VUZIX CORPORATION CONVERTIBLE LOAN AND SECURITY AGREEMENT
VUZIX
CORPORATION
LC
CAPITAL MASTER FUND LTD
This
Loan
And Security Agreement is entered into as of December __, 2010, by and
between LC CAPITAL MASTER FUND LTD, a Cayman Islands Corporation (“Lender”) and
VUZIX
Corporation, a
Delaware corporation
(“Borrower”).
Recitals
Borrower
wishes to obtain credit from Lender, and Lender desires to extend credit to
Borrower to fund the Borrower’s working capital needs and for general corporate
purposes. This Agreement sets forth the terms on which Lender will
advance credit to Borrower and Borrower will repay the amounts owing to
Lender.
Agreement
The
parties agree as follows:
1. Definitions
and Construction.
1.1 Definitions. As
used in this Agreement, the following terms shall have the following
definitions:
“Accounts”
means all presently existing and hereafter arising accounts, contract rights,
payment intangibles, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower’s Books relating to any of the
foregoing.
“Affiliate”
means, with respect to any Person, any Person that owns or controls directly or
indirectly such Person, any Person that controls or is controlled by or is under
common control with such Person, and each of such Person’s senior executive
officers, directors, and partners.
“Borrower’s
Books” means all of Borrower’s books and records including: ledgers;
records concerning Borrower’s assets or liabilities, the Collateral, business
operations or financial condition; and all computer programs, or tape files, and
the equipment, containing such information.
“Business
Day” means any day that is not a Saturday, Sunday, or other day on which banks
in the State of New York are authorized or required to close.
“Change
in Control” shall mean a transaction in which any “person” or “group” (within
the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of
1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of a sufficient number
of shares of all classes of stock then outstanding of Borrower ordinarily
entitled to vote in the election of directors, empowering such “person” or
“group” to elect a majority of the Board of Directors of Borrower, who did not
have such power before such transaction.
“Closing
Date” means the date of this Agreement.
“Code”
means the Uniform Commercial Code as in effect from time to time in the State of
New York.
“Collateral”
means the property described on Exhibit A attached
hereto.
“Common
Stock” means the Common Stock, $.001 par value per share, of
Borrower.
1.
“Contingent
Obligation” means, as applied to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another;
(ii) any obligations with respect to undrawn letters of credit, corporate
credit cards, or merchant services issued or provided for the account of that
Person; and (iii) all obligations arising under any agreement or
arrangement designed to protect such Person against fluctuation in interest
rates, currency exchange rates or commodity prices; provided, however, that the
term “Contingent Obligation” shall not include endorsements for collection or
deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by Lender in good faith;
provided, however, that such amount shall not in any event exceed the maximum
amount of the obligations under the guarantee or other support
arrangement.
“Conversion
Date” means the date on which the Lender gives the Borrower a Conversion
Notice.
“Conversion
Notice” means a notice from the Lender to the Borrower that it wishes to convert
all or any part of the outstanding principal balance of and interest accrued on
the Loan in the form attached as Exhibit C to this Agreement.
“Copyrights”
means any and all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof.
“Daily
Balance” means the amount of the Obligations owed at the end of a given
day.
“EBITDA”
means earnings before interest, taxes, depreciation, non-cash compensation, the
issuance of stock, warrants, and other rights that are treated as expenses under
GAAP, the exercise of warrants and other rights that are treated as expenses
under GAAP and amortization expenses.
“Equipment”
means all present and future machinery, equipment, tenant improvements,
furniture, fixtures, vehicles, tools, parts and attachments in which Borrower
has any interest.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereunder.
“Event of
Default” has the meaning assigned in Article 8.
“GAAP”
means United States generally accepted accounting principles as in effect from
time to time.
“Indebtedness”
means (a) all indebtedness for borrowed money or the deferred purchase
price of property or services, including without limitation reimbursement and
other obligations with respect to surety bonds and letters of credit,
(b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
“Insolvency
Proceeding” means any proceeding commenced by or against any person or entity
under any provision of the United States Bankruptcy Code, as amended, or under
any other bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extension generally with
its creditors, or proceedings seeking reorganization, arrangement, or other
relief.
“Intellectual
Property Collateral” means all of Borrower’s right, title, and interest in and
to the following: Copyrights, Trademarks and Patents; all trade secrets, all
design rights, claims for damages by way of past, present and future
infringement of any of the rights included above, all licenses or other rights
to use any of the Copyrights, Patents or Trademarks, and all license fees and
royalties arising from such use to the extent permitted by such license or
rights; all amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents; and all proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
2.
“Inventory”
means all inventory in which Borrower has or acquires any interest, including
work in process and finished products intended for sale or lease or to be
furnished under a contract of service, of every kind and description now or at
any time hereafter owned by or in the custody or possession, actual or
constructive, of Borrower, including such inventory as is temporarily out of its
custody or possession or in transit and including any returns upon any accounts
or other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title representing any
of the above, and Borrower’s Books relating to any of the
foregoing. “Inventory” shall not include any inventory that has been
consigned to the Borrower.
“Investment”
means any beneficial ownership of (including stock, partnership interest or
other securities) any Person, or any loan, advance or capital contribution to
any Person.
“IRC”
means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
“Lender
Expenses” means all: reasonable costs or expenses (including
reasonable attorneys’ fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
reasonable Collateral audit fees; and Lender’s reasonable attorneys’ fees and
expenses incurred in amending, enforcing or defending the Loan Documents
(including fees and expenses of appeal), incurred before, during and after an
Insolvency Proceeding, whether or not suit is brought.
“Lien”
means any mortgage, lien, deed of trust, charge, pledge, security interest or
other encumbrance.
“Loan”
means the term loan made by Lender to Borrower pursuant to Section 2 in the
principal amount of Four Million Dollars ($4,000,000), or the balance thereof
from time to time outstanding.
“Loan
Documents” means, collectively, this Agreement, any note or notes executed by
Borrower, and any other agreement entered into in connection with this
Agreement, all as amended or extended from time to time.
“Market
Price” shall have the meaning ascribed thereto in TSX Venture Exchange Policy
1.1 or, if the shares of the Common Stock are not listed on the TSX Venture
Exchange, the closing price of the shares of Common Stock quoted on the exchange
on which such share are listed on the day preceding the date for which the
Market Price is to be determined.
“Material
Adverse Effect” means a material adverse effect on (i) the business
operations, condition (financial or otherwise) or prospects of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents or
(iii) the value or priority of Lender’s security interests in the
Collateral.
“Negotiable
Collateral” means all letters of credit of which Borrower is a beneficiary,
notes, drafts, instruments, securities, documents of title, and chattel paper,
and Borrower’s Books relating to any of the foregoing.
“Note”
means a Promissory Note in the form of Exhibit B made payable by Borrower to the
order of the Lender in the principal amount of the Loan.
“Obligations”
means all debt, principal, interest, Lender Expenses and other amounts owed to
Lender by Borrower pursuant to this Agreement or any other agreement, whether
absolute or contingent, due or to become due, now existing or hereafter arising,
including any interest that accrues after the commencement of an Insolvency
Proceeding and including any debt, liability, or obligation owing from Borrower
to others that Lender may have obtained by assignment or otherwise.
3.
“Patents”
means all patents, patent applications and like protections including without
limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.
“Periodic
Payments” means all installments or similar recurring payments that Borrower may
now or hereafter become obligated to pay to Lender pursuant to the terms and
provisions of any instrument, or agreement now or hereafter in existence between
Borrower and Lender.
“Permitted
Indebtedness” means:
(a) Indebtedness
of Borrower in favor of Lender arising under this Agreement or any other Loan
Document;
(b) Indebtedness
existing on the Closing Date and disclosed in the Schedule;
(c) Indebtedness
secured by a lien described in clause (c) of the defined term “Permitted
Liens,” provided (i) such Indebtedness does not exceed the lesser of the
cost or fair market value of the equipment financed with such Indebtedness and
(ii) such Indebtedness does not exceed $100,000 in the aggregate at any
given time; and
(d) Subordinated
Debt.
“Permitted
Investment” means:
(a) Investments
existing on the Closing Date disclosed in the Schedule; and
(b) (i) marketable
direct obligations issued or unconditionally guaranteed by the United States of
America or any agency or any State thereof maturing within one (1) year from the
date of acquisition thereof, (ii) commercial paper maturing no more than
one (1) year from the date of creation thereof and currently having rating of at
least A-2 or P-2 from either Standard & Poor’s Corporation or
▇▇▇▇▇’▇ Investors Service, (iii) certificates of deposit maturing no more
than one (1) year from the date of investment therein issued by Lender and
(iv) Lender’s money market accounts.
“Permitted
Liens” means the following:
(a) Any
Liens existing on the Closing Date and disclosed in the Schedule or arising
under this Agreement or the other Loan Documents;
(b) Liens
for taxes, fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings, provided
the same have no priority over any of Lender’s security interests;
(c) Liens
(i) upon or in any equipment which was not financed by Lender acquired or
held by Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the
time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment;
(d) Any
Liens created after the Closing Date and consented to by the Lender in writing
in the Lenders sole discretion;
(e) Liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clauses (a) through (d)
above, provided that any extension, renewal or replacement Lien shall be limited
to the property encumbered by the then-existing Lien and the principal amount of
the indebtedness being extended, renewed or refinanced does not
increase.
4.
“Person”
means any individual, sole proprietorship, partnership, limited liability
company, joint venture, trust, unincorporated organization, association,
corporation, institution, public benefit corporation, firm, joint stock company,
estate, entity or governmental agency.
“Prime
Rate” means the variable rate of interest, per annum, that appears in The Wall Street
Journal from time to time, whether or not such announced rate is the
lowest rate available from Lender.
“Responsible
Officer” means each of the Chief Executive Officer, the Chief Operating Officer,
the Chief Financial Officer and the Controller of Borrower.
“Schedule”
means the schedule of exceptions attached hereto.
“Subordinated
Debt” means any debt incurred by Borrower that is subordinated to the debt owing
by Borrower to Lender on terms acceptable to Lender (and identified as being
such by Borrower and Lender).
“Subsidiary”
means any corporation, company or partnership in which (i) any general
partnership interest or (ii) more than 50% of the stock or other units of
ownership which by the terms thereof has the ordinary voting power to elect the
Board of Directors, managers or trustees of the entity, at the time as of which
any determination is being made, is owned by Borrower, either directly or
through an Affiliate.
“Trademarks”
means any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Borrower connected with and symbolized by
such trademarks.
1.2 Accounting
Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP and all calculations made hereunder
shall be made in accordance with GAAP (except that interim financial statements
shall not include normally recurring year-end adjustments or the notes required
by GAAP). When used herein, the terms “financial statements,” other
than when used with respect to interim financial statements, shall include the
notes and schedules thereto.
2. Loan and
Terms Of Payment/CONVERSION.
2.1 The Loan.
(a) Borrower
promises to pay to the order of Lender, in lawful money of the United States of
America, the aggregate unpaid principal amount of the Loan made available by
Lender to Borrower hereunder. Borrower shall also pay interest on the
unpaid principal amount of the Loan at rates in accordance with the terms
hereof.
(b) Making
of the Loan.
(i) Lender,
relying upon each of the representations and warranties set out in
Section 5, hereby agrees with Borrower that, subject to and upon the terms
of this Agreement, it shall make the Loan available to the Borrower, it being
understood that the Loan will be made available in a single advance on the
Closing Date. Borrower may prepay the Loan without penalty or
premium.
2.2 Interest Rates, Payments, and
Calculations.
(a) Interest Rates. Except as set forth in
Section 2.2(b), the Loan shall bear interest, on the outstanding Daily Balance
thereof, at a rate equal to twelve percent (12%) per annum.
5.
