Document:

Exhibit 10.14

 

WAIVER, CONSENT AND FIFTH AMENDMENT TO LOAN AND SECURITY

AGREEMENT

 

THIS WAIVER,
CONSENT AND FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the “Amendment”),
dated as of December 31, 2003, is by and between EQUINOX BUSINESS CREDIT
CORP., a New Jersey corporation (“Borrower”), and WELLS FARGO FOOTHILL,
INC., a California corporation formerly known as Foothill Capital Corporation
(“Lender”).

 

RECITALS:

 

A.                                   Borrower
and Lender have entered into that certain Loan and Security Agreement dated as of
December 19, 2001 (as amended, and as the same may hereafter be amended or
otherwise modified, the “Loan Agreement”).

 

B.                                     Borrower
has requested that Lender waive an Event of Default under the Loan Agreement
and Borrower and Lender have agreed to amend certain provisions of the Loan
Agreement, in each case as provided hereinbelow.

 

C.                                     Subject
to satisfaction of the conditions set forth herein, Lender and Borrower are
willing to amend the Loan Agreement and Lender is willing provide the requested
waiver of an Event of Default and requested consent, in each case as
specifically provided herein.

 

NOW,
THEREFORE, BE IT RESOLVED, THAT, in consideration of the premises herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows effective as of the date hereof unless otherwise indicated:

 

ARTICLE 1

 

Definitions

 

Section 1.1                                      Definitions.  Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in the
Loan Agreement, as amended hereby.

 

ARTICLE 2

 

Waiver of Event of Default

 

Section 2.1                                      Waiver
of Event of Default.

 

(a)                                  Interest
Coverage Ratio Defaults.  Pursuant
to Section 7.20(a)(i) of the Loan Agreement, Borrower was required
to maintain a minimum Interest Coverage Ratio as of the month ending
September 30, 2003 (such month end herein, the “Interest Coverage Ratio
Measurement Date”) of not less than 1.10 to 1.00.  Borrower has advised Lender that as of the Interest Coverage
Ratio Measurement Date, the Interest Coverage Ratio is less than the required
ratio.  Borrower’s failure to maintain
the Interest Coverage Ratio covenant for the Interest

 

1

 

Coverage Ratio
Measurement Date as required by the Loan Agreement, constitute Events of
Default under Section 8.2 of the Loan Agreement (the “Existing
Interest Coverage Ratio Default”). 
Borrower has requested that Lender waive the Existing Interest Coverage
Ratio Default.

 

(b)                                 Waiver.  Effective as of the date of this Amendment,
and subject to the conditions precedent and other terms of this Amendment,
Lender hereby waives the Existing Interest Coverage Ratio Default.

 

ARTICLE 3

 

Consents

 

Section 3.1                                      Consent
to Requested Debt Payment.  Borrower
has informed Lender that Borrower desires to make a one-time $350,000
prepayment of principal on interest-bearing Subordinated Debt owing to Parent
on or before February 13, 2004 (the “Requested Debt Prepayment”),
which prepayment, absent Lender consent, would not be permitted under Section 7.8(a)
of the Loan Agreement.  Lender hereby
consents to the Requested Debt Prepayment and agrees that the Requested Debt
Prepayment did not and will not cause a Default under the Loan Agreement.

 

Section 3.2                                      Consent
to Requested Disposition.  Borrower
has informed Lender that Borrower desires to sell to Parent the factoring
division assets described on Schedule 3.2 attached hereto (the “Factoring
Division Assets”) for cash in an amount not less than $350,000 (the “Requested
Disposition”), which sale, absent Lender consent, would not be permitted
under Section 7.4 of the Loan Agreement.   Lender hereby consents to the Requested Disposition; provided
that all cash proceeds of the Requested Disposition in an amount not less than
$350,000 are, promptly upon such sale, deposited into the Cash Management
Account.  Lender hereby agrees that,
upon consummation of the Requested Disposition and receipt in the Cash Management
Account of all cash proceeds of such sale in an amount not less than $350,000,
Lender will release its security interest in and Lien on the Factoring Division
Assets, pursuant to a partial release in form and substance satisfactory to
Lender.

 

Section 3.3                                      Limitation
of Consents.  The consents set forth
in Sections 3.1 and 3.2 are expressly limited as provided therein
and shall not be deemed a consent to the departure from or waiver of (a) the
requirements of Section 7.8 of the Loan Agreement (the “Applicable
Debt Covenant”) for any purpose other than to permit the Requested Debt
Prepayment, (b) the requirements of Section 7.4 of the Loan Agreement (the
“Applicable Disposition Covenant”) for any purpose other than to permit
the Requested Disposition, (c) any other covenants or condition in any Loan
Document or (d) any Event of Default that otherwise may arise as a result of
the Requested Debt Prepayment or the Requested Disposition.  The failure to comply with (i) the
Applicable Debt Covenant with respect to any payments other than the Requested
Debt Prepayment or (ii) the Applicable Disposition Covenant with respect to any
dispositions other than the Requested Disposition shall constitute an Event of
Default.

