Exhibit 10.2
LOAN AGREEMENT
This Loan Agreement ("Agreement") is entered into by and between
Faraday Financial, Inc. ("Lender"), a Delaware corporation, and Video Internet
Broadcasting Corporation ("Company"), a Washington corporation, to be effective
as of the 18th day of February, 2004.
WITNESSETH:
WHEREAS, Company is in need of immediate capital to fund its planned
operations.
WHEREAS, Lender is willing to make periodic loans to Company in the
total aggregate principal amount of up to FIVE HUNDRED THOUSAND DOLLARS
($500,000 USD) upon the terms and conditions set forth herein and Company is
willing to borrow up to the stated amount upon such terms.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
Periodic Loans.
1.1 Definitions. Certain capitalized terms are used in this Agreement
as specifically defined in this Section 1.1 as follows:
"Affiliate" means any Person directly or indirectly controlling,
controlled by or under direct or indirect common control with Company (or other
specified Person) and shall include (a) any Person who is an officer, director
or beneficial holder of at least 10% of the outstanding capital stock of Company
(or other specified Person), (b) any Person of which Company (or other specified
Person) or any officer or director of Company (or other specified Person) shall,
directly or indirectly, either beneficially own at least 10% of the outstanding
equity securities or constitute at least a 10% participant, and (c) in the case
of a specified Person who is an individual, Members of the Immediate Family of
such Person.
"Agreement" is defined in the Preamble.
"Balance Sheet Date" is defined in Section 8.6.
"Bylaws" means all written rules, regulations, procedures and bylaws
and all other similar documents, relating to the management, governance or
internal regulation of a Person other than an individual, each as from time to
time amended or modified.
"Charter" means the articles or certificate of incorporation, statute,
constitution, joint venture or partnership agreement or articles or other
charter of any Person other than an individual, each as from time to time
amended or modified.
"Code" means the federal Internal Revenue Code of 1986 or any successor
statute, and the rules and regulations thereunder, as from time to time amended
and in effect.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act, the Exchange Act or
both.
"Company" is defined in the Preamble.
"Company Intellectual Property" is defined in Section 8.17(b).
"Contractual Obligation" means, with respect to any Person, any
contracts, agreements, deeds, mortgages, leases, licenses, other instruments,
commitments, undertakings, arrangements or understandings, written or oral, or
other documents, including any document or instrument evidencing indebtedness,
to which any such Person is a party or otherwise subject to or bound by or to
which any asset of any such Person is subject.
"Employee Benefit Plan" means each and all "employee benefit plans" as
defined in section 3(3) of ERISA, maintained or contributed to by Company, any
of its Affiliates or any of their respective predecessors, or in which Company,
any of its Affiliates or any of their respective predecessors participates or
participated and which provides benefits to employees of Company or their
spouses or covered dependents or with respect to which Company has or may have a
material liability, including, (i) any such plans that are "employee welfare
plans" as defined in section 3(1) of ERISA and (ii) any such plans that are
"employee pension benefit plans" as defined in section 3(2) of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974 or
any successor statute and the rules and regulations thereunder, and in the case
of any referenced section of any such statute, rule or regulation, any successor
section thereof, collectively and as from time to time amended and in effect.
"ERISA Group", with respect to any entity, means any Person which is a
member of the same "controlled group" or under "common control", within the
meaning of section 414(b) or (c) of the Code or section 4001(b)(1) of ERISA,
with such entity.
"Exchange Act" means the Securities Exchange Act of 1934, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as from time to time amended and in effect.
"Financial Statements" is defined in Section 8.6.
"GAAP" means United States generally accepted accounting principles, as
in effect from time to time, consistently applied.
"Initial Installment" is defined in Section 2.1.
"Intellectual Property" is defined in Section 8.17(a).
"Intellectual Property Licenses" is defined in Section 8.17(d).
"Legal Requirement" means any federal, state or local law, statute,
standard, ordinance, code, order, rule, regulation, resolution, promulgation or
any final order, judgment or decree of any court, arbitrator, tribunal or
governmental authority, or any license, franchise, permit or similar right
granted under any of the foregoing.
"Lender" is defined in the Preamble.
"Loans" is defined in Section 2.1.
"Material Adverse Effect" means a material adverse effect upon the
business, assets, financial condition, income or prospects of Company,
including, without limitation, the termination or modification in a manner
adverse to Company of any license or other agreement to which Company is a
party.
"Maximum Amount" is defined in Section 2.1.
"Members of the Immediate Family," as applied to any individual, means
each parent, spouse, child, brother, sister or the spouse of a child, brother or
sister of the individual, and each trust created for the benefit of one or more
of such persons and each custodian of a property of one or more such persons.
"Notes" is defined in Section 2.3.
"Other Intellectual Property" is defined in Section 8.17(c)
"Pension Plan" means each pension plan (as defined in section 3(2) of
ERISA) established or maintained, or to which contributions are or were made by
Company or any of its Subsidiaries or former Subsidiaries, or any Person which
is a member of the same ERISA Group with any of the foregoing.
"Person" means an individual, partnership, limited liability company,
corporation, company, association, trust, joint venture, unincorporated
organization and any governmental department or agency or political subdivision.
"Related Agreements" means the Notes, Security Agreement and any other
security agreements, assignments, subordination agreements, pledge or
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hypothecation agreements, mortgages, deeds of trust, leases, contracts,
guaranties, and other instruments and documents now or hereafter existing that
are executed or delivered in conjunction with this Agreement.
"Securities" is defined in Section 7.2.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be from time to time amended and in effect.
"Security Agreement" is defined in Section 6.
"Subsidiary" means any Person of which Company now or hereafter shall
at the time (a) own directly or indirectly through a Subsidiary at least 50% of
the outstanding capital stock or membership interest (or other shares of
beneficial interest) entitled to vote generally or (b) constitute a general
partner.
"Welfare Plan" means each welfare plan (as defined in section 3(l) of
ERISA) established or maintained, or to which any contributions are or were
made, by Company or any of its Subsidiaries or any Person which is a member of
the same ERISA Group with any of the foregoing.
Section 2. Periodic Loans.
2.1 During the term hereof, unless Lender shall terminate this
Agreement upon an event of default under any Related Agreement, Lender hereby
agrees to make periodic loans (collectively and individually, the "Loans") to
Company in an aggregate principal amount at any one time outstanding not to
exceed FIVE HUNDRED THOUSAND DOLLARS (U.S.) ($500,000 USD) ("Maximum Amount").
Lender shall lend Company the initial amount of TWO HUNDRED FIFTY THOUSAND
DOLLARS ($250,000) on the date hereof (the "Initial Installment"). After March
1, 2004 and subject to the other terms and conditions set forth herein,
additional amounts up to the Maximum Amount will be available to Company for
draw through the term of this Agreement. In order for Company to draw down funds
subsequent to the Initial Installment, Company must notify Lender at least ten
days prior to the date on which Company is seeking borrow additional funds and
the aggregate amount of funds to be borrowed on such date.
2.2 A condition precedent to each draw made at any time hereunder shall
be that all representations and warranties made by Company in any Related
Agreement or in connection herewith shall be true, correct, valid and complete
at such time and the making of such loan shall be deemed to be a representation
and warranty of Company to the effect that no event has occurred which may
constitute an event of default under any Related Agreements or any other
agreement to which Company is a party or by which Company or any of its
properties are bound.
2.3 All amounts lent hereunder shall be evidenced by Notes in
substantially the same form as attached hereto as Exhibit A (the "Notes").
Company shall deliver to Lender Notes in the principal amount of funds lent on
each date that Lender provides funds to Company hereunder.
Section 3. Finance Charges. All outstanding principal shall bear interest at the
rate of twelve percent (12%) per annum. Principal and interest not paid when due
shall bear interest at the rate of eighteen percent (18%) per annum. Interest
will be computed on the basis on a 360-day year for actual days elapsed.
