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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) MAY 11, 2000
CHEQUEMATE INTERNATIONAL, INC.
(Exact name of registrant as specified in charter)
UTAH 001-15043 76-0279816
- ---------------------------- ------------------------ -------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
330 WASHINGTON BLVD., MARINA DEL REY, CALIFORNIA 90292
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 306-6666
Exhibit Index Begins on Page 4
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ITEM 5. Other Events
A. SALE OF COMMON STOCK
On May 10, 2000, Chequemate International, Inc. (the "Company") consummated a
Common Stock Purchase Agreement with a single Accredited Investor located
offshore. The purchaser acquired restricted shares of the Company's Common
Stock (the "Shares") for which it paid $2,800,000. This sum was paid in full
on May 11, 2000.
In addition, the purchaser was issued 134,292 warrants to acquire the
Company's Common Stock, at an exercise price of $6.25 per share, with a term
extending through May 10, 2005. The warrants contain various anti-dilution
protection provisions, provide for cashless exercise, and contain various
other provisions.
The number of Shares acquired by the purchaser for the $2,800,000
consideration was initially set at 671,463 shares, but the number of shares to
be issued may be increased depending upon future price performance of the
Company's publicly traded common stock. The Agreement fixed an initial closing
price of $4.17, which represented 80% of the average closing bid price for the
Company's Common Stock for the ten consecutive business days immediately prior
to the closing. If the average closing bid price for the Company's stock (as
defined in the Agreement) for any five business days during a 20 day period
which commences on July 10, 2000 (or sooner), is not equal to or greater than
$5.00 (120% of the initial closing price), then one-third of the initial
shares will be repriced with the result that additional shares will be issued
to the purchaser in accord with a formula set out in the Agreement.
There is a similar repricing of a second one-third of the initial shares, if
the average closing bid price during a second 20 day period immediately
following the first period, does not equal $5.22 (125% of the initial closing
price). There is a third repricing of third 1/3 of the initial shares, if the
average closing bid during a third 20 day period immediately following the
second repricing period, does not equal at least $5.42 (130% of the initial
closing price). The obligation to issue additional shares to the purchaser is
capped (subject to certain limitations), in that when added together, the
initial shares, all additional shares issued under the repricing formula, and
all shares issuable upon exercise of the purchaser's warrants, may not exceed
in the aggregate 9.99% of the outstanding shares of the Company's common stock.
The Purchase Agreement precludes the Company from issuing shares or options to
acquire its shares without consent of the Purchaser over certain specified
periods and subject to certain exceptions and conditions. The Company is
obligated under the Purchase Agreement to file a Registration Statement
covering the Shares no later than July 10, 2000, and to use its reasonable
efforts to make the Registration Statement effective, no later than August 8,
2000 (or sooner under certain circumstances). The
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Company is obligated to make substantial default cash payments to the
purchaser based upon formula set out in a Registration Rights Agreement if
these obligations are not met on the dates indicated.
The Company will use the $2,800,000 received as a result of this transaction
for general working capital purposes.
The terms of the transaction summarized in part above, are qualified in all
respects by reference to the actual Agreements which are attached hereto as
Exhibits, and by this reference incorporated herein.
B. CONVERSION OF DEBT INTO CONVERTIBLE LINE OF CREDIT PROMISSORY NOTES
On May 24, 2000, the Company executed twelve separate Convertible Line of
Credit Promissory Notes, formalizing $3,020,000.00 in debt loaned to the
Company in 1999. The notes are due and payable on April 1, 2001. Each Note
bears interest at the rate of 12%. Each Note is secured by a lien on the
Company's assets. Each note is convertible into the Company's common stock (at
$1.00 per share) and preferred stock (at face value) in a ratio of 43 1/3%
common and 56 2/3% preferred. The preferred stock can be issued only if and
when the shareholders approve amendment of the Company's Articles of
Incorporation to create the Preferred Stock. The preferred stock will not be
convertible, and is to bear interest at commercially reasonable rates.
The terms of the transaction summarized in part above, are qualified in all
respects by reference to the actual Agreements which are attached hereto as
Exhibits, and by this reference incorporated herein.
C. ISSUANCE OF NEW CONVERTIBLE LINE OF CREDIT NOTES
On May 24, 2000, the Company executed two separate Convertible Line of Credit
Promissory Notes, each for $1,000,000.00, and each bearing interest at the
rate of 12% and due May 1, 2001. Each Note is secured by a lien on the
Company's assets. The Company will receive $2,000,000.00 in loan funds as a
result of the transaction.
Each note is convertible into restricted shares of the company's common stock
at one-half of the market value, but not less than $2.00 per share. Each Note
is to be accompanied by a warrant to purchase 200,000 shares of common stock
at $1.00 per share, with a term expiring on May 24, 2005, and containing
various anti-dilution and other provisions.
The terms of the transaction summarized in part above, are qualified in all
respects
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by reference to the actual Agreements which are attached hereto as Exhibits,
and by this reference incorporated herein.
ITEM 7. Financial Statements and Exhibits
(c) Exhibits. The following documents are filed as exhibits to
the report:
A
(10.1) Stock Purchase Agreement with Crooks Hollow Road, LLC
(10.2) Registration Rights Agreement for Crooks Hollow
Road, LLC
(10.3) Warrant in favor of Crooks Hollow Road, LLC
B
(10.4) Twelve Convertible Line of Credit Promissory Notes
aggregating $3,020,000.00.
C
(10.5) Two Convertible Line of Credit Promissory Notes
aggregating $2,000,000.00.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned hereunto duly authorized.
DATED this 25th day of May, 2000.
CHEQUEMATE INTERNATIONAL, INC.
By /s/ J. MICHAEL HEIL
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J. Michael Heil
Chief Executive Officer
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EXHIBIT 10.1
COMMON STOCK PURCHASE AGREEMENT
COMMON STOCK PURCHASE AGREEMENT, dated as of May 10, 2000 (this
"AGREEMENT"), by and among CHEQUEMATE INTERNATIONAL, INC., D/B/A C-3D DIGITAL,
INC., a Utah corporation (the "COMPANY"), and CROOKS HOLLOW ROAD, LLC, a
Cayman Islands Limited Liability Company ("PURCHASER").
RECITALS
A. Purchaser desires to purchase, and the Company desires to issue
and sell, shares ("SHARES") of the Company's Common Stock, par value $.0001
per share ("COMMON STOCK"), on the terms and conditions set forth below. For
purposes of this Agreement, the Shares shall mean the Initial Shares (as
defined below) and the Repriced Shares (as defined below).
B. The parties hereto intend that the issuance of the Shares as
anticipated by this Agreement shall be accomplished without registration under
the U.S. Securities Act of 1933, as amended (the "SECURITIES ACT"), and
without registration or qualification under the securities laws of any state
or other jurisdiction, in reliance on exemptions from the registration
requirements of the Securities Act, including, without limitation, Regulation
D under the Securities Act and Section 4(2) of the Securities Act; PROVIDED,
HOWEVER, that nothing in this Agreement shall act or be construed as a
limitation on Purchaser's right to sell any of the Shares to be acquired
pursuant to this Agreement pursuant to the Registration Statement (the
"REGISTRATION STATEMENT") contemplated by the Registration Rights Agreement
(as defined below), or other provisions of the Registration Rights Agreement
or in accordance with applicable laws.
THEREFORE, in consideration of the mutual promises and covenants set
forth below and for other good and valuable consideration, the receipt and
sufficiency of which the parties acknowledge by their signatures below, the
parties hereto hereby agree as follows:
AGREEMENT
1. PURCHASE OF COMMON STOCK. Subject to the terms and conditions
of this Agreement, the Company agrees to issue and sell, and Purchaser agrees
to acquire, six hundred seventy-one thousand four hundred sixty-three
(671,463) fully paid and non-assessable shares (the "INITIAL SHARES") at $4.17
per share, in exchange for Purchaser's payment to the Company of aggregate
consideration of Two Million Eight Hundred Thousand Dollars ($2,800,000) (the
"PURCHASE PRICE").
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1.1 FORM OF PAYMENT. Purchaser shall pay the Purchase Price
for the Initial Shares by delivering immediately available good funds in
United States Dollars to the escrow agent (the "ESCROW AGENT") identified in
the Joint Escrow Instructions attached hereto as EXHIBIT E (the "JOINT ESCROW
INSTRUCTIONS"). No later than the Closing Date (as defined below), the
Company shall deliver one or more certificates representing the Initial Shares
duly executed on behalf of the Company (collectively, each the "CERTIFICATES")
to the Escrow Agent. By signing this Agreement, each Purchaser and the
Company, and subject to acceptance by the Escrow Agent, each agrees to all of
the terms and conditions of, and becomes a party to, the Joint Escrow
Instructions, all of the provisions of which are incorporated herein by this
reference as if set forth in full.
1.2 METHOD OF PAYMENT. Purchasers shall pay into escrow the
Purchase Price for the Initial Shares by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, LLP
Account No.: 637-1660567
Purchaser shall deliver payment of the Purchase Price to the Escrow Agent at
or before 1:00 p.m., New York time, on the date which is one (1) Business Day
after the Company executes and delivers this Agreement and returns a signed
counterpart of this Agreement to the Escrow Agent by facsimile. Purchaser
shall deposit the Purchase Price for the Initial Shares with the Escrow Agent
in immediately available funds. Time is of the essence with respect to such
payment, and failure by Purchaser to make such payment shall allow the Company
to cancel this Agreement. For purposes of this Agreement, "BUSINESS DAY"
shall mean a day on which the New York Stock Exchange is open for business.
1.3 ESCROW PROPERTY. The Purchase Price and the Certificate
delivered to the Escrow Agent as contemplated by SECTION 1.1 hereof are
referred to as the "ESCROW PROPERTY."
2. CLOSING.
2.1 INITIAL CLOSING. On the date set forth pursuant to
Article 10 (the "Closing Date") Purchaser shall pay Two Million Eight Hundred
Thousand. On the Closing Date, the parties hereto shall execute and deliver
the following documents (incorporated herein by this reference, collectively
with this Agreement, the "TRANSACTION DOCUMENTS"): (i) the Registration Rights
Agreement (the "REGISTRATION RIGHTS AGREEMENT") in the form attached hereto as
EXHIBIT A; (ii) the Escrow Agreement in the form attached hereto as EXHIBIT B;
and (iii) the Warrant (the "WARRANT") in the form attached hereto as EXHIBIT
C. On the Closing Date (as defined below), the Escrow Agent shall deliver
(i) the Purchase Price to the Company and (ii) the Certificate to the
Purchaser.
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2.2 REPRICED SHARES. Definitions:
(a) As used herein, "CLOSING BID PRICE" shall mean the
closing bid price of the Common Stock as reported, at the option of Purchaser,
by Bloomberg, LP or the American Stock Exchange ("ASE").
(b) "EFFECTIVE DATE" shall mean date on which the
Securities and Exchange Commission (the "SEC") declares effective the
registration statement covering the Registrable Shares (as defined in the
Registration Rights Agreement).
(c) "INITIAL CLOSING PRICE" shall mean 80% of the
average Closing Bid Price for the ten (10) consecutive Business Days
immediately prior to the date of the Initial Closing (i.e. $4.17).
(d) "REPRICING PERIOD" shall mean each of the First
Repricing Period, the Second Repricing Period, and the Third Repricing Period,
each as defined below.
(e) "REPRICED SHARES" shall mean the First Repriced
Shares, the Second Repriced Shares, and the Third Repriced Shares, each as
defined below.
2.3 FIRST REPRICING PERIOD. The "FIRST REPRICING PERIOD"
shall commence on the earlier of (a) the day that is sixty (60) days after the
Closing Date or (b) the Effective Date, and end twenty (20) trading days after
such date. If the lowest average Closing Bid Price for any five (5) Business
Days (not necessarily consecutive) during the First Repricing Period (the
"FIRST REPRICING PRICE"), is not equal to or greater than 120% of the Initial
Closing Price, then one-third (1/3) of the Initial Shares shall be repriced
(the "FIRST REPRICED SHARES"). The Company shall issue to Purchaser the
number of additional Shares as determined according to the following formula:
((1.20 x Initial Closing Price) - First Repricing Price) x (# of the First
Repriced Shares) / First Repricing Price.
2.4 SECOND REPRICING PERIOD. The "SECOND REPRICING PERIOD"
shall commence on the day immediately following the First Repricing Period and
end twenty (20) trading days thereafter. If the lowest average Closing Bid
Price for any five (5) Business Days (not necessarily consecutive) during the
Second Repricing Period (the "SECOND REPRICING PRICE"), is not equal to or
greater than 125% of the Initial Closing Price, then one-third (1/3) of the
Initial Shares shall be repriced (the "SECOND REPRICED SHARES"). The Company
shall issue to Purchaser the number of additional Shares as determined
according to the following formula:
((1.25 x Initial Closing Price) - Second Repricing Price) x (# of the Second
Repriced Shares) / Second Repricing Price.
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2.5 THIRD REPRICING PERIOD. (a) The "THIRD REPRICING
PERIOD" shall commence on the day immediately following the Second Repricing
Period and end twenty (20) days thereafter. If the lowest average Closing Bid
Price for any five (5) Business Days (not necessarily consecutive) during the
Third Repricing Period (the "THIRD REPRICING PRICE"), is not equal to or
greater than 130% of the Initial Closing Price, one-third (1/3) of the Initial
Shares shall be repriced (the "THIRD REPRICED SHARES"). The Company shall
issue to Purchaser the number of additional Shares as determined according to
the following formula:
(1.30 x Initial Closing Price) - Third Repricing Price) x (# of the Third
Repriced Shares) / Third Repricing Price.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. To induce the
Company's acceptance of this Agreement, each of Purchasers hereby severally
certifies, represents and warrants to the Company and its agents and attorneys
as follows, which representations and warranties are solely for the benefit of
the Company and may be waived in whole or in part at any time prior to the
Initial Closing by the Company:
3.1 INTENT. Purchaser will be acquiring the Shares for its
own account, and Purchaser has no present arrangement (whether or not legally
binding) to sell any of the Shares to or through any person or entity;
PROVIDED, HOWEVER, that by making the representations herein, Purchaser does
not agree to hold any of the Shares for any minimum or other specific term and
reserves the right to dispose of the Shares at any time in accordance with
U.S. federal and state securities laws applicable to such disposition and any
restrictions imposed on such transfer by the Transaction Documents. Purchaser
understands that the Shares must be held indefinitely unless the Shares are
subsequently registered under the Securities Act or an exemption from
registration is available. Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act.
3.2 SOPHISTICATED INVESTOR. Purchaser is a "sophisticated
investor" (as described in Rule 506(b)(2)(ii) of Regulation D) and an
"accredited investor" (as defined in Rule 501(a) of Regulation D), and
Purchaser has such knowledge and experience in business and financial matters
that it is capable of evaluating the merits and risks of an investment in the
Company.
3.3 ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT.
Purchaser acknowledges that the Shares are speculative investments and involve
a high degree of risk and Purchaser is able to bear the economic risk of an
investment in the Shares, and, at the present time, is able to afford a
complete loss of such investment.
3.4 AUTHORITY. Each of the Transaction Documents (except for
the Warrant) has been duly authorized and validly executed and delivered by
Purchaser and (assuming due authorization and valid execution by the Company)
is a legal, valid and binding agreement of Purchaser enforceable against
Purchaser in accordance with its terms, subject to general principles of
equity and to bankruptcy, insolvency or similar laws relating to, or affecting
generally the enforcement of creditors'
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rights and remedies or by other equitable principles of general application.
The person or persons executing the Transaction Documents (except for the
Warrant) have all requisite authority to do so on behalf of Purchaser.
3.5 BROKERS, FINDERS. Except with respect to Dutchess
Advisors, Ltd., Purchaser has taken no action which would give rise to any
claim by any person for brokerage commission, finder's fees or similar
payments by the Company relating to this Agreement or the transactions
contemplated hereby. The Company shall have no obligation with respect to
such fees or with respect to any claims made by or on behalf of other persons
for fees of a type contemplated in this section that may be due in connection
with the transactions contemplated hereby. Purchaser shall indemnify and hold
harmless the Company, its employees, officers, directors, agents and partners,
and their respective affiliates, from and against all claims, losses, damages,
costs (including the costs of preparation and attorneys' fees) and expenses
suffered in respect of any such claimed or existing fees, as and when incurred.
3.6 ORGANIZATION; AUTHORITY. Purchaser is an entity
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to
enter into and to consummate the transactions contemplated by this Agreement
and to carry out its obligations thereunder. The acquisition of the Shares
and the payment of the Purchase Price therefor by such Purchaser have been
duly authorized by all necessary action on the part of Purchaser.
3.7 ABSENCE OF CONFLICTS. The execution and delivery of each
of the Transaction Documents (except for the Warrant), and the consummation of
the transactions contemplated by this Agreement and such other documents and
instruments, and compliance with the requirements thereof, will not violate
any law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on Purchaser, or the provision of any indenture, instrument or
agreement to which Purchaser is a party or is subject, or by which Purchaser
or any of its assets is bound, or conflict with or constitute a material
default thereunder, or require the approval of any third-party pursuant to any
material contract, agreement, instrument, relationship or legal obligation to
which Purchaser is subject or to which any of its assets, operations or
management may be subject.
3.8 DISCLOSURE; ACCESS TO INFORMATION. Purchaser has
received copies of or has had access to all documents, records, books and
other information pertaining to Purchaser's investment in the Company and the
Shares that have been requested by Purchaser. Purchaser or its representative
has been afforded the opportunity to ask questions of the Company and its
management. Purchaser further acknowledges that it understands that the
Company is subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and Purchaser has
reviewed or received copies of any such reports that it has requested.
3.9 MANNER OF SALE. At no time was Purchaser presented with
or solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising with
respect to the Shares.
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3.10 ACCURACY OF OTHER MATERIALS. To the extent Purchaser has
received from the Company documents or other materials, which constitute
summaries, projections, forecasts or estimates, Purchaser acknowledges the
following with respect to such documents or other materials. Such documents or
other materials are intended to illustrate projected financial and other
results based upon a set of assumptions (in some cases based on information
obtained by the Company from outside sources) that the Company views as
reasonable and obtainable. All such summaries, projections, forecasts or
estimates pertaining to revenue growth, profitability and other similar
financial or market data are forward-looking statements. Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected. No representations or warranties of
future performance by or market trends for the Company are intended, and such
are expressly disclaimed.
3.11 ACCURACY OF REPRESENTATIONS AND INFORMATION. All
representations made by Purchaser in the Transaction Documents, and all
information provided by Purchaser to the Company concerning Purchaser are
correct and complete in all material respects as of the date hereof.
3.12 Notwithstanding any other provision hereof, of the
Warrants or of any of the other Transaction Agreements, in no event (except
(i) as specifically provided in this Agreement as an exception to this
provision, or (ii) while there is outstanding a tender offer for any or all of
the shares of the Company's Common Stock) shall the Purchaser be entitled to
exercise Repricing Rights or shall the Company have the obligation, to deliver
Repricing Shares to the extent that, after such conversion, the sum of (1)
the number of shares of Common Stock beneficially owned by the Purchaser and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership Repricing Shares not yet issued or
unexercised portion of the Warrants), and (2) the number of shares of Common
Stock issuable upon the exercise of Repricing Rights or exercise of the
Warrants with respect to which the determination of this proviso is being
made, would result in beneficial ownership by the Purchaser and its affiliates
of more than 9.99% of the outstanding shares of Common Stock (after taking
into account the shares to be issued to the Purchaser upon such exercise).
For purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), except as
otherwise provided in clause (1) of such sentence. The Purchaser, further
agrees that if the Purchaser transfers or assigns any of the Shares to a party
who or which would not be considered such an affiliate, such assignment shall
be made subject to the transferee's or assignee's specific agreement to be
bound by the provisions of this Paragraph 3.12 as if such transferee or
assignee were the original Purchaser hereof.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to Purchaser as follows, which representations
and warranties are solely for the benefit of Purchaser and may be waived in
whole or in part by Purchaser at any time prior to the Initial Closing. For
purposes of this Section, the word "knowledge" shall mean the actual knowledge
of the president, chief executive officer, chief operating officer or the
chief financial officer.
4.1 COMPANY STATUS. The Company has registered the Common
Stock pursuant
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to Section 12(b) of the Exchange Act, is in compliance in all material
respects with the reporting requirements of the Exchange Act, meets the
requirements for the continued listing of the Common Stock on the American
Stock Exchange, and the Common Stock currently trades on the American Stock
Exchange.
4.2 CURRENT PUBLIC INFORMATION. The Company has furnished or
made available to Purchaser, the location of, or true and correct copies of
all registration statements, reports and documents filed with the SEC by or
with respect to the Company since March 31, 1999, and prior to the date of
this Agreement, pursuant to the Securities Act or the Exchange Act
(collectively, the "SEC DOCUMENTS"). The SEC Documents are the only filings
made by or with respect to the Company since March 31, 1999 pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act or pursuant to the
Securities Act. The Company has filed all reports, schedules, forms,
statements and other documents required to be filed under Sections 13(a), 14
and 15(d) of the Exchange Act since March 31, 1999, and prior to the date of
this Agreement.
4.3 NO GENERAL SOLICITATION. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Shares.
4.4 VALID ISSUANCE OF COMMON STOCK. The authorized capital
stock of the Company consists of 500,000,000 shares of Common Stock, of which
6,880,076 shares are issued and outstanding as of May 3, 2000, a maximum of
2,535,751 shares are reserved for issuance upon exercise of options and
approximately 1,300,000 may be issued upon conversion of certain debt in the
principal amount of $1,300,000, such reserved shares being exclusive of any
shares of Common Stock issuable purusant to this Agreement or the Warrant.
All of the outstanding shares of Common Stock of the Company have been duly
and validly authorized and issued and are fully paid and non-assessable.
Except as set forth above, as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to redeem or issue additional shares of capital stock of the
Company or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, (ii) there are
no outstanding debt securities, (iii) there are no agreements or arrangements
under which the Company is obligated to register the sale of any of their
securities under the Securities Act, (iv) there are no securities or
instruments containing any anti-dilution, right of first refusal, preemptive
rights or similar provisions that will be triggered by the issuance of the
Shares as described in this Agreement. When issued pursuant to this Agreement
upon payment of the consideration therefor, the Shares will be duly and
validly issued, fully paid and non-assessable.
4.5 ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly incorporated and existing in good standing under the laws of
Utah, and has the requisite corporate
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power to own its properties and to carry on its business as now being
conducted. The Company does not have any subsidiaries. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect. "MATERIAL
ADVERSE EFFECT" means any effect on the business, operations, properties,
prospects, or financial condition of the entity or entities with respect to
which such term is used and which is material and adverse to such entity or to
other entities controlling or controlled by such entity, and/or any condition
or situation which would prohibit or otherwise interfere with the ability of
the entity or entities with respect to which said term is used to enter into
and perform its obligations under the Transaction Documents.
4.6 AUTHORIZATION: ENFORCEMENT. (i) The Company has the
requisite corporate power and authority to enter into and perform under the
Transaction Documents and to issue the Shares and the Warrant in accordance
with the terms of the Transaction Documents, (ii) the execution, issuance and
delivery of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated by the Transaction Documents have been
duly authorized by all necessary corporate action, and no further consent or
authorization of the Company or its board of directors or shareholders is
required, (iii) the Transaction Documents have been duly executed and
delivered by the Company, and (iv) the Transaction Documents (assuming due
authorization and valid and legal execution by Purchaser) constitute legal,
valid and binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
4.7 [Intentionally Omitted]
4.8 NO CONFLICTS. Except as set forth in SCHEDULE 4.8, the
execution, delivery and performance of the Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated
hereby, including, without limitation, the issuance of the Shares, do not and
will not (i) result in a violation of the Company's Articles of Incorporation
or Bylaws, (ii) conflict with, or result in a breach of or forfeiture of any
rights (or result in an event which with notice or lapse of time or both would
become a breach of or forfeiture of any rights) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument to which the Company is a party or
(iii) result in a violation of any federal or state law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of
the Company is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). To
the best of its knowledge, the business of the Company is not being conducted
in violation of any law, ordinance or regulation of any governmental entity,
except for possible violations which either singly or in the aggregate do not
and will not have a Material Adverse Effect. The Company is not required
under federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute,
12
<PAGE>
deliver or perform any of its obligations under this Agreement or issue and
sell the Shares and the Warrant in accordance with the terms of this Agreement
(other than any SEC, NASD or state securities filings which may be required to
be made by the Company subsequent to any Closing, and any registration
statement which may be filed in furtherance of this Agreement); PROVIDED that,
for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of Purchaser herein. The Company is not in violation of any
material term of or in material default under its Articles of Incorporation,
of any outstanding series of preferred stock or Bylaws or their organizational
charter or Bylaws, respectively, or any material contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree of order or
any statute, rule or regulation applicable to the Company, which has not been
duly waived as of the date of this Agreement.
4.9 SEC DOCUMENTS. The Company has not provided to Purchaser
any information which according to applicable law, rule or regulation, should
have been disclosed publicly prior to the date hereof by the Company but which
has not been so disclosed. As of their respective dates, the SEC Documents
complied, and all similar documents filed with the SEC prior to the Closing
Date will comply, in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and rules and
regulations of the SEC promulgated thereunder and other federal, state and
local laws, rules and regulations applicable to such SEC Documents, and none
of the SEC Documents contained, nor will any similar document filed with the
SEC prior to the Closing Date contain, any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the Company
included in the SEC Documents, as of the dates thereof, complied, and all
similar documents filed with the SEC prior to the Closing Date will comply, as
to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC and other applicable rules and
regulations with respect thereto. Such financial statements were prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the
case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements as permitted by Form 10-Q
of the SEC) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
4.10 NO UNDISCLOSED LIABILITIES. Except as set forth in
SCHEDULE 4.10, the Company has no liabilities or obligations of a financial
nature (whether accrued, absolute, contingent or otherwise), which are
material, individually or in the aggregate, and required to be disclosed in,
but are not disclosed in, the SEC Documents, other than those incurred in the
ordinary course of the Company's business consistent with past practice since
September 30, 1999, and which, individually or in the aggregate, do not or
would not have a Material Adverse Effect on the Company.
