CREDIT AGREEMENT

 

 

Exhibit 10.3

CREDIT AGREEMENT

THIS CREDIT AGREEMENT, dated as of April 14, 2009 (this “ Agreement ”), is among Ecosphere Technologies, Inc., a Delaware corporation (“ ETI ”), Ecosphere Energy Services, Inc., a Florida corporation (“ EES ”), and Bledsoe Capital Group, LLC, a Montana limited liability company (together with its successors, assigns, endorsees and transferees, the “ Holder ”).

WHEREAS, the Holder has agreed to lend money to EES to be evidenced by one or more Notes (as hereinafter defined); and

WHEREAS, in order to induce the Holder to make the loans evidenced by the Notes, EES has agreed to execute and deliver to the Holder this Agreement and to grant the Holder a security interest in certain property of EES to secure the prompt payment, performance and discharge in full of the Obligations (as hereinafter defined); and

WHEREAS, in order to induce the Holder to advance credit to EES, ETI, the sole shareholder of EES, has agreed to guarantee the prompt payment, performance and discharge in full of EES’s Obligations and to secure its guarantee by granting to the Holder a security interest in certain property of ETI;

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1.

Certain Definitions .  As used in this Agreement, the following terms shall have the meanings set forth in this Section 1.  Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC shall have the respective meanings given such terms in Article 9 of the UCC.

“ Affiliate ” means, with respect to a specified person or entity, another person or entity that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person or entity specified.  “ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person or entity, whether through the ability to exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” have meanings correlative thereto.

“ Bledsoe Obligations ” means, collectively, the loans and indebtedness evidenced by (a) that certain Credit Agreement, dated as of May 16, 2008, by and among the Holder, ETI and EES, and the Secured Note(s) executed in connection therewith, and (b) that certain Credit Agreement, dated as of November 12, 2008, by and among the Holder, ETI and EES, and the Secured Note(s) executed in connection therewith, each as affected by that certain letter agreement, dated as of April 14, 2009, as any of the same may be amended or modified.

 

 

 

 

 

 

“ Change of Control ” means: (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares of capital stock of ETI representing more than forty percent (40%) of the aggregate ordinary voting power represented by the issued and outstanding capital stock of ETI; or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of ETI by persons who were neither (i) nominated by the board of directors of ETI nor (ii) appointed by directors so nominated.

 

“ Collateral ” means (a) all of ETI’s and EES’s rights, title and interest in and to the property described in Schedule A-1 and Schedule A-2 , as applicable, (b) all products, proceeds, rents and profits of the foregoing; and (c) all of the foregoing, whether now owned of existing or hereafter acquired or arising or in which ETI and/or EES now has or hereafter acquires any rights.

 

“ Commitment ” means the commitment of the Holder to make the Loans pursuant to the terms of this Agreement .

“ Commitment Period ” means the period from the date hereof to but excluding the earlier of the Maturity Date and the date of termination of the Commitment.

“ Exclusive Option ” means that certain Exclusive Option Agreement, dated as of June 5, 2008, by and between the Holder, ETI and EES, as amended pursuant to that certain First Amendment to Exclusive Option Agreement, dated as of April 14, 2009, and as such may be further amended or modified.

“ Loan Documents ” means this Agreement, the Notes and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith.

“ Maturity Date ” means, as applicable, either (a) October 1, 2009, (b) October 1, 2010, in the event that the Holder fails to exercise its option under the Exclusive Option on or before October 1, 2009, as such date may be amended or modified (and the failure of the Holder to exercise the option under the Exclusive Option is not the result of either (i) a breach of the terms of the Exclusive Option by ETI and/or EES or (ii) the failure of ETI and/or EES to fulfill any condition to the exercise of the Exclusive Option, other than as a result of the failure of Holder to comply with its obligations under the Exclusive Option that renders it not possible for ETI and/or EES to fulfill any such condition), and no other Event of Default has occurred on or prior to such date or (c) any earlier date on which the Commitment is reduced to zero or otherwise terminated or the Loan then outstanding is declared to be due and payable pursuant to the terms hereof.

