EXHIBIT 4.1
INTERNATIONAL FOREX FINANCE GROUP, LTD.
16350 Park Ten Place Suite 100-25
Houston, TX 77084
MASTER AGREEMENT TO PROVIDE FINANCING
AND CUSTODIAL SERVICES
This Master Agreement (hereinafter "Agreement") is entered into on this 24th
day of February, 2002 between International Forex Finance Group, Ltd., located
in Hamilton, Bermuda with offices in Houston, Texas ("IFF") and Upgrade
International Corporation ("Upgrade"), located at, 1411 Fourth Ave., Suite 629;
Seattle, Washington 98101 ("Client"). This Agreement is entered into between
the parties for the purpose of engaging IFF to provide, syndicate, or arrange
one or more financings or fundings and, to provide custodial or sub-custodial
services, with respect to certain assets ("Securities") or other collateral
which is to be pledged or hypothecated, in favor of IFF, the details of which
and itemizations are to be set out in one or more term sheets attached hereto as
Schedule "A", "B", "C", etc., (as needed).
1. SERVICES TO BE PROVIDED BY IFF: IFF is hereby appointed as Custodian,
Conservator, or Executing Manager of and for the Collateral and as such is
authorized to act on behalf of the Client with respect to all or any
portion of the Collateral for the purpose of:
a) Providing or arranging financing for the benefit of the Client as
derived from one or more fundings (the "Funding") or loans (the
"Loan(s)") to be entered into in accordance with terms agreed upon by
those parties as such are set out in the term sheets attached hereto
by Schedule.
b) Holding cash, securities, or other collateral assets (the "Collateral
Assets") on behalf of the Client in whatever form and fashion that is
acceptable to IFF and the Investor pursuant to the nature of the
transaction and the form of collateral presented by the Client.
c) Allocation of voting shares, coupon income, dividends received, or
interest remitted on Securities held as collateral.
AMOUNT & TERMS OF FINANCING: The terms of each funding are herein contained in
the attached Schedules. The exact amounts received by the Client are predicated
upon a loan-to-value consideration, a fair market value, an exchange traded
value, or an Over the Counter value as negotiated by IFF pursuant to market due
diligence. The net proceeds from the funding, if any, may be distributed at one
time or on sequential dates, as instructed by the Issuing Paying Agent.
2. FUNDING OF TRANSACTION (S): The contemplated transaction will be funded
according to the terms identified in one or more term sheets, which will be
labeled as Schedule A, B, C, etc., individually numbered and signed by both
parties, and, on upon proper execution, will be considered a part of and
will be merged into this Master Agreement as if set forth herein to the
exact detail as is represented therein without exception or reservation of
any sort or kind. Client understands and acknowledges that by transferring
securities as collateral to IFF under the terms of this Agreement, that the
Client gives IFF and/or its assignees the right, without requirement of
notice to or consent of the Client, to assign, transfer, pledge, repledge,
hypothecate, rehypothecate, lend, encumber, short sell, sell outright,
swap, trade, or consign some or all of the Collateral during the period
covered by the funding. The Client understands that IFF and/or its
assignees have the right to receive and to retain or allocate some or all
of the benefits from any such transactions, and that the Client is not
entitled to certain of these benefits during the term of the funding. The
Client agrees to assist the relevant entities in completing all requisite
documents that may be necessary to accomplish such transfers, conveyances,
or registrations.
3. RETURN OF COLLATERAL: IFF agrees to return, at the end of the term, the
same number of shares, the equivalent volume of tangible collateral, or the
same tenor of fixed income Securities as it received initially, as depicted
herein above, and upon retiring or setting off the obligation(s) incurred
in their entirety, then at such time and as soon as is practical they shall
return the collateral to the Client, save and except in any instance of
superior rights, warrants, options or splits, dividends, or coupon
collected against interest due or applied as one or more set offs, after
reconciling any and all net effects realized upon the Collateral which has
or may result from any merger, acquisition, bond call, refunding bond,
stock repurchase, exchange offer, conversion right, redemption right,
upstream processing, refining, enrichment, or voting right exercise or
non-exercise privilege for which any and all such rights as may exist shall
go hand and hand with the collateral and shall survive any closing.
4. REGISTRATION AND SUBCUSTODIANS: IFF may deposit or transfer any or all of
the collateral, Clients Assets, or Securities i) with any domestic or
foreign depository institution, safekeeping repository, or SRO clearing
corporation or electronic safekeeping system operator that provides
handling, clearing, settlement, or safekeeping services provided that the
collateral is deposited in insured accounts; ii) with the issuer of a
security if such security is in non-certificate form; iii) with any
domestic or foreign depository or repository institution acting as a
sub-custodian provided the Collateral is held in insured accounts; and IFF
will pay the fees and expenses related to such safekeeping, custodial,
settling, and clearing services.
