Exhibit 10.1

 

 

 

 

 

 

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I.AM, Inc., a Nevada Corporation

FORM OF LOAN AND SECURITY AGREEMENT

 

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This LOAN AND SECURITY AGREEMENT is entered into as of November 2, 2017, by and
among Digital Power Lending, LLC , a California limited liability company
(“DPW”) and I.AM, Inc., a Nevada Corporation (“Borrower”).

 

RECITALS

 

 

A.

DPW is concurrently herewith making a non-revolving line of credit loan to
Borrower in the maximum principal amount of One Million and No/100 Dollars
(US$1,000,000.00), on the terms and conditions hereof (the “Loan”);

 

 

B.

The Borrower’s shareholders are concurrently herewith, or shortly thereafter
after making this Loan, purchasing from Digital Power Corporation preferred
stock;

 

 

C.

The non-revolving line of credit loan is evidenced by this Agreement, a
promissory note made by Borrower in favor of DPW and secured by, among other
things, the Collateral as defined herein; and

 

 

C.

DPW and Borrower have agreed to enter into this Agreement to memorialize their
understanding regarding their respective rights and obligations in respect of
the Loan as such term is defined herein.

 

AGREEMENT

 

NOW; THEREFORE, in consideration of the making of the Loan and the covenants,
agreements, representations and warranties set forth in this Agreement and the
other Loan Documents as defined herein, the receipt and legal sufficiency of
which hereby are acknowledged, the parties hereby covenant, agree, represent and
warrant as follows:

 

1.          DEFINITIONS AND CONSTRUCTION.

 

1.1         Definitions. As used in this Agreement, the following terms shall
have the following definitions:

 

“Advance” or “Advances” means a cash advance or cash advances under the
Non-Revolving Line.

 

“Affiliate” means, with respect to any Person, any Person that owns or controls
directly or indirectly such Person, any Person that controls or is controlled by
or is under common control with such Person, and each of such Person’s senior
executive officers, directors, and partners.

 

“DPW Expenses” means all reasonable costs or expenses (including reasonable
attorneys’ fees and expenses, whether generated in-house or by outside counsel)
incurred in connection with the preparation, negotiation, administration, and
enforcement of the Loan Documents; reasonable annual Collateral audit fees; and
DPW’s reasonable attorneys’ fees and expenses (whether generated in-house or by
outside counsel) incurred in amending, enforcing or defending the Loan Documents
(including fees and expenses of appeal), incurred before, during and after an
Insolvency Proceeding, whether or not suit is brought.

 

“Borrower’s Books” means all of Borrower’s books and records including: ledgers;
records concerning Borrower’s assets or liabilities, the Collateral, business
operations or financial condition; and all computer programs, or tape files, and
the equipment, containing such information.

 

“Business Day” means any day that is not a Saturday, Sunday, or other day on
which national and state banks located in the State of California are authorized
or required to close.

 

“Cash” means cash and cash equivalents.

 

“Change in Control” shall mean a transaction in which any “person” or “group”
(within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of a sufficient number
of shares of all classes of stock then outstanding of Borrower ordinarily
entitled to vote in the election of directors, empowering such “person” or
“group” to elect a majority of the Board of Directors of Borrower, who did not
have such power before such transaction.

 

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“Closing Date” means the date of this Agreement.

 

“Code” means the California Uniform Commercial Code, as amended or supplemented
from time to time.

 

“Collateral” means the property described on Exhibit A attached hereto.

 

“Contingent Obligation” means, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable; (ii) any obligations with respect to undrawn letters of credit; and
(iii) all obligations arising under any interest rate, currency or commodity
swap agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term “Contingent Obligation” shall not include
endorsements for collection or deposit in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determined amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by such Person
in good faith; provided, however, that such amount shall not in any event exceed
the maximum amount of the obligations under the guarantee or other support
arrangement.

 

“Credit Extension” means each Advance or any other extension of credit by DPW to
or for the benefit of Borrower hereunder.

 

“Equipment” means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which any Borrower has any interest.

 

“Event of Default” has the meaning assigned in Article 8.

 

“GAAP” means generally accepted accounting principles, consistently applied, as
in effect from time to time.

 

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred
purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations, and (d) all Contingent
Obligations, if any.

 

“Insolvency Proceeding” means any proceeding commenced by or against any Person
or entity under any provision of the United States Bankruptcy Code, as amended,
or under any other bankruptcy or insolvency law, including assignments for the
benefit of creditors, formal or informal moratoria, compositions, extension
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

 

“Investment” means any beneficial ownership of (including stock, partnership or
limited liability company interest other securities) any Person, or any loan,
advance or capital contribution to any Person.

 

“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.

 

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“Lien” means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

 

“Liquidity” means the sum of Borrower’s consolidated Cash.

 

“Loan” means, collectively, the Credit Extensions available to Borrower under
the Loan Documents.

 

“Loan Documents” means, collectively, this Agreement, the Promissory Note, and
any other document, instrument or agreement entered into in connection with this
Agreement, all as amended or extended from time to time.

 

“Material Adverse Effect” means a material adverse effect on (i) the business
operations, or financial condition of Borrower and its Subsidiaries taken as a
whole, (ii) the ability of Borrower to repay the Obligations or otherwise
perform its obligations under the Loan Documents, (iii) Borrower’s interest in,
or the value, perfection or priority of DPW’s security interest in the
Collateral.

 

“Negotiable Collateral” means all of Borrower’s present and future letters of
credit of which it is a beneficiary, drafts, instruments (including promissory
notes), securities, documents of title, and chattel paper, and Borrower’s Books
relating to any of the foregoing.

 

“Note” has the meaning given to such term in Section 3.1.

 

“Obligations” means all debt, principal, interest, DPW Expenses and other
amounts owed to DPW by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that DPW may have obtained by assignment or otherwise.

 

 

 

“Periodic Payments” means all installments or similar recurring payments that
Borrower may now or hereafter become obligated to pay to DPW pursuant to the
terms and provisions of any instrument, or agreement, including this Agreement,
now or hereafter in existence between Borrower and DPW.