 

“ Obligations ” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter existing, of ETI and/or EES (a) under the Loan Documents, or (b) under any other notes, instruments, agreements or other documents now or hereafter existing,

 

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evidencing any of the Bledsoe Obligations (the “ Other Agreements ”), in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from the Holder as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time.  Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Notes, the Other Agreements and the loans extended pursuant hereto and thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of ETI and EES from time to time under or in connection with the Loan Documents or the Other Agreements; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving ETI or EES.

 

“ Organizational Documents ” means with respect to ETI or EES, the documents by which either party was organized pursuant to its certificate of incorporation, and including its bylaws.

“ Other Options ” means, collectively, that certain Exclusive Option Agreement [International Onshore], dated as of April 14, 2009, by and between the Holder, ETI and EES, and that certain Exclusive Option Agreement [Offshore], dated as of April 14, 2009, by and between the Holder, ETI and EES, as either may be amended or modified.

“ Security Interest ” means the security interests granted herein by ETI and EES to the Holder.

“ UCC ” means the Uniform Commercial Code of the State of Florida and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time.  It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense.  Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

2.

Loan .  On the terms and conditions contained in this Agreement, the Holder agrees that during the Commitment Period the Holder shall make a loan to EES in the aggregate amount of up to $1,500,000 (the “ Loan ”).  The Loan shall be comprised of advances of $250,000 each, with the first such advance to be made upon the execution and delivery of this Agreement, the second Advance to be made on May 8, 2009 and each subsequent advance during the Commitment Period to be made on June 1, 2009 and thereafter on the 30-day anniversary of the immediately previous advance.  Amounts repaid in respect of the Loan may not be reborrowed.  The unpaid principal amount of the Loan shall bear interest at the rate of fifteen percent (15%)

 

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per annum, which shall begin to accrue on October 1, 2009.  All past due principal and interest on the Loan shall bear interest at the lesser of (i) the greater of (x) the rate of 18% per annum or (y) the Prime Rate as published in the Wall Street Journal plus 5% or (ii) such maximum rate of interest allowable under the laws of the State of Florida.  Interest on the Loan shall be computed on the basis of a year of 360 days and the actual number of days elapsed (including the first day but excluding the last day) unless such calculation would result in a usurious rate, in which case interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be.

3.

Advances .  

(a)

General .  Subject to the conditions set forth in this Section 3 , upon the execution and delivery of this Agreement, the Holder shall advance to EES $250,000 by wire transfer (the “ Initial Advance ”).  $25,000 of the Initial Advance shall be used to pay past due interest for the month of January 2009 with respect to certain of the Bledsoe Obligations.  Subject to the conditions set forth in this Section 3 , during the Commitment Period the Holder shall make additional advances of $250,000 (the Initial Advance and the Additional Advances each being an “ Advance ”) of the Loan on May 8, 2009, then on June 1, 2009 and then on the 30-day anniversary of the immediately previous Advance (each an “ Additional Advance ”), provided tthat the conditions to each Additional Advance are met.  The amounts borrowed under this Agreement shall be evidenced by a promissory note to be issued to the Holder substantially in the form annexed as Exhibit A (the “ Note ”).

(b)

Initial Advance .  The obligation of the Holder to make the Initial Advance is subject to the conditions precedent that the Holder shall have received all of the following, each dated (unless otherwise indicated) the date hereof, in form and substance satisfactory to the Holder:

(i)

Resolutions of the board of directors of each of ETI and EES certified by their Secretary or an Assistant Secretary which authorize the execution, delivery, and performance by ETI and EES of this Agreement and the other Loan Documents to which each is or is to be a party;

(ii)

A certificate of incumbency certified by the Secretary or an Assistant Secretary of ETI and EES certifying the names of the officers of ETI and EES authorized to sign this Agreement and each of the other Loan Documents to which each is or is to be a party, together with specimen signatures of such officers;

(iii)

The certificate or articles of incorporation of ETI and EES certified by the Secretary of State of the states of incorporation of ETI and EES and dated within thirty (30) days prior to the date of this Agreement;

(iv)

The bylaws of ETI and EES certified by the Secretary or an Assistant Secretary of ETI and EES;

(v)

Certificates of the appropriate government officials of the states of incorporation of ETI and EES as to the existence and good standing of ETI and EES, each dated within thirty (30) days prior to the date of this Agreement;

 

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(vi)

The Note executed and delivered by EES;

(vii)

The First Amendment to the Exclusive Option, executed and delivered by ETI and EES; and

(viii)

The Other Options, executed and delivered by ETI and EES.