5. CLIENT REPRESENTATIONS AND WARRANTIES: Client agrees to provide any and all
information deemed necessary in order to consummate the contemplated
transactions or series of transactions in a timely, complete, and accurate
manner and such obligations have been irrevocably expressly agreed upon
between the parties herewith. Client further represents and warrants to IFF
and its assignees, if any, that the Collateral submitted herewith is duly
owned and titled in the name of the Client(s), or is owned and titled in
fee simple, that such Collateral is freely transferable, and that any and
all liens, claims, or encumbrances that may now or has heretofore arisen
against the Collateral have been previously discharged, removed, released,
or waived and notice of such has been disclosed to IFF under express
writing, without exception or reservation of any sort or kind and that any
and all such notices were presented and provided to IFF prior to
consummating any proposed funding transaction(s). Client further warrants
to forever defend fee simple title to certain Collateral against any third
party claiming or asserting a superior claim of ownership. Client expressly
warrants that any and all financing statements, pledge agreements, security
agreements, assays, deeds, certificates of title, and associated financing
documents presented or provided in connection with this application and its
separate parts or attachments including any other financial applications
submitted as a result of this application are and do not contain any
material misrepresentations of facts or fail to state a material fact which
in light of the manner in which such documents are delivered by the Client,
would when relied upon subsequently be found to be misleading, immaterial,
or omissive. The Client warrants that any and all representations given or
offered are true and accurate statements of fact, and that the client has
not omitted stating a material fact or failed to present as fact any
material statement or failed to provide evidence that in light of such
prior facts or evidence presented by them are no longer true and not
misleading or untrue. Client warrants that title to any and all Securities
presented herein and herewith are held free and clear and hereby warrant
and declare that they are the true and rightful owner of such, or have and
will legally procure title to such Collateral free and clear of any and all
ICC or UCC filings, save and except as has been represented to IFF by
express writing but in any and all instances prior to any funding. Client
warrants that any and all loan proceeds if any, received by them will not
be used to purchase margin stock pursuant to Regulation U of the Federal
Reserve Board of Governors of the United States.
6. INDEMNITY: IFF makes no warranties regarding their ability to find, and
enter into transactions with a US cash funder, investor, or counterparty
for every security or collateral presented by the Client. Final terms for
each traunche of securities or collateral presented to IFF may be subject
to a separate pledge agreement, a separate security agreement, a
remarketing agreement, a hypothecation, or forward delivery agreement and
as such funds derived therefrom may be tendered or remitted upon demand by
IFF pursuant to separate terms of this Agreement.
7. MARK TO MARKET: IFF makes no warranties regarding their ability to mark to
market certain Collateral presented by the Client or Collateral proposed
for substitution for other Collateral, which has previously been delivered
by the Client to IFF. As such IFF represents that there are times when
certain markets are illiquid or instances where there are no regional,
global, or domestic exchanges, which post a nominal "fixing" price for
specific, Collateral posted by the Client. As such and during any such
instances of government intervention i.e. "suspended market trading" IFF
can and will rely upon its own independent information which it in "good
faith" believes to be accurate with regard to the fluctuation in the daily
fair market value of the Collateral. Client will in certain instances be
required to post additional Collateral or enter into arrangements with IFF
to hedge such exposures.
8. LAW TO APPLY: This Agreement shall be construed by and subject to the most
recent edition regarding the laws establishing the Uniform Commercial Code
and the International Commercial Code as implemented by the United Nations
for conducting domestic or foreign financial enterprises.
9. PARTIES BOUND: This Agreement shall be binding upon and inure to the
benefit of the parties hereto and to their respective heirs, executors
administrators, legal representatives, successors, and or assigns except as
otherwise expressly provided herein.
10. TIME IS OF THE ESSENCE: Time is of the essence in all material matters to
this Agreement.
11. FURTHER ACTS: In addition to the acts contemplated herein, the parties
hereto agree to perform or cause to be performed, any and all such further
acts including but not limited to; a) entering into currency exchange
transactions if cross border Collateral or US dollar transactions are to be
settled in the host currency, engaging in one or more credit derivative
transactions with banks, broker dealers or national exchange members, to
include entering into hedging transactions for the underlying Collateral
with investment grade rated and non-investment grade rated counterparties
either as exchange traded or as Over The Counter contracts as may be deemed
reasonably necessary in the sole opinion of IFF in order to consummate the
funding transactions and mitigate the cross border risks, if any,
contemplated hereby.
12. RECONCILIATION OF DISPUTES: The parties to this Agreement and their
respective employees, officers, principals, directors, attorneys, and
agents hereby agree to submit to arbitration any claims, disputes, and
controversies, between them relating to this agreement. It is further
agreed that such arbitration shall proceed by electronic means or face to
face in accordance with United Nations INCO terms. Each party shall bear
its own costs and expenses and an equal share of the fees of arbitration.
