Exhibit 10.1
LINE OF CREDIT
AGREEMENT
LINE OF CREDIT
AGREEMENT ( "Agreement," ), dated as of October 8 ,
2009, by and among ICP Solar Technologies, Inc., a Nevada
corporation, ( "Company" ), and each buyer listed on the
Schedule of Buyers attached hereto that has executed this Agreement
(each, including its successors and assigns, a
“Buyer” and collectively the
“Buyers” ). Buyers may include only
parties that were among the Initial Buyers (as defined
below).
WHEREAS:
A.
The Company, BridgePointe Master
Fund Ltd., Platinum Long Term Growth VI, LLC and Gemini Master
Fund, Ltd. ( “Initial Buyers” ) previously
entered into a Securities Purchase Agreement ( “2008
Securities Purchase Agreement” ) and other transaction
documents dated June 13, 2008, which were subsequently amended on
December 31, 2008 and on September 17, 2009 ( “Initial
Transaction Documents” ), pursuant to which the Company
issued to the Buyers 11% Senior Secured Convertible Debentures Due
June 13, 2010 (the “2008 Debentures” ), on or
about June 13, 2008, in the amounts specified in the Initial
Transaction Documents;
B.
The Company and the Buyer are
executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by Rule 506 under
Regulation D ( "Regulation D" ) as promulgated by the United
States Securities and Exchange Commission (the
“Commission” or the "SEC" ) under the
Securities Act of 1933, as amended (the "1933 Act"
);
C.
The Buyers and the Company have
agreed that the Buyers, at their option, may make advances and
extend credit to the Company under the Grid Note pursuant to the
terms hereof, up to a maximum aggregate Principal Amount (after
accounting for the Original Issue Discount) of $888,000 (the
“ Maximum Aggregate Principal Amount” ), in the
aggregate (which equates to a $800,000 of Advances ), and
each Buyer shall be entitled to purchase its Pro-Rata Percentage
(as set forth next to such Buyer’s name in the Schedule of
Buyers attached hereto) of the Maximum Aggregate Principal Amount
(collectively, the “Offering” );
D.
The terms of the Grid Notes,
including the terms on which the Grid Notes may be converted into
common stock, par value $0.00001 per share, of the Company (
“Common Stock” ), are set forth in the Grid
Note, in the form attached hereto as Exhibit A ;
E.
The Initial Parties agree that the
Grid Notes will rank pari passu to the debentures issued pursuant
to the Initial Transaction Documents ( “June 2008
Debentures” ) and will thus, along with the June 2008
Debentures, rank senior to all outstanding and future indebtedness
of the Company, guaranteed by each of the Company's Active
Subsidiaries pursuant to the subsidiary guarantee attached hereto
as Exhibit E-1 (the "Subsidiary Guarantee "),
and secured by a first priority, perfected security interest in
certain of the assets of the Company and the stock and certain of
the assets of each of the Company's subsidiaries, as evidenced by
the security agreement attached hereto as Exhibit E-2 (the "
Security Agreement ")
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F.
The Grid Notes will be guaranteed
by each of the Company's subsidiaries pursuant to the subsidiary
guarantee attached hereto as Exhibit B-1 (the
"Subsidiary Guarantee "), and be secured as evidenced
by the security agreement attached hereto as Exhibit B-2
(the " Security Agreement ") and the intellectual property
security agreement attached hereto as Exhibit B-3 (the
“Intellectual Property Security Agreement”
).
NOW
THEREFORE ,
the Company and the Buyer, severally and not jointly, hereby agree
as follows:
1.
PURCHASE AND SALE
OF GRID NOTES .
(a)
Certain Definitions
.
The Company and the
Buyer mutually agree to the terms of each of the Transaction
Documents. For purposes hereof:
“1934 Act”
shall mean the
Securities Exchange Act of 1934, as amended.
"Approved Stock Plan"
means any employee
benefit plan which has been duly adopted by the Board of Directors
of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, pursuant to
which the Company's securities may be issued to any employee,
consultant, officer or director for services provided to the
Company; provided, however, that no more than an aggregate of
2,000,000 shares of Common Stock Equivalents may be issued in
connections with all Approved Stock Plans.
“Active
Subsidiaries” shall mean all of the
Company’s Subsidiaries, other than the Inactive
Subsidiaries.
"Business Day"
shall mean any day other
than a Saturday, Sunday or a day on which commercial banks in the
City of New York, New York are authorized or required by law or
executive order to remain closed.
“Closing Bring-Down
Certificate” shall have the meaning set forth in
Section 3(c) below.
“Closing
Certificate” shall have the meaning set forth in
Section 1(b)(iv)(B) below.
“Collateral”
shall have the meaning
ascribed to it in the Security Agreement.
“Common
Stock” shall have the meaning set forth in
Recital “B” above.
“Common Stock
Equivalents” means any securities of the Company
or the Subsidiaries which would entitle the holder thereof to
acquire, directly or indirectly, at any time Common Stock,
including without limitation, any debt, preferred stock, rights,
options, or other instrument that is at any time convertible into
or exercisable or exchangeable for, or otherwise entitles the
holder thereof to receive, Common Stock.
