Document:

f8k022714ex10i_cachetfin.htm

Exhibit 10.1

 

SUBSCRIPTION AGREEMENT

 

This Subscription Agreement (this “Agreement”), dated as of the date indicated on the signature page hereto, is by and between Cachet Financial Solutions Inc., a Delaware corporation located at 18671 Lake Drive East, Chanhassen, MN 55317 (the “Company”), and the subscriber identified on the signature page hereto (“Subscriber”).

 

INTRODUCTION

 

The Company is in need of additional financing on what is presently believed to be a short-term basis, pending a larger round of bridge financing (most likely to consist of debt, convertible debt, or convertible preferred stock), and Subscriber is willing to provide additional financing on the terms and conditions set forth in this Agreement.  This Agreement is part of a number of identical or substantially similar agreements pursuant to which the Company is seeking loans in principal amount aggregating to gross proceeds of up to $1 million (as the same may be increased by the Company) in exchange for the issuance of promissory notes and, subject to the satisfaction of certain conditions specified herein, shares of common stock (the “Offering”).  The Offering is a no-minimum offering of securities, meaning that the Company may access and use funds of the Subscriber immediately upon receipt.

 

AGREEMENT

 

Now, Therefore, in consideration of the foregoing premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 

1.             Loan and Note.  Upon the terms and subject to the conditions set forth in this Agreement, Subscriber hereby agrees to make a loan to the Company in the amount specified on the signature page hereto (the “Loan Amount”), and the Company agrees to furnish, upon receipt of such Loan Amount, a promissory note in the principal amount equal to the Loan Amount, which promissory note will be in the form attached hereto as Exhibit A (the “Note”). Subscriber will deliver the Loan Amount in immediately available funds by wire transfer or by certified check.

 

2.             Issuance of Shares.  As additional incentive and consideration for the furnishing of the Loan Amount, the Company agrees to issue to Subscriber, upon the sale of common stock of the Company in a public offering aggregating gross proceeds to the Company of at least $5.0 million, a number of shares of common the value of which (determined by reference to the price at which such common stock is offered and sold in the offering, but without reference to any other related arrangements of the Company pursuant to which shares of common stock are issued in connection with or as a result of such offering) will equal, as nearly as possible, that percentage of the Loan Amount furnished to the Company by Subscriber under this Agreement as is set forth on the signature page hereto (the “Share Percentage”).  The shares of common stock issuable to Subscriber upon the satisfaction of the conditions set forth in this Section 2 are collectively referred to as the “Common Shares.”  The Company will use its commercially reasonable efforts to consummate the offering of common stock described in this Section.

 

  

  

  

 

3.             Subscribers Representations and Warranties.  Subscriber hereby represents and warrants to, and agrees with, the Company that:

 

(a)           Standing of Subscriber. If Subscriber is an entity, Subscriber is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation. If Subscriber is a natural person, such Subscriber is not a minor.

 

(b)           Authorization and Power. Subscriber has the requisite power and authority to enter into and perform this Agreement and to purchase the Note.  If Subscriber is an entity, the execution and delivery of this Agreement by Subscriber and the consummation by Subscriber of the transactions contemplated hereby have been duly authorized by all necessary company action, and no further consent or authorization of Subscriber, its board of directors or similar governing body, or its stockholders/owners is required, as applicable. This Agreement constitutes a valid and binding obligation of Subscriber, enforceable against Subscriber in accordance with the terms thereof.

 

(c)           Independent Advice. Subscriber has been urged, and has been given the opportunity, to seek independent advice from Subscriber’s professional advisors relating to the suitability of an investment in the Company in view of Subscriber’s overall financial needs and with respect to the legal and tax consequences of such investment.

 

(d)           No Conflicts. If Subscriber is an entity, the execution, delivery and performance of this Agreement and the consummation by Subscriber of the transactions contemplated hereby do not and will not result in a violation of Subscriber’s charter documents, bylaws or other organizational documents, as applicable.

 

(e)           Information on Subscriber. Subscriber is an “accredited investor,” as such term is defined in Rule 501(a) of Regulation D under the Securities Act, is experienced in investments and business matters, has made investments of a speculative nature and has purchased securities of United States companies in private placements in the past and, with its representatives, has such knowledge and experience in financial, tax and other business matters as to enable Subscriber to utilize the information made available by the Company to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed purchase, which represents a speculative investment. Subscriber is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof.  Subscriber understands that the Company is relying on its representations and agreements for the purpose of determining whether this transaction meets the requirements of the exemptions afforded by the Securities Act and certain state securities laws.

 

(f)           Purchase of Securities. Subscriber is purchasing the Note and the Common Shares (collectively referred to as the “Securities”) for its own account for investment and not with a view toward, or for resale in connection with, the public sale or any distribution thereof in violation of the Securities Act of 1933 (the “Securities Act”) or any applicable state securities law, and has no direct or indirect arrangement or understandings with any other person or entity to distribute or regarding the distribution of such Securities.

 

  

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(g)           Compliance with Securities Act.  Subscriber understands and agrees that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities laws by reason of their issuance in a transaction that does not require any such registration, and that the Securities must be held indefinitely unless a subsequent disposition is registered under such laws or is exempt from such registration. Subscriber understands that there is not currently, and may not ever be, any active and liquid market for the resale of the Securities.

 

(h)           Legend. If certificated, the Securities will bear the following or similar legend:

 

THE SECURITIES REPRESENTED BY THIS INSTRUMENT/ CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, OR (B) AN OPINION OF COUNSEL (REASONABLY ACCEPTABLE TO THE COMPANY), IN AN ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

 

(i)           No Governmental Endorsement. Subscriber understands that no United States federal or state agency or any other governmental or state agency has passed on or made recommendations or endorsement of the Securities (or the terms of their offering) or the suitability of an investment in the Securities by Subscriber.

 

(j)           Receipt of Information. Subscriber believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Securities. Subscriber further represents that it has had an opportunity directly, or indirectly through its representatives, to ask questions and receive answers from the Company regarding the terms and conditions of the Securities, their offering and the business, properties and financial condition of the Company, and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to it or to which it had access.

 

(k)           Substantial Risk. Subscriber fully understands that the purchase of the Securities is a speculative investment that involves a high degree of risk of the loss of its entire investment. Subscriber fully understands the nature of the risks involved in purchasing the Securities and it is qualified by its knowledge and experience to evaluate investments of this type.  Subscriber has carefully considered the potential risks relating to the Company and purchase of the Securities and has independently evaluated the risks of purchasing the Securities.

 

  

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(l)           No Reliance. In evaluating the suitability of an investment in the Securities, Subscriber has not relied upon any representation or information (oral or written) with respect to the Company, any agent of the Company, or otherwise, other than as stated in: (i) this Agreement; and (ii) the Current Report on 8-K, together with a related amendment, filed by the Company with the United States Securities and Exchange Commission (the “SEC”), on February 12, 2014 and February 14, 2014, respectively (such filings are collectively referred to as the “Public Filings”). This Agreement and the Public Filings are collectively referred to as the “Disclosure Documents.”  Subscriber has either obtained and read the Disclosure Documents and is satisfied with the contents thereof, or has had free and complete access to all of the Disclosure Documents.  Other than as contained in the Disclosure Documents, no oral or written representations have been made, or oral or written information furnished, to Subscriber or its advisors, if any, in connection with the offering of the Securities.

 

4.             Company Representations and Warranties. The Company represents and warrants to, and agrees with, the Subscriber that:

 

(a)           Due Incorporation. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect, as defined below.

 

(b)           Authority; Enforceability.  This Agreement has been duly authorized, executed and delivered by the Company, and is valid and binding on the Company, enforceable in accordance with their terms, except as may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights generally, or principles of equity.

 

(c)           Capitalization. The authorized capital stock of the Company and the number of shares of common stock issued and outstanding are contained in the Public Filings.  All of the outstanding shares of common stock of the Company have been duly authorized, validly issued and are fully paid and non-assessable.

 

(d)           No Violation or Conflict.  The execution, delivery and performance of this Agreement and the Note by the Company will not: (i) result in a violation of the Articles of Incorporation and Bylaws of the Company (as amended and proposed to be amended); or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including U.S. federal and state securities laws and regulations) applicable to the Company or by which any property or asset of the Company is bound or affected except for those which could not reasonably be expected to have a material adverse effect on the assets, business, condition (financial or otherwise), results of operations or future prospects of the Company (a “Material Adverse Effect”).  Except those which could not reasonably be expected to have a Material Adverse Effect, the Company is not in violation of any term of or in default under its Articles of Incorporation or Bylaws.  The business of the Company is being conducted in material compliance with all applicable laws, except for such violations as would not have a Material Adverse Effect.

 

  

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(e)           No Consents or Filings.  Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement in accordance with the terms thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is unaware of any facts or circumstance, which might give rise to any of the foregoing.

 

(f)           The Securities. The Note is duly authorized and upon issuance in accordance with the terms hereof, shall be duly issued, free from all taxes, liens and charges with respect to the issue thereof. The Company shall ensure that the Common Shares, upon issuance:  (i) shall be free and clear of any security interests, liens, claims or other encumbrances, subject only to restrictions upon transfer under the Securities Act and any applicable state securities laws; and (ii) shall have been duly and validly issued, fully paid and non-assessable.

