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EXHIBIT 4.06
THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SECURITIES MAY
NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL,
IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER THE SECURITIES ACT.
PROMISSORY NOTE
January 12, 2001 $2,860,000.00
FOR VALUE RECEIVED, SMARTSOURCES.COM, INC., a corporation organized
under the laws of the State of Colorado (the "BORROWER"), hereby promises to pay
to RGC INTERNATIONAL INVESTORS, LDC (the "HOLDER") the sum of Two Million, Eight
Hundred Sixty Thousand and No/100 ($2,860,000.00) Dollars and to pay interest on
the unpaid principal balance hereof at a daily rate expressed as a fraction, the
denominator of which is three hundred and sixty (360) and the numerator of which
is Eleven (11%) Percent per annum compounded annually from the date hereof (the
"Issue Date") until the same becomes due and payable. Any amount of principal of
or interest on this Note which is not paid when due shall bear interest at the
lesser of the highest rate permitted by the Governing Law (as defined herein) or
the rate of seventeen percent (17%) per annum from the due date thereof until
the same is paid. Interest shall be calculated based on a 360-day year and shall
commence accruing on the date hereof. Borrower shall pay to Holder, monthly,
commencing on January 12, 2002 and on the first day of each and every month
thereafter until the Maturity Date, installments of $20,000.00, which shall be
applied to accrued and unpaid interest, it being understood that such
installments may not be sufficient to pay all accrued interest. Any accrued
interest not paid by any regularly scheduled $20,000.00 installment shall be
compounded annually. Notwithstanding anything herein to the contrary, the entire
unpaid principal balance of this Note, together with all accrued and unpaid
interest thereon, shall be due and payable on January 12, 2005 (the "MATURITY
DATE"). All payments of principal and interest shall be made in, and all
references herein to monetary denominations shall refer to, lawful money of the
United States of America. All payments shall be made c/o Rose Glen Capital
Management, L.P., 3 Bala Plaza East, Suite 501, 251 Asaphs Road, Bala Cynwyd,
Pennsylvania 19004, or such other address as the Holder shall hereafter give to
the Borrower by written notice.
Holder makes no representation, either in this instrument or elsewhere,
that the rate of interest offered herein is the lowest or best rate of interest
offered by Holder for loans of the kind evidenced by this instrument, or loans
of any other kind.
Borrower may at its sole election at any time and from time to time
prepay all or any part of this Note. All prepayments shall first be applied to
any amounts due hereunder not constituting accrued interest or principal, then
to all accrued and unpaid interest that is not due and payable monthly as
provided herein, then to all other accrued and unpaid interest, then for
principal. Any
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prepayment of principal shall reduce the outstanding principal balance of this
Note by the amount of principal so repaid plus the "Discount Amount". The
"Discount Amount" shall be the product of: (i) the amount of the principal paid,
multiplied by (ii) a fraction the denominator of which is 360 and the numerator
of which is four (4%) percent per annum, multiplied by (iii) the number of days
from the date of the prepayment through the Maturity Date. In the event that as
a result of one or more prepayments of principal, the $20,000 installment per
month payments shall exceed the amount of interest accruing monthly on the
balance of principal then owing, Borrower shall continue to make the $20,000
monthly payments to Holder and those payments shall be applied first to interest
and then to the prepayment of principal as provided above.
1. Events of Default. Each of the following occurrences shall constitute
an "EVENT OF DEFAULT" under this Note:
(a) Failure to Pay Principal or Interest. Borrower shall default in
the full payment of any installment of principal or interest as and when due
under this Note; or
(b) Breach of Agreements. If Borrower or any subsidiary of Borrower
violates any of the terms or breaches any of the representations, warranties or
covenants contained in this Note, in that certain Redemption and Exchange
Agreement dated as of January 12, 2001 by and between Borrower and Holder (the
"Redemption Agreement"), or in any guaranty delivered to Holder by any
subsidiary of Borrower, if any such default is not cured within ten (10) days of
written notice from Holder;
(c) Default as to Other Indebtedness; Operating Leases. Borrower or
any subsidiary of Borrower shall fail to make any payment when due (whether by
scheduled maturity, prior to the stated maturity, required prepayment,
acceleration, demand or otherwise) with respect to any Indebtedness (defined
below) (other than hereunder), singly or in the aggregate equal to or exceeding
$50,000; or any breach, default or event of default on the part of Borrower or
any subsidiary of Borrower shall occur under any operating lease to which
Borrower or a subsidiary of Borrower is a party which breach, default or event
of default shall materially adversely affect the rights of Borrower or such
subsidiary with respect to the property subject to any operating lease on which
the remaining payments exceed $100,000.
(d) Involuntary Bankruptcy; Appointment of Receiver, Etc.
(i) An involuntary case shall be commenced against
Borrower or any subsidiary of Borrower and the petition shall not
be dismissed, stayed, bonded or discharged within sixty (60) days
after commencement of the case; or a court having jurisdiction in
the premises shall enter a decree or order for relief in respect
of Borrower or any subsidiary of Borrower in an involuntary case,
under any applicable bankruptcy, insolvency or other similar law
now or hereinafter in effect; or any other similar relief shall
be granted under any applicable federal, state, local or foreign
law;
(ii) A decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer
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having similar powers over Borrower or any subsidiary of Borrower
or over all or a substantial part of the property of Borrower or
any subsidiary of Borrower shall be entered; or an interim
receiver, trustee or other custodian of Borrower or any
subsidiary of Borrower or of all or a substantial part of the
property of Borrower or any subsidiary of Borrower shall be
appointed or a warrant of attachment, execution or similar
process against any substantial part of the property of Borrower
or any subsidiary of Borrower shall be issued and any such event
shall not be stayed, dismissed, bonded or discharged within sixty
(60) days after entry, appointment or issuance.