The prevailing party in such arbitration if any, shall not incur any other
costs of appeal. If both parties deadlock or a decision is not reconciled
within 90 days from the start of arbitration the arbitration may be
terminated and the matter adjudicated in a court of competent jurisdiction.
13. GENERAL: This Agreement constitutes the sole agreement of the parties
hereto and supersedes any and all prior understandings between the parties
whether written or oral respecting the subject matter of this Agreement.
This Agreement may be amended in whole or in part by a memorandum of
understanding between the original parties to this Agreement provided, that
such amendment or modification is reduced to a formal writing and that such
memorandum is signed and exchanged between the undersigned within 30 days
of the original presentment. This Agreement may be terminated by either
party at any time prior to a funding, in whole or in part and cash settled
or set off against any other credit previously extended between the parties
to cover any other obligations arising between the parties. Signed copies
of this Agreement and other related documents may be transmitted by
facsimile or electronic mail and, upon receipt, shall be treated as
originals and shall be construed as legally binding upon the parties upon
their formal acknowledgement in writing of same. The parties have not
relied upon any other representations, warranties, collateral agreements or
conditions, which affect this Agreement other than as expressed herein and
in the attached schedules hereto.
14. NOTICES; Any notice required to be given or delivered hereunder by either
party to their counterparty may be effected verbally or in writing and, if
verbal, shall be confirmed in writing within twenty-four hours by facsimile
or by overnight mail. The Client's official address and telephone numbers
for notifications regarding this Agreement and related transactions are:
Upgrade International Corporation
Daniel S. Bland, Chief Executive Officer
& Howard A. Jaffe, Chief Operating Officer
1411 Fourth Ave., Suite 629
Seattle, Washington 98101
(206) 903-3116
dbland@upgd.com
hjaffe@upgd.com
International Forex Finance Group, Ltd.
16350 Park Ten Place
Suite 100-25
Houston, TX 77084
(281) 561-6589
(281) 631-6135 Fax
forex@pdq.net
CANTRUST
C/o Mr. Bruce Youb
3352 11215 Jasper Ave
Edmonton Alberta Canada
T5K 0L5
__________________________________
For: International Forex Finance Group, Ltd.
Houston, Texas
_______________________________
Name Mark Alexander
For: International Forex
Finance Group, Ltd.
Houston, Texas
For: Upgrade International Corporation
Seattle, WA 98101
/s/ Daniel S. Bland
----------------------------------------
Name: Daniel S. Bland, Chief Executive Officer
/s/ Howard A. Jaffe
----------------------------------------
Name: Howard A. Jaffe, Chief Operating Officer
Date: February 24, 2002
SCHEDULE "A"
This Schedule A (Loan number: UPGD711), dated 01/23/02 is executed in connection
with that certain Master Agreement to provide Financing and Custodial Services
entered into between Mark Alexander of International Forex Finance Group, Ltd.,
("IFF") and Daniel Bland of Upgrade International, Corp., on or about 01/23/02.
1. Collateral: Schedule "B" (attached).
2. Estimated Value: Schedule "B" (attached).
3. Anticipated Loan Funding: 20% of market value at closing 144A.
4. Interest Rate: 11% compounded annually, payable quarterly
accruing until due at maturity. Interest
only payment capitalized with interest
for first 12 quarters.
5. Cash vs. Accrual: Dividends applied against interest due,
balance if any until maturity date.
6. Term: 7 years. Starting from date proceeds delivered.
7. Amortization: None, Principal and interest due as per
schedules
8. Prepayment Penalty: 3 year lockout.
9. Margin: Funding strategy; imbedded bond
swap; 6 month rolling costless collar
or straddle European style; Index
Options or straddle with put option;
Marked to future market. ISDA master
agreement. Cash out fees and
commissions.
10. Non-Callable: Lender(s) may not call loan prior to
maturity.
11. Recourse: Limited recourse to Borrower, interest
only payment obligation upon syndicate
approval; 144A securities may be
substituted and released back to
Borrower after 18 months if no late
pays. Borrower retains right to
substitute at any time or from time
to time during term of loan. Rights
on Default specified on Schedule "D"
attached.
12. Extension: Renew at Borrower's request for an
additional term, prior to the
maturity date, within existing
parameters. Renewal fee and
commitment fee to IFF, split
origination fee by Issuing Paying
Agent (CANTRUST).
13. Closing: After receipt of custody deposit and
upon placement of loan syndicate with
hedging. Termination fee payable only
upon premature withdrawal.