(b) Late Fee; Default
Rate. If any payment is not made within ten (10) days after
the date such payment is due, Borrower shall pay Lender a late fee equal to the
lesser of (i) five percent (5%) of the amount of such unpaid amount or
(ii) the maximum amount permitted to be charged under applicable
law. All Obligations shall bear interest, from and after the
occurrence and during the continuance of an Event of Default, at a rate equal to
seventeen percent (17%) per annum.
(c) Payments. Interest
hereunder shall be due and payable semi-annually with the first interest payment
being due and payable on the six month anniversary of the Closing
Date. Any interest not paid when due shall be compounded by becoming
a part of the Obligations, and such interest shall thereafter accrue interest at
the rate then applicable hereunder. All payments shall be free and
clear of any taxes, withholdings, duties, impositions or other charges, to the
end that Lender will receive the entire amount of any Obligations payable
hereunder, regardless of source of payment.
(d) Computation. All
interest chargeable under the Loan Documents shall be computed on the basis of a
three hundred sixty (360) day year for the actual number of days
elapsed.
2.3 Repayment. Borrower
shall repay the Loan in twenty four (24) equal monthly installments of One
Hundred Forty One Thousand Six Hundred Sixty Six Dollars ($141,666) beginning on
the thirteen (13) month anniversary of the Closing Date and a final Payment of
Six Hundred Thousand Dollars ($600,000) together with any other amounts
outstanding hereunder or in connection herewith on the four (4) year anniversary
of the Closing Date. Notwithstanding any other provisions of this
Agreement to the contrary, the Borrower may repay the Loan until the greater of
(i) $600,000 or (ii) an amount equal to the amount where number of shares into
which the Notes and the Loan may be converted and for which the purchase rights
contained in the Warrant may be exercised, in the aggregate, equals 46,517,695
as adjusted pursuant to Section 2.5 hereof, remains outstanding.
2.4 Expenses. Borrower
shall pay to Lender on the Closing Date, all Lender Expenses incurred through
the Closing Date, including reasonable attorneys’ fees and expenses and, after
the Closing Date, all Lender Expenses, including reasonable attorneys’ fees and
expenses, as and when they are incurred by Lender.
2.5 Term. This
Agreement shall become effective on the Closing Date and, subject to
Section 12.9, shall continue in full force and effect until the fourth
(4th)
anniversary of the Closing Date, or, if longer, for so long as any Obligations
remain outstanding under this Agreement. Notwithstanding termination,
Lender’s Lien on the Collateral shall remain in effect for so long as any
Obligations are outstanding.
2.6 Conversion at the Option of the
Lender. The Lender shall have the following conversion
rights.
(a) Lender's Right to
Convert. The Loan shall be convertible at any time, in whole
or in part, at the option of the Lender hereof, into fully paid, validly issued
and nonassessable shares of Common Stock. If the Loan is converted in
part, the remaining portion of the Loan not so converted shall remain entitled
to the conversion rights provided herein. Without prior written
approval of the TSX Venture Exchange and compliance with all applicable
securities legislation, the securities issued pursuant to this Section 2.6 may
not be sold, transferred, hypothecated or otherwise traded on or through the
facilities of the TSX Venture Exchange or otherwise in Canada or to or for the
benefit of a Canadian resident until April __, 2011.
(b) Conversion Price for
Converted Shares. The outstanding principal balance of the
Loan and accrued interest thereon shall be convertible by the Lender into the
number of shares of Common Stock which results from application of the following
formula:
6.
P +
I
______________________________
$0.09965
P
= Outstanding principal
amount of the Loan submitted for conversion as
of the Lender Conversion
Date
I
= accrued but unpaid
interest as of the Conversion Date
(c) Limitation of Right to
Convert. Notwithstanding any other provisions of this
Agreement, the maximum number of shares into which the Notes and the Loan may be
converted and for which the purchase rights contained in the Warrant may be
exercised, in the aggregate, shall not exceed 46,517,695. Any attempted
exercise of the conversion right contained herein which, when added to (i) the
number of shares of Common Stock for which the conversion right contained herein
has been previously been exercised and (ii) the number of shares for which the
Warrant has previously been exercised shall be void to the extent that it would
cause the aggregate of such amounts to exceed 46,517,695 and shall be deemed to
be valid as an exercise for that number of shares that is equal to 46,517,695
less the number of shares acquired upon (x) prior exercises of the conversion
rights contained herein and (y) prior exercises of the Warrant. All
share numbers used in the calculations provided for in this Section 2.5(c) shall
be adjusted as provided in Section 2.5(e).
(d) Mechanics of
Conversion. In order to convert the Loan (in whole or in part)
into full shares of Common Stock, the Lender (i) shall give written notice in
the form of Exhibit
C hereto (the "Conversion Notice") by
facsimile to the Borrower that the Lender elects to convert the principal amount
(plus accrued but unpaid interest and default payments) specified therein, which
such notice and election shall be irrevocable (other than as described below),
and (ii) as soon as practicable after such notice, shall surrender the Note,
duly endorsed, by either overnight courier or 2-day courier, to the principal
office of the Borrower; provided, however, that the
Borrower shall not be obligated to issue certificates evidencing the shares of
the Common Stock issuable upon such conversion unless either the Note evidencing
the principal amount is delivered to the Borrower as provided above, or the
Lender notifies the Borrower that such Note(s) have been lost, stolen or
destroyed and promptly executes an agreement reasonably satisfactory to the
Borrower to indemnify the Borrower from any loss incurred by it in connection
with such lost, stolen or destroyed Notes. If Lender is converting
less than the maximum number of shares it may convert hereunder, the Borrower
shall reissue the Note with the appropriate remaining principal amount as soon
as practicable after the Borrower shall have received the Lender's surrendered
Note.
The
Company shall issue and deliver within three (3) business days of the delivery
to the Borrower of such Conversion Notice at the address of the Lender, or to
its designee, a certificate or certificates for the number of shares of Common
Stock to which the Lender shall be entitled as aforesaid, together with a Note
or Notes for the principal amount of Notes not submitted for
conversion. In the event that Lender or its designee has not received
such certificate or certificates within ten (10) calendar days of the Borrower’s
receipt of the Conversion Notice, the Lender may, in addition to any other
rights or remedies it may have, revoke its Conversion Notice.
The
conversion pursuant to this Sections 2. 5 shall be deemed to have been made
immediately prior to the close of business on the Conversion
Date. The person or persons entitled to receive the Common Shares
issuable upon such conversion shall be treated for all purposes as the record
holder of the Note or Notes being converted at the close of business on the
Conversion Date.
(e) Stock
Splits; Dividends; Adjustments; Reorganizations.
7.
(i) If the
Borrower, at any time while the Notes are outstanding, shall (i) pay a stock
dividend or otherwise make a distribution or distributions on any equity
securities (including investments or securities convertible into or exchangeable
for such equity securities) in shares of Common Stock, (ii) subdivide the
outstanding shares of Common Stock into a larger number of shares, (iii) combine
outstanding shares of Common Stock into a smaller number of shares, then the
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding before such event and of
which the denominator shall be the number of shares of Common Stock outstanding
after such event. Any adjustment made pursuant to this Section 2.5(e)
shall become effective immediately after the record date for the determination
of Lenders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of an issuance, a
subdivision or a combination.
(ii) If the Borrower, at any time while the
Notes are outstanding, shall distribute to all holders of shares of Common Stock
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any security, then the Conversion Price shall be reduced to equal
the Conversion Price multiplied by a fraction (i) the numerator of which is
equal to (A) the Market Price for Shares of Common Stock on the record date for
the distribution minus (B) the price allocable to one share of Common Stock of
the value (as jointly determined in good faith by the board of directors of the
Borrower and the Lender) of any and all such evidences of indebtedness, shares
of capital stock, other securities or property, so distributed and (ii) the
denominator of which is equal to the Market Price for Shares of Common Stock on
the record date for the distribution.
(iii) In the
event that at any time or from time to time after the Closing Date, the Common
Stock issuable upon the conversion of the Notes is changed into the same or a
different number of shares of any class or classes of stock, whether by merger,
consolidation, recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or reorganization
provided for elsewhere in this Section 8), then and as a condition to each such
event provision shall be made in a manner reasonably acceptable to the Lenders
of Notes so that each holder of Notes shall have the right thereafter to convert
such Note into the kind of stock receivable upon such recapitalization,
reclassification or other change by Lenders of shares of Common Stock, all
subject to further adjustment as provided herein. In such event, the
formula set forth herein for conversion shall be equitably adjusted to reflect
such change in number of shares or, if shares of a new class of stock are
issued, to reflect the market price of the class or classes of stock (applying
the same factors used in determining the Conversion Price) issued in connection
with the above described transaction.
Whenever
any element of the Conversion Price is adjusted pursuant to this Section 2.5(e),
the Borrower shall promptly mail to each holder of the Notes, a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(iv) In the
event of any taking by the Borrower of a record date of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, any security or right
convertible or exchangeable into or entitling the holders thereof to receive
additional shares of Common Stock, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Borrower shall deliver to each
holder of Notes at least 20 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution, security or right and the amount and character of
such dividend, distribution, security or right.
(v) If the
Borrower, at any time while the Notes are outstanding, shall distribute to all
holders of Shares of Common Stock evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security, then such holders
shall participate in such distribution on a pro rata basis with the
holders of shares of Common Stock entitled to receive such dividend,
distribution, issuance, subdivision or combination as if the holders held that
number of shares of Common Stock that the holders would have been entitled to
receive hereunder upon conversion of the Note immediately prior to the record
date fixed for determination of shareholders entitled to receive such dividend,
at the Conversion Price then in existence.
(f) Fractional
Shares No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable
hereunder. The number of shares of Common Stock that are issuable
upon any conversion shall be rounded up to the nearest whole share.
8.
(g) Reservation
of Stock Issuable Upon Conversion. The Borrower covenants that it
will at all times reserve and keep available out of its authorized and unissued
Common Stock solely for the purpose of issuance upon conversion of the Notes as
herein provided, free from preemptive rights or any other present or contingent
purchase rights of persons other than the holders of the Notes, the maximum
number of shares of Common Stock as shall be issuable (taking into account the
adjustments and restrictions of Section 2) upon the conversion of all of the
Notes pursuant hereto. The Borrower covenants that all shares of
Common Stock that shall be so issuable shall upon issue, be duly and validly
authorized, issued and fully paid and nonassessable.
2.7 Limitations
on Lender's Right to Convert.
(a) Notwithstanding
anything to the contrary contained herein, no Note may be converted to the
extent that, after giving effect to shares of Common Stock to be issued pursuant
to a Conversion Notice, the total number of shares of Common Stock deemed
beneficially owned by such Lender (other than by virtue of the ownership of
Notes or ownership of other securities that have limitations on a Lender's
rights to exchange, convert or exercise similar to those limitations set forth
herein), together with all shares of Common Stock deemed beneficially owned by
the Lender's "affiliates" (as defined in Rule 144 of the Securities Act of 1933,
as amended) that would be aggregated for purposes of determining whether a group
(as defined for purposes of Section 13(d) of the Securities Exchange Act of
1934, as amended), exists (an "aggregation party"), which were obtained through
the conversion right contained herein or the exercise of the Warrant, would
exceed 19.9% (the "Restricted Ownership Percentage") of the total issued and
outstanding shares of the Borrower's Common Stock; provided that (w) each holder
shall have the right at any time and from time to time to reduce its ownership
below the Restricted Ownership Percentage immediately upon notice to the
Borrower.