 

“Permitted Indebtedness” means:

 

(a)     Indebtedness of Borrower in favor of DPW arising under this Agreement or
any other Loan Document;

 

(b)     Indebtedness existing on the Closing Date;

 

(c)     Indebtedness incurred in connection with capital leases secured by a
lien described in clause (c) of the defined term “Permitted Liens;” provided
such Indebtedness does not exceed the lesser of the cost or fair market value of
the equipment financed with such Indebtedness;

 

(d)     Subordinated Debt;

 

(e)     Indebtedness to trade creditors incurred in the ordinary course of
business;

 

(f)     Indebtedness that constitutes a Permitted Investment;

 

(g)     Guaranties made in the ordinary course of business; and

 

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(h)     Extensions, refinancings and renewals of any items of Permitted
Indebtedness, provided that the principal amount is not increased or the terms
modified to impose more burdensome terms upon Borrower or its Subsidiary, as the
case may be.

 

“Permitted Investment” means:

 

(a)     Investments existing on the Closing Date;

 

(b)     (i) Marketable direct obligations issued or unconditionally guaranteed
by the United States of America or any agency or any State thereof maturing
within one (1) year from the date of acquisition thereof, (ii) commercial paper
maturing no more than one (1) year from the date of creation thereof and
currently having rating of at least A-2 or P-2 from either Standard & Poor’s
Corporation or Moody’s Investors Service, (iii) certificates of deposit maturing
no more than one year from the date of investment therein, and (iv) money market
accounts;

 

(c)     Investments accepted in connection with Permitted Transfers;

 

(d)     Investments of Subsidiaries in or to other Subsidiaries or Borrower and
Investments by Borrower in Subsidiaries to fund operating expenses in the
ordinary course of business;

 

(e)     Investments consisting of (i) travel advances and employee relocation
loans and other employee loans and advances in the ordinary course of business,
and (ii) loans to employees, officers or directors relating to the purchase of
equity securities of Borrower or its Subsidiaries pursuant to employee stock
purchase plan agreements approved by Borrower’s Board of Directors;

 

(f)     Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of Borrower’s business;

 

(g)     Investments consisting of notes receivable of, or prepaid royalties and
other credit extensions, to customers and suppliers who are not Affiliates, in
the ordinary course of business, provided that this subparagraph (g) shall not
apply to Investments of Borrower in any Subsidiary; and

 

(h)     Other Investments approved in advance and in writing by DPW in its sole
discretion.

 

“Permitted Liens” means the following:

 

(a)     Any Liens existing on the Closing Date or arising under this Agreement
or the other Loan Documents;

 

(b)     Liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings and for which adequate reserves are maintained;

 

(c)     Liens incurred (i) upon or in any acquired or held by any Borrower or
any of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition or
lease of such Equipment, or (ii) existing on such Equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such Equipment;

 

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(d)     Liens of materialmen, mechanics, warehousemen, carriers, landlord,
artisan’s or other similar Liens arising in the ordinary course of business or
by operation of law, which are not past due or which are being contested in good
faith by appropriate proceedings;

 

(e)     Liens which in the aggregate constitute an immaterial and insignificant
monetary amount with respect to the net value of Borrower’s assets taken as a
whole;

 

(f)     Lien securing Subordinated Debt;

 

(g)     Liens securing judgments or attachments in circumstances that do not
constitute an Event of Default;

 

(h)     leases or subleases, licenses or sublicenses granted in the ordinary
course of business which do not interfere in any material respect with the
business of Borrower;

 

(i)     Liens in favor of custom and revenue authorities arising as a matter of
law, in the ordinary course of business, to secure payment of custom duties in
connection with the import and export of goods;

 

(j)     Liens in favor of financial institutions arising in connection with
deposit or investment accounts held at such financial institutions, provided
that such liens only secure fees and service charges associated with such
accounts;

 

(k)     deposits in the ordinary course of business under worker’s compensation,
unemployment insurance, social security and other similar laws, or to secure the
performance of bids, tenders or contracts or to secure indemnity, performance or
other similar bonds for the performance of bids, tenders or contracts or to
secure statutory obligations or surety or appeal bonds;

 

(l)     Liens incurred in connection with the extension, renewal or refinancing
of the indebtedness secured by Permitted Liens, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase in any material respect; and

 

(m)     Liens arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default under Sections 8.5 or 8.9.

 

“Permitted Transfer” means the conveyance, sale, lease, transfer or disposition
by Borrower or any Subsidiary of:

 

(a)     Inventory in the ordinary course of business;

 

(b)     licenses and similar arrangements for the use of the property of
Borrower or its Subsidiaries in the ordinary course of business;

 

(c)     worn-out or obsolete Equipment;

 

(d)     Transfers otherwise permitted by the terms of Section 7;

 

(e)     sales and transfers in the ordinary course of business, including normal
intercompany business transactions; or

 

(f)     other assets of Borrower or its Subsidiaries that do not in the
aggregate exceed One Hundred Thousand Dollars ($100,000) during any fiscal year.

 

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“Person” means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.

 

“Prime Rate” means the variable rate of interest, per annum, as published from
time to time in the Money Rates column of the Wall Street Journal, as the “U.S.
Prime Rate”.

 

“Responsible Officer” means each of the Chief Executive Officer, the Chief
Financial Officer and the Controller of Borrower.

 

“Restaurant LLCs” means those California Limited Liability Companies which
purchase the existing Prep Kitchen restaurants in San Diego, Del Mar and La
Jolla, California.

 

“Non-Revolving Line” means a Credit Extension of up to One Million Three Hundred
Thousand Dollars ($1,300,000).

 

“Revolving Maturity Date” means       , 2018 or such subsequent date as agreed
to between the parties pursuant to a written amendment or modification of the
Loan Documents.

 

“Schedule” means the schedule of exceptions attached hereto and approved by DPW,
if any.

 

“Stock Purchase Agreement” means that certain Stock Purchase Agreement of even
date herewith between DPW and Borrower.

 

“Subordinated Debt” means any debt incurred by Borrower that is subordinated in
writing to the debt owing by Borrower to DPW on terms reasonably acceptable to
DPW (and identified as being such by Borrower and DPW).

