FRIENDLYWAY CORPORATION AND CERTAIN OF ITS SUBSIDIARIES FORM OF NOTE SECURITY AGREEMENT
FRIENDLYWAY
CORPORATION AND CERTAIN OF ITS SUBSIDIARIES
FORM
OF NOTE SECURITY AGREEMENT
To:
Atlantic Professional Association, Inc., as Agent for
PURCHASERS
Date:
July 19, 2006
To
Whom It May Concern:
1.
To
secure the payment of all Obligations (as hereafter defined), friendlyway
Corporation, a Nevada corporation (the "Company"), and each other entity that
is
required to enter into this Note Security Agreement (each an "Assignor" and,
collectively, the "Assignors") hereby assign and grant to Agent, as collateral
agent for the Purchasers (as that term is defined in the Securities Purchase
Agreement referenced below), a continuing security interest in all of the
following property now owned or at any time hereafter acquired by any Assignor,
or in which any Assignor now has or at any time in the future may acquire any
right, title or interest (the "Collateral"): all cash, cash equivalents,
accounts, accounts receivable, deposit accounts, inventory, equipment
(including, without limitation, the Pantel CashXpress self service kiosks or
other similar or other designated kiosks (hereinafter “Kiosks”), goods,
documents, instruments (including, without limitation, promissory notes),
contract rights, general intangibles (including, without limitation, payment
intangibles and an absolute right to license on terms no less favorable than
those currently in effect among our affiliates), chattel paper, supporting
obligations, investment property (including, without limitation, all equity
interests owned by any Assignor), letter-of-credit rights, trademarks, trademark
applications, tradestyles, patents, patent applications, copyrights, copyright
applications and other intellectual property in which any Assignor now has
or
hereafter may acquire any right, title or interest, all proceeds and products
thereof (including, without limitation, proceeds of insurance) and all
additions, accessions and substitutions thereto or therefore, including, without
limitation, Kiosks which may be manufactured from and after the date hereof.
Except as otherwise defined herein, all capitalized terms used herein shall
have
the meaning provided such terms in the Securities Purchase Agreement referred
to
below.
2.
The
term "Obligations" as used herein shall mean and include all debts, liabilities
and obligations owing by each Assignor to Purchasers arising under, out of,
or
in connection with: (i) that certain Securities Purchase Agreement dated as
of
the date hereof by and between the Company, the Purchasers and the Agent (the
"Securities Purchase Agreement") and (ii) the Related Agreements referred to
in
the Securities Purchase Agreement, (the Securities Purchase Agreement and each
Related Agreement, as each may be amended, modified, restated or supplemented
from time to time, are collectively referred to herein as the "Documents"),
and
in connection with any documents, instruments or agreements relating to or
executed in connection with the Documents or any documents, instruments or
agreements referred to therein or otherwise, and in connection with any other
indebtedness, obligations or liabilities of any Assignor to Purchasers, whether
now existing or hereafter arising, direct or indirect, liquidated or
unliquidated, absolute or contingent, due or not due and whether under, pursuant
to or evidenced by a note, agreement, guaranty, instrument or otherwise, in
each
case, irrespective of the genuineness, validity, regularity or enforceability
of
such Obligations, or of any instrument evidencing any of the Obligations or
of
any collateral therefor or of the existence or extent of such collateral, and
irrespective of the allowability, allowance or disallowance of any or all of
the
Obligations in any case commenced by or against any Assignor under ▇▇▇▇▇ ▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇ Code, including, without limitation, obligations or indebtedness
of each Assignor for post-petition interest, fees, costs and charges that would
have accrued or been added to the Obligations but for the commencement of such
case.
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3.
