ex10-1.htm


    
      Exhibit 10.1

       

      THE
SECURITY REPRESENTED HEREBY, AND THE SECURITIES ISSUABLE UPON CONVERSION OR
REDEMPTION HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN
MAY BE OFFERED, SOLD, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE
OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO COUNSEL FOR THIS COMPANY, IS AVAILABLE.

       

      VEMICS,
INC.

      


      PROMISSORY
NOTE,

      LOAN
AND SECURITY AGREEMENT

      BRIDGE
FUNDING

       

      US$1,200,000

      


      FOR VALUE
RECEIVED, Vemics, Inc., a corporation duly organized and validly existing under
the laws of the state of Nevada (the “Company”), promises to pay to
Sonoran Pacific Resources,
LLP, an Arizona limited liability partnership, the registered holder of
this secured convertible promissory note (“Note”) and its successors and
assigns (the “Holder”),
the principal sum of One
Million Two Hundred
Thousand Dollars ($1,200,000) (“Loan Proceeds”) in accordance
with the terms hereof, and interest on the principal sum outstanding in
accordance with the terms hereof.  Accrual of interest on the
outstanding principal amount shall commence on the date hereof and shall
continue until payment in full of the outstanding principal amount has been made
or duly provided for, or until the entire outstanding principal amount of the
Note has been converted.

       

      This Note
has been issued in the aggregate principal amount of $1,200,000 (collectively,
the “Loan
Proceeds”).  The Loan Proceeds shall be paid to the Company as
follows: (i) $200,000 previously paid by wire transfer on March 5, 2008, (ii)
$20,000 as interest accrued on said initial principal advance from the date of
advance through the date hereof and added to the outstanding principal on the
date hereof, (iii) $75,000 by wire transfer on the date hereof, (iv) $300,000 by
wire transfer on or before April 25, 2009, and (v) the balance in monthly draw
requests by the Company on or before the 2nd  of
each month as a supplement to the Company’s cash receipts subject to the
reasonable approval of Holder.

       

      The
following is a statement of the rights of the Holder of this Note and the terms
and conditions to which this Note is subject, and to which the Holder, by
acceptance of this Note, agrees:

      


      1.    Closing
Fee.  Immediately upon the execution hereof, the Company shall
issue to Holder 4,000,000 shares of its common stock, par value $0.001 per share
(“Common Stock”).

      2.    Principal Repayment and
conversion options.  The outstanding principal amount of this
Note and any and all accrued but unpaid interest thereon shall be payable on or
before December 31, 2009 (the “Maturity Date”), unless this
Note has been converted or redeemed at the Holder’s written
consent.  The Company may prepay all or any portion of this Note at
any time provided the prepayment includes an additional 50% redemption fee with
respect to the amount prepaid. ( example; principal, interest due plus 50%
redemption fee).

      


      3.               
Interest.  The
Holder shall receive interest on the outstanding principal amount of this Note
at the rate of Fifteen Percent (15.0%) per annum.  Interest shall be
due and payable on the last day of each month hereafter and on the Maturity
Date.  Accrued interest may be drawn from the undisbursed Loan
Proceeds and shall be so drawn if not otherwise timely paid by the
Company.  Interest payments drawn from the Loan Proceeds shall be
added to the principal balance outstanding immediately upon being so drawn. In
the event the Loan Proceeds have been fully drawn and the Company fails to pay
interest timely before the Maturity Date, then all of the provisions of Section
5(c)(iii) shall become immediately effective so that the interest rate becomes
25% per annum, the additional Common Stock and warrants are immediately issued
by the Company, and the New Balance is repaid according to the terms therein
stated.

      


      4.               Security.
The Holder shall receive a security interest in as described in Exhibit “A”
attached hereto in all of the Collateral as defined therein, with such rights
and remedies as described therein.

      


      5.              
 Conversion.  The primary intent of the Company and the Holder is
that this Note is to be repaid in cash plus interest. The options listed below
are for the Holder’s benefit only.

      


      (a)           Optional
Conversion.  From and after the date hereof, Holder may elect,
at its option, to convert all or any portion of the outstanding Loan Proceeds
into shares of Preferred Stock of the Company (“Preferred Stock”), at the
Conversion Price. The Conversion Price shall be $67,500 per share of Preferred
Stock of the Company, which amount is determined by dividing the sum
of  the full potential Loan Proceeds ($1,200,000) plus the full 50%
redemption fee ($600,000), as hereafter described, by 28 shares of Preferred
Stock. Each share of Preferred Stock issued shall be immediately automatically
converted into Common Stock or at such time determined by the Holder, equal to
1% of the equity ownership in the Company. Equity ownership shall include all
issued Common Stock including all shares of Common Stock to be issued to the
Holder upon conversion of the portion of the Note to be
converted,  and all outstanding warrants and options that have
exercise prices up to double the average trading day price for the previous 20
days prior to conversion into Common Stock. The option to convert the
outstanding Loan Proceeds into equity will expire 24 hours prior to a capital
raise by the Company of a minimum of $10,000,000 (Ten Million Dollars), provided
the Company has given the Holder at least ten days prior written notice of such
expiration and the details of such capital raise.

      


      (b)           Mechanics of
Conversion.  Upon any conversion of the outstanding principal
amount of this Note, (i) such principal amount converted shall be converted and
such converted portion of this Note shall become fully paid and satisfied, (ii)
the Holder shall surrender and deliver the original Note, together with its
written election of exercise of the conversion rights including a statement as
to the portion of the Note being converted, to the Company’s office or such
other address which the Company shall designate against delivery of the
certificates representing Common Stock of the Company; (iii) the Company shall
promptly deliver a new duly executed Note to the Holder in the principal amount,
if any, that remains outstanding after any such conversion; and (iv) in exchange
for all or any portion of the surrendered Note described in clause (ii) of this
Section 5(b), the Company shall provide the Holder with irrevocable instructions
addressed to the Company’s transfer and exchange agent, as applicable, to issue
the appropriate number of shares of Common Stock.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      (c)           Repayment
Option. The Holder shall have the option at the Maturity Date to redeem
this Note for cash as follows:

      


      (i) Total
value of the Note at the Maturity Date shall be $1,800,000 (One Million Eight
Hundred Thousand Dollars), assuming the full Loan Proceeds have been drawn by
the Company, plus 4 million warrants priced at $.05 with five years to
execute.

      


      (ii) This
amount includes the principle of $1,200,000 (One Million Two Hundred Thousand
Dollars) and a 50% redemption fee equal to $600,000 (Six Hundred Thousand
Dollars)assuming all funds have been drawn by the Company.

