Document:

Unassociated Document

Exhibit 10.1

 

PORTFOLIO PURCHASE AGREEMENT

 

THIS PORTFOLIO PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of June 30, 2014 (the “Effective Date”), between Payprotec Oregon, LLC d/b/a Securus Payments, an Oregon limited liability company (“Seller”), and BlueAcre Ventures LLC, a Delaware limited liability company (“Purchaser”).

 

WITNESSETH:

 

WHEREAS, Seller is in the business of providing credit card terminals, processing and related services;

 

WHEREAS, Seller has merchant portfolios (collectively, the “Portfolios”) with First Data Corporation (the “Processor”), pursuant to processing agreements by and between Seller and Processor (collectively, the “Processing Agreements”);

 

WHEREAS, Seller has a monthly residual income stream related to the Portfolios that is payable from Processor to Seller as set forth in Exhibit A (the “Portfolio Residual”); also attached hereto as Exhibit B is a list of all merchants that account for the Portfolio Residual (the “Portfolio Merchants”);

 

WHEREAS, Seller desires to sell a portion of the Portfolio Residual to Purchaser and Purchaser desires to purchase a portion of the Portfolio Residual, all upon the terms and conditions of this Agreement (the “Portfolio Purchase”);

 

NOW, THEREFORE, in consideration of the foregoing recitals and the following covenants, the parties agree as follows:

 

1.             Assignment, Purchase and Sale of Portfolio Residual.

 

                1.1           Purchase of Portfolio Residual.     Seller hereby agrees to sell, convey, transfer and assign to Purchaser, and Purchaser hereby agrees to purchase from Seller, upon the terms and conditions of this Agreement, and effective as of the Closing Date, as hereinafter defined in Section 2.1, all of the Seller’s right, title and interest in the first one hundred thousand dollars ($100,000.00) of each month’s Portfolio Residual (the “Purchased Assets”) including, but not limited to all rights or claims of every type and nature and wherever situated, real, personal, tangible, intangible or contingent (including all refunds, deposits, rights, claims or payments, whether now existing or ascertainable, or existing or ascertainable after the Closing Date) to the Purchased Assets and owned by Seller or in which Seller has any interest of any type or nature.  The Seller shall also redirect the remaining Portfolio Residual to Purchaser to allow for all the Portfolio Residual to be paid directly to Purchaser.  Purchaser shall be entitled to receive the payments due from Processor for the entire Portfolio Residual for the thirty-six (36) month period commencing on the Closing Date (the “Payment Period”).  Purchaser shall retain the Purchased Assets from each month’s Portfolio Residual and remit the remaining Portfolio Residual for such month promptly to Seller, but in no event later than three (3) business days after receipt.  Upon the earlier of (i) the conclusion of the Payment Period or (ii) a breach by Seller of this Agreement, Seller shall permanently assign to Purchaser certain merchants that Purchaser shall select, in its sole discretion, from the Portfolio Merchants whose prior twelve (12) month average monthly residual income streams in aggregate equal not less than $100,000.00, but not more than $100,500.  Upon the conclusion of the Payment Period, Seller shall use its best efforts to facilitate the assignment in the preceding sentence in favor of Purchaser and agrees to take such reasonable actions and execute such documents and agreements as reasonably necessary to permit Purchaser to own and operate said merchants as contemplated hereby, and in the manner in which it has been operated in the past, including, without limitation, any assignment, bill of sale or related agreements.  Purchaser shall have no duty to fulfill any of the obligations of Seller under the Processing Agreements unless otherwise specifically agreed to in writing by Purchaser.

 

  

  

  

 

1.2           Purchase Price.

 

(a)           The “Purchase Price” shall equal $2,800,000.00 based on an initial reference residual amount of $250,000.00 per month in accordance with residual reports provided by Seller.

 

(b)           Subject to the satisfaction all of the conditions to Closing set forth in Section 9, $1,028,049.41 of the Purchase Price (adjusted by the amount of the payment made for the benefit of E-Cig in Section 1.2(c) below) shall be paid directly to E-Cig Ventures LLC, a Delaware limited liability company (“E-Cig”), to the account set forth in Schedule 1.2 attached hereto, for the benefit of Seller in connection with Seller exercising, concurrently with the execution of this Agreement, its Right to Repurchase as defined in that certain Option Agreement between E-Cig and Seller dated January 27, 2014 (the “Option Agreement”).

 

(c)            Subject to the satisfaction all of the conditions to Closing set forth in Section 9, $1,371,950.59 shall be paid directly to Shadow Tree Income Fund A LP, a Delaware limited liability company (“Shadow”), to the account set forth in Schedule 1.2 attached hereto, for the benefit of E-Cig in connection with E-Cig prepaying and satisfying all outstanding amounts owed to Shadow, concurrently with the execution of this Agreement, pursuant to that certain Loan and Security Agreement between E-Cig and Shadow dated April 21, 2014 (the “E-Cig Loan Agreement”).

 

1.3           Consulting Arrangement.  Concurrent with the execution of this Agreement, Seller shall enter into a non-exclusive reseller agreement with BlueSquare Resolutions, LLC, a Delaware limited liability company (“BlueSquare”) for a term of three (3) years (the “Independent Contractor Agreement”).

 

1.4           Additional Payments.

 

(a)            If (i) the entire Portfolio Residual, in a form satisfactory to Purchaser, is successfully redirected to Purchaser’s bank account, (ii) Seller has executed the Independent Contractor Agreement, (iii) Seller is not then and at any time before has not been in breach of this Agreement, the Independent Contractor Agreement or that certain Secured Residual Loan Agreement between Purchaser and Seller on even date herewith (the “Loan Agreement”) and (iv) Seller has not otherwise defaulted in any obligation to Purchaser or to Processors, then Seller shall be eligible to receive additional payments pursuant to the following table:

 

	
Term

	 	
Additional Payment

	 
	
Benchmark I has been achieved

	 	$	66,666.66	 
	
Benchmark II has been achieved

	 	$	66,666.67	 
	
Benchmark III has been achieved

	 	$	66,666.67	 

 

As used in this Agreement:

 

“Benchmark I” means the Portfolio Residual received by Purchaser each month for the twelve (12) month period following the Closing Date is equal to or greater than $100,000.00 and Seller submits to BlueSquare, and BlueSquare accepts, a minimum monthly average of: (i) twenty-five (25) new merchant processing applications for the first three (3) months of such period and (ii) seventy-five (75) new merchant processing applications for the remaining nine (9) months of such period pursuant to the Independent Contractor Agreement.

 

  

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“Benchmark II” means the Portfolio Residual received by Purchaser each month for the twelve (12) month period following the first anniversary of the Closing Date is equal to or greater than $100,000.00 and Seller submits to BlueSquare, and BlueSquare accepts, a minimum monthly average of seventy-five (75) new merchant processing applications for such period pursuant to the Independent Contractor Agreement.

 

“Benchmark III” means the Portfolio Residual received by Purchaser each month for the twelve (12) month period following the second anniversary of the Closing Date is equal to or greater than $100,000.00 and Seller submits to BlueSquare, and BlueSquare accepts, a minimum monthly average of seventy-five (75) new merchant processing applications for such period pursuant to the Independent Contractor Agreement.

 

(b)           If Seller (i) is not then and at any time before has not been in breach of this Agreement, the Independent Contractor Agreement or the Loan Agreement, (ii) has not otherwise defaulted in any obligation to Purchaser or to Processors, (iii) has delivered, and BlueSquare has accepted, a minimum monthly average of seventy-five (75) new merchant processing applications pursuant to the Independent Contractor Agreement for each of the three successive twelve (12) month periods following the Closing Date and (iv) no later than fifteen (15) days following the conclusion of the Payment Period, has successfully permanently assigned to Purchaser those certain merchants agreed upon by Purchaser and Seller in accordance with Section 1.1, then Purchaser shall promptly pay Seller an additional sum equal to $200,000.00.

 

2.            Closing.

 

2.1           Date of Closing.  Subject to the terms and conditions of this Agreement, the closing of the Portfolio Purchase contemplated by this Agreement (the “Closing”) shall take place remotely with the exchange of electronic signatures on or prior to 1:30 PM pacific standard time on the day that all of the conditions to Closing set forth in Section 9 below are either satisfied or waived (other than conditions which, by their nature, are to be satisfied on the Closing Date), or at such other time, date or place as Seller and Purchaser may mutually agree upon in writing. The date on which the Closing is to occur is herein referred to as the “Closing Date”.

 

3.            Liabilities.

 

3.1           Assumption of Liabilities by Purchaser.  Purchaser shall not assume or perform, pay or discharge any obligations or liabilities relating to the Portfolio Residual.  Further, Purchaser shall not indemnify Seller for or hold Seller harmless from and against any liabilities relating to the Portfolio Residual.  All liabilities shall remain with Seller and Seller shall indemnify and hold Purchaser harmless from or against any claims in respect of liabilities arising or relating to events prior to the conclusion of the Payment Period, including all Retained Liabilities (as defined below).

 

3.2           Retained Liabilities.  Seller agrees that Purchaser shall not be obligated to assume or perform, and Purchaser is not assuming, and that Seller shall be responsible for performing and satisfying, or otherwise discharging, at its sole expense, and without liability, cost, loss or expense to Purchaser, all liabilities and obligations of Seller that arise before the conclusion of the Payment Period, including liabilities and obligations arising out of the Processing Agreements (the “Retained Liabilities”), whether such Retained Liabilities are known or unknown, fixed or contingent, or certain or uncertain; provided, further, to the extent any amounts remain due and payable to Seller after the payment of the initial Purchase Price, Purchaser may offset any amounts for which it becomes liable in respect to the Retained Liabilities against such amounts that would otherwise be due and payable to Seller.  The Retained Liabilities shall include, without limitation, any and all of the following obligations and liabilities of Seller:

 

(a)           Employee Compensation and Benefits.  Any liabilities to employees of Seller arising out of employee’s compensation claims or other claims not specifically assumed by Purchaser pursuant to Section 3.1, as well as liabilities to employees of Seller due under any management profit sharing or bonus plan.

 

  

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(b)           Taxes.  All federal, state, local, foreign or other taxes that (i) have arisen or may arise thereafter out of any business or other operations conducted by Seller either prior to or after the Closing Date, including the operations of the Portfolio Residual, (ii) have become payable by Seller as a result of the transactions contemplated by this Agreement or (iii) for which Seller is or, at any time hereafter, may become liable.

 

(c)           Liens and Encumbrances.  Any liens, claims or encumbrances on any of the assets of the Portfolio Residual including, but not limited to, those that are or may be asserted by Processor.

 

(d)           Administrative Actions, Claims and Legal Proceedings.  Any claims (including counter-claims or cross-claims), demands, actions, suits, administrative actions or legal proceedings that have been asserted or, to the knowledge of Seller, threatened against Seller, the Portfolio Residual or Purchaser, whether prior to or after the Closing Date that arises in any way from or in connection with (i) the conduct or operation of the Portfolio Residual, or (ii) any other business or non-business activities of Seller conducted prior hereto or hereafter, including the legal actions or other proceedings set forth in Schedule 4.8 hereto.