4.11 LITIGATION AND OTHER PROCEEDINGS. Except as may be set
forth in the SEC
13
<PAGE>
Documents or set forth in SCHEDULE 4.11, there are no lawsuits or proceedings
pending or, to the best knowledge of the Company, threatened, against the
Company, nor has the Company received any written or oral notice of any such
action, suit, proceeding or investigation, which might have a Material Adverse
Effect on the Company or which likely would have a Material Adverse Effect on
the transactions contemplated by this Agreement. Except as set forth in the
SEC Documents, no judgment, order, writ, injunction or decree or award has
been issued by or, to the best knowledge of the Company, requested of any
court, arbitrator or governmental agency which likely would have a Material
Adverse Effect on the transactions contemplated by this Agreement.
4.12 MATERIAL NON-PUBLIC INFORMATION. The Company is not in
possession of, nor has the Company or its agents disclosed to Investor, any
information which it considers to be material non-public information that (a)
if disclosed, would reasonably be expected to have a materially adverse effect
on the price of the Common Stock or(b) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the
date hereof but which has not been so disclosed. Notwithstanding the
foregoing, the Purchaser understands and agrees that, in the normal course of
its business, the Company possesses inside information concerning its
business, prospects and financial condition which it does not publicly
disclose and which it did not disclose to the Purchaser.
4.13 NATURE OF COMPANY. The Company is not an open-ended
investment company or a unit investment trust, registered or required to be
registered, or a closed end investment company required to be registered, but
not registered, under the Investment Company Act of 1940.
4.14 BROKERS, FINDERS. Except for the payment of consulting
fees in the amount of $183,000 to Dutchess Advisors, Ltd., payment of which is
the sole responsibility of the Company, the Company has taken no action which
would give rise to any claim by any person for brokerage commission, finder's
fees or similar payments by Purchaser relating to this Agreement or the
transactions contemplated hereby. Purchaser shall have no obligation with
respect to such fees or with respect to any claims made by or on behalf of
other persons for fees of a type contemplated in this SECTION 4.14 that may be
due in connection with the transactions contemplated hereby. The Company
shall indemnify and hold harmless each of Purchaser and its employees,
officers, directors, agents, partners and affiliates, from and against all
claims, losses, damages, costs (including the costs of preparation and
attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as and when incurred.
4.15 ABSENCE OF CERTAIN CHANGES. Except as set forth in
SCHEDULE 4.15, since September 30, 1999, no Material Adverse Effect has been
suffered by, and no material adverse development has occurred in the business,
properties, operations, financial condition or results of operations of the
Company. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law, nor does
the Company have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings.
4.16 INTELLECTUAL PROPERTY RIGHTS. To its knowledge without
conducting any special
14
<PAGE>
investigation and except as set forth on SCHEDULE 4.16, the Company owns or
possesses the rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations,
trade secrets and rights used by it in the conduct of its businesses as now
conducted. None of the Company's material trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, government authorizations, trade
secrets or other intellectual property rights has expired or terminated.
Except as set forth on SCHEDULE 4.16, the Company has not received written
notice of any infringement by the Company of trademarks, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names,
service marks, service mark registrations, trade secrets or other similar
intellectual property rights of others, and, the Company has not received any
written claims, and is not subject to any action or proceeding, or, to the
best of its knowledge, has any action or proceeding been threatened in writing
against the Company regarding trademark, trade name, patent, patent rights,
invention, copyright, license, service name, service mark, service mark
registration, trade secret or other infringement of similar intellectual
property rights. The Company has taken what it believes to be reasonable
security measures to protect the confidentiality of all of its material
intellectual properties.
4.17 INTERNAL ACCOUNTING CONTROLS. The Company has not been
advised by its independent auditors that its system of internal accounting
controls is not sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
4.18 TAX STATUS. Except as set forth in SCHEDULE 4.18, the
Company has made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports, declarations, except those being contested in good faith, and has
set aside on its books, provisions which the Company believes reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports, or declarations apply. There are no unpaid taxes
in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
4.19 CERTAIN TRANSACTIONS. Except (a) as set forth in the SEC
Documents, (b) for arm's length transactions pursuant to which the Company
makes payments in the ordinary course of business upon terms no less favorable
than the Company could obtain from third parties, (c) the grant of stock
options and compensation and (d) transactions not required to be disclosed in
the SEC Filings, none of the officers, directors or employees of the Company
(or any spouse or relative of any such person) is presently a party to any
transaction with the Company (other than for services as employees, officers
and directors), including any contract, agreement or other arrangement
providing
15
<PAGE>
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner.
4.20 DILUTION. The number of shares of Common Stock issuable
as Repriced Shares may increase substantially in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the
trading price of the Common Stock declines during the period between the
Effective Date and the end of the Third Repricing Period. The Company's
executive officers and directors have studied and fully understand the nature
of the transactions contemplated by this Agreement and recognize that they
have a potential dilutive effect. The board of directors of the Company has
concluded, in its good faith business judgment, that such issuance is in the
best interests of the Company. The Company specifically acknowledges that its
obligation to issue the Repriced Shares is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.
4.21 MARKET QUOTES. The Company's Common Stock is presently
quoted on the American Stock Exchange under the symbol "DDD". The Company is
not in receipt of any written notice from any stock exchange, market or
trading facility on which the Common Stock is or has been listed or traded (or
on which it is or has been quoted) to the effect that the Company is not in
compliance with the listing or maintenance requirements of such stock
exchange, market or trading facility or that the Common Stock will be delisted
from such stock exchange, market or trading facility.
4.22 NO INTEGRATED OFFERING. Neither the Company nor any of
its affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since November 1, 1999, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Shares as
contemplated hereby.
5. USE AND DISPOSITION OF PROCEEDS. The Company will use the
proceeds from the sale of the Initial Shares (excluding amounts paid by the
Company for legal fees, finder's fees and escrow agent fees in connection with
the sale of the Initial Shares) for working capital and other corporate
purposes, including possible acquisitions, joint ventures and other strategic
relationships, but shall not, directly or indirectly, use such proceeds for
investment in or repay debt to any affiliate (other than a subsidiary, joint
venture or other entity in which the Company has an equity interest).
6. COMPANY RELIANCE ON PURCHASER'S REPRESENTATIONS. Purchaser
understands that the Company is relying on the truth and accuracy of the
representations and warranties made herein by Purchaser in offering the Shares
for sale and in relying upon applicable exemptions available under the Act and
applicable state securities laws.
7. RESTRICTED SHARES. Purchaser understands and acknowledges that
the Shares have not
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<PAGE>
been, and will not as of the time issued, be registered under the Securities
Act and that they will be issued in reliance upon exemptions from the
registration requirements of the Securities Act, and thus cannot be resold
unless they are included in an effective registration statement filed under
the Securities Act or unless an exemption from registration is available for
such resale. With regard to the restrictions on resales of the Shares,
Purchaser is aware: (a) that the Company will issue stop transfer orders to
its stock transfer agent in the event of attempts to improperly transfer any
such Shares, and (b) that a restrictive legend will be placed on certificates
representing the Shares, which legend will read substantially as follows:
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED.
The legend set forth above shall be promptly removed, and the Company shall
issue a certificate without such legend to the holder of any such Unlegended
Shares (as defined below) upon which such legend is stamped, if, unless
otherwise required by state securities laws, (i) such Shares are registered
for resale under the Securities Act, (ii) in connection with a sale
transaction, provided that such holder provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of such Shares may be made without registration under
the Securities Act, or (iii) such holder provides the Company with reasonable
assurances that such Shares can be sold pursuant to Rule 144 promulgated under
the Securities Act without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold.
Notwithstanding the removal of the legend set forth above in the event the
Shares are registered for resale on an effective registration statement, the
Company reserves the right to affix a legend on certificates representing such
Shares that any selling shareholder must comply with the prospectus delivery
requirements of the Securities Act in connection with any resale. The Company
shall bear the cost of the removal of any legend as anticipated by this
SECTION 7.
8. OTHER COVENANTS OF THE COMPANY.
8.1 FURNISHING OF INFORMATION. As long as Purchaser owns
Shares, the Company covenants to timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports required to
be filed by the Company after the date hereof pursuant to Section 13(a) or
15(d) of the Exchange Act. If at any time prior to the date on which
Purchaser may resell all of its Shares without volume restrictions pursuant to
Rule 144(k) promulgated under the Securities Act (as determined by counsel to
the Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent for the benefit of and enforceable
by Purchaser) the Company is not required to file reports pursuant to such
sections, it will prepare and furnish to Purchaser and make publicly available
in accordance with Rule 144(c) promulgated under the
17
<PAGE>
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act in the time
period that such filings would have been required to have been made under the
Exchange Act. The Company further covenants that it will take such further
action as Purchaser may reasonably request, all to the extent required from
time to time to enable Purchaser to sell its Shares without registration under
the Securities Act within the limitation of the exemptions provided by Rule
144 promulgated under the Securities Act.
8.2 LISTING OF SHARES. The Company shall, if required by any
applicable listing agreement, (a) not later than the Effective Date, prepare
and file with any national securities exchange, market or trading facility on
which the Common Stock is then listed an additional shares listing application
covering the Shares, (b) take all steps necessary to cause such shares to be
approved for listing on any other national securities exchange, market or
trading facility on which the Common Stock is then listed as soon as possible
thereafter and (c) provide to Purchaser evidence of such listing, and the
Company shall maintain the listing of its Common Stock on such exchange or
market.
8.3 FIRST RIGHT. The Company shall not, directly or
indirectly, without the prior written consent of Purchaser, offer, sell, grant
any option to purchase, or otherwise dispose of (or announce any offer, sale,
grant or any option to purchase or other disposition) any of its Common Stock
or securities convertible into Common Stock at a price that is less than the
90% of the market price of the Common Stock at the time of issuance of such
security or investment (a "SUBSEQUENT FINANCING") for a period of (a) six (6)
months after the Effective Date, or (b) the date all of the Shares shall have
been sold, or (c) such date as the Purchaser shall have sold not less than 80%
of the Shares purchased by the Purchaser, except (i) the granting of options
or warrants to employees, officers, directors and consultants, (ii) the
issuance of shares upon exercise of options granted under any stock option
plan heretofore or hereinafter duly adopted by the Company, (iii) the issuance
of any shares upon any currently outstanding warrants or options and upon
conversion of any currently outstanding convertible securities to the extent
described in SECTION 4.4, (iv) securities issued in connection with the
capitalization or creation of a joint venture with a strategic partner, (v)
shares issued to pay part or all of the purchase price for the acquisition by
the Company of a person (which, for purposes of this clause (v), shall not
include an individual or group of individuals), (vi) shares issued, other than
for cash, in connection with a merger, consolidation or acquisition of
assets, (vii) shares issued in a public offering by the Company of its
securities which is registered with the Securities and Exchange Commission
pursuant to the Securities Act, or (viii) shares issued to a qualified
institutional buyer, as defined in Rule 144A(a), or (ix) shares issued in a
private placement if the placement agent is acceptable to the Purchaser,
unless (A) the Company delivers to Purchaser a written notice (the "SUBSEQUENT
FINANCING NOTICE") of its intention to effect such Subsequent Financing, which
Subsequent Financing Notice shall describe in reasonable detail the proposed
terms of such Subsequent Financing, the amount of proceeds intended to be
raised thereunder, the person with whom such Subsequent Financing shall be
effected, and attached to which shall be a term sheet or similar document
relating thereto and (B) Purchaser shall not have notified the Company by 5:00
p.m. (New York time) on the tenth (10th) Business Day after its receipt of the
Subsequent Financing Notice of
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<PAGE>
its willingness to provide, subject to completion of mutually acceptable
documentation, financing to the Company on substantially the terms set forth
in the Subsequent Financing Notice. If Purchaser shall fail to notify the
Company of its intention to enter into such negotiations within such time
period (the "Purchaser Evaluation Period"), then the Company may effect the
Subsequent Financing substantially upon the terms and to the persons (or
affiliates of such persons) set forth in the Subsequent Financing Notice;
PROVIDED THAT the Company shall provide Purchaser with a second Subsequent
Financing Notice, and Purchaser shall again have the right of first refusal
set forth above in this SECTION 8.3, if the Subsequent Financing subject to
the initial Subsequent Financing Notice shall not have been consummated for
any reason on the terms set forth in such Subsequent Financing Notice within
forty (40) Business Days after the expiration of the Purchaser Evaluation
Period with the person (or an affiliate of such person) identified in the
Subsequent Financing Notice. The rights granted to Purchaser in this SECTION
8.3 are not subject to any prior right of first refusal given to any other
person except as disclosed on SCHEDULE 4.4.
8.4 CERTAIN AGREEMENTS.
(a) The Company covenants and agrees that it will not, without
the prior written consent of Purchaser, enter into any subsequent or further
offer or sale of Common Stock or securities convertible into Common Stock with
any third party until the date which is one hundred eighty (180) days after
the Effective Date.
(b) The provisions of SECTION 8.4(a) will not apply to: (w)
Common Stock issued pursuant to Rule 144, provided the holder thereof is
required to hold such Common Stock for at least one year from the date of
issuance; (x) a public offering of shares of Common Stock registered pursuant
to the Securities Act; or (y) the issuance of securities (other than for cash)
in connection with a merger, consolidation, sale of assets, disposition or the
exchange of the capital stock for assets, stock or other joint venture
interests; or (z) any other sales or other transactions which permitted by
SECTION 8.3 of this Agreement; and provided further, that such securities
would not be included in the Registration Statement relating to the Initial
Shares and a registration statement in respect of such stock shall not be
filed prior to sixty (60) days after the Effective Date.
8.5 LIMITATION ON ISSUANCE OF COMMON STOCK. The Company
shall not issue an aggregate number of (i) Shares under this Agreement and
(ii) shares of Common Stock pursuant to the exercise of the Warrant, that
exceeds 19.9% of the shares of Common Stock issued and outstanding on the date
of the Initial Closing (the "SHARE LIMITATION"). If, pursuant to this
Agreement and the Warrant the Company otherwise would be required to issue a
number of shares of Common Stock that exceeds the Share Limitation, then (i)
the Company will promptly take all steps reasonably necessary to be in a
position to issue Shares and Repricing Shares upon exercise of the Warrants
without violating the Cap Regulations and (ii) if, despite taking such steps,
the Company still cannot issue such Shares and Repricing Shares without
violating the Cap Regulations, the Company shall redeem each Repriced Share
for an amount equal to the economic benefit a holder of Initial Shares would
realize before taxes and commissions for selling the Repricing Shares issuable
to him.
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<PAGE>
8.6 AVAILABLE SHARES. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares of
Common Stock sufficient to yield the number of shares of Common Stock issuable
as may be required to issue the Repriced Shares.
8.7 WARRANT. The Company agrees to issue to Purchaser at the
Closing, the transferable divisible Warrant for the number of shares of Common
Stock equal to 20% of the Purchase Price divided by the Initial Closing Price.
The Warrant shall (i) bear an exercise price per share of Common Stock equal
to 120% of the Closing Bid Price for the ten (10) Business Days immediately
prior to the Closing Date, (ii) be exercisable immediately upon issuance, and
for a period of five (5) years thereafter, and (iii) shall have cashless
exercise provision.
8.8 REIMBURSEMENT. If (i) Purchaser, other than by reason of
its gross negligence or willful misconduct, becomes involved in any capacity
in any action, proceeding or investigation brought by any shareholder of the
Company, in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if Purchaser is
impleaded in any such action, proceeding or investigation by any person, or
(ii) Purchaser, other than by reason of its gross negligence or willful
misconduct or by reason of its trading of the Common Stock in a manner that is
illegal under the federal or state securities laws, becomes involved in any
capacity in any action, proceeding or investigation brought by the SEC against
or involving the Company or in connection with or as a result of the
consummation of the transactions contemplated by the Transaction Documents, or
if Purchaser is impleaded in any such action, proceeding or investigation by
any person, then in any such case, the Company will reimburse Purchaser for
its reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith, as such
expenses are incurred. In addition, other than with respect to any matter in
which Purchaser is a named party, the Company will pay to Purchaser reasonable
out-of-pocket costs with respect to assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearing,
trials, and other proceedings relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this SECTION
8.8 shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any affiliates of
Purchaser that are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any),
as the case may be, of Purchaser and any such affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, Purchaser and any such affiliate and any such
person.
8.9 [OMITTED]
9. TRANSFER AGENT INSTRUCTIONS.
9.1 IRREVOCABLE INSTRUCTIONS. The Company will irrevocably
instruct its transfer agent to issue Repriced Shares from time to time in such
amounts as shall be specified from time to time by the Company to the transfer
agent, bearing the restrictive legend specified in SECTION 7 of this Agreement
prior to registration of the Shares under the Securities Act, registered in
the name of Purchaser or its nominee and in such denominations to be specified
by Purchaser in connection with
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<PAGE>
each Closing. The Company warrants that no instruction other than such
instructions referred to in this SECTION 9 and stop transfer instructions to
give effect to SECTION 7 hereof prior to registration and sale of the Shares
under the Securities Act will be given by the Company to the transfer agent
and that the securities shall otherwise be freely transferable on the books
and records of the Company as and to the extent provided in this Agreement,
the Registration Rights Agreement, and applicable law. Nothing in this
SECTION 9 shall affect in any way Purchaser's obligations and agreement to
comply with all applicable securities laws upon resale of the Shares.
9.2 [Intentionally Omitted]
9.3 ISSUANCE OF UNLEGENDED SHARES.
(a) Within three (3) Business Days from the Effective Date,
the Company will deliver to its transfer agent a letter in the form of EXHIBIT
F. After the Effective Date, and as long as the Registration Statement is
current and effective, the Company will, by a letter in substantially the form
of Appendix B to Exhibit F, (i) instruct the transfer agent as to the
issuance of Repriced Shares with five Business Days after the Repriced Shares
become issuable, and (ii) instruct the transfer agent as to the issuance of
any shares ("Warrant Shares") of Common Stock upon exercise or conversion of
the Warrant within five Business Days after receipt of the Warrant in proper
form for exercise or conversion.
(b) If an opinion of counsel is necessary for the issuance of
Shares or Warrant Shares without a legend, the Company shall, within five
Business Days after the Effective Date, cause its counsel to issue an
appropriate opinion to the transfer agent in order that (i) the legend be
removed from the outstanding Shares that are subject to the Registration
Statement and (ii) the Shares or Warrant Shares are issued without a legend;
provided, that such opinion shall only be given if the Registration Statement
is current and effective.
9.4 DELAY. The Company understands that a delay in the
issuance of the Unlegended Shares beyond the Delivery Date could result in
economic loss to Purchaser. On and after the Effective Date as compensation
to Purchaser for such loss, the Company agrees to pay late payments to
Purchaser for late issuance of Unlegended Shares in accordance with the
following schedule (where "NO. OF DAYS LATE" is defined as the number of days
beyond five (5) Business Days from Delivery Date):
<TABLE>
<CAPTION>
LATE PAYMENT FOR EACH
NO. OF DAYS LATE $10,000 OF COMMON STOCK
---------------- -----------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
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<PAGE>
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
</TABLE>
The Company shall pay any payments incurred under this SECTION 9.4 in
immediately available funds upon demand. Nothing herein shall limit
Purchaser's right to pursue actual damages for the Company's failure to issue
and deliver the Unlegended Shares to Purchaser, except to the extent that such
late payments shall constitute payment for and offset any such actual damages
alleged by Purchaser, and any Buy In Adjustment Amount (as defined below).
9.5 COVER. If the Company fails for any reason to deliver
the letter and opinion of counsel required by SECTION 9.3, and a holder (a
"Holder") of the Shares or Warrant Shares purchases, in an open market
transaction or otherwise, shares of Common Stock (the "COVERING SHARES") in
order to make delivery in satisfaction of a sale of Common Stock by such
Holder (the "SOLD SHARES"), which delivery such Holder anticipated to make
using the Unlegended Shares (a "BUY-IN") because of the effectiveness of the
Registration Statement, then the Company shall pay to such Holder (in addition
to all other amounts contemplated in other provisions of the Transaction
Documents, and not in lieu thereof), the Buy-In Adjustment Amount (as defined
below). The "BUY-IN ADJUSTMENT AMOUNT" is the amount equal to the excess, if
any, of (x) such Holder's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (y) the net proceeds (after
brokerage commissions, if any) received by such Holder from the sale of the
Sold Shares. The Company shall pay the Buy-In Adjustment Amount to such
Holder in immediately available funds immediately upon demand by such Holder.
By way of illustration and not in limitation of the foregoing, if such Holder
purchases Covering Shares having a total purchase price (including brokerage
commissions) of $11,000 to cover a Buy-In with respect to shares of Common
Stock that it sold for net proceeds of $10,000, the Buy-In Adjustment Amount
that the Company will be required to pay to such Holder will be $1,000.
9.6 The Company will authorize its transfer agent to give
information relating to the Company directly to the Purchaser or the
Purchaser's representatives upon the request of the Purchaser or any such
representative, to the extent such information relates to (i) the status of
shares of Common Stock issued or claimed to be issued to the Purchaser, or
(ii) the number of outstanding shares of Common Stock of all stockholders as
of a current or other specified date. The Company will provide the Purchaser
with a copy of the authorization so given to the transfer agent.
9.7 Subject to the completeness and accuracy of the Buyer's
representations and warranties herein, upon the conversion of any Preferred
Stock by a person who is a non-U.S. Person, and following the expiration of
any applicable Restricted Period (as those terms are defined in Regulation S),
the Company, shall, at its expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue stock certificates without
22
<PAGE>
restrictive legend or stop orders in the name of Buyer (or its nominee (being
a non-U.S. Person) or such non-U.S. Persons as may be designated by Buyer) and
in such denominations to be specified at conversion representing the number of
shares of Common Stock issuable upon such conversion, as applicable. Nothing
in this Section 9.7, however, shall affect in any way Buyer's or such
nominee's obligations and agreement to comply with all applicable securities
laws upon resale of the Securities.
10. CLOSING DATE.
10.1 The closing of the issuance and sale of the Initial
Shares shall occur on the date (the "CLOSING DATE"), which is the first
Business Day after the fulfillment or waiver of all closing conditions
pursuant to SECTIONS 11 AND 12 hereof or such other date and time as is
mutually agreed upon by the Company and Purchaser.
10.2 Notwithstanding anything to the contrary contained
herein, the Escrow Agent will be authorized to release the Escrow Property
only upon satisfaction of the conditions set forth in SECTIONS 11 AND 12
hereof.
11. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
Purchaser understands that the Company's obligation to sell the
Initial Shares on the Closing Date to Purchaser pursuant to this Agreement is
conditioned upon:
11.1 The receipt and acceptance by Purchaser of this Agreement
as evidenced by Purchaser's execution and delivery of this Agreement.
11.2 Delivery by Purchaser to the Escrow Agent of good funds
as payment in full of an amount equal to the Purchase Price for the Initial
Shares in accordance with SECTION 1.2 hereof;
11.3 The accuracy on the Closing Date of the representations
and warranties of Purchaser contained in this Agreement as if made on the
Closing Date, and the performance by Purchaser on or before the Closing Date
of all covenants and agreements of Purchaser required to be performed on or
before the Closing Date;
11.4 There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
12. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE.
The Company understands that Purchaser's obligation to purchase
the Initial Shares on the Closing Date is conditioned upon:
12.1 Acceptance by the Company of this Agreement for the sale
of the Initial Shares,
23
<PAGE>
as indicated by the Company's execution and delivery of this Agreement;
12.2 Delivery by the Company to the Escrow Agent of the
Certificate in accordance with this Agreement;
12.3 The accuracy in all material respects on the Closing Date
of the representations and warranties of the Company contained in this
Agreement as if made on the Closing Date and the performance by the Company on
or before the Closing Date of all covenants and agreements of the Company
required to be performed on or before the Closing Date; and
12.4 On the Closing Date, Purchaser having received an opinion
of in-house general counsel for the Company, dated the Closing Date, in form,
scope and substance reasonably satisfactory to Purchaser, to the effect set
forth hereto, the Registration Rights Agreement, the Warrant and the
Additional Agreements.
12.5 No statute, rule, regulation, executive order, decree,
ruling or injunction shall be enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits or
adversely effects any of the transactions contemplated by the Transaction
Documents, and no proceeding or investigation shall have been commenced or
threatened which may have the effect of prohibiting or adversely effecting any
of the transactions contemplated by the Transaction Documents.
12.6 From and after the date hereof to and including the
Closing Date, the trading of the Common Stock shall not have been suspended by
the SEC, or the ASE and trading in securities generally on the New York Stock
Exchange or NASDAQ shall not have been suspended or limited, nor shall minimum
prices have been established for securities traded on ASE, nor shall there be
any outbreak or escalation of hostilities involving the United States or any
material adverse change in any financial market that in either case in the
reasonable judgment of Purchaser makes it impracticable or inadvisable to
purchase the Initial Shares, as the case may be.
13. GENERAL PROVISIONS.
13.1 ASSIGNMENT. Neither this Agreement nor any rights of
Purchaser hereunder may be assigned by either party to any other person
without the prior written consent of the Company.
13.2 ATTORNEYS' FEES. In the event any dispute arises under
this Agreement or the documents or instruments executed and delivered in
connection with this Agreement, and the parties hereto resort to litigation to
resolve such dispute, the prevailing party in any such litigation, in addition
to all other remedies at law or in equity, shall be entitled to an award of
costs and fees from the other party, which costs and fees shall include,
without limitation, reasonable attorneys' fees and legal costs.