      


      (iii) In
the event that the Company does not repay the entire amount owing on or before
the Maturity Date and the Holder does not convert the entire amount owing into
equity, the Company shall repay the Note balance as follows:

      


      (a) The remaining outstanding balance
of the Loan Proceeds, together with the 50% redemption fee thereon, shall be
doubled and the resultant amount shall be the amount owing under the
Note.  For example, if the outstanding balance of the Loan Proceeds is
$1,200,000, then the 50% redemption fee is $600,000, totaling $1,800,000, which
when doubled equals $3,600,000 which would be the new amount owing under the
Note. Or, if the entire Loan Proceeds of $1,200,000 has been advanced to the
Company and the Company has previously paid $500,000 principal and $250,000 as
the redemption fee thereon, or such amount has been converted into Common Stock
at the election of the Holder, then the balance of the Loan Proceeds outstanding
would be $700,000 and the redemption fee thereon would be $350,000, or
$1,050,000 in total, when doubled would be $2,100,000 which would be the new
amount owing under the Note. The new amount owing under the Note (“New Balance”)
shall be paid as follows:

      


      (A)  Interest
shall accrue at the rate of twenty-five (25%) percent per annum on the
outstanding Loan Proceeds plus the 50% redemption fee thereon from the original
Maturity Date until paid in full.

      


      (B)  One-fourth of the New
Balance plus a warrant (in the form attached hereto as Exhibit “B”) to purchase
9,960,000 shares of Common Stock of the Company at $0.05 per share for an
exercise period of five years, plus 8,000,000 shares of Common Stock of the
Company shall be immediately paid on or before December 31, 2009;

      


      (C)  One-fourth of the New
Balance plus accrued interest shall be paid on or before March 31,
2010;

      


      (D)  One-fourth of the New
Balance plus accrued interest shall be paid on or before June 30,
2010;

      


      (E)   The remaining
balance of the New Balance plus accrued interest shall be paid on or before
September 30, 2010.

      


      (d)                    Issue
Taxes.  The Company shall pay any and all issue and other taxes
that may be payable with respect to any issue or delivery of shares of Common
Stock on conversion of this Note pursuant hereto; provided, however, that the
Company shall not be obligated to pay any transfer taxes resulting from any
transfer requested by Holder in connection with any such
conversion.

      


      (e)                    Elimination of Fractional
Interests.  No fractional shares of Common Stock shall be
issued upon conversion of this Note, nor shall the Company be required to pay
cash in lieu of fractional interests, it being the intent of the parties that
all fractional interests shall be eliminated and that all issuances of the
Common Stock shall be rounded up to the nearest whole share.

      


      (f)                    Warrants.  Upon
the date hereof the Company shall issue 480,000 warrants (in the form attached
hereto as Exhibit “B”) convertible into of Common Stock at a price of $.05 per
share, with five years to convert.

      


      6.           Early Repayment by May 31,
2009. If the Company repays the entire Note on or before May 31, 2009,
such early repayments shall be the sum of the following:

      


      
        	
                (a)  

              	
                All
      outstanding advances of Loan
Proceeds;

              


      

      


      
        	
                (b)  

              	
                All
      accrued unpaid interest;

              


      

      


      
        	
                (c)  

              	
                A
      redemption fee equal 50% of the outstanding advances of the loan
      proceeds

              


      

      


      
        	
                (d)  

              	
                A
      warrant (in the form attached hereto as Exhibit “B”) to purchase 2,500,000
      shares of the Company’s Common Stock at a price of $0.05 per share and
      with a five year exercise period; ( note: this supersedes the 4 million
      warrants that would be due if the note is fully drawn and runs to the
      maturity date. This does not supersede the original 480,000 warrants
      issued upon execution of this note)

              


      

      


      
        	
                (e)  

              	
                2,500,000
      shares of the Company’s Common Stock, provided if the Company has issued
      4,000,000 shares of Common Stock to the Holder in accordance with section
      1 above, then the Holder shall retain such shares and the Company shall be
      granted a credit against the outstanding Loan Proceeds of
      $75,000.

              


      

      


      7.           Rights upon Liquidation,
Dissolution or Winding Up.  In the event of any liquidation,
dissolution or winding up of the Company, either voluntary or involuntary, the
Holder shall be entitled to receive, prior and in preference to any distribution
of any of the assets of the Company or to the holders of any equity security of
the Company, an amount equal to the unpaid and unconverted principal face amount
of the Note and any accrued and unpaid interest thereon.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

      

      8.           Affirmative Covenants of the
Company.  The Company hereby agrees that, so long as the Note
remains outstanding and unpaid, or any other amount is owing to the Holder
hereunder, the Company will:

      


      (a)           Corporate Existence and
Qualification.  Take the necessary steps to preserve its
corporate existence and its right to conduct business in all states in which the
nature of its business requires qualification to do business.

      


      (b)           Books of
Account.  Keep its books of account in accordance with good
accounting practices.

      


      (c)           Insurance.  Maintain
insurance with responsible and reputable insurance companies or associations, as
determined by the Company in its sole but reasonable discretion, in such amounts
and covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which the
Company operates.

      


      (d)           Preservation of Properties;
Compliance with Law.  Maintain and preserve all of its
properties that are used or that are useful in the conduct of its business in
good working order and condition, ordinary wear and tear excepted and comply
with the charter and bylaws or other organizational or governing documents of
the Company, and any law, treaty, rule or regulation, or determination of an
arbitrator or a court or other governmental authority, in each case applicable
to or binding upon the Company or any of its property or to which each the
Company or any of its property is subject.

      


                    
 (e)           Taxes.  Duly pay
and discharge all taxes or other claims, which might become a lien upon any of
its property except to the extent that any thereof are being in good faith
appropriately contested with adequate reserves provided therefor.

      


      (f)           Reservation of
Shares.  The Company shall at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock issuable upon conversion of this Note and exercise of the Warrants to
provide for the issuance of all of such shares.  Prior to complete
conversion of this Note and exercise of the Warrants, the Company shall not
reduce the number of shares of Common Stock reserved for issuance hereunder
without the written consent of the Holder except for a reduction proportionate
to a reverse stock split effected for a business purpose other than affecting
the requirements of this Section, which reverse stock split affects all shares
of Common Stock equally.

      


      (g)           Use of
Proceeds.  The proceeds of the Note will be used for working
capital purposes.

      


                                     
(h)           Financial
Information.  The company shall maintain its filings with the
Securities and Exchange Commission pursuant to Section 13 or Section 15 of the
Exchange Act.

