UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 24,
2015
VISCOUNT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| Nevada |
000-49746 |
88-0498181 |
| (State or other jurisdiction |
(Commission |
(IRS Employer |
| of incorporation) |
File Number) |
Identification No.) |
4585 Tillicum Street, Burnaby, British Columbia, Canada
V5J 5K9
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (604)
327-9446
(Former name
or former address, if changed since last report)
_______________________
Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation to the registrant under
any of the following provisions:
[ ] Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d -2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e -4(c))
| Item 1.01 |
Entry Into a Material Definitive
Agreement |
On November 24, 2015 (the “Closing
Date”), Viscount Systems, Inc. (the “Company”) consummated a series
of transactions with three of its current preferred equity holders (the
“Purchasers”) to raise $300,000 for the Company (the “Financing”).
For purposes of this Current Report on Form 8-K (the “Report”),
“Transaction Documents” refers to the Series B Demand Notes (as defined
below), the Certificate of Designation (as defined below), the Series B
Preferred Stock (as defined below), that certain transfer agent letter executed
by the Company and its transfer agent instructing the Company’s transfer agent
to reserve initially 147,000,000 shares for issuance in connection with the
Financing, the Security Agreement (defined below), the IP Security Agreement
(defined below), the Subsidiary Guaranty (defined below), the Certificate of
Amendment (as defined below) and any and all instruments, certificates and/or
other documents used to perfect all of the Purchasers’ security interests in the
collateral including, but not limited to, any UCC-1 financing statements.
Series B Demand Notes
On the Closing Date, in consideration
for $300,000, the Company issued to the Purchasers Senior Secured Convertible
Demand Promissory B Notes (the “Series B Demand Notes”) in the aggregate
principal amount of $330,000 with an original issue discount of $30,000. The
Series B Demand Notes are due and payable upon receipt of a written demand
notice from the Purchasers and failure to repay the Series B Demand Note upon
receipt of a written demand notice constitutes an event of default. The Series B
Demand Notes accrue interest at 8% for each 30 days that the Series B Demand
Notes remain outstanding and the interest rate will be increased upon an event
of default to the lesser of 21% per annum and the highest amount permitted by
applicable law. Interest payments must be made quarterly and may be made in cash
or in the form of Series B Demand Notes.
The Series B Demand Notes may be
converted (subject to certain beneficial ownership limitations), at the option
of the holder, into shares (the “Conversion Shares”) of the Company’s
common stock (the “Common Stock”) at a conversion price equal to sixty
percent (60%) multiplied by the lowest bid price (or lowest sale price, as the
case may be) of a share of Common Stock during the 20 consecutive trading days
prior to the date of any conversion. The Company’s obligations to issue and
deliver the Conversion Shares upon a conversion in accordance with the terms of
the Series B Demand Note is absolute and unconditional. If a holder elects to
convert the Series B Demand Note and the Company fails to deliver to the holder
a certificate without a restrictive legend, the Company is required to pay the
holder, in cash, as liquidated damages, for each $10,000 of conversion amount,
$200 per trading day commencing the day after the date on which the shares were
to have been delivered (increasing to $400 per trading day on the fifth (5th)
trading day after such damages begin to accrue) for each trading day until the
earlier of the date such certificates are delivered without restrictive legend
or the holder rescinds the conversion.
The conversion price of the
Series B Demand Notes is subject to adjustment upon issuance of certain
dividends and distributions, reorganization, consolidation or merger, stock
splits, and issuance by the Company of a security at a lower price than the
conversion price.
In addition to failing to repay the
Series B Demand Note in a timely manner as described above, the following also
constitute events of default under the Series B Demand Notes:
- the Company’s failure to pay when due any interest or other payment due on
and/or under the Series B Demand Note within two (2) days following the due
date hereunder;
- a breach of any provision and/or default or event of default (subject to
any grace or cure period provided in the applicable agreement, document or
instrument) shall occur under any of the Transaction Documents and/or any
other document related to the Series B Demand Notes;
- the Company shall fail for any reason to obtain the consent of the holders
for the Restricted Company Actions (as defined below);
- the Common Stock shall not be eligible for listing or quotation for
trading on a trading market and shall not be eligible to resume listing or
quotation for trading thereon within five (5) consecutive trading days from
the first date of lack of eligibility;
- the electronic transfer by the Company of shares of Common Stock through
the Depository Trust Company or another established clearing corporation is no
longer available or is subject to a “chill” (i.e., the Depository Trust
Company announces that it will not accept the deposit of shares of Common
Stock into its participants’ street name accounts);
- failure to reserve and keep available out of its authorized and unissued
Common Stock the number of shares of Common Stock as described in the Series B
Demand Notes (initially 147,000,000 shares);
- the Company shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian of itself or of all or a
substantial part of its property, (ii) be unable, or admit in writing its
inability, to pay its debts as they mature, (iii) make a general assignment
for the benefit of its or any of its creditors, (iv) be dissolved or
liquidated, (v) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect or consent to any such relief or to the appointment of or taking
possession of its property by any official in an involuntary case or other
proceeding commenced against it, or (vi) take any action for the purpose of
effecting any of the foregoing;
- proceedings for the appointment of a receiver, trustee, liquidator or
custodian of the Company or of all or a substantial part of the property
thereof, or an involuntary case or other proceedings seeking liquidation,
reorganization or other relief with respect to the Company or the debts
thereof under any bankruptcy, insolvency or other similar law now or hereafter
in effect shall be commenced and an order for relief entered or such
proceeding shall not be dismissed or discharged within 60 days of
commencement;
- any default in any of the other Transaction Documents and/or other
indebtedness of the Company and/or any of its subsidiaries; or
- a breach of any other provision of the Series B Demand Notes.
For as long as any of the Series
B Demand Notes remain outstanding, the Company must obtain express written
consent from the holders of at least 50.1% of the aggregate principal amount of
all of the Series B Demand Notes then outstanding to take the following actions
(collectively, the “Restricted Company Actions”):
- amend, alter, change, waive or repeal any provision of the Company’s
Articles of Incorporation or By-Laws, each as amended (the “Articles of
Incorporation” and “By-Laws,” respectively) (and/or those of any of
its subsidiaries), in any manner that could, directly and/or indirectly,
adversely affect the rights of the holders;
- alter, waive, repeal, amend, and/or change any provision of the Series B
Demand Note;
- incur any indebtedness (other than that outstanding and in such principal
amount outstanding as of June 5, 2012 and that represented by the Series B
Demand Notes and Series A Demand Notes (as defined below, and collectively,
the “Notes”), Transaction Documents and the transaction documents for
the Series A Demand Notes) which if any such amount is permitted to be paid
down, in whole or in part, pursuant to the Series B Demand Note and is paid
down, in whole or in part, cannot be borrowed again except (A) if such
indebtedness constitutes permitted debt (as defined in the Series B Demand Notes), and (B) any such reborrowed permitted debt is counted on a dollar for dollar basis against the Permitted Debt Cap (as defined below); provided, however, that subject to the limitations provided in the Series B
Demand Note, the Company and/or its subsidiaries may borrow together in the aggregate up to $1,000,000 principal amount of Permitted Debt (the “Permitted Debt Cap”);
-
pay and/or make dividends, distributions and/or any other payment (whether in cash, securities or property) on any securities of the Company and/or any subsidiary other than to the holders of the Notes;
-
enter into any transaction with any affiliate (as defined under the Securities Act of 1933, as amended, the “1933 Act”), which would be required to be disclosed in any public filing with the Securities and Exchange Commission (the
“SEC”) pursuant to SEC laws, rules and/or regulations, other than any transaction pursuant to which an affiliate of the Company and/or subsidiary is employed pursuant to a written agreement by the Company and/or any subsidiary
which is negotiated on an arms-length basis, is approved by the independent directors of the Company’s Board of Directors (the “Board”) and does not exceed industry standards, based upon the Company’s industry, the
revenues and income of the Company and the work that such affiliate will perform pursuant to such arrangement;
-
redeem, repurchase and/or otherwise enter into or effectuate a similar transaction for any securities of the Company and/or any subsidiary other than the Notes;
-
other than the Notes, repay any indebtedness and/or other obligation other than (1) any bank debt outstanding as of June 5, 2012, but only in accordance with and to the extent of the terms and conditions of such bank debt as of June 5, 2012;
provided, however, that notwithstanding anything to the contrary provided herein or elsewhere, no bank debt and/or any other indebtedness may be pre-paid, (2) any accounts payable incurred in the normal course of the Company’s historical and
ordinary business, (3) $45,000 aggregate principal amount loan advanced on March 26, 2012 plus accrued, but unpaid simple interest of 8% per annum to a shareholder of the Company (the “ Lender”), provided that simultaneously
with and as a condition to the repayment (including, but not limited to, accrued, but unpaid interest) to the Lender of such loan, the Lender provides to the Company (A) written evidence signed by the Lender that no other amounts are owed by the
Company to the Lender pursuant to such loan, and (B) a full written release signed by the Lender of any and all claims by the Lender against the Company and/or its subsidiaries in respect of such loan (“Release Documents”), (4) up
to $60,000 of outstanding principal on loans due to shareholders and related parties as disclosed on the Company’s balance sheet dated March 31, 2012 filed with the SEC on or about May 15, 2012, provided that in each case, Release
Documents are obtained, and (5) any Permitted Debt in accordance with the terms and conditions in the Note;
-
Other than the Notes, effect or enter into an agreement to effect any sale and/or issuance of Common Stock or common stock equivalents directly and/or indirectly involving a variable rate transaction;
-
enter into any agreement or understanding (whether in writing, orally or otherwise) to do any of the above; or
-
directly and/or indirectly create and/or otherwise permit to exist any liens on any assets of the Company and/or any of its subsidiaries except (i) any lien for taxes not yet due or delinquent or being contested in good faith by appropriate
proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any
lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested
in good faith by appropriate proceedings, or (iv) any liens securing any obligations of the Company and/or any subsidiary under the Notes.
Additionally, without the consent
of the holders of at least 50.1% of the Notes, the Company cannot take the
following actions:
- effect any merger, acquisition, sale, consolidation, reorganization and/or
similar transaction or a change of control (each, an “Event”), except
any Event which upon the date of the occurrence or closing of any Event, as
the case may be, (i) the holder receives in exchange for the Note, cash in an
amount not less than two (2) times the then principal amount of the Note
immediately prior to the occurrence or closing of such Event, plus all
accrued, but unpaid interest and other payments owed to the holder by the
Company and/or its subsidiaries, or (ii) if an Event is structured whereby the
holder receives securities of a non-affiliated, third-party entity, the common
stock of such entity is listed on a National Securities Exchange (as defined
in the 1933 Act) and such common stock for the twenty (20) consecutive trading
days has a daily market capitalization of no less than $100 million;
- decrease or increase the authorized size of the Company’s (and/or any of
its subsidiaries’) Board other than as expressly provided in the Series B
Demand Notes; or
- directly and/or indirectly, adopt, amend and/or supplement any new stock
option plan and/or similar plan (the “SOP Plans”), except where the
maximum number of shares of Common Stock that may be acquired directly and/or
indirectly upon exercise of stock options issued under the SOP Plans, when
aggregated with the maximum number of shares of Common Stock that may be
acquired directly and/or indirectly under all other stock option plans and/or
stock options outstanding as of the date hereof (including, but not limited
to, all stock options issued prior to the date hereof under any SOP Plans
and/or otherwise, regardless of whether any such SOP Plans and/or other stock
options have terminated and/or expired with or without being exercised) does
not and will not at any time prior to and including March 3, 2017, exceed in
the aggregate 32,500,000 shares of Common Stock (which 32,500,000 shall be
proportionately adjusted to take into account each stock split and/or reverse
stock split occurring following March 31, 2014).
The Series B Demand Note also
requires the Company to reserve from its authorized shares of Common Stock a
number of shares of Common Stock sufficient to convert all of the Purchaser’s
Series B Demand Notes into shares of Common Stock. In order to do so, the
Company has covenanted to increase its authorized shares to 3,000,000,000 shares
as soon as possible. If the Company is unable to satisfy this covenant, the
Company will owe to the Purchasers an amount equal to 2% of such Purchaser’s
Series B Demand Notes plus all accrued but unpaid interest.
The Series B Demand Notes further
provide that all of the Company’s directors except for Mr. Ned L. Siegel and Mr.
Alexander Buehler resign from their positions on the Board, that the maximum
number of directors to be appointed to the Board be decrease from seven (7) to
five (5) and that the holders owning 50.1% of the Notes have the right to
appoint three (3) directors to the Board (to hold their positions until all
amounts owed under the Notes and related Transaction Documents are paid in full,
the “Note Directors”). In the event that the required holders of the
Notes elect to replace any one of the three Note Directors during the period in
which they have a right to do so and the replacement does not occur within five
business days, the Company must pay to each Note holder $2,500 per day until the
Note Directors are replaced. The Series B Demand Notes also provide that the
Purchasers will have the right to appoint an observer to the Board.
Series A Demand Notes
On the Closing Date, in
consideration for consenting to the Financing and in exchange for their
outstanding shares of Series A Preferred Stock (the “Series A Preferred
Stock”), the Company issued to the Purchasers Senior Secured Convertible
Demand Promissory A Notes (the “Series A Demand Notes”) in the aggregate principal amount of $2,172,978. The Series A
Demand Notes contain substantially the same terms and conditions as the Series B
Demand Notes except that interest accrues at 14% per annum if all or any portion
of the interest payable on the Series A Demand Notes is paid in cash (increasing
to the lesser of 21% per annum and the highest amount permitted by applicable
law in case of an event of default) and it accrues at 5% for each 30 days if all
or any portion of the interest payable on the Series A Demand Notes is paid in
Series A Demand Notes (increasing to 8% for each 30 days in case of an event of
default);
Security Interests in the Company’s Assets
On the Closing Date and in connection with the Financing, the
Company and its subsidiary entered into a Security and Pledge Agreement (the
“Security Agreement”) and an Intellectual Property Security Agreement
(the “IP Security Agreement”) with the Purchasers pursuant to which the
Purchasers received a security interest in all of the Company’s assets,
including its intellectual property. Upon any event of default under the Notes
or related Transaction Documents, the Purchasers are entitled to take possession
of the Company’s assets. The Company also entered into a Subsidiary Guarantee
(the “Subsidiary Guarantee”) with its subsidiary pursuant to which the
Company’s subsidiary agreed to guaranty the obligations of the Company with
respect to Financing.
The foregoing descriptions of the
Series B Demand Note, the Series A Demand Note, the Security Agreement, the IP
Security Agreement and the Subsidiary Guarantee are qualified in their entirety
by reference to the provisions of such agreements filed as exhibits 4.1, 4.2,
10.1, 10.2 and 10.3 to this Report, respectively, which are incorporated herein
by reference.
| Item 2.03 |
Creation of a Direct Financial Obligation or
an Obligation under an Off-Balance Sheet Arrangement of a
Registrant |
The disclosure set forth above in Item 1.01 of this Report is
incorporated by reference herein.
| Item 3.02 |
Unregistered Sale of Equity Securities |
The disclosure set forth above in
Item 1.01 of this Report is incorporated by reference herein. The Notes were
issued by the Company under the exemption from registration afforded by Section
4(a)(2) of the 1933 Act and/or Regulation D promulgated thereunder, as the
securities were issued to accredited investors, without a view to distribution,
and were not issued through any general solicitation or advertisement.
| Item 5.02 |
Departure of Directors or Certain Officers;
Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers |
On November 24, 2015, in connection with the Financing, Craig
Nemiroff was appointed as a director of the Company. Mr.Nemiroff has not been
involved in any transaction with the Company that would require disclosure under
Item 404(a) of the Regulation S-K.
| Item 5.03 |
Amendments to Articles of Incorporation or
Bylaws; Change in Fiscal Year. |
On November 24, 2015, in
connection with the Financing, the Company filed its Certificate of Designation
of Viscount Systems, Inc. Establishing the Designations, Preferences,
Limitations and Relative Rights of its Series B Preferred Stock (the
“Certificate of Designation,” and the series of preferred stock created
upon filing of the Certificate of Designation, the “Series B Preferred
Stock”) with the Secretary of State of Nevada. The Certificate of
Designation, which amends the Articles of Incorporation, provides that the Company may issue up to 1,000
shares of Series B Preferred Stock. Holders of Series B Preferred Stock are
entitled only to certain voting rights as described below. The Series B
Preferred Stock is not entitled to receive dividends, any liquidation preference
or conversion rights. The holders of Series B Preferred Stock have the following
voting rights:
- For so long as the Series B Preferred Stock is outstanding, the holders
owning at least 50.01% of the outstanding Series B Preferred Stock, voting
separately as a class, have the right to vote in an amount equal to 80% of the
total votes on all matters that the holders of Common Stock have the right to
vote on and/or consent to, no matter how many shares of common stock are
outstanding;
- The Company cannot (i) amend, alter or repeal any provision of the
Articles of Incorporation or the By-laws of the Company so as to adversely
affect the designations, preferences, limitations and relative rights of the
Series B Preferred Stock, (ii) effect any reclassification of the Series B
Preferred Stock, excluding a reverse stock split or forward split, or (iii)
designate any additional series of preferred stock, the designation of which
adversely effects the rights, privileges, preferences or limitations of the
Series B Preferred Stock set forth herein; and
- amend, alter or repeal any provision of the Certificate of Designation;
provided, however, that the Company may, by any means authorized by law and
without any vote of the holders of shares of the Series B Preferred Stock,
make technical, corrective, administrative or similar changes in the
Certificate of Designation that do not, individually or in the aggregate,
directly and/or indirectly adversely affect the rights or preferences of the
holders of shares of the Series B Preferred Stock.
On November 24, 2015, in
connection with the Financing, the Company, with the consent of a majority of
the holders of Series A Preferred Stock, amended its Certificate of Designation,
Preferences and Rights of the Series A Convertible Redeemable Preferred Stock of
Viscount Systems, Inc., as amended (the “A Certificate”), by filing the
Certificate of Fourth Amendment to the Certificate of Designation, Preferences
and Rights of the Series A Convertible Redeemable Preferred Stock of Viscount
Systems, Inc. (the “Certificate of Amendment”). The Certificate of
Amendment amended the rights of the holders of Series A Preferred Stock as
follows:
- Removed Section 1(b) of the A Certificate eliminating the right of the
holders of Series A Preferred Stock to consent to certain Company actions;
- Removed Section 8 of the A Certificate eliminating the restriction that
the Company may not create, authorize and/or issue any securities that are
senior to the Series A Preferred Stock;
- Removed Section 5(b) of the A Certificate requiring an adjustment to the
conversion price of the Series A Preferred Stock upon the consummation of an
offering of Series B Preferred Stock;
- Removed Section 10 of the A Certificate dictating the terms by which the
shares of Series A Preferred Stock may be transferred;
- Removed Section 11 of the A Certificate requiring the Company to redeem
the Series A Preferred Stock in certain circumstances;
- Removed Section 12 of the A Certificate requiring the vote of 67% of the
aggregate stated value of the then outstanding shares of Series A Preferred
Stock in order to amend the A Certificate;
- Removed Section 17 of the A Certificate eliminating the right of the
holders of Series A Preferred Stock to appoint a board observer, or in certain
circumstances a director, to the Board; and
- Removed Section 19 of the A Certificate eliminating certain penalties upon
the Company’s failure to pay any amounts owed under the A Certificate.
The foregoing descriptions of the
Certificate of Designation and Certificate of Amendment are qualified in their
entirety by reference to the provisions of such certificates filed as exhibits
3.1 and 3.2 to this Report, respectively, which are incorporated herein by
reference.
| Item 9.01 Financial Statements and Exhibits. |
SIGNATURES
Pursuant to the requirements of
the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: December 1, 2015
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VISCOUNT SYSTEMS, INC. |
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|
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By:/s/
Scott Sieracki |
| |
Name: Scott
Sieracki |
| |
Title:
Interim Chief Executive Officer |
EXHIBIT INDEX
CERTIFICATE OF DESIGNATION OF
VISCOUNT SYSTEMS,
INC.
ESTABLISHING THE DESIGNATIONS, PREFERENCES, LIMITATIONS
AND RELATIVE RIGHTS OF ITS SERIES B PREFERRED STOCK
On behalf of Viscount Systems, Inc., a Nevada corporation (the
"Corporation"), the undersigned hereby certifies that the following resolution
has been duly adopted by the board of directors of the Corporation (the
"Board"):
RESOLVED, that, pursuant to the authority granted to and vested
in the Board by the provisions of the articles of incorporation of the
Corporation (the "Articles of Incorporation") and the provisions of Section
78.1955 of the Nevada General Corporation Law, there hereby is created, out of
the twenty thousand (20,000) shares of preferred stock, par value U.S. $0.001
per share, of the Company authorized by the Articles of Incorporation, Series B
Preferred Stock, consisting of one thousand (1,000) shares, which series shall
have the following powers, designations, preferences and relative participating,
optional and other special rights, and the following qualifications, limitations
and restrictions:
SECTION 1. DESIGNATION OF SERIES. The shares of such
series shall be designated as the "Series B Preferred Stock" (the "Series B
Preferred Stock") and the number of shares initially constituting such series
shall be up to One Thousand (1,000) shares.
SECTION 2. DIVIDENDS. The holders of the Series B
Preferred Stock shall not be entitled to receive dividends paid on the Common
Stock.
SECTION 3. LIQUIDATION PREFERENCE. The holders of the
Series B Preferred Stock shall not be entitled to any liquidation
preference.
SECTION 4. VOTING.
4.1 Voting Rights. The
holders of the Series B Preferred Stock will have the shareholder voting rights
as described in this Section 4 and as required by law. For so long as any shares
of the Series B Preferred Stock are issued and outstanding, the holders owning
at least 50.01% or greater of the then issued and outstanding Series B Preferred
Stock (regardless of how many shares of Series B Preferred Stock are issued and
outstanding), voting separately as a class, shall have the right to vote in an
amount equal to eighty percent (80%) of the total vote on all matters that the
holders of the Common Stock have the right to vote and/or consent to, no matter
how many shares of Common Stock or other voting stock of the Company are issued
and outstanding.
4.2 Amendments to Articles and
Bylaws. So long as the Series B Preferred Stock is outstanding, the
Company shall not, without the affirmative vote of the holders of at least
50.01% of all outstanding shares of Series B Preferred Stock, voting separately
as a class (i) amend, alter or repeal any provision of the Articles of
Incorporation or the Bylaws of the Company so as to adversely affect the
designations, preferences, limitations and relative rights of the Series B
Preferred Stock, (ii) effect any reclassification of the Series B Preferred
Stock, excluding a reverse stock split or forward split, or (iii) designate any
additional series of preferred stock, the designation of which adversely effects
the rights, privileges, preferences or limitations of the Series B Preferred
Stock set forth herein.
4.3 Amendment of Rights of Series
A Preferred Stock. The Company shall not, without the affirmative vote
of the holders of at least 50.01% of all outstanding shares of the Series B
Preferred Stock, amend, alter or repeal any provision of this Certificate of
Designation; provided, however, that the Company may, by any means
authorized by law and without any vote of the holders of shares of the Series B
Preferred Stock, make technical, corrective, administrative or similar changes
in this Certificate of Designation that do not, individually or in the
aggregate, directly and/or indirectly adversely affect the rights or preferences
of the holders of shares of the Series B Preferred Stock.
SECTION 5. CONVERSION RIGHTS. The shares of the Series A
Preferred Stock shall have no conversion rights.
SECTION 6. NOTICES. Any notice required hereby to be
given to the holders of shares of the Series A Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his, her or its address appearing on the books of the
Company.
SECTION 7. MISCELLANEOUS.
(a) The
headings of the various sections and subsections of this Certificate of
Designation are for convenience of reference only and shall not affect the
interpretation of any of the provisions of this Certificate of Designation.
(b)
Whenever possible, each provision of this Certificate of Designation shall be
interpreted in a manner as to be effective and valid under applicable law and
public policy. If any provision set forth herein is held to be invalid, unlawful
or incapable of being enforced by reason of any rule of law or public policy,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating or otherwise adversely affecting the remaining
provisions of this Certificate of Designation. No provision herein set forth
shall be deemed dependent upon any other provision unless so expressed herein.
If a court of competent jurisdiction should determine that a provision of this
Certificate of Designation would be valid or enforceable if a period of time
were extended or shortened, then such court may make such change as shall be
necessary to render the provision in question effective and valid under
applicable law.
(c)
Except as may otherwise be required by law, the shares of the Series B Preferred
Stock shall not have any powers, designations, preferences or other special
rights, other than those specifically set forth in this Certificate of
Designation.
IN WITNESS WHEREOF, this Certificate of Designations has been
executed by a duly authorized officer of the Company on this 3rd day
of November 2015.
VISCOUNT SYSTEMS, INC.
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By: |
/s/
Scott Sieracki |
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|
Scott Sieracki |
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|
Interim Chief Executive Officer
|
| Certificate of Fourth Amendment |
| |
| to the Certificate of Designation, Preferences and Rights
of the |
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| Series A
Convertible Redeemable Preferred Stock of Viscount Systems, Inc.
|
Pursuant to NRS 78.1955 – After Issuance of Class or Series
I, Scott Sieracki, Interim Chief Executive Officer of Viscount
Systems, Inc., a corporation organized under the laws of the State of Nevada
(the “Company”), hereby certify the following:
FIRST:
The Certificate of Designation, Preferences and Rights of the Series A
Convertible Redeemable Preferred Stock of the Company (the “A Certificate”) was
filed with the Secretary of State of the State of Nevada (the “Secretary”)
creating and establishing the designations, preferences and rights of the Series
A Convertible Redeemable Preferred Stock of the Company (the “A Shares”) on June
5, 2012 and Certificates of Amendment to the A Certificate were filed by the
Company with the Secretary on each of October 17, 2012, March 21, 2014 and
January 21, 2015, (such amendments together with the A Certificate,
collectively, the “Certificate”).
SECOND:
The board of directors of the Company on November 9, 2015 duly adopted the
following resolutions further amending the Certificate:
RESOLVED, that the Certificate be
further amended as follows:
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1. |
Section 1(b) of the Certificate is hereby deleted in its
entirety; |
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2. |
Section 8 of the Certificate is hereby deleted in its
entirety; |
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3. |
Section 5(g) of the Certificate is hereby deleted in its
entirety; |
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4. |
Section 10 of the Certificate is hereby deleted in its
entirety; |
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5. |
Section 11 of the Certificate is hereby deleted in its
entirety; |
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6. |
Section 12 of the Certificate is hereby deleted in its
entirety; and |
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7. |
Section 17 of the Certificate is hereby deleted in its
entirety; |
| |
8. |
Section 19 of the Certificate is hereby deleted in its
entirety; |
THIRD:
The approval of holders representing no less than 67% of the aggregate Stated
Value of the issued and outstanding A Shares has been obtained in accordance
with NRS 78.1955.
IN WITNESS WHEREOF, the undersigned has executed and subscribed
this Certificate and does affirm the foregoing as true this 9th day
of November, 2015.
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VISCOUNT SYSTEMS, INC. |
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By: |
/s/ Scott Sieracki |
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Name: Scott Sieracki |
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Title: Interim CEO |
B Note
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“1933 ACT”), OR THE SECURITIES LAWS OF ANY STATE. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH 1933 ACT AND/OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO
RULE 144 OF SUCH 1933 ACT. THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION
OF THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
VISCOUNT SYSTEMS, INC.
SENIOR SECURED CONVERTIBLE DEMAND PROMISSORY B NOTE
| B Note No: ____________ |
Original Issuance Date: November 24, 2015 |
| |
Original Principal
Amount: $ ____________ |
Viscount Systems, Inc. a Nevada
corporation (and together with each and every of its current and future
Subsidiaries (as defined below), collectively, the “Company”), hereby
promises to pay to _________________or registered assigns (the “Holder”)
_______________(the “Original Principal Amount”) (as reduced pursuant to
the terms hereof pursuant to payment, conversion or otherwise, the
“Principal”) and to pay interest (“Interest”) on any outstanding
Principal at the applicable Interest Rate from the date set forth above as the
Original Issuance Date (the “Issuance Date”) through and including the
date all Principal, all accrued but unpaid Interest thereon and all other
amounts due hereunder is received by the Holder in immediately available funds
by wire transfer pursuant to wire transfer instructions provided to the Company
by the Holder. This Senior Secured Convertible Promissory Demand B Note
(including all Senior Secured Convertible Demand B Notes issued in exchange,
transfer or replacement hereof, and/or as Interest pursuant to Section 1 below),
is hereinafter referred to as this “Note,” and together with all other
Notes, collectively, the “Notes”. All Principal, together with all
accrued but unpaid Interest, and all other amounts due hereunder shall be due
and payable on the Demand Payment Date to the Holder upon delivery by the Holder
to the Company of written demand in cash by wire transfer pursuant to wiring
instructions provided to the Company by the Holder.
This Note is one of a series of
Senior Secured Convertible Demand Promissory B Notes issued and sold by the
Company in an original aggregate principal amount equal to no less than $330,000
(but not to exceed $660,000 without the consent of the Company’s Board of
Directors). The $330,000 original aggregate principal amount of the Notes
($660,000 if all Notes are sold) includes ten (10%) percent original issue
discount $30,000 (or $60,000 if all Notes are sold). For example and for clarity
purposes only, if the Company sold to 3 purchasers $330,000 aggregate principal
amount of Notes with each of the 3 such purchasers purchasing an equal amount of
such Notes, the aggregate purchase price paid by such three (3) persons would be
$300,000 (or $100,000 per person) with the $10,000 difference between the
$110,000 aggregate principal amount of each Note and the $100,000 purchase price
paid for each Note by a purchaser constituting 10% original issue discount).
The following is a statement of
the rights of the Holder of this Note and the conditions to which this Note is
subject, and to which the Holder, by the acceptance of this Note, agrees:
1. Interest; Certain
Definitions; Transaction Documents. Interest on this Note shall commence
accruing on the Issuance Date at the Interest Rate (as defined below) and shall
continue accruing interest until all amounts under this Note and the other
Transaction Documents owed to the Holder are received in full in cash by the
Holder), shall accrue daily on a compounding basis, be payable quarterly in
arrears on each of March 31, June 30, September 30 and December 31 or if any
such date falls on a Holiday (as defined below), the next day that is not a
Holiday (each an “Interest Payment Date”). Interest shall be payable on
each Interest Payment Date to the record Holder of this Note at the option of
the Company in (i) cash and/or (ii) Notes with the aggregate principal amount of
any Note issued as Interest in lieu of cash equal to the amount of Interest due
on such Interest Payment Date, with the first Interest Payment Date being
December 31. For purposes of this Note, the term “Interest Rate” means
eight (8%) percent for each 30 days (pro-rata for any period of less than 30
days), (which Interest Rate shall increase to the lesser of (x) 21% per annum,
and (y) the highest amount permitted by applicable law), for each 30 days
(pro-rata for any period of less than 30 days) commencing on the date of an
Event of Default and continuing through and including the date all amounts
hereunder are paid in full in immediately available funds by wire transfer
pursuant to wire transfer instructions provided by the Holder to the Company.
