CONVERTIBLE LOAN
AGREEMENT
THIS AGREEMENT dated for reference the 9th day of
April, 2009 and made,
BETWEEN
:
PANGLOBAL BRANDS
INC. , a company
incorporated under the laws of Delaware, having an office at 2853
E. Pico Blvd, Los Angeles, CA 90023;
(the “ Borrower
”)
AND :
Those parties listed on
Schedule A hereto who
have advanced funds pursuant to this Agreement;
(the “ Lenders
” )
WITNESSES THAT WHEREAS :
A.
The Borrower has applied to the Lenders for a loan in the aggregate
principal amount of up to US$2,500,000 (the “ Loan
”) to be utilized by the Borrower for the purposes described
in Section 3.
B.
Lenders have agreed to make the Loan available to Borrower provided
they are secured in the same manner and pari passu with prior
secured Lenders; and
C.
The parties wish to provide for the terms and conditions upon which
the Loan will be made available to the Borrower.
THEREFORE in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the Lenders and the
Borrower warrant and represent to and covenant and agree with each
other as set forth below.
1.
DEFINITIONS;
INTERPRETATION
1.1
For the purpose of this Agreement, the following words and phrases
will have meanings set forth below unless the parties or the
context otherwise require(s):
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(a)
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“ Accredited
Investor ” means an accredited investor as that term is
defined by Regulation D promulgated under the Securities Act and
/or Canadian Securities Administrators’ National Instrument
45-105, as applicable;
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(b)
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“ Affiliate ”
has the meaning given to it in the Securities Act;
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(c)
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“ Agreement ”
and “ this Agreement ” means this agreement and
all schedules hereto as the same may be amended, modified, replaced
or restated from time to time;
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(d)
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“ Borrower’s
Indebtedness ” means all present and future indebtedness
and liability, direct and indirect, of the Borrower to the Lenders
arising under and pursuant to the Loan Documents (including,
without limitation, at any point in time the principal amount
outstanding under the Loan, all unpaid accrued interest thereon,
liquidated damages, and all fees and costs and expenses then
payable in connection therewith);
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(e)
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“ Business Day
” means any day, other than a Saturday or a Sunday, on which
commercial banks in California are required to be open for
business;
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(f)
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“ Common Shares
” means fully paid non assessable common shares par value
$0.0001 in the capital of the Borrower;
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(g)
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“ Conditions
Precedent ” means the conditions precedent described in
Article 9 hereof;
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(h)
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“ Conversion ”
means the right of the Lenders to convert any portion of the
outstanding Loan as set out in section 8;
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(i)
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“ Event of Default
” means any of the events specified in Section 13, and
“ Default ” mean any of such events, whether or
not any such requirement has been satisfied;
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(j)
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“ GAAP ” means
United States generally accepted accounting principles, as applied
on a consistent basis;
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(k)
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“ Interest Payment
Date ” means the last day of October and April in each
year, commencing October 31, 2009;
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(l)
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“ Interest Rate
” means nine percent (9%) per annum calculated as herein
provided;
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(m)
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“ Lien ”
means, with respect to any Person, any mortgage, lien, pledge,
hypothecation, charge (whether fixed or floating), security
interest (including, without limitation, any assignment, notice or
security interest filed pursuant to applicable federal, state or
other laws) or other encumbrance, or any interest or title of any
vendor, lessor, or Lenders to or other secured party of such Person
under any conditional sale or other title retention agreement, upon
or with respect to any property, asset or undertaking of such
Person, including any agreement to create any of the foregoing, and
whether arising under any statute, law, contract or
otherwise;
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(n)
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“ Loan ” means
the convertible loan of US$1,000,000 established by the Lenders in
favour of the Borrower pursuant to this Agreement;
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(o)
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“ Loan Documents
” means this Agreement, the Pari Passu and Modification
Agreement and the Security Documents;
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(p)
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“ material adverse
effect ” in respect of the Borrower means a material
adverse effect on:
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(i)
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the business, operations,
affairs, financial condition, property, assets or undertakings of
the Borrower, or
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(ii)
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the validity, priority or
enforceability of any Loan Document to which that Borrower is a
party or by which any of its property, assets and undertakings are
bound;
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(q)
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“ material ”
means, in respect of the Borrower, material in relation to the
business, operations, affairs, financial condition, assets,
properties, or prospects of the Borrower;
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(r)
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“ Maturity Date
” has the meaning set out in Section 5 of this
Agreement;
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(s)
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“Pari Passu and
Modification Agreement” means the agreement among the Borrower, the