      


      9.           Negative Covenants of the
Company.  The Company hereby agrees that, so long as all or any
portion of this Note remains outstanding and unpaid it will not, nor will it
permit any of its subsidiaries, if any, without the consent of
the  Holder (as defined in Section 16 hereof), to:

      


      (a)           Indebtedness for Borrowed
Money.  Without the prior written consent of the Holder, incur,
or permit to exist, any new Indebtedness (as defined below) for borrowed money
in excess of $50,000 during each fiscal year of the Company,  except
in the ordinary course of the Company’s business.  For purposes of
this Note, “Indebtedness” shall mean (a)
all obligations of the Company for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of the Company evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of the
Company for the deferred purchase price of property or services, except current
accounts payable arising in the ordinary course of business and not overdue
beyond such period as is commercially reasonable for the Company’s business, (d)
all obligations of the Company under conditional sale or other title retention
agreements relating to property purchased by the Company, (e) all payment
obligations of the Company with respect to interest rate or currency protection
agreements, (f) all obligations of the Company as an account party under any
letter of credit or in respect of bankers’ acceptances, (g) all obligations of
any third party secured by property or assets of such Person (regardless of
whether or not the Company is liable for repayment of such obligations), except
for obligations to secure Indebtedness incurred within the limitations of this
Section 9(a); (h) all guarantees of the Company and (i) the redemption price of
all redeemable preferred stock of the Company, but only to the extent that such
stock is redeemable at the option of the holder or requires sinking fund or
similar payments at any time prior to the Maturity Date.

      


      (b)           Mergers, Acquisitions and Sales of
Assets.   Enter into any merger or consolidation or
liquidate, windup or dissolve itself or sell, transfer or lease or otherwise
dispose of all or any substantial part of its assets or technologies (other than
sales of inventory and obsolescent equipment in the ordinary course of
business); except: (i) if the Company is the surviving corporation and a change
in control has not occurred, (ii) that any subsidiary of the Company may merge
into or consolidate with any other subsidiary which is wholly-owned by the
Company, and (iii) any subsidiary which is wholly-owned by the Company may merge
with or consolidate into the Company provided that the Company is the surviving
corporation.

      


      (c)           Loans.  Lend or
advance money, credit or property to (by capital contribution, loan, purchase or
otherwise) any firm, corporation, or other Person except (i) investments in
United States Government obligations, certificates of deposit of any banking
institution with combined capital and surplus of at least $200,000,000; (iii)
accounts receivable arising out of sales in the ordinary course of business; and
(iv) loans to subsidiaries, if any.

      


      (d)           Dividends and
Distributions.  Pay dividends or make any other distribution on
shares of the capital stock of the Company.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
 

      (e)           Liens.  Create,
assume or permit to exist, any lien on any of its property or assets now owned
or hereafter acquired except (i) liens in favor of the Holder; (ii) liens
granted to secure Indebtedness incurred within the limitations of Section 9(a)
hereof; (iii) liens incidental to the conduct of its business or the ownership
of its property and assets which were not incurred in connection with the
borrowing of money or the obtaining of advances or credit and which do not
materially impair the use thereof in the operation of its business; (iv) liens
for taxes or other governmental charges which are not delinquent or which are
being contested in good faith and for which a reserve shall have been
established in accordance with generally accepted accounting principles; and (v)
purchase money liens granted to secure the unpaid purchase price of any fixed
assets purchased within the limitations of Section 9(h) hereof.

      


      (f)           Contingent
Liabilities.  Assume, endorse, be or become liable for or
guarantee the obligations of any Person, contingently or otherwise, excluding
however, the endorsement of negotiable instruments for deposit or collection in
the ordinary course of business or guarantees of the Company made within the
limitations of Section 9(a) hereof.

      


      (g)           Sales of Receivables; Sale -
Leasebacks.  Sell, discount or otherwise dispose of notes,
accounts receivable or other obligations owing to the Company, with or without
recourse, except for the purpose of collection in the ordinary course of
business; or sell any asset pursuant to an arrangement to thereafter lease such
asset from the purchaser thereof.

      


      (h)           Capital Expenditures; Capitalized
Leases.  Expend in the aggregate for the Company and all its
subsidiaries in excess of $100,000 in any fiscal year for Capital Expenditures
(as defined below), including payments made on account of Capitalized Leases (as
defined below).  “Capital Expenditures” shall
mean for any period, the aggregate amount of all payments made by any Person
directly or indirectly for the purpose of acquiring, constructing or maintaining
fixed assets, real property or equipment which, in accordance with generally
accepted accounting principles, would be added as a debit to the fixed asset
account of such Person, including, without limitation, all amounts paid or
payable with respect to Capitalized Lease Obligations and interest which are
required to be capitalized in accordance with generally accepted accounting
principles.  “Capitalized Lease” shall mean
any lease the obligations to pay rent or other amounts under which constitute
Capitalized Lease Obligations.  “Capitalized Lease Obligations”
shall mean as to any Person, the obligations of such Person to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) real
and/or personal property which obligations are required to be classified and
accounted for as a capital lease on a balance sheet of such Person under
generally accepted accounting principles and, for purposes of this Note, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with generally accepted accounting principles.

      


      (i)           Nature of
Business.  Materially alter the nature of the Company’s
business or otherwise engage in any business other than the business engaged in
or proposed to be engaged in on the date of this Note.

      


      (j)           Stock of
Subsidiaries.  Sell or otherwise dispose of any subsidiary, if
any, or permit a subsidiary, if any, to issue any additional shares of its
capital stock except pro rata to its stockholders.

      


      (k)           ERISA.  (i)
Terminate any plan (“Plan”) of a type described in
Section 402l(a) of the Employee Retirement Income Security Act of l974, as
amended from time to time (“ERISA”) in respect of which
the Company is an “employer” as defined in Section 3(5) of ERISA so as to result
in any material liability to the Pension Benefit Guaranty Corporation (the
“PBGC”) established
pursuant to Subtitle A of Title IV of ERISA, (ii) engage in or permit any person
to engage in any “prohibited transaction” (as defined in Section 406 of ERISA or
Section 4975 of the Internal Revenue Code of 1954, as amended) involving any
Plan which would subject the Company to any material tax, penalty or other
liability, (iii) incur or suffer to exist any material “accumulated funding
deficiency” (as defined in Section 302 of ERISA), whether or not waived,
involving any Plan, or (iv) allow or suffer to exist any event or condition,
which presents a material risk of incurring a material liability to the PBGC by
reason of termination of any Plan.

      


      (l)           Accounting
Changes.  Make, or permit any subsidiary to make any change in
their accounting treatment or financial reporting practices except as required
or permitted by generally accepted accounting principles in effect from time to
time.

