Exhibit 10.19
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LINE OF CREDIT AGREEMENT
This Line of Credit Agreement (the "Agreement") is made and entered
into this 30th day of October, 2006, by and between Dos Lagos, LLC, an Idaho
limited liability company ("Lender") and Speaking Roses International, Inc., a
Utah corporation ("Borrower").
In consideration of the promises contained herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Line of Credit. Lender hereby establishes for a period extending
from the date hereof until January 1, 2008 (the "Maturity Date") a line of
credit (the "Credit Line") for and on behalf of Borrower equal to one million
dollars ($1,000,000.00) (the "Credit Limit"). In connection herewith, Borrower
shall execute and deliver to Lender a Promissory Note in the amount of the
Credit Limit, substantially in the form attached hereto as Exhibit "A". All sums
advanced on the Credit Line or pursuant to the terms of this Agreement (each an
"Advance") shall become part of the principal of the Promissory Note.
2. Advances. Any request for an Advance shall be made by Borrower in
writing, setting forth the amount of such requested Advance, signed by a duly
authorized officer of Borrower, and delivered to Lender, and may be made from
time to time as Borrower may choose, provided, however, no requested Advance
will, when added to the outstanding principal balance of and interest accrued,
if any, on all previous Advances hereunder, exceed the Credit Limit. Lender
shall deliver to Borrower or a depository account designated by Borrower, within
five business days following receipt of a request for an Advance by Borrower,
the amount requested as an Advance set forth in such request in immediately
available funds. Lender may refuse to make any requested Advance if an event of
default has occurred and is continuing hereunder either at the time the request
is given or the date the Advance is to be made, or if an event has occurred or
condition exists which, with the giving of notice or passing of time or both,
would constitute an event of default hereunder as of such dates. Until the
Maturity Date, Borrower may borrow and re-borrow on the Line of Credit, provided
the aggregate sum of the Outstanding Principal Balance does not exceed the
Credit Limit.
3. Interest; Default Interest. All sums advanced by Lender to Borrower
pursuant to this Agreement shall bear interest from the date each Advance is
made until paid in full at a variable interest rate equal to the Loan Index Rate
plus a margin of 200 basis points. The Loan Index Rate is defined as that
certain rate of interest published as the "Prime Rate" in the "Money Rates"
column in the Western Edition of the Wall Street Journal. Interest will be
adjusted quarterly on the first business day of each January, April, July and
October. The interest shall be computed on the basis of a 360-day year. The
Initial Interest Rate hereunder is ten and one-quarter percent (10.25%).
Notwithstanding the foregoing, upon the occurrence of an event of default
hereunder by Borrower, the principal amounts outstanding hereunder shall bear an
interest rate of fifteen percent (15%) per annum and commencing from the date a
respective Advance was made, and shall continue at such rate until the event of
default is cured.
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4. Repayment. The aggregate unpaid principal amount of Advances made
hereunder, together with any accrued but unpaid interest and other unpaid
charges or fees hereunder, shall be due and payable on the Maturity Date. All
payments shall be made to Lender at such place as Lender may, from time to time,
designate in lawful money of the United States of America. Any payment falling
due on a Saturday, Sunday, or other day on which banks in the State of Utah are
authorized to be closed for the general transaction of business, shall be due on
the next succeeding day; provided, however, for purposes of determining late
charges or whether an event of default has occurred, such payment shall be
considered to have been due on its regularly-scheduled payment date. All
payments received hereunder shall be applied, first, to any late charge; second,
any costs or expenses incurred by Lender in collecting such payment or to any
other unpaid charges or expenses due hereunder; third, to accrued interest; and
fourth, to principal; provided, however, upon occurrence of an event of default,
Lender may change the priority of the application of payments as it deems
appropriate. Borrower may prepay principal or accrued interest at any time
without penalty or premium.
5. Collateral. The payment of all sums due hereunder shall be subject
to the Note and the Patent Security Agreement dated as of October 30, 2006 by
and among the parties hereto (the "Security Agreement") and shall be secured by,
and Borrower hereby grants Lender a security interest in and to the Collateral,
as such term is defined in the Security Agreement.