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“Conversion
Shares” shall have the meaning set forth in
Section 2(a) below.
“Convertible
Securities” shall have the meaning ascribed to
it in the Grid Note.
“Designated
Insiders” shall have the meaning set forth in
Section 4(n) below.
"Eligible Market"
means the over the counter Bulletin Board (“OTC-BB”),
the New York Stock Exchange, Inc., the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market or the
American Stock Exchange.
“Exempt
Issuance” means the issuance of (a) any Common
Stock or options issued or issuable in connection with any Approved
Stock Plan at a price equal to or greater than the initial
Conversion Price (as defined in the Grid Note), up to a maximum of
five percent (5%) of the outstanding Common Stock, in the aggregate
(provided that no such options shall be issued to consultants or
advisors unless such options are not registered, either at the time
of issuance or at any time thereafter, and are subject to volume
limitations under Rule 144).
“Grid Note”
shall mean the Senior
Secured Grid Note Due October 1, 2010 issued to the Buyers pursuant
to this Agreement.
“Indebtedness”
of any Person means,
without duplication (A) all indebtedness for borrowed money, (B)
all obligations issued, undertaken or assumed as the deferred
purchase price of property or services including (without
limitation) “Capital Leases” in accordance with
generally accepted accounting principles (other than trade payables
entered into in the ordinary course of business, consistent with
prior practice), (C) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar
instruments, (D) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property,
assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to any property
or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such
agreement in the event of default are limited to repossession or
sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally
accepted accounting principles, consistently applied for the
periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract
rights) owned by any Person, even though the Person which owns such
assets or property has not assumed or become liable for the payment
of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to
in clauses (A) through (G) above; and (y) "Contingent
Obligation" means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to
any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring
such liability, or the primary effect thereof, is to provide
assurance to the obligee of such liability that such liability will
be paid or discharged, or that any agreements relating thereto will
be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect
thereto.
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“Inactive
Subsidiaries” shall mean ICP Asia Ltd., a Hong
Kong corporation, and ICP Global Tech PTY Ltd., an Australian
corporation.
“Intellectual
Property” shall have the meaning set forth in
Section 3(j) below.
“Intellectual Property
Security Agreement” shall have the meaning ascribed to
it in Recital “E” above.
“Intellectual Property
Rights” shall have the meaning set forth in
Section 3(j) below.
“Legend Removal
Date” shall have the meaning set forth in
Section 6(a).
“Lien”
shall have the meaning
set forth in Section 5 below.
“Limited Standstill
Agreements” shall have the meaning set forth in
Section 4(n) below.
"Market Price,"
for any security as of
any date, shall have the meaning ascribed to it in the applicable
security.
“Material Adverse
Effect” shall have the meaning set forth in
Section 3(a) below.
“Officer’s
Certificate” shall have the meaning set forth in
Section 8(c) below.
“Ongoing Share Reservation
Requirement” shall have the meaning set forth in
Section 4(e) below.
“Options”
shall have the meaning
ascribed to it in the Grid Note.
“Patents”
shall have the meaning
set forth in Section 3(j) below.
“Payment
Shares” shall mean (i) Default Shares (as
defined in the Grid Note), (ii) shares issuable upon conversion of
Liquidated Damages (as defined in the Grid Note) and other Required
Cash Payments (as each is defined in the Grid Note) into Common
Stock of the Company. The Payment Shares shall be treated as
Common Stock issuable upon conversion of the Grid Notes for all
purposes hereof and thereof and shall be subject to all of the
limitations and afforded all of the rights of the other shares of
Common Stock issuable hereunder or thereunder.
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“Permitted
Liens” shall mean: (i) Liens on equipment
purchased in the ordinary course of business, consistent with prior
practice (ii) Liens subordinate to those created by this Agreement
as long as the lienholder enters into a subordination agreement
acceptable to the Buyers in their reasonable discretion, (iii)
landlords', carriers', warehousemen's, mechanics' and other similar
Liens arising by operation of law in the ordinary course of the
Company's business; provided, however, that all such Liens shall be
discharged or bonded off within sixty (60) days from the filing
thereof; and (iv) Liens for taxes (excluding any Lien imposed
pursuant to any provision of ERISA) not yet due or which are being
contested in good faith by appropriate proceedings and the Company
maintains appropriate reserves in respect thereto provided that in
Buyer's judgment such Lien does not adversely affect Buyer's rights
or the priority of Buyer's Lien in the Collateral.
“Person”
shall mean an
individual, a limited liability company, a partnership, a joint
venture, an exempted company, a corporation, a trust, an
unincorporated organization and a government or any department or
agency thereof.
“Principal
Market” shall have the meaning set forth in
Section 4(g) below.
“Purchase
Price” shall have the meaning set forth in
Section 1(b)(ii) below.
“Required
Holders” shall have the meaning ascribed to
it in the Grid Note.
“Security
Agreement” shall have the meaning ascribed to
it in Recital “E” above.