      


      (m)           Transactions with
Affiliates.  Directly or indirectly, purchase, acquire or lease
any property from, or sell, transfer or lease any property to, or enter into any
other transaction, with any Affiliate (as defined below) except in the ordinary
course of business and at prices and on terms not less favorable to it than
those which would have been obtained in an arm’s-length transaction with a
non-affiliated third party.  “Affiliate” as applied to any
Person, shall mean any other Person directly or indirectly through one or more
intermediaries controlling, controlled by, or under common control with, that
Person.  For the purposes of this definition, “control” (including
with correlative meanings, the terms “controlling,” “controlled by” and “under
common control with”), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through the ownership of voting securities
or by contract or otherwise.

      


      10.           Events of
Default.  The Note shall become immediately due and payable at
the option of the Holder, without notice or demand, upon any one or more of the
following events or occurrences (“Events of
Default”):

       

      (a)           if
any portion of the Note is not paid when due;

       

      (b)           if
any representation or warranty of the Company made in this Note, or in any
certificate, report or other financial statement or other instrument or document
delivered pursuant hereto, or any notice, certificate, demand or request
delivered to the Holder pursuant to this Note or any other document proves to be
false or misleading in any material respect as of the time when the same is
made;

       

      (c)           if
the Company consummates a transaction which would cause this Note or any
exercise of any Holder’s rights under this Notes and the Warrants (i) to
constitute a non-exempt prohibited transaction under ERISA, (ii) to violate a
state statute regulating governmental plans or (iii) otherwise to subject the
Company to liability for violation of ERISA or such state statute;

       

      (d)           if
any final judgment for the payment of money is rendered against the Company and
the Company does not discharge the same or cause it to be discharged or vacated
within one hundred twenty (120) days from the entry thereof, or does not appeal
therefrom or from the order, decree or process upon which or pursuant to which
said judgment was granted, based or entered, and does not secure a stay of
execution pending such appeal within one hundred twenty (120) days after the
entry thereof;

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      (e)           subject
to the provisions of Section 9(e) hereof, if any taxes are not paid before
delinquency;

       

      (f)           if
the Company makes an assignment for the benefit of creditors or if the Company
generally does not pay its debts as they become due;

       

      (g)           if
a receiver, liquidator or trustee of the Company is appointed or if the Company
is adjudicated a bankrupt or insolvent, or if any petition for bankruptcy,
reorganization or arrangement pursuant to federal bankruptcy law, or any similar
federal or state law, is filed by or against, consented to, or acquiesced in, by
the Company or if any proceeding for the dissolution or liquidation of the
Company is instituted; however, if such appointment, adjudication, petition or
proceeding is involuntary and is not consented to by the Company, upon the same
not being discharged, stayed or dismissed within 60 days;

       

      (h)           if
the Company defaults under any other mortgage or security agreement covering any
part of its property;

       

      (i)           except
for specific defaults set forth in this Section 10, if the Company defaults in
the observance or performance of any other term, agreement or condition of this
Note, and the Company fails to remedy such default within thirty (30) days after
notice by the Holder to the Company of such default, or, if such default is of
such a nature that it cannot with due diligence be cured within said thirty (30)
day period, if the Company fails, within said thirty (30) days, to commence all
steps necessary to cure such default, and fails to complete such cure within
ninety (90) days after the end of such thirty (30) day period; and

       

      (j)           if
any of the following exist uncured for forty-five (45) days following written
notice to the Company: (i) the failure of any representation or warranty made by
the Company to be true and correct in all material respects or (ii) the Company
fails to provide the Holder with the written certifications and evidence
referred to in this Note.

       

      11.           Holder Not Deemed a
Stockholder.  No Holder, as such, of this Note shall be
entitled (prior to conversion or redemption of this Note into Common Stock, and
only then to the extent of such conversion) to vote or receive dividends or be
deemed the holder of shares of the Company for any purpose, nor shall anything
contained in this Note be construed to confer upon the Holder hereof, as such,
any of the rights at law of a stockholder of the Company prior to the issuance
to the holder of this Note of the shares of Common Stock which the Holder is
then entitled to receive upon the due conversion of all or a portion of this
Note.  Notwithstanding the foregoing, the Company will provide the
Holder with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.

      


      12.           Confidential
Information.  The Holder agrees that it will keep confidential
and will not disclose, divulge or use for any purpose, other than to monitor its
investment in the Company, any confidential information obtained from the
Company pursuant to the terms of this Agreement, unless such confidential
information (i) is known or becomes known to the public in general (other than
as a result of a breach of this Section 12 by the Holder), (ii) is or has been
independently developed or conceived by the Holder without use of the Company's
confidential information or (iii) is or has been made known or disclosed to the
Holder by a third party without a breach of any obligation of confidentiality
such third party may have to the Company; provided, however, that the
Holder may disclose confidential information to its attorneys, accountants,
consultants, and other professionals to the extent necessary to obtain their
services in connection with monitoring its investment in the Company or as may
be required by law, provided that the Holder takes reasonable steps to minimize
the extent of any such required disclosure.

      


      13.           Waiver of Demand,
Presentment, Etc.  The Company hereby expressly waives demand
and presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, default and nonpayment, notice of acceleration or intent to
accelerate, bringing of suit and diligence in taking any action to collect
amounts called for hereunder, and all rights of set-off, defenses, deduction or
counterclaim with respect to any amount owing hereunder, and shall be directly
and primarily liable for the payment of all sums owing and to be owing
hereunder, regardless of and without any notice, diligence, act or omission as
or with respect to the collection of any amount called for
hereunder.

      


      14.           Payment.  Except
as otherwise provided for herein, all payments with respect to this Note shall
be made in lawful currency of the United States of America, at the option of the
Holder, (i) at the principal office of the Holder, located at 10446 N. 74th Street,
Suite 120, Scottsdale, AZ 85258, or such other place or places as may be
reasonably specified by the Holder of this Note in a written notice to the
Company at least ten (10) business days before a given payment date, or (ii) by
mailing a good check in the proper amount to the Holder at least two days prior
to the due date of each payment or otherwise transferring funds so as to be
received by the Holder on the due date of each such payment; provided, however, that the
Company shall make payment by wire transfer to an account such Holder may
specify in writing to the Company at least two days prior to the due date of
each payment.  Payment shall be credited first to the accrued interest
then due and payable and the remainder applied to principal.  The
Holder shall keep a record of each payment of principal and interest with
respect thereto.

      


      15.           Assignment.  The
rights and obligations of the Company and the Holder of this Note shall be
binding upon, and inure to the benefit of, the permitted successors, assigns,
heirs, administrators and transferees of the parties
hereto.  Notwithstanding the foregoing, neither the Company nor the
Holder may  assign, pledge or otherwise transfer this Note without the
prior written consent of the other.  Interest and principal are
payable only to the registered Holder of this Note in the Note
Register.

       

                     16.           Waiver and
Amendment.  Any provision of this Note, including, without
limitation, the due date hereof, and the observance of any term hereof, may be
amended, waived or modified (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of the
Company and the Holder.