Each
Assignor hereby jointly and severally represents, warrants and covenants to
Agent that:
(a)
it is
a corporation, partnership or limited liability company, as the case may be,
validly existing, in good standing and organized under the respective laws
of
its jurisdiction of organization set forth on Schedule
A,
and
each Assignor will provide Agent thirty (30) days' prior written notice of
any
change in any of its respective jurisdiction of organization;
(b)
its
legal name is as set forth in its respective Certificate of Incorporation or
other organizational document (as applicable) as amended through the date hereof
and as set forth on Schedule
A,
and it
will provide Agent thirty (30) days' prior written notice of any change in
its
legal name;
(c)
its
organizational identification number (if applicable) is as set forth on
Schedule
A
hereto,
and it will provide Agent thirty (30) days' prior written notice of any change
in its organizational identification number;
(d)
it is
the lawful owner of the respective Collateral and it has the sole right to
grant
a security interest therein and will defend the Collateral against all claims
and demands of all persons and entities;
(e)
it
will keep its respective Collateral free and clear of all attachments, levies,
taxes, liens, security interests and encumbrances of every kind and nature
("Encumbrances"), except (i) Encumbrances securing the Obligations, (ii) (a)
Encumbrances of carriers, warehousemen, artisans, bailees, mechanics and
materialmen incurred in the ordinary course of business securing sums not
overdue; (b) Encumbrances incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other forms
of
governmental insurance or benefits, relating to employees, securing sums (i)
not
overdue or (ii) being diligently contested in good faith provided that adequate
reserves with respect thereto are maintained on the books of Company or any
Subsidiary thereof, in conformity with GAAP; (c) Encumbrances in favor of Agent
or the Purchasers; (d) Encumbrances for taxes (i) not yet due or (ii) being
diligently contested in good faith by appropriate proceedings, provided that
adequate reserves with respect thereto are maintained on the books of the
Company or any Subsidiary thereof in conformity with GAAP provided, that, the
Encumbrance shall have no effect on the priority of Encumbrances in favor of
any
Purchaser or the value of the assets in which any Purchaser has an Encumbrance;
(e) Purchase Money Liens (as defined below) securing Purchase Money Indebtedness
(as defined below) to the extent permitted in this Agreement, (iii) to the
extent said Encumbrance does not secure indebtedness in excess of $50,000 and
such Encumbrance is removed or otherwise released within ten (10) days of the
creation thereof and (iv) Encumbrances in connection with up to $600,000 of
senior debt advanced to the Company by Ram Capital Resources or its affiliates
(“Permitted Senior Debt”). Encumbrances securing Permitted Senior Debt is
expressly senior to the lien on the Collateral granted to Agent pursuant to
this
Note Security Agreement.
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(f)
it
will, at its and the other Assignors' joint and several cost and expense, keep
the Collateral in a good state of repair (ordinary wear and tear excepted)
and
will not waste or destroy the same or any part thereof other than ordinary
course discarding of items no longer used or useful in its or such other
Assignors' business;
(g)
it
will not without Agent’s prior written consent, sell, exchange, lease or
otherwise dispose of the Collateral, whether by sale, lease or otherwise, except
for the sale of inventory in the ordinary course of business and for the
disposition or transfer in the ordinary course of business during any fiscal
year of obsolete and worn-out equipment or equipment no longer necessary for
its
ongoing needs, having an aggregate fair market value of not more than $25,000
and only to the extent that:
(i)
the
proceeds of any such disposition are used to acquire replacement Collateral
which is subject to each of Purchasers' first priority perfected security
interest (subject to any Permitted Senior Debt), or are used to repay
Obligations or to pay general corporate expenses; and
(ii)
following the occurrence of an Event of Default which continues to exist the
proceeds of which are remitted to Agent to be held as cash collateral for the
Obligations;
(h)
it
will insure or cause the Collateral to be insured in Agent’s name against loss
or damage by fire, theft, burglary, pilferage, loss in transit and such other
hazards as Agent shall specify in amounts and under policies by insurers
acceptable to Agent and all premiums thereon shall be paid by such Assignor
and
the policies delivered to Agent. If any such Assignor fails to do so, Agent
may
procure such insurance and the cost thereof shall be promptly reimbursed by
the
Assignors, jointly and severally, and shall constitute Obligations;
(i)
it
will at all reasonable times allow any of Agent’s representatives free access to
and the right of inspection of the Collateral;
(j)
such
Assignor (jointly and severally with each other Assignor) hereby indemnifies
and
saves Agent harmless from all loss, costs, damage, liability and/or expense,
including reasonable attorneys' fees, that any Agent may sustain or incur to
enforce payment, performance or fulfillment of any of the Obligations and/or
in
the enforcement of this Note Security Agreement or in the prosecution or defense
of any action or proceeding either against Agent or any Assignor concerning
any
matter growing out of or in connection with this Note Security Agreement, and/or
any of the Obligations and/or any of the Collateral except to the extent caused
by Agent’s own gross negligence or willful misconduct (as determined by a court
of competent jurisdiction in a final decision) and
3
"Purchase
Money Indebtedness" means (a) any indebtedness incurred for the payment of
all
or any part of the purchase price of any fixed asset, including indebtedness
under capitalized leases, (b) any indebtedness incurred for the sole purpose
of
financing or refinancing all or any part of the purchase price of any fixed
asset, and (c) any renewals, extensions or refinancings thereof (but not any
increases in the principal amounts thereof outstanding at that time); "Purchase
Money Lien" means any Encumbrance upon any fixed assets that secures the
Purchase Money Indebtedness related thereto but only if such Encumbrance shall
at all times be confined solely to the asset the purchase price of which was
financed or refinanced through the incurrence of the Purchase Money Indebtedness
secured by such Encumbrance and only if such Encumbrance secures only such
Purchase Money Indebtedness.
