signed by the chief executive officer of the Borrower, dated as of
the date hereof;
(h) The Borrower shall have paid the fees specified in
subsection 9(a) and all other amounts (including reimbursement for legal fees)
owing from the Borrower to the Lender as of the date hereof;
(i) All other information and documents which the Lender or
their counsel may reasonably have requested in connection with the transactions
contemplated by this
11
Agreement, such information and documents where appropriate to be certified by
the proper officers of the Borrower's or governmental authorities.
3.2 Conditions Precedent to Making Additional Advances. The obligation
of the Lender to make any Additional Advance hereunder is subject to the
following conditions precedent:
(a) The Lender shall have received a Compliance Certificate
dated as of such date signed by the chief executive officer of the Borrower;
(b) All other information, and documents which the Lender or
their counsel may reasonably have required in connection with the transactions
contemplated by this Agreement, such information and documents where appropriate
to be certified by the proper officers of the Borrower or governmental
authorities;
(c) No Default or Event of Default exists or will result from
the Additional Advance being made on that Advance Date.
Without limiting any other provision of this Agreement, each of the opinions,
agreements, certificates, and other condition precedent listed above must be
satisfactory in all respects to the Lender and their counsel in order for such
condition precedent to be deemed satisfied.
3.3 No Default; Representations and Warranties, etc. On the date hereof
and on the date of each Advance hereunder: (i) the representations and
warranties of the Borrower contained in Section 2 of this Agreement shall be
true and correct in all material respects on and as of such dates as if they had
been made on such dates (except to the extent that such representations and
warranties expressly relate to an earlier date or are affected by the
consummation of transactions permitted under this Agreement); (ii) the Borrower
shall be in compliance in all material respects with all of the terms and
provisions set forth herein on their part to be observed or performed on or
prior to such dates; (iii) after giving effect to the Advances to be made on
such dates, no Default or Event of Default shall have occurred and be
continuing; and (iv) since the date of this Agreement, there shall have been no
material adverse change in the assets or liabilities or in the financial or
other condition or prospects of the Borrower or any Subsidiary. Each request for
an Advance hereunder shall constitute a representation and warranty by the
Borrower to the Lender that all of the conditions specified in this Section 3,
have been and continue to be satisfied in all material respects as of the date
of each such Loan.
SECTION 4. AFFIRMATIVE COVENANTS.
So long as any of the Advances shall remain available to the Borrower,
and until the principal of and interest on the Advances and all fees due
hereunder and all of the Borrower's obligations to the Lender shall have been
paid in full, the Borrower agrees that:
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4.1 Financial Statements; Field Audits etc. The Borrower will furnish
or cause to be furnished to the Lender:
(a) Within ninety days after the end of each fiscal year of
the Borrower, (i) the audited consolidated balance sheets of the Borrower and
its Subsidiaries as of the year end, and (ii) the related audited consolidated
statements of income and surplus and cash flows for such year, setting forth in
comparative form with respect to such consolidated financial statements figures
for the previous fiscal year, all in reasonable detail, together with the
opinion thereon of independent public accountants selected by the Borrower with
an established national or regional reputation, which opinion shall be in a form
generally recognized as unqualified and shall state that such financial
statements have been prepared in accordance with GAAP applied on a basis
consistent with that of the preceding fiscal year and that the audit by such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards related to reporting;
(b) Promptly upon receipt thereof but in any event within
ninety days of fiscal year end, copies of all audit reports and management
letters, if any, submitted to the Borrower by independent public accountants in
connection with each interim or special audit of the books of the Borrower made
by such accountants and, upon request by the Lender, copies of all financial
statements, reports, notices and proxy statements, if any, sent by the Borrower
to their shareholders;
(c) within forty-five days after the end of each quarterly
accounting period in each fiscal year of the Borrower, (i) the unaudited
consolidated balance sheets of the Borrower and its Subsidiaries as of the end
of such quarter; and (ii) the related unaudited consolidated statements of
income and surplus and cash flows for such period and for the period from the
beginning of the current fiscal year to the end of such period, all in
reasonable detail and signed by the chief financial officers of the Borrower in
the name and on behalf of the Borrower;
(d) As soon as available, but in any event within 30 days
after the end of each month (i) the unaudited consolidated balance sheets of the
Borrower and its Subsidiaries as of the end of such month; (ii) the related
unaudited consolidated statements of income and surplus and cash flows for such
month and for the period from the beginning of the current fiscal year to the
end of such month, setting forth in comparative form with respect to such
consolidated financial statements the corresponding figures from the Borrower's
budget for such period and portion of such fiscal year; (iii) reports
summarizing each of the Borrower's year-to-date backlog, if any; (iv) reports
providing a complete and accurate description of the use of proceeds from any
Advance provided hereunder together with all reasonable documentation of such
use as the Lender may require, and (v) a monthly accounts receivable aging
report for each of the Borrower. All of the reports listed in the foregoing
clauses (i) through (iv) shall be in reasonable detail and current through at
least the close of business for the immediately preceding month and certified by
the chief executive officer or the chief financial officer or such other officer
of the Borrower as may be acceptable in the sole discretion of the Lender;
(e) On or before December 15th of each fiscal year (commencing
December 15, 1999), an annual budget prepared on a monthly basis for the
Borrower and for the
13
Subsidiaries for the next succeeding fiscal year, (displaying anticipated
balance sheets and statements of income and surplus and cash flows) and promptly
upon preparation thereof, any amendments or revisions thereto or any other
significant budgets which the Borrower prepare;
(f) Promptly upon their becoming available, copies of all
periodic or special reports filed by the Borrower or any Subsidiary with, and
all communications from or to, the SEC, the National Association of Securities
Dealers or the Amex-Nasdaq Market Group, or any such other periodic or special
reports or other communications filed with or communicated to or from any other
federal, state or local governmental agency or authority;
(g) Forthwith upon any officer of either of the Borrower
obtaining knowledge of any condition or event which constitutes a Default or
Event of Default, a certificate signed by such officer in the name and on behalf
of the Borrower specifying in reasonable detail the nature and period of
existence thereof and what action the Borrower have taken or propose to take
with respect thereto;
(h) Five Business Days' prior notice of any meeting of the
board of directors of the Borrower (telephonic, special or otherwise), including
the time and place of such meeting, and the Borrower shall permit the
representatives of the Lender to attend (by telephone or in person) such
meetings;
(i) Immediately, notice of (i) the institution or commencement
of any action, suit, proceeding or investigation by or against or affecting the
Borrower or any of their assets which, if determined adversely to the Borrower,
could have a Material Adverse Effect; (ii) any litigation or proceeding
instituted by or against the Borrower, or any judgment, award, decree, order or
determination relating to any litigation or proceeding involving the Borrower
which could have a Material Adverse Effect; (iii) the imposition or creation of
any lien against any asset of the Borrower except those in favor of the Lender
and those permitted by this Agreement; (iv) any reportable event under ERISA,
together with a statement of the Borrower's chief executive officer, chief
financial officer and/or controller in the name and on behalf of the Borrower as
to the details thereof and a copy of their notice thereof to the PBGC; (v) any
known release or threat of release of Hazardous Materials on or onto any site
owned or operated by the Borrower or the incurrence of any expense or loss in
connection therewith or upon the Borrower's obtaining knowledge of any
investigation, action or the incurrence of any expense or loss by any
governmental authority in connection with the containment or removal of any
Hazardous Materials for which expense or loss the Borrower may be liable or
potentially responsible;
(j) Prompt notice of any material adverse change in either of
the Borrower's or any Subsidiary's financial condition, the financial condition
of any Affiliates or of any condition or event which constitutes a breach or
Event of Default under this Agreement or any other Loan Document;
(k) The Borrower will permit the Lender to inspect and audit
the books and records and any of the properties or assets of the Borrower and
its Subsidiaries, as often as deemed necessary by the Lender and in any event at
least once per year prior to the occurrence of
14
an Event of Default, and after any such occurrence, once per fiscal quarter,
each such inspection to be at the Borrower's expense;
(l) Within 10 days of the date hereof, the Borrower will
provide Lender with the Borrower's and the Subsidiaries' audited consolidated
balance sheets, statements of income, surplus and cash flows as of and for the
fiscal years ended December 31, 1998 and as of and for the nine months ended
September 31, 1999, together with unqualified opinions from the Borrower's
independent public accountant relating to such audits and related management
letters and a pro forma balance sheet and income statement for the Borrower
dated as of a current date, giving effect to the consummation of this Agreement
(including the Initial Advance);
(m) Within 5 Business Days of the date hereof, the Borrower
shall make the appropriate filings with the United States Copyright Office with
respect to each and every copyrightable work (original and/or derivative)
including text, graphics, audio components, audio-visual components, computer
software (source and object code formats), compilations, collective works and
all other works performed and or fixed in tangible format comprising elements of
the Borrwer's Website or which are used to operate the Website, the form and
substance of which filing shall be reasonably satisfactory to the Borrower and
its counsel, and the Borrower shall execute such additional security documents
to perfect the Lender's interest in such filing;
(n) Immediately upon receipt or issuance by the Borrower,
copies of all reports, covenant compliance certificates, budgets, projections,
requests for waivers, notices of default, requests for amendments or other
material correspondence issued by or to the Borrower in connection with or
relating to any Subordinated Debt; and
(o) Promptly upon request therefor, all such other information
regarding the business, affairs and condition of the Borrower and the
Subsidiaries as the Lender may from time to time reasonably request.