(b) Notwithstanding
anything to the contrary contained herein, no Notes/Warrants will be convertible
into shares of Common Stock to the extent that such conversion will result in
the LC Capital Offshore Fund Ltd. (the "Offshore Feeder") owning, holding
or beneficially owning (directly or indirectly) more that 9.99% of the
Common Stock (the “Ownership Limit”), and at any time, and from time to time, if
the Offshore Feeder owns, holds or beneficially owns (directly or
indirectly) a percentage less than the Ownership Limit, then such Notes/Warrant
shall then be convertible into shares of Common Stock pursuant to this Section
2.6(b) to the extent that it would not result in the Offshore Feeder owning,
holding or beneficially owning (directly or indirectly) more than the
Ownership Limit.
3. Conditions
of Loans.
3.1 Conditions Precedent to the
Loan. The obligation of Lender to make the Loan is subject to
the condition precedent that Lender shall have received, in form and substance
satisfactory to Lender, the following:
(a) this
Agreement;
(b) one
or more promissory notes which shall be in the form of Exhibit C hereto in the
aggregate principal amount of the Loan;
(c) a
certificate of the Secretary of Borrower with respect to incumbency and
resolutions authorizing the execution and delivery of this
Agreement;
(d) UCC
National Form Financing Statement;
(e) an
intellectual property security agreement;
(f) a
warrant to purchase 40,000,000 shares of the common stock of Borrower (subject
to adjustment and limitations as provided herein and therein);
9.
(g) a
certificate of insurance naming Lender as loss payee and additional
insured;
(h) current
financial statements of Borrower;
(i) an
audit of the Collateral, the results of which shall be satisfactory to
Lender;
(j) payment
of the Lender Expenses then due specified in Section 2.4
hereof;
(k) intercreditor
agreement with any subordinated creditor that the Lender reasonably deems
necessary; and
(l) such
other documents, and completion of such other matters, as Lender may reasonably
deem necessary or appropriate.
4. Creation of
Security Interest.
4.1 Grant of Security
Interest. Borrower grants and pledges to Lender a continuing
security interest in all presently existing and hereafter acquired or arising
Collateral in order to secure prompt repayment of any and all Obligations and in
order to secure prompt performance by Borrower of each of its covenants and
duties under the Loan Documents. Except as set forth in the Schedule,
such security interest constitutes a valid, first priority security interest in
the presently existing Collateral, and, except as set forth in the Schedule,
will constitute a valid, first priority security interest in Collateral acquired
after the date hereof.
4.2 Delivery of Additional Documentation
Required. Borrower shall from time to time execute and deliver
to Lender, at the request of Lender, all Negotiable Collateral, all financing
statements and other documents that Lender may reasonably request, in form
satisfactory to Lender, to perfect and continue the perfection of Lender’s
security interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents.
4.3 Right to
Inspect. Lender (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower’s usual business hours but no more than twice a year (unless an
Event of Default has occurred and is continuing), to inspect Borrower’s Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower’s financial condition or the amount, condition of, or
any other matter relating to, the Collateral.
5. Representations
and Warranties.
Borrower
represents and warrants as follows:
5.1 Due Organization and
Qualification. Borrower and each Subsidiary is a corporation
duly existing under the laws of the jurisdiction of its organization and
qualified and licensed to do business in any jurisdiction in which the conduct
of its business or its ownership of property requires that it be so
qualified.
5.2 Due Authorization; No
Conflict. The execution, delivery, and performance of the Loan
Documents are within Borrower’s powers, have been duly authorized, and are not
in conflict with nor constitute a breach of any provision contained in
Borrower’s Articles of Incorporation or Bylaws, nor will they constitute an
event of default under any material agreement to which Borrower is a party or by
which Borrower is bound. Borrower is not in default under any
material agreement to which it is a party or by which it is bound.
5.3 No Prior
Encumbrances. Borrower has good and marketable title to its
property, free and clear of Liens, except for Permitted Liens.
10.
5.4 Merchantable
Inventory. All Inventory is in all material respects of good
and marketable quality, free from all material defects, except for Inventory for
which adequate reserves have been made.
5.5 Intellectual Property
Collateral. Borrower is the sole owner of the Intellectual
Property Collateral, except for non-exclusive licenses granted by Borrower to
its customers in the ordinary course of business. Each of the Patents
is valid and enforceable, and no part of the Intellectual Property Collateral
has been judged invalid or unenforceable, in whole or in part, and no claim has
been made that any part of the Intellectual Property Collateral violates the
rights of any third party. Except as set forth in the Schedule,
Borrower’s rights as a licensee of intellectual property do not give rise to
more than five percent (5%) of its gross revenue in any given month, including
without limitation revenue derived from the sale, licensing, rendering or
disposition of any product or service. Except as set forth in the
Schedule, Borrower is not a party to, or bound by, any agreement that restricts
the grant by Borrower of a security interest in Borrower’s rights under such
agreement.
5.6 Name; Location of Chief Executive
Office. Except as disclosed in the Schedule, Borrower has not
done business under any name other than that specified on the signature page
hereof. The chief executive office of Borrower is located at the
address indicated in Section 10 hereof. All Borrower’s Inventory
and Equipment is located only at the location set forth in Section 10 hereof and
on the Schedule.
5.7 Litigation. Except
as set forth in the Schedule, there are no actions or proceedings pending by or
against Borrower or any Subsidiary before any court or administrative
agency.
5.8 No Material Adverse Change in
Financial Statements. All consolidated and consolidating
financial statements related to Borrower and any Subsidiary that Lender has
received from Borrower fairly present in all material respects Borrower’s
financial condition as of the date thereof and Borrower’s consolidated and
consolidating results of operations for the period then ended. Other
than as previously disclosed to Lender, there has not been a material adverse
change in the consolidated or the consolidating financial condition of Borrower
since the date of the most recent of such financial statements submitted to
Lender.
5.9 Solvency, Payment of
Debts. After the closing of the transactions contemplated by
this Agreement and the advancing of the amount of the Loan by Lender to Borrower
pursuant hereto, Borrower will be solvent and able to pay its debts (including
trade debts) as they mature.
5.10 Regulatory
Compliance. Borrower and each Subsidiary have met the minimum
funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA, and no event has occurred resulting from Borrower’s failure to comply
with ERISA that could result in Borrower’s incurring any material
liability. Borrower is not an “investment company” or a company
“controlled” by an “investment company” within the meaning of the Investment
Company Act of 1940. Borrower is not engaged principally, or as one
of its important activities, in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulations T
and U of the Board of Governors of the Federal Reserve
System). Borrower and each Subsidiary have complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower and each
Subsidiary have not violated any material statutes, laws, ordinances or rules
applicable to it.
5.11 Environmental
Condition. Except as disclosed in the Schedule, none of
Borrower’s or any Subsidiary’s properties or assets has ever been used by
Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous
owners or operators, in the disposal of, or to produce, store, handle, treat,
release, or transport, any hazardous waste or hazardous substance other than in
accordance with applicable law; to the best of Borrower’s knowledge, none of
Borrower’s properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
11.
5.12 Taxes. Borrower and
each Subsidiary have filed or caused to be filed all tax returns required to be
filed, and have paid, or have made adequate provision for the payment of, all
taxes reflected therein.
5.13 Subsidiaries. Borrower
does not own any stock, partnership interest or other equity securities of any
Person, except for Permitted Investments.
5.14 Government
Consents. Borrower and each Subsidiary have obtained all
material consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower’s business as currently
conducted.
5.15 Full Disclosure. No
representation, warranty or other statement made by Borrower in any certificate
or written statement furnished to Lender contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained in such certificates or statements not
misleading.
6. Affirmative
Covenants.
Borrower
shall do all of the following:
6.1 Good
Standing. Borrower shall maintain its and each of its
Subsidiaries’ corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which it is
required under applicable law. Borrower shall maintain, and shall
cause each of its Subsidiaries to maintain, in force all licenses, approvals and
agreements, the loss of which could have a Material Adverse Effect.
6.2 Government
Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply,
and shall cause each Subsidiary to comply, with all statutes, laws, ordinances
and government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect.
6.3 Financial Statements, Reports,
Certificates. Borrower shall deliver the following to Lender:
(a) as soon as available, but in any event within twenty five (25) days after
the last day of each month, a Compliance Certificate signed by a Responsible
Officer in substantially the form of Exhibit D hereto including a
comparison of the actual consolidated cash balance at the end of the previous
month to the minimum required cash balance; (b) as soon as available, but in any
event within forty five (45) days after the end of each fiscal quarter, a
consolidated balance sheet, income, and cash flow statements covering Borrower’s
consolidated operations during such period, prepared in accordance with GAAP,
consistently applied, and prepared or reviewed by an independent certified
public accounting firm reasonably acceptable to Lender, in a form acceptable to
Lender, along with a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit D hereto;
(e) as soon as available, but in any event within one hundred twenty (120)
days after the end of Borrower’s fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Lender;
(d) copies of all statements, reports and notices sent or made available
generally by Borrower to its security holders or to any holders of Subordinated
Debt and, if applicable, all reports on Forms 10-K, 10-Q and 8-K filed with
the Securities and Exchange Commission; (e) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of Fifty Thousand Dollars ($50,000) or more; and (f) such
budgets, sales projections, operating plans, other financial information
including information related to the verification of Borrower’s Accounts as
Lender may reasonably request from time to time; provided, however, that
Borrower shall not be required to provide the financial statements referred to
in the preceding subsections (b) and (c) for any period with respect to which it
has timely filed its reports on Form 10-Q or 10-K, as applicable, and provided
copies of such reports in accordance with the preceding subsection
(d).
12.
6.4 Audits. Lender shall have a
right from time to time hereafter to audit Borrower’s Accounts and appraise
Collateral at Borrower’s expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing. Unless Event of Default has occurred and is continuing, such
audits shall be conducted upon reasonable advance notice to Borrower, during
Borrower’s normal business hours and without unnecessary disruption to the
conduct of Borrower’s business in the ordinary course.
6.5 Inventory;
Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects except for Inventory for
which adequate reserves have been made. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Lender of all returns and recoveries and of all disputes
and claims, where the return, recovery, dispute or claim involves more than
Fifty Thousand Dollars ($50,000).
6.6 Taxes. Borrower
shall make, and shall cause each Subsidiary to make, due and timely payment or
deposit of all material federal, state, and local taxes, assessments, or
contributions required of it by law, and will execute and deliver to Lender, on
demand, appropriate certificates attesting to the payment or deposit thereof;
and Borrower will make, and will cause each Subsidiary to make, timely payment
or deposit of all material tax payments and withholding taxes required of it by
applicable laws, including, but not limited to, those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Lender with proof satisfactory to Lender indicating
that Borrower or a Subsidiary has made such payments or deposits; provided that
Borrower or a Subsidiary need not make any payment if the amount or validity of
such payment is contested in good faith by appropriate proceedings and is
reserved against (to the extent required by GAAP) by Borrower.
6.7 Insurance.
(a) Borrower,
at its expense, shall keep the Collateral insured against loss or damage by
fire, theft, explosion, sprinklers, and all other hazards and risks, and in such
amounts, as ordinarily insured against by other owners in similar businesses
conducted in the locations where Borrower’s business is conducted on the date
hereof. Borrower shall also maintain insurance relating to Borrower’s
business, ownership and use of the Collateral in amounts and of a type that are
customary to businesses similar to Borrower’s.
(b) All
such policies of insurance shall be in such form, with such companies, and in
such amounts as are reasonably satisfactory to Lender. All such
policies of property insurance shall contain a lender’s loss payable
endorsement, in a form satisfactory to Lender, showing Lender as an additional
loss payee thereof, and all liability insurance policies shall show the Lender
as an additional insured and shall specify that the insurer must give at least
twenty (20) days notice to Lender before canceling its policy for any
reason. Upon Lender’s request, Borrower shall deliver to Lender
certified copies of such policies of insurance and evidence of the payments of
all premiums therefor. All proceeds payable under any such policy
shall, at the option of Lender, be payable to Lender, as its interest may
appear, to be applied on account of the Obligations.