“SEC
Documents” shall have the meaning set forth in
Section 3(g) below.
“Securities”
shall have the meaning
set forth in Section 2(a) below.
“Security
Documents” shall mean the Security Agreement,
the form of Subsidiary Guarantee, the Intellectual Property
Security Agreement and any other documents and filing required
thereunder in order to grant the Buyers a first priority security
interest in the assets of the Company and the Subsidiaries as
provided in the Security Agreement, including but not limited to
all UCC-1 filing receipts and documentation evidencing filing of
liens with the United States Patent and Trademark Office.
“Subsidiaries”
shall have the meaning
set forth in Section 3(a) below.
"Trading Day"
shall mean any day on
which the Common Sock is traded for any period on the Principal
Market, or on the principal securities exchange or other securities
market on which the Common Stock is then being traded.
“Trading
Market” means the Eligible Market on which
the Common Stock is listed or quoted for trading on the date in
question.
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“Transaction
Documents” shall mean this Line of Credit
Agreement, the Grid Note, the Security Documents, and any other
agreements delivered together with this Agreement or in connection
herewith.
“Underlying
Shares” means the shares of Common Stock
issued and issuable upon conversion or redemption of the Grid Notes
or as Payment Shares.
“Variable Equity
Securities” shall have the meaning set forth in
Section 4(d)(ii) below.
“VWAP”
means, for any date, the
price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the
Trading Market on which the Common Stock is then listed or quoted
as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time); (b) if
the Common Stock is not then listed or quoted for trading on a
Trading Market and if prices for the Common Stock are then reported
in the “Pink Sheets” published by Pink Sheets, LLC (or
a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the
Common Stock so reported; or (c) in all other cases, the fair
market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by the Buyers of a
majority in interest of the Securities then outstanding and
reasonably acceptable to the Company.
(b)
Closing of Purchase of Grid
Notes Subject to the satisfaction or
waiver of the terms and conditions of this Agreement, on each
Closing Date (as defined below), the Company shall issue and sell
to each Buyer and each Buyer, severally and not jointly, in its
sole discretion may elect to purchase from the Company Grid Notes
in the principal amount in any amount up to its Pro-Rata Percentage
(as set forth next to such Buyer’s name in the Schedule of
Buyers attached hereto) of the Maximum Aggregate Principal Amount,
each at the Purchase Price (as defined below).
(i)
Line of Credit
. Buyers hereby
establishes for a period extending
from the date hereof until April 1, 2010 (the "Last Closing
Date" ), which period may be extended only upon the written
approval of 100% of the Buyers, a discretionary line of credit (the
"Credit Line" ) for and on behalf of the Company which
equals up to eight hundred thousand U.S. dollars (U.S. $800,000) in
aggregate Advanced funds for all Buyers combined (“
Maximum Credit Limit” ). In connection herewith,
upon the first Advance (as defined below) from each Buyer, the
Company shall execute and deliver to each Buyer a Grid Note in the
Principal Amount corresponding to the Advance, in the form attached
hereto as Exhibit "A ". All sums advanced (
“Advanced” ) on the Credit Line pursuant to the
terms of this Agreement (each an "Advance" ) shall increase
the principal amount of each Buyer's Grid Note by an amount (the
“Principal Amount” ) equal to the amount
Advanced divided by 0.9009, which represents the Original Issue
Discount (as defined below). Each Buyer is under no
obligation to Advance any funds under the Credit Line and may chose
to Advance, or not to Advance funds to the Company under the Credit
Line, in each Buyer’s sole discretion. For the avoidance of
doubt and notwithstanding anything to the contrary contained
herein, no Buyer shall have any obligation whatsoever to make an
Advance.
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(ii)
Form of Grid Note
. The Grid Note
shall be in the form annexed hereto as Exhibit A
.
(iii)
Form of Payment
. The purchase
price for each Grid Note to be purchased by each Buyer at the
Closing (the "Purchase Price" ) shall be $ 0.9009 for each
$1.00 of principal amount of Grid Notes to be purchased by such
Buyer at the Closing, representing an original issue discount (the
“Original Issue Discount”). On or before each
Closing Date (as defined below), (A) the Buyer shall pay the
Purchase Price for the Grid Notes that the Buyer, in its sole
discretion, has elected to have issued and sold to it, by wire
transfer of immediately available funds to the Company, in
accordance with the Company's written wiring instructions, against
delivery of a duly executed Grid Note having an aggregate principal
amount (the “Principal Amount” ) equal to the
Purchase Price divided by 0.9009 (to account for the Original Issue
Discount) and, and (B) the Company shall deliver such Grid Notes
duly executed on behalf of the Company, to the Buyer, against
delivery of any portion of the Purchase Price. In the
case of subsequent Closings with respect to a given Buyer after
that Buyer’s first Closing, the additional amount Advanced
and the resultant additional Principal Amount shall be added to the
chart at the end of the Grid Note and such additional Principal
Amount shall be added to the principal amount of the Grid
Note.
(iv)
Closing Date; Closing
Deadline .