(c)

Additional Advances .  The obligation of the Holder to make any Additional Advance is subject to the conditions precedent that:

(i)

there shall not have occurred and be continuing an Event of Default;

(ii)

the resolutions of ETI’s and EES’s boards of directors authorizing each of them to enter into this Agreement and the other Loan Documents to which each is or is to be a party shall not have been revoked;

(iii)

the Commitment shall not have been terminated; and

(iv)

all of the representations and warranties of ETI and EES contained in any Loan Document shall be true and correct as of the date that such Additional Advance is to be made, except to the extent a representation or warranty addresses matters only as of a particular date.

4.

Repayment of Loan .

(a)

EES hereby unconditionally promises to pay to the Holder the then unpaid principal amount of the Loan, and all accrued and unpaid interest thereon, if any, on the Maturity Date.  

(b)

EES may prepay, in whole or in part, any portions of the then outstanding principal of the Loan, without penalty or premium.  EES shall repay the Loan upon the exercise of the Exclusive Option in an amount equal to 100% of the cash proceeds received by EES upon such exercise, up to the entire unpaid principal and accrued and unpaid interest, if any, on the Loan.  Such repayment shall be made on the same day that EES or ETI receives any cash proceeds from the exercise of the Exclusive Option.

(c)

EES shall make each payment required to be made by EES hereunder prior to 5:00 p.m., Dallas time, on the date when due, in immediately available funds, without set-off or counterclaim.  All such payments shall be made to the Holder at such place and to such account as directed by the Holder to EES in writing.  If any payment hereunder shall be due on a day that is not a business day, the date for payment shall be extended to the next succeeding business day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars.

(d)

Payments received with respect to the Loan shall be applied first , towards the payment of fees, indemnities and expense reimbursements, second , towards the payment of

 

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interest, if any, then due hereunder or under any other Loan Document, and third , towards the payment of the outstanding principal amount of the Loan.

5.

Guaranty .  ETI unconditionally and irrevocably guarantees the full and prompt payment and performance when due of all EES’s obligations under the Loan Documents (the “ Guaranteed Obligations ”).  This guaranty is an absolute guaranty of payment and not a guaranty of collection.  ETI’s guaranty is absolute and unconditional irrespective of:

(a)

any lack of validity or enforceability of any provision of any Loan Document or any other agreement or instrument relating to any Loan Document, or avoidance or subordination of any of the Guaranteed Obligations;

(b)

any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, any of the Guaranteed Obligations, or any other amendment or waiver of any term of, or any consent to departure from any requirement of, any of the Loan Documents;

(c)

any exchange, release or non-perfection of any lien on any Collateral, or any release or amendment or waiver of any term of any other guaranty of, or any consent to departure from any requirement of any other guaranty of, any of the Guaranteed Obligations;

(d)

the absence of (i) any attempt to collect any of the Guaranteed Obligations from EES or (ii) any other action to enforce the same or the election of any remedy by the Holder;

(e)

any waiver, consent, extension, forbearance or granting of any indulgence by the Holder with respect to any provision of any Loan Document;

(f)

the Holder’s election in any proceeding under chapter 11 the Bankruptcy Code of the application of section 1111(b)(2) of the Bankruptcy Code;

(g)

any borrowing or grant of a security interest by the Holder, as debtor-in-possession, under section 364 of the Bankruptcy Code;

(h)

the disallowance, under section 502 of the Bankruptcy Code, of all or any portion of the claims of the Holder for payment of any of the Guaranteed Obligations; or

(i)

any other circumstance that might otherwise constitute a legal or equitable discharge or defense of a borrower or a guarantor.