13.3 CHOICE OF LAW; VENUE. This Agreement will be construed
and enforced in accordance with and governed by the laws of California without
reference to principles of conflicts of
24
<PAGE>
law. The parties agree that, in the event of any dispute arising out this
Agreement or the transactions contemplated thereby, venue for such dispute
shall be in the state or federal courts located in Los Angeles, and that each
party hereto waives any objection to such venue based on forum non conveniens.
13.4 COSTS AND EXPENSES. The parties shall be responsible for
and shall pay their own costs and expenses, including without limitation
attorneys' fees and accountants' fees and expenses, in connection with the
conduct of the due diligence inquiry, negotiation, execution and delivery of
this Agreement and the instruments, documents and agreements executed in
connection with this Agreement, except that the Company shall pay the legal
and escrow fees of the Purchaser in connection herewith.
13.5 COUNTERPARTS/FACSIMILE SIGNATURES. This Agreement may be
executed in one or more counterparts, each of which when so signed shall be
deemed to be an original, and such counterparts together shall constitute one
and the same instrument. In lieu of the original, a facsimile transmission or
copy of the original shall be as effective and enforceable as the original.
13.6 ENTIRE AGREEMENT: AMENDMENT. This Agreement, together
with the exhibits to this Agreement and the other instruments and documents
delivered in connection with this Agreement constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants except as
specifically set forth in this Agreement or therein. Except as expressly
provided in this Agreement, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
13.7 HEADINGS. The headings of the sections and paragraphs of
this Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
13.8 NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be
in writing and, unless otherwise specified herein, shall be (a) personally
served,(b) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (c) delivered by reputable courier service which
provides evidence of delivery with charges prepaid, or (d) transmitted by hand
delivery, or (e) by facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written notice
given in accordance herewith. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (i) upon hand
delivery or delivery at the address or number designated below (if delivered
on a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (ii) on the second business day following the date of
mailing by express courier service or on the fifth business day after
deposited in the mail, in each case, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur or (iii)
if by facsimile, upon confirmation of receipt by the recipient or
25
<PAGE>
confirmation of transmission in another manner provided in this SECTION 13.8.
The addresses for such communications shall be:
IF TO THE COMPANY:
Chequemate International, Inc.
d/b/a C-3D Digital, Inc.
330 Washington Boulevard, Suite 507
Marina del Rey, California 90292
ATTENTION: Alan Hunter, Esq.
General Counsel
Tel No.: (310) 305-3659
Fax No.:
WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE) TO:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue
New York, New York 10158
ATTENTION: Asher S. Levitsky P.C.
Tel No.: (212) 716-3239
Fax No.: (212) 953-6899
IF TO PURCHASER:
Crooks Hollow Road LLC
Corporate Center
Windward One
West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE) TO:
Krieger & Prager, LLP
39 Broadway, Suite 1440
New York, New York 10006
ATTENTION: Samuel M. Krieger, Esq.
Tel No.: (212) 363-2900
Fax No: (212) 363-2999
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 9.1 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.
26
<PAGE>
13.9 PUBLICITY. The Company and Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other parties with prior notice of such
public statement. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of Purchaser without the prior written consent of
such Purchaser, except to the extent required by law. Purchaser acknowledges
that this Agreement and all or part of the Transaction Documents may be deemed
to be "material contracts" as that term is defined by Item 601(b)(10) of
Regulation S-K, and that the Company may therefore be required to file such
documents as exhibits to reports or registration statements filed under the
Securities Act or the Exchange Act. Purchaser further agrees that the status
of such documents and materials as material contracts shall be determined
solely by the Company, in consultation with its counsel.
13.10 SEVERABILITY. Should any one or more of the provisions
of this Agreement be determined to be illegal or unenforceable, all other
provisions of this Agreement shall be given effect separately from the
provision or provisions determined to be illegal or unenforceable and shall
not be affected thereby.
13.11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
representations and warranties herein shall survive the execution and delivery
of this Agreement for one (1) year, and shall inure to the benefit of
Purchaser and its successors and assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
27
<PAGE>
IN WITNESS WHEREOF, the parties named below have caused this Agreement
to be executed, as of the date first above written.
PURCHASER:
CROOKS HOLLOW ROAD, LLC
By:
-------------------------------
Its:
------------------------------
THE COMPANY:
CHEQUEMATE INTERNATIONAL, INC.
D/B/A C-3D DIGITAL, INC.
By:
-------------------------------
Its:
------------------------------
28
<PAGE>
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
29
<PAGE>
EXHIBIT B
ESCROW AGREEMENT
30
<PAGE>
EXHIBIT C
WARRANT
31
<PAGE>
EXHIBIT D
ADDITIONAL AGREEMENTS
32
<PAGE>
EXHIBIT E
JOINT ESCROW INSTRUCTIONS
33
<PAGE>
EXHIBIT F
INSTRUCTION TO TRANSFER AGENT
[Name and Address
of Transfer Agent]
Attention of
Re: CHEQUEMATE INTERNATIONAL, INC.
Ladies and Gentlemen:
Reference is made to:
(a) The shares of common stock, par value $.0001 per share ("Common
Stock") of Chequemate International, Inc., a Utah corporation
(the "Company"), issued or issuable pursuant to an agreement (the
"Agreement") dated as of May , 2000, between the Company and
the person named on Appendix A to this Letter (the "Holder").
(b) The Company's Series A Common Stock Purchase Warrants (the
"Warrants") issued in the name of the Holder.
The Company hereby certifies to you as follows:
(i) A registration statement on Form S- , File No. 333- ,
covering (A) a maximum of shares of Common
Stock (the "Agreement Shares") issued or issuable pursuant to the
Agreement and (B) a maximum of shares of Common Stock
("Warrant Shares") issuable upon exercise of the Warrants, has
been filed with the Securities and Exchange Commission and has
been declared effective.
(ii) You may issue certificates without a restrictive legend for the
Agreement Shares listed in Appendix A to this letter. If any
certificate for outstanding Agreement Shares is presented to you
with an investment legend, you may reissue the certificate
without the legend.
(iii) You are authorized to issue an Agreement Shares or Warrant Shares
to the Holder named on Appendix A to this Letter, upon receipt of
a fax from us in substantially the form of Appendix B to this
letter.
(iv) If requested by the Holder or its representative or broker, you
are authorized to deliver the shares by DWAC. Such delivery
should be coordinated with the contact person.
34
<PAGE>
(v) The outstanding Agreement Shares have been duly authorized for
issuance and are and will be validly issued, fully paid and
non-assessable. The additional Agreement Shares have been duly
authorized and, when issued pursuant to the Agreement, will be
validly issued, fully paid and non-assessable. The Warrant
Shares have been duly authorized for issuance and, when issued as
provided in the Warrant, will be validly issued, fully paid and
non-assessable.
Very truly yours,
35
<PAGE>
Appendix A
<TABLE>
<CAPTION>
Outstanding
-----------
Social Security or Agreement Name and Telephone Delivery or
------------------ --------- ------------------ -----------
Name and Address Taxpayer ID No. Shares No. of Contact Person DWAC
- ---------------- --------------- ------ --------------------- ----
<S> <C> <C> <C> <C>
</TABLE>
36
<PAGE>
Appendix B
[Name and Address
of Transfer Agent]
Attention of
Re: CHEQUEMATE INTERNATIONAL, INC.
Ladies and Gentlemen:
Reference is made to our letter to you dated , 2000, a
copy of which is attached.
Pursuant to the above-mentioned letter, you are hereby authorized and
instructed to issue an aggregate of shares (the "Shares") of
common stock, par value $.0001 per share, of Chequemate International, Inc
(the "Company") to the person named in Annex I to this letter. The Shares of
[Agreement Shares] [Warrant Shares] as described in the above-mentioned letter.
Please deliver the certificate to the persons in whose name the Shares
are to be issued by the DWAC system. Please refer to the contact named in
Annex I. Please send a copy of your transmittal letter to me.
Very truly yours,
37
<PAGE>
Annex I
<TABLE>
<CAPTION>
Name Number of Shares Contact (Name and Phone No.)
- ---- ---------------- ----------------------------
<S> <C> <C>
</TABLE>
38
<PAGE>
EXHIBIT 10.2
EXHIBIT A
TO
COMMON STOCK PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of May 10, 2000
(this "AGREEMENT"), is made by and between CHEQUEMATE INTERNATIONAL, INC.,
D/B/A C-3D DIGITAL, INC., a Utah corporation, with headquarters located at
330 Washington Boulevard, Suite 507, Marina del Rey, California 90292 (the
"COMPANY"), and the entity named on the signature page hereto (each, an
"Initial INVESTOR") (each agreement with an initial Investor being deemed a
separate and independent agreement between the Company and such Initial
Investor, except that each Initial Investor acknowledges and consents to the
rights granted to each other Initial Investor under such agreement)
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Common Stock Purchase Agreement, dated as of May 10, 2000, between Investor
and the Company (the "COMMON STOCK PURCHASE AGREEMENT;" terms not otherwise
defined herein shall have the meanings ascribed to them in the Common Stock
Purchase Agreement), the Company has agreed to issue and sell to Investor the
Initial Shares, together with the Repriced Shares (collectively, the "SHARES");
WHEREAS, the Company has agreed to issue the Warrant to Investor
in connection with the issuance of the Shares; and
WHEREAS, to induce Investor to execute and deliver the Common
Stock Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the
rules and regulations thereunder, or any similar successor statute
(collectively, the "SECURITIES ACT"), with respect to the Shares and the
Warrant Shares (as defined below).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Investor hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
(a) "POTENTIAL MATERIAL EVENT" means any of the
following: (i) the possession by the Company of material information not ripe
for disclosure in a Registration Statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company that
disclosure of such information in the Registration Statement would be
detrimental to the business and affairs of
39
<PAGE>
the Company; or (ii) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the
Company, be adversely affected by disclosure in a Registration Statement at
such time, which determination shall be accompanied by a good faith
determination by the Board of Directors of the Company that the Registration
Statement would be materially misleading absent the inclusion of such
information;
(b) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
Registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415
under the Securities Act or any successor rule providing for offering
securities on a continuous basis, and the declaration or ordering of
effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC");
(c) "REGISTRABLE SECURITIES" mean the Shares and the Warrant
Shares; and
(d) "REGISTRATION STATEMENT" means a registration statement
of the Company under the Securities Act, or an amendment to an existing
registration statement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION.
(i) The Company shall prepare and file with the SEC, as soon
as possible after the Initial Closing and no later than July 10, 2000 (the
"REQUIRED FILING DATE"), a Registration Statement on Form S-3, if the Company
is eligible to use Form S-3, otherwise on an appropriate form, Registering for
resale by Investor a sufficient number of shares of Common Stock for Investor
to sell the Registrable Securities (or such lesser number as may be required
by the SEC, but in no event less than (i) two hundred percent (200%) of the
aggregate number of Initial Shares, and (ii) the number of shares of Common
Stock that would be issued upon exercise of the Warrant (the "WARRANT SHARES")
at the time of filing of the Registration Statement (assuming for such
purposes that the Warrant had been eligible to be exercised and had been
exercised in accordance with its terms, whether or not such eligibility or
exercise had in fact occurred as of such date). The Registration Statement
(W) shall include the Registrable Securities, and (X) shall state that, in
accordance with Rule 416 under the Securities Act, it covers such
indeterminate number of additional shares of Common Stock as may become
issuable pursuant to the anti-dilution provisions of the Warrant to prevent
dilution resulting from stock splits or stock dividends. The Company will use
its reasonable efforts to cause such Registration Statement to be declared
effective on a date (a "REQUIRED EFFECTIVE DATE"), which is no later than the
earlier of (y) five (5) Business Days after notice by the SEC that it may be
declared effective or (z) ninety (90) days after the date of the Initial
Closing.
(ii) If at any time (an "INCREASED REGISTERED SHARES DATE"),
Investor advised the Company that the number of shares of Common Stock
represented by the Registrable Securities, issued or to be issued as
contemplated by the Transaction Documents, exceeds the aggregate number of
shares of Common Stock then Registered and provides computation supporting
such advice, the Company shall, (A) if the Registration Statement has not been
declared effective, after notice from Investor, amend the Registration
Statement to include such additional shares such that the number of shares of
Common Stock registered is equal to two hundred percent (200%) of the total
Registrable Shares,
40
<PAGE>
computed as contemplated by the immediately preceding subparagraph (i); or (B)
if such Registration Statement has been declared effective by the SEC at that
time, within thirty (30) Business Days from the Company's receipt of such
notice, file with the SEC an additional Registration Statement (an "ADDITIONAL
REGISTRATION STATEMENT") to register two hundred percent (200%) of the
additional shares of Common Stock, computed as contemplated by the immediately
preceding subparagraph (i). The Company will use its reasonable efforts to
cause such Registration Statement to be declared effective on a date (a
"REQUIRED EFFECTIVE DATE") which is no later than (x) with respect to a
Registration Statement under clause (A) of this subparagraph (ii), the
Required Effective Date contemplated by the immediately preceding subparagraph
(i) and (y) with respect to an Additional Registration Statement, the earlier
of (i) five (5) Business Days after notice by the SEC that it may be declared
effective or (ii) forty (40) days after the Increased Registered Shares Date.
(b) PAYMENTS BY THE COMPANY.
(i) If the Registration Statement covering the
Registrable Securities is not filed in proper form with the SEC by the
Required Filing Date, the Company will make payment to Investor in such
amounts and at such times as shall be determined pursuant to this SECTION 2(b);
(ii) If the Registration Statement covering the
Registrable Securities is not effective by thirty (30) days after the relevant
Required Effective Date or if Investor is restricted from making sales of
Registrable Securities covered by a previously effective Registration
Statement at any time (the date such restriction commences, a "RESTRICTED SALE
DATE") after the Effective Date other than during a Suspension Period (as
defined below), then the Company will make payments to Investor in such
amounts and at such times as shall be determined pursuant to this SECTION 2(b);
(iii) The amount (each a "PERIODIC AMOUNT") to be paid
by the Company to Investor shall be determined as of each Computation Date (as
defined below) and the Periodic Amount shall be equal to the Periodic Amount
Percentage (as defined below) of the Purchase Price for all of the Initial
Shares not sold by Investor for the period from the date following the
relevant Required Filing Date, Required Effective Date or Restricted Sale
Date, as the case may be, to the first relevant Computation Date, and
thereafter to each subsequent Computation Date. The "PERIODIC AMOUNT
PERCENTAGE" means (A) one-fifteenth of one percent (.0666 2/3%) of the
Purchase Price for each day during the thirty (30) day period following the
first relevant Computation Date plus (B) one-tenth of one percent (.1%) for
each day following the expiration of such thirty (30) day period. If the
Company is required to file an Additional Registration Statement a separate
computation shall be made with respect to the shares registered in the
Additional Registration Statement.
(iv) Each Periodic Amount will be payable by the
Company in cash or other immediately available funds to Investor at the end of
each Computation Period, without requiring demand therefor by Investor;
(v) The parties acknowledge that the damages which may
be incurred by Investor if the Registration Statement is not filed by the
Required Filing Date or if the Registration Statement has not been declared
effective by a Required Effective Date, including if the right to sell
Registrable Securities under a previously effective Registration Statement is
suspended, may be difficult to ascertain. The parties agree that the Periodic
Amount represents a reasonable estimate on the part of the parties, as of the
date of this Agreement, of the amount of such damages;
41
<PAGE>
(vi) Notwithstanding the foregoing, the amounts payable
by the Company pursuant to this SECTION 2(b) shall not be payable to the
extent any delay in the effectiveness of the Registration Statement occurs
because of an act of, or a failure to act or to act timely by Investor or its
counsel, or in the event all of the Registrable Securities may be sold
pursuant to Rule 144 or another available exemption under the Securities Act;
and
(vii) "COMPUTATION DATE" means (A) the date which is the
earlier of (1) the Required Filing Date, any relevant Required Effective Date
or a Restricted Sale Date, as the case may be, or (2) the date after the
Required Filing Date, such Required Effective Date or Restricted Sale Date on
which the Registration Statement is filed (with respect to payments due as
contemplated by SECTION 2(b)(i) hereof) or is declared effective or has its
restrictions removed (with respect to payments due as contemplated by SECTION
2(b)(ii) hereof), as the case may be, and (B) each date which is the earlier
of (1) thirty (30) days after the previous Computation Date or (2) the date
after the previous Computation Date on which the Registration Statement is
filed (with respect to payments due as contemplated by SECTION 2(b)(i) hereof)
or is declared effective or has its restrictions removed (with respect to
payments due as contemplated by SECTION 2(b)(ii) hereof), as the case may be.
(viii) The Purchase Price shall mean the consideration
paid by Investor for all of the Initial Shares plus any Repriced Shares, as
defined in the Agreement. The Purchase Price on a per share basis shall mean
the Purchase Price divided by the total number of shares issued pursuant to
the Agreement, including the Repriced Shares.
3. OBLIGATIONS OF THE COMPANY. In connection with the
Registration of the Registrable Securities, the Company shall do each of the
following:
(a) Prepare promptly, and file with the SEC by the Required
Filing Date, a Registration Statement with respect to not less than the number
of Registrable Securities provided in SECTION 2(a) above, and thereafter use
its reasonable efforts to cause such Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times during the period (the
"REGISTRATION PERIOD") continuing until the earliest of: (i) the date that is
two (2) years after the last day of the calendar month following the month in
which the Final Repricing Period ends; (ii) the date when Investor may sell
all Registrable Securities under Rule 144; or (iii) the date when Investor no
longer owns any of the Registrable Securities, which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and
the prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
42
<PAGE>
(c) The Company shall permit a single firm of counsel
designated by Investor to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time (but not less than three
(3) Business Days) prior to their filing with the SEC, and not file any
document in a form to which such counsel reasonably objects;
(d) Notify Investor and Investor's legal counsel identified
to the Company (which, until further notice, shall be deemed to be Krieger &
Prager, LLP, ATTN: Samuel Krieger, Esq.; "INVESTOR'S COUNSEL") (and, in the
case of (i)(A) below, not less than five (5) Business Days prior to such
filing) and (if requested by any such person) confirm such notice in writing
no later than one (1) Business Day following the day (i): (A) when a
prospectus or any prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed; (B) whenever the SEC notifies
the Company whether there will be a "review" of such Registration Statement;
(C) whenever the Company receives (or a representative of the Company receives
on its behalf) any oral or written comments from the SEC respect of a
Registration Statement (copies or, in the case of oral comments, summaries of
such comments shall be promptly furnished by the Company to Investor); and (D)
with respect to the Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the SEC or any
other Federal or state governmental authority for amendments or supplements to
the Registration Statement or prospectus or for additional information; (iii)
of the issuance by the SEC of any stop order suspending the effectiveness of
the Registration Statement covering any or all of the Registrable Securities
or the initiation of any proceedings for that purpose; (iv) if at any time any
of the representations or warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true
and correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that to the best knowledge of
the Company makes any statement made in the Registration Statement or
prospectus or any document incorporated or deemed to be incorporated therein
by reference untrue in any material respect or that requires any revisions to
the Registration Statement, prospectus or other documents so that, in the case
of the Registration Statement or the prospectus, as the case may be, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. In addition, the Company shall furnish Investor with copies
of all intended written responses to the comments contemplated in clause (C)
of this SECTION 3(d) not later than one (1) Business Day in advance of the
filing of such responses with the SEC so that Investor shall have the
opportunity to comment thereon;
(e) Furnish to Investor and Investor's Counsel: (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company, two (2) copies of the Registration Statement, each
preliminary prospectus and prospectus, and each amendment or supplement
thereto; and (ii) such number of copies of a prospectus, and all amendments
and supplements thereto and such other documents, as Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by Investor; provided, however, that if any filings are made by the
SEC's EDGAR system, the Company shall furnish such documents within five (5)
Business Days;
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(f) As promptly as practicable after becoming aware thereof,
notify Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement or other appropriate
filing with the SEC to correct such untrue statement or omission, and deliver
a number of copies of such supplement or amendment to Investor as Investor may
reasonably request;
(g) As promptly as reasonably practicable after becoming
aware thereof, notify Investor of the issuance by the SEC any notice of
effectiveness or any stop order or other suspension of the effectiveness of
the Registration Statement at the earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from
time to time after the date of effectiveness of the Registration Statement,
the Company notifies Investor in writing of the existence of a Potential
Material Event, Investor shall not offer or sell any Registrable Securities,
or engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until Investor receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; PROVIDED, HOWEVER, that the
Company may not so suspend the right to such holders of Registrable Securities
for more than two twenty (20) day periods in the aggregate during any 12-month
period ("SUSPENSION PERIOD") with at least a ten (10) Business Day interval
between such periods, during the periods the Registration Statement is
required to be in effect;
(i) Use its reasonable efforts to secure and maintain the
designation of all the Registrable Securities covered by the Registration
Statement on the "OTC Bulletin Board" of the National Association of
Securities Dealers, and the quotation of the Registrable Securities on the OTC
Bulletin Board;
(j) Provide a transfer agent for the Registrable Securities
not later than the effective date of the Registration Statement;
(k) Cooperate with Investor to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates
for the Registrable Securities to be in such denominations or amounts as the
case may be, as Investor may reasonably request, and, within three (3)
Business Days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and
shall cause legal counsel selected by the Company to deliver, to the transfer
agent for the Registrable Securities (with copies to Investor), an appropriate
instruction and opinion of such counsel; and
(l) Take all other reasonable actions necessary to expedite
and facilitate disposition by Investor of the Registrable Securities pursuant
to the Registration Statement.
4. OBLIGATIONS OF INVESTOR. In connection with the
Registration of the Registrable Securities, Investor shall have the following
obligations:
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(a) It shall be a condition precedent to the obligations of
the Company to complete the Registration pursuant to this Agreement with
respect to the Registrable Securities of Investor, that Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
Registration of such Registrable Securities and shall execute such documents
in connection with such Registration as the Company may reasonably request.
At least ten (10) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify Investor of the information
the Company requires from Investor (the "REQUESTED INFORMATION") if Investor
elects to have any of the Registrable Securities included in the Registration
Statement. If at least five (5) Business Days prior to the filing date the
Company has not received the Requested Information from Investor, then the
Company need not file the Registration Statement until receiving the response
of Investor;
(b) Investor, by accepting the Registrable Securities, agrees
to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of the Registration Statement
hereunder, unless Investor has notified the Company in writing of its election
to exclude all of the Registrable Securities from the Registration Statement;
and
(c) Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in SECTION 3(f)
(OTHER THAN NOTICE OF EFFECTIVENESS) OR 3(g), above, Investor will immediately
discontinue disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until Investor receives the
copies of the supplemented or amended prospectus contemplated by SECTION 3(f)
OR 3(g).
5. EXPENSES OF REGISTRATION. (a) All reasonable expenses
incurred in connection with Registrations, filings or qualifications pursuant
to SECTION 3, including, without limitation, all Registration, listing, and
qualifications fees, printers and accounting fees, the fees and disbursements
of counsel for the Company and a fee for a single counsel for Investor, not
exceeding $4,500 for the Registration Statement covering the Registrable
Securities shall be borne by the Company; and
(b) Except as otherwise provided for in SCHEDULE 5(b)
attached hereto, the Company nor any of its subsidiaries has, as of the date
hereof, and the Company shall not on or after the date of this Agreement,
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to Investor in this Agreement or otherwise conflicts
with the provisions hereof. Except as otherwise provided for in SCHEDULE
5(b), the Company has not previously entered into any agreement granting any
registration rights with respect to any of its securities to any person.
Except as otherwise provided for in this SECTION 5, and without limiting the
generality of the foregoing, without the written consent of Investor, the
Company shall not grant to any person the right to request the Company to
Register any securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights in full of
Investor set forth herein, and are not otherwise in conflict or inconsistent
with the provisions of this Agreement and the other Transaction Documents.
6. INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
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(a) To the extent permitted by law, the Company will
indemnify and hold harmless Investor, the directors, if any, of Investor, the
officers, if any, of Investor, each person, if any, who controls Investor
within the meaning of the Securities Act or the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT") (each, an "INDEMNIFIED PARTY"), against
any losses, claims, damages, liabilities or expenses (joint or several)
incurred (collectively, "CLAIMS") to which any Investor may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as such
Claims (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations in the Registration Statement, or any post-effective
amendment thereof, or any prospectus included therein: (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any post-effective amendment thereof or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; (ii) any
untrue statement or alleged untrue statement of a material fact contained in
the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or
alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the
statements therein were made, not misleading; or (iii) any material violation
or alleged material violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law (the matters in
the foregoing clauses (i) through (iii) being, collectively, "VIOLATIONS").
Subject to SECTION 6(b), the Company shall reimburse Investor, promptly as
such expenses are incurred and are due and payable, for any legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this SECTION 6(a) shall
not: (I) apply to a Claim arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of any Indemnified Party expressly for
use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto, if such prospectus was timely
made available by the Company pursuant to SECTION 3(c) hereof; (II) be
available to the extent such Claim is based on a failure of Investor to
deliver or cause to be delivered the prospectus made available by the Company;
or (III) apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of the Company, which consent
shall not be unreasonably withheld. Investor will indemnify the Company and
its officers, directors and agents (each, an "INDEMNIFIED PARTY") against any
claims arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company, by or
on behalf of Investor, expressly for use in connection with the preparation of
the Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this SECTION 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Party.
(b) Promptly after receipt by an Indemnified Party under this
SECTION 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this SECTION 6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Party, as
the case may be. In case
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any such action is brought against any Indemnified Party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the indemnifying
party to such Indemnified Party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such Indemnified Party
under this SECTION 6 for any legal or other reasonable out-of-pocket expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action of its final conclusion. The Indemnified
Party shall have the right to employ separate counsel in any such action and
to participate in the defense thereof, but the fees and reasonable
out-of-pocket expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the Indemnified Party. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Party under this
SECTION 6, except to the extent that the indemnifying party is prejudiced in
its ability to defend such action. The indemnification required by this
SECTION 6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which
it would otherwise be liable under SECTION 6 to the fullest extent permitted
by law; PROVIDED, HOWEVER, that: (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in SECTION 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received
by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER SECURITIES ACT AND EXCHANGE ACT. With a
view to making available to Investor the benefits of Rule 144 promulgated
under the Securities Act or any other similar rule or regulation of the SEC
that may at any time permit Investor to sell securities of the Company to the
public without Registration ("RULE 144"), the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to Investor so long as Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of the Securities Act and the
Exchange Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company and
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(iii) such other information as may be reasonably requested to permit Investor
to sell such securities pursuant to Rule 144 without Registration.
