LOANAGREEMENT

4.           Representations and Warranties, and Certain Covenants, of Borrower. To induce Lender to enter into this Agreement, Borrower hereby represents and warrants to Lender, at the commencement of each Loan, during the term of each Loan, and throughout any and all renewals and extensions thereof, as follows: (i) Borrower is and shall remain duly incorporated, validly existing and in good standing under the laws of the State of Nevada, and is and shall remain authorized to conduct business in all jurisdictions in which Borrower’s ownership of property and transaction of business legally requires such authorization, except where the failure to be authorized to conduct business would not result in a material adverse effect upon Borrower’s business, and Borrower has and shall continue to have full power, authority and legal right to own its property and to transact business as presently transacted or proposed to be transacted; (ii) the execution, delivery and performance of this Agreement and of each Note by Borrower are and shall remain within the powers of Borrower and have been duly authorized by Borrower’s Board of Directors, and the same are not in contravention of law or the terms of Borrower’s organizational documents, or of any indenture, agreement or undertaking to which Borrower is a party or by which Borrower or any of Borrower’s assets are bound; (iii) this Agreement and each Note, when duly executed and delivered, shall constitute legal, valid and binding obligations of Borrower, and shall be fully enforceable in accordance with their respective terms; (iv) all financial statements and information that have been or may hereafter be furnished to Lender in connection herewith do and shall present fairly the financial condition of Borrower as of the dates thereof, for the periods for which the same are furnished, and shall be accurate, correct and complete in every material respect; (v) there is no action, suit, investigation or proceeding pending or, to Borrower’s knowledge, threatened against Borrower, as of the Effective Date, and Borrower hereby undertakes to notify Lender immediately in writing of the initiation of any such action suit, investigation or proceeding against Borrower; (vi) Borrower has timely filed and shall continue timely to file all tax returns and all securities law filings that are required to be filed (subject to permitted extensions), and has paid all taxes and other fees and charges due in accordance with such returns and other filings or otherwise due or pursuant to any assessment received by Borrower, and shall continue to do the same; (vii) Borrower holds and shall continue to hold all material licenses, permits, certificates, consents and franchises, and all necessary filings associated therewith have been made, in order for Borrower to carry on its business as now being conducted and to own or lease and operate its properties as now owned, leased or operated, and all such material licenses, permits, certificates, consents and franchises are and shall continue to be valid and in full force and effect; (viii) there is no material fact that Borrower has not disclosed to Lender that could have a material adverse effect on the properties, business, prospects or condition (financial or otherwise) of Borrower, and Borrower affirmatively undertakes to notify Lender in writing of the occurrence of any such fact, immediately upon occurrence; (ix) to Borrower’s knowledge, Borrower is not in violation of any law, rule, regulation, order or decree applicable to Borrower or its properties, and Borrower affirmatively undertakes to comply at all times with all applicable laws, rules and regulations; (x) no Event of Default has occurred and is continuing; and (xi) Borrower has obtained the advice of independent counsel, who has reviewed and negotiated this Agreement and the form of Note on behalf of Borrower prior to the execution and delivery hereof and thereof. All of the representations and warranties, and the covenants, made by Borrower herein, shall survive the delivery of this Agreement and of each Note, and any renewal and extension of any Loan or Loans made hereunder. All statements made by or on behalf of Borrower under or pursuant to this Agreement or any Note, or otherwise in connection with the transactions contemplated hereby, shall constitute representations and warranties made by Borrower hereunder.

5.           Certain Events of Default. Each of the following shall constitute an Event of Default hereunder and under each Note: (i) any failure to pay when due any amount of principal or interest in accordance with the terms of this Agreement or of any Note, and the continuation of such default without cure for a period of ten (10) calendar days after written notice by Lender of the occurrence of such default; (ii) any failure to pay when due any other amount payable to Lender under the terms of this Agreement or of any Note, and the continuation of such default without cure for a period of ten (10) calendar days after written notice by Lender of the occurrence of such default; (iii) any default by Borrower in the performance or observance of any covenant or agreement contained in this Agreement or in any Note, or in any other agreement made in connection herewith or therewith, or in any other agreement or instrument delivered to Lender in connection with this Agreement or any Note, and the continuation of such default without cure for a period of ten (10) calendar days after written notice by Lender of the occurrence of such default; (iv) any representation or warranty made by Borrower to Lender, or any representation, statement, certificate, schedule or report made or furnished to Lender on behalf of Borrower, is false or erroneous in any material respect at the time of its making or otherwise ceases to be accurate in any material respect; (v) Borrower applies for or consents to the appointment of a receiver, trustee or liquidator of its properties, or admits in writing its inability to pay debts as they mature, or makes a general assignment for the benefit of creditors, or any material part of Borrower’s assets or properties is placed in the charge of a receiver, trustee or other officer or representative of a court or of creditors; (vi) Borrower is adjudged a bankrupt, or any voluntary proceeding is instituted by Borrower in insolvency or bankruptcy or for readjustment, extension or composition of debts, or for any other relief of debtors; (vii) any involuntary proceeding is instituted against Borrower in insolvency or for readjustment, extension, or composition of debts, which proceeding is not dismissed within ninety (90) days after the filing of the same; (viii) entry by any court of a final judgment against Borrower, or the institution of any levy, attachment, garnishment or charging order against Borrower, which has a material adverse effect, as determined by Lender in Lender’s reasonable judgment, on the financial condition of Borrower; or (ix) any default, event of default, or breach occurs with respect to or otherwise on the part of Borrower under or in connection with any other agreement between Lender and Borrower, including, without limitation, that certain Loan Agreement and corresponding 15% Convertible Debenture executed by Lender and Borrower as of September 1, 2007 (the parties also hereby agreeing that any default by Borrower under any Loan made hereunder shall create an Event of Default with respect to all Loans made hereunder, and with respect to all other agreements between Borrower and Lender, including the September 1, 2007 Loan Agreement and Debenture).