For purposes of this Note, the term “Holiday” means any day other than a
Business Day; “Business Day” means any day other than Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law to remain closed; “Demand Payment Date” means the next
Business Day following the date the Holder sends to the Company written notice
that the Holder demands that all Principal, accrued but unpaid Interest and all
other amounts owed to the Holder under this Note and the other Transaction
Documents is due and payable; and “Trading Market” means any of the
following markets or exchanges on which the Common Stock (or any other common
stock of any other Person that references the Trading Market for its common
stock) is listed or quoted for trading on the date in question: the OTC Bulletin
Board, The NASDAQ Global Market, The NASDAQ Global Select Market, The NASDAQ
Capital Market, the New York Stock Exchange, NYSE Arca, the NYSE MKT, or the
OTCQX Marketplace, the OTCQB Marketplace, the OTCPink Marketplace or any other
tier operated by OTC Markets Group Inc. (or any successor to any of the
foregoing). “Transaction Documents” means all Notes issued to the Holder
and the other holders of Notes, the B Certificate, the B Shares, the TA Letter,
the Security and Pledge Agreement, the IP Security Agreement, the Subsidiary
Guaranty, the A Share Amendment and any and all instruments, certificates and/or
other documents used to perfect all of the Holders security interests in the
Collateral (as defined in the Pledge Security Agreement and the IP Security
Agreement) including, but not limited to any UCC-1 financing statements, all of
which, and related documents necessary and/or advisable to effectuate the
transaction contemplated in the above documents and all supplements, exhibits,
amendments, schedules and/or annexes to any such documents. The term “TA
Letter” means the irrevocable instructions to the Company’s transfer agent
in the form annexed hereto as Exhibit 1; the term “IP Security
Agreement” means the Intellectual Property Security Agreement annexed hereto
as Exhibit 2; the term “Security and Pledge Agreement” means the
Security and Pledge Agreement annexed hereto as Exhibit 3; the term
“Subsidiary Guaranty” means the Subsidiary Guaranty Agreement annexed
hereto as Exhibit 4; the Stock Power of Attorney (the “SPA”) and
the stock certificate (the “Certificate”) for the 120 Class A Voting
Common Shares of Viscount Communications and Control Systems, Inc., a British
Columbia corporation and wholly-owned Subsidiary of the Company in the name of
the Company (FKA, OMV 4 Corp.) are all annexed here to as Exhibit 5; the
term “A Share Amendment” means the amendment to the Certificate of
Designation for the Company’s Series A Preferred Stock (as amended), annexed
hereto as Exhibit 6; and the term “B Certificate” means the
Company’s Certificate of Designation Establishing the Designations, Preferences
and Rights of its Series B Preferred Stock, a copy of which the Company
previously filed with the Secretary of State of Nevada, a copy of which,
together with the stock certificates representing the Company’s Series B
Preferred Stock (the “B Stock”) issued to certain holders of Notes and
Other Notes (as defined below) and the proof of filing of such B Certificate
with the Nevada Secretary of State are annexed hereto as Exhibit 7.
2
2. Conversion.
2.1 Optional Conversion.
All Principal, accrued, but unpaid Interest and all other amounts due herein
and/or pursuant to the Transaction Documents may be converted at the sole option
of the Holder, at any time and from time to time into such number of shares
(“Conversion Shares”) of common stock, par value $0.001 per share (the
“Common Stock”) as shall equal the quotient of (i) all Principal, all
accrued but unpaid Interest and any other funds owed to the Holder by the
Company under this Note and/or any other Transaction Document that the Holder
has elected to convert any Conversion Amount (a “Conversion”) into
Conversion Shares (the “Conversion Amount”), divided by (ii) the
Conversion Price. “Trading Day” means a day on which the Common Stock is
eligible for quotation on the OTC Market, or, if the Common Stock is not then
eligible for quotation on the Trading Market then any day that the Common Stock
is traded or eligible for quotation on any other United States commonly
acceptable trading medium or market place where the Common Stock is then traded
or eligible for quotation. “Conversion Price” shall mean the product of
(x) sixty (60%) percent multiplied by (y) the lowest bid price (or lowest sale
price, as the case may be) of a share of Common Stock during the 20 consecutive
Trading Days prior to the date of any Conversion with the last Trading Day being
the Trading Day immediately prior to the Trading Day the Holder informs the
Company in writing by a Conversion Notice (as defined below) that the Holder is
converting all or any part of this Note into shares of Common Stock.
2.2 Mechanics of
Conversion. To effectuate a Conversion pursuant to this Section 2, the
Holder shall transmit by hand, facsimile or email (or otherwise deliver), for
receipt on or prior to 11:59 p.m., New York time on such date, a copy of a fully
completed executed notice of conversion in the form attached hereto as
Annex 1 (the “Conversion Notice”) to the Company. The date
of any Conversion shall be deemed the date a Conversion Notice is deemed given
pursuant to Section 13.8 hereof (the “Conversion Date”). If, but only if,
all Principal and accrued but unpaid Interest and all other amounts owed to the
Holder under this Note and the other Transaction Documents is being converted
into Conversion Shares, a Holder shall deliver to the Company this Note, but in
no other event shall this Note be required to be delivered to the Company to
effectuate a Conversion. The calculations and entries set forth on a Conversion
Notice shall control in the absence of manifest or mathematical error. On or
before the third (3rd) Trading Day following the Conversion Date (the
“Share Delivery Date”), the Company shall (x) issue and deliver to the
address as specified in the Conversion Notice, a certificate, registered in the
name of the Holder or its designee, for the number of Conversion Shares to which
the holder shall be entitled, or (y) provided that the Company’s transfer agent
(the “Transfer Agent”) is participating in The Depository Trust Company
(“DTC”) Fast Automated Securities Transfer Program, upon the request of
the Holder, credit such aggregate number of Conversion Shares to which the
Holder shall be entitled to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system. If a Holder elects
to deliver this Note, and the entire Principal, all accrued but unpaid Interest
and all other amounts owed under this Note and the other Transaction Documents
is not being converted, then the Company shall, as soon as practicable after
receipt of the Note (but in no event later than five (5) Trading Days), cause to
be issued and delivered to the Holder a new Note representing the remaining
amount of Principal on the Note not converted. The person or persons entitled to
receive the Conversion Shares issuable upon a Conversion shall be treated for
all purposes as the record holder or holders of such Conversion Shares on the
date such Conversion Shares are issued. Each Note shall be converted into such
number of Conversion Shares, as provided in this Section 2.
2.3 Failure to Deliver
Certificates. If, in the case of any Conversion Notice, the required Common
Stock certificate or certificates are not delivered to or as directed by the
applicable Holder without restrictive legend by the Share Delivery Date, the
Holder shall be entitled to elect by written notice to the Company at any time,
to rescind such conversion, in which event the Company shall promptly return to
the Holder any Note delivered to the Company and the Holder shall promptly
return to the Company any Common Stock certificates issued to such Holder
pursuant to the rescinding Conversion Notice.
3
2.4 Obligation Absolute; Partial Liquidated
Damages. The Company’s obligations to issue and delivery the Conversion
Shares upon a Conversion in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to such Holder in connection with the
issuance of such Conversion Shares. In the event a Holder shall elect to convert
any Conversion Amount into Conversion Shares, the Company may not refuse
conversion based on any claim that such Holder or anyone associated or
affiliated with such Holder has been engaged in any violation of law, agreement
or for any other reason, unless an injunction from a court, on notice to Holder,
expressly restraining and/or enjoining conversion of all or part of the
Conversion Amount shall have been sought and obtained by the Company, and the
Company posts a cash surety bond for the benefit of such Holder in the amount of
300% of the Principal, all accrued but unpaid Interest thereon and all other
amounts hereunder this Note and the Transaction Documents which is subject to
the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which shall
be payable to such Holder to the extend it obtains judgment. In the absence of
such injunction, the Company shall issue Conversion Shares and, if applicable,
cash, by the Share Delivery Date. If the Company fails to deliver to a Holder
such certificate or certificates without restrictive legend, by the Share
Delivery Date applicable to such conversion, or in the event of a dispute, fails
to post the surety bond in accordance with this paragraph, the Company shall pay
to such Holder, in cash, as liquidated damages and not as a penalty, for each
$10,000 of Conversion Amount, $200 per Trading Day commencing the day after the
Share Delivery Date (increasing to $400 per Trading Day on the fifth
(5th) Trading Day after such damages begin to accrue) for each
Trading Day after such Share Delivery Date until the earlier of the date such
certificates are delivered without restrictive legend or Holder rescinds such
conversion. Nothing herein shall limit a Holder’s right to pursue actual damages
for the Company’s failure to deliver the required amount of Conversion Shares
without restrictive legend and such Holder shall have the right to pursue all
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief without
the need by any Holder to post any bond which the Company hereby waives such
requirement. The exercise of any such rights shall not prohibit a Holder from
seeking to enforce damages pursuant to any other Section hereof or under
applicable law. “Person” means an individual, a corporation, a
partnership, an association, a joint-stock company, a Trust, any unincorporated
organization, or government or political sub-division thereof.
2.5 Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion. In addition
to any other rights available to the Holder, if the Company fails for any reason
or no reason to deliver to a Holder the applicable certificate or certificates
by the Share Delivery Date and if after such Share Delivery Date such Holder is
required by its brokerage firm to purchase (in an open market transaction or
otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common
Stock to deliver in satisfaction of a sale by such Holder (or a deemed sale) of
the Conversion Shares which such Holder was entitled to receive upon the
conversion relating to such Share Delivery Date (a “Buy-In”), then the
Company shall (A) pay in cash to such Holder (in addition to any other remedies
available to or elected by such Holder) the amount, if any, by which (x) such
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder was entitle to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of such Holder, either reissue (if
surrendered) the Note (in which case, such conversion shall be deemed rescinded)
or deliver to such Holder the number of shares of Common Stock that would have
been issued if the Company delivered the required amount of Conversion Shares by
the Share Delivery Date. For example, if a Holder purchases shares of Common
Stock having total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of the Note with respect to which the actual sale price
of the Conversion Shares (including any brokerage commissions) giving rise to
such purchase obligation was a total of $10,000 under clause (A) above, the
Company shall be required to pay such Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to such Holder in
respect of the Buy-In and, upon request of the Company, evidence of the amount
of such loss. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely delivery certificates representing
shares of Common Stock upon conversion of the Note as required pursuant to the
terms hereof.
4
3. Default; Events of Default; Remedies.
3.1 Default.
Notwithstanding that this Note is a demand note and all amounts due
hereunder become due and payable pursuant to and in accordance with the first
paragraph of this Note, the Company shall be in default under this Note upon the
happening of any condition or event set forth below (each, an “Event of
Default”):
(a) the Company’s failure (i) to pay when due any Principal on
the due date hereunder, or (ii) to pay any Interest or other payment due on
and/or under this Note within two (2) days following the due date hereunder;
(b) a breach of any provision and/or default or event of
default (subject to any grace or cure period provided in the applicable
agreement, document or instrument) shall occur under any of the Transaction
Documents and/or any other document related to the Other Notes;
(c) the Company shall fail for any reason to obtain the consent
of the Holder pursuant to Section 4 to take any of the actions enumerated in
Section 4;
(d) the Common Stock shall not be eligible for listing or
quotation for trading on a Trading Market and shall not be eligible to resume
listing or quotation for trading thereon within five (5) consecutive Trading
Days from the first date of lack of eligibility;
(e) the electronic transfer by the Company of shares of Common
Stock through the Depository Trust Company or another established clearing
corporation is no longer available or is subject to a “chill” (i.e., the
Depository Trust Company announces that it will not accept the deposit of shares
of Common Stock into its participants’ street name accounts);
(f) failure to reserve and keep available out of its authorized
and unissued Common Stock the number of shares of Common Stock as described in
Section 6 and/or otherwise comply with any other provision of Section 6;
(g) the Company shall (i) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian of itself or of all
or a substantial part of its property, (ii) be unable, or admit in writing its
inability, to pay its debts as they mature, (iii) make a general assignment for
the benefit of its or any of its creditors, (iv) be dissolved or liquidated, (v)
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
consent to any such relief or to the appointment of or taking possession of its
property by any official in an involuntary case or other proceeding commenced
against it, or (vi) take any action for the purpose of effecting any of the
foregoing;
(h) proceedings for the appointment of a receiver, trustee,
liquidator or custodian of the Company or of all or a substantial part of the
property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to the Company or the
debts thereof under any bankruptcy, insolvency or other similar law now or
hereafter in effect shall be commenced and an order for relief entered or such
proceeding shall not be dismissed or discharged within 60 days of commencement;
(i) any default in any of the other Transaction Documents
and/or other Indebtedness of the Company and/or any of its Subsidiaries (as
defined below) including, but not limited to any Other Notes (as defined below)
and/or any documents related thereto; or
(j) a breach of any other provision of this Agreement
5
4. Limitations on Company Actions.
4.1 Notwithstanding anything to
the contrary provided herein or elsewhere, as long as this Note is issued and
outstanding, the Company shall not, and shall not permit any current or future,
direct or indirect, wholly-owned or partially owned subsidiary (a
“Subsidiary,” and collectively, the “Subsidiaries”) to, without
the express written consent of Holders, directly and/or indirectly, owning no
less than 50.1% of the aggregate Principal of all of the Notes then outstanding:
(a) amend, alter, change, waive or repeal any provision of the
Articles of Incorporation or By-Laws, each as amended (the “Articles of
Incorporation” and “By-Laws,” respectively) (and/or those of any of
its Subsidiaries), in any manner that could, directly and/or indirectly,
adversely affect the rights of the Holders;
(b) alter, waive, repeal, amend, and/or change any provision of
this Note;
(c) incur any Indebtedness (other than that outstanding and in
such principal amount outstanding as of June 5, 2012 and that represented by the
Notes and the Other Notes, Transaction Documents and the transaction documents
for the Other Notes) which if any such amount is permitted to be paid down, in
whole or in part, pursuant to this Note and is paid down, in whole or in part,
cannot be borrowed again except (A) if such Indebtedness constitutes Permitted
Debt (as defined below), and (B) any such reborrowed Permitted Debt is counted
on a dollar for dollar basis against the Permitted Debt Cap (as defined in
below); provided, however, that subject to the limitations
provided in this subparagraph, the Company and/or its Subsidiaries may borrow
together in the aggregate up to $1,000,000 principal amount of Permitted Debt
(the “Permitted Debt Cap”). For the purposes hereof, the term
“Permitted Debt” shall mean (A) non-convertible, non-equity linked bank
debt from a federal or state-chartered bank on commercially reasonable terms,
which borrowed funds shall be used by the Company and/or its Subsidiaries in
their respective historical and ordinary course of business; and (B) no equity
of the Company and/or any of its Subsidiaries (including, but not limited to,
warrants, stock options and/or other securities) is issued directly and/or
indirectly in connection with any borrowings of such Permitted Debt. For
purposes hereof, “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 United States generally
accepted accounting principles (other than trade payables entered into in the
ordinary course of business), (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). For purposes of this Note,
“Contingent Obligations” shall mean, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend and/or other obligation of another Person if a
purpose or intent of the Person incurring such liability, or the direct and/or
indirect effect thereof, is to provide assurance (whether in writing, orally,
and/or by any other means, which shall include, but not be limited to, any
direct and/or indirect guaranty) 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;
6
(d) pay and/or make dividends, distributions and/or any other
payment (whether in cash, securities or property) on any securities of the
Company and/or any Subsidiary other than to the Holders of the Notes and the
Other Notes;
(e) enter into any transaction with any Affiliate (as defined
under the Securities Act of 1933, as amended, the “1933 Act”), which
would be required to be disclosed in any public filing with the Securities and
Exchange Commission (the “SEC”) pursuant to SEC laws, rules and/or
regulations, other than any transaction pursuant to which an Affiliate of the
Company and/or Subsidiary is employed pursuant to a written agreement by the
Company and/or any Subsidiary which is negotiated on an arms-length basis, is
approved by the independent directors of the Board of Directors and does not
exceed industry standards, based upon the Company’s industry, the revenues and
income of the Company and the work that such Affiliate will perform pursuant to
such arrangement;
(f) redeem, repurchase and/or otherwise enter into or
effectuate a similar transaction for any securities of the Company and/or any
Subsidiary other than the Note and the Other Notes;
(g) other than the Notes and the Other Notes, repay any
Indebtedness and/or other obligation other than (1) any bank debt outstanding as
of June 5, 2012, but only in accordance with and to the extent of the terms and
conditions of such bank debt as of June 5, 2012; provided,
however, that notwithstanding anything to the contrary provided herein or
elsewhere, no bank debt and/or any other Indebtedness may be pre-paid, (2) any
accounts payable incurred in the normal course of the Company’s historical and
ordinary business, (3) $45,000 aggregate principal amount loan advanced on March
26, 2012 plus accrued, but unpaid simple interest of 8% per annum to a
shareholder of the Company (the “Lender”), provided that simultaneously
with and as a condition to the repayment (including, but not limited to,
accrued, but unpaid interest) to the Lender of such loan, the Lender provides to
the Company (A) written evidence signed by the Lender that no other amounts are
owed by the Company to the Lender pursuant to such loan, and (B) a full written
release signed by the Lender of any and all claims by the Lender against the
Company and/or its Subsidiaries in respect of such loan (“Release
Documents”), (4) up to $60,000 of outstanding principal on loans due to
shareholders and related parties as disclosed on the Company’s balance sheet
dated March 31, 2012 filed with the SEC on or about May 15, 2012,
provided that in each case, Release Documents are obtained, and (5) any
Permitted Debt in accordance with the terms and conditions in this Note;
7
(h) Other than the Notes and/or the Other Notes, effect or
enter into an agreement to effect any sale and/or issuance of Common Stock or
Common Stock Equivalents (as defined below) directly and/or indirectly involving
a Variable Rate Transaction. For purposes of this Note, the term “Variable
Rate Transaction” means a transaction in which the Company and/or its
Subsidiaries (a) issues or sells any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive, additional shares of Common Stock either (1) at a conversion price,
exercise price or exchange rate or other price that is based upon, and/or varies
with, the trading prices of or quotations for the shares of Common Stock at any
time after the initial issuance of such debt or equity securities or (2) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the Common Stock; (b) enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price, or (c)
enters into any type of equity line of credit or similar agreement and/or
transaction. For purposes of this Note, the term “Common Stock
Equivalents” means any securities of the Company and/or its Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants 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;
(i) enter into any agreement or understanding (whether in
writing, orally or otherwise) to do any of the above; or
(j) directly and/or indirectly create and/or otherwise permit
to exist any Liens on any assets of the Company and/or any of its Subsidiaries
except (i) any Lien for taxes not yet due or delinquent or being contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, (ii) any statutory Lien arising in the
ordinary course of business by operation of law with respect to a liability that
is not yet due or delinquent, (iii) any Lien created by operation of law, such
as materialmen’s liens, mechanics’ liens and other similar liens, arising in the
ordinary course of business with respect to a liability that is not yet due or
delinquent or that are being contested in good faith by appropriate proceedings,
or (iv) any Liens securing any obligations of the Company and/or any Subsidiary
under the Notes and Other Notes; (the terms “Lien” or
“lien” shall mean a lien, mortgage, charge, pledge, security
interest, encumbrance, right of first refusal, preemptive right or other
restrictions, clouds on title and/or encumbrances).
4.2 Notwithstanding anything to
the contrary provided herein or elsewhere, without the express written consent
of holders owning 50.1% of the aggregate principal amount of all notes and Other
Notes then outstanding (“Required Amount”), the Company shall not, and
shall not permit any Subsidiaries to:
(a) effect any merger, acquisition, sale, consolidation,
reorganization and/or similar transaction or a Change of Control (as defined
below), (each, an “Event”) except any Event which upon the date of the
occurrence or closing of any Event, as the case may be, (i) the Holder receives
in exchange for this Note, cash in an amount not less than two (2) times the
then Principal amount of the Note immediately prior to the occurrence or closing
of such Event, plus all accrued, but unpaid interest and other payments owed to
the Holder by the Company and/or its Subsidiaries, or (ii) if an Event is
structured whereby the Holder receives securities of a non-affiliated,
third-party entity, the common stock of such entity is listed on a National
Securities Exchange (as defined in the 1933 Act) and such common stock for the
twenty (20) consecutive Trading Days with the last Trading Day being the Trading
Day prior to the occurrence or closing of such Event has a daily market
capitalization of no less than $100 million. For purposes of this Note, the term
“Change of Control” means the occurrence after the date hereof of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Securities
Exchange Act of 1934, as amended (the “1934 Act”) of effective control
(whether through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of 50% of the voting securities of the
Company, (ii) the Company merges into or consolidates with any other Person, or
any Person merges into or consolidates with the Company and, after giving effect
to such transaction, the stockholders of the Company immediately prior to such
transaction own less than 50% of the aggregate voting power of the Company or
the successor entity of such transaction, (iii) the Company sells or transfers
all or substantially all of its assets to another Person and the stockholders of
the Company immediately prior to such transaction own less than 50% of the
aggregate voting power of the acquiring entity immediately after the
transaction, (iv) a replacement at one time or within a six (6) month period of
more than one-half of the members of the Board of Directors which is not
approved by a majority of those individuals who were members of the Board of
Directors on June 5, 2012 (or by those individuals who are serving as members of
the Board of Directors on any date whose nomination to the Board of Directors
was approved by a majority of the members of the Board of Directors who were
members on June 5, 2012), or (v) the execution by the Company and/or any of its
shareholders of an agreement to which the Company is a party or by which either
is bound, providing for any of the events set forth in clauses (i) through (v)
above.
8
(b) decrease or increase the authorized size of the
Company’s (and/or any of its Subsidiaries’), Board of Directors, other than as
expressly provided herein; or
(c) directly and/or indirectly, adopt, amend and/or supplement
any new stock option plan and/or similar plan (the “SOP Plans”), except
where the maximum number of shares of Common Stock that may be acquired directly
and/or indirectly upon exercise of stock options issued under the SOP Plans,
when aggregated with the maximum number of shares of Common Stock that may be
acquired directly and/or indirectly under all other stock option plans and/or
stock options outstanding as of the date hereof (including, but not limited to,
all stock options issued prior to the date hereof under any SOP Plans and/or
otherwise, regardless of whether any such SOP Plans and/or other stock options
have terminated and/or expired with or without being exercised) does not and
will not at any time prior to and including March 3, 2017, exceed in the
aggregate 32,500,000 shares of Common Stock (which 32,500,000 shall be
proportionately adjusted to take into account each stock split and/or reverse
stock split occurring following March 31, 2014).
5. Anti-Dilution
Provisions. The Conversion Price in effect at any time and the number and
kind of securities issuable upon conversion of the Note shall be subject to
adjustment from time to time upon the happening of the events as follows:
5.1 Adjustment for Dividends in Other Stock and Property
Reclassifications. In case at any time, or from time to time, the holders of
the Common Stock (or any shares of stock or other securities at the time
receivable upon any conversion of the Note) shall have received, or, on or after
the record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefor:
(a) other or additional stock or other securities or property
(other than cash) by way of dividend;
9
(b) any cash or other property
paid or payable out of any source other than retained earnings (determined in
accordance with generally accepted accounting principles); or
(c) other or additional stock or other securities or property
(including cash) by way of stock-split, spin-off, reclassification, combination
of shares or similar corporate rearrangement (other than (x) additional shares
of Common Stock or any other stock or securities into which such Common Stock
shall have been changed, (y) any other stock or securities convertible into or
exchangeable for such Common Stock or such other stock or securities or (z) any
stock purchase rights, issued as a stock dividend or stock-split, adjustments in
respect of which shall be covered by the terms of Section 5.3 or Section
5.4, then and in each such case, the Holder, upon any conversion of the Note,
shall be entitled to receive the amount of stock and other securities and
property (including cash in the cases referred to in clauses (a) and (b) above)
which such Holder would have been entitled to receive had such Holder been the
holder of record, on the date of any such issuances described in clauses (a),
(b) or this clause (c), of the number of shares of Common Stock into which the
Note is being converted, giving effect to all adjustments called for during such
period by Section 5.1 and Section 5.2.
5.2 Adjustment for
Reorganization, Consolidation and Merger. In case of any reorganization of
the Company (or any other corporation the stock or other securities of which are
at the time receivable on the conversion of the Note) after the Issuance Date,
or in case, after such date, the Company (or any such other corporation) shall
consolidate with or merge into another corporation or entity or convey all or
substantially all its assets to another corporation or entity (any such
reorganization or other event hereafter being referred to as a
“Reorganization”), then and in each such case the Note, upon conversion,
as and at any time after the consummation of such Reorganization, shall be
converted into, in lieu of the stock or other securities and property into which
the Note would have been convertible prior to such Reorganization, such stock or
other securities or property to which the Note would have converted if they had
been converted immediately prior to any such Reorganization, subject to further
adjustment as provided in Sections 5.1, Section 5.3, and Section 5.4, in each
such case.
5.3 Adjustment for Certain
Dividends and Distributions. If the Company at any time, or from time to
time, makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event, the Conversion
Price then in effect shall be decreased as of the time of such issuance or, in
the event such record date is fixed, as of the close of business on such record
date, by multiplying the Conversion Price then in effect by a fraction (A) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (B) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date as the
case may be, plus the number of shares of Common Stock issuable in payment of
such dividend or distribution; provided, however, that if such
record date is fixed and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, the Conversion Price shall be
recomputed accordingly as of the close of business on such record date, and
thereafter the Conversion Price shall be adjusted pursuant to this Section 5.3
as of the time of actual payment of such dividends or distributions.
5.4 Stock Split and Reverse
Stock Split. If the Company at any time, or from time to time, effects a
stock split or subdivision of the outstanding Common Stock, the Conversion Price
then in effect immediately before that stock split or subdivision shall be
proportionately reduced. If the Company at any time, or from time to time,
effects a reverse stock split or combines the outstanding shares of Common Stock
into a smaller number of shares, the Conversion Price then in effect immediately
before that reverse stock split or combination shall be proportionately
increased. Each adjustment under this Section 5.4 shall become effective at the
close of business on the date the stock split, subdivision, reverse stock split
or combination becomes effective.
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5.5 Fundamental Transaction. If, at any time while any
the Note is outstanding, (A) the Company effects any merger, means an individual
or corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind, consolidation or
similar transaction of the Company with or into another Person, (B) the Company
effects any sale of all or substantially all of its assets in one or a series of
transactions, (C) any tender offer or exchange offer (whether by the Company or
another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (D) the Company effects any reclassification of the Common Stock or
any share exchange pursuant to which the Common Stock is effectively converted
into or exchanged for other securities, cash or property (each a “Fundamental
Transaction”), then, upon any subsequent conversion of the Note, the Holder
shall have the right to receive, for each share of Common Stock that would have
been issuable upon such conversion immediately prior to the occurrence of such
Fundamental Transaction, the number of shares of Common Stock of the successor
or acquiring Person or of the Company, if it is the surviving corporation, and
any additional consideration (the “Alternate Consideration”) receivable
as a result of such merger, consolidation, or disposition of assets or other
similar transaction by a holder of the number of shares of Common Stock for
which the Note is convertible immediately prior to such event. For purposes of
any such conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of the Note following such Fundamental Transaction.
The terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving Person to
comply with the provisions of this Section 5.5 and insuring that the Note (or
any such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
5.6 Other Events.
Notwithstanding anything to the contrary provided in this Note or elsewhere, if
the Company, at any time and from time to time commencing on the Issuance Date
and expiring at the end of the day February 24, 2019, Easter Standard Time,
sells and/or issues shares of Common Stock and/or issues and/or sells Common
Stock Equivalents, as defined below (a “New Common Offering”) having a
sale and/or exercise, conversion or exchange price (the “Subsequent Lower
Issuance Price”) at a price less than the Additional Share Trigger Price (as
defined below) (a “Subsequent Lower Issuance”), then and in each such
case the (i) Conversion Price shall be automatically adjusted to the Subsequent
Lower Issue Price, and (ii) Company shall issue (without cost to the Holder),
such number of additional shares of Common Stock (the “Additional Common
Stock”) calculated as follows:
A = [((B/C) – 1) x D] – A1
A is the number of additional shares of
Common Stock to be issued to the Holder.
B is the Additional Share Trigger Price
C is the greater of (I) the Subsequent
Lower Issuance Price and (II) the Conversion Price.
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D is the number of shares of Common
Stock issuable to the Holder on conversion of this Note as at the date of the
Subsequent Lower Issuance.
A1 is the aggregate number of shares of
Additional Common Stock previously issued to the Holder pursuant to one of more
prior Subsequent Lower Issuances.
For example; assuming an Additional Share Trigger Price of
$0.10 and a Subsequent Lower Issuance Price of $0.08, and assuming the number of
shares of Common Stock issuable to a Holder on conversion of such Holder’s Note
at the Subsequent Lower Issuance is 100, and further assuming no prior
Subsequent Lower Issuances, the number of additional shares of Common Stock to
be issued to the Holder would be 25.
The reduction in the Conversion Price and the Common Stock
issuances set forth in this Section 5.6 shall occur each time the Company issues
and/or sells shares of Common Stock and/or Common Stock Equivalents with a price
and/or an exercise, exchange and/or conversion price, as the case may be, less
than the Additional Share Trigger Price and/or the Conversion Price. The
Additional Share Trigger Price shall also be adjusted for stock splits, reverse
stock splits and related items as provided in this Note affecting all the issued
and outstanding shares of Common Stock in the same manner. Notwithstanding
anything to the contrary provided herein, the Additional Share Trigger Price
shall not increase as a result of further issuances of securities by the
Company. For purposes of this Section, “Additional Share Trigger Price”
means $0.09 per share of Common Stock.
