EXHIBIT 10.5
BRIDGE LOAN AGREEMENT
This Bridge
Loan Agreement is made as of January 28, 2008 (the “
Effective Date ”) between S3 Investment Company, Inc.,
a California corporation (the “ Company ” or
“ SIVC” ), and the investors listed on the
SCHEDULE OF INVESTORS attached hereto (the “
Investors” ).
The Company
is currently in need of funds to help finance its operations until
the closing of its next round of financing, but will not be able to
complete any such transaction without an immediate infusion of
short-term working capital. In order to provide for this
need, the Investors and the Company are now entering into a bridge
loan in the aggregate amount of up to $600,000 (the “
Commitment Amount ”), and related transactions, on the
terms of this Agreement.
In
consideration of the mutual covenants contained in this Agreement,
it is agreed as follows:
1. Initial Bridge
Transaction .
Concurrently with execution of this
Agreement, each Investor will deliver to the Company funds equal to
the "Initial Loan Amount" listed on the Schedule of Investors.
Upon receipt of the funds, the Company will issue to each
Investor a Senior Promissory Note in the form attached as
Exhibit A (which, with any notes on substantially the same
terms that may be issued to any or all of the Investors, are herein
called the “ Senior Notes” ), in a principal
amount equal to the "Initial Loan Amount" listed on the Schedule of
Investors. The Investors may, but are under no obligation to,
invest additional amounts during each Additional Closing (as
defined below) and pursuant to Section 2.2 below.
2. Closing(s)
.
2.1
The Closing . The purchase
and sale of the Senior Notes will take place at the offices of
Crone Rozynko, LLP, 101 Montgomery Street, Suite 1950, San
Francisco California 94104, at 11:00 a.m. Pacific time, on January
28, 2008, or at such other time and place as the Company and the
Investors who have agreed to purchase a majority of the aggregate
principal amount of the Senior Notes listed on the Schedule of
Investors, mutually agree upon (which time and place are referred
to as the “ Closing ”). At the Closing, each
Investor will deliver to the Company payment in full for the Senior
Note in the amount set forth opposite such Investor’s name
listed on the Schedule of Investors, which such Investor agrees to
purchase at the Closing by (i) a check payable to the
Company’s order, (ii) wire transfer of funds to the Company,
or (iii) any combination of the foregoing. At the Closing,
the Company will deliver to each Investor a duly executed Senior
Note in the principal amount set forth opposite such
Investor’s name on the Schedule of Investors.
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2.2
Additional Closing(s)
.
(a)
Conditions of Additional
Closing(s) . On the
funding dates set forth below, the Company may, at one or more
additional closings (each an “Additional
Closing” ), issue and sell to the Investors additional
Senior Notes in proportion to each Investor to the Senior Notes
sold at the Closing, and such Senior Notes having an aggregate
principal amount of up to $500,000, provided, however, that
achievement of the milestone event at each such Additional Closing
shall have been previously approved by a majority of the aggregate
principal amount of the Senior Notes:
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Funded
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Funding Date
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Funding Amount
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Milestone Date
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Milestone Event
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Yes
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February 1, 2008,
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$60,000
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Feb
1, 08
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Execution of a Joint Venture Agreement between Redwood Capital,
Inc. and a Chinese reverse takeover (“RTO”) public
listing client company
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Yes
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March 7, 2008
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$60,000
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Mar
7, 08
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Execution of another Joint Venture Agreement between Redwood
Capital, Inc. and a Chinese RTO client company
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Yes
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April, 17 2008
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$60,000
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April 17, 2008
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Hire
Compliance Officer and Corporate Controller (Resumes attached)
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July
3, 2008
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$60,000
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July
3, 08
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Engage audit for S3 Investments, Inc.
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Aug
10, 2008
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$60,000
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Aug
10, 08
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Completion of an SEC audit of SIVC for the Two Years ended
June 30, 2008
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Sept
5, 2008
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$60,000
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Sept
5, 08
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Redwood Capital, Inc. client company obtaining a term sheet from a
lead investor for its RTO funding
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Sept
15, 2008
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$80,000
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Sept
15, 08
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Form
10 Registration Statement Filed Sept. 25 th ,
’08.
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Oct
5, 2008
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$60,000
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Oct
5, 08
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Another Redwood Capital, Inc. client company obtaining a term sheet
from a lead investor for its RTO funding
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(b)
Pre-Closing Delivery of
Funds .
