LOAN AGREEMENT
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THIS LOAN AGREEMENT is made and entered into as of May 27, 1999, by and
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between EFORNET CORPORATION, a Washington corporation (the "Borrower"), and
UPGRADE INTERNATIONAL CORPORATION, a Florida corporation (the "Lender").
WHEREAS, the Borrower desires to borrow from the Lender the amount of Four
Hundred Eighty-Two Thousand and no/100 Dollars (U.S. $482,000.00), and the
Lender is willing, subject to and upon the terms and conditions herein set
forth, to lend such amount to the Borrower;
Now, therefore, the parties hereto agree as follows:
1. AMOUNT AND TERMS OF LOAN
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1.1 Note. The borrowing shall be evidenced by a promissory note payable
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to the order of the Lender substantially in the form of Exhibit A attached
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hereto (the "Note"), which shall be dated of even date herewith, duly executed
by the Borrower in the principal amount of U.S. $482,000.00. The Note shall
incorporate the following loan terms and conditions set forth within this
Section 1.
1.2 Borrower's Promise to Pay. In return for the loan advances
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described herein, Borrower promises to pay to the order of Lender the sum of
Four Hundred Eighty-Two Thousand and no/100 Dollars (U.S. $482,000.00),
hereafter referred to as the "principal", plus interest thereon at the rate set
forth below.
a. Loan Advances. As of May 12, 1999, Lender already has advanced to
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Borrower the sum of Three Hundred Forty-Two Thousand and no/100 Dollars
($342,000.00) as more particularly set forth on Exhibit B attached hereto and
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incorporated herein by reference. Lender will advance the remaining balance of
the loan amount (i.e., $140,000.00) to Borrower in accordance with a budget to
be agreed upon by Lender and Borrower. The aggregate amount of such loan
advances will be called the "Outstanding Principal Balance".
b. Maturity Date. All principal and accrued interest thereon shall be
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due and payable in accordance with the following terms and conditions: (i)
repayment shall be made prior to the payment of any dividends to shareholders of
Borrower; and (ii) 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.
c. Transferability of Note.The Lender may transfer or assign the Note.
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The Lender or anyone who takes the Note by transfer or assignment and who is
entitled to receive payments under the Note will be called the "Note Holder."
1.3 Interest. Interest will be charged on the Outstanding Principal
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Balance beginning on the date of the first Loan Advance made hereunder and
continuing until the full amount of the Outstanding Principal Balance has been
paid. Interest shall accrue on the Outstanding Principal Balance at the rate of
eight percent (8%) per annum.
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Notwithstanding anything herein or in the Note to the contrary, it is not
the intention of the parties hereto to charge, nor shall there at any time be
charged or become due and/or payable hereunder or under the Note 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. The Borrower acknowledges that this
Loan is made expressly and only for business and commercial purposes.
1.4 Loan Payments: The Borrower shall make payments to the Lender in lawful
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money of the United States of America, in immediately available funds, as
follows:
a. Place of Payments. All loan payments shall be paid
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to Lender at:
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
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applied as follows:
(i) First, toward payment of any and all accrued and unpaid
interest; and
(ii) Second, oward payment of any Outstanding Principal Balance.
c. Prepayment of Principal. The Note may be prepaid in whole
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or in part without premium or penalty.
1.5 Acceleration of Debt. It is expressly agreed that the full amount
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of both principal and interest due pursuant to the 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 this Loan Agreement.
2. USE OF PROCEEDS. The proceeds of the Loan shall be used for operating
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expenses in the business of the Borrower.
3. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that, until the
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Note together with interest and all its other indebtedness to the Lender under
this Agreement 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.
4. NEGATIVE COVENANT. The Borrower covenants and agrees that, until the Note
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together with interest and all its other indebtedness to the Lender under this
Agreement 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.
Loan Agreement - Page 2
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5. DEFAULTS AND REMEDIES.
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5.1 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 the 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 period of grace, 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
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
Loan Agreement - Page 3
<PAGE>
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 the Note to be due and payable, whereupon the maturity of the then
unpaid balance of the Note 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 the Note to the contrary
notwithstanding.
5.2 Suits for Enforcement. In case any one or more Events of Default
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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 the Note or in any document
or instrument delivered in connection with or pursuant to this Agreement, or to
enforce the payment of the Note or any other legal or equitable right or remedy.
5.3 Rights and Remedies Cumulative. No right or remedy herein conferred
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upon the Lender is intended to be exclusive of any other right or remedy
contained herein, in the Note or in any instrument or document delivered in
connection with or pursuant to this Agreement, and every such flight or remedy
shall be cumulative and shall be in addition to every other such flight or
remedy contained herein and therein or now or hereafter existing at law or in
equity or by statute, or otherwise.