 

(e)            Indemnity Obligations.  Any liabilities of Seller arising under Seller’s indemnity obligations pursuant to this Agreement.

 

(f)            Operational Liabilities.  Any liabilities or obligations with respect to chargebacks, ACH rejects, brand registration fees, card Association (as defined below) fines and other related losses relating to transactions and any amounts due under the Processing Agreement arising at any time before the conclusion of the Payment Period.

 

4.             Representations and Warranties of Seller.  Seller hereby represents and warrants to Purchaser, as of the date hereof and as of the Closing Date, the following:

 

4.1           Authorization.  Seller has all the necessary capacity and authority to enter into and perform its obligations under this Agreement.  This Agreement and the performance by Seller of its obligations hereunder have been duly authorized by all necessary action of Seller.  This Agreement has been duly executed, and upon execution and delivery by Seller will constitute a valid and binding agreement enforceable against Seller in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium or other similar laws affecting creditors’ rights, and (ii) general principles of equity relating to the availability of equitable remedies (regardless of whether any such agreement is sought to be enforced in a proceeding at law or in equity).

 

4.2           Financial Statements. Seller has delivered to Purchaser  Seller’s residual reports for the Portfolio Residual and all other relevant financial information relating to the Portfolio Residual (the “Financial Information”).  The Financial Information presents fairly, in all material respects, the finances relating to the Portfolio Residual.  No material events or circumstances have occurred or, to the knowledge of Seller have been threatened, which, whether immediately or with the passage of time would result in any material adverse change to the Portfolio Residual from that disclosed in the Financial Information.

 

  

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4.3           Brokers’ Fees.  Seller has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which Purchaser could become liable or obligated or for which Seller, after the Closing Date, will have any continuing obligation.

 

4.4           Full Disclosure.  No written representation, warranty or other statement of Seller in any agreement, certificate or written statement given to Purchaser, as of the date such representation, warranty, or other statement was made, taken together with all such written agreements, certificates and written statements given to Purchaser, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading.

 

4.5           Compliance with Laws.  Seller has complied in all material respects with all applicable U.S. federal, state, municipal and other political subdivision or governmental agency statutes, ordinances and regulations, with all applicable foreign statutes, ordinances and regulations as they apply to the operation of its business and the Portfolio Residual in the United States.

 

4.6           Title to and Adequacy.  At the Closing, Seller will convey and transfer to Purchaser good, complete and marketable title to all of the Portfolio Residual, free and clear of any and all restrictions and conditions on transfer or assignment, and free and clear of all mortgages, liens, security interests, encumbrances, pledges, leases, equities, claims, charges, conditions, conditional sale contracts and any other adverse interests.  No actions, proceedings or transactions have been commenced or undertaken by Seller which give or would give rights to any person, other than Purchaser, in any of the Portfolio Residual or interfere with the consummation of the transactions contemplated by this Agreement.

 

4.7           No Conflict.  The execution and delivery of this Agreement by Seller and the performance of its obligations hereunder:

 

(a)           are not in violation or breach of, and will not conflict with or constitute a default under, any of the terms of any note, debt instrument, security instrument or other contract, agreement or commitment binding upon Seller or its assets or properties;

 

(b)           will not result in the creation or imposition of any lien, encumbrance, equity or restriction in favor of any third party upon any of the assets or properties of Seller except as contemplated by this Agreement; and

 

                                                (c)           will not conflict with or violate any applicable law, rule, regulation, judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over Seller or its assets or properties.

 

4.8           Litigation and Proceedings.  Except as set forth in Schedule 4.8 hereto, there is no action, suit, proceeding or investigation, or any counter or cross-claim in an action brought by or on behalf of Seller, whether at law or in equity, or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, that is pending or, to the best knowledge of Seller, threatened, against Seller, which (i) could reasonably be expected to have a material adverse effect on Seller’s ability to perform its obligations under this Agreement, the Independent Contractor Agreement or any other agreement entered into in connection with this Agreement or complete any of the transactions contemplated hereby or thereby, or (ii) involves the reasonable possibility of any judgment or liability, or which may become a claim, against Purchaser or the Portfolio Residual, whether prior or subsequent to the Closing Date.  Except as set forth in Schedule 4.8, Seller is not subject to any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over Seller or the Portfolio Residual.

 

  

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4.9           Seller.  Except for E-Cig’s ownership of the first two hundred thousand dollars ($200,000) of each month’s Portfolio Residual, Seller owns one hundred percent (100%) of the Portfolio Residual and there exist no options or other agreements or arrangements to obtain any ownership interest in the Portfolio Residual by any other person or entity other than Purchaser.

 

4.10         Cash Flow of Portfolio Residual. Attached hereto as Schedule 4.10 is Seller’s most recent of residual reports for the Portfolio Residual (the “Settlement Reports”).  Since the date of the Settlement Reports, there has not been a material change in the aggregate cash flow generated by Portfolio Merchants nor does Seller have any reason to believe there will be in the future.

 

4.11         Portfolio Information.  All information disclosed to Purchaser in this Agreement or previously provided to Purchaser relating to the Portfolio Residual, the sales agents being paid a portion of the Portfolio Residual, the agreements with Seller’s sales agents, including, without limitation, the residual reports provided by Seller to Purchaser relating to the Portfolio Residual and also the residuals payable to Seller’s sales agents (collectively the “Portfolio Information”) is true, accurate and complete and presents fairly, in all material aspects, the transactions and cash flows of the Portfolio Residual and the amounts payable to the sales agents.  Seller does not maintain or control a reserve account or other funds related to the Portfolio Residual.  Seller has not received any notice of default or termination in relation to any Portfolio Merchants in the Portfolio Residual nor knows of any bankruptcy for any such Portfolio Merchant.  No material events or circumstances have occurred or, to the knowledge of Seller, have been threatened which, whether immediately or with the passage of time, could be reasonably expected to result in any material adverse change in the Portfolio Residual from the results reflected in the Portfolio Information.  Seller has provided Purchaser with an accurate and complete copy of the Processing Agreements (including any amendments thereto).  Seller is currently in compliance in all material respects with the provisions of the Processing Agreements.  Neither Seller, nor to Seller’s knowledge, the Processor, is in breach or default under the terms of the Processing Agreements and to the Seller’s knowledge, no event has occurred which, with due notice or the passage of time or both, would constitute a breach or default.

 

4.12         Compliance with VISA/MasterCard Rules.  Seller has operated and conducted its business, in all material respects, in accordance with any and all applicable VISA/MasterCard rules and regulations, including, but not limited to the privacy and security requirements under the Payment Card Industry Data Security Standard (the “Association Requirements”) with regards to Seller’s use, access, and storage of certain credit card non-public personal information (“Cardholder Information”).  Visa, MasterCard, Discover, American Express, any ATM or Debit Networks, and the other financial service card organizations shall be collectively known herein as “Associations.” Seller has complied with its obligations under any applicable state or federal law or regulations as may be in effect or as have been enacted, adopted or determined regarding the confidentiality, use, and disclosure of Cardholder Information.  Seller has ensured that that any agent, including a subcontractor, to whom it provides Cardholder Information received from, or created or received by, Seller has agreed to the same restrictions and conditions that apply to Seller with respect to such information.  Seller has complied with all applicable laws, Association Requirements and industry standards in connection with the operation of its business as it relates to the Portfolio Residual.

 

4.13         Contracts, Agreements and Commitments.  Seller has supplied Purchaser with a true and correct copy of each merchant agreement and application relating to the Portfolio Residual and all agreements relating to any sales agents or other entities or persons paid a portion of the Portfolio Residuals (collectively, the “Contracts”).  All agreements relating to any sales agents or other entities or persons paid a portion of the Portfolio Residuals are attached hereto as Schedule 4.13.   Each of the Contracts is a valid and binding obligation of the parties thereto.  Seller has performed in all material respects the obligations required to be performed by it under each Contract, no material defaults or claims of defaults have been made or threatened under any Contract, and there are no facts or conditions which have occurred or are anticipated to occur which, through the passage of time or the giving of notice, or both, would constitute a default under or would cause the acceleration of any obligation of any party to any Contract.  Seller has not waived any material right that it has under any Contract.

 

  

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4.14         Undisclosed Liabilities.   Seller has no Liabilities with respect to the Portfolio Residual, except (i) those which are adequately reflected or reserved against in the financial statements provided as of the Closing Date, and (ii) those which have been incurred in the ordinary course of business consistent with past practice prior to the Closing Date and which are not, individually or in the aggregate, material in amount.

 

5.           Representations and Warranties of Purchaser.  Purchaser hereby represents and warrants to Seller, as of the date hereof and as of the Closing Date, the following:

 

5.1           Due Organization of Purchaser. Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of the state of Delaware

 

5.2           Authorization of Purchaser.  This Agreement has been duly authorized, adopted and approved by the Purchaser.  Purchaser has full power and authority to enter into and to perform its obligations under this Agreement.  The execution and delivery of this Agreement by Purchaser and the performance of the transactions contemplated hereby have been duly and validly authorized by and on behalf of Purchaser, and this Agreement is binding upon and enforceable against Purchaser in accordance with its terms.

 

5.3           Brokers’ Fees.  Purchaser has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which Seller could become liable or obligated.

 

5.4           Purchaser’s Representations and Warranties. The representations and warranties of Purchaser contained herein do not contain any statement of a material fact that was untrue when made or omits any material fact necessary to make the information contained therein not misleading.

 

6.           Covenants and Other Agreements.  From the date hereof, except as otherwise provided in this Agreement or the Independent Contractor Agreement, or consented to in writing by Purchaser (which consent shall not be unreasonably withheld or delayed), Seller shall (i) manage the Portfolio Residual in the ordinary course of business consistent with past practice; and (ii) use its best efforts to maintain and preserve intact its current Portfolio Residual, operations and franchise and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having relationships with the Seller. Without limiting the foregoing, from the date hereof:

 

6.1           Fulfillment of Conditions and Covenants.  No party shall take any course of action inconsistent with satisfaction of the requirements or conditions applicable to it set forth in this Agreement.

 

6.2           Further Assurances.  Each of parties hereto shall, and shall cause their respective affiliates to, perform all reasonable acts, execute all documents and do all things reasonably requested by the other party or that are reasonably necessary to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement and the other documents contemplated hereby.

 

6.3           Press Releases.  No party will issue or authorize to be issued any press release, statement to the public or to its employees generally or similar announcement concerning this Agreement or any of the transactions contemplated hereby without the prior approval of the other party, which approval shall be given in order to allow compliance with the disclosure requirements of applicable securities laws.

 

  

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6.4           Expenses.  Except as provided in Section 11.8, each party shall bear its own expenses related to the transactions contemplated by this Agreement (including legal, accounting or other professional expenses), whether or not such transactions are consummated.