 

(g)           Brokers’ Fees.  The Company may pay a customary and negotiated fee to one or more registered broker-dealers in connection with the investment by Subscriber.

 

(h)           No Disqualification.  The Company has taken reasonable steps to discover whether it is disqualified, by virtue of Rule 506(d)(1), from claiming an exemption pursuant to Regulation D promulgated under the Securities Act, and has no knowledge of any event or circumstance that would cause the Company to be so disqualified.

 

(i)           Full Disclosure.  The Disclosure Documents do not make any untrue statement of a material fact or omit to state a material fact necessary to prevent the statements made in the Disclosure Documents from being misleading.

 

(j)           No Other Representations or Warranties; Disclaimer. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE 3, THE COMPANY DOES NOT MAKE, HAS NOT MADE AND SHALL NOT BE DEEMED TO MAKE OR HAVE MADE ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT TO THE COMPANY, AND THE COMPANY HEREBY EXPRESSLY DISCLAIMS ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES. Without limiting the generality of the foregoing, notwithstanding anything to the contrary in this Agreement, the Company has not made (and shall not be deemed to make or have made) any representation or warranty to Subscriber with respect to (a) any estimates, projections, forecasts, plans, budgets or similar materials or information relating to the future operating and financial performance of the Company (including without limitation future revenues, expenses, expenditures or results of operations) heretofore or hereafter delivered or made available to any Subscriber or any of its agents or representatives, or (b) except as expressly covered by a representation and warranty contained in this Article 4, any other information or documents (financial or otherwise) delivered or made available to Subscriber or any of its agents or representatives with respect to the Company. In furtherance of the foregoing, Subscriber acknowledges and agrees that (x) no representation or warranty is being made with respect to the future operating or financial performance of the Company, and (y) there are uncertainties inherent in attempting to make estimates, projections, forecasts, plans, budgets and similar materials and information, that Subscriber is familiar with such uncertainties, that Subscriber is taking full responsibility for making its own evaluation of the adequacy and accuracy of any and all estimates, projections, forecasts, plans, budgets and similar materials or information that may have been delivered or made available to it or any of its agents or representatives, and that the Subscriber will not assert any claims against the Company or its members, affiliates, officers, managers, employees, agents or representatives with respect thereto.

 

  

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5.             Indemnification.

 

(a)           Indemnification of Subscribers.  In consideration of Subscriber’s execution and delivery of this Agreement and purchase of the Securities hereunder, and in addition to all of the Company’s other obligations under this Agreement, the Company shall defend, indemnify and hold harmless the Subscriber, and its officers, directors, employees and agents (collectively referred to as the “Subscriber Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Subscriber Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by the Subscriber Indemnitees or any of them as a result of, or arising out of, or relating to any material breach of any representation or warranty by the Company contained in this Agreement.

 

(b)           Indemnification of the Company.  Subscriber agrees to indemnify and hold harmless the Company, its subsidiaries, and their respective officers, directors, employees, agents, control persons and affiliates, from and against all losses, liabilities, claims, damages, costs, fees and expenses whatsoever (including but not limited to reasonable attorneys’ fees and disbursements, and any and all expenses incurred in investigating, preparing or defending against any litigation commenced or threatened) based upon or arising out of any actual or alleged false acknowledgment, representation or warranty, or misrepresentation or omission to state a material fact, made by Subscriber herein or in any other document delivered in connection with this Agreement.

 

6.             General Provisions.

 

(a)           Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable courier service with charges prepaid, or (iv) transmitted by hand delivery or facsimile, addressed as set forth on the signature pages hereto or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated on the signature page hereto (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.

 

  

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(b)           Entire Agreement. This Agreement, together with “Exhibit A” attached hereto (which exhibit is hereby incorporated herein by this reference), constitutes the entire agreement between the parties with respect to the subject matter hereof and may be amended only by a writing executed by both parties. Neither the Company nor Subscriber has relied on any representations not contained or referred to in this Agreement and the documents delivered herewith.

 

(c)           Counterparts/Execution. This Agreement may be executed in any number of counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. Signatures to this Agreement may be delivered by facsimile transmission, PDF, or other similar electronic means with the same force and effect as if such signature page were delivered in the original.

 

(d)           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota without regard to principles of conflicts of laws. Any action brought by either party hereto against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of Minnesota or in the federal courts located in the State of Minnesota. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The parties hereto agree to submit to the in personam jurisdiction of such courts and hereby irrevocably waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs.

 

(e)           Severability. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.

 

(f)           Dispute Resolution.

 

(i)           To the greatest extent possible, the parties will endeavor to resolve any disputes relating to the Agreement through amicable negotiations.  Failing an amicable settlement, any controversy, claim or dispute arising under or relating to this Agreement, including the existence, validity, interpretation, performance, termination or breach of this Agreement, will finally be settled by binding arbitration before a single arbitrator (the “Arbitration Tribunal”) which will be jointly appointed by the parties. The Arbitration Tribunal shall self-administer the arbitration proceedings utilizing the Commercial Rules of the American Arbitration Association (the “Association”); provided, however, the Association shall not be involved in administration of the arbitration.  The arbitrator must be a retired judge of a state or federal court of the United States or a licensed lawyer with at least 15 years of corporate or commercial law experience from a law firm with at least ten attorneys and at least an AV rating by Martindale Hubbell.  If the parties cannot agree on an arbitrator, any party may request any court sitting in Minneapolis, Minnesota to appoint an arbitrator, which appointment will be final.  The arbitration will be held in Minneapolis, Minnesota.

 

  

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(ii)           Each party will have discovery rights as provided by the Federal Rules of Civil Procedure within the limits imposed by the arbitrator; provided, however, that all such discovery will be commenced and concluded within 60 days of the selection of the arbitrator.  It is the intent of the parties that any arbitration will be concluded as quickly as reasonably practicable.  Once commenced, the hearing on the disputed matters will be held four days a week until concluded, with each hearing date to begin at 9:00 a.m. and to conclude at 5:00 p.m.  The arbitrator will use all reasonable efforts to issue the final written report containing award or awards within a period of five business days after closure of the proceedings.  Failure of the arbitrator to meet the time limits of this Section will not be a basis for challenging the award.  The Arbitration Tribunal will not have the authority to award punitive damages to either party.  Each party will bear its own expenses, but the parties will share equally the expenses of the Arbitration Tribunal.  The Arbitration Tribunal shall award attorneys’ fees and other related costs payable by the losing party to the successful party as it deems equitable.  This Agreement will be enforceable, and any arbitration award will be final and non-appealable, and judgment thereon may be entered in any court of competent jurisdiction.

 

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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

 

Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and returning a copy to the Company.

 

	
SUBSCRIBER:

	
ACCEPTANCE:

	
 

Print Name of Subscriber:

 

                                                                                           

Address:

 

                                                                                           

 

                                                                                          

Fax No.:

 

                                                                                          

Email Address:

 

                                                                                           

 

Taxpayer ID# (if applicable):

                                                                                           

 

(Signature)

By:                                                                                    

 

Dated: ________________, 2014

 

Loan Amount:

 

                                                                                           

 

	
 

Cachet Financial Solutions Inc. hereby accepts the subscription described herein.

 

CACHET FINANCIAL SOLUTIONS INC.

a Delaware corporation

 

 

By:                                                                                                                                                                 

          Jeffrey Mack, Chief Executive Officer

 

Address: 18671 Lake Drive East

               Chanhassen, MN 55317

 

Facsimile No.:                                                                                           

Dated: _________________, 2014

 

 

 

 

 

 

 

 

 

 

Share Percentage:

 

                                 %

 

Signature Page —

Cachet Financial Solutions Inc. Subscription Agreement

  

 

  

 

EXHIBIT A

 

FORM OF NOTE

 

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR UNDER APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933 OR (B) AN OPINION OF COUNSEL (IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY), IN AN ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

 

CACHET FINANCIAL SOLUTIONS, INC.

 

(A DELAWARE CORPORATION)

 

PROMISSORY NOTE

 

	$____________  	 _______________, 2014

 

Minneapolis, Minnesota

For Valuable Consideration, Cachet Financial Solutions, Inc., a Delaware corporation (“Maker”), hereby promises to pay to ______________________, a ______________________ (“Holder”), located at ___________________________, the principal sum of  _____________ ($____________), from the date hereof until this Promissory Note (this “Note”) is paid in full and upon the terms and conditions set forth below.  This Note is being issued pursuant to a Subscription Agreement dated of even date herewith (the “Subscription Agreement”), and which describes and defines the “Offering” to which this Note relates.

 

	
1.

	
PAYMENT. The principal balance represented by this Note shall due and payable in full on upon the earlier of (i) the one-year anniversary of the date of this Note or (ii) the date on which Maker shall have received gross proceeds from the sale of securities (other than the sale of promissory notes issued identical or substantially similar to this Note in the “Offering,” as such term is defined in the Subscription Agreement) aggregating to $5 million, and regardless of whether such securities are sold in a private or public offering (as applicable, the “Maturity Date”).  The payment shall be sent to Holder at the address set forth above, or such other place as the Holder may designate in writing.

 

	
2.