Anytime after the date hereof until the Last Closing Deadline
(as defined below), each Buyer may in its sole discretion, but is
under no obligation to, purchase any amount of Grid Notes up to an
amount such that, following such purchase, the aggregate
Principal Amount of Grid Notes held by such Buyer does not
exceed Buyer’s Maximum Principal Amount, as defined below.
Subject to the satisfaction or waiver of the terms and conditions
of this Agreement, the "Closing" with respect to a Buyer shall
occur when subscriber funds representing the aggregate Purchase
Price of the Grid Note being purchased by such Buyer are
transmitted by wire transfer of immediately available funds by each
Buyer to the Company, assuming that the Transaction Documents are
signed by both parties prior to or within three (3) Business Days
following such transmission. The date of the Closing shall be
referred to herein as the “Closing Date.”
Unless otherwise mutually agreed by the parties, the last
Closing hereunder shall occur not later than April 1, 2010 (the
“Last Closing Deadline” ). Each Closing
contemplated by this Agreement shall occur on the applicable
Closing Date at the offices of the Company, or at such other
location as may be agreed to by the parties. For purposes hereof,
“Buyer’s Maximum Principal Amount” shall
mean the Buyer’s Pro Rata Percentage (as set forth next to
such Buyer’s name in the Schedule of Buyers attached hereto)
of the Maximum Aggregate Principal Amount. Upon the written
assignment from one Buyer to another Buyer of its right to purchase
Grid Notes, such other Buyer shall be entitled to purchase
additional Grid Notes equal to the amount that the assigning Buyer
would have been entitled to purchase hereunder.
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(v)
Closing Deliveries
. Closing
deliveries required hereunder shall be made to the Buyer pursuant
to Section 1(d) below. On the Closing Date, the Company will
deliver or cause to be delivered to each Buyer (the
“Company Documents” ):
(A)
the items required to be delivered
to Buyer pursuant to Section 8, duly executed by the
Company where so required,
(B)
a certificate ( "Closing
Certificate" ) signed by its chief executive officer or chief
financial officer (1) representing the truth and accuracy of all
the representations and warranties made by the Company contained in
this Agreement, as of the applicable Closing Date, as if such
representations and warranties were made and given on all such
dates, (2) adopting the covenants and conditions set forth in this
Agreement in relation to the applicable Grid Note, and (3)
certifying that an Event of Default has not occurred,
(C)
a duly executed Grid Note in the
Principal Amount, registered in the name of such Buyer, provided
that, in the case of multiple Closings with one Buyer, subsequent
Advances after the first Advance shall be evidenced on the table at
the end of the Grid Note, and signed by the Company;
(D)
Limited Standstill Agreement, duly
executed by Sass Peress (as defined in Section 4(n)),
On the Closing Date, each Buyer
shall deliver or cause to be delivered to the Company the following
(the “Buyer Documents” ):
(A)
this Line of Credit Agreement duly
executed by such Buyer (as to the first Closing only),
and
(B)
the applicable Purchase Price for
the amount of Grid Notes that the Buyer elects to purchase, by wire
transfer to the account as specified in writing by the Company (in
the case of the Lead Investor, subject to offsets for the Lead
Investor Fee).
2.
BUYER’S REPRESENTATIONS AND
WARRANTIES . The Buyer represents and warrants
to the Company solely as to such Buyer that:
(a)
Investment Purpose
.
As of the date hereof,
the Buyer is purchasing the Grid Note and the shares of Common
Stock issuable upon conversion of the Grid Note or otherwise
pursuant to the Grid Note and the other Transaction Documents
(including, without limitation, the Payment Shares) (such shares of
Common Stock being collectively referred to herein as the
“Conversion Shares ") for its own account and not with
a present view towards the public sale or distribution thereof,
except pursuant to sales registered or exempted from registration
under the 1933 Act; PROVIDED, HOWEVER, that by making the
representations herein, the Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the
1933 Act and applicable state securities laws.
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(b)
Accredited Investor
Status . The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D
promulgated under the 1933 Act (an "Accredited Investor" ).
(c)
Reliance On
Exemptions . The Buyer understands that the
Securities are being offered and sold to it in reliance upon
specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Buyer's compliance
with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility
of the Buyer to acquire the Securities.
(d)
Information
.
The Buyer and its
advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which
have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due
diligence investigation conducted by Buyer or any of its advisors
or representatives shall modify, amend or affect Buyer's right to
rely on the Company's representations and warranties contained in
Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk.
(e)
Transfer Or Re-Sale
.
The Buyer understands
that the sale or re-sale of the Securities has not been and is not
being registered under the 1933 Act or any applicable state
securities laws, and the Securities may not be transferred or
resold unless (a) the Buyer shall have delivered to the Company an
opinion of counsel (which opinion shall be in form, substance and
scope reasonably satisfactory to counsel to the Company) to the
effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration, (b)
the Securities are sold or transferred to an "affiliate" (as
defined in Rule 144 promulgated under the 1933 Act (or a successor
rule) ( "Rule 144 ") of the Buyer who agrees to sell or
otherwise transfer the Securities only in accordance with this
Section 2(e) and who is an Accredited Investor, or (c) the
Securities are sold pursuant to Rule 144 or Rule 144; and any
sale of such Securities made in reliance on Rule 144 or Rule 144
may be made only in accordance with the terms of said Rule.
Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending
arrangement.
(f)
Organization; Authorization;
Enforcement . Buyer is a duly organized, validly
existing and in good standing under the laws of the jurisdiction in
which it is organized. Buyer has all requisite power and
authority to enter into and perform this Agreement and the other
Transaction Documents to which Buyer is a signatory and to
consummate the transactions contemplated hereby and thereby in
accordance with the terms hereof and thereof. The execution
and delivery of this Agreement and the other Transaction Documents
to which Buyer is a signatory have been duly and validly authorized
and no further consent or authorization of Buyer, its manager or
members is required. This Agreement has been duly executed and
delivered on behalf of the Buyer, and this Agreement constitutes,
and upon execution and delivery by the Buyer of the other
Transaction Documents to which Buyer is a signatory, such
agreements will constitute, legal, valid and binding agreements of
the Buyer enforceable in accordance with their terms except (i) as
limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies
and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.
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(g)
Residency
.
The Buyer’s
residency is as indicated on its signature page hereto.
(h)
Knowledge And
Experience . Buyer has such knowledge
and experience in financial and business matters that it is capable
of evaluating the merits and risks of the investment in the
Securities.
(i)
Short Sales Prior To The Date
Hereof . Buyer and its Affiliates have
not from the time that such Buyer first received a term sheet
(written or oral) from the Company or any other person setting
forth the material terms of the transactions contemplated hereunder
until the date hereof entered into or effected, or attempted to
induce any third party to enter into or effect, any short sales of
the Common Stock, or any hedging transaction which establishes a
net short position with respect to the Common Stock.
(j)
Independent Investment
Decision . Such Buyer has independently
evaluated the merits of its decision to purchase the Securities
pursuant to the Transaction Documents, and such Buyer confirms that
it has not relied on the advice of any other Buyer's business
and/or legal counsel in making such decision.
3.
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY . The Company represents and warrants
to each Buyer that, except as set forth on the Company’s
disclosure schedules referred to herein and attached hereto or any
update thereto prior to the Closing Date (collectively, the
“Disclosure Schedules” ):
(a)
Organization And
Qualification . The Company and each of its Active
Subsidiaries (as defined below), if any, is a corporation duly
organized, validly existing and in good standing under the laws of
the jurisdiction in which it is incorporated, with full power and
authority (corporate and other) to own, lease, use and operate its
properties and to carry on its business as and where now owned,
leased, used, operated and conducted. Schedule 3(a)
sets forth a list of all of the Subsidiaries of the Company, their
principal corporate address, and the jurisdiction in which each is
incorporated. The Company and each of its Active Subsidiaries is
duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership or use
of property or the nature of the business conducted by it makes
such qualification necessary except where the failure to be so
qualified or in good standing would not have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse
effect on (i) the Securities, (ii) the business, operations,
assets, financial condition or prospects of the Company and its
Active Subsidiaries, if any, taken as a whole, (iii) on the
transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith or (iv) the
authority or the ability of the Company to perform its obligations
under this Agreement or the Grid Note. "Subsidiaries" means
any corporation or other organization, whether incorporated or
unincorporated, in which the Company owns, directly or indirectly,
any equity or other ownership interest. Neither of the
Inactive Subsidiaries currently has any assets.
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(b)
Authorization;
Enforcement . (i) The Company has all requisite
corporate power and authority to enter into and perform this
Agreement, the Security Documents, and the Grid Note and to
consummate the transactions contemplated hereby and thereby and to
issue the Securities, in accordance with the terms hereof and
thereof, (ii) except as otherwise set forth in Schedule 3(b)
, the execution and delivery of this Agreement, the Security
Documents and the Grid Note by the Company and the
consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Grid
Note and the issuance and reservation for issuance of the
Conversion Shares issuable upon conversion of or otherwise pursuant
to the Grid Note have been duly authorized by the Company's Board
of Directors and no further consent or authorization of the
Company, its Board of Directors, or its stockholders is required,
(iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Security Documents and the
Grid Note, each of such agreements and instruments will constitute,
a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies
and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.
(c)
Capitalization
.
As of the date
hereof, the authorized capital stock of the Company consists of
200,000,000 shares of Common Stock, of which approximately
43,706,615 shares are outstanding as of the date hereof and
100,000,000 shares of preferred stock, par value $ 0.00001
per share, of which none are outstanding as of the date hereof.
There are no outstanding securities which are convertible
into shares of Common Stock, whether such conversion is currently
exercisable or exercisable only upon some future date or the
occurrence of some event in the future, except as disclosed on
Schedule 3(c-1) . If any such securities are listed on
the Schedule 3(c-1 ), the number or amount of each such
outstanding convertible security and the conversion terms are set
forth in said Schedule 3(c-1) . All of such
outstanding shares of capital stock set forth in Schedule
3(c-1) are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable.