 

6.5           Confidential Information.  The parties agree that as a result of entering into this Agreement, they will have access to certain “Confidential Information”, which for purposes of this Agreement shall include: (i) the terms and conditions of this Agreement; (ii) trade secrets, business plans, strategies, pricing, customer lists, know-how, business methods and/or practices; and (iii) other information relating to the disclosing party or its affiliates that is not generally known to the public.  Notwithstanding the foregoing, the term Confidential Information specifically excludes (i) information that is now in the public domain or subsequently enters the public domain by publication or otherwise through no action or fault of the receiving party; (ii) information that is known to the receiving party without restriction prior to receipt from the disclosing party, from its own independent sources as evidenced by such receiving party's written records, and which was not acquired, directly or indirectly, from the other party; (iii) information that a receiving party receives from any third party having a legal right to transmit such information, and not under any obligation to keep such information confidential; and (iv) information independently developed by a receiving party or their employees or agents.  As a condition to the receipt of the Confidential Information from the disclosing party, the receiving party shall:  (i) not disclose in any manner, directly or indirectly, to any third party any portion of the disclosing party's Confidential Information; (ii) not use the disclosing party's Confidential Information in any fashion except to perform its duties hereunder or with the disclosing party's express prior written consent; (iii) disclose the disclosing party's Confidential Information, in whole or in part, only to employees and agents who need to have access thereto for the receiving party's internal business purposes; (iv) take all necessary steps to ensure that its employees and agents are informed of and comply with the confidentiality restrictions contained in this Agreement; and (v) take all necessary precautions to protect the confidentiality of the Confidential Information received hereunder and exercise at least the same degree of care in safeguarding the Confidential Information as it would with its own confidential information, and in no event shall apply less than a reasonable standard of care to prevent disclosure.  The receiving party shall promptly notify the disclosing party of any unauthorized disclosure or use of the Confidential Information.  The receiving party shall cooperate and assist the disclosing party in preventing or remedying any such unauthorized use or disclosure.  Notwithstanding the foregoing, it shall not be a breach of this Agreement for a receiving party to disclose Confidential Information if required to do so under law, in a judicial or other governmental investigation or proceeding or pursuant to the rules of the Securities and Exchange Commission or any stock exchange or listing system; provided, that the other party has been given prior notice and the party disclosing such information has sought all reasonable safeguards against widespread dissemination prior to such disclosure.

 

6.6           Purchaser acknowledges and understands that with respect to Seller and its affiliates and owners, even the potential existence of the this transaction may constitute material, non-public information (as further defined herein below) and that any dissemination, use or disclosure in any way of the information herein to any outside person, firm or business, including, but not limited to, any stockholder of Seller and its affiliates and owners or a third party, by the Purchaser related to this Agreement may result in violations of federal securities laws, including but not limited to Sections 10(b) and 16(b) of the Securities Exchange Act of 1934, as amended, Regulation FD, and Securities and Exchange Commission Rules 10(b)5-1 and 10(b)5-2.  Purchaser hereby unconditionally agrees that it shall not intentionally and willfully purchase or sell securities related to Seller, including without limitation Excel Corporation trading as EXCC or the securities of any transaction related entity, directly or indirectly, while in the possession of material, non-public information concerning the issuer of those securities. Purchaser also agrees not to disclose or communicate such material non-public information regarding Seller or Excel Corporation to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell the securities of Excel Corporation. Purchaser further agrees to advise its representatives who are informed of the matters which are the subject of this Agreement of the foregoing obligation. Purchaser further acknowledges and agrees that it and its representatives remain directly and individually responsible for compliance with any and all U.S. federal and state securities laws.  As used herein, “material, non-public information” is any “non-public” information, which a reasonable investor might consider important in deciding whether to buy, sell or hold securities or that could affect the market price of the securities. Information is considered to be “non-public” unless it has been publicly disclosed, and adequate time must have passed for the securities markets to digest the information.

 

  

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6.7           Conduct of Business.  Seller shall: (i) reserve and maintain all permits required for the conduct of the Seller’s business as currently conducted or the ownership and use of the Portfolio Residual; (ii) pay the debts, taxes and other obligations of the Seller’s business when due; (iii) continue to collect amounts due under the Portfolio Residual in a manner consistent with past practice, without discounting such amounts; (iv) defend and protect the assets included in the Portfolio Residual from infringement or usurpation; (v) maintain its books and records in accordance with past practice and make such available to Purchaser at Purchaser’s request; (vi) notify Purchaser within seventy-two (72) hours of becoming aware of any changes related to the Portfolio Residual; and (vii) comply in all material respects with all laws applicable to the conduct of its business or the ownership of the Portfolio Residual.

 

7.             Indemnification.

 

7.1           Seller.  Seller hereby agrees to indemnify and hold Purchaser harmless from and against, and to promptly defend Purchaser from and reimburse Purchaser for, any and all losses, damages, costs, expenses, liabilities, obligations and claims of any kind (including without limitation, reasonable attorneys’ fees and other legal costs and expenses) which Purchaser may at any time suffer or incur, or become subject to, as a result or by reason of (i) any breach of this Agreement by Seller; (ii) the untruth or inaccuracy of any representation or warranty of Seller set forth herein; (iii) any issue arising out of, concerning, or affecting, whether directly or indirectly, the Portfolio Residual; (iv) any claim or lawsuit, pending or threatened, by Processors against Purchaser; or (v) any breach of the Processing Agreements by Seller (collectively, the “Claims”).

 

7.2           Claims.  If a Claim is made against Purchaser, Purchaser shall promptly give notice of such Claim to Seller.  If Seller promptly notifies Purchaser that the claim is to be contested and provides Purchaser written assurance of the full indemnification of Purchaser, Seller shall have the right to control all settlements (unless Purchaser agrees to assume the costs of settlement) and to select legal counsel (reasonably satisfactory to Purchaser) to defend any and all such claims at the sole cost and expense of Seller.  Purchaser may select counsel to participate in any defense, in which event the fees and expenses of Purchaser’s counsel shall be entirely borne by Purchaser.  The parties shall cooperate with each other and provide each other with access to relevant books and records in their possession as may be reasonably necessary or appropriate with respect to any claim made pursuant to this Section 7. Purchaser agrees that no Claim will be made against Seller for amounts less than $25,000.

 

8.             Non-Competition.  All merchants listed on the attached Exhibit C shall collectively be referred to as the “Protected Merchants”.  For a period of five (5) years commencing on the Closing Date, the parties shall not, directly or indirectly, knowingly cause or permit any of its employees, agents, principals, affiliates, subsidiaries or any other person or entity with whom it has the right by contract to control or otherwise direct, to interfere with, disrupt, or attempt to interfere with or disrupt, any business relationship of the other party with respect to the Protected Merchants.

 

  

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9.             Conditions Precedent to Purchaser’s Obligation to Close.  The obligations of Purchaser to enter into and complete the Closing under this Agreement are subject, at its option, to the fulfillment at or prior to the Closing Date, and in any event on or before the date three (3) days from the Effective Date, of each of the following conditions, any one or more of which may be waived by Purchaser:

 

9.1           Representations and Warranties.  The representations and warranties of Seller contained in this Agreement, or in any writing delivered pursuant hereto, shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, except to the extent that any of such representations and warranties shall be incorrect as of the Closing Date because of events or changes occurring or arising after the date hereof in the ordinary course of business, none of which shall be, individually or in the aggregate, materially adverse.

 

9.2           Consent of Processor; Other Consents and Approvals.  The Processor shall consent to the transactions contemplated hereby, and shall enter into Purchaser’s standard form of estoppel certificate, acknowledging and agreeing to, among other things, the form of agreement between Processor and Seller, as well as the good standing and absence of events of default by Seller under such agreement, and the purchase and sale of the Portfolio Residual as contemplated hereby. All consents and approvals required for the consummation of the transactions contemplated by this Agreement and to permit Purchaser to acquire all of the assets pursuant hereto, without thereby violating any laws, government regulations or contracts, shall have been obtained.

 

9.3           Miscellaneous.  Seller shall have also complied with the following conditions:

 

(a)            Seller shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement and each of the other documents to be performed or complied with by it prior to or on the Closing Date.

 

(b)            No action shall have been commenced against Purchaser or Seller, which would prevent the Closing.  No injunction or restraining order shall have been issued by any governmental authority, and be in effect, which restrains or prohibits any transaction contemplated hereby.

 

(c)            Prior to the Closing Date, there shall not have occurred any material adverse change, effect, fact, development or event, nor shall any event or events have occurred that, individually or in the aggregate, with or without the lapse of time, could reasonably be expected to result in such a material adverse change, effect, fact, development or event.

 

(d)            All encumbrances relating to the Portfolio Residual shall have been released in full, and Seller shall have delivered to Purchaser written evidence, in form satisfactory to Purchaser in its sole discretion, of the release of such encumbrances.

 

(e)            Purchaser shall have received a certificate, dated the Closing Date and signed by a duly authorized officer of Seller, that each of the conditions set forth in this Section 9 have been satisfied.

 

(f)            Purchaser shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Seller certifying that attached thereto are true and complete copies of all resolutions adopted by Seller authorizing the execution, delivery and performance of this Agreement and the other documents contemplated herein and the consummation of the transactions contemplated hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby.

 

(g)           Purchaser shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Seller certifying the names and signatures of the officers of Seller authorized to sign this Agreement, and the other documents to be delivered hereunder and thereunder.

 

  

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(h)            Seller shall have delivered to Purchaser the executed Independent Contractor Agreement, executed Loan Agreement and such other documents or instruments Purchaser reasonably requests and are reasonably necessary to consummate the transactions contemplated herein including but not limited to bills of sale, assignments, consents, certificates of title, Seller’s tax returns for the last three (3) years, background checks, credit checks, and Financial Information.

 

(i)             Seller shall have delivered to Purchaser executed agreements and instruments between Seller and E-Cig, in forms acceptable to Purchaser, memorializing the exercise of the Right to Repurchase as defined in the Option Agreement, including but not limited to a bill of sale, release, assignment and assumption agreement and any other documents necessary to consummate said Right to Repurchase.

 

(j)            Purchaser shall have received executed agreements and instruments between Shadow and E-Cig, in forms acceptable to Purchaser, memorializing E-Cig’s prepayment of the loan and Shadow no longer having a security interest in the Portfolio Residual pursuant to the E-Cig Loan Agreement, including but not limited to a release, payment letter and any other documents necessary to consummate the matters stated herein.

 

(k)           Purchaser shall have received (i) a fully executed operating agreement for Seller, naming Thomas A. Hyde and Robert Winspear as Managing Members and reflecting the 100% ownership of all equity securities of Seller by Excel Corporation, (ii) a certificate of designation of preferred stock by and between Seller and each of Steven Lemma and Mychol Robirds, (iii) a fully executed Exchange Agreement between Seller and each of Steven Lemma, Mychol Robirds and E-Cig (and all amendments), and (iv) a fully executed Option Agreement and Residual Purchase Agreement between E-Cig and Seller including all completed and signed exhibits and ancillary documents.