6.

Representations and Warranties of ETI and EES .  ETI and EES, jointly and severally, represent and warrant to the Holder as of the date hereof and as of the date of each Additional Advance as follows:

(a)

ETI and EES each has taken all corporate action necessary for their respective authorization, execution and delivery of the Loan Documents and performance of all Obligations, as applicable.  The Loan Documents each shall constitute a valid and legally

 

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binding obligation of ETI and EES, as applicable, enforceable in accordance with their respective terms.

(b)

All consents, approvals, orders or authorizations of, or registrations, qualifications, designations, declarations or filings with, any federal or state governmental authority or other person on the part of ETI or EES, as applicable, required in connection with the execution, delivery and performance of the Loan Documents and the consummation of the transactions contemplated thereby, have been obtained.

(c)

ETI and EES have no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule B attached hereto.  Except as disclosed on Schedule B , none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

(d)

ETI and/or EES, as applicable, are the sole owners of the Collateral, free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interest.  There is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Holder pursuant to this Agreement) covering or affecting any of the Collateral.  

(e)

No written claim has been received that any Collateral or ETI’s or EES’s use of any Collateral violates the rights of any third party. There has been no adverse decision to ETI’s and/or EES’s claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to ETI’s and/or EES’s right to keep and maintain the Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of ETI or EES, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

(f)

This Agreement creates in favor of the Holder a valid, first priority security interest in the Collateral securing the payment and performance of the Obligations and the Guaranteed Obligations.  Upon making the filings described in Section 7(b) , all security interests created hereunder in any Collateral which may be perfected by filing UCC financing statements shall have been duly perfected.  Without limiting the generality of the foregoing, except for the filing of said financing statements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of the Loan Documents, (ii) the creation or perfection of the Security Interest created hereunder in the Collateral or (iii) the enforcement of the rights of the Holder with respect to the Obligations.

(g)

The execution, delivery and performance of the Loan Documents by ETI and EES, as applicable, does not (i) violate any of the provisions of any Organizational Documents of ETI or EES, as applicable, or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to ETI and/or EES, as applicable or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of

 

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termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing ETI’s or EES’s debt or otherwise) or other understanding to which ETI or EES, as applicable, is a party or by which any property or asset of ETI or EES is bound or affected.  If any, all required consents (including, without limitation, from stockholders or creditors of ETI and EES) necessary for ETI and EES, as applicable, to enter into and perform their obligations hereunder have been obtained.

(h)

ETI’s and EES’s Federal Employer Identification Numbers and their organizational identification numbers are set forth on Schedule C .

7.

Covenants of ETI and EES .  ETI and EES, jointly and severally covenant with the Holder as follows (and ETI hereby agrees to cause each of its other subsidiaries to comply with each of the following provisions as if each were a signatory hereto):

(a)

ETI and EES, as applicable, shall maintain the Collateral at the locations set forth on Schedule B attached hereto and may not relocate such tangible Collateral without delivering to the Holder at least three (3) days prior to such relocation written notice of such relocation and the new location thereof (which must be within the United States).

(b)

ETI and EES hereby authorize the Holder to file one or more financing statements under the UCC, with respect to the Security Interest, with the proper filing and recording agencies in any jurisdiction deemed proper by the Holder.

(c)

ETI and EES, as applicable, shall at all times maintain (i) the liens and Security Interest provided for hereunder as valid and perfected first priority liens and security interests in the Collateral in favor of the Holder until all of the Obligations have been paid in full and (ii) the Collateral free and clear of all liens and encumbrances, other than the Security Interest and liens and encumbrances in favor of the Holder.  ETI and EES, as applicable, each hereby agrees to defend the same against the claims of any and all persons and entities, and to safeguard and protect all Collateral for the account of the Holder.  At the request of the Holder, ETI and EES, as applicable, will pay the cost of filing UCC financing statements in all public offices wherever filing is, or is deemed by the Holder to be, necessary or desirable to effect the rights and obligations provided for herein.  Without limiting the generality of the foregoing, ETI and EES, as applicable, shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interest hereunder.  

