EXHIBIT 99.(A)
LOAN AND SECURITY AGREEMENT
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THIS LOAN AND SECURITY AGREEMENT entered into as of the 18th day of
December 2000 (this "Agreement") by and between Spirit Mountain Development
Corporation, a Tribally chartered corporation whose address is ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ("Lender"), and Coinless Systems, Inc., a Nevada
corporation whose address is ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇
▇▇▇▇▇ ("Borrower").
WHEREAS, Borrower has requested that Lender extend loan financing to
Borrower in order to assist Borrower in meeting certain liquidity needs of
Borrower directly related to the development and manufacture of TickeTrak
gaming devices, and Borrower has represented to Lender that without such
financing the business and prospects of Borrower would be materially
impaired; and
WHEREAS, Lender is not in the business of making loans, but is willing to
extend financing to Borrower solely in connection with Lender's interest in
Borrower's development and manufacture of TickeTrak gaming devices; and
WHEREAS, as a condition to making this loan to Borrower, and in order to
secure the repayment thereof, Lender has required Borrower to execute and
deliver to Lender, among other documents, this Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Borrower and Lender agree as follows:
1. The Loan.
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(a) No Loan Commitment. Notwithstanding Lender's good faith intent to
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make the loan to Borrower described in this Agreement (the "Loan"),
Borrower acknowledges and agrees that Lender has not received any form
of commitment fee and that Lender has no obligation whatsoever to
extend the Initial Advance, or any additional advances, other than
pursuant to this Agreement. Lender and Borrower agree that all
advances by Lender to Borrower pursuant to this Agreement shall
constitute one single loan.
(b) The Initial Advance. Subject to the terms and conditions of this
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Agreement, Lender commits to make an initial advance of the Loan to
Borrower in the principal amount of Two Hundred Fifty Thousand Dollars
($250,000.00) (the "Initial Advance"). Lender shall make the Initial
Advance on the first business day following the satisfaction of the
conditions in this Agreement, including without limitation those
conditions in Section 6 of this Agreement (the "Closing Date").
(c) Additional Advances. Subject to the terms and conditions of this
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Agreement, Lender shall be obligated to make up to three additional
advances of the Loan to Borrower as follows: (i) One Hundred Seventy-
Five Thousand Dollars
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($175,000.00) (the "First Additional Advance"); (ii) One Hundred
Seventy-Five Thousand Dollars ($175,000.00) (the "Second Additional
Advance"); and (iii) Four Hundred Thousand Dollars ($400,000.00) (the
"Third Additional Advance") (each individually, an "Additional
Advance" and collectively the "Additional Advances"). Each such
Additional Advance is subject to the conditions set forth in this
Agreement, with respect to that respective Additional Advance,
including without limitation those listed on Schedule 6(a).
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Upon Borrower's good faith belief that the conditions listed on
Schedule 6(a) have been achieved, Borrower shall send notification and
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documentary support thereof to Lender at the notice address specified
in the signature block of this Agreement. Borrower agrees to provide a
reasonable number of days for Lender to research and confirm
Borrower's achievement of the milestones; with respect to the Third
Additional Advance only, Lender shall have 30 days to research and
determine whether Borrower has achieved the milestones required for
the Third Additional Advance. If Lender disputes Borrower's
achievement of the milestones, Lender shall provide reasonably
detailed notice to Borrower of the reasons Lender believes Borrower
has not achieved the milestones. Upon Lender's written confirmation
that Borrower has achieved the milestones, Lender shall cause the
appropriate Additional Advance to be deposited in the Disbursement
Account, within two business days following (i) the achievement of the
milestones, and (ii) the delivery to Lender of any documentation or
certificates required under this Agreement.
(d) Use of Proceeds; Future Business Activity. All proceeds of the Loan
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shall be used solely to pay for supplies of materials and services
used in the development and manufacture of a fully functioning barcode
printer unit for use in TickeTrak gaming devices, except as may be
agreed upon by Lender and Borrower in the Disbursement Budgets. All
such uses shall be exclusively for business purposes. This subsection
supplements, and does not modify, Section 2 hereof. Unless expressly
authorized by Lender in writing, no proceeds of the Loan shall be
used, directly or indirectly, to make any payment to the third-party
debtors of Borrower. Borrower covenants that, so long as any amount
of the Loan is outstanding and so long as Lender holds any Common
Stock, it will not shift its principal business plan or operations
away from the design and manufacture of gaming devices.
(e) Maturity Date. The Loan, including the Initial Advance and all
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Additional Advances, shall be due and payable by Borrower, together
with accrued interest from the date of disbursement through and
including the date of repayment, on the day (the "Maturity Date") that
is one calendar year after the Closing Date, or if such day is not a
banking day in Portland, Oregon, on the next following banking day.
Borrower may prepay the Loan, in whole or in part (but in amounts of
not less than Fifty Thousand Dollars ($50,000.00)) at any time on 30
days' notice to Lender.
(f) Form of Note; Interest. The loan shall be evidenced by a convertible
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promissory note, attached as Exhibit A (the "Convertible Promissory
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Note"). The
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Convertible Promissory Note shall be convertible into Common Stock,
the Holder of which shall have (i) registration rights as to Common
Stock as described in Exhibit B, and (ii) rights of first refusal as
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to the Common Stock as described in Exhibit C. The Loan and all other
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amounts owed by Borrower to Lender under this Agreement shall bear
interest at the rate of nine percent (9%) per annum. Following the
occurrence and during the continuation of an Event of Default (as
defined below), all such amounts shall bear interest at the rate of
fourteen percent (14%) per annum. All calculations of interest under
this Agreement shall be based on the number of days such advance or
other amount is outstanding and a year of 360 days. It is the intent
of the parties to act in strict compliance with applicable usury laws
from time to time in effect. In furtherance thereof, the parties
stipulate and agree that none of the terms and provisions contained in
the Borrower Loan Documents shall be construed to create a contract to
pay for the use, forbearance or detention of money at a rate in excess
of the maximum interest rate permitted to be charged by applicable law
from time to time in effect.
(g) Right of Setoff. If an Event of Default occurs, Lender shall have the
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right to set off any and all amounts due and payable to Lender, to any
of Lender's affiliates, or to Mikohn Gaming Corporation ("Mikohn");
provided that, in the case of Mikohn, Lender's right to set off shall
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arise only as to monies owed by Mikohn to Borrower or its affiliates
that arise out of Mikohn's purchase of TickeTrak gaming devices for
delivery to Lender or to Lender's affiliates.
2. Disbursement Account. All disbursements of the Loan shall be made by
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Lender to account number 0484-402144 (the "Disbursement Account") in
Borrower's name at ▇▇▇▇▇ Fargo Bank, Las Vegas, Nev. Routing No. 321-270-
742 (the "Bank"). Borrower shall make no disbursement from the
Disbursement Account other than in accordance with the Initial Disbursement
Budget attached hereto as Exhibit D and such further disbursement budgets
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in substantially the form of such Exhibit as Borrower and Lender may
hereinafter agree upon in writing (collectively, "Disbursement Budgets"),
the parties' agreement to which shall be a condition precedent to each
additional advance. In connection with its approval of any Disbursement
Budget, Lender may request supporting documentation, including, without
limitation, invoices, receipts, projections, and the like, and Borrower
shall promptly provide such documentation to Lender.
3. (a) Creation of Security Interest. As security for the due and punctual
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payment and performance of any and all of the present and future
obligations of Borrower to Lender, whether direct or indirect,
absolute or contingent, or joint or several (collectively,
"Obligations"), Borrower hereby conveys, assigns and grants to Lender
a continuing first priority security interest and continuing lien in
all of the following, whether now owned or hereafter acquired, in any
and all personal property, tangible and intangible, including without
limitation the following (the "Collateral"):
(i) Equipment, Fixtures and other Goods. All of Borrower's right,
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title and interest in and to (a) all equipment, supplies,
fittings, furnishings and other goods of any kind ordered,
obtained, or possessed by Borrower or for its
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account, whether held by Borrower, by sellers under any
contracts for the purchase of equipment or by others, together
with any product into which such equipment may be processed,
manufactured or assembled and together with all substitutions
for said equipment and all parts, instruments, accessories,
alterations, modifications, replacements, additions and
accessions to said equipment; (b) all goods affixed to or to
become affixed to any real property owned, leased or operated
by Borrower or otherwise used in connection with the business
or operations of Borrower; and (c) to the extent not described
in the foregoing clauses of this Section 3(a)(i) or in the
following Section 3(a)(ii), all other goods.
(ii) Inventory, Etc. All of Borrower's right, title and interest in
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and to inventory and stock in trade of Borrower, including,
without limitation, TickeTrak gaming devices and components
thereof, and other goods held for sale or lease or to be
furnished under any contract of service (and including all
finished goods, returned goods and goods traded in), raw
materials, work in process and materials used or consumed in
Borrower's business.