 

“Subsidiary” means any corporation, partnership or limited liability company or
joint venture in which (i) any general partnership interest or (ii) more than
fifty percent (50%) of the stock, limited liability company interest or joint
venture of which by the terms thereof has the ordinary voting power to elect the
Board of Directors, managers or trustees of the entity, at the time as of which
any determination is being made, is owned by a Borrower, either directly or
through an Affiliate.

 

“Trademarks” means any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of a Borrower connected
with and symbolized by such trademarks.

 

1.2          Accounting Terms. Any accounting term not specifically defined
herein shall be construed in accordance with GAAP and all calculations shall be
made in accordance with GAAP. The term “financial statements” shall include the
accompanying notes and schedules.

 

2.           LOAN AND TERMS OF PAYMENT.

 

2.1          Credit Extensions.

 

(a)          Promise to Pay. Borrower promises to pay to DPW, in lawful money of
the United States of America, the aggregate unpaid principal amount of all
Credit Extensions made by DPW to Borrower, together with interest on the unpaid
principal amount of such Credit Extensions at rates in accordance with the terms
hereof.

 

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(b)          Advances Under Revolving Line.

 

(i)     Amount. Subject to and upon the terms and conditions of this Agreement,
Borrower may request Advances in an aggregate outstanding amount not to exceed
the Non-Revolving Line. Amounts borrowed pursuant to this Section 2.1(b) which
have been repaid may not be reborrowed at any time. All Advances under this
Section 2.1(b) shall be immediately due and payable on the Revolving Maturity
Date. Borrower may prepay any Advances without penalty or premium.

 

(ii)     Form of Request. Whenever a Borrower desires an Advance, such Borrower
will notify DPW by facsimile transmission or telephone no later than one (1)
Business Day prior to the date the Advance is to be made. Each such notification
shall be promptly confirmed by a Payment/Advance Form in substantially the form
of Exhibit E hereto. DPW is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in DPW’s discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. DPW shall be entitled to rely on any telephonic notice given by a person
who DPW reasonably believes to be a Responsible Officer or a designee thereof,
and Borrower shall indemnify and hold DPW harmless for any damages or loss
suffered by DPW as a result of such reliance. DPW will credit the amount of
Advances made under this Section 2.1(b) to the applicable Borrower’s deposit
account.

 

2.2         Overadvances. If the aggregate amount of the outstanding Advances
exceeds the Non-Revolving Line at any time, then within fifteen (15) days (or
such longer period as DPW may grant in its sole discretion) of notice of such
excess advance Borrower shall pay to DPW, in cash, the amount of such excess.

 

2.3         Interest Rates, Payments, and Calculations.

 

(a)     Interest Rates. Except as set forth in Section 2.3(b), the Advances
shall bear interest, on the outstanding daily balance thereof, at a variable
rate equal to 1.50% above the Prime Rate as published in The Wall Street
Journal.

 

(b)     Default Rate. If any payment is not made within ten (10) days after the
date such payment is due, Borrower shall pay DPW a late fee equal to the lesser
of (i) five percent (5%) of the amount of such unpaid amount or (ii) the maximum
amount permitted to be charged under applicable law. All Obligations shall bear
interest, from and after the occurrence and during the continuance of an Event
of Default, at a rate equal to five (5) percentage points above the interest
rate applicable immediately prior to the occurrence of the Event of Default.

 

(c)     Payments. Interest and principal hereunder shall be due and payable on
the first calendar day of each quarter during the term hereof as provided in
Schedule . Borrower authorize DPW, at its option, to charge such interest, all
DPW Expenses, and all Periodic Payments against the Non-Revolving Line, in which
case those amounts shall thereafter accrue interest at the rate then applicable
hereunder.

 

(d)     Computation. In the event the Prime Rate is changed from time to time
hereafter, the applicable rate of interest hereunder shall be increased or
decreased, effective as of the day the Prime Rate is changed, by an amount equal
to such change in the Prime Rate. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed.

 

2.4         Crediting Payments. If no Event of Default exists, DPW shall credit
a wire transfer of funds, check or other item of payment to such deposit account
or Obligation as Borrower specifies. During the existence of an Event of
Default, DPW shall have the right, in its sole discretion, to immediately apply
any wire transfer of funds, check, or other item of payment DPW may receive to
conditionally reduce Obligations, but such applications of funds shall not be
considered a payment on account unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by DPW or for its benefit at its
financial institution after 12:00 noon Pacific time shall be deemed to have been
received by DPW as of the opening of business on the immediately following
Business Day. Whenever any payment to DPW under the Loan Documents would
otherwise be due (except by reason of acceleration) on a date that is not a
Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable for
the period of such extension.

 

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2.5          [Reserved]

 

2.6          Term. This Agreement shall become effective on the Closing Date
and, subject to Section 12.7, shall continue in full force and effect for so
long as any Obligations remain outstanding or DPW has any obligation to make
Credit Extensions under this Agreement. Notwithstanding the foregoing, DPW shall
have the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default.

 

3.          CONDITIONS OF LOANS.

 

3.1         Conditions Precedent to Initial Credit Extension. The obligation of
DPW to make the initial Credit Extension is subject to the condition precedent
that DPW shall have received, in form and substance satisfactory to DPW, the
following:

 

(a)     this Agreement duly executed by each Borrower;

 

(b)     a promissory note in the form of Exhibit B duly executed by each
Borrower (the “Note”); and

 

(c)     an officer’s certificate of each Borrower with respect to incumbency and
resolutions authorizing the execution and delivery of this Agreement.

 

3.2         Conditions Precedent to all Credit Extensions. The obligation of DPW
to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:

 

(a)     timely receipt by DPW of the Payment/Advance Form as provided in Section
2.1; and

 

(b)     the representations and warranties contained in Section 5 shall be true
and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would exist after giving effect to such Credit
Extension (provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date). The making of each Credit Extension shall be
deemed to be a representation and warranty by each Borrower on the date of such
Credit Extension as to the accuracy of the facts referred to in this Section
3.2.

 

4.           CREATION OF SECURITY INTEREST.

 

4.1         Grant of Security Interest. Borrower grants and pledges to DPW a
continuing security interest in the Collateral to secure prompt repayment of any
and all Obligations and to secure prompt performance by Borrower of its
covenants and duties under the Loan Documents. Except for Permitted Liens, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in later-acquired Collateral.