      


      17.           Notices.  Any
notice, request or other communication required or permitted hereunder shall be
in writing and shall be deemed to have been duly given if personally delivered
or mailed by registered or certified mail, postage prepaid, or delivered by
facsimile transmission, to the Company at the address or facsimile number set
forth herein or to the Holder at its address or facsimile number set forth in
the records of the Company.  Any party hereto may by notice so given
change its address for future notice hereunder.  Notice shall
conclusively be deemed to have been given when personally delivered or when
deposited in the mail in the manner set forth above and shall be deemed to have
been received when delivered or, if notice is given by facsimile transmission,
when delivered with confirmation of receipt.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

      

      18.           Governing Law;
Jurisdiction.  This Note, and all matters arising directly or
indirectly here from, shall be governed by and construed in accordance with the
laws of the Arizona, notwithstanding the choice of law or conflicts of law
principles thereof.  Each of the parties hereto hereby (i) irrevocably
consents and submits to the jurisdiction of the Arizona state courts having
venue in Maricopa County, Arizona and of the United States District Court for
the District of Phoenix (and of the appropriate appellate courts therefrom) in
connection with any suit, action or other proceeding arising out of or relating
to this Note, (ii) irrevocably waives, to the fullest extent permitted by law,
any objection that it may now or hereafter have to the laying of the venue of
any such suit, action or proceeding in any such court or that any such suit,
action or proceeding which is brought in any such court has been brought in an
inconvenient forum, and (iii) agrees that service of any summons, complaint,
notice or other process relating to such suit, action or other proceeding may be
effected in the manner provided by the rules of such courts.

      


      19.           Severability.  If
one or more provisions of this Note are held to be unenforceable under
applicable law, such provisions shall be excluded from this Note, and the
balance of this Note shall be interpreted as if such provisions were so excluded
and shall be enforceable in accordance with its terms.

      


      20.           Headings.  Section
headings in this Note are for convenience only, and shall not be used in the
construction of this Note.

      


                      21.           Piggy-Back Registration
Rights.  The Company covenants and agrees that in the event the
Company proposes to file a registration statement under the Securities Act of
1933 with respect to the Company’s Common Stock (other than in connection with
an exchange offer or a registration statement on Form S-4 or S-8 or other
similar registration statements not available to register the Purchaser’s
securities), the Company shall include in such registration statement the shares
of the Company’s Common Stock issued hereunder to Holder as well as the shares
of the Company’s Common Stock issuable upon exercise of any warrant to be issued
hereunder to Holder (collectively, the “Piggy-Back Securities”). Piggy-Back
registration rights shall conform to all applicable regulations at the time of
registration. All additional expenses of registering the Piggy-Back Securities
shall be borne by the Company, excluding underwriting commissions, if
any.

      


      IN WITNESS WHEREOF, the
Company has caused this Note to be issued as of the date first above
written.

      


      VEMICS,
INC.

       

      By:  _________________________

      Name:  Fred
Zolla

      Title:
CEO

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      SECURITY
AGREEMENT PROVISIONS EXHIBIT
“A”

      


      1.           DEFINITIONS.

       

      1.1           “Accounts”
shall mean and include all presently existing and hereafter arising accounts,
including without limitation all accounts receivable, contract rights and other
forms of right to payment for monetary obligations or receivables for property
sold or to be sold, leased, licensed, assigned or otherwise disposed of, or for
services rendered or to be rendered owing to the Company, and any supporting
obligations, credit insurance, guaranties or security therefor, irrespective of
whether earned by performance.

       

      1.2           “Agreement”
shall mean and includes the Note and the Security Agreement terms contained
herein, any concurrent or subsequent rider to said documents and any extensions,
supplements, amendments or modifications thereto.

       

      1.3           “Holder
Expenses” shall mean and includes: all costs or expenses required to be paid by
the Company under this Agreement which are paid or advanced by Holder;
attorney’s fees, cost and expenses paid to Holder’s attorney in connection with
the preparation of this Agreement, taxes and insurance premiums of every nature
and kind of the Company paid by Holder; filing, recording, publication and
search fees paid or incurred by Holder in connection with Holder's transactions
with the Company; costs and expenses incurred by Holder to correct any default
or enforce any provision of this Agreement, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, disposing of,
preparing for sale and/or advertising to sell the Collateral, whether or not a
sale is consummated; costs and expenses of suit incurred by Holder in enforcing
or defending this Agreement or any portion hereof, including, but not limited
to, expenses incurred by Holder in attempting to obtain relief from any stay,
restraining order, injunction or similar process which prohibits Holder from
exercising any of its rights or remedies; and reasonable attorneys' fees and
expenses incurred by Holder in advising, structuring, drafting, reviewing,
amending, terminating, enforcing, defending or concerning this Agreement, or any
portion hereof or any agreement related hereto, whether or not suit is
brought.

       

      1.4           “Collateral”
shall mean and includes all personal property of the Company, including without
limitation each and all of the following: Accounts; Inventory; General
Intangibles; the Company's books; all the Company's deposit accounts; all the
Company's investment property (including without limitation securities and
securities entitlements); all goods, instruments, documents, policies and
certificates of insurance, deposits, money or other personal property of the
Company in which Holder receives a security interest and which now or later come
into the possession, custody or control of Holder, all the Company's equipment
and fixtures; all additions, accessions, attachments, parts, replacements,
substitutions, renewals, interest, dividends, distributions or rights of any
kind for or with respect to any of the foregoing (including without limitation
any stock splits, stock rights, voting rights and preferential rights); any
supporting obligations for any of the foregoing; and the products and proceeds
of any of the foregoing including, but not limited to, proceeds of insurance
covering the Collateral, and any and all accounts, general intangibles,
Inventory, equipment, money, deposit accounts, investment property, equipment,
fixtures or other tangible and intangible property of the Company resulting from
the sale or other disposition of the Collateral and the proceeds thereof and any
supporting obligations or security therefor and any right to payment thereunder,
and including, without limitation, cash or other property which were proceeds
and are recovered by a bankruptcy trustee or otherwise as a preferential
transfer by the Company. Notwithstanding anything to the contrary contained
herein, Collateral shall not include any waste or other materials which have
been or may be designated as toxic or hazardous by Holder.

       

      1.5           “Event
of Default" shall mean one or more of those events described in the Note or
contained herein below.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      1.6           “General
Intangibles” shall mean and includes all of the Company's present and future
general intangibles and other personal property (including without limitation
all payment intangibles, electronic chattel paper, contract rights, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, plans, diagrams, schematics, purchase orders, customer
lists, monies due or recoverable from pension funds, route lists, rights to
payment (including without limitation, rights to payment evidenced by chattel
paper, documents or instruments) and other rights under any royalty or licensing
agreements, infringement claims, software (including without limitation any
computer program that is embedded in goods that consist solely of the medium in
which the program is embedded), information contained on computer disks or
tapes, literature, reports, catalogs, insurance premium rebates, tax refunds,
and tax refund claims), other than goods, Accounts, Inventory, and the Company's
Books.