6. Reservation of Authorized Shares.
6.1 So long as any Notes and/or
any other securities of the Company are owned by the Holder (and/or any
transferee thereof) beneficially and/or of record, the Company covenants and
agrees that no later than the date 60 days from the Original Issuance Date (the
“Required Date”) it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock a number of shares of Common
Stock at least equal to (the “Required Reserve Amount”) (i) 300%,
multiplied by (ii) the Required Minimum (as defined below) for the sole purpose
of issuance upon conversion of this Note and all other Notes issued and
outstanding on the date of any determination, free from preemptive rights or any
other actual and/or contingent purchase rights of any other persons and/or
entity. The Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly authorized, validly issued, fully paid and
nonassessable, and, at such times as a registration statement covering such
shares is then effective under the Securities Act, will be registered for public
resale in accordance with such registration statement. For purposes of this
Note, the “Required Minimum” shall mean the product of (A) the quotient
obtained by dividing (I) the sum of (i) all outstanding Principal
represented by this Note and all other Notes issued and outstanding on the date
of any determination, (ii) all Interest hereon and thereon (whether accrued or
not), and (iii) all other amounts owed under this Note and the other Transaction
Documents by (II) the Conversion Price, and the resulting number multiplied by
(B) 300%. The Company shall be required to calculate the Required Minimum on the
first Trading Day of every other week that any amounts are owed by the Company
under this Note, any other Notes and/or the other Transaction Documents and
provide such calculation to each Holder of Notes and the Transfer Agent in
writing on such date. For purposes of calculating the Required Minimum, the
Company shall assume that all Principal of this Note and any other Notes
outstanding will remain outstanding for eighteen (18) months and Interest is
paid in Notes and accrues at the Interest Rate and is all paid on the date 18
months from the Issuance Date. The covenant by the Company set forth above in
this Section 6.1 as it relates to the first time the Company is required to
satisfy the Required Reserve Amount (the “6.1 Covenant), shall be
calculated and satisfied for and on the earliest date possible but in no event
later than the Required Date. In addition, the Company’s authorized but unissued
and unreserved shares of Common Stock shall have been increased (the “Initial
Increase”) to 3 billion shares of Common Stock (all in accordance with all
applicable rules, laws and regulations including, but not limited to those of
FINRA, Nevada law and the SEC), as soon as possible by the Company using its
best-efforts, but in no event shall such Initial Increase occur later than the
Required Date. Failure by the Company to satisfy the 6.1 Covenant and the
Initial Increase, as soon as possible but in no event later than the Required
Date, to file the Information Statement (as defined below) with the SEC for the
Initial Increase within 5 Business Days from the date hereof and/or the Company
not using its best efforts to satisfy such conditions will result in the payment
by the Company to the Holder of the 2% Amount (as defined below) per day
commencing on the first day of any breach of any such conditions, which shall be
in addition to any and all other rights and remedies that the Holder may take
against the Company in law and/or equity under this Note, the Transaction
Documents, applicable law and/or otherwise, all of which shall be
cumulative.
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6.2 Initial Reservation; Subsequent Authorized Deficiency;
and Subsequent Reserve Amount Deficiency. On the Issuance Date, the
Company shall have 300,000,000 shares of Common Stock authorized, approximately
127,000,000, shares of Common Stock issued and outstanding and reserved out of
its authorized but unissued and unreserved shares of Common Stock 162,000,000
shares of Common Stock solely for issuance upon conversion of the Other Notes.
At any time and from time to time following the Required Date, and
notwithstanding anything to the contrary provided herein or elsewhere, in the
event that the Company, the Holder, any other holder of Notes and/or the
Collateral Agent shall determine that the Company (i) has not satisfied the
Required Reserve Amount ( a "Subsequent Reserve Amount Deficiency"), and/
or (ii) does have sufficient shares of Common Stock authorized and unissued and
unreserved to satisfy the Required Reserve Amount ( a "Subsequent Authorized
Deficiency"), the Company shall immediately notify the holders of the Notes
and the Collateral Agent in writing of 1 or both deficiencies, as the case may
be (and /or the Holder, any other holders of the Notes and/or the Collateral
Agent shall determine and inform the Company of one or both deficiencies, as the
case may be), then the Company shall file within 5 Business Days an Information
Statement on Form 14A or Form 14B, as applicable (an "Information
Statement"), with the SEC and take all such other action to cure the
Subsequent Reserve Deficiency and/or the Subsequent Authorized Deficiency, as
the case may be, no later than 45 days from the date the Company becomes or
should have become aware of one and/or both deficiencies, as the case may be
(the "Last Day"). Failure by the Company to file an Information Statement
as part of curing 1 or both such deficiencies as required pursuant to this
Section 6.2 and in the time frame so required by this Section 6.2, use its best
efforts to cure 1 or both of such deficiencies, as the case may be, by Last Day,
either or both deficiencies , as the case may be, are not cured by the Last Day
and/or if either or both deficiencies appear to be cured by the Last Day, but
the cure of either or both deficiencies, as the case may be, did not comply with
all applicable laws, rules and regulations, including but not limited to the
laws of the State of Nevada and the Securities and Exchange Commission (each a
“Breach”), then the Company shall pay to the Holder and each other holder
of Notes (or the Collateral Agent for the benefit of itself and the Holder and
the other holders of the Notes, for each day that the Company has not cured each
Breach including the first date of any Breach, in cash by wire transfer to the
Holder and each other holder of Notes (or the Collateral Agent for the benefit
of itself, the Holder and the other holders of the Notes), an amount equal to 2%
of the Holder’s and each other holder of Notes aggregate principal amount of
their respective Notes and all accrued but unpaid Interest and other amounts due
to the Holder and each other holder under this Note and each other Note as well
as each other Transaction Document through and including the datel all Breaches
are cured and all amounts owed to the Holder and each other holder of Notes are
received in full in cash by the Holder and each other holder (or the Collateral
Agent by wire transfer pursuant to wiring instructions provided to the Company
from the Holder and each other holder or the Collateral Agent (the “2%
Amount”). Notwithstanding anything to the contrary provided herein, holders
owning at least 50.1% of the aggregate principal amount of Notes then
outstanding (or the Collateral Agent may declare an Event of Default under the
Notes and obtain any other relief available under applicable law, whether in
equity or otherwise, and/or in any of the Transaction Documents. In no event
shall any action or non-action by the Holder, any other holder of Notes and/or
the Collateral Agent under Section 6.1 and/or this Section 6.2 constitute a
waiver of any right and/or remedy any such persons may have under law, and/or
the Transaction Documents. Once the Initial Increase is in effect and any
Subsequent Share Deficiency has been cured , as the case may be, the Company
shall immediately calculate the Required Reserve Amount for the Holder and each
other holder and immediately provide a draft of an irrevocable instruction to
its transfer agent to the Holder and each other holder of Notes, and the
Collateral Agent which once approved by the Holder and each other holder and/ or
the Collateral Agent shall immediately be signed by the Company and delivered to
the Company’s transfer agent to meet the Required Reserve Amount.
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7. Security; Subsidiary Guaranty. This Note, all other
Notes and the Other Notes shall rank pari passu with each other in all respects
and all of the Company’s and its Subsidiaries’ obligations to the Holder, the
other holders of the Notes and the holders of the Other Notes and in the other
Transaction Documents are secured on a pari passu basis by all of the assets of
the Company and its Subsidiaries pursuant to the IP Security Agreement, the
Security and Pledge Agreement and all obligations of the Company to the Holder
hereunder including, but not limited to, the payment of Principal, Interest and
all other amounts due hereunder and/or pursuant to the other Transaction
Documents are guaranteed by the Company’s Subsidiaries pursuant to the Guaranty
Agreement. Pursuant to the Security and Pledge Agreement, all shares of issued
and outstanding capital stock of the Company’s represented by the Certificate
have been pledged by the Company to the Collateral Agent for the benefit of the
Collateral Agent and such other holders of Notes and Other Notes.
Notwithstanding anything to the contrary provided herein or elsewhere, prior to
any payments of principal to the holders of the Other Notes from (i) the sale of
any assets of the Company and/or any of its Subsidiaries, and/or (ii) cash flow
of the Company and/or its Subsidiaries (“Payment Events”), the holders of
the Notes shall be entitled to receive the full payment of all amounts owed to
them under their respective Notes, provided, however,
notwithstanding anything to the contrary provided herein or elsewhere (x) at the
election of each holder of Notes, any such payments due to any such holders of
Notes of principal based upon Payment Events, shall be payable in whole and/or
part to reduce on a dollar for dollar basis any amounts owed by the Company
and/or any Subsidiary to any Other Notes owned, if any, by such holder of Notes,
all in the sole discretion of the particular holder of a Note in the following
order: first to all amounts owed other than Principal and Interest, second to
all Interest owed and third to all outstanding Principal.
8. Limitation on Number of Shares Issuable to Holder
8.1 Other than as provided
elsewhere in this Section 8, at no time may the Holder convert any portion of
this Note if the number of shares of Common Stock to be issued pursuant to such
conversion would exceed, when aggregated with all other shares of Common Stock
owned by such Holder at such time, the number of shares of Common Stock which
would result in such holder beneficially owning (as determined in accordance
with Section 13(d) of the 1934 Act), more than 4.99% of all of the Common Stock
outstanding at such time; provided, however, that upon the Holder
providing the Company with sixty-one (61) days notice that such holder would
like to waive this Section 8.1 with regard to any or all shares of Common Stock
issuable upon conversion of the Note, this Section 8.1 shall be of no force or
effect with regard to the principal amount referenced in the Waiver Notice.
8.2 Other than as provided
elsewhere in this Section 8, at no time may the Holder convert any portion of
the Note if the number of shares of Common Stock to be issued pursuant to such
conversion would exceed, when aggregated with all other shares of Common Stock
owned by such Holder at such time, the number of shares of Common Stock which
would result in such holder beneficially owning (as determined in accordance
with Section 13(d) of the 1934 Act) in excess of 9.99% of all of the Common
Stock outstanding at such time; provided, however, that upon the
Holder providing the Company with sixty-one (61) days notice that such Holder
would like to waive this Section 8.2 with regard to any or all shares of Common
Stock issuable upon conversion of the Note, this Section 8.2 shall be of no
force or effect with regard to the principal amount referenced in the Waiver
Notice.
14
9. Lost or Stolen Note. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of the Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of the Note, the Company shall execute and deliver a new promissory note of like
tenor and date.
10. Information Rights.
Unless otherwise publicly available in electronic format on the website of the
Company or filed with the SEC, the Company shall furnish to the Holder within
one hundred and five (105) days after the end of each fiscal year, audited
financial statements of the Company and its consolidated subsidiaries and,
within sixty (60) days after the end of each of the quarters of each fiscal
year, unaudited financial statements of the Company.
11. Failure to Pay.
Notwithstanding anything to the contrary provided herein or elsewhere and in
addition to all other remedies available to the Holder under this Note, any
other Transaction Documents and/or elsewhere, if any payment hereunder or
elsewhere is due to the Holder, and such payment is not made (even if a payment
is not permitted to be paid because insufficient capital is available under
applicable law to make such payment), Interest on such payment (in addition to
any other Interest and/or penalties that become due), shall accrue at the rate
of the lesser of (i) 22% per annum, and (ii) the maximum amount permitted by
applicable law, and all Interest shall accrue and compound daily until all
payments are made, including Interest and penalties. Nothing in this Section 11
shall be deemed to constitute a waiver and/or election of remedies by a Holder,
all of which other remedies a Holder reserves its rights to pursue, whether in
law or equity.
12. Certain Payments.
Notwithstanding anything to the contrary provided herein or elsewhere, in the
event (i) any of the Transaction Documents are not in form and substance
reasonably satisfactory to the Collateral Agent, and properly executed and
delivered to the Holder no later than November 3, 2015, except for the documents
set forth in Section 12(ii), and/or (ii) the Collateral Agent has not received
by November 8, 2015 (a) the original Certificate, (b) the executed but undated
SPA, which SPA under applicable Canadian law will transfer all right, interest
and the title (free and clear of all liens, encumbrances and/or preemptive
rights) of the 120 shares represented by the Certificate to the Collateral Agent
as required by and pursuant to the Security and Pledge Agreement, (c) the
executed Security and Pledge Agreement, the IP Security Agreement and the
Guaranty in form and substance reasonably satisfactory to the Collateral Agent
and/or (d) the security interests created by the Security and Pledge Agreement,
and the IP Security Agreement have not been perfected in accordance with all
applicable laws, rules and regulations to provide the Collateral Agent, with a
perfected and a first priority senior lien on and in all of the Collateral (as
defined in the Security and Pledge Agreement), and all other assets of the
Company and its Subsidiaries subject only to any lien created pursuant to the
Full Factoring Agreement dated March 24, 2015 by and between Viscount
Communication & Control Systems, Inc. (the Company’s wholly-owned
subsidiary) and Liquid Capital Exchange Corp. (the “Factoring
Agreement”), provided such Factoring Agreement is not and has not been
amended, supplemented and/or otherwise changed since September 15, 2015, all to
the satisfaction of the Collateral Agent based upon evidence commercially
reasonably satisfactory to the Collateral Agent, then for each calendar day
during which one or more of such events have occurred, the Company shall pay to
the Holder and each other holder of Notes, $2,500 per day in immediately
available funds upon demand by the Holder, any other holder of Notes (and/or the
Collateral Agent for itself and the other Note holders) by wire transfer to the
bank account of the Holder and each other holder of Notes (or the Collateral
Agent for itself and each other Note holder), pursuant to wiring instructions
provided by the Holder and the other holders of Notes to the Company in writing
or to the Collateral Agent’s bank account (for the benefit of itself and the
other holders of Notes). If any such $2,500 payments are not received in full,
in cash when due, Interest on such payments shall accrue at the lower of (i) 22%
per annum, and (ii) the highest interest rate permitted by applicable law
compounding daily through and including the date all amounts owed to the Holder
and the other holders of Notes (or the Collateral Agent for the benefit of
itself and all holders of Notes), are received in full in cash by such persons.
The failure of the Holder, any other holder of Notes or the Collateral Agent to
take action and/or to not take any action, shall not directly and/or indirectly
constitute a waiver and/or an election of remedies by any such person(s), all of
which other remedies such persons reserve their respective rights to pursue
whether in law or equity.
15
13. Miscellaneous.
13.1 Waivers and
Amendments. This Note and the other Notes may only be amended, waived,
discharged or terminated (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely) with the written consent of holders owning no less than 50.1% of
the aggregate outstanding principal amount of all Notes at such time. This Note
may not be changed, waived, discharged or terminated orally but only by a signed
statement in writing.
13.2 Severability.
In the event that any provision of this Note becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this Note
shall continue in full force and effect without said provision; provided that no
such severability shall be effective if it materially changes the economic
benefit of this Note to any party.
13.3 Assignment. Subject
to compliance with applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are reasonably requested by the Company), this Note and all
rights therein, may be transferred or assigned in whole or in part by the
Holder. The Company agrees to use its best-efforts and take all reasonably
requested action to facilitate and effectuate the transfer and/or assignment of
this Note (in whole or in part), by the Holder and in the time frame so
requested by the Holder.
13.4 Titles and Subtitles.
The titles of the paragraphs and subparagraphs of this Note are for convenience
of reference only and are not to be considered in construing this Note.
13.5 Construction. The
language used in this Note will be deemed to be the language chosen by the
parties to express their mutual intent and no rules of strict construction will
be applied against any party.
13.6 Governing Law. All
questions concerning the construction, validity, enforcement and interpretation
of this Note shall be governed solely and exclusively by and construed and
enforced in accordance with the internal laws of the State of New York, without
regard to the principles of conflict of laws thereof. The Company expressly and
irrevocably agrees that all legal proceedings concerning the interpretation,
enforcement and defense of the transactions contemplated by this Note shall be
commenced exclusively in the state and/or federal courts sitting in the State,
City, and County of New York (the “New York Courts”). The Company
expressly and irrevocably submits to the exclusive jurisdiction of the New York
Courts for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein, and hereby
irrevocably and expressly waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction
of such New York Courts, or such New York Courts are improper or inconvenient
venue for such proceeding. The Company hereby expressly and irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by applicable law. In any action brought
by the Company concerning and/or arising directly and/or indirectly out of this
Note, the prevailing party shall be entitled to recover all of its legal fees
and expenses incurred by it with respect to any such legal action. THE
COMPANY EXPRESSLY AND IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE.
16
13.7 Rank of Notes. Except as otherwise provided herein,
this Note and, all other Notes and the Other Notes shall rank senior in all
respects to all other Indebtedness or other monetary obligations of the Company
and/or its Subsidiaries, whether such Indebtedness or other obligations are
outstanding as of the date of this Note or incurred after the date of this Note,
such that all such other Indebtedness or other obligations shall be subordinated
in right of payment to this Note.
13.8 Notices. Any and all
notices or other communications or deliveries to be provided by the Holder
hereunder including, without limitation, any Notice of Conversion, shall be in
writing and delivered personally, by facsimile (to facsimile number
1-604-327-3859) and email (to scott.sieracki@viscount.com), or sent by a
nationally recognized overnight courier service, addressed to the Company, at
the following address 4585 Tillicum Street, Burnaby, British Columbia, Canada
V5J 5K9, Attention: Scott Sieracki, President or such other facsimile number, or
address, or email as the Company may specify for such purposes by notice to the
Holders delivered in accordance with this Section 13.8. Any and all notices or
other communications or deliveries to be provided by the Company hereunder shall
be in writing and delivered personally, by facsimile, email or sent by a
nationally recognized overnight courier service addressed to each Holder at the
facsimile number, email or address of such Holder appearing on the books of the
Company. Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile or email at the
facsimile number or email address (as the case may be), set forth in this
Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next
Trading Day after the date of transmission, if such notice or communication is
delivered via facsimile or email at the facsimile number or email address (as
the case may be), set forth in this Section on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the
second Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given.
13.9 Board
Observer/Director. Commencing on the Issuance Date, at any time and from
time to time that any amounts due to the Holder and/or the other Holders of
Notes by the Company under this Note and/or the other Transaction Documents are
outstanding, the holders of 50.1% of the then outstanding aggregate principal
amount of the Notes and the Other Notes shall have the right to appoint an
observer to the Board of Directors of the Company (the “Observer”). The
Company shall (i) provide any such Observer with written notification of all
Board Meetings (whether an in person or telephonic Board meeting); and (ii) all
information given to any Board member, all in the same manner and at the same
time as a Board member gets or is entitled to receive any such notification
and/or information. Effective on the Issuance Date, all Directors of the
Company’s Board of Directors shall resign except for Mr. Ned L. Siegel and Mr.
Alexander Buehler; and the maximum number of Directors of the Company shall be
five (5), of which Messrs. Siegel and Buehler shall constitute 2 Directors and
the other 3 Directors (the “Note Directors”), shall be appointed by the
holders owning 50.1% of the aggregate issued and outstanding principal amount of
the Notes and the Other Notes, which notwithstanding anything to the contrary
provided herein or elsewhere, the Board shall remain at no more than 5 Directors
and the three (3) Note Directors (and/or their successors and/or replacements)
shall remain Directors on the Board until such time as all amounts owed to all
holders of the Notes and the Other Notes including, but not limited to all
principal, interest and/or other amounts under the Transaction Documents and
documents related to the Other Notes are paid to all such holders in full in
cash by wire transfer pursuant to wire transfer instructions provided by each
holder to the Company, at which time the Note Directors at the request of the
CEO of the Company shall resign as directors of the Company and the Board shall
be reconstituted to be the same Board as existed on October 29, 2015;
provided, however, that notwithstanding anything to the contrary
provided herein or elsewhere, in the event that at any time and from time to
time the required holders of the Notes and Other Notes seek to replace one or
more of the three (3) Note Directors during the period that such persons have
the right to appoint the 3 Note Directors as provided in this Note, and such
does not occur by the date 5 Business Days following the date of such written
request by the holders of 50.01% of the then issued and outstanding aggregate
principal amount of the Notes and Other Notes to the Company (the
“5th Business Day”), the Company shall pay to
each holder of Notes and Other Notes $2,500 per day in cash by wire transfer
commencing on the first day following the 5th Business Day through
and including the date such new Note Director(s) become directors of the Company
in compliance with all applicable laws, rules and regulations, subject to the
holders of the Notes and Other Notes not intentionally acting or failing to act
in a manner reasonably necessary to replace the particular Note Director(s). The
Note Directors shall be entitled to receive from the Company the highest
compensation that any other Director of the Company receives and shall be
entitled to all costs and expenses (including, but not limited to, air fare,
other travel costs, meals and lodging), to attend all Board of Directors
meeting. At any time and from time to time, holders owning no less than 50.1% of
the aggregate principal amount of all Notes and Other Notes then outstanding can
replace by written notice one or more of the Note Directors. Whenever any Note
Director is on the Board, the Company shall maintain Directors and Officers
Liability Insurance and each such Note Director shall be named as a covered
party thereunder, which insurance shall be in the form and substance
satisfactory to each Note Director; and following the resignation of each Note
Director the Company shall have the obligation to maintain Director and Officer
Liability Insurance for each Note Director for a period until all potential
liability to each Note Director has expired as a result of the expiration of all
statutes of limitations. Moreover, the Company and each of its Subsidiaries
shall indemnify and hold harmless each Note Director for the same periods to the
maximum extent permitted by law.
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14. Simultaneous Closing. Substantially simultaneously
with the sale and issuance of Notes to the Holder and other purchasers of Notes,
the Company shall issue 14% Senior Secured Convertible Demand Promissory A Notes
(the “Other Notes”) to (i) holders of the Series A Convertible Preferred
Stock of the Company (“A Shares”) in an amount equal to 150% of all
amounts owed to each holder of A Shares by the Company including, but not
limited to, the purchase price paid by each holder of A Shares for such A Shares
and all accrued but unpaid dividends thereon in exchange for their A Shares, and
(ii) to each purchaser of Notes in an amount equal to the aggregate principal
amount of such purchaser’s Notes purchased.
15. Series B Preferred Stock. As a condition to
the closing of the issuance and sale of the Notes and the Other Notes, the
Company shall have filed the B Certificate with the Nevada Secretary of State
creating 1,000 B Shares. For each $50,000 aggregate principal amount of Notes
and Other Notes sold and/or issued to any person pursuant to the terms set forth
in the Transaction Documents and the documents for the Other Notes, such person
shall receive one (1) B Share. As long as the B Shares are issued and
outstanding, the B Shares shall be entitled to vote (and/or consent if a written
consent of shareholders is being sought) with respect to any matter upon which
the holders of the Common Stock have the right to vote with the holders of
50.01% of the then aggregate Principal amount of Notes and Other Notes
outstanding being entitled to vote all B Shares then outstanding, with the B
Shares being entitled to eighty (80%) percent of the total votes of Common Stock
at each election and/or written consent of stockholders regardless of how many B
Shares and/or shares of Common Stock are then issued and outstanding (and to
call and/or to constitute a quorum for a shareholders’ meeting of the holders of
the Common Stock). See the B Certificate annexed hereto as part of Exhibit 7.
Notwithstanding anything to the contrary provided herein, any conflict
between the description of the B Shares and/or the B Certificate set forth
herein and/or in any other Transaction Document and the B Certificate shall be
governed by the B Certificate.
18
IN WITNESS WHEREOF, the
undersigned has executed this Note on and as of the date first above written.
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VISCOUNT SYSTEMS,
INC., |
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a Nevada corporation
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By: |
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Name: Scott Sieracki |
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Title: Interim Chief Executive Officer
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Annex I
NOTICE OF CONVERSION
The undersigned hereby elects to
convert $________________of the principal amount of the Note (defined below)
into shares of Common Stock of Viscount Systems, Inc., a Nevada corporation (the
“Company”) according to the term conditions of the Senior Secured
Convertible Demand Promissory B Note of the Company; Original Issuance Date:
October 30, 2015 (the “Note”). No fee will be charged to the Holder or
Holder’s Custodian for any conversion, except for transfer taxes, if any.
Box Checked as to applicable
instructions:
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The Company shall electronically transmit the Common
Stock issuable pursuant to this Notice of Conversion to the account of the
undersigned or its nominee with DTC through its Deposit Withdrawal Agent
Commission system (“DWAC Transfer”). |
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Name of DTC Prime Broker:
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Account Number:
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The undersigned hereby requests that the Company issue a
certificate or certificates for the number of shares of Common Stock set
forth below (which numbers are based on the Holder’s calculation attached
hereto) in the name(s) specified immediately below: |
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Date of Conversion: |
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Conversion Price: |
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Shares to Be Delivered: |
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Remaining Principal Balance |
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Due After This Conversion: |
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Signature: |
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Print Name: |
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A NOTE
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“1933 ACT”), OR THE SECURITIES LAWS OF ANY STATE. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH 1933 ACT AND/OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO
RULE 144 OF SUCH 1933 ACT. THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION
OF THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
VISCOUNT SYSTEMS, INC.
14% SENIOR SECURED CONVERTIBLE DEMAND PROMISSORY A
NOTE
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Original Issuance Date: November 24, 2015 |
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Original Principal Amount: $
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Viscount Systems, Inc. a Nevada
corporation (and together with each and every of its current and future
Subsidiaries (as defined below), collectively, the “Company”), hereby
promises to pay to __________________or registered assigns (the “Holder”)
__________________(the “Original Principal Amount”) (as reduced pursuant
to the terms hereof pursuant to payment, conversion or otherwise, the
“Principal”) and to pay interest (“Interest”) on any outstanding
Principal at the applicable Interest Rate from the date set forth above as the
Original Issuance Date (the “Issuance Date”) through and including the
date all Principal, all accrued but unpaid Interest thereon and all other
amounts due hereunder are received by the Holder in immediately available funds
by wire transfer pursuant to wire transfer instructions provided to the Company
by the Holder. This 14% Senior Secured Convertible Promissory Demand A Note
(including all 14% Senior Secured Convertible Demand A Notes issued in exchange,
transfer or replacement hereof, and/or as Interest pursuant to Section 1 below),
is hereinafter referred to as this “Note,” and together with all other
Notes, collectively, the “Notes”. All Principal, together with all
accrued but unpaid Interest, and all other amounts due hereunder shall be due
and payable on the Demand Payment Date (as defined below) to the Holder upon
delivery by the Holder to the Company of written demand in cash by wire transfer
pursuant to wiring instructions provided to the Company by the Holder.
This Note is one of a series of
14% Senior Secured Convertible Demand Promissory A Notes issued by the Company
to certain holders of the A Shares (as defined below), including, but not
limited to, the Holder, in exchange for, among other consideration, the A Shares
held by the Holder and certain other holders of the Notes pursuant to the
Consent by Series A Holders as of February 24, 2014 (the “A Consent”) and
the Certificate of Designation, as amended (the “Certificate”) for its
Series A Preferred Stock (the “A Shares”), and, in part, to settle
certain disputes between the parties. Notes also may be issued (i) as payment of
interest on Notes in lieu of the payment of cash interest at the option of the
Company pursuant to Section 2, and (ii) to purchasers of the Other Notes (as
defined in Section 14 below) as described generally in Section 14.
The following is a statement of
the rights of the Holder of this Note and the conditions to which this Note is
subject, and to which the Holder, by the acceptance of this Note, agrees:
1. Interest; Certain
Definitions; Transaction Documents. Interest on this Note shall commence
accruing on the Issuance Date at the Interest Rate (as defined below), shall
accrue daily on a compounding basis and shall continue accruing Interest until
all amounts under this Note and the other Transaction Documents (as defined
below) owed to the Holder are received in full in cash by the Holder. Interest
on this Note shall be payable in arrears quarterly on each of March 31, June 30,
September 30 and December 31 or if any such date falls on a Holiday (as defined
below), the next day that is not a Holiday (each an “Interest Payment
Date”). Interest shall be payable on each Interest Payment Date to the
record Holder of this Note at the option of the Company in (i) cash and/or (ii)
Notes with the aggregate principal amount of any Note issued as Interest in lieu
of cash equal to the amount of Interest due on such Interest Payment Date, with
the first Interest Payment Date being December 31. For purposes of this Note,
the term “Interest Rate” means (i) if all or any portion of Interest on
any Interest Payment Date and/or otherwise is paid in cash, the Interest paid in
cash shall be at the rate of fourteen (14%) percent per annum, (which Interest
Rate shall increase to the lesser of (x) 21% per annum, and (y) the highest
amount permitted by applicable law, commencing upon an Event of Default (as
defined below)), or (ii) if all or any portion of Interest paid on any Interest
Payment Date and/or otherwise is paid in Notes, the Interest paid in Notes shall
be at the rate of five (5%) percent for each 30 days (pro-rata for any period of
less than 30 days), increasing to eight (8%) percent commencing on the date of
an Event of Default, for each 30 days (pro-rata for any period of less than 30
days) and continuing through and including the date all amounts due to the
Holder hereunder and under the other Transaction Documents are received in full
in immediately available funds by wire transfer pursuant to wire transfer
instructions provided by the Holder to the Company; The term “Holiday”
means any day other than a Business Day; “Business Day” means any day
other than Saturday, Sunday or other day on which commercial banks in the City
of New York are authorized or required by law to remain closed; “Demand
Payment Date” means the next Business Day following the date the Holder
sends to the Company written notice that the Holder demands that all Principal,
Interest and all other amounts owed to the Holder under this Note and the other
Transaction Documents is due and payable; and “Trading Market” means any
of the following markets or exchanges on which the Common Stock (or any other
common stock of any other Person that references the Trading Market for its
common stock) is listed or quoted for trading on the date in question: the OTC
Bulletin Board, The NASDAQ Global Market, The NASDAQ Global Select Market, The
NASDAQ Capital Market, the New York Stock Exchange, NYSE Arca, the NYSE MKT, or
the OTCQX Marketplace, the OTCQB Marketplace, the OTCPink Marketplace or any
other tier operated by OTC Markets Group Inc. (or any successor to any of the
foregoing); “Transaction Documents” means all Notes issued to the Holder,
the B Certificate, the B Shares, the TA Letter, the Security and Pledge
Agreement, the IP Security Agreement, the Subsidiary Guaranty, the A Share
Amendment and any and all instruments, certificates and/or other documents used
to perfect all of the Holders security interests in the Collateral (as defined
in the Pledge Security Agreement and the IP Security Agreement) including, but
not limited to any UCC-1 financing statements, all of which, and related
documents necessary and/or advisable to effectuate the transaction contemplated
in the above documents and all supplements, exhibits, amendments, schedules
and/or annexes to any such documents. The term “TA Letter” means the
irrevocable instructions to the Company’s transfer agent in the form annexed
hereto as Exhibit 1; the term “IP Security Agreement” means the
Intellectual Property Security Agreement annexed hereto as Exhibit 2; the
term “Security and Pledge Agreement” means the Security and Pledge
Agreement annexed hereto as Exhibit 3; the term “Subsidiary
Guaranty” means the Subsidiary Guaranty Agreement annexed hereto as
Exhibit 4; the Stock Power of Attorney (the “SPA”) and the stock
certificate (the “Certificate”) for the 120 Class A Voting Common Shares
of Viscount Communications and Control Systems, Inc., a British Columbia
corporation and wholly-owned Subsidiary of the Company in the name of the
Company (FKA, OMV 4 Corp.) are all annexed h ere to as Exhibit 5; the
term “A Share Amendment” means the amendment to the Certificate of
Designation for the Company’s Series A Preferred Stock (as amended), annexed
hereto as Exhibit 6; and the term “B Certificate” means the
Company’s Certificate of Designation Establishing the Designations, Preferences
and Rights of its Series B Preferred Stock, a copy of which the Company
previously filed with the Secretary of State of Nevada, a copy of which,
together with the stock certificates representing the Company’s Series B
Preferred Stock (the “B Stock”) issued to certain holders of Notes and
Other Notes (as defined below) and the proof of filing of such B Certificate
with the Nevada Secretary of State are annexed hereto as Exhibit 7.