(e) Voluntary Bankruptcy; Appointment of Receiver, Etc. Borrower or
any subsidiary of Borrower shall have an order for relief entered with respect
to it or commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or shall consent to the entry
of an order for relief in an involuntary case, or to the conversion of an
involuntary case to a voluntary case, under any such law, or shall consent to
the appointment of or taking possession by a receiver, trustee or other
custodian for all or a substantial part of its property or assets; or Borrower
or any subsidiary of Borrower shall make any assignment for the benefit of
creditors or shall be unable or fail, or admit in writing its inability, to pay
its debts as such debts become due; or the shareholders or board of directors
(or equivalent) of Borrower or any subsidiary of Borrower (or any committee
thereof) adopts any resolution or otherwise authorizes any action to approve any
of the foregoing.
(f) Dissolution. Any order, judgment or decree shall be entered
against Borrower or any subsidiary of Borrower which accounts for 10% or more of
Borrower's business, decreeing its involuntary dissolution or split up and such
order shall remain undischarged and unstayed for a period in excess of thirty
(30) days; or Borrower or any subsidiary of Borrower shall otherwise dissolve,
be dissolved, or cease to exist except as specifically permitted by this Note.
(g) Loan Documents. At any time, for any reason, (i) this Note, the
Redemption Agreement or any document evidencing or guaranteeing the Obligations
(defined below) (collectively, "LOAN DOCUMENTS") ceases to be in full force and
effect, (ii) Borrower or any subsidiary of Borrower expressly repudiates its
obligations under the Loan Documents either in writing or through a public
announcement, or (iii) Borrower or any subsidiary of Borrower grant a Lien
(except as permitted hereunder) in favor of parties other than Holder.
(h) Judgments and Attachments.
(i) Any money judgment (other than a money judgment
covered by insurance as to which the insurance company has
acknowledged coverage), writ or warrant of attachment, or similar
process against Borrower or any subsidiary of Borrower or any of
their respective assets involving in any case an amount in the
aggregate in excess of $100,000 is entered and shall remain
undischarged, unvacated, unbonded or unstayed for a period of
forty-five (45) days or in any event later than five (5) days
prior to the date of any proposed sale thereunder; provided,
however, if any such judgment, writ or warrant of attachment or
similar process is in excess of
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$100,000, the entry thereof shall immediately constitute an Event
of Default hereunder unless fully bonded in a manner satisfactory
to Holder.
(ii) A federal or foreign tax Lien is filed against
Borrower or any subsidiary of Borrower or against any of the
property of Borrower or any subsidiary of Borrower which is not
discharged of record, bonded over or otherwise secured to the
reasonable satisfaction of Holder within sixty (60) days after
the filing thereof or the date upon which Holder receives actual
knowledge of the filing thereof for an amount which equals or
exceeds, when combined with such amounts claimed to be owing by
Borrower and its subsidiaries, $50,000.
(iii) An environmental Lien is filed against any of the
Property with respect to claims in an amount which equals or
exceeds $50,000 and such Lien is not discharged, vacated, bonded
or stayed within thirty (30) days of the imposition of the Lien.
(i) [INTENTIONALLY OMITTED]
(j) [INTENTIONALLY OMITTED]
(k) Material Adverse Effect. An event shall occur which results in a
Material Adverse Effect (defined below).
An Event of Default shall be deemed "continuing" until cured or waived
in writing by Holder in its sole and absolute discretion.
2. Rights and Remedies.
(a) Acceleration. Upon the occurrence of any Event of Default
described in 1(d), (e) or 1(f), the unpaid principal amount of, and any and all
accrued interest on, the Obligations and all accrued fees shall automatically
become immediately due and payable, without presentment, demand, or protest or
other requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and of acceleration), all of which are hereby expressly waived by Borrower; and
upon the occurrence and during the continuance of any other Event of Default,
Holder may declare the unpaid principal amount of and any and all accrued and
unpaid interest on the Obligations to be, and the same shall thereupon be,
immediately due and payable, without presentment, demand, or protest or other
requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and of acceleration), all of which are hereby expressly waived by Borrower.
(b) Enforcement. Borrower acknowledges that in the event Borrower or
any Guarantor (as defined herein) fails to perform, observe or discharge any of
their respective obligations or liabilities under this Note, the Redemption
Agreement or any other Loan Document, any remedy of law may prove to be
inadequate relief to Holder; therefore, Borrower agrees that Holder shall be
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entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
(c) Other. The remedies provided in this Note shall be cumulative and
concurrent and in addition to all other remedies available at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
may be pursued singly, successively or together, at the sole discretion of
Holder, and may be exercised as often as occasion therefor shall arise. No
remedy contained herein shall be deemed a waiver of compliance giving rise to
such remedy and nothing herein shall limit Holder's right to pursue actual
damages for any failure by the Borrower to comply with the terms of this Note.
No act of omission or commission of Holder, including specifically any failure
to exercise any right, remedy or recourse, shall be effective unless it is set
forth in a written document executed by Holder and then only to the extent
specifically recited therein. A waiver or release with reference to one event
shall not be construed as continuing, as a bar to, or as a waiver or release of,
any subsequent right, remedy or recourse as to any subsequent event.
