Collateral Loan Agreement - Interauditing Srl and Internet Advisory Corp.
COLLATERAL LOAN AGREEMENT
This Collateral Loan agreement (the "Agreement"), dated this 1st day of April,
2002, is entered into between Interauditing Srl, an Italian Corporation with a
principal address at Piazza Duca D'Aosta 6, 20124 Milano, Italy (the "Lender"),
and The Internet Advisory Corporation, a Utah corporation with a principal
address at 150 East 58th Street, New York, NY 10022 (the "Borrower").
In consideration of the mutual covenants herein contained, and intending to be
legally bound hereby, the parties agree as follows:
1. LOAN AND DELIVERY OF COLLATERAL PURSUANT TO PROMISSORY NOTES
a. Subject to the terms and conditions hereinafter set forth, the
Lender agrees to provide to Borrower a line of credit in an amount
of up to 20% ("the Loan Market Value Percentage") of the Final
Market Value, as such term is defined in Section 3 hereof (the "Loan
Amount" or the "Loan") of certain restricted shares of Borrower's
common stock (the "Stock"). The Lender will pay the Loan Amount to
Borrower in no more than two (2) installments. 50% or more of the
Loan Amount (the "Initial Payment") will be paid to Borrower not
more than five (5) days after Borrower shall have delivered the
Stock and all other documents required by this Agreement to Lender.
The balance of the Loan Amount will be paid to Borrower not more
than ten (10) day after the Initial Payment. The Borrower's
obligation to repay the Loan Amount shall be evidenced by one or
more promissory notes issued in the form of "Exhibit A" attached
hereto (the "Promissory Notes.)" The Promissory Notes shall be
executed by Borrower and delivered to the Lender via courier upon
Borrower receiving notification by Lender that funds are available
to advance the Loan Amount.
b. To secure its obligations under the Loan, Borrower will issue the
Stock in the name of Lender. The Stock will serve to collateralize
the Loan and will contain restrictions on assignment and transfer.
In connection with such restrictions, the Stock will contain the
following legends:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, transferred, pledged, hypothecated or
otherwise disposed of in the absence of (i) an effective
registration statement for such securities under said Act or
(ii) an opinion of company counsel that such registration is
not required."
Concurrently with the execution of this Agreement, Borrower shall
deliver the Stock (in physical certificate form) to the branch
office of Credito Italiano Bank (the "Bank") in New York, located at
375 Park Avenue, New York, New York, 10152, for final credit to the
Lender's account number 999647 0 at Credito Italiano Milano Cordusio
Branch 200 NDG N 13372852. The Stock shall be free and clear from
all liens and encumbrances at the time it is deposited, and shall
not be subject to other restrictions or limitations, (i.e.,
shareholder rights, etc.) other than the restrictions related to its
status as restricted stock and any other restrictions imposed by
this Agreement.
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c. This Agreement, the Promissory Notes, and the other documents
specified above constitute the "Loan Documents".
2. LOAN PROCEEDS AND INSTALLMENT PAYMENTS
a. All Loan Amounts payable to Borrower shall be wired directly to
Borrower based on wire instructions provided by Borrower, without
deduction for any charges, expenses or commissions, except for a 2%
engagement service fee (the "Engagement Service Fee") payable to the
Lender. Net Loan proceeds shall be immediately available to the
Borrower.
b. Delivery of the Promissory Notes to Lender shall be a Condition
Precedent to delivery of the Loan Amount by the Lender, which will
also be subject to confirmation by outside counsel of the Lender as
to availability of funds.
c. In the event the Lender does not advance to the Borrower the Loan
Amount, the Borrower's sole and exclusive remedy shall be to demand
an immediate return of the Stock and the Promissory Notes. Lender
shall comply within five (5) business days of receipt of said demand
in hard copy written form. In the event Lender does not comply in
accordance with the time frame set forth above, or any extended time
frame granted by Borrower, this Section 2.c. will be deemed null and
void and Borrower will be free to seek alternative remedies.
