EXHIBIT 10.19
LOAN AGREEMENT
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AGREEMENT by and among Inabata America Corporation with an address of
1270 Avenue of the Americas, Suite 2701, New York, New York 10020 (hereinafter
referred to as "Lender"), and Carbite Golf, Inc., a corporation incorporated
under the laws of British Columbia, Canada and Carbite, Inc., a California
Corporation, (hereinafter jointly referred to as "Borrower") with an address at
9985 Huennekens Street, San Diego, California 92121.
WHEREAS Borrower has requested that the Lender provide a Loan to
Borrower in the sum of $650,000.00 for a one-year period;
WHEREAS Lender is willing to lend Borrower said sum under the terms
and conditions of this Agreement;
NOW THEREFORE the parties agree as follows:
1. (a) Upon the execution of this Loan Agreement and the related
Exhibits A-C (the "Loan Documents"), Lender shall lend Borrower by wire transfer
the sum of $650,000.00 to be repaid with interest at the rate of eleven percent
(11%) per annum by Borrower one year from the date of the loan. Borrower shall
execute a Promissory Note substantially in the form of Exhibit "A" annexed to
this Agreement.
(b) The Promissory Note shall give the Lender the option to
convert all or a portion of the sums outstanding, in ten thousand dollar
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denominations ($10,000.00), into common shares of stock of the Borrower at a
conversion rate of fifty cents (50 cents) per share in Canadian dollars
(c) Upon conversion, the holder of the common shares will have
the following registration rights:
(1) Demand Registration. Upon conversion of all or a portion
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of the Note the Lender shall have the option of requiring the borrower
to use its best efforts to file and have declared effective the
appropriate registration statement covering all or portion of the
lenders shares, provided the minimum number of shares covered shall be
one million (1,000,000), so that the respective shares will on longer
be "Restricted Securities" as defined under Rule 144. Lender may
exercise this right no more than once per any twelve (12) month
period. Borrower shall provide Lender with customary indemnification
as well as all other customary rights for such registration
statements.
(2) Piggback registration: The Lender upon conversion of all
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or a portion of the note will be entitled to "piggyback" registration
rights on registrations of the Borrower or on any demand
registrations. Lender shall also be entitled to customary
indemnification and other customary registration rights.
(3) Registration Expenses: All registration expenses
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(exclusive of underwriting discounts and commissions and special
counsel fees of a selling Lender) shall be borne by the Borrower.
(4) Transfer of Registration Rights: The registration rights
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may be transferred to a transferee (other than a competitor of the
Borrower) who acquires at least (25%) of the shares held by a holder
of Common issued upon conversion of all or a portion of the Note.
2. As collateral for the Loan, Borrower shall grant to Lender a
security interest in all its assets. Borrower shall execute the Security
Agreement annexed to this Agreement as Exhibit "B" and the financing statements
in the form annexed hereto as Exhibit "C".
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3. Borrower hereby grants to Lender a royalty of one dollar per club
on Borrower's net sales of "Putterballs" in the Asian market. This royalty shall
continue for a term of one year from the date of the execution of this Loan
Agreement and the Loan documents and in the event that the Loan Agreement and
Loan documents are renewed for additional periods, the royalty shall continue
for all additional periods. The Royalty shall be paid on a monthly basis on the
15/th/ of the month of all sales that are made in the immediately preceding
month. In the event that the Borrower fails to pay the royalty on the 15/th/,
Lender shall be entitled to send the Borrower a Notice of Default giving the
Borrower ten days to pay the respective royalty. Borrower shall submit to Lender
disputes the calculation, Lender shall be entitled to conduct the audit of the
respective sales. In the event that the sales discrepancy is greater than 5%,
Lender shall be entitled to charge the cost of said audit to the Borrower.
4. Carbite and Inabata shall use their best efforts to reach
agreement on mutually accepted terms whereby Inabata will act as a distributor
of Carbite products in certain markets.