(d) The Company will, at the request of any Holder of
Registrable Securities, upon receipt from such Holder of a certificate
certifying (i) that such Holder has held such Registrable Securities for a
period of not less than two (2) years, (ii) that such Holder has not been an
affiliate (as defined in Rule 144) of the company for more than the ninety
(90) preceding days, and (iii) as to such other matters as may be appropriate
in accordance with such Rule, remove from the stock certificate representing
such Registrable Securities that portion of any restrictive legend which
relates to the registration provisions of the Securities Act, provided,
however, counsel to Investor may provide such instructions and opinion to the
transfer agent regarding the removal of the restrictive legend.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to
have the Company register Registrable Securities pursuant to this Agreement
shall be automatically assigned by the Investors to any permitted transferee
of the Registrable Securities pursuant to the Common Stock Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investor.
Any amendment or waiver effected in accordance with this SECTION 9 shall be
binding upon Investor and the Company.
11. MISCELLANEOUS.
(a) Notices required or permitted to be given hereunder shall
be given in the manner contemplated by the Common Stock Purchase Agreement, if
to the Company or to Investor, to their respective addresses contemplated by
this Agreement, or at such other address as each such party furnishes by
notice given in accordance with this SECTION 10(a).
(b) Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
(c) This Agreement shall be governed by and interpreted in
accordance with the laws of California for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the County of Los Angeles
or the state courts of California sitting in the County of Los Angeles in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on FORUM NON COVENIENS, to the bringing of any such proceeding in such
jurisdictions. In the event of any dispute, the prevailing party shall be
entitled to recover its reasonable attorneys' fees.
(d) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement
or the validity or enforceability of this Agreement in any other jurisdiction.
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(e) This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties hereto.
(f) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(h) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a
party, may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
(j) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. This Agreement may be amended only by an instrument in writing signed
by the party to be charged with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
COMPANY:
CHEQUEMATE INTERNATIONAL, INC.
D/B/A C-3D DIGITAL, INC.
By:
------------------------------
Name:
Title:
INVESTOR:
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CROOKS HOLLOW ROAD, LLC
By:
------------------------------
Name:
Title:
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SCHEDULE 5(b)
OTHER REGISTRABLE SECURITIES
SCHEDULE 4.4 (EXCEPTIONS TO SECTION 4.4 OF THE COMMON STOCK PURCHASE AGREEMENT)
AND
SCHEDULE 5(b) (EXCEPTIONS TO SECTION 5 OF THE REGISTRATION RIGHTS AGREEMENT)
1. Convertible line of credit promissory notes. $3,000,000 in debt is to be
converted into 1,300,000 shares of common stock at $1.00 per share, and the
other $1,700,000 to be converted to preferred stock, not convertible, after
shareholder approval of amendment to Articles to allow issuance of preferred
stock. The common stock has piggyback registration rights. The Company is
endeavoring to negotiate a waiver of these rights with respect to the Crooks
Hollow Road Registration.
2. Continuing Agreement to privately issue and sell $500,000 in restricted
common stock at a 50% discount from market on a monthly basis, and concurrent
issuance of monthly warrant to acquire 100,000 common shares at $1.00 per
share, with attached registration rights for the warrant. The
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Company has entered into negotiations to obtain a deferral of these
registration rights for a period ending 6 months from closing.
3. Coast Communications (hotel movie business)
Agreement to issue up to 230,500 shares, with registration rights, in
satisfaction of $461,000 in debt. The Company has entered into negotiations
to obtain a deferral of these registration rights for a period of 6 months.
4. Moore North America bldg. Chequemate is negotiating to purchase a 100,000
sq. ft. bldg on 17 acres in Utah. Total purchase price $4,507,000, paid with
note for $2,450,000 plus $2,197,000 worth of stock, valued at the market, and
to be registered. This is a relatively complex deal, involving a middleman
with credit acceptable to a bank. A bank will lend $1,850,000 secured by a
deed of trust on the land, and $1.6M of that cash goes to the Seller (Moore),
and the other $250K goes to closing costs and other expenses. $1.2M worth of
stock goes to Moore, also, and Moore will have the right to put the stock back
to us, half at the end of 6 months and the other half at the end of 12 months,
each opportunity being for $600K plus interest. At Moore's option, if our
stock has declined, Moore may demand additional stock to bring its market
value back up to $1.2M. We are obligated to register all the stock. The
Company has entered into negotiations to obtain a deferral of these
registration rights for a period of 6 months.
5. Issuance to United Business Systems (for purchase of hotel pay-per-view
manufacturer & patents) of $940,000 worth of stock, at the market, to be
registered. The Company has entered into negotiations to obtain a deferral of
these registration rights for a period of 6 months.
6. Scott Applegate/CapitalPlus and Cinemaworks
$119,000 worth of stock, at the market, to be registered, and $236,000 worth
of stock, at the market, to be registered, issued as part of a transaction to
acquire service rights over 2650 free-to-guest rooms in various hotels. The
Company will enter into negotiations to obtain a deferral of these
registration rights for a period of 6 months, but management is doubtful.
7. Trimark Pictures
100,000 shares, to be issued as registered shares, as part of a contract for
motion picture digitization and conversion from 2D to 3D. The Company has
entered into negotiations to obtain a deferral of these registration rights
for a period of 6 months.
8. Hawatmeh, Iehab
62,500 shares to be issued in settlement of claim for breach of contract, with
shares to be registered. The Company has entered into negotiations to obtain a
deferral of these registration rights for a period of 6 months
9. i-O Display Systems, LLC
41,667 shares (contract for $500,000 worth of viewing systems and 3D movies;
shares to be issued and registered on an S-3) This is the company that makes
the preferred wireless shutter glasses, and also owns rights to a few low
budget 3D movies. The Company has entered into negotiations to obtain a
deferral of these registration rights for a period of 6 months
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10. Full Moon Universe
80,000 worth of common stock to be issued at the market.
(balance owed under last Summer's license fee for "Creeps", a 3D movie.) The
Company has entered into negotiations to obtain a deferral of these
registration rights for a period of 6 months
11. Optimum Source
2,728 shares with registration rights.
(fee due from marketing/promotional services) The Company has entered into
negotiations to obtain a deferral of these registration rights for a period of
6 months
12. Duchess Capital Partners
83,333 shares to be registered, for brokerage services. They have agreed to
waive registration for 6 months.
13. Hudson Consulting Group
25,000 shares with registration rights. (amended fee due for consulting
services) The Company has entered into negotiations to obtain a deferral of
these registration rights for a period of 6 months.
14. Academy Entertainment
$250,000 worth of restricted stock W/PIGGYBACK REGISTRATION RIGHTS.
(contract for provision of public domain motion pictures, for conversion to 3D)
The Company has entered into negotiations to obtain a deferral of these
registration rights for a period of 6 months.
15. Hotel Movie Express (King Farms)
31,250 (post-split) shares with registration rights. The Company has entered
into negotiations to obtain a deferral of these registration rights for a
period of 6 months.
16. Issuance of S-8 stock under the Company's current Consultant Stock
Compensation Plan, as per past issuances and future issuances under the plan.
17. Stock options outstanding to ten key employees, plus directors and former
employees, for 1,534,334 shares, of which options for 910,000 shares will
require shareholder approval, together with registration rights.
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EXHIBIT 10.3
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES
AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER
TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
CHEQUEMATE INTERNATIONAL, INC.
D/B/A C-3D DIGITAL, INC.
COMMON STOCK PURCHASE WARRANT
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1. ISSUANCE. In consideration of good and valuable
consideration, the receipt of which is hereby acknowledged by CHEQUEMATE
INTERNATIONAL, INC., D/B/A C-3D DIGITAL, INC., a Utah corporation (the
"Company"), CROOKS HOLLOW ROAD, LLC, or registered assigns (the "Holder") is
hereby granted the right to purchase at any time until 5:00 P.M., New York
City time, on May 10, 2005 (the "Expiration Date"), One Hundred Thirty-Four
Thousand Two Hundred Ninety-Two (134,292) fully paid and nonassessable shares
of the Company's Common Stock, $.0001 par value per share (the "Common Stock")
at an initial exercise price of $6.252 per share (the "Exercise Price"),
subject to further adjustment as set forth in Section 6 hereof.
2. EXERCISE OF WARRANTS. (a) This Warrant is exercisable
in whole or in part at the Exercise Price per share of Common Stock payable
hereunder, payable in cash or by certified or official bank check, or by
"cashless exercise", by means of tendering this Warrant Certificate to the
Company to receive, on conversion of this Warrant, such number of shares of
Common Stock as has a Market Value equal to the difference between the
aggregate Market Value of the shares of Common Stock issuable upon exercise of
this Warrant and the total cash exercise price thereof divided by the Market
Value. Upon surrender of this Warrant Certificate with the annexed Notice of
Exercise Form duly executed, together with payment of the Exercise Price for
the shares of Common Stock purchased or notice of cashless exercise executed,
the Holder shall be entitled to receive a certificate or certificates for the
shares of Common Stock so purchased or issued upon conversion. For the
purposes of this Section 2, "Market Value" shall be an amount equal to the
average closing bid price of a share of Common Stock for the ten (10) days
preceding the date on which the warrant, with the conversion form duly
exercised, is delivered to a messenger or an overnight delivery service, in
each case which gives evidence of delivery of the Notice of Exercise Form duly
executed multiplied by the number of shares of Common Stock to be issued upon
surrender of this Warrant Certificate. As used in this Warrant Certificate,
the term "Warrant Shares" shall mean the shares of Common Stock issued or
issuable upon exercise or conversion of this Warrant. The holder of this
Warrant Certificate shall be deemed to be the owner of the Warrant Shares
issued upon exercise or conversion of this Warrant on and as of the date of
exercise regardless of whether the stock transfer books are open or closed and
whether a physical stock certificate is issued.
(b) For purposes of Rule 144 promulgated under the Securities
Act, it is intended, understood and acknowledged that the Warrant Shares
issued in a cashless exercise transaction shall be deemed to have been
acquired by the Holder and the holding period for the Warrant Shares shall be
deemed to have been commenced, on the issue date provided that the provisions
of this Paragraph 2(b) are not inconsistent with any policy, interpretation,
letter ruling or other published advice by the Securities and Exchange
Commission on the subject.
3. RESERVATION OF SHARES. The Company hereby agrees that at
all times during the term of this Warrant there shall be reserved for issuance
upon exercise of this Warrant such number of shares of its Common Stock as
shall be required for issuance upon exercise of this Warrant.
4. MUTILATION OR LOSS OF WARRANT. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new Warrant
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of like tenor and date and any such lost, stolen, destroyed or mutilated
Warrant shall thereupon become void.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at
law or equity, and the rights of the Holder are limited to those expressed in
this Warrant and are not enforceable against the Company except to the extent
set forth herein.
6. PROTECTION AGAINST DILUTION.
6.1 ADJUSTMENT MECHANISM. If an adjustment of the
Exercise Price is required pursuant to this Section 6, the number of shares of
Common Stock issuable upon exercise of this Warrant shall be adjusted to the
number of shares determined by multiplying the total number of shares of
Common Stock Holder is entitled to purchase pursuant to this Warrant prior to
the adjustment by the Exercise Price in effect prior to the adjustment and
dividing the result by the new Exercise Price.
6.2 CAPITAL ADJUSTMENTS. In case the Company shall,
subsequent to the date the Warrant was initially issued (the Initial Issuance
Date"), (a) pay a dividend or make a distribution on its shares of Common
Stock in shares of Common Stock or effect a stock split, (b) subdivide or
reclassify its outstanding Common Stock into a greater number of shares, or
(c) combine or reclassify its outstanding Common Stock into a smaller number
of shares or otherwise effect a reverse split, the Exercise Price in effect at
the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the Holder of this Warrant exercised after
such date shall be entitled to receive the aggregate number and kind of shares
which, if this Warrant had been exercised immediately prior to such time, he
would have owned upon such exercise and been entitled to receive upon such
dividend, subdivision, combination or reclassification. Such adjustment shall
be made successively whenever any event listed in this Paragraph 6.2 shall
occur.
6.3 In case the Company shall, subsequent to the Initial
Issuance Date, issue rights to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (or having a conversion price per share) less
than the current market price per share of Common Stock (as defined in
Paragraph 6.4 of this Warrant) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the Exercise Price in effect immediately prior to
the date of such issuance by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on the record date mentioned
below plus the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered (or
the aggregate conversion price of the convertible securities so offered) would
purchase at such current market price per share of Common Stock, and of which
the denominator shall be the number of shares of Common Stock outstanding on
such record date plus the number of additional shares of Common Stock offered
for subscription or purchased (or into which the convertible securities so
offered are convertible). Such adjustment shall be made successively whenever
such rights or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to
receive such rights or warrants; and to the extent that shares of Common Stock
or securities convertible into Common Stock are not delivered after the
expiration of such rights or
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warrants, the Exercise Price shall be readjusted to the Exercise Price which
would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock) actually
delivered.
6.4 For the purpose of any computation under Paragraphs 6.3
of this Warrant, the current market price per share of Common Stock at any
date shall be deemed to be the average of the daily closing prices for ten
(10) consecutive trading days commencing five (5) trading days before such
date. The closing price for each day shall be the reported last sale price
regular way or, in case no such reported sale takes place on such day, the
reported last bid price, in either case on the principal national securities
exchange or market on which the Common Stock is admitted to trading or listed
or on Nasdaq, or if not listed or admitted to trading on such exchange or such
market, the average of the reported closing bid prices as reported by Nasdaq,
the National Quotation Bureau, Inc. or other similar organization if Nasdaq is
no longer reporting such information, or if not so available, the fair market
price as determined in good faith by the Board of Directors.
6.5 In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock of the Company, or in case
of any consolidation or merger of the Company with or into another corporation
(other than a merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the class issuable upon
exercise of this Warrant) or in case of any sale, lease or conveyance to
another corporation of the property of the Company as an entirety, the Company
shall, as a condition precedent to such transaction, cause effective
provisions to be made so that the Holder shall have the right thereafter by
exercising this Warrant, to purchase the kind and amount of shares of stock
and other securities and property receivable upon such reclassification,
capital reorganization and other change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock which might
have been purchased upon exercise of this Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. Any such
provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Paragraph 6.5 shall similarly apply
to successive reclassifications, capital reorganizations and changes of shares
of Common Stock and to successive consolidations, mergers, sales or
conveyances. Notwithstanding the foregoing, in the event that the Company
effects a transaction by which the holders of Common Stock receive cash and no
other consideration in the form of equity, this Warrant shall be automatically
deemed to have been exercised pursuant to the cashless exercise provisions of
this Warrant on and as of the effective date of such transaction, with the
Market Value being the consideration per share payable to the holders of the
Common Stock. If the Market Price is less than the then current Exercise
Price, this Warrant shall terminate and the Holder shall have no rights
pursuant to this Warrant.
7. TRANSFER TO COMPLY WITH THE SECURITIES ACT; REGISTRATION
RIGHTS.
(a) Neither this Warrant nor the Warrant Shares have been
registered under the Securities Act of 1933, as amended, (the "Act"), and this
Warrant and has been issued to the Holder for investment and not with a view
to the distribution of either the Warrant or the Warrant Shares. Neither this
Warrant nor any of the Warrant Shares or any other security issued or issuable
upon exercise of this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective
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registration statement under the Act relating to such security or an opinion
of counsel satisfactory to the Company that registration is not required under
the Act. Each certificate for the Warrant, the Warrant Shares and any other
security issued or issuable upon exercise of this Warrant shall contain a
legend on the face thereof, in form and substance satisfactory to counsel for
the Company, setting forth the restrictions on transfer contained in this
Section.
(b) The Holder is entitled to the benefits of a Registration
Rights Agreement, dated May 10, 2000, between the Company and initial holders
of this Warrant.
8. NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be
in writing and, unless otherwise specified herein, shall be (a) personally
served,(b) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (c) delivered by reputable courier service which
provides evidence of delivery with charges prepaid, or (d) transmitted by hand
delivery, or (e) by facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written notice
given in accordance herewith. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (i) upon hand
delivery or delivery at the address or number designated below (if delivered
on a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (ii) on the second business day following the date of
mailing by express courier service or on the fifth business day after
deposited in the mail, in each case, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur or (iii)
if by facsimile, upon confirmation of receipt by the recipient or confirmation
of transmission in another manner provided in this SECTION 13.8. The addresses
for such communications shall be:
IF TO THE COMPANY:
Chequemate International, Inc.
d/b/a C-3D Digital, Inc.
330 Washington Boulevard, Suite 507
Marina del Rey, California 90292
ATTENTION: Alan Hunter, Esq.
General Counsel
Tel No.: (310) 305-3659
Fax No.:
WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE) TO:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue
New York, New York 10158
ATTENTION: Asher S. Levitsky P.C.
Tel No.: (212) 716-3239
Fax No.: (212) 953-6899
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IF TO PURCHASER:
Crooks Hollow Road LLC
Corporate Center
Windward One
West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE) TO:
Krieger & Prager, LLP
39 Broadway, Suite 1440
New York, New York 10006
ATTENTION: Samuel M. Krieger, Esq.
Tel No.: (212) 363-2900
Fax No: (212) 363-2999
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 9.1 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.
9. SUPPLEMENTS AND AMENDMENTS; WHOLE AGREEMENT. This
Warrant may be amended or supplemented only by an instrument in writing signed
by the parties hereto. This Warrant of even date herewith contain the full
understanding of the parties hereto with respect to the subject matter hereof
and thereof and there are no representations, warranties, agreements or
understandings other than expressly contained herein and therein.
10. GOVERNING LAW. This Warrant shall be deemed to be a
contract made under the laws of the State California and for all purposes
shall be governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such State.
11. COUNTERPARTS. This Warrant may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
12. DESCRIPTIVE HEADINGS. Descriptive headings of the
several Sections of this Warrant are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the day of May, 2000.
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CHEQUEMATE INTERNATIONAL, INC.
D/B/A C-3D DIGITAL, INC.
By:
---------------------------------------------
-----------------------------------------
Its
--------------------------------------
Attest:
- ----------------------------
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of ______________, to purchase
__________ shares of the Common Stock, par value $.0001 per share, of
___________________ and tenders herewith payment in accordance with Section 1
of said Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:
------------------------
By:
---------------------------------
CASH: $
------------------------
CASHLESS
A. Aggregate Market Value of Warrant Shares $
---------------
B. Aggregate Cash Exercise Price $
---------------
C. Market Value Per Share $
---------------
A - B = No. of Shares To be Issued ---------------
C
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EXHIBIT 10.4
CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $295,000.00 Date: May 24, 2000
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the"Borrower") promises to pay to Azure Agents Limited
(referred to herein as the "Lender"), or order, at the address the Lender
shall designate in writing to the Borrower from time to time, the sum of Two
Hundred Ninety Five Thousand dollars ($295,000) or the aggregate unpaid
principal balance of all advances made to the Borrower by the Lender pursuant
to this Note from time to time ("Advances") on April 1, 2001 ("Maturity
Date") in lawful money of the United States and in immediately available
funds, together with interest on the unpaid principal balance of this
Convertible Line of Credit Promissory Note ("Note") computed on the basis of a
360 day year and charged on actual days the principal amount of any Advance
is outstanding, at the rate of twelve percent (12%) per annum.
1. ADVANCES MADE PRIOR TO NOTE. The Lender and Borrower acknowledge
that the Lender has made Advances to the Borrower pursuant to an oral lending
agreement, with the understanding that the terms of which were to be
subsequently negotiated and which are now set forth in this Note.
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2. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
3. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
4. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note to
common stock and preferred stock of the Borrower to be issued by Borrower on
the terms and conditions set forth below:
a. TERM OF OPTION. The Lender may convert the principal balance
of loan to common and preferred stock at any time from the date
of this Note until the principal balance is retired or converted.
b. CONVERSION PRICE AND LIMITATIONS. The maximum amount of the
principal balance of the Note to common stock is $127,000 at a
conversion price of $1.00 per common share. The maximum amount
of the principal balance of the Note that may be converted by the
Lender to preferred stock is $168,000. Provided, however, the
Lender acknowledges that the Borrower does not currently have
preferred stock authorized by its Articles of Incorporation, but
that it is the intention of the Borrower to submit to its
shareholders resolutions authorizing the issuance of preferred
stock and this right of conversion is subject to such approval by
the Borrower's shareholders. The number of preferred shares and
the per share price is to be determined by the Borrower and
ratified by the Borrower shareholders.
c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock and preferred stock may be made by Lender at any
time upon written Notice of Election to convert by Lender. The
Notice of Election to convert shall contain the date of
conversion and the principal amount of the Advance to be
converted to common stock and preferred stock. Such conversion
shall be effective on the date specified in the notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the event,
at any time after the date hereof, the holders of the common
stock of the Borrower shall have received, or, on or after the
record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefore,
other or additional stock or other securities or property by way
of stock-split, spinoff, reclassification, combination of shares
or similar corporate rearrangement, then and in each such case
the Lender, upon the exercise hereof as provided herein, shall be
entitled to receive the amount of stock and other securities and
property which the Lender would hold on the date of such exercise
if on record date of such corporate reclassification Lender had
been the holder of record of the number of shares of common stock
of the Borrower called for in the event of complete conversion of
the Note and had thereafter retained such shares and/or all other
or additional stock and other securities and property receivable
by Lender as aforesaid during such period, giving effect to all
adjustments called for during such period.
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e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in case,
after such date, the Borrower shall consolidate with or merge
into another corporation or convey all or substantially all of
its assets to another corporation, then and in each such case
the Lender, upon the exercise of its conversion rights at any
time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property
receivable upon the conversion of this Note prior to such
consummation, the stock or other securities or property to which
Lender would be entitled had the Lender converted this Note
immediately prior thereto.
f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the account of others, in connection with the public offering
of such equity securities solely for cash, on a registration form
that would also permit the registration of the shares of common
stock or preferred stock issuable upon conversion of this Note,
the Borrower shall promptly give the Lender written notice of
such proposal. Within thirty days after the notice is given,
the Lender shall give notice as to the number of shares of
common stock or preferred stock, if any, which the Lender
requests be registered simultaneously with such registration by
the Borrower. The Borrower shall use its best efforts to include
such shares in such registration statement and to cause such
registration statement to become effective with respect to such
shares. All costs in connection such registration statement
shall be borne by the Borrower. The Lender shall bear all
underwriting discounts, selling commissions, sales concessions
and similar expenses applicable to the sale of the Lender's
common stock or preferred stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock or preferred stock as will be sufficient to permit the
conversion in full of this Note.
h. INTEREST. In the event of the conversion to common or
preferred stock of any of the principal amount of any Advance,
the accrued interest applicable to such converted principal
shall be deemed to be forgiven upon conversion and shall not be
otherwise payable pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITIONS PRECEDENT. (i) The conversion of any part of this
Note to preferred stock is subject to the approval by Borrower's
shareholders of an amendment to the Borrower's Articles of
Incorporation to authorized the issuance of preferred stock; and,
(ii) the conversion of any part of this Note to common stock and
the issuance of the related common stock is subject to the
approval of the American Stock Exchange ("Amex") of a request by
the Borrower to list such shares on the Amex.
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<PAGE>
5. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
6. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower shareholders if consent of
shareholders is required, fails to approve or ratify all of the terms of this
Note, or if the Borrower otherwise defaults under the terms of this Note or
the Security Agreement, then the holder hereof, following the giving of 10
days written notice may accelerate this Note and declare the entire balance
due and owing whereupon the Borrower agrees to pay the entire balance of the
Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal in the event of
default, the Borrower agrees to pay all expenses of collection of this Note,
including reasonable attorney's fees and court costs incurred in any
proceeding including any proceedings in the United States Bankruptcy Court.
After acceleration, in the event of default, and after the due date and before
and after judgment, this Note shall accrue interest until paid at the highest
legal rate.
7. GOVERNING LAW. This Note shall be governed by the laws of the
State of Utah.
8. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance, default or enforcement of this Note
and each agrees that the holder, from time to time, may renew, modify or
extend performance of obligations hereunder without their consent.
9. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock or preferred stock,
and the meaning and construction of the terms hereof, every such dispute,
difference, and disagreement shall be referred to a single arbitrator agreed
upon by the Borrower and the Lender, or if no single arbitrator can be agreed
upon, an arbitrator or arbitrators shall be selected in accordance with the
rules of the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
10. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
64
<PAGE>
SECURITY AGREEMENT
May 24, 2000
Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: Azure Agents Limited
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be
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<PAGE>
granted contemporaneously with this Security Agreement. There is no
financing statement now filed or recorded covering any of the Collateral.
Obligor is in exclusive possession of the Collateral.
3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i) genuine, (ii) the legal, valid and
binding obligations of the parties thereto, and (iii) enforceable against the
parties thereto in accordance with their terms. Any copies of such
agreements, documents, and instruments delivered to Secured Party are accurate
and complete and, except for the items delivered to Secured Party there are
no amendments, modifications, extensions, renewals, restatements, or
supplements thereof. No surety bond was required or given by Obligor in
connection with or is otherwise applicable to (1) any goods, or other tangible
personal property, or services relating to the Receivables, or (2) the
agreements, documents, or instruments out of which the Receivables arose.
4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality, validity, binding nature,
and enforceability of the Security Interest granted herein, the perfection
thereof, and the first priority thereof against all matters, including,
without limitation, (i) any attachment, levy, or other seizure by legal process
or otherwise of any or all Collateral, (ii) any lien or encumbrance or claim
thereof on any or all Collateral, (iii) any attempt to realize upon any or all
Collateral under any lien or encumbrance, regardless of whether junior or
senior to the Security Interest herein, and (iv) any claim questioning the
legality, validity, binding nature, enforceability, perfection, or priority of
the Security Interest herein. Obligor shall notify Secured Party immediately
in writing of any of the foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured
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<PAGE>
Party (including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such assets).