The Company and the Investors acknowledge
that certain Investors may deliver checks or wire transfers to the
Company in anticipation of Closing or any Additional Closing
hereunder, and the Company agrees that it will hold such hinds in
escrow on behalf of the Investors until the Closing conditions in
Section 7 of this Agreement have been satisfied with regard to such
Closing. If such Closing does not occur within five (5) business
days of delivery of such funds, the Company will return on the next
business day to any Investor the entire payment.
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3. Subordination.
(a)
All indebtedness of the Company is hereby made subordinate
and junior to the Senior Indebtedness (as defined below).
Upon
(1)
any distribution of all or substantially all of the assets of
the Company, or
(2)
any payment or distribution of assets of the Company of any
kind or character, whether in cash, property, or securities, to
creditors in connection with any dissolution, winding-up, total or
partial liquidation or reorganization of the Company,
all principal and interest due or to
become due upon all Senior Indebtedness will first be paid in full
before any person will be entitled to receive any payments or
retain any assets so paid or distributed; the Investors irrevocably
authorize and direct the Company to effect all payments required by
this sentence.
(b)
For purposes of this Agreement, “ Senior
Indebtedness” means all principal, premium, interest,
costs and other amounts due in respect of the Senior Notes (and all
renewals, extensions, refundings, refinancings and replacements of
such obligations).
4. Representations and
Warranties of The Company .
The Company hereby represents and
warrants to each Investor that, except as set forth in the Schedule
of Exceptions (the “ Schedule of Exceptions ”)
attached to this Agreement as Exhibit B (which Schedule of
Exceptions shall be deemed to be representations and warranties to
the Investors by the Company under this Section 4), the statements
in the following paragraphs of this Section 4 are all true and
complete as of immediately prior to the Closing and Additional
Closing:
4.1
Organization, Good Standing, and
Qualification .
The Company is a corporation duly
organized, validly existing and in good standing under the laws of
the State of California and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed
to be conducted. The Company is duly qualified to transact business
and is in good standing in each jurisdiction in which the failure
so to qualify would have a material adverse effect on its business
or properties. The Company has all requisite corporate power and
authority to own its properties, to carry on its business as now
conducted, and to enter into and perform its obligations under this
Agreement and the agreements and instruments contemplated by
it.
4.2
Capitalization
. The authorized capitalization of the
Company immediately prior to the Closing is as follows:
(a) Common Stock . 5,000,000,000
shares of Common Stock
(the “ Common Stock ”), 1,300,000,000 of which
were issued and outstanding. The Company has reserved 12,000,000
shares of Common Stock for issuance upon conversion of the
Preferred Stock.
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(b)
Preferred Stock
.
100,000,000 shares of Preferred Stock
(the
“ Preferred Stock ”), 12,000,000 of which have
been as designated Series A Preferred, all of which are issued and
outstanding.
(c)
Other Rights to Acquire
Stock . Except for (i) the
conversion privileges of the Senior Notes, (ii) the Common Stock
issuable on conversion of the Senior Notes or in payment of
interest on the Senior Notes, and (iii) the conversion privileges
of the Preferred Stock; there are no options, warrants,
conversion privileges or other rights (or agreements for any such
rights) outstanding to purchase or otherwise obtain from the
Company any of the Company’s securities.
4.3
Authorization
.
All corporate action on the part of the
Company necessary for the authorization, execution and delivery of
this Purchase Agreement, the Put Agreement attached hereto as
Exhibit C (the “ Put Agreement ”) and the
performance of all obligations of the Company hereunder, and the
authorization, issuance and delivery of each Senior Note has been
taken or will be taken prior to the relevant Closing. This Purchase
Agreement, the Put Agreement and the Senior Notes, when executed
and delivered by the Company, shall constitute valid and legally
binding obligations of the Company, enforceable in accordance with
their terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors’ rights
generally, and (ii) as limited by laws relating to the availability
of specific performance, injunctive relief, or other equitable
remedies.
4.4
Valid Issuance
.
The Senior Notes and the shares of the Common
Stock issuable on conversion of the Senior Notes or in payment of
interest on the Senior Notes (the “ Shares”, and
collectively with the Senior Notes, the “ Securities
”), when issued, sold, and delivered in accordance with the
terms of the this Agreement and Senior Note, will be duly and
validly issued, fully paid and non-assessable and, based in part
upon the representations of the Investors in this Purchase
Agreement, will be issued in compliance with all applicable federal
and state securities laws.