	
OPTIONAL CONVERSION.  At the option of the Holder (to be evidenced in writing), the outstanding principal amount owing under this Note may be converted into those securities of Maker the sale of which gives rise to the occurrence of the “Maturity Date” under Section 1 above, at conversion rate equal to the offering price of such of such securities.

 

  

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3.

	
NO INTEREST.  No interest will accrue on the unpaid principal balance of this Note.

 

	
4.

	
UNSECURED.  This Note is unsecured and shall be subordinate to all secured indebtedness of Maker, except for other notes issued on the same terms.

 

	
5.

	
PREPAYMENT.  This Note may be prepaid, in whole or in part, without penalty to Maker, upon no fewer than seven business days prior written notice to Holder.

 

	
6.

	
EVENTS OF DEFAULT.  The following will constitute Events of Defaults under this Note:

 

	
  

	
6.1

	
Failure to pay this Note within ten business days of the Maturity Date;

 

	
  

	
6.2

	
The filing of any petition in bankruptcy or for relief under the Federal Bankruptcy Code, general assignment for the benefit of creditors, or any other laws for relief of debtors, of, by or against the Maker; provided, however, if an involuntary petition for bankruptcy is filed against Maker, an Event of Default will only occur if such petition is not dismissed within 60 days from the date such petition was filed; and

 

	
  

	
6.3

	
The breach of any representation or warranty contained in the Subscription Agreement, which breach is not cured or substantially cured within five days of Holder’s notice to Maker of such default.

 

	
7.

	
REMEDIES.  Upon an Event of Default, Holder may declare that all unpaid principal and other amounts due under this Note are due and payable immediately (without presentment, notice or demand), and exercise and enforce any or all rights or remedies available to Holder in law or equity, against Maker.  Maker will also pay all reasonable costs of collection, including reasonable attorneys’ fees, if any payment due hereunder is not made when due, or any other event of default occurs, whether or not litigation is commenced.

 

	
8.

	
WAIVER; DELAY; PARTIAL EXERCISE.  Maker waives demand, presentment, notice of non-payment, dishonor, protest, and notice of protest, and will continue to remain liable to pay the unpaid principal balance of the indebtedness evidenced by this Note, if the Note is extended, renewed, or modified.  No delay or omission on the part of Holder in exercising any power or right hereunder will impair such right or power or be construed to be a waiver thereof or acquiescence in default, nor shall any single or partial exercise of such power or right hereunder preclude any full exercise of such power or right or of any other power or right.

 

	
9.

	
GENERAL PROVISIONS.

 

	
  

	
9.1

	
All notices required under the terms of this Note will be in writing and either delivered personally or sent by United States first class mail.  If sent by mail, notice will be deemed given when deposited in the United States mail, properly addressed and with postage prepaid.  Unless changed by subsequent written notice, the following addresses will be used:

 

  

B-1

  

If to Holder: 

 

If to Maker:

	
                                                                 

	
Cachet Financial Solutions, Inc.

	

                                                                 

	
18671 Lake Drive East

	

                                                                 

	
Chanhassen, MN 55317

 

	
  

	
9.2

	
This Note, together with the Subscription Agreement, embodies the entire agreement and understanding between the parties relating to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to such subject matter.  The dispute-resolution provisions of the Subscription Agreement are hereby incorporated herein by this reference.

 

	
  

	
9.3

	
This Note will be construed and interpreted pursuant to and in accordance with the laws of the State of Minnesota, without regard to the conflicts-of-law principles thereof.

 

	
  

	
9.4

	
This Note will be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, executors, administrators, successors, and assigns.

 

In Witness Whereof, this Promissory Note has been executed and delivered effective as of the date first written above.

 

	 	
MAKER:

	 
	 	 	 	 
	 	
CACHET FINANCIAL SOLUTIONS, INC.

	 
	 	 	 	 
	 	 	 
	 	
Jeffrey C. Mack, Chief Executive Officer

	 

 

 

B-1f8k022714ex10ii_cachetfin.htm

Exhibit 10.2

 

LOAN AND SECURITY AGREEMENT

 

This Loan and Security Agreement (“Agreement”), dated as of March 4, 2014, is by and between Cachet Financial Solutions Inc., a Delaware corporation (“Cachet-Delaware”), Cachet Financial Solutions Inc., a Minnesota corporation (“Cachet-Minnesota”) (Cachet-Delaware and Cachet-Minnesota being referred to herein individually as “Borrower” and collectively as “Borrowers”) and Michael J. Hanson, an individual resident of Minnesota (“Lender”).

 

INTRODUCTION

Borrowers desire to obtain the Loan from Lender for the purpose of providing bridge financing for the acquisition of DeviceFidelity (“Device”) by Cachet-Minnesota.  Lender is willing to provide the Loan and such accommodations all in accordance with the terms of this Agreement.  Capitalized terms used herein shall have the meanings assigned to them in Schedule A and, for purposes of this Agreement and the other Loan Documents, the rules of construction set forth in Schedule A shall govern.

 

AGREEMENT

Now, Therefore, for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 

	
1.

	
AMOUNT AND TERMS OF CREDIT

 

1.1           Loan.  Subject to the terms and conditions of this Agreement, Lender agrees to make the Loan to Borrowers on the Closing Date in the initial original principal amount of $1,500,000.

 

1.2           Use of Proceeds.  Borrowers shall use the proceeds hereunder of the Loan solely to fund the acquisition of Device by Cachet-Minnesota.

 

1.3           Single Loan.  The Loan and all of the other Obligations of Borrowers to Lender arising in connection with this Agreement shall constitute one general obligation of Borrowers, secured by all of the Collateral.  Any and all Obligations of either Borrower to Lender shall be joint and several Obligations of both Borrowers.

 

1.4           Interest.

 

(a)           Interest shall accrue on the unpaid principal balance of the Loan at the Loan Rate.

 

(b)           Effective upon the occurrence of an Event of Default and for so long as such Event of Default shall be continuing, the Loan Rate shall automatically be increased to a rate of four percent (4%) per month, or forty-eight percent (48%) per annum (any such increased rate, the “Default Rate”). In the event that the Loan Rate or the Default Rate exceeds the highest rate of interest permissible under applicable law, then the Loan Rate and/or the Default Rate shall be the maximum amount as allowed by applicable law.

 

  

  

  

 

(c)           All computations of interest shall be made by Lender on the basis of a 365-day year, in each case for the actual number of days occurring in the period for which such interest or fee is payable.

 

1.5           Payments of Interest and Principal.

 

(a)           Commencing on April 3, 2014, and on the third day of each successive calendar month thereafter, Borrowers shall pay to lender in cash all accrued but unpaid interest.

 

(b)           On the Termination Date, Borrowers shall pay to Lender in full the entire unpaid principal balance of the Loan, together with all unpaid interest accrued thereon.

 

 (c)           If any interest or any other payment to Lender under this Agreement becomes due and payable on a day other than a Business Day, such payment date shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then-applicable rate during such extension.

 

1.6           Additional Compensation: Issuance of Common Stock.  As additional compensation to Lender for making the Loan, Cachet-Delaware shall issue to Lender common stock of Cachet-Delaware, as follows:

 

(a)           on the earlier of April 3, 2014 or, if sooner, the date on which the entire principal balance, together with all interest accrued thereon, shall be paid in full, Cachet-Delaware shall issue to Lender a number of shares of common stock of Cachet-Delaware (determined based on the then applicable Share Price) equal to 12.5% of the original outstanding principal balance of the Loan;

 

(b)           if all or any portion of the Loan remains outstanding, commencing on April 4, 2014 and on each successive 5th business day, for so long as any portion of the principal amount of the loan remains outstanding, whether or not the Termination Date has occurred, Cachet-Delaware shall issue to Lender a number of shares of common stock of Cachet-Delaware (determined based on the then applicable Share Price) equal to 3.125% of the outstanding principal balance as of the end of such period.

(c)            In the event that Cachet-Delaware undertakes a public offering of its common stock, Cachet-Delaware shall, at Lender’s option, include any shares of common stock issued to the Lender (the “Shares”) in such offering.  In the event that the underwriter(s) of the public offering determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten in the public offering, then the Shares may be excluded from the public offering, provided that in such event Cachet-Delaware shall register the Shares in a separate offering on or before October 31, 2014.  Cachet-Delaware agrees to (i) execute and deliver, and cause its directors and officers to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the opinion of the Lender, necessary or advisable to register the Shares, (ii) use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for a period of one year from the effective date, and (iii) make all amendments thereto and/or to the related prospectus which, in the opinion of Lender, are necessary or advisable, all in conformity with the requirements of the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission applicable thereto.  Lender agrees to comply with the provisions of the securities or “blue sky” laws of any and all jurisdictions which the Lender shall designate.  To the extent that Cachet-Delaware enters into a registration rights agreement with any party that contains registration rights more favorable than the rights set forth above, Cachet-Delaware agrees to provide such rights to Lender.

 

  

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1.7           Receipt of Payments.  Borrowers shall make each payment under this Agreement (other than payments made pursuant to Section 1.7) without set-off, counterclaim or deduction, and free and clear of all Taxes, not later than 3:00 p.m., Minneapolis time on the day when due in lawful money of the United States of America in immediately available funds to such account or otherwise as directed by Lender.  For purposes of computing interest and fees, all payments shall be deemed received by Lender on the day of receipt of immediately available funds by the Lender.

