LOAN AND REFINANCING AGREEMENT
THIS LOAN AND REFINANCING AGREEMENT dated as of December 31, 2008 (the “Agreement”), is entered into by and between Vey Associates, Incorporated, a Louisiana Corporation (“Investor”), David R. Vey, an individual, (“Vey”) and Sedona Corporation, a corporation organized and existing under the laws of the Commonwealth of Pennsylvania (the “Company”).
WHEREAS, the Company desires to refinance sums payable to Vey pursuant to the terms of certain promissory notes issued by the Company in favor of Vey; and
WHEREAS, the terms of the Existing Notes (as defined herein) will be amended and consolidated into a single note issued by the Company in favor of Vey; and
WHEREAS, in connection with such refinancing, Vey desires to convert certain principal and interest under the Existing Notes into shares of common stock of the Company; and
WHEREAS , the Company desires to obtain additional working capital for its operations up to a principal amount of $2,250.000.00 from Investor in exchange for a note that can be converted by Investor to shares of the Company’s Common Stock;
NOW, THEREFORE , the Company, Vey, Investor, and each of them, agree as follows:
Section 1.1. “ Common Stock ” shall mean the Company’s common stock, $.001 par value per share.
Section 1.2. “ Converted Shares ” shall mean that number of shares of Common Stock issued in reduction of the principal and/or interest due on the Existing Note, Consolidated Note (as defined herein), or New Note (as defined herein) which the Investor or Vey elects to convert to Common Stock.
Section 1.3. “ Person ” shall mean an individual, a corporation, a partnership, a limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
Section 1.4. “ SEC Documents ” shall mean the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and each report, proxy statement or registration statement filed by the Company with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 or the Securities Act since the filing of such Annual Report through the date hereof.
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Section 1.6. “ Securities Act ” shall mean the Securities Act of 1933, as amended.
Section 1.7. “ Warrants ” shall mean the Warrants that the Investor and Vey shall receive pursuant to the terms set forth in Section 4.2.
Section 1.8. “ Warrant Shares ” shall mean all shares of Common Stock issuable pursuant to exercise of the Warrants.
Section 2.1. Funding of Loan .
The Investor will provide working capital to the Company in amounts up to Two Million Two Hundred Fifty Thousand ($2,250,000) Dollars (the “Loan”). The Investor will fund the Loan in six (6) Tranches (the “Tranches”) as set forth below.
(a) The first Tranche will be paid to Company on the date hereof in the amount of One Hundred Thousand ($100,000.00) Dollars;
(b) The second Tranche will be paid to Company on or before January 10, 2009, in the amount of Three Hundred Fifty Thousand ($350,000.00) Dollars;
(c) The third Tranche will be paid to Company on or before February 15, 2009, in the amount of Five Hundred Fifty Thousand ($550,000.00) Dollars;
(d) The fourth Tranche will be paid to the Company on or before April 15, 2009 in the amount of Seven Hundred Fifty Thousand ($750,000.00) Dollars;
(e) The fifth Tranche will be paid to the Company on or before September 30, 2009 in the amount of Five Hundred Thousand ($500,000.00) Dollars provided that the Company the Company has met the condition set forth in Section 2.3; and
Section 2.2. Convertible Note .
In exchange for the funding of the Loan by the Investor, the Company will issue a convertible note in the form as that set forth in Exhibit A hereto which shall provide for interest at the rate of Eight (8%) Percent per annum and, shall have a maturity date of January 4, 2010 (the “New Note”) unless otherwise converted pursuant to Section 4.1.
Section 2.3. Condition of Fifth Tranche .
In order for Investor to fund the fifth Tranche, the Company must achieve “EBITDA Breakeven” for the third quarter of Fiscal year 2009.
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Section 3.1. Existing Notes.
The Company and Vey desire to refinance the Existing Notes by extending the maturity date thereof and by creating or adjusting certain conversion rights thereunder. The Existing Notes consist of:
(a) a Convertible Promissory Note (the “Old Convertible Note”) in the principal amount of Two Million Six Hundred Ninety One Thousand Two Hundred Sixty Three 36/100 Dollars ($2,691,263.36) from the Company in favor of Vey, dated October 23, 2006, as amended from time to time, with accrued interest in the amount of Four Hundred Seventy Eight Thousand Four Hundred Forty Six and 82/100 Dollars ($478,446.82);
(b) a Revolving Promissory Note (the “Revolving Note”) in the principal amount of Six Hundred Ninety Thousand Dollars ($690,000.00) from the Company in favor of Vey, dated September 27, 2006, as amended from time to time, with accrued interest in the amount of Seventy Three Thousand Two Hundred Sixty Two and 22/100 Dollars ($73,262.22); and
(c) a Promissory Note (the “Bridge Note”) in the principal amount of One Million Two Hundred Thirteen Thousand Nine Hundred Fifty Two 81/100 Dollars ($1,213,952.81) from the Company in favor of Vey, dated October 23, 2006, as amended from time to time, with accrued interest in the amount of Two Hundred Fifteen Thousand Eight Hundred Thirteen and 83/100 dollars ($215,813.83).