2
2. Conversion.
2.1 Optional Conversion.
All Principal, accrued, but unpaid Interest and all other amounts due herein
and/or pursuant to the Transaction Documents may be converted at the sole option
of the Holder, at any time and from time to time into such number of shares
(“Conversion Shares”) of common stock, par value $0.001 per share (the
“Common Stock”) as shall equal the quotient of (i) all Principal, all
accrued but unpaid Interest and any other funds owed to the Holder by the
Company under this Note and/or any other Transaction Document that the Holder
has elected to convert any Conversion Amount (a “Conversion”) into
Conversion Shares (the “Conversion Amount”), divided by (ii) the
Conversion Price. “Trading Day” means a day on which the Common Stock is
eligible for quotation on the OTC Market, or, if the Common Stock is not then
eligible for quotation on the Trading Market then any day that the Common Stock
is traded or eligible for quotation on any other United States commonly
acceptable trading medium or market place where the Common Stock is then traded
or eligible for quotation. “Conversion Price” shall mean the product of
(x) sixty (60%) percent multiplied by (y) the lowest bid price (or lowest sale
price, as the case may be) of a share of Common Stock during the 20 consecutive
Trading Days prior to the date of any Conversion with the last Trading Day being
the Trading Day immediately prior to the Trading Day the Holder informs the
Company in writing by a Conversion Notice (as defined below) that the Holder is
converting all or any part of this Note into shares of Common Stock.
2.2
Mechanics of
Conversion. To effectuate a Conversion pursuant to this Section 2, the
Holder shall transmit by hand, facsimile or email (or otherwise deliver), for
receipt on or prior to 11:59 p.m., New York time on such date, a copy of a fully
completed executed notice of conversion in the form attached hereto as
Annex 1 (the “Conversion Notice”) to the Company. The date
of any Conversion shall be deemed the date a Conversion Notice is deemed given
pursuant to Section 13.8 hereof (the “Conversion Date”). If, but only if,
all Principal and accrued but unpaid Interest and all other amounts owed to the
Holder under this Note and the other Transaction Documents is being converted
into Conversion Shares, a Holder shall deliver to the Company this Note, but in
no other event shall this Note be required to be delivered to the Company to
effectuate a Conversion. The calculations and entries set forth on a Conversion
Notice shall control in the absence of manifest or mathematical error. On or
before the third (3rd) Trading Day following the Conversion Date (the
“Share Delivery Date”), the Company shall (x) issue and deliver to the
address as specified in the Conversion Notice, a certificate, registered in the
name of the Holder or its designee, for the number of Conversion Shares to which
the holder shall be entitled, or (y) provided that the Company’s transfer agent
(the “Transfer Agent”) is participating in The Depository Trust Company
(“DTC”) Fast Automated Securities Transfer Program, upon the request of
the Holder, credit such aggregate number of Conversion Shares to which the
Holder shall be entitled to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system. If a Holder elects
to deliver this Note, and the entire Principal, all accrued but unpaid Interest
and all other amounts owed under this Note and the other Transaction Documents
is not being converted, then the Company shall, as soon as practicable after
receipt of the Note (but in no event later than five (5) Trading Days), cause to
be issued and delivered to the Holder a new Note representing the remaining
amount of Principal on the Note not converted. The person or persons entitled to
receive the Conversion Shares issuable upon a Conversion shall be treated for
all purposes as the record holder or holders of such Conversion Shares on the
date such Conversion Shares are issued. Each Note shall be converted into such
number of Conversion Shares, as provided in this Section 2.
3
2.3
Failure to Deliver
Certificates. If, in the case of any Conversion Notice, the required Common
Stock certificate or certificates are not delivered to or as directed by the
applicable Holder without restrictive legend by the Share Delivery Date, the
Holder shall be entitled to elect by written notice to the Company at any time,
to rescind such conversion, in which event the Company shall promptly return to
the Holder any Note delivered to the Company and the Holder shall promptly
return to the Company any Common Stock certificates issued to such Holder
pursuant to the rescinding Conversion Notice.
2.4
Obligation Absolute;
Partial Liquidated Damages. The Company’s obligations to issue and delivery
the Conversion Shares upon a Conversion in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction by the Holder
to enforce the same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to enforce the
same, or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to such Holder in connection with the
issuance of such Conversion Shares. In the event a Holder shall elect to convert
any Conversion Amount into Conversion Shares, the Company may not refuse
conversion based on any claim that such Holder or anyone associated or
affiliated with such Holder has been engaged in any violation of law, agreement
or for any other reason, unless an injunction from a court, on notice to Holder,
expressly restraining and/or enjoining conversion of all or part of the
Conversion Amount shall have been sought and obtained by the Company, and the
Company posts a cash surety bond for the benefit of such Holder in the amount of
300% of the Principal, all accrued but unpaid Interest thereon and all other
amounts hereunder this Note and the Transaction Documents which is subject to
the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which shall
be payable to such Holder to the extend it obtains judgment. In the absence of
such injunction, the Company shall issue Conversion Shares and, if applicable,
cash, by the Share Delivery Date. If the Company fails to deliver to a Holder
such certificate or certificates without restrictive legend, by the Share
Delivery Date applicable to such conversion, or in the event of a dispute, fails
to post the surety bond in accordance with this paragraph, the Company shall pay
to such Holder, in cash, as liquidated damages and not as a penalty, for each
$10,000 of Conversion Amount, $200 per Trading Day commencing the day after the
Share Delivery Date (increasing to $400 per Trading Day on the fifth
(5th) Trading Day after such damages begin to accrue) for each
Trading Day after such Share Delivery Date until the earlier of the date such
certificates are delivered without restrictive legend or Holder rescinds such
conversion. Nothing herein shall limit a Holder’s right to pursue actual damages
for the Company’s failure to deliver the required amount of Conversion Shares
without restrictive legend and such Holder shall have the right to pursue all
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief without
the need by any Holder to post any bond which the Company hereby waives such
requirement. The exercise of any such rights shall not prohibit a Holder from
seeking to enforce damages pursuant to any other Section hereof or under
applicable law. “Person” means an individual, a corporation, a
partnership, an association, a joint-stock company, a Trust, any unincorporated
organization, or government or political sub-division thereof.
2.5
Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion. In addition
to any other rights available to the Holder, if the Company fails for any reason
or no reason to deliver to a Holder the applicable certificate or certificates
by the Share Delivery Date and if after such Share Delivery Date such Holder is
required by its brokerage firm to purchase (in an open market transaction or
otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common
Stock to deliver in satisfaction of a sale by such Holder (or a deemed sale) of
the Conversion Shares which such Holder was entitled to receive upon the
conversion relating to such Share Delivery Date (a “Buy-In”), then the
Company shall (A) pay in cash to such Holder (in addition to any other remedies
available to or elected by such Holder) the amount, if any, by which (x) such
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder was entitle to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of such Holder, either reissue (if
surrendered) the Note (in which case, such conversion shall be deemed rescinded)
or deliver to such Holder the number of shares of Common Stock that would have
been issued if the Company delivered the required amount of Conversion Shares by
the Share Delivery Date. For example, if a Holder purchases shares of Common
Stock having total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of the Note with respect to which the actual sale price
of the Conversion Shares (including any brokerage commissions) giving rise to
such purchase obligation was a total of $10,000 under clause (A) above, the
Company shall be required to pay such Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to such Holder in
respect of the Buy-In and, upon request of the Company, evidence of the amount
of such loss. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely delivery certificates representing
shares of Common Stock upon conversion of the Note as required pursuant to the
terms hereof.
4
3.
Default; Events of Default; Remedies.
3.1
Default.
Notwithstanding that this Note is a demand note and all amounts due
hereunder become due and payable pursuant to and in accordance with the first
paragraph of this Note, the Company shall be in default under this Note upon the
happening of any condition or event set forth below (each, an “Event of
Default”):
(a)
the Company’s failure (i) to pay when due any Principal on
the due date hereunder, or (ii) to pay any Interest or other payment due on
and/or under this Note within two (2) days following the due date hereunder;
(b)
a breach of any provision and/or default or event of
default (subject to any grace or cure period provided in the applicable
agreement, document or instrument) shall occur under any of the Transaction
Documents and/or any other document related to the Other Notes;
(c)
the Company shall fail for any reason to obtain the consent
of the Holder pursuant to Section 4 to take any of the actions enumerated in
Section 4;
(d)
the Common Stock shall not be eligible for listing or
quotation for trading on a Trading Market and shall not be eligible to resume
listing or quotation for trading thereon within five (5) consecutive Trading
Days from the first date of lack of eligibility;
(e)
the electronic transfer by the Company of shares of Common
Stock through the Depository Trust Company or another established clearing
corporation is no longer available or is subject to a “chill” (i.e., the
Depository Trust Company announces that it will not accept the deposit of shares
of Common Stock into its participants’ street name accounts);
(f)
failure to reserve and keep available out of its authorized
and unissued Common Stock the number of shares of Common Stock as described in
Section 6 and/or otherwise comply with any other provision of Section 6;
5
(g)
the Company shall (i) apply
for or consent to the appointment of a receiver, trustee, liquidator or
custodian of itself or of all or a substantial part of its property, (ii) be
unable, or admit in writing its inability, to pay its debts as they mature,
(iii) make a general assignment for the benefit of its or any of its creditors,
(iv) be dissolved or liquidated, (v) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of or
taking possession of its property by any official in an involuntary case or
other proceeding commenced against it, or (vi) take any action for the purpose
of effecting any of the foregoing;
(h)
proceedings for the appointment of a receiver, trustee,
liquidator or custodian of the Company or of all or a substantial part of the
property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to the Company or the
debts thereof under any bankruptcy, insolvency or other similar law now or
hereafter in effect shall be commenced and an order for relief entered or such
proceeding shall not be dismissed or discharged within 60 days of commencement;
(i)
any default in any of the other Transaction Documents
and/or other Indebtedness of the Company and/or any of its Subsidiaries (as
defined below) including, but not limited to any Other Notes (as defined below)
and/or any documents related thereto; or
(j)
a breach of any other provision of this Agreement
4.
Limitations on Company Actions.
4.1
Notwithstanding anything to
the contrary provided herein or elsewhere, as long as this Note is issued and
outstanding, the Company shall not, and shall not permit any current or future,
direct or indirect, wholly-owned or partially owned subsidiary (a
“Subsidiary,” and collectively, the “Subsidiaries”) to, without
the express written consent of Holders, directly and/or indirectly, owning no
less than 50.1% of the aggregate Principal of all of the Notes then outstanding:
(a)
amend, alter, change, waive or repeal any provision of the
Articles of Incorporation or By-Laws, each as amended (the “Articles of
Incorporation” and “By-Laws,” respectively) (and/or those of any of
its Subsidiaries), in any manner that could, directly and/or indirectly,
adversely affect the rights of the Holders;
(b)
alter, waive, repeal, amend, and/or change any provision of
this Note;
(c)
incur any Indebtedness (other than that outstanding and in
such principal amount outstanding as of June 5, 2012 and that represented by the
Notes and the Other Notes, Transaction Documents and the transaction documents
for the Other Notes) which if any such amount is permitted to be paid down, in
whole or in part, pursuant to this Note and is paid down, in whole or in part,
cannot be borrowed again except (A) if such Indebtedness constitutes Permitted
Debt (as defined below), and (B) any such reborrowed Permitted Debt is counted
on a dollar for dollar basis against the Permitted Debt Cap (as defined in
below); provided, however, that subject to the limitations
provided in this subparagraph, the Company and/or its Subsidiaries may borrow
together in the aggregate up to $1,000,000 principal amount of Permitted Debt
(the “Permitted Debt Cap”). For the purposes hereof, the term
“Permitted Debt” shall mean (A) non-convertible, non-equity linked bank
debt from a federal or state-chartered bank on commercially reasonable terms,
which borrowed funds shall be used by the Company and/or its Subsidiaries in
their respective historical and ordinary course of business; and (B) no equity
of the Company and/or any of its Subsidiaries (including, but not limited to,
warrants, stock options and/or other securities) is issued directly and/or
indirectly in connection with any borrowings of such Permitted Debt. For
purposes hereof, “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 United States generally
accepted accounting principles (other than trade payables entered into in the
ordinary course of business), (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). For purposes of this Note,
“Contingent Obligations” shall mean, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend and/or other obligation of another Person if a
purpose or intent of the Person incurring such liability, or the direct and/or
indirect effect thereof, is to provide assurance (whether in writing, orally,
and/or by any other means, which shall include, but not be limited to, any
direct and/or indirect guaranty) 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;
6
(d)
pay and/or make dividends, distributions and/or any other
payment (whether in cash, securities or property) on any securities of the
Company and/or any Subsidiary other than to the Holders of the Notes and the
Other Notes;
(e)
enter into any transaction with any Affiliate (as defined
under the Securities Act of 1933, as amended, the “1933 Act”), which
would be required to be disclosed in any public filing with the Securities and
Exchange Commission (the “SEC”) pursuant to SEC laws, rules and/or
regulations, other than any transaction pursuant to which an Affiliate of the
Company and/or Subsidiary is employed pursuant to a written agreement by the
Company and/or any Subsidiary which is negotiated on an arms-length basis, is
approved by the independent directors of the Board of Directors and does not
exceed industry standards, based upon the Company’s industry, the revenues and
income of the Company and the work that such Affiliate will perform pursuant to
such arrangement;
(f)
redeem, repurchase and/or otherwise enter into or
effectuate a similar transaction for any securities of the Company and/or any
Subsidiary other than the Note and the Other Notes;
(g)
repay any Indebtedness and/or other obligation other than
(1) any bank debt outstanding as of June 5, 2012, but only in accordance with
and to the extent of the terms and conditions of such bank debt as of June 5,
2012; provided, however, that notwithstanding anything to the
contrary provided herein or elsewhere, no bank debt and/or any other
Indebtedness may be pre-paid, (2) any accounts payable incurred in the normal
course of the Company’s historical and ordinary business, (3) $45,000 aggregate
principal amount loan advanced on March 26, 2012 plus accrued, but unpaid simple
interest of 8% per annum to a shareholder of the Company (the “Lender”),
provided that simultaneously with and as a condition to the repayment
(including, but not limited to, accrued, but unpaid interest) to the Lender of
such loan, the Lender provides to the Company (A) written evidence signed by the
Lender that no other amounts are owed by the Company to the Lender pursuant to
such loan, and (B) a full written release signed by the Lender of any and all
claims by the Lender against the Company and/or its Subsidiaries in respect of
such loan (“Release Documents”), (4) up to $60,000 of outstanding
principal on loans due to shareholders and related parties as disclosed on the
Company’s balance sheet dated March 31, 2012 filed with the SEC on or about May
15, 2012, provided that in each case, Release Documents are obtained, and
(5) any Permitted Debt in accordance with the terms and conditions in this Note;
7
(h)
Other than the Notes and/or the Other Notes, effect or
enter into an agreement to effect any sale and/or issuance of Common Stock or
Common Stock Equivalents (as defined below) directly and/or indirectly involving
a Variable Rate Transaction. For purposes of this Note, the term “Variable
Rate Transaction” means a transaction in which the Company and/or its
Subsidiaries (a) issues or sells any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive, additional shares of Common Stock either (1) at a conversion price,
exercise price or exchange rate or other price that is based upon, and/or varies
with, the trading prices of or quotations for the shares of Common Stock at any
time after the initial issuance of such debt or equity securities or (2) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the Common Stock; (b) enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price, or (c)
enters into any type of equity line of credit or similar agreement and/or
transaction. For purposes of this Note, the term “Common Stock
Equivalents” means any securities of the Company and/or its Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants 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;
(i)
enter into any agreement or understanding (whether in
writing, orally or otherwise) to do any of the above; or
(j)
directly and/or indirectly create and/or otherwise permit
to exist any Liens on any assets of the Company and/or any of its Subsidiaries
except (i) any Lien for taxes not yet due or delinquent or being contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, (ii) any statutory Lien arising in the
ordinary course of business by operation of law with respect to a liability that
is not yet due or delinquent, (iii) any Lien created by operation of law, such
as materialmen’s liens, mechanics’ liens and other similar liens, arising in the
ordinary course of business with respect to a liability that is not yet due or
delinquent or that are being contested in good faith by appropriate proceedings,
or (iv) any Liens securing any obligations of the Company and/or any Subsidiary
under the Notes and Other Notes; (the terms “Lien” or
“lien” shall mean a lien, mortgage, charge, pledge, security
interest, encumbrance, right of first refusal, preemptive right or other
restrictions, clouds on title and/or encumbrances).
4.2
Notwithstanding anything to
the contrary provided herein or elsewhere, without the express written consent
of holders owning 50.1% of the aggregate principal amount of the Notes and Other
Notes then outstanding (“Required Amount”), the Company shall not, and
shall not permit any Subsidiaries to:
8
(a)
effect any merger,
acquisition, sale, consolidation, reorganization and/or similar transaction or a
Change of Control (as defined below), (each, an “Event”) except any Event
which upon the date of the occurrence or closing of any Event, as the case may
be, (i) the Holder receives in exchange for this Note, cash in an amount not
less than two (2) times the then Principal amount of the Note immediately prior
to the occurrence or closing of such Event, plus all accrued, but unpaid
interest and other payments owed to the Holder by the Company and/or its
Subsidiaries, or (ii) if an Event is structured whereby the Holder receives
securities of a non-affiliated, third-party entity, the common stock of such
entity is listed on a National Securities Exchange (as defined in the 1933 Act)
and such common stock for the twenty (20) consecutive Trading Days with the last
Trading Day being the Trading Day prior to the occurrence or closing of such
Event has a daily market capitalization of no less than $100 million. For
purposes of this Note, the term “Change of Control” means the occurrence
after the date hereof of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
promulgated under the Securities Exchange Act of 1934, as amended (the “1934
Act”) of effective control (whether through legal or beneficial ownership of
capital stock of the Company, by contract or otherwise) of in excess of 50% of
the voting securities of the Company, (ii) the Company merges into or
consolidates with any other Person, or any Person merges into or consolidates
with the Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 50% of the
aggregate voting power of the Company or the successor entity of such
transaction, (iii) the Company sells or transfers all or substantially all of
its assets to another Person and the stockholders of the Company immediately
prior to such transaction own less than 50% of the aggregate voting power of the
acquiring entity immediately after the transaction, (iv) a replacement at one
time or within a six (6) month period of more than one-half of the members of
the Board of Directors which is not approved by a majority of those individuals
who were members of the Board of Directors on June 5, 2012 (or by those
individuals who are serving as members of the Board of Directors on any date
whose nomination to the Board of Directors was approved by a majority of the
members of the Board of Directors who were members on June 5, 2012), or (v) the
execution by the Company and/or any of its shareholders of an agreement to which
the Company is a party or by which either is bound, providing for any of the
events set forth in clauses (i) through (v) above.
(b)
decrease or increase the
authorized size of the Company’s (and/or any of its Subsidiaries’), Board of
Directors, other than as expressly provided herein; or
(c)
directly and/or
indirectly, adopt, amend and/or supplement any new stock option plan and/or
similar plan (the “SOP Plans”), except where the maximum number of shares
of Common Stock that may be acquired directly and/or indirectly upon exercise of
stock options issued under the SOP Plans, when aggregated with the maximum
number of shares of Common Stock that may be acquired directly and/or indirectly
under all other stock option plans and/or stock options outstanding as of the
date hereof (including, but not limited to, all stock options issued prior to
the date hereof under any SOP Plans and/or otherwise, regardless of whether any
such SOP Plans and/or other stock options have terminated and/or expired with or
without being exercised) does not and will not at any time prior to and
including March 3, 2017, exceed in the aggregate 32,500,000 shares of Common
Stock (which 32,500,000 shall be proportionately adjusted to take into account
each stock split and/or reverse stock split occurring following March 31, 2014).
5.
Anti-Dilution
Provisions. The Conversion Price in effect at any time and the number and
kind of securities issuable upon conversion of the Note shall be subject to
adjustment from time to time upon the happening of the events as follows:
5.1
Adjustment for Dividends in Other Stock and Property
Reclassifications. In case at any time, or from time to time, the holders of
the Common Stock (or any shares of stock or other securities at the time
receivable upon any conversion of the Note) shall have received, or, on or after
the record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefor:
9
(a)
other or additional stock or other securities or property
(other than cash) by way of dividend;
(b)
any cash or other property paid or payable out of any
source other than retained earnings (determined in accordance with generally
accepted accounting principles); or
(c)
other or additional stock or other securities or property
(including cash) by way of stock-split, spin-off, reclassification, combination
of shares or similar corporate rearrangement (other than (x) additional shares
of Common Stock or any other stock or securities into which such Common Stock
shall have been changed, (y) any other stock or securities convertible into or
exchangeable for such Common Stock or such other stock or securities or (z) any
stock purchase rights, issued as a stock dividend or stock-split, adjustments in
respect of which shall be covered by the terms of Section 5.3 or Section
5.4, then and in each such case, the Holder, upon any conversion of the Note,
shall be entitled to receive the amount of stock and other securities and
property (including cash in the cases referred to in clauses (a) and (b) above)
which such Holder would have been entitled to receive had such Holder been the
holder of record, on the date of any such issuances described in clauses (a),
(b) or this clause (c), of the number of shares of Common Stock into which the
Note is being converted, giving effect to all adjustments called for during such
period by Section 5.1 and Section 5.2.
5.2
Adjustment for
Reorganization, Consolidation and Merger. In case of any reorganization of
the Company (or any other corporation the stock or other securities of which are
at the time receivable on the conversion of the Note) after the Issuance Date,
or in case, after such date, the Company (or any such other corporation) shall
consolidate with or merge into another corporation or entity or convey all or
substantially all its assets to another corporation or entity (any such
reorganization or other event hereafter being referred to as a
“Reorganization”), then and in each such case the Note, upon conversion,
as and at any time after the consummation of such Reorganization, shall be
converted into, in lieu of the stock or other securities and property into which
the Note would have been convertible prior to such Reorganization, such stock or
other securities or property to which the Note would have converted if they had
been converted immediately prior to any such Reorganization, subject to further
adjustment as provided in Sections 5.1, Section 5.3, and Section 5.4, in each
such case.
5.3
Adjustment for Certain
Dividends and Distributions. If the Company at any time, or from time to
time, makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event, the Conversion
Price then in effect shall be decreased as of the time of such issuance or, in
the event such record date is fixed, as of the close of business on such record
date, by multiplying the Conversion Price then in effect by a fraction (A) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (B) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date as the
case may be, plus the number of shares of Common Stock issuable in payment of
such dividend or distribution; provided, however, that if such
record date is fixed and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, the Conversion Price shall be
recomputed accordingly as of the close of business on such record date, and
thereafter the Conversion Price shall be adjusted pursuant to this Section 5.3
as of the time of actual payment of such dividends or distributions.
10
5.4
Stock Split and Reverse
Stock Split. If the Company at any time, or from time to time, effects a
stock split or subdivision of the outstanding Common Stock, the Conversion Price
then in effect immediately before that stock split or subdivision shall be
proportionately reduced. If the Company at any time, or from time to time,
effects a reverse stock split or combines the outstanding shares of Common Stock
into a smaller number of shares, the Conversion Price then in effect immediately
before that reverse stock split or combination shall be proportionately
increased. Each adjustment under this Section 5.4 shall become effective at the
close of business on the date the stock split, subdivision, reverse stock split
or combination becomes effective.
5.5
Fundamental
Transaction. If, at any time while any the Note is outstanding, (A) the
Company effects any merger, means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or subdivision
thereof) or other entity of any kind, consolidation or similar transaction of
the Company with or into another Person, (B) the Company effects any sale of all
or substantially all of its assets in one or a series of transactions, (C) any
tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D) the Company
effects any reclassification of the Common Stock or any share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (each a “Fundamental Transaction”), then,
upon any subsequent conversion of the Note, the Holder shall have the right to
receive, for each share of Common Stock that would have been issuable upon such
conversion immediately prior to the occurrence of such Fundamental Transaction,
the number of shares of Common Stock of the successor or acquiring Person or of
the Company, if it is the surviving corporation, and any additional
consideration (the “Alternate Consideration”) receivable as a result of
such merger, consolidation, or disposition of assets or other similar
transaction by a holder of the number of shares of Common Stock for which the
Note is convertible immediately prior to such event. For purposes of any such
conversion, the determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in such
Fundamental Transaction, and the Company shall apportion Conversion Price among
the Alternate Consideration in a reasonable manner reflecting the relative value
of any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any conversion of the Note
following such Fundamental Transaction. The terms of any agreement pursuant to
which a Fundamental Transaction is effected shall include terms requiring any
such successor or surviving Person to comply with the provisions of this Section
5.5 and insuring that the Note (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
5.6
Other Events.
Notwithstanding anything to the contrary provided in this Note or elsewhere, if
the Company, at any time and from time to time commencing on the Issuance Date
and expiring at the end of the day February 24, 2019, Easter Standard Time,
sells and/or issues shares of Common Stock and/or issues and/or sells Common
Stock Equivalents, as defined below (a “New Common Offering”) having a
sale and/or exercise, conversion or exchange price (the “Subsequent Lower
Issuance Price”) at a price less than the Additional Share Trigger Price (as
defined below) (a “Subsequent Lower Issuance”), then and in each such
case the (i) Conversion Price shall be automatically adjusted to the Subsequent
Lower Issue Price, and (ii) Company shall issue (without cost to the Holder),
such number of additional shares of Common Stock (the “Additional Common
Stock”) calculated as follows:
A = [((B/C) – 1) x D] – A1
11
A is the number of additional shares of
Common Stock to be issued to the Holder.
B is the Additional Share Trigger Price
C is the greater of (I) the Subsequent
Lower Issuance Price and (II) the Conversion Price.
D is the number of shares of Common
Stock issuable to the Holder on conversion of this Note as at the date of the
Subsequent Lower Issuance.
A1 is the aggregate number of shares of
Additional Common Stock previously issued to the Holder pursuant to one of more
prior Subsequent Lower Issuances.
For example; assuming an Additional Share Trigger Price of
$0.10 and a Subsequent Lower Issuance Price of $0.08, and assuming the number of
shares of Common Stock issuable to a Holder on conversion of such Holder’s Note
at the Subsequent Lower Issuance is 100, and further assuming no prior
Subsequent Lower Issuances, the number of additional shares of Common Stock to
be issued to the Holder would be 25.
The reduction in the Conversion Price and the Common Stock
issuances set forth in this Section 5.6 shall occur each time the Company issues
and/or sells shares of Common Stock and/or Common Stock Equivalents with a price
and/or an exercise, exchange and/or conversion price, as the case may be, less
than the Additional Share Trigger Price and/or the Conversion Price. The
Additional Share Trigger Price shall also be adjusted for stock splits, reverse
stock splits and related items as provided in this Note affecting all the issued
and outstanding shares of Common Stock in the same manner. Notwithstanding
anything to the contrary provided herein, the Additional Share Trigger Price
shall not increase as a result of further issuances of securities by the
Company. For purposes of this Section, “Additional Share Trigger Price”
means $0.09 per share of Common Stock.
6.
Reservation of Authorized Shares.
6.1
So long as any Notes and/or
any other securities of the Company are owned by the Holder (and/or any
transferee thereof) beneficially and/or of record, the Company covenants and
agrees that no later than the date 60 days from the Issuance Date (the
“Required Date”) it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock a number of shares of Common
Stock at least equal to (the “Required Reserve Amount”) (i) 300%,
multiplied by (ii) the Required Minimum (as defined below) for the sole purpose
of issuance upon conversion of this Note and all other Notes issued and
outstanding on the date of any determination, free from preemptive rights or any
other actual and/or contingent purchase rights of any other persons and/or
entity. The Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly authorized, validly issued, fully paid and
nonassessable, and, at such times as a registration statement covering such
shares is then effective under the Securities Act, will be registered for public
resale in accordance with such registration statement. For purposes of this
Note, the “Required Minimum” shall mean the product of (A) the quotient
obtained by dividing (I) the sum of (i) all outstanding Principal
represented by this Note and all other Notes issued and outstanding on the date
of any determination, (ii) all Interest hereon and thereon (whether accrued or
not), and (iii) all other amounts owed under this Note and the other Transaction
Documents by (II) the Conversion Price, and the resulting number multiplied by
(B) 300%. The Company shall be required to calculate the Required Minimum on the
first Trading Day of every other week that any amounts are owed by the Company
under this Note, any other Notes and/or the other Transaction Documents and
provide such calculation to each holder of Notes and the Transfer Agent in
writing on such date. For purposes of calculating the Required Minimum, the
Company shall assume that all Principal of this Note and any other Notes
outstanding will remain outstanding for eighteen (18) months, Interest is paid
in Notes, accrues and compounds daily at the Interest Rate and is paid on the
date 18 months from the Issuance Date. The covenant by the Company set forth
above in this Section 6.1 as it relates to the first time the Company is
required to satisfy the Required Reserve Amount (the “6.1 Covenant),
shall be calculated and satisfied for and on the earliest date possible but in
no event later than the Required Date. In addition, the Company’s authorized but
unissued and unreserved shares of Common Stock shall have been increased (the
“Initial Increase”) to 3 billion shares of Common Stock (all in
accordance with all applicable rules, laws and regulations including, but not
limited to those of FINRA, Nevada law and the SEC), as soon as possible by the
Company using its best-efforts, but in no event shall such Initial Increase
occur later than the Required Date. Failure by the Company to satisfy the 6.1
Covenant and the Initial Increase, as soon as possible but in no event later
than the Required Date, to file the Information Statement (as defined below)
with the SEC for the Initial Increase within 5 Business Days from the date
hereof and/or the Company not using its best efforts to satisfy such conditions
will result in the payment by the Company to the Holder of the 2% Amount (as
defined below) per day commencing on the first day of any breach of any such
conditions, which shall be in addition to any and all other rights and remedies
that the Holder may take against the Company in law and/or equity under this
Note, the Transaction Documents, applicable law and/or otherwise, all of which
shall be cumulative.