6. Conditions Precedent. Lender shall not be required to make any
advance hereunder unless and until:
(a) All of the documents required by Lender, including the
Promissory Note, have been duly executed and delivered to Lender and shall be in
full force and effect;
(b) The representations and warranties contained in this Agreement
and the Promissory Note are then true with the same effect as though the
representations and warranties had been made at such time. The request for an
Advance by Borrower shall constitute a reaffirmation to Lender that all
representations and warranties made herein remain true and correct in all
material respects to the same extent as though given the time such request is
made, and that all conditions precedent listed in this Section 6 have been, and
continue to be, satisfied in all respects as of the date such request is made;
and
(c) No event of default hereunder has occurred and is continuing,
and no condition exists or event has occurred which, with the passing of time or
the giving of notice or both, would constitute an event of default hereunder.
7. Representations of Borrower. In order to induce Lender to enter into
this Agreement and to make the advances provided for herein, Borrower represents
and warrants to Lender as follows:
(a) Borrower is a corporation duly organized and validly existing
under the laws of the State of Utah with the power to own its assets and to
transact business in Utah, and in such other states where its business is
conducted;
(b) Borrower has the authority and power to execute and deliver
any document required hereunder and to perform any condition or obligation
imposed under the terms of such documents;
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(c) The execution, delivery and performance of this Agreement and
each document incident hereto will not violate any provision of any applicable
law, regulation, order, judgment, decree, articles of incorporation, by-law,
indenture, contract, agreement, or other undertaking to which Borrower is a
party, or which purports to be binding on Borrower or its assets; and
(d) There is no action, suit, investigation, or proceeding pending
or, to the knowledge of Borrower, threatened, against or affecting Borrower or
any of its assets which, if adversely determined, would have a material adverse
affect on the financial condition of Borrower or the operation of its business.
8. Affirmative Covenants. So long as any sum remains unpaid hereunder,
in whole or in part, Borrower covenants and agrees that except with the prior
written consent of Lender, which consent will not be unreasonably withheld,
conditioned or delayed, Borrower shall do the following:
(a) Borrower shall furnish to Lender such financial statements as
Lender may from time to time require, including but not limited to, annual and
quarterly financial statements. Such financial statements will be made available
to Lender as soon as possible after the end of the appropriate periods. Borrower
shall furnish such additional information regarding its business affairs and
financial condition as Lender may from time to time in good faith request;
(b) Borrower shall notify Lender of any default under the terms
hereof or of any litigation, proceeding, or development which may have a
material adverse effect on Borrower's ability to perform under the terms of this
Agreement;
(c) Borrower shall duly observe and conform to all valid
requirements of any governmental authority relative to the conduct of its
business, properties, or assets and will maintain and keep in full force and
effect its corporate existence and all licenses and permits necessary to the
proper conduct of its business; and
(d) Borrower shall (i) file all applicable federal, state, and
local tax returns or other statements required to be filed in connection with
its business, including those for income taxes, sales taxes, property taxes,
payroll taxes, payroll withholding amounts, FICA contributions, and similar
items; (ii) maintain appropriate reserves for the accrual of the same; and (iii)
pay when due all such taxes, or sums or assessments made in connection
therewith; provided, however, that (until foreclosure, sale, or similar
proceedings have been commenced) nothing herein will require Borrower to pay any
sum or assessment, the validity of which is being contested in good faith by
proceedings diligently pursued and as to which adequate reserves have been made.
9. Negative Covenants. So long as any amounts due hereunder remain
unpaid in whole or in part, Borrower covenants that except with the prior
written consent of Lender, which consent will not be unreasonably withheld,
conditioned or delayed, it will not enter into any transaction of merger or
consolidation, or acquire the assets or business of a person or other entity, or
make any loans or advances to any person or other entity other than in the
normal and ordinary course of business now conducted; make any investment in
securities of any person or other entity; or guarantee or otherwise become
liable upon the obligations of any person or other entity, except by endorsement
of negotiable instruments for deposit or collection in the normal and ordinary
course of business.