4.2 Legal Existence; Licenses; Compliance with Laws. Borrower will, and
will cause each Subsidiary to: maintain its corporate existence and business;
maintain all properties which are reasonably necessary for the conduct of such
business, now or hereafter owned, in good repair, working order and condition;
take all actions necessary to maintain and keep in full force and effect its
rights and franchises, including the Licenses; maintain at all times proper
books of record and account in which full, true and correct entries shall be
made of its transactions in accordance with generally accepted accounting
principles and set aside on its books from its earnings for each fiscal year all
such proper reserves as shall be required in accordance with generally accepted
accounting principles in connection with its business; and comply with all
applicable statutes, rules, regulations and orders of, and all applicable
restrictions imposed by, all governmental authorities in respect of the conduct
of its business and the ownership of its properties in states in which the
Borrower desire to continue business operations.
15
4.3 Insurance.
(a) Business Interruption Insurance. Each of the Borrower and
its Subsidiaries shall maintain with financially sound and reputable insurers,
insurance related to interruption of business, either for loss of revenues or
for extra expense, in the manner customary for businesses of similar size
engaged in similar activities.
(b) Property Insurance. Each of the Borrower and its
Subsidiaries shall keep their assets which are of an insurable character insured
by financially sound and reputable insurers against theft and fraud and against
loss or damage by fire, explosion and hazards insured against
by extended coverage to the extent, in amounts and with deductibles at least as
favorable as those generally maintained by businesses of similar size engaged in
similar activities.
(c) Liability Insurance. The Borrower shall maintain with
financially sound and reputable insurers insurance against liability for
hazards, risks and liability to persons and property, including errors and
omission insurance of not less than Five Million Dollars ($5,000,000) per
occurrence, to the extent, in amounts and with deductibles at least as favorable
as those generally maintained by businesses of similar size engaged in similar
activities.
(d) Key-Man Insurance. The Borrower shall maintain with
financially sound and reputable insurers "key-man" insurance covering losses or
damages to the Company as a result of the death of, or disability or casualty
with respect to, ▇▇▇▇▇ ▇. ▇▇▇▇▇, III, to the extent, in amounts and with
deductibles at least as favorable as those generally maintained by businesses of
similar size engaged in similar activities.
(e) Requirements; Proceeds. Each insurance policy maintained
pursuant to this subsection 5.3 pertaining to any of the Collateral shall: (i)
name the Lender, as an additional insured and loss payee and provide that all
proceeds shall be payable to the Lender; and (ii) provide that the Lender shall
be notified of any proposed cancellation of such policy at least thirty days in
advance of such proposed cancellation. The Lender will be named as an additional
insured under all policies of liability insurance. Copies of all such policies
shall be delivered to the Lender. In the event of a casualty loss, the Borrower
may apply up to $100,000 of proceeds of any insurance to the restoration or
replacement of the property or asset which was the subject of such loss,
provided that there is no Default or Event of Default, and provided further that
if the Borrower desire to apply proceeds in excess of $100,000 then the Borrower
shall first have demonstrated to the reasonable satisfaction of the Lender that
such property or asset will be restored to substantially its previous condition
or will be replaced by a substantially identical property or asset, without
material interruption in the Borrower's business and without Default of any
nature under this Agreement. As further assurance for the payment and
performance of the Advances and all other obligations hereunder, the Borrower
hereby assign to the Lender (for the benefit of the Lender) all sums, including
any returned or unearned premiums, which may become payable under any policy of
insurance in respect of the Collateral and the Borrower hereby direct each
insurer issuing any such policy to make such payment of such sums directly to
the Lender. No loss or claim shall be settled for an amount in excess of
$100,000 without prior written notice to the Lender.
16
4.4 Payment of Taxes. The Borrower will, and will cause each Subsidiary
to, pay and discharge promptly as they become due and payable all taxes,
assessments and other governmental charges or levies imposed upon them or their
income or upon any of their properties or assets, or upon any part thereof, as
well as all lawful claims of any kind (including claims for labor, materials and
supplies) which, if unpaid, might by law become a lien or a charge upon their
property; provided that neither of the Borrower nor any Subsidiary shall be
required to pay any such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in good faith by
appropriate proceedings promptly initiated and diligently conducted and if such
Borrower or such Subsidiary, as the case may be, shall have set aside on its
books such reserves, if any, with respect thereto as are required by GAAP and
deemed appropriate by the Borrower and their independent public accountants.
4.5 Payment of Other Indebtedness, etc. Except as to matters being
contested in good faith and by appropriate proceedings, and subject to the
provisions of subsection 6.5 (Restricted Payments) hereof, the Borrower will,
and will cause each Subsidiary to, pay promptly when due, or in conformance with
customary trade terms, all other Indebtedness and obligations incident to the
conduct of their businesses.
4.6 Further Assurances. From time to time hereafter, the Borrower will
execute and deliver, or will cause to be executed and delivered, such additional
instruments, certificates or documents, and will take all such actions, as the
Lender may reasonably request, for the purposes of implementing or effectuating
the provisions of this Agreement, the Security Agreement or any Note or any
other Loan Document, or of more fully perfecting or renewing the rights of the
Lender with respect to the Collateral pursuant hereto or thereto. Upon the
exercise by the Lender of any power, right, privilege or remedy pursuant to this
Agreement or the Security Agreement or any other Loan Document which requires
any consent, approval, registration, qualification or authorization of any
governmental authority or instrumentality, the Borrower will execute and
deliver, or will cause the execution and delivery of, all applications,
certifications, instruments and other documents and papers that the Lender may
be required to obtain for such governmental consent, approval, registration,
qualification or authorization. In the event the Borrower or any Subsidiary
shall at any time hereafter own or lease any additional real property, the
Borrower will, if requested by the Lender, promptly execute and deliver, and
will use their best efforts to cause to be executed and delivered by the
Borrower's landlord, to the Lender, such mortgages, leasehold mortgages and,
landlords consents, in form and substance satisfactory to the Lender and their
counsel, as may be required by the Lender.