Section 4. Payments. Principal and interest shall be due and payable in a single
balloon payment on December, 31, 2004, unless the maturity date is accelerated
as described in the Note. Payments shall be credited to Company's account on the
date that such payment is received by Lender. Such payments shall be applied
first to late charges and collection costs, if any, then to accrued interest to
the date of payment, and then to the principal outstanding.
Section 5. Security. Lender's obligation to lend funds in addition to those lent
as part of the Initial Installment is subject to Company, as security for the
prompt satisfaction of all of Company's obligations hereunder, including payment
of the indebtedness evidenced by the Notes and the Initial Installment, granting
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to Lender a first priority security interest in all of Company's assets
(including the assets of any Subsidiaries) whether now owned or hereafter
acquired by Company, or in which Company now has or at any time in the future
may acquire any right, title or interest, together with all replacements
therefor and all proceeds thereof (including insurance proceeds thereof).
Lender, at its sole and absolute discretion, waive this provision in whole or in
part with respect to any or all of the funds lent hereunder. Any such waiver,
however, must be in writing and signed by Lender.
Section 6. Deliveries. Contemporaneously with the execution of this Agreement,
the parties shall deliver to each other properly executed copies of the
following agreements:
(a) A Note of even date herewith by and between Lender and
Company to memorialize the payment of the Initial Installment.
(b) The Loan proceeds relating to the Initial Installment.
At such time as funds, in addition to the Initial Installment, are lent
hereunder, Company shall deliver to Lender (and any Subsidiaries) a duly
executed Security Agreement in the form attached hereto as Exhibit B ("Security
Agreement") and any other documents relating to a such security interest.
Section 7. Representations of Lender.
7.1 Lender's representations in this Agreement are complete and
accurate to the best of Lender's knowledge, and Company may rely upon them.
7.2 Lender is able to bear the economic risk of an investment in the
Note and the underlying common stock (individually and collectively, the
"Securities") can afford the loss of the entire investment in the Securities,
and will, after making an investment in the Securities, have sufficient means of
providing for Lender's current needs and possible future contingencies.
7.3 The Securities will not be sold by Lender without registration
under applicable securities acts or a proper exemption from such registration.
7.4 The Securities subscribed for herein is being acquired for Lender's
own account and risk, for investment purposes, and not on behalf of any other
person or with a view to, or for resale in connection with, any distribution
thereof within the meaning of the Securities Act of 1933. Lender is aware that
there are substantial restrictions on the transferability of the Securities.
7.5 Lender has had access to any and all information concerning Company
that Lender required or considered necessary to make a proper evaluation of this
investment. Lender further understands that no opinion is being given as to any
securities or tax matters involving the offering.
7.6 Lender also understands and agrees that stop transfer instructions
relating to the Securities will be placed in Company's transfer ledger, and that
the Securities will bear a legend in substantially the following form:
THIS SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THESE SECURITIES UNDER
SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR
RULE 144A OF SUCH ACT.
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7.7 Lender knows that the Securities are offered and sold pursuant to
exemptions from registration under the Securities Act of 1933, and state
securities law based, in part, on these warranties and representations, which
are the very essence of this Agreement, and constitute a material part of the
bargained-for consideration without which this Agreement would not have been
executed.
7.8 Lender has the capacity to protect Lender's own interest in
connection with this transaction or has a pre-existing personal or business
relationship with Company or one or more of its officers, directors or
controlling persons consisting of personal or business contacts of a nature and
duration such as would enable a reasonably prudent purchaser to be aware of the
character, business acumen and general business and financial circumstances of
such person with whom such relationship exists.
7.9 This Agreement when fully executed and delivered by Company will
constitute a valid and legally binding obligation of Lender, enforceable in
accordance with its terms. Lender was not formed or organized for the specific
purpose of acquiring the Securities. In the event Lender is an entity, the
purchase of the Securities by Lender is a permissible investment in accordance
with Lender's Articles of Incorporation or other similar charter document, and
has been duly approved by all requisite action by the entity's owners,
directors, officers or other authorized managers. The person signing this
document and all documents necessary to consummate the purchase of the
Securities has all requisite authority to sign such documents on behalf of
Lender.
7.10 Lender represents that Lender is a sophisticated and an
"accredited investor" as defined under Rule 501 of Regulation D.
Section 8. Representations of Company.
Company hereby represents and warrants to Lender as follows:
8.1 Company is a duly organized and validly existing corporation in
good standing under the laws of Washington. Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which it does business, except where the failure to be so qualified would not
have a Material Adverse Effect.
8.2 Company has all necessary corporate power and authority to enter
into and perform this Agreement and the Related Agreements to which it is a
party, to issue and sell the Notes, to own all the properties owned by it and to
carry on the businesses now conducted or presently proposed to be conducted by
it. Company has taken all corporate action necessary to authorize this
Agreement, the Related Agreements to which it is a party and the issuance of the
Notes to be issued and sold hereunder.
8.3 Except as listed in Schedule 8.3, Company has no Subsidiaries. Each
of the Subsidiaries is a duly organized and validly existing under the laws of
its jurisdiction of organization, which jurisdiction is listed in Schedule 8.3.
Each Subsidiary has all necessary power and authority to own all the properties
owned by it and to carry on the businesses now conducted or presently proposed
to be conducted by it. Each Subsidiary is duly qualified to do business as a
foreign entity and is in good standing in each jurisdiction in which it does
business, except where the failure to be so qualified would not have a Material
Adverse Effect. Company owns all of the issued and outstanding capital stock
and/or other securities of each of its Subsidiaries and there are no outstanding
preemptive, conversion or other rights, options, warrants or agreements granted
or issued by or binding upon any Subsidiary for the purchase or acquisition of
any shares of its capital stock.
8.4 The authorized capital stock of Company as of the date of the
Agreement is set forth in Schedule 8.4. Schedule 8.4 contains a true and correct
list of all outstanding capital stock, warrants and options as of the date of
the Agreement, including the owner thereof, and, with respect to the warrants
and options, the exercise price and the dates of issuance and termination. All
of the outstanding shares of capital stock of Company are validly issued, fully
paid, nonassessable and subject to no lien or restriction on transfer, except
restrictions on transfer imposed by the Related Agreements and applicable
securities laws or as otherwise set forth in Schedule 8.4. The shares of common
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stock issuable upon conversion of the Notes have been duly and validly reserved
and, upon issuance in accordance with the conversion provisions of the Notes
will be validly issued, fully paid, nonassessable and subject to no lien or
restriction on transfer, except restrictions on transfer imposed by the Related
Agreements and applicable securities laws or as otherwise set forth in Schedule
8.4. All of the outstanding shares of capital stock and other securities of
Company have been offered and sold in compliance with applicable federal and
state securities laws. Other than as set forth in Schedule 8.4, Company has no
outstanding (i) rights (either preemptive or otherwise) or options to subscribe
for or purchase, or any warrants or other agreements providing for or requiring
the issuance of, any capital stock or any securities convertible into or
exchangeable for its capital stock, (ii) obligation to repurchase or otherwise
acquire or retire any of its capital stock, any securities convertible into or
exchangeable for its capital stock or any rights, options or warrants with
respect thereto, (iii) rights that require it to register the offering of any of
its securities under the Securities Act or (iv) any restrictions on voting any
of its securities.
8.5 All shareholder approval and corporate action on the part of
Company necessary for the due authorization, execution and delivery of this
Agreement and the Related Agreements to which Company is a party and the
consummation of the transactions contemplated herein and therein, and for the
due authorization and issuance of (i) the Notes and (ii) the common stock
issuable upon conversion of the Notes has been taken. This Agreement and the
Related Agreements to which Company is a party are legal, valid and binding
agreements of Company, enforceable in accordance with their terms. The
execution, delivery and performance by Company of this Agreement and the Related
Agreements to which Company is a party and the issuance and sale of the Notes
will not result in any violation of or be in conflict with, or result in a
breach of or constitute a default under, any term or provision of any Legal
Requirement to which Company or any of its Subsidiaries is subject, or Company's
or any Subsidiary's Charter or Bylaws, or any Contractual Obligation to which
Company or any of its Subsidiaries is a party or by which it is bound.