(d) [INTENTIONALLY OMITTED]
3. Reporting Covenants. Borrower covenants and agrees that so long as any
principal or interest is outstanding and thereafter until payment in full of all
amounts due and payable hereunder and under the Loan Documents (collectively,
"Obligations") (other than indemnities not yet due), unless Holder shall
otherwise give its prior written consent thereto:
(a) Financial Statements. Borrower shall maintain, and cause each of
its subsidiaries to maintain, a system of accounting established and
administered in accordance with sound business practices to permit preparation
of consolidated and consolidating financial statements in conformity with
generally accepted accounting principles set forth in the opinions and
pronouncements of the American Institute of Certified Public Accountants
Accounting Principles Board and Financial Accounting Standards Board ("GAAP")
and each of the financial statements described below ("Financial Statements")
shall be prepared from such system and records. Borrower shall deliver or cause
to be delivered to Holder:
(i) Quarterly Reports. As soon as practicable, and in
any event within fifty (50) days after the end of each fiscal
quarter of Borrower ("FISCAL QUARTER") in each fiscal year of
Borrower ("FISCAL YEAR"), the consolidated and consolidating
balance sheets of Borrower and its subsidiaries as at the end of
such period and the related consolidated and consolidating
statement of income of Borrower and its subsidiaries and
consolidated statements of shareholders' equity and cash flow of
Borrower and its subsidiaries, in each instance, for such Fiscal
Quarter, certified by the chief financial officer of Borrower as
fairly presenting the respective consolidated and consolidating
financial positions of Borrower and its subsidiaries as at the
dates indicated and the results of their operations and cash flow
for the periods indicated in accordance with GAAP, subject to
normal year end adjustments and excluding footnotes. Delivery to
Holder of Borrower's SEC Form 10-Q for any Fiscal Quarter
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within the time period required hereby shall be deemed to satisfy
the requirements of this Section 3(a)(i).
(ii) Annual Reports. As soon as practicable, and in any
event within one hundred and five (105) days after the end of
each Fiscal Year, (x) the consolidated and consolidating balance
sheets of (A) Borrower and its subsidiaries as at the end of such
Fiscal Year and (B) to the extent the same are routinely and
regularly prepared, each of Borrower's subsidiaries as at the end
of such Fiscal Year and (y) the related consolidated and
consolidating statements of income, shareholders' equity and cash
flow of (A) Borrower and its subsidiaries and (B) to the extent
the same are routinely and regularly prepared, each of Borrower's
subsidiaries for such Fiscal Year, setting forth in each case in
comparative form the corresponding figures for the previous
Fiscal Year, and (z) a report on such consolidated Financial
Statements of Borrower and its subsidiaries of Moss Adams LLP or
other independent certified public accountants acceptable to
Holder; which report: shall be unqualified as to the scope of the
audit performed and shall state that such Financial Statements
fairly present the consolidated financial position of Borrower
and its subsidiaries as at the dates indicated and the results of
their operations and cash flow for the periods indicated in
conformity with GAAP applied on a basis consistent with prior
years (except for changes with which Moss Adams LLP or any such
other independent certified public accountants, if applicable,
shall concur and which shall have been disclosed in the notes to
the Financial Statements) and that the examination by such
accountants in connection with such Financial Statements has been
made in accordance with generally accepted auditing standards.
Delivery to Holder of Borrower's SEC Form 10-K within the time
period required hereby shall be deemed to satisfy the
requirements of Section 3(a) (ii) (x) and (y).
(b) Events of Default. Promptly upon any of the chairman of the board
of directors, president, chief executive officer, chief operating officer, chief
financial officer, treasurer or controller of Borrower obtaining knowledge (i)
of any condition or event which constitutes an Event of Default under this Note,
(ii) that any person (other than Holder) has given any notice to Borrower or any
of Borrower's subsidiaries or taken any other action with respect to a claimed
default or event or condition of the type referred to in Section 1(c), or (iii)
of any condition or event which has resulted in a Material Adverse Effect
(defined below), Borrower shall deliver to Holder a certificate from the chief
financial officer, president or treasurer of Borrower ("OFFICER'S CERTIFICATE")
specifying (x) the nature and period of existence of any such claimed default or
Event of Default, (y) the notice given or action taken by such person in
connection therewith, and (z) what action Borrower or the applicable subsidiary
has taken, is taking and proposes to take with respect thereto. For the purposes
of this Note, "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect
upon (i) the business, operations, assets, financial condition, results of
operation, or properties of Borrower and its subsidiaries taken as a whole, (ii)
the authority or ability of Borrower or any of its subsidiaries to perform their
respective obligations under this Note or the Redemption Agreement or the other
Loan Documents, or (iii) the ability of Holder to enforce this Note, the
Redemption Agreement or the other Loan Documents.
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(c) Lawsuits.
(i) Institution of Proceedings. Promptly upon Borrower or
any subsidiary of Borrower obtaining knowledge of the institution
of, or written threat of, any action, suit, proceeding,
governmental investigation or arbitration against or affecting
Borrower or any subsidiary of Borrower (other than an action,
suit or proceeding brought by Holder), which action, suit,
proceeding, governmental investigation or arbitration exposes, or
in the case of multiple actions, suits, proceedings, governmental
investigations or arbitrations arising out of the same general
allegations or circumstances which expose, in Borrower's
reasonable judgment, Borrower or any subsidiary of Borrower to
liability in an amount aggregating $50,000 or more (exclusive of
claims covered by insurance policies of Borrower or its
subsidiaries unless the insurers of such claims have disclaimed
coverage or reserved the right to disclaim coverage on such
claims), Borrower shall give written notice thereof to Holder and
provide such other information (other than information protected
by attorney-client privilege) as may be reasonably available to
enable Holder and its counsel to evaluate such matters.