 

1.8           Indemnity.  Borrowers agree to indemnify and hold Lender and its Affiliates, and their respective employees, attorneys and agents (each, an “Indemnified Person”), harmless from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and reasonable expenses of any kind or nature whatsoever (including reasonable attorneys’ fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal) that may be instituted or asserted against or incurred by any such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents, or with respect to the execution, delivery, enforcement, performance and administration of, or in any other way arising out of or relating to, this Agreement and the other Loan Documents or any other documents or transactions contemplated by or referred to herein or therein and any actions or failures to act with respect to any of the foregoing arising out of disputes between or among any parties to any of the Loan Documents (collectively, “Indemnified Liabilities”), except to the extent that any such Indemnified Liability is finally determined by a court of competent jurisdiction to have resulted solely from such Indemnified Person’s gross negligence or willful misconduct.  NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY SUCCESSOR, ASSIGNEE OR THIRD-PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES THAT MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.

 

	
2.

	
CONDITIONS PRECEDENT

 

Lender shall not be obligated to advance proceeds for the Loan, or to perform any other action hereunder, unless and until the following Conditions Precedent have been satisfied:

 

2.1      Execution and Delivery of Loan Documents.  The Loan Documents shall have been duly executed and delivered by Borrowers on or before the Closing Date.

 

2.2     Consent of Michaelson.  Michaelson shall have provided its consent to Borrowers’ entering this Agreement with Lender, which consent may be documented in the Subordination Agreement.

 

2.3     Intercreditor Agreement with Trooien Capital, LLC.  Lender shall have entered into the Intercreditor Agreement in form and substance acceptable to Lender.

 

  

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3.

	
REPRESENTATIONS, WARRANTIES AND COVENANTS

 

To induce Lender to enter into this Agreement and to make the Loans, Borrowers hereby represent and warrant to Lender (each of which representations and warranties shall survive the execution and delivery of this Agreement), and promise to and agree with Lender until the Termination Date as follows:

 

3.1           Corporate Existence; Compliance with Law.  Each Borrower: (a) is, as of the Closing Date, and will continue to be (i) a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, (ii) duly qualified to do business and in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect, and (iii) in compliance with all Requirements of Law, except to the extent failure to comply therewith could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (b) has and will continue to have (i) the requisite corporate power and authority and the legal right to execute, deliver and perform its obligations under the Loan Documents, and to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore or proposed to be conducted, and (ii) all licenses, permits, franchises, rights, powers, consents or approvals from or by all Persons or Governmental Authorities having jurisdiction over such Borrower that are necessary or appropriate for the conduct of its business.

 

3.2           Executive Offices; Corporate or Other Names.  With respect to each Borrower: (a) Borrower’s name as it appears in official filings in the state of its incorporation or organization, (b) the type of entity of Borrower, (c) the organizational identification number issued by Borrower’s state of incorporation or organization or a statement that no such number has been issued, (d) Borrower’s state of organization or incorporation, and (e) the location of Borrower’s chief executive office, corporate offices, other locations of Collateral and locations where records with respect to Collateral are kept (including in each case the county of such locations) are as set forth in Disclosure Schedule 3.2 and, except as set forth in such schedule, such locations have not changed during the preceding 12 months.  As of the Closing Date, during the prior five years, neither Borrower has been known as or conducted business in any other name (including trade names).

 

3.3           Corporate Power; Authorization; Enforceable Obligations. The execution, delivery and performance by each Borrower of the Loan Documents to which either is a party, and the creation of all Liens provided for herein and therein:  (a) are and will continue to be within such Borrower’s power and authority; (b) have been and will continue to be duly authorized by all necessary or proper action; (c) are not and will not be in violation of any Requirement of Law or, except as set forth in Disclosure Schedule 3.3, Contractual Obligation of Borrower; (d) do not and will not result in the creation or imposition of any Lien (other than Permitted Encumbrances) upon any of the Collateral; and (e) do not and will not require the consent or approval of any Governmental Authority or any other Person.  As of the Closing Date, each Loan Document shall have been duly executed and delivered on behalf of each Borrower, and each such Loan Document upon such execution and delivery shall be and will continue to be a legal, valid and binding obligation of each Borrower, enforceable against it in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency and other similar laws affecting creditors’ rights generally.

 

  

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3.4           Financial Statements and Projections; Books and Records.  All Financial Statements delivered by each Borrower to Lender are true, correct and complete and reflect fairly and accurately the financial condition of each Borrower as of the date of each such Financial Statement in accordance with GAAP, except for any internal Financial Statements, the absence of notes and normal year-end adjustments.  Each Borrower shall keep adequate Books and Records with respect to the Collateral and its business activities in which proper entries, reflecting all consolidated and consolidating financial transactions, and payments and credits received on, and all other dealings with, the Collateral, will be made in accordance with GAAP and all Requirements of Law and on a basis consistent with the Financial Statements.

 

3.5           Material Adverse Change.  Between the date of each of Borrower’s most recently audited Financial Statements delivered to Lender and the Closing Date, no events have occurred that alone or in the aggregate has had or could reasonably be expected to have a Material Adverse Effect.  Except as set forth in Disclosure Schedule 3.5, neither Borrower is in default, and to Borrowers’ knowledge no third party is in default, under or with respect to any of its Contractual Obligations, that alone or in the aggregate has had or could reasonably be expected to have a Material Adverse Effect.

 

3.6           Real Estate; Property.  The real estate listed in Disclosure Schedule 3.6 constitutes all of the real property owned, leased, or used by either Borrower in its business, and Borrowers will not execute any material agreement or contract in respect of such real estate after the date of this Agreement without giving Lender written notice thereof.  Each Borrower holds and will continue to hold good and marketable fee simple title to all of its owned real estate, and good and marketable title to all of its other properties and assets, and valid and insurable leasehold interests in all of its leases (both as lessor and lessee, sublessee or assignee), and none of the properties and assets of either Borrower are or will be subject to any Liens, except Permitted Encumbrances.

 

3.7           Outstanding Indebtedness.  All outstanding Indebtedness of either Borrower as of the Closing Date is disclosed on Disclosure Schedule 3.7.

 

3.8           Government Regulation.  Borrowers are not subject to or regulated under any federal or state statute, rule or regulation that restricts or limits such Person’s ability to incur Indebtedness, pledge its assets, or to perform its obligations under the Loan Documents.  The making of the Loan, the application of the proceeds and repayment thereof, and the consummation of the transactions contemplated by the Loan Documents do not and will not violate any Requirement of Law.

 

3.9           Taxes.  All Tax returns, reports and statements required by any Governmental Authority to be filed by either Borrower have, as of the Closing Date, been filed and will, until the Termination Date, be filed with the appropriate Governmental Authority and no tax lien has been filed against either Borrower or its property.  Proper and accurate amounts have been and will be withheld by each Borrower from any employees for all periods in compliance with all Requirements of Law and such withholdings have and will be timely paid to the appropriate Governmental Authorities.  Neither Borrower is liable for any Taxes of any other Person pursuant to any agreement, and to each Borrower’s knowledge, neither Borrower is liable for any Taxes as a transferee.

 

3.10         Payment of Obligations.  Each Borrower will pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all of its Charges and other obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of a Borrower and none of the Collateral is or could reasonably be expected to become subject to any Lien or forfeiture or loss as a result of such contest.

 

  

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3.11         Litigation.  Except as set forth on Disclosure Schedule 3.11, no Litigation is pending or, to the knowledge of either Borrower, threatened by or against either Borrower or against its properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) that could reasonably be expected to have a Material Adverse Effect.  Except as set forth on Disclosure Schedule 3.11,  as of the Closing Date there is no Litigation pending or threatened against either Borrower that seeks damages in excess of $100,000 or injunctive relief or alleges criminal misconduct of a Borrower.  Borrowers shall notify Lender promptly in writing upon learning of the existence, threat or commencement of any Litigation against a Borrower or any allegation of criminal misconduct against a Borrower.

 

3.12         Intellectual Property.  As of the Closing Date, Cachet-Minnesota owns, or is licensed to use, all Intellectual Property necessary to conduct its business as currently conducted except for such Intellectual Property the failure of which to own or license could not reasonably be expected to have a Material Adverse Effect.  Cachet-Minnesota will maintain the patenting and registration of all Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office, or other appropriate Governmental Authority and Cachet-Minnesota will promptly patent or register, as the case may be, all material new Intellectual Property.

 

3.13         Deposit Accounts.  The attached Schedule B lists all banks and other financial institutions at which Borrowers maintain deposits and/or other accounts, and such attachment correctly identifies the name, address and telephone number of each such depository, the name in which the account is held, a description of the purpose of the account, and the complete account number.

 

3.14         Conduct of Business. Each Borrower (a) shall conduct its business substantially as now conducted or as otherwise permitted hereunder, and (b) shall at all times maintain, preserve and protect all of the Collateral and Borrower’s other property, used or useful in the conduct of its business and keep the same in good repair, working order and condition (ordinary wear and tear excepted) and make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices.

 

3.15         Full Disclosure.  No information contained in any Loan Document, the Financial Statements or any written statement furnished by or on behalf of either Borrower under any Loan Document, or to induce Lender to execute the Loan Documents, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.