8.6 Lender has been furnished with complete and correct copies of the
following financial statements of Company (the "Financial Statements"): the
unaudited consolidated balance sheet of Company as of September 30, 2004 (the
"Balance Sheet Date") and the respective related consolidated statement of
profit and loss and retained earnings for the nine-month period then ended and
(b) the unaudited consolidated balance sheet of Company as of December 31, 2002
together with the related consolidated statement of profit and loss for the
twelve-month period then ended. The Financial Statements have been prepared in
accordance with GAAP consistently applied, except that they do not include a
statement of cash flows or notes as required by GAAP, and fairly and accurately
present the financial condition of Company and its Subsidiaries at the date
thereof and the results of its operations for the period covered thereby. All
the books, records and accounts of Company and its Subsidiaries are accurate and
complete, are in accordance with good business practice and all laws,
regulations and rules applicable to Company and its Subsidiaries and the conduct
of their business and accurately present and reflect all of the transactions
described therein.
8.7 Neither Company nor any of its Subsidiaries (i) has any outstanding
indebtedness for borrowed money except as reflected in the Financial Statements
or Schedule 8.7 and (ii) except as reflected, is a guarantor or otherwise
contingently liable on such indebtedness of any other Person. Except as set
forth in Schedule 8.7, neither Company nor any of its Subsidiaries has any
material liabilities or obligations, contingent or otherwise, which are not
reflected or provided for in the Financial Statements.
8.8 Since the Balance Sheet Date, there have occurred no event or
events that, individually or in the aggregate, have caused or will cause a
Material Adverse Effect. Except as set forth in Schedule 8.8, since the Balance
Sheet Date, neither Company nor any of its Subsidiaries has (a) declared any
dividend or other distribution on any shares of its capital stock, (b) made any
payment (other than compensation to its directors, officers and employees at
rates in effect prior to the Balance Sheet Date or for bonuses accrued in
accordance with normal practice prior to the Balance Sheet Date) to any of its
Affiliates, (c) increased the compensation, including bonuses, payable or to be
payable to any of its directors, officers, employees or Affiliates, or (d)
entered into any Contractual Obligation, or entered into or performed any other
transaction, other than as specifically contemplated by this Agreement.
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8.9 Schedule 8.9 contains, together with a reference to the paragraph
pursuant to which each item is being disclosed, a correct and complete list of
all Contractual Obligations of a material nature of Company and its Subsidiaries
of the types described below:
(a) All collective bargaining agreements, all employment,
bonus or consulting agreements, all pension, profit sharing, deferred
compensation, stock option, stock purchase, retirement, welfare or incentive
plans or agreements, and all plans, agreements or practices that constitute
"fringe benefits" to any of the employees of Company or its Subsidiaries.
(b) All Contractual Obligations under which Company or any
Subsidiary is restricted from carrying on any business, venture or other
activities anywhere in the world.
(c) All Contractual Obligations to sell or lease (as lessor)
any of the properties or assets of Company or any Subsidiary, except in the
ordinary course of business, or to purchase or lease (as lessee) any real
property.
(d) All Contractual Obligations pursuant to which Company or
any Subsidiary guarantees any liability of any Person, or pursuant to which any
Person guarantees any liability of Company or any Subsidiary.
(e) All Contractual Obligations pursuant to which Company or
any Subsidiary provides goods or services involving payments to Company or any
Subsidiary of more than $10,000 annually, which Contractual Obligation is not
terminable by Company or any Subsidiary without penalty upon notice of thirty
(30) days or less.
(f) All Contractual Obligations with any Affiliate of Company
or any Subsidiary (other than the Related Agreements).
(g) All Contractual Obligations providing for the disposition
of the business, assets or shares of Company or any Subsidiary or the merger or
consolidation or sale or purchase of all or substantially all of the assets or
business of any Person, and any letters of intent relating to the foregoing.
(h) All Contractual Obligations of Company or any Subsidiary
relating to the borrowing of money or to the mortgaging or pledging of, or
otherwise placing a lien on, any asset of Company or any Subsidiary (except
liens imposed by operation of law in favor of landlords, suppliers, mechanics or
others who provide services to Company or any Subsidiary).
All of the Contractual Obligations of Company and its Subsidiaries are
enforceable against Company and its Subsidiaries, as the case may be, and, to
Company's knowledge, the other parties thereto in accordance with their terms,
except that the enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws, from time to time in
effect, which affect enforcement of creditors' rights generally. Neither Company
nor any of its Subsidiaries is in default under nor, to Company's knowledge, are
there any liabilities arising from any breach or default by any Person prior to
the date of this Agreement of, any provision of any such Contractual Obligation.
Upon request by counsel for Lender, Company will, prior to each loan request,
furnish to counsel for Lender true and correct copies of all Contractual
Obligations listed in Schedule 8.9.
8.10 Company has insurance policies in full force and effect, written
by reputable insurers licensed to write insurance in the states in which Company
and its Subsidiaries conduct business, which insurance contracts provide for
coverages which are usual and customary in its business as to amount and scope.
Schedule 8.10 contains a correct and complete list and description of all
insurance policies owned by Company or any of its Subsidiaries, correct and
complete copies of which have previously been made available to Lender. Neither
Company nor any of its Subsidiaries is in default under any of its insurance
policies, nor has Company or any of its Subsidiaries received any notice of
cancellation or intent to cancel or increase premiums with respect to present
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insurance policies. Schedule 8.10 also contains a list of all pending claims
with any insurance company and any instances of a denial of coverage of Company
or any of its Subsidiaries by any insurance company.
8.11 Other than as set forth in Schedule 8.11, no Affiliate of Company
or any Subsidiary is a customer or supplier of, or is party to any Contractual
Obligation with, Company or any Subsidiary.
8.12 The operations of Company and its Subsidiaries as now conducted
are not in violation of, nor is Company or any Subsidiary in default under, any
Legal Requirements presently in effect or Company's or any Subsidiary's Charter
or Bylaws. Company and its Subsidiaries have all franchises, licenses, permits
or other authority presently necessary for the conduct of their businesses as
now conducted.
8.13 Schedule 8.13 sets forth a complete list of all Employee Benefit
Plans and all Welfare Plans applicable to the employees of Company and its
Subsidiaries. Each Employee Benefit Plan and Welfare Plan has been administered
in substantial compliance with its terms and all applicable laws, including the
Code and ERISA. Except as set forth in Schedule 8.13, neither Company nor any
Subsidiary has any obligation under any Welfare Plan to provide for the
continuation of benefits (other than disability payments and medical benefits
incurred for illness arising in the course of employment) for more than one year
after retirement or other termination of employment. No "reportable events"
within the meaning of section 4043 of ERISA have occurred with respect to any
Employee Benefit Plan. No Pension Plan is a "multiemployer plan" as defined in
ERISA. The present value of benefits liabilities as described in Title IV of
ERISA of Employee Benefit Plans does not exceed the current value of such
Employee Benefit Plans assets allocable to such benefits liabilities by more
than $50,000.
8.14 None of the employees of Company or any Subsidiary is presently
represented by a labor union, and no petition has been filed or proceedings
instituted by any employee or group of employees with any labor relations board
seeking recognition of a bargaining representative. Except as set forth in
Schedule 8.14, no controversies or disputes are pending between Company or any
Subsidiary and/or any employee(s) of the same. To Company's knowledge, no
employee of Company or any Subsidiary is in violation of any term of any
Contractual Obligation with a former employer relating to the right of any such
employee to be employed by Company or such Subsidiary because of the nature of
Company's or such Subsidiary's business or the use of any trade secrets or
proprietary information. Except as set forth in Schedule 8.14, each employee of
Company and its Subsidiaries is an "employee at will" and may be terminated by
Company or such Subsidiary without payment of any amounts other than accrued
wages.