12
6.2
Initial Reservation; Subsequent Authorized Deficiency;
and Subsequent Reserve Amount Deficiency. On the Issuance Date, the
Company shall have 300,000,000 shares of Common Stock authorized, approximately
127,000,000, shares of Common Stock issued and outstanding and reserved out of
its authorized but unissued and unreserved shares of Common Stock and
162,000,000 shares of Common Stock reserved solely for issuance upon conversion
of the Notes. At any time and from time to time following the Required Date, and
notwithstanding anything to the contrary provided herein or elsewhere, in the
event that the Company, the Holder, any other holder of Notes and/or the
Collateral Agent shall determine that the Company (i) has not satisfied the
Required Reserve Amount ( a "Subsequent Reserve Amount Deficiency"), and/
or (ii) does have sufficient shares of Common Stock authorized and unissued and
unreserved to satisfy the Required Reserve Amount ( a "Subsequent Authorized
Deficiency"), the Company shall immediately notify the holders of the Notes
and the Collateral Agent in writing of 1 or both deficiencies, as the case may
be (and /or the Holder, any other holders of the Notes and/or the Collateral
Agent shall determine and inform the Company of one or both deficiencies, as the
case may be), then the Company shall file within 5 Business Days an Information
Statement on Form 14A or Form 14B, as applicable (an "Information
Statement"), with the SEC and take all such other action to cure the
Subsequent Reserve Deficiency and/or the Subsequent Authorized Deficiency, as
the case may be, no later than 45 days from the date the Company becomes or
should have become aware of one and/or both deficiencies, as the case may be
(the "Last Day"). Failure by the Company to file an Information Statement
as part of curing 1 or both such deficiencies as required pursuant to this
Section 6.2 and in the time frame so required by this Section 6.2, use its best
efforts to cure 1 or both of such deficiencies, as the case may be, by the Last
Day, either or both deficiencies , as the case may be, are not cured by the Last
Day and/or if either or both deficiencies appear to be cured by the Last Day,
but the cure of either or both deficiencies, as the case may be, did not comply
with all applicable laws, rules and regulations, including but not limited to
the laws of the State of Nevada and the Securities and Exchange Commission (each
a “Breach”), then the Company shall pay to the Holder and each other
holder of Notes (or the Collateral Agent for the benefit of itself and the
Holder and the other holders of the Notes), for each day that the Company has
not cured each Breach including the first date of any Breach, in cash by wire
transfer to the Holder and each other holder of Notes (or the Collateral Agent
for the benefit of itself, the Holder and the other holders of the Notes), an
amount equal to 2% of the Holder’s and each other holder's aggregate principal
amount of their respective Notes and all accrued but unpaid Interest and other
amounts due to the Holder and each other holder of Notes, under this Note and
each other Note as well as each other Transaction Document through and including
the date all Breaches are cured and all amounts owed to the Holder and each
other holder of Notes are received in full in cash by the Holder and each other
holder (or the Collateral Agent for itself and each other holder of Notes, by
wire transfer pursuant to wiring instructions provided to the Company from the
Holder (and each other holder or the Collateral Agent) (the “2% Amount”).
Notwithstanding anything to the contrary provided herein, the holders owning at
least 50.1% of the aggregate principal amount of all Notes then outstanding (or
the Collateral Agent), may declare an Event of Default under the Notes and
obtain any other relief available under applicable law, whether in equity or
otherwise, and/or in any of the Transaction Documents. In no event shall any
action or non-action by the Holder, any other holder of Notes and/or the
Collateral Agent under Section 6.1 and/or this Section 6.2 constitute a waiver
of any right and/or remedy any such persons may have under law, equity and/or
any of the Transaction Documents. Once the Initial Increase is in effect and any
Subsequent Share Deficiency has been cured , as the case may be, the Company
shall immediately calculate the Required Reserve Amount for the Holder and each
other holder and immediately provide a draft of an irrevocable instruction to
its transfer agent to the Holder and each other holder of Notes, and the
Collateral Agent which once approved by the Holder and each other holder and/ or
the Collateral Agent shall immediately be signed by the Company and delivered to
the Company’s transfer agent to meet the Required Reserve Amount.
13
7.
Security; Subsidiary Guaranty. This Note, all
other Notes and the Other Notes shall rank pari passu with each other in all
respects and all of the Company’s and its Subsidiaries’ obligations to the
Holder, the other holders of the Notes and the holders of the Other Notes and in
the other Transaction Documents are secured on a pari passu basis by all of the
assets of the Company and its Subsidiaries pursuant to the IP Security
Agreement, the Security and Pledge Agreement and all obligations of the Company
to the Holder hereunder including, but not limited to, the payment of Principal,
Interest and all other amounts due hereunder and/or pursuant to the other
Transaction Documents are guaranteed by the Company’s Subsidiaries pursuant to
the Guaranty Agreement. Pursuant to the Security and Pledge Agreement, all
shares of issued and outstanding capital stock of the Company’s represented by
the Certificate have been pledged by the Company to the Collateral Agent for the
benefit of the Collateral Agent, the Holder and all other holders of Notes and
Other Notes. Notwithstanding anything to the contrary provided herein or
elsewhere, prior to any payments of principal to the holders of the Notes from
(i) the sale of any assets of the Company and/or any of its Subsidiaries, and/or
(ii) cash flow of the Company and/or its Subsidiaries (“Payment Events”),
the holders of the Other Notes shall be entitled to receive the full payment of
all amounts owed to them under their respective Notes, provided,
however, notwithstanding anything to the contrary provided herein or
elsewhere (x) at the election of each holder of Other Notes, any such payments
due to any holder of Other Notes of principal based upon Payment Events shall be
payable in whole and/or part to reduce on a dollar for dollar basis any amounts
owed by the Company and/or any Subsidiary to any Notes owned, if any, by such
holder of Other Notes, all in the sole discretion of the particular holder of
Other Notes in the following order: first to all amounts owed other than
Principal and Interest, second to all Interest owed and third to all outstanding
Principal.
8.
Limitation on Number of Shares Issuable to Holder
8.1
Other than as provided
elsewhere in this Section 8, at no time may the Holder convert any portion of
this Note if the number of shares of Common Stock to be issued pursuant to such
conversion would exceed, when aggregated with all other shares of Common Stock
owned by such Holder at such time, the number of shares of Common Stock which
would result in such holder beneficially owning (as determined in accordance
with Section 13(d) of the 1934 Act), more than 4.99% of all of the Common Stock
outstanding at such time; provided, however, that upon the Holder
providing the Company with sixty-one (61) days notice that such holder would
like to waive this Section 8.1 with regard to any or all shares of Common Stock
issuable upon conversion of the Note, this Section 8.1 shall be of no force or
effect with regard to the principal amount referenced in the Waiver Notice.
14
8.2
Other than as provided
elsewhere in this Section 8, at no time may the Holder convert any portion of
the Note if the number of shares of Common Stock to be issued pursuant to such
conversion would exceed, when aggregated with all other shares of Common Stock
owned by such Holder at such time, the number of shares of Common Stock which
would result in such holder beneficially owning (as determined in accordance
with Section 13(d) of the 1934 Act) in excess of 9.99% of all of the Common
Stock outstanding at such time; provided, however, that upon the
Holder providing the Company with sixty-one (61) days notice that such Holder
would like to waive this Section 8.2 with regard to any or all shares of Common
Stock issuable upon conversion of the Note, this Section 8.2 shall be of no
force or effect with regard to the principal amount referenced in the Waiver
Notice.
9.
Lost or Stolen Note.
Upon receipt by the Company of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of the Note, and, in the case of
loss, theft or destruction, of any indemnification undertaking by the Holder to
the Company in customary form and, in the case of mutilation, upon surrender and
cancellation of the Note, the Company shall execute and deliver a new promissory
note of like tenor and date.
10.
Information Rights.
Unless otherwise publicly available in electronic format on the website of the
Company or filed with the SEC, the Company shall furnish to the Holder within
one hundred and five (105) days after the end of each fiscal year, audited
financial statements of the Company and its consolidated subsidiaries and,
within sixty (60) days after the end of each of the quarters of each fiscal
year, unaudited financial statements of the Company.
11.
Failure to Pay.
Notwithstanding anything to the contrary provided herein or elsewhere and in
addition to all other remedies available to the Holder under this Note, any
other Transaction Documents and/or elsewhere, if any payment hereunder or
elsewhere is due to the Holder, and such payment is not made (even if a payment
is not permitted to be paid because insufficient capital is available under
applicable law to make such payment), Interest on such payment (in addition to
any other Interest and/or penalties that become due), shall accrue at the rate
of the lesser of (i) 22% per annum, and (ii) the maximum amount permitted by
applicable law, and all Interest shall accrue and compound daily until all
payments are made, including Interest and penalties. Nothing in this Section 11
shall be deemed to constitute a waiver and/or election of remedies by the
Holder, all of which other remedies a Holder reserves its rights to pursue,
whether in law or equity.
12.
Certain Payments.
Notwithstanding anything to the contrary provided herein or elsewhere, in the
event (i) any of the Transaction Documents are not in form and substance
reasonably satisfactory to the Collateral Agent, and properly executed and
delivered to the Holder no later than November 3, 2015, except for the documents
set forth in Section 12(ii), and/or (ii) the Collateral Agent has not received
by November 8, 2015 (a) the original Certificate, (b) the executed but undated
SPA, which SPA under applicable Canadian law will transfer all right, interest
and the title (free and clear of all liens, encumbrances and/or preemptive
rights) of the 120 shares represented by the Certificate to the Collateral Agent
as required by and pursuant to the Security and Pledge Agreement, (c) the
executed Security and Pledge Agreement, the IP Security Agreement and the
Guaranty in form and substance reasonably satisfactory to the Collateral Agent
and/or (d) the security interests created by the Security and Pledge Agreement,
and the IP Security Agreement have not been perfected in accordance with all
applicable laws, rules and regulations to provide the Collateral Agent, with a
perfected and a first priority senior lien on and in all of the Collateral (as
defined in the Security and Pledge Agreement), and all other assets of the
Company and its Subsidiaries subject only to any lien created pursuant to the
Full Factoring Agreement dated March 24, 2015 by and between Viscount
Communication & Control Systems, Inc. (the Company’s wholly-owned
subsidiary) and Liquid Capital Exchange Corp. (the “Factoring
Agreement”), provided such Factoring Agreement is not and has not been
amended, supplemented and/or otherwise changed since September 15, 2015, all to
the satisfaction of the Collateral Agent based upon evidence commercially
reasonably satisfactory to the Collateral Agent, then for each calendar day
during which one or more of such events have occurred, the Company shall pay to
the Holder and each other holder of Notes, $2,500 per day in immediately
available funds upon demand by the Holder, any other holder of Notes (and/or the
Collateral Agent for itself and the other Note holders) by wire transfer to the
bank account of the Holder and each other holder of Notes or the Collateral
Agent for itself and each other Note holder, pursuant to wiring instructions as
provided by the Holder and the other holders of Notes to the Company in writing
or to the Collateral Agent’s bank account (for the benefit of itself and the
other Note holders). If any such $2,500 payments are not received in full, in
cash when due, Interest on such payments shall accrue at the lower of (i) 22%
per annum, and (ii) the highest interest rate permitted by applicable law
compounding daily through and including the date all amounts owed to the Holder
and the other holders of Notes (or the Collateral Agent for the benefit of
itself and all holders of Notes), are received in full in cash by such persons.
The failure of the Holder, any other holder of Notes or the Collateral Agent to
take action and/or to not take any action, shall not directly and/or indirectly
constitute a waiver and/or an election of remedies by any such person(s), all of
which other remedies such persons reserve their respective rights to pursue
whether in law or equity.
15
13.
Miscellaneous.
13.1
Waivers and
Amendments. This Note and the other Notes may only be amended, waived,
discharged or terminated (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely) with the written consent of holders owning no less than 50.1% of
the aggregate outstanding principal amount of all Notes at such time. This Note
may not be changed, waived, discharged or terminated orally but only by a signed
statement in writing.
13.2
Severability.
In the event that any provision of this Note becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this Note
shall continue in full force and effect without said provision; provided that no
such severability shall be effective if it materially changes the economic
benefit of this Note to any party.
13.3
Assignment. Subject
to compliance with applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are reasonably requested by the Company), this Note and all
rights therein, may be transferred or assigned in whole or in part by the Holder
at any time and from time to time. The Company agrees to use its best-efforts
and take all reasonably requested action to facilitate and effectuate the
transfer and/or assignment of this Note (in whole or in part), by the Holder and
in the time frame so requested by the Holder.
13.4
Titles and Subtitles.
The titles of the paragraphs and subparagraphs of this Note are for convenience
of reference only and are not to be considered in construing this Note.
13.5
Construction. The
language used in this Note will be deemed to be the language chosen by the
parties to express their mutual intent and no rules of strict construction will
be applied against any party.
13.6
Governing Law. All
questions concerning the construction, validity, enforcement and interpretation
of this Note shall be governed solely and exclusively by and construed and
enforced in accordance with the internal laws of the State of New York, without
regard to the principles of conflict of laws thereof. The Company expressly and
irrevocably agrees that all legal proceedings concerning the interpretation,
enforcement and defense of the transactions contemplated by this Note shall be
commenced exclusively in the state and/or federal courts sitting in the State,
City, and County of New York (the “New York Courts”). The Company
expressly and irrevocably submits to the exclusive jurisdiction of the New York
Courts for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein, and hereby
irrevocably and expressly waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction
of such New York Courts, or such New York Courts are improper or inconvenient
venue for such proceeding. The Company hereby expressly and irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by applicable law. In any action brought
concerning and/or arising directly and/or indirectly out of this Note, the
prevailing party shall be entitled to recover all of its legal fees and expenses
incurred by it with respect to any such legal action.
16
THE COMPANY EXPRESSLY AND IRREVOCABLY WAIVES ITS RIGHT TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
NOTE.
13.7
Rank of Notes. Except
as otherwise provided herein, this Note and, all other Notes and the Other Notes
shall rank senior in all respects to all other Indebtedness or other monetary
obligations of the Company and/or its Subsidiaries, whether such Indebtedness or
other obligations are outstanding as of the date of this Note or incurred after
the date of this Note, such that all such other Indebtedness or other
obligations shall be subordinated in right of payment to this Note.
13.8
Notices. Any and all
notices or other communications or deliveries to be provided by the Holder
hereunder including, without limitation, any Notice of Conversion, shall be in
writing and delivered personally, by facsimile (to facsimile number
1-604-327-3859) and email (to scott.sieracki@viscount.com), or sent by a
nationally recognized overnight courier service, addressed to the Company, at
the following address 4585 Tillicum Street, Burnaby, British Columbia, Canada
V5J 5K9, Attention: Scott Sieracki, President or such other facsimile number, or
address, or email as the Company may specify for such purposes by notice to the
Holders delivered in accordance with this Section 13.8. Any and all notices or
other communications or deliveries to be provided by the Company hereunder shall
be in writing and delivered personally, by facsimile, email or sent by a
nationally recognized overnight courier service addressed to each Holder at the
facsimile number, email or address of such Holder appearing on the books of the
Company. Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile or email at the
facsimile number or email address (as the case may be), set forth in this
Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next
Trading Day after the date of transmission, if such notice or communication is
delivered via facsimile or email at the facsimile number or email address (as
the case may be), set forth in this Section on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the
second Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given.
13.9
Board
Observer/Director. Commencing on the Issuance Date, at any time and from
time to time that any amounts due to the holders of Notes by the Company under
this Note and/or the other Transaction Documents are outstanding, the holders of
50.1% of the then outstanding aggregate principal amount of the Notes and the
Other Notes shall have the right to appoint an observer to the Board of
Directors of the Company (the “Observer”). The Company shall (i) provide
any such Observer with written notification of all Board Meetings (whether an in
person or telephonic Board meeting); and (ii) all information given to any Board
member, all in the same manner and at the same time as a Board member gets or is
entitled to receive any such notification and/or information. Effective on the
Issuance Date, all Directors of the Company’s Board of Directors shall resign
except for Mr. Ned L. Siegel and Mr. Alexander Buehler; and the maximum number
of Directors of the Company shall be five (5), of which Messrs. Siegel and
Buehler shall constitute 2 Directors and the other 3 Directors (the “Note
Directors”), shall be appointed by the holders owning 50.1% of the then
aggregate issued and outstanding principal amount of the Notes and the Other
Notes, which notwithstanding anything to the contrary provided herein or
elsewhere, the Board shall remain at no more than 5 Directors and the three (3)
Note Directors (and/or their successors and/or replacements) shall remain
Directors on the Board until such time as all amounts owed to all holders of the
Notes and the Other Notes including, but not limited to all principal, interest
and all other amounts under the Notes and the Transaction Documents and
documents related to the Other Notes are received in full by all such holders in
cash by wire transfer pursuant to wire transfer instructions provided by each
holder to the Company, at which time the Note Directors at the request of the
CEO of the Company shall resign as directors of the Company; and the Board shall
be reconstituted to be the same Board that existed on October 29, 2015;
provided, however, that notwithstanding anything to the contrary
provided herein or elsewhere, in the event that at any time and from time to
time the required holders of the Notes and Other Notes seek to replace one or
more of the three (3) Note Directors during the period that such persons have
the right to appoint the 3 Note Directors as provided in this Note, and such
does not occur by the date 5 Business Days following the date of such written
request by the holders of 50.01% of the then issued and outstanding aggregate
principal amount of the Notes and Other Notes to the Company (the
“5th Business Day”), the Company shall pay to
each holder of Notes and Other Notes $2,500 per day in cash by wire transfer
commencing on the first day following the 5th Business Day through
and including the date such new Note Director(s) become directors of the Company
in compliance with all applicable laws, rules and regulations, subject to the
holders of the Notes and Other Notes not intentionally acting or failing to act
in a manner reasonably necessary to replace the particular Note Director(s). The
Note Directors shall be entitled to receive from the Company the highest
compensation that any other Director of the Company receives and shall be
entitled to all costs and expenses (including, but not limited to, air fare,
other travel costs, meals and lodging), to attend all Board of Directors
meeting. At any time and from time to time, holders owning no less than 50.1% of
the aggregate principal amount of all Notes and Other Notes then outstanding can
replace by written notice one or more of the Note Directors. Whenever any Note
Director is on the Board, the Company shall maintain Directors and Officers
Liability Insurance and each such Note Director shall be named as a covered
party thereunder, which insurance shall be in the form and substance
satisfactory to each Note Director; and following the resignation of each Note
Director the Company shall have the obligation to maintain Director and Officer
Liability Insurance for each Note Director for a period until all potential
liability to each Note Director has expired as a result of the expiration of all
statutes of limitations. Moreover, the Company and each of its Subsidiaries
shall indemnify and hold harmless each Note Director for the same periods to the
maximum extent permitted by law.
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14.
Simultaneous Closing. Substantially
simultaneously with the issuance of the Notes to the Holder and the other
holders, the Company shall effectuate a closing (the “Other Note
Offering”) of no less than $330,000 (and no more than $660,000) aggregate
principal amount Senior Secured Convertible Demand Promissory B Notes (the
“Other Notes”) for an aggregate purchase price of $300,000 ($600,000 if
all $660,000 aggregate principal amount of Other Notes are sold), with the
$30,000 or $60,000, as the case may be, difference representing original
issuance discount, 10% per Other Note. In the Other Note Offering, for each
$1.00 paid by a purchaser of Other Notes, such purchaser shall receive $1.10 of
principal of Notes with the $0.10 difference constituting original issue
discount.
15.
Series B Preferred Stock. As
a condition to the closing of the issuance and sale of the Notes and the Other
Notes, the Company shall have filed the B Certificate with the Nevada Secretary
of State creating 1,000 B Shares. For each $50,000 aggregate principal amount of
Notes and Other Notes sold and/or issued to any person pursuant to the terms set
forth in the Transaction Documents and the transaction documents for the Other
Notes, such person shall receive one (1) B Share. As long as the B Shares are
issued and outstanding, the B Shares shall be entitled to vote with respect to
any matter upon which the holders of the Common Stock have the right to vote
(and/or consent if a written consent of shareholders is being sought) with the
holders of 50.01% of the then aggregate principal amount of Notes and Other
Notes outstanding being entitled to vote all B Shares then outstanding, with the
B Shares being entitled to eighty (80%) percent of the total votes of Common
Stock at each election and/or written consent of stockholders regardless of how
many B Shares and/or shares of Common Stock are then issued and outstanding (and
to call and/or to constitute a quorum for a shareholders’ meeting of the holders
of the Common Stock). See the B Certificate annexed hereto as part of Exhibit
7. Notwithstanding anything to the contrary provided herein, any conflict
between the description of the B Shares and/or the B Certificate set forth
herein and/or in any other Transaction Document and the B Certificate shall be
governed by the B Certificate.
18
IN WITNESS WHEREOF, the
undersigned has executed this Note on and as of the date first above written.
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VISCOUNT SYSTEMS,
INC., |
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a Nevada corporation
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By: |
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Name: Scott Sieracki |
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Title: Interim Chief Executive
Officer |
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Annex I
NOTICE OF CONVERSION
The undersigned hereby elects to
convert $________________of the principal amount of the Note (defined below)
into shares of Common Stock of Viscount Systems, Inc., a Nevada corporation (the
“Company”) according to the term conditions of the 14% Senior Secured
Convertible Demand Promissory A Note of the Company; Original Issuance Date:
October 30, 2015 (the “Note”). No fee will be charged to the Holder or
Holder’s Custodian for any conversion, except for transfer taxes, if any.
Box Checked as to applicable
instructions:
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The Company shall electronically transmit the Common
Stock issuable pursuant to this Notice of Conversion to the account of the
undersigned or its nominee with DTC through its Deposit Withdrawal Agent
Commission system (“DWAC Transfer”). |
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Name of DTC Prime Broker:
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The undersigned hereby requests that the Company issue a
certificate or certificates for the number of shares of Common Stock set
forth below (which numbers are based on the Holder’s calculation attached
hereto) in the name(s) specified immediately below: |
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Date of Conversion: |
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Conversion Price: |
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Shares to Be Delivered: |
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Remaining Principal Balance |
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Due After This Conversion: |
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Signature: |
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Print Name: |
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SECURITY AND PLEDGE AGREEMENT
This SECURITY AND PLEDGE
AGREEMENT, dated as of November 24, 2015 (this “Agreement”), is among
Viscount Systems, Inc., a Nevada corporation (the “Company”), all of the
subsidiaries of the Company (such subsidiaries, the “Guarantors” and
together with the Company, collectively, the “Debtors”) and the holders
of the Company’s (i) 14% Senior Secured Convertible Promissory A Notes (the
“A Notes”) and (ii) Senior Secured Convertible Promissory B Notes (the
“B Notes”, and collectively with the A Notes, the “Notes”)
following their issuance, signatory hereto, their respective endorsees,
transferees and assigns (each a Secured Party collectively, the “Secured
Parties”).
W I T N E S S E T H:
WHEREAS, the Company is selling B
Notes and issuing the A Notes as provided in the Notes;
WHEREAS, pursuant to a certain
Subsidiary Guarantee, dated as of the date hereof (the “Guarantee”), the
Guarantors have jointly and severally guaranteed and act as surety for payment
to the Secured Parties of the Notes including, but not limited to all future
Notes issued; and
WHEREAS, each Debtor has agreed
to execute and deliver to the Secured Parties this Agreement and to grant the
Secured Parties, pari passu with each other Secured Party and
through the Agent (as defined in Section 17 hereof), a security interest in all
of the assets of each such Debtor to secure the prompt payment, performance and
discharge in full of each of the Debtor’s obligations under the Notes and the
other Transaction Documents (as defined in Section 1(e)) and the Guarantors’
obligations under the Guarantee.
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 (such as “account”,
“chattel paper”, “commercial tort claim”, “deposit account”, “document”,
“equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”,
“inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and
“supporting obligations”) shall have the respective meanings given such terms in
Article 9 of the UCC.
(a)
“Collateral” means the collateral in which the Agent on behalf of the
Secured Parties is granted a security interest by this Agreement and which shall
include the following personal property of the Debtors, whether presently owned
or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all
substitutions and replacements thereof, and all proceeds, products and accounts
thereof, including, without limitation, all proceeds from the sale or transfer
of the Collateral and of insurance covering the same and of any tort claims in
connection therewith, and all dividends, interest, cash, notes, securities,
equity interest and/or other property at any time and from time to time
acquired, receivable or otherwise distributed in respect of, or in exchange for,
any and all of the following:
1
(i) All
goods, including, without limitation, (A) all machinery, equipment, computers,
motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and
general tools, fixtures, test and quality control devices and other equipment of
every kind and nature and wherever situated, together with all documents of
title and documents representing the same, all additions and accessions thereto,
replacements therefor, all parts therefor, and all substitutes for any of the
foregoing and all other items used and useful in connection with any Debtor’s
businesses and all improvements thereto; and (B) all inventory;
(ii) All
contract rights and other general intangibles, including, without limitation,
all partnership interests, membership interests, stock or other securities,
rights under any of the Organizational Documents, agreements related to the
Pledged Securities, licenses, distribution and other agreements, computer
software (whether “off-the-shelf”, licensed from any third party or developed by
any Debtor), computer software development rights, leases, franchises, customer
lists, quality control procedures, grants and rights, goodwill, Intellectual
Property and income tax refunds;
(iii) All
accounts, together with all instruments, all documents of title representing any
of the foregoing, all rights in any merchandising, goods, equipment, motor
vehicles and trucks which any of the same may represent, and all right, title,
security and guaranties with respect to each account, including any right of
stoppage in transit;
(iv) All
documents, letter-of-credit rights, instruments and chattel paper;
(v) All
commercial tort claims;
(vi) All
deposit accounts and all cash (whether or not deposited in such deposit
accounts);
(vii) All
investment property;
(viii) All
supporting obligations; and
2
(ix) All
files, records, books of account, business papers, and computer programs;
(x) the
Pledged Securities; and
(xi) the
products and proceeds of all of the foregoing Collateral set forth in clauses
(i)-(x) above.
Without
limiting the generality of the foregoing, the “Collateral” shall include
all investment property and general intangibles respecting ownership and/or
other equity interests in each Subsidiary of each Debtor, including, without
limitation, the shares of capital stock and the other equity interests listed on
Schedule A hereto (as the same may be modified from time to time pursuant
to the terms hereof), and any other shares of capital stock and/or other equity
interests of any Subsidiary of any Debtor obtained in the future, and, in each
case, all certificates representing such shares and/or equity interests and, in
each case, all rights, options, warrants, stock, other securities and/or equity
interests that may hereafter be received, receivable or distributed in respect
of, or exchanged for, any of the foregoing and all rights arising under or in
connection with the Pledged Securities, including, but not limited to, all
dividends, interest and cash.
Notwithstanding the foregoing,
nothing herein shall be deemed to constitute an assignment of any asset which,
in the event of an assignment, becomes void by operation of applicable law or
the assignment of which is otherwise prohibited by applicable law (in each case
to the extent that such applicable law is not overridden by Sections 9-406,
9-407 and/or 9-408 of the UCC or other similar applicable law); provided,
however, that to the extent permitted by applicable law, this Agreement
shall create a valid security interest in such asset and, to the extent
permitted by applicable law, this Agreement shall create a valid security
interest in the proceeds of such asset.
(b) “Intellectual
Property” means the collective reference to all rights, priorities and
privileges relating to intellectual property, whether arising under United
States, multinational or foreign laws or otherwise, including, without
limitation, (i) all copyrights arising under the laws of the United States, any
other country or any political subdivision thereof, whether registered or
unregistered and whether published or unpublished, all registrations and
recordings thereof, and all applications in connection therewith, including,
without limitation, all registrations, recordings and applications in the United
States Copyright Office, (ii) all letters patent of the United States, any other
country or any political subdivision thereof, all reissues and extensions
thereof, and all applications for letters patent of the United States or any
other country and all divisions, continuations and continuations-in-part
thereof, (iii) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade dress, service marks, logos, domain names and other
source or business identifiers, and all goodwill associated therewith, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, and all common law rights related thereto,
(iv) all trade secrets arising under the laws of the United States, any other
country or any political subdivision thereof, (v) all rights to obtain any
reissues, renewals or extensions of the foregoing, (vi) all licenses for any of
the foregoing, and (vii) all causes of action for infringement of the foregoing.
3
(c) “Majority
in Interest” means, at any time of determination, at least 50.01% of the
then aggregate outstanding principal amount of Notes.
(d) “Necessary
Endorsement” means undated stock powers endorsed in blank medallion
guaranteed (or notarized for the Company’s wholly owned Canadian subsidiary,
Viscount Communication and Control Systems Inc.) or other proper instruments of
assignment duly executed and such other instruments or documents as the Agent
(as that term is defined below) may reasonably request.
(e) “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 contracted or acquired, or owing to, of any Debtor to the Secured
Parties including, but not limited to all obligations under the Transaction
Documents for the A Notes and the Transaction Documents for the B Notes (each as
defined in the A Note and the B Note, respectively (collectively, the
“Transaction Documents”) and any other instruments, agreements or other
documents executed and/or delivered in connection herewith or therewith, 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 any of the
Secured Parties 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; (ii) any and all other fees, indemnities, costs,
obligations and liabilities of the Debtors from time to time under or in
connection with the Transaction Documents and any other instruments, agreements
or other documents executed and/or delivered in connection herewith or therewith
including, but not limited to, liquidated damages, late fees, default interest;
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 any Debtor.
4
(f) “Organizational
Documents” means with respect to any Debtor, the documents by which such
Debtor was organized (such as a certificate of incorporation, certificate of
limited partnership or articles of organization, and including, without
limitation, any certificates of designation for preferred stock or other forms
of preferred equity) and which relate to the internal governance of such Debtor
(such as bylaws, a partnership agreement or an operating, limited liability or
members agreement).
(g) “Pledged
Interest” has the meaning set forth on Section 4(_) hereto.
(h) “Pledged
Securities” have the meaning set forth on Section 4(_) hereto.
(i)
“Subsidiary” means, with respect to any Person, a corporation,
partnership, limited liability company or other entity of which shares of stock
or other ownership interests having ordinary voting power (other than stock or
such other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time owned,
or the management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person and
“Subsidiaries” means collectively each and every Subsidiary of a Person.
The signature page hereto of the Debtors lists, in addition to the Company, all
Subsidiaries of the Company.
(j)
“UCC” means the Uniform Commercial Code of the State of New York 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. Grant
of Security Interest in Collateral. To secure the complete and timely
payment, performance and discharge in full, as the case may be, of all of the
Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants
and hypothecates to the Agent, on behalf of the Secured Parties, a security
interest in and to, a lien upon and a right of set-off against all of their
respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a
“Security Interest” and, collectively, the “Security Interests”).
5
3. Delivery
of Certain Collateral. Contemporaneously or prior to the execution of this
Agreement, each Debtor shall deliver or cause to be delivered to the Agent (a)
any and all certificates and other instruments representing or evidencing the
Pledged Securities, and (b) any and all certificates and other instruments or
documents representing any of the other Collateral, in each case, together with
all Necessary Endorsements. The Debtors are, contemporaneously with the
execution hereof, delivering to Agent, or have previously delivered to Agent, a
true and correct copy of each Organizational Document governing any of the
Pledged Securities.
4. Representations,
Warranties, Covenants and Agreements of the Debtors. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Secured Parties concurrently herewith and attached hereto (the “Disclosure
Schedules”), which Disclosure Schedules shall be deemed a part hereof, each
jointly and severely Debtor represents, warrants, covenants and agrees to and
with each Secured Party as follows:
(a) Organization
and Qualification. Each Debtor is a corporation, duly incorporated, validly
existing and in good standing under the laws of the applicable jurisdiction set
forth on Schedule , with the requisite corporate power and authority to
own and use its properties and assets and to carry on its business as currently
conducted. Each Debtor has no Subsidiaries other than those identified as such
on Schedule hereto. Each Debtor is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of any of this
Guarantee in any material respect, (y) have a material adverse effect on the
results of operations, assets, prospects, or financial condition of the
Guarantor or (z) adversely impair in any material respect the Guarantor's
ability to perform fully on a timely basis its obligations under this Guarantee
(a “Material Adverse Effect”).