 

3.16         Further Assurances.  At any time and from time to time, upon the written request of Lender and at the sole expense of Borrowers, Borrowers shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as Lender may reasonably deem desirable (a) to obtain the full benefits of this Agreement and the other Loan Documents, (b) to protect, preserve and maintain Lender’s rights in any Collateral, or (c) to enable Lender to exercise all or any of the rights and powers herein granted.

 

  

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4.

	
REPORTS AND NOTICES

 

4.1           Reports and Information.  From the Closing Date until the Termination Date, Borrowers shall deliver to Lender such reports and information as Lender may reasonably request.

 

4.2           Notices.  Borrowers shall advise Lender promptly, in reasonable detail, of:  (a) any Lien, other than Permitted Encumbrances, attaching to or asserted against any of the Collateral or any occurrence causing a material loss or decline in value of any Collateral and the estimated (or actual, if available) amount of such loss or decline; or (b) the occurrence of any Default or other event that has had or could reasonably be expected to have a Material Adverse Effect.

 

	
5.

	
NEGATIVE COVENANTS

 

Borrowers covenant and agree that, without Lender’s prior written consent, from the Closing Date until the Termination Date, Borrowers shall not, directly or indirectly, by operation of law or otherwise:

 

(a)           except in connection with the acquisition of Device by Cachet-Minnesota, form any subsidiary or merge with, consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise combine with or make any investment in or make any loan or advance to, any Person;

 

(b)           cancel any debt owing to it or create, incur, assume or permit to exist any Indebtedness, except Permitted Indebtedness;

 

(c)           make any changes in any of its business objectives, purposes, or operations that could reasonably be expected to adversely affect repayment of the Obligations or could reasonably be expected to have a Material Adverse Effect or engage in any business other than that presently engaged in or proposed to be engaged in on the Closing Date, or amend its Articles of Incorporation or Bylaws or other organizational documents;

 

(d)           create or permit any Lien on any of its properties or assets, except for Permitted Encumbrances;

 

(e)           sell, transfer, issue, convey, assign or otherwise dispose of any of its material assets or properties;

 

(f)           change (i) its name as it appears in official filings in the state of its incorporation or organization, (ii) its chief executive office, corporate offices or other Collateral locations, or location of its records concerning the Collateral, (iii) the type of legal entity that it is, (iv) its organization identification number, if any, issued by its state of incorporation or organization, or (v) its state of incorporation or organization, or acquire, lease or use any real estate after the Closing Date without such Person, in each instance, giving 30 days prior written notice thereof to Lender and taking all actions deemed necessary or appropriate by Lender to continuously protect and perfect Lender’s Liens upon the Collateral;

 

  

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(g)           establish any depository or other bank account of any kind with any financial institution (other than the accounts set forth in Schedule B) without Lender’s prior written consent; and

 

(h)           make or permit any Restricted Payment.

 

	
6.

	
SECURITY INTEREST

 

6.1           Grant of Security Interest.  (a) As collateral security for the prompt and complete payment and performance of the Obligations, each Borrower hereby grants to Lender a security interest in and Lien upon all of each Borrower’s property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title, or interest, including all of the following property in which it now has or at any time in the future may acquire any right, title or interest (collectively, the “Collateral”):

 

(i)           all Accounts, as such capitalized term is defined in the Code;

 

(ii)          all Deposit Accounts (as such capitalized term is defined in the Code), all other bank accounts and all funds on deposit therein;

 

(iii)         all money, cash and cash equivalents;

 

(iv)         all Investment Property, as such capitalized term is defined in the Code;

 

(v)          all stock;

 

(vi)         all Goods, including Inventory, Equipment and Fixtures, as such capitalized terms are defined in the Code;

 

(vii)        all Chattel Paper, Documents and Instruments, as such capitalized terms are defined in the Code;

 

(viii)       all Books and Records;

 

(ix)          all General Intangibles, including all Intellectual Property, contract rights, choses in action, Payment Intangibles and Software, as such capitalized terms are defined in the Code;

 

(x)           all Letter-of-Credit Rights, as such capitalized term is defined in the Code;

 

(xi)          all Supporting Obligations, as such capitalized term is defined in the Code; and

 

(xii)         to the extent not otherwise included, all Proceeds (as such capitalized term is defined in the Code), tort claims, insurance claims and other rights to payment not otherwise included in the foregoing, and products of all and any of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of, each of the foregoing.

 

  

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(b)           Borrowers and Lender agree that this Agreement creates, and is intended to create, valid and continuing Liens upon the Collateral in favor of Lender in the manner described herein.  Borrowers represent, warrant and promise to Lender that:  (i) each Borrower has rights in and the power to transfer each item of the Collateral upon which it purports to grant a Lien pursuant to the Loan Documents, free and clear of any and all Liens or claims of others, other than Permitted Encumbrances and Permitted Indebtedness; (ii) the security interests granted pursuant to this Agreement will, upon completion of filings and other actions required under applicable law, constitute valid perfected security interests in all of the Collateral in favor of the Lender as security for the prompt and complete payment and performance of the Obligations, enforceable in accordance with the terms hereof against any and all creditors of and purchasers from Borrowers (other than purchasers of Inventory in the ordinary course of business) and such security interests will, upon the satisfaction of the aforementioned conditions, be prior to all other Liens on the Collateral in existence on the date hereof except for Permitted Encumbrances that have priority by operation of law; and (iii) no effective security agreement, mortgage, deed of trust, financing statement, equivalent security or Lien instrument or continuation statement covering all or any part of the Collateral is or will be on file or of record in any public office, except those relating to Permitted Encumbrances.  Borrowers promise to defend the right, title and interest of Lender in and to the Collateral against the claims and demands of all Persons whomsoever.

 

	
7.

	
EVENTS OF DEFAULT; RIGHTS AND REMEDIES

 

7.1           Events of Default.  The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an “Event of Default” hereunder which shall be deemed to be continuing until waived in writing by Lender in accordance with Section 9.3 or until cured by Borrowers:

 

(a)           Borrowers shall fail to make any payment in respect of any Obligations when due and payable or declared due and payable;

 

(b)           Borrowers shall fail or neglect to perform, keep or observe any of the covenants, promises, agreements, requirements, conditions or other terms or provisions contained in this Agreement or any of the other Loan Documents, after five days written notice from Lender to Borrowers of the same and with no cure having been effected or substantially effected by Borrowers within such five-day period;

 

(c)           an event of default shall occur under any Contractual Obligation of a Borrower (other than this Agreement and the other Loan Documents), and such event of default (i) involves the failure to make any required payment, whether of principal, interest or otherwise, and whether due by scheduled maturity, required prepayment, acceleration, demand or otherwise, in respect of any Indebtedness (other than the Obligations) of such Person in an aggregate amount exceeding the Minimum Actionable Amount, or (ii) causes (or permits any holder of such Indebtedness or a trustee to cause) such Indebtedness, or a portion thereof, in an aggregate amount exceeding the Minimum Actionable Amount, to become due prior to its stated maturity or prior to its regularly scheduled date of payment;

 

(d)           any representation or warranty in this Agreement or any other Loan Document, or in any written statement pursuant hereto or thereto, or in any report, financial statement or certificate made or delivered to Lender by a Borrower shall be materially untrue or incorrect as of the date when made or deemed made;

 

  

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(e)           there shall be commenced against a Borrower any Litigation seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that remains unstayed or undismissed for 30 consecutive days; or either Borrower shall have concealed, removed or permitted to be concealed or removed, any part of its property with intent to hinder, delay or defraud any of its creditors or made or suffered a transfer of any of its property or the incurring of an obligation that may be fraudulent under any bankruptcy, fraudulent transfer or other similar law; or

 

(f)           a case or proceeding shall have been commenced involuntarily against a Borrower in a court having competent jurisdiction seeking a decree or order: (i) under the United States Bankruptcy Code or any other applicable federal, state or foreign bankruptcy or other similar law, and seeking either (A) the appointment of a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for such Person or of any substantial part of its properties, or (B) the reorganization or winding up or liquidation of the affairs of any such Person, and such case or proceeding shall remain undismissed or unstayed for 60 consecutive days or such court shall enter a decree or order granting the relief sought in such case or proceeding; or (ii) invalidating or denying any Person’s right, power, or competence to enter into or perform any of its obligations under any Loan Document or invalidating or denying the validity or enforceability of this Agreement or any other Loan Document or any action taken hereunder or thereunder; or

 

(g)           a Borrower shall (i) commence any case, proceeding or other action under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it or seeking appointment of a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for it or any substantial part of its properties, (ii) make a general assignment for the benefit of creditors, (iii) consent to or take any action in furtherance of, or, indicating its consent to, approval of, or acquiescence in, any of the acts set forth in paragraphs (e) or (f) of this Section or clauses (i) and (ii) of this paragraph, or (iv) shall admit in writing its inability to, or shall be generally unable to, pay its debts as such debts become due; or

 

(h)           a final judgment or judgments for the payment of money in excess of the Minimum Actionable Amount in the aggregate shall be rendered against a Borrower, unless the same shall be (i) fully covered by insurance and the issuer(s) of the applicable policies shall have acknowledged full coverage in writing within 15 days of judgment, or (ii) vacated, stayed, bonded, paid or discharged within a period of 15 days from the date of such judgment.