 

4.2         Perfection of Security Interest. Borrower authorizes DPW to file at
any time financing statements, continuation statements, and amendments thereto
that (i) specifically describing the Collateral or describe the Collateral as
all assets of such Borrower of the kind pledged hereunder, and (ii) contain any
other information required by the Code for the sufficiency of filing office
acceptance of any financing statement, continuation statement, or amendment,
including whether Borrower is an organization, the type of organization and any
organizational identification number issued to Borrower, if applicable. Borrower
shall from time to time endorse and deliver to DPW, at the request of DPW, all
Negotiable Collateral and other documents that DPW may reasonably request, in
form satisfactory to DPW, to perfect and continue perfected DPW’s security
interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents. Borrower shall have
possession of the Collateral, except where expressly otherwise provided in this
Agreement or where DPW chooses to perfect its security interest by possession in
addition to the filing of a financing statement. Borrower shall take such steps
as DPW reasonably requests for DPW to obtain “control” of any Collateral
consisting of investment property, deposit accounts, letter-of-credit rights or
electronic chattel paper (as such items and the term “control” are defined in
Revised Article 9 of the Code) by causing the securities intermediary or
depositary institution or issuing DPW to execute a control agreement in form and
substance satisfactory to DPW. Borrower will not create any chattel paper in
which Borrower is a lessor without placing a legend on the chattel paper
acceptable to DPW indicating that DPW has a security interest in the chattel
paper.

 

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4.3          Right to Inspect. DPW (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower’s usual business hours to inspect a Borrower’s Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify such Borrower’s financial condition or the amount, condition of, or any
other matter relating to, the Collateral.

 

5.          REPRESENTATIONS AND WARRANTIES.

 

Each Borrower represents and warrants as follows:

 

5.1         Due Organization and Qualification. Borrower and each Subsidiary is
duly existing under the laws of the state in which it is organized and qualified
and licensed to do business in any state in which the conduct of its business or
its ownership of property requires that it be so qualified, except where the
failure to do so could not reasonably be expected to cause a Material Adverse
Effect.

 

5.2         Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower’s powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower’s Certificate/Articles of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement by which Borrower is bound. Borrower is not in default under any
agreement by which it is bound, except to the extent such default could not
reasonably be expected to cause a Material Adverse Effect.

 

5.3         Collateral. Borrower has rights in or the power to transfer the
Collateral, and its title to the Collateral is free and clear of Liens, adverse
claims, and restrictions on transfer or pledge except for Permitted Liens.

 

5.4         Intellectual Property. To the best of Borrower’s knowledge, each of
the Copyrights, Trademarks and Patents is valid and enforceable, and no part of
such intellectual property has been judged invalid or unenforceable, in whole or
in part, and no claim has been made to Borrower that any part of such
intellectual property violates the rights of any third party except to the
extent such claim could not reasonably be expected to cause a Material Adverse
Effect.

 

5.5        Legal Name. Borrower’s exact legal name is as set forth in the first
paragraph of this Agreement.

 

5.6         Litigation. Except as set forth in the Schedule of Exceptions, there
are no actions or proceedings pending by or against Borrower or any Subsidiary
before any court or administrative agency in which a likely adverse decision
could reasonably be expected to have a Material Adverse Effect.

 

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5.7         No Material Adverse Change in Financial Statements. All consolidated
and consolidating financial statements related to Borrower and any Subsidiary
that are delivered by Borrower to DPW fairly present in all material respects
Borrower’s consolidated and consolidating financial condition as of the date
thereof and Borrower’s consolidated and consolidating results of operations for
the period then ended. There has not been a material adverse change in the
consolidated or in the consolidating financial condition of Borrower since the
date of the most recent of such financial statements submitted to DPW.

 

5.8          Solvency, Payment of Debts. Borrower is able to pay its debts as
they mature; the fair saleable value of Borrower’s assets (including goodwill
minus disposition costs) exceeds the fair value of its liabilities; and Borrower
is not left with unreasonably small capital after the transactions contemplated
by this Agreement.

 

5.9          Compliance with Laws and Regulations. Borrower and each Subsidiary
have met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from Borrower’s
failure to comply with ERISA that is reasonably likely to result in Borrower’s
incurring any liability that could have a Material Adverse Effect. Borrower is
not an “investment company” or a company “controlled” by an “investment company”
within the meaning of the Investment Company Act of 1940. Borrower is not
engaged principally, or as one of the important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied in all material respects with all the
provisions of the Federal Fair Labor Standards Act. Borrower is in compliance
with all environmental laws, regulations and ordinances except where the failure
to comply is not reasonably likely to have a Material Adverse Effect. Borrower
has not violated any statutes, laws, ordinances or rules applicable to it, the
violation of which could reasonably be expected to have a Material Adverse
Effect. Borrower and each Subsidiary have filed or caused to be filed all tax
returns required to be filed, and have paid, or have made adequate provision for
the payment of, all taxes reflected therein except those being contested in good
faith with adequate reserves under GAAP or where the failure to file such
returns or pay such taxes could not reasonably be expected to have a Material
Adverse Effect.

 

5.10        Subsidiaries. Borrower does not own any stock, partnership or
membership interest or other equity securities of any Person, except for the
Restaurant LLC’s.

 

5.11        Government Consents. Borrower and each Subsidiary have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower’s business as currently conducted,
except where the failure to do so could not reasonably be expected to cause a
Material Adverse Effect.

 

5.12        Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to DPW taken
together with all such certificates and written statements furnished to DPW
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading, it being recognized by DPW that the projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not to be viewed as facts and that actual results during the
period or periods covered by any such projections and forecasts may differ from
the projected or forecasted results.