5. Borrower hereby grants to the Lender the right of the first
refusal with respect to manufacture of any of the products that the Borrower has
manufactured. Borrower shall notify the Lender of the price, The
specifications, and other terms of its proposed arrangement with manufacturers
and shall give the Lender the right of
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first refusal to manufacture under the same price, specifications, and terms.
This right of manufacturing shall continue as long as the loan shall remain
outstanding. Borrower shall give the Lender sufficient notice of any proposed
manufacturing arrangement in sufficient time for Lender to determine whether it
can provide alternative sources of manufacture. Borrower shall at all times
provide that its Agreement with its manufacturers are terminable at the
Borrower's will, or at the very most terminable no greater than 30 days prior
notice. On the first day of each and every month, Borrower shall notify the
Lender of its manufacturing agreements, and shall advise the Lender of the
price, specifications and other terms under which it is manufacturing the
respective product. Lender shall have the option at any time to notify the buyer
of its election to manufacture under the same price, specifications and terms as
provided by the manufacturer. In the event that the Borrower fails to give the
Lender this notice on or before the first of the respective month, the Lender
shall have the right to serve the Borrower with a Notice of Default giving the
Borrower ten days within which to notify Lender of its manufacturing details. In
the event that the Borrower fails to notify Lender within the time period
provided, the Lender shall be entitled to treat this failure as a default under
this Agreement, entitling the Lender to all of its rights and remedies for
default.
6. Borrower hereby makes the following representations in connection
with this loan:
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a. Corporate Existence and Qualification. Carbite Golf, Inc. is a
corporation duly organized and validly existing under the laws of British
Columbia, Canada. Carbite, Inc. is a corporation duly organized and validly
existing under the laws of the State of California and has the requisite power
and authority to own, lease and operate its assets and properties and to carry
on its business as now conducted. Borrower is qualified or licensed to do
business in each jurisdiction in which the properties owned, leased or operated
by it or the nature of the businesses conducted by it makes such qualifications
or licensing necessary, except where the failure to be so qualified will not,
when taken together with all other such failures, have an material adverse
effect on the business of Borrower.
b. Authority; Approvals; Non-Contravention
(i) Borrower has full corporate power and authority and has
taken all corporate action necessary to enter into this Agreement and the Loan
Documents to which it is a party and to consummate the transactions contemplated
hereby and thereby. This Agreement has been, and the Loan Documents will be,
duly and validly executed and delivered by Borrower and this Agreement
constitutes and the Loan Documents constitute valid and binding agreements of
Borrower enforceable against Borrower in accordance with their respective terms.
(ii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is required
to be obtained or made by or with respect to Borrower in connection with the
execution
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and delivery of this Agreement by Borrower or the performance by Borrower of the
transactions contemplated hereby except for the consent of the U.S. Bank
National Association previously known as "Scripps Bank" and Russell Lewis, which
consents Borrower hereby acknowledges it has received.
(iii) the execution and delivery of this Agreement and the
Loan Documents by Borrower do not, and the consummation by Borrower of the
transactions contemplated hereby and thereby will not, and, the performance by
Borrower of the transactions contemplated hereby will not, violate, conflict
with or result in a breach of any provision of, or constitute a default (or
result in any event that, with notice or lapse of time or both, would constitute
a default) under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, any of
the terms, conditions or provisions of (i) the respective certificates of
incorporation or by-laws of Borrower or any of its subsidiaries, (ii) any
judgment, decree, order or award of any governmental authority applicable to
Borrower or any of its subsidiaries, or any law, rule or regulation applicable
to Borrower or any of its subsidiaries, or any note, bond, mortgage, indenture,
deed or trust, permit, lease, agreement or other instrument to which Borrower or
any of its subsidiaries is now a party or by which Borrower or any of its
subsidiaries or any of their respective properties or assets may be bound or
subject.
c. SEC Reports; Financial Statements.
