FUNDING AGREEMENT
THIS FUNDING AGREEMENT (this "Agreement") is made and entered into as of
July 16th , 1999, by and between EFORNET CORPORATION, a Washington
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corporation (the "Borrower"), and UPGRADE INTERNATIONAL CORPORATION, a Florida
corporation (the "Lender").
WHEREAS, the Borrower desires, from time to time, to borrow additional
funds from the Lender for general working capital, and the Lender is willing,
subject to and upon the terms and conditions herein set forth, to advance and
lend such additional funds to Borrower;
Now, therefore, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Funding Commitment. Lender hereby agrees to use its best efforts to
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secure or provide additional funding for Borrower, not to exceed in the
aggregate the sum of Five Million Dollars ($5,000,000), upon satisfaction of all
of the following conditions precedent:
(a) Borrower shall have provided Lender with a copy of Borrower's
current business plan, which business plan shall have been accepted and approved
by Lender;
(b) Borrower shall have provided Lender with a copy of Borrower's
budget for the current fiscal year and the next two succeeding fiscal years,
which budget shall have been approved by Lender; and
(c) Borrower shall have met certain financial targets, business
goals and/or milestones as mutually agreed upon by Borrower and Lender.
2. Note. All funds which may be advanced by Lender to Borrower under
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this Agreement shall be evidenced by a promissory note payable to the order of
the Lender substantially in the form of Exhibit A attached hereto (the "Note"),
duly executed by the Borrower. The terms of the Note shall provide that all
principal and accrued interest thereon shall be due and payable in accordance
with the following terms and conditions: (a) repayment shall be made prior to
the payment of any dividends to shareholders of Borrower; and (b) all principal
and accrued interest shall be due and payable upon the registration of any
shares of Borrower under the Securities Act of 1933 pursuant to an initial
public offering (IPO) of Borrower's stock, or upon the occurrence of any
financing transaction of Borrower (e.g., merger or acquisition), provided,
however, that said IPO or financing transaction is for an amount in excess of
Five Million Dollars ($5,000,000.00). Notwithstanding the foregoing provisions,
the outstanding principal balance on any Note(s), together with all accrued
interest thereon, shall be due and payable in full on March 1, 2004.
Funding Agreement - Page 1
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3. Transferability of Notes. The Lender may transfer or assign any such
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Note(s).
4. Interest. Notwithstanding anything herein or in the Note(s) to the
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contrary, it is not the intention of the parties hereto to charge, nor at any
time shall there be charged or become due and/or payable hereunder or under the
Note(s) any interest which would result in a rate of interest being charged
which is in excess of the maximum rate permitted to be charged by law, and in
the event that any sum in excess of the maximum legal rate of interest is paid
or charged, the same shall, immediately upon discovery thereof, be deemed to
have been a prepayment of principal (which prepayment shall be permitted, and be
without premium or penalty) as of the date of such receipt, and all payments
made thereafter shall be appropriately reapplied to interest and principal to
give effect to the maximum rate permitted by law, and after such reapplication,
any excess payment shall be immediately refunded to Borrower.
5. Use of Proceeds. The proceeds of any funds advanced or loaned to
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Borrower by Lender under this Agreement shall be used for operating expenses and
working capital in the business of Borrower. The Borrower acknowledges that any
funds advanced or loaned to Borrower pursuant to this Agreement are made
expressly and only for business and commercial purposes.
6. Affirmative Covenants. The Borrower covenants and agrees that, until
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all Notes, together with any accrued and unpaid interest thereon, and all of
Borrower's other indebtedness to the Lender under this Agreement or otherwise
are paid in full, unless specifically waived by the Lender in writing, the
Borrower shall furnish the Lender, if requested, annual statements itemizing the
income and expenses of the operations of the Borrower and Borrower's projects,
copies of all written instruments affecting the Borrower's operations, together
with complete and accurate balance sheets prepared at the expense of the
Borrower.
7. Negative Covenants. The Borrower covenants and agrees that, until
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all Notes, together with any accrued and unpaid interest thereon, and all of
Borrower's other indebtedness to the Lender are paid in full, the Borrower shall
not, without the prior written consent of the Lender, which consent shall not be
unreasonably withheld, enter into any transaction of merger, or transfer, sell,
assign, lease, or otherwise dispose of all or a substantial part of its
properties or assets, or any interest in its operations, or change the nature of
its business or its company name, or wind up, liquidate, or dissolve, or agree
to do any of the foregoing, without the prior written consent of the Lender.
