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EXHIBIT 10.8(a)
EQUIPMENT LOAN AND SECURITY AGREEMENT
This LOAN AND
SECURITY AGREEMENT (this "Agreement"), dated as of
______________ (the "Closing Date") is made
by and between KONA GRILL _____,
INC., a Delaware corporation ("Borrower"),
and GE CAPITAL FRANCHISE FINANCE
CORPORATION, a Delaware corporation
("GE").
NOW, THEREFORE,
in consideration of the premises and the covenants set
forth herein, the receipt and sufficiency
of which are hereby acknowledged,
Borrower and GE hereby agree as
follows:
1. Transaction; Closing Conditions; Interim
and Term Loans. A. On the terms and
subject to the conditions set forth in the
Loan Documents (as defined below), GE
shall make an equipment loan to Borrower
with respect to the Collateral (as
defined below) in the amount of ___________
(the "Loan Amount"). Such equipment
loan shall be made in the form of an
interim equipment loan (the "Interim Loan")
evidenced and disbursed in accordance with
subsection C below, and a term
equipment loan evidenced and disbursed in
accordance with subsection D below
(the "Term Loan")(the Interim Loan and the
Term Loan are defined collectively as
the "Equipment Loan"). The Equipment Loan
will be evidenced by the Interim Note
and the Term Note (as defined in
subsections C and D below) (the Interim Note
and the Term Note are herein sometimes each
called an "Equipment Note" and
collectively the "Equipment Notes"),this
Agreement, such UCC-1 Financing
Statements as GE shall require and the
guaranty or guaranties required by the
documents described in the following
subsection B, as applicable (such
documents, together with all other
documents, instruments and agreements
executed in connection with, or
contemplated by such documents, including the
Authorization Regarding Information form
previously delivered on behalf of the
Borrower to GE, and any amendments to any
thereof collectively, the "Loan
Documents"). Borrower shall repay the
outstanding principal amount of the
Equipment Loan with interest thereon in the
manner and in accordance with the
terms and conditions of the Equipment Notes
and the other Loan Documents. The
Equipment Loan shall be advanced in cash or
otherwise immediately available
funds subject to any prorations and
adjustments required by this Agreement. For
purposes of this Agreement, "Collateral"
means all equipment, machinery,
furniture, appliances, trade fixtures,
goods, replacements, substitutions,
additions, parts and accessories now owned
or hereafter acquired by Borrower and
located at the parcel or parcels of real
estate described in Exhibit A attached
hereto (the "Premises"), including, without
limitation, fryers, grills, ovens,
warmers, refrigerators, freezers, waste
disposal units, dishwashers, beverage
dispensers, ice cream makers, racks,
display cases, light fixtures, decor,
counters, cash registers, salad equipment,
tables, seating, signs and similar
property of Borrower, together with the
proceeds thereof and income therefrom.
B. The
obligation of GE to consummate the transaction contemplated by
this
Agreement is subject to the fulfillment or
waiver of each of the conditions
contained in the loan commitment issued by
GE to Borrower with respect to the
Equipment Loan and the "Loan Closing
Checklist" prepared by GE with respect to
the Equipment Loan.
C. The Interim
Loan in an amount up to the Loan Amount shall be disbursed
by GE to Borrower or at Borrower's
direction in up to six (6) partial advances
made at the request of Borrower, subject to
the satisfaction of the applicable
conditions contemplated by the preceding
subsection B and this subsection C. The
Interim Loan shall be evidenced by and
repayable with interest in accordance
with an interim equipment promissory note
dated as of the date of this Agreement
executed by Borrower and payable to the
order of GE in the Loan Amount (the
"Interim Note"). Borrower shall give GE at
least ten (10) days' notice, in the
form of a request for the advance of loan
proceeds (the "Request"), specifying
the date on which any portion of the
Interim Loan is to be borrowed. Each
Request shall be accompanied by an original
copy of the invoice or invoices for
the Collateral to be acquired with such
proceeds. Such notice shall constitute a
representation and warranty by Borrower
that as of the date of the notice, no
Event of Default (as defined in Section 12)
or event that, with the lapse of
time or the giving of notice or both, would
constitute an Event of Default, has
occurred and is continuing. GE shall have
no obligation to advance any portion
of the Interim Loan if an Event of Default
shall have occurred and be
continuing. No Request shall be delivered
to GE after the fifth day preceding
the Outside Funding Date (as defined below)
and GE shall have no obligation to
disburse any portion of the Interim Loan
after the Outside
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Funding Date. GE will disburse the Interim
Loan proceeds to the invoicing
parties, or if Borrower shall have paid the
amount of any such invoice, GE shall
reimburse Borrower for such portion of the
Loan Amount upon receipt from
Borrower of proof of payment satisfactory
to GE. The outstanding amount of the
Interim Loan set forth in GE's records
(which may include computer records)
shall be prima facie evidence of the
principal amount due and owing to GE under
the Interim Note. The Interim Loan shall be
due and payable on the earlier of
January 31, 2005 (the "Outside Funding
Date") and the Final Funding Date (as
defined in the following subsection D),
provided, that, if all of the conditions
to GE making the Term Loan are satisfied on
or before such due date, Borrower
may, in lieu of paying GE the outstanding
principal amount of the Interim Note
and all accrued but unpaid interest
thereunder (the "Outstanding Interim Loan
Amount") in immediately available funds,
repay such amounts by crediting the
Outstanding Interim Loan Amount against the
amount of the Term Loan.