4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect, preserve, and protect the security interest
granted herein, the priority thereof, and the rights and remedies of Secured
Party hereunder.
4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
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Dated as of the date first above written.
"Obligor"
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
by
CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $275,000.00 Date: May 24, 2000
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the"Borrower") promises to pay to Bournville
Management, Ltd. (referred to herein as the "Lender"), or order, at the
address the Lender shall designate in writing to the Borrower from time to
time, the sum of Two Hundred Seventy Five Thousand dollars ($275,000) or the
aggregate unpaid principal balance of all advances made to the Borrower by the
Lender pursuant to this Note from time to time ("Advances") on April 1, 2001
("Maturity Date") in lawful money of the United States and in immediately
available funds, together with interest on the unpaid principal balance of
this Convertible Line of Credit Promissory Note ("Note") computed on the basis
of a 360 day year and charged on actual days the principal amount of any
Advance is outstanding, at the rate of twelve percent (12%) per annum.
1. ADVANCES MADE PRIOR TO NOTE. The Lender and Borrower acknowledge
that the Lender has made Advances to the Borrower pursuant to an oral lending
agreement, with the understanding that the terms of which were to be
subsequently negotiated and which are now set forth in this Note.
2. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
3. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
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4. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note to
common stock and preferred stock of the Borrower to be issued by Borrower on
the terms and conditions set forth below:
a. TERM OF OPTION. The Lender may convert the principal balance
of loan to common and preferred stock at any time from the date
of this Note until the principal balance is retired or converted.
b. CONVERSION PRICE AND LIMITATIONS. The maximum amount of the
principal balance of the Note to common stock is $120,000 at a
conversion price of $1.00 per common share. The maximum amount
of the principal balance of the Note that may be converted by the
Lender to preferred stock is $155,000. Provided, however, the
Lender acknowledges that the Borrower does not currently have
preferred stock authorized by its Articles of Incorporation, but
that it is the intention of the Borrower to submit to its
shareholders resolutions authorizing the issuance of preferred
stock and this right of conversion is subject to such approval by
the Borrower's shareholders. The number of preferred shares and
the per share price is to be determined by the Borrower and
ratified by the Borrower shareholders.
c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock and preferred stock may be made by Lender at any
time upon written Notice of Election to convert by Lender. The
Notice of Election to convert shall contain the date of
conversion and the principal amount of the Advance to be
converted to common stock and preferred stock. Such conversion
shall be effective on the date specified in the notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the
event, at any time after the date hereof, the holders of the
common stock of the Borrower shall have received, or, on or
after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without
payment therefore, other or additional stock or other securities
or property by way of stock-split, spinoff, reclassification,
combination of shares or similar corporate rearrangement, then
and in each such case the Lender, upon the exercise hereof as
provided herein, shall be entitled to receive the amount of
stock and other securities and property which the Lender would
hold on the date of such exercise if on record date of such
corporate reclassification Lender had been the holder of record
of the number of shares of common stock of the Borrower called
for in the event of complete conversion of the Note and had
thereafter retained such shares and/or all other or additional
stock and other securities and property receivable by Lender as
aforesaid during such period, giving effect to all adjustments
called for during such period.
e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in case,
after such date, the Borrower shall consolidate with or merge
into another corporation or convey all or substantially all of
its assets to another corporation, then and in each such case
the Lender, upon the exercise of its conversion rights at any
time after the consummation of such
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reorganization, consolidation, merger or conveyance, shall be
entitled to receive, in lieu of the stock or other securities
and property receivable upon the conversion of this Note prior
to such consummation, the stock or other securities or property
to which Lender would be entitled had the Lender converted this
Note immediately prior thereto.
f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the account of others, in connection with the public offering
of such equity securities solely for cash, on a registration form
that would also permit the registration of the shares of common
stock or preferred stock issuable upon conversion of this Note,
the Borrower shall promptly give the Lender written notice of
such proposal. Within thirty days after the notice is given, the
Lender shall give notice as to the number of shares of common
stock or preferred stock, if any, which the Lender requests be
registered simultaneously with such registration by the Borrower.
The Borrower shall use its best efforts to include such shares in
such registration statement and to cause such registration
statement to become effective with respect to such shares. All
costs in connection such registration statement shall be borne by
the Borrower. The Lender shall bear all underwriting discounts,
selling commissions, sales concessions and similar expenses
applicable to the sale of the Lender's common stock or preferred
stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock or preferred stock as will be sufficient to permit the
conversion in full of this Note.
h. INTEREST. In the event of the conversion to common or
preferred stock of any of the principal amount of any Advance,
the accrued interest applicable to such converted principal
shall be deemed to be forgiven upon conversion and shall not be
otherwise payable pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITIONS PRECEDENT. (i) The conversion of any part of this
Note to preferred stock is subject to the approval by Borrower's
shareholders of an amendment to the Borrower's Articles of
Incorporation to authorized the issuance of preferred stock; and,
(ii) the conversion of any part of this Note to common stock and
the issuance of the related common stock is subject to the
approval of the American Stock Exchange ("Amex") of a request by
the Borrower to list such shares on the Amex.
5. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
6. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower
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shareholders if consent of shareholders is required, fails to approve or
ratify all of the terms of this Note, or if the Borrower otherwise defaults
under the terms of this Note or the Security Agreement, then the holder
hereof, following the giving of 10 days written notice may accelerate this
Note and declare the entire balance due and owing whereupon the Borrower
agrees to pay the entire balance of the Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal in the event of
default, the Borrower agrees to pay all expenses of collection of this Note,
including reasonable attorney's fees and court costs incurred in any
proceeding including any proceedings in the United States Bankruptcy Court.
After acceleration, in the event of default, and after the due date and before
and after judgment, this Note shall accrue interest until paid at the highest
legal rate.
7. GOVERNING LAW. This Note shall be governed by the laws of the State
of Utah.
8. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance, default or enforcement of this Note
and each agrees that the holder, from time to time, may renew, modify or
extend performance of obligations hereunder without their consent.
9. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock or preferred stock,
and the meaning and construction of the terms hereof, every such dispute,
difference, and disagreement shall be referred to a single arbitrator agreed
upon by the Borrower and the Lender, or if no single arbitrator can be agreed
upon, an arbitrator or arbitrators shall be selected in accordance with the
rules of the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
10. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------
By
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SECURITY AGREEMENT
May 24, 2000
Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: Bournville Management Ltd.
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be granted
contemporaneously with this Security Agreement. There is no financing
statement now filed or recorded covering any of the Collateral. Obligor is in
exclusive possession of the Collateral.
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3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i) genuine, (ii) the legal, valid and
binding obligations of the parties thereto, and (iii) enforceable against the
parties thereto in accordance with their terms. Any copies of such
agreements, documents, and instruments delivered to Secured Party are accurate
and complete and, except for the items delivered to Secured Party there are
no amendments, modifications, extensions, renewals, restatements, or
supplements thereof. No surety bond was required or given by Obligor in
connection with or is otherwise applicable to (1) any goods, or other tangible
personal property, or services relating to the Receivables, or (2) the
agreements, documents, or instruments out of which the Receivables arose.
4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality, validity, binding nature,
and enforceability of the Security Interest granted herein, the perfection
thereof, and the first priority thereof against all matters, including,
without limitation, (i) any attachment, levy, or other seizure by legal process
or otherwise of any or all Collateral, (ii) any lien or encumbrance or claim
thereof on any or all Collateral, (iii) any attempt to realize upon any or all
Collateral under any lien or encumbrance, regardless of whether junior or
senior to the Security Interest herein, and (iv) any claim questioning the
legality, validity, binding nature, enforceability, perfection, or priority of
the Security Interest herein. Obligor shall notify Secured Party immediately
in writing of any of the foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured Party
(including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such assets).
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4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect, preserve, and protect the security interest
granted herein, the priority thereof, and the rights and remedies of Secured
Party hereunder.
4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
Dated as of the date first above written.
"Obligor"
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CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
------------------------------
---------------------------by
CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $290,000.00 Date: May 24, 2000
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the "Borrower") promises to pay to Chelsea
International Limited (referred to herein as the "Lender"), or order, at the
address the Lender shall designate in writing to the Borrower from time to
time, the sum of Two Hundred Ninety Thousand dollars ($290,000) or the
aggregate unpaid principal balance of all advances made to the Borrower by the
Lender pursuant to this Note from time to time ("Advances") on April 1, 2001
("Maturity Date") in lawful money of the United States and in immediately
available funds, together with interest on the unpaid principal balance of
this Convertible Line of Credit Promissory Note ("Note") computed on the basis
of a 360 day year and charged on actual days the principal amount of any
Advance is outstanding, at the rate of twelve percent (12%) per annum.
1. ADVANCES MADE PRIOR TO NOTE. The Lender and Borrower acknowledge
that the Lender has made Advances to the Borrower pursuant to an oral lending
agreement, with the understanding that the terms of which were to be
subsequently negotiated and which are now set forth in this Note.
2. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
3. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
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4. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note to
common stock and preferred stock of the Borrower to be issued by Borrower on
the terms and conditions set forth below:
a. TERM OF OPTION. The Lender may convert the principal balance
of loan to common and preferred stock at any time from the date
of this Note until the principal balance is retired or converted.
b. CONVERSION PRICE AND LIMITATIONS. The maximum amount of the
principal balance of the Note to common stock is $125,000 at a
conversion price of $1.00 per common share. The maximum amount
of the principal balance of the Note that may be converted by the
Lender to preferred stock is $165,000. Provided, however, the
Lender acknowledges that the Borrower does not currently have
preferred stock authorized by its Articles of Incorporation, but
that it is the intention of the Borrower to submit to its
shareholders resolutions authorizing the issuance of preferred
stock and this right of conversion is subject to such approval by
the Borrower's shareholders. The number of preferred shares and
the per share price is to be determined by the Borrower and
ratified by the Borrower shareholders.
c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock and preferred stock may be made by Lender at any
time upon written Notice of Election to convert by Lender. The
Notice of Election to convert shall contain the date of
conversion and the principal amount of the Advance to be
converted to common stock and preferred stock. Such conversion
shall be effective on the date specified in the notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the
event, at any time after the date hereof, the holders of the
common stock of the Borrower shall have received, or, on or
after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without
payment therefore, other or additional stock or other securities
or property by way of stock-split, spinoff, reclassification,
combination of shares or similar corporate rearrangement, then
and in each such case the Lender, upon the exercise hereof as
provided herein, shall be entitled to receive the amount of
stock and other securities and property which the Lender would
hold on the date of such exercise if on record date of such
corporate reclassification Lender had been the holder of record
of the number of shares of common stock of the Borrower called
for in the event of complete conversion of the Note and had
thereafter retained such shares and/or all other or additional
stock and other securities and property receivable by Lender as
aforesaid during such period, giving effect to all adjustments
called for during such period.
e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in
case, after such date, the Borrower shall consolidate with or
merge into another corporation or convey all or substantially
all of its assets to another corporation, then and in each such
case the Lender, upon the exercise of its conversion rights at
any time after the consummation of such
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reorganization, consolidation, merger or conveyance, shall be
entitled to receive, in lieu of the stock or other securities
and property receivable upon the conversion of this Note prior
to such consummation, the stock or other securities or property
to which Lender would be entitled had the Lender converted this
Note immediately prior thereto.
f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the account of others, in connection with the public
offering of such equity securities solely for cash, on a
registration form that would also permit the registration of the
shares of common stock or preferred stock issuable upon
conversion of this Note, the Borrower shall promptly give the
Lender written notice of such proposal. Within thirty days
after the notice is given, the Lender shall give notice as to
the number of shares of common stock or preferred stock, if any,
which the Lender requests be registered simultaneously with such
registration by the Borrower. The Borrower shall use its best
efforts to include such shares in such registration statement
and to cause such registration statement to become effective
with respect to such shares. All costs in connection such
registration statement shall be borne by the Borrower. The
Lender shall bear all underwriting discounts, selling
commissions, sales concessions and similar expenses applicable
to the sale of the Lender's common stock or preferred stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock or preferred stock as will be sufficient to permit the
conversion in full of this Note.
h. INTEREST. In the event of the conversion to common or
preferred stock of any of the principal amount of any Advance,
the accrued interest applicable to such converted principal
shall be deemed to be forgiven upon conversion and shall not be
otherwise payable pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITIONS PRECEDENT. (i) The conversion of any part of this
Note to preferred stock is subject to the approval by Borrower's
shareholders of an amendment to the Borrower's Articles of
Incorporation to authorized the issuance of preferred stock; and,
(ii) the conversion of any part of this Note to common stock and
the issuance of the related common stock is subject to the
approval of the American Stock Exchange ("Amex") of a request by
the Borrower to list such shares on the Amex.
5. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
6. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower
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<PAGE>
shareholders if consent of shareholders is required, fails to approve or
ratify all of the terms of this Note, or if the Borrower otherwise defaults
under the terms of this Note or the Security Agreement, then the holder
hereof, following the giving of 10 days written notice may accelerate this
Note and declare the entire balance due and owing whereupon the Borrower
agrees to pay the entire balance of the Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal in the event of
default, the Borrower agrees to pay all expenses of collection of this Note,
including reasonable attorney's fees and court costs incurred in any
proceeding including any proceedings in the United States Bankruptcy Court.
After acceleration, in the event of default, and after the due date and before
and after judgment, this Note shall accrue interest until paid at the highest
legal rate.
7. GOVERNING LAW. This Note shall be governed by the laws of the
State of Utah.
8. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance, default or enforcement of this Note
and each agrees that the holder, from time to time, may renew, modify or
extend performance of obligations hereunder without their consent.
9. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock or preferred stock,
and the meaning and construction of the terms hereof, every such dispute,
difference, and disagreement shall be referred to a single arbitrator agreed
upon by the Borrower and the Lender, or if no single arbitrator can be agreed
upon, an arbitrator or arbitrators shall be selected in accordance with the
rules of the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
10. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
CHEQUEMATE INTERNATIONAL, INC.
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/s/ J. Michael Heil, CEO
-----------------------------------
By
SECURITY AGREEMENT
May 24, 2000
Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: Chelsea International Limited
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be granted
contemporaneously with this Security Agreement. There is no financing
statement now filed or recorded covering any of the Collateral. Obligor is in
exclusive possession of the Collateral.
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3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i) genuine, (ii) the legal, valid and
binding obligations of the parties thereto, and (iii) enforceable against the
parties thereto in accordance with their terms. Any copies of such
agreements, documents, and instruments delivered to Secured Party are accurate
and complete and, except for the items delivered to Secured Party there are
no amendments, modifications, extensions, renewals, restatements, or
supplements thereof. No surety bond was required or given by Obligor in
connection with or is otherwise applicable to (1) any goods, or other tangible
personal property, or services relating to the Receivables, or (2) the
agreements, documents, or instruments out of which the Receivables arose.
4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality, validity, binding nature,
and enforceability of the Security Interest granted herein, the perfection
thereof, and the first priority thereof against all matters, including,
without limitation, (i) any attachment, levy, or other seizure by legal
process or otherwise of any or all Collateral, (ii) any lien or encumbrance or
claim thereof on any or all Collateral, (iii) any attempt to realize upon any
or all Collateral under any lien or encumbrance, regardless of whether junior
or senior to the Security Interest herein, and (iv) any claim questioning the
legality, validity, binding nature, enforceability, perfection, or priority of
the Security Interest herein. Obligor shall notify Secured Party immediately
in writing of any of the foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured Party
(including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such assets).
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4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect, preserve, and protect the security interest
granted herein, the priority thereof, and the rights and remedies of Secured
Party hereunder.
4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
Dated as of the date first above written.
"Obligor"
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CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $270,000.00 Date: May 24, 2000
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the "Borrower") promises to pay to Giai Limited
(referred to herein as the "Lender"), or order, at the address the Lender
shall designate in writing to the Borrower from time to time, the sum of Two
Hundred Seventy Thousand dollars ($270,000) or the aggregate unpaid principal
balance of all advances made to the Borrower by the Lender pursuant to this
Note from time to time ("Advances") on April 1, 2001 ("Maturity Date") in
lawful money of the United States and in immediately available funds, together
with interest on the unpaid principal balance of this Convertible Line of
Credit Promissory Note ("Note") computed on the basis of a 360 day year and
charged on actual days the principal amount of any Advance is outstanding, at
the rate of twelve percent (12%) per annum.
1. ADVANCES MADE PRIOR TO NOTE. The Lender and Borrower acknowledge
that the Lender has made Advances to the Borrower pursuant to an oral lending
agreement, with the understanding that the terms of which were to be
subsequently negotiated and which are now set forth in this Note.
2. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
3. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
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4. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note to
common stock and preferred stock of the Borrower to be issued by Borrower on
the terms and conditions set forth below:
a. TERM OF OPTION. The Lender may convert the principal balance
of loan to common and preferred stock at any time from the date
of this Note until the principal balance is retired or converted.
b. CONVERSION PRICE AND LIMITATIONS. The maximum amount of the
principal balance of the Note to common stock is $115,000 at a
conversion price of $1.00 per common share. The maximum amount
of the principal balance of the Note that may be converted by the
Lender to preferred stock is $155,000. Provided, however, the
Lender acknowledges that the Borrower does not currently have
preferred stock authorized by its Articles of Incorporation, but
that it is the intention of the Borrower to submit to its
shareholders resolutions authorizing the issuance of preferred
stock and this right of conversion is subject to such approval by
the Borrower's shareholders. The number of preferred shares and
the per share price is to be determined by the Borrower and
ratified by the Borrower shareholders.
c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock and preferred stock may be made by Lender at any
time upon written Notice of Election to convert by Lender. The
Notice of Election to convert shall contain the date of
conversion and the principal amount of the Advance to be
converted to common stock and preferred stock. Such conversion
shall be effective on the date specified in the notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the event,
at any time after the date hereof, the holders of the common
stock of the Borrower shall have received, or, on or after the
record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefore,
other or additional stock or other securities or property by way
of stock-split, spinoff, reclassification, combination of shares
or similar corporate rearrangement, then and in each such case
the Lender, upon the exercise hereof as provided herein, shall be
entitled to receive the amount of stock and other securities and
property which the Lender would hold on the date of such exercise
if on record date of such corporate reclassification Lender had
been the holder of record of the number of shares of common stock
of the Borrower called for in the event of complete conversion of
the Note and had thereafter retained such shares and/or all other
or additional stock and other securities and property receivable
by Lender as aforesaid during such period, giving effect to all
adjustments called for during such period.
e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in case,
after such date, the Borrower shall consolidate with or merge
into another corporation or convey all or substantially all of
its assets to another corporation, then and in each such case
the Lender, upon the exercise of its conversion rights at any
time after the consummation of such
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reorganization, consolidation,merger or conveyance, shall be
entitled to receive, in lieu of the stock or other securities
and property receivable upon the conversion of this Note prior
to such consummation, the stock or other securities or property
to which Lender would be entitled had the Lender converted this
Note immediately prior thereto.
f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the account of others, in connection with the public offering
of such equity securities solely for cash, on a registration form
that would also permit the registration of the shares of common
stock or preferred stock issuable upon conversion of this Note,
the Borrower shall promptly give the Lender written notice of
such proposal. Within thirty days after the notice is given, the
Lender shall give notice as to the number of shares of common
stock or preferred stock, if any, which the Lender requests be
registered simultaneously with such registration by the Borrower.
The Borrower shall use its best efforts to include such shares in
such registration statement and to cause such registration
statement to become effective with respect to such shares. All
costs in connection such registration statement shall be borne by
the Borrower. The Lender shall bear all underwriting discounts,
selling commissions, sales concessions and similar expenses
applicable to the sale of the Lender's common stock or preferred
stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock or preferred stock as will be sufficient to permit the
conversion in full of this Note.
h. INTEREST. In the event of the conversion to common or
preferred stock of any of the principal amount of any Advance,
the accrued interest applicable to such converted principal
shall be deemed to be forgiven upon conversion and shall not be
otherwise payable pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITIONS PRECEDENT. (i) The conversion of any part of this
Note to preferred stock is subject to the approval by Borrower's
shareholders of an amendment to the Borrower's Articles of
Incorporation to authorized the issuance of preferred stock; and,
(ii) the conversion of any part of this Note to common stock and
the issuance of the related common stock is subject to the
approval of the American Stock Exchange ("Amex") of a request by
the Borrower to list such shares on the Amex.
5. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
6. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower
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shareholders if consent of shareholders is required, fails to approve or
ratify all of the terms of this Note, or if the Borrower otherwise defaults
under the terms of this Note or the Security Agreement, then the holder
hereof, following the giving of 10 days written notice may accelerate this
Note and declare the entire balance due and owing whereupon the Borrower
agrees to pay the entire balance of the Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal in the event of
default, the Borrower agrees to pay all expenses of collection of this Note,
including reasonable attorney's fees and court costs incurred in any
proceeding including any proceedings in the United States Bankruptcy Court.
After acceleration, in the event of default, and after the due date and before
and after judgment, this Note shall accrue interest until paid at the highest
legal rate.
7. GOVERNING LAW. This Note shall be governed by the laws of the
State of Utah.
8. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance, default or enforcement of this Note
and each agrees that the holder, from time to time, may renew, modify or
extend performance of obligations hereunder without their consent.
9. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock or preferred stock,
and the meaning and construction of the terms hereof, every such dispute,
difference, and disagreement shall be referred to a single arbitrator agreed
upon by the Borrower and the Lender, or if no single arbitrator can be agreed
upon, an arbitrator or arbitrators shall be selected in accordance with the
rules of the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
10. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
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By
SECURITY AGREEMENT
May 24, 2000
Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: Giai Limited
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be granted
contemporaneously with this Security Agreement. There is no financing
statement now filed or recorded covering any of the Collateral. Obligor is in
exclusive possession of the Collateral.
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3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i) genuine, (ii) the legal, valid and
binding obligations of the parties thereto, and (iii) enforceable against the
parties thereto in accordance with their terms. Any copies of such
agreements, documents, and instruments delivered to Secured Party are accurate
and complete and, except for the items delivered to Secured Party there are
no amendments, modifications, extensions, renewals, restatements, or
supplements thereof. No surety bond was required or given by Obligor in
connection with or is otherwise applicable to (1) any goods, or other tangible
personal property, or services relating to the Receivables, or (2) the
agreements, documents, or instruments out of which the Receivables arose.
4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality, validity, binding nature,
and enforceability of the Security Interest granted herein, the perfection
thereof, and the first priority thereof against all matters, including,
without limitation, (i) any attachment, levy, or other seizure by legal process
or otherwise of any or all Collateral, (ii) any lien or encumbrance or claim
thereof on any or all Collateral, (iii) any attempt to realize upon any or all
Collateral under any lien or encumbrance, regardless of whether junior or
senior to the Security Interest herein, and (iv) any claim questioning the
legality, validity, binding nature, enforceability, perfection, or priority of
the Security Interest herein. Obligor shall notify Secured Party immediately
in writing of any of the foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured Party
(including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such assets).
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4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect, preserve, and protect the security interest
granted herein, the priority thereof, and the rights and remedies of Secured
Party hereunder.
4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
Dated as of the date first above written.
"Obligor"
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CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $165,000.00 Date: May 24, 2000
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the"Borrower") promises to pay to Global Direct
Marketing Limited (referred to herein as the "Lender"), or order, at the
address the Lender shall designate in writing to the Borrower from time to
time, the sum of One Hundred Sixty Five Thousand dollars ($165,000) or the
aggregate unpaid principal balance of all advances made to the Borrower by the
Lender pursuant to this Note from time to time ("Advances") on April 1, 2001
("Maturity Date") in lawful money of the United States and in immediately
available funds, together with interest on the unpaid principal balance of
this Convertible Line of Credit Promissory Note ("Note") computed on the basis
of a 360 day year and charged on actual days the principal amount of any
Advance is outstanding, at the rate of twelve percent (12%) per annum.
1. ADVANCES MADE PRIOR TO NOTE. The Lender and Borrower acknowledge
that the Lender has made Advances to the Borrower pursuant to an oral lending
agreement, with the understanding that the terms of which were to be
subsequently negotiated and which are now set forth in this Note.
2. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
3. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
4. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note to
common stock and preferred stock of the Borrower to be issued by Borrower on
the terms and conditions set forth below:
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a. TERM OF OPTION. The Lender may convert the principal balance
of loan to common and preferred stock at any time from the date
of this Note until the principal balance is retired or converted.
b. CONVERSION PRICE AND LIMITATIONS. The maximum amount of the
principal balance of the Note to common stock is $72,000 at a
conversion price of $1.00 per common share. The maximum amount
of the principal balance of the Note that may be converted by the
Lender to preferred stock is $93,000. Provided, however, the
Lender acknowledges that the Borrower does not currently have
preferred stock authorized by its Articles of Incorporation, but
that it is the intention of the Borrower to submit to its
shareholders resolutions authorizing the issuance of preferred
stock and this right of conversion is subject to such approval by
the Borrower's shareholders. The number of preferred shares and
the per share price is to be determined by the Borrower and
ratified by the Borrower shareholders.
c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock and preferred stock may be made by Lender at any
time upon written Notice of Election to convert by Lender. The
Notice of Election to convert shall contain the date of
conversion and the principal amount of the Advance to be
converted to common stock and preferred stock. Such conversion
shall be effective on the date specified in the notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the
event, at any time after the date hereof, the holders of the
common stock of the Borrower shall have received, or, on or
after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without
payment therefore, other or additional stock or other securities
or property by way of stock-split, spinoff, reclassification,
combination of shares or similar corporate rearrangement, then
and in each such case the Lender, upon the exercise hereof as
provided herein, shall be entitled to receive the amount of
stock and other securities and property which the Lender would
hold on the date of such exercise if on record date of such
corporate reclassification Lender had been the holder of record
of the number of shares of common stock of the Borrower called
for in the event of complete conversion of the Note and had
thereafter retained such shares and/or all other or additional
stock and other securities and property receivable by Lender as
aforesaid during such period, giving effect to all adjustments
called for during such period.
e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in case,
after such date, the Borrower shall consolidate with or merge
into another corporation or convey all or substantially all of
its assets to another corporation, then and in each such case the
Lender, upon the exercise of its conversion rights at any time
after the consummation of such reorganization, consolidation,
merger or conveyance, shall be entitled to receive, in lieu of
the stock or other securities and property receivable upon the
conversion of this Note prior to such consummation, the stock or
other securities or property to which Lender would be entitled
had the Lender converted this Note immediately prior thereto.