Section 3.2 Partial Conversion of the Existing Notes .
The Company and Vey agree that by execution of this Agreement Vey is converting Four Hundred Ninety Five Thousand Two Hundred Sixteen 17/100 Dollars ($495,216.17) of principal and Seven Hundred Sixty Seven Thousand Five Hundred Twenty Two and 81/100 Dollars ($767,522.87) of interest of the Existing Notes. The conversion price for principal and interest shall be $0.05 per Converted Share for a total of 25,254,781 shares.
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Section 3.3 Refinancing and Consolidation of Existing Notes.
After such conversion, the Existing Notes shall be amended and consolidated into a single note (the “Consolidated Note”) in the principal amount of Four Million One Hundred Thousand Dollars ($4,100,000) in substantial form as that set forth in Exhibit B hereto which (i) shall provide for interest at the rate of Eight (8%) Percent per annum and, (ii) shall have a maturity date of January 4, 2010 unless otherwise converted pursuant to Section 4.1, (iii) shall have a conversion price of $0.05 per Converted Share, and (iv) shall have such other terms as are set forth in Exhibit B . The Consolidated Note and the New Note shall be collectively referred to as the “Convertible Notes.”
Section 4.1. Conversion of Principal/Interest .
Investor or Vey may elect in writing to convert all or a designated part of the outstanding principal or interest due pursuant to the Convertible Notes to Converted Shares of the Company at any time. The conversion price for principal and interest shall be $0.05 per Converted Share. Notwithstanding the foregoing, Investor and the Company agree that Investor shall not be permitted to convert any portion of the New Note until such time as Investor has provided funding to the Company which equals One Million Seven Hundred Fifty Thousand Dollars ($1,750,000).
Section 4.2. Warrants.
Vey is hereby granted one (1) Warrant to purchase 12,627,390 shares of the Company’s common stock at an exercise price of $0.07 per share, which shall expire four (4) years from the date of issuance.
Section 5.1 Covenants
The Investor covenants to the Company that he will not sell, assign, hypothecate, pledge, convey, or otherwise transfer a Convertible Note, Converted Share, Warrant, or Warrant Share, except to a company controlled by the Investor, without registering such transaction under the Securities Act and applicable state securities laws or pursuant to exemptions from registration thereunder. Investor acknowledges that such instruments will bear a legend evidencing such restriction upon transfer.
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Section 6.1. Reservation of Common Stock .
The Company does not currently have shares sufficient to issue the Converted Shares and Warrant Shares based upon its current Articles of Incorporation. The Company will use its best efforts to amend the Articles of Incorporation to provide for additional shares sufficient to permit issuance of the Converted Shares and the Warrants Shares. Thereafter, the Company shall reserve and keep available at all times, free of preemptive rights, shares of Common Stock for the purpose of enabling the Company to issue the Converted Shares pursuant to the Convertible Note and upon issuance of the Warrants, the Warrant Shares. The number of shares so reserved from time to time, as theretofore increased or reduced as hereinafter provided, may be reduced by the number of shares actually delivered pursuant to any exercise of the Warrants and the number of shares so reserved shall be increased or decreased to reflect potential increases or decreases in the Common Stock that the Company may thereafter be obligated to issue by reason of adjustments to the Warrants.
Section 7.1 Governing Law; Consent to Jurisdiction .
This Agreement shall be governed by and construed in accordance with the laws of the State of Louisiana without regard to the choice of law or conflicts of law provisions thereof. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the non-exclusive jurisdiction of the courts of the State of Louisiana and of the United States of America, located in the State of Louisiana, for any action, proceeding or investigation in any court or before any governmental authority (“Litigation”) arising out of or relating to this Agreement and the transactions contemplated hereby, and further agrees that service of any process, summons, notice or document by U.S. registered mail to its respective address set forth in this Agreement shall be effective service of process for any Litigation brought against it in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any Litigation arising out of this Agreement or the transaction contemplated hereby in the courts of the State of Louisiana or the United States of America, located in the State of Louisiana, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Litigation brought in any such court has been brought in an inconvenient forum.
