LOAN AND SECURITY AGREEMENT
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DATE: January 15, 2004
BORROWER: T&G2, Inc.
ADDRESS: ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
LENDER: FINANZINVEST, LTD., a Bermuda company
ADDRESS: Continental Building, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇▇
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Borrower desires to obtain a credit facility and other financial
accommodations from FINANZINVEST, LTD., a Bermuda company (hereinafter referred
to as "FIL" or "Lender") and FIL is willing to make such credit facility
available to T&G2, Inc. (hereinafter referred to as "Borrower") (collectively,
the "Parties") on the following terms and conditions to be secured by the
collateral hereinafter described. Therefore, the Parties agree as follows:
1. Definitions.
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1.1. Agreement. Shall mean and include this Loan and Security
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Agreement, any concurrent or subsequent Rider hereto and any extensions,
supplements, amendments or modifications thereto.
1.2. Borrower's Books. Shall mean and include all of Borrower's
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books and records including, but not limited to, all customer lists and lists of
account debtors, all ledgers, records reflecting, summarizing or evidencing
Borrower's assets, accounts, business operations or financial condition,
computer programs, computer discs, computer printouts, and other computer
prepared information and computer equipment of any kind.
1.3. Code. Shall mean the Uniform Commercial Code prepared under
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the joint sponsorship of the American Law Institute and the National Conference
of Commissioners on Uniform State laws, as amended from time to time. Any and
all terms used in this Agreement shall be construed and defined in accordance
with the meaning and definitions set forth herein or, to the extent not
inconsistent herewith, as such terms are defined in the Uniform Commercial Code,
as amended from time to time, provided, however, with respect to any term used
herein that is defined in (i) Article 9 of the Uniform Commercial Code as in
force in the jurisdiction in which this Agreement was signed by the Borrower at
the time that it was signed; or (ii) Article 9 as in force at any relevant time
in the jurisdiction in which a financing statement given pursuant to this
Agreement is filed; (iii) or Article 9 as is in force at any relevant time in
the jurisdiction in which the terms of this Agreement are enforced, the meaning
to be ascribed thereto with respect to any particular item of property shall be
that under the more encompassing of the three definitions.
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1.4. Closing. Shall mean the first date in which FIL advances any
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funds to the Borrower.
1.5. Collateral. Shall mean 668,000 shares of the Borrower's Series
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B Convertible Preferred Stock, whose rights and preferences are as set forth in
a Certificate of Designation, attached hereto as Exhibit B, and as may be
amended from time at FIL's request to time to reflect this Agreement and the
transactions contemplated hereunder.
1.6. Credit Facility. Shall mean an aggregate loan to be granted
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(if at all) by FIL to Borrower in the maximum amount of Two Million Six Hundred
Dollars ($2,600,000.00) in accordance with the terms and conditions set forth in
this Agreement and a Promissory Note between the Parties of even date herewith
(the "Promissory Note").
1.7. FIL's Costs. Shall mean and include: (i) filing, recording,
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publication and search fees incurred by FIL relating to Borrower, all costs and
expenses incurred by FIL in the enforcement of its rights and remedies under
this Agreement, or defending this Agreement or its security interest in the
Collateral; (ii) long distance telephone and facsimile charges; (iii) the
expenses of field examiners; (iv) all expenses for travel, lodging and food
incurred by FIL's personnel in collecting the Accounts or realizing upon the
Collateral; (v) all costs and expenses incurred in gaining possession of,
maintaining, handling, preserving, storing, repairing, shipping, selling,
preparing for sale and advertising to sell the Collateral, whether or not a sale
is consummated; (vi) reasonable attorney's fees and expenses incurred by FIL as
provided for in this Agreement, including a reasonable fee for the services of
attorneys employed by FIL for any purpose related to this Agreement or the
Obligations, including consultation, drafting documents, sending notices or
instituting, prosecuting or defending litigation or arbitration.
1.8 Loan Documents. Shall mean this Agreement, the Promissory
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Note, and any other agreements, instruments and documents evidencing, securing,
governing, guaranteeing or pertaining to the Credit Facility or the transactions
contemplated thereby.
1.9 Obligation. Shall mean all indebtedness of Borrower and each
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Person who hereafter becomes Borrower, that is now or hereafter owning to FIL,
pursuant to this Agreement or otherwise, regardless whether such indebtedness is
now existing or hereafter arising, whether it is voluntary or involuntary,
wither due or not, secured or unsecured, absolute or contingent, liquidated or
unliquidated, and whether it is for principal, interest, fees, expenses, or
otherwise, and regardless whether the Person who is or hereafter becomes
Borrower may be liable individually or jointly with others, or whether recovery
upon any such obligations may be or hereafter become barred or otherwise
unenforceable. The term, "Obligations," also includes: (i) all amounts which
arise after the filing of a petition by or against Borrower under Title 11 of
the United States Code (the "Bankruptcy Code"), even if the obligations do not
accrue because of the automatic stay under Bankruptcy Code ss.362 or otherwise,
and all amounts which would become due but for the operation of the automatic
stay under ss.362(a) of the Bankruptcy Code, and the operation of ss.ss.502(b)
of the Bankruptcy Code; (ii) indebtedness arising under modifications, renewals,
replacements and extensions of the Obligations, and successive transactions
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which renew, continue, refinance or refund the Obligations; and (iii) all
covenants and duties of Borrower to FIL of every kind, nature and description
(whether arising out of the Agreement or any other agreement, instrument,
document, record or contract now existing or hereafter made by Borrower in favor
of FIL, and whether created by oral agreement or operation of law, and whether
or not for the payment of money), including without limitation any debt,
liability or obligation owing by Borrower to others which FIL may have acquired
by assignment or otherwise.
1.10. Person. Shall mean an individual, partnership, corporation,
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including a "business trust," limited liability company, joint stock company,
trust, unincorporated association, joint venture or other entity, or a
government or any political subdivision or agency thereof.
1.11. LIBOR Rate. Shall mean the LIBOR Rate for U.S. Dollars,
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corresponding to the principal amount outstanding under the Note, publicly
announced by The British Banker's Association, from time to time.
1.12 State. Shall mean when referring to: (i) the location of
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Borrower's chief executive office, will be referred to herein as the "Chief
Executive Office State"; (ii) the location of Borrower's state of incorporation,
will be referred to herein as the "Borrower State"; and (iii) the location of
the Collateral, will be referred to herein as the "Collateral State."
1.13 Term. Shall mean five (5) years from the earlier of the date
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of execution of this Agreement or the date of Closing,
2. The Credit Facility.
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2.1. FIL may lend funds from time to time to Borrower up to an
aggregate amount of $2,600,000.00 in the manner set forth in the payment
schedule attached hereto as Exhibit A, and subject to the terms and conditions
of this Agreement and a Promissory Note of even date herewith. While FIL shall
use its best efforts to lend Borrower funds pursuant to this Agreement, FIL is
under no obligation to lend Borrower any funds pursuant to this Agreement or
otherwise. Accordingly, Borrower understands and agrees that the Lender shall be
under no obligation to: (1) obtain any funds for Borrower; (2) to distribute any
funds to Borrower; (3) nor shall Borrowers receipt of any funds from the Lender
constitute any obligation on its part to obtain for or distribute any additional
funds to Borrower.
2.2 Borrower shall be obligated to make payments of interest only
during the first twenty four (24) months subsequent to the Closing, provided,
however, that Borrower is not in default under this Agreement. For the remainder
of the Term, Borrower shall make payments of principal and interest as set forth
in Exhibit A, attached hereto.
2.3. The conditions precedent to each advance hereunder are that no
Event of Default hereunder has occurred nor is the effect thereof continuing,
and Borrower is in full, faithful and timely compliance with each and all of the
covenants, conditions, warranties, and representations, contained in the
Agreement and in every other agreement between FIL and Borrower. As a condition
precedent to the first advance hereunder, FIL must also receive an official
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report from the Chief Executive Officer indicating that the FIL's security
interest in the Collateral is prior to all other security interests and other
interests in the Collateral.
2.4. Unless provided otherwise in the promissory note executed and
delivered by Borrower to FIL in connection with this Agreement, all obligations
shall be due and payable no later than the earlier of (a) the last day of the
term (or renewal term if any) of this Agreement; (b) the day an Event of Default
occurs; and (c) the day the Agreement is terminated by FIL.
2.5. All Obligations shall bear interest, computed on the basis of a
360-day year for the actual days outstanding, at a fluctuating rate of interest
equal to the sum of the LIBOR Rate plus four percent (4%) per annum, provided,
however, in no event shall the interest rate chargeable on such Obligations be
less than four and one-half percent (4.5%) or greater than ten percent (10%) per
annum. Such interest shall be calculated as of the last day of the previous
month in which interest is due. At FIL's option, any and all outstanding amounts
of principal or interest due FIL shall be debited from any monthly advance of
funds pursuant to this Agreement or the Note.
2.6 In the event of a change in the LIBOR Rate from time to time,
the rate of interest to be charged to Borrower shall be correspondingly adjusted
as of the date of the LIBOR Rate change. Interest shall be paid on the first day
of each month. Any interest not paid when due shall become a part of the
Obligations, and shall thereafter bear interest as provided herein. If an Event
of Default occurs, Borrower shall pay upon FIL's demand an amount equal to the
minimum monthly interest payment amount multiplied by the number of months of
the term (or renewal term, as applicable), of this Agreement that would
otherwise remain but for the occurrence of such Event of Default.
2.7 At any time during the first twenty four (24) months subsequent
to Closing, Borrower shall incur no penalty for prepayment of outstanding
principal and interest; provided, however, that Borrower prepays less than the
entire amount of outstanding principal and interest then due. In the event FIL
fails to make the proposed maximum amount of the Credit Facility available
during the initial (12) twelve months subsequent to Closing, Borrower shall be
entitled to prepay the entire amount of any outstanding indebtedness under this
Agreement and the Note without penalty.
2.8. FIL shall render statements to Borrower of the Obligations,
including all principal, interest and FIL's Costs owing, and such statements
shall be conclusively presumed to be correct and accurate and constitute an
account stated between Borrower and FIL unless, within thirty (30) days after
receipt thereof by Borrower, Borrower notifies FIL in writing specifying the
error or errors, if any, contained in any such statements.