14. Equity Placement Upgrade agrees to the placement of
5,000,000 of Upgrade Stock as designated
by IFF. The Shares to be subscribed to at
market or above, in accordance to the
terms contained in term sheets attached
to this schedule identified as
schedule A, B, C etc
For: International Forex
Finance Group, Ltd.
Houston, Texas
By:
-----------------------------
Name:
---------------------------
Date:
---------------------------
For: Upgrade International Corporation
Seattle, Washington 98101
/s/ Daniel S. Bland
----------------------------------------
Name: Daniel S. Bland, Chief Executive Officer
/s/ Howard A. Jaffe
----------------------------------------
Name: Howard A. Jaffe, Chief Operating Officer
Date: February 24, 2002
SCHEDULE "B"
COLLATERAL DESCRIPTION
This Schedule B (Loan number UPGD711), dated 02/24/02 is executed in
connection with that certain Master Agreement to provide Financing and Custodial
Services entered into between Mark Alexander of International Forex Finance
Group, Ltd., ("IFF") and Daniel Bland of Upgrade International, Corp on or about
02/24/02, including Schedule A, Collateral Description and Schedule; Schedule C,
ACH Agreement D, Default and Restrictions.
Collateral: Issued under rule 144A, 3 Year Restricted securities.
40,000,000 Shares Upgrade International Common Stock
Estimated market value 2 years subject to pricing; terms and
Restrictions on Schedule D
Free Trading shares: REG D (506) Private Placement 5,000,000.
144A CUSIP: 915301 40 2
144A ISIN: US9153014025
COMMON CUSIP
COMMON ISIN:
NOMINEE/BROKER/OTHER: Bear Stearns; Pershing DLJ; Chase Jardine Fleming
CUSTODIAN/SUBCUSTODIAN: INTERNATIONAL FOREX FINANCE GROUP, LTD.
TO IFF ACCOUNT NO:
DTC: EUROCLEAR/CLEARSTREAM: CEDEL: INDEVAL:
SHARES FORWARDED TO SUBCUSTODIAN: 00057941
NOTE: TO SATISFY AND RETIRE IRREVOCABLE INSTRUCTIONS.
CURRENCY: US DOLLAR
FUNDS FROM IFF TO: Boston Safe Deposit & Trust
ACCOUNT #: LOMF0001002
BIC:
ROUTING NUMBER:
ABA NUMBER:
INSTRUCTIONS:
Upon receipt of the special collateral with associated existing debt of $(n/a)
if any, you are directed to transfer from separate Accounts #_(attached)_ into
International Forex Finance Group, Ltd.'s, DTC Account # 00057941 the above
share certificates. You are further instructed to issue an acknowledgment to
IPA: CANTRUST upon transfer of the indicated amount of shares or funds minus
existing debt if any, or IFF will return the indicated amount of collateral
in-total and the debt associated if any, to the denominated Accounts #
__(attached)__. IFF will issue an advise not later than the 14th Business Day
after the receipt of substitute shares as to which of the two alternatives to
exercise; You are also authorized to inform Mr. Daniel Bland of Upgrade
International, Corp., that you have received this instruction.
Sincerely,
G. S. Brar
Director Operations
Sworn to before me this __________ day of __________________ 2002:
SEAL
SCHEDULE "C"
IPA AGREEMENT
ACH AGREEMENT - EXECUTED BETWEEN COMPANIES
This Agreement, dated as of February 24, 2002, is between Upgrade International
Corporation ("Originator") and Cantrust and/or Master Agent Bruce Youb
("Recipient"), as Issuing Paying Agent for International Forex Finance Group
LTD. ("IFF") pursuant to that certain Master Custodial Agreement and obligations
relating thereto.
RECITALS
A. Recipient wishes to have Originator initiate Credit Entries to its account
specified below (the "Account") in payment of obligations as scheduled in the
Master Custodial Agreement owed by Originator to Recipient pursuant to the terms
of this Agreement and the ACH Rules relating to Corporate Trade Payment Entries
(the "Rules") and the Master Custodial Agreement to Provide Financing and
Custodial Services dated February 24, 2002 (the "Financing Agreement") and
Originator is willing to initiate such Entries on the terms set forth below.
B. Unless otherwise defined herein, capitalized terms shall have the meanings
provided in the Rules.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained herein,
Originator and Recipient agree as follows:
1. Authorization. Subject to the terms set forth below, Recipient authorizes
Originator to initiate Credit Entries to the Account in accordance with the
Rules for obligations owing from time to time by Originator to Recipient
resulting from loan obligations and payments of interest and/or principal
relating thereto as scheduled in the Master Custodial Agreement.