 

6.          AFFIRMATIVE COVENANTS.

 

Borrower covenants and agrees that, until payment in full of all outstanding
Obligations (other than inchoate indemnity obligations), and for so long as DPW
may have any commitment to make a Credit Extension hereunder, such Borrower
shall do all of the following:

 

6.1          Good Standing and Government Compliance. Borrower shall maintain
its and each of its Subsidiaries’ corporate existence and good standing in the
jurisdiction of formation, shall maintain qualification and good standing in
each other jurisdiction in which the failure to so qualify could have a Material
Adverse Effect, and shall furnish to DPW the organizational identification
number issued to Borrower by the authorities of the state in which Borrower is
organized, if applicable. Borrower shall meet, and shall cause each Subsidiary
to meet, the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. Borrower shall comply in all material respects
with all applicable Environmental Laws, and maintain all material permits,
licenses and approvals required thereunder where the failure to do so could
reasonably be expected to have a Material Adverse Effect. Borrower shall comply,
and shall cause each Subsidiary to comply, with all statutes, laws, ordinances
and government rules and regulations to which it is subject, and shall maintain,
and shall cause each of its Subsidiaries to maintain, in force all licenses,
approvals and agreements, the loss of which or failure to comply with which
could reasonably be expected to have a Material Adverse Effect.

 

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6.2         Financial Statements, Reports, Certificates. Borrower shall deliver
the financial statements, reports and certificates provided for in Schedule 3
thereto with the periods specified therein. Borrower may deliver to DPW on an
electronic basis any certificates, reports or information required pursuant to
this Section 6.2, and DPW shall be entitled to rely on the information contained
in the electronic files, provided that DPW in good faith believes that the files
were delivered by a Responsible Officer.

 

6.3         [Reserved].

 

6.4     Taxes. Borrower shall make, and cause each Subsidiary to make, due and
timely payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required of it by law, including, but not limited
to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability,
and will execute and deliver to DPW, on demand, proof satisfactory to DPW
indicating that Borrower or a Subsidiary has made such payments or deposits and
any appropriate certificates attesting to the payment or deposit thereof;
provided that each Borrower or a Subsidiary need not make any payment if the
amount or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by
Borrower.

 

6.5         Insurance.

 

(a)     Borrower, at its expense, shall keep the Collateral insured against loss
or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as ordinarily insured against by other owners in
similar businesses conducted in the locations where each Borrower’s business is
conducted on the date hereof. Borrower shall also maintain liability and other
insurance in an amount not less than One Million Dollars ($1,000,000) and of a
type that are customary to businesses similar to Borrower’s.

 

(b)     All such policies of insurance shall be in such form, with such
companies, and in such amounts as reasonably satisfactory to DPW. All policies
of property insurance shall contain a DPW’s loss payable endorsement, in a form
satisfactory to DPW, showing DPW as an additional loss payee, and all liability
insurance policies shall show DPW as an additional insured and specify that the
insurer must give at least 30 days’ notice to DPW before canceling its policy
for any reason. Upon DPW’s request, each Borrower shall deliver to DPW certified
copies of the policies of insurance and evidence of all premium payments. If no
Event of Default has occurred and is continuing, proceeds payable under any
casualty policy will, at each Borrower’s option, be payable to such Borrower to
replace the property subject to the claim, provided that any such replacement
property shall be deemed Collateral in which DPW has been granted a first
priority security interest. If an Event of Default has occurred and is
continuing, all proceeds payable under any such policy shall, at DPW’s option,
be payable to DPW to be applied on account of the Obligations.

 

6.6         [Reserved].

 

6.7         Additional Filings. Borrower shall use its best efforts, to the
extent requested by the DPW, to execute any documents necessary in order to
consummate the transactions contemplated in this Agreement including without
limitation, UCC-1 Financial Statement(s) filed in the either California or
Nevada or both.

 

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7.          NEGATIVE COVENANTS.

 

Borrower covenants and agrees that, until the outstanding Obligations (other
than inchoate indemnity obligations) are paid in full, Borrower will not do any
of the following without DPW’s prior written consent, which shall not be
unreasonably withheld:

 

7.1         Dispositions. Convey, sell, lease, license, transfer or otherwise
dispose of (collectively, to “Transfer”), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than Permitted
Transfers. Borrower will not engage in any bulk sale of all or substantially all
of its assets.

 

7.2         Change in Name, Location, Executive Office, or Executive Management;
Change in Business; Change in Fiscal Year; Change in Control. Change its name or
its jurisdiction of formation or relocate its chief executive office without
prior written notification to DPW; engage in any business, or permit any of its
Subsidiaries to engage in any business, other than or reasonably related or
incidental to the businesses currently engaged in by each Borrower; change its
fiscal year end.

 

7.3         Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization (other than mergers or consolidations of a Subsidiary into another
Subsidiary or into a Borrower), or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another
Person except where (i) such transactions do not in the aggregate exceed One
Million Dollars ($1,000,000) during any fiscal year, (ii) no Event of Default
has occurred, is continuing or would exist after giving effect to such
transactions, (iii) such transactions do not result in a Change in Control, and
(iv) Company is the surviving entity.

 

7.4         Indebtedness. Create, incur, assume, guarantee or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness, or prepay any Indebtedness prior to its
scheduled maturity or take any actions which impose on each Borrower an
obligation to prepay any Indebtedness prior to its scheduled maturity, except
Indebtedness to DPW.

 

7.5         Encumbrances. Create, incur, assume or allow any Lien with respect
to any of its property, or assign or otherwise convey any right to receive
income, including the sale of any Accounts, or permit any of its Subsidiaries so
to do, except for Permitted Liens.

 

7.6         Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock, except that (i) Borrower may repurchase the stock of former employees
pursuant to stock repurchase agreements as long as an Event of Default does not
exist prior to such repurchase or would not exist after giving effect to such
repurchase, (ii) Borrower may repurchase the stock of former employees pursuant
to stock repurchase agreements by the cancellation of indebtedness owed by such
former employees to a Borrower regardless of whether an Event of Default exists,
(iii) Borrower may pay dividends in capital stock, and (iv) Company may make
dividends or distributions to Parent.

 

7.7         Investments. Acquire or own, or make any Investment in or to any
Person, or permit any of its Subsidiaries so to do, other than Permitted
Investments.

 

7.8         Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of a Borrower except
for (i) transactions that are in the ordinary course of a Borrower’s business,
upon fair and reasonable terms that are no less favorable to a Borrower than
would be obtained in an arm’s length transaction with a non-affiliated Person
and (ii) transactions that are otherwise permitted pursuant to Section 7.

 

7.9         No Investment Company; Margin Regulation. Become or be controlled by
an “investment company,” within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Credit Extension for such
purpose.