2.9. In consideration for establishing the Credit Facility on the
terms and conditions provided for herein, Borrower agrees to pay to FIL a
commitment and funding fee of ten (10%) of the amount of any monthly advance of
funds pursuant to this Agreement or the Note. All fees in this section shall be
debited from the monthly advance of funds, and deemed earned and non-refundable
upon payment thereof. In the Event of Default, any outstanding fees owed under
this paragraph become immediately due and payable including fees that would be
due and payable on the remaining portion of the aggregate Credit Facility
commitment not yet advanced.
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2.10. Upon an Event of Default, and for as long as such Event of
Default or the consequences thereof continue, interest shall accrue on the
Obligations from and after such Event of Default at a rate of interest which is
four (4) percentage points greater than the rate then being charged.
2.11 No provision of this Agreement or any other aspect of the
transaction of which this Agreement is a part is intended to or shall require or
permit the holder, directly or indirectly, to take, receive, contract for or
reserve, in money, goods or things in action, or in any other way, any interest
(including amounts deemed by law to be interest, such amounts to then be deemed
to be an addition to the rate of interest agreed upon) in excess of the maximum
rate of interest permitted by law in the State of New Jersey as of the date
hereof. If any such excess shall nevertheless be provided for, or be adjudicated
by a court of competent jurisdiction to be provided for, the undersigned shall
not be obligated to pay such excess but, if paid, then such excess shall be
applied against the unpaid principal balance of this Agreement or, to the extent
that the principal balance has been paid in full by reason of such application
or otherwise, such excess shall be remitted to the undersigned. In the event any
amount determined to be excessive interest is applied against the unpaid
principal balance of this Agreement, and thereafter the rate of interest
accruing under this Agreement is less than the rate permitted by law, this
Agreement shall thereafter accrue interest at such highest lawful rate until
such time as the amount accrued at the interest rate differential equals the
amount of excessive interest previously applied against principal.
Notwithstanding anything herein or in any of the other Loan Documents to the
contrary, if any charge or fee for which Borrower or any Guarantor is or becomes
obligated in connection with the Loan Documents constitutes interest and is not
otherwise stated as a rate, such charge or fee shall be deemed an additional
rate of interest to which Borrower and each Guarantor agree, computed by
dividing the amount of such charge or fee by the principal amount of the Credit
Facility. This provision shall control every agreement between the Borrower and
each Guarantor and FIL.
2.12 Warrant Agreement. As additional consideration for FIL
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advancing funds (if any) to Borrower under this Agreement, the Note, or
otherwise, Borrower hereby grants to FIL a warrant to purchase common stock of
the Borrower, in the form attached hereto as Exhibit E, and incorporated by
reference into, and made fully a part of, this Agreement.
3. Creation of Security Interest.
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3.1 Borrower grants to FIL a first priority lien and security
interest in the Collateral to secure the prompt payment and timely performance
by Borrower of the Obligations.
3.2. Borrower shall execute and deliver to FIL concurrently with
Borrower's execution of this Agreement, and at any time or times hereafter at
the request of FIL, promissory notes, financing statements, initial financing
statements, continuation statements, security agreements, mortgages,
assignments, capitalization schedules, certificates of title, affidavits,
reports, notices, schedules of accounts, SEC filings, letters of authority,
certificates of designation and preferences, and all other documents and records
that FIL may request, in such form as is satisfactory to FIL, to further
evidence the obligations and/or to perfect and maintain FIL's security interest
in the Collateral and fully comply with this Agreement (collectively the "Loan
Documents").
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3.3. Borrower authorizes FIL to file one or more financing
statements and initial financing statements describing the Collateral. Borrower
hereby makes, constitutes and appoints FIL (and any of FIL's officers, employees
or agents designated by FIL) as Borrower's true and lawful attorney-in-fact with
power, but without notice to Borrower, to sign the name of Borrower on any
Financing Statement, initial financing statement, continuation statement,
security agreement, mortgage, assignment, certificate of title, affidavit,
letter of authority, or notice or other similar document necessary to perfect or
continue the perfection of FIL's security interest in the Collateral. Borrower
shall make appropriate entries in Borrower's Books disclosing FIL's security
interest in the Collateral. The power of attorney created in this section is
coupled with an interest, and shall be irrevocable until all Obligations are
fully paid and satisfied.
3.4. Borrower authorizes FIL to obtain information from Borrower's
suppliers and customers and, in this regard, Borrower waives any right or claim
against any such supplier or customer for furnishing information to FIL.
4. Indemnification. Borrower hereby indemnifies and agrees to hold harmless
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Lender, and its officers, directors, employees, accountants, attorneys, agents
and representatives (each an "Indemnified Person") from and against any and all
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liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
(collectively, the "Claims") which may be imposed on, incurred by, or asserted
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against, any Indemnified Person arising in connection with the Credit Facility,
the Collateral, or any of the transactions contemplated under this Agreement
(including without limitation, the enforcement of the Loan Documents and the
defense of any Indemnified Person's actions and/or inactions in connection with
the Loan Documents). WITHOUT LIMITATION, THE FOREGOING INDEMNITIES SHALL APPLY
TO EACH INDEMNIFIED PERSON WITH RESPECT TO ANY CLAIMS WHICH IN WHOLE OR IN PART
ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH AND/OR ANY OTHER
INDEMNIFIED PERSON, except to the limited extent the Claims against an
Indemnified Person are proximately caused by such Indemnified Person's gross
negligence or willful misconduct. If Borrower or any third party ever alleges
such gross negligence or willful misconduct by any Indemnified Person, the
indemnification provided for in this Section shall nonetheless be paid upon
demand, subject to later adjustment or reimbursement, until such time as a court
of competent jurisdiction enters a final judgment as to the extent and effect of
the alleged gross negligence or willful misconduct. The indemnification provided
for in this Section shall survive the termination of this Agreement and shall
extend and continue to benefit each individual or entity who is or has at any
time been an Indemnified Person hereunder.
5. Possession and Control of Collateral.
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5.1. FIL, or its designee or transferee shall have possession of the
Collateral. Borrower shall in all events bear the risk of loss of the
Collateral.
5.2. FIL shall have no duty to collect any income accruing on the
Collateral or to preserve any rights relating to the Collateral.
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5.3. Where Collateral is in the possession of a third party,
Borrower will, if requested by FIL, join with FIL in notifying the third party
of FIL's security interest and obtaining an acknowledgment from the third party
that it is holding the Collateral for the benefit of FIL.
6. Representations and Warranties.
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6.1. From 120 days from the earlier of the date of the execution of
this Agreement or the Closing, and continuing until all Obligations have been
fully paid and satisfied, Borrower hereby warrants and represents that:
(a) If Borrower is a corporation or limited liability company,
it is duly organized and is and all time hereinafter will be in good standing
under the laws of the state of its incorporation or registration and is duly
qualified and in good standing in every other state in which the nature of its
business requires such qualification;
(b) Borrower is the true and lawful owner of the Collateral and
has the rights, power and authority to transfer and grant a security interest
therein to FIL;
(c) The Chief Executive Office State, Borrower State, Collateral
States and the chief place of business and the office where Borrower's Books are
kept are each accurately identified in Exhibit A;
(d) Borrower is not doing business and has not done business
during the last six (6) years under any trade name or style, except its name as
set forth in this Agreement or under the following name: International
Mercantile Corp.
(e) The execution, delivery and performance of this Agreement
and the other Loan Documents, and the consummation of the transactions
contemplated hereby and thereby, do not (i) conflict with, result in a violation
of, or constitute a default under (1) any provision of its organizational
documents (including amendments thereof) by laws or other instrument binding
upon Borrower, (2) any law, governmental regulation, court decree or order
applicable to Borrower, or (3) any agreement, judgment, license, order or permit
applicable to or binding upon Borrower, (ii) require the consent, approval or
authorization of any third party, or (iii) result in or require the creation of
any lien, charge or encumbrance upon any assets or properties of Borrower or of
any person except as may be expressly contemplated in the Loan Documents.
(f) At Closing, or w/in 120 days subsequent to Closing, Borrower
shall obtain any and all requisite shareholder and/or director consents
permitting this Agreement and the transactions contemplated hereunder.
(g) There are no actions or proceedings pending by or against
Borrower or any guarantor of the Obligations in any court or administrative
agency and Borrower has no knowledge of any pending, threatened or imminent
litigation, governmental investigation or claim, complaint, action or
prosecution involving Borrower or any guarantor of Borrower, except as may have
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been specifically disclosed in writing to FIL and if any of the foregoing arise
during the term of this Agreement, Borrower shall immediately notify FIL in
writing with respect thereto;
(h) Borrower has duly filed, or will duly file, all federal,
state and other governmental tax returns which it is required by law to file and
that all taxes and other sums which may be due to the United States, any sate or
other governmental authority have been fully paid and that Borrower now has and
shall hereafter maintain reserves adequate in amount to fully pay all such tax
liabilities which may hereafter accrue;
(i) All assessments and taxes whether real, personal or
otherwise due and payable by or imposed, levied, or assessed against Borrower or
any of its assets have been paid and shall hereafter be paid in full before
delinquency. Borrower shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it by
law (including timely payment or deposit of all FICA payments and withholding
taxes) and will execute and deliver to FIL on demand appropriate certificates
attesting to the payment or deposit thereof;
(j) With respect to the Collateral, FIL's security interest
therein is now and shall hereafter at all times constitute a perfected, ▇▇▇▇▇▇,
and first security interest in the Collateral and is not now and will not
hereafter become subordinate or junior to the security interest, lien,
encumbrance or claim of any Person; and
(k) All financial statements and information relating to
Borrower or any guarantor of the Obligations or with respect to the Accounts
which have been or may hereafter be delivered by Borrower to FIL (or are a
matter of public disclosure) are true, complete and correct in all material
respects and have been prepared in accordance with generally accepted accounting
principles consistently applied, and there has not been any material adverse
change in the financial condition of Borrower or any guarantor since the last
submission of such financial information to FIL.