8.15 Company and each of its Subsidiaries has filed all federal, state
and local tax and information returns which are required to be filed by it and
such returns are true and correct. Company and each of its Subsidiaries have
paid all taxes, interest and penalties, if any, reflected in such tax returns or
otherwise due and payable by it. Company has no knowledge of any material
additional assessments or any basis therefor. The charges, accruals and reserves
on the balance sheet of Company as of the Balance Sheet Date in respect of taxes
or other governmental charges are adequate in amount for the payment of all
liabilities for such taxes or other governmental charges. Company and its
Subsidiaries have withheld or collected from each payment made to its employees
the amount of all taxes required to be withheld or collected therefrom and has
paid over such amounts to the appropriate taxing authorities. Any deficiencies
proposed as a result of any governmental audits of such tax returns have been
paid or settled or are being contested in good faith, and there are no present
disputes as to taxes payable by Company or any of its Subsidiaries.
8.16 Except as set forth on Schedule 8.16, No litigation or proceeding
before, or investigation by, any foreign, federal, state or municipal board or
other governmental or administrative agency or any arbitrator is pending or, to
Company's knowledge, threatened (nor to Company's knowledge, does any basis
exist therefor) against Company or any of its Subsidiaries or, to Company's
knowledge, any officer of Company or any Subsidiary, which individually or in
the aggregate could result in any material liability or which may otherwise
result in a Material Adverse Effect, or which seeks rescission of, seeks to
enjoin the consummation of, or which questions the validity of, this Agreement
or any other Related Agreement or any of the transactions contemplated hereby or
thereby.
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8.17
(a) "Intellectual Property" shall mean any or all of the
following and all rights in, arising out of, or associated therewith anywhere in
the world held by such Person and not otherwise in the public domain: (1) all
United States, international and foreign patents and applications therefor
(including provisional applications) and all reissues, divisions, renewals,
extensions, provisionals, continuations and continuations-in-part thereof; (2)
all inventions (whether patentable or not), patterns, drawings, blueprints,
specifications, products in development, processes, applications, circuits,
invention disclosures, improvements, trade secrets, proprietary information,
know how, mask works (and all information contained in a mask but not yet fixed
in a chip), technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (3) all copyrights, copyright registrations
and applications therefor; (4) all industrial designs and any registrations and
applications therefor throughout the world; (5) all trade names, logos, common
law trademarks and service marks, trademark and service xxxx registrations and
applications therefor and all goodwill associated therewith throughout the
world; (6) all databases and data collections and all rights therein throughout
the world; (7) all software including all source code, object code, firmware,
development tools, files, records and data, all media on which any of the
foregoing is recorded; (8) all permits, privileges or royalties; (9) all domain
names and website addresses; (10) any similar, corresponding or equivalent
rights to any of the foregoing and (11) all documentation related to any of the
foregoing.
(b) Schedule 8.17 sets forth each item of Intellectual
Property that is owned by Company and that is used in or material to the conduct
of Company's business as it is currently conducted (the "Company Intellectual
Property"), including, without limitation, all software programs and databases,
including any registration and/or application numbers therefor. Except as set
forth on Schedule 8.17, Company owns and will own on the Closing Date each item
of Company Intellectual Property set forth on Schedule 8.17. Company's patents,
trademarks and copyrights that have been duly registered with, filed in or
issued by, as the case may be, the U.S. Patent and Trademark Office and U.S.
Copyright Office or other filing offices, domestic or foreign are listed on
Schedule 8.17, and the same remain in full force and effect.
(c) Schedule 8.17 lists each item of Intellectual Property
other than Company Intellectual Property that is necessary for the conduct of,
or otherwise material to, Company's business as currently conducted ("Other
Intellectual Property"), including without limitation, all software programs.
Company has the right, by license or other agreement, to use each item of Other
Intellectual Property.
(d) Schedule 8.17 sets forth all written or oral licenses,
permissions and arrangements pursuant to which (a) Company permits any Person to
use any item of Company Intellectual Property (b) Company uses any Intellectual
Property owned by any Person ((a) and (b) collectively, the "Intellectual
Property Licenses"). Except as set forth on Schedule 8.17, all Intellectual
Property Licenses are in full force and effect in accordance with their terms,
and are free and clear of any Liens.
(e) Company has delivered to Lender correct and complete
copies of (1) all registrations and applications for any Company Intellectual
Property; (2) all Intellectual Property Licenses listed on Schedule 8.17; and
(3) copies of any assignments pursuant to which Company owns any Company
Intellectual Property.
(f) Except as set forth on Schedule 8.17: (1) Company is not
in material default under any Intellectual Property License, and to Company's
knowledge, no such material default is currently threatened; (2) the operation
of Company's business as currently conducted does not infringe the proprietary
rights of any Person or constitute unfair competition or trade practices under
the laws of any jurisdiction and Company has not received any notice, oral or
written, that alleges the contrary; (3) to Company's knowledge, no Company
Intellectual Property and no Other Intellectual Property used by Company under
any Intellectual Property License is being infringed by any third party or group
thereof; and (4) there is no claim or demand of any Person pertaining to, or any
proceeding which is pending or, to Company's knowledge, threatened, that
challenges Company's rights with respect to any item of Company Intellectual
Property or any Other Intellectual Property used by Company, or the validity or
enforceability of any item of Company Intellectual Property, nor are there any
claims that any default exists under any Intellectual Property License.
9
(g) Except as set forth on Schedule 8.17, no item of Company
Intellectual Property or Other Intellectual Property, or any Intellectual
Property License, is subject to any outstanding order, ruling, decree, judgment
or stipulation by or with any court, tribunal arbitrator, or other Governmental
Authority that could affect the Seller's ability to use, license, or transfer
such Company Intellectual Property or its validity or enforceability.
(h) Company has taken all steps that are reasonably required
to protect Company's rights in confidential information and trade secrets of
Company or Company's business or provided by any third party to Company. Without
limiting the foregoing, Company has, and enforces, a policy requiring each
employee and contractor to execute (A) proprietary information and
confidentiality agreements in connection with Company Intellectual Property and
(B) invention assignment agreements, substantially in Company's standard forms,
and all current employees and contractors of Company have executed such
agreements.
8.18 No consent, approval, qualification, order or authorization of, or
filing with any governmental authority is required in connection with Company's
valid execution, delivery or performance of the Related Agreements to which it
is a party, or the offer, issue or sale of the Notes by Company, the conversion
of the Notes, or the issuance of common stock upon conversion of the Notes, or
the consummation of any other transaction pursuant to this Agreement on the part
of Company, except filings under applicable federal securities or blue sky laws.
8.19 Company is not obligated to pay any broker's fee, finder's fee,
investment banker's fee or other similar transaction fee in connection with the
transactions contemplated hereby.
8.20 The minute books of Company and each Subsidiary, which shall have
been provided to counsel for Lender prior to the date hereof or at any time
hereafter while amounts are still owing on the Notes. The minute books contain,
and shall continue to contain at all times while amounts are owing on the Notes,
a complete record of actions taken at all meetings of directors, managers,
shareholders and members since January 2000 and reflect all such actions
accurately in all material respects.
8.21 Company is not a "United States real property holding corporation"
as defined in section 897(c)(2) of the Code and Treasury Regulation section
1.897-2(b).
8.22 Neither this Agreement, nor any agreement, certificate, statement
or document furnished in writing by or on behalf of Company to Lender in
connection herewith or therewith contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
Section 9. Covenants.
9.1 Company and each Subsidiary will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and the rights (charter and statutory) and franchises of Company.
9.2 Company and each Subsidiary will comply with all applicable
statutes, regulations, orders and restrictions of the United States, any state,
municipality or other governmental division thereof, and agencies and
instrumentalities of the foregoing, in respect of the conduct of its business
and the ownership of its property, except where such non-compliance will not
have a material adverse effect on Company or its business.