(iii) Contract Rights, General Intangibles, Etc. All of Borrower's
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right, title and interest in, to and under (a) all contract
rights; (b) all chattel paper; (c) all documents; (d) all
documents of title; (e) all drafts, checks, acceptances, bonds,
letters of credit (including all rights to the proceeds of
draws under letters of credit), notes and other negotiable or
non-negotiable instruments, bills of exchange; deposits,
certificates of deposit and insurance policies (whether or not
Lender is the loss payee thereof) and, to the extent not
already described in any of the foregoing clauses (a) through
(d) or in this clause (e), any writings evidencing (i) a
monetary obligation or (ii) a security interest in or a lease
of personal property; (f) all licenses, leases, contracts or
agreements; (g) all general intangibles, whether or not
constituting a right to the payment of money, including,
without limitation: (i) judgments and settlements of pending
disputes, (ii) choses in action and other claims, whether or
not then granting of a security interest therein in subject to
the provisions of the Uniform Commercial Code, as in effect in
any applicable jurisdiction (the "UCC"), and (iii) (A) patents,
including without limitation U.S. Patent No. 6,012,832 and any
and all patent rights and letters patent for inventions of
Borrower in the United States and elsewhere throughout the
world, including foreign patent priority rights and the right
to apply for patents in foreign countries in the name of
Coinless Systems, Inc., and further including all divisions and
continuations of said patents, including without limitation
U.S. Patent Application No. 09/096,095, and of any foreign
patent applications and all reissues and extensions of patent
rights and letters patent for said patents (collectively, the
"Patent"), (B) trademarks, trade names and service marks (in
each case, together with the goodwill associated therewith),
(C) licenses, including without limitation (i) an exclusive
license to the
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Patent; (ii) Borrower's license to UV coating technology owned
by ▇▇▇▇▇▇ Doi; and (iii) Borrower's use of FutureLogic, Inc.'s
license to firmware, software and source codes used in
connection with Borrower's TickeTrak printer control board, and
(D) copyrights and the like, in each of the foregoing cases,
whether registered or not and whether or not used or to be used
by Borrower, including, with respect to all of said property,
without limitation, all rights corresponding thereunder
throughout the world, all renewals thereof, all license
royalties with respect thereto, all claims for damages, profits
and proceeds by reason of past, present and future
infringements thereof, and all rights to ▇▇▇ therefor; and (iv)
all guaranties and other personal property securing the payment
or performance of any of the foregoing.
(iv) Records and Documents. All of Borrower's right, title, and
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interest in and to books, correspondence, credit files,
records, invoices, and other documents, including, without
limitation, all tapes, disks, cards, computer runs and other
papers or documents in the possession or control of Borrower.
(v) Money, Accounts, Investment Property, Etc. All of Borrower's
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right, title and interest in, to and under (a) all money; (b)
all deposit or other accounts and other balances, credits,
deposits or monies of or in the name of Borrower; and (c) all
investment property, including, without limitation, all (i)
securities (whether certificated or uncertificated and
including, without limitation, any stock of DSG, Inc. held by
Borrower, stocks, bonds, debentures, notes, bills,
certificates, options, warrants, rights and shares), (ii)
security entitlements, (iii) securities accounts, (iv)
commodity contracts and (v) commodity accounts, and (vi)
dividends or other distributions in respect of any of the
foregoing.
The term "Collateral" also includes all substitutions for such
property and replacements and proceeds of the foregoing subsections
(i) through (vi), in whatever form (including without limitation all
rents, royalties, and insurance proceeds). Lender's security interest
in the Collateral shall not be terminated until and unless all of the
Obligations have been fully paid and performed.
b. Transfer of Instruments, Etc. Borrower shall deliver to Lender
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together with appropriate endorsements, stock powers or other
instruments of transfer, duly executed in blank, (a) on the date
hereof, those instruments, documents, securities and chattel paper now
owned by Borrower and identified on Schedule 3(b) hereto; and (b)
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promptly upon receipt thereof, other certificated securities and
chattel paper hereafter, acquired by Borrower if, at the time of such
receipt, (A) the fair market value of such item is $20,000 or greater,
or (B) the fair market value of all such items not delivered to
Lender, including such additional item, would exceed $200,000.
Subject to the preceding clause (b), if Borrower shall become entitled
to receive (or shall receive), in connection with any of its
securities, any: (w) stock certificate (including, without
limitation, any certificate representing a
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stock dividend or in connection with any increase or reduction of
capital, reclassification, merger, consolidation, sale of assets,
combination of shares, stock split or reverse stack split, spin-off,
split-off or split-up); (x) option, warrant, or right, whether as an
addition to or in substitution or in exchange for any of its
securities, or otherwise; (y) dividend or other distribution payable
in property, including securities issued by any Person other than the
issuer of any securities held by Borrower; or (z) other dividends or
distributions of any sort (but excluding, unless a Default or Event of
Default shall have occurred and be continuing, dividends or
distributions in cash); then Borrower shall accept the same as
Lender's agent, in trust for Lender, and shall deliver them forthwith
to Lender in the exact form received, with, as applicable, Borrower's
endorsement when necessary, or appropriate stock powers duly executed
in blank, to be held by Lender, subject to the terms hereof, as part
of the Collateral. This Agreement does not grant Lender power to
control the voting, prior to the occurrence of any Event of Default,
of any Collateral in the form of securities; provided, however, that
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Borrower shall not vote any such Collateral in favor of any action (or
omission to take any action) that would have a material adverse effect
upon the interests of Lender.
4. Representations and Warranties. Borrower hereby represents and warrants to
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Lender (as of date hereof and at all times any part of the Loan is
outstanding) as follows:
(a) Power and Authorization. Borrower is a corporation duly organized,
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validly existing and in good standing under the laws of the State of
Nevada. Borrower is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect on its business or properties.
Borrower has and will have the full power and authority to execute,
deliver and perform its obligations under each document or agreement
to which Borrower is a party evidencing or securing the repayment of
the Loan (including without limitation this Agreement, the Pledge
Agreement, and the Convertible Promissory Note, collectively, the
"Borrower Loan Documents"). The Note, when executed and delivered in
accordance with the terms of this Agreement, will be duly and validly
issued, fully paid, and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer under
this Agreement and the Borrower Loan Documents and any and under
applicable state and federal securities laws. The Common Stock
issuable upon conversion of the Note has been duly and validly
reserved for issuance and, upon issuance in accordance with the terms
of Borrower's articles of incorporation, will be duly and validly
issued, fully paid, and nonassessable and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement
and the Borrower Loan Documents and under applicable state and federal
securities laws. The execution and delivery of each of the Borrower
Loan Documents has been or will be authorized by all requisite
corporate action on the part of Borrower.
(b) Borrower's Stock. The authorized capital of Borrower consists of
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75,000,000 shares of common stock, 18,463,374 of which shares are
issued and outstanding, 3,692,675 of which are reserved for issuance
upon the conversion of the Note, and
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1,500,000 of which have been reserved for issuance upon exercise of
options to be granted to employees under the Borrower's employee stock
incentive plan ("Reserved Plan Shares").
The outstanding shares of common stock are all duly and validly
authorized and issued, fully paid and nonassessable, and were issued
in accordance with the registration or qualification provisions of the
Securities Act of 1933, as amended (the "Securities Act") and any
relevant state securities laws or pursuant to valid exemptions
therefrom. Except as listed and described on Schedule 4(b), Borrower
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has no outstanding commitments to issue any debt or equity securities.
(c) Financial Statements; SEC Filings. Borrower has furnished to Lender
---------------------------------
audited balance sheets of Borrower as of December 31, 1999, and the
related statements of income, shareholders' equity and cash flows for
the periods then ended and the unaudited balance sheet of Borrower as
of September 30, 2000 and the related statements of income,
shareholders' equity and cash flows for the six months then ended (all
such balance sheets and statements, collectively, the "Financial
Statements"). The Financial Statements present fairly the financial
position of Borrower as of the dates indicated, and the results of
operations for the periods then ended, all in conformity with
generally accepted accounting principles ("GAAP") consistently
applied. Each form, report, schedule, registration statement and
definitive proxy statement filed by Borrower with the Securities and
Exchange Commission (the "SEC") prior to the date hereof (as such
documents have been amended prior to the date hereof or, with respect
to the Additional Advances, prior to the date of such Additional
Advance the "SEC Reports"), as of their respective dates, complied in
all material respects with the applicable requirements of the
Securities Act and the Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder. None of the SEC
Reports, as of their respective dates, contained or contains any
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except for such statements, if any, as have been modified
or superseded by subsequent filings prior to the date hereof. The
consolidated financial statements of Borrower and its subsidiaries
included in such reports comply as to form in all material respects
with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP, consistently applied (except as may be indicated
in the notes thereto or, in the case of the unaudited interim
financial statements, as permitted by Form 10-Q of the SEC) and fairly
present in all material respects (subject, in the case of the
unaudited interim financial statements, to normal, year-end audit
adjustments) the consolidated financial position of Borrower and its
subsidiaries as at the dates thereof and the consolidated results of
their operations and cash flows for the periods then ended. Since
December 31, 1999, neither Borrower nor any of its subsidiaries has
incurred any liabilities or obligations (whether absolute, accrued,
fixed, contingent, liquidated, unliquidated or otherwise and whether
due or to become due) of any nature, except liabilities, obligations
or contingencies
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(a) which are reflected on the consolidated balance sheet of Borrower
and its subsidiaries as of September 30, 2000 (including the notes
thereto) or (b) which (i) were incurred in the ordinary course of
business after September 30, 2000 and consistent with past practices,
or (ii) are disclosed in the SEC Reports. Since 1998, but except as
provided on Schedule 4(c), Borrower has timely filed with the SEC all
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forms, reports and other documents required to be filed prior to the
date hereof, and no subsidiary of Borrower has filed, or been required
to file, any form, report or other document with the SEC, in each
case, pursuant to the Securities Act, the Exchange Act or the rules
and regulations thereunder. Since 1998, except as described in the SEC
Reports, there has been no change in any of the significant accounting
(including tax accounting) policies, practices or procedures of
Borrower or any subsidiary of Borrower, except changes resulting from
changes in accounting pronouncements of Financial Accounting Standards
Boards or changes in applicable laws or rules or regulations
thereunder.
(d) No Conflicts. The execution, delivery and performance of each of the
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Borrower Loan Documents, including without limitation Borrower's
execution and delivery of the Note and Borrower's issuance of Common
Stock upon the Note's conversion, does not and will not constitute a
breach, default, or violation of or under Borrower's certificate or
articles of incorporation or bylaws; of any agreement, indenture,
contract, lease or other instrument to which Borrower is a party or
that is binding on any of the Collateral; or of any law, order,
decree, judgment, or injunction to which Borrower is a party or may be
bound. The execution, delivery and performance of each of the
Borrower Loan Documents has not resulted and will not result in the
creation of any lien upon the Collateral pursuant to any agreement,
indenture, lease, contract or other instrument to which Borrower is a
party or by which the Collateral may be bound, except the lien created
by this Agreement.