2. Authorization Limitations; Procedures. No Entry shall be initiated under this
Agreement except in conformity with the authorization provided above. In
accordance with the attached Master Custodial Agreement to Provide Financing and
Custodial Services, including all schedules thereto relating to loan terms and
conditions. Pursuant to these Agreements, a quarterly Entry shall be initiated
in an amount equal to the aggregate payment under the Agreement, which will be
further evidenced by way of a schedule incorporated by reference described as
the schedule(s). No single Entry initiated under this Agreement shall be in
excess of the amount due under the agreements (Schedule attached).
3. Originators Failure to Originate. With the exception of the interest
capitalization period, this event would be considered a default under the terms
of the Master Custodial Agreement and all Collateral would be deemed payment for
all outstanding obligations. Recipient shall not be deemed to default on any
obligation or suffer any loss of discount or other penalty by reason of the
failure of Originator to initiate any Debit Entry in accordance with the terms
of this Agreement, or by reason of any delay in receipt by Recipient's financial
institution, or the nonreceipt by such institution of any Debit Entry initiated
by Originator.
4. Compliance with Rules. Recipient shall comply with and be bound by the Rules
as in effect from time to time.
5. Acceptance and Return of Entries. Nothing contained herein shall be deemed to
require Recipient or its financial institution to accept any Entry initiated
under this Agreement, and any such Entry may be returned in accordance with the
Rules. Recipient shall not be deemed to have accepted any Entry that is returned
in accordance with the Rules. Originator shall not be deemed in default on any
obligation or suffer any loss of discount or other penalty by reason of the
return of any Entry, provided such Entry was initiated in accordance with the
terms of this Agreement. Notwithstanding any statement contained in any Entry or
any data transmitted with any Entry, and notwithstanding the failure to return
any Entry in accordance with the Rules, Recipient shall not be deemed to have
accepted any Entry as being in the correct amount if, within 3 days after
receipt of the Entry by its financial institution, Recipient provides written
notice to Originator of a discrepancy.
6. Credit for Entries. Unless such Entry is returned in accordance with the
Rules, Recipient shall, as of the date the amount of such Entry is credited to
the Account, credit Originator with the Amount of each Entry received and
interest or other charges payable with respect to the amount of such Entry shall
cease of the time. Unless such Entry is returned in accordance with the Rules,
Originator shall, as of the date of such Entry is credit to its Account with its
financial institution, credit Recipient with the amount of each Entry received.
7. Entry Information. Each Entry initiated under this Agreement shall be
accompanied by the following information: a letter detailing the payment being
made and the allocation toward principal and interest then outstanding pursuant
to the Financing Agreement.
8. Recipient's Account. The Account is the following deposit Account maintained
by Recipient:
Financial Institution: US BANK
Account Number:
Bank of Location: Blaine, Washington
Telephone No.: 360-332-5811
If Recipient is a natural person, Recipient represents to Originator that the
Account is, and during the term of this Agreement, will be, maintained primarily
for business, and not for personal, family, or household purposes.
9. Questions and Errors. In the event of any questions or error relating to
Entries initiated pursuant to this Agreement, Recipient should contact Mr.
Howard A. Jaffe, Upgrade International Corporation, and Originator should
contact Bruce Youb, Cantrust.
10. The Financial Institution's security procedures shall include the
determination of certain exposure limits which includes, but may not be limited
to (1) the value of ACH files, (2) the value or number of individual ACH
entries, (3) the frequency of origination of ACH files and (4) the consideration
of exposure over multiple settlement dates. The Company shall comply with
exposure limits established by the Financial Institution in accordance with the
attached Schedule. The Financial Institution is responsible to notify the
Company of exceptions and to periodically review such established exposure
limits.
11. The Company shall notify the Recipient of any reversing entry initiated to
the Recipient's account to correct an entry it has initiated in error. The
notification to the Recipient must include the reason for the reversing entry
and must be made no later than settlement date of the reversing entry.
12. It shall be the responsibility of the Company that the origination of ACH
transactions complies with U.S. law. This includes, but is not limited to the
sanctions enforced by the Office of Foreign Assets Control (OFAC).
13. Liabilities of Parties. Neither Originator nor Recipient shall be liable for
the act or omission of any Automated Clearing House, financial institution, or
other person.
14. Notice. Any written notice or other written communication required or
permitted to be given under this Agreement shall be delivered, or sent by U.S.
registered mail, postage prepaid, and, if to Originator, addressed to:
Upgrade International Corporation
Attn: Howard A. Jaffe
1411 Fourth Ave Suite 629
Seattle USA 98101
and, if to Recipient, addressed to:
Cantrust
C/o Suite 3352 11215 Jasper Ave
Edmonton, Alberta
T5K 0L5
Canada
Unless another address is substituted by notice delivered or sent as provided
herein. Any such notice shall be deemed given when so delivered or sent by
registered mail.