6.8 Minimum
Cash. Borrower shall maintain at all times a balance of
unrestricted cash and cash equivalents (not including any cash held in any
collateral account), together with undrawn availability under its working
capital line, of at least $500,000, measured on a monthly basis on the last day
of each month.
6.9 EBITDA. Borrower
shall achieve a quarterly EBITDA as follows:
at least
$0 for the quarter ending March 31, 2011;
at least
$150,000 for the quarter ending June 30, 2011;
at least
$500,000 for the quarter ending September 30, 2011; and
13.
at least
$1,000,000 for the quarter ending December 31, 2011
at least
$800,000 for the quarter ending March 31, 2012;
at least
$800,000 for the quarter ending June 30, 2012;
at least
$800,000 for the quarter ending September 30, 2012;
at least
$1,500,000 for the quarter ending December 31, 2012
at least
$1,000,000 for the quarter ending March 31, 2013;
at least
$1,000,000 for the quarter ending June 30, 2013;
at least
$1,000,000 for the quarter ending September 30, 2013; and
at least
$2,000,000 for the quarter ending December 31, 2013.
6.10 Intellectual Property
Rights.
(a) Borrower
shall promptly give Lender written notice of any applications or registrations
of intellectual property rights filed with the United States Patent and
Trademark Office, including the date of such filing and the registration or
application numbers, if any. Borrower shall (i) give Lender not less
than 30 days prior written notice of the filing of any applications or
registrations with the United States Copyright Office, including the title of
such intellectual property rights to be registered, as such title will appear on
such applications or registrations, and the date such applications or
registrations will be filed, and (ii) prior to the filing of any such
applications or registrations, shall execute such documents as Lender may
reasonably request for Lender to maintain its perfection in such intellectual
property rights to be registered by Borrower, and upon the request of Lender,
shall file such documents simultaneously with the filing of any such
applications or registrations. Upon filing any such applications or
registrations with the United States Copyright Office, Borrower shall promptly
provide Lender with (i) a copy of such applications or registrations, without
the exhibits, if any, thereto, (ii) evidence of the filing of any documents
requested by Lender to be filed for Lender to maintain the perfection and
priority of its security interest in such intellectual property rights, and
(iii) the date of such filing.
(b) Lender
may audit Borrower’s Intellectual Property Collateral to confirm compliance with
this Section, provided such audit may not occur more often than twice per year,
unless an Event of Default has occurred and is continuing. Lender
shall have the right, but not the obligation, to take, at Borrower’s sole
expense, any actions that Borrower is required under this Section to take but
which Borrower fails to take, after 15 days’ notice to
Borrower. Borrower shall reimburse and indemnify Lender for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section.
6.11 Director. Lender
may, but shall not be obligated to, nominate two members to the Borrower’s Board
of Directors. Such nominees shall be subject to the consent of the
Borrower’s Board of Directors (not to be unreasonably withheld) and the TSX
Venture Exchange.
6.12 Further
Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Lender to effect the purposes of this
Agreement.
6.13 Working Capital
Facility. The Borrower shall provide the Lender evidence,
which shall be satisfactory to the Lender in its reasonable discretion, of
Borrower’s having entered into a working capital line of credit secured by
accounts receivable and inventory in an amount of not less than $1,000,0000 and
not more than $2,000,000. The Lender agrees to enter into an intercreditor
agreement, on terms acceptable to it, with respect to such working capital line
of credit whereby the lender thereunder would receive a senior secured position
with respect to accounts receivable and inventory only and a second secured
position with respect to such other assets of Borrower as it may
desire, For the avoidance of doubt, such loans shall be “Permitted
Indebtedness” and the liens securing such loans shall be “Permitted Liens” for
purpose of this Agreement.
7. Negative
Covenants.
Borrower
will not do any of the following:
14.
7.1 Dispositions. Convey,
sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”), or
permit any of its Subsidiaries to Transfer, all or any part of its business or
property, other than: (i) Transfers of Inventory in the ordinary
course of business; (ii) Transfers of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; or (iii) Transfers of worn-out or obsolete
Equipment which was not financed by Lender.
7.2 Change in Business; Change in Control
or Executive Office. Engage in any business, or permit any of
its Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto); experience a change in a Responsible Officer (other
than by reason of the death or disability of such Responsible Officer), cease to
conduct business substantially in the manner conducted by Borrower as of the
Closing Date; suffer or permit a Change in Control; without thirty (30) days
prior written notification to Lender, relocate its chief executive office or
state of incorporation; change its legal name; or without Lender’s prior written
consent, change the date on which its fiscal year ends.
7.3 Mergers or
Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another
Person.
7.4 Indebtedness. Create,
incur, guarantee, assume or be or remain liable with respect to any
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.
7.5 Encumbrances. Create,
incur, assume or suffer to exist any Lien with respect to any of its property,
or assign or otherwise convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or enter into any agreement with any Person other than Lender not to
grant a security interest in, or otherwise encumber, any of its property, or
permit any Subsidiary to do so.
7.6 Distributions. Pay
any dividends or make any other distribution or payment on account of or in
redemption, retirement or purchase of any capital stock, or permit any of its
Subsidiaries to do so, except that Borrower may repurchase the stock of former
employees pursuant to stock repurchase agreements as long as an Event of Default
does not exist prior to such repurchase or would not exist after giving effect
to such repurchase, and the aggregate amount of such repurchase does not exceed
$100,000 in any fiscal year.
7.7 Investments. Directly
or indirectly acquire or own, or make any Investment in or to any Person, or
permit any of its Subsidiaries so to do, other than Permitted Investments; or
maintain or invest any of its property with a Person other than Lender or permit
any of its Subsidiaries to do so unless such Person has entered into an account
control agreement with Lender in form and substance satisfactory to Lender; or
suffer or permit any Subsidiary to be a party to, or be bound by, an agreement
that restricts such Subsidiary from paying dividends or otherwise distributing
property to Borrower.
7.8 Transactions with
Affiliates. Except as shown on the Schedule, directly or
indirectly enter into or permit to exist any material transaction with any
Affiliate of Borrower except for transactions that are in the ordinary course of
Borrower’s business, upon fair and reasonable terms that are no less favorable
to Borrower than would be obtained in an arm’s length transaction with a
non-affiliated Person.
7.9 Subordinated
Debt. Make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in compliance
with the terms of such Subordinated Debt, or amend any provision contained in
any documentation relating to the Subordinated Debt without Lender’s prior
written consent.
7.10 Inventory and Equipment. Store
the Inventory or the Equipment with a bailee, warehouseman, or other third party
unless the third party has been notified of Lender’s security interest and
Lender (a) has received an acknowledgment from the third party that it is
holding or will hold the Inventory or Equipment for Lender’s benefit or (b) is
in pledge possession of the warehouse receipt, where negotiable, covering such
Inventory or Equipment. Store or maintain any Equipment or Inventory at a
location other than the location set forth in Section 10 of this Agreement or in
the Schedule.
15.
7.11 Compliance. Become
an “investment company” or be controlled by an “investment company,” within the
meaning of the Investment Company Act of 1940, or become principally engaged in,
or undertake as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying margin stock, or use the
proceeds of any Credit Extension for such purpose. Fail to meet the
minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair
Labor Standards Act or violate any law or regulation, which violation could have
a Material Adverse Effect, or a material adverse effect on the Collateral or the
priority of Lender’s Lien on the Collateral, or permit any of its Subsidiaries
to do any of the foregoing.
8. Events of
Default.
Any one
or more of the following events shall constitute an Event of Default by Borrower
under this Agreement:
8.1 Payment Default. If
Borrower fails to pay, when due, any of the Obligations;
8.2 Covenant Default.
(a) If
Borrower fails to perform any obligation under Article 6 (other than the
covenant contained in Section 6.13) or violates any of the covenants contained
in Article 7 of this Agreement; or
(b) If
Borrower fails or neglects to perform or observe any other material term,
provision, condition, covenant contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and
Lender and as to any default under such other term, provision, condition or
covenant that can be cured, has failed to cure such default within ten days
after Borrower receives notice thereof or any officer of Borrower becomes aware
thereof; provided, however, that if the default cannot by its nature be cured
within the ten day period or cannot after diligent attempts by Borrower be cured
within such ten day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed 30 days) to attempt to cure such default, and
within such reasonable time period the failure to have cured such default shall
not be deemed an Event of Default.
8.3 Material Adverse
Effect. If there occurs any circumstance or circumstances that
could have a Material Adverse Effect;
8.4 Attachment. If any
portion of Borrower’s assets is attached, seized, subjected to a writ or
distress warrant, or is levied upon, or comes into the possession of any
trustee, receiver or person acting in a similar capacity and such attachment,
seizure, writ or distress warrant or levy has not been removed, discharged or
rescinded within thirty (30) days, or if Borrower is enjoined, restrained, or in
any way prevented by court order from continuing to conduct all or any part of
its business affairs, or if a judgment or other claim becomes a lien or
encumbrance upon any portion of Borrower’s assets, or if a notice of lien, levy,
or assessment is filed of record with respect to any of Borrower’s assets by the
United States Government, or any department, agency, or instrumentality thereof,
or by any state, county, municipal, or governmental agency, and the same is not
paid within thirty (30) days after Borrower receives notice thereof, provided
that none of the foregoing shall constitute an Event of Default where such
action or event is stayed or an adequate bond has been posted pending a good
faith contest by Borrower (provided that no Credit Extensions will be required
to be made during such cure period);
8.5 Insolvency. If
Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by
Borrower, or if an Insolvency Proceeding is commenced against Borrower and is
not dismissed or stayed within thirty (30) days;
16.
8.6 Other
Agreements. If there is a default or other failure to perform
in any agreement to which Borrower is a party or by which it is bound resulting
in a right by a third party or parties, whether or not exercised, to accelerate
the maturity of any Indebtedness in an amount in excess of Fifty Thousand
Dollars ($50,000) or which could have a Material Adverse Effect;
8.7 Subordinated
Debt. If Borrower makes any payment on account of Subordinated
Debt, except to the extent the payment is allowed under any subordination
agreement entered into with Lender;
8.8 Judgments. If a
judgment or judgments for the payment of money in an amount, individually or in
the aggregate, of at least Fifty Thousand Dollars ($50,000) shall be rendered
against Borrower and shall remain unsatisfied and unstayed for a period of
thirty (30) days; or
8.9 Misrepresentations. If
any material misrepresentation or material misstatement exists now or hereafter
in any warranty or representation set forth herein or in any certificate
delivered to Lender by any Responsible Officer pursuant to this Agreement or to
induce Lender to enter into this Agreement or any other Loan
Document.
9. Lender’s
Rights and Remedies.
9.1 Rights and
Remedies. Upon the occurrence and during the continuance of an
Event of Default, Lender may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare
all Obligations, whether evidenced by this Agreement, by any of the other Loan
Documents, or otherwise, immediately due and payable (provided that upon the
occurrence of an Event of Default described in Section 8.5, all Obligations
shall become immediately due and payable without any action by
Lender);
(b) Cease
advancing money or extending credit to or for the benefit of Borrower under this
Agreement or under any other agreement between Borrower and Lender;
(c) Settle
or adjust disputes and claims directly with account debtors for amounts, upon
terms and in whatever order that Lender reasonably considers
advisable;
(d) Make
such payments and do such acts as Lender considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to
assemble the Collateral if Lender so requires, and to make the Collateral
available to Lender as Lender may designate. Borrower authorizes
Lender to enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay, purchase,
contest, or compromise any encumbrance, charge, or lien which in Lender’s
determination appears to be prior or superior to its security interest and to
pay all expenses incurred in connection therewith. With respect to
any of Borrower’s owned premises, Borrower hereby grants Lender a license to
enter into possession of such premises and to occupy the same, without charge,
in order to exercise any of Lender’s rights or remedies provided herein, at law,
in equity, or otherwise;
(e) Set
off and apply to the Obligations any and all (i) balances and deposits of
Borrower held by Lender, or (ii) indebtedness at any time owing to or for
the credit or the account of Borrower held by Lender;
17.