6.2. Each warranty, representation and agreement contained in this
Agreement shall be automatically deemed repeated with each installment (if any)
under this Agreement, the Promissory Note of even date herewith, or otherwise,
and shall be conclusively presumed to have been relied upon by FIL regardless of
any investigation made or information possessed by FIL. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any other warranties, representations and agreements which Borrower
shall now or hereafter give, or cause to be given to FIL.
7. Affirmative Covenants.
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7.1. Until all Obligations are fully paid and satisfied, Borrower
will:
(a) At all times fully comply with all federal, state and local
laws, rules, orders or regulations pertaining to the conduct of its business,
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including, but not limited to all applicable federal, state and local
environmental laws and regulations relating to the storage, usage and disposal
of hazardous substances or toxic chemicals by Borrower in its business. In this
regard, Borrower agrees to defend, indemnify and hold FIL harmless for and
against any and all costs, claims, demands, damages including attorneys' fees,
court costs, and investigatory and laboratory fees which FIL may suffer or incur
in connection with any such violation which indemnification shall survive the
termination of this Agreement.
(b) Preserve its corporate existence and not, in one transaction
or a series of related transactions, merge into or consolidate with any other
entity, or sell all or substantially all of its assets.
(c) Maintain itself in good standing in all jurisdictions in
which Borrower is doing business, and at the request of FIL, furnish to FIL
evidence of its good standing in all such jurisdictions.
(d) Maintain Borrower's Books at the address(es) set forth in
Exhibit "A."
(e) Allow FIL to possess and remove copies of Borrower's Books
to FIL's premises or the premise of any agent of FIL, for so long as FIL may
desire in connection with the enforcement of FIL's rights under this Agreement.
(f) Maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles which contain such
information as may be requested by FIL, and permit FIL or any of its agents,
during Borrower's usual business hours or during the usual business hours of any
third party having control over the records of Borrower, to have access to and
have the right to examine all of Borrower's Books and in connection therewith
and permit FIL or any of its agents to copy and make extracts therefrom.
(g) Furnish to FIL monthly, or upon ten (10) days written
request at FIL's request, written schedules and reports of the status of
Borrower's Accounts in such form as shall be required by FIL.
(h) Promptly furnish to FIL such records, data and other
information with respect to the financial condition of Borrower, the Collateral
and any guarantor, as FIL may request from time to time, and shall deliver to
FIL detailed reports, each in a form satisfactory to FIL and containing a
statement of the financial condition and operation of Borrower: (i) for each
calendar month, within thirty (30) days after the end of each month; and (ii)
for each fiscal year, within ninety (90) days after the end of each such fiscal
year. Within twenty (20) days after demand by FIL, Borrower shall deliver to FIL
copies of any financial report or statement prepared by or for Borrower. Each
such statement and report shall be reviewed or compiled by an independent CPA or
prepared by an authorized officer of Borrower that such report, statement or
document delivered or caused to be delivered to FIL is complete, correct and
thoroughly presents the financial condition of Borrower, and that on the date of
said certification no event or condition exists which constitutes a breach or
Event of Default under this Agreement.
(i) Notify FIL, in writing, of any material adverse change in
Borrower's financial condition.
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(j) Make timely payment or deposits of all taxes (including FICA
payments and deposits of withholding taxes) and assessments required to be paid
by Borrower and deliver to FIL, as requested, evidence of such payment or
deposit.
(k) Pay all rent when due and otherwise abide by the terms under
which Borrower leases or occupies the premises at which the Collateral is
located; provided further if Borrower fails to do so, FIL may, without any
obligation, pay such rent and any sum so paid shall be part of FIL's Costs,
secured by the Collateral and payable on demand.
(l) Cause to be paid all amounts necessary to fund, in
accordance with their terms, all pension plans presently in existence or
hereafter created and Borrower will not withdraw from participation in, permit
the termination or partial termination of, or permit the occurrence of any other
event with respect to any deferred compensation plan maintained for the benefit
of its employees under circumstances that could result in liability to the
pension Benefit Guarantee Corporation, or any of its successors or assigns, or
to the entity which provides funds for such deferred compensation plan.
(m) Keep the Collateral free from any lien, security interest or
encumbrance adverse to FIL and defend, at its own expense, the Collateral and
the proceeds thereof against all claims and demands of all Persons at any time
claiming the same or any interest therein.
(n) Promptly deliver to FIL all documents and instruments
relating to the Collateral, as FIL may request from time to time.
(o) On request of FIL, execute and deliver to FIL any and all
additional documents, which FIL may request from time to time to evidence the
advances made hereunder, or the security interest granted hereby, or effect the
transactions contemplated hereunder.
(p) Within 120 days from Closing, shall authorize an amount of
common stock shares equivalent to 125% of the amount of common stock into which
FIL's Series B Convertible Preferred Stock may convert into in the Event of
Default. The Company covenants that it will at all times from and after the date
hereof reserve and keep available such amount of its authorized shares of Common
Stock, free from all preemptive or similar rights therein. The company further
covenants that such common shares as may be issued pursuant to any conversion
will, upon issuance, be duly and validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issuance thereof.
(q) Borrower shall have thirty (30) days from Closing to provide
FIL with an Officer's Certificate and any other documentation at FIL's request
evidencing FIL's right upon an Event of Default to vote their Series B Preferred
Stock as if it were converted to Borrower's common stock
(r) Borrower shall have thirteen (13) months from the Closing to
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obtain key man life insurance securing the life, health, accident and disability
of the Borrower's Chief Executive Officer (or another officer of Lender's
choosing), naming FIL as beneficiary, and in an amount equal to the proposed
maximum aggregate amount of the Credit Facility.
(s) Prior to Closing or within 120 days, Borrower shall cause
its attorneys to issue a legal opinion in the form attached hereto as Exhibit F,
and incorporated by reference and made fully a part of this Agreement,
requesting the Borrower's transfer agent that in the Event of Default under this
Agreement and any subsequent conversion into the Borrower's common stock
(whether by conversion of Series B Preferred Stock, or through exercise of any
warrant), such transfer agent immediately issue common stock shares in the name
of FIL (or its designee or transferee), pursuant to the terms and conditions of
this Agreement.
8. Negative Covenants.
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8.1. Except as otherwise set forth in Rider A attached hereto, until
all Obligations are fully paid and satisfied, Borrower will not, without the
prior written consent of FIL:
(a) Grant a security interest in the Collateral, or permit a
lien, claim or encumbrance to be imposed on any of the Collateral, or allow the
Collateral to be possessed by or under the control of any other Person;
(b) Sell, license, lease, rent or otherwise dispose of, move,
transfer or relocate outside the Collateral State, whether by sale or otherwise,
any of Borrower's assets, including the Collateral but excluding Inventory which
may be sold, licensed, leased, or otherwise disposed of in the ordinary course
of Borrower's business, provided that FIL continues to have a security interest
in the proceeds thereof;
(c) Affix any of the Collateral to any real property in any
manner which would change its nature from that of personal property to real
property or to a fixture or an accession, and Borrower agrees that the
Collateral shall remain personal property at all times notwithstanding any
affixation thereof to any real property;
(d) Permit any Collateral to be used in violation of any
applicable law, regulation or policy of insurance;
(e) Permit any levy, or attachment to be made on any of
Borrower's assets;
(f) Permit any receiver, trustee, custodian, assignees for the
benefit of creditors or any other Person or entity having similar powers or
duties to be appointed or to take possession of any or all of Borrower's assets;
(g) Change its business structure, corporate identity or
structure, do business under any additional trade name, or liquidate, merge or
consolidate with or into any other business organization;
(h) Change its Borrower State;
11
(i) Change it's corporate or trade name without providing FIL
with thirty (30) days' prior written notice;
(j) Change any of its Collateral States without providing FIL
with 30 days' prior written notice;
(k) Relocate its place of business, its Chief Executive Office
State or move Borrower's Books from the locations set forth in Exhibit "A;"
(l) Acquire any entity or purchase the stock or securities of
any entity (other than securities of any state or federal government);
(m) Permit any sale or disposition of a controlling interest in
Borrower or permit a change in the management of Borrower. For purposes of this
paragraph, "Controlling Interest" shall mean greater than 50% of the Borrower's
issued and outstanding voting securities;
(n) Enter into any transaction or incur any debts not in the
usual course of Borrower's business, except in the event FIL elects not to lend
additional monies as set forth in Article 2.1 hereof ;
(o) Guarantee or otherwise become in any way liable with respect
to the obligations of any Person except by endorsement of instruments or items
of payment for deposit to the account of Borrower or which are transmitted or
turned over to FIL on account of the Obligations;
(p) Pay or declare any dividends upon Borrower's capital stock;
(q) Redeem, retire, purchase or otherwise acquire directly or
indirectly any of Borrower's capital stock;
(r) Make any distribution of Borrower's property or assets;
(s) Make any advance, loan, contribution or payment of money
(other than compensation for personal service), goods or credit to, or guarantee
any obligation of any subsidiary, affiliate or parent corporation, or any
officer, shareholder or employee, or cause or permit any such advance, loan,
contribution or guarantee to be made by any subsidiary corporation other than
the guaranty executed in connection herewith with this Agreement.
(t) Permit the sale, pledge or other transfer of any equity or
ownership interest in Borrower;
(u) Make any loan to any Person or entity;
(v) Enter into any transaction, including, without limitation,
the purchase, sale or exchange of property or the rendering of any service, with
any Affiliate of Borrower, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to Borrower than would be obtained in a comparable
12
arm's-length transaction with a person or entity not an Affiliate of Borrower.
As used herein, the term "Affiliate" means any individual or entity directly or
indirectly controlled by, or under common control with, another individual or
entity.