(ii) Additional Reports Upon Request. In addition to the
requirements set forth in clause (i) of this Section 3(c),
Borrower, upon the request of Holder, shall promptly give written
notice of the status of any action, suit, proceeding,
governmental investigation or arbitration covered by a report
delivered pursuant to clause (i) and provide such other
information as may be reasonably available to it to enable Holder
and its counsel to evaluate such matters.
(d) Insurance. As soon as practicable and in any event by the last
business day of October in each calendar year, Borrower shall deliver to Holder
(i) a report in form and substance reasonably satisfactory to Holder outlining
(A) all material insurance coverage maintained as of the date of such report by
Borrower and its subsidiaries and the duration of such coverage and (B) the
claims and awards, if any, made under such insurance for the twelve (12)
calendar month period then ending and (ii) evidence that all premiums with
respect to such coverage have been paid.
(e) SEC Reports. Simultaneous with the filing of any report or
document with the United States Securities and Exchange Commission ("SEC
Filing"), Borrower shall deliver a copy of such SEC Filing to Holder.
(f) Other Reports. Simultaneous with the delivery thereof to the
primary intended recipient, Borrower shall deliver or cause to be delivered to
Holder (i) copies of all press releases made available generally by Borrower or
any of its subsidiaries to the public concerning material developments in the
business of such person(s), (ii) reports, if any, submitted to Borrower or any
of its subsidiaries or their respective boards of directors by such person's
independent public accountants, including, without limitation, any management
report prepared in connection with the annual audit; and (iii) copies of all
documents and reports delivered to any creditor of Borrower or its subsidiaries
who provides loans or credit facilities to Borrower or its subsidiaries.
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(g) Other Information. Promptly upon receiving a request therefor
from Holder, Borrower shall prepare and deliver to Holder such other information
with respect to Borrowers and its subsidiaries, as from time to time may be
reasonably requested by Holder.
4. Affirmative Covenants. Borrower covenants and agrees that until payment
in full of all of the Obligations (other than indemnities not yet due), unless
Holder shall otherwise give its prior written consent:
(a) Existence, Etc. Borrower shall at all times maintain, and cause
each of its subsidiaries to maintain, its corporate existence and preserve and
keep, or cause to be preserved and kept, in full force and effect their
respective rights and franchises material to their respective businesses.
(b) Corporate Powers; Conduct of Business. Borrower shall, and shall
cause each of its subsidiaries to, qualify and remain qualified to do business
and maintain its good standing in each jurisdiction in which the nature of its
business and the ownership of its property requires it to be so qualified and in
good standing, except to the extent that failure to be so qualified does not
have a Material Adverse Effect.
(c) Compliance with Laws, Etc. Borrower shall, and shall cause each
of its subsidiaries to, (i) comply with all requirements of law affecting it or
its business, property, assets or operations, and (ii) obtain as needed all
permits necessary for its operations and maintain such permits in good standing,
except in the case where noncompliance with either clause (i) or (ii) above is
not reasonably likely to result in a Material Adverse Effect.
(d) Payment of Taxes and Claims. Borrower shall, and shall cause each
of its subsidiaries to, file all tax returns and reports as and when required by
the related governmental authority and pay (i) all taxes, assessments and other
governmental charges imposed upon it or on any of its property or assets or in
respect of any of its franchises, business, income or property before any
penalty or interest accrues thereon and (ii) all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or may become a Lien (defined
below) (other than a Permitted Lien (defined in Section 5(c))) upon any of the
property of Borrower or any other subsidiary of Borrower, prior to the time when
any penalty or fine shall be incurred with respect thereto; provided, however,
that no such taxes, assessments and governmental charges referred to in clause
(i) above or claims referred to in clause (ii) above need be paid if being
contested in good faith by appropriate proceedings diligently instituted and
conducted and if such reserve or other appropriate provision, if any, as shall
be required in conformity with GAAP shall have been made therefor. For purposes
of this Note, the term "LIEN" means any mortgage, deed of trust, pledge,
hypothecation, assignment, conditional sale or other title retention agreement,
deposit arrangement, security interest, encumbrance (including, without
limitation, easements, rights-of-way, zoning restrictions and the like), lien
(statutory or other and including, without limitation, any environmental lien),
option, preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever in respect of any property of a
person, whether granted voluntarily or imposed by law, and includes the interest
of a lessor under a capital lease or under any financing lease having
substantially the same economic
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effect as any of the foregoing and the filing of any financing statement or
similar notice (other than a financing statement filed by a "true" lessor
pursuant to s. 9-408 of the Uniform Commercial Code), naming the owner of such
property as debtor, under the Uniform Commercial Code or other comparable law of
any jurisdiction.
(e) Insurance. Borrower shall maintain in full force and effect the
insurance policies and programs as are reasonably acceptable to Holder. All such
policies and programs shall be maintained with insurers reasonably acceptable to
Holder.