4.7 Communication with Accountants. The Borrower authorizes the Lender
to communicate directly with the Borrower's independent certified public
accountants and have instructed those accountants in writing to disclose to the
Lender any and all prepared financial statements and all other supporting
financial documents and schedules delivered to the Lender by the Borrower or the
Subsidiaries.
4.8 Management. Schedule 4.9 attached hereto sets forth the names and
titles of each officer and director of each of the Borrower as of the date
hereof. The Borrower will notify the Lender in writing of any change in or
addition to such officers and directors of the Borrower within fifteen days of
any such change or addition.
17
4.9 Real Estate. The Borrower shall, and shall cause each Subsidiary
to, make available to the Lender and, if requested, provide the Lender with,
copies of all leases of real property or similar agreements (and all amendments
thereto) entered into by the Borrower or any Subsidiary after the date hereof,
whether as lessor or lessee. The Borrower shall, and shall cause each of its
Subsidiaries to, comply with all of their obligations under all leases now
existing or hereafter entered into by it or them with respect to real property
including, without limitation, all leases listed on any schedule hereto, if the
failure to so comply could have a Material Adverse Effect. The Borrower shall,
and shall cause each Subsidiary to, (i) make available to the Lender and, if
requested, provide the Lender with, a copy of each notice of any default
received by the Borrower or any Subsidiary under any such lease, and make
available to the Lender and, if requested, provide the Lender with, a copy of
each notice of default sent by the Borrower or any Subsidiary under any such
lease; and (ii) notify the Lender, on or before the 15th day of each month, of
any new leased premises or lease the Borrower or any Subsidiary plan to take
possession of during the following thirty day period or has become liable for
during the preceding thirty day period.
4.10 Compliance with ERISA. The Borrower will make, and will cause all
Affiliated Companies to make, all payments or contributions to employee benefit
plans required under the terms thereof and in accordance with applicable minimum
funding requirements of ERISA and the Code and applicable collective bargaining
agreements. The Borrower will cause all employee benefit plans sponsored by any
Affiliated Company to be maintained in material compliance with ERISA and the
Code.
4.11 Filing of the Registration Statement. The Borrower will file the
Registration Statement substantially in the form of Schedule 2.25 with the SEC
within 10 days of the date hereof.
SECTION 5. NEGATIVE COVENANTS.
So long as any of the Advances shall remain available to the Borrower,
and until the principal of and interest on the Advances and all fees due
hereunder and all of the Borrower's obligations to the Lender shall have been
paid in full, the Borrower agrees that:
5.1 Indebtedness. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or become or remain liable in respect of
any Indebtedness, except:
(a) Indebtedness to the Lender hereunder;
(b) Unsecured Liabilities of the Borrower and Subsidiaries
(other than for borrowed money) incurred in the ordinary course of their
businesses and in accordance with customary trade practices;
(c) Indebtedness of the Borrower or any Subsidiary secured as
permitted by, and subject to the proviso to subparagraph (c) of subsection 5.2;
and
(d) Up to $100,000 of additional unsecured subordinated debt,
provided that the terms and conditions of such debt is approved in advance in
writing by the Lender.
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5.2 Liens, etc. The Borrower will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist,
any mortgage, lien, charge or encumbrance on, or security interest in, or pledge
of, or conditional sale or other title retention agreement (including any
Capital Lease) with respect to, any real or personal property (tangible or
intangible, now existing or hereafter acquired)(each being a "Lien") including
but not limited to the Collateral, except:
(a) Any Lien securing Indebtedness to the Lender;
(b) Liens for taxes not yet delinquent or being contested in
good faith as provided in subsection 4.4;
(c) Purchase money mortgages, liens and other security
interests, including Capital Leases created in respect of property acquired by
the Borrower after the date hereof or existing in respect of property so
acquired prior to the date hereof, provided that (i) each such lien shall at all
times be confined solely to the item of property so acquired, and (ii) the
aggregate principal amount of indebtedness secured by all such liens (whether
incurred prior to or after the date hereof) shall at no time exceed $50,000; and
(d) Subordinated liens securing the Indebtedness permitted
pursuant to subsection 5.1(d) (each of clauses (a) - (c) being a "Permitted
Lien").
5.3 Loans, Guarantees and Investments. The Borrower will not, and will
not permit any Subsidiary to, make or permit to remain outstanding any loan or
advance to, or guarantee or endorse or otherwise assume or agree to purchase or
otherwise remain liable with respect to any obligation of, or enter into any
indemnification agreement for the benefit of, or make or own any investment in,
or acquire (except in the ordinary course of business) the properties or assets
of, any Person, except:
(a) Extensions of credit by the Borrower and the Subsidiaries
in the ordinary course of business in accordance with customary trade practices;
(b) Such Indebtedness as is shown on the Schedules to this
Agreement;
(c) Cash Equivalents; and
(d) Capital Expenditures, to the extent permitted by
subsection 5.6.
5.4 Collection Policies and Procedures. The Borrower will not implement
any material change in their collection policies and procedures without first
delivering written notice of such change and the reason therefor to the Lender.
5.5 Restricted Payments. Except as expressly provided below, the
Borrower shall not, and shall not permit any Subsidiary to, directly or
indirectly (i) declare, order, pay or make any Restricted Payment or (ii) set
aside any sum or property therefor or exercise any set-off or similar rights of
the Borrower, if any, with respect to any Subordinated Debt.
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As used herein, the term "Restricted Payment" means (i) any cash
dividend or other cash distribution or payment, direct or indirect, on or on
account of any shares of any class of stock of the Borrower or the Subsidiaries
now or hereafter outstanding; (ii) any dividend or other distribution in respect
of, or redemption, purchase or other acquisition, direct or indirect, of any
shares of any class of stock of the Borrower or the Subsidiaries now or
hereafter outstanding or of any warrants, options or rights to purchase any such
stock (including, without limitation, the repurchase of any such stock, warrant,
option or right or any refund of the purchase price thereof in connection with
the exercise by the holder thereof of any right of rescission or similar
remedies with respect thereto); (iii) any direct salary, non-salary managerial
fees, fee (consulting, management or other), fringe benefit, allowance or other
expense directly or indirectly paid or payable by the Borrower or any Subsidiary
(as compensation or otherwise) to any shareholder or Affiliate of the Borrower
(other than to an employee, to the extent of such employee's normal
compensation) or any partner, shareholder or Affiliate thereof; (iv) any loan or
advance of any kind or nature to any Affiliate; and (v) any payment in respect
of Subordinated Debt.
Notwithstanding the foregoing, provided that each of the Borrower and
the Subsidiaries are in compliance with the terms of this Agreement and that
there is no Default or Event of Default hereunder, the Borrower may make
regularly scheduled (but not accelerated) payments of principal and interest on
Subordinated Debt, provided that in no event shall the interest rate relating
thereto exceed twelve percent (12%) per annum; and
5.6 Capital Expenditures. Except with respect to capital expenditures
related to the construction of kiosks, the Borrower will not, and will not
permit any Subsidiary to, make any Capital Expenditure during any fiscal year of
the Borrower if, after giving effect thereto, the aggregate amount of all
Capital Expenditures made by the Borrower and its Subsidiaries during such
period would exceed One Hundred Thousand Dollars ($100,000).