D. The Term Loan
in the Loan Amount shall be made by GE to Borrower,
subject to the satisfaction of the
applicable conditions contemplated by the
preceding subsection B and this subsection
D, but in no event later than the
Outside Funding Date. GE shall have no
obligation to advance the Term Loan if an
Event of Default shall have occurred and be
continuing. The Term Loan shall be
evidenced by and repayable with interest in
accordance with the terms of an
equipment promissory note (the "Term
Note"), dated as of the date on which the
remaining undisbursed portion of the Term
Loan is disbursed by GE to Borrower
(the "Final Funding Date"). The Term Note
shall be executed by Borrower and
payable to the order of GE. If Borrower
elects to credit the Outstanding Interim
Loan Amount against the amount of the Term
Loan, the amount of the Term Loan
advanced to Borrower in cash on the Final
Funding Date shall be reduced by the
Outstanding Interim Loan Amount.
2. Security Interest Created; Obligations
Secured. A. Borrower hereby grants to
GE a security interest in the Collateral to
secure the payment of the following
indebtedness and obligations (the
"Obligations"): (i) payment of indebtedness
evidenced by the Equipment Notes, together
with all extensions, renewals,
amendments and modifications thereof; and
(ii) payment of all other indebtedness
and other sums, including interest at the
applicable rate, which may be owed
under, and performance of all other
obligations and covenants contained in, any
other Loan Document or any Other Agreement
(as defined below), together with any
other instrument given to evidence or
further secure the payment and performance
of any obligation secured hereby or
thereby. For purposes of this Agreement, the
term:
"Affiliate" means any individual,
corporation, partnership, limited liability
company, trust, unincorporated
organization, Governmental Authority (as defined
in Section 3 (iii) below) or any other form
of entity ("Person") which directly
or indirectly controls, is under common
control with, or is controlled by any
other Person. For purposes of this
definition, "controls", "under common control
with" and "controlled by" means the
possession, directly or indirectly, of the
power to direct or cause the direction of
the management and policies of such
Person, whether through ownership of voting
securities or otherwise; and "Other
Agreements" means, collectively, all
agreements and instruments between, among
or by (1) any of Borrower and any guarantor
of the Obligations (collectively,
the "Borrower Parties") or any Affiliate of
any of the Borrower Parties
(including any Affiliate of any
predecessor-in-interest to any of the Borrower
Parties), and, or for the benefit of, (2)
any of GE (including any
predecessor-in-interest to GE) and any
Affiliate of GE (including any Affiliate
of any predecessor-in-interest to GE),
including, without limitation, promissory
notes and guaranties; provided, however,
the term "Other Agreements" shall not
include the agreements and instruments
defined as the Loan Documents.
B. Borrower
authorizes GE to file financing statements with respect to the
security interest of GE, continuation
statements with respect thereto, and any
amendments to such financing statements
that may be necessitated by reason of
any of the changes described in Section 13.
Borrower agrees that,
notwithstanding any provision in the
Uniform Commercial Code as adopted in the
State of Arizona (the "UCC") to the
contrary, Borrower shall not file a
termination statement of any financing
statement filed by GE in connection with
any security interest granted under this
Agreement if GE reasonably objects to
the filing of such termination
statement.