3. DETERMINATION OF MARKET VALUE
Upon the execution of this Agreement (said "execution" being deemed to
include delivery of a signed copy of this Agreement to the Lender),
receipt of the Stock and all Loan Documents required by the Lender, the
"Final Market Value" shall be used as the value to determine the Loan
Amount. The Loan Amount shall be calculated by multiplying the Final
Market Value by the Loan Market Value Percentage specified in Section 1.a.
The Final Market Value shall be calculated based on the average closing
price for Borrower's common stock as traded on the OTC Bulletin Board, for
the ten (10) trading days immediately preceding the date the Stock and the
Loan Documents are delivered. However, if the closing share price on the
last trading date of this ten-day trading period is less than the ten day
average closing price, the closing share price on that last trading date
shall be used to determine Final Market Value. Final Market Value is equal
to the closing price indicated above multiplied by the number of shares of
the Stock delivered to the Lender as specified above.
4. ADJUSTMENT TO LOAN AMOUNT
Ninety calendar days after the date (the "Issue Date") of the first
Promissory Note provided by Borrower to Lender, the Final Market Value and
Loan Amount will be recalculated. The formula used for the recalculation
will be the same as that used in Section 3 above, except that the average
price will be calculated using the twenty trading days immediately
preceding the ninetieth calendar day to calculate the share price. The
resulting "Final Market Value" calculated in this manner will be
multiplied by the Loan Market Value Percentage noted in Section 1.a.
above, and, if the recalculated Loan Amount is 10% or more greater than
the original Loan Amount calculated under Section 3, then the difference
between the two Loan Amounts will be advanced as a new loan within five
(5) business days of the ninetieth calendar day following the Issue Date
as noted. However, if the recalculated Loan Amount is not 10% or more
greater than the original Loan Amount, no adjustment will be made.
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5. CONCERNING THE PROMISSORY NOTES
Except as otherwise provided in this Agreement, the Stock pledged under
this Agreement shall be held as collateral as long as there is any
principal or interest outstanding under the Promissory Notes. Upon
satisfaction of all principal and interest under the Promissory Notes, the
Lender shall promptly deliver to the Borrower the Stock and the Loan
Documents, other than the Lender's copy of the Loan Documents. The Lender
shall give written notice of any default on the Loan to the Borrower in
accordance herewith and Borrower may thereafter have ten (10) business
days (the "Cure Period") to cure such default. In the event Borrower fails
to cure such default within the Cure Period, Lender may then sell, assign,
hypothecate, or otherwise dispose of the Stock as herein provided. The
Lender accepts no responsibility for the amount of proceeds obtained
through the disposition of the Stock under any lawful means. However,
proceeds obtained in excess of the total of the default amount plus
reasonable attorney's fees, if any, and costs of disposing of the Stock
shall be returned to the Borrower.
The Stock shall constitute the entire collateral used to procure the Loan,
and the Lender shall be limited to liquidation of the Stock upon an Event
of Default as defined in the Promissory Notes. The Lender shall have no
recourse to other assets of the Borrower (i.e., this Loan is
"non-recourse" as to any other assets of the Borrower.)
6. CLOSING
The closing shall take place on the later of the delivery of the
Promissory Notes or the Stock to the Lender.
7. SECURITY OF STOCK
The Lender accepts full responsibility for the control, handing and return
of such Stock to the Borrower. Accordingly, the Lender hereby warrants the
following: i) the Stock will not be hypothecated, assigned, transferred,
or otherwise encumbered (other than as specified in this document); ii)
the Stock will not be used to short sell the Stock while the Stock is on
deposit with the Bank; iii) the Stock shall remain on deposit with the
Bank in a designated account for the entire period of the Loan; and iv)
the Stock will not be used in any manner that is not prescribed other than
as provided for in this agreement or the Promissory Note(s).
8. USE OF THE STOCK
The Lender shall use the Stock to arrange for a credit facility ("the
Investment Credit Facility") in the amount of up to 70% of the Final
Market Value of the Stock. In establishing this credit facility, the
Lender will use the Stock as collateral but will not remove the Stock from
the account into which the Borrower originally deposited it, nor will the
Lender allow a change in control of the Stock. The Lender hereby warrants
that upon repayment of the Loan Amount, the Stock will be immediately
returned to the Borrower without liens or encumbrances. It is thereby
intended by both parties that all risks associated with investments made
by the Lender utilizing the Investment Credit Facility remain with the
Lender and are not passed on to the Borrower.