(e) Binding Effect. This Agreement and each of the other Borrower Loan
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Documents constitute the valid and binding agreement of Borrower. All
of the Borrower Loan Documents are and will be enforceable in
accordance with their terms except as (i) the enforceability thereof
may be limited by bankruptcy and insolvency laws, and (ii) rights of
acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability.
(f) Litigation. There is no action, suit or proceeding pending against,
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or to the knowledge of Borrower, threatened against or affecting
Borrower, Borrower's subsidiaries, or the Collateral, before any court
or arbitrator or any governmental body, agency or official, except
those described in Schedule 4(f).
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(g) Filing of Tax Returns. Borrower has filed all tax returns required to
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have been filed and, except for those taxes listed on Schedule 4(g)
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(which sets forth (i) a list of taxes due and payable and (ii) the
terms of any payment schedule in force and effect with any taxing
authority on the Closing Date), has paid all taxes shown to be due and
payable on such returns, including interest and penalties, and all
other taxes which are payable by it, to the extent the same have
become due and
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payable. All of Borrower's tax returns are true and correct in all
respects. Borrower knows of no proposed tax assessment against it or
against any of its subsidiaries, and Borrower has adequately provided
for all tax liabilities of Borrower and of its subsidiaries.
(h) Title. Borrower has and shall at all times have good and indefeasible
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title to the Collateral free and clear of all liens other than those
other liens in favor of third parties listed on Schedule 4(h) hereto
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(collectively, "Other Permitted Liens").
(i) Security Interest. The security interest granted to Lender in this
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Agreement is a valid, first priority security interest in the
Collateral except for the Other Permitted Liens, with respect to which
Lender's lien shall be a second priority lien as to all items of the
Collateral affected by the Other Permitted Liens. In the case of the
perfected lien on the Patent by First Source Financial LLP, Borrower
shall cause the release of such lien, and the creation of a perfected
first priority security interest in favor of Lender, within 30 days of
the date of this Agreement. Lender's security interest in the
Collateral has been, or promptly upon the filing of financing
statements on (a) form UCC-1 with the Nevada Secretary of State and
the Arizona Secretary of State, and (b) an assignment of the Patent
with the U.S. Patent and Trademark Office, will be perfected in
accordance with the requirements of all states in which any item of
the Collateral is located.
(j) Compliance with Law. The business and operations of Borrower have
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been and are being conducted in accordance with all applicable laws,
rules and regulations, other than violations which could not (either
individually or collectively) have a material adverse effect on the
financial condition or operations of Borrower. Borrower has all
governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted and as proposed to be
conducted. As used in this agreement, "all applicable laws, rules and
regulations" shall include, without limitation, the Indian Gaming
Regulatory Act, the Confederated Tribes of Grand Ronde-State of Oregon
Gaming Compact, the Confederated Tribes of Grand Ronde Gaming
Ordinance, and the Grand Ronde Gaming Commission Gaming Regulations.
(k) Personal Property; Real Property. Under the laws of the state(s) in
--------------------------------
which the Collateral is to be located, the Collateral is deemed to
consist solely of personal property. Borrower owns no real property.
(l) Name; Tradenames. Except as described on Schedule 4(l), Borrower has
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not changed its name or operated under any tradename or fictitious
name.
(m) Pollution and Environmental Control. Borrower has obtained all
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permits, licenses and other authorizations which are required under,
and is in material compliance with, all applicable laws, rules and
regulations relating to pollution, reclamation, or protection of the
environment, including laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, or
hazardous or toxic materials or wastes into air, water, or land, or
otherwise relating to the
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manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants or
hazardous or toxic materials or wastes. Borrower shall maintain all
such permits, licenses, and authorizations current.
(n) Solvency. Except as described on Schedule 4(n) Borrower is solvent as
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such term is defined under both federal and state laws, including
without limitation 11 U.S.C. (S) 101 (2000) and Nev. Rev. Stat. (S)
112.160 (2000).
(o) Full Disclosure. All documents, records, instruments, certificates,
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statements (including, but not by way of limitation, financial
statements of Borrower) and information provided to Lender by Borrower
or its counsel in connection with this Agreement are true and accurate
in all material respects and do not contain any untrue statement, or
fail to contain any statement of a material fact necessary to make the
statements contained herein or therein not misleading. There is no
fact known to Borrower that Borrower has not disclosed to Lender in
writing that could materially and adversely affect the financial
condition or operations of Borrower.
5. Covenants. Borrower hereby agrees and covenants (for so long as any part
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of the Loan is outstanding) as follows:
(a) Payment. Borrower shall pay the Loan and Obligations as provided
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herein and in the Convertible Promissory Note.
(b) Location of Collateral; No Grant of Licenses. Borrower will keep all
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of the Collateral at the Debtor's business address as stated in the
first paragraph of this Agreement or at ▇▇▇▇▇▇▇ Precision's facilities
in Phoenix, Arizona; provided, however, that Borrower may change the
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location of the Collateral with Lender's prior written consent.
Borrower shall not grant any license to use any of the licenses that
constitute Collateral.
(c) No Liens or Dispositions. Except for the security interest granted
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hereby and the Other Permitted Liens, Borrower shall keep the
Collateral free and clear of any security interest, lien or
encumbrance of any kind. Except for the sale of inventory in the
ordinary course of business, Borrower shall not sell, assign (by
operation of law or otherwise), exchange or otherwise dispose of any
of the Collateral. No item of Collateral will be attached or affixed
to realty or any building without (i) Lender's prior knowledge and
written consent and (ii) waiver of the landlord and the mortgagee, if
any, of the real property.
(d) Insurance. Borrower shall procure and continuously maintain and pay
---------
for (a) all risk physical damage and property insurance covering loss
or damage to the Collateral for not less than the full replacement
value thereof naming Lender as loss payee and (b) bodily injury and
property damage combined single limit liability insurance, all in such
amounts and against such risks and hazards as are reasonably required
by Lender, with insurance companies and pursuant to contracts or
policies and with deductibles reasonably satisfactory to Lender. All
10
notwithstanding any act or neglect of or breach or default by
Borrower, shall provide for payment of insurance proceeds to Lender,
shall provide that they may not be modified, terminated or canceled
unless Lender is given at least 30 days' advance written notice
thereof, and shall provide that the coverage is "primary coverage" for
the protection of Borrower or Lender notwithstanding any other
coverage carried by Lender protecting against similar risks. Borrower
shall promptly notify any appropriate insurer and Lender of each and
every occurrence that may become the basis of a claim or cause of
action against any of such insurance policies and provide Lender with
all data pertinent to such occurrence. Borrower shall furnish Lender
with certificates of such insurance or copies of policies upon request
and shall furnish Lender with renewal certificates not less than 30
days prior to the renewal date. Proceeds of all insurance are payable
first to Lender to the extent of its interest in the Collateral.
Notwithstanding any term of this subsection to the contrary, Lender
acknowledges and agrees that the holders of Other Permitted Liens may
have superior rights to Lender in Borrower's insurance policies, in
each case to the extent consistent with Subsections 4(h), 4(i), and
5(c) of this Agreement.
(e) Financing Statements. At the request of Lender, Borrower will join
--------------------
Lender executing one or more financing statements pursuant to the
Uniform Commercial Code and other documents deemed necessary by Lender
under applicable law to record or perfect its security interest in the
Collateral, including change statements and continuation statements,
each in form satisfactory to Lender, and will pay the cost of filing
the same in all public offices wherever filing is deemed by Lender to
be necessary or desirable. Borrower hereby authorizes Lender, in such
jurisdictions where such action is authorized by law, to effect any
such recordation or filing of financing statements or other documents
without Borrower's signature thereto.
(f) No Merger, Consolidation, or Asset Sale; No Funded Indebtedness;
----------------------------------------------------------------
Change of Name or Address. Borrower agrees that, without the prior
-------------------------
written consent of Lender, such consent to be given or refused in
Lender's sole discretion, Borrower will not merge, consolidate, or
sell all or substantially all of its assets at any time that any
portion of the Loan is outstanding or remains unconverted. Other than
in the ordinary course of business, Borrower shall not apply for or
enter into any loan agreement or incur any indebtedness without
Lender's prior written consent, such consent to be given or refused in
Lender's sole discretion. Borrower will give Lender not less than 30
days' advance notice in writing of any change in its place of business
or the adoption or change of any tradename or fictitious business
name. Borrower will upon request of Lender, execute any additional
financing statements or other similar documents necessary to perfect
or maintain its security interest.
(g) Use of Collateral; Care and Maintenance. Borrower will cause the
---------------------------------------
Collateral to be used in a careful and proper manner, will comply with
and conform to all applicable laws, rules and regulations relating
thereto, and only by competent and
11
duly qualified personnel. Borrower will cause the Collateral to be
cared for, kept and maintained in good repair, condition and working
order and will furnish all parts, replacements, mechanisms and devices
and servicing required therefor so that the value, condition and
operating efficiency thereof will at all times be maintained and
preserved, aging and normal wear and tear excepted. All repairs,
parts, mechanisms, devices and replacements shall immediately, without
further act, become part of the Collateral and subject to the security
interest created by this Agreement. Borrower will not make any
improvement, change, addition or alteration to the Collateral if such
improvement, change, addition or alteration will impair the originally
intended function or use of the Collateral or impair the value of the
Collateral as it existed immediately prior to such improvement,
change, addition or alteration. Any part added to the Collateral in
connection with any improvement, change, addition or alteration, and
all offspring, shall immediately, without further act, become part of
the Collateral and subject to the security interest created by this
Agreement.
(h) Inspection. Lender may at any reasonable time or times inspect the
----------
Collateral and may at any reasonable time or times inspect the books
and records of Borrower.
(i) Taxes. Borrower shall promptly pay, when due, all charges, fees,
-----
assessments and taxes (excluding all taxes measured by Lender's
income) which may now or hereafter be imposed upon the Loan or the
ownership, leasing, possession, sale or use of the Collateral.