Borrower has delivered to Lender:
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(i) Form 10-SB initially filed December 29, 1999 and
subsequent amendments thereto and (ii) its quarterly reports on form 10-QSB for
the fiscal quarters ended March 31, 2000, June 30, 2000 and September 30, 2000
respectively, each in the form (including exhibits) filed with the SEC
(collectively, the "Borrower SEC Reports"). Each SEC Report has been prepared
and filed in accordance with all applicable rules and regulations of the SEC and
at the time of its filing was in compliance with such rules and regulations
in all material respects. As of their respective dates, the SEC Reports did 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 under which they were made, not misleading.
(ii) Each of the audited consolidated financial
statements and unaudited consolidated interim financial statements of Borrower
(and the related notes and schedules) included in the SEC Reports presents
fairly, in all material respects, the consolidated financial position of
Borrower and its subsidiaries as of the respective dates thereof and the results
of operations and cash flows for the respective periods set forth therein, in
accordance with GAAP consistently applied during the period involved, except as
otherwise noted therein and subject in the case of the unaudited interim
financial statements, to the omission of certain notes not ordinarily
accompanying such unaudited interim financial statements and to normal year-end
adjustments and any other adjustments described therein.
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d. There has been no event or occurrence since the date of the most
recent SEC Report, or the financial statements contained therein that would have
a material adverse effect upon the Borrower.
e. All the assets of Borrower are owned by it free and clear of any
and all liens, claims and encumbrances, except for the security interest that is
held by U.S. Bank National Association (previously known as "Scripps Bank")
with an initial principal amount of $655,000.00 and a security interest held by
Russell Lewis with the initial principal amount of $250,000.00. That Russell
Lewis has agreed in writing to release the lien and has delivered UCC
Termination Statements to his attorneys.
7. Borrower hereby covenants and agrees as follows:
(a) Borrower hereby agrees not to increase the amount of the Loan that
it has with the U.S. Bank National Association or its successor or assigns and
to pay the Loan and perform its obligations under the Loan Agreement with U.S.
Bank National Association in its ordinary course. Borrower hereby acknowledges
that in the event there is any increase in the amount of the Loan from the U.S.
Bank National Association or its successors or assigns or any default under said
Agreement, that default will be deemed to be a default under this agreement.
(b) Borrower shall pay the royalty on the "Putterball" in accordance
with this Agreement and if Borrower defaults it shall be a default under this
Agreement.
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(c) Borrower shall comply with the provisions of this Agreement
concerning the first right of refusal for manufacture, and in the event that the
Borrower breaches any terms, covenants and conditions of the first right of
refusal to manufacture, it shall be deemed to be a default under this Agreement.
(d) Borrower shall comply with all the terms, covenants and
conditions of the Promissory Note annexed hereto as Exhibit A and the Security
Agreement annexed hereto as Exhibit B. In the event that the Borrower breaches
any of terms, covenants and conditions of either of the Loan Documents, it shall
be deemed to be a default under this Agreement.
(e) Within 20 days from the date of the execution of this Agreement
by Borrower, Borrower shall cause to be filed the appropriate UCC Termination
Statements executed by Russell Lewis so that the only lien ahead of the Lender
shall be the lien in favor of U.S. Bank National Association previously known as
"Scripps Bank" for $650,000.00. In the event that the Borrower fails to file the
termination statement within the twenty (20) day period then that failure shall
be a default under this agreement.
8. In connection with this Loan, Borrower's counsel shall issue an
opinion letter in form reasonably satisfactory to Lender's counsel concerning
the authorization of the Borrower to enter into these transactions, the
enforceability of these transactions, as well as the enforceability of the
security interests granted by Borrower to Lender.
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9. The parties shall be responsible for their own expenses in
connection with the preparation and execution of this Agreement.
10. In the event that the Borrower breaches any of the terms,
covenants and conditions of this Agreement or there is any misrepresentation or
breach of warranty under this Agreement, it shall be deemed to be a default
under this Agreement. It shall also be deemed to be a default under this
Agreement in the event that the Borrower breaches any of the terms, covenants
and conditions, or there are any misrepresentations in the Promissory Note or
Security Agreement.