(b) Authorization;
Enforcement. Each Debtor has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by this Agreement,
and otherwise to carry out its obligations hereunder . The execution, delivery
and performance of this Agreement and the other Transaction Documents by each
Debtor and the consummation by such Debtor of the transactions contemplated
hereby (including all filings) have been duly authorized by all requisite
corporate action on the part of such Debtor. This Agreement and the other
Transaction Documents have been duly executed and delivered by each Debtor and
constitutes the valid and binding obligation of each Debtor enforceable against
such Debtor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
6
(c) No
Conflicts. The execution, delivery and performance of this Agreement and the
other Transaction Documents by each Debtor and the consummation by each Debtor
of the transactions contemplated hereby and thereby do not and will not (i)
conflict with or violate any provision of any of its Organizational Documents,
each as amended, or (ii) conflict with, constitute a default (or an event which
with notice or lapse of time or both would become a default), and/or event of
default under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, credit facility or
instrument and/or other undersigned to which such Debtor is a party (evidencing
Debtor’s debt or otherwise) or by which any property and/or other assets are
bound or affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which such Debtor is subject (including Federal and
State securities laws and regulations), or by which any material property or
asset of such Debtor is bound or affected, except in the case of each of clauses
(ii) and (iii), such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as could not, individually or in the
aggregate, have or result in a Material Adverse Effect. The business of each
Debtor is not being conducted in violation of any law, ordinance or regulation
of any governmental authority, except for violations which, individually or in
the aggregate, do not have a Material Adverse Effect.
(d) Consents
and Approvals. No Debtor is required to obtain any consent, approval,
(including, but not limited to, from stockholder and/or creditors of each
Debtor) waiver, authorization or order of, or make any filing or registration
with, any court or other federal, state, local, foreign or other governmental
authority or other person in connection with the execution, delivery and
performance by such Debtor of this Agreement and the other Transaction
Documents.
(e) Transaction
Documents. The representations and warranties of each Debtor set forth in
the Transaction Documents as they relate to such Debtor, each of which is hereby
incorporated herein by reference, are true and correct as of each time such
representations are deemed to be made pursuant to such Transaction Documents,
and the Secured Parties shall be entitled to rely on each of them as if they
were fully set forth herein, provided that each reference in each such
representation and warranty to the Company's knowledge shall, for the purposes
of this Section 4, be deemed to be a reference to such Debtor's
knowledge.
(f) Foreign
Law. Each Debtor has consulted with appropriate foreign legal counsel with
respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each
applicable Debtor that such counsel knows of no reason why any of the above
representations would not be true and accurate. Such foreign counsel were
provided with copies of this Agreement and the other Transaction Documents prior
to rendering their advice.
7
(g) Each
Debtor has 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 attached hereto. Except as
specifically set forth on Schedule , Debtors are the record owner of
the real property where such Collateral is located, and there exist no mortgages
or other liens on any such real property. Except as disclosed on Schedule , none of such Collateral is in the possession of any consignee, bailee,
warehouseman, agent or processor.
(h) Except
as set forth on Schedule attached hereto, the Debtors are the sole
owner of the Collateral (except for non-exclusive licenses granted by Debtors in
the ordinary course of business), free and clear of any liens, security
interests, encumbrances, rights or claims, and is fully authorized to grant the
Security Interests. Except as set forth on Schedule attached hereto,
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 Secured Parties pursuant to this Agreement) covering or
affecting any of the Collateral. Except as set forth on Schedule
attached hereto and except pursuant to this Agreement and the other Transaction
Documents, as long as this Agreement and/or the other Transaction Documents
shall be in effect, the Debtors shall not execute and shall not knowingly permit
to be on file in any such office or agency any other financing statement or
other document or instrument (except to the extent filed or recorded in favor of
the Secured Parties pursuant to the terms of this Agreement).
(i) Except
as set forth on Schedule attached hereto, no written claim has been
received that any Collateral or Debtors’ use of any Collateral violates the
rights of any third party. Except as set forth on Schedule attached
hereto, there has been no adverse decision to Debtors’ claim of ownership rights
in or exclusive rights to use the Collateral in any jurisdiction or to Debtors’
right to keep and maintain such Collateral in full force and effect, and there
is no proceeding involving said rights pending or, to the best knowledge of
Debtors, threatened before any court, judicial body, administrative or
regulatory agency, arbitrator or other governmental authority.
(j) The
Debtors shall at all times maintain its books of account and records relating to
the Collateral at its principal place of business and its Collateral at the
locations set forth on Schedule attached hereto and may not relocate
such books of account and records or tangible Collateral unless it delivers to
the Secured Parties at least 30 days prior to such relocation (i) written notice
of such relocation and the new location thereof (which must be
within the United States) and (ii) evidence that appropriate financing
statements under the UCC and other necessary documents have been filed and
recorded and other steps have been taken to perfect the Security Interests to
create in favor of the Secured Parties a valid, perfected and continuing
perfected first priority lien in the Collateral.
8
(k) This
Agreement creates in favor of the Secured Parties a valid security interest in
the Collateral securing the payment and performance of the Obligations. Upon
making the filings described in the immediately following paragraph, all
security interests created hereunder in any Collateral which may be perfected by
filing Uniform Commercial Code financing statements shall have been duly
perfected. Except for the filing of the Uniform Commercial Code financing
statements referred to in the immediately following paragraph, the recordation
of the Intellectual Property Security Agreement and other required documents
with respect to, among other items, patents, patents pending, trademarks and
related items with the United States Patent and Trademark Office and copyrights
and copyright applications in the United States Copyright Office, the execution
and delivery of the Canadian Financing Statement to perfect the security
interest in any Collateral Located in Canada in favor of the Agent on behalf of
the Secured Parties satisfying the requirements of Section ___ of the Canada’s
Personal Property Security Act, the execution on delivery of the Guarantee and
the delivery of the certificates and other instruments provided in Section 3 and
delivery of the Pledged Securities to the Agent, no action is necessary to
create, perfect or protect the security interests created hereunder and in the
other Transaction Documents. Without limiting the generality of the foregoing,
except for the taking of the above actions, the filing of the Canadian Financing
Agreement with the Ministry of Finance and Corporate Relations of British
Columbia, 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
this Agreement and/or the other Transaction Documents, (ii) the creation or
perfection of the Security Interests created hereunder in the Collateral or
(iii) the enforcement of the rights of the Agent and the Secured Parties
hereunder and thereunder.
(l) Debtors hereby authorize the Agent to
file one or more (i) financing statements under the UCC or any other similar law
(domestic and/or foreign) with respect to the Obligations of the Debtors to the
Secured Parties, (ii) amend and restate all prior financing statements under the
UCC, and (iii) take all such other actions so that all Obligations hereunder are
pari passu between each of the Secured Parties with respect to the
Security Interests, with the proper filing and recording agencies in any
jurisdiction deemed proper by it, including foreign jurisdictions, including but
not limited to filing a fixed and floating charge over the Security Interests in
the
9
(m) The capital stock and other equity
interests listed on Schedule __ hereto (the “Pledged Securities”)
represent all of the capital stock and other equity interests of all of the
subsidiaries of the Debtors, and represent all capital stock and other equity
interests owned, directly or indirectly, by the Debtors. All of the Pledged
Securities are validly issued, fully paid and nonassessable, and except as set
forth on Schedule __ attached hereto, the Debtors are the legal and beneficial
owner of the Pledged Securities, free and clear of any lien, security interest
or other encumbrance except for the security interests created by this
Agreement.
(n) The
ownership and other equity interests in partnerships and limited liability
companies (if any) included in the Collateral (the “Pledged Interests”)
by their express terms do not provide that they are securities governed by
Article 8 of the UCC and/or any other equivalent and/or similar law, rule and/or
regulation in Canada and are not held in a securities account or by any
financial intermediary.
(o) Except
as set forth on Schedule __, Debtors shall at all times maintain the liens and
Security Interests provided for hereunder as valid and perfected first priority
liens and security interests in the Collateral in favor of the Secured Parties
until this Agreement, the other Transaction Documents and the Security Interests
hereunder and thereunder shall be terminated in accordance with and with the
other Transaction Documents. Debtors hereby agree to defend the same against the
claims of any and all persons and entities. Debtors shall safeguard and protect
all Collateral for the account of the Secured Parties. At the request of the
Agent, Debtors will sign and deliver to the Agent on behalf of the Secured
Parties at any time or from time to time one or more financing statements
pursuant to the UCC in form reasonably satisfactory to the Agent and will pay
the cost of filing the same in all public offices wherever filing is, or is
deemed by the Agent to be, necessary or desirable to effect the rights and
obligations provided for herein. Without limiting the generality of the
foregoing, Debtors shall pay all fees, taxes and other amounts necessary to
maintain the Collateral and the Security Interests hereunder and in the other
Transaction Documents, and Debtors shall obtain and furnish to the Agent from
time to time, upon demand, such releases and/or subordinations of claims and
liens which may be required to maintain the priority of the Security Interests
hereunder and thereunder.
(p) Debtors
will not transfer, pledge, hypothecate, encumber, license, sell or otherwise
dispose of any of the Collateral (except for non-exclusive licenses granted by
Debtors in their ordinary course of business (and sales of inventory by Debtors
in their ordinary course of business) without the prior written consent as
provided herein.
(q) Debtors
shall keep and preserve its 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.
10
(r) Debtors shall maintain with financially
sound and reputable insurers, insurance with respect to the Collateral,
including Collateral hereafter acquired, against loss or damage of the kinds 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. Debtors shall cause
each insurance policy issued in connection herewith to provide, and the insurer
issuing such policy to certify to the Agent, that (a) the Agent will be named as
lender loss payee and additional insured under each such insurance policy; (b)
if such insurance be proposed to be cancelled or materially changed for any
reason whatsoever, such insurer will promptly notify the Agent and such
cancellation or change shall not be effective as to the Agent for at least
thirty (30) days after receipt by the Agent of such notice, unless the effect of
such change is to extend or increase coverage under the policy; and (c) the
Agent will have the right (but no obligation) at its election to remedy any
default in the payment of premiums within thirty (30) days of notice from the
insurer of such default. If no Event of Default (as defined in the Notes) exists
and if the proceeds arising out of any claim or series of related claims do not
exceed $50,000, loss payments in each instance will be applied by the Debtors to
the repair and/or replacement of property with respect to which the loss was
incurred to the extent reasonably feasible, and any loss payments or the balance
thereof remaining, to the extent not so applied, shall be payable to the
Debtors; provided, however, that payments received by Debtors after an Event of
Default occurs and is continuing or in excess of $50,000 for any occurrence or
series of related occurrences shall be paid to the Agent on behalf of the
Secured Parties and, if received by Debtors, shall be held in trust for the
Secured Parties and immediately paid over to the Agent unless otherwise directed
in writing by the Agent. Copies of such policies or the related certificates, in
each case, naming the Agent as lender loss payee and additional insured shall be
delivered to the Agent at least annually and at the time any new policy of
insurance is issued.
(s)
Debtors shall promptly but in no event later than two (2) days of obtaining
knowledge thereof, advise the Secured Parties, in sufficient detail, of any
material adverse change in the Collateral, and of the occurrence of any event
which would have a material adverse effect on the value of the Collateral or on
the Secured Parties’ security interest, through the Agent, therein.
(t) Debtors shall promptly execute and
deliver to the Agent such further deeds, mortgages, assignments, security
agreements, financing statements or other instruments, documents, certificates
and assurances and take such further action as the Agent may from time to time
request and may in its sole discretion deem necessary to perfect, protect or
enforce the Secured Parties’ security interest in the Collateral including,
without limitation, if applicable, the execution and delivery of a separate
security agreement with respect to Debtors’ Intellectual Property in which the Secured Parties have been granted a
security interest hereunder, in form and substance acceptable to the Agent,
which Intellectual Property Security Agreement, other than as stated therein,
shall be subject to all of the terms and conditions hereof.
11
(u) Debtors
shall permit the Agent 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 Agent from time to time (except upon an Event of Default, an
event of default (and/or an event of default or an event of default that would
occur upon the passage of time and/or the giving of notice), in which event
inspection shall be at any time as requested by all of the above parties.
(v) Debtors
shall take all steps reasonably necessary to diligently pursue and seek to
preserve, enforce and collect any rights, claims, causes of action and accounts
receivable in respect of the Collateral.
(w) Debtors
shall promptly notify the Secured Parties in sufficient detail upon becoming
aware of any attachment, garnishment, execution or other legal process levied
against any Collateral and of any other information received by Debtors that may
materially affect the value of the Collateral, the Security Interest or the
rights and remedies of the Secured Parties hereunder.
(x) All
information heretofore, herein or hereafter supplied to the Secured Parties by
or on behalf of Debtors with respect to the Collateral is accurate and complete
in all material respects as of the date furnished.
(y) The
Debtors shall at all times preserve and keep in full force and effect their
respective valid existence and good standing and any rights and franchises
material to its business.
(z) Debtors
will not change its name, type of organization, jurisdiction of organization,
organizational identification number (if it has one), legal or corporate
structure, or identity, or add any new fictitious name unless it provides at
least 30 days prior written notice to the Secured Parties of such change and, at
the time of such written notification, Debtors provide any financing statements
or fixture filings necessary to perfect and continue the perfection of the
Security Interests granted and evidenced by this Agreement.
(aa) Except
in the ordinary course of business, Debtors may not consign any of its inventory
or sell any of its inventory on bill and hold, sale or return, sale on approval,
or other conditional terms of sale without the consent of the Agent which shall
not be unreasonably withheld.
(bb) Debtors
may not relocate their chief executive office to a new location without
providing 30 days prior written notification thereof to the Secured Parties and so long as, at the time of such written
notification, Debtors provide any financing statements or fixture filings
necessary to perfect and continue the perfection of the Security Interests
granted and evidenced by this Agreement.
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(cc) (i) The actual name of Debtors are the
name set forth in Schedule attached hereto; (ii) Debtors have no trade
names except as set forth on Schedule attached hereto; (iii) Debtors
have not used any name other than that stated in the preamble hereto or as set
forth on Schedule for the preceding five years; and (iv) no entity has
merged into Debtors or been acquired by Debtors within the past five years
except as set forth on Schedule .
(dd) At
any time and from time to time that any Collateral consists of instruments,
certificated securities or other items that require or permit possession by the
secured party to perfect the security interest created hereby, the Debtors shall
deliver such Collateral to the Agent.
(ee) Debtors,
in their capacity as issuer, hereby agree to comply with any and all orders and
instructions of Agent regarding the Pledged Interests and Pledged Securities
consistent with the terms of this Agreement and the other Transaction Documents
without the further consent of Debtors as contemplated by Section 8-106 (or any
successor section) of the UCC and applicable Canadian law. Further, Debtors
agree that they shall not enter into a similar agreement (or one that would
confer “control” within the meaning of Article 8 of the UCC and applicable
Canadian law) with any other person or entity.
(ff) Debtors
shall cause all tangible chattel paper constituting Collateral to be delivered
to the Agent, or, if such delivery is not possible, then to cause such tangible
chattel paper to contain a legend noting that it is subject to the security
interest created by this Agreement. To the extent that any Collateral consists
of electronic chattel paper, the Debtors shall cause the underlying chattel
paper to be “marked” within the meaning of Section 9-105 of the UCC (or
successor section thereto).
(gg) If
there is any investment property or deposit account included as Collateral that
can be perfected by “control” through an account control agreement, the Debtors
shall cause such an account control agreement, in form and substance in each
case satisfactory to the Agent, to be entered into and delivered to the Agent
for the benefit of the Secured Parties.
(hh) To
the extent that any Collateral consists of letter-of-credit rights, the Debtors
shall cause the issuer of each underlying letter of credit to consent to an
assignment of the proceeds thereof to the Secured Parties.
(ii) To
the extent that any Collateral is in the possession of any third party, the
Debtors shall join with the Agent in notifying such third party of the Secured
Parties’ security interest in such Collateral and shall use its best efforts
to obtain an acknowledgement and agreement from such third party
with respect to the Collateral, in form and substance reasonably satisfactory to
the Agent.
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(jj) If
Debtors shall at any time hold or acquire a commercial tort claim, Debtors shall
promptly notify the Secured Parties in a writing signed by Debtors of the
particulars thereof and grant to the Secured Parties in such writing a security
interest therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance satisfactory to the
Agent.
(kk) Debtors
shall immediately provide written notice to the Secured Parties of any and all
accounts which arise out of contracts with any governmental authority and, to
the extent necessary to perfect or continue the perfected status of the Security
Interests in such accounts and proceeds thereof, shall execute and deliver to
the Agent an assignment of claims for such accounts and cooperate with the Agent
in taking any other steps required, in its judgment, under the Federal
Assignment of Claims Act or any similar federal, state or local statute or rule
to perfect or continue the perfected status of the Security Interests in such
accounts and proceeds thereof.
(ll) Debtors shall cause each Subsidiary of
Debtors to immediately become a party hereto (an “Additional Debtor”), by
executing and delivering an Additional Debtor Joinder in substantially the form
of Annex B attached hereto and comply with the provisions hereof
applicable to the Debtors. Concurrent therewith, the Additional Debtor shall
deliver replacement schedules for, or supplements to all other Schedules to (or
referred to in) this Agreement and the other Transaction Documents, as
applicable, which replacement schedules shall supersede, or supplements shall
modify, the Schedules then in effect. The Additional Debtor shall also deliver
such opinions of counsel, authorizing resolutions, good standing certificates,
incumbency certificates, organizational documents, financing statements and
other information and documentation as the Agent may reasonably request. Upon
delivery of the foregoing to the Agent, the Additional Debtor shall be and
become a party to this Agreement with the same rights and obligations as the
Debtors, for all purposes hereof as fully and to the same extent as if it were
an original signatory hereto and shall be deemed to have made the
representations, warranties and covenants set forth herein as of the date of
execution and delivery of such Additional Debtor Joinder, and all references
herein to the “Debtor” shall be deemed to include each Additional Debtor.
(mm) Debtors
shall vote the Pledged Securities to comply with the covenants and agreements
set forth herein and in the Notes.
(nn) Upon
execution of this Agreement, Debtors shall provide the Agent (i) undated
Necessary Endorsements for the transfer to and in the name of the Agent of all
Pledged Securities so that all such Pledged Securities can be dealt with by the
Agent upon the occurrence and in the manner as provided herein, and (ii) all Pledged Securities to the Agent. Upon execution of
this Agreement register the pledge of the applicable Pledged Securities on the
books of Debtors. Debtors shall notify each issuer of Pledged Securities to
register the pledge of the applicable Pledged Securities in the name of the
Secured Parties on the books of such issuer. Further, except with respect to
certificated securities delivered to the Agent, the Debtors shall deliver to
Agent an acknowledgement of pledge (which, where appropriate, shall comply with
the requirements of the relevant UCC and applicable Canadian law with respect to
perfection by registration) signed by the issuer of the applicable Pledged
Securities, which acknowledgement shall confirm that: (a) it has registered the
pledge on its books and records; and (b) at any time directed by Agent during
the continuation of an Event of Default, such issuer will transfer the record
ownership of such Pledged Securities into the name of any designee of Agent,
will take such steps as may be necessary to effect the transfer, and will comply
with all other instructions of Agent regarding such Pledged Securities without
the further consent of the Debtors.
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(oo) In
the event that, upon an occurrence of an Event of Default, Agent shall sell all
or any of the Pledged Securities to another party or parties (herein called the
“Transferee”) or shall purchase or retain all or any of the Pledged Securities,
Debtors shall, to the extent applicable: (i) deliver to Agent or the Transferee,
as the case may be, the articles of incorporation, bylaws, minute books, stock
certificate books, corporate seals, deeds, leases, indentures, agreements,
evidences of indebtedness, books of account, financial records and all other
Organizational Documents and records of the Debtors and their direct and
indirect subsidiaries; (ii) use its best efforts to obtain resignations of the
persons then serving as officers and directors of the Debtors and their direct
and indirect subsidiaries, if so requested; and (iii) use its best efforts to
obtain any approvals that are required by any governmental or regulatory body in
order to permit the sale of the Pledged Securities to the Transferee or the
purchase or retention of the Pledged Securities by Agent and allow the
Transferee or Agent to continue the business of the Debtors and their direct and
indirect subsidiaries.
(pp) Without
limiting the generality of the other obligations of the Debtors hereunder,
Debtors shall promptly (i) cause to be registered at the United States Copyright
Office all of its material copyrights, (ii) cause the security interest
contemplated hereby with respect to all Intellectual Property registered at the
United States Copyright Office and the United States Patent and Trademark Office
to be duly recorded at the applicable office, and (iii) give the Agent notice
whenever it acquires (whether absolutely or by license) or creates any
additional material Intellectual Property.
(qq) Debtors will from time to time 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 Agent may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Secured Parties to
exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise
carry out the purposes of this Agreement.
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(rr)
Schedule __ attached hereto lists all of the patents, patent
applications, trademarks, trademark applications, registered copyrights, and
domain names owned by the Debtors as of the date hereof. Schedule lists all material licenses in favor of Debtors for the use of any patents,
trademarks, copyrights and domain names as of the date hereof. All material
patents and trademarks of the Debtors have been duly recorded at the United
States Patent and Trademark Office and all material copyrights of the Debtors
have been duly recorded at the United States Copyright Office.
(ss) Except
as set forth on Schedule __ attached hereto, none of the account debtors
or other persons or entities obligated on any of the Collateral is a
governmental authority covered by the Federal Assignment of Claims Act or any
similar federal, state or local statute or rule in respect of such Collateral.
5. Effect
of Pledge on Certain Rights. If any of the Collateral subject to this
Agreement consists of nonvoting equity or ownership interests (regardless of
class, designation, preference or rights) that may be converted into voting
equity or ownership interests upon the occurrence of certain events (including,
without limitation, upon the transfer of all or any of the other stock or assets
of the issuer), it is agreed that the pledge of such equity or ownership
interests pursuant to this Agreement or the enforcement of any of Agent’s and/or
Secured Parties rights hereunder shall not be deemed to be the type of event
which would trigger such conversion rights notwithstanding any provisions in the
Organizational Documents or agreements to which any Debtor is subject or to
which any Debtor is party.
6. Defaults.
The following events shall be “Events of Default”:
| |
(a) |
The occurrence of an Event of Default (as defined in the
Notes) under the Notes and/or event of default under any other Transaction
Documents; or |
| |
|
|
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(b) |
Any representation or warranty of Debtors in this
Agreement shall prove to have been incorrect in any material respect when
made; |
| |
|
|
| |
(c) |
The failure by Debtors to observe or perform any of its
obligations hereunder for five (5) days after delivery to Debtors of
notice of such failure by or on behalf of a Secured Party unless such
default is capable of cure but cannot be cured within such time frame and
Debtors are using best efforts to cure same in a timely fashion;
or |
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|
|
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(d) |
Any material diminution in the value of the Collateral as
determined by the Agent in its reasonable discretion;
or |
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(e) |
If any provision of this Agreement shall at any time for
any reason be declared to be null and void, or the validity or
enforceability thereof shall be contested by any Debtor, or a proceeding
shall be commenced by any Debtor, or by any governmental authority having
jurisdiction over any Debtor, seeking to establish the invalidity or
unenforceability thereof, or any Debtor shall deny that any Debtor has any
liability or obligation purported to be created under this
Agreement; |
7. Duty
To Hold In Trust.
(a) Upon
the occurrence of any Event of Default and at any time thereafter, each Debtor
shall, upon receipt of any revenue, income, dividend, interest or other sums
subject to the Security Interests, whether payable pursuant to the Notes or
otherwise, or of any check, draft, note, trade acceptance or other instrument
evidencing an obligation to pay any such sum, hold the same in trust for the
Agent for the benefit of the Secured Parties and shall forthwith endorse and
transfer any such sums or instruments, or both, to the Agent for the benefit of
the Secured Parties pro-rata in proportion to their respective then-currently
outstanding aggregate principal amount of Notes for application to the
satisfaction of the Obligations (and if any Note is not outstanding, pro-rata in
proportion to the initial purchasers of the remaining Notes).
(b) If
any Debtor shall become entitled to receive or shall receive any securities or
other property (including, without limitation, shares of Pledged Securities or
instruments representing Pledged Securities acquired after the date hereof, or
any options, warrants, rights or other similar property or certificates
representing a dividend, or any distribution in connection with any
recapitalization, reclassification or increase or reduction of capital, or
issued in connection with any reorganization of such Debtor or any of its direct
or indirect subsidiaries) in respect of the Pledged Securities (whether as an
addition to, in substitution of, or in exchange for, such Pledged Securities or
otherwise), such Debtor agrees to (i) accept the same as the agent of the
Secured Parties; (ii) hold the same in trust for the Agent for the benefit of
the Secured Parties; and (iii) to deliver any and all certificates or
instruments evidencing the same to Agent on or before the close of business on
the fifth business day following the receipt thereof by such Debtor, in the
exact form received together with the Necessary Endorsements, to be held by
Agent subject to the terms of this Agreement as Collateral.
8. Rights
and Remedies Upon Default.
(a) Upon
the occurrence of any Event of Default and at any time thereafter, the Secured
Parties, acting through the Agent, shall have the right to exercise all of the
remedies conferred hereunder and under the Notes, and the Agent shall have all
the rights and remedies of a secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured
Parties, shall have the following rights and powers:
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(i) The
Agent shall have the right to take possession of the Collateral and, for that
purpose, enter, with the aid and assistance of any person, any premises where
the Collateral, or any part thereof, is or may be placed and remove the same,
and each Debtor shall assemble the Collateral and make it available to the Agent
at places which the Agent shall reasonably select, whether at such Debtor's
premises or elsewhere, and make available to the Agent, without rent, all of
such Debtor’s respective premises and facilities for the purpose of the Agent
taking possession of, removing or putting the Collateral in saleable or
disposable form.
(ii) Upon
notice to the Debtors by Agent, all rights of each Debtor to exercise the voting
and other consensual rights which it would otherwise be entitled to exercise and
all rights of each Debtor to receive the dividends and interest which it would
otherwise be authorized to receive and retain, shall cease. Upon such notice,
Agent shall have the right to receive, for the benefit of the Secured Parties,
any interest, cash dividends or other payments on the Collateral and, at the
option of Agent, to exercise in such Agent’s discretion all voting rights
pertaining thereto. Without limiting the generality of the foregoing, Agent
shall have the right (but not the obligation) to exercise all rights with
respect to the Collateral as it were the sole and absolute owner thereof,
including, without limitation, to vote and/or to exchange, at its sole
discretion, any or all of the Collateral in connection with a merger,
reorganization, consolidation, recapitalization or other readjustment concerning
or involving the Collateral or any Debtor or any of its direct or indirect
subsidiaries.
(iii) The
Agent shall have the right to operate the business of each Debtor using the
Collateral and shall have the right to assign, sell, lease or otherwise dispose
of and deliver all or any part of the Collateral, at public or private sale or
otherwise, either with or without special conditions or stipulations, for cash
or on credit or for future delivery, in such parcel or parcels and at such time
or times and at such place or places, and upon such terms and conditions as the
Agent may deem commercially reasonable, all without (except as shall be required
by applicable statute and cannot be waived) advertisement or demand upon or
notice to any Debtor or right of redemption of a Debtor, which are hereby
expressly waived. Upon each such sale, lease, assignment or other transfer of
Collateral, the Agent, for the benefit of the Secured Parties, may, unless
prohibited by applicable law which cannot be waived, purchase all or any part of
the Collateral being sold, free from and discharged of all trusts, claims, right
of redemption and equities of any Debtor, which are hereby waived and released.
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(iv) The
Agent shall have the right (but not the obligation) to notify any account
debtors and any obligors under instruments or accounts to make payments directly
to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’
rights against such account debtors and obligors.
(v) The
Agent, for the benefit of the Secured Parties, may (but is not obligated to)
direct any financial intermediary or any other person or entity holding any
investment property to transfer the same to the Agent, on behalf of the Secured
Parties, or its designee.
(vi) The
Agent may (but is not obligated to) transfer any or all Intellectual Property
registered in the name of any Debtor at the United States Patent and Trademark
Office and/or Copyright Office into the name of the Secured Parties or any
designee or any purchaser of any Collateral.
(b) The
Agent shall comply with any applicable law in connection with a disposition of
Collateral and such compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral. The Agent may sell the
Collateral without giving any warranties and may specifically disclaim such
warranties. If the Agent sells any of the Collateral on credit, the Debtors will
only be credited with payments actually made by the purchaser. In addition, each
Debtor waives any and all rights that it may have to a judicial hearing in
advance of the enforcement of any of the Agent’s rights and remedies hereunder,
including, without limitation, its right following an Event of Default to take
immediate possession of the Collateral and to exercise its rights and remedies
with respect thereto.
(c) For
the purpose of enabling the Agent to further exercise rights and remedies under
this Section 8 or elsewhere provided by agreement or applicable law, each Debtor
hereby grants to the Agent, for the benefit of the Agent and the Secured
Parties, an irrevocable, nonexclusive license (exercisable without payment of
royalty or other compensation to such Debtor) to use, license or sublicense
following an Event of Default, any Intellectual Property now owned or hereafter
acquired by such Debtor, and wherever the same may be located, and including in
such license access to all media in which any of the licensed items may be
recorded or stored and to all computer software and programs used for the
compilation or printout thereof.
9. Applications
of Proceeds. The proceeds of any such sale, lease or other disposition of
the Collateral hereunder or from payments made on account of any insurance
policy insuring any portion of the Collateral shall be applied first, to the
expenses of retaking, holding, storing, processing and preparing for sale,
selling, and the like (including, without limitation, any taxes, fees and other
costs incurred in connection therewith) of the Collateral, to the reasonable
attorneys’ fees and expenses incurred by the Agent in enforcing the Secured
Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then
to satisfaction of the Obligations pro rata among the Secured Parties (based on
then-outstanding principal amounts of Notes at the time of any such
determination), and to the payment of any other amounts required by applicable
law, after which the Secured Parties shall pay to the applicable Debtor any
surplus proceeds. If, upon the sale, license or other disposition of the
Collateral, the proceeds thereof are insufficient to pay all amounts to which
the Secured Parties are legally entitled, the Debtors will be jointly and
severally liable for the deficiency, together with interest thereon, at the rate
of 22% per annum or the lesser amount permitted by applicable law (the
“Default Rate”), and the reasonable fees and expenses of any attorneys
employed by the Secured Parties to collect such deficiency. To the extent
permitted by applicable law, each Debtor waives all claims, damages and demands
against the Secured Parties arising out of the repossession, removal, retention
or sale of the Collateral, unless due solely to the gross negligence or willful
misconduct of the Secured Parties as determined by a final judgment (not subject
to further appeal) of a court of competent jurisdiction.