 

10.           Conditions Precedent to Seller’s Obligations to Close.  The obligations of Seller to complete the Closing under this Agreement are subject, at their option, to the fulfillment at or prior to the Closing Date of each of the following conditions, any one or more of which may be waived by Seller:

 

10.1         Representations and Warranties.  The representations and warranties of Purchaser contained in this Agreement, or in any writing delivered pursuant hereto, shall be true and correct in all material respects on and as of the Closing Date.

 

10.2         Consents and Approvals.  All consents and approvals required for the consummation of the transactions contemplated by this Agreement and to permit Purchaser to acquire all of the assets pursuant hereto, without thereby violating any laws, government regulations or agreements, shall have been obtained.

 

11.           Miscellaneous Provisions.

 

11.1         Survival.  All representations, warranties, covenants, conditions, commitments, undertakings and agreements of any of the parties hereto made in this Agreement or in any certificate or document delivered pursuant hereto shall survive the execution and delivery hereof and the Closing hereunder and any investigation made by any party.

 

  

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11.2         Notices.  Any notice or other document to be given hereunder by any of the parties hereto to the other parties hereto shall be in writing and delivered personally or sent for overnight delivery with a nationally known overnight carrier (such as Federal Express) or by certified or registered mail, postage prepaid, as follows:

 

Seller:

 

Payprotec Oregon, LLC d/b/a Securus Payments

7724 SE Aspen Summit Drive – Suite 300

Portland, Oregon 97266

 

Purchaser:

 

BlueAcre Ventures LLC

15950 North 76th Street, Suite 100

Scottsdale, Arizona 85260

 

or to such other address as hereafter shall be furnished in writing by any of the parties hereto to the other parties hereto.  Any notice so given shall be deemed received when personally delivered or confirmed delivered.

 

11.3         Entire Agreement.  This Agreement and any ancillary documents, including any schedules and exhibits, contains the entire agreement among the parties with respect to the transactions contemplated hereunder and supersedes all prior negotiations, agreements and undertakings, if any, including any previous e-mails and letters of intent relating to the transactions contemplated  (which shall be of no force or effect whatsoever).

 

11.4         Amendment; Waiver.  This Agreement may be amended only by written agreement of all of the parties hereto.  The failure of any of the parties to this Agreement to require the performance of term or obligation under this Agreement or the waiver by any of the parties to this Agreement of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach hereunder.

 

11.5         Injunctive Relief.Seller acknowledges and agrees that (i) a breach or threatened breach by Seller of any of its obligations under this Agreement would give rise to irreparable harm to Purchaser for which monetary damages would not be an adequate remedy and (ii) in the event of a breach or a threatened breach by Seller of any such obligations, Purchaser will, in addition to any and all other rights and remedies that may be available to Purchaser at law, at equity or otherwise in respect of such breach, be entitled to equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction, without any requirement to post a bond or other security, and without any requirement to prove actual damages or that monetary damages will not afford an adequate remedy. Seller agrees that it shall not oppose or otherwise challenge the appropriateness of equitable relief or the entry by a court of competent jurisdiction of an order granting equitable relief, in either case, consistent with the terms of this Section 11.5.

 

11.6         Enforceability.  If any term or provision of this Agreement or of any other ancillary document, or the application thereof to any circumstance, shall be invalid, illegal or unenforceable to any extent, such term or provision shall not invalidate or render unenforceable any other term or provision of this Agreement or any other ancillary document, or the application of such term or provision to any other circumstance. To the extent permitted by law, the parties hereto hereby waive any provision of law that renders any term or provision hereof invalid or unenforceable in any respect.

 

11.7         Counterparts/Facsimile Signatures. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, and such counterparts shall together constitute one and the same instrument. The signatures to this Agreement may be evidenced electronically or by facsimile copies reflecting the party’s signature hereto, and any such electronic or facsimile copy shall be sufficient to evidence the signature of such party as if it were an original signature.

 

  

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11.8         Attorneys’ Fees.  In any action, litigation or proceeding between the parties arising out of or in relation to this Agreement, the prevailing party in such action shall be awarded, in addition to any damages, injunctions or other relief, and without regard to whether or not such action will be prosecuted to final judgment, such party’s costs and expenses, including reasonable attorneys’ fees.

 

11.9         Governing Law & Arbitration.  This Agreement shall be governed by and interpreted in accordance with the laws of the State of Arizona, including all matters of construction, validity, performance and enforcement, without giving effect to principles of conflict of laws.  Any dispute, action, litigation or other proceeding concerning this Agreement shall be instituted, maintained, heard and decided in in Scottsdale, Arizona. The parties further agree that any dispute hereunder shall be brought before a single arbitrator under the rules of the American Arbitration Association (“AAA”).  The parties shall agree upon an arbitrator, but if no agreement can be made, the AAA will select the arbitrator. The parties irrevocably and unconditionally consent to the personal and subject matter jurisdiction of the AAA in connection with any dispute arising hereunder or directly or indirectly related hereto.

 

11.10      Assignment.  Neither this Agreement nor any interest herein shall be assignable (voluntarily, involuntarily, by judicial process or otherwise) by any party to any person or entity without the prior written consent of the other party.  Any attempt to assign this Agreement without such consent shall be void and, at the option of the party whose consent is required, shall be an incurable breach of this Agreement resulting in the termination of this Agreement.

 

11.11      Successors.  Subject to Section 11.10, this Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, legatees, legal representatives, personal representatives, successors and permitted assigns.

 

11.12      Miscellaneous.  The recitals and all exhibits, schedules and other attachments to this Agreement are fully incorporated into this Agreement by reference.  Unless expressly set forth otherwise, all references herein to a “day”, “month” or “year” shall be deemed to be a reference to a calendar day, month or year, as the case may be.  All cross-references herein shall refer to provisions within this Agreement and shall not be deemed to be references to the overall transaction or to any other agreement or document.  Time is of the essence in the performance of this Agreement.

 

[remainder of page intentionally left blank; signatures follow]

 

  

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

 

	“SELLER”	 	“PURCHASER”
	 	 	 	 	 
	PAYPROTEC OREGON, LLC D/B/A SECURUS PAYMENTS	 	BLUEACRE VENTURES LLC
	 	 	 	 	 
	 	 	 	By:	
TBWOIWKM LLC

	 	 	 	 	
Its Managing Member

	 	 	 	 	 
	By:	 	 	By:	 
	Name/Title:	 	 	Name/Title:	Nick Glimcher, Managing Member

 

  

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Schedule 4.8

 

Litigation and Proceedings

 

There is a current inquiry by the North Dakota Attorney General regarding Seller’s activities in North Dakota.  The inquiry is in its beginning stages – document review – and Seller is confident the inquiry and any actions arising from the inquiry will not have, individually or in the aggregate, a material adverse effect on Seller or the Portfolio Residual.

 

 

15Unassociated Document

Exhibit 10.2

Execution

SECURED RESIDUAL LOAN AGREEMENT

Secured Residual Loan Agreement (this “Agreement”), dated as of the Effective Date is entered into by and among Borrower, Lender, and Guarantor.

 

BUSINESS LOAN AGREEMENT

Certain material defined terms:

	
Effective Date

	  	
June 30, 2014

 

	
Borrower

	  	
Payprotec Oregon, LLC d/b/a Securus Payments, an Oregon limited liability company with a principal office at 7724 SE Aspen Summit Drive, Suite 300, Portland, Oregon 97266

 

	
Lender

	  	
BlueAcre Ventures LLC, a Delaware limited liability company with a principal office at 15950 North 76th Street, Suite 100, Scottsdale, Arizona 85260

 

	
Guarantors

	  	
Excel Corporation, a Delaware corporation with an address at 595 Madison Avenue, Suite 1101, New York, New York 10022

 

	
Principal Amount

	  	
$1,200,000.00

 

	
Interest Rate

	  	
Means the rate of interest set forth in the Note

 

	
Maturity Date

	  	
Three (3) years from the Effective Date

 

	
ISO

	  	
First Data Merchant Services Corporation, a Delaware corporation

 

	
Baseline Amount

	  	
$200,000.00 per month

 

	
Document Fee

	  	
$3,500.00

 

	
Attorney Fee

	  	
None payable

 

	
Origination Fee

	  	
$24,000.00

 

ARTICLE I

DEFINITIONS AND ACCOUNTING MATTERS

1.1      CERTAIN DEFINED TERMS. All capitalized terms used in this Agreement shall have the following meanings, unless defined in the preamble hereto. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code as adopted in Arizona, as amended from time to time.

“Agreement” has the meaning set forth in the introductory paragraph.

  

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“Business Day” means any day other than a Saturday, Sunday, or other day on which commercial banks are authorized to close under the laws of the State of Arizona.

“Closing Date” shall mean the first day on which all of the conditions set forth in Section 4.1 have been satisfied or, at Lender’s option, waived, prior to 1:30 PM pacific standard time, and in any event on or before the date three (3) days from the Effective Date.

“Collateral” has the meaning set forth in Section 3.1.

“Default Rate” means the lesser of (a) the Maximum Rate and (b) 5.0% + the applicable interest rate under the Note.

“Due Date” has the meaning set forth in Section 2.4.

“Effective Date” has the meaning set forth in the introductory paragraph.

“Event of Default” has the meaning set forth in Section 7.1.

“GAAP” means generally accepted accounting principles of the United States of America, consistently applied.

“Guarantor” has the meaning set forth in the introductory paragraph.

“Guaranty” means that certain guarantee made by Guarantor in favor of the Lender, attached hereto.

“Indemnitee” has the meaning set forth in Section 6.1(f).

“ISO Holdings” means ISO Holdings LP.

“ISO Services Agreement” has the meaning set forth in Exhibit A.

“Lender” has the meaning set forth in the introductory paragraph.

“Loan” means the loan Borrower has requested from the Lender, hereby issued for the Principal Amount, which is secured by the Residuals and Borrower’s rights in the Merchant Agreements and Lender is willing to make the Loan, subject to the terms and conditions of this Agreement and the other Loan Documents.

“Loan Documents” mean this Agreement, the Note, the Guaranty, and all Third Party Consents and Assignments.

“Loan Obligations” means all obligations, indebtedness, and liabilities of the Borrower to Lender, arising pursuant to any of the Loan Documents, including, without limitation, the Note, the obligation of the Borrower to repay the Loan, interest on the Loan, and all fees, costs, and expenses provided for in the Loan Documents.

“Maximum Rate” means the maximum nonusurious interest rate, if any, at any time, or from time to time, that may be contracted for, taken, reserved, charged or received under applicable state and federal laws.

  

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“Merchants” means acceptable businesses identified on Exhibit B hereto which are covered by the Merchant Agreements.