(j) Performance by Lender. If Borrower fails to perform any agreement or
---------------------
obligation contained herein, Lender may itself perform, or cause the
performance of such agreement or obligation. Borrower will pay, or
reimburse Lender, on demand, for any and all fees (including
attorneys' fees), advances, costs and expenses of whatever kind or
nature incurred by Lender in connection with (i) the creation,
preservation and protection of Lender's security interest in the
Collateral, including, without limitation, all fees and taxes in
connection with the recording or filing of instruments and documents
in public offices, (ii) payments or discharge of any taxes or liens
upon or in respect of the Collateral, (iii) premiums for insurance
with respect to the Collateral, and (iv) this Agreement and with
protecting, maintaining or preserving the Collateral and Lender's
interests therein, whether through judicial proceedings or otherwise,
or in connection with defending or prosecuting any actions, suits or
proceedings arising out of related to this Agreement and the Borrower
Loan Documents or in connection with any debt restructuring, loan
workout negotiations or bankruptcy or insolvency case or proceedings.
Unless expressly held by Lender as separate obligations, all such
amounts shall constitute part of the Obligations of Borrower secured
by the Collateral.
(k) Power of Attorney. Borrower hereby irrevocably appoints Lender as
-----------------
Borrower's attorney-in-fact, with full authority in the place and
stead of Borrower and in the name of Borrower or otherwise, from time
to time in Lender's discretion, to take any action and to execute any
instrument which Lender may deem necessary or
12
advisable to accomplish the purposes of this Agreement, including,
without limitation: (i) to obtain, compromise and adjust insurance
required to be paid to Lender; (ii) to ask, demand, collect, ▇▇▇ for,
recover, receive, and give acquittance and receipts for moneys due and
to become due under or in respect of any of the Collateral; (iii) to
receive, endorse, and collect any drafts or other instruments,
documents, and chattel paper in connection with clause (i) or (ii)
above; (iv) to file any claims or take any action or institute any
proceedings which Lender may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights
of Lender with respect to any of the Collateral; and (v) to execute
any document necessary to perfect any security interest granted
pursuant to this Agreement.
(l) No Duties. The powers conferred on Lender hereunder are solely to
---------
protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of
any Collateral in its possession and the accounting for moneys
actually received by it hereunder, Lender shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any
Collateral.
(m) Financial Data; Shareholder Data. Borrower will furnish to Lender all
--------------------------------
financial information and reports and income tax returns on a
quarterly basis and upon Lender's request. Borrower agrees to provide
Lender with all information regarding any person's holdings of
Borrower's common stock on a monthly basis.
(n) Non-Party Access to Information. Notwithstanding the temporal
-------------------------------
qualification to the introduction to this Section 5, Borrower shall,
so long as any portion of the Loan is outstanding or so long as Lender
holds any debt or equity security of Borrower, permit access to its
business and financial records to Lender and its agents for the
purposes of determining Borrower's compliance with this Agreement.
(o) Borrower's Board of Directors. Notwithstanding the temporal
-----------------------------
qualification to the introduction to this Section 5, at Lender's
option, Borrower shall:
(i) so long as any portion of the Loan is outstanding and if an Event
of Default occurs during such time but is not cured within 10
days; or
(ii) so long as Lender owns 10 percent or more of Common Stock,
use its best efforts to increase the number of directors by one and
cause a designee of Lender to be elected to Borrower's Board of
Directors (the "Lender Director"). So long as the Lender owns any
Common Stock, but such percentage of Common Stock is less than 10
percent of the number of issued and outstanding Common Stock, the
Lender Director shall retain his/her position on Borrower's Board of
Directors until such time as (a) Lender no longer owns any Common
Stock, in which event the Lender Director shall resign his/her
position immediately; or (b) the Lender Director is not re-elected to
the Borrower's Board
13
of Directors at the next regularly scheduled annual meeting of
shareholders of Borrower.
So long as any portion of the Loan is outstanding or so long as Lender
owns any Common Stock, Lender additionally has visitation rights to
annual and special meetings of Borrower's Board of Directors, of which
Borrower agrees to give Lender at least 5 days' prior written notice.
6. Conditions of Borrowing. Lender shall not be obligated to make the Initial
-----------------------
Advance or any Additional Advance hereunder, unless each of the following
terms is satisfied:
(a) No Event of Default shall have occurred, unless such Event of Default
has been cured to Lender's satisfaction;
(b) In the case of each Additional Advance, the respective milestones
described on Schedule 6(a) shall have been achieved;
-------------
(c) A convertible promissory note evidencing the Loan shall have been duly
executed and delivered to Lender;
(d) Borrower shall have executed and delivered to Lender, as security for
the Loan, a pledge agreement in a form provided by Lender (the "Pledge
Agreement") together with all certificates representing all of the
issued and outstanding stock of DSG, Inc. (the "Pledged Stock"), and
stock powers endorsed in blank and there shall be no other security
interests in the Pledged Stock;
(e) Lender shall have received any and all other third-party consents,
waivers or releases deemed necessary or desirable by it in connection
with the Loan and the Collateral being financed. Such consents,
waivers or releases may include, without limitation, Uniform
Commercial Code lien releases and the consent and waiver, in form and
substance satisfactory to Lender, of each and every realty owner,
landlord and mortgagee holding an interest in or encumbrance on the
real property where any of the Collateral is to be located;
(f) All filings, recordings and other actions deemed necessary or
desirable by Lender in order to establish, protect, preserve and
perfect its security interest in the Collateral as a valid perfected
first priority security interest shall have been duly effected,
including, without limitation, the filing of financing statements and
the recordation of landlord (owners) and/or mortgagee waivers or
disclaimers, all in form and substance satisfactory to Lender, and all
fees, taxes and other charges relating to such filings and recordings
shall have been paid by Borrower;
(g) Borrower shall deliver to Lender an officer's certificate, in the form
of Exhibit E as to the truth and correctness of the representations
---------
and warranties contained in this on and as of the date of the making
of any Advance hereunder with the same effect as if made on and as of
such date, and Borrower shall have performed all covenants under this
Agreement and updated all information previously provided to Lender;
14
(h) In the sole judgment of Lender, there shall have been no material
adverse change in the financial condition, business or operations of
Borrower from the earliest date of any financial statement, credit
report, business report or similar document submitted to Lender for
its review;
(i) All Borrower Loan Documents shall be satisfactory to Lender's
attorneys;
(j) Lender shall have received, in form and substance satisfactory to
Lender, such other documents as Lender shall require including, but
not limited to a proof of payment, vendor invoices and certificates of
authority and incumbency;
(k) Lender shall have received subordination agreements in a form
satisfactory to Lender's counsel from all of the creditors of Borrower
listed on Schedule 6(k), which list purposely excludes Borrower's
-------------
indebtedness of approximately $125,000 to Rockford Industries.
Borrower represents that this list accurately describes all Related-
Party Indebtedness of Borrower. "Related-Party Indebtedness" includes
any debts owed by Borrower or by any of its affiliates to any
affiliate, vendor, partner, director, officer, employee, or
shareholder (or the family relation of any of the foregoing) of
Borrower or its affiliates;
(l) Borrower shall have delivered to Lender insurance certificates
evidencing Borrower's compliance with Section 5(d);
(m) Borrower shall have delivered to Lender certified copies of
resolutions authorizing Borrower's execution and delivery of the
Borrower Loan Documents, which resolutions shall remain in force and
effect up to and including Lender's making the Third Additional
Advance; and
(n) Lender shall have received a favorable opinion of Borrower's counsel
regarding, without limitation, due capitalization, authorization,
execution, enforceability, and perfection of security interests, in a
form satisfactory to Lender's counsel.
7. Default. The occurrence of any one of the following events shall
-------
constitute an event of default ("Event of Default") hereunder:
(a) Borrower's default in payment of the principal of and interest on the
Note when and after the same shall become due and payable, whether at
the Maturity Date or by acceleration or otherwise;
(b) The failure by Borrower to make payment of any other amount payable
hereunder or under any other Borrower Loan Document, and the
continuance of such failure for more than 10 business days after
written notice thereof by Lender to Borrower;
(c) The occurrence of a default under any other Borrower Loan Document
(after taking into account any cure period specified therein);
15
(d) Any warranty, representation or statement made or furnished to Lender
by or on behalf of Borrower, in connection with this Agreement, or the
Loan secured hereby, shall prove to have been false in any material
respect;
(e) The failure by Borrower to perform or observe any covenant, condition,
obligation or agreement to be performed or observed by it hereunder
which, in the case of any such failure susceptible to cure, shall
continue unremedied for 20 days after written notice thereof by Lender
to Borrower;
(f) Borrower becomes insolvent, bankrupt or a debtor (within the meaning
of Title 11, U.S. Code or any similar federal or state law for the
relief of debtors) or make an assignment for the benefit of creditors,
or consent to the appointment of a trustee or receiver, or admits in
writing its inability generally to pay its debts as they become due;
or a trustee or a receiver shall be appointed for Borrower or for a
substantial part of its property without its consent and shall not be
dismissed for a period of 30 days; or bankruptcy, reorganization,
liquidation, insolvency or dissolution proceedings shall be instituted
by or against Borrower and, if instituted against Borrower, shall be
consented to or be pending and not dismissed for a period of 30 days;
or any execution or writ of process shall be issued under any action
or proceeding against Borrower in such capacity whereby any of the
Collateral may be taken or restrained; Borrower shall cease doing
business as a going concern; or, without the prior written consent of
Lender, Borrower shall sell, transfer or dispose of all or
substantially all of its assets or property;
(g) The liquidation, merger, consolidation, reorganization, or conversion
of Borrower to a different form of organization;
(h) Any item of Collateral is seized or levied on under legal or
governmental process or for any other reason Lender deems itself
insecure. Lender shall be entitled to deem itself insecure when some
event occurs, fails to occur or is threatened or some objective
condition exists or is threatened, which materially impairs the
prospects that any of Borrower's obligations to Lender will be paid
when due, which materially impairs the value of the Collateral to
Lender or which materially affects the financial or business condition
of Borrower;
(i) Any security interest or lien created or purported to be created by
any Borrower Loan Document shall cease to be, or shall be asserted by
Borrower not to be, a valid, perfected, first priority (except as
otherwise expressly permitted in this Agreement) security interest in
or lien on the Collateral;
(j) Borrower shall grant to any person a license to use any of the
exclusive licenses included in the Collateral without Lender's prior
written consent; or
(k) Any willful disbursement of any portion of an Advance in knowing
violation of Section 2, or any unauthorized use of any portion of an
Advance in violation of Section 2.