5.4 Rights and Remedies Not Waived. No 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
fight's 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 fight's or remedies hereunder.
6. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender to enter
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into this Agreement and to make the loan as herein provided for, the Borrower
makes the following representations and warranties which shall survive the
execution and delivery of this Agreement and the Note, and any inspection or
examination at any time made by or on behalf of the Lender.
6.1 Corporate Status. The Borrower is a duly organized corporation in
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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.
6.2 Corporate Power and Authority. The Borrower has the power to borrow
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and to execute, deliver, and carry out the terms and provisions of this
Agreement, the Note and all instruments and documents delivered by it pursuant
to this Agreement, and the Borrower has 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, the borrowing hereunder, the making and delivery
of the Note, and the execution, delivery, and performance of the instruments and
documents delivered by it pursuant to this Agreement.
6.3 No Violation of Agreements. The Borrower is not in default under
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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, the Note or any of the instruments and documents to be delivered
pursuant to this Agreement, nor the
Loan Agreement - Page 4
<PAGE>
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.
6.4 Potential Liabilities. The Borrower has no material indebtedness of
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any kind, 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.
7. MISCELLANEOUS.
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7.1 Relations Between the Parties. Lender and Borrower intend that the
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relationship created hereunder and evidenced hereby be solely that of creditor
and debtor. Nothing herein is intended to be construed as creating a joint
venture, partnership, tenancy-in-common, or joint tenancy relationship between
the parties hereto.
7.2 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, the Note, or any instrument or document
delivered pursuant to this Agreement, or as to any collateral securing the Note,
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 the Note and accrued interest thereon.
7.3 Modification and Waiver. No modification or waiver of any provision
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of the Note 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.
7.4 Washington Law. The Note and this Agreement shall be construed in
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accordance with and governed by the laws of the State of Washington.
7.5 Notices. All notices, requests, demands, or other communications
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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
Loan Agreement - Page 5
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7.6 Captions. The captions of the various Sections and paragraphs of
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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.
7.7 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 the Note.
7.8 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.
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 Zucker
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By: Daniel Bland By: David I. Zucker
Its: President Its: President
Loan Agreement - Page 6
<PAGE>
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. $482,000.00
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DATED: May ____ , 1999
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1. Borrower's Promise to Pay. In return for the loan advances described
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herein, Borrower promises to pay to the order of Lender, the principal sum of
Four Hundred Eighty-Two Thousand and no/100 Dollars (USD $482,000.00),
hereinafter referred to as the "principal", plus interest on the principal
amount outstanding from time to time at the rate set forth in Section 2 herein.
a. Loan Advances. As of May 12, 1999, Lender already has advanced to
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Borrower the sum of Three Hundred Forty-Two Thousand and no/100 Dollars
($342,000.00). Lender will advance the remaining balance of the loan amount
(i.e., $140,000.00) to Borrower in accordance with a budget agreed upon by
Lender and Borrower. The aggregate amount of such loan advances will be called
the "Outstanding Principal Balance."
b. 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: (i) repayment shall be made prior to the payment of any dividends to
shareholders of Borrower; and (ii) 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.
c. 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."
2. Interest. Interest will be charged on that part of principal that has
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not been paid. Interest will be charged on the Outstanding Principal Balance
beginning on the date of the first Loan Advance made hereunder and continuing
until the full amount of principal has been paid. Interest shall accrue on the
Outstanding Principal Balance at the rate of eight percent (8%) per annum. The
Borrower acknowledges this loan is made expressly and only for business and
commercial purposes.
3. Required Loan Payments: The Borrower shall make payments to the Lender
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in lawful money of the United States of America, in immediately available funds,
as follows:
Loan Agreement - Page 6
<PAGE>
a. Place of Payments. All loan payments shall be paid to
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Lender at:
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.
4. 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 Loan Agreement.
5. Loan Agreement. This Note is issued pursuant to a Loan Agreement
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between the Borrower and Lender dated of even date herewith. Reference is made
to the Loan Agreement concerning additional terms and conditions pertaining to
Lender's rights as to acceleration.
6. Miscellaneous.
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a. 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.
b. 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.
c. This Note shall be governed by and construed in accordance with
the laws of the State of Washington.
d. This Note may be executed by facsimile, which shall be deemed an
original.
BORROWER/MAKER:
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EFORNET CORPORATION
/s/ David I. Zucker
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By: David I. Zucker
Its: President
Loan Agreement - Page 7
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