(f) Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell (in the manner provided for herein) the
Collateral. Lender is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower’s labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Lender’s exercise of its rights under this Section 9.1,
Borrower’s rights under all licenses and all franchise agreements shall inure to
Lender’s benefit;
(g) Dispose
of the Collateral by way of one or more contracts or transactions, for cash or
on terms, in such manner and at such places (including Borrower’s premises) as
Lender determines is commercially reasonable, and apply any proceeds to the
Obligations in whatever manner or order Lender deems appropriate;
(h) Lender
may credit bid and purchase at any public sale; and
(i) Any
deficiency that exists after disposition of the Collateral as provided above
will be paid immediately by Borrower and any surplus will be paid immediately to
Borrower.
9.2 Power of
Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Lender
(and any of Lender’s designated officers, or employees) as Borrower’s true and
lawful attorney to: (a) send requests for verification of Accounts or
notify account debtors of Lender’s security interest in the Accounts; (b)
receive and open all mail addressed to Borrower for the purpose of collecting
the Accounts; (c) notify all account debtors with respect to the Accounts to pay
Lender directly; (d) endorse Borrower’s name on any checks or other forms of
payment or security that may come into Lender’s possession; (e) sign Borrower’s
name on any invoice or ▇▇▇▇ of lading relating to any Account, drafts against
account debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to account debtors; (f) make, settle, and adjust all
claims under and decisions with respect to Borrower’s policies of insurance; (g)
demand, collect, receive, ▇▇▇, and give releases to any account debtor for the
monies due or which may become due upon or with respect to the Accounts and to
compromise, prosecute, or defend any action, claim, case or proceeding relating
to the Accounts; (h) settle and adjust disputes and claims respecting the
accounts directly with account debtors, for amounts and upon terms which Lender
determines to be reasonable; (i) sell, assign, transfer, pledge, compromise,
discharge or otherwise dispose of any Collateral; (j) execute on behalf of
Borrower any and all instruments, documents, financing statements and the like
to perfect Lender’s interests in the Accounts and Collections and file, in its
sole discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral; and (k) do all acts and things
necessary or expedient, in furtherance of any such purposes. The
appointment of Lender as Borrower’s attorney in fact, and each and every one of
Lender’s rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully repaid and performed.
9.3 Accounts
Collection. In addition to the foregoing, at any time after
the occurrence of an Event of Default, Lender may notify any Person owing funds
to Borrower of Lender’s security interest in such funds and verify the amount of
such Account. Borrower shall collect all amounts owing to Borrower
for Lender, receive in trust all payments as Lender’s trustee, and immediately
deliver such payments to Lender in their original form as received from the
account debtor, with proper endorsements for deposit.
9.4 Lender Expenses. If
Borrower fails to pay any amounts or furnish any required proof of payment due
to third persons or entities, as required under the terms of this Agreement,
then Lender may do any or all of the following after reasonable notice to
Borrower: (a) make payment of the same or any part thereof;
(b) set up such reserves under a loan facility in Section 2.1 as Lender
deems necessary to protect Lender from the exposure created by such failure; or
(c) obtain and maintain insurance policies of the type discussed in
Section 6.7 of this Agreement, and take any action with respect to such
policies as Lender deems prudent. Any amounts so paid or deposited by
Lender shall constitute Lender Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Lender shall
not constitute an agreement by Lender to make similar payments in the future or
a waiver by Lender of any Event of Default under this Agreement.
18.
9.5 Lender’s Liability for
Collateral. So long as Lender complies with reasonable
practices, Lender shall not in any way or manner be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or
damage thereto occurring or arising in any manner or fashion from any cause;
(c) any diminution in the value thereof; or (d) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever. All risk of loss, damage or destruction of the Collateral
shall be borne by Borrower.
9.6 Remedies
Cumulative. Lender’s rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be
cumulative. Lender shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in
equity. No exercise by Lender of one right or remedy shall be deemed
an election, and no waiver by Lender of any Event of Default on Borrower’s part
shall be deemed a continuing waiver. No delay by Lender shall
constitute a waiver, election, or acquiescence by it. No waiver by
Lender shall be effective unless made in a written document signed on behalf of
Lender and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7 Demand;
Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Lender on which Borrower may in any way be liable.
10. Notices.
Unless
otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any other agreement entered into in connection
herewith shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by a recognized overnight delivery
service, certified mail, postage prepaid, return receipt requested, or by
telefacsimile to Borrower or to Lender, as the case may be, at its addresses set
forth below:
If to
Borrower: Vuzix
Corporation
▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇
▇▇▇▇▇▇▇, EVP and CFO
FAX: (____)
_______________
If to
Lender: LC Capital Master Fund Ltd
▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇ ▇▇
▇▇▇ ▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
P: 212
581-8989
F: 212
581-8999
The
parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF
LAW AND VENUE; JURY TRIAL WAIVER.
This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York, without regard to principles of conflicts of
law. Each of Borrower and Lender hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of New York,
State of New York. BORROWER AND LENDER EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND
AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT
HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
19.
12. General
Provisions.
12.1 Deferred
Structuring Fee. If the Borrower is unable to obtain a working
capital line of credit and provide the Lender satisfactory evidence thereof,
which evidence shall be satisfactory to the Lender in its reasonable discretion,
as required pursuant to Section 7.13, within 90 days from the Closing Date, the
Borrower shall pay the Lender a structuring fee of $200,000 which fee shall be
represented by a promissory note, payable on the fourth anniversary of the
Closing Date and convertible in to shares of the Borrower at a conversion price
equal to the greater of (i) the U.S. Dollar equivalent of CDN$0.10 per share and
(ii) the Market Price, on the date of issuance of such promissory
note. If the Borrower is unable to obtain a working capital line of
credit and provide the Lender satisfactory evidence thereof, which shall be
satisfactory to the Lender in its reasonable discretion, as required pursuant to
Section 7.13, with 180 days from the Closing Date, the Borrower shall pay the
Lender a structuring fee of $400,000 which fee shall be represented by a
promissory note, payable on the fourth anniversary of the Closing Date and
convertible in to shares of the Borrower at a conversion price equal to the
greater of (i) the U.S. Dollar equivalent of CDN$0.10 per share and (ii) the
Market Price, on the date of issuance of such promissory note. The
terms of the conversion rights contained therein shall be identical in all
respects to the conversion rights of Lender with respect to the Loan as set
forth in Section 12.1.
12.2 Successors and
Assigns. This Agreement shall bind and inure to the benefit of
the respective successors and permitted assigns of each of the parties;
provided, however, that neither this Agreement nor any rights hereunder may be
assigned by Borrower without Lender’s prior written consent, which consent may
be granted or withheld in Lender’s sole discretion. Lender shall have
the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Lender’s obligations, rights and benefits hereunder, such assignment to be made
pursuant to an assignment and assumption agreement substantially in the form of
Exhibit E hereto.
12.3 Indemnification. Borrower
shall defend, indemnify and hold harmless Lender and its officers, employees,
and agents against: (a) all obligations, demands, claims, and
liabilities claimed or asserted by any other party in connection with the
transactions contemplated by this Agreement; and (b) all losses or Lender
Expenses in any way suffered, incurred, or paid by Lender as a result of or in
any way arising out of, following, or consequential to transactions between
Lender and Borrower whether under this Agreement, or otherwise (including
without limitation reasonable attorneys’ fees and expenses), except for losses
caused by Lender’s gross negligence or willful misconduct.
12.4 Time of
Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.5 Severability of
Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.6 Correction of Loan
Documents. Lender may correct patent errors and fill in any
blanks in this Agreement and the other Loan Documents consistent with the
agreement of the parties.
12.7 Amendments in Writing,
Integration. Neither this Agreement nor the Loan Documents can
be amended or terminated orally. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties hereto with respect to the subject matter of this Agreement and the Loan
Documents, if any, are merged into this Agreement and the Loan
Documents.
20.
12.8 Counterparts. This
Agreement may be executed in any number of counterparts and by different parties
on separate counterparts, each of which, when executed and delivered, shall be
deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original
thereof. Notwithstanding the foregoing, Borrower shall deliver all
original signed documents requested by Lender no later than ten (10) Business
Days following the Closing Date.
12.9 Survival. All
covenants, representations and warranties made in this Agreement shall continue
in full force and effect so long as any Obligations remain outstanding or Lender
has any obligation to make Credit Extensions to Borrower. The
obligations of Borrower to indemnify Lender with respect to the expenses,
damages, losses, costs and liabilities described in Section 12.3 shall
survive until all applicable statute of limitations periods with respect to
actions that may be brought against Lender have run.
12.10 Confidentiality. In
handling any confidential information Lender and all employees and agents of
Lender, including but not limited to accountants, shall exercise the same degree
of care that it exercises with respect to its own proprietary information of the
same types to maintain the confidentiality of any non-public information thereby
received or received pursuant to this Agreement except that disclosure of such
information may be made (i) to the subsidiaries or affiliates of Lender in
connection with their present or prospective business relations with Borrower,
(ii) to prospective transferees or purchasers of any interest in the Loans,
provided that they have entered into a comparable confidentiality agreement in
favor of Borrower and have delivered a copy to Borrower, (iii) as required
by law, regulations, rule or order, subpoena, judicial order or similar order,
(iv) as may be required in connection with the examination, audit or
similar investigation of Lender and (v) as Lender may determine in
connection with the enforcement of any remedies
hereunder. Confidential information hereunder shall not include
information that either: (a) is in the public domain or in the
knowledge or possession of Lender when disclosed to Lender, or becomes part of
the public domain after disclosure to Lender through no fault of Lender; or
(b) is disclosed to Lender by a third party, provided Lender does not have
actual knowledge that such third party is prohibited from disclosing such
information.
12.11 Patriot Act
Notice. Lender hereby notifies Borrower that, pursuant to the
requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into
law on October 26, 2001) (the “ Patriot Act “), it is required to obtain, verify
and record information that identifies the Borrower, which information includes
names and addresses and other information that will allow Lender, as applicable,
to identify the Borrower in accordance with the Patriot Act.
21.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as
of the date first above written.
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VUZIX
Corporation
|
|
|
By: /s/
▇▇▇▇ ▇▇▇▇▇▇▇
|
|
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Title: President
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LC
CAPITAL MASTER FUND LTD
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|
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By: ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
|
|
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Title: Director
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22.