9.3 Company and each Subsidiary shall file, when due, all federal,
state and local tax and information returns that it is required to file. Company
and each Subsidiary will pay when due all taxes, interest and penalties, if any,
reflected in such tax returns or otherwise due and payable by it.
9.4 Neither Company nor any Subsidiary shall not declare any dividend
or distribution payable in securities of other persons, evidences of
indebtedness issued by Company or other persons, assets, including, but not
limited to cash and/or non-cash dividends, or options or rights prior to the
date the Loan is repaid in full.
10
9.5 Neither Company nor any Subsidiary shall not enter into any
transaction or series of transactions that results in a sale, transfer of or
other disposal of more than 15% of Company's assets or which otherwise results
in a sale, transfer or other disposal of assets outside the ordinary course of
business.
9.6 Neither Company nor any Subsidiary shall not redeem any shares of
common stock, membership interest or other securities.
9.7 Without the consent of Lender, Company will not use the proceeds
from the Initial Installment for any purposes other than those set forth on
Schedule 9.7a and it will not use the proceeds from any Loan proceeds subsequent
to the Initial Installment for any purposes other than those set forth on
Schedule 9.7b.
9.8 The parties will use reasonable commercial efforts to enter into a
share exchange agreement between Company and Lender whereby Company will become
a wholly owned subsidiary of Lender and the historical security holders of
Company will own between 40% and 50% of the outstanding securities of Lender.
The Shares Exchange Agreement shall contain, among other things,
representations, warranties and indemnifications as are customary for a
transaction of this type and as are mutually agreeable to Company and Lender.
The arrangement is also anticipated to provide the Company with use of a $1.5
million line of credit for use in the Company's project with the City of Provo.
9.9 Subject to the terms and conditions of this Agreement, each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, including, without limitation,
using all reasonable efforts to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings.
Section 10. Miscellaneous.
10.1 This Agreement, including any attached exhibits or schedules,
constitutes the entire agreement between the parties pertaining to the subject
matter contained in this Agreement. All prior and contemporaneous agreements,
representations and understandings of the parties, oral or written, are
superseded by and merged in this Agreement. No supplement, modification or
amendment of this Agreement shall be binding unless in writing and executed by
Company and Lender.
10.2 The provisions of this Agreement shall be binding upon Company,
its legal representatives, successors or assigns, and shall be for the benefit
of Lender and its respective successors and assigns.
10.3 The headings of this Agreement are for purposes of reference only
and shall not limit or define the meaning of any provision of this Agreement.
This Agreement may be executed in any number of counterparts, each of which
shall be an original but all of which shall constitute one and the same
instrument.
10.4 If any action is brought by either party in respect to its rights
under this Agreement, or to obtain an interpretation thereof, the prevailing
party shall be entitled to reasonable attorneys' fees and court costs as
determined by the court.
10.5 No waiver of any of the provisions of this Agreement shall
constitute a waiver of any other provision, whether or not similar, nor shall
any waiver be a continuing waiver. Except as expressly provided in this
Agreement, no waiver shall be binding unless executed in writing by the party
making the waiver. Either party may waive any provision of this Agreement
intended for its benefit; provided, however, such waiver shall in no way excuse
the other party from the performance of any of its other obligations under this
Agreement.
10.6 The representations, warranties, acknowledgments and agreements
made by Lender shall survive the closing of the transaction described herein and
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run in favor of, and for the benefit of, Company. The representations,
warranties, acknowledgments and agreements made by Company shall survive the
closing of the transaction described herein and run in favor of, and for the
benefit of, Lender.
10.7 The obligations of the parties hereto shall not be delegated or
assigned to any other party without the prior written consent of the other
party.
10.8 This Agreement shall be governed by the laws of the State of Utah.
Any legal action to enforce or obtain an interpretation of this Agreement shall
be filed only in the Third Judicial District Court of Salt Lake County or the
United States District Court in Salt Lake City, Utah, and the parties consent to
the exercise of personal over them by said courts.
10.9 Any notices required or permitted hereunder shall be furnished in
writing to each party at such party's address appearing on the signature page
below or as such party may otherwise direct in writing actually received by the
other party.
10.10 Company shall do, execute, acknowledge and deliver all such
further acts, deeds, assignments, transfers and assurances as Lender may
reasonably require to effectuate the purposes of this Agreement.
10.11 In the event that any court of competent jurisdiction shall
determine that any provision, or any portion thereof, contained in this
Agreement shall be unreasonable or unenforceable in any respect, then such
provision shall be deemed limited to the extent that such court deems it
reasonable and enforceable, and as so limited shall remain in full force and
effect. In the event that such court shall deem any such provision, or portion
thereof, wholly unenforceable, the remaining provisions of this Agreement shall
nevertheless remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement to be
effective as of the date first written above.
FARADAY FINANCIAL, INC. VIDEO INTERNET BROADCASTING CORPORATION
By /s/ W. Xxxxx Xxxx
By /s/ Xxxxx X. Xxxxxx Its: Chief Executive Officer
Its: President
Address: Address:
Faraday Financial, Inc. Video Internet Broadcasting Corporation
Attn: Xxxxx Xxxxxx Attn: Xxxxx Xxxx
2055 East 6425 South 000 Xxxxx Xxxxxx XX
Xxxx Xxxx Xxxx, Xxxx 00000 Xxxxxxx, XX 00000
Phone: (000)000-0000 Phone: (000) 000-0000
Fax: (000) 000-0000 Fax: (000) 000-0000
EIN 00-0000000 EIN 00-0000000
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SCHEDULE OF EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
A Form of Convertible Promissory Note
B Form of Security Agreement
VIDEO INTERNET BROADCASTING CORPORATION
a Washington corporation
12% CONVERTIBLE PROMISSORY NOTE
No. ________ $____________ USD
NEITHER THIS PROMISSORY NOTE NOR THE UNDERLYING SECURITIES HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, OR UNDER ANY OTHER APPLICABLE STATE SECURITIES
LAWS. NEITHER THIS PROMISSORY NOTE NOR ANY SECURITIES ISSUED PURSUANT TO ITS
CONVERSION MAY BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION
UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF APPLICABLE
STATE SECURITIES LAWS.
1. Promise to Pay. Video Internet Broadcasting Corporation, a
Washington corporation, ("Company"), for value received, hereby promises to pay
to Faraday Financial, Inc. ("Holder"), the principal sum of ____________________
Dollars ($____________), with interest at the rate of twelve percent (12%) per
annum until this Note has been paid in full or converted pursuant to the
provisions hereof. Interest will be computed on the basis of a 360-day year for
actual days elapsed.
2. Payments. Except as otherwise set forth in Section 4, principal and
interest shall be due and payable in a single balloon payment (the "Maturity
Date") on the earlier of (i) December 31, 2004 or (ii) in the event that Company
is no longer working toward entering into and closing on a share exchange
agreement by and between Company and Holder whereby Company will become a wholly
owned subsidiary of Holder and the historical security holders of Company will
own between 40% and 50% of the outstanding common stock of Holder. Principal and
any interest not paid when due shall bear interest at the rate of eighteen
percent (18%) per annum. Company may not prepay any amounts owing hereunder
without the written consent of Holder. Payments shall be credited to Company's
account on the date that such payment is received by Holder. All payments on
this Note shall be applied, at the option of Holder, first to late charges and
collection costs, if any, then to accrued interest and then to principal.
3. Default. The occurrence of one or more of the following events shall
constitute an event of default:
(a) The nonpayment of the principal or interest of this Note
when the same shall have become due and payable which nonpayment is not cured
within five (5) days of written notice thereof.