15. Termination. This Agreement may not be terminated by Originator or
Recipient at any time so long as there is a principal or interest balance
outstanding under the Financing Agreements between Upgrade International
Corporation and International Forex Finance Group, Ltd et al.
16. Notice of Accounts. Originator will notify in writing Recipient within 5
days when or if Originator has opened another checking or operating account with
a financial institution and will promptly provide Recipient sufficient
information such that Recipient would be able to effect an Entry similar to that
described in this agreement, should, for any reason, such an Entry not be
possible on the account set forth above.
17. Disclosure of accounts. IFF or Cantrust can request in writing or
facsimile form any and all banking information to maintain an active monitoring
of the Originator. Originator will respond within 7 business Days.
18. Failure to disclose accounts. This event would be considered a default
under the terms of the Master Custodial Agreement and all collateral would be
deemed payment for all outstanding obligations. This document will serve as
written permission to any banks/institutions to disclose all activities and
transaction details.
19. Minimum Account Balance. For as long as funds are advanced from IFF
during the interest capitalization period, Originator will maintain one
quarterly payment on the account # at US Bank
20. Failure to maintain Minimum Account Balance. With the exception of the
interest capitalization period, this event would be considered a material
default under the terms of the Master Custodial Agreement and all Collateral
would be deemed payment for all outstanding obligations.
21. Filing. The originator will cause all required filings to be completed
and recorded as if time were of the essence.
22. This document will serve as written permission to any banks/institutions
to disclose all activities and transaction details to International Forex
Finance Group, Ltd. or Cantrust.
The above representing the agreement of the parties and the parties agreeing to
be legally bound.
For: Cantrust
Edmonton, Alberta
Canada
By:
-----------------------------
Name:
---------------------------
Date:
---------------------------
For: Upgrade International Corporation
Seattle, WA 98101
By: /s/ Daniel S. Bland By: /s/ Howard A. Jaffe
-------------------- ------------------------
Name: Daniel S. Bland, CEO Name: Howard A. Jaffe, COO
SCHEDULE "D"
ISSUANCE, DEFAULT AND RESTRICTIONS
THIS SCHEDULE D (LOAN NUMBER: UPGD711), DATED FEBRUARY 24, 2002 IS EXECUTED in
connection with that certain Master Agreement to provide Financing and Custodial
Services (the "Master Agreement") entered into between Mark Alexander of
International Forex Finance Group, Ltd., ("IFF") and Daniel Bland of Upgrade
International, Corp on or about 5/8/01, the Schedule "A", Collateral Description
------------
with Terms, dated February 24, 2002, and the Schedule "B", Collateral
-------------
Description, dated February 24, 2002.
1. RIGHTS AND PREFERENCES: As long as no occurrence of default, as described
in this schedule "D" has occurred, any registered holder of the shares
issued under this agreement, shall immediately and without reservation,
upon effective receipt of any proxy materials, but no later than two
business days prior to any meeting of shareholders requiring a vote, grant
a voting proxy to Upgrade International's Chief Executive Officer and Chief
Operating Officer who together will vote the shares represented by proxy,
present for any meeting, and vote shares -- any proportion in the same
proportion as the total voting shares received from all other shareholders
bears to the aggregate of all shares outstanding.
2. ISSUANCE AND RESTRICTIONS: Borrower shall comply with the Company's
Articles of Amendment with the Secretary of State of Washington to issue
40,000,000 common shares under Rule 144a, and 5,000,000 shares issued under
REG D (506) Private placement to be held as Collateral in order to secure
Borrower's financial performance under Loan number UPGD711.
Custodial Agent acknowledges that the 40,000,000 shares of Restricted
Common Stock issued under rule 144a are US restricted securities, and that
the share certificates will be imprinted with a legend indicating that
their transfer is restricted under applicable securities laws. Borrower
understands and acknowledges that Custodial Agent intends to assign,
transfer, pledge, repledge, hypothecate, rehypothecate, lend, encumber,
short sell, sell outright, swap, trade or consign some or all of the shares
in transactions with Qualified Institutional Buyers or that qualify under
the safe harbor provided by Rule 144A under the Securities Act. Registrar
agrees to record such transfers of interest as may be made pursuant to the
exemption provided by Rule 144A, without requirement of Borrower's advance
notice or consent; provided that the documentation accompanying certain
transfers may include an opinion of counsel reasonably acceptable to
Financial Intermediary (both as to the identity of counsel and the
substance of the opinion) that any distributions qualify for the holding
periods required under Rule 144A of the 1933 Securities Act.
Custodial Agent agrees that all transfers of shares shall be made in
compliance with applicable laws, including the 1933 Securities Act, and the
terms of the Financing Agreements to be construed en para material.
Custodial Agent understands and acknowledges that the share certificates
representing the 40,000,000 shares of stock will be imprinted with a
restrictive legend.