8. Defaults and Remedies.
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Funding Agreement - Page 2
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8.1 Events of Default. If any one or more of the following events
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(herein called "Events of Default") shall occur for any reason whatsoever (and
whether such occurrence shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree, or order of any court or any order, rule, or regulation of any
administrative or governmental body), that is to say:
(a) If default shall be made in the payment of the principal or
interest of any Note, when and as the same shall become due and payable, whether
at maturity or by acceleration or otherwise, and such default shall continue for
thirty (30) days after written notice of default is given;
(b) If default shall be made in the performance or observance of,
or shall occur under, any covenant, agreement, or other provision of this
Agreement or in any instrument or document delivered to the Lender in connection
with or pursuant to this Agreement, or if any such instrument or document shall
terminate or become void or unenforceable without the written consent of the
Lender, and such default shall continue for thirty (30) days after written
notice of default is given;
(c) If default shall occur in the payment of any principal,
interest, or premium with respect to any indebtedness for borrowed money of the
Borrower under any agreement or instrument under or pursuant to which any such
indebtedness may have been issued, created, assumed, or guaranteed by the
Borrower, and such default shall continue for more than the grace period, if
any, therein specified, or if any such indebtedness be declared due and payable
prior to the stated maturity thereof, and such default shall continue for thirty
(30) days after written notice of default is given;
(d) If any representation or warranty or any other statement of
fact herein or in any writing, certificate, report, or statement at any time
furnished to the Lender pursuant to or in connection with this Agreement, or
otherwise, shall be intentionally false or misleading in any material respect;
(e) If the Borrower shall admit in writing its inability to pay
its debts generally as they become due, file a petition in bankruptcy or a
petition to take advantage of any insolvency act; make an assignment for the
benefit of its creditors; commence a proceeding for the appointment of a
receiver, trustee, liquidation, or conservator of itself or of a whole or any
substantial part of its property; file a petition or answer seeking
reorganization or arrangement or similar relief under the federal bankruptcy
laws or any other applicable law or statute of the United States or any state;
(f) If the Borrower shall be adjudged a bankrupt; or a court of
competent jurisdiction shall enter an order, judgment, or decree appointing a
receiver, trustee, liquidator, or conservator of the Borrower or of the whole or
any substantial part of its respective properties, or approve a petition filed
against the Borrower seeking reorganization or similar relief under the federal
bankruptcy laws or any other applicable law or statute of the United States or
any state, or if, under the provisions of any other law for the relief or aid of
debtors, a court of competent jurisdiction shall assume custody or control of
Funding Agreement - Page 3
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the Borrower or of the whole or any substantial part of its respective assets;
or if there is commenced against the Borrower any proceeding for any of the
foregoing relief or if a petition in bankruptcy is filed against the Borrower
and such proceeding or petition remains undismissed for a period of 30 days; or
if the Borrower by any act indicates its consent to, approval of or acquiescence
in any such proceeding or petition; or
(g) If any judgment against the Borrower or any attachment or
execution against any of its property for any amount in excess of $100,000
remains unpaid, unstayed, or undismissed for a period of more than 30 days;
Then and in any such event, and at any time thereafter, if such or any other:
Event of Default shall then be continuing, the Lender may, at its option,
declare any outstanding Note(s) to be due and payable, whereupon the maturity of
the then unpaid balance of any and all such Note(s) shall be accelerated and the
same, together with all interest accrued thereon, shall forthwith become due and
payable without presentment, demand, protest, or notice of any kind, all of
which are hereby expressly waived, anything contained herein or in any Note(s)
to the contrary notwithstanding.
8.2 Suits for Enforcement. In case any one or more Events of
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Default shall occur and be continuing, the Lender may proceed to protect and
enforce its rights or remedies, whether for the specific performance of any
covenant, agreement, or other provision contained herein, in any Note(s), or in
any document or instrument delivered in connection with or pursuant to this
Agreement, or to enforce the payment of any Note(s) or any other legal or
equitable right or remedy.
8.3 Rights and Remedies Cumulative. No right or remedy herein
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conferred upon the Lender is intended to be exclusive of any other right or
remedy contained herein, in any Note(s), or in any instrument or document
delivered in connection with or pursuant to this Agreement, and every such right
or remedy shall be cumulative and shall be in addition to every other such right
or remedy contained herein and therein, or now or hereafter existing at law or
in equity or by statute, or otherwise.
8.4 Rights and Remedies Not WaivedNo course of dealing between the
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Borrower and the Lender or any failure or delay on the part of the Lender in
exercising any rights or remedies hereunder shall operate as a waiver of any
rights or remedies of the Lender, and no single or partial exercise of any
rights or remedies hereunder shall operate as a waiver or preclude the exercise
of any other rights or remedies hereunder.