 

2

 

ARTICLE 4

 

Amendments

 

Section 4.1                                      Amendments
to Section 1.1.

 

(a)                                  The
definition of “Borrowing Base” in Section 1.1 of the Loan Agreement
is hereby amended and restated to read in its entirety as follows:

 

“Borrowing Base” means the amount equal to (a) eighty- five
percent (85.0%) (or such percentage as determined by Lender from time to time
in Lender’s Permitted Discretion) of the net amount advanced by Borrower on
Eligible Notes Receivable, plus
(b)(i) for the period from the Closing Date through and including June 30,
2003, eighty-five percent (85.0%) (or such percentage as determined by Lender
from time to time in Lender’s Permitted Discretion), (ii) for the period from
July 1, 2003 through and including July 31, 2003, eighty percent
(80.0%) (or such percentage as determined by Lender from time to time in
Lender’s Permitted Discretion), (iii) for the period from August 1, 2003
through and including August 31, 2003, seventy- five percent (75.0%) (or
such percentage as determined by Lender from time to time in Lender’s Permitted
Discretion), (iv) for the period from September 1, 2003 through and
including September 30, 2003, seventy percent (70.0%) (or such percentage
as determined by Lender from time to time in Lender’s Permitted Discretion),
(v) for the period from October 1, 2003 through and including
October 31, 2003, sixty- five percent (65.0%) (or such percentage as
determined by Lender from time to time in Lender’s Permitted Discretion), (vi)
for the period from November 1, 2003 through and including
December 31, 2003, sixty percent (60.0%) (or such percentage as determined
by Lender from time to time in Lender’s Permitted Discretion), and (vii) for
the period from January 1, 2004 and thereafter, zero percent (0.0%), in
each case, of the net amount advanced by Borrower on Eligible Purchased
Accounts, minus (c) the reserves
established by Lender in accordance with Section 2.1(b).

 

(b)                                 The
definition of “Consolidated Net Interest Expense” in Section 1.1 of
the Loan Agreement is hereby amended and restated to read in its entirety as follows:

 

“Consolidated Net Interest Expense” means, with respect to any
Person for any period, gross interest expense of such Person and its
Subsidiaries for such period determined in conformity with GAAP (including,
without limitation, interest expense paid to Affiliates of such Person), less
(i) the sum of (A) interest income for such period and (B) gains for such
period on Hedging Agreements (to the extent not included in interest income
above and to the extent not deducted in the calculation of such gross interest
expense), plus (ii) the sum of (A) losses for such period on Hedging
Agreements (to the extent not included in such gross interest expense) and (B)
the upfront costs or fees for such period associated with Hedging Agreements
(the extent not included in gross interest expense), each determined on a
consolidated basis and in accordance with GAAP for such Person and its
Subsidiaries; provided,

 

3

 

however,
that “Consolidated Net Interest Expense” of Borrower shall not include interest
payable but not paid by Borrower during a period on Subordinated Debt owing to
Parent.

 

(c)                                  “2004
Projected Income Statement” is hereby added in alphabetical order to Section 1.1
of the Loan Agreement, which term shall be defined in its entirety as follows:

 

“2004 Projected Income Statement” means the Projected Income
Statement 2004 included in the Projections delivered to Agent on
January 21, 2004 and attached to the Waiver, Consent and Fifth Amendment
to Loan and Security Agreement dated as of December 31, 2003 as Exhibit
A thereto.

 

Section 4.2                                      Amendment
to Section 7.20(a)(ii).  Clause
(a)(ii) of Section 7.20 of the Loan Agreement is hereby amended
as follows:

 

(ii)                                  Tangible Net Worth.  Tangible Net Worth plus the amount of all
Subordinated Debt of at least the amount set forth in the following table for
the applicable period:

 

	
  Applicable Period

  	
   

  	
  Minimum
  Tangible Net

  Worth

  	
   

  
	
  Quarter and month ending March 31,
  2003

  	
   

  	
  $

  	
  2,600,000

  	
   

  
	
  Months ending April 30, 2003 and May
  31, 2003

  	
   

  	
  $

  	
  2,600,000

  	
   

  
	
  Quarter and month ending June 30, 2003

  	
   

  	
  $

  	
  3,900,000

  	
   