(f) Inspection of Property; Books and Records; Discussions. Borrower
shall permit, and shall cause each of its subsidiaries to permit, any authorized
representative(s) designated by Holder to visit and inspect, whether by access
to Borrower's or its respective subsidiaries' MIS or otherwise, any of their
respective property, to examine, audit, check and make copies of Borrower's and
its respective subsidiaries' financial and accounting records, books, journals,
orders, receipts and any correspondence (other than privileged correspondence
with legal counsel) and other data relating to their respective businesses or
the transactions contemplated hereby or referenced herein (including, without
limitation, in connection with environmental compliance, hazard or liability, by
such representatives designated by Holder), and to discuss their affairs,
finances and accounts with their management personnel and independent certified
public accountants, all upon reasonable written notice and at such reasonable
times during normal business hours, as often as may be reasonably requested.
After the occurrence of a default or an Event of Default hereunder, each such
visitation and inspection shall be at Borrower's expense. Borrower shall keep
and maintain, and cause each of its subsidiaries to keep and maintain, in all
material respects on its MIS and otherwise proper books of record and account in
which entries in conformity with GAAP shall be made of all dealings and
transactions in relation to its respective businesses and activities. If an
Event of Default has occurred and is continuing and the Obligations have been
accelerated pursuant to Section 1, Borrower, upon Holder's request in connection
with efforts to enforce the rights and remedies of Holder hereunder, shall turn
over, and cause each of their respective subsidiaries to turn over, any such
records requested by Holder to Holder or its representatives; provided, however,
that Borrower may, in its discretion, retain copies of such records. Without
limiting the foregoing, Borrower acknowledges and agrees that Holder may engage
an independent consultant to act as its representative to undertake certain of
the aforesaid actions on behalf of Holder and covenants that Borrower will, and
will cause its subsidiaries to, cooperate fully with such consultant in the
conduct of its activities and make available such personnel, information, data
and documents as are requested by such consultant in the conduct of such
activities. After the occurrence of a default or an Event of Default hereunder,
all such activities of consultants shall be at the expense of Borrower. Holder
will use reasonable efforts consistent with prudent practices, to keep all
non-public and proprietary information of Borrower and any subsidiary of
Borrower confidential provided that Holder may disclose such information (a)
subject to appropriate confidentiality agreements, (b) in accordance with
applicable law, or (c) when such information becomes public through no fault of
Holder.
(g) [INTENTIONALLY OMITTED].
(h) Maintenance of Property. Borrower shall, and shall cause each of
its subsidiaries to, maintain in all material respects all of its owned and
leased property in good, safe and insurable
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condition and not permit, commit or suffer any waste of any such property and
shall maintain all such property in good working order, reasonable wear and tear
excepted; provided, however, that such property may be altered or renovated in
the ordinary course of Borrower's or any of its subsidiaries' business.
(i) Condemnation. Immediately upon Borrower learning of the
institution of any proceeding for the condemnation or other taking of any of the
owned or leased real property of Borrower or any of its subsidiaries, Borrower
shall notify Holder of the pendency of such proceeding.
(j) Future Guarantees. Borrower shall cause all subsidiaries of
Borrower to execute and deliver to Holder a guaranty of the Obligations
concurrently with such entity becoming a subsidiary of Borrower, in form and
substance satisfactory to Holder in its sole discretion.
5. Negative Covenants. Borrower covenants and agrees that it shall comply
with the following covenants until payment in full of all of the Obligations
(other than indemnities not yet due), unless Holder shall otherwise give its
prior written consent:
(a) Indebtedness. Borrower may incur Indebtedness on an unsecured
basis where the creditor is merely a general unsecured creditor of Borrower or
its subsidiaries and is not entitled to payments on a preferential basis.
Borrower shall not, nor shall Borrower permit any of its subsidiaries to,
directly or indirectly create, incur, assume or otherwise become or remain
directly or indirectly (as an Accommodation Obligation (as defined below) or
otherwise) liable with respect to any Indebtedness (defined below) that is
secured or senior to the Obligations unless Holder is separately granted by
Borrower, a pari passu senior position in right of payment with such creditor,
and if such creditor is secured, a pari passu security interest with such
creditor (the "Permitted Senior Indebtedness"). Holder and Borrower will execute
such documents reasonably required to evidence such secured or senior pari passu
position contemporaneously with the issuance of such senior or secured loan or
extension of credit. The Permitted Senior Indebtedness may be paid in accordance
with the terms of such Senior Permitted Indebtedness provided that no default or
Event of Default exists or would occur upon making such payment and provided
further that neither Borrower nor any subsidiary shall pre-pay or accelerate any
payments payable under the Permitted Senior Indebtedness. Notwithstanding the
foregoing, Borrower may incur Indebtedness which constitutes Customary Permitted
Liens and Permitted Liens (as defined below).
(i) For purposes of this Note "Indebtedness" as applied
to any person, means without limitation all indebtedness,
obligations or other liabilities of such person for borrowed
money or evidenced by debt securities, debentures, acceptances,
notes or other similar instruments, and any accrued interest,
fees and charges relating thereto, or which are Accommodation
Obligations.
(ii) For purposes of this Note "Accommodation Obligation"
means any contractual obligation, contingent or otherwise, of one
person with respect to any Indebtedness, obligation or liability
of another, if the primary purpose or intent thereof by the
person incurring the Accommodation Obligation is to provide
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assurance to the obligee of such Indebtedness, obligation or
liability of another that such Indebtedness, obligation or
liability will be paid or discharged, or that any agreements
relating thereto will be complied with. The amount of any
Accommodation Obligation shall be equal to the amount of the
Indebtedness, obligation or liability so guaranteed or otherwise
supported; provided, that if the liability of the person
extending such guaranty or support is limited with respect
thereto to an amount less than the Indebtedness, obligation or
liability guaranteed or supported, or is limited to recourse
against a particular asset or assets of such person, the amount
of the corresponding Accommodation Obligation shall be so
limited.