 

7.2           Remedies.  (a) If any Default shall have occurred and be continuing, then Lender may, upon written notice to Borrowers, take any one or more of the following actions:  (i) declare all or any portion of the Obligations to be forthwith due and payable, whereupon such Obligations shall become and be due and payable; or (ii) exercise any rights and remedies provided to Lender under the Loan Documents or at law or equity, including all remedies provided under the Code; provided, however, that upon the occurrence of any Event of Default specified in Sections 7.1 (e), (f) or (g), the Obligations shall become immediately due and payable without declaration, notice or demand by Lender.

 

(b)           Without limiting the generality of the foregoing, Borrowers expressly agree that upon the occurrence of any Event of Default, Lender may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk.  Lender shall have the right upon any such public sale, to the extent permitted by law, to purchase for the benefit of Lender the whole or any part of said Collateral so sold, free of any right of equity of redemption, which right Borrowers hereby release.  Such sales may be adjourned, or continued from time to time with or without notice.  Lender shall have the right to conduct such sales on Borrowers’ premises or elsewhere and shall have the right to use any Borrower’s premises without rent or other charge for such sales or other action with respect to the Collateral for such time as Lender deems necessary or advisable.

 

  

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(c)           Upon the occurrence and during the continuance of an Event of Default and at Lender’s request, Borrowers agree, to assemble the Collateral and make it available to Lender at places that Lender shall reasonably select, whether at its premises or elsewhere.  Until Lender is able to effect a sale, lease, or other disposition of the Collateral, Lender shall have the right to complete, assemble, use or operate the Collateral or any part thereof, to the extent that Lender deems appropriate, for the purpose of preserving such Collateral or its value or for any other purpose.  Lender shall have no obligation to Borrowers to maintain or preserve the rights of Borrowers as against third parties with respect to any Collateral while such Collateral is in the possession of Lender.  Lender may, if it so elects, seek the appointment of a receiver or keeper to take possession of any Collateral and to enforce any of Lender’s remedies with respect thereto without prior notice or hearing.  To the maximum extent permitted by applicable law, Borrowers waive all claims, damages, and demands against Lender, its Affiliates, agents, and the officers and employees of any of them arising out of the repossession, retention or sale of any Collateral except such as are determined in a final judgment by a court of competent jurisdiction to have arisen solely out of the gross negligence or willful misconduct of such Person.  Borrowers agree that ten days’ prior notice by Lender to Borrowers of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters.  Borrowers shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which Lender is entitled.

 

(d)           Lender’s rights and remedies under this Agreement shall be cumulative and non-exclusive of any other rights and remedies that Lender may have under any Loan Document or at law or in equity.  Recourse to the Collateral shall not be required.  All provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited, to the extent necessary, so that they do not render this Agreement invalid or unenforceable, in whole or in part.

 

7.3           Proceeds.  The Proceeds of any sale, disposition or other realization upon any Collateral shall be applied by Lender upon receipt to the Obligations in such order as Lender may deem advisable in its sole discretion, and after the indefeasible payment and satisfaction in full in cash of all of the Obligations, and after the payment by Lender of any other amount required by any provision of law, including Sections 9-608(a)(l) and 9-615(a)(3) of the Code (but only after Lender has received what Lender considers reasonable proof of a subordinate party’s security interest), the surplus, if any, shall be paid to Borrowers or their representatives or to whomsoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct.

 

  

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8.

	
SUCCESSORS AND ASSIGNS

 

Each Loan Document shall be binding on and shall inure to the benefit of Borrowers, Lender and their respective successors and assigns, except as otherwise provided herein or therein.  Borrowers may not assign, transfer, hypothecate, delegate or otherwise convey their rights, benefits, obligations or duties under any Loan Document without the prior express written consent of Lender.  Any such purported conveyance by Borrowers without the prior express written consent of Lender shall be void.  There shall be no third-party beneficiaries of any of the terms and provisions of any of the Loan Documents.

 

	
9.

	
GENERAL PROVISIONS

 

9.1           Complete Agreement; Modification of Agreement.  This Agreement and the other Loan Documents constitute the complete agreement between the parties with respect to the subject matter hereof and thereof, supersede all prior agreements, commitments, understandings or inducements (oral or written, expressed or implied).  No Loan Document may be modified, altered or amended except by a written agreement signed by Lender and Borrowers.

 

9.2           Expenses.  Borrowers shall reimburse Lender for all costs and expenses (including the fees and expenses of all counsel, advisors, consultants and auditors retained in connection therewith), incurred in connection with the preparation, negotiation, execution and delivery of, and, other than as specifically set forth herein, the performance of obligations under, the Loan Documents, including but not limited to any such costs and expenses incurred by Lender in connection with the exercise of any remedies hereunder.

 

9.3           No Waiver.  Neither Lender’s failure, at any time, to require strict performance by Borrower of any provision of any Loan Document, nor Lender’s failure to exercise, nor any delay in exercising, any right, power or privilege hereunder, shall operate as a waiver thereof or waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith.  No single or partial exercise of any right, power or privilege hereunder shall preclude any other or future exercise thereof or the exercise of any other right, power or privilege.  Any suspension or waiver of a Default or other provision under the Loan Documents shall not suspend, waive or affect any other Default or other provision under any Loan Document, and shall not be construed as a bar to any right or remedy that Lender would otherwise have had on any future occasion.  None of the undertakings, indemnities, agreements, warranties, covenants and representations of Borrowers to Lender contained in any Loan Document and no Default by Borrowers under any Loan Document shall be deemed to have been suspended or waived by Lender, unless such waiver or suspension is by an instrument in writing signed by an officer or other authorized employee of Lender and directed to Borrowers specifying such suspension or waiver (and then such waiver shall be effective only to the extent therein expressly set forth), and Lender shall not, by any act (other than execution of a formal written waiver), delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder.

 

9.4           Severability.  Wherever possible, each provision of the Loan Documents shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of any Loan Document shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of such Loan Document.  Except as otherwise expressly provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under the Loan Documents shall in any way affect or impair the Obligations, duties, covenants, representations and warranties, indemnities, and liabilities of Borrowers or the rights of Lender relating to any unpaid Obligation, (due or not due, liquidated, contingent or unliquidated), or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is not required until after the Termination Date, all of which shall not terminate or expire, but rather shall survive such termination or cancellation and shall continue in full force and effect until the Termination Date; provided, however, that all indemnity obligations of Borrowers under the Loan Documents shall survive the Termination Date.

 

  

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9.5           Notices.  Except as otherwise provided herein, whenever any notice, demand, request or other communication shall or may be given to or served upon any party by any other party, or whenever any party desires to give or serve upon any other party any communication with respect to this Agreement, each such communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and three days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by facsimile transmission (with such facsimile transmission confirmed), (c) one Business Day after deposit with a reputable overnight courier with all charges prepaid or (d) when hand-delivered, all of which shall be addressed to the party to be notified and sent to the address or facsimile number indicated on the signature pages hereto or to such other address (or facsimile number) as may be substituted by notice given as herein provided.

 

9.6           Counterparts.  Any Loan Document may be authenticated in any number of separate counterparts by any one or more of the parties thereto, and all of said counterparts taken together shall constitute one and the same instrument.  Any Loan Document may be authenticated by manual signature, facsimile or, if approved in writing by Lender, electronic means, all of which shall be equally valid.

 

9.7           Governing Law.  The Loan Documents and the obligations arising under the Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of Minnesota applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflicts of laws.

 

9.8           Submission To Jurisdiction; Waiver Of Jury Trial. (A) BORROWERS HEREBY CONSENT AND AGREE THAT THE STATE OR FEDERAL COURTS LOCATED IN HENNEPIN COUNTY, MINNESOTA, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWERS AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, HOWEVER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER.  BORROWERS EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWERS HEREBY WAIVE ANY OBJECTION THAT THEY MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS.

 

  

13

  

 

(B)           THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LENDER AND BORROWERS ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.

 

9.9           Reinstatement.  This Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time payment of all or any part of the Obligations is rescinded or must otherwise be returned or restored by Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of either Borrower, or otherwise, all as though such payments had not been made.

 

[SIGNATURE PAGE FOLLOWS]

 

 

  

14

  

 

LOAN AND SECURITY AGREEMENT

 

Signature Page

 

In Witness Whereof, this Loan and Security Agreement has been duly executed as of the date first written above.

	
BORROWER:

 

	
BORROWER:

 

	
CACHET FINANCIAL SOLUTIONS INC., a 

Minnesota corporation

	
CACHET FINANCIAL SOLUTIONS INC., a 

Delaware corporation

 

	
By:    /s/ Jefffrey C. Mack

Jeffrey C. Mack, President

 

Address for Notice:

 

Cachet Financial Solutions Inc.

Attention:  President

Southwest Tech Center A

18671 Lake Drive East

Minneapolis, MN 55317

Facsimile: (952) 698-6999

	
By:   /s/ Jefffrey C. Mack

              Jeffrey C. Mack, President

 

Address for Notice:

 

Cachet Financial Solutions Inc.

