NOTE PURCHASE AGREEMENT
THIS
NOTE PURCHASE AGREEMENT (the “
Agreement ”)
is made this 5th day of June 2008 by and among INTELLIHOME, INC.
(the “
Company ”),
a Texas corporation, MARK TRIMBLE, an individual residing in Katy,
Texas (“
Trimble ”),
and the purchasers whose names appear on the signature page hereof
(the “
Purchasers ”).
WHEREAS,
the Purchasers, and their designees, desire to acquire from
certain shareholders (the “
Selling Shareholders ”)
of the Company shares (the “
Purchased Shares ”)
representing a controlling interest in the Company and, in
connection therewith, desire to provide certain funding to the
Company in order to (i) pay all of the outstanding indebtedness and
liabilities of the Company (the “
Settled Debts ”),
(ii) pay certain costs (the “
Reporting Costs ”)
associated with preparation and filing with the Securities and
Exchange Commission (the “
SEC ”)
of the Company’s quarterly report on Form 10-QSB for the
quarter ended March 31, 2008 and (iii) provide working capital to
support existing operations (the “
Legacy Operations ”)
of the Company (the “
Working Capital Requirement ”)(the
actual funds provided to the Company by the Purchasers, and their
designees, with respect to the Settled Debts, the Reporting Costs
and the Working Capital Requirement is referred to as the
“
Company Funding ”
and the obligation of the Purchasers to pay the Company Funding is
referred to as the “
Company Funding Obligation ”);
WHEREAS,
the aggregate amount to be paid by the Purchasers, and their
designees, to the Selling Shareholders and to Company with
respect to the Purchased Shares, the Settled Debts, the
Reporting Costs and the Working Capital Requirement shall be
$575,000 (the “
Total Funding ”);
WHEREAS,
the Company proposes, subject to the terms and conditions
stated herein, to issue and sell from time to time as funds
are advanced to the Company in satisfaction of the Company
Funding, and the Purchasers desire to purchase from time to
time, 8% Convertible Notes, in the form attached hereto
as
Exhibit A (the
“
Notes ”),
in the aggregate principal amount equal to the Company
Funding;
WHEREAS,
upon satisfaction of the obligation by the Purchasers, or
their designees, of the obligation to provide the Total
Funding, the Notes will be convertible into duly and validly
issued, fully paid and non-assessable shares of common stock,
par value $0.001 per share (the “
Common Stock ”),
of the Company (such shares, the “
Shares ”
and, together with the Notes, the “
Securities ”)
on the terms, and subject to the conditions, set forth
herein;
WHEREAS,
funds in settlement of the Total Funding obligation of the
Purchasers will be advanced in multiple advances and will be
applied to the Purchased Shares, the Settled Debts, the
Reporting Costs and Working Capital Requirement in the manner
provided for herein;
WHEREAS,
upon the advance of funds hereunder by the Purchasers in an
amount of not less than $25,000 (the “
First Funding ”),
the Company shall cause a designee of the Purchasers to be
appointed to the Board of Directors and as Chief Executive Officer
of the Company, in which capacity, said designee will be granted
full budgetary authority and signing authority on Company bank
accounts, subject only to the rights of Trimble to review and
approve the manner of settlement and application of funds from the
Company Funding;
WHEREAS,
on or prior to the satisfaction in full of the Company Funding
Obligation (the “
Full Funding Date ”),
the Company shall cause its current officers and directors to
resign in such capacities;
WHEREAS,
Trimble will continue to oversee and conduct the
Company’s “home security monitoring” and
“smart home” operations for a minimum of
forty-five (45) days following the First Funding;
WHEREAS,
pending satisfaction in full of the Company Funding
Obligation, the Purchasers shall fully and unconditionally
guarantee, and shall indemnify and hold harmless the Company
and each officer, director and shareholder against any claim,
loss or liability relating to (together, the “
Guarantee and Indemnity Obligation
”),
(i) all outstanding liabilities and indebtedness of the Company
existing as of the date hereof, (ii) all liabilities and
indebtedness relating to Reporting Costs and Working Capital
Requirements; provided, however, that the Guarantee and Indemnity
Obligation shall in no event exceed the excess, if any, of $575,000
over the funds actually advanced in satisfaction of the Company
Funding Obligation and to purchase the Purchased Shares; and (iii)
all liabilities and indebtedness incurred by the Company after the
First Funding (“
New Business Indebtedness ”),
other than liabilities and indebtedness directly attributable to
the Legacy Operations.