4.
The
occurrence of any of the following events or conditions shall constitute an
"Event of Default" under this Note Security Agreement:
(a)
any
covenant, warranty, representation or statement made or furnished to Agent
or
the Purchasers by any Assignor or on any Assignor's behalf was breached in
any
material respect or false in any material respect when made or furnished, as
the
case may be, and, in the case of a covenant, if subject to cure, shall not
be
cured for a period of fifteen (15) days;
(b)
the
loss, theft, substantial damage, destruction, sale or encumbrance to or of
any
of the Collateral or the making of any levy, seizure or attachment thereof
or
thereon except to the extent:
(i)
such
loss is covered by insurance proceeds which are used to replace the item or
repay Purchasers; or
(ii)
said
levy, seizure or attachment does not secure indebtedness in excess of $100,000
and such levy, seizure or attachment has not been removed or otherwise released
within ten (10) days of the creation or the assertion thereof;
(c)
any
Assignor shall become insolvent, cease operations, dissolve, terminate its
business existence, make an assignment for the benefit of creditors, or suffer
the appointment of a receiver, trustee, liquidator or custodian of all or any
part of Assignors' property;
(d)
any
proceedings under any bankruptcy or insolvency law shall be commenced by or
against any Assignor;
(e)
the
Company shall repudiate, purport to revoke or fail to perform any or all of
its
obligations under any Note (after passage of applicable cure periods, if any);
or
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(f)
an
Event of Default shall have occurred under and as defined in any
Document.
6.
Upon
the occurrence of any Event of Default and at any time thereafter,
Agent may
declare all Obligations immediately due and payable and Agent shall have the
remedies of a secured party provided in the Uniform Commercial Code as in effect
in the State of New York, this Agreement and other applicable law. Upon the
occurrence of any Event of Default and at any time thereafter, Agent will have
the right to take possession of the Collateral and to maintain such possession
on any Assignor's premises or to remove the Collateral or any part thereof
to
such other premises as Agent may desire. Upon Agent’s request, each of the
Assignors shall assemble or cause the Collateral to be assembled and make it
available to Agent at a place designated by Agent. If any notification of
intended disposition of any Collateral is required by law, such notification,
if
mailed, shall be deemed properly and reasonably given if mailed at least ten
(10) days before such disposition, postage prepaid, addressed to any Assignor
either at such Assignor's address shown herein or at any address appearing
on
Agent’s records for such Assignor. Any proceeds of any disposition of any of the
Collateral shall be applied by Agent to the payment of all expenses in
connection with the sale of the Collateral, including reasonable attorneys'
fees
and other legal expenses and disbursements and the reasonable expense of
retaking, holding, preparing for sale, selling, and the like, and any balance
of
such proceeds may be applied by Agent toward the payment of the Obligations
in
such order of application as Agent may elect, and each Assignor shall be liable
for any deficiency.
7.
If any
Assignor defaults in the performance or fulfillment of any of the material
terms, conditions, promises, covenants, provisions or warranties on such
Assignor's part to be performed or fulfilled under or pursuant to this Note
Security Agreement, Agent may, at its option without waiving its right to
enforce this Note Security Agreement according to its terms, immediately or
at
any time thereafter and with notice to the Assignors, perform or fulfill the
same or cause the performance or fulfillment of the same for each Assignor's
joint and several account and at each Assignor's joint and several cost and
expense, and the cost and expense thereof (including reasonable attorneys'
fees)
shall be added to the Obligations and shall be payable on demand with interest
thereon at the then interest rate on the principal amount of the Notes (as
defined in the Securities Purchase Agreement) plus 24% per annum.
8.