5.7 Subsidiaries, Mergers and Consolidations; Changes in Business. The
Borrower will not, and will not permit any Subsidiary to, create any additional
Subsidiaries or enter into any merger or consolidation (or any agreement
relating to any merger or consolidation) without the prior written consent of
the Lender. The Borrower will not, without the prior written consent of the
Lender, which shall not be unreasonably withheld, engage in any business other
than the business of maintaining a website on the Internet and other related
businesses.
5.8 Sale of Assets. The Borrower will not, and will not permit any
Subsidiary to, sell, lease or otherwise dispose of any of their properties or
assets, except for sales or other dispositions in the ordinary course of
business of obsolete or unusable property or assets (it being understood that
customer lists, contracts, inventory and accounts receivable are excluded from
this exception).
5.9 Leases. The aggregate amount of payments made by the Borrower and
its Subsidiaries during any fiscal year, whether for rental payments, principal
payments, interest payments, service charges or otherwise, under all Leases,
including, without limitation, Operating Leases, lease-purchase agreements,
conditional sales contracts and other similar agreements, shall not exceed
$100,000.
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5.10 Compliance with ERISA. The Borrower will not engage, and will not
permit or suffer any Affiliated Company or any Person entitled to
indemnification or reimbursement from the Borrower or any Affiliated Company to
engage, in any prohibited transaction for which an exemption is not available.
No Affiliated Company will terminate, or permit the PBGC to terminate, any
employee benefit plan or withdraw from any multiemployer plan, in any manner
which could result in material liability of any Affiliated Company.
5.11 Transactions with Affiliates. The Borrower will not, and will not
permit any Subsidiary to, directly or indirectly, enter into any lease or other
transaction after the date hereof with any shareholder or with any Affiliate of
the Borrower or such shareholder, on terms that are less favorable to the
Borrower or such Subsidiary than those which might be obtained at the time from
Persons who are not such a shareholder or Affiliate, provided that the loans
described in subsection 6.1(g) shall not be prohibited by this subsection.
5.12 Observance of Subordination Provisions, etc.. The Borrower will
not make, or cause or permit to be made, any payments in respect of any
Subordinated Debt, in contravention of the subordination provisions contained in
any affiliate subordination agreement, subordination agreement, or any other
written agreement from time to time pertaining thereto, nor will the Borrower
amend, modify or change any of such subordination provisions or any other
provisions of such agreements except as permitted thereby.
5.13 Environmental Liabilities. The Borrower will not, and will not
permit any Subsidiary to, violate any Environmental Laws or other requirement of
law, rule or regulation regarding Hazardous Materials; and, without limiting the
foregoing, the Borrower will not, and will not permit any Subsidiary or any
other Person to dispose of any Hazardous Material into or onto, or (except in
accordance with applicable law) from, any real property owned, leased or
operated by the Borrower or any Subsidiary or in which the Borrower or any
Subsidiary holds, directly or indirectly, any legal or beneficial interest or
estate, nor allow any lien imposed pursuant to any law, regulation or order
relating to Hazardous Materials or the disposal thereof to be imposed or to
remain on such real property, except for liens being contested in good faith by
appropriate proceedings and for which adequate reserves have been established
and are being maintained on the books of the Borrower and its Subsidiaries.
5.14 Fiscal Year. The Borrower will not change their fiscal year end
without prior written notice to the Lender.
5.15 Agreed Upon Accounting Procedures. The Borrower will not change
the Agreed Upon Accounting Procedures without the prior written consent of the
Lender. The Lender shall receive at least thirty days notice of any proposed
changes to the Agreed Upon Accounting Procedures and the reasons therefor.
5.16 Permitted Acquisitions; Conditions Precedent. The Borrower will
not, and will not permit any Subsidiary to, acquire or enter into any agreement
requiring either of the Borrower or any Subsidiary to acquire all or
substantially all of the assets or stock of any Person without the prior written
consent of the Lender. The Borrower acknowledge and agree that the granting or
withholding of such consent shall be in the sole discretion of the Lender and
shall be
21
conditioned upon, among other things, satisfactory completion of all legal,
financial and other due diligence reviews as the Lender shall deem advisable.
Each such transaction consented to in writing by the Lender shall be referred to
as a "Permitted Acquisition".
SECTION 6. DEFAULTS; REMEDIES.
6.1 Events of Default; Acceleration. If any of the following events
(each an "Event of Default") shall occur:
(a) The Borrower shall default in the payment of principal of
or interest on the Advances or any other fee due hereunder when the same becomes
due and payable, whether at maturity or at a date fixed for the payment of any
installment or prepayment thereof or by declaration, acceleration or otherwise
(a "Payment Default"); or
(b) The Borrower shall default in the performance of or
compliance with any term contained in Section 4 or Section 5 and, with respect
to terms contained in Section 4 or 5, to the extent any default is susceptible
of remedy or cure, the Borrower have failed to remedy or cure any such default
within twenty days after written notice thereof shall have been given to the
Borrower by the Lender, provided further that if such default cannot be remedied
or cured, then such default shall be deemed an Event of Default as of the date
of its occurrence; or;
(c) The Borrower shall default in the performance of or
compliance with any term contained herein other than those referred to above in
this Section 6 and such default shall not have been remedied within twenty days
after written notice thereof shall have been given to the Borrower by the
Lender, provided that if such default cannot be remedied or cured, then such
default shall be deemed an Event of Default as of the date of its occurrence; or
(d) The Borrower, any Subsidiary, shareholder or other
Affiliate of the Borrower which is a party to the Security Agreement shall
default in the performance of or compliance with any term contained in the
Security Agreement or in the performance of or compliance with any term or
provision contained in any other Loan Document, the Subscription Agreement and
Investment Representation Agreement entered into as of the date hereof (the
"Subscription Agreement") or any other written agreement with the Lender, and
such default shall continue for more than the period of grace, if any, specified
therein and shall not have been waived pursuant thereto; or
(e) Any representation or warranty made by the Borrower herein
(including representations and warranties remade by the Borrower by submission
of a borrowing request) or by the Borrower or any other party to the Security
Agreement or any other Loan Document therein or pursuant hereto or thereto shall
prove to have been false or incorrect in any material respect when made; or
(f) The Borrower or any Subsidiary shall default in any
payment due on any Indebtedness in respect of any Subordinated Debt, or any
other borrowed money where the aggregate exceeds $50,000 or any lesser aggregate
balance where such failure to pay could result in a Material Adverse Effect, or
any Capital Lease or the deferred purchase price of property with
22
a principal balance, lease balance or purchase price (as the case may be) in
excess of $50,000 outstanding as of the date of such default, and such default
shall continue for more than the period of grace, if any, applicable thereto, or
in the performance of or compliance with any term of any evidence of such
Indebtedness or of any mortgage, indenture or other agreement relating
thereto,and any such default shall continue for more than the period of grace,
if any, specified therein and shall not have been waived pursuant thereto; or
(g) Either of the Borrower or any Subsidiary shall cease to be
solvent or shall discontinue their businesses or either of the Borrower or any
Subsidiary shall make an assignment for the benefit of creditors, or shall fail
generally to pay their debts as such debts become due, or shall apply for or
consent to the appointment of or taking possession by a trustee, receiver or
liquidator (or other similar official) of the Borrower or such Subsidiary or any
substantial part of the property of the Borrower or such Subsidiary, or shall