16
The occurrence of an Event of Default shall terminate any Lender's consent to
Borrower's use of funds in the Disbursement Account, whether or not Lender shall
have given notice of the occurrence of the Event of Default. The occurrence of
an Event of Default under this Agreement shall be deemed to be an Event of
Default under all of the other Borrower Loan Documents. Lender's rights and
Borrower's obligations contained in this Agreement shall supplement, not
supersede, the provisions contained in any other Borrower Loan Document.
8. Remedies Upon Default. Upon the occurrence of an Event of Default
---------------------
hereunder, Lender may, at its option, do any one or more of the following:
(a) Declare all Obligations of Borrower to Lender to be immediately due
and payable, whereupon all unpaid principal of and interest on said
indebtedness and other amounts declared due and payable shall be and
become immediately due and payable;
(b) Take possession of all or any of the Collateral and exclude therefrom
Borrower and all others claiming under Borrower, and thereafter hold,
store, use, operate, manage, maintain and control, make repairs,
replacements, alterations, additions and improvements to, and exercise
all right and powers of Borrower in respect to, the Collateral or any
part thereof. In the event Lender demands, or attempts to take
possession of the Collateral in the exercise of any rights under this
Agreement, Borrower promises and agrees to promptly turn over and
deliver complete possession thereof to Lender;
(c) Require Borrower to assemble the Collateral, or any portion thereof,
at a place designated by Lender, and promptly to deliver such
Collateral to Lender, or to an agent or representative designated by
Lender;
(d) Sell, lease or otherwise dispose of the Collateral at public or
private sale, without having the Collateral at the place of sale, and
upon terms and in such manner as Lender may determine (and Lender may
be a purchaser at any sale); and
(e) Exercise any remedies of a secured party under the Uniform Commercial
Code as adopted in the state where the Collateral is located or any
other applicable law. Except for portions of the Collateral which are
perishable or threaten to decline speedily in value or are of a type
customarily sold on a recognized market, Lender shall give Borrower at
least 10 days' prior written notice of the time and place of any
public or private sale of the Collateral or other intended disposition
thereof to be made. Such notice may be mailed to Borrower at the
address set forth in the first paragraph of this Agreement. Borrower
hereby specifically agrees (to the extent that applicable law and
public policy allows it to effectively do so) that any public or
private sale held in accordance with the terms of this Agreement
shall, for the purpose of the Uniform Commercial Code as adopted in
the state where the Collateral is located and for all other purposes,
be deemed to have been conducted in a commercially reasonable manner
and in good faith.
The proceeds of any sale under Section 8(d) shall be applied as follows:
17
(1) To the repayment of the costs and expenses of retaking, holding and
preparing for the sale and the selling of the Collateral (including
legal expenses and attorneys' fees) and the discharge of all
assessments, encumbrances, charges or liens, if any, on the Collateral
prior to the lien hereof (except any taxes, assessments, encumbrances,
charges or liens subject to which such sale shall have been made);
(2) To the payment of the Loan and other Obligations then due and unpaid;
(3) To the payment of other amounts then secured hereunder; and
(4) The surplus, if any shall be paid to Borrower or to whomsoever may be
lawfully entitled to receive the same.
Lender shall have the right to enforce one or more remedies hereunder,
successively or concurrently, and such action shall not operate to estop or
prevent Lender from pursuing any further remedy which it may have, and any
repossession or retaking or sale of the Collateral pursuant to the terms hereof
shall not operate to release Borrower until full payment of any deficiency has
been made in cash.
9. General Provisions.
------------------
(a) Loss and Damage. Borrower shall bear the risk of damage, loss, theft,
---------------
or destruction, partial or complete of the Collateral, whether or not
such loss or damage is covered by insurance. In the event of any
damage, loss, theft, or destruction, partial or complete, of any item
of Collateral, Borrower shall promptly notify Lender in writing and at
the option of Lender (a) repair or restore the Collateral to good
condition and working order, or (b) replace the Collateral with
similar Collateral in good repair, condition and working order, or (c)
pay Lender, in cash, an amount equal to the unamortized Collateral
cost for the item (or if the Collateral was not purchased with Loan
proceeds, the pro rata portion of the outstanding principal balance
due under the Note, as the case may be, and all other amounts relating
to that item of Collateral then due and owing hereunder, and upon
payment of that amount, Lender's lien shall be terminated with respect
to that item of Collateral only, and Lender will release its interest
in that item of Collateral).
(b) Assignment. Borrower may not assign or transfer any rights under this
----------
Agreement or to the Collateral without Lender's prior written consent.
(c) Indemnification. Borrower shall indemnify and hold harmless Lender
---------------
from and against any and all claims, losses, liabilities and causes of
action, and all related costs and expenses (including the fees and
costs of Lender's attorneys) (collectively "Claims"), in any way
relating to or arising out of the enforcement of this Agreement, the
other Borrower Loan Documents or the Collateral, except for any Claims
resulting solely and directly from Lender's gross negligence or
willful misconduct.
18
(d) Notices. Whenever Borrower or Lender shall desire to give or serve
-------
any notice, demand, request or other communication with respect to
this Agreement, each such notice, demand, request or communication
shall be in writing, shall be effective upon receipt, and shall be
delivered by hand, certified mail (postage prepaid, return receipt
requested), overnight courier (postage prepaid, signature required),
or facsimile telecopy (receipt confirmed with hard copy by any of the
foregoing means), in each such case addressed to the parties at the
address(es) set forth on the signature page of this Agreement. Any
party hereto may change its address for such notices by delivering or
mailing to the other parties hereto, as aforesaid, a notice of such
change.
(e) No Waiver by Lender. By exercising or failing to exercise any of its
-------------------
rights, options or elections hereunder, Lender shall not be deemed to
have waived any breach or default on the part of Borrower or to have
released Borrower from any of the obligations secured hereby, unless
such waiver or release is in writing and is signed by Lender. In
addition, the waiver by Lender of any breach hereof for default in
payment of an indebtedness secured hereby shall not deemed to
constitute a waiver of any succeeding breach or default.
(f) Further Agreements. From time to time, Borrower will execute such
------------------
further instruments as Lender may reasonably require, in order to
evidence the Loan and protect, preserve, and maintain the security
interests in the Collateral granted hereby.
(g) Binding Upon Successors. All agreements, covenants, conditions and
-----------------------
provisions of this Agreement shall apply to and bind the successors
and permitted assigns of all parties hereto.
(h) Governing Law; Venue. This Agreement shall be governed, construed and
--------------------
interpreted in accordance with the laws of the Confederated Tribes of
the Grand Ronde Community of Oregon (the "Tribe"), and, if the Tribe
has neither Tribal Constitutional law nor Tribal Ordinances with
respect to a legal issue, then with the statutes, regulations, and
laws of the State of Oregon, without regard to its conflicts of laws
principles. The exclusive venue for any dispute arising under or
relating to this Agreement shall be in (a) the Tribal Court of the
Confederated Tribes of Grand Ronde, in the case of a suit initiated by
Borrower against Lender; and (b) any court of competent jurisdiction
(excluding the Tribal Court) in the case of a suit initiated by Lender
against Borrower.
(i) Amendment. This Agreement can be modified or rescinded only by a
---------
writing expressly referring to this Agreement, signed by both of the
parties hereto.
(j) Headings. The titles of the sections and subsections of this
--------
Agreement are for convenience of reference only and are not to be
considered in construing this Agreement. References herein to
exhibits and schedules to this Agreement shall be deemed to
incorporate such exhibits or schedules by reference.
19
(k) Severability. Every provision of this Agreement is intended to be
------------
severable. In the event that any term or provision hereof is declared
by a court to be illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the balance of the terms and
provisions hereof, which terms and provisions shall remain binding and
enforceable, then to the extent possible all of the other provisions
shall nonetheless remain in full force and effect.
(l) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed an original.
(m) Construction. This Agreement and any documents or instruments
------------
delivered pursuant hereto 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 the parties participated
equally in the drafting of the same. Consequently, the parties
acknowledge and agree that any 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.
Whenever in this Agreement the context so suggests, references to the
masculine shall be deemed to include the feminine, references to the
singular shall be deemed to include the plural, and references to "or"
shall be deemed to be disjunctive but not necessarily exclusive.
(n) Integration. This Agreement, including the exhibits and schedules
-----------
attached hereto, constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior
agreements, understandings, letters of intent, term sheets,
negotiations and discussions, whether oral or written, of the parties.
There are no warranties, representations or other agreements, express
or implied, made to any party by any other party in connection with
the subject matter hereof except as specifically set forth herein or
in the documents delivered pursuant hereto or in connection herewith.
IN WITNESS WHEREOF, Borrower and Lender have duly executed this Loan and
Security Agreement the day and year first above written.
LENDER: BORROWER:
SPIRIT MOUNTAIN DEVELOPMENT COINLESS SYSTEMS, INC.
CORPORATION Tax ID No. ▇▇-▇▇▇▇▇▇▇
By:______________________________________ By:_____________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇, Chief Executive Officer ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
Notice Address: Notice Address:
▇.▇. ▇▇▇ ▇▇ 3720 West ▇▇▇▇▇▇▇ Road, Suite 101
Grand Ronde, OR 97347 ▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
20
Phone: (▇▇▇) ▇▇▇-▇▇▇▇ Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: With a copy to:
▇▇. ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ LLP ▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
STATE OF NEVADA ss.