Each
Assignor appoints Agent, any of Agent’s officers, employees or any other person
or entity whom Agent may designate as its attorney, with power to execute such
documents in each of its behalf and to supply any omitted information and
correct patent errors in any documents executed by any Assignor or on any
Assignor's behalf; to file financing statements against each Assignor covering
the Collateral (and, in connection with the filing of any such financing
statements, describe the Collateral as "all assets and all personal property,
whether now owned and/or hereafter acquired" (or any substantially similar
variation thereof)); to sign its name on public records; and to do all other
things Agent deems necessary to carry out this Note Security Agreement. Each
Assignor hereby ratifies and approves all acts of the attorney and neither
Agent
nor the attorney will be liable for any acts of commission or omission, nor
for
any error of judgment or mistake of fact or law other than gross negligence
or
willful misconduct (as determined by a court of competent jurisdiction in a
final decision). This power being coupled with an interest, is irrevocable
so
long as any Obligations remain unpaid.
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9.
No
delay or failure on Agent’s part in exercising any right, privilege, remedy or
option hereunder shall operate as a waiver of such or of any other right,
privilege, remedy or option, and no waiver whatever shall be valid unless in
writing, signed by Agent and then only to the extent therein set forth, and
no
waiver by Agent of any default shall operate as a waiver of any other default
or
of the same default on a future occasion. Agent’s books and records containing
entries with respect to the Obligations shall be admissible in evidence in
any
action or proceeding, shall be binding upon each Assignor for the purpose of
establishing the items therein set forth and shall constitute prima facie proof
thereof. Agent shall have the right to enforce any one or more of the remedies
available to Agent, successively, alternately or concurrently. Each Assignor
agrees to join with Agent in executing financing statements or other instruments
to the extent required by the Uniform Commercial Code in form satisfactory
to
Agent and in executing such other documents or instruments as may be required
or
deemed necessary by Agent for purposes of effecting or continuing Agent’s
security interest in the Collateral.
10.
This
Note Security Agreement shall be governed by and construed in accordance with
the laws of the State of New York and cannot be terminated orally. All of the
rights, remedies, options, privileges and elections given to Agent hereunder
shall inure to the benefit of Agent’s successors and assigns. The term "Agent"
as herein used shall include any parent of Agent’s, any of Agent’s subsidiaries
and any co-subsidiaries of Agent’s parent, whether now existing or hereafter
created or acquired, and all of the terms, conditions, promises, covenants,
provisions and warranties of this Agreement shall inure to the benefit of each
of the foregoing, and shall bind the representatives, successors and assigns
of
each Assignor. Agent and each Assignor hereby (a) waive any and all right to
trial by jury in litigation relating to this Agreement and the transactions
contemplated hereby and each Assignor agrees not to assert any counterclaim
in
such litigation, (b) submit to the nonexclusive jurisdiction of any New York
State court sitting in the borough of Manhattan, the city of New York and (c)
waive any objection Agent or any Assignor may have as to the bringing or
maintaining of such action with any such court.
11.
It is
understood and agreed that any person or entity that desires to become an
Assignor hereunder, or is required to execute a counterpart of this Note
Security Agreement after the date hereof pursuant to the requirements of any
Document, shall become an Assignor hereunder by (x) executing a Joinder
Agreement in form and substance satisfactory to Agent, (y) delivering
supplements to such exhibits and annexes to such Documents as Agent shall
reasonably request and (z) taking all actions as specified in this Agreement
as
would have been taken by such Assignor had it been an original party to this
Agreement, in each case with all documents required above to be delivered to
Agent and with all documents and actions required above to be taken to the
reasonable satisfaction of Agent.
12.
All
notices from Agent to any Assignor shall be sufficiently given if mailed or
delivered to such Assignor's address set forth below.
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13.
All
rights of the Purchasers hereunder shall be exercised by Agent, as their
agent.
7
Very
truly yours,
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FRIENDLYWAY
CORPORATION
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| By: | /S/ ▇▇▇ ▇▇▇▇▇▇▇ |
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President & CEO |
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FRIENDLYWAY
TECHNOLOGIES, INC.
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| By: | /S/ ▇▇▇ ▇▇▇▇▇▇▇ |
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President & CEO |
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PANTEL
SYSTEMS, INC.
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| By: | /S/ ▇▇▇ ▇▇▇▇▇▇▇ |
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, President & CEO
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PANTEL
FINANCIAL CENTERS, INC.
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| By: | /S/ ▇▇▇ ▇▇▇▇▇▇▇ |
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▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, President & CEO
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Entity
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Jurisdiction
of Organization
|
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Organization
Identification Number
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Friendlyway
Corporation
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Nevada
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C8895-1990
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Friendlyway
Technologies, Inc.
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Delaware
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3241220
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Pantel
Systems, Inc.
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Nevada
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E0070142005-9
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Pantel
Financial Centers, Inc.
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Nevada
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E0276262005-1
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