(b) Filing by Company of a petition in bankruptcy or seeking
reorganization, arrangement, adjustment, or composition of or in respect of
Company's debts, whether under the United States Bankruptcy Code or any other
applicable federal or state law; entry of an order for relief under the United
States Bankruptcy Code, whether pursuant to a voluntary or involuntary petition;
the filing of an involuntary petition seeking adjudication of Company as a
debtor under the United States Bankruptcy Code or similar federal law, if said
petition is not dismissed within sixty (60) days; entry of a decree or order
appointing a receiver, liquidator, assignee, or trustee of Company, or any
substantial part if its property, or ordering the winding up or liquidation of
its affairs, and the continuance of any such decree or order unstayed and in
effect for a period of sixty (60) days; or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its inability to
pay its debts generally as they become due, or the taking of corporate action by
Company in furtherance of any such action.
(c) Default by Company under the Loan Agreement, by and
between the Holder and Company, pursuant to which this Note was issued (the
"Loan Agreement") any security agreement or any obligation, instrument, note or
agreement for borrowed money in excess of $25,000 beyond any applicable notice
or grace period provided in the underlying documents.
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(d) Breach by Company of any of its representations,
warranties, covenants or obligations under this Note, the Loan Agreement, any
security agreement or other agreement between the parties.
(e) Failure of Company to use reasonable commercial efforts to
enter into a share exchange agreement between Company and Holder whereby Company
will become a wholly owned subsidiary of Holder and the historical security
holders of Company will own between 40% and 50% of the outstanding securities of
Lender. The Shares Exchange Agreement shall contain, among other things,
representations, warranties and indemnifications as are customary for a
transaction of this type and as are mutually agreeable to Company and Lender.
Company will give Holder written notice of the occurrence of
any of the events set forth above in this Section 3 promptly but in no event
more than one business day after the occurrence of any of such events.
4. Acceleration. At the option of Holder, without limiting any other
remedies available to Holder and without demand or notice, all principal and any
unpaid interest shall become immediately due and payable upon a default as set
forth in Section 3 above. Without limiting any other remedies available to
Holder and without demand or notice, all principal and any unpaid interest shall
become immediately due and payable upon a default as set forth in Section 3
above. In the event the principal and any unpaid interest are accelerated
pursuant to this Section 4, Holder, at its option and without limiting any other
remedies available to Holder, may elect to exercise the conversion rights set
forth herein and to receive payment of amounts due and owing hereunder in the
form of securities, in lieu of the payment of cash.
5. Conversion Privilege. At any time while this Note is outstanding,
Holder of this Note shall have the right, at Holder's option, from time to time
to convert all or part of the principal and accrued, but unpaid, interest of
this Note into shares of Company's common stock, par value $.50 per share (the
"Common Stock") at the rate of one share of Common Stock for every $.50 in
principal and accrued interest that is converted. To exercise the conversion
privilege, Holder shall surrender this Note to Company at its principal office
along with a written conversion notice. This Note or a portion thereof shall be
deemed to have been converted immediately prior to the close of business on the
date of receipt of the Note, even if Company's stock transfer books are on that
date closed, and Holder shall be treated for all purposes as the record holder
of the shares of common stock deliverable upon such conversion as of the close
of business on such date. Holder may convert all or part of the principal and
accrued interest, if any, from time to time. Upon election to convert all of the
principal amount and accrued interest of this Note, the Note will be cancelled.
If all of the principal and accrued interest is converted then, as a condition
to such conversion, Holder must surrender this Note to Company at Company's
principal offices. In the event of a partial conversion then, as a condition to
such conversion, Holder must surrender the Note to Company for endorsement to
reflect the amount owing at the time of such conversion. Upon conversion Company
shall, as promptly as practicable after the surrender, deliver to Holder a
certificate or certificates representing the securities into which this Note may
be converted. Fractional shares shall not be issued, but the conversion price of
such fractional share will be paid in cash to Holder.
The "conversion price" at which Common Stock shall be issuable upon
conversion of this Note as provided in above in this Section 5 shall be subject
to adjustment as follows.
(a) In the event Company shall at any time or from time to
time after the date hereof fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling Holder thereof to receive directly or indirectly,
additional shares of Common Stock ("Common Stock Equivalents") without payment
of any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such split, subdivision, dividend or distribution if no record date
is fixed), the conversion price shall be appropriately decreased so that the
number of shares of Common Stock issuable on conversion of each share of such
series shall be increased in proportion to such increase of outstanding shares.
(b) In the event that Company shall issue Additional Stock (as
defined below) prior to or at any closing entitling any party to subscribe for
or purchase shares of its capital stock without consideration or at a price per
share that is lower than the conversion price, then the conversion price in
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effect immediately prior to each such issuance or deemed issuance shall be
adjusted to a price determined by the following formula: (A + B) / (C + D),
where "A" equals the number of shares of capital stock outstanding immediately
prior to such issuance or sale multiplied by the then applicable conversion
price, where "B" equals the consideration, if any, received by Company upon such
issuance or sale, where "C" equals the total number of shares of capital stock
outstanding prior to issuance of the additional shares and where "D" equals any
additional stock or conversion shares, or any other shares reserved for issuance
which are associated with such financing, immediately after such issuance or
sale. "Additional Stock" means any shares of capital stock or shares of capital
stock issuable pursuant to any indebtedness or shares of stock convertible into
or exchangeable for capital stock ("Convertible Securities") or rights, options
or warrants to subscribe for, purchase or otherwise acquire capital stock or
Convertible Securities issued or deemed to have been issued by Company after the
date of issuance of this Note, except securities issued or issuable upon
conversion of this Note.
(c) No adjustment of the conversion price shall be made in an
amount less than one-half of One Cent ($0.005) per share, provided that any
adjustments which are not required to be made by reason of this sentence shall
be carried forward and shall be taken into account in any subsequent adjustment
to the conversion price. No adjustment of the conversion price pursuant to this
Section 5(c) shall have the effect of increasing the conversion price in effect
immediately prior to such adjustment.
(d) In the case of the issuance of securities of Company for
(i) cash, the amount of consideration received by Company for such securities
shall be deemed to be the amount of cash paid therefor before deducting any
discounts, commissions or other expenses allowed, paid or incurred by Company
for any underwriting or otherwise in connection with the issuance and sale
thereof, or (ii) consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to have a dollar value equal to
the fair market value of such non-cash consideration, irrespective of any
accounting treatment thereof, as determined by a vote of the majority of the
board of directors.
(e) If at any time or from time to time there shall be a
reorganization, recapitalization or reclassification of the capital stock of
Company or a consolidation or merger of Company with another corporation, or a
sale of all or substantially all of the assets of Company to another corporation
or a liquidation of Company, provision shall be made so that Holder of this Note
shall thereafter be entitled to receive, upon conversion of this Note, the
number of shares of stock or other securities or property of Company or
otherwise, receivable upon such transaction (or any similar transaction) by a
holder of the number of shares of Common Stock or other conversion securities
into which this Note could have been converted immediately prior to such
transaction (or similar transaction). In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 5 with
respect to the rights of Holder of this Note after the reorganization,
recapitalization, reclassification, consolidation, merger, sale, liquidation or
similar transaction to the end that the provisions of this Section 5 (including
adjustments of the conversion price then in effect and the number of securities
purchasable upon conversion of this Note) shall be applicable after that event
as nearly equivalent as may be practicable.
(f) Before taking any action which would cause an adjustment
reducing the conversion price below the then par value, if any, of the shares of
Common Stock issuable upon the conversion of this Note, Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that Company may validly and legally issue registered, fully paid and
non-assessable shares of the Common Stock at such adjusted conversion price.
(g) Upon the occurrence of each adjustment or readjustment of
the conversion price pursuant to this Section 5, Company, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, certified by Company's President or Chief
Financial Officer. Company shall, upon the written request at any time of
Holder, furnish or cause to be furnished to such Holder a like certificate
setting forth (i) such adjustment and readjustment, (ii) the conversion price at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of this Note.
(h) Company covenants that it will at all times until any
closing, reserve and keep available out of its authorized capital stock, solely
A-3
for the purpose of delivery upon conversion of this Note as herein provided,
such number of shares of Common Stock or other securities as shall then be
deliverable upon the conversion of the maximum amount of principal and accrued
but unpaid interest convertible pursuant to this Note. Company covenants that
all the shares of Common Stock or other securities which shall be so deliverable
upon conversion of this Note shall be duly and validly issued, registered, fully
paid and non-assessable.