Regarding investments to be made utilizing the Investment Credit Facility,
the Lender will make investments deemed by the Lender to possess strong
profit potential with minimal risk. It is hereby agreed between the
Borrower and the Lender that profits created from the investments made by
the Lender shall be shared 70% to the Lender and 30% to the Borrower. It
is understood that the Borrower's portion of accumulated profits from
these investments will be applied first to the interest
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owed on the Loan to the Borrower from the Lender and second to the
principal outstanding on the Loan. All proceeds due to the benefit of the
Borrower will be deposited in an account to be established for the
Borrower at Credito Italiano, Milano, Italy.
On the first anniversary of this Agreement, the Borrower and the Lender
will use their best efforts to agree to an annual payment to be made to
the Lender to reduce the outstanding principal on the Loan. At such
anniversary date, the Borrower and Lender will renegotiate this Agreement
with respect to investment goals and the Lender's investment authority for
the second year of this Agreement. This Agreement shall be similarly
renegotiated on each anniversary date during the overall term of this
Agreement.
9. VOTING PROXY
Absent an uncured default, Lender agrees that it shall have no right to
vote the stock on any matters put before the shareholders of Borrower for
a vote. In connection therewith, Lender agrees that it shall execute and
deliver a voting proxy with respect to the Stock in favor of a designee of
Borrower.
10. REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce the Lender to provide the Loan according to Promissory
Notes in the form of the attached Exhibit A, Borrower makes the following
representations and warranties to the Lender; such representations and
warranties shall be unaffected by any separate inquiries, credit and/or
security investigation made by the Lender prior to or after execution of
this Agreement and shall survive the closing of the transactions
contemplated hereby:
a. Borrower has all requisite power and authority to enter into this
Agreement and all other Loan Documents, including, without
limitation, the Promissory Notes, and to carry out the transactions
contemplated hereby.
b. Borrower warrants and represents that it is not now insolvent,
bankrupt, or contemplating bankruptcy, that there are no legal
claims filed or to its knowledge threatened against Borrower,
whether judged with or without merit by the Borrower, and that there
are no other impediments to the sale or transfer of the Stock.
c. The execution and delivery of this Agreement, the Promissory Notes,
and the other Loan Documents and instruments to be executed and
delivered by the Borrower are not subject to recall, restriction on
voting, use, or other limitations.
d. This Agreement, the Promissory Notes, and other Loan Documents, when
executed and delivered, will constitute valid binding agreements of
the Borrower, enforceable in accordance with their respective terms,
except such as may be limited by bankruptcy, insolvency,
reorganization, or other laws affecting creditor's rights generally.
e. Neither the execution and delivery of this Agreement, the Promissory
Notes, or the other Loan Documents and instruments to be executed
and delivered by Borrower pursuant hereto, nor the consummation by
Borrower of the transaction contemplated hereby, will require any
authorization, consent, approval, exemption or any other action by,
or notice to, any governmental entity except as specifically
provided herein.
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f. Borrower does not have material tax deficiencies, federal, state,
foreign, county, local, or other, that would or could affect the
solvency, final status of, or otherwise compromise Borrower in its
ability to transfer the Stock.
g. To the best of Borrower's knowledge, the information supplied by
Borrower to Lender (verbally and in writing) contains no untrue
statement of material fact or omits or shall omit a material fact,
which would make such statements misleading. All statements and
information contained in any certificate, instrument, schedule or
document delivered by Borrower shall be deemed representations and
warranties made by borrower.
h. In connection with the Loan and the issuance of the Stock, Borrower
agrees to make all required disclosures to the Securities and
Exchange Commission ("SEC") and any other applicable regulatory
authorities. Borrower shall indemnify Lender against any penalties,
fees, fines, or lawsuites that may arise from Borrower's failure to
make proper regulatory disclosures related to the issuance of the
Shares.
i. In the event of an uncured default on the Loan, as described in
Section 5 of this document, Lender will have the immediate right to
sell the Shares. In such event, Borrower agrees that it will, as
soon thereafter as is practicable, take all reasonable steps to
register the Stock for resale by Lender.