       

      1.7           “Indebtedness”
shall mean and includes any and all loans, advances, debts, liabilities
(including, without limitation, any and all amounts charged to the Company's
loan account pursuant to any agreement authorizing Holder to charge the
Company's loan account, including attorney’s fees incurred by Holder with
respect to the making of the loans set forth herein and for this Agreement and
any related document), owing by the Company to Holder advanced pursuant to or
evidenced by this Agreement; whether absolute or contingent, due or to become
due, now existing or hereafter arising, including, without limitation, any
interest, fees, expenses, costs and other amounts owed to Holder that but for
the provisions of the United States Bankruptcy Code would have accrued after the
commencement of any Insolvency Proceeding, and further including, without
limitation, all interest not paid when due, and all Holder Expenses which the
Company is required to pay or reimburse by this Agreement, by law, or
otherwise.

       

      1.8           “Insolvency
Proceeding" shall mean and includes any proceeding or case commenced by or
against the Company, or any of the Company's account debtors, under any
provisions of the Bankruptcy Code, as amended, or any other Bankruptcy or
insolvency law, including, but not limited to assignments for the benefit of
creditors, formal or informal moratoriums, composition or extensions with some
or all creditors, any proceeding seeking a reorganization, arrangement or any
other relief under the Bankruptcy Code, as amended, or any other Bankruptcy or
insolvency law.

       

      1.9           “Inventory”
shall mean and includes all present and future inventory in which the Company
has any interest, including, but not limited to, goods held by the Company for
sale or lease or to be furnished under a contract of service and all of the
Company's present and future raw materials, work in process, finished goods,
together with any advertising materials and packing and shipping materials,
wherever located and any documents of title representing any of the above, and
any equipment, fixtures or other property used in the storing, moving,
preserving, identifying, accounting for and shipping or preparing for the
shipping of Inventory, and any and all other items hereafter acquired by the
Company by way of substitution, replacement, return, repossession or otherwise,
and all additions and accessions thereto, and the resulting product or mass, and
any documents of title respecting any of the above.

       

      Any and
all terms used in the foregoing definitions and elsewhere in this Agreement
shall be construed and defined in accordance with the meaning and definition of
such terms under and pursuant to the Arizona Uniform Commercial Code
(hereinafter referred to as the 'Uniform Commercial Code') as amended, revised
or replaced from time to time. Notwithstanding the foregoing, the parties intend
that the terms used herein which are defined in the Uniform Commercial Code have
at all times the broadest and most inclusive meanings possible. Accordingly, if
the Uniform Commercial Code shall in the future be amended or held by a court to
define any term used herein more broadly or inclusively than the Uniform
Commercial Code in effect on the date of this Agreement, then such term, as used
herein, shall be given such broadened meaning. If the Uniform Commercial Code
shall in the future be amended or held by a court to define any term used herein
more narrowly, or less inclusively, than the Uniform Commercial Code in effect
on the date of this Agreement, such amendment or holding shall be disregarded in
defining terms used in this Agreement.

       

      2.0           CREATION
OF SECURITY INTEREST.

       

      2.1           Company
hereby grants to Holder a continuing security interest in all presently existing
and hereafter arising Collateral in order to secure prompt repayment of any and
all Indebtedness owed by Company to Holder and in order to secure prompt
performance by Company of each and all of its covenants and obligations under
this Agreement and otherwise created. Holder's security interest in the
Collateral shall attach to all Collateral without further act on the part of
Holder or Company.

       

      2.2           Holder's
security interest in the Accounts shall attach to all Accounts without further
act on the part of Holder or Company. Upon request from Holder, Company shall
provide Holder with schedules describing all Accounts created or acquired by
Company (including without limitation agings listing the names and addresses of,
and amounts owing by date by account debtors), and shall execute and deliver
written assignments of all Accounts to Holder all in a form acceptable to
Holder; provided, however, Company's failure to execute and deliver such
schedules and/or assignments shall not affect or limit Holder's security
interest and other rights in and to the Accounts. Together with each schedule,
Company shall furnish Holder with copies of Company's customers' invoices or the
equivalent, and original shipping or delivery receipts for all merchandise sold,
and Company warrants the genuineness thereof. Upon the occurrence of an Event of
Default, Holder or Holder's designee may notify customers or account debtors of
Holder's security interest in the Collateral and direct such customers or
account debtors to make payments directly to Holder, but unless and until Holder
does so or gives Company other written instructions, Company shall collect all
Accounts for Holder, receive in trust all payments thereon as Holder's trustee,
and, if so requested to do so from Holder, Company shall immediately deliver
said payments to Holder in their original form as received from the account
debtor and all letters of credit, advices of credit, instruments, documents,
chattel paper or any similar property evidencing or constituting Collateral.
Notwithstanding anything to the contrary contained herein, if sales of Inventory
are made for cash, Company shall immediately deliver to Holder, in identical
form, all such cash, checks, or other forms of payment which Company receives.
The receipt of any check or other item of payment by Holder shall not be
considered a payment on account until such check or other item of payment is
honored when presented for payment, in which event, said check or other item of
payment shall be deemed to have been paid to Holder two (2) calendar days after
the date Holder actually receives such check or other item of
payment.

       