Lenders and the Prior Loan Lenders whereby the Prior Loans are
equal to and pari passu with the Loan in priority over the assets
of the Borrower;
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(t)
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“ Person ”
means and includes an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an
unincorporated organization and a government or any department or
agency thereof;
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(u)
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“ Priority Claim
” means a claim of a Person pursuant to a Lien which, in the
opinion of the Lenders or its solicitors, acting reasonably, ranks
or could rank pari passu with or in priority to any Lien that the
Lenders may have pursuant to the Security Documents;
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(v)
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“ Prior Factor
” means a Person in the business of factoring accounts
receivable for the purpose of financing the Borrower’s
accounts receivable in whole or in part;
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(w)
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“ Prior Factor’s
Loan ” means the loan made by the Prior Factor to the
Borrower for the purposes of factoring the Borrower’s
accounts receivables in whole or in part;
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(x)
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“ Prior Factor’s
Lien ” means the Lien in favour of the Prior Factor over
the Borrower’s accounts receivable which have been assigned
to the Prior Factor for the repayment of the Prior Factor’s
Loan and interest;
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(y)
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“ Prior Permitted
Liens ” means:
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(i)
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the Prior Factor’s
Lien;
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(ii)
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Liens in favour of the Prior Loan
Lenders;
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(iii)
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any other Lien from time to time
agreed to as such by the Lenders in writing;
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(iv)
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Liens incidental to the conduct
of Borrower’s business as the ownership of its property;
and
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(v)
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Liens granted to factors over
specific accounts receivable which the said factor is collecting on
behalf of the Company.
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(z)
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“Prior
Loans” means the
Loan Agreement dated March 4, 2008 for the principal amount of
US$750,000 and the Loan Agreement dated January 15, 2009 for the
principal amount of $1,000,000 in favour of the Prior Loan
Lenders;
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(aa)
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“Prior Loan
Lenders” means
Sinecure Holdings Ltd., Capella Investments Inc. and Providence
Wealth Management Ltd.;
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(bb)
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“ Securities ”
means the Warrants and the Common Shares;
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(cc)
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“ Securities Act
” means the United States Securities Act of 1933, as amended
or replaced from time to time;
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(dd)
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“ Security Documents
” means the security documents set out in Section 12 to this
Agreement and any other security document(s) from time to time
taken by the Lenders from the Borrower or any other Person as
security for the payment, observance and performance of the
Borrower’s Indebtedness in whole or in part;
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(ee)
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“ Subsidiary ”
has the meaning given to it in the Securities Act;
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(ff)
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“UCC”
shall mean the Uniform Commercial
Code as in effect in the applicable jurisdiction;
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(gg)
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“Units”
means the unit of one Common Share
and one Warrant;
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(hh)
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“ US$ ” means
lawful currency of the United States; and
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(ii)
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“Warrant” means a warrant to purchase a Common Share for a
period of twenty four months from issuance. One whole warrant may
be exercised at a price US$0.15 per Common Share.
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1.2
All dollar figures refer to $USD.
2.
LOAN
2.1
Subject to the terms and conditions of this Agreement, the Lenders
hereby establish and agree to advance the Loan to the Borrower in
the sums as set out in Schedule A attached.
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2.2
The amount due and owing to each Lender will be established by the
Borrower in records, which records will be prima facie evidence of
the amount owed. In case of a dispute as to the amount owed to a
Lender, the auditors of the Borrower will provide the amount and
such amount provided by the auditors will be conclusive.
2.3
Each Lender agrees and acknowledges that all payments made by the
Borrower will be made in proportion to the relative amounts of the
indebtedness of the Borrower to each Lender as at the date of such
payment.
2.4
Each Lender hereby consents to the creation by the Borrower of the
Security Documents and security interest contained therein in
favour of the other Lenders and agrees that the creation,
registration, filing and existence of such Security Documents and
security interest shall not constitute an event of default under
its Security Documents.
2.5
Notwithstanding the order of attachment or perfection of the
security interests under the Security Documents, or the date upon
which a Lender lends funds to the Borrower under these same terms
and conditions, the Lenders agree that the security interests of
all Lenders under this Convertible Loan Agreement shall have equal
priority and that in the event that a Lender realizes on its
security interest, the proceeds of any such realization shall be
allocated and paid as between the Lenders in proportion to the
relative amounts of the indebtedness of the Borrower to each Lender
as at the date of such realization.
