CONVERTIBLE LOAN AGREEMENT by X-Factor Communications Holdings, Inc.

Exhibit 10.4

 

CONVERTIBLE LOAN AGREEMENT

 

Dated as m July 31, 2009

 

by and between

 

NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY

 

as Lender

 

and

 

X-FACTOR COMMUNICATIONS, LLC

a New York limited liability company

as Borrower

 

INITIAL CREDIT AMOUNT: $100,000

MAXIMUM CREDIT AMOUNT:$500,000 ("Loan")

 

Maturity Date: August 1, 2014

Closing Fee: $2,500

 

Interest: 6%

 

Warrants: 28,900 LLC Membership Units

Class of stock: Preferred Membership Units

Exercise price: $4.33

 

The terms and information set forth on this cover page are a part of the attached Convertible Loan Agreement, dated as of the date first written above (this "Agreement"), entered into by and among the New Jersey Economic Development Authority ("Lender") and X-Factor Communications, LLC, a limited liability company ("Borrower"), set forth above. The terms and conditions of the Agreement agreed to between Lender and Borrower are as follows:

 

1) Definitions. As used in this Agreement, the following capitalized terms have the following meanings:

 

a)         "Securities Act" shall mean the Securities Act of 1933, as amended.

 

b)         "Event of Default" has the meaning given in Section 8 hereof.

 

c)         "Financial Statements" shall mean, with respect to any accounting period for any Person, statements of operations, retained earnings and cash flow of such Person for such period, and balance sheets of such Person as of the end of such period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year if such period is less than a full fiscal year or, if such period is a full fiscal year, corresponding figures from the preceding fiscal year, all prepared in reasonable detail and in accordance with GAAP. Unless otherwise indicated, each reference to Financial Statements of any Person shall be deemed to refer to Financial Statements prepared on a consolidated basis.

 

 

d)         "Governmental Authority" means any national, federal, state, provincial, county, municipal or local government, foreign or domestic, or the government of any political subdivision of any of the foregoing, any multinational organization or body, or any entity, authority, agency, ministry or other similar body exercising executive, legislative, judicial, regulatory, taxing or administrative authority or functions of or pertaining to government, including any authority or other quasi-governmental entity established to perform any of such functions.

 

e)         "GAAP" shall mean generally accepted accounting principles as in effect in the United States of America.

 

f)         "Innovation Zone" shall mean geographically defined areas within the cities of Camden, Newark and New Brunswick/North Brunswick in the State of New Jersey.

 

g)         "Lien" shall mean, with respect to any property, any security interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such property or the income therefrom, including, without limitation, the interest of a vendor or lessor under a conditional sale agreement, capital lease or other title retention agreement, or any agreement to provide any of the foregoing, and the filing of any financing statement or similar instrument under the Uniform Commercial Code or comparable law of any jurisdiction.

 

h)         "Material Adverse Effect" shall mean a material adverse effect on (a) the business, assets, operations, prospects or financial or other condition of Borrower; (b) the ability of Borrower to pay or perform the Obligations in accordance with the terms of this Agreement and the other Transaction Documents and to avoid an Event of Default, or an event which, with the giving of notice or the passage of time or both, would constitute an Event of Default, under any Transaction Document; or (c) the rights and remedies of Lender under this Agreement, the other Transaction Documents or any related document, instrument or agreement.

 

i)         "Obligations" shall mean and include all loans, advances, debts, liabilities and obligations, howsoever arising, owed by Borrower to Lender of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money), now existing or hereafter arising under or pursuant to the terms of this Agreement, the Note and the other Transaction Documents, including, all interest, fees, charges, expenses, attorneys' fees and costs and accountants' fees and costs chargeable to and payable by Borrower hereunder and thereunder, in each case, whether direct or indirect, absolute or contingent, due or to become due, and whether or not arising after the commencement of a proceeding under Title 11 of the United States Code (11 U. S. C. Section 101 itas amended from time to time (including post-petition interest) and whether or not allowed or allowable as a claim in any such proceeding.