commence a case or have an order for relief entered against it under the federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law, or if the Borrower
or any Subsidiary shall take any action to dissolve or liquidate the Borrower or
any Subsidiary; or
(h) An involuntary proceeding shall be commenced against
either of the Borrower or any Subsidiary under the federal bankruptcy laws, as
now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or a decree shall be entered
appointing a trustee, receiver or liquidator (or other similar official) of
either of the Borrower or any Subsidiary or any substantial part of the property
of either of the Borrower or any such Subsidiary; or
(i) A final judgment which, with other outstanding final
judgments against either of the Borrower and/or its Subsidiaries, exceeds
insurance coverage, if any, acknowledged in writing by the insurer, by an
aggregate of $50,000 shall be rendered against either Borrower or any Subsidiary
and if, within the earlier of 30 days after entry thereof, such judgment shall
not have been discharged or execution thereof stayed pending appeal, or if,
within 30 days after the expiration of any such stay, such judgment shall not
have been discharged, or if any such judgment shall not be discharged forthwith
upon the commencement of proceedings to foreclose any lien, attachment or charge
which may attach as security therefor and before any of the property or assets
of either Borrower or any Subsidiary shall have been seized in satisfaction
thereof; or
(j) If the Borrower shall use the proceeds of any Advance
hereunder for any purpose other than as described in Schedule 6.1; or
(k) If either of the Borrower is enjoined, restrained, or in
any way prevented by the order of any court or any administrative or regulatory
agency from conducting all or any material part of its business which event
could have a Material Adverse Effect and such order is not stayed or revoked
within five days; or
(l) This Agreement, any Note or the Security Agreement or any
other Loan Document shall be canceled, terminated, revoked, rescinded or
declared invalid or unenforceable
23
in whole or in any material respect, otherwise than pursuant to its terms by
virtue of the expiration of its term or otherwise than in accordance with the
express prior written agreement, consent or approval of the Lender, or any
action at law, suit in equity or other legal proceeding to cancel, revoke or
rescind this Agreement, any Note or the Security Agreement or any other Loan
Document shall be commenced by or on behalf of the Borrower or any other Person
bound thereby or party thereto or by any governmental or regulatory authority or
agency of competent jurisdiction; or any court or any other governmental or
regulatory authority or agency of competent jurisdiction shall make a
determination that, or shall issue a judgment, order, decree or ruling to the
effect that the Security Agreement or any other Loan Document or any one or more
of the material obligations of the Borrower under the Security Agreement or any
other Loan Document are illegal, invalid or unenforceable in accordance with the
terms thereof; or
(m) Any License is lost, terminated, suspended, revoked or
amended and such loss, termination, suspension, revocation or amendment could
have a Material Adverse Effect; or
(n) Lender shall have determined that (i) Borrower is or will
be unable to meet its commitments under this Agreement or under any other Loan
Document or any other material agreement of the Borrower, or (ii) a material
adverse change shall have occurred in the business, operations, prospects,
properties or condition (financial or otherwise) of Borrower; or
(o) Without limiting any provision set forth above, if
Borrower shall fail to perform or observe any of their obligations under any of
the Loan Documents and such failure continues beyond any applicable grace or
cure period and could have a Material Adverse Effect on either of the Borrower
or such Subsidiary, or if the validity of this Agreement, any Note or the
Security Agreement or any other Loan Document, shall be challenged or
disaffirmed by any party hereto or thereto, or shall in any manner cease to be
in full force and effect (other than pursuant to its expiration or termination
in accordance with its terms); then, and in any such event, and at any time
thereafter, either or both of the following actions may be taken: the Lender may
by written notice to the Borrower, (i) declare the principal of and accrued
interest in respect of the Advances to be forthwith due and payable, whereupon
the principal of and accrued interest in respect of the Advances shall become
forthwith due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived by the Borrower; provided
that, in the case of an Event of Default arising by reason of the occurrence of
any event described in subsections 6.1(g) or 6.1(h), both such actions shall be
deemed to have been automatically taken by the Lender and all obligations of the
Borrower to the Lender shall forthwith automatically become due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by the Borrower. Without limiting any provision of this
Agreement or the Security Agreement or any other Loan Document, a Default or
Event of Default hereunder shall also constitute a Default or Event of Default
under the Security Agreement.
6.2 Remedies on Default, etc. In case any one or more Events of Default
shall occur and be continuing, the Lender may proceed to protect and enforce
their rights by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in any Note or the Security Agreement (including but not limited to
the provisions of the Security Agreement concerning the appointment of a
receiver for the
24
Borrower and their assets) or any other Loan Document, or for an injunction
against a violation of any of the terms hereof or thereof, or in aid of the
exercise of any power granted hereby or thereby or by law. In case of a default
in the payment of any principal of or interest on the Advances, or in the
payment of any fee due hereunder or under any other Loan Document, the Borrower
will pay to the Lender such further amount as shall be sufficient to cover the
costs and expenses of collection, including, without limitation, reasonable
attorneys' fees, expenses and disbursements. No course of dealing and no delay
on the part of the Lender in exercising any right shall operate as a waiver
thereof or otherwise prejudice the rights of the Lender. No right conferred
hereby or by any Note or the Security Agreement or other Loan Document upon the
Lender shall be exclusive of any other right referred to herein or therein or
now or hereafter available at law, in equity, by statute or otherwise.
SECTION 7. DEFINITIONS; CERTAIN RULES OF CONSTRUCTION.
Certain capitalized terms are used in this Agreement and in the other
Loan Documents with the specific meanings defined below in this Section 8.
Except as otherwise explicitly specified to the contrary or unless the context
clearly requires otherwise, (i) the capitalized term "Section" refers to Section
of this Agreement; (ii) the capitalized term "Exhibit" refers to exhibits to
this Agreement; (iii) the term "subsection" includes particular Sections
included in subsections thereof; (iv) the word "including" shall be construed as
"including without limitation"; (v) accounting terms not otherwise defined
herein have the meanings provided under GAAP; (vi) terms defined in the UCC and
not otherwise defined herein have the meaning provided under the UCC; (vii)
references to particular statute or regulation include all rules and regulations
thereunder and any successor statute, regulation or rules, in each case as from
time to time in effect; and (viii) references to a particular Person include
such Person's successors and assigns to the extent not prohibited by this
Agreement and the other Loan Documents.
Additional Advances: shall have the meaning set forth in subsection
1.2(b).
Advance: shall have the meaning set forth in subsection 1.1.
Affiliate: shall mean, as applied to any Person, a spouse or relative
of such Person, any member, director or officer of such Person, any corporation,
association, firm or other entity of which such Person is a member, director or
officer, and any other Person directly or indirectly controlling, controlled by
or under direct or indirect common control with such Person.
Affiliated Company: shall have the meaning specified in subsection
2.13.
Agreed Upon Accounting Procedures: shall mean the accounting principles
or practices followed by the Borrower, and the methods of application of those
principles or practices, in connection with the Borrower's audited financial
statements for the fiscal year ended December 31, 1998.
Business Day: any day excluding Saturday and Sunday and excluding any
other day which shall be in New York, New York,a legal holiday or a day on which
banking institutions are authorized by law to close.
25
Borrower: shall have the meaning specified at the beginning of this
Agreement.