11
No shares of capital stock of the
Company are subject to preemptive rights or any other similar
rights of the stockholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the
Company. Except as disclosed in Schedule 3(c-2) , as of the
effective date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating
to, or securities or rights convertible into or exercisable or
exchangeable for any shares of capital stock of the Company or any
of its Subsidiaries, or arrangements by which the Company or any of
its Subsidiaries is or may become bound to issue additional shares
of capital stock of the Company or any of its Subsidiaries, (ii)
there are no agreements or arrangements under which the Company or
any of its Subsidiaries is obligated to register the sale of any of
its or their securities under the 1933 Act and (iii) there are no
anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance
of the Grid Note, the Conversion Shares, or the Payment Shares. The
Company has previously furnished to each Buyer true and correct
copies of the Company's and each Subsidiary’s Articles of
Incorporation as in effect on the date hereof ( "Articles of
Incorporation" ), the Company's By-laws, as in effect on the
date hereof (the "By-Laws" ), and the terms of all
securities convertible into or exercisable for Common Stock of the
Company and the material rights of the holders thereof in respect
thereto. In the event that the date of execution of this Agreement
is not the Closing Date, the Company shall provide each Buyer with
a written update of this representation signed by the Company's
President and Chief Executive or Chief Financial Officer on behalf
of the Company as of the Closing Date (“Closing Bring-Down
Certificate” ). No further approval or
authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or,
to the best knowledge of the Company, between or among any of the
Company’s stockholders.
(d)
Issuance of Shares
.
Upon issuance upon
conversion of the Grid Note with their respective terms, and
receipt of the exercise price therefor, the Conversion Shares ,
along with any Payment Shares or any other shares issued pursuant
to the terms of the Transaction Documents, will be validly issued,
fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances and shall not be subject to preemptive
rights or other similar rights of stockholders of the Company and
will not impose personal liability upon the holder thereof, other
than restrictions on transfer under the Transaction Documents,
applicable state and federal securities laws, or liens or
encumbrances created by or imposed by a Buyer.
(e)
Acknowledgment of
Dilution . The Company understands and
acknowledges the potentially dilutive effect to the Common Stock
upon the issuance of the Conversion Shares upon conversion of or
otherwise pursuant to the Grid Notes .The Company further
acknowledges that its obligation to issue Conversion Shares upon
conversion of or otherwise pursuant to the Grid Notes, in
accordance with this Agreement, and to otherwise issue Payment
Shares or other shares of Common Stock to the Buyer is absolute and
unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the
Company. Taking the foregoing into account, the Company's Board of
Directors has determined, in its good faith business judgment, that
the issuance of the Securities hereunder and under the Grid Notes
and the consummation of the transactions contemplated hereby and
thereby are in the best interest of the Company and its
stockholders.
12
(f)
No Conflicts
.
Except as otherwise set
forth in Schedule 3(f ), the execution, delivery and
performance of each of the Transaction Documents by the Company and
the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and
reservation for issuance of the Conversion Shares will not (i)
conflict with or result in a violation of any provision of the
Certificate of Incorporation or By-laws, (ii) trigger any resets of
conversion or exercise prices in other outstanding convertible
securities, warrants or options of the Company, (iii) trigger the
issuance of securities by the Company to any third party, (iv)
violate or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture, or to the knowledge of the Company,
patent, patent license or instrument to which the Company or any of
its Active Subsidiaries is a party, or (v) result in a violation of
any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and regulations
of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its
Active Subsidiaries or by which any property or asset of the
Company or any of its Active Subsidiaries is bound or affected
(except, in the case of clauses (i), (iv) and (v) above, for such
conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). Neither the Company nor
any of its Active Subsidiaries is in violation of its Articles of
Incorporation, By-laws or other organizational documents and
neither the Company nor any of its Active Subsidiaries is in
default (and no event has occurred which with notice or lapse of
time or both could put the Company or any of its Active
Subsidiaries in default) under, and neither the Company nor any of
its Active Subsidiaries has taken any action or failed to take any
action that would give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Active
Subsidiaries is a party or by which any property or assets of the
Company or any of its Active Subsidiaries is bound or affected,
except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The businesses of the
Company and its Active Subsidiaries, if any, are not being
conducted, and shall not be conducted so long as a Buyer owns any
of the Securities, in violation of any law, ordinance or regulation
of any governmental entity, the violation of which would have a
Material Adverse Effect. Except as disclosed in Schedule
3(f) or as specifically contemplated by this Agreement or as
required under the 1933 Act, the 1934 Act and any applicable
state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third
party in order for it to execute, deliver or perform any of its
obligations under this Agreement, or the Grid Notes in accordance
with the terms hereof or thereof or to issue and sell the Grid
Notes in accordance with the terms hereof and to issue the
Conversion Shares upon conversion of or otherwise pursuant to the
Grid Notes. Except as disclosed in Schedule 3(f) , all
consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date
hereof. The Company and its Active Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the
foregoing.