“Merchant Agreements” means those agreements Borrower has entered into regarding credit card processing services provided by the Borrower to Merchants, processing service agreements, and other related agreements (each as listed on Exhibit A attached hereto) pursuant to which the Borrower acquired certain rights and obligations with respect to the solicitation and maintenance of the Portfolio.

“Monthly Payment” has the meaning set forth in Section 2.4.

“Note” has the meaning set forth in Section 4.1(c).

“Person” means any individual, corporation, business trust, association, company, partnership, joint venture, governmental authority, or other entity.

“Portfolio” means the portfolio of accounts identified on Exhibit A and otherwise covered by the Merchant Agreements.

“Residuals” means payments and rights to payments each month made to Borrower for Borrower’s efforts to market and sell merchant acquiring services pursuant to any Merchant Agreement.

“Third Party Consents and Assignments” has the meaning set forth in Section 4.1(d).

1.2      ACCOUNTING MATTERS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP, except as otherwise stated herein. To enable the ready and consistent determination of compliance by the Borrower with its obligations under this Agreement, Borrower will not change the manner in which either the last day of its fiscal year or the last days of the first three fiscal quarters of its fiscal year are calculated.

1.3      CONSTRUCTION. Wherever herein the singular number is used, the same shall include the plural where appropriate, and words of any gender shall include each other gender where appropriate. The headings, captions or arrangements used in any of the Loan Documents are, unless specified otherwise, for convenience only and shall not be deemed to limit, amplify or modify the terms of the Loan Documents, nor affect the meaning thereof.

ARTICLE II

AMOUNT AND TERMS OF LOAN

2.1 LOAN. Subject to the terms and conditions of this Agreement and the Note and in reliance upon the representations, warranties and covenants set forth in this Agreement, Lender has agreed to lend to the Borrower and the Borrower has agreed to borrow from Lender as of the date hereof the Principal Amount at the Interest Rate; provided, that, during each successive one year period following the Effective Date (resetting each year), if Borrower introduces merchants not listed on Exhibit B (the “New Merchants”) to BlueSquare Resolutions, LLC, and such New Merchants are approved by BlueSquare Resolutions, LLC pursuant to that certain Independent Contractor Agreement between Borrower and BlueSquare Resolutions, LLC dated on or about the Effective Date, then Lender shall reduce the original Interest Rate for such one year period pursuant to the following schedule:

	
Average monthly New Merchant applications accepted

	  	
Interest Rate reduction

	
150-249

	  	
2%

	
250 plus

	  	
4%

 

  

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Upon Lender’s determination that Borrower is entitled to an Interest Rate reduction set forth above, Lender shall promptly refund Borrower the amount equal to the difference between Borrower’s Monthly Payments for the prior year and what Borrower’s Monthly Payments would have been had said Interest Rate reduction been applied.

Borrower understands and agrees that the stated face rate of interest and the effective rate of interest applicable to the Note may vary dramatically due to the fact that interest is calculated based on the beginning Principal Amount and is not reduced as principal and interest are paid by Borrower.

2.2 LOAN FEES. In consideration of the Loan to be made by Lender to the Borrower, Borrower shall pay Lender the following:

	
  

	
(a)

	
Document Fee.  The Document Fee shall be payable on the Effective Date. The Document Fee shall be fully earned on the Effective Date and shall not be refundable for any reason whatsoever. Lender shall deduct the Document Fee from the amount distributed at funding to Borrower, but, for the avoidance of doubt, the Document Fee shall not be deducted from the Principal Amount due under the Loan.

	
  

	
(b)

	
Origination Fee.  The Origination Fee shall be payable on the Effective Date. The Origination Fee shall be fully earned on the Effective Date and shall not be refundable for any reason whatsoever. The Lender shall deduct the Origination Fee from the amount distributed at funding to the Borrower but, for the avoidance of doubt, the Origination Fee shall not be deducted from the Principal Amount due under the Loan.

2.3 MATURITY DATE. The outstanding Principal Amount due hereunder, together with all accrued interest and any additional fees, if not paid sooner, shall be due and payable in full on the Maturity Date. In addition to the rights and remedies set forth in this Agreement and the Note, if the Borrower fails to make the required payments on the Maturity Date, then the unpaid principal balance on the Loan shall automatically bear interest at the Default Rate.

2.4 REPAYMENT. The Borrower shall repay the Loan and pay any accompanying fees and interest due thereunder in monthly installments pursuant to Schedule 2.4 attached hereto (each such payment, a “Monthly Payment”). The last Monthly Payment shall be made on the Effective Date by deducting such Monthly Payment from the amount distributed at funding to Borrower; thereafter, each Monthly Payment will be paid on or prior to the last day of each calendar month after the Effective Date up to and including the Maturity Date (each such date, a “Due Date”).

2.5 PREPAYMENT.  Borrower may prepay all outstanding Loan Obligations in whole, upon thirty (30) days advance written notice to Lender, as set forth in this Section 2.5:

	
  

	
(a)

	
Up to three (3) months from the Effective Date, Borrower shall have the option, but not the obligation, to prepay all outstanding Loan Obligations for $1,320,000 less payments already received.

 

  

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(b)

	
Up to six (6) months from the Effective Date, Borrower shall have the option, but not the obligation, to prepay all outstanding Loan Obligations for $1,350,000 less payments already received.

	
  

	
(c)

	
Up to twelve (12) months from the Effective Date, Borrower shall have the option, but not the obligation, to prepay all outstanding Loan Obligations for $1,488,000 less payments already received.

2.6 LATE CHARGE; FAILED ACH CHARGE.  If any Monthly Payment due under the Loan is not paid in full within ten (10) days of the due date thereof, the Borrower shall, in addition to such amount due, pay a late charge equal to five percent (5%) of such unpaid amount.  In addition, if any Automated Clearinghouse (ACH) payment from Borrower to Lender in accordance with Section 2.8 below is rejected for any reason whatsoever, Borrower shall pay to Lender a fee in the amount of fifty dollars ($50.00) for each instance in which an ACH payment is rejected or otherwise fails.

2.7 WITHHOLDING AND OTHER TAXES. If any withholding or deduction from any payment to be made by the Borrower under this Agreement is required in respect of any taxes pursuant to any applicable law, rule or regulation, the Borrower will: (a) pay to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to Lender an official receipt or other documentation satisfactory to Lender evidencing such payment to such authority; and (c) if such payment is made by Lender directly to such taxing authority, Borrower shall immediately repay to Lender the amount paid by Lender and such repayment shall not reduce any other Loan Obligations.

2.8 PAYMENTS AND COMPUTATIONS.

	
  

	
(a)

	
Method of Payment.  All payments of principal, interest, and other amounts to be made by the Borrower under the Loan Documents shall be made to Lender in U.S. dollars and in immediately available funds, without set-off, deduction, or counterclaim, not later than 3:00 P.M. (eastern standard time) on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day) to the account set forth on Schedule 2.8. Monthly Payments may be made via residual redirection or assignment or any other method, in each case, as elected by Lender. Lender will deduct the Monthly Payment (plus any fees or other amounts due and payable hereunder) upon receipt of Residuals and pay any balance remaining to the Borrower at a location provided by the Borrower. If the Residuals are not sufficient to make any Monthly Payment, the Borrower must pay the difference to Lender immediately.

	
  

	
(b)

	
Application of Funds. Lender shall apply all payments received by it first to the Monthly Payments and thereafter to any other Loan Obligations; provided, that upon the occurrence and continuation of an Event of Default, Lender may apply all payments received by it to the Loan Obligations in such order and manner as Lender may elect in its reasonable discretion.

	
  

	
(c)

	
Payments on a Non-Business Day. Whenever any payment under any Loan Document shall be stated to be due on a day that is not a Business Day, such payment may be made on the next succeeding Business Day without the incurrence of additional fees or expenses.

 

  

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(d)

	
Proceeds of Collateral. All proceeds received by Lender from the sale or other liquidation of the Collateral when an Event of Default exists shall first be applied as payment of the accrued and unpaid fees and expenses of Lender hereunder, and then to all other unpaid and unreimbursed Loan Obligations (including reasonable attorneys’ fees and expenses) owing to Lender and then any remaining amount of such proceeds shall be applied to the unpaid amounts of Loan Obligations, until all the Loan Obligations have been paid and satisfied in full or cash collateralized.  After all the Loan Obligations (including without limitation, all contingent Loan Obligations) have been paid and satisfied in full, and all other obligations of the Borrower to Lender have been satisfied, any remaining proceeds of Collateral shall be delivered to the Person entitled thereto as directed by the Borrower or as otherwise determined by applicable law or applicable court order.

	
  

	
(e)

	
Computations. All computations of interest and fees shall be made on the basis of actual number of days lapsed over a year of 365 days, as appropriate. Interest shall accrue from and include the date of borrowing, but exclude the date of payment.

2.9 Maximum Amount Limitation. The Borrower hereby agrees to pay an effective rate of interest that is the sum of the interest rate provided for herein and in the Note, together with any additional rate of interest resulting from any other charges of interest or in the nature of interest paid or to be paid in connection with the Loan, including, without limitation, any late charges, and any fees or charges to be paid by the Borrower pursuant to the provisions of each of the Loan Documents.  Lender and the Borrower agree that none of the terms and provisions contained herein shall be construed to create a contract for the use, forbearance or detention of money requiring payment of interest at a rate in excess of the Maximum Rate. In such event, if Lender shall collect monies which are deemed to constitute interest which would otherwise increase the effective rate under any of the Loan Documents to a rate in excess of the Maximum Rate, all such sums deemed to constitute interest in excess of the Maximum Rate shall, at the option of Lender, to the extent permitted by applicable laws, be credited to the payment of other amounts payable by the Borrower hereunder by amortizing, prorating and spreading over the period of the Loan. This section shall control every other provision of all agreements among the parties to this Agreement pertaining to the transactions contemplated by or contained in the Loan Documents, and the terms of this section shall be deemed to be incorporated in every Loan Document and communication related thereto.

2.10 NO REBORROWINGS. Any portion of the Loan repaid or prepaid may not be reborrowed.

ARTICLE III

SECURITY

3.1 COLLATERAL AND LOAN SECURITY.

	
  

	
(a)

	
Security Interest. As security for the payment of the Loan and all other liabilities and obligations of the Borrower to Lender, now existing or hereafter created, the Borrower hereby assigns and grants to Lender a continuing security interest in all right, title and interest of the Borrower in and to all of the Merchant Agreements, Residuals and Merchants now owned and, with respect to the Merchants, at any time hereafter acquired by the Borrower, including any proceeds (in the form of cash, property or otherwise therefrom or relating thereto), subject only to the now-existing rights of ISO therein (collectively, the “Collateral”).  The Borrower shall also redirect the Residuals from the Merchant Agreements to Lender to allow for all the Residuals to be paid directly to Lender to satisfy the Borrower’s Loan Obligations. On each Due Date, Lender will accept the Residuals received since the previous Due Date as Monthly Payment to satisfy the amounts owed by Borrower to Lender at such time. If the amount of Residuals exceeds the Monthly Payment owed on a Due Date, the Lender will pay such amounts in excess of the Monthly Payment to the Borrower. If for any reason the Residuals on a Due Date are not sufficient to pay the amounts owed by Borrower on such date, the Borrower must pay the difference to the Lender immediately.