County of ________________
On ___________, 2000, personally appeared before me, a Notary Public,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, personally known (or proved) to me to be the person whose
name is subscribed to the above instrument, who acknowledged that he executed
the instrument as the President of Coinless Systems, Inc., a Nevada
corporation.
_____________________________
[SEAL] Notary Public for Nevada
My commission expires: ______
21
Exhibit A
Convertible Promissory Note
22
Exhibit B
Registration Rights
All references to "Sections" contained in this Exhibit B are references to
---------
Sections in this Exhibit B, unless otherwise provided.
---------
Registration Rights. Upon the conversion of any of the principal or interest of
-------------------
the Convertible Promissory Note into common stock of the Borrower (the "Common
Stock"), Borrower covenants and agrees as follows:
1. Certain Definitions. For purposes of this Agreement:
-------------------
(a) The term "Act" shall mean the Securities Act of 1933, as amended.
(b) The term "Form S-3" shall mean such form under the Act as in
effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC that permits inclusion or
incorporation of substantial information by reference to other
documents filed by Borrower with the SEC.
(c) The term "Holder" shall mean any person owning or having the
right to acquire Registrable Securities or any assignee thereof
in accordance with Section 13.
(d) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(e) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration
statement or document.
(f) The term "Registrable Securities" shall mean any Common Stock
issued as (or issuable upon the conversion or exercise of the
Convertible Promissory Note) a dividend or other distribution
with respect to, or in exchange for or in replacement of such
shares; provided, however, that the term "Registrable Securities"
-----------------
shall exclude in all cases any Registrable Securities sold by a
person in a transaction in which his rights under this Exhibit B
are not assigned in accordance with this Agreement or any
Registrable Securities sold in a public offering, whether sold
pursuant to Rule 144 promulgated under the Securities Act, or in
a registered offering, or otherwise.
(g) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock
outstanding that
23
are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities that are,
Registrable Securities.
(h) The term "SEC" shall mean the Securities and Exchange Commission.
2. Demand Registration.
-------------------
(a) If, at any time after six calendar months after the date of this
Agreement, Borrower shall receive at any time a written request
from Lender, that Borrower file a registration statement under
the Act covering the registration of the Registrable Securities
then outstanding having an aggregate offering price, net of
underwriting discounts and commissions, of at least $1,000,000,
then Borrower shall effect as soon as practicable, and in any
event within 120 days of the receipt of such request, the
registration under the Act of all Registrable Securities that
Lender requests to be registered, subject to the limitations of
Section 2(b), within 20 days of the mailing of such notice by
Borrower in accordance with Section 9(d) of the Agreement.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting,
they shall so advise Borrower as a part of their request made
pursuant to section 2(a) and Borrower shall include such
information in the written notice referred to in Section 2(a).
The underwriter will be selected by Borrower and shall be
reasonably acceptable to a majority in interest of the Initiating
Holders. In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in
interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with
Borrower as provided in Section 4(e)) enter into an underwriting
agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other
provision of this Section 2, if the underwriter advises the
Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable
Securities that would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be
included in the underwriting shall be allocated among all Holders
electing to include shares in the offering, including the
Initiating Holders, in proportion (as nearly as practicable) to
the amount of Registrable Securities of Borrower owned by each
Holder.
24
(c) Borrower shall not be obligated to effect, or to take any action
to effect, any registration pursuant to this Section 2:
(i) After Borrower has effected two registrations pursuant to
this Section 2 and such registrations have been declared
or ordered effective;
(ii) During the period starting with the date 60 days prior to
Borrower's good faith estimate of the date of filing of,
and ending on a date 180 days after the effective date of,
a registration subject to Section 3; provided that
Borrower is actively employing in good faith all
reasonable efforts to cause such registration statement to
be effective; or
(iii) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered
on Form S-3 pursuant to a request made pursuant to Section
12 below.
3. Borrower Registration. If (but without any obligation to do so)
---------------------
Borrower proposes to register (including for this purpose a
registration effected by Borrower for stockholders other than the
Holders) any of its stock or other securities under the Act in
connection with the public offering of such securities for cash or for
services, or for a combination thereof (other than a registration
relating solely to the sale of securities to participants in a stock
plan or a registration on any form that does not include substantially
the same information as would be required to be included in a
registration statement covering the sale of the Registrable
Securities), Borrower shall, at such time, promptly give Lender
written notice of such registration. Upon the written request of
Lender given within 20 days after mailing of such notice by Borrower
in accordance with Section 9(d) of the Agreement, Borrower shall
include in the registration statement all of the Registrable
Securities that Lender has requested to be registered.
4. Obligations of Borrower. Whenever required under this Exhibit B to
-----------------------
effect the registration of any Registrable Securities, Borrower shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective and keep
such registration statement effective for a period of up to 120
days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply
with the provisions
25
of the Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to Lender such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as Lender may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by Lender.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by Lender; provided that Borrower shall not
be required in connection therewith or as a condition thereto to
qualify to do business in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such
offering. Lender shall also enter into and perform its
obligations under such an agreement.
(f) Notify Lender at any time when a prospectus relating Registrable
Securities is required to be delivered under the Act of the
happening of any event as a result of which the prospectus
included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing.
(g) Cause all such Registrable Securities registered hereunder to be
listed on each securities exchange or nationally recognized
quotation system on which similar securities issued by Borrower
are then listed.
5. Furnish Information.
-------------------
(a) It shall be a condition precedent to the obligations of Borrower
to take any action pursuant to this Exhibit B with respect to the
Registrable Securities that Lender shall furnish to Borrower such
information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of such securities as
shall be required to effect the registration of Lender's
Registrable Securities.
(b) Borrower shall have no obligation with respect to any
registration requested pursuant to Section 2 or Section 12 if,
due to the operation of Section 5(a), the anticipated aggregate
offering price of the Registrable Securities to be included in
the registration does not equal or exceed the anticipated
aggregate offering price required to originally trigger
26
Borrower's obligation to initiate such registration as specified
in Section 2(a) or Section 12(b)(2), whichever is applicable.
6. Expenses of Demand Registration. All expenses other than underwriting
-------------------------------
discounts and commissions incurred in connection with registrations,
filings or qualifications pursuant to Section 2, including (without
limitation) all registration, filing and qualification fees, printers'
and accounting fees, and fees and disbursements of counsel for
Borrower and fees and expenses of a single counsel for all selling
Holders (if other than counsel to Borrower) shall be borne by
Borrower.
7. Expenses of Borrower Registration. Borrower shall bear and pay all
---------------------------------
expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the
registrations pursuant to Section 3 (which right may be assigned as
provided in Section 13), including (without limitation) all
registration, filing, and qualification fees, printers and accounting
fees relating or apportionable thereto and the fees and disbursements
of counsel for Borrower, but excluding underwriting discounts and
commissions relating to Registrable Securities and fees and expenses
of counsel to Lender (if other than counsel to Borrower).
8. Underwriting Requirements for Borrower Registration. In connection
---------------------------------------------------
with any offering involving an underwriting of shares of Borrower's
capital stock, Borrower shall not be required under Section 3 to
include any of Lender's securities in such underwriting unless Lender
accepts the terms of the underwriting as agreed upon between Borrower
and the underwriters selected by it (or by other persons entitled to
select the underwriters), and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize
the success of the offering by Borrower. If the total amount of
securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of
securities sold other than by Borrower that the underwriters determine
in their sole discretion is compatible with the success of the
offering, then Borrower shall be required to include in the offering
only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not
jeopardize the success of the offering. Notwithstanding any other
provision of this Agreement, if the underwriters determine in good
faith that marketing factors require a limitation of the number of
shares to be underwritten, then the underwriters may exclude shares
from the registration and the underwriting, and the number of shares
that may be included in the registration and the underwriting shall be
allocated, first to Borrower, or, if the registration was initiated by
-----
other stockholders of Borrower, to those other stockholders and
second, to each of the Holders requesting inclusion of their
------
Registrable Securities in such registration statement on a pro rata
basis based on the total number of Registrable Securities then held by
each such Holder; provided, however, that the right of the
-----------------
underwriters to exclude shares (including Registrable Securities) from
the registration and underwriting as
27
described above shall be restricted, except in a registration under
Section 3 other than on behalf of Borrower, so that (i) the number of
Registrable Securities included in any such registration is not
reduced below fifteen percent (15%) of the aggregate number of
Registrable Securities for which inclusion has been requested by
Lender; and (ii) all shares that are not Registrable Securities and
are held by any other person, including, without limitation, any
person who is an employee, officer or director of Borrower (or any
subsidiary of Borrower) shall first be excluded from such registration
and underwriting before any Registrable Securities are so excluded. If
Lender disapproves of the terms of any such underwriting, Lender may
elect to withdraw therefrom by written notice to Borrower and the
underwriter(s), delivered at least 10 business days prior to the
effective date of the registration statement. Any Registrable
Securities excluded or withdrawn from such underwriting shall be
excluded and withdrawn from the registration. For any selling
stockholder that is a Holder of Registrable Securities and that is a
partnership or corporation, the affiliated partnerships, the partners,
retired partners and stockholders of such Holder, or the estates and
family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed
to be a single "selling stockholder," and any pro-rata reduction with
respect to such "selling stockholder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling stockholder," as
defined in this sentence.
9. Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Exhibit B.
10. Indemnification.
---------------
(a) To the extent permitted by law, Borrower will indemnify and hold
harmless Lender, any underwriter (as defined in the Act) for
Lender and each person, if any, who controls Lender or
underwriter within the meaning of the Act or the 1934 Act,
against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, or the
1934 Act or other federal or state securities law, insofar as
such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration
statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make
the statements therein not misleading, or (iii) any violation or
alleged violation by Borrower of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under
28
the Act, or the 1934 Act or any state securities law; and
Borrower will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending
any such loss, claim, damage, liability, or action; provided,
--------
however, that the indemnity agreement contained in this
-------
Section 10(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of Borrower (which
consent shall not be unreasonably withheld), nor shall Borrower
be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is
based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use
in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless Borrower, each of its directors, each
of its officers who has signed the registration statement, each
person, if any, who controls Borrower within the meaning of the
Act, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages,
or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, the 1934 Act or other
federal or state securities law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be
indemnified pursuant to this Section 10(b), in connection with
investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity
-----------------
agreement contained in this Section 10(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under
this Section 10(b) exceed the net proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party
under this Section 10, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other
indemnifying
29
party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however,
-----------------
that an indemnified party (together with all other indemnified
parties that may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the
fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and
any other party represented by such counsel in such proceeding.
