1
EXHIBIT 10.12
REIMBURSEMENT AND SUBORDINATION AGREEMENT
This Reimbursement and Subordination Agreement (the "Agreement") is
made as of August 1, 1997, by and between Xxxxxx X. Xxxxx, an individual
resident of Iowa ("Xxxxx"), and Neural Applications Corporation, a Delaware
corporation (the "Company").
WHEREAS, the Company proposes to issue up to $6,000,000 principal
amount of Senior Secured Debentures, subject to increase by not more than
$3,000,000 principal amount (the "Debentures"), which are to be secured by an
irrevocable standby letter of credit (the "Letter of Credit") from The Northern
Trust Company ("Northern Trust") in an amount equal to one hundred seven percent
(107%) of the initial principal amount of Debentures. (Capitalized terms used
herein and not otherwise defined shall have the meanings assigned to them in the
Letter of Credit.)
WHEREAS, Northern Trust has requested that Xxxxx guarantee the Letter
of Credit by means of a pledge agreement with Northern Trust (the "Pledge
Agreement"), which will require Xxxxx to maintain a collateral account
containing marketable securities or other collateral to secure the obligation of
Northern Trust under the Letter of Credit.
WHEREAS, to induce Xxxxx to enter into the Pledge Agreement, the
Company has agreed to (a) issue Xxxxx warrants to purchase 500,000 shares of the
Company's Common Stock, $.01 par value (the "Common Stock"), (b) make a one-time
cash payment of $50,000 and (c) undertake to reimburse Xxxxx to the extent that
Northern Trust exercises its remedy under the Pledge Agreement to sell or
liquidate all or a part of the Collateral pledged by Xxxxx.
NOW THEREFORE, in consideration of the premises, the respective
covenants and commitments set forth in this Agreement, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Company and Xxxxx hereby agree as follows:
SECTION 1. AGREEMENT TO ENTER INTO PLEDGE AGREEMENT. Xxxxx agrees to
enter into the Pledge Agreement.
SECTION 2. CONSIDERATION FOR ENTERING INTO PLEDGE AGREEMENT. The
Company agrees that:
(a) upon execution of the Pledge Agreement it shall promptly
thereafter make a one-time cash payment of $50,000 to Xxxxx; and
(b) at the Initial Closing it shall grant to Xxxxx warrants to
purchase an aggregate of 500,000 shares of the Common Stock, which
warrants shall (i) have an exercise price of $8.00 per share, (ii) be
immediately exercisable, (iii) expire on September 30, 2002 and (iv) in
all other material respects have the same terms
2
as the warrants granted by the Company to Xxxxx in connection with past
transactions.
SECTION 3. AGREEMENT TO REIMBURSE. The Company further agrees that, in
the event that Northern Trust honors a draft on the Letter of Credit by the
Trustee, which draft is not reimbursed by the Company to Northern Trust in
accordance with the Reimbursement Agreement such that an Event of Default occurs
and is continuing under the Reimbursement Agreement, and Northern Trust
exercises its remedy under the Pledge Agreement to sell or liquidate all or a
part of the Collateral pledged by Xxxxx in order to pay or satisfy the
Obligations of the Company under the Reimbursement Agreement, then the Company
shall reimburse Xxxxx for Northern Trust's realization of such Collateral in an
amount equal to the amount of the sale proceeds realized by Northern Trust from
the sale of such Collateral; provided, however, that in the event the proceeds
of the sale or liquidation of all or any part of the Collateral continues to be
held by Northern Trust in a cash collateral account that is subject to the
Pledge Agreement to secure the Company's Obligations under the Reimbursement
Agreement, then the Company shall only be obligated to reimburse Xxxxx hereunder
after such time as Northern Trust realizes on such cash collateral and then only
in the amount of the cash collateral so realized.
SECTION 4. SUBORDINATION; LIQUIDATION OF COMPANY. Xxxxx acknowledges
and agrees that his rights to reimbursement under Section 3 shall in all events
be subordinated to the rights of the holders of the Debentures to receive
payments of principal and interest on the Debentures and shall also, in the
event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, be subordinated to the rights of the holders of the
Company's Convertible Series A Voting Preferred Stock (the "Series A Stock"),
Convertible Series B Voting Preferred Stock (the "Series B Stock") and
Convertible Series C Voting Preferred Stock (the "Series C Stock") to receive
any and all amounts due to such holders under the terms of each such series of
stock upon such liquidation, dissolution or winding up of the Company.
SECTION 5. AMENDMENTS; NO WAIVER. No amendment or modification of this
Agreement shall be deemed effective unless made in writing and signed by all the
parties hereto. No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
the specific term or condition waived and shall not constitute a waiver of such
term or condition for the future or as to any act other than that specifically
waived.
SECTION 6. BINDING EFFECT; THIRD PARTY BENEFICIARIES. This Agreement
shall constitute a valid and binding Agreement between the parties hereto, and
the rights and obligations of the parties hereunder shall inure to benefit of,
and be binding upon,
-2-
3
their respective successors, assigns and legal representatives. The holders of
the Debentures, the Series A Stock, the Series B Stock and the Series C Stock
are intended to be third party beneficiaries of Section 4 of this Agreement and
shall be entitled to enforce their rights under Section 4 by an action at law or
in equity.
SECTION 7. COMPLETE AGREEMENT. This Agreement contains the complete
agreement between the parties and supersede any prior understandings, agreements
or representations by or between the parties, written or oral, which may have
related to the subject matter hereof in any way.
SECTION 8. CAPTIONS AND HEADINGS. The captions and paragraph headings
used in this Agreement are for convenience of reference only, and shall not
affect the construction or interpretation of this Agreement or any of the
provisions hereof.
SECTION 9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same instrument.
SECTION 10. GOVERNING LAW. All questions concerning this Agreement
shall be governed by and interpreted in accordance with the internal law, not
including the law of conflicts, of the State of Iowa.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth in the first paragraph.
/s/ Xxxxxx X. Xxxxx
-------------------------------
Xxxxxx X. Xxxxx
Neural Applications Corporation
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------
Name:
-----------------------
Title:
----------------------
-3-