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DEBTOR:
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VUZIX
CORPORATION
|
|
SECURED
PARTY:
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LC
CAPITAL MASTER FUND LTD
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EXHIBIT
A
COLLATERAL
DESCRIPTION ATTACHMENT
TO
LOAN AND SECURITY AGREEMENT
All
personal property of Borrower (herein referred to as “Borrower” or “Debtor”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:
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(a)
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all
accounts (as defined in the Code) and payment intangibles, including,
without limitation, all contract rights, and all other forms of monetary
obligations owing to the Grantor, and all credit insurance, guaranties, or
security therefor, whether or not they have been earned by
performance;
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(b)
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all
chattel paper (as defined in the Code), including, without limitation,
electronic chattel paper and tangible chattel paper evidencing both a
monetary obligation and a security interest in or lease of goods, together
with any guarantees, letters of credit, and other security
therefore;
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(c)
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all
commercial tort claims (as defined in the
Code);
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(d)
|
all
deposit accounts (as defined in the Code) maintained by the Grantor with
the Secured Party held in the name of the Grantor, and all of the cash and
cash equivalents, deposited therein from time to time, and all securities,
rights, interests, shares of stock, instruments, interests, or other
property contained, deposited, held or otherwise added to any deposit
account from time to time;
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(e)
|
all
documents (as defined in the Code), including, without limitation, any
paper that is treated in the regular course of business as adequate
evidence that the person in possession of the paper is entitled to
receive, hold, and dispose of the goods the paper covers, including
warehouse receipts, bills of lading, certificates of title, and
applications for certificates of
title;
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(f)
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all
equipment (as defined in the Code), machinery and all fixtures, and all
accessions, additions, attachments, improvements, substitutions and
replacements thereto and thereof and warranties (express and implied)
received from the sellers and manufacturers of the foregoing property, and
all related claims, credits, setoffs, and other rights of
recovery;
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(g)
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all
general intangibles (as defined in the Code) of any kind, including,
without limitation, all money, contract rights, corporate or other
business records, all intellectual property rights, inventions, designs,
formulas, patents, patent applications, service marks, trademarks, trade
names, trade secrets, engineering drawings, goodwill, rights to prepaid
expenses, registrations, franchises, copyrights, licenses, customer lists,
computer programs and other software (as defined in the Code), source
code, tax refund claims, royalty, licensing and product rights, all claims
under guarantees, security interests or other security held by or granted
to Grantor, all indemnification rights, and rights to retrieval from third
parties of electronically processed and recorded data pertaining to any
Collateral, things in action, items, checks, drafts, and all orders in
transit to or from Grantor, credits or deposits of Grantor (whether
general or special) that are held by the Secured
Party;
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(h)
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all
goods (as defined in the Code);
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(i)
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all
inventory (as defined in the Code), whether in the possession of the
Grantor or of a bailee or other person for sale, storage, transit,
processing, use or otherwise and whether consisting of whole goods, spare
parts, components, supplies, materials, or consigned, returned or
repossessed goods, which are held for sale or lease, which are to be
furnished (or have been furnished) under any contract of service or which
are raw materials, work in process or materials used or consumed in
Grantor’s business, and all warranties and related claims, credits,
setoffs, and other rights of recovery with respect to any of the
foregoing;
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(j)
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all
instruments (as defined in the Code) including, without limitation, every
promissory note, negotiable instrument, certificated security, or other
writing that evidences a right to payment of money, that is not a lease or
security agreement, and that is transferred in the ordinary course or
conduct of business (including worldwide shipment) by delivery with any
necessary assignment or
endorsement;
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(k)
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all
investment property (as defined in the Code) pledged to or delivered to
Secured Party’s control from time to time, and any and all other property
in which the Grantor at any time has rights and in which at any time a
security interest has been transferred to the Secured Party (and
regardless of whether any such property constitutes a certificated or
uncertificated security or is held directly or through one or more
financial intermediaries through book
entries);
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(l)
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all
letter of credit rights (as defined in the
Code);
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(m)
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all
supporting obligations (as defined in the
Code);
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(n)
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all
books, files, records (as defined in the Code) relating to the
Collateral;
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(o)
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each
policy and contract of insurance owned or maintained by the Grantor, and
all the benefits thereof including, without limitation, all claims of
whatsoever nature, as well as return premiums, and in and to all moneys
and claims for moneys in connection
therewith;
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(p)
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all
certificates and instruments evidencing any securities or other Collateral
subject to this Security Agreement from time to time and all interest,
dividends, distributions, cash, investment property, securities, shares of
stock, and other amounts and property from time to time received,
receivable, paid or payable or otherwise distributed from time to time in
respect of, in exchange or substitution for, or as an addition to any of
the foregoing Collateral;
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(q)
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all
other tangible or intangible personal property of every kind and nature;
and
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(r)
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all
accessions and additions to the foregoing, substitutions therefor, and
replacements, products and proceeds (as defined in the Code) of any of the
property of the Grantor described in clauses (a) through (q) above
(including any proceeds of insurance
thereon).
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EXHIBIT
B
CONVERTIBLE
PROMISSORY NOTE
PROMISSORY
NOTE
|
U.S.
$4,000,000
|
December
__, ▇▇▇▇
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▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇
|
FOR VALUE
RECEIVED, Vuzix Corporation, a corporation organized and existing under the laws
of the State of Delaware, with offices at ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇ (the “Borrower”), hereby promises to pay to the order of LC Capital Master
Fund Ltd, a corporation organized and existing under the laws of the Cayman
Islands, as lender (the “Lender”) at its office at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇, or as it may otherwise direct, the principal sum of
Four Million Dollars (U.S. $4,000,000). The Borrower shall repay
the indebtedness represented by this Note as provided in Section 2 of that
certain Loan and Security Agreement dated as of December __, 2010 (the “Loan
Agreement”), made by and among the Borrower, as borrower and the Lender, as
Lender, pursuant to which the Lender has agreed to provide to the Borrower a
secured loan in the amount of Four Million Dollars (U.S. $4,000,000) (the
“Loan”).
The
principal or and interest accrued on this note are convertible into shares of
the $.001 par value common stock of Borrower as provided in the
Agreement.
Words and
expressions used herein (including those in the foregoing paragraph) and defined
in the Loan Agreement shall have the same meaning herein as therein
defined.
This Note
may be prepaid on such terms as provided in the Loan
Agreement. Interest shall be paid on the indebtedness represented by
this Note at the rate (the “Applicable Rate”) determined from time to time in
accordance with Section 2 of the Loan Agreement and at the times provided in
Section 2 of the Loan Agreement, which provisions are incorporated herein with
full force and effect as if they were more fully set forth herein at
length. Any principal payment not paid when due, whether on the
maturity date thereof or by acceleration, shall bear interest thereafter at a
rate per annum equal to the Default Rate (as defined in the Loan
Agreement). All interest shall accrue and be calculated on the actual
number of days elapsed and on the basis of a 360 day year.
Both
principal and interest are payable in United States Dollars to the Lender, for
the account of the Lender, as the Lender may direct, in immediately available
same day funds.
If this
Note or any payment required to be made hereunder becomes due and payable on a
day which is not a Business Day, the due date thereof shall be extended until
the next following Business Day and interest shall be payable during such
extension at the rate applicable immediately prior thereto, unless such next
following Business Day falls in the following calendar month, in which case the
due date thereof shall be adjusted to the immediately preceding Business
Day.
This Note
is the Note referred to in the Loan Agreement and is entitled to the security
and benefits therein provided, including, but not limited to, such security as
provided in the Loan Documents. Upon the occurrence of any Event of
Default under Section 8 of the Loan Agreement, the principal hereof and accrued
interest hereon may be declared to be (or, with respect to certain Events of
Default, automatically shall become) immediately due and payable.
In the
event that any holder of this Note shall institute any action for the
enforcement or the collection of this Note, there shall be immediately due and
payable, in addition to the unpaid balance hereof, all late charges and all
costs and expenses of such action, including reasonable attorneys’
fees.
The
Borrower, for itself and its successors and assigns and any endorsers of the
Note from time to time, hereby waives presentment, protest, demand for payment,
diligence, notice of dishonor and of nonpayment, and any and all other notices
or demands in connection with the delivery, acceptance, performance, default or
enforcement of this Note, hereby waives and renounces all rights to the benefits
of any statute of limitations and any moratorium, appraisement, exemption and
homestead now provided or which may hereafter be provided by any federal or
state statute, including, without limitation, exemptions provided by any federal
or state statute, including, without limitation, exemptions provided by or
allowed under any federal or state bankruptcy or insolvency laws, both as to
itself and as to all of its property, whether real or personal, against the
enforcement and collection of the obligations evidenced by this Note and any and
all extensions, renewals and modifications hereof and hereby consents to any
extensions of time, renewals, releases of any party this Note, waiver or
modification that may be granted or consented to by the holder of this
Note.
The
Borrower agrees that its obligations hereunder are absolute and unconditional
without regard to the liability of any other party and that no delay on the part
of the holder hereof in exercising any power or right hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any power or right
hereunder preclude other or further exercise thereof or the exercise of any
other power or right.
If at any
time this transaction would be usurious under applicable law, then regardless of
any provision contained in the Loan Agreement or this Note or any other
agreement made in connection with this transaction, it is agreed that (a) the
total of all consideration which constitutes interest under applicable law that
is contracted for, charged or received upon the Loan Agreement, this Note or any
other agreement shall under no circumstances exceed the maximum rate of interest
authorized by applicable law, if any, and any excess shall be credited to the
Borrower and (b) if the Lenders elect to accelerate the maturity of, or if the
Borrower prepays the indebtedness described in this Note, any amounts which
because of such action would constitute interest may never include more than the
maximum rate of interest authorized by applicable law and any excess interest,
if any, provided for in the Loan Agreement, in this Note or otherwise, shall be
credited to the Borrower automatically as of the date of acceleration or
prepayment.
THE
UNDERSIGNED, AND THE LENDER BY ITS ACCEPTANCE HEREOF, EACH HEREBY WAIVES TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO OR
ANY BENEFICIARY HEREOF ARISING IN RESPECT OF ANY MATTER WHATSOEVER ARISING OUT
OF OR IN ANY WAY CONNECTED WITH THIS NOTE.
This Note
shall be governed by and construed in accordance with the laws of the State of
New York.
IN
WITNESS WHEREOF, the Borrower has executed and delivered this Note on the date
and year first above written.
|
Vuzix
Corporation
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
EXHIBIT
C
(To be
Executed by Holder
in order
to Convert Note)
CONVERSION
NOTICE
FOR
PROMISSORY
NOTE DATED DECEMBER__, 2010
The
undersigned, as Holder of the Convertible Secured Promissory Note of Vuzix
Corporation (the “Company”) dated December __, 2010 in the outstanding principal
amount of U.S. $_____________ (the "Note"), hereby elects to
convert that portion of the outstanding principal amount of the Note shown on
the next page into shares of Common Stock, $0.001 par value per share (the
"Common Stock"), of the
Company according to the conditions of the Note and the Convertible Loan and
Security Agreement between the holder and the Company, as of the date written
below. The undersigned hereby requests that share certificates for
the Common Stock to be issued to the undersigned pursuant to this Conversion
Notice be issued in the name of, and delivered to, the undersigned or its
designee as indicated below. If shares are to be issued in the name
of a person other than the undersigned, the undersigned will pay all transfer
taxes payable with respect thereto. No fee will be charged to the
Holder for any conversion, except for transfer taxes, if any.
|
Conversion
Information:
|
NAME OF HOLDER:
|
|||
|
By:
|
||||
|
Print
Name:
|
||||
|
Print
Title:
|
||||
|
Print
Address of Holder:
|
||||
|
Issue
Common Stock to: ___________________________
|
||||
|
at:
_______________________________________
|
||||
|
Electronically
transmit and credit Common Stock to:
|
||||
|
_________________at:
___________________
|
||||
|
Date
of Conversion
|
||||
|
Applicable
Conversion
Rate
|
||||
THE
COMPUTATION OF THE NUMBER OF COMMON SHARES TO
BE
RECEIVED IS SET FORTH ON THE ATTACHED PAGE
|
Page
2 to Conversion Notice for:
|
|
|
(Name
of Holder)
|
COMPUTATION OF NUMBER OF
COMMON SHARES TO BE RECEIVED
|
A. Outstanding
Principal Amount converted:
|
$
|
|
B. Accrued,
unpaid interest on Outstanding Principal Amount converted:
|
$
|
|
Total
dollar amount converted (total of A + B)
|
$
|
|
Exchange
Price
|
$
|
|
Number
of Shares of Common Stock = Total dollar amount
converted =
Conversion
Price
|
$
$
|
|
Number
of shares of Common Stock =
|
Please
issue and deliver _____ new Notes(s) in the following amounts:
|
|
|
|
|
|
|
|
EXHIBIT
D
COMPLIANCE
CERTIFICATE
|
TO:
|
LC
CAPITAL MASTER FUND LTD
|
|
FROM:
|
VUZIX
CORPORATION
|
The
undersigned authorized officer of VUZIX Corporation hereby certifies that in
accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Lender dated December __, 2010 (the “Agreement”),
(i) Borrower is in complete compliance for the period ending
_______________ with all required covenants except as noted below and
(ii) all representations and warranties of Borrower stated in the Agreement
are true and correct as of the date hereof. Attached herewith are the
required documents supporting the above certification. The Officer
further certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) (except, in the case of interim financial
statements, for normally recurring year-end adjustments or the notes required by
GAAP) and are consistently applied from one period to the next except as
explained in an accompanying letter or footnotes.