C. GE shall at
all times have a perfected security interest in the
Collateral that shall be prior to any other
interests therein. Borrower shall do
all acts and things, shall execute and file
all instruments
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(including security agreements, UCC
financing statements, continuation
statements, etc.) requested by GE to
establish, maintain and continue the
perfected security interest of GE in the
Collateral, and shall promptly on
demand pay all costs and expenses of (i)
filing and recording, including the
costs of any searches deemed necessary by
GE from time to time to establish and
determine the validity and the continuing
priority of the security interest of
GE, and (ii) all other claims and charges
that in the reasonable opinion of GE
might prejudice, imperil or otherwise
affect the Collateral or security interest
therein of GE. Borrower agrees that a
carbon, photographic or other reproduction
of a security agreement or financing
statement shall be sufficient as a
financing statement. GE is hereby
irrevocably appointed Borrower's
attorney-in-fact to take any of the
foregoing actions requested of Borrower by
GE if Borrower should fail to take such
actions, which appointment shall be
deemed coupled with an interest.
3. Borrower's Representations and
Warranties. Borrower represents and warrants
to GE as of the date of this Agreement and
the Final Funding Date as follows:
(i) All
financial statements and other information concerning the
Borrower
Parties delivered to GE by Borrower in
connection with the transaction described
in this Agreement (collectively, the
"Financial Information") are true, correct
and complete in all material respects;
there have been no amendments to the
Financial Information since the date such
Financial Information was prepared or
delivered to GE; and Borrower understands
that GE is relying upon the Financial
Information and Borrower represents that
such reliance is reasonable. All
financial statements included in the
Financial Information were prepared in
accordance with generally accepted
accounting principles consistently applied
("GAAP") and fairly present as of the date
of such financial statements the
financial condition of each individual or
entity to which they pertain. No
change has occurred with respect to the
financial condition of any of the
Borrower Parties or the Collateral as
reflected in the Financial Information
which has not been disclosed in writing to
GE or has had, or could reasonably be
expected to result in, a material adverse
effect on (i) the Collateral,
including without limitation, the use of
the Collateral in the operation of a
Kona Grill (the "Permitted Concept"), or
(ii) Borrower's ability to perform its
obligations under the Loan Documents
("Material Adverse Effect").
(ii) Each of the
Borrower Parties (other than individuals), as applicable,
is duly organized or formed, validly
existing and in good standing under the
laws of its state of incorporation or
formation, Borrower is qualified as a
foreign corporation, partnership or limited
liability company, as applicable, to
do business in the state(s) where the
Collateral is located, and each of the
Borrower Parties is qualified as a foreign
corporation, partnership or limited
liability company, as applicable, to do
business in any other jurisdiction where
the failure to be qualified would
reasonably be expected to result in a Material
Adverse Effect. All necessary action has
been taken to authorize the execution,
delivery and performance by the Borrower
Parties of this Agreement and the other
Loan Documents. The person(s) who have
executed this Agreement on behalf of
Borrower are duly authorized so to do.
Borrower is not a "foreign corporation",
"foreign partnership", "foreign trust",
"foreign estate" or "foreign person" (as
those terms are defined by the Internal
Revenue Code of 1986, as amended).
(iii) Upon
execution by the Borrower Parties, this Agreement and the other
Loan Documents shall constitute the legal,
valid and binding obligations of the
Borrower Parties, respectively, enforceable
against the Borrower Parties in
accordance with their respective terms.
There are no suits, actions, proceedings
or investigations pending, or to the best
of its knowledge, threatened against
or involving the Borrower Parties, the
Collateral or the Premises before any
arbitrator or any governmental authority,
agency, department, commission,
bureau, board, instrumentality, court or
quasi-governmental authority having
jurisdiction or supervisory or regulatory
authority over the Collateral or any
of the Borrower Parties ("Governmental
Authority"), except for such suits,
actions, proceedings or investigations
which, individually or in the aggregate,
have not had, and could not reasonably be
expected to result in, a Material
Adverse Effect. The Borrower Parties are
not, and the authorization, execution,
delivery and performance of this Agreement
and the other Loan Documents will not
result, in any breach or default under any
other document, instrument or
agreement to which any of the Borrower
Parties is a party or by which any of the
Borrower Parties, the Premises, the
Collateral or any of the property of any of
the Borrower Parties is subject or bound,
except for such breaches or defaults
which, individually or in the aggregate,
have not had, and could not reasonably
be expected to result in, a Material
Adverse Effect.