(b) Sales of Assets. Borrower shall not, and shall not allow any of
its subsidiaries to sell, assign, transfer, lease, convey or otherwise dispose
of any of its property, whether now owned or hereafter acquired, or any income
or profits therefrom, or enter into any agreement to do so other than in the
ordinary course of business, unless:
(i) the sale of any tangible or intangible property
outside of the ordinary course of such person's business is for
consideration not less than the fair market value thereof and the
fair market value thereof in the aggregate with all other sales
outside the ordinary course of business on an annual basis does
not exceed $100,000, provided that when the proceeds or other
consideration exceed $100,000 for sales outside the ordinary
course of business, fifty percent (50%) of the proceeds and any
other consideration received in excess of $100,000 from such
sales, shall be paid to Holder and if required by the terms of
the Permitted Senior Indebtedness any other senior creditor, pro
rata, and payments to Holder shall be applied against the
Obligations; and
(ii) the disposition of equipment if (A) such equipment is
obsolete or no longer useful in the ordinary course of business
of Borrower or any of its subsidiaries, provided that the
aggregate fair market value of all such equipment disposed of in
any Fiscal Year by Borrower or any of its subsidiaries and its
subsidiaries shall not exceed $50,000, or (B) within six (6)
months after such disposition, an amount equal to the proceeds
therefrom is either (x) used to finance the purchase of
replacement equipment and the seller thereof delivers to Holder
evidence of such use and that the replacement equipment is free
and clear of all Liens except Permitted Liens or (y) the proceeds
are delivered to Holder for application to the repayment of the
Obligations, and if required by the terms of the Permitted Senior
Indebtedness, to such senior creditor, pro rata.
(c) Liens. Borrower shall not, and shall not permit any of its
subsidiaries to directly or indirectly create, incur, assume or permit to exist
any Lien on or with respect to any of their respective property or assets except
(i) Permitted Senior Indebtedness, (ii) Customary Permitted liens, and (iii)
liens securing Indebtedness which is incurred to refinance Indebtedness which is
secured by Permitted Liens (as defined below); provided that such liens do not
extend to or cover any property or assets of the Borrower or any of its
subsidiaries other than the property or assets securing the indebtedness being
refinanced.
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(i) For purposes hereof "PERMITTED LIENS" means (i) liens
(including extensions and renewals thereto) upon real or personal
(whether tangible or intangible) property acquired after the
Issue Date provided that (a) such lien is created solely for the
purpose of securing indebtedness incurred, (1) to finance the
cost (including the cost of improvement or construction) of the
item of property or assets acquired and such lien is created
prior to, at the time of or within 12 months after the later of
the acquisition, the completion of construction or the
commencement of full operation of such property or (2) to
refinance any indebtedness previously so secured, (b) the
principal amount of the indebtedness secured by such lien does
not exceed 100% of such cost and (c) any such lien shall not
extend to or cover any property or assets other than such item of
property or assets and any improvements on such item; (ii) any
interest or title of a lessor in the property subject to any
capitalized lease obligation or operating lease; (iii) liens on
property of, or on shares of capital stock or indebtedness of,
any person existing at the time such person becomes, or becomes a
part of, the Borrower or any subsidiary of the Borrower; provided
that such liens do not extend to or cover any property or assets
of the Borrower or any subsidiary of the Borrower, other than the
property or assets acquired; (iv) liens in favor of the Borrower
or any subsidiary; (v) liens securing reimbursement obligations
with respect to letters of credit that encumber documents or
other property relating to such letters of credit and the
products and proceeds thereof; (vi) liens arising out of
conditional sale, title retention, consignment or similar
arrangements for the sale of products entered into by the
Borrower or any of its subsidiaries in the ordinary course of
business of the Borrower and its subsidiaries; (vii) liens
securing the Borrower's obligations in respect of bankers'
acceptances issued or created to facilitate the purchase,
shipment or storage of inventory or other products which are
limited to the inventory or products related thereto; and (viii)
licenses, escrows or any security interests arising in the
ordinary course of business, granted by the Borrower with respect
to any intellectual property owned by the Borrower.
(ii) For purposes of this Note, "Customary Permitted
Liens" means (i) Liens (other than environmental liens and Liens
in favor of the Pension Benefit Guaranty Corporation ("PBGC")
with respect to the payment of taxes, assessments or governmental
charges in all cases which are not yet due or which are being
contested in good faith by appropriate proceedings and with
respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with GAAP; (ii)
statutory Liens of landlords and Liens of suppliers, mechanics,
carriers, materialmen, warehousemen or workmen and other Liens
imposed by law created in the ordinary course of business for
amounts not yet due or which are being contested in good faith by
appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in
accordance with GAAP; (iii) Liens (other than any Lien in favor
of the PBGC) incurred or deposits made in the ordinary course of
business in connection with worker's compensation, unemployment
insurance or other types of social security benefits or
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<PAGE> 13
to secure the performance of bids, tenders, sales, contracts
(other than for the repayment of borrowed money), surety, appeal
and performance bonds; provided that (A) all such Liens do not in
the aggregate materially detract from the value of Borrower's or
any of its subsidiaries' assets or property or materially impair
the use thereof in the operation of their respective businesses,
and (B) all Liens of attachment or judgment and Liens securing
bonds to stay judgments or in connection with appeals do not
secure at any time an aggregate amount exceeding $50,000; and
(iv) Liens arising with respect to zoning restrictions,
easements, licenses, reservations, covenants, rights-of-way,
utility easements, building restrictions and other similar
charges or encumbrances on the use of real property which do not
interfere with the ordinary conduct of the business of a Borrower
or any of its subsidiaries.