11. The following shall also be deemed to be "Events of Default".
Borrower fails to pay principal or interest on the Promissory Note when due,
ceases doing business, violates the terms, covenants and conditions in this Loan
Agreement (including but not limited to the Royalty Provision, Manufacturing
Provision and the requirement to file the UCC Termination Statement covering the
lien of Russell Lewis), makes an assignment for the benefit of creditors, admits
in writing its inability to pay its debts as they become due, fails to pay its
debts as they become due, files a voluntary petition in bankruptcy, is
adjudicated a bankrupt or an insolvent, files a petition seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar arrangement under any present or future statute, law or regulation or
files an answer admitting the material allegations of a petition filed against
it in any such proceeding, consents to or acquiesces in the appointment of a
trustee, custodian, receiver or liquidator of
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Borrower or of all or of any substantial part of its assets or properties, or if
it takes any action looking to its dissolution or liquidation, or an order for
relief is entered under the bankruptcy code against Borrower. Within thirty (30)
days after the commencement of any proceeding against Borrower seeking
reorganization, arrangement, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, such proceedings
shall not have been dismissed, or if within thirty (30) days after the
appointment without Borrower's consent or acquiescence of any trustee,
custodian, receiver or liquidator of it or of all or any substantial part of its
assets and properties, such appointment shall not be vacated.
12. Borrower (i) waives diligence, demand, presentment, protest and
notice of any kind, (ii) agrees that it will not be necessary for any holder
hereof to first institute suit in order to enforce payment of the Promissory
Note and (iii) consents to any one or more extensions or postponements of time
of payment, release, surrender or substitution of collateral security, or
forbearance or other indulgence, without notice or consent. The pleading of any
statute of limitations as a defense to any demand against Borrower is expressly
hereby waived. Upon any Event of Default Lender shall have the right but not the
obligation to set off against the Promissory Note all money owed by Lender to
Borrower.
13. Lender shall not be required to resort to any Collateral for
payment, but may proceed against Borrower in such order and manner as Lender may
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choose.
14. Any Notices that are required or permitted under this Loan may be
sent to the address of the party as it appears in this Agreement by either
Certified Mail, Return Receipt Requested or by Federal Express. In the event
that it is sent by Certified Mail, Return Receipt Requested the Notice shall be
deemed to have been given three (3) days after same has been sent and in the
event that the Notice has been sent by Federal Express the Notice shall be
deemed to be given one (1) day after it has been sent.
15. This Agreement, the Note, and the Security Agreement shall be
governed by and construed in accordance with the laws of the State of New York
and shall be binding upon the successors and assigns of Borrower and inure to
the benefit of Lender and its successors, endorsees and assigns.
16. Borrower hereby waives the right to trial by jury and any and all
rights of set off and rights to interpose counterclaims and cross claims in any
litigation or proceeding arising in connection with the loan. Borrower hereby
irrevocably consents to the non-exclusive jurisdiction of the Supreme Court of
the State of New York and of the United States District Courts in the State of
New York for all purposes in connection with any action or proceeding arising
our of or relating to this Loan, and further consents that any process or notice
of motion or other application to said Courts or Judge thereof or any notice in
connection with any proceeding hereunder may be served (i) inside or outside the
State of New York by
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registered or certified mail return receipt requested and service or notice so
served shall be deemed complete five (5) days after same shall have been posted,
or (ii) such other manner as permissible under the rules of said Courts. Within
thirty (30) days after such mailing, Borrower shall appear in answer to such
process or notice of motion or other application to said Courts, failing which
Borrower shall be deemed in default and judgment may be entered by Lender
against Borrower for the amount of the claim and other relief requested therein.
17. Failure by the Lender to insist upon the strict performance by
Borrower of any terms and provisions herein shall not be deemed to be a waiver
of any terms and provisions herein, and the Lender shall retain the right
thereafter to insist upon strict performance by the Borrower of any and all
terms and provisions of this Loan or any document securing the repayment of this
Loan.