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f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the account of others, in connection with the public
offering of such equity securities solely for cash, on a
registration form that would also permit the registration of the
shares of common stock or preferred stock issuable upon
conversion of this Note, the Borrower shall promptly give the
Lender written notice of such proposal. Within thirty days
after the notice is given, the Lender shall give notice as to
the number of shares of common stock or preferred stock, if any,
which the Lender requests be registered simultaneously with such
registration by the Borrower. The Borrower shall use its best
efforts to include such shares in such registration statement
and to cause such registration statement to become effective
with respect to such shares. All costs in connection such
registration statement shall be borne by the Borrower. The
Lender shall bear all underwriting discounts, selling
commissions, sales concessions and similar expenses applicable
to the sale of the Lender's common stock or preferred stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock or preferred stock as will be sufficient to permit the
conversion in full of this Note.
h. INTEREST. In the event of the conversion to common or
preferred stock of any of the principal amount of any Advance,
the accrued interest applicable to such converted principal
shall be deemed to be forgiven upon conversion and shall not be
otherwise payable pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITIONS PRECEDENT. (i) The conversion of any part of this
Note to preferred stock is subject to the approval by Borrower's
shareholders of an amendment to the Borrower's Articles of
Incorporation to authorized the issuance of preferred stock; and,
(ii) the conversion of any part of this Note to common stock and
the issuance of the related common stock is subject to the
approval of the American Stock Exchange ("Amex") of a request by
the Borrower to list such shares on the Amex.
5. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
6. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower shareholders if consent of
shareholders is required, fails to approve or ratify all of the terms of this
Note, or if the Borrower otherwise defaults under the terms of this Note or
the Security Agreement, then the holder hereof, following the giving of 10
days written notice may accelerate this Note and
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declare the entire balance due and owing whereupon the Borrower agrees to pay
the entire balance of the Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal in the event of
default, the Borrower agrees to pay all expenses of collection of this Note,
including reasonable attorney's fees and court costs incurred in any
proceeding including any proceedings in the United States Bankruptcy Court.
After acceleration, in the event of default, and after the due date and before
and after judgment, this Note shall accrue interest until paid at the highest
legal rate.
7. GOVERNING LAW. This Note shall be governed by the laws of the
State of Utah.
8. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance, default or enforcement of this Note
and each agrees that the holder, from time to time, may renew, modify or
extend performance of obligations hereunder without their consent.
9. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock or preferred stock,
and the meaning and construction of the terms hereof, every such dispute,
difference, and disagreement shall be referred to a single arbitrator agreed
upon by the Borrower and the Lender, or if no single arbitrator can be agreed
upon, an arbitrator or arbitrators shall be selected in accordance with the
rules of the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
10. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------
By
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SECURITY AGREEMENT
May 24, 2000
Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: Global Direct Marketing Limited
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be granted
contemporaneously with this Security Agreement. There is no financing
statement now filed or recorded covering any of the Collateral. Obligor is in
exclusive possession of the Collateral.
3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i)
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genuine, (ii) the legal, valid and binding obligations of the parties thereto,
and (iii) enforceable against the parties thereto in accordance with their
terms. Any copies of such agreements, documents, and instruments delivered to
Secured Party are accurate and complete and, except for the items delivered
to Secured Party there are no amendments, modifications, extensions, renewals,
restatements, or supplements thereof. No surety bond was required or given by
Obligor in connection with or is otherwise applicable to (1) any goods, or
other tangible personal property, or services relating to the Receivables, or
(2) the agreements, documents, or instruments out of which the Receivables
arose.
4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality, validity, binding nature,
and enforceability of the Security Interest granted herein, the perfection
thereof, and the first priority thereof against all matters, including,
without limitation, (i) any attachment, levy, or other seizure by legal
process or otherwise of any or all Collateral, (ii) any lien or encumbrance or
claim thereof on any or all Collateral, (iii) any attempt to realize upon any
or all Collateral under any lien or encumbrance, regardless of whether junior
or senior to the Security Interest herein, and (iv) any claim questioning the
legality, validity, binding nature, enforceability, perfection, or priority of
the Security Interest herein. Obligor shall notify Secured Party immediately
in writing of any of the foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured Party
(including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such assets).
4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect,
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preserve, and protect the security interest granted herein, the priority
thereof, and the rights and remedies of Secured Party hereunder.
4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
Dated as of the date first above written.
"Obligor"
CHEQUEMATE INTERNATIONAL, INC.
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/s/ J. Michael Heil, CEO
------------------------------
By
CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $210,000.00 Date: May 24, 2000
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the "Borrower") promises to pay to Lotus Services
Limited (referred to herein as the "Lender"), or order, at the address the
Lender shall designate in writing to the Borrower from time to time, the sum
of Two Hundred Ten Thousand dollars ($210,000) or the aggregate unpaid
principal balance of all advances made to the Borrower by the Lender pursuant
to this Note from time to time ("Advances") on April 1, 2001 ("Maturity
Date") in lawful money of the United States and in immediately available
funds, together with interest on the unpaid principal balance of this
Convertible Line of Credit Promissory Note ("Note") computed on the basis of a
360 day year and charged on actual days the principal amount of any Advance
is outstanding, at the rate of twelve percent (12%) per annum.
1. ADVANCES MADE PRIOR TO NOTE. The Lender and Borrower acknowledge
that the Lender has made Advances to the Borrower pursuant to an oral lending
agreement, with the understanding that the terms of which were to be
subsequently negotiated and which are now set forth in this Note.
2. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
3. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
4. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note to
common stock and preferred stock of the Borrower to be issued by Borrower on
the terms and conditions set forth below:
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a. TERM OF OPTION. The Lender may convert the principal balance
of loan to common and preferred stock at any time from the date
of this Note until the principal balance is retired or converted.
b. CONVERSION PRICE AND LIMITATIONS. The maximum amount of the
principal balance of the Note to common stock is $91,000 at a
conversion price of $1.00 per common share. The maximum amount
of the principal balance of the Note that may be converted by
the Lender to preferred stock is $119,000. Provided, however,
the Lender acknowledges that the Borrower does not currently
have preferred stock authorized by its Articles of
Incorporation, but that it is the intention of the Borrower to
submit to its shareholders resolutions authorizing the issuance
of preferred stock and this right of conversion is subject to
such approval by the Borrower's shareholders. The number of
preferred shares and the per share price is to be determined by
the Borrower and ratified by the Borrower shareholders.
c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock and preferred stock may be made by Lender at any
time upon written Notice of Election to convert by Lender. The
Notice of Election to convert shall contain the date of
conversion and the principal amount of the Advance to be
converted to common stock and preferred stock. Such conversion
shall be effective on the date specified in the notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the
event, at any time after the date hereof, the holders of the
common stock of the Borrower shall have received, or, on or
after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without
payment therefore, other or additional stock or other securities
or property by way of stock-split, spinoff, reclassification,
combination of shares or similar corporate rearrangement, then
and in each such case the Lender, upon the exercise hereof as
provided herein, shall be entitled to receive the amount of
stock and other securities and property which the Lender would
hold on the date of such exercise if on record date of such
corporate reclassification Lender had been the holder of record
of the number of shares of common stock of the Borrower called
for in the event of complete conversion of the Note and had
thereafter retained such shares and/or all other or additional
stock and other securities and property receivable by Lender as
aforesaid during such period, giving effect to all adjustments
called for during such period.
e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in
case, after such date, the Borrower shall consolidate with or
merge into another corporation or convey all or substantially
all of its assets to another corporation, then and in each such
case the Lender, upon the exercise of its conversion rights at
any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property
receivable upon the conversion of this Note prior to such
consummation, the stock or other securities or property to which
Lender would be entitled had the Lender converted this Note
immediately prior thereto.
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f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the account of others, in connection with the public
offering of such equity securities solely for cash, on a
registration form that would also permit the registration of the
shares of common stock or preferred stock issuable upon
conversion of this Note, the Borrower shall promptly give the
Lender written notice of such proposal. Within thirty days
after the notice is given, the Lender shall give notice as to
the number of shares of common stock or preferred stock, if any,
which the Lender requests be registered simultaneously with such
registration by the Borrower. The Borrower shall use its best
efforts to include such shares in such registration statement
and to cause such registration statement to become effective
with respect to such shares. All costs in connection such
registration statement shall be borne by the Borrower. The
Lender shall bear all underwriting discounts, selling
commissions, sales concessions and similar expenses applicable
to the sale of the Lender's common stock or preferred stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock or preferred stock as will be sufficient to permit the
conversion in full of this Note.
h. INTEREST. In the event of the conversion to common or
preferred stock of any of the principal amount of any Advance,
the accrued interest applicable to such converted principal
shall be deemed to be forgiven upon conversion and shall not be
otherwise payable pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITIONS PRECEDENT. (i) The conversion of any part of this
Note to preferred stock is subject to the approval by Borrower's
shareholders of an amendment to the Borrower's Articles of
Incorporation to authorized the issuance of preferred stock; and,
(ii) the conversion of any part of this Note to common stock and
the issuance of the related common stock is subject to the
approval of the American Stock Exchange ("Amex") of a request by
the Borrower to list such shares on the Amex.
5. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
6. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower shareholders if consent of
shareholders is required, fails to approve or ratify all of the terms of this
Note, or if the Borrower otherwise defaults under the terms of this Note or
the Security Agreement, then the holder hereof, following the giving of 10
days written notice may accelerate this Note and
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declare the entire balance due and owing whereupon the Borrower agrees to pay
the entire balance of the Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal in the event of
default, the Borrower agrees to pay all expenses of collection of this Note,
including reasonable attorney's fees and court costs incurred in any
proceeding including any proceedings in the United States Bankruptcy Court.
After acceleration, in the event of default, and after the due date and before
and after judgment, this Note shall accrue interest until paid at the highest
legal rate.
7. GOVERNING LAW. This Note shall be governed by the laws of the
State of Utah.
8. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance, default or enforcement of this Note
and each agrees that the holder, from time to time, may renew, modify or
extend performance of obligations hereunder without their consent.
9. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock or preferred stock,
and the meaning and construction of the terms hereof, every such dispute,
difference, and disagreement shall be referred to a single arbitrator agreed
upon by the Borrower and the Lender, or if no single arbitrator can be agreed
upon, an arbitrator or arbitrators shall be selected in accordance with the
rules of the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
10. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
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SECURITY AGREEMENT
May 24, 2000
Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: Lotus Services Limited
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be granted
contemporaneously with this Security Agreement. There is no financing
statement now filed or recorded covering any of the Collateral. Obligor is in
exclusive possession of the Collateral.
3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i) genuine, (ii) the legal, valid and
binding obligations of the parties thereto, and (iii) enforceable against the
parties thereto in accordance with their terms. Any copies of such
agreements, documents, and
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instruments delivered to Secured Party are accurate and complete and, except
for the items delivered to Secured Party there are no amendments,
modifications, extensions, renewals, restatements, or supplements thereof. No
surety bond was required or given by Obligor in connection with or is
otherwise applicable to (1) any goods, or other tangible personal property, or
services relating to the Receivables, or (2) the agreements, documents, or
instruments out of which the Receivables arose.
4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality, validity, binding nature,
and enforceability of the Security Interest granted herein, the perfection
thereof, and the first priority thereof against all matters, including,
without limitation, (i) any attachment, levy, or other seizure by legal process
or otherwise of any or all Collateral, (ii) any lien or encumbrance or claim
thereof on any or all Collateral, (iii) any attempt to realize upon any or all
Collateral under any lien or encumbrance, regardless of whether junior or
senior to the Security Interest herein, and (iv) any claim questioning the
legality, validity, binding nature, enforceability, perfection, or priority of
the Security Interest herein. Obligor shall notify Secured Party immediately
in writing of any of the foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured Party
(including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such assets).
4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect, preserve, and protect the security interest
granted herein, the priority thereof, and the rights and remedies of Secured
Party hereunder.
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4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
Dated as of the date first above written.
"Obligor"
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
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CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $240,000.00 Date: May 24, 2000
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the "Borrower") promises to pay to Networld Limited
(referred to herein as the "Lender"), or order, at the address the Lender
shall designate in writing to the Borrower from time to time, the sum of Two
Hundred Forty Thousand dollars ($240,000) or the aggregate unpaid principal
balance of all advances made to the Borrower by the Lender pursuant to this
Note from time to time ("Advances") on April 1, 2001 ("Maturity Date") in
lawful money of the United States and in immediately available funds, together
with interest on the unpaid principal balance of this Convertible Line of
Credit Promissory Note ("Note") computed on the basis of a 360 day year and
charged on actual days the principal amount of any Advance is outstanding, at
the rate of twelve percent (12%) per annum.
1. ADVANCES MADE PRIOR TO NOTE. The Lender and Borrower acknowledge
that the Lender has made Advances to the Borrower pursuant to an oral lending
agreement, with the understanding that the terms of which were to be
subsequently negotiated and which are now set forth in this Note.
2. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
3. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
4. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note to
common stock and preferred stock of the Borrower to be issued by Borrower on
the terms and conditions set forth below:
a. TERM OF OPTION. The Lender may convert the principal balance
of loan to common and preferred stock at any time from the date
of this Note until the principal balance is retired or converted.
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b. CONVERSION PRICE AND LIMITATIONS. The maximum amount of the
principal balance of the Note to common stock is $105,000 at a
conversion price of $1.00 per common share. The maximum amount
of the principal balance of the Note that may be converted by the
Lender to preferred stock is $135,000. Provided, however, the
Lender acknowledges that the Borrower does not currently have
preferred stock authorized by its Articles of Incorporation, but
that it is the intention of the Borrower to submit to its
shareholders resolutions authorizing the issuance of preferred
stock and this right of conversion is subject to such approval by
the Borrower's shareholders. The number of preferred shares and
the per share price is to be determined by the Borrower and
ratified by the Borrower shareholders.
c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock and preferred stock may be made by Lender at any
time upon written Notice of Election to convert by Lender. The
Notice of Election to convert shall contain the date of
conversion and the principal amount of the Advance to be
converted to common stock and preferred stock. Such conversion
shall be effective on the date specified in the notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the event,
at any time after the date hereof, the holders of the common
stock of the Borrower shall have received, or, on or after the
record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefore,
other or additional stock or other securities or property by way
of stock-split, spinoff, reclassification, combination of shares
or similar corporate rearrangement, then and in each such case
the Lender, upon the exercise hereof as provided herein, shall be
entitled to receive the amount of stock and other securities and
property which the Lender would hold on the date of such exercise
if on record date of such corporate reclassification Lender had
been the holder of record of the number of shares of common stock
of the Borrower called for in the event of complete conversion of
the Note and had thereafter retained such shares and/or all other
or additional stock and other securities and property receivable
by Lender as aforesaid during such period, giving effect to all
adjustments called for during such period.
e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in case,
after such date, the Borrower shall consolidate with or merge
into another corporation or convey all or substantially all of
its assets to another corporation, then and in each such case
the Lender, upon the exercise of its conversion rights at any
time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property
receivable upon the conversion of this Note prior to such
consummation, the stock or other securities or property to which
Lender would be entitled had the Lender converted this Note
immediately prior thereto.
f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the
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account of others, in connection with the public offering of such
equity securities solely for cash, on a registration form that
would also permit the registration of the shares of common stock
or preferred stock issuable upon conversion of this Note, the
Borrower shall promptly give the Lender written notice of such
proposal. Within thirty days after the notice is given, the
Lender shall give notice as to the number of shares of common
stock or preferred stock, if any, which the Lender requests be
registered simultaneously with such registration by the
Borrower. The Borrower shall use its best efforts to include
such shares in such registration statement and to cause such
registration statement to become effective with respect to such
shares. All costs in connection such registration statement
shall be borne by the Borrower. The Lender shall bear all
underwriting discounts, selling commissions, sales concessions
and similar expenses applicable to the sale of the Lender's
common stock or preferred stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock or preferred stock as will be sufficient to permit the
conversion in full of this Note.
h. INTEREST. In the event of the conversion to common or
preferred stock of any of the principal amount of any Advance,
the accrued interest applicable to such converted principal
shall be deemed to be forgiven upon conversion and shall not be
otherwise payable pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITIONS PRECEDENT. (i) The conversion of any part of this
Note to preferred stock is subject to the approval by Borrower's
shareholders of an amendment to the Borrower's Articles of
Incorporation to authorized the issuance of preferred stock; and,
(ii) the conversion of any part of this Note to common stock and
the issuance of the related common stock is subject to the
approval of the American Stock Exchange ("Amex") of a request by
the Borrower to list such shares on the Amex.
5. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
6. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower shareholders if consent of
shareholders is required, fails to approve or ratify all of the terms of this
Note, or if the Borrower otherwise defaults under the terms of this Note or
the Security Agreement, then the holder hereof, following the giving of 10
days written notice may accelerate this Note and declare the entire balance
due and owing whereupon the Borrower agrees to pay the entire balance of the
Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal
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in the event of default, the Borrower agrees to pay all expenses of collection
of this Note, including reasonable attorney's fees and court costs incurred in
any proceeding including any proceedings in the United States Bankruptcy
Court. After acceleration, in the event of default, and after the due date
and before and after judgment, this Note shall accrue interest until paid at
the highest legal rate.
7. GOVERNING LAW. This Note shall be governed by the laws of the
State of Utah.
8. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance, default or enforcement of this Note
and each agrees that the holder, from time to time, may renew, modify or
extend performance of obligations hereunder without their consent.
9. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock or preferred stock,
and the meaning and construction of the terms hereof, every such dispute,
difference, and disagreement shall be referred to a single arbitrator agreed
upon by the Borrower and the Lender, or if no single arbitrator can be agreed
upon, an arbitrator or arbitrators shall be selected in accordance with the
rules of the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
10. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
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SECURITY AGREEMENT
May 24, 2000
Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: Networld Limited
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be granted
contemporaneously with this Security Agreement. There is no financing
statement now filed or recorded covering any of the Collateral. Obligor is in
exclusive possession of the Collateral.
3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i) genuine, (ii) the legal, valid and
binding obligations of the parties thereto, and (iii) enforceable against the
parties thereto in accordance with their terms. Any copies of such
agreements, documents, and instruments delivered to Secured Party are accurate
and complete and, except for the items delivered to Secured Party there are
no amendments, modifications, extensions, renewals, restatements, or
supplements thereof. No surety bond was required or given by Obligor in
connection with or is otherwise applicable to (1) any goods, or other tangible
personal property, or services relating to the Receivables, or (2) the
agreements, documents, or instruments out of which the Receivables arose.
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4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality, validity, binding nature,
and enforceability of the Security Interest granted herein, the perfection
thereof, and the first priority thereof against all matters, including,
without limitation, (i) any attachment, levy, or other seizure by legal process
or otherwise of any or all Collateral, (ii) any lien or encumbrance or claim
thereof on any or all Collateral, (iii) any attempt to realize upon any or all
Collateral under any lien or encumbrance, regardless of whether junior or
senior to the Security Interest herein, and (iv) any claim questioning the
legality, validity, binding nature, enforceability, perfection, or priority of
the Security Interest herein. Obligor shall notify Secured Party immediately
in writing of any of the foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured Party
(including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such assets).
4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect, preserve, and protect the security interest
granted herein, the priority thereof, and the rights and remedies of Secured
Party hereunder.
4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
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5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
Dated as of the date first above written.
"Obligor"
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
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CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $300,000.00 Date: May 24, 2000
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the "Borrower") promises to pay to Silverbrook
Corporation (referred to herein as the "Lender"), or order, at the address
the Lender shall designate in writing to the Borrower from time to time, the
sum of Three Hundred Thousand dollars ($300,000) or the aggregate unpaid
principal balance of all advances made to the Borrower by the Lender pursuant
to this Note from time to time ("Advances") on April 1, 2001 ("Maturity
Date") in lawful money of the United States and in immediately available
funds, together with interest on the unpaid principal balance of this
Convertible Line of Credit Promissory Note ("Note") computed on the basis of a
360 day year and charged on actual days the principal amount of any Advance
is outstanding, at the rate of twelve percent (12%) per annum.
1. ADVANCES MADE PRIOR TO NOTE. The Lender and Borrower acknowledge
that the Lender has made Advances to the Borrower pursuant to an oral lending
agreement, with the understanding that the terms of which were to be
subsequently negotiated and which are now set forth in this Note.
2. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
3. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
4. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note to
common stock and preferred stock of the Borrower to be issued by Borrower on
the terms and conditions set forth below:
a. TERM OF OPTION. The Lender may convert the principal balance
of loan to common and preferred stock at any time from the date
of this Note until the principal balance is retired or converted.
b. CONVERSION PRICE AND LIMITATIONS. The maximum amount of the
principal balance of the Note to common stock is $130,000 at a
conversion price of $1.00 per common share. The maximum amount
of the principal balance of the Note that may be converted by
the Lender to preferred stock is $170,000. Provided, however,
the Lender acknowledges that the Borrower does not currently
have preferred stock authorized by its Articles of Incorporation,
but that it is the intention of the Borrower to submit to its
shareholders resolutions authorizing the issuance of preferred
stock and this right of
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conversion is subject to such approval by the Borrower's
shareholders. The number of preferred shares and the per share
price is to be determined by the Borrower and ratified by the
Borrower shareholders.
c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock and preferred stock may be made by Lender at any
time upon written Notice of Election to convert by Lender. The
Notice of Election to convert shall contain the date of
conversion and the principal amount of the Advance to be
converted to common stock and preferred stock. Such conversion
shall be effective on the date specified in the notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the event,
at any time after the date hereof, the holders of the common
stock of the Borrower shall have received, or, on or after the
record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without
payment therefore, other or additional stock or other securities
or property by way of stock-split, spinoff, reclassification,
combination of shares or similar corporate rearrangement, then
and in each such case the Lender, upon the exercise hereof as
provided herein, shall be entitled to receive the amount of
stock and other securities and property which the Lender would
hold on the date of such exercise if on record date of such
corporate reclassification Lender had been the holder of record
of the number of shares of common stock of the Borrower called
for in the event of complete conversion of the Note and had
thereafter retained such shares and/or all other or additional
stock and other securities and property receivable by Lender as
aforesaid during such period, giving effect to all adjustments
called for during such period.
e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in
case, after such date, the Borrower shall consolidate with or
merge into another corporation or convey all or substantially
all of its assets to another corporation, then and in each such
case the Lender, upon the exercise of its conversion rights at
any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property
receivable upon the conversion of this Note prior to such
consummation, the stock or other securities or property to which
Lender would be entitled had the Lender converted this Note
immediately prior thereto.
f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the account of others, in connection with the public
offering of such equity securities solely for cash, on a
registration form that would also permit the registration of the
shares of common stock or preferred stock issuable upon
conversion of this Note, the Borrower shall promptly give the
Lender written notice of such proposal. Within thirty days
after the notice is given, the Lender shall give notice as to
the number of shares of common stock or preferred stock, if any,
which the Lender requests be registered simultaneously with such
registration by the Borrower. The Borrower shall use its best
efforts to
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include such shares in such registration statement and to cause
such registration statement to become effective with respect to
such shares. All costs in connection such registration
statement shall be borne by the Borrower. The Lender shall bear
all underwriting discounts, selling commissions, sales
concessions and similar expenses applicable to the sale of the
Lender's common stock or preferred stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock or preferred stock as will be sufficient to permit the
conversion in full of this Note.
h. INTEREST. In the event of the conversion to common or
preferred stock of any of the principal amount of any Advance,
the accrued interest applicable to such converted principal
shall be deemed to be forgiven upon conversion and shall not be
otherwise payable pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITIONS PRECEDENT. (i) The conversion of any part of this
Note to preferred stock is subject to the approval by Borrower's
shareholders of an amendment to the Borrower's Articles of
Incorporation to authorized the issuance of preferred stock; and,
(ii) the conversion of any part of this Note to common stock and
the issuance of the related common stock is subject to the
approval of the American Stock Exchange ("Amex") of a request by
the Borrower to list such shares on the Amex.
5. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
6. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower shareholders if consent of
shareholders is required, fails to approve or ratify all of the terms of this
Note, or if the Borrower otherwise defaults under the terms of this Note or
the Security Agreement, then the holder hereof, following the giving of 10
days written notice may accelerate this Note and declare the entire balance
due and owing whereupon the Borrower agrees to pay the entire balance of the
Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal in the event of
default, the Borrower agrees to pay all expenses of collection of this Note,
including reasonable attorney's fees and court costs incurred in any
proceeding including any proceedings in the United States Bankruptcy Court.
After acceleration, in the event of default, and after the due date and before
and after judgment, this Note shall accrue interest until paid at the highest
legal rate.
7. GOVERNING LAW. This Note shall be governed by the laws of the
State of Utah.
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8. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance, default or enforcement of this Note
and each agrees that the holder, from time to time, may renew, modify or
extend performance of obligations hereunder without their consent.
9. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock or preferred stock,
and the meaning and construction of the terms hereof, every such dispute,
difference, and disagreement shall be referred to a single arbitrator agreed
upon by the Borrower and the Lender, or if no single arbitrator can be agreed
upon, an arbitrator or arbitrators shall be selected in accordance with the
rules of the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
10. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
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SECURITY AGREEMENT
May 24, 2000
Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: Silverbrook Corporation
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be granted
contemporaneously with this Security Agreement. There is no financing
statement now filed or recorded covering any of the Collateral. Obligor is in
exclusive possession of the Collateral.