Attention:  President

Southwest Tech Center A

18671 Lake Drive East

Minneapolis, MN 55317

Facsimile: (952) 698-6999

 

LENDER:

MICHAEL J. HANSON

 

/s/ Michael J. Hanson

Michael J. Hanson

 

Address for Notice:

2300 Territorial Road

Saint Paul, MN 55114

 

  

 

  

 

SCHEDULE A – DEFINITIONS

Capitalized terms used in this Agreement and the other Loan Documents shall have (unless otherwise provided elsewhere in this Agreement or in the other Loan Documents) the following respective meanings:

 

 “Affiliate” means, with respect to any Person: (a) each other Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, 10% or more of the voting capital stock having ordinary voting power for the election of directors of such Person; (b) each other Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person; or (c) each of such Person’s officers, directors, joint venturers and partners.  For the purpose of this definition, “control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.

 

“Agreement” means this Agreement including all appendices, exhibits or schedules attached or otherwise identified thereto, restatements and modifications and supplements thereto, and any appendices, exhibits or schedules to any of the foregoing, each as effect at the time such reference becomes operative; provided, however, that except as specifically set forth in this Agreement, any reference to the Disclosure Schedules to this Agreement shall be deemed a reference to the Disclosure Schedules as in effect on the Closing Date or in a written amendment thereto executed by Borrowers and Lender.

 

“Books and Records” means all books, records, board minutes, contracts, licenses, insurance policies, environmental audits, business plans, files, computer files, computer discs and other data and software storage and media devices, accounting books and records, financial statements (actual and pro forma), filings with Governmental Authorities and any and all records and instruments relating to the Collateral or a Borrower’s business.

 

“Borrower” has the meaning given in the opening paragraph of this Agreement.

 

“Business Day” means any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of Minnesota.

 

“Capital Lease” means, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on a balance sheet of such Person or otherwise would be disclosed as such in a note to such balance sheet, other than, in the case of a Borrower, any such lease under which that Borrower is the lessor.

 

“Capital Lease Obligation” means, with respect to any Capital Lease, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed in a note to such balance sheet.

 

“Charges” means all federal, state, county, city, municipal, local, foreign or other Taxes (including taxes owed to PBGC at the time due and payable), levies, customs or other duties, assessments, charges, liens, and all additional charges, interest, penalties, expenses, claims or encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c) the employees, payroll, income or gross receipts of either Borrower, (d) the ownership or use of any assets by either Borrower, or (e) any other aspect of a Borrower’s business.

 

  

  

  

 

“Closing Date” means the Business Day on which the conditions precedent set forth in Section 2 have been satisfied or specifically waived in writing by Lender, and the Loan has been made.

 

“Code” means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Minnesota; provided, however, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Lender’s Lien on any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Minnesota, then the term “Code” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions of this Agreement relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions; provided further, that to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern.

 

“Collateral” has the meaning assigned to it in Section 6.1.

 

“Contractual Obligation” means as to any Person, any provision of any security issued by such Person or of any written agreement, instrument, or other undertaking to which such Person is a party or by which it or any of its property is bound.

 

“Default” means any Event of Default or any event that, with the passage of time or notice or both, would, unless cured or waived, become an Event of Default.

 

“Default Rate” has the meaning assigned to it in Section 1.4.

 

“Event of Default” has the meaning assigned to it in Section 7.1.

 

“Financial Statements” means the consolidated and consolidating income statement, balance sheet and statement of cash flows of each Borrower (and its subsidiaries, if any) prepared in accordance with GAAP.

 

“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time, consistently applied.

 

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

 

“Indebtedness” of any Person means:  (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (including reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers’ acceptances, whether or not matured, but not including obligations to trade creditors incurred in the ordinary course of business and not more than 45 days past due; (b) all obligations evidenced by notes, bonds, debentures or similar instruments; (c) all indebtedness created or arising under any conditional sale or other title-retention agreements with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (d) all Capital Lease Obligations; (e) all guarantees of Indebtedness of other Persons; (f) all Indebtedness referred to in clauses (a), (b), (c), (d) or (e) above that is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; (g) the Obligations; and (h) all liabilities under Title IV of the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time, and any regulations promulgated thereunder.

 

  

2

  

 

“Indemnified Liabilities” and “Indemnified Person” have the respective meanings assigned to them in Section 1.7.

 

“Intellectual Property” means any and all Licenses, patents, copyrights, trademarks, trade secrets and customer lists.

 

“Intercreditor Agreement” means that certain intercreditor agreement entered into as of even date between Lender, Trooien, and Borrowers.

 

“IRC” and “IRS” mean respectively, the Internal Revenue Code of 1986 and the Internal Revenue Service, and any successors thereto.

 

“Lender” means Michael J. Hanson.

 

“License” means any written agreement now owned or hereafter acquired by any Person granting any right with respect to (i) any copyright or copyright registration, (ii) any invention on which a patent is inexistence, (iii) the use of any trademark or trademark registration, or (iv) other license of rights or interests now held or hereafter acquired by any Person.

 

“Lien” means any mortgage, security deed or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, security title, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Code or comparable law of any jurisdiction).

 

“Litigation” means any claim, lawsuit, litigation, investigation or proceeding of or before any arbitrator or Governmental Authority.

 

“Loan” means the loan in the amount specified in and evidenced by the Note, and made to Borrowers under the terms of this Agreement, and any renewals, extensions, revisions, modifications or replacements therefor or thereof.

 

“Loan Documents” means this Agreement and the Note, the Subordination Agreement, the Intercreditor Agreement, the Patent Security Agreement, and all security agreements and other documents, instruments, certificates, and notices at any time delivered by any Person (other than Lender) in connection with any of the foregoing.

 

  

3

  

 

 “Loan Rate” means two percent (2%) per month or twenty-four percent (24%) per annum.

 

“Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations, or financial or other condition of either Borrower or the industry within which a Borrower operates, (b) a Borrower’s ability to pay or perform the Obligations under the Loan Documents in accordance with the terms thereof, (c) the Collateral or Lender’s Liens on the Collateral or the priority of any such Lien, or (d) Lender’s rights and remedies under this Agreement and the other Loan Documents.

 

“Michaelson” means Michaelson Capital Partners, LLC (f/k/a Imperium Special Finance Fund, LP).

 

“Minimum Actionable Amount” means $100,000.

 

“Note” means the promissory note of Borrowers dated the Closing Date.

 

“Obligations” means all loans, advances, debts, expense reimbursement, fees, liabilities, and obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by Borrowers to Lender, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, whether arising under any of the Loan Documents or under any other agreement between a Borrower and Lender, and all covenants and duties regarding such amounts.  This term includes all principal, interest (including interest accruing at the then-applicable rate provided in this Agreement after the maturity of the Loan and interest accruing at the then-applicable rate provided in this Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, Charges, expenses, attorneys’ fees and any other sum chargeable to Borrowers under any of the Loan Documents, and all principal and interest due in respect of the Loan.

 

“Patent Security Agreement” means that certain patent and security agreement of even date entered into by Lender and Cachet-Minnesota, which agreement serves to evidence Lender’s Lien on each of Grantor’s United States Patents at the United States Patent & Trademark Office.

 

“Payment Default” shall mean the occurrence of an Event of Default under Section 7.1(a) of this Agreement.

 

“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.

 

“Permitted Encumbrances” means the following encumbrances:  (a) Liens for Taxes or assessments or other Charges or levies, either not yet due and payable or to the extent that nonpayment thereof is permitted by the terms of Section 3.10; (b) pledges or deposits securing obligations under worker’s compensation, unemployment insurance, social security or public liability laws or similar legislation; (c) pledges or deposits securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which a Borrower is a party as lessee made in the ordinary course of business; (d) deposits securing public or statutory obligations of a Borrower; (e) inchoate and unperfected workers’, mechanics’, or similar liens arising in the ordinary course of business so long as such Liens attach only to Equipment, fixtures or real estate; (f) carriers’, warehousemans’, suppliers’ or other similar possessory liens arising in the ordinary course of business and securing indebtedness not yet due and payable in an outstanding aggregate amount not in excess of $100,000 at any time so long as such Liens attach only to Inventory; (g) deposits of money securing, or in lieu of, surety, appeal or customs bonds in proceedings to which a Borrower is a party; (h) zoning restrictions, easements, licenses, or other restrictions on the use of real property or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such real estate; (i) Purchase Money Liens securing Purchase Money Indebtedness (or rent) to the extent permitted under Section 5(b); (j) all of those Liens in existence on the Closing Date and disclosed on Disclosure Schedule 5(e); and (k) Liens in favor of Lender securing the Obligations.

 

  

4

  

 

“Permitted Indebtedness” means the following indebtedness:  (i) the Obligations; (ii) $2,500,000 total indebtedness to Michaelson, secured by all assets of Cachet-Minnesota, pursuant to that certain Loan and Security Agreement between Cachet-Minnesota and Imperium Special Finance Fund LP, dated October 26, 2012, as amended by Amendment No. 1 to Loan and Security Agreement dated February 19, 2013; (iii) $500,000 current indebtedness to Trooien, pursuant to that certain Loan and Security Agreement between Cachet-Minnesota and Trooien Capital, LLC, dated December 12, 2013, secured by all assets of Cachet-Minnesota, together with any subsequent advances made by Trooien thereunder; (iv) $700,000 total indebtedness evidenced by (A) Secured Convertible Promissory Note dated June 19, 2013 to Bridge Venture LLC in the original principal amount of $500,000, and (B) Secured Convertible Promissory Note July 26, 2013 to Berdon Venture Associates, LLC in the original principal amount of $200,000, both secured by all assets of Cachet-Minnesota; (v) deferred Taxes; (vi) by endorsement of Instruments or items of payment for deposit to the general account of a Borrower; (vii) Purchase Money Indebtedness; and (viii) future debt that is junior to Lender in an amount aggregating up to $7,000,000, and unsecured by the assets of Borrowers.