  
	
  Months ending July 31, 2003 and
  August 31, 2003

  	
   

  	
  $

  	
  2,600,000

  	
   

  
	
  Month and quarter ending September 30,
  2003

  	
   

  	
  $

  	
  3,300,000

  	
   

  
	
  Months ending October 31, 2003 and
  November 30, 2003

  	
   

  	
  $

  	
  3,300,000

  	
   

  
	
  Month, quarter and year ending
  December 31,2003

  	
   

  	
  $

  	
  3,000,000

  	
   

  
	
  Months ending January 31, 2004 and
  February 29, 2004

  	
   

  	
  $

  	
  3,000,000

  	
   

  
	
  Month and quarter ending March 31,
  2004

  	
   

  	
  $

  	
  3,050,000

  	
   

  
	
  Months ending April 30, 2004 and May
  31, 2004

  	
   

  	
  $

  	
  3,050,000

  	
   

  
	
  Month and quarter ending June 30, 2004

  	
   

  	
  $

  	
  3,100,000

  	
   

  
	
  Months ending July 31, 2004 and
  August 31, 2004

  	
   

  	
  $

  	
  3,100,000

  	
   

  
	
  Month and quarter ending September 30,
  2004

  	
   

  	
  $

  	
  3,150,000

  	
   

  
	
  Each month, quarter or year ending after
  September 30,2004

  	
   

  	
  $

  	
  3,150,000

  	
   

  

 

4

 

provided
that Borrower shall deliver to Lender, on or before August 31, 2003, a
firm commitment (in form and substance satisfactory to Lender in its sole
discretion) to raise sufficient cash either as a capital contribution in the
form of common Capital Stock or a loan in the form of Subordinated Debt to meet
the Tangible Net Worth requirement set forth above as of the month and quarter
ending September 30, 2003, which additional equity or Subordinated Debt
shall be contributed or loaned to Borrower on or before September 30,
2003.

 

Section 4.3                                      Addition
of Section 7.20(a)(iv).  A new Section 7.20(a)(iv)
is hereby added to the Loan Agreement following Section 7.20(a)(iii),
which Section 7.20(a)(iv) shall read in its entirety as follows:

 

(iv)                              Budgeted EBT and Gross Revenues.  As of the last day of each fiscal quarter
during 2004, (A) cumulative EBT (as defined below), determined for all months
in such fiscal quarter, in an amount equal to at least 75% of the cumulative
Projected EBT (as defined below) for all months in such fiscal quarter set
forth in the 2004 Projected Income Statement, and (B) cumulative Gross Revenues
(as defined below), determined for all months in such fiscal quarter, in an
amount equal to at least 75% of the cumulative Projected Gross Revenues (as
defined below) of all months in such fiscal quarter set forth in the 2004
Projected Income Statement.  For
purposes of this Section 7.20(a)(iv), (1) the term “Projected EBT”
means, for any period, “Net Income” for such period as set forth in the 2004
Projected Income Statement, (2) the term “EBT” means, for any period, an amount
determined and presented for such period based upon actual operating results in
a manner consistent with the presentation of Projected EBT in the 2004
Projected Income Statement and excluding Lender’s actual waiver and amendment
fees and legal expenses charged to the Borrower during such period, (3) the
term “Projected Gross Revenues” means, for any period, “Interest and Fee
Income” for such period as set forth in the 2004 Projected Income Statement,
and (4) the term “Gross Revenues” means, for any period, an amount determined
and presented for such period based upon actual operating results in a manner
consistent with the presentation of Projected Gross Revenues in the 2004
Projected Income Statement.

 

Section 4.4                                      Amendment
to Section 7.20(b)(i).  Clause
(b)(i) of Section 7.20 of the Loan Agreement is hereby amended
as follows:

 

5

 

(i)                                     Capital Expenditures.  Capital expenditures in any fiscal year in
excess of the amount set forth in the following table for the applicable
period: 

 

	
  Fiscal Year 2002

  	
   

  	
  Fiscal
  Year 2003

  	
   

  	
  Fiscal
  Year 2004

  	
   

  
	
  $

  	
  150,000.00

  	
   

  	
  $

  	
  200,000.00

  	
   

  	
  $

  	
  100,000.00

  	
   

  
									

 

ARTICLE 5

 

Conditions

 

Section 5.1                                      Conditions
Precedent.  The effectiveness of Article 2,
Article 3 and Article 4 of this Amendment is subject to
the satisfaction of each of the following conditions precedent:

 

(a)                                  Lender
shall have received all of the following, each dated the date of this Amendment
(unless otherwise indicated), in form and substance satisfactory to Lender:

 

(i)                                     Amendment
Documents.  This Amendment and any
other instrument, document, or certificate reasonably required by Lender to be
executed or delivered by Borrower in connection with this Amendment, in each
case duly executed (the “Amendment Documents”);

 

(ii)                                  Additional
Information.  Lender shall have
received such additional documents, instruments, and information as Lender may
reasonably request to effect the transactions contemplated hereby;

 

(iii)                               Receipt
of Amendment Fee.  The amendment fee
shall have been paid in accordance with Section 7.6 hereto;

 

(iv)                              Expenses.  Borrower shall have paid to Lender all fees,
costs, and expenses owed to and/or incurred by Lender in connection with the
Loan Agreement or this Amendment.

 

(b)                                 The
representations and warranties contained herein, in the Loan Agreement, and in
all other Loan Documents, as amended hereby, shall be true and correct in all
material respects as of the date hereof as if made on the date hereof except
for such representations and warranties limited by their terms to a specific
date.

 

(c)                                  All
corporate proceedings taken in connection with the transactions contemplated by
this Amendment and all other agreements, documents, and instruments executed
and/or delivered pursuant hereto, and all legal matters incident thereto, shall
be satisfactory to Lender; and

 

(d)                                 No
Default or Event of Default shall be in existence after giving effect to this
Amendment.

 

6

 

ARTICLE 6

 

Ratifications, Representations and Warranties

 

Section 6.1                                      Ratifications.  The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Loan Agreement and, except as expressly modified and superseded by
this Amendment, the terms and provisions of the Loan Agreement and the other
Loan Documents are ratified and confirmed and shall continue in full force and
effect.  Borrower and Lender agree that
the Loan Agreement as amended hereby and the other Loan Documents shall
continue to be legal, valid, binding and enforceable in accordance with their
respective terms.

 

Section 6.2                                      Representations
and Warranties.  Borrower hereby
represents and warrants to Lender that, as of the date of and after giving
effect to this Amendment, (a) no Default or Event of Default has occurred and
is continuing, (b) the representations and warranties set forth in the Loan
Documents are true and correct in all material respects on and as of the date
hereof with the same effect as though made on and as of such date except with
respect to any representations and warranties limited by their terms to a
specific date, and (c) the execution, delivery and performance of this
Amendment has been duly authorized by all necessary action on the part of
Borrower.

 

ARTICLE 7

 

Miscellaneous

 

Section 7.1                                      Survival
of Representations and Warranties. 
All representations and warranties made in this Amendment or any other
Loan Document, including any Loan Document furnished in connection with this
Amendment, shall survive the execution and delivery of this Amendment and the
other Loan Documents, and no investigation by Lender or any closing shall
affect the representations and warranties or the right of Lender to rely upon
them.

 

Section 7.2                                      Reference
to Loan Agreement.  Each of the Loan
Documents, including the Loan Agreement, the Amendment Documents, and any and
all other agreements, documents, or instruments now or hereafter executed and
delivered pursuant to the terms hereof or pursuant to the terms of the Loan
Agreement as amended hereby, are hereby amended so that any reference in such
Loan Documents to the Loan Agreement, whether direct or indirect, shall mean a
reference to the Loan Agreement as amended hereby.

 

Section 7.3                                      Severability.  Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.

 

Section 7.4                                      Applicable
Law.  This Amendment and all other
Loan Documents executed pursuant hereto shall be governed by and construed in
accordance with the laws of the State of California and the applicable laws of
the United States of America.

 

7

 

Section 7.5                                      Effect
of Amendment.  The effect of the
waivers contained in Section 2.1 of this Amendment is expressly
limited as provided herein, and in order to induce Lender to agree to such
waivers, Borrower agrees that such waiver shall not constitute or be deemed a
waiver of any other Event of Default, now existing or hereafter arising, or a
waiver of any rights or remedies arising as a result of any such other Event of
Default.  No consent or waiver, express
or implied, by Lender to or for any breach of or deviation from any covenant,
condition, or duty by Borrower shall be deemed a consent or waiver to or of any
other breach of the same or any other covenant, condition, or duty.  Borrower hereby (a) agrees that this
Amendment shall not limit or diminish the obligations of Borrower under the
Loan Documents, executed or joined in by Borrower and delivered to Lender, (b)
reaffirms Borrower’s obligations under each of the Loan Documents, and (c)
agrees that each of the Loan Documents remains in full force and effect and is
hereby ratified and confirmed.

 

Section 7.6                                      Amendment
Fee.  Borrower agrees to pay to
Lender on the date hereof an amendment fee in the aggregate amount of $10,000
as additional consideration for Lender’s agreement to amend the Loan Agreement,
waive the Existing Default and consent to the Requested Debt Prepayment.