9. Events of Default.
-----------------
9.1. The occurrence of any one or more of the following shall, at
the option of FIL, constitute an event of default under this Agreement (each an
"Event of Default")
(a) Borrower fails to pay when due and payable or declared to be
due and payable, any of the Obligations (whether of principal, interest, taxes,
reimbursement or FIL's Costs or otherwise);
(b) Borrower fails or neglects to comply with, perform, keep or
observe any term, provision, condition, or covenant contained in this Agreement,
or any other present or future agreement between Borrower and FIL;
(c) Any representation, statement or report or certificate made
or delivered by Borrower, or any of its officers or agents (either individually
or as an officer or agent of Borrower), to FIL proven to be untrue, inaccurate,
incomplete or incorrect in any material respect;
(d) There is a material impairment in the prospect of repayment
in the prospect of repayment of the Obligations or a material impairment in the
value of the collateral or the priority of FIL's security interest in the
Collateral is contested;
(e) Any of Borrower's assets are attached, seized, or are levied
upon, and the same are not released, discharged or bonded against within twenty
(20) business days thereafter;
(f) A notice of lien, levy or assessment is filled of record
with respect to any or all of Borrower's assets by the United States Government,
or any department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a lien, whether
▇▇▇▇▇▇ or otherwise, upon any or all of the Borrower's assets and the same is
not paid on the payment date thereof bonded against within twenty(20) business
days thereafter;
(g) Borrower is enjoined, restrained or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs and such order is not released within (20) business days of receipt of
notice thereof by Borrower;
(h) Any proceeding under the Bankruptcy Code or any similar
remedy under state statutory or common law is filed by or against Borrower;
(i) Borrower ceases normal business operations;
(j) Intentionally Omitted.;
13
(k) A judgment or other claim becomes a lien or encumbrance upon
any or all of Borrower's assets and the same is not satisfied, dismissed or
bonded against within twenty (20) business days thereafter;
(l) If any of Borrower's records are prepared and kept by an
outside computer service at any time during the term of this Agreement, and said
computer service fails to timely provide FIL with any requested information or
financial data pertaining to the Collateral, Borrower's financial condition or
the results of Borrower's operations;
(m) If there is a default in any agreement(s) to which Borrower
is a party with third parties resulting in a right by such third parties to
accelerate the maturity of any indebtedness of Borrower to such third party
provided, however, the aggregate amounts in question is greater than fifty
thousand dollars ($50,000.00).;
(n) Borrower makes any payment on account of indebtedness that
has been subordinated to the Obligations to FIL, without FIL's consent, or if
any Person subordinating such indebtedness terminates or in any way limits his
subordination.
(o) The Chief Executive Officer of Borrower dies, or is no
longer associated with the Borrower in that capacity and a replacement
reasonably satisfactory to FIL is not in place within thirty (30) days of such
death or disassociation;
(p) Borrower fails to comply with, or become subject to, any
administrative or judicial proceeding under any federal, state or local (i)
hazardous waste or environmental law; (ii) asset forfeiture or similar law which
can result in the forfeiture of property; or (iii) other law, where
noncompliance may have any significant effect on the Collateral;
(q) FIL receives notification or otherwise discovers that FIL's
security interest is not prior to all other security interests or other
interests in the collateral;
9A. Cure Provisions. Should Borrower be in material breach of any provision of
---------------
this Agreement during the first twenty four (24) months subsequent to Closing,
it shall have a thirty (30) day period to cure, after receipt of written notice
by FIL of such breach, provided such breach is capable of cure. Should Borrower
be in material breach of any provision of this Agreement subsequent to this
initial twenty four (24) month period, Borrower shall have forty five (45) days
to cure, provided such breach is capable of cure. The provisions of this
paragraph shall not apply to payments of any Obligations, which shall be due and
payable, and which, if late, shall be deemed both a default and an uncured
default under this Agreement if not cured within fifteen (15) days of being
late.
14
10. FIL's Rights and Remedies.
-------------------------
10.1. Upon the occurrence of an Event of Default by Borrower under
this Agreement, FIL may, at its election, without notice of its election and
without demand upon Borrower or any guarantor, do any one or more of the
following, all of which are authorized by Borrower:
(a) Declare any or all of the Obligations, whether evidenced by
note(s) or otherwise, immediately due and payable;
(b) Terminate this Agreement, but without affecting FIL's rights
and security interests in the Collateral, and the Obligations;
(c) Cease making advances to or for the benefit of Borrower
under the Credit Facility or reduce the Credit Facility;
(d) Continue making advances to Borrower in such amounts as FIL
may determine, in its sole discretion, without waiving any default by Borrower
under this Agreement;
(e) Exercise any and all of the rights accruing to a secured
party under the Code and any other applicable law;
(f) Require Borrower to assemble the Collateral, hold the same
in trust for FIL's account and, at Borrower's expense, deliver the same to FIL
or to a third party at a place or places to be designated by FIL which is
reasonably convenient to the parties, or store the same in a warehouse in FIL's
name and deliver to FIL documents of title representing said Collateral;
(g) Enter, with or without process of law, and without further
permission of Borrower, any premises where the Collateral is or is believed by
FIL to be located, using all necessary force to accomplish the same without
committing a breach of the peace (Borrower hereby waives all claims for damages
or otherwise due to, arising from or connected with such entry and/or seizure),
and: (i) take possession of said premises and of the Collateral located therein;
(ii) place a custodian in exclusive control of said premises and of any of the
Collateral located therein; (iii) remove from the premises the Collateral (and
any copied of Borrower's Books, materials and supplies) in any way relating to
the Collateral or useful by FIL in enforcing its rights hereunder; (iv) remain
upon said premises and use the same (together with said Borrower's Books,
materials and supplies) for the purpose of collecting the Collateral and/or
preparing the Collateral for disposition and/or disposing of the Collateral;
(h) Make (without any obligation to do so) any payment and take
such action as FIL considers necessary or reasonable to protect or preserve the
Collateral or its security interest therein, including paying, purchasing,
contesting or compromising any encumbrance, charge or lien which, in the opinion
of FIL, interferes with the enforcement of its security interests or the
liquidation or disposition of the Collateral;
(i) Sell at one or more public or private sales, lease or
otherwise dispose of the Collateral (regardless whether FIL has taken possession
15
thereof or whether the Collateral is present at any such sale or disposition) in
its then condition, or after further manufacturing, processing or preparation
thereof (utilizing, in connection therewith, without charge or liability to FIL
therefor, any of Borrower's assets), by means of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Borrower's premises) as is commercially reasonable, in the opinion of FIL;
(j) Seek temporary or permanent injunctive relief without the
necessity of proving actual damages, as no remedy at law will provide adequate
relief to FIL and, in this regard, the bond which FIL may be required to post
shall be no more than $500.00; and
(k) Require Borrower to pay all of FIL's Costs incurred in
connection with FIL's enforcement and exercise of any of its rights and remedies
as herein provided, whether or not suit is commenced by FIL;
10.2 Any deficiency that exists after disposition of the Collateral
as provided herein, shall be due and payable by Borrower upon demand, with any
excess to be paid by FIL to Borrower
10.2A In the Event of Default under this Agreement, Borrower shall
pay FIL a single fee of 10% of the outstanding balance owed to FIL.
10.2B. In the Event of Default under this Agreement, Borrower agrees
to immediately amend the Certificate of Designation and Preferences for the
Series ---Convertible Preferred Stock, and execute any and all other documents
at FIL's request. Such amendment and documents shall provide FIL the same voting
rights inherent in the Borrower's common stock.
10.3. FIL shall give Borrower such notice of any private or public
sale, lease or other disposition as may be required by the Code, unless notice
has been waived after an Event of Default pursuant to the Code.
10.4. FIL shall have no obligation to clean up or otherwise prepare
the Collateral for sale. FIL shall have no obligation to attempt to satisfy the
Obligations by collecting them from any other Person liable for them, and FIL
may release, modify or waive any of the Collateral provided by any other Person
to secure any of the Obligations, all without affecting FIL's rights against
Borrower. Borrower waives any right it may have to require FIL to pursue any
third Person for any of the Obligations. FIL has no obligation to marshal any
assets in favor of Borrower, or against or in payment of the Obligations or any
other obligation owed to FIL by Borrower or any other Person. FIL may comply
with any applicable state or federal law requirements in connection with a
disposition of the Collateral and compliance will not be considered adversely to
affect the commercial reasonableness of any sale of the Collateral.
10.5. FIL may dispose of the Collateral without giving any warranties
as to the Collateral. FIL may specifically disclaim any warranties of title or
the like. This procedure will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral.
10.6. If FIL sells any of the Collateral upon credit, Borrower will
be credited only with payments actually made by the purchase, received by FIL
16
and applied to the indebtedness of the purchaser. In the event the purchaser
fails to pay for the Collateral, FIL may resell the Collateral and Borrower
shall be credited with the proceeds of the sale.
10.7. In the event FIL purchases any of the Collateral being sold,
FIL may pay for the Collateral by crediting against the purchase price of some
or all of the Obligations.
10.8 FIL's rights and remedies under this Agreement and all other
agreements shall be cumulative and may be exercised simultaneously or
successively, in such order as FIL shall determine. In addition, FIL shall have
all other rights and remedies not inconsistent herewith as provided by law or in
equity. No exercise by FIL of one right or remedy shall be deemed an election,
and no waiver by FIL of any default on Borrower's part shall be deemed a
continuing waiver. No delay by FIL shall constitute a waiver, election or
acquiescence by it.
10.9 Immediately upon an Event of Default, and at FIL's request,
Borrower shall register with the Securities and Exchange Commission the common
stock to be issued upon any conversion of the Series B Preferred Stock (the
"Demand Registration Rights"). The Demand Registration Rights shall be in the
form attached hereto as Exhibit D, incorporated by reference and made a part of
this Agreement.
10.10 Any and all outstanding Commitment Fees shall become
immediately due and payable upon an Event of Default.
10.11 In the Event of Default, Borrower does hereby irrevocably
designate, make, constitute and appoint FIL and any agent designated by FIL, as
Borrower's true and lawful attorney, with power to do the following in
Borrower's or FIL's name and at Borrower's expense but without notice to
Borrower, and at such time or times (except as otherwise provided herein) as FIL
may, in its sole election, determine:
(a) Endorse Borrower's name on any checks, notes, acceptances,
money orders, drafts or other forms of payment or security that may come into
FIL's possession;
(b) Sign Borrower's name on any invoice, freight ▇▇▇▇ or ▇▇▇▇ of
lading relating to any Account, on any draft against an account debtor, on any
schedule assignment of Accounts, verification of Accounts or on any notice to
account debtors;
(c) Prepare, file and sign Borrower's name on any proof of claim
in bankruptcy or similar document against an account debtor;
(d) Prepare, file and sign Borrower's name on any notice of
lien, claim of mechanic's or material man's lien or similar document or waiver
or satisfaction thereof in connection with an Account; and
(e) Execute any other documents that may facilitate the
collection, liquidation or disposition of the Collateral.