 

“Person” means any individual, sole proprietorship, partnership, limited liability partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof), and shall include such Person’s successors and assigns.

 

 “Purchase Money Indebtedness” means (a) any Indebtedness incurred for the payment of all or any part of the purchase price of any fixed asset, (b) any Indebtedness incurred for the sole purpose of financing or refinancing all or any part of the purchase price of any fixed asset, and (c) any renewals, extensions or refinancings thereof.

 

“Purchase Money Lien” means any Lien upon any fixed assets which secures the Purchase Money Indebtedness related thereto but only if such Lien shall at all times be confined solely to the asset the purchase price of which was financed or refinanced through the incurrence of the Purchase Money Indebtedness secured by such Lien and only if such Lien secures only such Purchase Money Indebtedness.

 

“Real Property” has the meaning assigned to it in Section 3.6.

 

“Requirement of Law” means as to any Person, the Certificate or Articles of Incorporation and Bylaws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination  of an arbitrator or a court or other Governmental Authority, in each case binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

  

5

  

 

“Restricted Payment” means: (a) the declaration or payment of any dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets on or in respect of a Borrower’s capital stock; (b) any payment or distribution made in respect of any subordinated Indebtedness of a Borrower in violation of any subordination or other agreement made in favor of Lender; (c) any payment on account of the purchase, redemption, defeasance or other retirement of a Borrower’s capital stock or any other payment or distribution made in respect of any thereof, either directly or indirectly; other than (i) that arising under this Agreement or (ii) interest and principal, when due or otherwise permitted under Section 5(b); or (d) any payment, loan, contribution, or other transfer of funds or other property to any Stockholder of such Person which is not expressly and specifically permitted in this Agreement; provided, however, that no payment to Lender shall constitute a Restricted Payment.

 

“Share Price” means (i) the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable payment date.  For this purpose, “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume-weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:00 p.m. (New York City time); (b) if the Common Stock is not then quoted for trading on the OTC Bulletin Board or and if prices for the Common Stock are then reported in the OTC Markets (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, (ii) if the common Stock is not then listed or quoted on a Trading Market or on the OTC Bulletin Board, but Cachet-Delaware has completed stock offering within the past 30 days, the share price offered in such offering, (iii) if the common Stock is not then listed or quoted on a Trading Market or on the OTC Bulletin Board and Cachet-Delaware has not completed a stock offering within the past 30 days, $2.40 per share.

 

“Stockholder” means each holder of capital stock of any Borrower.

 

“Subordination Agreement” means that Subordination Agreement entered into as of even date, between Lender and Michaelson, by which Michaelson evidences its consent to Borrowers entering into this Loan and Security Agreement.

 

“Taxes” means taxes, levies, imposts, deductions, Charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on or measured by the net income of Lender.

 

“Termination Date” means May 15, 2014, the date on which all Obligations under this Agreement shall be indefeasibly paid in full, in cash, and Borrowers shall have no further right to borrow any moneys or obtain other credit extensions or financial accommodations under this Agreement.

 

“Trading Day” means a day on which the principal Trading Market is open for business.

 

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

 

  

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“Trooien” means Trooien Capital, LLC.

 

Any accounting term used in this Agreement or the other Loan Documents shall have, unless otherwise specifically provided therein, the meaning customarily given such term in accordance with GAAP, and all financial computations thereunder shall be computed, unless otherwise specifically provided therein, in accordance with GAAP consistently applied; provided, however, that all financial covenants and calculations in the Loan Documents shall be made in accordance with GAAP as in effect on the Closing Date unless Borrowers and Lender shall otherwise specifically agree in writing.  That certain items or computations are explicitly modified by the phrase “in accordance with GAAP” shall in no way be construed to limit the foregoing. All other undefined terms contained in this Agreement or the other Loan Documents shall, unless the context indicates otherwise, have the meanings provided for by the Code. The words “herein,” “hereof’ and “hereunder” or other words of similar import refer to this Agreement as a whole, including the exhibits and schedules thereto, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement.

 

For purposes of this Agreement and the other Loan Documents, the following additional rules of construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural; (b) the term “or” is not exclusive; (c) the term “including” (or any form thereof) shall not be limiting or exclusive; (d) all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; and (e) all references to any instruments or agreements, including references to any of the Loan Documents, shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof.

 

  

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DISCLOSURE SCHEDULE 3.2

CHIEF EXECUTIVE OFFICE & CORPORATE NAMES

 

Cachet-Minnesota

	
Official Name:

	
Cachet Financial Solutions Inc.

	

Organization Identification Number

	 

	
Issued by State of Incorporation or Organization:

	
3710072-2 (Minnesota)

	
Chief Executive Office:

	
Southwest Tech Center A

	
  

	
Chanhassen, MN  55317

	
  

	
(Hennepin County, MN)

 

	
Locations of Inventory and other Collateral

	 
	
(County/State):

	
Southwest Tech Center A

	  	
18671 Lake Drive East

	  	
Chanhassen, MN  55317

	  	
Hennepin / Minnesota

	  	  
	  	
12450 Wayzata Blvd., Suite 315

	  	
Minnetonka, MN  55305

	  	
Hennepin / Minnesota

	  	  
	  	
10290 W 70th St.

	  	
Eden Prairie, MN  55344

	  	
Hennepin / Minnesota

 

	
Cachet-Delaware

	 
	
Official Name:

	
Cachet Financial Solutions, Inc.

	  	  
	
Organization Identification Number

	 
	
Issued by State of Incorporation or Organization:

	
4792508 (Delaware)

	  	  
	
Chief Executive Office:

	
Same as above

	  	  
	
Locations of Inventory and other Collateral

	 
	
(County/State):

	
None

 

  

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DISCLOSURE SCHEDULE 3.3

DEFAULTS/CONTRACTUAL OBLIGATIONS

 

The Company is in default under that certain Loan and Security Agreement with Michaelson Capital Partners, LLC (f/k/a Imperium Special Finance, LP), dated October 26, 2012, as amended on February 19, 2013.  A forbearance agreement is presently in place and effective through March 12, 2014.

The Company is likely in default of its obligations under a Secured Convertible Promissory Note issued in favor of Bridge Venture LLC (in the principal amount of $500,000 and dated as of June 19, 2013), and a Secured Convertible Promissory Note issued in favor of Berdon Ventures Assoc., LLC (in the principal amount of $200,000 and dated as of July 26, 2013).

 

  

9

  

 

DISCLOSURE SCHEDULE 3.5

MATERIAL ADVERSE CHANGE

 

Please refer to Disclosure Schedule 3.3.

 

  

10

  

 

DISCLOSURE SCHEDULE 3.6

REAL ESTATE

 

	Address	Type (owned, leased, warehouse)	County
	Southwest Tech Center A 	Leased	Hennepin
	18671 Lake Drive East	 	 
	Chanhassen, MN  55317	 	 

 

  

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DISCLOSURE SCHEDULE 3.7

INDEBTEDNESS

 

Please see the schedule of indebtedness attached hereto.

In addition, Cachet-Delaware has outstanding indebtedness aggregating $85,309.

 

  

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DISCLOSURE SCHEDULE 3.11

LITIGATION

On October 21, 2012, counsel for the Company received a letter from an attorney representing Cachet Banq (“CB”) (CB engages in the business of providing automated clearinghouse services for the payroll processing industry.  CB obtained a federal trademark application for the mark CACHET for services in the payroll services industry), alleging that the Company is infringing CB’s registered trademark, CACHET, and demanding that the Company cease and desist from all use of that mark.  The letter threatened that CB would file a lawsuit in California unless the Company agrees to cease and desist using the mark in question.  In December 2010, the Company received a letter to the same effect from a different law firm.  The Company’s counsel responded contesting CB’s claim of infringement.  Following receipt of such, CB indicated no willingness to engage in discussions regarding a resolution of the dispute.  A letter to similar effect was received by the Company in June 2011.

The Company filed a federal trademark application for the trademark CACHET FINANCIAL SOLUTIONS in 2010, prior to receiving any communications from CB.  The US Trademark Office indicated it would allow registration of the mark for the two categories:  (i) electronic storage of financial documents and (ii) electronic and digital scanning of financial documents, but would reject registration of the mark for financial services (namely: electron remote check deposit services and remote deposit capture services) based on CB’s prior registration.  The Company has appealed the rejection to the Trademark Trial and Appeals branch of the Trademark Office.

On October 22, 2012, counsel for the Company and counsel for CB orally agreed that neither would commence litigation against the other while efforts were being made to resolve the dispute. At this time, no significant steps toward resolving the dispute have been achieved.

 

  

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SCHEDULE B – DEPOSIT ACCOUNTS

 

	Bank and Address  	Account #  	Description
	Central Bank	253153	Business Account
	6640 Shady Oak Road	253278	Business Checking
	Eden Prairie, MN 55344	257493	Flex Spend Account

 

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