(d) [INTENTIONALLY OMITTED]
(e) [INTENTIONALLY OMITTED]
(f) Restricted Junior Payments. Borrower shall not, nor shall
Borrower permit any of its subsidiaries to, declare or make any Restricted
Junior Payment (defined below), except dividends or other distributions
(directly or indirectly) from subsidiaries of Borrower to Borrower in such
amounts and at such times as are required to enable Borrower to meet its
Obligations hereunder or under any Indebtedness permitted by Section 5(a)
hereof. Notwithstanding the foregoing, payments by Borrower to a Guarantor or a
Guarantor to Borrower in accordance with the terms of the specific Indebtedness
are permitted provided that no default or Event of Default exists or will occur
as a result of such payment. For purposes of this Note, the term "RESTRICTED
JUNIOR PAYMENT" shall mean (i) any dividend or other distribution, direct or
indirect, on account of any equity securities of Borrower or any subsidiary of
Borrower now or hereafter outstanding other than shares issued pursuant to a
shareholders rights plan, (ii) any redemption, retirement, sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of
any securities of Borrower or any subsidiary of Borrower now or hereafter
outstanding, (iii) any payment or prepayment of principal of, premium, if any,
or interest, fees or other charges on or with respect to, and any redemption,
purchase, retirement, defeasance, sinking fund or similar payment and any claim
for rescission with respect to, any Indebtedness owing at any time to any
affiliate of a Borrower, (iv) any payment made to redeem, purchase, repurchase
or retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire equity securities of Borrower or any subsidiary of
Borrower now or hereafter outstanding, and (v) any fees or other remuneration
paid to Borrower or any subsidiary of Borrower. [INTENTIONALLY OMITTED]
(g) Transactions with Affiliates. Borrower shall not, and shall not
permit any of its subsidiaries to directly or indirectly enter into or permit to
exist any transaction (including, without limitation, the purchase, sale, lease
or exchange of any property or the rendering of any service) with any affiliate
of Borrower, on terms that are less favorable to Borrower or its subsidiary than
those that might be obtained in an arm's length transaction at the time from
persons who are not such an affiliate, provided that Borrower may enter into a
business transaction with a Guarantor if Borrower's board of directors deem such
transaction to be prudent in the exercise of their reasonable business judgment.
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<PAGE> 14
(h) Restriction on Fundamental Changes. Borrower shall not, and shall
not permit any of its subsidiaries to enter into any merger or consolidation
with an unaffiliated third party. Notwithstanding the foregoing if the combined
financial strength after the merger is greater than or equal to the Borrower's
financial condition prior to the merger and Borrower's ability to satisfy the
Obligations is not impaired, as certified without qualification to Holder by an
independent public accounting firm or independent investment banking firm, in
either case, reasonably acceptable to Holder, then Borrower may pursue the
merger without Holder's consent. Borrower shall not, and shall not permit any of
its subsidiaries (which account for 10% or more of Borrower's business) to
liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), or
convey, lease, sell, transfer or otherwise dispose of, in one transaction or a
series of transactions, all or substantially all of its business or property,
whether now or hereafter acquired.
(i) [INTENTIONALLY OMITTED]
(j) [INTENTIONALLY OMITTED]
(k) Organizational Documents. Borrower shall not, nor shall Borrower
permit any of its subsidiaries to, amend, modify or otherwise change any of the
terms or provisions in any of its organizational documents (charter, articles of
incorporation, bylaws, partnership agreements, membership agreements, operating
agreements or other similar documents) as in effect on the date hereof, which
change in any material respect the nature of Borrower's or any of its
subsidiaries' business or obligations with respect to the payment of its
Indebtedness or which would otherwise have a Material Adverse Effect.
(l) [INTENTIONALLY OMITTED]
Borrower and each endorser, surety, guarantor or other accommodation
party of this Note (hereinafter referred to collectively as the "Obligors" and
individually an "Obligor") hereby: (a) waive demand, presentment for payment,
notice of nonpayment, protest, notice of protest and all other notice, filing of
suit and diligence in collecting this Note, in enforcing any of the security
rights or in proceeding against any security that may hereafter be granted to
secure this Note; (b) agree to any substitution, exchange, addition or release
of any security that may hereafter be granted to secure this Note or the
addition or release of any party or person primarily or secondarily liable
hereon; (c) agree that Holder shall not be required first to institute any suit,
or to exhaust his, their or its remedies against Borrower, any Obligors, or any
other person or party to become liable hereunder or against any security that
may hereafter be granted to secure this Note in order to enforce payment of this
Note; (d) consent to any extension, rearrangement, renewal or postponement of
time of payment of this Note and to any other indulgency with respect hereto
without notice, consent or consideration to any of the foregoing; and (e) agree
that, notwithstanding the occurrence of any of the foregoing (except the express
written release by Holder of any such person), they shall be and remain jointly
and severally, directly and primarily, liable for all sums due under this Note.