 

  

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(b)

	
Perfection Documents. Lender is authorized to file any financing statement or amendment thereto naming the Borrower as debtor, and describing the Residuals and Merchant Agreements in accordance with Section 3.1(a).

	
  

	
(c)

	
Other Agreements. The Borrower shall execute and deliver any other agreements, documents, instruments and writings as Lender may reasonably request from time to time to satisfy the Borrower’s obligations pursuant to this Article 3.

 

	 	
(d)

	
Power of Attorney with respect to Collateral.  Each of the officers of Lender is hereby, subject to the last sentence of this Section 3.1(d), irrevocably made, constituted and appointed the true and lawful attorney-in-fact for the Borrower (without requiring any of them to act as such and without notice) with full power of substitution to enforce the rights and remedies of the Lender hereunder, including, without limitation, to do the following: (1) execute in the name of the Borrower any financing statements, security agreements, schedules, assignments, instruments, documents and statements that the Borrower is obligated to give Lender hereunder or are necessary to perfect Lender’s security interest or lien in the Residuals; (2) verify the validity, amount or any other matter relating to the Residuals by mail, telephone, telecopy or otherwise; (3) execute such documents and take such actions as Lender reasonably deems necessary to effectuate the objects and intentions of this Agreement; and (4) immediately and automatically upon the occurrence of any Event of Default, as it relates to the Residuals, (a) receive and endorse the name of the Borrower upon any and all checks, drafts, money orders and other instruments for the payment of monies that are payable to the Borrower and constitute collections on the Borrower’s accounts and sign the Borrower’s name on any invoices or bills of lading; (b) ask for, demand, sue for, collect, receive and give acquittance for any and all moneys due or to become due with respect to, and to the extent of, the rights assigned to it by or on behalf of the Borrower; (c) do, at its option and at the expense and for the account of the Borrower, at any time or from time to time, all acts and things which the Borrower deems reasonably necessary to protect or preserve the Residuals and to collect on such Residuals; (d) pay or discharge any taxes, liens, or other encumbrances levied or placed on or threatened against the Borrower or the Residuals; (e) commence, file, prosecute, defend, settle, or otherwise undo any claim, litigation, suit, action or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by the Borrower for the purpose of collecting any and all such moneys due in respect of the Residuals to the Borrower whenever payable and to enforce any other right in respect of the Residuals; and (f) do such other and further acts and deeds in the name of the Borrower that Lender may reasonably deem necessary or desirable to enforce any Residual. The Borrower hereby ratifies and approves all acts of the attorney. Neither Lender nor the attorney will be liable for any acts or omissions or for any error of judgment or mistake of fact or law, except to the extent of such Person’s gross negligence or willful misconduct.  This power, being coupled with an interest is irrevocable until the Loan Obligations have been satisfied.

  

7

  

 

	
  

	
(e)

	
Representations, Warranties and Covenants Concerning the Residuals.  The Borrower represents and warrants to Lender and, until the Loan Obligations have been satisfied and the Loan has been terminated, covenant to Lender as follows:

	
  

	
1.

	
All of the Borrower’s right, title and interest in the Collateral now owned or hereafter acquired (i) are owned by the Borrower free and clear of all liens (including any claims of infringement) except those in Lender’s favor, and  (ii) is not subject to any agreement prohibiting the granting of a lien or requiring notice of or consent to the granting of a lien, except for those agreements and restrictions set forth on Schedule 3.1(e).

	
  

	
2.

	
The Borrower shall not encumber, mortgage, pledge, assign or grant any lien in any of its right, title or interest now owned or hereafter acquired in the Collateral to anyone other than Lender.

	
  

	
3.

	
The liens granted pursuant to this Agreement constitute valid first-lien security interests in all of Borrower’s right, title and interest now owned or hereafter acquired in the Collateral in favor of Lender as security for the prompt and complete payment and performance of the Loan Obligations, and except pursuant to bankruptcy, insolvency or other similar laws relating to the enforcement of creditors’ rights generally and by general equitable principles, enforceable in accordance with the terms hereof against any and all creditors of and any purchasers from the Borrower (other than purchasers of inventory in the ordinary course of business).  Upon the proper filing and recordation of UCC financing statements, the Lender shall have a first priority perfected security interest in Borrower’s right, title and interest now owned or hereafter acquired in the Collateral of the Borrower to the extent such security interest can be perfected by the filing of a UCC financing statement.

	
  

	
4.

	
No effective security agreement, mortgage, deed of trust, financing statement, equivalent security or lien instrument or continuation statement authorized by the Borrower and covering all or any part of the Borrower’s right, title and interest now owned or hereafter acquired in the Collateral is or will be on file or of record in any public office except with respect to the Lender’s liens hereunder.

	
  

	
5.

	
The Borrower shall defend the right, title and interest of Lender now owned or hereafter acquired in and to the Collateral against the claims and demands of all Persons whomsoever, and take such actions, including (i) notification of Lender’s interest in Collateral at Lender’s request, and (ii) the institution of litigation against third parties as shall be prudent in order to protect and preserve the Borrower’s and Lender’s respective and several interests in the Collateral.

	
  

	
6.

	
The Borrower shall perform all steps reasonably requested by Lender to create and maintain in Lender’s favor a valid perfected first lien in all Borrower’s right, title and interest now owned or hereafter acquired in the Collateral.

	
  

	
7.

	
Other than archived books and records, the Borrower shall maintain and keep all of its books and records concerning the Collateral at its location as listed in the introductory paragraph or at such other locations of which it shall have provided Lender thirty (30) days’ prior written notice.

	
  

	
8.

	
Without giving the Lender at least thirty (30) days’ prior written notice, the Borrower shall not (i) change the state of its incorporation or formation (if applicable) or (ii) change its name.

  

8

  

 

ARTICLE IV

CONDITIONS PRECEDENT

4.1 CONDITONS PRECEDENT TO FUNDING. The obligation of Lender to make the Loan is subject to the conditions precedent that Lender shall have received the following, in form and substance satisfactory to Lender, prior to the Closing Date:

	
  

	
(a)

	
this Agreement, duly executed by Borrower and Lender.

	
  

	
(b)

	
the Guaranty, attached hereto.

	
  

	
(c)

	
a promissory note duly executed by the Borrower evidencing the Loan (the  “Note”).

	
  

	
(d)

	
all third-party consents, assignments and residual redirection letters, duly executed by the Borrower and third parties necessary to ensure payment of Residuals directly to Lender as set forth on Exhibit C attached hereto (collectively, the “Third Party Consents and Assignments”).

 

	
  

	
(e)

	
[Omitted].

 

	
  

	
(f)

	
a duly executed certificate of an authorized officer of the Borrower, attaching (i) true and complete copies of its constitutive documents in effect as of the date hereof, (ii) a true and complete copy of resolutions duly adopted by the authorized governing body of Borrower, authorizing the execution, delivery and performance by Borrower of each of the Loan Documents to which it is a party, (iii) an incumbency certificate, and (iv) a certificate of good standing, issued by the Secretary of State of the state of Borrower’s incorporation or formation, dated not more than ten (10) business days before the Closing Date.

 

	
  

	
(g)

	
A pay proceeds letter duly executed by the Borrower, Guarantor and Lender.

 

	
  

	
(h)

	
Lender shall have received (i) a fully executed operating agreement for Borrower, naming Thomas A. Hyde and Robert Winspear as Managing Members and reflecting the 100% ownership of all of its equity securities by Guarantor, (ii) a certificate of designation of preferred stock by and between Borrower and each of Steven Lemma and Mychol Robirds, (iii) a fully executed Exchange Agreement between Borrower and each of Steven Lemma, Mychol Robirds and E-Cig Ventures, LLC (and all amendments), and (iv) a fully executed Option Agreement and Residual Purchase Agreement between E-Cig Ventures, LLC and Borrower including all completed and signed exhibits and ancillary documents.

  

9

  

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES

5.1 REPRESENTATIONS AND WARRANTIES OF BORROWER. The Borrower makes the following representations and warranties to Lender, which representations and warranties shall survive the execution of this Agreement:

	
  

	
(a)

	
Purpose. The Borrower represents that this loan is for commercial and business purposes only.

	
  

	
(b)

	
Legal Status. The Borrower has been duly organized and is validly existing under the laws of its state of incorporation or formation, as the case may be, and is qualified to transact business, and has made all filings and is in good standing, in every jurisdiction in which the nature of its business requires such qualifications.

	
  

	
(c)

	
No Violation. The making and performance by the Borrower of the Loan Documents does not violate any provision of law, nor any provision of the Borrower’s formation documents, including, without limitation, articles of incorporation, bylaws, operating agreement or any partnership or trust agreement, or result in a breach of, or constitute a default under, any agreement, indenture or other instrument to which the Borrower is a party or by which Borrower may be bound.

	
  

	
(d)

	
Authorization; Enforceability. This Agreement and the other Loan Documents have been duly authorized, executed and delivered, and are legal, valid and binding agreements of the Borrower enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, solvency, reorganization, moratorium or similar laws effecting creditors’ rights generally and by general principles of equity.

	
  

	
(e)

	
Financial Statements. All financial statements and reports that may have been required and presented to Lender in conjunction with the transaction which is the subject of this Agreement, have been prepared in conformity with GAAP and are consistently applied, fairly and accurately present the financial condition and income of the subject thereof, as of the date given, and neither contain any untrue statement of a material fact nor fail to state a material fact required in order to make such financial statements not misleading. Since the date of such financial statements, the Borrower attests that there has been no adverse material change in the financial condition or operations of the subject thereof.

	
  

	
(f)

	
Consent and Licenses. No consent, approval or authorization of, or registration or filing with, any governmental body or authority, or any other person, firm or entity not a party hereto, is or will be required as a condition to the valid execution, delivery, performance or enforceability of the Loan Documents, or the transactions contemplated hereby or thereby, or to the conduct of the Borrower’s business.

	
  

	
(g)

	
Litigation. There is no litigation either pending or, to the best of the Borrower’s knowledge, threatened against the Borrower or any Guarantor before any court or administrative agency, or before any arbitrator, which may have a material adverse effect on the assets, business, financial conditions or operations of the Borrower, or which would prevent or hinder the performance of the Borrower’s obligations under the Loan Documents.  Furthermore, neither the Borrower nor any Guarantor has violated any law and, to the best of its knowledge, is not the subject of any investigation by a governmental agency that could result in an indictment or a forfeiture or seizure of any of its assets except as has been disclosed to Lender.

 

  

10

  

 

	
  

	
(h)

	
Solvency. The Borrower is now and, after giving effect to the Loan, will be, solvent.