This
Agreement, the agreements with the Selling Shareholders (the
“
Selling Shareholder Agreements
”), and the form of Note between the Company and the
Purchasers, are referred to herein collectively as the
“
Transaction Documents ,”
and the transactions contemplated hereby and thereby are referred
to herein collectively as the “
Transactions .”
NOW,
THEREFORE, in consideration of the mutual covenants and
undertakings herein set forth, the parties hereto agree as
follows:
1.
Purchase and Sale of Notes.
(a)
On
the basis of the representations, warranties and covenants
contained in this Agreement, and subject to its terms and
conditions, the Company agrees to issue and sell to the
Purchasers and the Purchasers agree to purchase from the
Company an aggregate principal amount of Notes in an amount
not to exceed, in the aggregate, the Total
Funding.
(b)
The
purchase price for the Notes will be equal to 100% of the
principal amount thereof.
(c)
Delivery
of, and payment for, the Notes shall be made on one or more
occasions (each, a “
Closing ”
and together the “
Closings ”)
as funds are provided in accordance with Section 2, to satisfy the
Company Funding Obligation at such place as the Company and the
Purchasers shall designate and upon each Closing, the amount funded
will be recorded on the schedule attached at the end of this
Agreement.
2.
Company Funding Obligation.
(a)
As
consideration for the Notes, the Purchasers, and their
designees, agree to provide funding to the Company in an
aggregate amount not to exceed the Total Funding, on the
following terms:
(i)
Not
later than three days after the date of this Agreement, the
Purchasers shall provide funding to the Company in the amount
of not less than $25,000, which amount shall comprise the
First Funding and will be applied by the Company first to pay
the Reporting Costs.
(ii)
During
the four week period (the “
Operating Period ”)
beginning on the date of the First Funding, the Purchasers shall
provide funding to the Company in amounts designated in writing by
Mark Trimble, the total amount not to exceed $25,000, which amount
shall be applied first to payment of operating costs and
fulfillment of contractual obligations (and not to repayment of
indebtedness or liabilities existing as of the date hereof) of the
Company and the payment of which will be applied to satisfaction of
the Working Capital Requirement.
(iii)
On
or before forty five (45) days after the date of this
Agreement (the “
Initial Funding Period ”),
the Purchasers shall provide funding to the Company in an amount
equal to the lesser of (A) the Settled Debts, as reflected on the
Settled Amounts Schedule (as defined below), or (B) $175,000 less
all amounts funded pursuant to Section 4(b)(iii)(z) of this
Agreement (such lesser amount being referred to as the
“
Cash Settlement Funding Amount
”), which amount shall be applied to the payment of all
outstanding indebtedness and liabilities of the Company other than
Installment Debt (as defined below), including, but not be limited
to, (Y) accrued and unpaid salary as of the date hereof as
reflected on the Company’s books and records and accruing
from the date hereof through the last day of the Operating Period
(provided, however, that such amount is not otherwise included in
the Working Capital Requirement), and (Z) amounts borrowed on
credit cards, bank facilities or otherwise by officers, directors
or shareholders of the Company for the benefit and use of the
Company as reflected on the Company’s books and records;
provided, however, that the Purchasers may, by written notice to
the Company, extend the Initial Funding Period by fifteen (15) days
(as extended, the “
Extended Funding Period ”)
if, and only if, the Purchasers have, on or before the last day of
the Initial Funding Period, provided funding in an aggregate amount
not less than $87,500 pursuant to Sections 2(b)(iii) and
4(b)(iii)(z) of this Agreement.
(iv)
On
or before the last day of the Initial Funding Period or the
Extended Funding Period, if applicable, the Purchasers shall
arrange for the settlement of the excess of the Settled Debts,
as reflected on the Settled Amounts Schedule, less the Cash
Settlement Funding Amount (such excess being referred to as
the “
Excess Funding Obligation ”)
by either (A) providing funding to the Company or payments directly
to the creditors of the Company in cash sufficient to satisfy the
Excess Funding Obligation, or (B) providing a written undertaking
to assume, and pay all installments as they come due on, Settled
Debts not otherwise paid hereunder and providing for scheduled
payments (including but not limited to credit card debts and bank
loans)(the “
Installment Debt ”),
or (C) subject to acceptance of the same by creditors of the
Company, issuing convertible promissory notes on terms
substantially identical to those included in the Trimble Note (as
defined below), or (D) any combination of the
foregoing.