Borrower and each subsidiary of Borrower that becomes a guarantor of
this Note (each, a "GUARANTOR"), jointly and severally, further agrees (a) to
indemnify and hold harmless Holder and each of their respective officers,
directors, employees, attorneys and agents (collectively, the
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<PAGE> 15
"Indemnitees") from and against any and all liabilities, obligations, losses
(other than loss of profits), damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever,
including, without limitation, the fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding, whether or not such Indemnitees shall be designated a party
thereto), imposed on, incurred by, or asserted against such Indemnitees in any
manner relating to or arising out of (i) this Note, the Redemption Agreement or
the other Loan Documents, or any act, event or transaction related or attendant
thereto, the management of such loan evidenced hereby, the use or intended use
of the proceeds of the loans evidenced hereby, or any of the other transactions
contemplated in or by this Note, the Redemption Agreement or any of the other
Loan Documents, or (ii) any liabilities and costs relating to (x) any violation
by Borrower or any subsidiary of Borrower, or their respective
predecessors-in-interest, of any environmental, health or safety requirements of
law, or (y) the past, present or future operations of Borrower or subsidiary of
Borrower, or any of their respective predecessors-in-interest (collectively, the
"INDEMNIFIED MATTERS"); provided, however, Borrower shall have no obligation to
an Indemnitee hereunder with respect to Indemnified Matters caused by or
resulting from the willful misconduct or gross negligence of such Indemnitee, as
determined by a final, non-appealable order of a court of competent jurisdiction
and (b) not to assert any claim against any of the Indemnified Parties on any
theory of liability for special, indirect, consequential or punitive damages
arising out of, or in any way in connection with, the Obligations or any other
matters governed by this Note, the Redemption Agreement and/or the other Loan
Documents. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, Borrower and its subsidiaries shall
contribute the maximum portion which it is permitted to pay and satisfy under
applicable law, to the payment and satisfaction of all Indemnified Matters
incurred by the Indemnitees.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, sent by facsimile transmission or courier service or
United States certified mail and shall be deemed to have been given when
delivered in person or by courier service, upon receipt of a facsimile
transmission, or three (3) business days after deposit in the United States mail
with postage prepaid and properly addressed. For the purposes hereof, the
addresses of the parties shall be as set forth in its Redemption Agreement, or,
as to each party, at such other address as may be designated by such party in a
written notice to the other party.
All obligations of Borrower and any Guarantor in respect of taxes,
indemnification and expense reimbursement shall survive the execution and
delivery of this Note, the Redemption Agreement and the other Loan Documents,
the making and repayment of the loan evidenced thereby, and the termination of
this Note and shall not be limited in any way by the passage of time or
occurrence of any event.
In case any provision in or obligation under this Note or the other
Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
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<PAGE> 16
The Holder does not intend to violate any applicable usury laws.
Nothing herein contained shall be construed or so operate as to require the
Borrower to pay interest at a greater rate than is lawful in such case to
contract for, or to make any payment, or to do any act contrary to law. Should
any interest or other charges paid by the Borrower, or parties liable for the
payment of this Note, in connection with the loan evidenced by this Note, or any
document delivered in connection with said loan, result in the computation or
earning of interest in excess of the maximum rate of interest which is legally
permitted by law, then any and all such interest in excess of the maximum legal
rate of interest shall automatically be and the same is hereby waived by the
Holder hereof, and any and all such interest in excess of the maximum legal rate
which has been paid shall be automatically credited against and in reduction of
the balance due under this Note, and the portion of said excess which exceeds
the balance due under this Note shall be paid by the Holder to the Borrower.
No failure or delay on the part of Holder in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other right, power or privilege.
The Note may be amended or modified only by an instrument in writing
signed by the Borrower and the Holder.
This Note shall be binding upon the Borrower and its successors and
assigns and shall inure to the benefit of Holder and its successors and assigns.
All parties liable for the payment of this Note agree to pay the Holder
hereof reasonable attorneys' fees and paralegal fees for the services and
expenses of counsel employed after default or maturity to collect this Note
(including any bankruptcy proceedings or appeals relating to such enforcement
proceedings), whether or not suit be brought.
This Note shall be governed by and construed in accordance with the
laws of the State of Delaware applicable to contracts made and to be performed
in the State of Delaware (without regard to principles of conflict of laws)
("GOVERNING LAW").
Whenever used in this Note, the singular number shall include the
plural, the plural the singular, and the masculine shall include the feminine
and the neuter, the words "Borrower" and "Holder" shall be deemed to include
Borrower and Holder as defined herein and their respective successors and
assigns, and the word "person" shall be deemed to mean natural persons,
corporations, partnerships and all other legal entities. It is expressly
understood and agreed that Holder shall never be construed for any purpose as a
partner, joint venturer, co-principal or associate of Borrower or any Obligors
or of any person or party claiming by, through or under Borrower or any Obligors
in the conduct of their respective businesses.
The Borrower and Holder irrevocably consent to the jurisdiction of the
United States federal courts and state courts located in Delaware in any suit or
proceeding based on or arising under this Note, the agreements entered into in
connection herewith or the transactions contemplated hereby or thereby and
irrevocably agree that all claims in respect of such suit or proceeding may be
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<PAGE> 17
determined in such courts. Borrower and Holder irrevocably waive the defense of
an inconvenient forum to the maintenance of such suit or proceeding.
THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY
RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREIN, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, AND ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER ENTERING INTO
THIS LOAN.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer as of the date first above written.
SMARTSOURCES.COM, INC.
By:
-------------------------------------
Nathan Nifco
Chairman, President and CEO
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