Capital Expenditure: shall mean as of any date of determination means
(i) the aggregate amount of payments made by the Borrower and its Subsidiaries
for the lease, purchase construction or use of any property, the value or cost
of which, under GAAP, would appear on the Borrower's balance sheet in the
category of property, plant or equipment or intangible assets, less (ii)
capitalized transaction costs related to this Loan Agreement.
Capital Lease: shall mean any lease of property (real, personal or
mixed) which, in accordance with GAAP, should be capitalized on the lessee's
balance sheet.
Cash Equivalents: shall mean (i) negotiable certificates of deposit,
time deposits (including sweep accounts), demand deposits and bankers'
acceptances having a maturity of nine months or less and issued by any United
States financial institution having capital and surplus and undivided profits
aggregating at least $100,000,000 and rated Prime-1 by ▇▇▇▇▇'▇ Investors
Service, Inc. or A-1 by Standard & Poor's Ratings Group or issued by the Lender;
(ii) corporate obligations having a maturity of nine months or less and rated
Prime-1 by ▇▇▇▇▇'▇ Investors Service, Inc. or A-1 by Standard & Poor's Ratings
Group or issued by the Lender; (iii) any direct obligation of the United States
of America or any agency or instrumentality thereof, or of any state or
municipality thereof, (A) which has a remaining maturity at the time of purchase
of not more than one year or which is subject to a repurchase agreement with the
Lender (or any other financial institution referred to in clause (a) above)
exercisable within one year from the time of purchase and (B) which, in the case
of obligations of any state or municipality, is rated Aa or better by ▇▇▇▇▇'▇
Investors Services, Inc. or AA or better by Standard & Poor's Ratings Group; and
(d) any mutual fund or other pooled investment vehicle rated AA or better by
▇▇▇▇▇'▇ Investors Service, Inc. or AA or better by Standard & Poor's Ratings
Group which invests principally in obligations described above.
Code: shall have the meaning specified in subsection 2.13.
Collateral: shall have the meaning specified in subsection 2.1.
Commitment Fee: shall have the meaning specified in subsection 1.5.
Compliance Certificate: shall have the meaning specified in subsection
1.2(c).
Consents: shall have the meaning specified in subsection 2.12.
Default: shall mean any event or condition which, with the giving
of notice or the expiration of any applicable grace period, or both, would
constitute an Event of Default.
Environmental Laws: collectively, shall mean the Resource Conservation
and Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization
Act of 1986, the Federal Water Pollution Control Act, the Federal Clean Water
Act, the Federal Clean Air Act, the Toxic Substances Control Act and any other
federal, state or local statute, regulation, ordinance, order or decree relating
to the environment, as now or hereafter in effect.
26
ERISA: shall have the meaning specified in subsection 2.13.
Event of Default: shall have the meaning specified in Section 6.
GAAP: shall mean generally accepted accounting principles,consistently
applied.
Hazardous Material: shall mean (a) any asbestos or insulation or other
material composed of or containing asbestos and (b) any petroleum product and
any hazardous, toxic or dangerous waste, substance or material defined as such
in (or for purposes of) the Comprehensive Environmental Response, Compensation
and Liability Act, any so-called "Superfund" or "Superlien" law, or any other
applicable federal, state, local or other statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material, as now or at any time hereafter in effect.
Indebtedness: shall mean as applied to any Person, (a) all items
(except items of capital or surplus or of retained earnings) which in accordance
with GAAP would be included in determining total liabilities as shown on the
liability side of the balance sheet of such Person as of the date of which
Indebtedness is to be determined, including without limitation Subordinated Debt
and any Capital Lease; (b) all indebtedness secured by any mortgage, pledge,
lien or conditional sale or other title retention agreement to which any
property or asset owned or held by such Person is subject, whether or not the
indebtedness secured thereby shall have been assumed; and (c) all indebtedness
of others which such Person has directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business),
discounted or sold with recourse or agreed (contingently or otherwise) to
purchase or repurchase or otherwise acquire, or in respect of which such Person
has agreed to supply or advance funds (whether by way of loan, stock purchase,
capital contributions or otherwise) or otherwise to become directly or
indirectly liable.
Initial Advance: shall have the meaning specified in subsection 1.2(a).
Intellectual Property shall mean collectively, all worldwide industrial
and intellectual property rights, including, without limitation, patents, patent
applications, rights to file for patent applications (including but not limited
to continuations, continuations-in-part, divisionals and reissues), trademarks,
logos, service marks, trade names and service names (in each case whether or not
registered) and applications for and the right to file applications for
registration thereof, Internet domain name or application for an Internet domain
name, Internet and World Wide Web URLs or addresses, copyrights (whether or not
registered) and applications for and the right to file applications for
registration thereof, moral rights, mask work rights, mask work registrations
and applications therefor, franchises, licenses, inventions, trade secrets,
trade dress, know-how, customer lists, supplier lists, proprietary processes and
formulae, software source code and object code, algorithms, net lists,
architectures, structures, screen displays, layouts, inventions, development
tools, designs, blueprints, specifications, technical drawings (or similar
information in electronic format), publicity and privacy rights and any other
intellectual property rights arising under the laws of the United States of
America, any State thereof, or any country or province, and all documentation
and media (in whatever form) constituting, describing or
27
relating to the foregoing, including, without limitation, manuals, programmers'
notes, memoranda and records.
Lender: shall have the meaning specified at the beginning of this
Agreement.
Licenses: shall have the meaning specified in subsection 1.2(a).
Loan Documents: shall mean collectively, this Agreement, any Note
issued pursuant hereto, the Security Agreement, the Warrant, the Subscription
Agreement and any and all financing statements, agreements, instruments and
certificates now or hereafter related thereto or executed in connection
therewith, all as amended from time to time.
Material Adverse Effect: shall mean any event, matter or condition
which could have a material adverse effect on (a) the financial performance or
condition, assets, operations or financial or other condition of either of the
Borrower and/or either of the Borrower and any Subsidiaries taken as a whole;
(b) the Borrower's ability to pay and perform all of the Advances and other
material obligations owing by it to the Lender in accordance with the terms
thereof; and/or (c) the Collateral (or any portion thereof) or the security
interests of the Lender in the Collateral (or any portion thereof), or the
priority of such security interests.
Maturity Date: shall have the meaning specified in subsection 1.6.
Note or Notes: shall have the meanings specified in subsection 1.3.
Obligations: shall mean the sums evidenced by any Note and any and all
other liabilities, loans, advances, sums due or to become due and all
Indebtedness of Borrower to Lender of every kind, nature and description
(whether or not evidenced by any note or other instrument), direct or indirect,
absolute or contingent, primary or secondary, joint or several, secured or
unsecured, due or to become due, now existing or hereafter arising, regardless
of how they arise or were acquired, any liability of Borrower to Lender
including but not limited to all interest, fees, charges, expenses and
attorneys' fees, paid or incurred by Lender at any time in connection with the
commitment for, preparation, execution, delivery, amendment, review, perfection,
administration and/or enforcement of any of the Loan Documents and any and all
obligations of Borrower to the Lender pursuant to the Loan Documents.
Payment Default: shall have the meaning specified in subsection 6.1(a).
PBGC: shall have the meaning specified in subsection 2.13.
Permitted Lien: shall have the meaning specified in subsection 5.2.
Person: a corporation, an association, a partnership, a limited
liability company, an owner, grantor or master trust, a joint venture, an
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
Projections: the meaning specified in subsection 2.4(d).
28
Registration Statement: the meaning specified in subsection 2.25.
Restricted Payment: the meaning specified in subsection 5.5.