9. Representations and Warranties. In order to induce the Lender to
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enter into this Agreement and to make any loans as herein provided for, the
Borrower makes the following representations and warranties which shall survive
the execution and delivery of this Agreement and any Note(s), and any inspection
or examination at any time made by or on behalf of the Lender.
Funding Agreement - Page 4
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9.1 Corporate Status. The Borrower is a duly organized
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corporation in good standing under the laws of the State of Washington, and has
the power and authority to own its properties and to transact the business in
which it is engaged or presently proposes to engage. The Borrower is duly
qualified as a foreign company and is in good standing in all states where the
nature of its business or the ownership or use of property requires such
qualification.
9.2 Corporate Power and Authority. The Borrower has the power to
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borrow and to execute, deliver, and carry out the terms and provisions of this
Agreement, any Note(s), and all instruments and documents delivered by it
pursuant to this Agreement, and the Borrower will have taken or caused to be
taken all necessary corporate action (including but not limited to, the
obtaining of any consent of its shareholders as required by law or by the
Articles of Incorporation of the Borrower) to authorize the execution, delivery,
and performance of this Agreement, any borrowing hereunder, the making and
delivery of any Note(s), and the execution, delivery, and performance of the
instruments and documents delivered by it pursuant to this Agreement.
9.3 No Violation of Agreements. The Borrower is not in default
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under any debenture, mortgage, deed of trust, agreement, or other instrument to
which it is a party or by which it may be bound. Neither the execution and
delivery of this Agreement, any Note(s), or any of the instruments and documents
to be delivered pursuant to this Agreement, nor the consummation of the
transactions herein and therein contemplated, nor compliance with the provisions
hereof or thereof will violate any law or regulation, or any order or decree of
any court or governmental instrumentality, or will conflict with, or result in
the breach of, or constitute a default under, any indenture, mortgage, deed of
trust, agreement, or other instrument to which the Borrower is a party or by
which it may be bound, or result in the creation or imposition of any lien,
charge, or encumbrance upon any of the property of the Borrower thereunder, or
violate any provision of the Articles of Incorporation or Bylaws.
9.4 Potential Liabilities. Other than as disclosed on Schedule
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9.4 attached hereto, the Borrower has no material indebtedness of any kind,
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including, without limitation, contingent liabilities, liabilities for taxes,
long term leases or unusual forward or long-term commitments, and has not
granted any security interest in any of its assets to any party.
10. Miscellaneous.
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10.1 Collection Costs. In the event that the Lender shall retain or
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engage an attorney or attorneys to collect, enforce, or protect its interests
with respect to this Agreement, any Note(s), or any instrument or document
delivered pursuant to this Agreement, or as to any collateral securing any
Note(s), the Borrower shall pay all of the costs and expenses of such
collection, enforcement, or protection, including reasonable attorneys' fees,
and the Lender may take judgment for all such amounts, in addition to the unpaid
principal balance of any Note(s) and accrued interest thereon.
Funding Agreement - Page 5
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10.3 Modification and Waiver. No modification or waiver of any
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provision of any Note(s) or of this Agreement and no consent by the Lender to
any departure therefrom by the Borrower shall be effective unless such
modification or waiver shall be in writing and signed by a duly authorized
officer of the Lender, and the same shall then be effective only for the period,
on the conditions and for the specific instances and purposes specified in such
writing. No notice to or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.
10.4 Washington Law. All Note(s)and this Agreement shall be
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interpreted, construed and enforced in accordance with and governed by the laws
of the State of Washington.
10.5 Notices. All notices, requests, demands, or other
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communications provided for herein shall be in writing and shall be deemed to
have been given when sent by mail, telex, or other means of electronic
transmission, including telecopiers, to the addresses listed below for each
party, or to such other person or address as either party shall designate to the
other from time to time in writing forwarded in like manner:
Lender: UPGRADE INTERNATIONAL CORPORATION
435 Martin Street, Suite 1010
Blaine, Washington 98231
Borrower: EFORNET CORPORATION
P.O. Box 8
Capitola, California 95010
10.6 Captions. The captions of the various Sections and paragraphs
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of this Agreement have been inserted only for the purposes of convenience. Such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge, or restrict any of the provisions of this
Agreement.
10.7 Benefit of Agreement.This Agreement shall be binding upon and
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inure to the benefit of the Borrower and the Lender and their respective
successors and assigns, and all subsequent holders of any Note(s).