 

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8.          EVENTS OF DEFAULT.

 

Any one or more of the following events shall constitute an Event of Default by
Borrower under this Agreement:

 

8.1         Payment Default. If Borrower fails to pay any of the Obligations
when due;

 

8.2         Covenant Default.

 

(a)     If Borrower fails to perform any obligation under Sections 6.5 or 6.7
violates any of the covenants contained in Article 7 of this Agreement; or

 

(b)     If Borrower fails or neglects to perform or observe any other material
term, provision, condition, covenant contained in this Agreement, in any of the
Loan Documents, or in any other present or future agreement between Borrower and
DPW and as to any default under such other term, provision, condition or
covenant that can be cured, has failed to cure such default within ten (10)
Business Days after Borrower receives notice thereof; provided, however, that if
the default cannot by its nature be cured within such ten (10) Business Day
period or cannot after diligent attempts by Borrower be cured within such ten
(10) Business Day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default but no Credit Extensions will be made;

 

8.3         Material Adverse Effect. If there occurs any Material Adverse
Effect;

 

8.4         Attachment. If any material portion of Borrower’s assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if a Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of a
Borrower’s assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower’s assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after a Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by a Borrower
(provided that no Credit Extensions will be made during such cure period);

 

8.5         Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against a Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);

 

8.6         Judgments. If a judgment or judgments (not covered by insurance) for
the payment of money in an amount, individually or in the aggregate, of at least
Two Hundred Fifty Thousand Dollars ($250,000) shall be rendered against Borrower
and shall remain unsatisfied and unstayed for a period of thirty (30) days
(provided that no Credit Extensions will be made prior to the satisfaction or
stay of such judgment);

 

8.7         Change in Control. If a Change in Control occurs; or

 

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8.8         Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate delivered to DPW by any Responsible Officer
pursuant to this Agreement or to induce DPW to enter into this Agreement or any
other Loan Document.

 

9.          DPW’S RIGHTS AND REMEDIES.

 

9.1         Rights and Remedies. Upon the occurrence and during the continuance
of an Event of Default, DPW may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:

 

(a)     Declare all Obligations, whether evidenced by this Agreement, by any of
the other Loan Documents, or otherwise, immediately due and payable (provided
that upon the occurrence of an Event of Default described in Section 8.6, all
Obligations shall become immediately due and payable without any action by DPW);

 

(b)     Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other agreement between Borrower and
DPW;

 

(c)     Settle or adjust disputes and claims directly with account debtors for
amounts, upon terms and in whatever order that DPW reasonably considers
advisable;

 

(d)     Make such payments and do such acts as DPW considers necessary or
reasonable to protect its security interest in the Collateral. Borrower agrees
to assemble the Collateral if DPW so requires, and to make the Collateral
available to DPW as DPW may designate. Borrower authorizes DPW to enter the
premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien which in DPW’s determination appears to be prior or
superior to its security interest and to pay all expenses incurred in connection
therewith. With respect to any of Borrower’s owned premises, Borrower hereby
grants DPW a license to enter into possession of such premises and to occupy the
same, without charge, in order to exercise any of DPW’s rights or remedies
provided herein, at law, in equity, or otherwise;

 

(e)     Set off and apply to the Obligations any and all (i) balances and
deposits of Borrower held by DPW, and (ii) indebtedness at any time owing to or
for the credit or the account of Borrower held by DPW;

 

(f)     Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. DPW is hereby granted a license or other right, solely pursuant to
the provisions of this Section 9.1, to use, without charge, Borrower’s labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with DPW’s
exercise of its rights under this Section 9.1, Borrower’s rights under all
licenses and all franchise agreements shall inure to DPW’s benefit;

 

(g)     Sell the Collateral at either a public or private sale, or both, by way
of one or more contracts or transactions, for cash or on terms, in such manner
and at such places (including Borrower’s premises) as DPW determines is
commercially reasonable, and apply any proceeds to the Obligations in whatever
manner or order DPW deems appropriate. DPW may sell the Collateral without
giving any warranties as to the Collateral. DPW may specifically disclaim any
warranties of title or the like. This procedure will not be considered adversely
to affect the commercial reasonableness of any sale of the Collateral. If DPW
sells any of the Collateral upon credit, Borrower will be credited only with
payments actually made by the purchaser, received by DPW, and applied to the
indebtedness of the purchaser. If the purchaser fails to pay for the Collateral,
DPW may resell the Collateral and Borrower shall be credited with the proceeds
of the sale;

 

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(h)     DPW may credit bid and purchase at any public sale;

 

(i)     Apply for the appointment of a receiver, trustee, liquidator or
conservator of the Collateral, without notice and without regard to the adequacy
of the security for the Obligations and without regard to the solvency of
Borrower, any guarantor or any other Person liable for any of the Obligations;
and

 

(j)     Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.

 

DPW may comply with any applicable state or federal law requirements in
connection with a disposition of the Collateral and compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral.

 

9.2         Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints DPW
(and any of DPW’s designated officers, or employees) as Borrower’s true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of DPW’s security interest in the Accounts; (b) endorse
Borrower’s name on any checks or other forms of payment or security that may
come into DPW’s possession; (c) sign Borrower’s name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims
under and decisions with respect to Borrower’s policies of insurance; and (f)
settle and adjust disputes and claims respecting the accounts directly with
account debtors, for amounts and upon terms which DPW determines to be
reasonable. The appointment of DPW as Borrower’s attorney in fact, and each and
every one of DPW’s rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations (other than inchoate indemnity
obligations) have been fully repaid and performed and DPW’s obligation to
provide Credit Extensions hereunder is terminated.

 

9.3         Accounts Collection. At any time after the occurrence and during the
continuance of an Event of Default, DPW may notify any Person owing funds to
Borrower of DPW’s security interest in such funds and verify the amount of such
Account. Borrower shall collect all amounts owing to Borrower for DPW, receive
in trust all payments as DPW’s trustee, and immediately deliver such payments to
DPW in their original form as received from the account debtor, with proper
endorsements for deposit.