 

j)         "Person" shall mean and include an individual, a partnership, a corporation (including a business trust), a joint stock company, a limited liability company, an unincorporated association, a joint venture or other entity or a governmental authority.

 

 

k) "Senior Indebtedness" shall mean the indebtedness referenced in Paragraph 5(b) of the Security Agreement.

 

1) "Subsidiary" shall mean (a) any corporation of which more than 50% of the issued and outstanding equity securities having ordinary voting power to elect a majority of the Board of Directors of such corporation is at the time directly or indirectly owned or controlled by Borrower, (b) any partnership, joint venture, or other association of which more than 50% of the equity interest having the power to vote, direct or control the management of such partnership, joint venture or other association is at the time directly or indirectly owned and controlled by Borrower, (c) any other entity included in the financial statements of Borrower on a consolidated basis.

 

m)  "Tax" means any of the following, and "Taxes" means all of the following, imposed by or payable to any Governmental Authority: any income, gross receipts, license, payroll, employment, excise, severance, stamp, business, occupation, premium, windfall profits, environmental (including taxes under Section 59A of the Internal Revenue Code of 1986, as amended or any successor thereto), capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, or value added tax, any alternative or add-on minimum tax, any estimated tax, and any levy, impost, duty, assessment, or withholding, in each case including any interest, penalty, or addition thereto, whether disputed or not.

 

n)         "Transaction Documents" shall mean this Agreement, the Note, the Commitment Letter, the Warrant, the Patent, Trademark and Copyright Security Agreement, and the Security Agreement and any other documents executed in connection with this loan.

 

2) Disbursements. This Investment will finance working capital with match funding required. Investment proceeds to be advanced as follows:

 

$100,000 at closing.

 

$100,000 upon receipt of purchase orders totaling at least $500,000, including one from the US Postal Service (via NEC and Verizon) for at least 460 offices which involve utilization of Borrower's digital signage control portal.

 

$100,000 upon the Borrower becoming an approved Cisco Eco System Partner and listed as such on their website. Evidence of said approval deemed satisfactory to the Authority as certified by the CEO of the Borrower.

 

$100,000 upon the Borrower providing an accepted offer letter and resume deemed satisfactory to the Authority for a new hire for the position of VP Operations or COO or CFO.

 

$100,000 upon the Borrower releasing a new/updated version of their digital signage control portal to include features of syndication, time based content delivery,

advertising inventory module. Evidence of this release shall be deemed satisfactory to the Authority as certified by the CEO of Borrower.

 

It is specifically understood and agreed that the conditions under which the second and third disbursement will be made must be achieved in sequential order. Once those conditions have been satisfied, the remaining disbursements may be pursued without regard to sequential achievement.

 

 

Upon each request for disbursement, Lender shall review Borrower's performance as set forth in the monthly status report certificates submitted to Lender by Borrower each month relative to the Borrower's projected performance as set forth in the Borrower's Business Plan and projections dated December 2008.

 

Notwithstanding anything in the Investment documents to the contrary, in the event Lender determines, in its sole discretion, that there is a significant deviation between actual and projected performance, Lender shall have the right to deny, modify or postpone any and all disbursements to be made hereunder provided that Borrower has received prior notice with a reasonable opportunity to cure said deviation.

 

Investment proceeds shall be disbursed within 12 months of the closing date provided that all documents, searches, opinions, evidence of insurance and guarantees required by Lender in the commitment letter dated May 29, 2009, attached as Exhibit B, shall be submitted and deemed satisfactory.