17
10.12 If, in the event of any Default, whether cured or uncured, FIL
employs counsel for advice or other representation (i) with respect to any of
the Collateral or this Agreement; (ii) to represent FIL in any litigation,
contest, dispute, suit or proceeding or to commence, defend, or intervene or to
take any other action in or with respect to any litigation, contest, dispute,
suit or proceeding (whether instituted by FIL, Borrower or any other party) in
any way relating to any of the Collateral, this Agreement or Borrower's affairs;
(iii) to protect, collect, lease, sell, take possession of or liquidate any of
the Collateral; (iv) to attempt to enforce any security interest of FIL in any
of the Collateral; or (v) to enforce any rights of FIL against Borrower or
against any other Person which may be obligated to FIL by virtue of this
Agreement including Borrower's account debtors, then, in any of the foregoing
events, all of the reasonable attorneys' fees not to exceed $10,000.00 arising
from such services and all expenses, costs and charges in any way arising in
connection therewith or relating thereto shall constitute a part of FIL's Costs
secured by the Collateral and be payable on demand.
10A. Borrower Rights and Remedies. Should FIL fail to distribute any funds to
----------------------------
the Borrower pursuant to the Credit Facility by February 1, 2004, the Borrower's
sole and exclusive remedy shall be to demand, in hard copy written form by
actual delivery or facsimile a return of the Collateral. Lender shall comply
with such demand within fifteen (15) days after receipt of such demand.
In the event that Borrower receives any funds at Closing, and subsequent to
Closing, FIL fails to distribute any further amounts pursuant to this Agreement,
Borrower's sole remedy shall be to prepay any amounts of indebtedness pursuant
to paragraph 2.8 of this Agreement, and receive its Collateral from FIL;
provided however that FIL may, but shall not be obligated to, return the
Collateral prior to twelve months subsequent to Closing.
11. Taxes and Expenses Regarding Borrower's Property.
------------------------------------------------
11.1. If Borrower fails to pay any assessments, taxes, contributions,
or make any deposits, or furnish any required proof thereof as set forth in
Section 6 hereof or in any other provision of this Agreement, FIL may, in its
sole and absolute discretion and without notice to Borrower (i) make payment of
the same amount or any part thereof; or (ii) set up such reserves in Borrower's
account as FIL deems necessary to satisfy the liability therefor, or both. If
Borrower fails to promptly pay when due to any other Person, any sum which
Borrower is required to pay by reason of any provision in this Agreement, FIL
may, but is not obligated to, advance any sums which it deems appropriate for
the protection or preservation of the Collateral or its security interest
therein, and the amount so advanced by FIL shall bear interest at the rate
provided for in Section 2.5 above, and shall constitute FIL's Costs, payable on
demand, and shall be secured by the Collateral. Any payment made by FIL shall
not constitute (i) an agreement by it to make similar payments in the future; or
(ii) a waiver by FIL of any default under this Agreement. FIL need not contest
nor inquire as to the validity of any such expense, tax, security interest,
encumbrance or lien, and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
18
12. Waivers By Borrower.
-------------------
12.1. FIL shall not be deemed to have waived any provision of this
Agreement, or any right or remedy, which it may have hereunder, or at law or
equity, unless such waiver is in writing, and signed by FIL.
12.2. Borrower waives the right to direct the application of any
payments at any time or times received by FIL on account of the Obligations and
Borrower agrees that FIL shall have the continuing exclusive right to apply and
reapply such payments in any manner, as FIL may deem advisable.
12.3. Except as otherwise provided for in this Agreement, Borrower
waives demand, protest, notice of protest, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, documents, instruments, chattel paper and guaranties at any
time held by FIL on which Borrower may in any way be liable.
12.4. Failure or delay by FIL in exercising or enforcing any right,
power, privilege, lien, option or remedy hereunder shall not operate as a waiver
thereof and a waiver by FIL of any default by Borrower under this Agreement
shall not be construed to create any right or expectation of future waiver of
any subsequent breach or default by Borrower under this Agreement whether of the
same or of a different nature.
12.5. BORROWER WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTIONS HEREUNDER.
13. Notices.
-------
13.1. Unless otherwise provided in this Agreement, all notices,
demands or other communications to either party shall be in writing and shall be
mailed, telecopied or communicated by means of facsimile transmission (followed
by a mailed or delivered hard copy), or delivered by hand or courier service, at
their respective addresses set forth in this Agreement, or at such other
addresses as shall be designated by such party in a written notice to the other
party. All notices and other communications shall be deemed delivered and
effective when a record has been sent by telecopy or other facsimile
transmission, or upon receipt through the Internet, or upon hand delivery or
upon the third business day after deposit in a United States postal box if
postage is prepaid, and the notice properly addressed to the intended recipient.
14. Destruction of Borrower's Documents.
-----------------------------------
14.1. Any documents, schedules, invoices or other papers delivered to
FIL may be destroyed or otherwise disposed of by FIL five (5) months after they
are delivered to or received by FIL, unless Borrower requests, in writing, the
19
return of the said documents, schedules, invoices or other papers and makes
arrangements at Borrower's expense for their return.
15. Release.
-------
15.1. At such time as all Obligations shall have been fully paid and
satisfied and Borrower and all guarantors of the Obligations execute a release
acknowledging that Borrower does not have any claims against FIL and provides
FIL with an appropriate indemnity indemnifying FIL for any remittances for which
Borrower has received credit and which are not paid, FIL shall release its
security interest in the Collateral and deliver to Borrower an appropriate
termination statement.
16. General Provisions.
------------------
16.1. The parties intend and agree that their respective rights,
duties, powers, liabilities, obligations and discretions shall be performed,
carried out, discharged and exercised reasonably and in good faith.
16.2. If at any time or times hereafter, FIL employs counsel for
advice or other representation (i) with respect to any of the Collateral or this
Agreement; (ii) to represent FIL in any litigation, contest, dispute, suit or
proceeding or to commence, defend, or intervene or to take any other action in
or with respect to any litigation, contest, dispute, suit or proceeding (whether
instituted by FIL, Borrower or any other party) in any way relating to any of
the Collateral, this Agreement or Borrower's affairs; (iii) to protect, collect,
lease, sell, take possession of or liquidate any of the Collateral; (iv) to
attempt to enforce any security interest of FIL in any of the Collateral; or (v)
to enforce any rights of FIL against Borrower or against any other Person which
may be obligated to FIL by virtue of this Agreement including Borrower's account
debtors, then, in any of the foregoing events, all of the reasonable attorneys'
fees not to exceed $10,000.00 arising from such services and all expenses, costs
and charges in any way arising in connection therewith or relating thereto shall
constitute a part of FIL's Costs secured by the Collateral and be payable on
demand.
16.3. Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against FIL or Borrower, whether under any rule
of construction or otherwise; on the contrary, this Agreement has been reviewed
by all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto. When permitted by the context, the singular includes the
plural and vice versa.
16.4. The validity of this Agreement, its construction, interpretation
and enforcement, and the rights of the parties hereunder and concerning the
Collateral, shall be determined under and according to the Bermuda Law, without
regard to principles of conflicts of laws, and except to the extent that the
Code provides for the application of the law of the Borrower State.
20
16.5. In any litigation involving FIL and Borrower, Borrower does
hereby irrevocably submit itself to the process, jurisdiction and venue of the
courts of New Jersey or to the process, jurisdiction and venue of New Jersey for
the purposes of suit, action or other proceedings arising out of or relating to
the Agreement or the subject purposes of suit, action or other proceedings
arising out of or relating to this Agreement or the subject matter hereof, and
without limiting the generality of the foregoing, hereby waives and agrees not
to assert by way of motion, defense or otherwise in any such suit, action or
proceeding any claim that Borrower is no personally subject to the jurisdiction
of such courts, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper.
16.6. The provisions of this Agreement are independent of and separate
from each other. If any provision hereof shall for any reason be held invalid or
unenforceable, it is the intent of the parties that such invalidity or
unenforceability of any other provision hereof and that this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein.
16.7. Article and section headings and numbers have been set forth
herein for convenience only; unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
16.8. This Agreement cannot be changed or terminated orally. All
prior agreements, understandings, representations, warranties and negotiations,
if any, are merged into this Agreement.
16.9. FIL shall have the right, without the consent of or notice to
Borrower to grant participation interests in the Credit Facility and in this
regard may provide the participant with any and all information with respect to
Borrower and the Credit Facility. In addition, FIL may assign this Agreement and
its rights and duties hereunder at any time, without the consent of or notice to
Borrower. This Agreement shall inure to the benefit of FIL, its successors and
assigns. Borrower may not assign this Agreement or any rights hereunder without
FIL's prior written consent and any such assignment shall be void and of no
effect whatsoever. No consent to any assignment by FIL shall, without the
written consent of FIL, release Borrower or any guarantor of its Obligations to
FIL.
16.10. This Agreement shall inure to the benefit of FIL and any
successors or assigns of FIL, including any participant in the Credit Facility.
This Agreement shall bind and inure to the benefit of the successors and assigns
of FIL and shall bind all Persons who become bound as a debtor to this
Agreement. Borrower may not assign this Agreement or any rights hereunder
without FIL's prior written consent and any prohibited assignment shall be
absolutely void. No consent to any assignment by FIL shall release Borrower or
any guarantor of its Obligations to FIL. FIL may assign this Agreement and its
rights and duties hereunder, and if an assignment is made, Borrower shall render
performance under this Agreement to the assignee. Borrower waives and will not
21
assert against any assignee of FIL any claims, defenses (except defenses which
cannot be waived) or set-offs which Borrower could assert against FIL.
17. Rules of Construction.
---------------------
17.1. No reference to "proceeds" in this Security Agreement authorizes
any sale, transfer or other disposition of the Collateral by the Borrower.