(b)
The
Purchasers may, at their option, pay amounts directly to
creditors of the Company, which amounts will be applied toward
satisfaction of the Company Funding Obligation as if paid to
the Company pursuant to Section 2(a).
(c)
The
Purchasers and the Company agree that, during the Initial
Funding Period as extended, each will cooperate with the other
in (i) negotiations with various creditors of the Company with
the objective of settling amounts owed to such creditors on a
discounted basis and (ii) preparing a written final definitive
schedule (the “
Settled Amounts Schedule ”)
of all amounts comprising Settled Debt, Reporting Costs and the
Working Capital Requirement. In connection with the foregoing, it
is understood and agreed that:
(i)
Trimble,
as President of the Company, will have sole and final
authority to determine the identity and terms on which amounts
owed to creditors are ultimately compromised;
(ii)
With
respect to indebtedness settled for less than the full stated
amount payable, only the amount actually paid will be deemed
to be Settled Debt;
(iii)
In
the event of disputes regarding the Settled Amounts Schedule,
the Purchasers and Trimble will attempt to negotiate a
satisfactory resolution and, if they are unable to negotiate a
satisfactory resolution, the Settled Amounts Schedule, this
Agreement and the applicable accounting records of the Company
will be submitted to the Company’s independent
registered public accounting firm (the “
Accountant ”)
for purposes of reconciling the amounts properly included on the
Settled Amounts Schedule and the determination of the Accountant
shall be conclusive.
(d)
With
respect to any permitted payments of Installment Debt after
the last day of the Initial Funding Period, as extended (as
permitted under Section 2(b)(iv)(B)), any amounts constituting
interest on that Installment Debt accruing after the last day
of the Initial Funding Period shall not be credited in
determining the amounts funded by the Purchasers under this
Agreement.
3.
Company Operations.
(a)
Upon
the advance of funds hereunder by the Purchasers in the amount
of the First Funding, the Company shall cause a designee (the
“
Purchaser Management Designee ”)
of the Purchasers to be appointed to the Board of Directors and as
Chief Executive Officer of the Company, in which capacity, said
designee will be granted full budgetary authority and signing
authority on Company bank accounts, subject only to the rights of
Trimble to review and approve the manner of settlement and
application of funds from the Company Funding.
(b)
Trimble
will continue to oversee and conduct the Company’s
“home security monitoring” and “smart
home” operations for a minimum of forty-five (45) days
following the First Funding and during that period will have
authority to liquidate assets and settle obligations relating
to such operations. All cash on hand on the First Funding
(excluding cash provided by the First Funding) and all
proceeds received from the collection of receivables or
liquation of assets (collectively, the “
Residual Cash ”)
from the date hereof through the last day of the Initial Funding
Period, or the Extended Funding Period if applicable, shall be
applied to support operations of the “home security
monitoring” and “smart home” business and to
settle debt of the Company. Residual Cash shall not be treated as
cash provided by the Purchasers pursuant to Section 2. Any Residual
Cash remaining on hand on the last day of the Initial Funding
Period, or the Extended Funding Period if applicable, shall be
applied at that time to the settlement of any amounts on the
Settled Amounts Schedule not otherwise previously satisfied as
determined by Trimble.
(c)
Subject
to the provisions of Section 3(b), on and after the First
Funding, the business direction and strategy of the Company
shall be determined and controlled by the Purchaser Management
Designee.
(d)
On
or prior to the Full Funding Date, the Company shall cause its
current officers and directors (excluding the Purchaser
Management Designee) to resign in such capacities; provided,
however, that should the Full Funding Date not have occured on
or before the last day of the Initial Funding Period, or the
Extended Funding Period if applicable, the Purchasers and the
Purchaser Management Designee shall take such steps as may be
reasonably necessary to appoint Trimble as the sole officer
and director of the Company, including causing the Purchaser
Management Designee to resign as an officer and director of
the Company.
(e)
From
the date hereof until the First Funding, the Company shall not
(except as otherwise specifically contemplated herein) issue
any securities, including debt securities, or incur any
indebtedness other than in the ordinary course of
business.
(f)
On
or before the First Funding, the Company shall secure releases
of all existing employment agreements, subject to and in
accordance with the provisions of Section 4(a)
below.
4.
Selling Shareholder and Employee
Obligations. As
a condition of providing the financing contemplated herein, the
Purchasers require that certain members of management of the
Company and certain shareholders of the Company enter into separate
agreements releasing certain rights that each may have against, or
with respect
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