 

Section 7.7                                      Successors
and Assigns.  This Amendment is
binding upon and shall inure to the benefit of Lender and Borrower and their
respective successors and assigns, except Borrower may not assign or transfer
any of its rights or obligations hereunder without the prior written consent of
Lender.

 

Section 7.8                                      Counterparts.  This Amendment may be executed in one or
more counterparts and on telecopy counterparts, each of which when so executed
shall be deemed to be an original, but all of which when taken together shall
constitute one and the same agreement.

 

Section 7.9                                      Headings.  The headings, captions, and arrangements
used in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.

 

Section 7.10                                Consideration.  IN CONSIDERATION OF THIS AMENDMENT, BORROWER
REPRESENTS AND WARRANTS THAT THERE ARE NO KNOWN CLAIMS, OFFSETS, DEFENSES OR
COUNTERCLAIMS TO ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS, AND HEREBY WAIVES
ANY AND ALL CLAIMS, OFFSETS, DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN OR
UNKNOWN, ARISING PRIOR TO THE DATE OF ITS EXECUTION OF THIS AGREEMENT AND
RELEASES AND DISCHARGES LENDER, AND ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
SHAREHOLDERS, AFFILIATES AND ATTORNEYS (COLLECTIVELY THE “RELEASED PARTIES”)
FROM ANY AND ALL OBLIGATIONS, INDEBTEDNESS, LIABILITIES, CLAIMS, RIGHTS, CAUSES
OF ACTION OR DEMANDS WHATSOEVER, WHETHER KNOWN OR UNKNOWN, SUSPECTED OR
UNSUSPECTED, IN LAW OR EQUITY, WHICH BORROWER HAS OR MAY HAVE AGAINST ANY
RELEASED PARTY ARISING PRIOR TO THE DATE HEREOF AND FROM OR IN CONNECTION WITH
THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.

 

Section 7.11                                Entire
Agreement.  THIS AMENDMENT AND ALL
OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN
CONNECTION WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE

 

8

 

AGREEMENT
AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO.  THERE ARE NO ORAL
AGREEMENTS AMONG THE PARTIES HERETO.

 

[Remainder of page intentionally left blank.]

 

9

 

Executed as of
the date first written above.

 

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  EQUINOX
  BUSINESS CREDIT CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  WELLS FARGO
  FOOTHILL, INC.,

  
	
   

  	
  formerly
  known as Foothill Capital

  Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
						

 

10

 

REAFFIRMATION OF GUARANTY AND STOCK PLEDGE AGREEMENT

 

The
undersigned hereby (a) acknowledges the execution of, and consents to the terms
and conditions of, that certain Waiver, Consent and Fifth Amendment to Loan and
Security Agreement dated as of December 31, 2003, between Equinox Business
Credit Corp. and Wells Fargo Foothill, Inc., formerly known as Foothill Capital
Corporation (“Lender”) and reaffirms its obligations under (i) that
certain Continuing Guaranty (the “Guaranty”) dated as of
December 19, 2001, and (ii) that certain Stock Pledge Agreement (the “Pledge
Agreement”) dated as of December 19, 2001, each made by the
undersigned in favor of Lender, and (b) acknowledges and agrees that the
Guaranty and the Pledge Agreement remain in full force and effect, free of any
defense, offset or counterclaim, and the Guaranty and the Pledge Agreement are
hereby ratified and confirmed.

 

	
   

  	
  GUARANTOR:

  
	
   

  	
   

  
	
   

  	
  EQUIFIN,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 

11

 

REAFFIRMATION OF VALIDITY GUARANTIES

 

Each of the
undersigned hereby (a) acknowledges the execution of, and consents to the terms
and conditions of, that certain Waiver, Consent and Fifth Amendment to Loan and
Security Agreement dated as of December 31, 2003, between Equinox Business
Credit Corp. and Wells Fargo Foothill, Inc., formerly known as Foothill Capital
Corporation (“Lender”) and reaffirms its obligations under that certain
Validity Agreement (the “Validity Guaranty”) dated as of
December 19, 2001, made by it in favor of Lender, and (b) acknowledges and
agrees that the Validity Guaranty remains in full force and effect, free of any
defense, offset or counterclaim, and the Validity Guaranty is hereby ratified
and confirmed.

 

	
   

  	
  VALIDITY GUARANTORS:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WALTER M.
  CRAIG, JR.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ALLEN H.
  VOGEL

  	
   

  

 

12

 

EXHIBIT A

TO

WAIVER, CONSENT AND FIFTH AMENDMENT TO LOAN AND SECURITY

AGREEMENT

 

2004 PROJECTIONS

 

13Exhibit 4.7

 

VITAL LIVING, INC.