SEC: the Securities and Exchange Commission or any governmental
authority succeeding to any of its functions.
Subordinated Debt: shall mean any debt other than Senior Debt that has
been approved in writing by the Lender and which is subordinated to the Senior
Debt on terms and conditions acceptable to the Lender.
Subsidiary: any corporation of which more than 50% of the outstanding
Voting Stock (other than director's qualifying shares) is at the time owned or
controlled by the Borrower or by one or more Subsidiaries or by the Borrower and
one or more Subsidiaries.
UCC: the Uniform Commercial Code, as from time to time in effect in the
State of New York or any other applicable jurisdiction.
Voting Stock: stock having ordinary voting power to elect a majority of
the board of directors of the corporation in question, irrespective of whether
or not at the time stock of any class or classes of such corporation shall have
or might have which by its terms permits accrued voting power by reason of the
happening of any contingency.
SECTION 8. SETOFFS.
If the Borrower becomes insolvent, howsoever evidenced, or any Default
or Event of Default occurs and is continuing, any Indebtedness from the Lender
to the Borrower or any Subsidiary may, without regard to the value or adequacy
of the Collateral, be offset and applied toward the payment of any Indebtedness
from the Borrower to the Lender, whether or not such Indebtedness, or any part
thereof shall then be due. The Borrower has no rights of set-off hereunder or
under any of the other Loan Documents, and therefore, no amounts owing from the
Borrower hereunder or under any other Loan Document, or otherwise, may be
applied against any amounts owed by the Lender hereunder or under any other Loan
Document, if any.
SECTION 9. EXPENSES; INDEMNIFICATION.
(a) Whether or not the transactions contemplated hereby shall
be consummated, the Borrower agree (i) to pay all reasonable expenses, including
reasonable fees and disbursements of counsel for the Lender and reasonable
expenses incurred with respect to Lender's due diligence, which the Lender have
incurred or may hereafter incur in connection with the preparation of this
Agreement and all other Loan Documents (including any amendment, consent or
waiver hereof and/or thereof) and the transactions contemplated hereby or the
protection, preservation and/or enforcement of the rights of the Lender
hereunder or under any Note or the Security Agreement or in the event of a
Default hereunder or thereunder (including without limitation amounts incurred
with respect to any so-called "workout" of the Advances) and (ii) to pay all
taxes (other than the Lender' income taxes) and fees (including interest and
penalties), including without limitation all recording and filing fees, transfer
and documentary
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stamp and similar taxes, which may be payable in respect of the execution and
delivery of this Agreement, the Security Agreement, any Note, and all other
documents related hereto and thereto (including any amendment, consent or waiver
hereafter requested by the Borrower hereunder or thereunder) and to indemnify
the Lender and hold the Lender harmless against any loss or liability resulting
from non-payment or delay in payment of any such tax.
(b) The Borrower hereby agree to indemnify the Lender, and
their directors, officers, employees, agents, attorneys and each other Person,
if any, who controls the Lender, and will hold the Lender and such other Persons
harmless from and against any and all claims, damages, losses, liabilities,
judgments and expenses (including without limitation all reasonable fees and
expenses of counsel and all expenses of litigation or preparation therefor)
which the Lender or such other Persons may incur or which may be asserted
against the Lender or such other Persons in connection with or arising out of
any investigation, litigation or proceeding involving the Borrower or any
shareholder or any Affiliate of the Borrower or any such shareholder (including
compliance with or contesting of any subpoenas or other process issued against
the Lender, or any director, officer or employee of the Lender, or any Person,
if any, who controls the Lender in any proceeding involving the Borrower or any
shareholder or any Affiliate of the Borrower or any such shareholder), whether
or not the Lender are party thereto, other than claims, damages, losses,
liabilities or judgments with respect to any matter as to which the Lender or
such other Person seeking indemnity shall have been finally adjudicated not to
have acted in good faith or to have been grossly negligent in their actions or
inactions. Promptly upon receipt by any indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the Borrower hereunder, notify the
Borrower in writing of the commencement thereof.
(c) The Borrower acknowledge and agree that their agreements
and obligations under this Section 9 shall survive the termination of this
Agreement and repayment in full of the Advances. The Lender shall be entitled to
retain Collateral or require substitution therefor to the extent required to
reasonably assure the Lender of satisfaction of the Borrower's obligations under
this Section 9 and any Collateral not so required or, if sufficient cash
collateral is substituted, then all of the Collateral, shall be released to the
Borrower.
SECTION 10. AMENDMENTS AND WAIVERS, ETC.
(a) Any term of this Agreement, the Security Agreement, any
Note or the other Loan Documents may be amended and the observance of any term
of this Agreement or of the Security Documents or any Note may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Borrower and the Lender. Once a Default or
Event of Default has occurred, such Default or Event of Default shall be deemed
to exist and be continuing for all purposes of this Agreement and the other Loan
Documents until the Lender shall have waived such Default or Event of Default in
writing, stated in writing that the same has been remedied or cured to the
Lender's reasonable satisfaction or entered into an Amendment to this Agreement
which by its express terms cures or waives such Default or Event of Default, at
which time such Default or Event of Default shall no longer be deemed to exist
or to have continued.
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(b) The failure of the Lender to insist upon the strict
performance of any term, condition or other provision of this Agreement or the
Security Agreement or any Note or any other Loan Document or to exercise any
right or remedy hereunder or thereunder shall not constitute a waiver by the
Lender of any such term, condition or other provision or Default or Event of
Default in connection therewith; and any waiver of any such term, condition or
other provision or of any such Default or Event of Default shall not affect or
alter this Agreement or the Security Agreement or any Note or any other Loan
Document, and each and every term, condition and other provision of this
Agreement, the Security Agreement and any Note or any other Loan Document shall,
in such event, continue in full force and effect and shall be operative with
respect to any other then existing or subsequent Default or Event of Default in
connection therewith.
SECTION 11. ASSIGNMENT AND PARTICIPATION.
11.1 Assignment by Lender Except as provided herein, Lender may assign
all or a portion of its interests, rights and obligations under this Agreement
and any Note held by it; provide, however, notwithstanding the foregoing, Lender
shall not assign its rights or obligations under this Agreement, without the
written consent of the Borrower, to any member or affiliate of the National
Association of Securities Dealers, Inc. Upon such assignment, (x) the assignee
thereunder shall be a party hereto and have the rights and obligations of a
lender hereunder, and (y) the Lender shall be released from its obligations
under this Agreement.
11.2 New Notes. Upon an assignment of by Lender pursuant to this
Section, the Borrower shall execute and deliver to the new lender, in exchange
for each surrendered Note, a new Note to the order of such new lender in an
amount equal to the amount assumed by such new lender pursuant to such
assignment and, if Lender has retained some portion of its obligations
hereunder, a new Note to the order of Lender in an amount equal to the amount
retained by it hereunder. Such new Notes shall provide that they are
replacements for the surrendered Notes, shall be in an aggregate principal
amount equal to the aggregate principal amount of the surrendered Notes, shall
be dated the effective date of such assignment and shall otherwise be in
substantially the form of the assigned Notes. Within seven Business Days of
issuance of any new Notes pursuant to this subsection, if so requested by
Lender, the Borrower shall deliver an opinion of counsel, addressed to Lender,
relating to the due authorization, execution and delivery of such new Notes and
the legality, validity and binding effect thereof, substantially in the same
form as the corresponding portion of the legal opinion delivered on the date
hereof. The surrendered Notes shall be canceled and returned to the Borrower.