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10. Events of Default. An event of default will occur if any of the
following events occurs ("Event of Default"):
(a) Failure to pay any principal or interest hereunder within ten
(10) days following the Maturity Date;
(b) Default by Borrower in any other obligation due and owing to
Lender, including but not limited to the $181,000 Promissory Note as amended and
the $2 Million Line of Credit Agreement, as amended.
(c) Any representation or warranty made by Borrower in Section 7
of this Agreement or in connection with any borrowing or request for an Advance
hereunder, or in any certificate, financial statement, or other statement
furnished by Borrower to Lender is untrue in any material respect at the time
when made;
(d) Default by Borrower in the observance or performance of any
other covenant or agreement contained in this Agreement, other than a default
constituting a separate and distinct event of default under this Section 10;
(e) Default by Borrower in the observance or performance of any
other covenant or agreement contained in any other document or agreement made
and given in connection with this Agreement, other than a default constituting a
separate and distinct event of default under this Section 10, and the
continuance of the same unremedied for a period of thirty (30) days after notice
thereof is given to Borrower;
(f) Any of the documents executed and delivered in connection
herewith for any reason ceases to be valid or in full force and effect or the
validity or enforceability of which is challenged or disputed by any signer
thereof, other than Lender;
(g) Borrower shall default in the payment of principal or interest
on any other obligation for borrowed money other than hereunder, including under
the Promissory Note, or defaults in the performance or observance of any
obligation or in any agreement relating thereto, if the effect of such default
is to cause or permit the holder or holders of such obligation to cause such
obligation to become due prior to the stated maturity;
(h) Filing by Borrower or any guarantor of a voluntary petition in
bankruptcy seeking reorganization, arrangement or readjustment of debts, or any
other relief under the Bankruptcy Code as amended or under any other insolvency
act or law, state or federal, now or hereafter existing;
(i) Filing of an involuntary petition against Borrower or any
guarantor in bankruptcy seeking reorganization, arrangement or readjustment of
debts, or any other relief under the Bankruptcy Code as amended, or under any
other insolvency act or law, state or federal, now or hereafter existing, and
the continuance thereof for sixty (60) days undismissed, unbonded, or
undischarged; or
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(j) All or any substantial part of the property of Borrower shall
be condemned, seized, or otherwise appropriated, or custody or control of such
property is assumed by any governmental agency or any court of competent
jurisdiction, and is retained for a period of thirty (30) days.
11. Remedies. Upon the occurrence of an Event of Default as defined
above (other than an Event of Default set forth in Sections 10(g), 10(h) or
10(i),) Lender shall notify Borrower of such Event of Default and Borrower shall
have a period of ten (10) days to correct and cure such matter or provide Lender
other assurance satisfactory to Lender. If Borrower shall have failed to correct
or cure such matter within ten (10) days following notice thereof from Lender,
Lender may declare the entire unpaid principal balance, together with accrued
interest thereon, to be immediately due and payable without presentment, demand,
protest, or other notice of any kind. Lender may suspend or terminate any
obligation it may have hereunder to make additional Advances. To the extent
permitted by law, Borrower waives any rights to presentment, demand, protest, or
notice of any kind in connection with this Agreement. No failure or delay on the
part of Lender in exercising any right, power, or privilege hereunder will
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege. The rights and remedies provided herein are
cumulative and not exclusive of any other rights or remedies provided at law or
in equity. Borrower agrees to pay all costs of collection incurred by reason of
the default, including court costs and reasonable attorney's fees, whether or
not the attorney is a salaried employee of Lender, including such expenses
incurred before or after any legal action or bankruptcy proceeding involving
Borrower has commenced, during the pendency of such proceedings, and continuing
to all such expenses in connection with any appeal to higher courts arising out
of matters associated herewith.
12. Conversion.
(a) On the Maturity Date, the principal amount then outstanding
under the Promissory Note may, upon written notice of election by Lender
delivered to Borrower not less than ten days and not more than 30 days prior to
the Maturity Date, be converted into fully paid and non-assessable common shares
of Borrower. The conversion price (the "Conversion Price") shall be fifty cents
($0.50) per share. The Conversion Price will be ratably adjusted for share
splits, share combination or similar transactions effected by Borrower between
the date hereof and the date of any conversion hereunder. The number of common
shares of Borrower issuable upon conversion of the principal amount then
outstanding under the Promissory Note pursuant to this Section 12(a) shall equal
(i) all unpaid principal and interest then outstanding under the Promissory Note
divided by (ii) the Conversion Price. As a condition to the conversion of any
amounts represented by the Promissory Note, Borrower will be required to execute
a definitive stock purchase agreement and such other documents as Lender may
reasonably request in connection with such conversion, and Borrower hereby
agrees to so execute such agreements.