17.2. "Includes" and "including" are not limiting.
17.3. "Or" is not exclusive.
17.4. "All" includes "any" and "any" includes "all."
17.5. "Material Impairment" for purposes of this Agreement includes
without limitation (i) Borrower sustains a net operating loss for twelve
consecutive months; and (ii) Borrower uses a substantial amount of funds from
the business for a non-business purpose.
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---------------------------------------------
22
NOTICE OF FINAL AGREEMENT
-------------------------
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES, AND THE SAME MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed at Bernardsville, New Jersey, as of the date first written above.
FINANZINVEST, LTD, a Bermuda
company
By: /s/ Lars ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------
Lars ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Director
--------------------------
BORROWER:
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President and CEO
--------------------------
23
RIDER A
-------
The foregoing notwithstanding, with regard to Article 8.1(l) above: (a) FIL
acknowledges that Borrower has entered into negotiations to acquire West Coast
Game Management, Inc., a California company, and specifically consents to the
consummation of such transaction on the terms substantially similar to the
Letter of Intent annexed hereto., and (b) FIL specifically consents to
Borrower's acquisition of a newly formed German business entity which will
establish an "e-Bay" style internet business to sell and promote the products of
the Borrower to the European community provided that (i) the acquisition is a
cashless transaction and (ii) the value of the Borrower's stock used as
consideration for the acquisition will have a market value equivalent of no
greater than $750,000.00 at the time of closing.
The foregoing notwithstanding, with regard to Article 8.1(t) FIL: (a)
acknowledges that Borrower has entered into commitments for the sale of its
equity securities overseas in accordance with Regulation S. FIL specifically
consents to such transactions provided: (i) the equity raised does not exceed
One Hundred Thousand Dollars ($100,000.00) to any one entity with an aggregate
not to exceed One Million Dollars ($1,000,000.00); (ii) FIL receives notice of
such sale within five (5) business days; and (iii) all such sales will be based
on a fixed price and will not involve any convertible securities, and (b)
consents to Borrower's filing of a S-8, for the payment of attorneys,
accountants, consultants and officer and director compensation, of up to
3,500,000 shares of Borrower's Class A common stock.
24
EXHIBITS
--------
25
EXHIBIT A
---------
Amortization Schedule
(provided under separate cover with this agreement)
26
EXHIBIT B
---------
Certificate of Designation
--------------------------
CERTIFICATE OF DESIGNATION, NUMBER, POWERS, PREFERENCES AND OTHER RIGHTS
AND QUALIFICATIONS, LIMITATIONS, RESTRICTIONS AND OTHER CHARACTERISTICS OF
SERIES B PREFERRED STOCK
OF
T&G2, Inc.
----------
It is hereby certified that:
1. The name of the corporation is T&G2, Inc. (hereinafter called the
corporation").
2. The certificate of incorporation, as amended, of the corporation
authorizes the issuance of 668,000 shares of Preferred Stock, $1.00 par value,
and expressly vests in the Board of Directors of the corporation the authority
provided therein to issue any or all of said shares in one or more series and by
resolution or resolutions, the designation, number, full or limited voting
powers, or the denial of voting powers, preferences and relative, participating,
optional, and other special rights and the qualifications, limitations,
restrictions, and other distinguishing characteristics of each series to be
issued.
3. The Board of Directors of the corporation, pursuant to the
authority expressly vested in it as aforesaid, has adopted the following
resolutions creating a Series B issue of Preferred Stock:
RESOLVED, that the Board of Directors hereby fixes and determines the
designation of the number of shares and the rights, preferences, privileges and
restrictions relating to the Series B Preferred Stock:
(a) Designation. The series of Preferred Stock created hereby shall be
-----------
designated the Series B Preferred Stock (the Series B Preferred Stock").
(b) Authorized Shares. The number of shares of Series B Preferred Stock
------------------
shall be 5,000,000 Shares.
(c) Liquidation Rights. In the event of any liquidation, dissolution or
-------------------
winding up of the corporation, either voluntary or involuntary, after setting
apart or paying in full the preferential amounts due to holders of senior
capital stock, if any, the holders of Series B Preferred Stock and parity
capital stock, if any, shall be entitled to receive, prior and in preference to
27
any distribution of any of the assets or surplus funds of the corporation to the
holders of junior capital stock, including Common Stock, an amount equal to
(market value of preferred as of this date (i.e.)each $ 1 million of loan=$25
million.) million dollars divided by the number of common shares into which this
series of preferred stock converts per share, plus accrued and unpaid dividends
(the "Liquidation Preference"). If upon such liquidation, dissolution or winding
up of the corporation, the assets of the corporation available for distribution
to the holders of the Series B Preferred Stock and parity capital stock, if any,
shall be insufficient to permit in full the payment of the Liquidation
Preference, then all such assets of the corporation shall be distributed ratably
among the holders of the Series B Preferred Stock and parity capital stock, if
any. Neither the consolidation or merger of the corporation nor the sale, lease
or transfer by the corporation of all or a part of its assets shall be deemed a
liquidation, dissolution or winding up of the corporation for purposes of this
Section (c).
(d) Dividends. The Series B Preferred Stock shall not be entitled to
---------
receive any dividends.
(e) Conversion Rights. Each share of Series B Preferred Stock shall be
------------------
convertible, at the option of the holder, into 1000:1 fully paid and
nonassessable shares of the corporation's Common Stock, provided however, that
such conversion would not violate any applicable federal, state or local law,
rule, regulation, or any judgment, writ, decree, or order binding upon the
Corporation or the holder, or any provision of the Corporation's or the holder's
amended Articles of Incorporation of Bylaws, nor conflict with or contravene the
provisions of any agreement to which the Corporation and the holder are parties
or by which they are bound. Said conversion rate shall be subject to equitable
adjustment at the reasonable discretion of the Board of Directors of the
Corporation in the event of the occurrence of capital events which make such
adjustment appropriate, such as a dividend payable in shares of common stock,
combinations of the common stock, a merger or consolidation, or the like.
(i) Conversion Procedure. The holder shall effect conversions by
---------------------
surrendering the certificate(s) representing the Series B Preferred Stock to be
converted to the corporation, together with a form of conversion notice
satisfactory to the corporation, which shall be irrevocable. If the holder is
converting less than all of the shares of Series B Preferred Stock represented
by the certificate tendered, the corporation shall promptly deliver to the
holder a new certificate representing the Series B Preferred Stock not
converted. Not later than five (5) trading days after the conversion date, the
corporation will deliver to the holder, (i) a certificate or certificates, which
shall be subject to restrictive legends and trading restrictions required by
law, representing the number of shares of Common Stock being acquired upon the
conversion; provided, however, that the corporation shall not be obligated to
issue such certificates until the Series B Preferred Stock is delivered to the
corporation. If the corporation does not deliver such certificate(s) by the date
required under this paragraph (e)(i), the holder shall be entitled by written
notice to the corporation at any time on or before receipt of such
certificate(s), to rescind such conversion.
28
(i)(a) Value Maintenance and Reset Provision
-------------------------------------
The number of common shares that this series of convertible preferred
shares convert into, are initially set as of the date of this agreement. The
number of shares is calculated by taking the conversion ratio and multiplying
the amount of common shares available per preferred share by the number of
preferred shares designated by the preferred share certificate attached to this
agreement. However, this number shall be adjusted at the end of each month or
upon any date that a demand for conversion occurs. The purpose of this provision
is to maintain the original underlying value of the preferred shares on the date
of the original issuance of the preferred shares. This will be accomplished
using the following formula.
One divided by the quotient of the common stock price at the day of
conversion divided by the common stock price as of original date of issuance of
the preferred shares. This result shall be multiplied by the number of original
common shares that the preferred shares could have been converted to, i.e.
original common stock price $10; current stock price $5. If we were to convert
the convertible today the number of common shares per conversion would increase
by the following formula: 1 / ($5 per share / $10 per share) = 2. We then
multiply 2 by the original number of common shares that the preferred could have
converted into. However, in no case shall the preferred shares be convertible
into a number of common shares that are less then the original number of common
shares that the preferred have the right to convert into as of the date of
issuance.
(ii) Conversion Penalty. In the event the corporation breaches its
-------------------
obligation to timely deliver the Common Stock on conversion, then without
limiting holder's other rights and remedies, the corporation shall pay to the
holder an amount accruing at the rate of $5.00 per day for each such breach for
each 1000:1 shares of Common Stock subject to the conversion, with pro rata
payments for amounts less than 1000:1 shares.
(iii) Adjustments on Stock Splits, Dividends and Distributions. If
----------------------------------------------------------
the corporation, at any time while any Series B Preferred Stock is outstanding,
(a) shall pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock payable in shares of its capital stock (whether
payable in shares of its Common Stock or of capital stock of any class), (b)
subdivide outstanding shares of Common Stock into a larger number of shares, (c)
combine outstanding shares of Common Stock into a smaller number of shares, or
(d) issue reclassification of shares of Common Stock any shares of capital stock
of the corporation, the Conversion Ratio shall be adjusted by multiplying the
number of shares of Common Stock issuable by a fraction of which the numerator
shall be the number of shares of Common Stock of the corporation outstanding
after such event and of which the denominator shall be the number of shares of
Common Stock outstanding before such event. Any adjustment made pursuant to this
paragraph (e)(iii) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. Whenever the
29
Conversion Ratio is adjusted pursuant to this paragraph, the corporation shall
promptly mail to the Holder a notice setting forth the Conversion Ratio after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(iv) Adjustments on Reclassifications, Consolidations and Mergers. In
------------------------------------------------------------
case of reclassification of the Common Stock, any consolidation or merger of the
corporation with or into another person, the sale or transfer of all or
substantially all of the assets of the corporation or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities,
cash or property, then each holder of Series B Preferred Stock then outstanding
shall have the right thereafter to convert such Series B Preferred Stock only
into the shares of stock and other securities and property receivable upon or
deemed to be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange, and the Holder shall be
entitled upon such event to receive such amount of securities or property as the
shares of the Common Stock into which such Series Preferred Stock could have
been converted immediately prior to such reclassification, consolidation,
merger, sale, transfer or share exchange would have been entitled. The terms of
any such consolidation, merger, sale, transfer or share exchange shall include
such terms so as to continue to give to the Holder the right to receive the
securities or property set forth in this paragraph (e)(iv) upon any conversion
following such consolidation, merger, sale, transfer or share exchange. This
provision shall similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges.