 

6.           Remedies. Upon the occurrence of any one or more Events of Default that have not been timely cured, Lender may, at its sole option, exercise any and all of the following rights and remedies, at Lender’s sole discretion, each and every one of which shall be cumulative and in addition to each other and to the additional rights arising on the part of Lender at law and in equity: (i) declare all sums owing under this Agreement and the corresponding Note or Notes to be immediately due and payable, without the need to wait for the occurrence of any deadline or other passage of time; (ii) terminate any or all of Lender’s obligations hereunder; (iii) exercise a right of offset against any and all property of Borrower in Lender’s custody or possession; (iv) without notice of default or demand, pursue and enforce any and all of Lender’s rights and remedies against Borrower, including, without limitation, any and all rights of Lender arising under this Agreement and any and all Notes; (v) exercise all rights of Lender under that certain Security Agreement made of even date herewith between Borrower and Lender, under which Borrower has granted to Lender a security interest in all of Borrower’s assets to secure performance of Borrower’s obligations to Lender under this Agreement and under each Note (the “Security Agreement”); and (vi) exercise any and all additional rights and remedies of Lender at law or in equity. Lender may waive any Event of Default, but only in a writing executed by Lender. Any Event of Default waived in a writing executed by Lender shall be deemed under this Agreement and under each Note to have been cured and not to be continuing; but no waiver shall waive the effect of any subsequent or different Event of Default.

 

 

7.1    Modification; Construction. No failure to exercise and no delay in exercising any right of Lender hereunder or under any Note shall operate as a waiver hereof or thereof, neither shall any single or partial exercise of any such right preclude any additional or further exercise thereof. The rights of Lender hereunder and under each Note shall be in addition to all other rights of Lender at law and in equity and those arising under any other instrument or other agreement, including the Security Agreement. No modification of any provision of this Agreement or of any Note or of the Security Agreement shall be effective unless made in a writing signed by Lender and Borrower. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. Initially capitalized terms used but not defined in this Agreement shall have the meanings given to them, respectively, in the Note and in the Security Agreement.

 

7.2    Notices. Any and all notices and other communications required or permitted to be given under this Agreement or under any Note shall be given in writing and personally delivered or mailed by prepaid mail or overnight courier to the address of such party as provided at the beginning of this Agreement. Any such notice or other communication shall be deemed to have been given on the date that is: three (3) days after it has been mailed by prepaid certified or registered US Mail; one (1) day after it has been sent by overnight courier; on the same day on which it personally has been hand delivered; and if sent by other means, when actually received. Any party may change its address for notice purposes by giving notice of such change to the other party as provided herein.

 

7.3    Governing Law; Jurisdiction; Forum. This Agreement has been executed, delivered and accepted by Borrower and Lender in the State of Arizona; and the substantive laws of Arizona and the applicable federal laws of the United States of America shall govern the validity, construction, enforcement and interpretation of this Agreement and of each Note. Any suit, action or proceeding against Borrower with respect to this Agreement or any Note may be brought in the Superior Court of Arizona located in Maricopa County, Arizona, or in the United States District Court for the District of Arizona, as Lender, in Lender’s sole discretion, may elect; and Borrower hereby submits to the non-exclusive jurisdiction of such courts for the purpose of any such suit, action or proceeding. Borrower hereby irrevocably waives any objections Borrower may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any Note that may be brought in any such courts, and Borrower further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

 

7.4    No Oral Agreements; Invalid Provisions; Multiple Counterparts. THIS AGREEMENT AND EACH NOTE ISSUED HEREUNDER REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES AFFECTING THE SUBJECT MATTER OF THIS AGREEMENT OR OF THE NOTES OR THE SECURITY AGREEMENT. If any provision of this Agreement or of any Note is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable, and the remaining enforceable provisions shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof; and the remaining provisions shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from the remaining provisions. This Agreement and each Note may be executed in any number of counterparts, and any of the parties hereto may execute the same by signing any such counterpart.