(b) As soon as practicable after conversion of the principal
amount then outstanding under the Promissory Note pursuant to Section 12(a)
above, Borrower, at its expense, will cause to be issued in the name of and
delivered to Lender, a certificate or certificates evidencing the number of
fully paid and nonassessable common shares of Borrower to which Lender shall be
entitled on such conversion (bearing such legends as may be required by
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applicable state and federal securities laws in the opinion of legal counsel for
Borrower). No fractional shares will be issued on conversion of the principal
amount then outstanding under the Promissory Note. If, upon conversion of the
principal amount then outstanding under the Promissory Note, Borrower would
otherwise be required to issue a fraction of a share, Borrower will pay to
Lender the cash value of such fractional share, calculated on the basis of the
Conversion Price (pursuant to Section 12(a) above). Such conversion shall be
deemed to have been made upon the date set forth in the notice of Lender's
election contemplated by Section 12(a) above, regardless of whether the
Promissory Note has been surrendered on such date. Notwithstanding the
foregoing, Lender agrees to promptly surrender the Promissory Note prior to or
upon such conversion.
13. Representations of Lender. Lender hereby represents and warrants to
Borrower as follows:
(a) Lender understands that the investment in the Promissory Note
(and the securities issued hereunder and issuable on conversion of the
Promissory Note) is a speculative investment and represents that Lender is aware
of the business affairs and financial condition of Borrower and has acquired
sufficient information about Borrower to reach an informed and knowledgeable
decision to acquire the Promissory Note. Moreover Lender acknowledges that the
Promissory Note is being acquired for investment for Lender's own account, not
as a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that Lender has no present intention of selling, granting any
participation in, or otherwise distributing the same. Lender further understands
that the Promissory Note has not been registered under the Securities Act of
1933, as amended (the "Act"), or applicable state securities laws by reason of
specific exemptions therefrom, which exemptions depend on, among other things,
the bona fide nature of Lender's investment intent as expressed herein.
(b) Lender acknowledges that he has received and reviewed the
Promissory Note and all the information Lender considers necessary or
appropriate for deciding whether to make the investment contemplated herein and
accept the Promissory Note. Lender further represents that Lender has had an
opportunity to ask questions and receive answers from Borrower regarding the
business, properties, prospects and financial condition of Borrower.
(c) Lender is an investor in securities of companies in the
development stage and acknowledges that he can bear the economic risk of its
investment, and has such knowledge and experience in financial or business
matters that he is capable of evaluating the merits and risks of this
investment.
(d) Lender is an "accredited investor" within the meaning of U.S.
Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as
presently in effect.
(e) Lender understands that the securities issuable on conversion
of the Promissory Note will be characterized as "restricted securities" under
the United States federal securities laws inasmuch as they would be acquired
from Borrower in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances. In this
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connection, Lender represents that Lender is familiar with SEC Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act. Lender understands and acknowledges that Borrower has no obligation
to insure that Lender will be afforded the rights set forth in Rule 144, and
specifically acknowledges that Borrower will have no obligation to insure that
public information is available with respect to Borrower.
(f) It is understood that the certificates evidencing the
securities issuable hereunder and upon conversion of the Promissory Note may
bear , inter alia, the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER THE ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF THE ACT."
14. Jurisdiction and Venue. The Parties hereby agree to jurisdiction
and venue for any disputes concerning this Agreement be in the Third Judicial
District Court in and for Salt Lake County, State of Utah.