Section 7.2 Notices .
All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the
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address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the first business day following the date of sending by reputable courier service, fully prepaid, addressed to such address, or (c) upon actual receipt of such mailing, if mailed. The addresses for such communications shall be:
Any of the parties hereto may from time to time change its address or facsimile number for notices under this Section 7.2 by giving written notice of such changed address or facsimile number to the other party hereto as provided in this Section 7.2.
Section 7.3 Counterparts/Facsimile/Amendments .
This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. Except as otherwise stated herein, in lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original. This Agreement may be amended only by a writing executed by all parties.
Section 7.4. Entire Agreement .
This Agreement, the forms of agreements attached as Exhibits hereto, set forth the entire agreement and understanding of the parties relating to the subject matter hereof and supersedes all prior and contemporaneous agreements negotiations and understandings between the parties, both oral and written relating to the subject matter hereof. The terms and conditions of all
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Exhibits to this Agreement are incorporated herein by this reference and shall constitute part of this Agreement as is fully set forth herein.
Section 7.5. Severability .
In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party.
Section. 7.6. Headings .
The headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
Section 7.7 Fees and Expenses .
Each of the Company and the Investor agrees to pay its own expenses incident to the performance of its obligations hereunder.
Section 7.8 No Brokerage .
Each of the parties hereto represents that it has had no dealings in connection with this transaction with any finder or broker who will demand payment of any fee or commission from the other party. The Company on the one hand, and the Investor, on the other hand, agree to indemnify the other against and hold the other harmless from any and all liabilities to any Person claiming brokerage commissions or finder’s fees on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above.
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Form of Convertible Note
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE CONVERTED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE NOTE
FOR VALUE RECEIVED, the undersigned, SEDONA CORPORATION, a Pennsylvania corporation, promises to pay to the order of Vey Associates Incorporated, with the address of 11822 Justice Avenue Suite B-6, Baton Rouge, Louisiana 70816, the principal sum of up to TWO MILLION TWO HUNDRED FIFTY THOUSAND dollars ($2,250,000.00), or so much thereof as shall have been advanced by the Holder to the Maker and then be outstanding pursuant to the terms of a certain Loan and Refinancing Agreement between Maker and Holder of even date herewith, together with interest thereon at the rate of eight percent (8%) per annum from the date hereof until the earlier of Maturity or the date the outstanding balance (as defined herein) shall be paid in full; provided that Holder shall be entitled, at any time that sums due pursuant to this Note are outstanding, to convert the then Outstanding Balance (as defined herein), or part thereof, into shares of Common Stock at a price of $0.05 per share .
1. Definitions. The following definitions are applicable to the words, phrases or terms used in this Note.
(a) The term “ Common Stock ” shall mean the Maker’s common stock, par value $0.001 per share.
(b) The term “ Conversion Price ” shall mean $0.05 per share of Common Stock.
(c) The term “ Effective Date ” shall refer to December 31, 2008.
(d) The term “ Holder ” shall mean and include such owner or holder and all heirs, successors and assigns of any owner or holder of this Note.
(e) The term “ Maker ” shall mean and include all makers, co-makers and other parties signing of this Note and their successors and assigns, and the use of the plural number shall include the singular, and vice versa, and the use of any gender shall include all genders.
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(f) The term “ Maturity ” shall mean the date on which this Note shall be due and payable in full, which date shall be January 4, 2010, unless theretofore converted.
(g) The term “ Note ” shall refer to this instrument.
(h) The term “ Notice of Exercise ” shall mean the Notice of Exercise substantially in the form of Exhibit A attached hereto.
(i) The term “ Oak Harbor ” shall mean Oak Harbor Investment Properties. LLC.
(j) The term “ Shares ” shall mean all shares of Common Stock or other securities issued or issuable pursuant to the Notice of Exercise.
(k) The term “ Vey ” shall mean David R. Vey.
2. Payment Terms. The Maker shall be obligated to make one payment of all outstanding principal and unpaid interest due thereon at Maturity, unless converted. Unless otherwise designated in writing, mailed or delivered to Maker, the place for payment of the indebtedness evidenced by this Note shall be the Holder’s principal address as noted above. Payments received on this Note shall be applied first to accrued interest, and the balance to principal.