10.8 Counterparts. This Agreement may be executed in two or more
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counterparts, or by facsimile, any of which shall be deemed an original but all
of which together shall constitute one and the same instrument.
[Signatures on following page]
Funding Agreement - Page 6
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IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
LENDER: BORROWER:
UPGRADE INTERNATIONAL EFORNET CORPORATION
CORPORATION, a Florida corporation a Washington corporation
/s/Daniel Bland /s/ David I. Zucker
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By: Daniel Bland By: David I. Zucker
Its: President Its: President
Funding Agreement - Page 7
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EXHIBIT A
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PROMISSORY NOTE
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BORROWER: EFORNET CORPORATION
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A Washington Corporation
LENDER: UPGRADE INTERNATIONAL CORPORATION
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A Florida Corporation
LOAN AMOUNT: U.S. $_______________________
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DATED: ________________________,1999
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1. Borrower's Promise to Pay. Borrower hereby promises to pay to the
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order of Lender, the principal sum of Dollars (USD
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$ ), hereinafter referred to as the "principal", plus interest on the
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principal amount outstanding from time to time at the rate set forth in Section
4 herein.
2. Maturity Date. All principal and accrued interest thereon shall
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mature and be due and payable in accordance with the following terms and
conditions: (a) repayment shall be made prior to the payment of any dividends to
shareholders of Borrower; and Co) all principal and accrued interest shall be
due and payable upon the registration of any shares of Borrower under the
Securities Act of 1933 pursuant to an initial public offering (IPO) of
Borrower's stock, or upon the occurrence of any financing transaction of
Borrower (e.g., merger or acquisition), provided, however, that said IPO or
financing transaction is for an amount in excess of Five Million Dollars
($5,000,000.00). Notwithstanding the foregoing provisions, the outstanding
principal balance, together with all accrued interest thereon, shall be due and
payable in full on March 1, 2004.
3. Transferability of Note. The Lender may transfer or assign this
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Note. The Lender or anyone who takes this Note by transfer or assignment and who
is entitled to receive payments under this Note will be called the "Note
Holder."
4. Interest. Interest will be charged on that part of principal that
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has not been paid. Interest will be charged on the outstanding principal balance
beginning on the date hereof and continuing until the full amount of principal
has been paid. Interest shall accrue on the outstanding principal balance at the
rate of percent (%) per annum. The Borrower acknowledges this loan
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is made expressly and only for business and commercial purposes.
Funding Agreement - Page 8
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5. Required Loan Payments: The Borrower shall make payments to the
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Lender in lawful money of the United States of America, in immediately available
funds, as follows:
(a) Place of Payments. All loan payments shall be paid to Lender at:
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Upgrade International Corporation
435 Martin Street, Suite 1010
Blaine, Washington 98231
or at such other place as may be designated by Lender or the Note Holder from
time to time.
(b) Application of Payments. Each loan payment shall be applied as
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follows: (i) first, toward payment of any and all accrued and unpaid interest;
and (ii) second, toward payment of any outstanding principal balance.
(c) Prepayment of Principal. This Note may be prepaid in whole or in
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part without premium or penalty.
6. Acceleration of Debt. It is expressly agreed that the full amount of
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both principal and interest due pursuant to this Note shall become due and
payable at the option of the Note Holder on the happening of any Event of
Default under the terms of the Funding Agreement.
7. Funding Agreement. This Note is issued pursuant to a Funding
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Agreement between the Borrower and Lender dated ,
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1999. Reference is made to the Funding Agreement concerning additional terms and
conditions pertaining to Lender's rights as to acceleration.
8. Miscellaneous.
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8.1 Borrower and all guarantors and endorsers of this Note,
severally waive diligence, demand, presentment, notice of nonpayment and
protest, and assent to extensions of time of payment, surrender or substitution
of security, or forbearance, or other indulgence, without notice.
8.2 Borrower and all others who may become liable for all or any
part of this obligation, consent to any number of renewals or extensions of the
time of payment hereof and to the release of all or any part of any security
which may be given for the payment hereof. Any such renewals, extensions or
releases may be made without notice to any of said parties and without affecting
their liability.
8.3 This Note shall be governed by and construed in accordance
with the laws of the State of Washington.
Funding Agreement - Page 9
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BORROWER/MAKER:
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EFORNET CORPORATION
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By: David I. Zucker
Its: President
Funding Agreement - Page 10
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SCHEDULE 9.4
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LIABILITIES AND INDEBTEDNESS
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Funding Agreement - Page 11
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