13
(g)
SEC Documents; Financial
Statements . Since at least the beginning
of the most recent fiscal quarter that began more than two (2)
years prior to the Closing Date, the Company has timely filed all
reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act (all of the foregoing filed prior to
the date hereof and since at least the beginning of the most recent
fiscal quarter that began more than two (2) years prior to the
Closing Date, and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits
to such documents) incorporated by reference therein, being
hereinafter referred to herein as the "SEC Documents" ). For
purposes of this Agreement, “Timely Filed” shall
mean that the applicable document was filed (i) by its original due
date under the 1934 Act, or, if a request for an extension was
timely filed, (ii) by such extended due date. True and
complete copies of the SEC Documents are available on the
SEC’s internet website (www.sec.gov), except for such
exhibits and incorporated documents. Upon the request of a Buyer,
the Company will promptly provide copies of the SEC Documents to
such Buyer. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. None of the statements made in any such
SEC Documents is, or has been, required to be amended or updated
under applicable law (except for such statements as have been
amended or updated in subsequent filings prior to the date hereof).
As of their respective dates, the financial statements of the
Company (and the Buyers thereto) included in the SEC Documents
complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been
prepared in accordance with United States generally accepted
accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial
position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except
as set forth in the financial statements of the Company included in
the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary
course of business, consistent with prior practice, subsequent to
the date of the Company’s most recent 10-QSB or 10-KSB and
(ii) obligations under contracts and commitments incurred in the
ordinary course of business, consistent with prior practice, and
not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in
the aggregate, are not material to the financial condition or
operating results of the Company.
14
(h)
Absence of Certain
Changes . Except for losses incurred in the
ordinary course of business, consistent with prior practice, that
have been publicly disclosed at least five (5) days prior to the
date hereof or as set forth on Schedule 3(h) hereof, since
the date of the Company’s most recent 10-Q or 10-K, there has
been no material adverse change and no material adverse development
in the assets, liabilities, business, properties, operations,
financial condition, results of operations or prospects of the
Company or any of its Subsidiaries. For purposes of this Section
3(h), the terms "Material Adverse Change" and "Material
Adverse Development" shall exclude continuing losses that are
consistent with the Company's historical losses. Except as
disclosed in Schedule 3(h), since the date of the
Company’s most recent audited financial statements contained
in a Form 10-KSB, neither the Company nor any of its Subsidiaries
has
(i)
declared or paid any dividends on
its Common Stock;
(ii)
sold any assets, individually or in
the aggregate, in excess of $100,000 outside of the ordinary course
of business, consistent with prior practice;
(iii)
except as set forth in
Schedule 3(h) , had capital expenditures, individually
or in the aggregate, in excess of $100,000;
(iv)
issued any stock, bonds or other
corporate securities or any rights, options or warrants with
respect thereto;
(v)
borrowed any amount or incurred or
become subject to any liabilities (absolute or contingent) except
current liabilities incurred in the ordinary course of business,
consistent with prior practice, which are comparable in nature and
amount to the current liabilities incurred in the ordinary course
of business, consistent with prior practice, during the comparable
portion of its prior fiscal year, as adjusted to reflect the
current nature and volume of the Company's or such subsidiary's
business;
(vi)
discharged or satisfied any lien or
encumbrance or paid any obligation or liability (absolute or
contingent), other than current liabilities paid in the ordinary
course of business, consistent with prior practice;
(vii)
declared or made any payment or
distribution of cash or other property to stockholders with respect
to its stock, or purchased or redeemed, or made any agreements so
to purchase or redeem, any shares of its capital stock;
(viii)
sold, assigned or transferred any
other tangible assets, or canceled any debts or claims, in either
case in excess of $100,000, except in the ordinary course of
business, consistent with prior practice;
(ix)
sold, assigned or transferred any
patent rights, trademarks, trade names, copyrights, trade secrets
or other intangible assets or intellectual property rights, or
disclosed any proprietary confidential information to any person
except to customers in the ordinary course of business, consistent
with prior practice, or to the Purchasers or their
representatives;
(x)
suffered any material losses or
waived any rights of material value, whether or not in the ordinary
course of business, or suffered the loss of any material amount of
prospective business;
(xi)
made any changes in employee
compensation except in the ordinary course of business and
consistent with past practices;
15
(xii)
made capital expenditures or
commitments therefor that aggregate in excess of
$100,000;
(xiii)
[omitted];
(xiv)
made charitable contributions or
pledges in excess of $10,000;
(xv)
suffered any material damage,
destruction or casualty loss, whether or not covered by
insurance;
(xvi)
experienced any material problems
with any employee or senior management in connection with the terms
and conditions of their employment;
(xvii)
effected any two or more events of
the foregoing kind which in the aggregate would be material to the
Company or its Subsidiaries; or
(xviii)
entered into an agreement, written
or otherwise, to take any of the foregoing actions.
Except as set forth in Schedule
3(h) , neither the Company nor any of its Subsidiaries has
taken any steps to seek protection pursuant to any bankruptcy law
nor does the Company have any knowledge or reason to believe that
its creditors intend to initiate involuntary bankruptcy proceedings
or any actual knowledge of any fact which would reasonably lead a
creditor to do so.