(v) Fractional Shares; Issuance Expenses. Upon a conversion of Series
------------------------------------
B Preferred Stock, the corporation shall not be required to issue stock
certificates representing fractions of shares of Common Stock, but shall issue
that number of shares of Common Stock rounded to the nearest whole number. The
issuance of certificates for shares of Common Stock on conversion of Series B
Preferred Stock shall be made without charge to the Holder for any documentary
stamp or similar taxes that may be payable in respect of the issue or delivery
of such certificate, provided that the corporation shall not be required to pay
any tax that may be payable in respect of any transfer involved in the issuance
and delivery of any such certificate upon conversion in a name other than that
of the Holder, and the corporation shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the corporation the amount of such tax or shall have
established to the satisfaction of the corporation that such tax has been paid.
(f) Voting Rights. Except as otherwise expressly provided herein or as
-------------
required by law, the holders of shares of Series B Preferred Stock shall not be
entitled to vote on any matters considered and voted upon by the corporation's
Common Stock. In the event the holders of the Series B Preferred Stock are
entitled to vote on a matter as required by law, the holders shall be entitled
to 1000:1 votes per share of Series B Preferred Stock. Except as otherwise
expressly provided herein or as required by law, the holders of the Series B
Preferred Stock and the Common Stock shall vote as separate classes.
30
(g) Reservation of Shares of Common Stock. The corporation covenants that
-------------------------------------
it will at all times reserve and keep available out of its authorized and
unissued Common Stock solely for the purpose of issuance upon conversion of
Series B Preferred Stock as herein provided, free from preemptive rights or any
other actual contingent purchase rights of persons other than the holders of
Series B Preferred Stock, such number of shares of Common Stock as shall be
issuable upon the conversion of the outstanding Series B Preferred Stock. If at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all outstanding Series B Preferred
Stock, the corporation will take such corporate action necessary to increase its
authorized shares of Common Stock to such number as shall be sufficient for such
purpose. The corporation covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid and nonassessable.
(h) No Reissuance of Series B Preferred Stock. No shares of the Series B
------------------------------------------
Preferred Stock acquired by the corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares of capital stock which the
corporation shall be authorized to issue.
(i) Mandatory Redemption. There shall be no mandatory redemption.
--------------------
(j) Assignment. Nothing prohibits the preferred stock holder from
----------
assigning, pledging or hypothecating the preferred shares.
and be it further
RESOLVED, that the statements contained in the foregoing resolutions
creating and designating the Series B Preferred Stock and fixing the number,
voting powers, preferences and relative, participating, optional, and other
special rights and the qualifications, limitations, restrictions, and other
distinguishing characteristics thereof, upon the effective date of such series,
be deemed to be included in and be a part of the certificate of incorporation of
the corporation pursuant to the provisions of the General Corporation Law of the
State of Nevada.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
January 14, 2004.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ / President and CEO
Sworn to before me this 14th day of January 2004
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq. (An Attorney-at-Law of the State of New Jersey
31
EXHIBIT C
---------
OFFICER'S CERTIFICATE
---------------------
The undersigned President of T&G2, Inc., a Nevada Corporation (the
"Company"), hereby certifies that:
1. The undersigned is the duly appointed President and CEO of the
Company.
2. The Company has duly authorized the undersigned, and has granted him
all requisite legal and corporate power make the certifications contained
herein.
3. The Company had duly authorized the undersigned, and granted ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ all requisite legal and corporate power to execute and deliver in the
name of the Company a Loan and Security Agreement and Promissory Note, between
the Company and FinanzInvest, Ltd., dated January 14, 2004, and related
documents (collectively, the "Agreement"), and to execute and deliver any and
all documents related to the Agreement, and to do and perform any and all such
further acts and things (including, but not limited to, the payment of all
necessary expenses) as they or each of them may deem necessary or advisable or
have been instructed to do to carry out the intent and accomplish the purposes
of the Agreement.
4. The Company has all requisite legal and corporate power and authority
to execute and deliver the Agreement and perform its obligations thereunder. The
Agreement, when executed and delivered by the Company will constitute a valid
and legally binding obligation of the Company, enforceable in accordance with
its terms.
5. The Company's representations and warranties set forth in the
Agreement were true and correct when made, and shall be true and correct as of
January 14, 2004. All covenants, agreements and conditions contained in the
Agreement to be performed by the Company as of January 14, 2004 shall have been
performed or complied with in all material respects.
6. The Company is a corporation duly organized and existing under and by
virtue of the laws of the State of Nevada, and is in good standing under the
laws of such state.
7. The execution, delivery, performance and compliance with the terms of
the Agreement do not violate any provision of any applicable federal, state or
local law, rule or regulation, or of any judgment, writ, decree, or order
binding upon the Company or any provision of the Company's amended Articles of
Incorporation or By-Laws and do not conflict with or constitute a default under
the provision of any agreement to which the Company is a party or by which it is
bound.
8. All consents, approvals, orders or authorizations of, and all
qualifications, registrations, designations, declarations, or filings with, any
federal or state governmental authority or self-regulatory organization on the
part of the Company required in connection with the consummation of the
transactions contemplated by the Agreement have been obtained and shall be
effective as of the date of the funding, and the undersigned is not aware of any
proceedings or threat thereof, which question the validity thereof.
32
9. All material matters of a legal nature, which pertain to the
Agreement, and the transactions contemplated hereby have been discussed and
reasonably approved by counsel to the Company.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ / President and CEO
Sworn to before me this 14th day of January 2004
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq. (An Attorney-at-Law of the State of New Jersey
33
EXHIBIT D
---------
Intentionally omitted
34
EXHIBIT E
---------
WARRANTS
--------
THIS WARRANT AND THE OTHER SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECRUITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER
IS IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE
LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
APPLICABLE LAWS IS AVAILABLE WITH RESPECT THERETO.
COMMON STOCK PURCHASE WARRANT
Warrant No. 00001 Issued Date: January 14, 2004
T&G2, Inc.
1. Issuance. This Warrant is issued to FinanzInvest, Ltd., or its
--------
Assignee or Transferee ( the"Holder") by T&G2, Inc., a Nevada corporation
(hereinafter, with its successors, the "Company").
2. Exercise Price; Number of Shares. Subject to the terms and conditions
--------------------------------
hereinafter set forth, the registered holder of this Warrant (the "Holder"),
commencing on the date hereof, is entitled upon surrender of this Warrant with
the subscription form annexed hereto duly executed, at the office of the Company
or such other office as the Company shall notify the Holder in writing, to
purchase from the Company Six Million (6,000,000) fully paid and nonassessable
shares (the "Warrant Shares") of the Company's Common Stock, $0.01 par value
(the "Common Stock") as set forth on Schedule A hereto and subject to adjustment
as provided in Section 8 below.
3. Payment of Exercise Price; Cashless Exercise.
--------------------------------------------
a) The exercise price shall be 15/100 of One Dollar ($0.15) per
share (the "Exercise Price") and may be paid in cash, by check or wire transfer
in immediately available funds, or as provided in 3 b) below, and subject to
adjustment as provided in Section 8 below.
b) At any time during the term of this Warrant, the Holder may also
elect to exercise this Warrant (the "Conversion Right") with respect to a
35
particular number of Warrant Shares (the "Converted Warrant Shares"), and the
Company shall deliver to the Holder (without payment by the Holder of the
Exercise Price in cash or any other consideration other than the surrender of
rights to receive Warrant Shares hereunder) that number of shares of Common
Stock equal to the quotient obtained by dividing: (x) the difference between (i)
the product of (A) the Current Market Price of a share of Common Stock
multiplied by (B) the number of Converted Warrant Shares and (ii) the product of
(A) the Exercise Price multiplied by (B) the number of the Converted Warrant
Shares, in each case as of the Conversion Date (as defined in Section 3 c)
below)), by (y) the Current Market Price of a share of Common Stock on the
Conversion Date. No fractional Warrant Shares shall be issuable upon exercise of
the Conversion Right, and if the number of Warrant Shares to be issued
determined in accordance with the following formula is other than a whole
number, the Company shall pay to the holder of this Warrant an amount in cash
equal to the Current Market Price of the resulting fractional Warrant Share on
the Conversion Date.
c) If the Company has an effective Registration Statement available
for the shares underlying these warrants, then Holder agrees to not avail itself
of the cashless exercise.
d) The Conversion Right may be exercised by the Holder by the
surrender of this Warrant as provided in Section 3 b), together with a written
statement specifying that the Holder thereby intends to exercise the Conversion
Right and indicating the number of Converted Warrant Shares which are covered by
the exercise of the Warrant. Such conversion shall be effective upon receipt by
the Corporation of this Warrant, together with the aforesaid written statement,
or on such later date as is specified therein (the "Conversion Date"). The
Corporation shall issue to the Holder as of the Conversion Date a certificate
for the Warrant Shares issuable upon exercise of the Conversion Right and, if
applicable, a new warrant of like tenor evidencing the balance of the Warrant
Shares remaining subject to this warrant.
e) The term "Current Market Price" for the Common Stock as of a
specified date shall mean the average closing price per share over the preceding
5 trading days as reported on the NASDAQ exchange.
4. Partial Exercise. This Warrant may be exercised in part, and the
-----------------
Holder shall be entitled to receive a new warrant, which shall, which shall be
dated as of the date of this Warrant, covering the number of shares in respect
of which this Warrant shall not have been exercised.
5. Issuance Date. The person or persons in whose name or names any
--------------
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
36
6. Expiration Date. This Warrant shall expire at the close of business on
---------------
the Fifth (5th) anniversary of the Original Issue Date and shall be void
thereafter.