3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i) genuine, (ii) the legal, valid and
binding obligations of the parties thereto, and (iii) enforceable against the
parties thereto in accordance with their terms. Any copies of such
agreements, documents, and instruments delivered to Secured Party are accurate
and complete and, except for the items delivered to Secured Party there are
no amendments, modifications, extensions, renewals, restatements, or
supplements thereof. No surety bond was required or given by Obligor in
connection with or is otherwise applicable to (1) any goods, or other tangible
personal property, or services relating to the Receivables, or (2) the
agreements, documents, or instruments out of which the Receivables arose.
4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality,
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validity, binding nature, and enforceability of the Security Interest granted
herein, the perfection thereof, and the first priority thereof against all
matters, including, without limitation, (i) any attachment, levy, or other
seizure by legal process or otherwise of any or all Collateral, (ii) any lien
or encumbrance or claim thereof on any or all Collateral, (iii) any attempt to
realize upon any or all Collateral under any lien or encumbrance, regardless
of whether junior or senior to the Security Interest herein, and (iv) any
claim questioning the legality, validity, binding nature, enforceability,
perfection, or priority of the Security Interest herein. Obligor shall notify
Secured Party immediately in writing of any of the foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured Party
(including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such assets).
4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect, preserve, and protect the security interest
granted herein, the priority thereof, and the rights and remedies of Secured
Party hereunder.
4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
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6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
Dated as of the date first above written.
"Obligor"
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
------------------------------
By
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CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $255,000.00 Date: May 24, 2000
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the "Borrower") promises to pay to Southstar Agents
Limited (referred to herein as the "Lender"), or order, at the address the
Lender shall designate in writing to the Borrower from time to time, the sum
of Two Hundred Fifty Five Thousand dollars ($255,000) or the aggregate unpaid
principal balance of all advances made to the Borrower by the Lender pursuant
to this Note from time to time ("Advances") on April 1, 2001 ("Maturity Date")
in lawful money of the United States and in immediately available funds,
together with interest on the unpaid principal balance of this Convertible
Line of Credit Promissory Note ("Note") computed on the basis of a 360 day
year and charged on actual days the principal amount of any Advance is
outstanding, at the rate of twelve percent (12%) per annum.
1. ADVANCES MADE PRIOR TO NOTE. The Lender and Borrower acknowledge
that the Lender has made Advances to the Borrower pursuant to an oral lending
agreement, with the understanding that the terms of which were to be
subsequently negotiated and which are now set forth in this Note.
2. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
3. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
4. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note to
common stock and preferred stock of the Borrower to be issued by Borrower on
the terms and conditions set forth below:
a. TERM OF OPTION. The Lender may convert the principal balance
of loan to common and preferred stock at any time from the date
of this Note until the principal balance is retired or converted.
b. CONVERSION PRICE AND LIMITATIONS. The maximum amount of the
principal balance of the Note to common stock is $110,000 at a
conversion price of $1.00 per common share. The maximum amount
of the principal balance of the Note that may be converted by
the Lender to preferred stock is $145,000. Provided, however,
the Lender acknowledges that the Borrower does not currently
have preferred stock authorized by its Articles of Incorporation,
but that it is the intention of the Borrower to submit to its
shareholders resolutions authorizing the issuance of preferred
stock and this right of conversion is subject to such approval
by the Borrower's shareholders. The number of preferred shares
and the per share price is to be determined by the Borrower and
ratified by the Borrower shareholders.
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c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock and preferred stock may be made by Lender at any
time upon written Notice of Election to convert by Lender. The
Notice of Election to convert shall contain the date of
conversion and the principal amount of the Advance to be
converted to common stock and preferred stock. Such conversion
shall be effective on the date specified in the notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the
event, at any time after the date hereof, the holders of the
common stock of the Borrower shall have received, or, on or
after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without
payment therefore, other or additional stock or other securities
or property by way of stock-split, spinoff, reclassification,
combination of shares or similar corporate rearrangement, then
and in each such case the Lender, upon the exercise hereof as
provided herein, shall be entitled to receive the amount of
stock and other securities and property which the Lender would
hold on the date of such exercise if on record date of such
corporate reclassification Lender had been the holder of record
of the number of shares of common stock of the Borrower called
for in the event of complete conversion of the Note and had
thereafter retained such shares and/or all other or additional
stock and other securities and property receivable by Lender as
aforesaid during such period, giving effect to all adjustments
called for during such period.
e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in
case, after such date, the Borrower shall consolidate with or
merge into another corporation or convey all or substantially
all of its assets to another corporation, then and in each such
case the Lender, upon the exercise of its conversion rights at
any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property
receivable upon the conversion of this Note prior to such
consummation, the stock or other securities or property to which
Lender would be entitled had the Lender converted this Note
immediately prior thereto.
f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the account of others, in connection with the public
offering of such equity securities solely for cash, on a
registration form that would also permit the registration of the
shares of common stock or preferred stock issuable upon
conversion of this Note, the Borrower shall promptly give the
Lender written notice of such proposal. Within thirty days
after the notice is given, the Lender shall give notice as to
the number of shares of common stock or preferred stock, if any,
which the Lender requests be registered simultaneously with such
registration by the Borrower. The Borrower shall use its best
efforts to include such shares in such registration statement
and to cause such registration statement to become effective
with respect to such shares. All costs in connection such
registration statement shall be borne by the Borrower. The
Lender shall bear all
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underwriting discounts, selling commissions, sales concessions
and similar expenses applicable to the sale of the Lender's
common stock or preferred stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock or preferred stock as will be sufficient to permit the
conversion in full of this Note.
h. INTEREST. In the event of the conversion to common or
preferred stock of any of the principal amount of any Advance,
the accrued interest applicable to such converted principal
shall be deemed to be forgiven upon conversion and shall not be
otherwise payable pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITIONS PRECEDENT. (i) The conversion of any part of this
Note to preferred stock is subject to the approval by Borrower's
shareholders of an amendment to the Borrower's Articles of
Incorporation to authorized the issuance of preferred stock; and,
(ii) the conversion of any part of this Note to common stock and
the issuance of the related common stock is subject to the
approval of the American Stock Exchange ("Amex") of a request by
the Borrower to list such shares on the Amex.
5. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
6. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower shareholders if consent of
shareholders is required, fails to approve or ratify all of the terms of this
Note, or if the Borrower otherwise defaults under the terms of this Note or
the Security Agreement, then the holder hereof, following the giving of 10
days written notice may accelerate this Note and declare the entire balance
due and owing whereupon the Borrower agrees to pay the entire balance of the
Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal in the event of
default, the Borrower agrees to pay all expenses of collection of this Note,
including reasonable attorney's fees and court costs incurred in any
proceeding including any proceedings in the United States Bankruptcy Court.
After acceleration, in the event of default, and after the due date and before
and after judgment, this Note shall accrue interest until paid at the highest
legal rate.
7. GOVERNING LAW. This Note shall be governed by the laws of the
State of Utah.
8. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance,
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default or enforcement of this Note and each agrees that the holder, from time
to time, may renew, modify or extend performance of obligations hereunder
without their consent.
9. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock or preferred stock,
and the meaning and construction of the terms hereof, every such dispute,
difference, and disagreement shall be referred to a single arbitrator agreed
upon by the Borrower and the Lender, or if no single arbitrator can be agreed
upon, an arbitrator or arbitrators shall be selected in accordance with the
rules of the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
10. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
SECURITY AGREEMENT
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May 24, 2000
Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: Southstar Agents Limited
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be granted
contemporaneously with this Security Agreement. There is no financing
statement now filed or recorded covering any of the Collateral. Obligor is in
exclusive possession of the Collateral.
3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i) genuine, (ii) the legal, valid and
binding obligations of the parties thereto, and (iii) enforceable against the
parties thereto in accordance with their terms. Any copies of such
agreements, documents, and instruments delivered to Secured Party are accurate
and complete and, except for the items delivered to Secured Party there are
no amendments, modifications, extensions, renewals, restatements, or
supplements thereof. No surety bond was required or given by Obligor in
connection with or is otherwise applicable to (1) any goods, or other tangible
personal property, or services relating to the Receivables, or (2) the
agreements, documents, or instruments out of which the Receivables arose.
4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality, validity, binding nature,
and enforceability of the Security Interest granted herein, the perfection
thereof, and the first priority thereof against all matters, including,
without limitation, (i) any attachment,
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levy, or other seizure by legal process or otherwise of any or all Collateral,
(ii) any lien or encumbrance or claim thereof on any or all Collateral, (iii)
any attempt to realize upon any or all Collateral under any lien or
encumbrance, regardless of whether junior or senior to the Security Interest
herein, and (iv) any claim questioning the legality, validity, binding nature,
enforceability, perfection, or priority of the Security Interest herein.
Obligor shall notify Secured Party immediately in writing of any of the
foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured Party
(including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such assets).
4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect, preserve, and protect the security interest
granted herein, the priority thereof, and the rights and remedies of Secured
Party hereunder.
4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
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6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
Dated as of the date first above written.
"Obligor"
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
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CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $300,000.00 Date: May 24, 2000
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the "Borrower") promises to pay to Terrano Investments
Limited (referred to herein as the "Lender"), or order, at the address the
Lender shall designate in writing to the Borrower from time to time, the sum
of Three Hundred Thousand dollars ($300,000) or the aggregate unpaid principal
balance of all advances made to the Borrower by the Lender pursuant to this
Note from time to time ("Advances") on April 1, 2001 ("Maturity Date") in
lawful money of the United States and in immediately available funds, together
with interest on the unpaid principal balance of this Convertible Line of
Credit Promissory Note ("Note") computed on the basis of a 360 day year and
charged on actual days the principal amount of any Advance is outstanding, at
the rate of twelve percent (12%) per annum.
1. ADVANCES MADE PRIOR TO NOTE. The Lender and Borrower acknowledge
that the Lender has made Advances to the Borrower pursuant to an oral lending
agreement, with the understanding that the terms of which were to be
subsequently negotiated and which are now set forth in this Note.
2. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
3. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
4. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note to
common stock and preferred stock of the Borrower to be issued by Borrower on
the terms and conditions set forth below:
a. TERM OF OPTION. The Lender may convert the principal balance
of loan to common and preferred stock at any time from the date
of this Note until the principal balance is retired or converted.
b. CONVERSION PRICE AND LIMITATIONS. The maximum amount of the
principal balance of the Note to common stock is $130,000 at a
conversion price of $1.00 per common share. The maximum amount
of the principal balance of the Note that may be converted by the
Lender to preferred stock is $170,000. Provided, however, the
Lender acknowledges that the Borrower does not currently have
preferred stock authorized by its Articles of Incorporation, but
that it is the intention of the Borrower to submit to its
shareholders resolutions authorizing the issuance of preferred
stock and this right of conversion is subject to such approval by
the Borrower's shareholders. The number of preferred shares and
the per share price is to be determined by the Borrower and
ratified by the Borrower shareholders.
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c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock and preferred stock may be made by Lender at any
time upon written Notice of Election to convert by Lender. The
Notice of Election to convert shall contain the date of
conversion and the principal amount of the Advance to be
converted to common stock and preferred stock. Such conversion
shall be effective on the date specified in the notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the event,
at any time after the date hereof, the holders of the common
stock of the Borrower shall have received, or, on or after the
record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefore,
other or additional stock or other securities or property by way
of stock-split, spinoff, reclassification, combination of shares
or similar corporate rearrangement, then and in each such case
the Lender, upon the exercise hereof as provided herein, shall be
entitled to receive the amount of stock and other securities and
property which the Lender would hold on the date of such exercise
if on record date of such corporate reclassification Lender had
been the holder of record of the number of shares of common stock
of the Borrower called for in the event of complete conversion of
the Note and had thereafter retained such shares and/or all other
or additional stock and other securities and property receivable
by Lender as aforesaid during such period, giving effect to all
adjustments called for during such period.
e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in case,
after such date, the Borrower shall consolidate with or merge
into another corporation or convey all or substantially all of
its assets to another corporation, then and in each such case
the Lender, upon the exercise of its conversion rights at any
time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property
receivable upon the conversion of this Note prior to such
consummation, the stock or other securities or property to which
Lender would be entitled had the Lender converted this Note
immediately prior thereto.
f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the account of others, in connection with the public offering
of such equity securities solely for cash, on a registration form
that would also permit the registration of the shares of common
stock or preferred stock issuable upon conversion of this Note,
the Borrower shall promptly give the Lender written notice of
such proposal. Within thirty days after the notice is given, the
Lender shall give notice as to the number of shares of common
stock or preferred stock, if any, which the Lender requests be
registered simultaneously with such registration by the Borrower.
The Borrower shall use its best efforts to include such shares in
such registration statement and to cause such registration
statement to become effective with respect to such shares. All
costs in connection such registration statement shall be borne by
the Borrower. The Lender shall bear all
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underwriting discounts, selling commissions, sales concessions
and similar expenses applicable to the sale of the Lender's
common stock or preferred stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock or preferred stock as will be sufficient to permit the
conversion in full of this Note.
h. INTEREST. In the event of the conversion to common or
preferred stock of any of the principal amount of any Advance,
the accrued interest applicable to such converted principal
shall be deemed to be forgiven upon conversion and shall not be
otherwise payable pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITIONS PRECEDENT. (i) The conversion of any part of this
Note to preferred stock is subject to the approval by Borrower's
shareholders of an amendment to the Borrower's Articles of
Incorporation to authorized the issuance of preferred stock; and,
(ii) the conversion of any part of this Note to common stock and
the issuance of the related common stock is subject to the
approval of the American Stock Exchange ("Amex") of a request by
the Borrower to list such shares on the Amex.
5. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
6. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower shareholders if consent of
shareholders is required, fails to approve or ratify all of the terms of this
Note, or if the Borrower otherwise defaults under the terms of this Note or
the Security Agreement, then the holder hereof, following the giving of 10
days written notice may accelerate this Note and declare the entire balance
due and owing whereupon the Borrower agrees to pay the entire balance of the
Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal in the event of
default, the Borrower agrees to pay all expenses of collection of this Note,
including reasonable attorney's fees and court costs incurred in any
proceeding including any proceedings in the United States Bankruptcy Court.
After acceleration, in the event of default, and after the due date and before
and after judgment, this Note shall accrue interest until paid at the highest
legal rate.
7. GOVERNING LAW. This Note shall be governed by the laws of the
State of Utah.
8. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance,
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default or enforcement of this Note and each agrees that the holder, from time
to time, may renew, modify or extend performance of obligations hereunder
without their consent.
9. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock or preferred stock,
and the meaning and construction of the terms hereof, every such dispute,
difference, and disagreement shall be referred to a single arbitrator agreed
upon by the Borrower and the Lender, or if no single arbitrator can be agreed
upon, an arbitrator or arbitrators shall be selected in accordance with the
rules of the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
10. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
SECURITY AGREEMENT
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May 24, 2000
Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: Terrano Investments Limited
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be granted
contemporaneously with this Security Agreement. There is no financing
statement now filed or recorded covering any of the Collateral. Obligor is in
exclusive possession of the Collateral.
3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i) genuine, (ii) the legal, valid and
binding obligations of the parties thereto, and (iii) enforceable against the
parties thereto in accordance with their terms. Any copies of such
agreements, documents, and instruments delivered to Secured Party are accurate
and complete and, except for the items delivered to Secured Party there are
no amendments, modifications, extensions, renewals, restatements, or
supplements thereof. No surety bond was required or given by Obligor in
connection with or is otherwise applicable to (1) any goods, or other tangible
personal property, or services relating to the Receivables, or (2) the
agreements, documents, or instruments out of which the Receivables arose.
4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality, validity, binding nature,
and enforceability of the Security Interest granted herein, the perfection
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thereof, and the first priority thereof against all matters, including,
without limitation, (i) any attachment, levy, or other seizure by legal process
or otherwise of any or all Collateral, (ii) any lien or encumbrance or claim
thereof on any or all Collateral, (iii) any attempt to realize upon any or all
Collateral under any lien or encumbrance, regardless of whether junior or
senior to the Security Interest herein, and (iv) any claim questioning the
legality, validity, binding nature, enforceability, perfection, or priority of
the Security Interest herein. Obligor shall notify Secured Party immediately
in writing of any of the foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured Party
(including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such assets).
4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect, preserve, and protect the security interest
granted herein, the priority thereof, and the rights and remedies of Secured
Party hereunder.
4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
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6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
Dated as of the date first above written.
"Obligor"
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
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CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $260,000.00 Date: May 24, 2000
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the "Borrower") promises to pay to Touchstone Property
Services, Inc. (referred to herein as the "Lender"), or order, at the address
the Lender shall designate in writing to the Borrower from time to time, the
sum of Two Hundred Sixty Thousand dollars ($260,000) or the aggregate unpaid
principal balance of all advances made to the Borrower by the Lender pursuant
to this Note from time to time ("Advances") on April 1, 2001 ("Maturity
Date") in lawful money of the United States and in immediately available
funds, together with interest on the unpaid principal balance of this
Convertible Line of Credit Promissory Note ("Note") computed on the basis of a
360 day year and charged on actual days the principal amount of any Advance
is outstanding, at the rate of twelve percent (12%) per annum.
1. ADVANCES MADE PRIOR TO NOTE. The Lender and Borrower acknowledge
that the Lender has made Advances to the Borrower pursuant to an oral lending
agreement, with the understanding that the terms of which were to be
subsequently negotiated and which are now set forth in this Note.
2. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
3. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
4. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note to
common stock and preferred stock of the Borrower to be issued by Borrower on
the terms and conditions set forth below:
a. TERM OF OPTION. The Lender may convert the principal balance
of loan to common and preferred stock at any time from the date
of this Note until the principal balance is retired or converted.
b. CONVERSION PRICE AND LIMITATIONS. The maximum amount of the
principal balance of the Note to common stock is $115,000 at a
conversion price of $1.00 per common share. The maximum amount
of the principal balance of the Note that may be converted by
the Lender to preferred stock is $145,000. Provided, however,
the Lender acknowledges that the Borrower does not currently
have preferred stock authorized by its Articles of
Incorporation, but that it is the intention of the Borrower to
submit to its shareholders resolutions authorizing the issuance
of preferred stock and this right of conversion is subject to
such approval by the Borrower's shareholders. The number of
preferred shares and the per share price is to be determined by
the Borrower and ratified by the Borrower shareholders.
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c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock and preferred stock may be made by Lender at any
time upon written Notice of Election to convert by Lender. The
Notice of Election to convert shall contain the date of
conversion and the principal amount of the Advance to be
converted to common stock and preferred stock. Such conversion
shall be effective on the date specified in the notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the event,
at any time after the date hereof, the holders of the common
stock of the Borrower shall have received, or, on or after the
record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefore,
other or additional stock or other securities or property by way
of stock-split, spinoff, reclassification, combination of shares
or similar corporate rearrangement, then and in each such case
the Lender, upon the exercise hereof as provided herein, shall be
entitled to receive the amount of stock and other securities and
property which the Lender would hold on the date of such exercise
if on record date of such corporate reclassification Lender had
been the holder of record of the number of shares of common stock
of the Borrower called for in the event of complete conversion of
the Note and had thereafter retained such shares and/or all other
or additional stock and other securities and property receivable
by Lender as aforesaid during such period, giving effect to all
adjustments called for during such period.
e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in case,
after such date, the Borrower shall consolidate with or merge
into another corporation or convey all or substantially all of
its assets to another corporation, then and in each such case
the Lender, upon the exercise of its conversion rights at any
time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property
receivable upon the conversion of this Note prior to such
consummation, the stock or other securities or property to which
Lender would be entitled had the Lender converted this Note
immediately prior thereto.
f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the account of others, in connection with the public offering
of such equity securities solely for cash, on a registration form
that would also permit the registration of the shares of common
stock or preferred stock issuable upon conversion of this Note,
the Borrower shall promptly give the Lender written notice of
such proposal. Within thirty days after the notice is given,
the Lender shall give notice as to the number of shares of
common stock or preferred stock, if any, which the Lender
requests be registered simultaneously with such registration by
the Borrower. The Borrower shall use its best efforts to include
such shares in such registration statement and to cause such
registration statement to become effective with respect to such
shares. All costs in connection such registration statement
shall be borne by the Borrower. The Lender shall bear all
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underwriting discounts, selling commissions, sales concessions
and similar expenses applicable to the sale of the Lender's
common stock or preferred stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock or preferred stock as will be sufficient to permit the
conversion in full of this Note.
h. INTEREST. In the event of the conversion to common or
preferred stock of any of the principal amount of any Advance,
the accrued interest applicable to such converted principal
shall be deemed to be forgiven upon conversion and shall not be
otherwise payable pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITIONS PRECEDENT. (i) The conversion of any part of this
Note to preferred stock is subject to the approval by Borrower's
shareholders of an amendment to the Borrower's Articles of
Incorporation to authorized the issuance of preferred stock; and,
(ii) the conversion of any part of this Note to common stock and
the issuance of the related common stock is subject to the
approval of the American Stock Exchange ("Amex") of a request by
the Borrower to list such shares on the Amex.
5. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
6. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower shareholders if consent of
shareholders is required, fails to approve or ratify all of the terms of this
Note, or if the Borrower otherwise defaults under the terms of this Note or
the Security Agreement, then the holder hereof, following the giving of 10
days written notice may accelerate this Note and declare the entire balance
due and owing whereupon the Borrower agrees to pay the entire balance of the
Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal in the event of
default, the Borrower agrees to pay all expenses of collection of this Note,
including reasonable attorney's fees and court costs incurred in any
proceeding including any proceedings in the United States Bankruptcy Court.
After acceleration, in the event of default, and after the due date and before
and after judgment, this Note shall accrue interest until paid at the highest
legal rate.
7. GOVERNING LAW. This Note shall be governed by the laws of the
State of Utah.
8. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance,
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default or enforcement of this Note and each agrees that the holder, from time
to time, may renew, modify or extend performance of obligations hereunder
without their consent.
9. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock or preferred stock,
and the meaning and construction of the terms hereof, every such dispute,
difference, and disagreement shall be referred to a single arbitrator agreed
upon by the Borrower and the Lender, or if no single arbitrator can be agreed
upon, an arbitrator or arbitrators shall be selected in accordance with the
rules of the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
10. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
SECURITY AGREEMENT
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May 24, 2000
Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: Touchstone Property Services, Inc.
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be granted
contemporaneously with this Security Agreement. There is no financing
statement now filed or recorded covering any of the Collateral. Obligor is in
exclusive possession of the Collateral.
3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i) genuine, (ii) the legal, valid and
binding obligations of the parties thereto, and (iii) enforceable against the
parties thereto in accordance with their terms. Any copies of such
agreements, documents, and instruments delivered to Secured Party are accurate
and complete and, except for the items delivered to Secured Party there are
no amendments, modifications, extensions, renewals, restatements, or
supplements thereof. No surety bond was required or given by Obligor in
connection with or is otherwise applicable to (1) any goods, or other tangible
personal property, or services relating to the Receivables, or (2) the
agreements, documents, or instruments out of which the Receivables arose.
4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality, validity, binding nature,
and enforceability of the Security Interest granted herein, the perfection
thereof, and the first priority thereof against all matters, including,
without limitation, (i) any attachment,
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levy, or other seizure by legal process or otherwise of any or all Collateral,
(ii) any lien or encumbrance or claim thereof on any or all Collateral, (iii)
any attempt to realize upon any or all Collateral under any lien or
encumbrance, regardless of whether junior or senior to the Security Interest
herein, and (iv) any claim questioning the legality, validity, binding nature,
enforceability, perfection, or priority of the Security Interest herein.
Obligor shall notify Secured Party immediately in writing of any of the
foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured Party
(including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such assets).
4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect, preserve, and protect the security interest
granted herein, the priority thereof, and the rights and remedies of Secured
Party hereunder.
4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
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6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
Dated as of the date first above written.
"Obligor"
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
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CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $140,000.00 Date: May 24, 2000
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the "Borrower") promises to pay to WTH Limited
(referred to herein as the "Lender"), or order, at the address the Lender
shall designate in writing to the Borrower from time to time, the sum of One
Hundred Forty Thousand dollars ($140,000) or the aggregate unpaid principal
balance of all advances made to the Borrower by the Lender pursuant to this
Note from time to time ("Advances") on April 1, 2001 ("Maturity Date") in
lawful money of the United States and in immediately available funds, together
with interest on the unpaid principal balance of this Convertible Line of
Credit Promissory Note ("Note") computed on the basis of a 360 day year and
charged on actual days the principal amount of any Advance is outstanding, at
the rate of twelve percent (12%) per annum.
1. ADVANCES MADE PRIOR TO NOTE. The Lender and Borrower acknowledge
that the Lender has made Advances to the Borrower pursuant to an oral lending
agreement, with the understanding that the terms of which were to be
subsequently negotiated and which are now set forth in this Note.
2. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
3. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
4. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note to
common stock and preferred stock of the Borrower to be issued by Borrower on
the terms and conditions set forth below:
a. TERM OF OPTION. The Lender may convert the principal balance
of loan to common and preferred stock at any time from the date
of this Note until the principal balance is retired or converted.
b. CONVERSION PRICE AND LIMITATIONS. The maximum amount of the
principal balance of the Note to common stock is $60,000 at a
conversion price of $1.00 per common share. The maximum amount
of the principal balance of the Note that may be converted by the
Lender to preferred stock is $80,000. Provided, however, the
Lender acknowledges that the Borrower does not currently have
preferred stock authorized by its Articles of Incorporation, but
that it is the intention of the Borrower to submit to its
shareholders resolutions authorizing the issuance of preferred
stock and this right of conversion is subject to such approval by
the Borrower's shareholders. The number of preferred shares and
the per share price is to be determined by the Borrower and
ratified by the Borrower shareholders.