(d)

Neither ETI or EES will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral, except as set out on Schedule 7 attached hereto and other than in the ordinary course of business consistent with past practice, without the prior written consent of the Holder.

(e)

ETI and EES, as applicable, shall keep and preserve the equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

(f)

ETI and EES, as applicable, shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, against loss or damage of the kinds

 

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and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof.  ETI and EES, as applicable, shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Holder, that (i) the Holder will be named as lender loss payee and additional insured under each such insurance policy; (ii) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify the Holder and such cancellation or change shall not be effective as to the Holder for at least 30 days after receipt by the Holder of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (iii) the Holder will have the right (but no obligation) at its election to remedy any default in the payment of premiums within 30 days of notice from the insurer of such default.  

(g)

ETI and EES shall promptly execute and deliver to the Holder such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Holder may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Holder’s security interest in the Collateral.

(h)

ETI and EES shall permit the Holder and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Holder from time to time.

(i)

ETI and EES will from time to time, at the joint and several expense of ETI and EES, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Holder may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Holder to exercise and enforce its rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

(j)

Neither ETI nor EES shall change its name, type of organization or jurisdiction of organization without first giving the Holder three (3) days prior written notice of its intended change.

(k)

Subject to the second sentence of Section 3(a) , the proceeds of the Loans shall be used for working capital including the manufacturing of Ozonix™ units, including components and related equipment.

(l)

ETI and EES will do or cause to be done all things necessary to preserve, renew and keep in full force and effect their legal existence and the rights, qualifications, licenses, permits, privileges, governmental authorizations, intellectual property rights and franchises material to the conduct of their business, and maintain all requisite authority to conduct their business in each jurisdiction in which its business is conducted.

 

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(m)

ETI and EES will furnish to the Holder prompt written notice of the following:

(i)

the occurrence of any Event of Default;

(ii)

any lien or claim made or asserted against any of the Collateral, or any loss, damage, or destruction to the Collateral in the amount of $25,000 or more, whether or not covered by insurance;

(iii)

promptly (and in any event within two business days) after becoming aware thereof, the assertion by the holder of any indebtedness of ETI or EES, that a default exists with respect thereto or that ETI or EES or any guarantor thereof is not in compliance with the terms thereof, or the threat or commencement by such holder of any enforcement action because of such asserted default or non-compliance; and

(iv)

promptly (and in any event with two days) after becoming aware thereof, any termination, notice of default or material amendment of any lease or agreement regarding goods or services with an aggregate value in excess of $100,000.

(n)

Neither ETI nor EES shall create, incur, assume or permit to exist any (i) indebtedness for borrowed money, except for (A) indebtedness outstanding on the date of this Agreement and any renewals or modifications thereof that do not increase the principal thereon (other than to add accrued interest to the principal) or the rate of interest charged with respect thereto or (B) any lien, claim or encumbrance on any property or asset now owned or hereafter acquired by either of them, except in each case as such may exist on the date of this Agreement or as set out in Schedule 7 attached hereto, or (C) as permitted by Section 7(o).

(o)

Neither ETI nor EES shall enter into or be a party to any transaction or arrangement, including the purchase, sale, lease or exchange of property or the rendering of any service, with either (i) any of its Affiliates, or (ii) any of its officers, members, managers, directors, stockholders, parents, other interest holders, employees, or affiliates or any member of their respective immediate families; p rovided, however , ETI and EES may (A) continue to employ their current employees under their existing compensation arrangements, and (B) borrow money from officers up to a maximum aggregate amount of $250,000 and repay such loans.

(p)

Neither ETI nor EES shall create, establish or own or have the right to acquire any shares of capital stock or partnership, profits, capital, member or other equity interests of any other person or entity of any kind whatsoever, except for those existing as of the date of this Agreement and subsidiaries formed after the date hereof that agree to be bound by the terms of this Agreement pursuant to documents reasonably acceptable to the Holder