3. CREDIT AGREEMENT: Borrower and IFF, s, shall enter into that certain CREDIT
AGREEMENT (the "Credit Agreement"), of even date herewith, among Borrower,
the Debt Securities Holders party thereto, Syndicate Participants, Note
Holders, Bond Holders, and Debt Holders the LENDERS party thereto,
International Forex Finance Group, Ltd., as "Custodial Agent", CANTRUST, as
"Securities Intermediary" or "Issuing Paying Agent", with International
Forex Finance Group, Ltd., as "Administrative Agent" or "Financial
Intermediary". The Credit Agreement (which defined term shall include all
agreements entered into in connection therewith) shall in all respects be
subordinate to the Master Agreement, and the Credit Agreement's provisions
shall not become operative until (a) such time as a Default shall have
occurred under this Schedule D, and ---------- (b) during the continuance
of such Default, the Administrative Agent (as defined thereunder) shall
have notified Borrower in writing that the provisions of the Credit
Agreement shall become operative, and (c) that a Material Adverse Credit
Event has, will, or may occur in the opinion of the IPA.
4. MONETARY EVENT OF DEFAULT: Any of the following credit events shall
constitute a "MONETARY EVENT OF DEFAULT": (a) Borrower shall fail to pay
any principal or interest when due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof; (b) an involuntary
proceeding shall be commenced or an involuntary petition shall be filed
seeking (i) liquidation, reorganization or other relief in respect of the
Parent, the Borrower, a Co-Borrower or any pledgor of Collateral or its
debts, or of a substantial part of its assets, under any federal, state,
regional or foreign bankruptcy, insolvency, receivership or similar law now
or hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Parent,
the Borrower or any pledgor of Collateral or for a substantial part of its
assets; and, in any such case under either clause (i) or (ii), such
proceeding or petition shall continue undismissed for 120 days or an order
or decree approving or ordering any of the foregoing shall be entered; or
(c) the Parent, the Borrower, a Co-Borrower or any pledgor of Collateral
shall (i) voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to contest
in a timely and appropriate manner, any proceeding or petition described in
clause (b) of this Article, (iii) apply for or consent to the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar
official for the Parent, the Borrower, a Co-Borrower or any pledgor of
Collateral or for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of creditors
or (vi) take any action for the purpose of effecting any of the foregoing.
4a. SOFT DEFAULT: A soft default is; (a) whenever the amount funded under the
Loan Agreement exceeds 20% of the market value (based upon daily closing
price) of the price of the Series "A" common stock of the Corporation or
the price of the restricted stock issued under this agreement, such event
shall constitute a soft default . (b) whenever the Borrower fails to adhere
to the provisions of any Standstill Agreement, (c) whenever the Borrower
materially adversely alters the voting rights attributable to the
Collateral in contravention of this Attachment or the Credit Agreement in
the opinion of the IPA.
5. DEFAULT REMEDY: In the event of Default, IPA shall deliver notice to
Borrower of such Event of Default. Borrower shall then have 30 days to cure
such Event of Default. If Borrower fails to cure such Event of Default
within the 30-day cure period, then Borrower shall be notified that the
provisions of the Credit Agreement shall become operative. Additionally,
the proxy for voting all proposals at a meeting of shareholders, as
detailed in paragraph 1 of this schedule D, will no longer be in effect and
voting rights or proxy rights will inure to the benefit of the registered
holder.
5a. SOFT DEFAULT REMEDY. In the event that the condition described in paragraph
4a of this schedule D occurs ("Soft Default"), , the proxy for voting all
proposals at a meeting of shareholders, as detailed in paragraph 1 of this
schedule D, shall be subject to the terms and conditions enumerated and
depicted in the Credit Agreement attached hereto and made a part hereof for
the express purposes as are herein and therein set forth
6. In the Event that any condition precedent upon the Borrower under this
Attachment are found or determined by the IPA to be in conflict with the
Financing Agreement or the Credit Agreement then the tenants of this
Attachment shall be inferior to and superceded by the tenants of either or
both Agreements. Such decision shall be rendered by the IPA in the form of
a Notice of Material Issue.
7. This Attachment may be invoked from time to time and may be rescinded from
time to time in accordance with the conditions of performance or failure to
perform on the part of the Borrower. Any such instances if any, that may
arise during the term of the financing made the subject of this Attachment
and if, for any reason the parties hereto are in dispute over any material
issue arising under item 6 herein above, which for any reason has not been
finally resolved within 45 days from receipt of notice thereof, then the
Borrower's sole remedy shall be to invoke a proxy right of set-off to be
initiated by informing the IPA that the Board shall thereupon "abstain
vote" all proxy shares and defer every matter to a floor vote for
ratification before the attending shareholders who shall vote to ratify the
Board's proxy pursuant to the terms of the Credit Agreement. Such election
of ratification shall defer every matter subject to a board vote for 45
days during which time "cure period" the IPA shall institute a "crown
jewel" lockup agreement on behalf of the Board. Whereupon such agreement
shall provide for a majority of the Board's membership to be reconstituted
in exchange for the release by the IPA of the "crown jewel" lockup. Should
the shareholders fail to ratify any single board member or the majority of
the reconstituted Board the IPA shall then have the right to proxy vote all
shares of any and all non-ratified board members until such time as the
material issue is resolved, the "crown jewel" lockup is tendered, or the
Credit Agreement is enacted.