(i) The delivery of certificates for shares of Common Stock or
other capital stock upon the conversion of this Note shall be made without
charge to Holder for any documentary, stamp or similar issue or transfer tax in
respect of the issuance of such certificates, and such certificates shall be
delivered in the name of, or in such names as may be directed by Holder.
(j) In the event of any taking by 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 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, Company shall mail to Holder, at least
ten (10) business days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such right,
and the amount and character of such right.
(k) Company will not, by amendment of its charter or through
any reorganization, recapitalization or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by Company, but will at all times in good faith assist in
the carrying out of all the provisions of this Section 5 and in the taking of
all such action as may be necessary or appropriate to protect the conversion
rights of Holder of this Note against impairment.
(l) Company will not declare a distribution payable in
securities of other persons, evidences of indebtedness issued by Company or
other persons, assets or options or rights while amounts are owing on this Note
without the written approval of Holder.
(m) Notwithstanding any other provision contained in this
Section 5 or elsewhere in this Agreement, there shall be no adjustment in the
"conversion price" (a) upon the exercise of any warrant or of any other security
issued by Company in connection with the offer and sale of Company's securities
pursuant to the Loan Agreement, (b) upon the exercise of or conversion of any
convertible securities, options or warrants issued and outstanding on the
effective date of the Loan Agreement, and/or (c) the issuance or exercise of
stock options issued under Company's current stock option plans.
6. Restrictions on Transfer. This Note has not been registered under
the Securities Act of 1933. This Note, or any right hereunder, may not be
enforced against Company by any holder, except the original Holder herein, and
Company shall not be obligated to recognize any purported transferee or
assignee, (i) unless there is an effective registration covering the Note or
underlying right under the Securities Act of 1933 and applicable state
securities laws, (ii) unless Company receives an opinion of an attorney,
licensed to practice within the United States, that the transfer of the Note, or
any underlying right, complies with the requirements of the Securities Act of
1933 and any relevant state securities law, or (iii) unless the transfer is made
pursuant to Rule 144 under the Securities Act of 1933. Any permitted transferee
or assignee shall be subject to the restrictions and to the terms of this Note
and the related Loan Agreement and any security agreement, and Company may
require said transferee or assignee to execute and deliver such further
instruments evidencing or acknowledging the same. Company shall bear all
reasonable costs and expenses associated with any transfer or exchange.
7. Rights of the Holder. Except as provided herein, the Holder shall
not, by virtue hereof, be entitled to any rights of a shareholder in Company,
either at law or equity, unless and until securities granting shareholder rights
are issued pursuant to the conversion provisions hereof.
8. No Merger. So long as this Note or the Agreement remain outstanding,
Company shall not consolidate with or merge into any other person or convey,
transfer or lease its properties and assets substantially as an entirety to any
person, and Company shall not permit any person to consolidate with or merge
into Company or convey, transfer or lease its properties and assets
substantially as an entirety to Company.
A-4
9. Replacement Securities. If the Note is mutilated and is surrendered
to Company or if Holder presents evidence to the reasonable satisfaction of
Company that the Note has been lost, destroyed or wrongfully taken, Company
shall issue a replacement Note of like tenor. Company shall bear all reasonable
costs and expenses associated with replacing the Note.
10. Notices. Any notices required or permitted hereunder shall be in
writing and shall be given by personal delivery; by deposit in the United States
mail, certified mail, return receipt requested, postage prepaid; or by
established express delivery service, freight prepaid. Notices shall be
delivered, addressed, or transmitted to the parties at the following addresses,
which may be changed by a notice given to the other party in accordance with
this Section. The date notice is deemed to have been given, received and become
effective shall be the date on which the notice is delivered, if notice is given
by personal delivery, two (2) days following the date of deposit in the mail, if
the notice is sent through the United States mail, or the date of actual
receipt, if the notice is sent by express delivery service.
Company's address is:
Faraday Financial, Inc.
Attn: Xxxxx Xxxxxx, President
000 Xxxxx Xxxx, Xxxxx 0000
Xxxx Xxxx Xxxx, Xxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
The Holder's address is:
Video Internet Broadcasting Corporation
Attn: Xxxxx Xxxx, CEO
000 Xxxxx Xxxxxx XX
Xxxxxxx, XX 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
11. Miscellaneous.
(a) The headings of this Note are for purposes of reference
only and shall not limit or define the meaning of any provision of this Note.
(b) If suit or action is instituted in connection with any
controversy arising out of this Note, or in the enforcement of any rights
hereunder, the prevailing party shall be entitled to recover in addition to
costs such sums as the court may adjudge as reasonable attorney's fees,
including attorney's fees incurred in any appeal.
(c) This Note shall be governed by the laws of the State of
Utah. Any legal action to enforce or obtain an interpretation of this Agreement
shall be filed in the Third Judicial District Court of Salt Lake County or the
United States District Court in Salt Lake City, Utah, and the parties consent to
the exercise of personal over them by said courts.
(d) In computing any period of time pursuant to this Note, the
day of the act, event or default from which the designated period of time begins
to run shall be included, unless it is a Saturday, Sunday, or a legal holiday,
in which event the period shall begin to run on the next day which is not a
Saturday, Sunday, or legal holiday, in which event the period shall run until
the end of the next day thereafter which is not a Saturday, Sunday, or legal
holiday.
(e) Nothing herein shall be construed to be to the benefit of
any third party, nor is it intended that any provision shall be for the benefit
of any third party.
A-5
(f) The obligations of Company or the Holder may not be
delegated or assigned to any other party without the prior written consent of
the other.
(g) In the event that any court of competent jurisdiction
shall determine that any provision, or any portion thereof, contained in this
Note shall be unreasonable or unenforceable in any respect, then such provision
shall be deemed limited to the extent that such court deems it reasonable and
enforceable, and as so limited shall remain in full force and effect. In the
event that such court shall deem any such provision, or portion thereof, wholly
unenforceable, the remaining provisions of this Note shall nevertheless remain
in full force and effect.
IN WITNESS WHEREOF, this Note is executed by Video Internet Broadcasting
Corporation, to be effective as of the 17th day of February, 2004.
VIDEO INTERNET BROADCASTING CORPORATION,
a Washington corporation
By /s/ W. Xxxxx Xxxx
---------------------------------------
Its Chief Executive Officer
STATE OF WA )
ss:
COUNTY OF GRANT )
On this 18th day of February, 2004, before me appeared W. Xxxxx Xxxx, to me
personally known, who being duly sworn did say that he/she is the President of
VEDEO INTERNET BROADCASTING CORPORATION, the within named corporation, and that
the instrument was signed in behalf of said corporation and acknowledged the
instrument to be the free act and deed of the corporation.
/s/
------------------------------
NOTARY PUBLIC
My Commission Expires: Residing at: Ephrata, WA
5-9-05
A-6
EXHIBIT B
SECURITY AGREEMENT
This Agreement, to be effective as of February 17, 2004, by and among
VIDEO INTERNET BROADCASTING CORPORATION, a Washington limited liability company
(the "Company") and FARADAY FINANCIAL, INC. (the "Secured Party").
WITNESSETH:
WHEREAS, Company and Secured Party are parties to a Loan Agreement,
dated February 17, 2004, wherein Secured Party may loan Company up to FIVE
HUNDRED THOUSAND DOLLARS ($500,000) in principal and which loans are
memorialized by 12% convertible promissory notes (the "Notes"). The loan
agreement provides for, upon the satisfaction of certain contingencies, the
grant by Company to Secured Party of a security interest in Company assets; and
WHEREAS, Secured Party has required that Company execute and deliver to
Secured Party this Agreement.