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10. Securities
Law Provision. Each Debtor recognizes that Agent may be limited in its
ability to effect a sale to the public of all or part of the Pledged Securities
by reason of certain prohibitions in the Securities Act of 1933, as amended, or
other federal or state securities laws (collectively, the “Securities
Laws”), and may be compelled to resort to one or more sales to a restricted
group of purchasers who may be required to agree to acquire the Pledged
Securities for their own account, for investment and not with a view to the
distribution or resale thereof. Each Debtor agrees that sales so made may be at
prices and on terms less favorable than if the Pledged Securities were sold to
the public, and that Agent has no obligation to delay the sale of any Pledged
Securities for the period of time necessary to register the Pledged Securities
for sale to the public under the Securities Laws. Each Debtor shall cooperate
with Agent in its attempt to satisfy any requirements under the Securities Laws
(including, without limitation, registration thereunder if requested by Agent)
applicable to the sale of the Pledged Securities by Agent.
11. Responsibility
for Collateral. The Debtors assume all liabilities and responsibility in
connection with all Collateral, and the Obligations shall in no way be affected
or diminished by reason of the loss, destruction, damage or theft of any of the
Collateral or its unavailability for any reason. Without limiting the generality
of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty
(either before or after an Event of Default) to collect any amounts in respect
of the Collateral or to preserve any rights relating to the Collateral, or (ii)
has any obligation to clean-up or otherwise prepare the Collateral for sale, and
(b) each Debtor shall remain obligated and liable under each contract or
agreement included in the Collateral to be observed or performed by such Debtor
thereunder. Neither the Agent nor any Secured Party shall have any obligation or
liability under any such contract or agreement by reason of or arising out of
this Agreement or the receipt by the Agent or any Secured Party of any payment
relating to any of the Collateral, nor shall the Agent or any Secured Party be
obligated in any manner to perform any of the obligations of any Debtor under or
pursuant to any such contract or agreement, to make inquiry as to the nature or
sufficiency of any payment received by the Agent or any Secured Party in respect
of the Collateral or as to the sufficiency of any performance by any
party under any such contract or agreement, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to the Agent or to which the Agent or any
Secured Party may be entitled at any time or times.
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12. Security
Interests Absolute. All rights of the Secured Parties and all obligations of
the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a)
any lack of validity or enforceability of this Agreement, the Notes or any
agreement entered into in connection with the foregoing, or any portion hereof
or thereof; (b) any change in the time, manner or place of payment or
performance of, or in any other term of, all or any of the Obligations, or any
other amendment or waiver of or any consent to any departure from the Notes or
any other agreement entered into in connection with the foregoing; (c) any
exchange, release or nonperfection of any of the Collateral, or any release or
amendment or waiver of or consent to departure from any other collateral for, or
any guarantee, or any other security, for all or any of the Obligations; (d) any
action by the Secured Parties to obtain, adjust, settle and cancel in its sole
discretion any insurance claims or matters made or arising in connection with
the Collateral; or (e) any other circumstance which might otherwise constitute
any legal or equitable defense available to a Debtor, or a discharge of all or
any part of the Security Interests granted hereby. Until the Obligations shall
have been paid and performed in full, the rights of the Secured Parties shall
continue even if the Obligations are barred for any reason, including, without
limitation, the running of the statute of limitations or bankruptcy. Each Debtor
expressly waives presentment, protest, notice of protest, demand, notice of
nonpayment and demand for performance. In the event that at any time any
transfer of any Collateral or any payment received by the Secured Parties
hereunder shall be deemed by final order of a court of competent jurisdiction to
have been a voidable preference or fraudulent conveyance under the bankruptcy or
insolvency laws of the United States, or shall be deemed to be otherwise due to
any party other than the Secured Parties, then, in any such event, each Debtor’s
obligations hereunder shall survive cancellation of this Agreement, and shall
not be discharged or satisfied by any prior payment thereof and/or cancellation
of this Agreement, but shall remain a valid and binding obligation enforceable
in accordance with the terms and provisions hereof. Each Debtor waives all right
to require the Secured Parties to proceed against any other person or entity or
to apply any Collateral which the Secured Parties may hold at any time, or to
marshal assets, or to pursue any other remedy. Each Debtor waives any defense
arising by reason of the application of the statute of limitations to any
obligation secured hereby.
13. Term
of Agreement. This Agreement and the Security Interests shall terminate on
the date on which all payments under the Notes have been indefeasibly paid in
full and all other Obligations have been paid or discharged; provided,
however, that all indemnities of the Debtors contained in this Agreement
(including, without limitation, Annex A hereto) shall survive and remain
operative and in full force and effect regardless of the termination of this
Agreement.
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14. Power
of Attorney; Further Assurances.
(a) Each Debtor authorizes the Agent, and
does hereby make, constitute and appoint the Agent and its officers, agents,
successors or assigns with full power of substitution, as such Debtor’s true and
lawful attorney-in-fact, with power, in the name of the Agent or such Debtor,
to, after the occurrence and during the continuance of an Event of Default, (i)
endorse any note, checks, drafts, money orders or other instruments of payment
(including payments payable under or in respect of any policy of insurance) in
respect of the Collateral that may come into possession of the Agent; (ii) to
sign and endorse any financing statement pursuant to the UCC or any invoice,
freight or express bill, bill of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications and notices in connection with
accounts, and other documents relating to the Collateral; (iii) to pay or
discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on or threatened against the Collateral; (iv) to demand,
collect, receipt for, compromise, settle and sue for monies due in respect of
the Collateral; (v) to transfer any Intellectual Property or provide licenses
respecting any Intellectual Property; and (vi) generally, at the option of the
Agent, and at the expense of the Debtors, at any time, or from time to time, to
execute and deliver any and all documents and instruments and to do all acts and
things which the Agent deems necessary to protect, preserve and realize upon the
Collateral and the Security Interests granted therein in order to effect the
intent of this Agreement and the Notes all as fully and effectually as the
Debtors might or could do; and each Debtor hereby ratifies all that said
attorney shall lawfully do or cause to be done by virtue hereof. This power of
attorney is coupled with an interest and shall be irrevocable for the term of
this Agreement and thereafter as long as any of the Obligations shall be
outstanding. The designation set forth herein shall be deemed to amend and
supersede any inconsistent provision in the Organizational Documents or other
documents or agreements to which any Debtor is subject or to which any Debtor is
a party. Without limiting the generality of the foregoing, after the occurrence
and during the continuance of an Event of Default, each Secured Party is
specifically authorized to execute and file any applications for or instruments
of transfer and assignment of any patents, trademarks, copyrights or other
Intellectual Property with the United States Patent and Trademark Office and the
United States Copyright Office.
(b) On a continuing basis, each Debtor will
make, execute, acknowledge, deliver, file and record, as the case may be, with
the proper filing and recording agencies in any jurisdiction, including, without
limitation, the jurisdictions indicated on Schedule __ attached hereto,
all such instruments, and take all such action as may reasonably be deemed
necessary or advisable, or as reasonably requested by the Agent, to perfect the
Security Interests granted hereunder and otherwise to carry out the intent and
purposes of this Agreement, or for assuring and confirming to the Agent the
grant or perfection of a perfected security interest in all the Collateral under
the UCC.
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(c) Each
Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact,
with full authority in the place and instead of such Debtor and in the name of
such Debtor, from time to time in the Agent’s discretion, to take any action and
to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including the filing, in its sole
discretion, of one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of such Debtor
where permitted by law, which financing statements may (but need not) describe
the Collateral as “all assets” or “all personal property” or words of like
import, and ratifies all such actions taken by the Agent. This power of attorney
is coupled with an interest and shall be irrevocable for the term of this
Agreement and thereafter as long as any of the Obligations shall be outstanding.
15. Notices. All notices,
requests, demands and other communications hereunder shall be subject to the
notice provision of the Notes.
16. Other Security. To the
extent that the Obligations are now or hereafter secured by property other than
the Collateral or by the guarantee, endorsement or property of any other person,
firm, corporation or other entity, then the Agent shall have the right, in its
sole discretion, to pursue, relinquish, subordinate, modify or take any other
action with respect thereto, without in any way modifying or affecting any of
the Secured Parties’ rights and remedies hereunder.
17. Appointment
of Agent. By execution of this Agreement, each Secured Party hereby appoint
One East Capital Advisors, L.P. to act as their agent (“Agent”) for
purposes of exercising any and all rights and remedies of the Secured Parties
hereunder, in Annex A hereto, in the Intellectual Property Security
Agreement, the Guaranty and in any other documents, instruments and/or
agreements relating to securing all obligations of each Debtor to any Secured
Party under the Transaction Documents by all of the assets of each Debtor and
perfecting such security interests. Such appointment shall continue until
revoked in writing by a Majority in Interest, at which time a Majority in
Interest shall appoint a new Agent. In addition to those hereunder, the Agent
shall have the rights, responsibilities and immunities set forth in Annex
A hereto.
18. Costs
and Expenses. Each Debtor agree that it is jointly and
severally obligated to pay and shall pay upon demand by the Agent and/or the
Secured Parties all reasonable out-of-pocket fees, costs and expenses incurred
in connection with any filing required hereunder, including without limitation,
any financing statements pursuant to the UCC and Canadian law, continuation
statements, partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Agent. The Debtors shall
also pay all other claims and charges which in the reasonable opinion of the
Agent is reasonably likely to prejudice, imperil or otherwise affect the
Collateral or the Security Interests therein. The Debtors will also, upon
demand, pay to the Agent the amount of any and all reasonable expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, which the Agent, for the benefit of the Secured Parties, may incur in
connection with the creation, perfection, protection, satisfaction, foreclosure, collection or
enforcement of the Security Interest and the preparation, administration,
continuance, amendment or enforcement of this Agreement and pay to the Agent the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, which the Agent, for the
benefit of the Secured Parties, and the Secured Parties may incur in connection
with (i) the enforcement of this Agreement, (ii) the custody or preservation of,
or the sale of, collection from, or other realization upon, any of the
Collateral, or (iii) the exercise or enforcement of any of the rights of the
Secured Parties under the Notes and/or the other Transaction Documents. Until so
paid, any fees payable hereunder shall be added to the principal amount of the
Notes and shall bear interest at the highest default rate provided in any of the
Notes.
23
19.
Miscellaneous.
(a) No
course of dealing between the Debtors and the Secured Parties and/or the Agent,
nor any failure to exercise, nor any delay in exercising, on the part of the
Secured Parties and/or the Agent, any right, power or privilege hereunder or
under the Notes shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder or thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
(b) All
of the rights and remedies of the Agent, on behalf of the Secured Parties, with
respect to the Collateral, whether established hereby or by the Notes or by any
other agreements, instruments or documents or by law shall be cumulative and may
be exercised singly or concurrently.
(c) This
Agreement, together with the exhibits and schedules hereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into this
Agreement and the exhibits and schedules hereto. No provision of this Agreement
may be waived, modified, supplemented or amended except in a written instrument
signed, in the case of an amendment, by the Debtors and the Agent, or, in the
case of a waiver, by the party against whom enforcement of any such waived
provision is sought.
(d) If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
24
(e) No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right.
(f) This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. No Debtor may assign this Agreement or
any rights or obligations hereunder without the prior written consent of each
Secured Party (other than by merger). Any Secured Party may assign any or all of
its rights under this Agreement to any Person (as defined in the Notes) to whom
such Secured Party assigns or transfers any Obligations, provided such
transferee agrees in writing to be bound, with respect to the transferred
Obligations, by the provisions of this Agreement that apply to the “Secured
Parties.”
(g)
Each party shall take such further action and execute and deliver such further
documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.
(h) Except
to the extent mandatorily governed by the jurisdiction or situs where the
Collateral is located, all questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Except to
the extent mandatorily governed by the jurisdiction or situs where the
Collateral is located, each Debtor agrees that all proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement, the Notes and/or the other Transaction Documents (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, partners, members, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New
York, Borough of Manhattan. Except to the extent mandatorily governed by the
jurisdiction or situs where the Collateral is located, each Debtor hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such proceeding
is improper. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such proceeding by mailing a
copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
25
(i) This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
were the original thereof.
(j) Each
Debtor shall be jointly and severally liable for all Obligations.
(k)
Each Debtor shall indemnify, reimburse and hold harmless the Agent and the
Secured Parties and their respective partners, successors, predecessors,
Affiliates (as defined under the Federal Securities Laws) members, shareholders,
attorneys, officers, directors, employees, representatives and agents (and any
other persons with other titles that have similar functions) (collectively,
“Indemnitees”) from and against any and all losses, claims, liabilities,
damages, penalties, suits, costs and expenses, of any kind or nature, (including
fees relating to the cost of investigating and defending any of the foregoing)
imposed on, incurred by or asserted against such Indemnitee in any way related
to or arising from or alleged to arise from this Agreement or the Collateral,
except any such losses, claims, liabilities, damages, penalties, suits, costs
and expenses which result from the gross negligence or willful misconduct of the
Indemnitee as determined by a final, nonappealable decision of a court of
competent jurisdiction. This indemnification provision is in addition to, and
not in limitation of, any other indemnification provision in the Notes or any
other agreement, instrument or other document executed or delivered in
connection herewith or therewith (including, but not limited to the other
Transaction Documents).
(l) Nothing
in this Agreement shall be construed to subject Agent or any Secured Party to
liability as a partner in any Debtor or any if its direct or indirect
Subsidiaries that is a partnership or as a member in any Debtor or any of its
direct or indirect subsidiaries that is a limited liability company, nor shall
Agent or any Secured Party be deemed to have assumed any obligations under any
partnership agreement or limited liability company agreement, as applicable, of
any such Debtor or any of its direct or indirect Subsidiaries or otherwise,
unless and until any such Secured Party exercises its right to be substituted
for such Debtor as a partner or member, as applicable, pursuant hereto.
26
(m) To
the extent that the grant of the security interest in the Collateral and the
enforcement of the terms hereof require the consent, approval or action of any
partner or member, as applicable, of any Debtor or any direct or indirect
subsidiary of any Debtor or compliance with any provisions of any of the
Organizational Documents, the Debtors hereby grant such consent and approval and
waive any such noncompliance with the terms of said documents.
20. Seniority,
Etc. Except for the right of each holder of B Notes to allocate certain
payments related to their B Notes to the A Notes owned by the holder, if any, as
provided and to the extent so provided in the B Notes, all payments under this
Agreement, the Notes and the other Transaction Documents to be made and/or
required to be made to the Secured Parties (or the Agent on behalf of itself and
the other Secured Parties) shall be paid pari passu to each Secured Party on a
pro-rated basis based upon the accrued but unpaid principal amount of each
holder’s Note on the date of determination, and senior in all respects to all
other Indebtedness of any Debtors including, but not limited to any Permitted
Indebtedness (as both terms are defined in the Notes).
[SIGNATURE PAGES FOLLOW]
27
IN WITNESS WHEREOF, the parties
hereto have caused this Security Agreement to be duly executed on the day and
year first above written.
| VISCOUNT SYSTEMS, INC. (a Nevada
corporation) |
| |
|
| By: |
|
| |
Name: |
| |
Title: |
| VISCOUNT COMMUNICATION AND CONTROL
SYSTEMS INC. |
| |
| By: |
|
| |
Name: |
| |
Title: |
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
28
| [SIGNATURE PAGE OF SECURED PARTIES TO SECURITY
AND PLEDGE AGREEMENT] |
| |
|
| Name of Investing Entity: |
|
| |
|
| Signature of Authorized Signatory of Investing
entity: |
|
| |
|
| Name of Authorized Signatory: |
|
| |
|
| Title of Authorized Signatory: |
|
| |
|
| Aggregate Principal Amount of A Notes owned: $ |
|
| |
|
| Aggregate Principal Amount of B Notes owned: $ |
|
| Appointment as Collateral Agent accepted and
agreed to: |
|
| |
|
| ONE EAST CAPITAL ADVISORS, L.P. |
|
| |
|
| Signature of Authorized Signatory of
Investing entity: |
|
| |
|
| Name of Authorized Signatory: |
|
| |
|
| Title of Authorized Signatory: |
|
29
ANNEX A
to
SECURITY
AGREEMENT
THE AGENT
1. Appointment. The Secured Parties (all
capitalized terms used herein and not otherwise defined shall have the
respective meanings provided in the Security and Pledge Agreement dated as of
November 24, 2015 to which this Annex A is attached (the "Agreement")),
by their acceptance of the benefits of the Agreement, hereby designate One East
Capital Advisors L.P. (“Agent”) as the Agent to act as specified herein
and in the Agreement. Each Secured Party shall be deemed irrevocably to
authorize the Agent to take such action on its behalf under the provisions of
the Agreement and the Notes and to exercise such powers and to perform such
duties hereunder and thereunder as are specifically delegated to or required of
the Agent by the terms hereof and thereof and such other powers as are
reasonably incidental thereto. The Agent may perform any of its duties hereunder
by or through its agents or employees.
2. Nature of Duties. The Agent shall have
no duties or responsibilities except those expressly set forth in the Agreement.
Neither the Agent nor any of its partners, members, shareholders, officers,
directors, employees or agents shall be liable for any action taken or omitted
by it as such under the Agreement or hereunder or in connection herewith or
therewith, be responsible for the consequence of any oversight or error of
judgment or answerable for any loss, unless caused solely by its or their gross
negligence or willful misconduct as determined by a final judgment (not subject
to further appeal) of a court of competent jurisdiction. The duties of the Agent
shall be mechanical and administrative in nature; the Agent shall not have by
reason of the Agreement or any other Transaction Document a fiduciary
relationship in respect of any Debtor or any Secured Party; and nothing in the
Agreement or any other Transaction Document, expressed or implied, is intended
to or shall be so construed as to impose upon the Agent any obligations in
respect of the Agreement or any other Transaction Document except as expressly
set forth herein and therein.
3. Lack of Reliance on the Agent. Independently
and without reliance upon the Agent, each Secured Party, to the extent it deems
appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Company and its
subsidiaries in connection with such Secured Party’s investment in the Debtors,
the creation and continuance of the Obligations, the transactions contemplated
by the Transaction Documents, and the taking or not taking of any action in
connection therewith, and (ii) its own appraisal of the creditworthiness of each
Debtor, and of the value of the Collateral from time to time, and the Agent
shall have no duty or responsibility, either initially or on a continuing basis,
to provide any Secured Party with any credit, market or other information with
respect thereto, whether coming into its possession before any Obligations are
incurred or at any time or times thereafter. The Agent shall not be responsible to the Debtors
or any Secured Party for any recitals, statements, information, representations
or warranties herein or in any document, certificate or other writing delivered
in connection herewith, or for the execution, effectiveness, genuineness,
validity, enforceability, perfection, collectibility, priority or sufficiency of
the Agreement or any other Transaction Document, or for the financial condition
of the Debtors or the value of any of the Collateral, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of the Agreement or any other Transaction Document, or
the financial condition of the Debtors, or the value of any of the Collateral,
or the existence or possible existence of any default or Event of Default under
the Agreement, the Notes or any of the other Transaction Documents.
30
4. Certain Rights of the Agent. The Agent shall
have the right to take any action with respect to the Collateral, on behalf of
all of the Secured Parties. To the extent practical, the Agent shall request
instructions from the Secured Parties with respect to any material act or action
(including failure to act) in connection with the Agreement or any other
Transaction Document, and shall be entitled to act or refrain from acting in
accordance with the instructions of a Majority in Interest; if such instructions
are not provided despite the Agent’s request therefor, the Agent shall be
entitled to refrain from such act or taking such action, and if such action is
taken, shall be entitled to appropriate indemnification from the Secured Parties
in respect of actions to be taken by the Agent; and the Agent shall not incur
liability to any person or entity by reason of so refraining. Without limiting
the foregoing, (a) no Secured Party shall have any right of action whatsoever
against the Agent as a result of the Agent acting or refraining from acting
hereunder in accordance with the terms of the Agreement or any other Transaction
Document, and the Debtors shall have no right to question or challenge the
authority of, or the instructions given to, the Agent pursuant to the foregoing
and (b) the Agent shall not be required to take any action which the Agent
believes (i) could reasonably be expected to expose it to personal liability or
(ii) is contrary to this Agreement, the Transaction Documents or applicable law.
5. Reliance. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
the proper person or entity, and, with respect to all legal matters pertaining
to the Agreement and the other Transaction Documents and its duties thereunder,
upon advice of counsel selected by it and upon all other matters pertaining to
this Agreement and the other Transaction Documents and its duties thereunder,
upon advice of other experts selected by it. Anything to the contrary
notwithstanding, the Agent shall have no obligation whatsoever to any Secured
Party to assure that the Collateral exists or is owned by the Debtors or is
cared for, protected or insured or that the liens granted pursuant to the
Agreement have been properly or sufficiently or lawfully created, perfected, or
enforced or are entitled to any particular priority.
31
6. Indemnification. To the extent that the
Agent is not reimbursed and indemnified by the Debtors, the Secured Parties will
jointly and severally reimburse and indemnify the Agent, in proportion to their
initially purchased respective principal amounts of Notes, from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
performing its duties hereunder or under the Agreement or any other Transaction
Document, or in any way relating to or arising out of the Agreement or any other
Transaction Document except for those determined by a final judgment (not
subject to further appeal) of a court of competent jurisdiction to have resulted
solely from the Agent's own gross negligence or willful misconduct. Prior to
taking any action hereunder as Agent, the Agent may require each Secured Party
to deposit with it sufficient sums as it determines in good faith is necessary
to protect the Agent for costs and expenses associated with taking such action.
7. Resignation by the Agent.
(a) The Agent may resign from the
performance of all its functions and duties under the Agreement and the other
Transaction Documents at any time by giving 30 days' prior written notice (as
provided in the Agreement) to the Debtors and the Secured Parties. Such
resignation shall take effect upon the appointment of a successor Agent pursuant
to clauses (b) and (c) below.
(b) Upon any such notice of
resignation, the Secured Parties, acting by a Majority in Interest, shall
appoint a successor Agent hereunder.
(c) If a successor Agent shall
not have been so appointed within said 30-day period, the Agent shall then
appoint a successor Agent who shall serve as Agent until such time, if any, as
the Secured Parties appoint a successor Agent as provided above. If a successor
Agent has not been appointed within such 30-day period, the Agent may petition
any court of competent jurisdiction or may interplead the Debtors and the
Secured Parties in a proceeding for the appointment of a successor Agent, and
all fees, including, but not limited to, extraordinary fees associated with the
filing of interpleader and expenses associated therewith, shall be payable by
the Debtors on demand.
8. Rights with respect to Collateral. Each
Secured Party agrees with all other Secured Parties and the Agent (i) that it
shall not, and shall not attempt to, exercise any rights with respect to its
security interest in the Collateral, whether pursuant to any other agreement or
otherwise (other than pursuant to this Agreement), or take or institute any
action against the Agent or any of the other Secured Parties in respect of the
Collateral or its rights hereunder (other than any such action arising from the
breach of this Agreement) and (ii) that such Secured Party has no other rights
with respect to the Collateral other than as set forth in this Agreement and the
other Transaction Documents. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the retiring Agent and the
retiring Agent shall be discharged from its duties and obligations under the
Agreement. After any retiring Agent’s resignation or removal hereunder as Agent,
the provisions of the Agreement including this Annex A shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent.
32
ANNEX B
to
SECURITY
AGREEMENT
FORM OF ADDITIONAL DEBTOR JOINDER
Security and Pledge Agreement dated as of November 24, 2015 made
by
VISCOUNT SYSTEMS INC (a Nevada corporation)
and each of its
Subsidiaries party thereto from time to time, as Debtors
to and in favor of
the Secured Parties identified therein (the “Security Agreement”)
Reference is made to the Security
Agreement as defined above; capitalized terms used herein and not otherwise
defined herein shall have the meanings given to such terms in, or by reference
in, the Security Agreement.
The undersigned hereby agrees
that upon delivery of this Additional Debtor Joinder to the Secured Parties
referred to above, the undersigned shall (a) be an Additional Debtor under the
Security Agreement, (b) have all the rights and obligations of the Debtor under
the Security Agreement as fully and to the same extent as if the undersigned was
an original signatory thereto and (c) be deemed to have made the representations
and warranties set forth therein as of the date of execution and delivery of
this Additional Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY
INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND
ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH
THEREIN.
Attached hereto are supplemental
and/or replacement Schedules to the Security Agreement, as applicable.
An executed copy of this Joinder
shall be delivered to the Secured Parties, and the Secured Parties may rely on
the matters set forth herein on or after the date hereof. This Joinder shall not
be modified, amended or terminated without the prior written consent of the
Secured Parties.
33
IN WITNESS WHEREOF, the
undersigned has caused this Joinder to executed in the name and on behalf of the
undersigned.
| [Name of Additional Debtor] |
| By: |
|
| |
|
| Name: |
|
| |
|
| Title: |
|
| |
|
| Address: |
|
| |
|
| Dated: |
|
34
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This INTELLECTUAL PROPERTY
SECURITY AGREEMENT (this “IP Security Agreement”), dated as
of November 24, 2015, is made by and among Viscount Systems, Inc., a Nevada
corporation, with a principal place of business at 4585 Tillicum Street,
Burnaby, British Columbia V5J 5K9, Canada (the “Company”) all of the
subsidiaries of the Company and the guarantors listed on the signature pages
hereto (together with the Company, the “Grantors”) in favor of One East
Capital Advisors, 225 N.E. Mizner Boulevard, Suite 720, Boca Raton, Florida
33432, a Delaware limited partnership, as collateral agent for the current and
future holders (the “Secured Parties”) of the Secured Notes (as defined below).
WHEREAS, the Company has agreed
to (i) issue its 14% Senior Secured Convertible Demand Promissory A Notes, (each
an “A Note” and collectively, the “A Notes”) to the Secured
Parties in exchange (the “Exchange”) for (and as otherwise provided in the A
Notes), shares of the Company’s Series A Convertible Redeemable Preferred Stock
(the “Series A Shares”) held by such Secured Parties, and (ii) sell its
Senior Secured Convertible Demand Promissory B Notes (each a “B Note” and
collectively, the “B Notes”, and together with the A Notes, the
“Secured Notes”);
WHEREAS, in connection with, as
partial consideration and as an inducement for the Exchange and the purchase of
B Notes, the Company and the other Grantors have agreed to enter into and
perform, among other documents and instruments, this Agreement, the Security
Agreement and the Subsidiary Guaranty each dated on or about as of the date
hereof and defined in the Secured Notes, for the benefit of the Secured Parties;
and
WHEREAS, under the terms of the
Security Agreement, the Grantors have, among other items, granted to the
Collateral Agent, for the benefit of itself and the other Secured Parties, a
security interest in, among other property, all intellectual property of the
Grantors, and have agreed to execute and deliver this Agreement, for recording
with national, federal and state government authorities, including, but not
limited to, the United States Patent and Trademark Office and the United States
Copyright Office.
WHEREAS, pursuant to the Security
Agreement, the Secured Parties appointed the Collateral Agent to act for all
Secured Parties (including itself) with respect to, among other items, all
security agreements, instruments, collateral and/or related items relating to,
among other items, securing each Debtor’s obligations to the Secured Parties
under the Transaction Documents (as defined in Section 1(e) hereof) including,
but not limited to pursuant to this Agreement.
WHEREAS, the parties hereto are
parties to that Security Agreement dated on or about the date hereof.
WHEREAS, defined terms
that are not otherwise defined herein shall have the meanings given to them in
the Security Agreement.
ARTICLE I
NOW THEREFORE, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each Grantor, jointly and severely, agrees with the Collateral
Agent as follows:
1. Grant of Security. Each Grantor hereby pledges and
grants to the Collateral Agent for the ratable benefit of the Secured Parties a
security interest in and to all of the right, title and interest of such Grantor
in, to and under the following (the “IP Collateral”):
(a) the patents and patent
applications set forth in Schedule 1 hereto and all reissues, divisions,
continuations, continuations-in-part, renewals, extensions and reexaminations
thereof and amendments thereto (the “Patents”);
(b) the trademark registrations
and applications set forth in Schedule 2 hereto, together with the
goodwill connected with the use thereof and symbolized thereby and all
extensions and renewals thereof (the “Trademarks”) , excluding only
United States intent-to-use trademark applications to the extent that, and
solely during the period in which, the grant, attachment or enforcement of a
security interest therein would, under applicable federal law, impair the
registrability of such applications or the validity or enforceability of
registrations issuing from such applications;
(c) all copyright registrations,
applications and copyright registrations and applications exclusively licensed
to each Grantor set forth in Schedule 3 hereto, and all extensions and
renewals thereof (the “Copyrights”);
(d) all rights of any kind
whatsoever of such Grantor accruing under any of the foregoing provided by
applicable law of any jurisdiction, by international treaties and conventions
and otherwise throughout the world;
(e) any and all royalties, fees,
income, payments and other proceeds now or hereafter due or payable with respect
to any and all of the foregoing; and
(f) any and all claims and causes
of action with respect to any of the foregoing, whether occurring before, on or
after the date hereof, including all rights to and claims for damages,
restitution and injunctive and other legal and equitable relief for past,
present and future infringement, dilution, misappropriation, violation, misuse,
breach or default, with the right but no obligation to sue for such legal and
equitable relief and to collect, or otherwise recover, any such damages.
2. Recordation. Each Grantor authorizes the Commissioner
for Patents, the Commissioner for Trademarks and the Register of Copyrights and
any other government officials to record and register this IP Security Agreement
upon request by the Collateral Agent.
2
3. Documents. This IP Security Agreement has been
entered into pursuant to and in conjunction with the Security Agreement and the
Secured Notes, which are hereby incorporated by reference. The provisions of the
Secured Notes shall supersede and control over any conflicting or inconsistent
provision herein. The rights and remedies of the Collateral Agent with respect
to the IP Collateral are as provided by the Note, the Security Agreement and
related documents, and nothing in this IP Security Agreement shall be deemed to
limit such rights and remedies.
4. Representations, Warranties and Agreements. Each
Grantor represents, warrants and agrees as follows:
| |
(a) |
Existence; Authority. Each Grantor is a
corporation duly organized, validly existing and in good standing under
the laws of its state and/or place of incorporation, and this IP Security
Agreement has been duly and validly authorized by all necessary company
and other action on the part of each Grantor. |
| |
|
|
| |
(b) |
Patents. Schedule 1 accurately lists
all Patents owned or controlled by Grantors as of the date hereof, or to
which any Grantor has a right as of the date hereof to have assigned to it
and accurately reflects the existence and status of all applications and
letters pertaining to the Patents as of the date hereof. If after the date
hereof and prior to the satisfaction of all of the Grantors obligations to
the Secured Parties including, but not limited to, payment of all funds
owed under the Secured Notes and/or otherwise, any Grantor owns, controls
or has a right to have assigned to it any Patents not listed on
Schedule 1, or if Schedule 1 ceases to accurately include and
reflect the existence and status of Grantor’s applications pertaining to
Patents, then the Grantors shall within 10 days provide written notice to
the Secured Parties with a replacement Schedule 1, which upon
acceptance by the Secured Parties shall become part of this IP Security
Agreement. |
| |
|
|
| |
|
|
| |
(c) |
Trademarks.