	
  

	
(i)

	
Taxes. The Borrower and Guarantor has filed or caused to be filed all federal, state and local tax returns that are required to be filed and has paid all other taxes, assessments, and governmental charges or levies upon it and its property, income, profits and assets which are due and payable, except where the payment of such tax, assessment, government charge or levy is being contested in good faith and by appropriate proceedings and adequate reserves in compliance with GAAP have been set aside on the Borrower’s books therefore.

	
  

	
(j)

	
Disclosure. No representation or warranty by the Borrower in this Agreement contains any untrue statement of a material fact or omits or will omit to state any material fact necessary to make the statements herein not misleading. There is no fact or development known to the Borrower which materially adversely affects, or which might in the future, in the Borrower’s reasonable judgment, materially adversely affect the Borrower’s Portfolio or Borrower’s continuing business relationship with the Merchants, which has not been set forth in this Agreement.

	
  

	
(k)

	
Merchant Agreements.  The Merchant Agreements are not currently mortgaged or encumbered, Borrower has not assigned, transferred or conveyed, directly or indirectly, to any other party any of its rights under the Merchant Agreements and no third party has a right to claim against the Merchant Agreements or setoff against amounts due to Borrower thereunder.

ARTICLE VI

COVENANTS OF BORROWER

6.1 AFFIRMATIVE COVENANTS. From the Effective Date and so long as any Loan Obligations remain unpaid, the Borrower shall, unless Lender otherwise consents in advance in writing, do each of the following:

	
  

	
a)

	
Books and Records. The Borrower shall at all times keep accurate and complete books, records and accounts of all of the Borrower’s business activities including all residual reports, prepared in accordance with GAAP and Borrower shall permit Lender, or any persons designated by Lender, at any reasonable time, to inspect, audit and examine such books, records and accounts and to make copies or extracts thereof.  On a monthly basis, the Borrower will provide to the Lender copies of the monthly residual reports pertaining to the Collateral.  In addition, the Borrower shall provide quarterly financials to the Lender.

	
  

	
b)

	
Notices. The Borrower shall promptly notify Lender in writing of the occurrence of any Event of Default under any of the Loan Documents or any act or event which, with the giving of notice or the passage of time, or both, would be such an Event of Default and of any legal action, proceeding or investigation threatened or instituted against the Borrower that might have a material adverse effect upon the operations, or financial condition or business of the Borrower or Borrower’s ability to repay the Loan.  If such an Event of Default existed and the Lender has been notified, from time to time, at Lender’s request, no less than one of the Borrower’s will furnish to Lender a summary of the status of all such actions, proceedings or investigation.

 

  

11

  

 

	
  

	
c)

	
Maintain Business. The Borrower shall maintain in full force and effect all licenses, permits, insurance, authorizations, bonds, franchises and other rights necessary or desirable to the profitable conduct of its business, shall continue in, and limit its operations to, the same general lines of business as are presently conducted and shall comply with all applicable laws, orders, regulations and ordinances of all governmental authorities, and, if a corporation or partnership, shall maintain its corporate or partnership existence.  The Borrower shall pay to ISO and its affiliates, promptly when due, all amounts in respect of annual registration fees (with respect to VISA and MasterCard, or to the ISO directly) and will maintain minimum residual account levels as required under any agreement between Borrower and ISO.

	
  

	
d)

	
Additional Assurances. Borrower shall make, execute and deliver to Lender such promissory notes, financial statements, control agreements, instruments and other agreements as Lender or its counsel may reasonably request to evidence and secure the Loan and to perfect Lender’s security interest hereunder.

	
  

	
e)

	
Use of Loan Proceeds. Borrower shall apply all Loan proceeds towards business and commercial purposes only.

	
  

	
f)

	
Indemnification. The Borrower shall defend, indemnify, pay and hold harmless, Lender and its affiliates and their respective officers, partners, directors, trustees, employees, members, managers, representatives and agents (each an “Indemnitee”), from and against any and all liabilities, obligations, losses, damages, penalties, claims, reasonable costs, reasonable expenses and reasonable disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity) incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of any Loan Document or the transactions contemplated hereby or thereby.

	
  

	
g)

	
Notice of Certain Events. Borrower shall give prompt written notice (with a description and reasonable detail) to Lender of any known occurrence of any Event of Default, or any known event which, with the giving of notice or the lapse of time, would constitute an Event of Default.

	
  

	
h)

	
Compliance with Laws, Etc. Borrower shall comply in all material respects with all applicable laws, rules and regulations in good faith.

6.2 NEGATIVE COVENANTS. From the Effective Date and so long as any of the Loan Obligations remain unpaid, the Borrower shall not, without the prior written consent of Lender, do any of the following:

	
  

	
a)

	
Non Solicitation of Merchants: Directly or indirectly, knowingly cause or knowingly permit any of its employees, agents, principals, affiliates, subsidiaries or any other person or entity with whom it has the right by contract to interfere with, disrupt, or attempt to interfere with or disrupt, any past, present or prospective business relationship of Lender, contractual or otherwise, related to or arising from the Merchants including soliciting or enticing any Merchant or otherwise cause any Merchant to terminate or cancel its existing credit card or check processing or any Merchant Agreements, or any other agreements related to the payment of Residuals.  This section shall apply during the term of this Agreement.

 

  

12

  

 

	
  

	
b)

	
Liens.

 

	
  

	
1.

	
Permit any lien, security interest or other charge or encumbrance, or other type of preferential arrangement, upon or with respect to any of the Collateral, which secures debt of any Person, except for the security interests of the Lender pursuant to the Loan Documents.

 

	
  

	
2.

	
Permit any lien, security interest or other charge or encumbrance, or other type of preferential arrangement, upon or with respect to any of the properties or income of the Borrower (other than the Collateral), which secures debt of any person, without first providing the Lender thirty (30) days advance notice and opportunity to review and modify such lien, security interest or other charge or encumbrance or other type of preferential arrangement, so as to ensure Lender’s security interests in the Collateral remain unaffected.

 

	
  

	
c)

	
Organization; Name; Chief Executive Office.  Change its state of organization, name or location of its chief executive office without the prior written consent of Lender, which consent shall not be unreasonably withheld, delayed or conditioned.

 

	
  

	
d)

	
Amendments to Organizational Documents. Amend its articles of organization or incorporation, operating agreement, bylaws or any other organization document in any material respect without the prior written consent of Lender, which consent shall not be unreasonably withheld, delayed or condition.

 

	
  

	
e)

	
Amendments. Materially amend, modify, terminate or waive any of its rights under any of the Agreements listed on Exhibit A attached hereto without Lender’s consent.

 

ARTICLE VII

EVENTS OF DEFAULT AND REMEDIES

7.1 EVENTS OF DEFAULT. The occurrence of one or more of the following events shall immediately and automatically constitute an “Event of Default” under this Agreement:

	
  

	
a)

	
Payment Obligations. The Borrower fails to make any of the required payments (including principal, interest, fees, etc) as set forth in any Loan Document within seven (7) days of any due date (with the Borrower having the right to pay Lender directly to the extent the Residuals are insufficient to make any payments hereunder). In no event shall an Event of Default occur due to the inaction of Lender to transfer to itself from the Residuals, the required payment, to the extent funds are available from said Residuals.

	
  

	
b)

	
Breach of Representation or Warranty. Any representation or warranty made by the Borrower or Guarantor in connection with any Loan Document shall prove to have been incorrect in any material respect when made or during the time period when Loan Obligations remain outstanding.

	
  

	
c)

	
Breach of Covenants. A Borrower fails to perform or observe any term, covenant or agreement contained in any Loan Document on its part to be performed or observed and any such failure remains unremedied for fifteen (15) days after written notice thereof shall have been given to the Borrower by Lender.

 

  

13

  

 

	
  

	
d)

	
Breach of Residual Requirement. During the term of this Agreement, if the Residuals delivered in order to satisfy the Monthly Payment are less than the Baseline Amount in any applicable period and any such failure shall remain unremedied for ninety (90) days after written notice thereof shall have been given to the Borrower by Lender; provided, that if the Residuals delivered in order to satisfy the Monthly Payment are equal to or less than $190,000 at any time, it shall be deemed immediately and automatically to be an Event of Default.

To the extent practical, with Lender’s written consent, a Borrower can cure the prospective Event of Default set forth in this subsection (d) by placing additional merchants or residuals with Lender that may be accepted or declined in Lender’s sole discretion in order to remedy any shortfall in the Residuals.

	
  

	
e)

	
Movement by Borrower of Merchants. The Borrower moving any of the Merchants to a competitor of Lender (as determined by Lender, in Lender’s reasonable discretion).

	
  

	
f)

	
Borrower Insolvency. The Borrower or Guarantor shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or Guarantor seeking to adjudicate it a bankrupt or insolvent company, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property, and, in the case of any such proceeding instituted against it (but not instituted by it) either such proceeding shall remain undismissed or unstayed for a period of forty-five (45) days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property) shall occur; or the Borrower or Guarantor shall take any corporate action to authorize any of the actions set forth above in this subsection.

	
  

	
g)

	
Change of Ownership. Borrower shall dissolve, merge, consolidate with other Persons, or sell, transfer or encumber fifty-one percent (51%) or more of the outstanding equity interests of itself, or suspend or discontinue doing business without Lender’s prior written consent.

	
  

	
h)

	
ISO Charge-Backs.  Borrower shall fail to pay to Lender, promptly on demand, any amounts that ISO or any other party shall deduct from any payments due to Lender hereunder in respect of charge-backs and other liabilities of Borrower under the ISO Services Agreement, or any third parties, including, but not limited to, MasterCard and Visa.

7.2 REMEDIES. Upon the occurrence of an Event of Default and at any time while such Event of Default is continuing, Lender may, without presentment, demand, protest or further notice of any kind (all of which are hereby expressly waived) and, notwithstanding the provisions contained in any other document or instrument executed or to be executed by Borrower or Guarantor hereunder or contained in any other agreement, take any one or more of the following actions:

	
  

	
(a)

	
Declare the entire principal and any accrued interest on all Loan Obligations, together with all costs and expenses, to be immediately due and payable, and to enforce payment thereof by any means permitted by law or in equity;

 

  

14

  

 

	
  

	
(b)

	
The interest due under the Loan Documents shall, at the option of the Lender, convert to the Default Rate and the interest due under the Loan Documents shall remain at the Default Rate for so long as an Event of Default is outstanding and not cured, if curable;

	
  

	
(c)

	
All interest due in accordance with the immediately preceding paragraph shall immediately compound at such Default Rate and thereafter interest at the Default Rate shall compound monthly until the satisfaction of all amounts and other liabilities and obligations due under the Loan Documents;

	
  

	
(d)

	
Without accelerating payment, enforce the payment of sums of principal and interest then due (including any penalty interest or late payment charges as set forth herein);

	
  

	
(e)

	
Require the Borrower to take or refrain from taking any action which may be necessary to cure such Event of Default and to obtain affirmative or negative injunctions or restraining orders with respect thereto;

	
  

	
(f)

	
Omitted.