2.6
In addition, the Lenders agree that the security interests of all
Prior Loan Lenders under the Prior Loans shall have equal priority
with the Loans established under this Convertible Loan Agreement
and that in the event that a Lender realizes on its security
interest, the proceeds of any such realization shall be allocated
and paid as between the Lenders and the Prior Loan Lenders all in
proportion to the relative amounts of the indebtedness of the
Borrower to each Lender and Prior Loan Lender as at the date of
such realization.
3.
PURPOSE
3.1
The Loan will be made available to the Borrower for its general
corporate purposes and for no other purpose without the prior
written consent of the Lenders.
4.
AVAILABILITY AND
SUBORDINATION
4.1
The Loan will be available on the day of closing of this Agreement.
Closing will occur immediately upon execution of the Loan Documents
and advance of the Loan to the Borrower’s attorneys for
closing.
4.2
The Loan will be subordinated to a Prior Factor who is arranged by
the Borrower, so long as the borrowings of the Borrower from the
Prior Factor do not exceed 90% of the Borrower’s accounts
receivable and security granted to such Prior Factor are limited to
an assignment of such accounts receivable collected by the Prior
Factor.
4.3
The Loan will rank equally with the Prior Loans and the Borrower
will ensure execution by the Prior Loan Lenders of the Pari Passu
and Modification Agreement.
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5.
TERM
5.1
Subject to the provisions of Section 7, the Borrower will pay the
Borrower’s Indebtedness to the Lenders in full on April 30,
2011, unless sooner prepaid or accelerated upon the occurrence and
during the continuance of an Event of Default (the “
Maturity Date ”).
6.
INTEREST
6.1
The outstanding principal balance of the Loan will bear interest at
the Interest Rate.
6.2
Interest at the Interest Rate will be calculated bi-annually, not
in advance, as well as before maturity, default, demand and
judgment.
6.3
All overdue and unpaid interest and all fees, costs, and other
amounts payable by the Borrower hereunder or under any of the Loan
Documents will be added to the principal balance of the Loan and
will bear interest at the Interest Rate until paid in
full.
6.4
If Interest calculated under the laws of the State of California is
determined to be in excess of the maximum interest rate permitted
by law, the parties agree to reduce the Interest payable to such
rate of interest as is 0.1% below the maximum permitted by
California law and to reduce Interest otherwise paid or payable to
such adjusted rate. Any excess amount of Interest received by the
Lenders shall be first applied to any unpaid principal balance owed
by the Borrower, and if the then remaining excess amount is greater
than the previously unpaid principal balance, the Lenders shall
promptly refund such excess amount to the Borrower.
7.
REPAYMENT
7.1
On each Interest Payment Date, the Borrower will pay the Lenders
all interest which has accrued on account of the outstanding
balance of the Lender’s Loan and then remains unpaid.
Interest may be paid in cash or Common Shares, or any combination
thereof at the discretion of the Borrower. If any portion of the
interest is paid in Common Shares, the conversion price will be
US$0.15 in value of interest for every one Common Share
issued.
7.2
On the Maturity Date the Borrower will pay to the Lenders the
Borrower’s Indebtedness then outstanding in full.
7.3
The Borrower will be entitled to prepay the whole or any portion of
the Borrower’s Indebtedness at any time and from time to
time, with two weeks notice, without bonus or penalty, provided
that upon the Lender receiving such prepayment notice the Lender
may provide notice of conversion of the whole or any portion of the
Loan, which notice of conversion will take precedence over notice
of prepayment.
7.4
All amounts payable by the Borrower under this Agreement will be
paid without set-off or counterclaim, and without any deductions or
withholdings whatsoever.
7.5
Subject to the provisions hereof, all payments received by the
Lenders on account of the Borrower’s Indebtedness will be
applied first in payment of outstanding interest and
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secondly in reduction of the
principal balance of the Loan then outstanding. If any payment is
received at any time while an Event of Default remains outstanding
or after demand has been made for the repayment of the
Borrower’s Indebtedness, the Lenders may appropriate such
payment to such part or parts of the Borrower’s Indebtedness
as the Lenders in its sole discretion may determine and the Lenders
may from time to time revoke and change any such
appropriation.
7.6
The Lenders is hereby authorized to open and maintain books of
account and other books and records evidencing all advances under
the Loan, interest accruing thereon, fees, charges, and other
amounts from time to time charged to the Borrower under the Loan
Documents; and amounts from time to time owing, paid, or repaid by
the Borrower under this Agreement. All such books, accounts, and
records will constitute prima facie evidence of the amount owing by
the Borrower under the Loan Documents; but the failure to make any
entry or recording in such books, accounts, and records will not
limit or otherwise affect the obligations of the Borrower under the
Loan Documents.