11. CONDITION PRECEDENT TO LENDER'S OBLIGATIONS
The obligation of the Lender to consummate the transactions contemplated
herein is subject to the satisfaction of the following conditions (any one
or more of which may be waived by the Lender):
a. Borrower will have performed all obligations and complied with all
conditions required to be performed or complied with by Borrower at
or prior to the Closing.
b. The representation and warranties of Borrower made herein shall be
true and correct as of the Closing.
If any of the conditions contained in this paragraph have not been
satisfied (or waived), Lender may cancel and terminate this Agreement.
12. AMENDMENT AND WAIVER
This Agreement may be amended, or the terms hereof waived, only in writing
and having been executed by all of the parties to this Agreement.
13. NOTICES
All notices and other communications hereunder shall be delivered in
writing and shall be deemed to have been given if delivered by hand or
facsimile transmission or if deposited with a recognized overnight
delivery service, with receipt, addressed as follows:
If to Borrower at: The Internet Advisory Corporation
150 East 58th Street
New York, NY 10002
Attn: Richard Goldring, President
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With a copy to: Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
New York, NY 10017
Attn: Adam S. Gottbetter
If to the Lender at: Interauditing Srl
Piazza Duca D'Aosta, 6
20124 Milano, Italy
Tel: + 39 02 67078369
Fax: + 39 02 66982065
E-mail: cevolo@dadaconsulting.com
Or, at such other address as may hereafter be designated by either party
by written notice given hereunder. Notices sent by facsimile transmission
must show the sender's time of transmission information ("TTI") on such
copy.
14. GOVERNING LAW & SITES FOR LITIGATION
This Agreement shall be governed by the laws of the State of New York
without regard to any provisions or conflict of law. The parties agree
that any differences shall be filed and adjudicated in this Governing
State.
15. BINDING EFFECT
This Agreement binds, and shall inure to the benefit of, the parties and
their respective successor and assigns.
16. COUNTERPARTS, FACSIMILE AND SIGNATURES.
This Agreement may be signed in any number of counterparts, and such shall
be deemed an original together as one and the same document. The parties
agree that facsimile signatures which copy shall show the sender's TTI
shall be deemed an original.
17. ENTIRE AGREEMENT
This Agreement and related Loan Documents constitute the entire agreement
of the parties with respect to the subject matter hereto and supersede any
prior or contemporaneous understandings or agreements.
18. TIME OF ESSENCE
Time is specifically declared to be of the essence in the performance by
Borrower and the Lender of their respective duties and responsibilities
under this Agreement.
19. CONFIDENTIALITY
Whereas the Lender has developed a number of important and sensitive
business contacts and relationships, either directly or indirectly, such
contacts and relationships are limited to the Lender and/or its designees.
Any intentional contact by any executive officer or director of the
Borrower, either directly or indirectly, without specific, written, prior
permission of the Lender or unless otherwise required in furtherance of
this Agreement, shall be viewed as a violation of this Agreement
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if such contact was initiated for the specific purpose of circumventing
this Agreement, and render this Agreement null and void from inception. A
minimum of five business days prior to declaring this Agreement null and
void pursuant to this Section 19, Lender must supply Borrower with written
notice thereof including detailed, incontrovertible proof that supports
the assertion being made. Following a termination of this Agreement
pursuant to this Section 19, any monies due to the Lender shall be
immediately due and payable along with any accrued interest. Failure by
the Borrower to make such repayment within five (5) business days shall
give the Lender the right, but not the obligation, to liquidate any and
all collateral in order to obtain satisfaction of the Promissory Notes.
After payment of these outstanding amounts by the Borrower, the Lender's
obligation will be limited solely to the return of the Stock along with a
notice of cancellation of the Promissory Notes. Should the Lender fail to
meet its obligation(s) under this Agreement, this section shall not apply
and the Borrower may communicate with any party required in order to
secure the return of the Stock.
20. TERMS AND CONDITIONS PURSUANT TO LOAN
See Appendix "A", Terms and Conditions Pursuant to Loan.
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IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties have
executed this Agreement as of the day and year first above written.