 

3)Convertible Note. The Loan made by Lender shall be evidenced by a convertible note of Borrower substantially in the form of Exhibit A hereto (the "Note"), dated the date hereof, payable to Lender. The terms of the Note are as follows:

 

a)       Interest. Borrower shall pay interest on the Note at a fixed rate equal to the rate specified on the cover page hereof. Interest only for the first twelve (12) months followed by forty-eight (48) months of level monthly payments of principal plus interest. Interest payments will be calculated on an actual days elapsed over a 360 day year and will be payable monthly in arrears. On the Maturity Date specified on the cover page, the entire outstanding principal balance of the Note and all accrued and unpaid interest thereon shall be immediately due and payable.

 

b)     Premium on Repayment. None.

 

c)       Collateral Security. The Note and this Loan are secured by a fully perfected security interest in all of the existing and after acquired real and personal, tangible and intangible assets of Borrower other than Borrower's Intellectual Property (collectively the "Collateral"), provided that springing lien on the Borrower's Intellectual Property ("IP Assets") shall not attach and the security interest evidenced by the Security Agreement will be of no force or effect unless and until a default under the Transaction Documents. All Collateral will be free and clear of other liens, claims and encumbrances, except as set forth on Exhibit C attached hereto. Borrower will also enter into a negative pledge agreement with respect to all IP Assets.

 

d)      Conversion. The Note will be convertible into limited liability company preferred warrant membership interests of Borrower as provided therein.

 

e)       Warrant. In consideration of the Loan Lender has made available to Borrower, Borrower agrees to grant Lender a warrant ("Warrant") to purchase 28,900 shares of Borrower's preferred warrant membership interest units warrants as provided in said Warrant.

 

4)Borrower's Representations and Warranties. Borrower hereby makes the following representations and warranties and acknowledges and agrees that each and every one of the following representations and warranties shall survive closing and shall continue for as long as the Loan remains outstanding:

 

(a) The Borrower has been duly organized and validly exists as a limited liability company under the laws of the State of New York, has power to enter into this Agreement and the Note evidencing the debt obligation of the Borrower to the Lender hereunder and has authorized the taking of all action necessary to carry out and give effect to the transactions contemplated by this Agreement.

 

 

(b)  There is no action or proceeding pending or to the Borrower's knowledge threatened against the Borrower before any court or administrative agency that might adversely affect the ability of the Borrower to perform its obligations under this Agreement and all authorizations, consents and approvals of governmental bodies or agencies, required in connection with the performance of the Borrower's obligations hereunder have been obtained and will be obtained whenever required hereunder or by law.

 

(c)  Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement is prevented, limited by, or conflicts with or results in a breach of, the terms, conditions, or provisions of any corporate restrictions or any evidence of indebtedness, agreement or instrument of whatever nature to which the Borrower is now a party or by which it is bound, or constitutes a default under any of the foregoing.

 

(d)  All tax returns and reports of the Borrower required by law to be filed have been duly filed and all taxes, assessments, fees and other governmental charges upon the Borrower or upon any of its respective properties, assets, income or franchises which are due and payable pursuant to such returns and reports, or pursuant to any assessment received by the Borrower have been paid other than those which may be presently payable without penalty or interest.

 

(e)  The Borrower has, or will have, title to all the Collateral whenever acquired or arising free and clear of all liens and claims, encumbrances, set-offs, defenses and counterclaims, except those stated in Exhibit C attached hereto or permitted by the Security Agreement, and has not made and will not make any assignment, pledge, mortgage, hypothecation or transfer (other than sales or leases in the ordinary course of business) of any such Collateral or the proceeds thereof.

 

(f)  All statements, representations and warranties made by the Borrower in its application to the Lender, and any materials furnished in support of the request for Lender financial assistance and this Agreement are true. It is specifically understood by the Borrower that all such statements, representations and warranties shall be deemed to have been relied upon by the Lender as an inducement to make the Loan and that if any such statements, representations or warranties were materially false at the time they were made or are breached during the term hereof, the Lender may, in its sole discretion, consider any such misrepresentation or breach an event of default.

 

(g)  The chief executive office