7.7
Notwithstanding anything in this Agreement to the contrary, any
payment of principal of or interest on the Borrower’s
Indebtedness that is due on a date other than a Business Day will
be made on the next succeeding Business Day. If the date for any
payment on the Borrower’s Indebtedness is extended to the
next succeeding Business Day by reason of the preceding sentence,
the period of such extension will not be included in the
computation of the interest payable on such Business
Day.
8.
CONVERSION TO UNITS
8.1
At any time until the Maturity Date, if the Borrower has not paid
the Loan in full, the Lenders or any of them may by written notice
(the " Notice ") to the Borrower, exercise its rights of
Conversion in respect of either a portion of or the total
outstanding amount of the Loan but not including accrued Interest
as of that date into Units, at a price per Unit of
US$0.10.
8.2
Within seven (7) days of Notice by a Lender exercising its rights
of Conversion hereunder, the Borrower shall deliver a Share
Certificate and a Warrant Certificate to the Lender representing
the number of Shares and Warrants acquired by the Lender pursuant
to the calculation set out in subparagraph 8.1 of this
Agreement.
8.3
Reserved.
9.
CONDITIONS PRECEDENT
9.1
The Lender’s obligation to make the Loan is subject to the
following conditions precedent having been met to the
Lenders’ sole satisfaction or waived by the Lenders in
writing at the time of that Advance, namely:
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(a)
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the Lenders having received a
properly executed original of this Agreement and the Security
Documents then in effect;
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(b)
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the Borrower’s
representations and warranties contained herein and in the Security
Documents then in effect then being true and correct in all
material respects;
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(c)
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the Security Documents being
registered against the Borrower in the state of
California;
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(d)
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there then being no outstanding
Default or Event of Default;
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(e)
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each of the Prior Lenders have
converted US$187,500 (total US$562,500) of their Prior Loans into
the equity private placement as set out in a subscription agreement
dated for reference April 9, 2009, and have converted the balance
of their Prior Loans of US$1,187,500 into this Convertible Loan
Agreement; and
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(f)
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the Prior Loan Lenders have
signed the Pari Passu and Modification Agreement; and
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(g)
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new funds of US$1,000,000 are
subscribed pursuant to this Convertible Loan Agreement, unless this
condition is waived by an individual Lender . Funds advanced by any
Lender pending closing shall be returned forthwith if this
condition is not fulfilled or waived. .
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10.
REPRESENTATIONS AND WARRANTIES
10.1
The Borrower represents and warrants as follows:
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(a)
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it is a corporation duly
organized, validly existing and in good standing under the laws of
Delaware;
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(b)
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it has the (corporate) power and
capacity to carry on business as currently conducted by it, own
property or interests therein, borrow and lend money, grant
security, make, keep, observe and perform representations,
warranties, covenants and agreements and incur obligations and
liabilities, all as contemplated hereby;
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(c)
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there is no action, suit,
investigation or proceeding outstanding or pending or, to the
knowledge of the Borrower, threatened against it or any of its
property, assets or undertakings by or before any court, arbitrator
or administrative or governmental body which would reasonably be
expected to have a material adverse effect;
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(d)
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it has not agreed or consented
to, nor has it agreed to cause or permit in the future (upon the
happening of a contingency or otherwise), any of its property,
whether now owned or hereafter acquired, to be subject to a Lien
other than Prior Permitted Liens; and
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(e)
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the execution and delivery by it
of this Agreement and the Security Documents and the performance by
it of its obligations hereunder and thereunder, do not
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will
not conflict with or result in a material breach of any of the
terms, conditions, or provisions of:
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(i)
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its organizational
documents,
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(ii)
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any law, regulation, or decree
applicable or binding on it or any of its property, assets and
undertaking, or
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(iii)
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any material agreement or
instrument binding to which it or any of its property assets or
undertakings is a party or bound, the breach of which could
reasonably be expected to have a material adverse effect or result
in, or require or permit the imposition of any Lien in or with
respect to the property, assets and undertakings now owned or
hereafter acquired by it.
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11.
COVENANTS
11.1
The Borrower will:
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(a)
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comply with all applicable laws,
ordinances or governmental rules or regulations to which it or any
of its property, assets and undertaking are subject;
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(b)
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obtain and maintain in effect all
licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of its property, assets
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