 

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

10% SERIES A PREFERRED STOCK

 

The
undersigned, Bradley D. Edson and Stuart Benson, do hereby
certify that:

 

1.                                       They are the
Chief Executive Officer and Secretary, respectively, of Vital Living, Inc., a
Nevada corporation (the “Company”).

 

2.                                       The Company is
authorized to issue 50,000,000 shares of preferred stock.

 

3.                                       The following
resolutions were duly adopted by the Board of Directors:

 

WHEREAS, the Articles of Incorporation of the
Company, as amended, provides for a class of its authorized stock known as
preferred stock, comprised of 50,000,000 shares, $0.001 par value, issuable
from time to time in one or more series;

 

WHEREAS, the Board of Directors of the
Company is authorized to fix the dividend rights, dividend rate, voting rights,
conversion rights, rights and terms of redemption and liquidation preferences
of any wholly unissued series of preferred stock and the number of shares
constituting any series and the designation thereof, of any of them; and

 

WHEREAS, it is the desire of the Board of
Directors of the Company, pursuant to its authority as aforesaid, to fix the
rights, preferences, restrictions and other matters relating to a series of the
preferred stock, which shall consist of up to 10,000,000 shares of the
50,000,000 shares of preferred stock which the corporation has the authority to
issue, as follows:

 

NOW, THEREFORE, BE IT RESOLVED, that the
Board of Directors does hereby provide for the issuance of a series of
preferred stock for cash or exchange of other securities, rights or property
and does hereby fix and determine the rights, preferences, restrictions and
other matters relating to such series of preferred stock as follows:

 

TERMS OF PREFERRED STOCK

 

The rights, preferences, restrictions and
other matters relating to the 10% Series A Preferred Stock are as follows:

 

1.                                       DESIGNATION.  The Preferred Stock is designated as the
Company’s 10% Series A Preferred Stock (the “Preferred Stock”) and is subject
to the terms and conditions of the Stock Purchase Agreement (the “Purchase
Agreement”) of even date herewith between the Company and the Investor.

 

2.                                       DIVIDEND
PROVISIONS.  The holders of the
Preferred Stock will be entitled to a preferred dividend at the rate of 10% per
annum.  Dividends on the Preferred Stock
will be cumulative and shall be paid in additional shares of Preferred Stock at
a price equal to $1.00 per shares and will contain all the rights and
privileges and be subject to all the terms and conditions as set forth
herein.  Dividends shall be paid
semi-annually.

 

 

3.                                       LIQUIDATION
PREFERENCE.

 

(a)                                  In
the event of any liquidation, dissolution or winding up of this corporation,
either voluntary or involuntary, subject to the rights of series of preferred
stock that may from time to time come into existence, the holders of Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets of this corporation to the holders of Common Stock by
reason of their ownership thereof, an amount per share equal to the sum of (i)
$1.00 for each outstanding shares of Preferred Stock (the “Original Series A
Issue Price”) and (ii) an amount equal to 12% of the Original Series A Issue
Price for each 12 months that has passed since the date of issuance of any
Preferred Stock plus any accrued or declared but unpaid dividends on such share
(such amount (of declared but unpaid dividends) being referred to herein as the
“Premium”).  If upon the occurrence of
such event, the assets and funds thus distributed among the holders of the
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then, subject to the rights of series
of preferred stock that may from time to time come into existence, the entire
assets and funds of the corporation legally available for distribution shall be
distributed ratably among the holders of the Preferred Stock in proportion to
the preferential amount each such holder is otherwise entitled to received.

 

(b)                                 Upon
the completion of the distribution required by subparagraph (a) of this Section
3 and any other distribution that may be required with respect to series of
preferred stock that may from time to time come into existence, the remaining
assets of the corporation available for distribution to stockholders shall be
distributed among the holders of Preferred Stock and Common Stock pro rata
based on the number of shares of Common Stock held by each (assuming conversion
of all such Preferred Stock).

 

(c)                                  (i)                                     For
purposes of this Section 3, a liquidation, dissolution or winding up of this
corporation shall be deemed to be occasioned by, or to include, (A) the
acquisition of the corporation by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the corporation); or
(B) a sale of all or substantially all of the assets of the corporation; unless
the corporation’s shareholders of record as constituted immediately prior to
such acquisition or sale will, immediately after such acquisition or sale (by
virtue of securities issued as consideration for the corporation’s acquisition
or sale or otherwise) hold at least 50% of the voting power of the surviving or
acquiring entity.