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties agree as follows:
1. Security Interest.
1.1 Collateral. As security for the payment and performance of
Company's obligations to Secured Party under the Note (the "Secured
Obligations"), Company hereby creates a security interest in favor of Secured
Party in all of Company's right, title and interest in and to (but none of its
obligations or liabilities with respect to) all items and types of present and
future property described in clauses below, whether now owned or hereafter
acquired, all of which shall be included in the term "Collateral":
All accounts, chattel paper, deposit accounts, documents (negotiable
and nonnegotiable), general intangibles, goods (including inventory and
equipment), instruments, investment property, letter-of-credit rights,
letters of credit, money, and oil, gas and other minerals, now existing
or hereafter arising, and all cash and non-cash proceeds and products
thereof, including all insurance proceeds
1.2 Perfection of Collateral. Secured Party is authorized, from time to
time, to file and record in the proper filing and recording places, all such
instruments, including, without limitation, Uniform Commercial Code financing
statements, and to take all such other action, as Secured Party deems reasonably
necessary for perfecting or otherwise confirming to it the security interest
granted by Company to Secured Party in the Collateral pursuant to this
Agreement.
1.3 No Liens or Dispositions. All Collateral shall be free and clear of
any liens and restrictions on the transfer thereof, including, without
limitation, contractual provisions which prohibit the assignment of rights under
contracts, except for (a) nonconsensual liens imposed by law, and (b) liens and
restrictions on transfer approved in writing by Secured Party. Except with
Secured Party's prior written consent, Company will not sell, lease or otherwise
dispose of any of the Collateral, except in each case in the ordinary course of
business consistent with past practice.
2. Right to Realize upon Collateral. Except to the extent prohibited by
applicable law that cannot be waived, this Section 2 shall govern Secured
Party's rights to realize upon the Collateral upon the occurrence of an Event of
Default (as defined in the note(s) memorializing funds lent under the Note). The
provisions of this Section 2 are in addition to any rights and remedies
available at law or in equity.
2.1 Assembly of Collateral; Receiver. Upon Secured Party's written
request, assemble the Collateral and otherwise make it available to Secured
Party. Secured Party may have a receiver appointed for all or any portion of
Company's assets or business which constitutes the Collateral in order to
manage, protect, preserve, sell and otherwise dispose of all or any portion of
the Collateral.
B-1
2.2 Waiver. To the extent it may lawfully do so, Company waives and
relinquishes the benefit and advantage of, and covenants not to assert against
Secured Party, any valuation, stay, appraisement, extension, redemption or
similar laws now or hereafter existing which, but for this Section 2.2, might be
applicable to the sale of any Collateral made under the judgment, order or
decree of any court, or privately under the power of sale conferred by this
Agreement, or otherwise.
2.3 Foreclosure Sale. All or any part of the Collateral may be sold for
cash or other value in any number of lots at public or private sale, without
demand, advertisement or notice; provided, however, that unless the Collateral
to be sold threatens to decline speedily in value or is of a type customarily
sold on a recognized market, Secured Party shall give Company 10 days' prior
written notice of the time and place of any public sale, or the time after which
a private sale may be made, which notice each of Company and Secured Party
agrees to be reasonable. At any sale or sales of Collateral, Secured Party or
any of its assigns may bid for and purchase all or any part of the property and
rights so sold and may use all or any portion of the Secured Obligations owed to
Secured Party as payment for the property or rights so purchased, and upon
compliance with the terms of such sale may hold and dispose of such property and
rights without further accountability to Company, except for the proceeds of
such sale or sales pursuant to Section 2.4.
2.4 Application of Proceeds. The proceeds of all sales and collections
in respect of any Collateral or other assets of Company, all funds collected
from Company and any cash contained in the Collateral, the application of which
is not otherwise specifically provided for herein, shall be applied as follows
or in such other order as Secured Party may determine:
A. First, to the payment of the costs and expenses of such
sales and collections, the reasonable expenses of Secured
Party and the reasonable fees and expenses of its counsel.
B. Second, any surplus then remaining to the payment of the
Secured Obligations.
C. Third, any surplus then remaining shall be paid to
Company.
3. Custody of Collateral. Except as provided by applicable law that cannot be
waived, Secured Party will have no duty as to the custody and protection of the
Collateral, the collection of any part thereof or of any income thereon or the
preservation or exercise of any rights pertaining thereto, including, without
limitation, rights against prior parties, except for the use of reasonable care
in the custody and physical preservation of any Collateral in its possession.
Secured Party will not be liable or responsible for any loss or damage to any
Collateral, or for any diminution in the value thereof, by reason of the act or
omission of any agent selected by Secured Party acting in good faith.
4. Incorporation of Loan Agreement. The Loan Agreement and related Notes and the
terms and provisions thereof are hereby incorporated herein in their entirety by
this reference.
5. General. The obligations of the parties hereto shall not be delegated or
assigned to any other party without the prior written consent of the other
party. Notices shall be furnished in writing to each party at such party's
address appearing on the signature page of the Note or as such party may
otherwise direct in writing actually received by the other party. The invalidity
or unenforceability of any provision hereof shall not affect the validity or
enforceability of any other provision hereof, and any invalid or unenforceable
provision shall be modified so as to be enforceable to the maximum extent of its
validity or enforceability. The headings in this Agreement are for convenience
of reference only and shall not limit, alter or otherwise affect the meaning
hereof. This Agreement constitutes the entire understanding of the parties with
respect to the subject matter hereof and supersedes all prior and current
understandings and agreements, whether written or oral, with respect to such
subject matter. This Agreement may be executed in any number of counterparts,
which together shall constitute one instrument. This Agreement shall be governed
by and construed in accordance with the laws (other than the conflict of laws
rules) of the State of Utah, except as may be required by the Uniform Commercial
Code of other jurisdictions with respect to matters involving the perfection of
Secured Party's lien on the Collateral located in such other jurisdictions.
Each of the undersigned has caused this Security Agreement to be
executed and delivered by its duly authorized officer as an agreement to be
effective as of the date first written above.
B-2
COMPANY: VIDEO INTERNET BROADCASTING CORPORATION
By /s/ W. Xxxxx Xxxx
-------------------------------------
Its:
SECURED PARTY: FARADAY FINANCIAL, INC.
By /s/ Xxxxx Xxxxxx
-------------------------------------
Its: President
B-3
SCHEDULE 9.7a
USE OF PROCEEDS FROM INITIAL INSTALLMENT
The proceeds from the Initial Installment (as defined in the Loan Agreement to
which this Schedule is attached) shall be used only pay the following creditors
up to the following amounts:
Name of Creditor Maximum Amount of Payment
---------------- -------------------------
Xxxxxx Xxxxxx $105,000
GC PUD 35,000
Xxxxx Xxxxxx 35,000
Xxx Xxxxxxx 5,000
Xxxx Xxxxxx 11,750
Stonebridge 25,000
Xxx Keeslinz 15,000
SCHEDULE 9.7b
USE OF PROCEEDS AFTER INITIAL INSTALLMENT
The proceeds after the Initial Installment (as defined in the Loan Agreement to
which this Schedule is attached) shall be used only pay the following creditors
up to the following amounts:
Name of Creditor Maximum Amount of Payment
---------------- -------------------------
Payroll Taxes (December) $10,000
Xxxxx Xxxxxx (back wages) 36,000
Xxxxx Xxxxxx (travel) 10,000
Xxx Xxxxxxx 30,000
Xxxx Xxxxxx 17,000
GC PUD 165,000
Xxxxxx Sonsine 25,000
MCSI 50,000
Xxxxxx Grants 25,000
Moreover, $250,000 in convertible debt held by Xxxx Xxxxxx, Xxxxx Xxxxxx, Xxxxx
Xxxx, Xxxxx Xxxx, Xxxxx Lennsen and Xxxxx Xxxxx shall be converted into common
stock at fifty cents ($.50) per share as per the terms of the convertible notes
as soon as the Company accepts loan proceeds in excess of the Initial
Installment.