The Borrower shall be reimbursed for reasonable expenses incurred in connection
with obtaining such opinion of counsel.
11.3 Participation. Lender may sell participations to one or more banks
or other entities in all or a portion of Lender's rights and obligations under
this Agreement and the other Loan Documents.
11.4 Miscellaneous Assignment Provisions. Lender shall retain its
rights to be indemnified pursuant to Section 9 with respect to any claims or
actions arising prior to the date of such assignment. If any new lender is not
incorporated under the laws of the United States of
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America or any state thereof, it shall, prior to the date on which any interest
or fees are payable hereunder or under any of the other Loan Documents for its
account, deliver to the Borrower certification as to its exemption from
deduction or withholding of any United States federal income taxes.
SECTION 12. JURISDICTION; WAIVER OF JURY TRIAL.
THE BORROWERS, TO THE EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY
CONSENT TO SERVICE OF PROCESS, AND TO BE SUED, IN THE STATE OF NEW YORK AND
CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN
NEW YORK, NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, AS WELL AS TO THE JURISDICTION OF ALL COURTS TO WHICH AN
APPEAL MAY BE TAKEN FROM SUCH COURTS, FOR THE PURPOSE OF ANY SUIT, ACTION OR
OTHER PROCEEDING ARISING OUT OF ANY OF THEIR OBLIGATIONS HEREUNDER OR UNDER THE
NOTES OR ANY OF THE OTHER LOAN DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, AND EXPRESSLY WAIVES ANY AND ALL OBJECTIONS IT
MAY HAVE AS TO VENUE IN ANY SUCH COURTS. THE BORROWER FURTHER AGREES THAT A
SUMMONS AND COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN ANY OF SUCH COURTS
SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED
PERSONALLY OR BY CERTIFIED MAIL TO IT AT ITS ADDRESS PROVIDED IN SUBSECTION 13.1
OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE STATE OF NEW YORK. THE BORROWERS
IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY PROCEEDING HEREAFTER
INSTITUTED IN RESPECT OF THIS AGREEMENT, THE NOTES, THE SECURITY AGREEMENT, OR
ANY OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR THEREWITH. The Borrower
hereby certify that neither the Lender nor any of its representatives, agents or
counsel have represented, expressly or otherwise, that the Lender would not, in
the event of any such suit, action or proceeding, seek to enforce this waiver of
right to trial by jury. The Borrower acknowledge that the Lender have been
induced to enter into this Agreement by, among other things, this waiver. The
Borrower acknowledge that they have read the provisions of this Agreement and in
particular this paragraph; have consulted legal counsel; understand the rights
they are granting in this Agreement and are waiving under this Section in
particular; and make the above waiver knowingly, voluntarily and intentionally.
SECTION 13. MISCELLANEOUS.
13.1 Notices, etc. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered both by
regular United States mail (first class postage prepaid) and certified or
registered mail (first class postage prepaid), guaranteed overnight delivery, or
facsimile transmission if such transmission is confirmed by United States mail
(first class postage prepaid) or guaranteed overnight delivery, to the following
addresses and facsimile numbers (or to such other addresses or facsimile numbers
which such party shall designate in writing to the other party):
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If to the Lender: The Elite Funding Group, Inc.
▇.▇. ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: President
with copy to: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, P.A.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
If to the Company: Urban Cool Network, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, III,
Chief Executive Officer
with copy to: ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
13.2 Calculations, etc. Calculations hereunder shall be made and
financial data required hereby shall be prepared, both as to classification of
items and as to amounts, in accordance with GAAP and practices which principles
and practices shall be consistently applied and in conformity with those used in
the preparation of the financial statements referred to herein.
13.3 Governmental Approval. The Borrower agree to take any action which
the Lender may reasonably request in order to obtain and enjoy the full rights
and benefits granted to the Lender by this Agreement and the Security Documents,
including specifically, at the Borrower's own cost and expense, the use of their
best efforts to assist in obtaining approval of any applicable governmental or
regulatory authority or court for any action or transaction contemplated by this
Agreement or the Security Documents which is then required by law.
13.4 Survival of Agreements, etc. This Agreement shall inure to the
benefit of the Lender and their successors and assigns including any subsequent
holder or holders of the Notes, and the terms "Lender" shall include any such
subsequent holder. In the event of a sale or assignment by the Lender of all or
any part of the Advances or any of the Secured Obligations (as defined in the
Security Documents) held by it, the Lender may assign or transfer its rights and
interests under this Agreement, the Notes and any one or more of the Security
Documents in whole or in part to the purchaser or purchasers thereof, whereupon
such purchaser or purchasers shall become vested with all of the powers and
rights of the Lender hereunder and thereunder, and the Lender shall thereafter
be forever released and fully discharged from any liability or
33
responsibility hereunder or thereunder accruing or arising after the effective
date of the assignment with respect to the rights and interests so assigned. All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement and the making of the Advances
hereunder. Notwithstanding the generality of the foregoing, the agreements in
Section 1.10 shall survive the execution and delivery of this Agreement and
shall survive the termination of this Agreement for the applicable period as
specified therein.
13.5 Counterparts, etc. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all the
counterparts shall together constitute one and the same instrument.
13.6 Entire Agreement, etc. This Agreement constitutes the entire
contract between the parties hereto and shall supersede and take the place of
any other instrument purporting to be an agreement of the parties hereto
relating to the transactions contemplated hereby. This Agreement may not be
changed orally but only by an agreement in writing signed by the party against
whom any waiver, change, modification or discharge is sought.
13.7 Governing Law, etc.; Construction.
(a) This Agreement and the Notes, including the validity
hereof and thereof and the rights and obligations of the parties hereunder and
thereunder, shall be construed in accordance with and governed by the internal
laws of the State of New York (without reference to conflicts of laws
principles) and is intended to take effect as a sealed instrument. Except as
prohibited by law which cannot be waived, the Borrower hereby waive any right
that they may have to claim or recover in any litigation involving the Lender
any special, exemplary, punitive or consequential damages or any damages other
than, or in addition to, actual damages. The provisions of this Agreement are
severable; the unenforceability of any provision of this Agreement shall not
affect the validity, binding effect and enforceability of any other provision or
provisions of this Agreement.
(b) Any reference to this Agreement, the Notes, the Security
Agreement and the other Loan Documents contained herein or in any other Loan
Document shall (unless otherwise expressly indicated) be deemed to refer to such
writing as the same may be amended, extended and/or restated from time to time
in accordance with the terms thereof. The words "herein", "hereof", "hereunder"
and words of like import shall refer to this Agreement as a whole and not to any
particular Section or paragraph of this Agreement. In the event of any conflict
between the provisions of this Agreement (on the one hand) and the provisions of
any of the other Loan Documents (on the other hand), the provisions of this
Agreement shall prevail.
(c) This Agreement and any documents or instruments delivered
pursuant hereto or in connection herewith shall be construed without regard to
the identity of the person who drafted the various provisions of the same. Each
and every provision of this Agreement and such other documents and instruments
shall be construed as though all of the parties participated equally in the
drafting of the same. Consequently, the parties acknowledge and agree that any
34
rule of construction that a document is to be construed against the drafting
party shall not be applicable either to this Agreement or such other documents
and instruments.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
a sealed instrument as of the date first above written.
URBAN COOL NETWORK, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇, III
---------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, III
Chief Executive Officer
THE ELITE FUNDING GROUP, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title:
* Schedules intentionally omitted.
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