 

(ii)                                  In any of such
events, if the consideration received by the corporation is other than cash,
its value will be deemed its fair market value.  Any securities shall be valued as follows:

 

(A)                              Securities not
subject to investment letter or other similar restrictions on free
marketability (covered by (B) below):

 

(1)                                  If traded on a
securities exchange or through NASDAQ National Market, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the thirty-day period ending three (3) days prior to the closing;

 

(2)                                  If actively
traded over-the-counter, the value shall be deemed to be the average of the
closing bid or sale prices (whichever is applicable) over the thirty-day period
ending three (3) days prior to the closing; and

 

2

 

(3)                                  If there is no
active public market, the value shall be the fair market value thereof, as
mutually determined by the corporation and the holders of at least a majority
of the voting power of all then outstanding shares of Preferred Stock.

 

(B)                                The method of
valuation of securities subject to investment letter or other restrictions on
free marketability (other than restrictions arising solely by virtue of a
shareholder’s status as an affiliate or former affiliate) shall be to make an
appropriate discount from the market value determined as above in (A)(1), (2)
or (3) to reflect the approximate fair market value thereof, as mutually
determined by the corporation and the holders of at least a majority of the
voting power of all then outstanding shares of such Preferred Stock.

 

(iii)                             In the event the
requirements of this subsection 3(c) are not complied with, this corporation
shall forthwith either:

 

(A)                              cause such
closing to be postponed until such time as the requirements of this Section 3
have been complied with; or

 

(B)                                cancel such
transaction, in which event the rights, preferences and privileges of the
holders of the Preferred Stock shall revert to and be the same as such rights,
preferences and privileges existing immediately prior to the date of the first
notice referred to in subsection 3(c)(iv) hereof.

 

(iv)                              The corporation shall
give each holder of record of Preferred Stock written notice of such impending
transaction not later than ten (10) days prior to the shareholders’ meeting
called to approve such transaction, or ten (10) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction.  The first of such notices shall describe the material terms and
conditions of the impending transaction and the provisions of this Section 3,
and the corporation shall thereafter give such holders prompt notice of any
material changes.  The transaction shall
in no event take place sooner than twenty (20) days after the corporation has given
the first notice provided for herein or sooner than ten (10) days after the
corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least a majority of the voting
power of all then outstanding shares of such Preferred Stock.

 

4.                                       REDEMPTION.

 

(a)                                  This
corporation may following twelve (12) months from the date hereof (the “Redemption
Date”), at the option of the Board of Directors, redeem in whole or in part the
Preferred Stock by paying in cash in exchange for the shares of Preferred Stock
to be redeemed a sum equal to $1.50 per share of Series A Preferred Stock (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) plus all declared or accumulated but unpaid dividends on such shares
(the “Redemption Price”).  Any
redemption effected pursuant to his subsection (4)(a) shall be made on a pro
rata basis among the holders of the Preferred Stock in proportion to the number
of shares of Preferred Stock  then held
by them.

 

(b)                                 Subject
to the rights of series of preferred stock which may from time to time come
into existence, at least thirty (30) but no more than sixty (60) days prior to
each Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice if given) of the Preferred Stock to be
redeemed at the address last shown on the records of this corporation for such
holder, notifying

 

3

 

such holder of the redemption to be effected,
specifying the number of shares to be redeemed from such holder, the Redemption
Date, the Redemption Price, the place at which payment may be obtained and
calling upon such holder to surrender to this corporation, in the manner and at
the place designated, his, her or its certificate or certificates representing
the shares to be redeemed (the “Redemption Notice”).  Except as provided in subsection (4)(c) on or after the
Redemption Date, each holder of Preferred Stock to be redeemed shall surrender
to this corporation the certificate or certificates representing such shares,
in the manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Price of such shares shall be payable to the order of
the person whose name appears cancelled. 
In the event loss than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.

 

(c)                                  From
and after the Redemption Date, unless there shall have been a default in
payment of the Redemption Price, all rights of the holders of shares of
Preferred Stock designated for redemption in the Redemption Notice as holders
of Preferred Stock (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of this corporation or be deemed to be outstanding for any purpose
whatsoever.  Subject to the rights of
series of preferred stock which may from time to time come into existence, if
the funds of the corporation legally available for redemption of shares of
Preferred Stock on any Redemption Date are insufficient to redeem the total
number of shares of Preferred Stock to be redeemed on such date, those funds
which are legally available will be used to redeem the maximum possible number
of such shares ratably among the holders of such shares to be redeemed based
upon their holdings of Preferred Stock. 
The shares of Preferred Stock not redeemed shall remain outstanding and
entitled to all the rights and preferences provided herein.  Subject to the rights of series of preferred
stock which may from time to time come into existence, at any time thereafter
when additional funds of the corporation are legally available for the
redemption of shares of Preferred Stock, such funds will immediately be used to
redeem the balance of the shares which the corporation has become obliged to
redeem on any Redemption Date but which it has not redeemed.