Schedule 2 accurately lists all Trademarks owned or
controlled by each Grantor as of the date hereof and accurately reflects
the existence and status of Trademarks o f t he G r a nt ors and all
applications and registrations pertaining thereto as of the date hereof;
provided, however, that Schedule 2 d o e s not list
common law marks (i.e., trademarks for which there are no applications or
registrations) which are not material to any Grantor or any Affiliate’s
business(es), either individually and/or as a whole. If after the date
hereof , and satisfaction of all of the Grantors obligations to the
Secured Parties including, but not limited to, payment of all funds owed
under the Secured Notes and/or otherwise, any Grantor owns or controls any
Trademarks not listed on Schedule 2 (other than common law marks
which are not material to any Grantor’s or any Affiliate’s business(es),
or if Schedule 2 ceases to accurately reflect the existence and
status of applications and registrations pertaining to the Trademarks
prior to the satisfaction of all of the Grantors obligations to the
Secured Parties including, but not limited to, payment of all funds owed
under the Secured Notes and/or otherwise, then Grantors shall within 10
days provide written notice to the Secured Parties with a replacement
Schedule 2, which upon acceptance by the Secured Parties shall
become part of this this IP Security Agreement. |
3
| |
(d) |
Affiliates. As of the date hereof, no Affiliate
owns, controls, or has a right to have assigned to it any items that
would, if such item were owned by any Grantor, constitute Patents,
Trademarks or Copyrights. If after the date hereof any Affiliate owns,
controls, or has a right to have assigned to it any such items, then
Grantors shall promptly either: (i) cause such Affiliate to assign all of
its rights in such item(s) to Grantors; or (ii) notify the Secured Parties
of such item(s) and cause such Affiliate to execute and deliver to the
Secured Parties an intellectual property security agreement substantially
in the form of this IP Security Agreement. |
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(e) |
Title. Grantors have absolute title to each
Patent, each Trademark and each Copyright listed on Schedule 1 2,
and 3, respectively, free and clear of all Liens (as defined in the
Secured Notes) except those related to the Factoring Agreement (as defined
in the Secured Notes). Grantors (i) will have, at the time Grantors
acquires any rights in Patents, Trademarks or Copyrights hereafter
arising, absolute title to each such Patents, Trademarks and Copyrights
free and clear of all Liens, and (ii) will keep all Patents, Trademarks
and Copyrights free and clear of all Liens except Permitted Liens (as
defined in the Secured Notes). |
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(f) |
No Sale. Except as expressly permitted in
the Security Agreement, no Grantor will not assign, transfer, encumber
(whether by a Lien or otherwise), or otherwise dispose of a n y o f the
Patents, Trademarks or Copyrights, or any interest therein, without the
Secured Parties’ prior written consent. |
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(g) |
Defense. Grantors will at their own expense
and using all its commercially best efforts, maintain, prosecute, enforce,
protect and defend the Patents, Trademarks and Copyrights against all
claims or demands of all persons. |
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(h) |
Maintenance. Grantors will at its own
expense maintain Patents, Trademarks and Copyright, including, but not
limited to, filing all applications to obtain letters patent or trademark
registrations and all affidavits, maintenance fees, annuities, and
renewals possible with respect to letters patent, trademark registrations
and applications therefor necessary and/or reasonably requested by the
Collateral Agent. Grantors covenants that it will not abandon nor fail to
pay any maintenance fee or annuity due and payable on any Patent,
Trademark or Copyright, nor fail to file any required affidavit or renewal
in support thereof. |
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(i) |
The Secured Parties’ Right to Take Action. If any
Grantor fails to perform or observe any of its covenants or agreements set
forth in this Section 4, and If such failure continues for a period of
five (5) calendar days after any Secured Party (or the Collateral Agent)
gives any Grantor written notice thereof (or, in the case of the
agreements contained in subsection (h), immediately upon the occurrence of
such failure, without notice or lapse of time), or if any Grantor notifies
the Secured Parties (or the Collateral Agent) that it intends to abandon a
Patent, Trademark or Copyright, the Secured Parties (or the Collateral
Agent) may require Grantors to take steps to prevent such intended
abandonment, and may (but need not) take any and all other actions which
the Secured Parties may reasonably deem necessary to cure or correct such
failure or prevent such intended abandonment at Grantors sole cost and
expense. |
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(j) |
Costs and Expenses. Except to the extent
that the effect of such payment would be to render any loan or forbearance
of money usurious or otherwise illegal under any applicable law, Grantors
shall pay the Secured Parties (or the Collateral Agent) on demand the
amount of all moneys expended and all costs and expenses (including
reasonable attorneys’ fees and disbursements) incurred by the Secured
Parties (or the Collateral Agent) in connection with or as a result of the
Secured Parties’ (or the Collateral Agent) taking action under subsection
(i) or exercising its rights under Section 6, together with interest
thereon from the date expended or incurred by the Secured Parties at the
lower of (i) 22% and (ii) the maximum amount permitted by applicable law. |
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(k) |
Power of Attorney. To facilitate the Secured Parties’ (or
the Collateral Agent) taking action under subsection (i) and exercising
its rights under Section 6, Grantors hereby irrevocably appoints (which
appointment is coupled with an interest) the Collateral Agent, or its
delegate, as the attorney-in-fact of Grantors with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file, in the name and on behalf of Grantors, any and all
instruments, documents, applications, financing statements, and other
agreements and writings required to be obtained, executed, delivered or
endorsed by Grantors under this Section 4, or, necessary for the
Collateral Agent, after an Event of Default, to enforce or use the
Patents, Copyrights and/or Trademarks or to grant or issue any exclusive
or non- exclusive license under the Patents or Trademarks to any third
party, or to sell, assign, transfer, pledge, encumber or otherwise
transfer title in or dispose of the Patents, Copyrights and/or Trademarks
to any third party. Grantors hereby ratifies all action that such attorney
shall lawfully do or cause to be done by virtue hereof. The power of
attorney granted herein shall terminate upon the receipt by each Secured
Party of all amounts owed to them by all Grantors under the Secured Notes
and related Transaction Documents in full and in cash. |
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5. Use of the Patents, Trademarks or Copyrights.
Grantors shall be permitted to control and manage the Patents, Trademarks or
Copyrights, including the right to exclude others from making, using or selling
items covered by the Patents, Trademarks and Copyrights and any licenses
thereunder, in the same manner and with the same effect as if this this IP
Security Agreement had not been entered into, so long as no Event of Default
occurs and remains uncured.
6. Events of Default. Each of the following occurrences
shall constitute an event of default under this this IP Security Agreement
(herein called “Event of Default”): (a) an Event of Default, as defined
in any of the Secured Note, shall occur; or (b) any Grantor shall fail promptly to observe or perform any covenant or agreement
herein binding on it; or (c) any of the representations or warranties contained
in any of the Secured Notes, Security Agreement and/or other Transaction
Documents shall prove to have been incorrect in any material respect when made.
5
(a) Remedies. Upon the
occurrence of an Event of Default and at any time thereafter, the Collateral
Agent may, at its option, take any or all of the following actions:
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(a) |
the Collateral Agent may exercise any or all remedies
available under the Secured Notes or the Security Agreement and/or any
Transaction Documents. |
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(b) |
the Collateral Agent may institute an action to and/or
sell, assign transfer, pledge, encumber or otherwise dispose of the
Patents, Trademarks and/or Copyrights. |
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(c) |
the Collateral Agent may enforce the Patents, Trademarks
and Copyrights and any licenses thereunder, and if the Collateral Agent
shall commence any suit for such enforcement, Grantors shall, at the
request of the Secured Parties, do any and all lawful acts and execute any
and all proper documents required by the Secured Parties in aid of such
enforcement. |
7. Miscellaneous. This IP Security Agreement can be
waived, modified, amended, terminated or discharged, and the IP Collateral can
be released, only explicitly in a writing signed by the Collateral Agent. At
such time as all funds owed to each holder of Secured Notes has been received in
cash by each such holder from the Grantors, the Secured Parties shall release
the IP Collateral and execute such documentation provided by the Grantors (at
Grantors sale cost and expense) that Grantor deems reasonably necessary to
release the IP Collateral, provided no such document could have a material
adverse effect on any Secured Party and/or the Collateral Agent and the Grantors
provided to each Secured Party and the Collateral Agent a general release. A
waiver signed by the Secured Parties shall be effective only in the specific
instance and for the specific purpose given. Mere delay or failure to act shall
not preclude the exercise or enforcement of any of the Secured Parties’ rights
or remedies. All rights and remedies of the Secured Parties shall be cumulative
and may be exercised singularly or concurrently, at the Secured Parties’ option,
and the exercise or enforcement of any one such right or remedy shall neither be
a condition to nor bar the exercise or enforcement of any other. All notices to
be given to Grantors under this this IP Security Agreement shall be given in the
manner and with the effect provided in the SecuredNote. The Secured Parties
shall not be obligated to preserve any rights Grantors may have against prior
parties, to realize on the Patents, Trademarks and Copyrights at all or in any
particular manner or order, or to apply any cash proceeds of Patents, Trademarks
or Copyrights in any particular order of application. This IP Security Agreement
shall be binding upon and inure to the benefit of Grantors and the Secured
Parties and their respective participants, successors and assigns and shall take
effect when signed by Grantors and delivered to the Secured Parties, and
Grantors waive notice of the Secured Parties’ acceptance hereof. The Secured
Parties may execute this IP Security Agreement if appropriate for the purpose of
filing, but the failure of the Secured Parties to execute this IP Security
Agreement shall not affect or impair the validity or effectiveness of this IP
Security Agreement. A carbon, photographic or other reproduction of this IP
Security Agreement or of any financing statement signed by Grantors shall have
the same force and effect as the original for all purposes of a financing
statement. This IP Security Agreement shall be governed by the internal law of
New York without regard to conflicts of law provisions. If any provision or
application of this IP Security Agreement is held unlawful or unenforceable in
any respect, such illegality or unenforceability shall not affect other
provisions or applications which can be given effect and this IP Security
Agreement shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this IP Security Agreement shall
survive the execution, delivery and performance of this IP Security Agreement
and the creation and payment of all amounts owed to each holder of Secured Notes
by the Grantors under the Secured Notes and/or the Transaction Documents.
6
8. Execution in Counterparts. This IP Security Agreement
may be executed in counterparts (and by different parties hereto in different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. Delivery of an executed
counterpart of a signature page to this IP Security Agreement by facsimile or in
electronic (i.e., "pdf" or "tif") format shall be effective as delivery of a
manually executed counterpart of this IP Security Agreement.
9. Successors and Assigns. This IP Security Agreement
will be binding on and shall inure to the benefit of the parties hereto and
their respective successors and assigns. No Grantor may assign this Agreement,
any IP Collateral and/or obligation hereunder without the express written
consent of the Collateral Agent.
10. Governing Law. This IP Security Agreement and the
terms and conditions set forth herein, shall be governed by and construed solely
and exclusively in accordance with the internal laws of the State of New York
without regard to the conflicts of laws principles thereof. The parties hereto
hereby expressly and irrevocably agree that any suit or proceeding arising
directly and/or indirectly pursuant to or under this Agreement shall be brought
solely in a federal or state court located in the City, County and State of New
York. By its execution hereof, the parties hereto covenant and irrevocably
submit to the in personam jurisdiction of the federal and state courts located
in the City, County and State of New York and agree that any process in any such
action may be served upon any of them personally, or by certified mail or
registered mail upon them or their agent, return receipt requested, with the
same full force and effect as if personally served upon them in New York, New
York. The parties hereto expressly and irrevocably waive any claim that any such
jurisdiction is not a convenient forum for any such suit or proceeding and any
defense or lack of in personam jurisdiction with respect thereto. In the event
of any such action or proceeding, the party prevailing therein shall be entitled
to payment from the other parties hereto of all of its reasonable counsel fees
and disbursements.
7
[SIGNATURE PAGE FOLLOWS]
8
IN WITNESS WHEREOF, each Grantor has caused this IP Security
Agreement to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.
VISCOUNT SYSTEMS, INC.,
a Nevada corporation
VISCOUNT COMMUNICATION AND CONTROL SYSTEMS INC.
A
British Columbia corporation
AGREED TO AND ACCEPTED:
as Collateral Agent
ONE EAST
CAPITAL ADVISORS, L.P.
9
SCHEDULE 1 – ISSUED PATENTS AND PATENT APPLICATIONS
United States Patent No. 8854177, issued October 7, 2014, in
the name of Viscount Security Systems Inc., entitled “System, Method and
Database for Managing Permissions to Use Physical Devices and Logical Assets;”
United States Patent No. 8907763, issued December 9, 2014, in
the name of Viscount Security Systems Inc., entitled “System, Station and Method
for Mustering;”
United States Patent No. 8941465, issued January 27, 2015, in
the name of Viscount Security Systems Inc., entitled “System and Method for
Secure Entry Using Door Tokens;”
United States Patent No. 8836470, issued September 16, 2014, in
the name of Viscount Security Systems, Inc., entitled “System and Method for
Interfacing Facility Access with Control;”
United States Patent Application No. 14/014,351, filed August
30, 2013, for “Door Lock, System and Method for Remotely Controlled Access;”
Canadian Patent No. 2870058, issued September 29, 2015, in the
name of Viscount Systems Inc., entitled “Device, System, Method and Database for
Managing Permissions to Use Physical Devices and Logical Assets;”
Canadian Patent No. 2854613, issued September 29, 2015, in the
name of Viscount Systems Inc., entitled “Device, System, Method and Database for
Managing Permissions to Use Physical Devices and Logical Assets;”
10
SCHEDULE 2 – TRADEMARK REGISTRATIONS AND APPLICATIONS
ENTER PHONE – United States Trademark Reg. No. 1623361, issued
November 20, 1990, owned by Viscount Communications and Control Systems
Corporation;
ENTERPHONE - Canadian Trademark Reg. No. TMA192854, issued July
27, 1973, in the name of Viscount Communication and Control Systems Inc.;
11
SCHEDULE 3 – COPYRIGHT REGISTRATIONS AND APPLICATIONS
None Registered
12
SUBSIDIARY GUARANTEE
SUBSIDIARY GUARANTEE, dated as of
November 24, 2015 (this “Guarantee”), made by each of the signatories
hereto (together with any other entity that may become a party hereto as
provided herein, the “Guarantors”), in favor of the holders (together with its
permitted assigns, the “Holders”) to those certain promissory notes,
dated as of the date hereof, between Viscount Systems, Inc., a Nevada
corporation (the “Company”) and the Holders (each a “Note” and
collectively, the “Notes”).
W I T N E S S E T H:
WHEREAS, the Company has agreed
to issue to the Holders the Notes upon conversion of certain shares of Series A
Convertible Redeemable Preferred Stock, subject to the terms and conditions set
forth therein.
NOW, THEREFORE, in consideration of the premises, each
Guarantor hereby agrees with the Holders as follows:
1. Definitions. The words
“hereof,” “herein,” “hereto” and “hereunder” and words of similar import when
used in this Guarantee shall refer to this Guarantee as a whole and not to any
particular provision of this Guarantee, and Section and Schedule references are
to this Guarantee unless otherwise specified. The meanings given to terms
defined herein shall be equally applicable to both the singular and plural forms
of such terms. The following terms shall have the following meanings:
“Affiliate” means any Person
that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a Person, as such terms are used
in and construed under Rule 405 under the Securities Act.
“Agent” shall have the
meaning ascribed to such term in the Security Agreement.
“Guarantee” means this
Subsidiary Guarantee, as the same may be amended, supplemented or otherwise
modified from time to time.
“Indebtedness” shall have the
meaning ascribed to such term in the Notes.
“IP
Security Agreement” means that certain intellectual property security
agreement, dated November 24, 2015, by and among the Company and the
Holders.
“Lien” means a lien, charge,
pledge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.
1
“Obligations” means, in
addition to all other costs and expenses of collection incurred by Holders in
enforcing any of such Obligations and/or this Guarantee, 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 contracted or
acquired, or owing to, of the Company or any Guarantor to the Holders,
including, without limitation, all obligations under this Guarantee, the Notes
and any other instruments, agreements or other documents executed and/or
delivered in connection herewith or therewith, 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 any of the Holders 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; (ii) any and
all other fees, indemnities, costs, obligations and liabilities of the Company
or any Guarantor from time to time under or in connection with this Guarantee,
the Notes and any other instruments, agreements or other documents executed
and/or delivered in connection herewith or therewith; 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 the Company or any
Guarantor.
“Person”
shall have the meaning ascribed to such term in the Notes.
“Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
“Security Agreement” means
that certain security agreement, dated November 24, 2015, by and among the
Company and the Guarantors.
“Transaction Documents” shall
mean the Notes, the Security Agreement, the IP Security Agreement and this
Guarantee.
2. Guarantee.
(a) Guarantee.
(i) The
Guarantors hereby, jointly and severally,unconditionally and irrevocably,
guarantee to the Holders and their respective successors, indorsees, transferees
and assigns, the prompt and complete payment and performance when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations.
2
(ii) Anything
herein or in any other Transaction Document to the contrary notwithstanding, the
maximum liability of each Guarantor hereunder and under the other Transaction
Documents shall in no event exceed the amount which can be guaranteed by such
Guarantor under applicable federal and state laws, including laws relating to
the insolvency of debtors, fraudulent conveyance or transfer or laws affecting
the rights of creditors generally (after giving effect to the right of
contribution established in Section 2(b)).
(iii) Each
Guarantor agrees that the Obligations may at any time and from time to time
exceed the amount of the liability of such Guarantor hereunder without impairing
the guarantee contained in this Section 2 or affecting the rights and remedies
of the Holders hereunder.
(iv) The
guarantee contained in this Section 2 shall remain in full force and effect
until all the Obligations and the obligations of each Guarantor under the
guarantee contained in this Section 2 shall have been satisfied by indefeasible
payment in full.
(v) Notwithstanding
anything to the contrary in this Guarantee, with respect to any defaulted
non-monetary Obligations the specific performance of which by the Guarantors is
not reasonably possible (e.g. the issuance of the Company's Common Stock), the
Guarantors shall only be liable for making the Holders whole on a monetary basis
for the Company's failure to perform such Obligations in accordance with the
Transaction Documents.
(b) Right
of Contribution. Each Guarantor hereby agrees that to the extent that a
Guarantor shall have paid more than its proportionate share of any payment made
hereunder, such Guarantor shall be entitled to seek and receive contribution
from and against any other Guarantor hereunder which has not paid its
proportionate share of such payment. The provisions of this Section 2(b) shall
in no respect limit the obligations and liabilities of any Guarantor to the
Holders and each Guarantor shall remain liable to the Holders for the full
amount guaranteed by such Guarantor hereunder.
(c) Amendments,
Etc. With Respect to the Obligations. Each Guarantor shall remain obligated
hereunder notwithstanding that, without any reservation of rights against any
Guarantor and without notice to or further assent by any Guarantor, any demand
for payment of any of the Obligations made by the Holders may be rescinded by
the Holders and any of the Obligations continued, and the Obligations, or the
liability of any other Person upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part,
be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Holders, and the Transaction Documents and any
other documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Holders may
deem advisable from time to time, and any collateral security, guarantee or
right of offset at any time held by the Holders for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released. The Holders
shall have no obligation to protect, secure, perfect or insure any Lien at any
time held by the Agent for the benefit of the Holders as security for the
Obligations or for the guarantee contained in this Section 2 or any property
subject thereto.
3
(d) Guarantee
Absolute and Unconditional. Each Guarantor waives any and all notice of the
creation, renewal, extension or accrual of any of the Obligations and notice of
or proof of reliance by the Holders upon the guarantee contained in this Section
2 or acceptance of the guarantee contained in this Section 2; the Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred, or renewed, extended, amended or waived, in reliance upon the
guarantee contained in this Section 2; and all dealings between the Company and
any of the Guarantors, on the one hand, and the Holders, on the other hand,
likewise shall be conclusively presumed to have been had or consummated in
reliance upon the guarantee contained in this Section 2. Each Guarantor waives
to the extent permitted by law diligence, presentment or protest to or upon the
Company or any of the Guarantors with respect to the Obligations. Each Guarantor
understands and agrees that the guarantee contained in this Section 2 shall be
construed as a continuing, absolute and unconditional guarantee of payment and
performance without regard to (a) the validity or enforceability of the
Transaction Documents, any of the Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at any time or
from time to time held by the Holders or (b) any other circumstance whatsoever
(with or without notice to or knowledge of the Company or such Guarantor) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of the Company for the Obligations, or of such Guarantor under the
guarantee contained in this Section 2, in bankruptcy or in any other instance.
When making any demand hereunder or otherwise pursuing its rights and remedies
hereunder against any Guarantor, the Holders may, but shall be under no
obligation to, make a similar demand on or otherwise pursue such rights and
remedies as they may have against the Company, any other Guarantor or any other
Person or against any collateral security or guarantee for the Obligations or
any right of offset with respect thereto, and any failure by the Holders to make
any such demand, to pursue such other rights or remedies or to collect any
payments from the Company, any other Guarantor or any other Person or to realize
upon any such collateral security or guarantee or to exercise any such right of
offset, or any release of the Company, any other Guarantor or any other Person
or any such collateral security, guarantee or right of offset, shall not relieve
any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or
available as a matter of law, of the Holders against any Guarantor. For the
purposes hereof, “demand” shall include the commencement and continuance of any
legal proceedings.
4
(e) Reinstatement.
The guarantee contained in this Section 2 shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Holders upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Company or any Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Company or any Guarantor or any substantial part of its
property, or otherwise, all as though such payments had not been made.
3. Representations
and Warranties. Each Guarantor hereby makes the following representations
and warranties to Holders as of the date hereof:
(a) Organization
and Qualification. The Guarantor is a corporation, duly incorporated,
validly existing and in good standing under the laws of the applicable
jurisdiction set forth on Schedule 1, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Guarantor has no subsidiaries other than those
identified as such on Schedule 3(a) hereto. The Guarantor is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not, individually or in
the aggregate, (x) adversely affect the legality, validity or enforceability of
any of this Guarantee in any material respect, (y) have a material adverse
effect on the results of operations, assets, prospects, or financial condition
of the Guarantor or (z) adversely impair in any material respect the Guarantor's
ability to perform fully on a timely basis its obligations under this Guarantee
(a “Material Adverse Effect”).
(b) Authorization;
Enforcement. The Guarantor has the requisite corporate power and authority
to enter into and to consummate the transactions contemplated by this Guarantee,
and otherwise to carry out its obligations hereunder. The execution and delivery
of this Guarantee by the Guarantor and the consummation by it of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of the Guarantor. This Guarantee has been duly
executed and delivered by the Guarantor and constitutes the valid and binding
obligation of the Guarantor enforceable against the Guarantor in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
5
(c) No
Conflicts. The execution, delivery and performance of this Guarantee by the
Guarantor and the consummation by the Guarantor of the transactions contemplated
thereby do not and will not (i) conflict with or violate any provision of its
certificate of incorporation or bylaws, each as amended, or (ii) conflict with,
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
instrument to which the Guarantor is a party, or (iii) result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Guarantor is
subject (including Federal and State securities laws and regulations), or by
which any material property or asset of the Guarantor is bound or affected,
except in the case of each of clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as could
not, individually or in the aggregate, have or result in a Material Adverse
Effect. The business of the Guarantor is not being conducted in violation of any
law, ordinance or regulation of any governmental authority, except for
violations which, individually or in the aggregate, do not have a Material
Adverse Effect.
(d) Consents
and Approvals. The Guarantor is not required to obtain any consent, waiver,
authorization or order of, or make any filing or registration with, any court or
other federal, state, local, foreign or other governmental authority or other
person in connection with the execution, delivery and performance by the
Guarantor of this Guarantee.
(e) Transaction
Documents. The representations and warranties of the Company set forth in
the Transaction Documents as they relate to such Guarantor, each of which is
hereby incorporated herein by reference, are true and correct as of each time
such representations are deemed to be made pursuant to such Transaction
Documents, and the Holders shall be entitled to rely on each of them as if they
were fully set forth herein, provided that each reference in each such
representation and warranty to the Company's knowledge shall, for the purposes
of this Section 3, be deemed to be a reference to such Guarantor's
knowledge.
(f) Foreign
Law. Each Guarantor has consulted with appropriate foreign legal counsel
with respect to any of the above representations for which non-U.S. law is
applicable. Such foreign counsel have advised each applicable Guarantor that
such counsel knows of no reason why any of the above representations would not
be true and accurate. Such foreign counsel were provided with copies of this
Subsidiary Guarantee and the Transaction Documents prior to rendering their
advice.
6
4. Miscellaneous.
(a) Amendments
in Writing. None of the terms or provisions of this Guarantee may be waived,
amended, supplemented or otherwise modified except in writing by the Agent (or,
in the event the Agent no longer holds the Notes, in writing by the holder of
the Notes).
(b) Notices.
All notices, requests and demands to or upon the Holders or any Guarantor
hereunder shall be effected in the manner provided for in the Notes, provided
that any such notice, request or demand to or upon any Guarantor shall be
addressed to such Guarantor at its notice address set forth on Schedule
4(b).
(c) No
Waiver By Course Of Conduct; Cumulative Remedies. The Holders shall not by
any act (except by a written instrument pursuant to Section 4(a)), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default under the Transaction Documents.
No failure to exercise, nor any delay in exercising, on the part of the Holders,
any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Holders of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Holders would otherwise have on any future occasion. The rights
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by
law.
(d) Enforcement Expenses;
Indemnification.
(i) Each
Guarantor agrees to pay, or reimburse the Holders for,all its costs and expenses
incurred in collecting against such Guarantor under the guarantee contained in
Section 2 or otherwise enforcing or preserving any rights under this Guarantee
and the other Transaction Documents to which such Guarantor is a party,
including, without limitation, the reasonable fees and disbursements of counsel
to the Holders.
(ii) Each
Guarantor agrees to pay, and to save the Holders harmless from, any and all
liabilities with respect to, or resulting from any delay in paying, any and all
stamp, excise, sales or other taxes which may be payable or determined to be
payable in connection with any of the transactions contemplated by this
Guarantee.
(iii) The
agreements in this Section shall survive repayment of the Obligations and all
other amounts payable under the Transaction Documents.
7
(e) Successor
and Assigns. This Guarantee shall be binding upon the successors and assigns
of each Guarantor and shall inure to the benefit of the Holders and their
respective successors and assigns; provided that no Guarantor may assign,
transfer or delegate any of its rights or obligations under this Guarantee
without the prior written consent of the Holders.
(f) Counterparts.
This Guarantee may be executed by one or more of the parties to this Guarantee
on any number of separate counterparts (including by telecopy), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
(g) Severability.
Any provision of this Guarantee which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(h) Section
Headings. The Section headings used in this Guarantee are for convenience of
reference only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.
(i) Integration.
This Guarantee and the other Transaction Documents represent the agreement of
the Guarantors and the Holders with respect to the subject matter hereof and
thereof, and there are no promises, undertakings, representations or warranties
by the Holders relative to subject matter hereof and thereof not expressly set
forth or referred to herein or in the other Transaction Documents.
(j) Governing
Laws. All questions concerning the construction, validity, enforcement and
interpretation of this Guarantee shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each of the Company and the
Guarantors agree that all proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Guarantee
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, partners, members, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New
York, Borough of Manhattan. Each of the Company and the Guarantors hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such proceeding
is improper. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Guarantee and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Guarantee or the transactions contemplated
hereby.
8
(k)
Acknowledgements. Each Guarantor hereby acknowledges that:
(i) it
has been advised by counsel in the negotiation, execution and delivery of this
Guarantee and the other Transaction Documents to which it is a party; and
(ii) no
joint venture is created hereby or by the other Transaction Documents or
otherwise exists by virtue of the transactions contemplated hereby among the
Guarantors and the Holders.
(l) Additional
Guarantors. The Company shall cause each of its subsidiaries formed or
acquired on or subsequent to the date hereof to become a Guarantor for all
purposes of this Guarantee by executing and delivering an Assumption Agreement
in the form of Annex 1 hereto.
(m) Release
of Guarantors. Each Guarantor will be released from all liability hereunder
concurrently with the indefeasible repayment in full of all amounts owed under
the Notes and the other Transaction Documents.
(n) WAIVER
OF JURY TRIAL. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF,
THE HOLDERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM
THEREIN.
*********************
(Signature Pages Follow)
9
IN WITNESS WHEREOF, each of the
undersigned has caused this Guarantee to be duly executed and delivered as of
the date first above written.
| VISCOUNT COMMUNICATION AND |
| CONTROL SYSTEMS INC. |
| |
|
| By: |
|
| Name: |
|
| Title: |
|
| AGREED TO AND ACCEPTED: |
| as Agent |
| ONE EAST CAPITAL ADVISORS |
| |
|
| By: |
|
| Name: |
|
| Title: |
|
10
SCHEDULE 1
GUARANTORS
The following are the names,
notice addresses and jurisdiction of organization of each Guarantor.
| |
|
COMPANY |
| |
JURISDICTION OF |
OWNED BY |
| |
INCORPORATION |
PERCENTAGE |
----------
|
------------- |
---------- |
11
Annex 1 to
SUBSIDIARY GUARANTEE
ASSUMPTION AGREEMENT, dated as of ____ __, ______ made by
______________________________ , a ______________ corporation (the
“Additional Guarantor”), in favor of the Holders pursuant to the Notes
referred to below. All capitalized terms not defined herein shall have the
meaning ascribed to them in the Guarantee (as defined below).
W I T N E S S E T H :
WHEREAS, Viscount Systems, Inc.,
a Nevada corporation (the “Company”), has issued to the Holders
promissory notes, dated as of [___________, 20__ (as amended, supplemented or
otherwise modified from time to time, the “Notes”);
WHEREAS, in connection with the
Notes, Viscount Communication and Control Systems Inc., a wholly-owned
subsidiary of the Company (the “Subsidiary”), has entered into the Subsidiary
Guarantee, dated as of [__________________, 20__ (as amended, supplemented or
otherwise modified from time to time, the “Guarantee”) in favor of the
Holders;
WHEREAS, the Notes require the
Additional Guarantor to become a party to the Guarantee; and
WHEREAS, the Additional Guarantor
has agreed to execute and deliver this Assumption Agreement in order to become a
party to the Guarantee;
NOW, THEREFORE, IT IS AGREED:
1. Guarantee.
By executing and delivering this Assumption Agreement, the Additional Guarantor,
as provided in Section 4(l) of the Guarantee, hereby becomes a party to the
Guarantee as a Guarantor thereunder with the same force and effect as if
originally named therein as a Guarantor and, without limiting the generality of
the foregoing, hereby expressly assumes all obligations and liabilities of a
Guarantor thereunder. The information set forth in Annex 1 hereto is hereby
added to the information set forth in Schedule 1 to the Guarantee. The
Additional Guarantor hereby represents and warrants that each of the
representations and warranties contained in Section 3 of the Guarantee is true
and correct on and as the date hereof as to such Additional Guarantor (after
giving effect to this Assumption Agreement) as if made on and as of such date.
2. Governing
Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
12
IN WITNESS WHEREOF, the
undersigned has caused this Assumption Agreement to be duly executed and
delivered as of the date first above written.
| [ADDITIONALGUARANTOR] |
| |
|
| By: |
|
| Name: |
|
| Title: |
|
13
Viscount Systems (CE) (USOTC:VSYS)
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