      2.3           Holder's
security interest in Inventory shall attach to all Inventory without further act
on the part of Holder or Company. Company will, at Company’s expense, pledge,
assemble and deliver such Inventory to Holder or to a third party as Holder's
bailee; or hold the same in trust for Holder's account or store the same in a
warehouse in Holder's name; or deliver to Holder documents of title representing
said Inventory; or evidence of Holder's security interest in some other manner
acceptable to Holder. Until a default by Company under this Agreement or any
other Agreement between Company and Holder, Company may, subject to the
provisions hereof and consistent herewith, sell the Inventory, but only in the
ordinary course of Company's business. A sale of Inventory in Company's ordinary
course of business does not include an exchange or a transfer in partial or
total satisfaction of a debt owing by Company.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      2.4           Concurrently
with Company's execution of the Note, and at any time or times hereafter at the
request of Holder, Company shall (a) execute and deliver to Holder security
agreements, mortgages, assignments, certificates of title, affidavits, reports,
notices, schedules of accounts, letters of authority and all other documents
that Holder may reasonably request, in form satisfactory to Holder, to perfect
and maintain perfected Holder's security interest in the Collateral and in order
to fully consummate all of the transactions contemplated under this Agreement,
(b) cooperate with Holder in obtaining a control agreement in form and substance
satisfactory to Holder with respect to all deposit accounts, electronic chattel
paper, investment property, and letter-of-credit rights, and (c) in the event
that any Collateral is in the possession of a third party, Company shall join
with Holder in notifying such third party of Holder's security interest and
obtaining an acknowledgment from such third party that it is holding such
Collateral for the benefit of Holder. By authenticating or becoming bound by
this Agreement, Company authorizes the filing of initial financing statement(s),
and any amendment(s) covering the Collateral to perfect and maintain perfected
Holder's security interest in the Collateral. Upon the occurrence of an Event of
Default, Company hereby irrevocably makes, constitutes and appoints Holder (and
any of Holder's officers, employees or agents designated by Holder) as Company's
true and lawful attorney-in-fact with power to sign the name of Company on any
security agreement, mortgage, assignment, certificate of title, affidavit,
letter of authority, notice of other similar documents which must be executed
and/or filed in order to perfect or continue perfected Holder's security
interest in the Collateral, and to take such actions in its own name or in
Company's name as Holder, in its sole discretion, deems necessary or appropriate
to establish exclusive possession or control (as defined in the Uniform
Commercial Code) over any Collateral of such nature that perfection of Holder's
security interest may be accomplished by possession or control.

       

      2.5           Effective
only upon the occurrence of an Event of Default, Company appoints Holder or any
other person whom Holder may designate as Company’s attorney-in-fact, with
power: to endorse Company’s (or any of their names) name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into Holder's possession; to sign Company’s name on any invoice or bill of
lading relating to any Accounts, on drafts against account debtors, on schedules
and assignments of Accounts, on verifications of Accounts and on notices to
account debtors; to establish a lock box arrangement and/or to notify the post
office authorities to change the address for delivery of Company's mail
addressed to Company to an address designated by Holder, to receive and open all
mail addressed to Company, and to retain all mail relating to the Collateral and
forward all other mail to Company; to send, whether in writing or by telephone,
requests for verification of Accounts; and to do all things necessary to carry
out this Agreement. Company ratifies and approves all acts of the
attorney-in-fact. Neither Holder nor its attorney-in-fact will be liable for any
acts or omissions or for any error of judgement or mistake of fact or law. This
power being coupled with an interest, is irrevocable so long as any Accounts in
which Holder has a security interest remain unpaid and until the Indebtedness
has been fully satisfied.

       

      2.6           In
order to protect or perfect any security interest which Holder is granted
hereunder, Holder may, in its sole discretion, discharge any lien or encumbrance
or bond the same, pay any insurance, maintain guards, warehousemen, or any
personnel to protect the Collateral, pay any service bureau, or obtain any
records, and all costs for the same shall be added to the indebtedness and shall
be payable on demand.

       

      3.           WARRANTIES.
REPRESENTATIONS AND COVENANTS.

       

      3.1           If
so requested by Holder, Company shall, at such intervals designated by Holder,
during the term hereof execute and deliver a Report of Accounts Receivable and
Inventory or similar report, in form acceptable to Holder.

       

      3.2           Holder
shall retain its security interest in all Accounts until all Indebtedness has
been fully paid and satisfied. Returns and allowances, if any, as between
Company and its customers, will be on the same basis and in accordance with the
usual customary practices of Company, as they exist at this time. Any
merchandise which is returned by an account debtor or otherwise recovered shall
be subject to this Agreement, and Holder shall retain a security interest
therein. Company shall promptly notify Holder of all disputes and claims and
settle or adjust them on terms approved by Holder. After default by Company
hereunder, no discount, credit or allowance shall be granted to any account
debtor by Company and no return of merchandise shall be accepted by Company
without Holder's consent. Holder may, after default by Company, settle or adjust
disputes and claims directly with account debtors for amounts and upon terms
which Holder considers advisable, and in such cases Holder will credit Company's
loan account with only the net amounts received by Holder in payment of the
Accounts, after deducting all Holder Expenses in connection
therewith.

       

      3.3           Company
warrants, represents, covenants and agrees that:

       

      a.           Company
has good and marketable title to the Collateral. Holder has and shall continue
to have a first priority perfected security interest in and to the Collateral.
The Collateral shall at all times remain free and clear of all liens,
encumbrances and security interests (except those in favor of
Holder);

       

      b.           All
Accounts are and will, at all times pertinent hereto, be bona fide existing
obligations created by the sale and delivery of merchandise or the rendition of
services to account debtors in the ordinary course of business, free of liens,
claims, encumbrances and security interests (except as held by Holder and except
as may be consented to, in writing, by Holder) and are unconditionally owed to
Company without defenses, disputes, offsets counterclaims, rights of return or
cancellation, and Company shall have received no notice of actual or imminent
Bankruptcy or insolvency of any account debtor at the time an Account due from
such account debtor is assigned to Holder; and

       

      c.           At
the time each Account is assigned to Holder, all property giving rise to such
Account shall have been delivered to the account debtor or to the agent for the
account debtor for immediate shipment to, and unconditional acceptance by, the
account debtor. Company shall deliver to Holder, as Holder may from time to time
require, delivery receipts, customers’ purchase orders, shipping instructions,
bills of lading and any other evidence of shipping arrangements. Absent such a
request by Holder, copies of all such documentation shall be held by Company as
custodian for Holder.


       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      4.           EVENTS
OF DEFAULT.

       

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

       

      a.           If
Company fails or neglects to perform, keep or observe any term, provision,
condition, covenant, agreement, warranty or representation contained in the Note
or this Agreement, or any other present or future document, instrument or
agreement between Company and Holder;

       

      b.           If
any representation, statement, report or certificate made or delivered by
Company, or any of its officers, employees or agents to Holder is not true and
correct;

       

      c.           If
there is a material impairment of the prospect of repayment of all or any
portion of Company's Indebtedness or a material impairment of the value or
priority of Holder's security interest in the Collateral;

       

      5.           HOLDER’S RIGHTS AND
REMEDIES.

       

      5.1           Upon
the occurrence of an Event of Default by Company under this Agreement, Holder
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
Company:

       

      a.           Declare
Company's Indebtedness, whether evidenced by this Agreement, installment notes,
demand notes or otherwise, immediately due and payable to Holder;

       

      b.           Cease
advancing money or extending credit to or for the benefit of Company under this
Agreement, or any other agreement between Company and Holder;

       

      c.           Terminate
this Agreement as to any future liability or obligation of Holder, but without
affecting Holder's rights and security Interests in the Collateral, and the
Indebtedness of Company to Holder;