The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action,
if materially prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the
indemnified party under this Section 10, but the failure to so
deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party
otherwise than under this Section 10.
(d) The obligations of Borrower and Holders under this Section 10
shall survive the completion of any offering of Registrable
Securities in a registration statement under this Exhibit B, and
otherwise.
11. Reports Under the 1934 Act. With a view to making available to the
--------------------------
Holders the benefits of Rule 144 promulgated under the Act and any
other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of Borrower to the public without
registration or pursuant to a registration on Form S-3, Borrower
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after the
effective date of the first registration statement filed by
Borrower for the offering of its securities to the general
public;
(b) take such action, including the voluntary registration of Common
Stock under Section 12 of the 1934 Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as practicable after
the end of the fiscal year in which the first registration
statement filed by Borrower for the offering of its securities to
the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of Borrower under the Act and the 1934 Act and
deliver to Lender copies of such filings promptly after made; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by
Borrower that it has complied with the reporting requirements of
SEC Rule 144 (at any
30
time after 90 days after the effective date of the first
registration statement filed by Borrower), the Act and the 1934
Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after
it so qualifies), (ii) a copy of the most recent annual or
quarterly report of Borrower and such other reports and documents
so filed by Borrower, and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or
regulation of the SEC that permits the selling of any such
securities without registration or pursuant to such form.
12. Form S-3 Registration. In case the Borrower shall receive from any
---------------------
Holder or Holders a written request or requests that the Borrower
effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities
owned by such Holder or Holders, the Borrower will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect and keep effective such
registration and all such qualifications and compliances as may
be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Holder's or Holders'
Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any
other Holder or Holders joining in such request as are specified
in a written request given within 15 days after receipt of such
written notice from the Borrower; provided, however, that the
Borrower shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 12: (1) if
Form S-3 is not available for such offering by the Holders; (2)
if the Holders, together with the holders of any other securities
of the Borrower entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000;
(3) if the Borrower has, within the six-month period preceding
the date of such request, already effected one registration on
Form S-3 for the Holders pursuant to this Section 12; or (4) in
any particular jurisdiction in which the Borrower would be
required to qualify to do business or to execute a general
consent to service of process in effecting such registration,
qualification or compliance.
(c) Subject to the foregoing, the Borrower shall file a registration
statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Holders. All
expenses incurred in connection with a registration requested
pursuant to Section 12, including (without limitation) all
31
registration, filing, qualification, printer's and accounting
fees and the reasonable fees and disbursements of counsel for the
Borrower, but excluding any underwriters' discounts or
commissions associated with Registrable Securities and fees and
expenses of counsel for any selling Holder (if other than counsel
to the Borrower), shall be borne by the Borrower. Registrations
effected pursuant to this Section 12 shall not be counted as
demands for registration or registrations effected pursuant to
Sections 2 or 3, respectively.
13. Assignment of Registration Rights. The rights to cause Borrower to
---------------------------------
register Registrable Securities pursuant to this Exhibit B may be
assigned by a Holder to a transferee or assignee of such securities,
provided that (a) Borrower is, at the time of such transfer, furnished
with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration
rights are being assigned; (b) such transferee or assignee agrees in
writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 14
below; and (c) such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by
the transferee or assignee is restricted under the Act. For the
purposes of determining the number of shares of Registrable Securities
held by a transferee or assignee, the holdings of transferees and
assignees of a partnership who are partners or retired partners of
such partnership (including spouses and ancestors, lineal descendants
and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated
together and with the partnership; provided that all assignees and
transferees who would not qualify individually for assignment of
registration rights shall have a single attorney-in-fact for the
purpose of exercising any rights, receiving notices or taking any
action under this Exhibit B.
14. Termination of Registration Rights. Lender shall be entitled to
----------------------------------
exercise any right provided for in this Exhibit B after the earlier of
(i) 10 years after the date of this Agreement or (ii) such time at
which all Registrable Securities held by Lender can be sold in any
three-month period without registration in compliance with Rule 144 of
the Act.
15. Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, Borrower shall not, without the prior written
consent of Lender, grant or cause to be created, for the benefit of
any Holder or prospective Holder of any securities of Borrower, any
registration rights to such Holder or prospective Holder other than
rights that are subordinate in right to Lender.
16. Aggregation of Stock. All shares of Registrable Securities of
--------------------
Borrower held or acquired by a stockholder and its affiliates shall be
aggregated together for the purpose of determining the availability of
any rights under this Agreement.
32
Exhibit C
Rights in Future Financing
All references to "Sections" contained in this Exhibit C are references to
---------
Sections in this Exhibit C, unless otherwise provided.
---------
1. Right of First Offer. Subject to the terms and conditions specified in
--------------------
this Section 1, Borrower hereby grants to Lender a right of first offer to
purchase its Pro Rata Share (as hereinafter defined) (in whole or in part)
with respect to future sales by Borrower of its Shares (as hereinafter
defined). Lender shall be entitled to assign or apportion the right of
first offer hereby granted it among itself and its partners and affiliates
in such proportions as it deems appropriate. For purposes of this Section
1, Lender's "Pro Rata Share" of Shares shall mean that number of Shares
that equals the proportion that (x) the number of shares of Common Stock
issued and held, or issuable upon conversion of the Convertible Promissory
Note then held by Lender, bears to (y) the total number of shares of Common
Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities).
Each time Borrower proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), Borrower shall first make an offering of such Shares to
Lender in accordance with the following provisions:
(a) Borrower shall deliver a notice by confirmed facsimile transmission,
certified mail or a nationally recognized overnight courier service
("Notice") to Lender stating (i) its bona fide intention to offer such
Shares, (ii) the number of such Shares to be offered, and (iii) the
price and a summary of the terms, if any, upon which it proposes to
offer such Shares.
(b) By written notification received by Borrower within 20 calendar days
after receipt of the Notice, Lender may elect to purchase or obtain,
at the price and on the terms specified in the Notice, up to its Pro
Rata Share of such Shares.
(c) If all Shares that Lender is entitled to obtain pursuant to Section
1(b) are not elected to be obtained as provided in Section 1(b)
hereof, Borrower may, during the 60-day period following the
expiration of the period provided in Section 1(b) offer the remaining
unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree
than those specified in the Notice. If Borrower does not enter into
an agreement for the sale of the Shares within such 60-day period, or
if such agreement is not consummated within 30 days of the execution
thereof, the right provided hereunder shall be deemed to be revived
and such Shares shall not be offered unless first reoffered to Lender
in accordance herewith.
2. Exclusions. The provisions of this Exhibit C shall not be applicable to up
----------
to the number of Reserved Plan Shares listed in Section 4(b) of the
Agreement if such shares are issuable or issued to employees, officers or
directors of Borrower (if in transactions with exclusively non-financing
purposes).
33
Exhibit D
Initial Disbursement Budget
Cost of Product for Shipment:
Spirit Mountain Units (60)
Infiniti Units (50) (See Schedule I)
Product for Inventory $149,077.00
Reimburse Operating Account for Product Purchased
And Show Expenses: (See Schedule II) 79,670.73
Surplus Amount 21,252.27
-----------
Total Amount of Installment $250,000.00
===========
Wire Transfer to:
▇▇▇▇▇ Fargo Bank
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Routing #: 321 270742
Coinless Systems, Inc.
Disbursement Account
Account #: 0484-402144
34
SCHEDULE I
Chassis Parts $10,885.00
Scanner (1) 35,880.00
Electrical
Controller Boards (1) 60,000.00
Power Supply (1) 19,840.00
Stepper Motors (1) 7,875.00
Sensors (1) 3,090.00
Power Cords (1) 6,000.00 96,805.00
----------
Miscellaneous 5,507.00
----------
Total Cost of Products $149,077.00
===========
(1) Amount of Product to get Break Point Costs:
Controller Board - Chips 750
- Boards 300
Power Supply 640
Stepper Motors 300
Sensors 500
Power Cords 2,500
Scanners 285
35
SCHEDULE II - COST OF PRODUCT - FUNDS FROM OPERATING ACCOUNT
Check Product/
Date Vendor Number Inventory Gaming Show
------ ------ --------- -----------
10/20 GES Exposition Services 736 4,632.40
10/19 Force Electronics 733 65.00
10/12 Skyline Display 720 4,872.87
10/10 World Gaming Congress 718 7,350.00
10/10 PDS - IGT Slot Machine 716 1,388.69
10/10 Force Electronics 715 42.78
10/6 Galaxy 713 255.00
10/5 All State Fasteners 710 14.60
10/2 Force Electronics 704 248.50
10/1 Force Electronics 703 248.50
10/1 Century Springs 701 3,416.55
9/29 Richco 693 1,326.21
9/21 UMT 689 640.00
9/21 ▇. ▇▇▇▇▇▇▇▇▇ 682 1,785.19
9/21 Skyline Display 680 4,359.93
9/21 Networks 675 1,495.54
9/21 Partminer 658 1,234.70
9/21 PhaseOne 657 1,984.00
9/21 Partminer 655 632.60
9/21 Aero-Space 654 449.04
9/21 Ability Label 652 1,274.00
9/21 Partminer 651 256.28
9/21 All State Fasteners 650 202.45
9/21 UPS 649 17.08
9/21 Royal Locks 646 246.50
9/15 NMB Technologies 644 1,238.50
9/15 Marfred Industries 643 136.21
9/15 Bisco Industries 642 451.68
9/15 Newark Electric 641 1,564.50
9/01 Skyline Display 631 4,257.50
9/01 Accutite 607 94.20
9/01 ▇▇▇▇▇▇ Belts 602 104.64
8/25 Future Electronics 594 982.75
8/25 Future Electronics 593 2,225.82
8/20 ▇▇▇▇▇▇ Belts 592 104.64
8/20 Century Springs 590 775.78
8/20 Sparton Technologies 589 11,000.00
8/20 ▇▇▇▇▇▇▇▇ Precision 588 9,068.40
8/20 Future Logic 587 1,770.00
8/20 World Gaming Congress 584 7,350.00
8/20 Marfred Industries 583 107.70
Totals $45,204.34 $34,466.39 $79,670.73
36
Exhibit E
Form of Officer's Certificate
COINLESS SYSTEMS, INC.