ACCEPTED ON BEHALF OF THE LENDER:
By: /s/ Stefano Cevolo
-----------------------------------
Dott. Stefano Cevolo
Title: Chief Executive Officer
--------------------------------
Date: April 1, 2002
---------------------------------
ACCEPTED ON BEHALF OF BORROWER:
By: /s/ Richard Goldring
-----------------------------------
(Authorized Signature)
Title: President
--------------------------------
Date: April 1, 2002
---------------------------------
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APPENDIX "A"
TERMS & CONDITIONS PURSUANT TO LOAN
Term - The initial term of the Loan will be 1 year. However, Borrower
shall have the option to extend the Loan, in whole or in part, for up to
three additional 1 year periods. Accordingly, the maximum Loan term, as
extended, shall be 4 years. Borrower shall exercise its right to extend
the Loan by advising Lender in writing not less than 30 days prior to the
Loan termination date then in effect (the "Loan Extension Notice"). Each
extension will be for an additional 1 year period. The Loan Extension
Notice delivered by Borrower to Lender may, at Borrower's option, provide
for Borrower's replacement of the Stock with one or more new certificates
representing the same number or restricted shares of Borrower's common
stock as the Stock being replaced. In connection therewith, the parties
acknowledge that a simultaneous exchange is contemplated and that they
will fully cooperate with on another to effect said exchange. Following
replacement, the new certificates shall be treated in the same manner as
the Stock. Borrower can further extend the Loan under the same procedures
to a maximum period of 4 years.
Right to Terminate - The Lender shall reserve the right to terminate as
provided in the Loan Agreement.
Interest Rate - The interest rate on the Loan will be set in accordance
with LIBOR (six month rate) plus one full percentage point (1%). The
interest rate may be adjusted once during each 12 month Loan Agreement
period.
Payments - The provision of interest payments shall be made quarterly in
arrears.
Late Payments - The Lender shall have the right to charge additional
interest on late scheduled quarterly interest payments. Payments shall be
deemed late if the agreed quarterly interest is not paid on the due date
as stated in the interest payment schedule which shall be issued upon
acceptance and draw down of funds by the Borrower. The interest charge on
late payments will be calculated at 5% until said interest is paid. This
charge shall be invoiced separately. If the Borrower fails to make a
scheduled interest payment or separately invoiced late payment within
thirty days of the due date, it will be deemed as a default under the Loan
Agreement.
SCHEDULE OF STOCK(S)
The Stock schedule sheet will define the allocated Stock to be used as
collateral against the issuance of the Loan.
In the event of an application for a Loan to be increased in capital, such
application would require a separate or amended Stock schedule sheet.
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EXHIBIT A
SECURED PROMISSORY NOTE
USD$ ____________________ (Amount) DATE: __________
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
__________________ ("Borrower"), promises to pay to ____________________
("Lender") at _______________________________________________ (Address) or any
other place as Lender may from time to time designate in writing, the principal
sum of _______________________________________ (USD$__________) (the "Principal
Amount"), hereof until this Note is paid in full at the rate of ________________
(__%) per annum.
This Note is secured by "Restricted Shares of Stock" of
_________________________, (Borrower) on deposit with Credito Italiano Bank at
their office in New York, located at 375 Park Avenue, New York, New York, 10152,
for final credit to the Lender Account number _____________.
Borrower is to pay interest quarterly in arrears, and principal is due
___________ (Date) as stated in the Collateral Loan Agreement. All further terms
and conditions of this note are governed by the Collateral Loan Agreement
executed by Borrower and Lender on ________________ (Date)
The payments shall be made in lawful money of the United States and shall be
free from set off, deduction, or counterclaim of any kind. Borrower may prepay
this Note in whole or in part on the anniversary date of the note without
premium or penalty. Unless Lender shall elect otherwise, any partial pre-payment
shall be credited first to accrued interest and then to the Principal Amount
outstanding and shall not extend or postpone the due date of any subsequent
payment or change the amount of such payment.
This Note shall be governed by and construed in accordance with the laws of the
State of New York. Should any collection or any other legal actions be taken by
Lender to collect on this Note or any portion hereof, Borrower will pay all
reasonable costs of collection, including attorneys' fees.
By: ____________________________________ (Borrower)
(Name)
Title:__________________________________
Date: __________________________________
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