Please
indicate compliance status by circling Yes/No under “Complies”
column.
|
Reporting Covenant
|
Required
|
Complies
|
||||||||||
|
Monthly
Cash Position
|
Monthly
within 25 days
|
Yes
|
No
|
|||||||||
|
Quarterly
financial statements + Compliance Cert.
|
Quarterly
within 45 days
|
Yes
|
No
|
|||||||||
|
Annual
(CPA Audited)
|
FYE
within 120 days
|
Yes
|
No
|
|||||||||
|
10K
and 10Q
|
(as
applicable)
|
Yes
|
No
|
|||||||||
|
A/R
Audit
|
Semi-Annual
|
Yes
|
No
|
|||||||||
|
IP
Notices
|
As
required under Section 6.10
|
Yes
|
No
|
|||||||||
|
Financial Covenant
|
Required
|
Actual
|
Complies
|
||||||
|
Minimum
Monthly Cash
|
$ | 500,000 |
$_________
|
Yes
|
No
|
||||
|
Minimum
Quarterly EBITDA:
|
|||||||||
|
Quarter
ending 3/31/11
|
$ | 0 |
$_________
|
Yes
|
No
|
||||
|
Quarter
ending 6/30/11
|
$ | 150,000 |
$_________
|
Yes
|
No
|
||||
|
Quarter
ending 9/30/11
|
$ | 500,000 |
$_________
|
Yes
|
No
|
||||
|
Quarter
ending 12/31/11
|
$ | 1,000,000 |
$_________
|
Yes
|
No
|
||||
|
Quarter
ending 3/31/12
|
$ | 800,000 |
$_________
|
Yes
|
No
|
||||
|
Quarter
ending 6/30/12
|
$ | 800,000 |
$_________
|
Yes
|
No
|
||||
|
Quarter
ending 9/30/12
|
$ | 800,000 |
$_________
|
Yes
|
No
|
||||
|
Quarter
ending 12/31/12
|
$ | 1,500,000 |
$_________
|
Yes
|
No
|
||||
|
Quarter
ending 3/31/13
|
$ | 1,000,000 |
$_________
|
Yes
|
No
|
||||
|
Quarter
ending 6/30/13
|
$ | 1,000,000 |
$_________
|
Yes
|
No
|
||||
|
Quarter
ending 9/30/13
|
$ | 1,000,000 |
$_________
|
Yes
|
No
|
||||
|
Quarter
ending 12/31/13
|
$ | 2,000,000 |
$_________
|
Yes
|
No
|
||||
|
Comments Regarding
Exceptions: See Attached.
|
||
|
Sincerely,
|
||
|
SIGNATURE
|
||
|
TITLE
|
||
|
DATE
|
|
Schedule of
Exceptions
Permitted
Indebtedness (Section 1.1)
|
|
-
|
Secured
Debts continuing after closing:
|
|
|
o
|
▇▇▇▇▇
▇▇▇▇▇▇, LLC.
|
|
|
o
|
▇▇▇▇
▇▇▇▇▇▇▇ – convertible note payable of $209,208 plus accrued
interest.
|
|
|
o
|
▇▇▇▇
▇▇▇▇▇▇▇ – note payable of $215,500 plus accrued
interest.
|
|
|
o
|
Vast
Corporation - agreement payable of $1,000,000 plus accrued
interest.
|
|
|
o
|
Kopin
Corporation – agreement payable of $746,000 plus accrued
interest.
|
|
|
o
|
▇▇▇▇
▇▇▇▇▇▇ – notes payable of $125,000 plus accrued
interest.
|
|
|
o
|
Capital
leases - see table of 18 leases under Permitted
Liens
|
|
|
-
|
Other
indebtedness after closing:
|
|
|
o
|
Accrued
compensation to ▇▇▇▇ ▇▇▇▇▇▇▇ of $336,298.39 plus accrued
interest.Convertible at Cdn$0.20.
|
|
|
o
|
Accrued
compensation to ▇▇▇▇▇ ▇▇▇▇▇▇▇ of $255,131.28 plus accrued interest.
Convertible at Cdn$0.20.
|
|
|
-
|
Debts
being retired with closing:
|
|
|
o
|
▇▇
▇▇▇▇▇▇ Chase Bank - Line of credit of $112,500 along with any accrued
interest since the prior month’s
payment
|
|
|
o
|
Bank
of America - Line of credit of $100,000 along with any accrued interest
since the prior month’s payment.
|
|
|
o
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ – note payable of $50,000 plus accrued interest of $5,473.92 as
of December 22, 2010. Secured. Bears interest at 18% interest
rate.
|
|
|
o
|
▇▇▇▇▇
▇▇▇▇▇▇▇ – accrued interest of $107,306.92; principal repaid. Secured.
Bears interest at 18% interest
rate.
|
Permitted Investments
(Section 1.1)
|
|
-
|
None
and than Vuzix (Europe) Limited
subsidiary.
|
Permitted Liens
(Section 1.1)
|
|
o
|
▇▇▇▇▇
▇▇▇▇▇▇ – term loan of $4,000,000.
|
|
|
o
|
▇▇▇▇
▇▇▇▇▇▇▇ – convertible note payable of $209,208 plus accrued
interest
|
|
|
o
|
▇▇▇▇
▇▇▇▇▇▇▇ – note payable of $215,500 plus accrued
interest.
|
|
|
o
|
Vast
Corporation - agreement payable of $1,000,000 plus accrued
interest.
|
|
|
o
|
Kopin
Corporation – agreement payable of $746,000 plus accrued
interest.
|
|
|
o
|
Capital
leases – see table below with balances as of November 30,
2010
|
|
Lessor
|
Address
|
Account #
|
Lease
Date
|
Original
Balance
|
Current
Balance –
Nov 30, 2010
|
Asset Leased
|
||||||||||
|
Dell
|
▇.▇.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
003-7695903-015 |
Feb-08
|
2,558.27 | 262.55 |
Computers
|
||||||||||
|
Dell
|
▇.▇.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
003-7695903-016 |
Feb-08
|
3,705.45 | 377.97 |
Computers
|
||||||||||
|
Dell
|
▇.▇.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
003-7695903-017 |
Mar-08
|
5,765.68 | 777.43 |
Computers
|
||||||||||
|
Dell
|
▇.▇.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
003-7695903-018 |
Mar-08
|
3,019.80 | 410.43 |
Computers
|
||||||||||
|
Dell
|
▇.▇.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
003-7695903-020 |
Aug-09
|
7,417.01 | 4,658.68 |
Computers
|
||||||||||
|
Dell
|
▇.▇.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
003-7695903-021 |
Sep-09
|
1,644.09 | 1,082.27 |
Computers
|
||||||||||
|
Dell
|
▇.▇.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
003-7695903-022 |
Sep-09
|
3,862.79 | 2,528.68 |
Computers
|
||||||||||
|
Dell
|
▇.▇.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
001-7695903-024 |
Oct-10
|
4,405.65 | 3,990.24 |
Computers
|
||||||||||
|
Key
Bank
|
▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
▇▇▇▇▇▇▇▇▇▇▇▇ |
Jul-10
|
25,775.00 | 22,172.63 |
SAP
Licenses
|
||||||||||
|
Pawnee
|
▇▇▇
▇▇▇▇▇▇ ▇▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
323784 |
Sep-10
|
30,275.34 | 24,528.16 |
computers
and R&D Equipment/Software
|
||||||||||
|
CapNet
|
▇▇
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
40046749-1 |
Mar-08
|
31,798.79 | 6,225.58 |
Computer
hardware/software
|
||||||||||
|
Meridian
|
▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
▇▇-▇▇▇▇▇▇▇ |
Sep-06
|
29,204.10 | 6,275.57 |
Furniture
|
||||||||||
|
Key
Bank
|
▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
1330644 |
Sep-07
|
121,200.00 | 53,328.64 |
SAP
Fourth Shift Software
|
||||||||||
|
▇▇▇▇▇▇
|
▇▇
▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇
|
001-0374983-001 |
Jun-06
|
21,147.24 | 2,594.04 |
manufacturing
equipment
|
||||||||||
|
▇▇▇▇▇▇
|
▇▇
▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇
|
001-0374983-002 |
Oct-08
|
31,634.37 | 11,191.28 |
manufacturing
equipment
|
||||||||||
|
Stratasys
|
NW-7463
P.O. Box 1450 Minneapolis, MN 55485
|
170626 |
Sep-07
|
42,850.00 | 7,565.49 |
3D
Printer-Engineering
|
||||||||||
|
Alliance
|
▇▇▇
▇▇▇▇▇▇ ▇▇. ▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
001-0085855-001 |
May-10
|
16,485.00 | 14,181.10 |
manufacturing
equipment
|
||||||||||
|
Financial
Pacific
|
▇▇▇▇
▇. ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇, ▇▇ ▇▇▇▇▇
|
001-0455669-002 |
Jun-10
|
44,267.92 | 37,877.47 |
R
& D Equipment
|
||||||||||
|
GRAND
TOTAL
|
$ | 200,028.21 | ||||||||||||||
Inbound Licenses
(Section 5.5)
|
|
-
|
New
Light Industries Ltd. licensing agreement entered into in December 2004.
Borrower owns the IP but is obligated to pay ongoing license
fees.
|
Prior Names
(Section 5.6)
|
|
-
|
Borrower
was incorporated under the Delaware General Corporation Law in 1997 as VR
Acquisition Corp.
|
|
|
-
|
In
1997 Borrower changed its name to Kaotech
Corporation.
|
|
|
-
|
In
1998 Borrower changed its name to Interactive Imaging Systems,
Inc.
|
|
|
-
|
In
2004 Borrower changed its name to Vicuity Corporation and then to Icuiti
Corporation.
|
|
|
-
|
In
September 2007 Borrower changed our name to Vuzix
Corporation.
|
Inventory Locations
(Section 5.6)
|
|
-
|
▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇.
|
|
|
-
|
Intermail
plc, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇ (our
bounded 3rd
party warehouse for the European
Union).
|
|
|
-
|
Japan
Vuzix Tokyo Branch, ▇-▇-▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇ #▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇-▇▇,
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
|
Litigation
(Section 5.7)
|
|
-
|
None
|
Subsidiaries
(Section 5.13)
|
|
-
|
Vuzix
(Europe) Limited
|
CORPORATE
RESOLUTIONS TO BORROW
|
Borrower: VUZIX
Corporation
|
I, the
undersigned Secretary or Assistant Secretary of Vuzix Corporation (the
“Corporation”), HEREBY CERTIFY that the Corporation is organized and existing
under and by virtue of the laws of the State of Delaware.
I FURTHER
CERTIFY that attached hereto as Attachments 1 and 2 are true and complete
copies of the Articles of Incorporation, as amended, and the Bylaws of the
Corporation, each of which is in full force and effect on the date
hereof.