       

      d.           Without
notice to or demand upon Company or any guarantor, make such payments and do
such acts as Holder considers necessary or reasonable to protect its security
interest in the Collateral. Company agrees to assemble the Collateral if Holder
so requires and to make the Collateral available to Holder as Holder may
designate. Company authorizes Holder to enter the premises where the Collateral
is located, take and maintain possession of the Collateral and the premises (at
no charge to Holder), or any part thereof, and to pay, purchase, contest or
compromise any encumbrance, charge or lien which in the opinion of Holder
appears to be prior or superior to its security interest and to pay all expenses
Incurred in connection therewith;

       

      e.           Without
limiting Holder's rights under any security interest, Holder is hereby granted a
license or other right to use, without charge, Company’s labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks
and advertising matter, or any property or a similar nature as it pertains to
the Collateral, in completing production of, advertising for sale and selling
any Collateral and Company's rights under all licenses and all franchise
agreement shall inure to Holder's benefit, and Holder shall have the right and
power to enter into sublicense agreements with respect to all such rights with
third parties on terms acceptable to Holder;

       

      f.           Sell
or dispose 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 Company's premises) as is commercially reasonable in
the opinion of Holder. It is not necessary that the Collateral be present at any
such sale. At any sale or other disposition of the Collateral pursuant to this
Section, Holder disclaims all warranties which would otherwise be given under
the Uniform Commercial Code, including without limitation a disclaimer of any
warranty relating to title, possession, quiet enjoyment or the like, and Holder
may communicate these disclaimers to a purchaser at such disposition. This
disclaimer of warranties will not render the sale commercially
unreasonable;

       

      g.           Holder
shall give notice of the disposition of the Collateral as follows:

       

      (1)           Holder
shall give Company and each holder of a security interest in the Collateral who
has filed with Holder a written request for notice, a notice in writing of the
time and place of public sale, or, if the sale is a private sale or some
disposition other than a public sale is to be made of the Collateral, the time
on or after which the private sale or other disposition is to be
made;

       

      (2)           The
notice shall be personally delivered or mailed, postage prepaid, to Company's
address appearing in this Agreement, at least ten (10) calendar days before the
date fixed for the sale, or at least ten (10) calendar days before the date on
or after which the private sale or other disposition is to be made, unless the
Collateral is perishable or threatens to decline speedily in value. Notice to
persons other than Company claiming an interest in the Collateral shall be sent
to such addresses as have been furnished to Holder or as otherwise determined in
accordance with Section 9-611 of the Uniform Commercial Code; and

       

      (3)           If
the sale is to be a public sale, Holder shall also give notice of the time and
place by publishing a notice one time at least ten (10) calendar days before the
date of the sale in a newspaper of general circulation in the county in which
the sale is to be held; and

       

      (4)           Holder
may credit bid and purchase at any public sale.

       

      h.           Company
shall pay all Holder Expenses incurred in connection with Holder's enforcement
and exercise of any of its rights and remedies as herein provided, whether or
not suit is commenced by Holder;

       

      i.           Any
deficiency which exists after disposition of the Collateral as provided above
will be paid immediately by Company. Any excess will be returned, without
interest and subject to the rights of third parties, to Company by Holder, or,
in Holder's discretion, to any party who Holder believes, in good faith, is
entitled to the excess;

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      j.           The
proceeds of any sale or other disposition of Collateral authorized by this
Agreement shall be applied by Holder first upon all expenses authorized by the
Uniform Commercial Code and all reasonable attorney fees and legal expenses
incurred by Holder, whether in-house or outside counsel is used, the balance of
the proceeds of the sale or other disposition shall be applied in the payment of
the Indebtedness, first to interest, then to principal, then to remaining
Indebtedness and the surplus, if any, shall be paid over to Company or to such
other person(s) as may be entitled to it under applicable law. Company shall
remain liable for any deficiency, which it shall pay to Holder immediately upon
demand. Company agrees that Holder shall be under no obligation to accept any
noncash proceeds in connection with any sale or disposition of Collateral unless
failure to do so would be commercially unreasonable. If Holder agrees in its
sole discretion to accept noncash proceeds (unless the failure to so would be
commercially unreasonable), Holder may ascribe any commercially reasonable value
to such proceeds. Without limiting the foregoing, Holder may apply any discount
factor in determining the present value of proceeds to be received in the future
or may elect to apply proceeds to be received in the future only as and when
such proceeds are actually received in cash by Holder; and

       

      k.           The
following shall be the basis for any finder of fact's determination of the value
of any Collateral which is the subject matter of a disposition giving rise to a
calculation of any surplus or deficiency under the Uniform Commercial Code: (i)
The Collateral which is the subject matter of the disposition shall be valued in
an 'as is' condition as of the date of the disposition, without any assumption
or expectation that such Collateral will be repaired or improved in any manner;
(ii) the valuation shall be based upon an assumption that the transferee of such
Collateral desires a resale of the Collateral for cash promptly (but no later
than 30 days) following the disposition; (iii) all reasonable closing costs
customarily borne by the seller in commercial sales transactions relating to
property similar to such Collateral shall be deducted including, without
limitation, brokerage commissions, tax prorations, attorney's fees, whether
in-house or outside counsel is used, and marketing costs; (iv) the value of the
Collateral which is the subject matter of the disposition shall be further
discounted to account for any estimated holding costs associated with
maintaining such Collateral pending sale (to the extent not accounted for in
(iii) above), and other maintenance, operational and ownership expenses; and (v)
any expert opinion testimony given or considered in connection with a
determination of the value of such Collateral must be given by persons having at
least 5 years experience in appraising property similar to the Collateral and
who have conducted and prepared a complete written appraisal of such Collateral
taking into consideration the factors set forth above. The "value" of any such
Collateral shall be a factor in determining the amount of proceeds which would
have been realized in a disposition to a transferee other than a secured party,
a person related to a secured party or a secondary obligor under the Uniform
Commercial Code.

       

      5.2           In
addition to any and all other rights and remedies available to Holder under or
pursuant to this Agreement or any other documents, instrument or agreement
contemplated hereby, Company acknowledges and agrees that (i) at any time
following the occurrence and during the continuance of any Event of Default,
and/or (ii) termination of Holder's commitment or obligation to make loans or
advances or otherwise extent credit to or in favor of Company hereunder,
together with any and all other Indebtedness of Company to Holder remaining
unpaid, and Company pledges to Holder and grants to Holder a continuing first
priority security interest in such cash collateral so delivered to
Holder.

       

      5.3           Holder's
rights and remedies under this Agreement and all other agreements shall be
cumulative. Holder shall have all other rights and remedies not inconsistent
herewith as provided by law or in equity. No exercise by Holder of one right or
remedy shall be deemed an election, and no waiver by Holder of any default on
Company's part shall be deemed a continuing waiver. No delay by Holder shall
constitute a waiver, election or acquiescence by Holder.