4 .5
Compliance with Other
Instruments . The Company
is not in violation or default of any provisions of any instrument,
judgment, order, writ, decree or contract to which it is a party or
by which it is bound. The execution, delivery and performance of
the Purchase Agreement and the Put Agreement, the consummation of
the transactions contemplated hereby and the authorization,
issuance and delivery of the Securities will not result in any such
violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or
contract, or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company. The
Company: (a) has entered into the bridge transaction after
careful consideration of all alternatives; (b) is aware of the
potential return to the Investors pursuant to the bridge
transaction; (c) acknowledges that the amount of the potential
return to the Investors appropriately reflects the risk inherent in
the bridge transaction; and (d) hereby covenants not to assert a
defense of usury to any action by an Investor to collect any amount
due under a Senior Note.
4
5. Investors'
Representations .
Each Investor represents and warrants to
the Company as follows:
(a)
the Investor is an "accredited investor" within the meaning
of
Regulation D under the Securities Act of
1933, as amended (the “ Securities
Act ”);
(b)
the Investor is acquiring the Securities for its own account
for
purposes of investment, and not with a
view toward the sale or other
distribution thereof,
(c)
the Investor has received or had access to all information
it
deems necessary to make a judgment with
respect to the acquisition of the
Securities, including the opportunity to
ask questions of and discuss the
Company's business with management of the
Company;
(d)
the Investor understands that the Securities must be
held
indefinitely unless registered under the
Securities Act or unless an
exemption from registration exists, that
no public market now exists for
the Securities, and that there may never
exist a public market for the Securities;
and
(e)
the Investor understands that the Securities have not
been
registered under the Securities Act (on
the ground that the sale of the
Securities is exempt from registration as
not involving a public offering),
and that the reliance of the Company on
such exemption is based upon the
representations made in this
section.
6. Restricted
Securities .
The Securities have not been registered
under the Securities Act or any state securities law, and are not
transferable except pursuant to
(a) a
public offering registered under the Securities Act, or
(b)
subject to the conditions specified in the following
subsection, Rule 144 of the Securities and Exchange Commission (if
available), or any other legally available means of
transfer.
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7. Closing
Conditions .
7.1
Conditions to Investors’
Obligations .
The obligations of each Investor
under Section 2 of this Agreement are subject to the fulfillment or
waiver, on or before the Closing and each Additional Closing, of
each of the following conditions, the waiver of which shall not be
effective against any Investor who does not consent to such waiver,
which consent may be given by written or email communication to the
Company or its counsel:
(a)
Each of the representations and
warranties of the Company contained in Section 4 shall be true and
correct on and as of the Closing or Additional Closing, as the case
may be, with the same effect as though such representations and
warranties had been made on and as of the date of the Closing or
Additional Closing, as the case may be.
(b)
The Company shall have performed and
complied with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied
with by it on or before the Closing or Additional Closing, as the
case may be, and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale
described herein.
(c)
The Company and each of the Investors
shall have executed this Agreement and the Put
Agreement.
(d)
The Company shall have received payment
of the Total Purchase Price from all Investors participating in the
Closing or Additional Closing, as the case may be, and shall have
issued and delivered to each Investor a Senior Note in the
principal amount of the Purchase Price.
(e)
The Company shall have entered into an
escrow agreement acceptable to investors and deposited shares of
Energroup Holdings Corp. (“ ENHD ”) owned by the
Company’s Redwood Capital, Inc. subsidiary in an amount equal
to 150% of the Commitment Amount, based on a $4.40 price per share
of ENHD.
(f)
The Investors shall have completed to
their satisfaction all due diligence review; among other data, the
Company shall have provided (i) a projection of cash flows for the
life of the Senior Notes, excluding the Interest payments in kind,
and (ii) full disclosure of any and all current or pending
litigation matters involving the Company, its subsidiaries,
officers and directors, including lawsuits and judgments currently
in force, pending or threatened.
(g)
The Company shall have entered into
lock-up agreements acceptable to Investors with the Company’s
insiders (SIVC and Redwood Capital, Inc. Directors, Chairman,
President, Managing Director, CEO, CFO and COO) who will be
restricted from selling shares in the Company for the first 9
(nine) months unless their sale is above $0.0006 based on the
current SIVC pre-split share structure or unless the Notes have
been fully redeemed or converted.