3. Events of Default. The following shall constitute an Event of Default:
(a) In the event Maker shall fail (i) to pay any sums due hereunder when due, or (ii) to observe or perform any term, condition, covenant, representation or warranty set forth herein, when due or required, or within any period of time permitted thereunder for cure of any such default or non-performance.
(b) In the event Maker fails to pay any invoice or other sum which may be due and payable to Holder, Vey, or Oak Harbor under certain promissory notes issued in their favor by the Maker, when due or required, according to the terms thereunder, unless prior written waiver has been granted to Maker by Holder, Vey, or Oak Harbor.
(c) In the event Maker has received notice of default on any financial obligation of Maker in excess of One Hundred Thousand Dollars ($100,000.00) which remains uncured for a ten (10) day period.
4. Acceleration of Maturity. Upon the happening of any Event of Default, the Outstanding Balance (as defined herein) shall, at the option of the Holder, become immediately due and payable.
5. Security . The obligation of the Maker pursuant to this Note is secured by a lien and security interest in the collateral of the Maker as specifically set forth in a Security Agreement of even date herewith (the “Security Agreement”).
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6. Limitation on Interest. In no contingency, whether by reason of acceleration of the Maturity of this Note or otherwise, shall the interest contracted for, charged or received by Holder exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to Holder in excess of the maximum lawful amount, the interest payable to Holder shall be reduced to the maximum amount permitted under applicable law; and, if from any circumstance the Holder shall ever receive anything of value deemed interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive interest shall be applied to the reduction of the principal of this Note and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of the Note such excess shall be refunded to Maker. All interest paid or agreed to be paid to Holder shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full period until payment in full of the principal of the Note (including the period of any renewal or extension thereof) so that interest thereon for such full period shall not exceed the maximum amount permitted by applicable law.
7. Remedies; Nonwaiver. Failure of Holder to exercise any right or remedy available to Holder upon the occurrence of an Event of Default hereunder shall not constitute a waiver on the part of Holder of the right to exercise any such right or remedy for that Event of Default or any subsequent Event of Default. The exercise of any remedy by Holder shall not constitute an election of any such remedy to the exclusion of any other remedies afforded Holder at law or in equity, all such remedies being nonexclusive and cumulative. If an Event of Default occurs under this Note and this Note is referred to an attorney at law for collection, Maker agrees to pay all costs incurred by Holder incident to collection up to a limit of 10% of the unpaid principal balance, including but not limited to reasonable attorney fees, enforceable as a contract of indemnity, plus all court costs.
8. Waivers. The Maker (i) waives presentment, protest and demand, (ii) waives notice of protest, demand, dishonor and nonpayment of this Note, and (iii) expressly agrees that this Note may be renewed in whole or in part, or any nonpayment hereunder may be extended, or a new note of different form may be substituted for this Note or changes may be made in consideration of the extension of the Maturity date hereof, or any combination thereof, from time to time, but, in any singular event or any combination of such events, Maker will not be released from liability by reason of the occurrence of any such event, nor shall Holder hereof be deemed by the occurrence of any such event to have waived or surrendered, either in whole or in part, any right it otherwise might have.
9. Option to Convert Note into Stock.
(a) Holder shall have the right and option (the “Conversion Right”) to convert the unpaid principal balance of this Note or any part thereof, together with all accrued and unpaid interest (the “Outstanding Balance”), into shares of Common Stock The number of Shares to be delivered on conversion shall be equal to the amount of the then Outstanding Balance divided by the Conversion Price, as adjusted, in compliance with the terms contained in Section 10 hereof.
(b) Maker shall use its best efforts to effectuate a registration statement for all Shares that may be issued under this Note within 120 days of the Effective Date.
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(a) The Conversion Price shall be protected by the anti-dilution provisions set forth in this Section 10, provided that such anti-dilution shall not apply with respect to: (a) Maker’s grant of restricted stock to employees or directors (whether granted prior to or after the Effective Date) pursuant to the terms and conditions of the Maker’s 2000 Incentive Stock Option Plan; (b) Maker’s grant of stock options to employees or directors or the exercise of stock options (whether granted prior to or after the Effective Date) by current, future, or past employee’s or directors of the Maker; (c) the issuance of shares for a consideration greater than the Conversion Price in effect on the date of, and immediately prior to, such issuance, or (d) an issuance of shares for which the Holder gives a written waiver of such adjustment.
(b) Except as otherwise provided in this Section, in the event that the Maker shall, at any time after the Effective Date, issue or sell any shares of Common Stock, including shares held in the Maker’s treasury and shares issued upon the exercise of any options, rights or warrants to su