OFFICER'S CERTIFICATE
---------------------
The undersigned duly authorized officer of Coinless Systems, Inc., a Nevada
corporation (the "Borrower"), does hereby certify, in accordance with the Loan
and Security Agreement dated as of December ___, 2000 by and among Spirit
Mountain Development Inc. (the "Lender") and Borrower (the "Agreement"), that:
1. Representations and Warranties. Except as set forth in Schedule A
------------------------------ ----------
hereto, the representations and warranties of Borrower contained in
the Agreement are true and accurate at and as of the date written
below (except to the extent a representation or warranty speaks
specifically as of an earlier date or has become untrue or inaccurate
because of transactions contemplated in the Agreement).
2. Performance of Obligations. Borrower has performed all obligations
--------------------------
and complied with all of the covenants required in accordance with the
terms of the Agreement to be performed or complied with by Borrower
prior to and as of the date written below.
IN WITNESS WHEREOF, the undersigned has executed this certificate on behalf
of the Corporation this _____ day of ____________, 200__.
COINLESS SYSTEMS, INC.
By: _________________________
Name:
Title:
37
Schedule 3(b)
Transfer of Instruments
750,000 common shares of DSG, Inc.
Promissory Note by ▇▇▇ ▇▇▇▇▇▇▇ for principal amount of $208,000 of August 23,
2000.
38
Schedule 4(b)
Commitments to Issue Debt or Equity Securities
/(1)/ Warrants Issued to: New Trends Holdings, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Number of Conversion Maturity Date
Warrant No. Warrant Rights Price of Right
----------- -------------- ----- --------
101 50,000 $ 1.00 per Right 7/31/2002
102 16,666 $ 2.50 per Right 10/31/2002
103 16,666 $ 5.00 per Right 1/31/2003
104 16,667 $10.00 per Right 4/30/2003
Authorized by Board of Directors - February 19, 2000.
/(2)/ Reserve One Million Five Hundred Thousand (1,500,000) shares of CSI 144R
Common Stock. This stock to be issued for Employee Incentive,
Compensation for Services Rendered or Forgiveness of Debt.
Authorized by Board of Directors - February 19, 2000
39
Schedule 4(c)
SEC Reports
None.
40
Schedule 4(f)
Litigation
Subsidiary DSG, Inc.
------------------------
1. Dynic USA Corporation $23,699.27
2. Datamax Corporation $65,424.50
3. Zebra Technologies
Eltron Division $ 2,500.27
4. Kieran Label Corporation $ 7,130.76
5. Scansource $23,822.87
Borrower
--------
None.
41
Schedule 4(g)
Tax Returns and Payment Schedules
DSG, Inc.
Payroll: Federal
1999 Balance as of 10/20/00: $ 66,939.00
Agreement with IRS to pay $5,000 on the 20/th/ of
Each month
Sales Tax: State of California
1999 Balance as of 10/20/00 150,618.18
Agreement with Board of Equalization to pay
$10,000 on the 20/th/ of each month
Payroll: State of California
1999 Balance as of 10/00 2,966.03
Franchise Tax: State of California
1999 Balance as of 10/00 7,486.00
Total DSG, Inc. Unpaid Taxes $228,009.21
Coinless Systems, Inc.
Nevada Unemployment
1999 3/rd/ Qtr $ 1,852.00
4/th/ Qtr 831.00
-----------
1999 Total Due 2,683.00
2000 1/st/ Qtr 2,914.00
2/nd/ Qtr 747.00
3/rd/ Qtr 486.00
-----------
2000 Total Due $ 4,147.00
-----------
Total Due $ 6,830.00
42
Coinless Systems, Inc.
Payroll: Federal
FICA/ Interest
PERIOD Gross F.I.T. Medi-Care Total Penalty Total Due
------ ----- ------ --------- ----- -------- ---------
1999 lst Qtr 49,250,000 8,233.00 6,968.00 15,201.00 3,344.00 18,545.00
2/nd/Qtr 79,465.00 12,640.00 12,158.00 25,798.00 5,160.00 30,958.00
3/rd/Qtr 96,100.00 16,056.00 14,700.00 30,756.00 5,536.00 36,292.00
4/th/Qtr 80,189.00 13,447.00 11,902.00 25,349.00 4,056.00 29,405.00
----------- ----------- ---------- ----------- ---------- -----------
Total $305,004.00 $ 51,376.00 $45,728.00 $ 97,104.00 $18,096.00 $115,200.00
2000 1/st/Qtr 87,755.00 15,845.00 13,427.00 29,272.00 4,684.00 33,956.00
2/nd/Qtr 92,624.00 16,965.00 14,171.00 31,136.00 4,359.00 35,495.00
3/rd/Qtr 88,069.00 15,831.00 12,411.00 28,242.00 3,389.00 31,631.00
10/1 - 10/15 14,984.00 2,520.00 1,089.00 3,609.00 -- 3,609.00
----------- ----------- ---------- ----------- ---------- -----------
Total-to-Date $283,432.00 $ 51,161.00 $41,098.00 $ 92,259.00 $12,432.00 $104,691.00
Total Federal
Due $588,425.00 $102,537.00 $86,826.00 $189,363.00 $30,528.00 $219,891.00
43
Schedule 4(h)
Other Permitted Liens
Security interest in the Patent in favor of First Source Financial LLP, which
lien is deemed an "Other Permitted Lien" only until 30 days after the date of
------------------------------------
this Agreement.
--------------
44
Schedule 4(l)
Tradenames
Ticke-Trak
45
Schedule 4(n)
Solvency
Unless the company can acquire additional financing in order to be able to
purchase materials to complete existing orders and to obtain additional orders
within the foreseeable future, it may not be able to continue in operation. If
the funding comes in from Spirit Mountain within the next two weeks the company
will be able to purchase the materials necessary and will be able to meet its
obligations as they occur.
46
Schedule 6(a)
Conditions of Additional Advances
With respect to each of the Additional Advances, the below milestones shall have
been achieved in accordance with the procedures set forth in Section 1(c):
1. For the First Additional Advance of $175,000:
(a) Borrower shall have delivered 60 TickeTrak units at Spirit Mountain
Casino.
(b) Borrower shall have caused the perfection of a first priority security
interest in the Patent in favor of Lender and provided reasonably
satisfactory evidence thereof to Lender.
(c) Borrower and Lender shall have agreed on a Disbursement Budget
consistent with the Loan and Security Agreement, including, without
limitation, Section 1(d) thereof.
2. For the Second Additional Advance of $175,000:
(a) Lender shall have made the First Additional Advance; and
(b) Borrower shall have, to Lender's reasonable satisfaction, met
performance standards established by the Grand Ronde Gaming Commission
and by Spirit Mountain Gaming, Inc. (the "Standards"), for TickeTrak
Beta testing of 60 TickeTrak units at Spirit Mountain Casino.
(c) Borrower and Lender shall have agreed on a Disbursement Budget
consistent with the Loan and Security Agreement, including, without
limitation, Section 1(d) thereof.
3. For the Third Additional Advance of $400,000:
(a) Lender shall have made both the First Additional Advance and the
Second Additional Advance; and
(b) Borrower shall have delivered to Spirit Mountain Casino at least 1,248
new TickeTrak units that, to Lender's reasonable satisfaction, meet
the Standards. Lender shall have 30 days to research and determine
whether such units meet the Standards.
(c) Borrower and Lender shall have agreed on a Disbursement Budget
consistent with the Loan and Security Agreement, including, without
limitation, Section 1(d) thereof.
47
Lender's making either of the Second Additional Advance or the Third Additional
Advance shall not be interpreted or construed as a waiver or modification of any
of a TickeTrak unit purchaser's remedies under Article 2 of the Uniform
Commercial Code or under any of the agreements evidencing the purchase and sale
of the TickeTrak units.
The Standards are as follow:
i) "Hardware" means any board, harness, or component that is not
software necessary for the proper function of the Coinless system.
ii) Hardware will be able to integrate with other system hardware
without interfering with the normal operation of the host device.
iii) Hardware will be fully compliant with all Federal Communications
Commission, Underwriters Laboratories and Gaming Labs International
("GLI") requirements as necessary for the safe and lawful operation
within a gaming environment.
iv) Hardware will meet all regulatory and GLI requirements necessary for
the security, transfer and storage of secured data. This will
include, without limitation, means to store data within the
TickeTrak unit for the last 100 transactions for each device that it
is installed.
v) "Software" means any part provided by Coinless system that is not
hardware, such as data routines, programs and languages, or firmware
that is essential for the operation or support of the Coinless
systems network and TickeTrak hardware.
vi) All software will comply with generally accepted network
compatibility standards.
vii) All software provided by Borrower will meet specifications necessary
to function with current software programs already in use at Spirit
Mountain Casino including without limitation, the Mikohn Slot
Accounting System and slot machine firmware.
viii) The Spirit Mountain I.S. Manager will, prior to installation,
approve all software added to the network within Spirit Mountain
Casino.
ix) Software will meet all GLI and Grand Ronde Gaming Commission
requirements necessary for the operation within a gaming
environment.
48
Schedule 6(k)
Related-Party Indebtedness
None.
49