	
  

	
(g)

	
File suit for any sums owing or for damages;

	
  

	
(h)

	
Exercise any other remedy or right provided in law or in equity or permitted under this Agreement or any of the other Loan Documents;

	
  

	
(i)

	
If a breach of Section 6.2(a) shall have occurred, Lender shall have the additional remedies set forth therein;

	
  

	
(j)

	
Collect and apply one hundred percent (100%) of the Residuals existing as of the Effective Date and/or hereafter acquired by the Borrower to the repayment of the Loan Obligations until the Loan is paid in full; and

	
  

	
(k)

	
Take possession of and succeed to all right, title and interest in, to and under the Collateral subject to Section 2.8(d) hereto.

 

7.3 REMEDIES CUMULATIVE. Each and every power or remedy herein specifically given shall be in addition to every other power or remedy, existing or implied, given now or hereafter existing at law or in equity, and in each and every power and remedy herein specifically given or otherwise so existing may be exercised from time to time and as often and in such order as may be deemed expedient by Lender, and the exercise or the beginning of the exercise of one power or remedy shall not be deemed a waiver of the right to exercise at the same time or thereafter any other power or remedy. No delay or omission of Lender in the exercise of any right or power accruing hereunder shall impair any such right or power or be construed by a waiver of any default or acquiescence therein.

7.4 ATTORNEYS’ FEES AND EXPENSES.  In connection with legal fees related to the preparation and negotiation of this Agreement, Borrower shall reimburse to Lender the Attorney Fees contemporaneous with the execution of this Agreement.  In addition, the Borrower shall pay Lender’s attorneys’ fees and costs incurred in the collection of any indebtedness hereunder, or in connection with any claim, action, dispute, controversy or proceeding related hereto or arising hereunder, whether directly or indirectly, and whether or not suit is brought, and any attorneys’ fees and costs incurred by Lender in any proceeding under the U.S. Bankruptcy Code in order to collect any indebtedness hereunder or to preserve, protect or realize upon any security for such indebtedness.

  

15

  

 

ARTICLE VIII

MISCELLANEOUS

8.1 PARTIES. This Agreement is made solely among the Borrower, the Guarantor and Lender and no other person shall have any right of action hereunder, except ISO Holdings on behalf of Lender. The parties expressly agree that no person, except ISO Holdings, shall be a third-party beneficiary to this Agreement.

8.2 ENTIRE AGREEMENT. This Agreement, together with the other Loan Documents and any other documents incorporated herein or therein by reference and all related exhibits and schedules, constitutes the sole and entire agreement of the parties with respect to the subject matter of this Agreement and therein, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to the subject matter. The parties have not relied on any statement, representation, warranty or agreement of the other Party or of any other person on such Party's behalf, including any representations, warranties, or agreements arising from statute or otherwise in law, except for the representations, warranties, or agreements expressly contained in this Agreement, including any claims for extra-contractual promises, representations or warranties of any kind.

8.3 ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective executors, administrators, heirs, successors and assigns; provided, however, that neither this Agreement nor any rights or obligations hereunder shall be assignable by the Borrower without first obtaining the express written consent of Lender.  If such consent is granted then any purported assignment made in contravention of that consent shall be void.  Lender may assign any part of or all of the Loan and its rights and obligations hereunder at any time in its sole discretion. Lender may participate in all or any portion of the Loan with such other party or parties as Lender shall select.

8.4 NO WAIVER; REMEDIES. Any waiver of any of the terms of this Agreement by Lender shall not be construed as a waiver of any other term of this Agreement, and no waiver shall be effective unless made in writing. The failure of Lender to exercise any right with respect to the declaration of any default or Event of Default shall not be deemed or construed to constitute a waiver by or to preclude Lender from exercising any right with respect to such default or Event of Default at a later date or with respect to any subsequent default or Event of Default by the Borrower.

8.5 BANKRUPTCY PROCEEDINGS.  Nothing herein shall be deemed to be a waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b) or any other provision of the U.S. Bankruptcy Code to file a claim for the full amount of the indebtedness secured by this Agreement or to require that all Collateral shall continue to secure all of the indebtedness owing to the Lender in accordance with this Agreement and the supporting documents.

8.6 WAIVER OF TRIAL BY JURY.  THE BORROWER AND LENDER, BY ACCEPTANCE OF THIS AGREEMENT, HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING, DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER OR THE BORROWER.

  

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8.7 GOVERNING LAW / VENUE. This Agreement and each of the Loan Documents shall be construed in accordance with and governed by the internal law, and not the law of conflicts, of the State of Arizona as an agreement wholly performed in the State of Arizona. Any dispute, action, litigation or other proceeding concerning this Agreement shall be instituted, maintained, heard and decided in the federal or state courts situated in Scottsdale, Arizona; the parties irrevocably and unconditionally consent to the personal and subject matter jurisdiction of such courts in connection with any dispute arising hereunder or directly or indirectly related hereto.

 

8.8 TIME. Time is of the essence in the interpretation of all the clauses in this Agreement.

8.9 ARTICLE AUTHORITY.  The Borrower represents that the Borrower has full power, authority and legal right to execute and deliver this Agreement and all accompanying documentation and that this Agreement and the accompanying documentation constitute valid and binding obligations of the Borrower.

8.10 SURVIVAL. All covenants, agreements, representations and warranties made by the Borrower in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents, regardless of any investigation made by any such other party or on its behalf and notwithstanding that Lender may have had notice or knowledge of any Event of Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as any Loan Obligations are outstanding and unpaid.

8.11 NOTICES.  Any notices required or permitted to be given pursuant to the Loan Documents shall be in writing and shall be given by personal delivery, by first class mail via the United States mail, postage prepaid, to the addressees provided by the parties or electronic mail.  Any such notice shall be deemed received for purposes of this Agreement upon delivery if given by personal delivery, three (3) business days after the mailing thereof if given by mail or the next business day if given by electronic mail. If either party desires to change the address to which notices are to be sent it shall do so in writing and deliver the same to the other party in accordance with the notice provisions set forth above.

8.12 AMENDMENTS, ETC.  No amendment or waiver of any provision of any Loan Document to which Borrower is a party, nor any consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be agreed or consented to by Lender and Borrower, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

  

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8.13 SEVERABILITY; COUNTERPARTS. If any term or provision of this Agreement or of any other Loan Document, or the application thereof to any circumstance, shall be invalid, illegal or unenforceable to any extent, such term or provision shall not invalidate or render unenforceable any other term or provision of this Agreement or any other Loan Document, or the application of such term or provision to any other circumstance. To the extent permitted by law, the parties hereto hereby waive any provision of law that renders any term or provision hereof invalid or unenforceable in any respect. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, and such counterparts shall together constitute one and the same instrument. The signatures to this Agreement may be evidenced by facsimile or scanned email copies reflecting the party’s signature hereto, and any such facsimile copy or scanned email copies shall be sufficient to evidence the signature of such party as if it were an original signature.

8.14  BORROWER ACKNOWLEDGMENT. Borrower acknowledges that (i) it has been advised to consult with legal counsel prior to entering into this Agreement and the related Loan Documents; and (ii) the Loan Documents and that certain Portfolio Purchase Agreement between Lender and Borrower on even date herewith (the “Purchase Agreement”) are separate and distinct agreements, and any exercise of rights or waiver of any provision hereunder or thereunder are separate and solely enforceable pursuant to the terms stated in the agreement pursuant to which such right is exercised or such provision is waived.

[Signature Page to Follow]

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers and duly authorized, as of the date first written above.

	
BORROWER:

 

PAYPROTEC OREGON, LLC D/B/A SECURUS PAYMENTS

 

By: ___________________________

 

Name/Title: ____________________

E-mail: ________________________

	 	
LENDER:

 

BLUEACRE VENTURES LLC

 

By:  TBWOIWKM LLC

Its Managing Member

 

 

By: ___________________________

 

Name/Title: Nick Glimcher, Managing Member

E-mail:  Nick@nrgbv.com

GUARANTY. The undersigned  “Guarantor” absolutely and unconditionally guarantees the prompt payment to Lender, including its successors and assignees, of any and all Loan Obligations. Guarantor further agrees to repay the Loan Obligations on demand, without requiring Lender first to enforce payment against Borrower. This is a guarantee of payment and not of collection. This is an absolute, unconditional, primary, and continuing obligation and will remain in full force and effect until the first to occur of the following: (i) all of the Loan Obligations have been indefeasibly paid in full, and Lender has terminated this Guaranty, or (ii) 30 days after the date on which written notice of revocation is actually received and accepted by Lender. No revocation will affect: (i) the then existing liabilities of the revoking Guarantor under this Guaranty; (ii) Loan Obligations created, contracted, assumed, acquired or incurred prior to the effective date of such revocation; (iii) Loan Obligations created, contracted, assumed, acquired or incurred after the effective date of such revocation pursuant to any agreement entered into or commitment obtained prior to the effective date of such revocation; or (iv) any Loan Obligations then or thereafter arising under the agreements or instruments then in effect and then evidencing the Loan Obligations. Guarantor waives all notices to which the Guarantor might otherwise be entitled by law, and also waives all defenses, legal or equitable, otherwise available to the Guarantor. This Guaranty shall be construed in accordance with the laws of the State of Arizona, and shall inure to the benefit of Lender, its successors and assigns. To the extent not prohibited by applicable law, the Guarantor waives its right to a trial by jury of any claim or cause of action based upon, arising out of or related to this guaranty, the Agreement and all other documentation evidencing the Loan Obligations, in any legal action or proceeding. Any such claim or cause of action shall be tried by court sitting without a jury in Scottsdale, AZ.

	
GUARANTOR

	 
	
 

EXCEL CORPORATION

 

By:________________________________

Name/Title: _________________________

E-mail:_____________________________

	 

  

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SCHEDULE 2.4

MONTHLY PAYMENT SCHEDULE

	
Due Date

	 	
Monthly Payment

	 	 	
Monthly Principal

	 	 	
Monthly Interest

	 
	
Months 1-36

	 	$	48,333.33	 	 	$	33,333.33	 	 	$	15,000.00	 

  

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EXHIBIT A

MERCHANT AGREEMENTS

 

The Marketing Agreement dated August 11, 2010 by and among Borrower, First Data Merchant Services Corporation, and Wells Fargo Bank, N.A., as amended by the Amendment to Marketing Agreement dated effective January 25, 2012 by and among Borrower, First Data Merchant Services Corporation, and Wells Fargo Bank, N.A. (collectively, the “ISO Services Agreement”).

 

  

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EXHIBIT B

MERCHANTS

[Please see attached Excel Spreadsheet]

 

  

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EXHIBIT C

THIRD PARTY CONSENTS AND ASSIGNMENTS

 

Right of First Refusal Waiver and Payment Instructions Letter Agreement, dated as of June 30, 2014, by and among ISO, Wells Fargo Bank, N.A., Borrower and Lender.

 

 

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