 

9.4         DPW Expenses. If Borrower fail to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then DPW may do any or all of the following after
reasonable notice to Borrower: (a) make payment of the same or any part thereof;
(b) set up such reserves under the Revolving Line as DPW deems necessary to
protect DPW from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type discussed in Section 6.5 of this
Agreement, and take any action with respect to such policies as DPW deems
prudent. Any amounts so paid or deposited by DPW shall constitute DPW Expenses,
shall be immediately due and payable, and shall bear interest at the then
applicable rate hereinabove provided, and shall be secured by the Collateral.
Any payments made by DPW shall not constitute an agreement by DPW to make
similar payments in the future or a waiver by DPW of any Event of Default under
this Agreement.

 

9.5         DPW’s Liability for Collateral. DPW has no obligation to clean up or
otherwise prepare the Collateral for sale. All risk of loss, damage or
destruction of the Collateral shall be borne by Borrower.

 

9.6         No Obligation to Pursue Others. DPW has no obligation to attempt to
satisfy the Obligations by collecting them from any other Person liable for them
and DPW may release, modify or waive any collateral provided by any other Person
to secure any of the Obligations, all without affecting DPW’s rights against
Borrower. Borrower waives any rights they may have to require DPW to pursue any
other Person for any of the Obligations.

 

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9.7         Remedies Cumulative. DPW’s rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. DPW shall have
all other rights and remedies not inconsistent herewith as provided under the
Code, by law, or in equity. No exercise by DPW of one right or remedy shall be
deemed an election, and no waiver by DPW of any Event of Default on Borrower’s
part shall be deemed a continuing waiver. No delay by DPW shall constitute a
waiver, election, or acquiescence by it. No waiver by DPW shall be effective
unless made in a written document signed on behalf of DPW and then shall be
effective only in the specific instance and for the specific purpose for which
it was given. Borrower expressly agrees that this Section may not be waived or
modified by DPW by course of performance, conduct, estoppel or otherwise.

 

9.8         Demand; Protest. Except as otherwise provided in this Agreement,
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment and any other notices relating to the
Obligations.

 

10.         NOTICES.

 

Unless otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any other agreement entered into in connection
herewith shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by a recognized overnight delivery
service, certified mail, postage prepaid, return receipt requested, or by
telefacsimile to Borrower or to DPW, as the case may be, at its addresses set
forth below:

 

If to Borrower:

I.AM, Inc.

          Attn:   FAX:        

If to DPW:

48430 Lakeview Blvd.

  Fremont, CA 94538        Attn: William Corbett, Manager   FAX: (510) 657-6634

 

The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.

 

11.         CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; ARBITRATION.

 

This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of California, without regard to principles of
conflicts of law. Borrower and DPW hereby submits to the exclusive jurisdiction
of the state and Federal courts located in the County of Alameda, State of
California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO
THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE
OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND
VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED
PARTIES.

 

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The parties agree that any dispute, controversy or claim arising out of or
relating to this Agreement, the Loan Documents or any of the transactions
contemplated therein DPW and Borrower agree that all such disputes, claims and
controversies between them, whether individual, joint, or class in nature,
including without limitation contract and tort disputes, shall be arbitrated
pursuant to the rules of the American Arbitration Association (“AAA”) in
accordance with its Commercial Arbitration Rules and Supplemental Procedures for
Financial Services Disputes, upon request of either party. No act to take or
dispose of any collateral securing this Agreement shall constitute a waiver of
this arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or mortgage;
obtaining a writ of attachment or imposition of a receiver; or exercising any
rights relating to personal property, including taking or disposing of such
property with or without judicial process pursuant to article 9 of the Uniform
Commercial Code. Any disputes, claims, or controversies concerning the
lawfulness or reasonableness of any act, or exercise of any right, concerning
any collateral securing this Agreement, or any other Loan Document, including
without limitation, any claim to rescind, reform, or otherwise modify any
agreement relating to the collateral securing this Agreement shall also be
arbitrated, provided however that no arbitrator shall have the right or the
power to enjoin or restrain any act of any party. DPW and Borrower agree that in
the event of an action for judicial foreclosure pursuant to California Code of
Civil Procedure Section 726, or any similar provision in any other State, the
commencement of such an action will not constitute a waiver of the right to
arbitrate and the court shall refer to arbitration as much of such action,
including counterclaims, as lawfully may be referred to arbitration. Judgment
upon any award rendered by any arbitrator may be entered in any court having
jurisdiction. The arbitrators shall not have power to make an award of $1.0
million or more against any party to an arbitration unless it is in the form of
a statement of decision as described in California Code of Civil Procedure
Section 632, and the parties specifically reserve the right, upon a petition to
vacate, to have any such award reviewed and vacated upon the same grounds as
would result in reversal on appeal from a judgment after trial by court. Nothing
in this Agreement or other Loan Documents shall preclude any party from seeking
equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable in
any arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of an action for these purposes.

 

To the extent not provided by this Agreement, including the Rules incorporated
herein, arbitration hereunder shall be governed by California arbitration law.
Arbitration shall be conducted in California, in English and, unless otherwise
agreed to by the parties with respect to a particular dispute, shall be heard by
a panel of three arbitrators. The arbitrators in any arbitration shall be
experienced in the areas of law raised by the subject matter of the dispute.
Lists of prospective arbitrators shall include retired judges. Notwithstanding
the AAA rules, (a) any party may strike from a list of prospective arbitrators
any individual who is regarded by that party as not appropriate for the dispute;
and (b), if the arbitrator appointment cannot be made from the initial list of
prospective arbitrators circulated by the AAA, a second and, if necessary, a
third list shall be circulated and exhausted before the AAA is empowered to make
the appointment.

 

The Federal Arbitration Act shall apply to the construction, interpretation, and
enforcement of this arbitration provision.

 

Borrower’s Initials _________________         DPW’s Initials _______________

 

12.         GENERAL PROVISIONS.

 

12.1     Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties and shall bind all Persons who become bound as a debtor to this
Agreement; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Borrower without DPW’s prior written consent, which
consent may be granted or withheld in DPW’s sole discretion. DPW shall have the
right without the consent of or notice to Borrower to sell, transfer, negotiate,
or grant participation in all or any part of, or any interest in, DPW’s
obligations, rights and benefits hereunder.