 

5.                                       CONVERSION.  The holders of the Preferred Stock shall
have conversion rights as follows (the “Conversion Rights”):

 

(a)                                  Right
to Convert.  Each share of Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
following the first anniversary of the date of issuance of such share and on or
prior to the fifth (5th) day prior to the Redemption Date, if any,
as may have been fixed in any Redemption Notice with respect to the Preferred
Stock, at the office of this corporation or any transfer agent of such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Original Series A Issue Price by the Conversion
Price applicable to such share, determined as hereafter provided, in effect on
the date the certificate is surrendered for conversion.  The Conversion Price per share for shares of
Preferred Stock shall be calculated as follows:

 

If the Preferred Stock is
converted between the first anniversary and prior to the fifteenth (15th)
month from the date of issuance, the Conversion Price per share shall be equal
to the Original Series A Issue Price; or

 

If following the fifteenth (15th)
month from the date of issuance of the corporation’s Common Stock is publicly
traded on NASDAQ, Over-the-Counter Bulletin Board or other national stock
exchange, the Conversion Price shall be 60% of the average closing price of the
Common Stock for the 30 days prior to the date of conversion (“Trading
Conversion Price”), however, in no event shall the Conversion Price be less
than the Original Series A Issue Price.

 

4

 

(b)                                 Automatic
Conversion.  Each share of Preferred
Stock shall automatically be converted into shares of Common Stock on the first
day of the eighteenth (18th) month following the original issue date
of the Preferred Stock, at a Conversion Price equal to the greater of the
Trading Conversion Price or the Original Series A Issue Price.

 

(c)                                  Mechanics
of Conversion.  Before any holder of
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefore, duly
endorsed, at the office of this corporation or of any transfer agent for the
Preferred Stock, and shall give written notice to this corporation at its principal
corporate office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued.  This
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid.  Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date.

 

(d)                                 No
Impairment.  This corporation will
not, by amendment of its Articles of Incorporation or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by this corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 5
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Preferred Stock
against impairment.

 

(e)                                  Reservation
of Stock Issuable Upon Conversion. 
This corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock, in addition to such other remedies as shall be available to
the holder of such Preferred Stock, this corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, engaging
in best efforts to obtain the requisite shareholder approval of any necessary
amendment to the corporation’s Articles of Incorporation.

 

(f)                                    Notice.  Any notice required by the provisions of
this Section 5 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of
this corporation.

 

6.                                       VOTING
RIGHTS.  The holder of each share of
Preferred Stock shall not have any voting rights.

 

7.                                       PROTECTIVE
PROVISIONS.  So long as any shares
of Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of Preferred Stock which is entitled, other than solely by law, to vote
with respect

 

5

 

to the matter,
and which Preferred Stock represents at least a majority of the voting power of
the then outstanding  shares of such
Preferred Stock:

 

(a)                                  sell,
convey, or otherwise dispose of or encumber all or substantially all of its
property or business or merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation) or effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the corporation is disposed of;

 

(b)                                 alter
or change the rights, preferences or privileges of the shares of Preferred
Stock so as to affect adversely the shares;

 

(c)                                  increase
or decrease (other than by redemption or conversion) the total number of
authorized shares of preferred stock;

 

(d)                                 authorize
or issue, or obligate itself to issue, any other equity security, including any
other security convertible into or exercisable for any equity security (i)
having a preference over, or being on a parity with, the Preferred Stock with
respect to dividends or upon liquidation, or (ii) having rights similar to any
of the rights of the Preferred Stock; or

 

(e)                                  amend
the corporation’s Articles of Incorporation or by-laws.

 

RESOLVED, FURTHER, that the Chairman, the
chief executive officer, president or any vice president, and the secretary or
any assistant secretary, of the Corporation be and they hereby are authorized
and directed to prepare and file a Certificate of Designation of Preferences,
Rights and Limitations in accordance with the foregoing resolution and the
provisions of Nevada law.

 

IN WITNESS WHEREOF, the undersigned have
executed this Certificate this 7th day of August, 2003.

 

 

	
  /s/ Bradley
  D. Edson

  	
   

  	
  /s/ Stuart
  Benson

  	
   

  
	
  Bradley D.
  Edson, Chief Executive Officer

  	
  Stuart
  Benson, Secretary

  

 

6

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