15. General Provisions. All representations and warranties made in this
Agreement and the Promissory Note and in any certificate delivered pursuant
thereto shall survive the execution and delivery of this Agreement and the
making of any Advances hereunder. This Agreement will be binding upon and inure
to the benefit of Borrower and Lender, their respective successors and assigns,
except that neither party shall assign or transfer its respective rights or
delegate its respective duties hereunder without the prior written consent of
the other party; provided, however, that Lender may assign its respective rights
and duties hereunder to an entity controlled by or under common control with
Lender. This Agreement, the Promissory Note and all documents and instruments
associated herewith will be governed by and construed and interpreted in
accordance with the laws of the State of Utah. Time is of the essence hereof.
This Agreement will be deemed to express, embody, and supersede any previous
understanding, agreements, or commitments, whether written or oral, between the
parties with respect to the general subject matter hereof. This Agreement may
not be amended or modified except in writing signed by the parties.
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IN WITNESS WHEREOF, the parties have executed, or caused to be executed
by their duly authorized representatives, this Agreement as of the date first
above written.
Dos Lagos, LLC Speaking Roses International, Inc.
By: By:
Xxxxxx X. Xxxxxx, Manager Xxxx X. Xxxxxxx, President
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$1,000,000 October 30, 2006
SECURED PROMISSORY NOTE
FOR VALUE RECEIVED, Speaking Roses International, Inc., a Utah
corporation ("Borrower") unconditionally promises to pay to Dos Lagos, LLC, an
Idaho limited liability company ("Lender") or its order, at its address set
forth in the books and records of Borrower, in lawful money of the United States
of America, the principal sum of one million dollars ($1,000,000.00) or the
aggregate unpaid principal amount of all advances made by Lender to Borrower
pursuant to the terms of a Line of Credit Agreement (the "Credit Agreement") of
even date herewith, whichever is less, together with any interest thereon in
accordance with the Credit Agreement, until paid in full, both before and after
judgment.
All sums advanced by Lender to Borrower pursuant to this Secured
Primary Note shall bear interest at a variable interest rate equal to the Loan
Index Rate plus a margin of 200 basis points. The Loan Index Rate is defined as
that certain rate of interest published as the "Prime Rate" in the "Money Rates"
column in the Western Edition of the Wall Street Journal. Interest will be
adjusted quarterly on the first business day of each January, April, July and
October. The interest shall be computed on the basis of a 360-day year. The
initial Interest Rate hereunder is ten and one-quarter percent (10.25%).
Notwithstanding the foregoing, upon the occurrence of an event of default
hereunder by Borrower, the principal amounts outstanding hereunder shall bear an
interest rate of fifteen percent (15%) per annum and commencing from the date a
respective Advance was made, and shall continue at such rate until the event of
default is cured.
The entire unpaid principal balance, together with accrued interest
thereon, shall become due and payable on January 1, 2008, unless converted into
common shares of Borrower in accordance with the Credit Agreement. All payments
shall be made to Lender at such place as Lender may, from time to time,
designate in lawful money of the United States of America. Any payment falling
due on a Saturday, Sunday, or other day on which banks in the State of Utah are
authorized to be closed for the general transaction of business, shall be due on
the next succeeding day; provided, however, for purposes of determining late
charges or whether an event of default has occurred, such payment shall be
considered to have been due on its regularly-scheduled payment date. All
payments received hereunder shall be applied, first, to any late charge; second,
any costs or expenses incurred by Lender in collecting such payment or to any
other unpaid charges or expenses due hereunder; third, to accrued interest; and
fourth, to principal; provided, however, upon occurrence of an event of default,
Lender may change the priority of the application of payments as it deems
appropriate. Borrower may prepay principal at any time without penalty. Borrower
agrees to pay to Lender all reasonable costs and attorneys' fees incurred in
collecting the balance due under this Secured Promissory Note.
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The Parties hereby agree to jurisdiction and venue for any disputes
concerning this Agreement be in the Third Judicial District Court in and for
Salt Lake County, State of Utah. This secured promissory note shall be governed
by the laws of the State of Utah.
This Note is made in connection with and as part of the Credit
Agreement and is entitled to the benefits and subject to the terms and
conditions thereof and the Patent Security Agreement by and between Borrower and
Lender dated October 30, 2006.
Speaking Roses International, Inc.
By: _______________________________
Xxxx X. Xxxxxxx, President
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