I FURTHER
CERTIFY that at a meeting of the Directors of the Corporation, duly called and
held, at which a quorum was present and voting (or by other duly authorized
corporate action in lieu of a meeting), the following resolutions (the
“Resolutions”) were adopted.
BE IT
RESOLVED, that any one (1) of the following named officers, employees, or agents
of this Corporation, whose actual signatures are shown below:
|
NAMES
|
POSITION
|
ACTUAL SIGNATURES
|
||
acting
for and on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
Borrow Money. To
borrow from LC Capital Master Fund Ltd (“Lender”), on such terms as may be
agreed upon between the officers, employees, or agents of the Corporation and
Lender, such sum or sums of money as in their judgment should be borrowed,
without limitation.
Execute Loan
Documents. To execute and deliver to Lender that certain Loan
and Security Agreement dated as of December __, 2010 (the “Loan Agreement”) and
any other agreement entered into between Corporation and Lender in connection
with the Loan Agreement, including any amendments, all as amended or extended
from time to time (collectively, with the Loan Agreement, the “Loan Documents”),
and also to execute and deliver to Lender one or more renewals, extensions,
modifications, refinancings, consolidations, or substitutions for the Loan
Documents, or any portion thereof.
Grant Security. To
grant a security interest to Lender in the Collateral described in the Loan
Documents, which security interest shall secure all of the Corporation’s
Obligations, as described in the Loan Documents.
Negotiate Items. To
draw, endorse, and discount with Lender all drafts, trade acceptances,
promissory notes, or other evidences of indebtedness payable to or belonging to
the Corporation or in which the Corporation may have an interest, and either to
receive cash for the same or to cause such proceeds to be credited to the
account of the Corporation with Lender, or to cause such other disposition of
the proceeds derived therefrom as they may deem advisable.
Warrants. To issue
Lender warrants to purchase the Corporation’s capital stock.
Further Acts. To do
and perform such other acts and things, to pay any and all fees and costs, and
to execute and deliver such other documents and agreements as they may in their
discretion deem reasonably necessary or proper in order to carry into effect the
provisions of these Resolutions.
BE IT
FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions
and performed prior to the passage of these resolutions are hereby ratified and
approved, that these Resolutions shall remain in full force and effect and
Lender may rely on these Resolutions until written notice of their revocation
shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation’s agreements or commitments in effect at
the time notice is given.
I FURTHER
CERTIFY that the officers, employees, and agents named above are duly elected,
appointed, or employed by or for the Corporation, as the case may be, and occupy
the positions set forth opposite their respective names; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or revoked
in any manner whatsoever.
IN
WITNESS WHEREOF, I have hereunto set my hand on December ___, 2010 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
|
CERTIFIED
AND ATTESTED BY:
|
||
|
X
|
||
EXHIBIT
E
ASSIGNMENT
AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION
AGREEMENT
THIS
ASSIGNMENT AND ASSUMPTION AGREEMENT (this “Agreement”), dated as of
_____________, 20__ among [ASSIGNOR], a [TYPE OF ORGANIZATION] organized under
the laws of [JURISDICTION] (the “Assignor”), and [ASSIGNEE], a [TYPE OF
ORGANIZATION] organized under the laws of [JURISDICTION] (the
“Assignee”),
WITNESSETH
THAT:
WHEREAS:
This
Agreement is supplemental to:
(i) that
certain Loan and Security Agreement dated as of December ___, 2010, by and
between Vuzix Corporation, a corporation organized and existing under the laws
of the State of Delaware, with offices at ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇ (the “Borrower”), and LC Capital Master Fund Ltd, a corporation organized
and existing under the laws of the Cayman Islands, as lender (the “Lender”) at
its office at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇, pursuant
to which the Lender has agreed to provide to the Borrower a secured credit
facility in the amount of Four Million Dollars (U.S. $4,000,000) (the
“Loan”);
(ii) any
promissory note issued in connection with the Loan Agreement; and
(iii) the
other Loan Documents (as such term is defined in the Loan
Agreement).
NOW,
THEREFORE, in consideration of the premises and of other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION
1.Defined
Terms. Except as otherwise defined herein, terms defined in
the Loan Agreement shall have the same meaning when used herein.
SECTION
2.Assignment and
Assumption.
2.1Assignment. Prior
to the effectiveness of this Agreement, the Assignor’s portion of the Loan is
US$____________ or ___% of the Loan, of which US$____________ is currently
outstanding (the “Assignor’s Outstanding Amount”). Pursuant to
Section 12, of the Loan Agreement, the Assignor hereby sells, transfers and
assigns ·% (the
“Assigned Percentage”) of its portion of the Loan equal to ·% of the Loan and
representing US$______________ (the “Assigned Loan”) under the Loan Agreement
and an undivided share of its right, title and interest in, to and under the
Loan Agreement, the Note and the other Loan Documents to the Assignee to the
extent of the Assigned Loan.
2.2Assumption. The
Assignee hereby assumes, and shall be fully liable for, the obligations of the
Assignor in respect of the Assigned Loan under the Loan Agreement and undertakes
to observe and perform all of the covenants and obligations on the part of the
Lenders under the Loan Agreement and to be bound by all of the covenants,
obligations, undertakings and provisions contained in the Loan Agreement or any
Loan Document as are expressed to be binding on the Lenders and shall
hereinafter be deemed a “Lender” for all purposes of the Loan Documents and any
other Assignment and Assumption Agreement(s), the Assignee’s portion of the Loan
thereunder being U.S.$· in respect of the
Facility.
SECTION
3.Payment. Simultaneously
herewith, the Assignee shall pay to the Assignor an amount equal to U.S.$·, which amount constitutes
the product derived by multiplying (a) the Assignor’s
Outstanding Amount, by (b) the Assigned Percentage.
SECTION
4.Reference to Loan
Agreement. All references in the Loan Documents to the Loan
Agreement shall be deemed to be references to the Loan Agreements assigned and
assumed pursuant to the terms hereof.
SECTION
5.Assignee
Representations. The Assignee, by entering into this
Agreement, agrees to the terms of Section 5 of the Loan Agreement as if
fully incorporated herein.
SECTION
6.Appointment of
Agent. The Assignee irrevocably designates and appoints the
Lender as its agent and trustee and irrevocably authorizes the Lender to take
such action on its behalf and to exercise such powers on its behalf under the
Loan Agreement and under the other Loan Documents, each as supplemented hereby,
as are delegated to the Lender by the terms of each thereof.
SECTION
▇.▇▇ Representations
as to Security Parties. The Assignor makes no representation
or warranty in connection with, and shall have no responsibility with respect
to, the solvency, financial condition or statements of the Borrower, or the
validity and enforceability of the obligations of the Borrower in respect of the
Loan Documents. The Assignee acknowledges that it has, independently and without
reliance on the Assignor or the Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and will continue to be responsible for
making its own independent appraisal of the business, affairs and financial
condition of the Security Parties.
SECTION
8.Miscellaneous.
8.1Successors and
Assigns. This Assignment and all obligations of the Assignor hereunder
shall be binding upon the successors and assigns of the Assignor and shall,
together with the rights and remedies of the Assignee hereunder, inure to the
benefit of the Assignee, its respective successors and assigns.
8.2Waiver;
Amendment. None of the terms and conditions of this Assignment
may be changed, waived, modified or varied in any manner whatsoever unless in
writing duly signed by the Assignor and the Assignee.
8.3Invalidity. If
any provision of this Assignment shall at any time, for any reason, be declared
invalid, void or otherwise inoperative by a court of competent jurisdiction,
such declaration or decision shall not affect the validity of any other
provision or provisions of this Assignment, or the validity of this Assignment
as a whole and, to the fullest extent permitted by law, the other provisions
hereof shall remain in full force and effect in such jurisdiction and shall be
liberally construed in favor of the Assignee in order to carry out the
intentions of the parties hereto as nearly as may be possible. The
invalidity and unenforceability of any provision hereof in any jurisdiction
shall not affect the validity or enforceability of such provision in any other
jurisdiction.
8.4Notices. All
notices, requests, demands and other communications to any party hereunder shall
be in writing (including prepaid overnight courier, facsimile transmission,
electronic transmission or similar writing) and shall be given to such party at
the address, facsimile number or email address set forth below or at such other
address or facsimile numbers as such party may hereafter specify for the purpose
by notice to each other party hereto. Any notice sent by facsimile or
electronic transmission shall be confirmed by letter dispatched as soon as
practicable thereafter.
If to the
Assignor:
[NAME]
[ADDRESS]
Facsimile
No.:
Telephone
No.:
Email:
Attention:
If to the
Assignee:
[NAME]
[ADDRESS]
Facsimile
No.:
Telephone
No.:
Email:
Attention:
Every
notice or other communication shall, except so far as otherwise expressly
provided by this Assignment, be deemed to have been received (provided that it
is received prior to 2 p.m. local time; otherwise it shall be deemed to have
been received on the next following Business Day) (i) if given by facsimile
or electronic transmission, on the date of dispatch thereof (provided further
that if the date of dispatch is not a Business Day in the locality of the party
to whom such notice or demand is sent, it shall be deemed to have been received
on the next following Business Day in such locality) or (ii) if given by
mail, prepaid overnight courier or any other means, when received at the address
specified in this Section or when delivery at such address is
refused.
8.5Counterparts; Electronic
Delivery. This Assignment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute one and the same
instrument. Delivery of an executed counterpart of this Assignment by
facsimile or electronic transmission shall be deemed as effective as delivery of
an originally executed counterpart. In the event that either party
delivers an executed copy of this Assignment by facsimile or electronic
transmission, such party shall also deliver an originally executed copy as soon
as practicable, but the failure of such party to deliver an originally executed
copy of this Assignment shall not affect the validity or effectiveness of this
Assignment.
8.6Headings. In
this Assignment, Section headings are inserted for convenience of reference only
and shall not be taken into account in the interpretation of this
Assignment.
SECTION
9.Applicable Law,
Jurisdiction and Waivers.
9.1Governing
Law. This Assignment shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of laws thereof other than Sections 5-1401 and 5-1402 of the
General Obligations Law of the State of New York.
9.2Submission to
Jurisdiction. Each party hereby irrevocably submits to the
jurisdiction of the courts of the State of New York and of the United States
District Court for the Southern District of New York in any action or proceeding
brought against it by the other party under this Assignment or under any
document delivered hereunder and hereby irrevocably agrees that valid service of
summons or other legal process on it may be effected by serving a copy of the
summons and other legal process in any such action or proceeding on such party
by mailing or delivering the same by hand to the such party at the address
indicated for notices in this Assignment. The service, as herein
provided, of such summons or other legal process in any such action or
proceeding shall be deemed personal service and accepted by the receiving party
as such, and shall be legal and binding upon such party for all the purposes of
any such action or proceeding.
9.3WAIVER OF
IMMUNITY. TO THE EXTENT THAT EITHER PARTY HAS OR HEREAFTER MAY
ACQUIRE ANY IMMUNITY FROM SUIT, JURISDICTION OF ANY COURT OR ANY LEGAL PROCESS
(WHETHER THROUGH ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION,
EXECUTION OF A JUDGMENT, OR FROM ANY OTHER LEGAL PROCESS OR REMEDY) WITH RESPECT
TO ITSELF OR ITS PROPERTY, SUCH PARTY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS ASSIGNMENT.
9.4WAIVER OF JURY
TRIAL. EACH OF THE ASSIGNOR AND THE ASSIGNEE HEREBY WAIVES
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY
HERETO OR ANY BENEFICIARY HEREOF ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN
ANY WAY CONNECTED WITH THIS ASSIGNMENT.
[Signature
page follows]
SECTION
10.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
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[ASSIGNOR]
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By
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Name:
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Title:
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[ASSIGNEE]
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By
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Name:
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Title:
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