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The authorization, execution, delivery and
performance of this Agreement and the
other Loan Documents will not violate any
applicable law, statute, regulation,
rule, ordinance, code, rule or order. The
Collateral is not subject to any right
of first refusal, right of first offer or
option to purchase or lease granted to
a third party.
4. Use. Borrower agrees that the Collateral
will be used at the Premises solely
in the conduct of Borrower's business as a
Permitted Concept and will at all
times remain in the possession and control
of Borrower at the Premises and will
not be removed without GE's prior written
consent. Borrower promises that the
Collateral at all times will be used and
operated under and in compliance with
all applicable statutes, regulations,
rules, ordinances, codes, licenses,
permits, orders and approvals of each
Governmental Authority having jurisdiction
over the Collateral, and all policies or
rules of common law, in each case, as
amended, and any judicial or administrative
interpretation thereof, including
any judicial order, consent, decree or
judgment applicable to any of the
Borrower Parties, except for such
noncompliance which will not have, and will
not reasonably be expected to have, a
Material Adverse Effect. Borrower will not
permit any Collateral to be subject to any
lien, charge or encumbrance except
that of GE and will keep the Collateral
free and clear of any and all liens,
charges, encumbrances, and adverse claims.
Borrower will not sell, lease, rent,
or otherwise dispose of any item of
Collateral without the prior written consent
of GE.
5. Maintenance and Improvement. Borrower
shall at all times, at its own expense,
keep the Collateral in good and efficient
working order, condition and repair
and well maintained, ordinary wear and tear
excepted, and shall make all
inspections and repairs required by law,
regulation or insurance policy.
Borrower shall also make any alterations,
improvements or additions to the
Collateral that are required by law or
regulation. Any alterations,
improvements, or additions to the
Collateral shall be made at the expense of
Borrower, shall constitute accessions to
the Collateral and shall be subject to
GE's security interest.
6. Loss and Damage. Borrower shall bear the
risk of damage, loss, theft, or
destruction, partial or complete, of the
Collateral from whatsoever source
arising, whether or not such loss or damage
is covered by insurance. Borrower
shall promptly notify GE in writing in the
event of any damage, loss, theft, or
destruction, partial or complete, of any
item of Collateral. While no Event of
Default shall have occurred and be
continuing, GE agrees to apply insurance
proceeds payable to GE by reason of any
such damage, loss, theft, or
destruction, at the option of GE, to (a)
repair or restore the Collateral to
good condition and working order, (b)
replace the Collateral with similar
equipment in good repair, condition and
working order, or (c) pay GE, in cash,
an amount equal to the unamortized cost for
that item and all other amounts then
due and owing under this Agreement, and
upon payment of that amount, this
Agreement shall terminate with respect to
that item only, and GE will release
its interest in that item.; provided,
however, such release shall not limit or
effect in any manner the amounts otherwise
payable by Borrower to GE under the
Loan Documents. Upon the occurrence and
during the continuance of an Event of
Default, GE shall have the right to apply
the insurance proceeds from any
damage, loss, theft or destruction to any
item of Collateral toward the
Obligations in such order, priority and
proportions as GE shall determine or pay
such proceeds in whole or in part to
Borrower to be applied toward repair,
restoration or replacement of the
Collateral as contemplated by the preceding
subitems (a) and (b) of this Section 6.
7. Insurance. Borrower shall procure and
continuously maintain and pay for (a)
all risk physical damage insurance covering
loss or damage to the Collateral for
not less than the full replacement value
thereof naming GE as additional insured
and loss payee, (b) bodily injury and
property damage combined single limit
liability insurance in an amount not less
than Two Million Dollars ($2,000,000)
for each location at which any of the
Collateral is located, and (c) such other
insurance as may from time to time be
reasonably required by GE in order to
protect its interests with respect to the
Collateral, with such insurance
companies and pursuant to such contracts or
policies and with such deductibles
as are satisfactory to GE. All contracts
and policies shall include provisions
for the protection of GE notwithstanding
any act or neglect of or breach or
default by Borrower, shall provide for
payment of insurance proceeds to GE,
shall provide that they may not be
modified, terminated or canceled unless GE
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is given at least thirty (30) days' advance
written notice thereof, and shall
provide that the coverage is "primary
coverage" for the protection of Borrower
or GE notwithstanding any other coverage
carried by GE or Borrower protecting
against similar risks. Borrower shall
promptly notify any appropriate insurer
and GE of each and every occurrence that
may become the basis of a claim or
cause of action against the insured and
provide GE with all data pertinent to
such occurrence. Borrower shall furnish GE
with certificates of such insurance
or copies of policies upon request and
shall furnish GE with renewal
certificates not less than thirty (30) days
prior to the renewal date. Proceeds
of all insurance are payable first to GE to
the extent of its interest.