 

 

7.5    Waiver of Jury Trial; Enforcement Costs and Expenses to be Borne by Borrower. Borrower and Lender hereby mutually and irrevocably waive their right to a jury trial of any dispute that may arise out of or in connection with this Agreement, the parties instead irrevocably agreeing that any such dispute shall be resolved by a court of competent jurisdiction sitting without a jury. Borrower agrees to pay all costs of enforcement of this Agreement, including, without limitation, attorneys’ fees and other costs incurred by Lender in addressing its claims against Borrower hereunder, regardless of whether a lawsuit is actually filed; and Borrower agrees to pay all of Lender’s costs of preparation for suit, and proceeding with a suit, plus any and all additional attorney and other fees and costs Lender may incur in any proceeding under any bankruptcy or other similar federal or state law in connection with the obligations evidenced hereby. In the event of any court proceeding, court costs and attorneys’ fees shall be set by the court and not by a jury and shall be included in any judgment obtained by the Lender.

7.6    Binding Effect; Assignable by Lender Only. This Agreement and each Note shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors, assigns and legal representatives; provided, however, that: (i) Borrower shall not, without the prior written consent of Lender, assign any rights, powers, duties or obligations hereunder or thereunder; but (ii) Lender shall be authorized to assign this Agreement and each and every Note to any other person, at Lender’s sole discretion, without the consent of Borrower.

(a)          Nonpayment of principal, interest or other amounts when the same become due and payable hereunder, if the Company does not cure such failure to pay within ten (10) days after the date such payment is due;

(b)          The dissolution, winding-up or termination of the existence of the Company or the sale or disposition of substantially all of the assets of the Company’s business;

(c)          The making by the Company of an assignment for the benefit of its creditors;

(d)          The appointment of (or application for appointment of) a receiver for the Company, or the involuntary filing against or voluntary filing by the Company of a petition or application for relief under federal bankruptcy law or under any similar federal or state law, which is not stayed or dismissed within 90 days of filing, or the issuance of any writ of garnishment, execution or attachment for service with respect to the Company or any property of the Company; or

(e)          Any other material breach by the Company of the terms and conditions of this Note.

(i)            Restricted Securities. This Note is, and the shares of Common Stock issuable upon conversion hereof shall be, "restricted securities" within the meaning of SEC Rule 144 promulgated under the Securities Act of 1933 (the "1933 Act"). Holder acknowledges and agrees that it is acquiring this Note and, upon conversion, the shares of Common Stock, without a view to the public distribution or resale of the Note or such shares in violation of applicable federal or state securities laws.

(ii)           No Registration. This Note has not been, and the shares of Common Stock issuable upon conversion hereof will not be, registered under the 1933 Act or under the securities laws of any other jurisdiction; and therefore, Holder must be able to hold the Note or the shares indefinitely without any transfer, sale or other disposition, unless they are subsequently registered under the 1933 Act and under the securities laws of other applicable jurisdictions or, in the opinion of counsel to the Company, registration is not required under such Act or laws as the result of an available exemption from registration.

(iii)          Legend. There shall be endorsed on the certificates evidencing any shares issued upon the conversion of this Note a legend substantially to the following effect:

(a)          Severability. If any provision hereof is invalid or unenforceable, the other provisions hereof shall remain in full force and effect and shall be construed so as to effectuate the other provisions hereof.

(b)          Amendment. This Note may not be changed, modified or terminated, neither shall any provision of this Note be waived, except by an agreement in writing signed by the party to be charged.

(c)          Binding Nature of Note; Assignment. The provisions of this Note shall be binding upon the Holder and the Company, and shall inure to the benefit of and bind the respective successors and assigns of the Holder and the Company. Neither the Company nor the Holder may assign or transfer this Note or assign or delegate any of his or its respective rights or obligations hereunder without the prior written consent of the other party in each instance.

(h)         Section Headings. The Section headings in this Note are for convenience only; they form no part of this Note and shall not affect its interpretation.

(i)          Number of Days. In computing the number of days for purposes of this Note, all days shall be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday, then the final day shall be deemed to be the next day that is not a Saturday, Sunday or holiday.

(l)          First Priority Security Interest Granted in All the Company’s Assets to Secure Performance. The performance of the Company’s obligations under this Note and under the Loan Agreement have been secured by a first priority security interest granted by the Company to the Holder, as more particularly specified in that certain Security Agreement between the Company and Holder, made and delivered of even date with the Loan Agreement.