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(h)
The Company shall have paid the fees and
expenses for counsel for the Investors; provided, however, that the
Company’s obligation to pay such fees and expenses shall not
exceed $5,000.00 in the aggregate.
7.2
Condition to Company’s
Obligation s
. The obligations of the Company to each
Investor under this Agreement are subject to the fulfillment or
waiver on or before the Closing of the following condition by each
Investor:
(a)
Each of the representations and
warranties of such Investor contained in Section 5 shall be true
and correct on the date of the Closing or Additional Closing, as
the case may be, with the same effect as though such
representations and warranties had been made on and as of the
Closing or Additional Closing, as the case may be.
(b)
Each Investor shall have performed and
complied with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied
with by it on or before the Closing or Additional Closing, as the
case may be, and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale
described herein.
(c)
The Company and each of the
Investors shall have executed this Agreement and the Put
Agreement.
8.
Covenants
.
8.1
Additional Authorized
Shares .
If necessary, the Company shall take all
actions reasonably necessary to amend the Company’s
Certificate of Incorporation to authorize the additional shares of
common stock necessary to accommodate the payment of interest on
and any conversion of the Senior Notes.
8.2
Additional Escrow
Shares . As
necessary to maintain an increased security deposit, 180 days
following Closing, the Company shall deposit further shares of ENHD
into escrow, if any, such that the value of the total amount of
ENHD shares on deposit shall be equal to or greater than 200% of
the Commitment Amount, based on the closing bid price per share of
ENHD 180 days following the Closing Date.
8 .3
Confidentiality
.
The Company and each Investor agrees that
it will keep the transactions contemplated by this Purchase
Agreement strictly secret and confidential, and will not disclose
any information concerning this Purchase Agreement or its terms,
including the identities of the other Investors, to anyone other
than legal counsel and/or financial advisors, who will be informed
of and bound by this confidentiality clause.
8 .4
No Short Positions
.
Each Investor agrees that neither it nor
any of its affiliates or assignees shall be short shares of the
Company’s common stock during the term of the Senior
Notes.
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8 .5
Financings
. For a period beginning at Closing
and continuing until all Senior Notes are converted or redeemed
(the “ Repayment Date ”), the Company will
suspend any transactions under the current offering under Rule 504
of the Securities Act and with Mazuma Holding Corp. and or Mazuma
Corp. or any of their affiliates or related entities or other Rule
504 investors, unless expressly waived by 100% of the Investors, in
writing. For a period of up to 12 months from the Repayment
Date, the Investors will retain the right to participate in public
or private offerings for SIVC of debt or equity or equity linked
securities (including debt and any security convertible into
equity).
8 .6
Use of Proceeds
. The Company shall use the
net proceeds to be received for the issuance and sale of Senior
Notes for working capital purposes.
8 .7
No Fundamental
Change .
Unless otherwise approved by each of the Investors,
until the Senior Notes are repaid, and all Shares are sold, the
Company will continue to wholly-own its Redwood Capital, Inc.
subsidiary, which will continue to be primarily engaged in the
structuring and financing of RTO public listing transactions.
The Company, its officers, directors, employees and
contractors agree to effect all current and future Chinese RTO
transactions solely through Redwood Capital, and have any and all
amounts earned under such transactions paid exclusively to the
Company or Redwood Capital, including equity or cash fees and
compensation.
9.
Notices .
All notices under this Agreement will be
in writing and deemed given upon receipt, by (1) personal delivery,
(2) telephonically confirmed fax, (3) receipted courier service or
(4) certified or registered mail, return receipt requested,
addressed to the principal office of the Company at:
4115 Blackhawk Plaza Circle, Suite
100
Danville, CA 94506
(if to the Company), or to the address
shown on the on the Schedule of Investors (if to an Investor).
Refusal to accept delivery will be deemed receipt.
10.
General .
This Agreement shall be governed by the
internal laws of the State of California, without reference to
principles of conflict of laws or choice of laws.
This Agreement will be binding upon the personal
representatives, successors and assigns of the parties hereto, but
will not be assignable without the prior written consent of the
non-assigning party. This Agreement constitutes the entire
agreement between the part