Insurance must be issued by insurance
companies licensed to do business in the
state in which the Premises is located and
which are rated A:VIII or better by
Best's Key Rating Guide or otherwise
approved by GE. All policies shall be
written as primary policies, with
deductibles not to exceed $10,000.
8. Taxes. Borrower agrees to pay all taxes,
assessments and other governmental
charges of whatsoever kind and character by
whom payable on or relating to any
item of Collateral or the sale, ownership,
use, shipment, transportation,
delivery or operation thereof or payable in
respect to any obligation of
Borrower. Upon receipt of a request
therefor from GE, Borrower will submit
written evidence of payment of the
obligations described in this section.
9. Financial Data. Within 45 days after the
end of each fiscal quarter and
within 120 days after the end of each
fiscal year of Borrower, Borrower shall
deliver to GE (a) complete financial
statements of the Borrower Parties
including a balance sheet, profit and loss
statement, statement of cash flows
and all other related schedules for the
fiscal period then ended; (b) income
statements for the business at the
Premises; and (c) such other financial
information as GE may reasonably request in
order to establish compliance with
the financial covenants in the Loan
Documents, as applicable. All such financial
statements and information shall be
prepared in accordance with GAAP from period
to period, and shall be certified to be
accurate and complete by Borrower (or
the Treasurer or other appropriate officer
of Borrower). Borrower understands
that GE is relying upon such financial
statements and Borrower represents that
such reliance is reasonable. The financial
statements delivered to GE need not
be audited, but Borrower shall deliver to
GE copies of any audited financial
statements of Borrower that may be
prepared, as soon as they are available.
Borrower shall also provide GE with
personal financial statements and tax
returns of any guarantor on an annual basis
within ninety (90) days after the
close of each calendar year, and such
information concerning its business as GE
may reasonably request.
10. General Indemnity. Borrower shall, at
its sole cost and expense, protect,
defend, indemnify, release and hold
harmless each of the Indemnified Parties (as
defined below) for, from and against any
and all claims, suits, liabilities
(including, without limitation, strict
liabilities), actions, proceedings,
obligations, debts, damages, losses, costs,
expenses, diminutions in value,
fines, penalties, charges, fees, expenses,
judgments, awards, amounts paid in
settlement and damages of whatever kind or
nature (including, without
limitation, attorneys' fees, court costs
and other costs of defense)
(collectively, "Losses") (excluding Losses
suffered by an Indemnified Party
directly arising out of such Indemnified
Party's gross negligence or willful
misconduct; provided, however, that the
term "gross negligence" shall not
include gross negligence imputed as a
matter of law to any of the Indemnified
Parties solely by reason of Borrower's
interest in the Collateral or Borrower's
failure to act in respect of matters which
are or were the obligation of
Borrower under the Loan Documents) caused
by, incurred or resulting from
Borrower's operations of or relating in any
manner to the Collateral or the
Premises, whether relating to their
original design or construction, latent
defects, alteration, maintenance, use by
Borrower or any person thereon,
supervision or otherwise, or from any
breach of, default under, or failure to
perform, any term or provision of this
Agreement by Borrower, its officers,
employees, agents or other persons,
including, without limitation, Losses
arising from (1) any accident, injury to or
death of any person or loss of or
damage to property occurring in connection
with the Collateral or the Premises
or any portion thereof, (2) any use,
non-use or condition in, on or about, or
possession, alteration, repair, operation,
maintenance or management of, the
Collateral or the Premises or any portion
thereof or the sidewalks, curbs,
parking areas, streets or ways adjoining
the Premises, (3) any representation or
warranty made herein by Borrower, in any
certificate delivered in connection
herewith or in any other agreement to which
Borrower is a party or pursuant
thereto being false or misleading in any
material respect as of the date such
representation or warranty was made, (4)
performance of any labor or services or
the furnishing of
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any materials or other property in respect
to the Collateral or the Premises or
any po