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c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock and preferred stock may be made by Lender at any
time upon written Notice of Election to convert by Lender. The
Notice of Election to convert shall contain the date of
conversion and the principal amount of the Advance to be
converted to common stock and preferred stock. Such conversion
shall be effective on the date specified in the notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the event,
at any time after the date hereof, the holders of the common
stock of the Borrower shall have received, or, on or after the
record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefore,
other or additional stock or other securities or property by way
of stock-split, spinoff, reclassification, combination of shares
or similar corporate rearrangement, then and in each such case
the Lender, upon the exercise hereof as provided herein, shall be
entitled to receive the amount of stock and other securities and
property which the Lender would hold on the date of such exercise
if on record date of such corporate reclassification Lender had
been the holder of record of the number of shares of common stock
of the Borrower called for in the event of complete conversion of
the Note and had thereafter retained such shares and/or all other
or additional stock and other securities and property receivable
by Lender as aforesaid during such period, giving effect to all
adjustments called for during such period.
e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in case,
after such date, the Borrower shall consolidate with or merge
into another corporation or convey all or substantially all of
its assets to another corporation, then and in each such case
the Lender, upon the exercise of its conversion rights at any
time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property
receivable upon the conversion of this Note prior to such
consummation, the stock or other securities or property to which
Lender would be entitled had the Lender converted this Note
immediately prior thereto.
f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the account of others, in connection with the public offering
of such equity securities solely for cash, on a registration form
that would also permit the registration of the shares of common
stock or preferred stock issuable upon conversion of this Note,
the Borrower shall promptly give the Lender written notice of
such proposal. Within thirty days after the notice is given,
the Lender shall give notice as to the number of shares of
common stock or preferred stock, if any, which the Lender
requests be registered simultaneously with such registration by
the Borrower. The Borrower shall use its best efforts to include
such shares in such registration statement and to cause such
registration statement to become effective with respect to such
shares. All costs in connection such registration statement
shall be borne by the Borrower. The Lender shall bear all
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underwriting discounts, selling commissions, sales concessions
and similar expenses applicable to the sale of the Lender's
common stock or preferred stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock or preferred stock as will be sufficient to permit the
conversion in full of this Note.
h. INTEREST. In the event of the conversion to common or
preferred stock of any of the principal amount of any Advance,
the accrued interest applicable to such converted principal
shall be deemed to be forgiven upon conversion and shall not be
otherwise payable pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITIONS PRECEDENT. (i) The conversion of any part of this
Note to preferred stock is subject to the approval by Borrower's
shareholders of an amendment to the Borrower's Articles of
Incorporation to authorized the issuance of preferred stock; and,
(ii) the conversion of any part of this Note to common stock and
the issuance of the related common stock is subject to the
approval of the American Stock Exchange ("Amex") of a request by
the Borrower to list such shares on the Amex.
5. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
6. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower shareholders if consent of
shareholders is required, fails to approve or ratify all of the terms of this
Note, or if the Borrower otherwise defaults under the terms of this Note or
the Security Agreement, then the holder hereof, following the giving of 10
days written notice may accelerate this Note and declare the entire balance
due and owing whereupon the Borrower agrees to pay the entire balance of the
Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal in the event of
default, the Borrower agrees to pay all expenses of collection of this Note,
including reasonable attorney's fees and court costs incurred in any
proceeding including any proceedings in the United States Bankruptcy Court.
After acceleration, in the event of default, and after the due date and before
and after judgment, this Note shall accrue interest until paid at the highest
legal rate.
7. GOVERNING LAW. This Note shall be governed by the laws of the
State of Utah.
8. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance,
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default or enforcement of this Note and each agrees that the holder, from time
to time, may renew, modify or extend performance of obligations hereunder
without their consent.
9. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock or preferred stock,
and the meaning and construction of the terms hereof, every such dispute,
difference, and disagreement shall be referred to a single arbitrator agreed
upon by the Borrower and the Lender, or if no single arbitrator can be agreed
upon, an arbitrator or arbitrators shall be selected in accordance with the
rules of the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
10. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
SECURITY AGREEMENT
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May 24, 2000
Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: WTH Limited
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be granted
contemporaneously with this Security Agreement. There is no financing
statement now filed or recorded covering any of the Collateral. Obligor is in
exclusive possession of the Collateral.
3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i) genuine, (ii) the legal, valid and
binding obligations of the parties thereto, and (iii) enforceable against the
parties thereto in accordance with their terms. Any copies of such
agreements, documents, and instruments delivered to Secured Party are accurate
and complete and, except for the items delivered to Secured Party there are
no amendments, modifications, extensions, renewals, restatements, or
supplements thereof. No surety bond was required or given by Obligor in
connection with or is otherwise applicable to (1) any goods, or other tangible
personal property, or services relating to the Receivables, or (2) the
agreements, documents, or instruments out of which the Receivables arose.
4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality, validity, binding nature,
and enforceability of the Security Interest granted herein, the perfection
thereof, and the first priority thereof against all matters, including,
without limitation, (i) any attachment, levy, or other seizure by legal process
or otherwise of any or all Collateral, (ii) any lien or encumbrance
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or claim thereof on any or all Collateral, (iii) any attempt to realize upon
any or all Collateral under any lien or encumbrance, regardless of whether
junior or senior to the Security Interest herein, and (iv) any claim
questioning the legality, validity, binding nature, enforceability,
perfection, or priority of the Security Interest herein. Obligor shall notify
Secured Party immediately in writing of any of the foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured Party
(including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such assets).
4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect, preserve, and protect the security interest
granted herein, the priority thereof, and the rights and remedies of Secured
Party hereunder.
4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
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6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
Dated as of the date first above written.
"Obligor"
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
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EXHIBIT 10.5
CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $1,000,000.00 Date: May 24, 2000
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the"Borrower") promises to pay to MERIDEL LIMITED
(referred to herein as the "Lender"), or order, at the address the Lender
shall designate in writing to the Borrower from time to time, the sum of One
Million dollars ($1,000,000) or the aggregate unpaid principal balance of all
advances made to the Borrower by the Lender pursuant to this Note from time to
time ("Advances") on May 1, 2001 ("Maturity Date") in lawful money of the
United States and in immediately available funds, together with interest on
the unpaid principal balance of this Convertible Line of Credit Promissory
Note ("Note") computed on the basis of a 360 day year and charged on actual
days the principal amount of any Advance is outstanding, at the rate of
twelve percent (12%) per annum.
1. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
2. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
3. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note to
common stock of the Borrower to be issued by Borrower on the terms and
conditions set forth below:
a. TERM OF OPTION. The Lender may convert any part of the
principal balance of the loan to common stock at any time or
from time to time from the date of this Note until the principal
balance is retired or converted.
b. CONVERSION PRICE. The price at which the principal balance
of the Advance is to be converted to common stock shall be 50% of
the bid price, but not lower than $2.00 per share.
c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock may be made by Lender at any time upon written
Notice of Election to convert by Lender. The Notice of Election
to convert shall contain the date of conversion and the principal
amount of the Advance to be converted to common stock. Such
conversion shall be effective on the date specified in the notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the event,
at any time after the date hereof, the holders of the common
stock of the Borrower shall have received, or, on or after the
record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefore,
other or additional stock or other securities or property by way
of stock-split, spinoff, reclassification, combination of shares
or similar corporate rearrangement, then and in each such case
the Lender, upon the exercise hereof as provided herein, shall be
entitled to receive the amount of stock and other securities and
property which the Lender would hold on the date of such exercise
if on record date of such corporate reclassification Lender had
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been the holder of record of the number of shares of common stock
of the Borrower called for in the event of complete conversion of
the Note and had thereafter retained such shares and/or all other
or additional stock and other securities and property receivable
by Lender as aforesaid during such period, giving effect to all
adjustments called for during such period.
e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in case,
after such date, the Borrower shall consolidate with or merge
into another corporation or convey all or substantially all of
its assets to another corporation, then and in each such case
the Lender, upon the exercise of its conversion rights at any
time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property
receivable upon the conversion of this Note prior to such
consummation, the stock or other securities or property to which
Lender would be entitled had the Lender converted this Note
immediately prior thereto.
f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the account of others, in connection with the public offering
of such equity securities solely for cash, on a registration form
that would also permit the registration of the shares of common
stock or preferred stock issuable upon conversion of this Note,
the Borrower shall promptly give the Lender written notice of
such proposal. Within thirty days after the notice is given, the
Lender shall give notice as to the number of shares of common
stock or preferred stock, if any, which the Lender requests be
registered simultaneously with such registration by the Borrower.
The Borrower shall use its best efforts to include such shares in
such registration statement and to cause such registration
statement to become effective with respect to such shares. All
costs in connection such registration statement shall be borne by
the Borrower. The Lender shall bear all underwriting discounts,
selling commissions, sales concessions and similar expenses
applicable to the sale of the Lender's common stock or preferred
stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock as will be sufficient to permit the conversion in full of
this Note.
h. INTEREST. In the event of the conversion to common stock of
any of the principal amount of any Advance, the accrued interest
applicable to such converted principal shall be deemed to be
forgiven upon conversion and shall not be otherwise payable
pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITION PRECEDENT. The conversion of any part of this Note
to common stock and the issuance of the related common stock is
subject to the approval of the American
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Stock Exchange ("Amex") of a request by the Borrower to list such
shares on the Amex.
4. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
5. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower shareholders if consent of
shareholders is required, fails to approve or ratify all of the terms of this
Note, or if the Borrower otherwise defaults under the terms of this Note or
the Security Agreement, then the holder hereof, following the giving of 10
days written notice may accelerate this Note and declare the entire balance
due and owing whereupon the Borrower agrees to pay the entire balance of the
Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal in the event of
default, the Borrower agrees to pay all expenses of collection of this Note,
including reasonable attorney's fees and court costs incurred in any
proceeding including any proceedings in the United States Bankruptcy Court.
After acceleration, in the event of default, and after the due date and before
and after judgment, this Note shall accrue interest until paid at the highest
legal rate.
6. GOVERNING LAW. This Note shall be governed by the laws of the
State of Utah.
7. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance, default or enforcement of this Note
and each agrees that the holder, from time to time, may renew, modify or
extend performance of obligations hereunder without their consent.
8. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock, and the meaning
and construction of the terms hereof, every such dispute, difference, and
disagreement shall be referred to a single arbitrator agreed upon by the
Borrower and the Lender, or if no single arbitrator can be agreed upon, an
arbitrator or arbitrators shall be selected in accordance with the rules of
the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
9. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
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CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
SECURITY AGREEMENT
May 24, 2000
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Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: MERIDEL LIMTED
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be granted
contemporaneously with this Security Agreement. There is no financing
statement now filed or recorded covering any of the Collateral. Obligor is in
exclusive possession of the Collateral.
3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i) genuine, (ii) the legal, valid and
binding obligations of the parties thereto, and (iii) enforceable against the
parties thereto in accordance with their terms. Any copies of such
agreements, documents, and instruments delivered to Secured Party are accurate
and complete and, except for the items delivered to Secured Party there are
no amendments, modifications, extensions, renewals, restatements, or
supplements thereof. No surety bond was required or given by Obligor in
connection with or is otherwise applicable to (1) any goods, or other tangible
personal property, or services relating to the Receivables, or (2) the
agreements, documents, or instruments out of which the Receivables arose.
4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality, validity, binding nature,
and enforceability of the Security Interest granted herein, the perfection
thereof, and the first priority thereof against all matters, including,
without limitation, (i) any attachment, levy, or other seizure by legal process
or otherwise of any or all Collateral, (ii) any lien or encumbrance or claim
thereof on any or all Collateral, (iii) any attempt to realize upon any or all
Collateral under any lien or encumbrance, regardless of whether junior or
senior to the Security Interest herein, and (iv) any claim questioning the
legality, validity, binding nature, enforceability, perfection, or priority of
the
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Security Interest herein. Obligor shall notify Secured Party immediately in
writing of any of the foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured Party
(including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such
assets).
4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect, preserve, and protect the security interest
granted herein, the priority thereof, and the rights and remedies of Secured
Party hereunder.
4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
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6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
Dated as of the date first above written.
"Obligor"
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
CONVERTIBLE LINE OF CREDIT PROMISSORY NOTE
Amount: $1,000,000.00 Date: May 24, 2000
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FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(referred to herein as the"Borrower") promises to pay to PASCOO HOLDINGS,
INC. (referred to herein as the "Lender"), or order, at the address the
Lender shall designate in writing to the Borrower from time to time, the sum
of One Million dollars ($1,000,000) or the aggregate unpaid principal balance
of all advances made to the Borrower by the Lender pursuant to this Note from
time to time ("Advances") on May 1, 2001 ("Maturity Date") in lawful money of
the United States and in immediately available funds, together with interest
on the unpaid principal balance of this Convertible Line of Credit Promissory
Note ("Note") computed on the basis of a 360 day year and charged on actual
days the principal amount of any Advance is outstanding, at the rate of
twelve percent (12%) per annum.
1. TERM OF NOTE. The principal amount of all Advances made under the
terms of this Note and all accrued and unpaid interest shall be due and
payable on the Maturity Date.
2. PREPAYMENT. The Borrower may not prepay any of the principal
amount of this Note, except with the express written consent of the Lender.
3. CONVERSION PRIVILEGES. The Lender shall have the right to convert
up to the full amount of the then outstanding principal balance of the Note
to common stock of the Borrower to be issued by Borrower on the terms and
conditions set forth below:
a. TERM OF OPTION. The Lender may convert any part of the
principal balance of the loan to common stock at any time or from
time to time from the date of this Note until the principal
balance is retired or converted.
b. CONVERSION PRICE. The price at which the principal balance
of the Advance is to be converted to common stock shall be 50% of
the bid price, but not lower than $2.00 per share.
c. NOTICE OF ELECTION TO CONVERT. The option to convert to
common stock may be made by Lender at any time upon written
Notice of Election to convert by Lender. The Notice of Election
to convert shall contain the date of conversion and the principal
amount of the Advance to be converted to common stock. Such
conversion shall be effective on the date specified in the
notice.
d. ADJUSTMENT FOR COMMON STOCK RECLASSIFICATIONS. In the event,
at any time after the date hereof, the holders of the common
stock of the Borrower shall have received, or, on or after the
record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefore,
other or additional stock or other securities or property by way
of stock-split, spinoff, reclassification, combination of shares
or similar corporate rearrangement, then and in each such case
the Lender, upon the exercise hereof as provided herein, shall be
entitled to receive the amount of stock and other securities and
property which the Lender would hold on the date of such exercise
if on record date of such corporate reclassification Lender had
been the holder of record of the number of shares of common stock
of the Borrower called for in the event of complete conversion of
the Note and had thereafter retained
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such shares and/or all other or additional stock and other
securities and property receivable by Lender as aforesaid
during such period, giving effect to all adjustments called
for during such period.
e. ADJUSTMENT FOR CONSOLIDATION OR MERGER. In case of any
reorganization of the Borrower after the date hereof, or in case,
after such date, the Borrower shall consolidate with or merge
into another corporation or convey all or substantially all of
its assets to another corporation, then and in each such case
the Lender, upon the exercise of its conversion rights at any
time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property
receivable upon the conversion of this Note prior to such
consummation, the stock or other securities or property to which
Lender would be entitled had the Lender converted this Note
immediately prior thereto.
f. PIGGYBACK REGISTRATION RIGHTS. If, at any time after the
conversion of this Note and expiring one year thereafter, the
Borrower proposes to register any of its securities under the
Securities Act of 1933 (the "Act") either for its own account or
for the account of others, in connection with the public offering
of such equity securities solely for cash, on a registration form
that would also permit the registration of the shares of common
stock or preferred stock issuable upon conversion of this Note,
the Borrower shall promptly give the Lender written notice of
such proposal. Within thirty days after the notice is given, the
Lender shall give notice as to the number of shares of common
stock or preferred stock, if any, which the Lender requests be
registered simultaneously with such registration by the Borrower.
The Borrower shall use its best efforts to include such shares in
such registration statement and to cause such registration
statement to become effective with respect to such shares. All
costs in connection such registration statement shall be borne by
the Borrower. The Lender shall bear all underwriting discounts,
selling commissions, sales concessions and similar expenses
applicable to the sale of the Lender's common stock or preferred
stock.
g. RESERVATION OF STOCK. The Borrower shall at all times
reserve and keep available for issue upon conversion of this
Note such number of its authorized but unissued shares of common
stock as will be sufficient to permit the conversion in full of
this Note.
h. INTEREST. In the event of the conversion to common stock of
any of the principal amount of any Advance, the accrued interest
applicable to such converted principal shall be deemed to be
forgiven upon conversion and shall not be otherwise payable
pursuant to the terms of this Note.
i. ASSIGNMENT. Lender may assign all or any part of this Note
with its attendant conversion privileges to any party or parties.
j. CONDITION PRECEDENT. The conversion of any part of this Note
to common stock and the issuance of the related common stock is
subject to the approval of the American Stock Exchange ("Amex")
of a request by the Borrower to list such shares on the Amex.
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4. SECURITY. This Note is secured by a Security Agreement and a
financing statement granting a security interest in Borrower's tangible and
intangible assets.
5. DEFAULT. If any installment or the final payment due under this
Note is not paid on its due date or within fifteen (15) days thereafter, if
the Borrower Board of Directors, or the Borrower shareholders if consent of
shareholders is required, fails to approve or ratify all of the terms of this
Note, or if the Borrower otherwise defaults under the terms of this Note or
the Security Agreement, then the holder hereof, following the giving of 10
days written notice may accelerate this Note and declare the entire balance
due and owing whereupon the Borrower agrees to pay the entire balance of the
Note upon demand.
Each payment shall be applied first to the payment of interest and
thereafter to the payment of principal. In the event of non-payment of any
installment, the final payment or the accelerated principal in the event of
default, the Borrower agrees to pay all expenses of collection of this Note,
including reasonable attorney's fees and court costs incurred in any
proceeding including any proceedings in the United States Bankruptcy Court.
After acceleration, in the event of default, and after the due date and before
and after judgment, this Note shall accrue interest until paid at the highest
legal rate.
6. GOVERNING LAW. This Note shall be governed by the laws of the
State of Utah.
7. WAIVER OF NOTICE, ETC. Every maker, endorser or guarantor of this
Note waives presentment, demand, notice, protest and all other notices in
connection with the deliver, acceptance, default or enforcement of this Note
and each agrees that the holder, from time to time, may renew, modify or
extend performance of obligations hereunder without their consent.
8. ARBITRATION. If at any time during or after the term of this Note
any dispute, difference, or disagreement shall arise upon or in respect of
this Note, or the conversion of the Note to common stock, and the meaning
and construction of the terms hereof, every such dispute, difference, and
disagreement shall be referred to a single arbitrator agreed upon by the
Borrower and the Lender, or if no single arbitrator can be agreed upon, an
arbitrator or arbitrators shall be selected in accordance with the rules of
the American Arbitration Association and such dispute, difference, or
disagreement shall be settled by arbitration in accordance with the then
prevailing commercial rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in
Salt Lake City, Utah.
9. ASSIGNMENT. This Note and the conversion privileges associated
herewith shall be assignable in whole or in part at any time by Lender.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date above set forth.
BORROWER:
CHEQUEMATE INTERNATIONAL, INC.
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/s/ J. Michael Heil, CEO
-------------------------------------
By
SECURITY AGREEMENT
May 24, 2000
Parties: Obligor: CHEQUEMATE INTERNATIONAL, INC, a Utah corporation
Secured Party: PASCOO HOLDINGS, INC.
Collateral: All tangible and intangible assets of the Obligor, including
patents and patents pending.
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Obligation: Convertible Line of Credit Promissory Note ("Note") dated
May 24, 2000
2. Grant of Security Interest. Obligor grants to Secured Party a Security
Interest in the Collateral to secure payment and performance of the Note.
3. Obligor Representations and Warranties. Obligor represents and warrants
to Secured Party as of the date of this Agreement and, as to Collateral in
which Obligor acquires an interest or rights after the date of this Agreement,
as of the date Obligor acquires such interest or rights.
3.1 Ownership and Possession of Collateral. Obligor is the legal
and/or beneficial owner of the Collateral. There are no liens and
encumbrances on the Collateral or claims thereof, except as may be granted
contemporaneously with this Security Agreement. There is no financing
statement now filed or recorded covering any of the Collateral. Obligor is in
exclusive possession of the Collateral.
3.2 Validity, Perfection, and Priority of Security Interest. The
Security Interest granted in this agreement (i) is legal, valid, binding, and
enforceable, (ii) is a perfected Security Interest in all the collateral, and
(iii) is a first priority Security Interest in all the Collateral.
3.3 Enforceability, Amount, and Other Matters concerning Collateral.
The Assets of the Obligee and the agreements, documents, and instruments
evidencing and securing the Assets are (i) genuine, (ii) the legal, valid and
binding obligations of the parties thereto, and (iii) enforceable against the
parties thereto in accordance with their terms. Any copies of such
agreements, documents, and instruments delivered to Secured Party are accurate
and complete and, except for the items delivered to Secured Party there are
no amendments, modifications, extensions, renewals, restatements, or
supplements thereof. No surety bond was required or given by Obligor in
connection with or is otherwise applicable to (1) any goods, or other tangible
personal property, or services relating to the Receivables, or (2) the
agreements, documents, or instruments out of which the Receivables arose.
4. Obligor Covenants. Until the Note is paid in full, Obligor agrees
that, unless Secured Party otherwise agrees in writing in Secured Party's sole
and absolute discretion:
4.1 Defense of Obligor's Title and of Security Interest. Obligor shall
defend the Collateral, the title and interest therein of Obligor represented
and warranted in this Agreement, and the legality, validity, binding nature,
and enforceability of the Security Interest granted herein, the perfection
thereof, and the first priority thereof against all matters, including,
without limitation, (i) any attachment, levy, or other seizure by legal process
or otherwise of any or all Collateral, (ii) any lien or encumbrance or claim
thereof on any or all Collateral, (iii) any attempt to realize upon any or all
Collateral under any lien or encumbrance, regardless of whether junior or
senior to the Security Interest herein, and (iv) any claim questioning the
legality, validity, binding nature, enforceability, perfection, or priority of
the Security Interest herein. Obligor shall notify Secured Party immediately
in writing of any of the foregoing.
4.2 Allowances or Discounts. Obligor shall grant to its customers only
such allowances, discounts, and other adjustments relating to the Collateral
as Obligor may reasonably determine to be in accordance with sound business
practice.
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4.3 Books and Records. Obligor shall maintain complete and accurate
books and records relating to the collateral.
4.4 Inspection and Verification. The Secured Party and such persons as
the Secured Party may designate shall have the right, at any reasonable time
from time to time, (i) to enter upon the premises at which any of the
Collateral or any of the books and records included in the Collateral or
relating to the business, operations, or financial condition of Obligor is
located, (ii) to inspect the Collateral and such books and records, (iii) to
make copies of and extracts from such books and records, and (iv) to verify
under reasonable procedures determined by the Secured Party the amount,
condition, quality, quantity, status, validity, and value of, or any other
matter relating to, the collateral or the accounts payable or cash of Obligor
shown on any financial statement or other document delivered to Secured Party
(including, without limitation, in the case of Collateral that is an
obligation of or in the possession of a third person and in the case of
accounts payable and cash, by contacting the third party holding such
assets).
4.5 Further Assurances. Obligor shall promptly execute, acknowledge,
deliver, and cause to be duly filed and recorded all such additional
agreements, documents, and instruments (including, without limitation,
financing statements and patent or intellectual property assignments) and take
all such other actions as Secured Party may reasonably request from time to
time to better assure, perfect, preserve, and protect the security interest
granted herein, the priority thereof, and the rights and remedies of Secured
Party hereunder.
4.6 No Obligations and limit of Liability of Secured Party. The
Secured Party does not assume and shall have no liability or obligation for
any liabilities or obligations of Obligor relating to the Collateral. In
exercising its rights and remedies under the Note and this Agreement and
under applicable law, in performing any obligations to Obligor, and in acting
or omitting to act in respect of the Collateral and this Agreement, the
Secured Party shall have no liability or responsibility whatsoever.
5.0 Subordination. Secured Party agrees that in the event the Obligor
secures loan funds from an institutional source(s) in an amount greater than
$10,000,000, the Secured Party shall subordinate its interest to the lending
institution.
6.0 Default. Upon occurrence of an event of default, Secured Party
may, in its absolute and sole discretion and without demand or notice, do any
or all of the following:
6.1 Acceleration of Obligations. Declare any or all obligations under
the Note to be immediately due and payable, whereupon such Obligations shall
be immediately due and payable.
6.2 If Secured Party demands or attempts to take possession of any or
all collateral, Obligor shall promptly assemble such Collateral and turn over
and deliver possession of such Collateral to Secured Party at a place
designated by Secured Party and convenient to Secured party and Obligor.
6.3 Retain the Collateral as Payment. Upon written notice to Obligor,
retain the Collateral in satisfaction of the obligations. Unless such written
notice is given, retention of the Collateral by Secured Party shall not be in
satisfaction of any of the obligations.
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6.4 Other Rights and Remedies. Exercise any and all other rights and
remedies of Secured Party under the Note or under applicable law.
7.0 Application of the Proceeds. After an event of default, all cash
and checks included in the Collateral and all proceeds of Collateral received
by Secured Party will be applied by Secured Party to the Obligor's
obligations, whether or not due, in such order as Secured Party may determine
in its absolute and sole discretion, subject to any requirements of law. If
application of the Collateral is not sufficient to pay the obligations in
full, Obligor shall remain obligated for the remaining obligations.
8.0. Continuation and Termination. This Agreement shall continue in
effect until payment and performance of the obligations of Obligor in full.
Dated as of the date first above written.
"Obligor"
CHEQUEMATE INTERNATIONAL, INC.
/s/ J. Michael Heil, CEO
-------------------------------------
By
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