7. Reserved Shares; Valid Issuance; Restricted Stock.
-------------------------------------------------
a) The Company covenants that it will at all times from and after
the date hereof reserve and keep available such number of its authorized shares
of Common Stock, free from all preemptive or similar rights therein, as will be
sufficient to permit the exercise of this Warrant in full. The company further
covenants that such shares as may be issued pursuant to the exercise of this
Warrant will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
b) The Warrant Shares have not been registered under the Securities
Act of 1993 (the "Securities Act"), as amended, or any applicable state
securities laws. The Warrant Shares may not be sold or transferred unless such
sale or transfer is in accordance with the registration requirements of the
Securities Act and applicable laws or some other exemption from the registration
requirements of the Securities Act and applicable laws - including a sale under
Rule 144 - is available with respect thereto.
8. Adjustment of Number of Shares; Exercise Price; Nature of Securities
----------------------------------------------------------------------
Issuable Upon Exercise of Warrants.
----------------------------------
a) Exercise Price; Adjustment of Number of Shares. Each Exercise
-------------------------------------------------
Price and the number of shares purchasable hereunder shall be subject to
adjustment from time to time as hereinafter provided.
b) Reorganization, Reclassification, Consolidation, Merger or Sale.
----------------------------------------------------------------
If any capital reorganization or reclassification of the capital stock of the
Company or any consolidation or merger of the Company with another entity, or
the sale of all or substantially all of the Company's assets to another person
or entity (collectively referred to as a "Transaction") shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities, cash or assets with respect to or in exchange for Common Stock,
then, as a condition of such Transaction, reasonable, lawful and adequate
provisions shall be made whereby the holder of this Warrant shall thereafter
have the right to purchase and receive upon the basis and upon the terms and
conditions specified in this Warrant, upon exercise of this Warrant and in lieu
of the Warrant Shares immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby as if such shares were outstanding
immediately prior to the Transaction, and in any such case appropriate provision
shall be made with respect to the rights and interest of the holders to the end
that the provisions hereof (including, without limitation, provisions for
adjustments of the Exercise Price and of the number of Warrant Shares
purchasable and receivable upon the exercise of this Warrant) shall thereafter
be applicable, as nearly as may be practicable, in relation to any shares of
stock or securities thereafter deliverable upon the exercise hereof.
37
c) Stock Splits, Stock Dividends and Reverse Stock Splits. If at any
------------------------------------------------------
time after the date hereof, the Company shall subdivide its outstanding shares
of Common Stock into a greater number of shares, or shall declare and pay any
stock dividend with respect to its outstanding stock that has the effect of
increasing the number of outstanding shares of Common Stock, the Exercise Price
in effect immediately prior to such subdivision or stock dividend shall be
proportionately reduced and the number of Warrant Shares purchasable pursuant to
this Warrant immediately prior to such subdivision or stock dividend shall be
proportionately increased, and conversely, in case at any time after the date
hereof, the Company shall combine its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
purchasable upon the exercise of this Warrant immediately prior to such
combination shall be proportionately reduced.
d) Adjustment of Shares and Price. The number of shares of common
--------------------------------
stock into which the warrants are convertible pursuant to paragraph 2 of this
Agreement, the number of shares subject to redemption pursuant to paragraph 2 of
this Agreement, and the redemption prices set forth in paragraph 2 of this
Agreement, are subject to adjustment from time to time in the event: (a) The
Company subdivides or combines its outstanding common stock into a greater or
smaller number of shares, including, but not limited to, stock splits, stock
dividends payable in stock, rights, or convertible securities; (b) of a
reorganization, reclassification of the Company's common stock; the
consolidation, merger, of the Company with another entity; the sale, conveyance
or other transfer of all or substantially all of the Company's assets to another
entity; or other similar event whereby securities or other assets are issuable
or distributable to the holders of outstanding common stock of the Company upon
the occurrence of such event; (c) of the issuance by the Company to the holders
of its common or preferred stock of securities convertible into, or exchangeable
for, such shares of common stock; or (d) any future issuance, exchange,
conveyance or transfer of the Company's common stock, or options, warrants, or
any rights convertible, exercisable or exchangeable into shares of the Company's
common stock. Should there be an occurrence of any event set forth in this
paragraph, the percentage of the Company's common stock exercisable by the
warrant holder (or in the case of a warrant holder that has exercised some or
all of its warrants into common stock, the percentage of the Company's common
stock held thereby), the percentage of common stock and/or common stock which is
held by, or may be issued to a warrant holder, shall remain constant.
e) Dissolution, Liquidation or Wind-Up. In case the Company shall,
------------------------------------
at any time prior to the exercise of this Warrant, dissolve, liquidate or wind
up its affairs, the holder hereof shall be entitled, upon the exercise of this
Warrant, to receive, in lieu of the Warrant Shares which the holder would have
been entitled to receive, the same kind and amount of assets as would have been
issued, distributed or paid to such holder upon any such dissolution,
liquidation or winding up with respect to such Warrant Shares, had such holder
hereof been the holder of record of the Warrant Shares receivable upon the
exercise of this Warrant on the record date for the determination of those
persons entitled to receive any such liquidating distribution.
38
9. Fractional Shares. In no event shall any fractional share of Common
------------------
Stock be issued upon any exercise of this Warrant. If, upon exercise of this
Warrant as an entirety, the Holder would, except as provided in this Section 9,
be entitled to receive a fractional share of Common Stock, then the Company
shall issue the next higher number of full shares of Common Stock, issuing a
full share with respect to such fractional share.
10. Notices of Record Date, Etc. In the event of:
---------------------------
a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right.
b) any reclassification of the capital stock of the Company, capital
reorganization of the Company, consolidation or merger involving the Company, or
sale or conveyance of all or substantially all of its assets, or
c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to
the Holder a notice specifying (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right, or (ii) the date
on which any such reclassification, reorganization, consolidation, merger, sale
or conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record in respect of
such event are to be determined. Such notice shall be mailed at least 20 days
prior to the date specified in such notice on which any such action is to be
taken.
11. Amendment. The terms of this Warrant may be amended, modified or
---------
waived only with the written consent of the Company and the holder of this
Warrant.
12. Governing Law. The provisions and terms of this Warrant shall be
--------------
governed by and construed in accordance with the internal laws of the State of
New York.
13. Successors and Assigns. This Warrant shall be binding upon the
------------------------
Company's successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.
14. Business Days. If the last or appointed day for the taking of any
--------------
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday, then such action may be taken or right
39
may be exercised on the next succeeding day which is not a Saturday or Sunday or
such a legal holiday.
Original Issue Date: January 14, 2004
T&G2, Inc.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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Title: President and CEO
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SCHEDULE A
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The Holder shall be entitled to exercise this Warrant for shares of Common
Stock as follows:
The Warrant Shares shall become exercisable in accordance with the
following vesting schedule: Six Million (6,000,000) shares shall be considered
fully vested upon issuance.
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SUBSCRIPTION
------------
To: Date:
------------------------ --------------------------
The undersigned hereby subscribes for shares of Common Stock
------------
at an Exercise Price of $ covered by this Warrant. The
-------------------
certificate(s) for such shares shall be issued in the name of the undersigned or
as otherwise indicated below:
-----------------------------
Signature
-----------------------------
Name for Registration
-----------------------------
Mailing Address
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ASSIGNMENT
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For value received hereby sells, assigns
-----------------------------------
and transfers unto
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--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(Please print or typewrite name and address of Assignee above)
a portion of the within Warrant equal to shares, and does hereby
----------
irrevocably constitute and appoint its attorney to
-----------------------
transfer said portion of the within Warrant on the books of the within named
Company with full power of substitution on the premises.
Dated:
--------------------
--------------------------------
In the Presence of:
-------------------------
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EXHIBIT F
---------
LEGAL OPINION LETTER
TO BORROWER TRANSFER AGENT
--------------------------
January 14, 2004
Gentlemen:
We are counsel to T&G2, Inc., a Nevada corporation (the "Company"). The
Company has requested that we provide this opinion in connection with a Loan and
Security Agreement dated January 14, 2004 between the Company and FinanzInvest,
Ltd. (the "Agreement")
For purposes of this opinion, we have reviewed and relied upon the
Agreement and other documents the Company has provided us, together with such
other documents we have requested from them, necessary for this opinion
(collectively, the "Documents").
In setting forth our opinion, we have assumed: (i) the authenticity,
accuracy and completeness of all Documents and other documentation examined by
us; (ii) the genuineness of all signatures on the Documents; (iii) the
authority, capacity and power of each of the persons signing the Documents; (iv)
that any representation, warranty or statement of fact or law, made in any of
the Documents is true, accurate and complete; (v) that the Agreement and the
Documents constitute legal, valid and binding obligations of each of the parties
thereto, under the laws of each of their jurisdictions of incorporation or
formation; (vi) that the Agreement and the Documents are validly authorized,
executed and delivered by each of the parties thereto, and the performance
thereof will be within the capacity and powers of each such party thereto; (vii)
that there are no provisions of the laws or regulations of any jurisdiction
which are contravened by the execution or delivery of the Agreement or the
Documents, or which would have any implication in relation to the opinion
expressed herein; (ix) all necessary corporate proceedings of the Company have
been duly taken to authorize the execution, delivery and performance of the
Agreement and the Documents.
Based upon and conditioned on the foregoing, we are of the opinion that in
the event of a default by the Company under the Agreement, and subject to the
terms and conditions of the Agreement, FinanzInvest, Ltd. or its designee(s)
shall be issued the requisite number of shares of the Company's common stock
pursuant to the Agreement (the "Securities"). The Securities shall be
free-trading, and issued in certificate form, without a restrictive legend, and
shall be free and clear of any liens, charges or encumbrances preventing their
issuance or transfer.
The Securities shall be validly authorized, validly issued, fully paid and
nonassessable.
The Company shall have all requisite power and authority to issue the
Securities as set forth above and to take any and all necessary action to
complete the issuance contemplated hereunder, and such issuance shall constitute
the legal, valid and binding obligation of the Company to effect such issuance.
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This opinion is solely for your benefit and is neither to be transmitted to
any other person, nor relied upon by any other person or used for any other
purpose nor quoted or referred to in any public document nor filed with any
governmental agency or person, without our prior written consent, except as may
be required by law or regulatory authority. This opinion is strictly limited to
the matters stated herein.
Very truly yours,
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44