(i)
Absence of Litigation
.
Except as
disclosed in Schedule 3(i-1 ), to the best knowledge of the
Company or any of its Subsidiaries, there is no action, suit,
claim, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or
body pending or, to the best knowledge of the Company or any of its
Subsidiaries, threatened against or affecting the Company or any of
its Subsidiaries, or their officers or directors in their capacity
as such. Schedule 3(i-2) contains a complete list and
summary description of any known pending or threatened proceeding
against or affecting the Company or any of its Subsidiaries,
without regard to whether it, if adversely decided, would have a
Material Adverse Effect. The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any
of the foregoing, where it, if adversely decided, would have a
Material Adverse Effect.
16
(j)
Patents, Copyrights,
Etc . All of the Company’s
material patents, patent applications, Patents (as defined below),
patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names
and copyrights ( "Intellectual Property" ) are set forth in
Schedule 3(j-1) hereof. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all
of the Intellectual property and the rights to receive proceeds
from patent licensing agreements, patent infringement litigation or
other litigation related to such intellectual property
(collectively, the “Intellectual Property
Rights” ). Any Liens, encumbrances or licenses that have
been granted against the Intellectual Property are listed in
Schedule 3(j-2) . Except as set forth in Schedule
3(J-2) , to the best of the Company’s knowledge, none of
the Company's Intellectual Property Rights have expired or
terminated, or are expected to expire or terminate, within three
years from the date of this Agreement. Except as otherwise
set forth on Schedule 3(j-2) , the Company owns all right
and title to the Intellectual Property free and clear of any Liens
or encumbrances and has not granted any licenses or rights to use
any of the Patents to any third party. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to
use all Intellectual Property necessary to enable it to conduct its
business as now operated, including but not limited to the
intellectual property set forth in Schedule 3(j-1) hereof
(and, except as otherwise set forth in Schedule 3(j-2)
hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future), except for such
licenses or rights the failure of which to own or possess would
not, individually or in the aggregate, have a Material Adverse
Effect; there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened, which
challenges the right of the Company or of a Subsidiary with respect
to any Intellectual Property necessary to enable it to conduct its
business as now operated (and, except as otherwise set forth in
Schedule 3(j-2) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future),
except for actions or claims which, if adversely decided, would not
have a Material Adverse Effect; to the best of the Company's
knowledge, the Company's or its Subsidiaries' current and intended
products, services and processes do not infringe on any
Intellectual Property Rights or other rights held by any person,
and the Company is unaware of any facts or circumstances which
might give rise to any of the foregoing. The Company and each of
its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of their Intellectual
Property.
For purposes hereof,
"Patents" means all domestic and foreign letters patent,
design patents, utility patents, industrial designs, inventions,
trade secrets, ideas, concepts, methods, techniques, processes,
proprietary information, technology, know-how, formulae, rights of
publicity and other general intangibles of like nature, now
existing or hereafter acquired (including, without limitation, all
domestic and foreign letters patent, design patents, utility
patents, industrial designs, inventions, trade secrets, ideas,
concepts, methods, techniques, processes, proprietary information,
technology, know-how and formulae described in Schedule
3(j-1) hereof), all applications, registrations and recordings
thereof (including, without limitation, applications, registrations
and recordings in the United States Patent and Trademark Office, or
in any similar office or agency of the United States or any other
country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or
renewals thereof, in each case owned by the Company or an of its
Subsidiaries.
(k)
No Materially Adverse Contracts,
Etc . Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation
which to the knowledge of the Company, has or is reasonably likely
in the future to have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is a party to any contract or
agreement, or has knowledge of a breach of any contract or
agreement to which the Company or any of its Subsidiaries is a
party, either of which has or is reasonably likely to have a
Material Adverse Effect.
17
(l)
Tax Status
.
Except as set forth on
Schedule 3(l) , the Company and each of its Subsidiaries has
timely made or filed all federal, state and foreign income and all
other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent
that the Company and each of its Subsidiaries has set aside on its
books provisions reasonably adequate for the payment of all unpaid
and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its
books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for
any such claim. The Company has not executed a waiver with respect
to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax. Except as
set forth on Schedule 3(l) , none of the Company's tax
returns is presently being audited by any taxing
authority.
(m)
Transactions With And Obligations To
Affiliates .
Other than the
grant of stock options disclosed on Schedule 3(m) , none of
the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its
Subsidiaries (other than customary employment contracts for
ordinary course services as employees, officers and directors),
including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of
real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to
the best knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director,
trustee or partner. Schedule 3(m) sets forth
any loans, payables, payments, transactions, debt or equity
securities, or similar agreements or obligations between the
Company and any officers, directors, management or affiliates of
the Company.
(n)
Acknowledgment Regarding
Buyer’s Purchase of Securities . The Company acknowledges and agrees
that each Buyer is acting solely in the capacity of arm's length
purchaser, and severally, and not jointly, with respect to this
Agreement and the transactions contemplated hereby. The Company
further acknowledges that each Buyer is not acting a