AGREED AND ACCEPTED ON THIS THE 24TH DAY OF FEBRUARY, 2002.
For: International Forex
Finance Group, Ltd.
Houston, Texas
By:
-----------------------------
Name:
---------------------------
Date:
---------------------------
For: Upgrade International Corporation
Seattle, WA 98101
/s/ Daniel S. Bland
- -----------------------------
Daniel S. Bland, CEO
/s/ Howard A. Jaffe
- -----------------------------
Name: Howard A. Jaffe, COO
Date: February 24, 2002
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAW AND NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS
SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. THE HOLDER OF THIS SECURITIES, BY ITS ACCEPTANCE HEREOF, REPRESENTS,
ACKNOWLDGES AND AGREES FOR THE BENEFIT OF THE TRUST THAT: (I) IT HAS ACQUIRED A
"RESTRICTED' SECURITY WHICH HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT;
(II) IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY PRIOR TO THE
DATE WHICH IS THREE (3) YEARS AFTER THE LATER OF ____________, 2002 AND THE LAST
DATE ON WHICH _____________ OR ANY AFFILIATE OF ___________ WAS THE OWNER OF
SUCH RESTRICTED SECURITIES (OR ANY PREDECESSOR) EXCEPT (A) TO _____________, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT
TO RULE 144A, TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, OR (D) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY APPLICABLE JURSIDICTION; AND (III) IT WILL,
AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THIS
SECURITY OF THE RESALE RESTRICTIONS SET FORTH IN (II) ABOVE. ANY OFFER, SALE OR
OTHER DISPOSITION PURSUANT TO THE FOREGOING CLAUSE (II) (D) IS SUBJECT TO THE
RIGHT OF ______________ TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS OR OTHER INFORMATION REASONABLE ACCEPTABLE TO IT IN FORM AND
SUBSTANCE.
SO LONG AS THE SECURITIES ARE "RESTRICTED SECURITIES' (AS SUCH TERM IS
DEFINED IN RULE 144(a)(3) UNDER THE SECURITIES ACT), _____________ AGREES TO
MAKE AVALIABLE AND TO EACH HOLDER AND EACH PROSPECTIVE PURCHASER OF THE
SECURITIES DESIGNATED BY A HOLDER, UPON REQUEST, THE INFORMATION REQUIRED TO BE
PROVIDED PURSUANT TO RULE 144(d)(4) UNDER THE SECURITIES ACT.
THE PURCHASER, BY ITS ACCEPTANCE HEREOF, ALSO REPRESENTS, ACKNOWLEDGES, AND
AGREES THAT IT (I) IS NEITHER (A) AN EMPLOYEE BENEFIT PLAN, PROGRAM OR
ARRANGEMENT SUBJECT TO SECTION 406 OF ERISA OR TO SECTION 4975 OF THE INTERNAL
REVENUE CODE NOR (B) A PERSON ACTING ON BEHALF OF OR USING THE ASSETS OF ANY
SUCH PLAN, PROGRAM, OR ARRANGEMENT, OR (II) IS AN INSURANCE COMPANY PURCHASING
THE SECURITIES WITH FUNDS CONTAINED IN AN "INSURANCE COMPANY GENERAL ACCOUNT"
(AS THAT TERM IS DEFINED IN SECTION V(E) OF PROHIBITED TRANSACTION CLASS
EXEMPTION 95-60 ("PTCE 95-60")) AND ITS PURCHASE AND HOLDING OF THE SECURITIES
ARE COVERED UNDER SECTION I OF PTCE 95-60. THE PURCHASER ACKNOWLEDGES,
REPRESENTS AND AGREES THAT ANY ATTEMPT TO TRANSFER ANY SECURITIES TO SUCH A
PLAN, PROGRAM, OR ARRANGEMENT OR TO ANY PERSON ACTING ON BEHALF OF OR USING THE
ASSETS OF SUCH A PLAN SHALL BE NULL AND VOID.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AN IRREVOCABLE
PROXY AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION, AND THE PROVISIONS OF THE SAID AGREEMENT MAY FROM TIME TO TIME BE
AMENDED OR SUPPLEMENTED.