18. Remedies:
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In the event of a breach of this Agreement, the Promissory Note, or
the Security Agreement, Lender shall be entitled to immediately demand full
payment of the Loan; shall be entitled to interest at the default rate provided
under the Promissory Note; shall be entitled to foreclose on the Security
Agreement. All such rights are cumulative and not exclusive of any other rights,
powers, and remedies which Lender might otherwise have. Lender may exercise
these rights simultaneously, alternatively or successively and said rights shall
be in addition to all other rights that are available to Lender in law or
equity. Borrower shall also be
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responsible for all of Lender's costs and expenses, including but not limited to
reasonable legal fees in connection with the enforcement of this Loan Agreement,
the Promissory Note, or the Security Agreement.
19. This Loan shall be renewed for additional one-year periods unless
either party notifies the other at least 30 days prior to the maturity date of
its election not to renew said loan.
20. Lender shall also have the option of increasing this Loan in
fifty thousand dollar increments ($50,000.00) to two million dollars
($2,000,000). In such event that Lender elects to lend additional monies to
Borrower, then in such case, the terms, covenants and conditions of this Loan
Agreement, the Promissory Note and the Security Agreement shall apply to the
additional sums lent by Lender to Borrower. Said rights shall include the
conversion and the registration rights provided in this Agreement and in the
Promissory Note as well as all other rights and remedies provided in this
Agreement, the Promissory Note, and the Security Agreement.
21. MISCELLANEOUS
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a. In the event that any portion of this Agreement can be
construed in two ways, one of which would render the Agreement or any portion
thereof illegal and unenforceable the other one of which would render the
Agreement or any portion thereof valid and enforceable such provision shall have
the meaning which renders it valid and enforceable. It is the desire and intent
of the parties that this Agreement be enforced to the fullest extent permitted
by law. In
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the event any portion of this Agreement is deemed invalid or unenforceable under
New York law but valid under the laws of the State in which Borrower's business
is conducted, the provision shall be governed by the law of such state. In the
event that any Court determines any portion of this Agreement is unenforceable
the parties agree that the portion of this Agreement shall be amended only in
such a manner so that the provision shall be enforceable to the fullest extent
possible under the laws and public policy in which the enforcement is sought.
Furthermore, the provisions of this Agreement are severable and any completely
invalid or unenforceable portion of any provisions of this Agreement shall be
deleted and partially valid and enforceable provisions of this Agreement shall
be enforced to the fullest extent possible.
b. The failure of any party to insist in any one or more instances
upon a strict performance or observation of any of the terms, provisions, or
covenants as the aforesaid Agreement or to exercise any right therein contained
shall not be construed or deemed to be a waiver or relinquishment for the future
of any such term, provision, covenant or right, but the same shall continue and
remain in full force and effect.
c. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and to their heirs, devises, legatees, personal
representatives, successors and assigns.
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d. This Agreement contains the entire understanding between the
parties hereto in connection with the subject matter hereof, there being no
terms, promises, covenants, agreements, conditions, warranties or
representations other than those herein contained, and no amendments thereto
shall be valid unless made in writing and signed by all parties hereto.
e. Each party hereto agrees to perform any further acts and to
execute and deliver any documents that may be reasonably necessary to carry out
the provisions of this Agreement.
f. This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
g. All notices required or permitted to be given under this
Agreement shall be in writing and deemed given if served personally or, if sent
by certified mail, return receipt requested, to the address of the recipient of
such notice provided in this Agreement. Each party hereto is deemed to have an
obligation to advise the other its current address.
h. The obligations of Carbite Golf, Inc. and Carbite, Inc. are joint
and several obligations.
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IN WITNESS WHEREOF, the parties have set their hand and seal as of this 23
day of March, 2001.
CARBITE, INC.
By: /s/ John Pierandozzi
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John Pierandozzi, President
CARBITE GOLF, INC.
By: /s/ John Pierandozzi
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John Pierandozzi, President
INABATA AMERICA CORPORATION
By: /s/ Isao Abe
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Isao Abe, President
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