 

12.2     Indemnification. Borrower shall defend, indemnify and hold harmless DPW
and its officers, employees, and agents against: (a) all obligations, demands,
claims, and liabilities claimed or asserted by any other party in connection
with the transactions contemplated by this Agreement; and (b) all losses or DPW
Expenses in any way suffered, incurred, or paid by DPW, its officers, employees
and agents as a result of or in any way arising out of, following, or
consequential to transactions between DPW and Borrower whether under this
Agreement, or otherwise (including without limitation reasonable attorneys’ fees
and expenses), except for obligations, demands, claims, liabilities and losses
caused by DPW’s gross negligence or willful misconduct.

 

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12.3     Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.

 

12.4     Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.

 

12.5     Amendments in Writing, Integration. All amendments to or terminations
of this Agreement or the other Loan Documents must be in writing. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement
and the other Loan Documents, if any, are merged into this Agreement and the
Loan Documents.

 

12.6     Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.

 

12.7     Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
(other than inchoate indemnity obligations) remain outstanding or DPW has any
obligation to make any Credit Extension to Borrower. The obligations of Borrower
to indemnify DPW with respect to the expenses, damages, losses, costs and
liabilities described in Section 12.2 shall survive until all applicable statute
of limitations periods with respect to actions that may be brought against DPW
have run.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

 

Digital Power Lending, LLC

 

 

 

 

 

 

By:

 

 

 

 

William Corbett, Manager

 

 

 

 

 

                  By:               Title:    

 

 

 

 

[Signature Page to Loan and Security Agreement]

 

 

--------------------------------------------------------------------------------

 

 

DEBTOR

I.AM, Inc.

    SECURED PARTY: Digital Power Lending, LLC

 

EXHIBIT A

COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT

 

The Membership Interests of Borrower in the Restaurant LLCs .

 

 

--------------------------------------------------------------------------------

 

 

EXHIBIT B

 

 

[Form of Note attached hereto]

 

 

--------------------------------------------------------------------------------

 

 

PROMISSORY NOTE

 

$1,000,000  Dated: July __ 2017

   

FOR VALUE RECEIVED, the undersigned, I.AM, Inc., a Nevada Corporation
(“Borrower”) hereby promises to pay to the order of Digital Power Lending, LLC
(“DPW”) the principal amount of One Million ($1,000,000) or such lesser amount
as shall equal the outstanding principal balance of the Credit Extensions made
by DPW to Borrower pursuant to the Loan and Security Agreement, dated as of July
_ 2017, and as thereafter amended (the “Loan Agreement”), and to pay all other
amounts due with respect to the Credit Extensions on the dates and in the
amounts set forth in the Loan Agreement. Capitalized terms used herein and not
otherwise defined shall have the meaning given to such terms in the Loan
Agreement.

 

Interest on the principal amount of this Note from the date of this Note shall
accrue at the rates set forth in the Loan Agreement. Principal, interest and all
other amounts due with respect to the Credit Extensions, are payable in lawful
money of the United States of America to DPW in immediately available funds
pursuant to the terms of the Loan Agreement.

 

This Promissory Note is the Promissory Note referred to in, and is entitled to
the benefits of, the Loan Agreement. The Loan Agreement, among other things, (a)
provides for the making of secured Credit Extensions by DPW to Borrower in the
principal amount first above mentioned, and (b) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated Events
of Default.

 

This Promissory Note may be prepaid at any time without penalty or premium. If
the maturity of the Credit Extensions is accelerated under the Loan Agreement,
Borrower shall pay to DPW, in addition to principal, interest and all other
amounts due with respect to the Credit Extensions.

 

This Promissory Note and the obligation of Borrower to repay the unpaid
principal amount of the Credit Extensions, interest on the Credit Extensions and
all other amounts due DPW under the Loan Agreement is secured under the Loan
Agreement.

 

Presentment for payment, demand, notice of protest and all other demands and
notices of any kind in connection with the execution, delivery, performance and
enforcement of this Promissory Note are hereby waived.

 

Borrower shall pay all reasonable fees and expenses, including, without
limitation, reasonable attorneys’ fees and costs, incurred by DPW in the
enforcement or attempt to enforce any of Borrower’s obligations hereunder not
performed when due. This Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of California.

 

IN WITNESS WHEREOF, each Borrower has caused this Note to be duly executed by
one of its officers thereunto duly authorized on the date hereof.

 

I.AM, INC.

 

 

By: ________________________________________________

Name: David J. Krause

Title: President and CEO

 

 

 

--------------------------------------------------------------------------------

 

 

EXHIBIT C

 

PAYMENT TERMS

 

The Borrower agrees to repay the Credit Extensions beginning on __________ and
on the first day of the month following each period of three months thereafter
as follows:

 

 

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EXHIBIT D

 

PAYMENT/ADVANCE FORM

 

TO:      ___________________________

Tel: (___) __________                                                        
Fax: (___) __________

 

   Date:                                                                       
                                                                 
                            From: I.AM, Inc., a Nevada Corporation  Mr./Ms.
                                                                               
       (Contact Person) Tel:                                                    
                 

 

[ ] LOAN DISBURSEMENT: Amount US $ _____________________

 

 

[ ] LOAN PAYMENT: Amount US$                                                   
                               

 

  Loan Number: _________________           [   ] Partial Principal Only
Deadline   3:00 PM   [   ] Interest Only Deadline   3:00 PM   [   ] Pay off
(Total Principal and Interest):  Deadline   3:00 PM                          
_________________________________________________           Authorized
Signature              _____________________________________________       
Print Name   

           

 

 

 

[a1.jpg]

All deadlines are pacific time

 

 

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SCHEDULE OF EXCEPTIONS

 

Litigation (Section 5.6)

 

 

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Schedule 3- Schedule of Reporting Requirements

 

 

    Borrower shall provide the following to DPW:        

A.

Within forty five (45) days after the last day of each month, Borrower shall
deliver to DPW a company prepared consolidated and consolidating balance sheet
and income statement, covering operations during such period.

 

 

B.

Within twenty (20) days of any changes in the Chief Executive Officer or Chief
Financial Officer.

 

 

C.

Company prepared financial projections for 2018, 2019 and 2020.

 

 

 

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